India bans service charge being ‘automatically’ added to restaurant and hotel bills

Government says it is duty of outlets to inform consumers that paying service charge is voluntary

India’s government has banned hotels and restaurants from adding service charges to their bills by default without informing consumers.

A statement by India’s federal ministry of consumer affairs on Monday said it had come to know that “service charges” were being levied by the businesses “in addition to the total price of the food items mentioned in the menu and applicable taxes, often in the guise of some other fee or charge”.

The ministry pointed out that “a component of service is inherent in the price of food and beverages offered by the restaurant or hotel. Pricing of the product thus covers both the goods and services component.”

“There is no restriction on hotels or restaurants to set the prices at which they want to offer food or beverages to consumers. Thus, placing an order involves consent to pay the prices of food items displayed in the menu along with applicable taxes,” it added.

It also noted that “charging anything other than the said amount would amount to unfair trade practice under the Act”.

To prevent any unfair trade practices and to protect consumer interest, the ministry’s Central Consumer Protection Authority (CCPA) ordered that “no hotel or restaurant shall add service charge automatically or by default in the bill”.

“Service charge shall not be collected from consumers by any other name,” CCPA chief commissioner Nidhi Khare said.

It further noted that hotels and restaurants would have to “clearly inform the consumer that service charge is voluntary, optional and at consumer’s discretion”.

The ministry also warned businesses against any “restriction on entry or provision of services based on the collection of service charge” and said they could not add such charges along with food bills and lvy taxes on the total amount, including the charge.

In June this year, the government held a meeting with restaurant lobbies and consumer rights groups and said they would frame new guidelines to bar service charges altogether.

Several hoteliers and restaurant owners have expressed their reservations about the fresh guidelines from CCPA.

Manpreet Singh, the treasurer of the National Restaurants Association of India hit out at the guidelines, saying they were “completely illegal and baseless”, reported the Press Trust of India (PTI) news agency.

He dubbed the guidelines an “advisory” that could not be “imposed” on restaurants and hotels.

“First of all, there is no law to support whatever they are saying. It is just an advisory and you cannot impose an advisory on us. It is like telling us how to run our business,” he said.

“We are not levying it [service charge] discreetly.”

Gurbaxish Singh Kohli, vice president of the Federation of Hotel and Restaurant Associations of India (FHRAI), told PTI that it will study the order as it will have “far-reaching consequences”.

“We will be studying it [the order] in the next few days. We will approach the government obviously because we will tell them just don’t single us out. Please ensure that other people also don’t do it. Don’t single us out,” he said.