Levying service charge not unfair trade practice: NRAI

The National Restaurant Association of India (NRAI) on Tuesday said that asking for service charge is not an unfair trade practice, and contended that once a customer is aware of such a charge and goes on to place an order anyway, the act of doing so becomes an agreement between the parties.

NRAI’s statement came a day after the government’s department of consumer affairs said it was calling a meeting with restaurant owners to discuss why some consumers were being forced to pay service charge despite the government making it optional in 2017.

The body argued in response that once restaurants display the inclusion of service charge in their premises and on menus, it is at the discretion of the customers if they want to avail of the services. It added that service charge — or fee charged for the services provided — was a matter of “individual policy” and in no way illegal.

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“Information regarding the amount of service charge is displayed by restaurants on their menu cards and otherwise also displayed on the premises, so that customers are well aware of this charge before availing the services. Once the diner is made aware of such a charge in advance and then decides to place the order, it becomes an agreement between the parties, and is not an unfair trade practice,” NRAI said in its statement.

An NRAI spokesperson added that this matter also came up in 2017, when the department of consumer affairs first announced that service charge that restaurants include in addition to taxes was optional and not mandatory, and that it submitted a similar response to the government at that time.

“There is nothing new which has been communicated by the department in its letter for the meeting on June 2,” the spokesperson said.

According to guidelines released by the government in April, 2017, a service charge can be in the nature of a tip or gratuity paid by a customer “towards the hospitality received…beyond the minimum service already contracted”. “It is a separate transaction between the customer and staff of a hotel or restaurant, which is entered into at the customer’s discretion,” it said.

Such charges, it added, cannot be levied merely if a customer decides to enter and place an order. “It is only after completing the meal that customer is in a position to assess quality of service… if a hotel/restaurant considers entry of a customer to imply consent to pay a fixed amount, it is not correct”.

With the discussion resurfacing many customers expressed their displeasure with the forced service charges. Kushal Aggarwal, a regular at the restaurants of central Delhi’s Khan Market and Connaught Place, said that while most customers do not mind paying a ‘service charge’ as a ‘tip’ to the restaurant employees, this amount cannot be pre-decided by the restaurant.

“As the name suggests, it is a charge that the customer pays for the service that they get. After the service, the customer should decide how much they want to pay based on whether or not, or to what degree they liked the service. How can the restaurant decide this in advance?” said Aggarwal.

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Most air-conditioned restaurants in the city have unofficially capped the service charge at 10% of the bill amount. However, there are some restaurants that have made exceptions by charging higher or lower than this average.

Mrinal Sood, a consumer rights activist and lawyer, said that in most cities in the US and UK, the percentage of service charge or tip is decided by the consumer.

“This is a grey area in India. Most of these fancy restaurants in the city are already charging customers rates higher than their marked price. Just because restaurants are displaying notices in their entrances or on their menus, it does not mean they automatically tie diners in a contract,” said Sood.

Anshu Tandon from the Khan Market Welfare Association, who was in the restaurant business for nearly a decade, said that the service charge usually goes into paying employees of restaurants over and beyond their monthly salaries.

“This can be argued from both sides. While the customer should have the choice of whether or not they liked the service and how much they deem fit for the service they received, the restaurants argue that a lot goes into making a diner’s experience better and a small fee levied for it is justified. Many restaurants also proudly display that they do not charge any service charge. It can continue to be a matter of contention if the government does not introduce some mandatory rules,” said Tandon.