Service Charges Now Optional - Centre Provides Guidelines

The infamous service charge is now no longer to be levied mandatory in restaurants and hotel bills. Instead, it is completely voluntary and at the discretion of the consumer as he must decide whether or not he would like to pay for it. This was made clear in the guidelines provided to the industry on Friday, April 21st 2017 in a two-page advisory that has been making the rounds since December 2016. 

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Food and Consumer Affairs Minister Ram Vilas Paswan stated “The government has approved guidelines on service charge. As per the guidelines, service charge is totally voluntary and not mandatory now.” 

Hotels/Restaurants should not decide how much Service Charge is to be paid by the customer &it should be left to the discretion of customer.

— Ram Vilas Paswan (@irvpaswan) April 21, 2017

According to the guidelines, the service charge column in the restaurant and hotel bills must now be left blank. The consumer will fill in the blank space with the amount he considers to be apt and the service charge will be paid in a discrete manner rather than forcing the consumer to pay the charge. 

Service charge has always been considered an ‘illegal’ and ‘unfair trade practice’ carried out by hotels and restaurants, forcing the customer to pay an amount that should not be decided by the establishment itself. Many customers have lodged a complaint against the same and the guidelines are a result of it. Restaurants and hotels charge anywhere between 5-20 percent service charge on a bill - in addition to Value Added Tax (VAT), Service Tax and Swachh Bharat cess – and consumers call this a ‘forced tip’ that inflates the bill unreasonably. 

The government had previously made an attempt to reach out to hotels and restaurants and try to cancel the service charge by giving the customer the right to waive it off if they were dissatisfied with the service. However, restaurants out up boards that clearly stated that 8-10 percent of service charge is applicable to those who sit down for a meal. They even denied entry to those who refuse to pay service charges, which, they insist, goes to their hard-working staff.

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Currently, for the guidelines provided by the Ministry, restaurants and hotels are claiming that mere guidelines do not force them to follow it. They are just guidelines and not laws that the industry has to follow. Restaurateurs and hoteliers have decided to legally examine the guidelines and fight against the government. "This is just the guideline or another advisory. Our initial reaction is that we will legally present our case to the ministry," said media advisor to Hotels and Restaurants Association, Western India (HRAWI) Pradeep Shetty.

The Ministry has previously stated, "It is only after the meal that the customer can assess quality of service and decide on tip or gratuity. Therefore, if a restaurant considers that entry of customer to a hotel amounts to his/her consent to pay a fixed amount of service charge is not correct and forcing them to pay by including in bill is a restrictive trade practice as per law.”