New Delhi, April 21: The Centre today came out with guidelines saying service charge cannot be made mandatory by restaurants, but several chains refused to accept the norms by pointing out that they weren't backed by law and, hence, couldn't be enforced.
"The government has approved guidelines on service charge. As per the guidelines, service charge is totally voluntary and not mandatory now," consumer affairs minister Ram Vilas Paswan said in a series of tweets.
Paswan said the guidelines, cleared by Prime Minister Narendra Modi's office, were being sent to states but it wasn't clear whether they were expected to enforce them by enacting laws or restaurateurs were supposed to accept the norms voluntarily.
"Hotels and restaurants should not decide how much service charge is to be paid by the customer and it should be left to the discretion of customer," said Paswan, whose department had earlier this month asked for portions to be specified in menus so that diners could order right and avoid wasting food. The latest guidelines say the column for service charge in a bill should be left blank for customers to fill up.
The norms come within three weeks of the Supreme Court ban on liquor sales along highways, curbs that have hit many hotels and restaurants located in such zones.
"Guidelines are not laws. The present statement is causing unnecessary confusion among the public, adversely affecting restaurants. It is reiterated that as of now, the levy of service charge by restaurants is legal and does not violate the Consumer Protection Act, 1986, since the same is mentioned in the menu/price list," said Riyaaz Amlani, president of the National Restaurant Association of India.
The guidelines issued by Paswan's department say the "component of service is inherent in provision of food and beverages ordered by a customer". "Pricing of products, therefore, is expected to cover both the goods and the service component."
Officials said diners could file a complaint in consumer courts if the service charge was made mandatory. Any unfair method or deceptive practice is an offence under the Consumer Protection Act, 1986. But restaurants contend that the charge is not an unfair practice and is common in many parts of the world.
A new consumer protection bill is in the works and it may resolve the issue of whether service charge is an unfair practice.
Earlier, the finance ministry had clarified in 2015 that service charge was a "private charge" and should not be confused with service tax, which is mandatory and must be paid. "Consumers have a misapprehension that service charge is collected by restaurants on behalf of the government as tax."
Amlani, the National Restaurant Association of India president, said "service charge directly benefits six million people employed in the (hotel) industry". "All employees are beneficiaries of service charge, not just waiters but also cooks, toilet attendants and cleaners. Unless there is a legislation, restaurants will continue to levy the charge."
T.S. Walia, vice-president (eastern region) of the Federation of Hotel and Restaurant Association of India (FHRAI), said "the industry will soon meet and take a call on the issue" "We will try to convince the government on the need for service charge as food and beverage pricing does not cover it."
Dilip Datwani, president of FHRAI (western region), said "several industries, like airports, levy service charges". "What is wrong if hotels and restaurants levy it? There are several things other than food and beverages that we provide...it is the ambience, quality of service..."
This is the second central advisory in five months to states on service charge. Paswan's ministry had said earlier that it had started a probe after complaints from customers about hotels and restaurants imposing service charges of 5 to 20 per cent in lieu of tips.