Ban on levy of service charge in food bills without any legal basis: NRAI

The National Restaurant Association of India (NRAI) on Wednesday said the government cannot make changes in levy of service charge in food bills by making guidelines and CCPA's decision to bar hotels and restaurants from such practice has created unnecessary confusion amongst consumers and disrupted smooth operations of restaurants.

It alleged that there is an attempt to start a campaign against this restaurant industry practice without any legal basis through "repeated guidelines", while asserting that service charge is part of the total price of a product and neither the government nor any authority can interfere with the decision of the business owner in this regard.

In a statement, NRAI argued that service charge is a part of the owner's discretion or decision regarding the total price payable by a customer with regards to sale or service of a product.

"It constitutes one of the components of the total price of the product. Neither the government nor any authority can interfere with the decision of the business owner in this regard. It is a universally accepted trade practice," it asserted.

NRAI also claimed that the legality, reasonableness or justification of levying service charge has been considered by the Supreme Court, High Courts, National Consumer Disputes Redressal Commission, erstwhile Monopolies and Restrictive Trade Practices Commission and by the Income Tax Authorities (ITAT) and has been "upheld in various judicial pronouncements".

"It is therefore the owner's discretion as to how to run its business and what policy should be put in place regarding pricing of the product. The government cannot bring about a change insofar as a levy of service charge is concerned by making guidelines," it said.

Stressing that guidelines by the very nature of things are only for guidance, the industry body said, "in case there is a need for such change, there has to be either a new law or an amendment in the existing laws."

NRAI further said, "It is also relevant to state that extra charges are being levied by many other industries, including some government agencies. However, the guidelines are issued only for the restaurant industry."

On Monday, the Central Consumer Protection Authority (CCPA) barred hotels and restaurants from levying service charge automatically or by default in food bills and allowed customers to file complaints in case of violation, amid rising consumer complaints.

However, NRAI said customers are made aware of the pricing and its components before an order is placed for a product.

"Once the customer places the order after being made aware of the terms and conditions there comes into existence a binding contract. No authority can interfere with binding nature of a valid contract until and unless it is shown and proved to be unconscionable or against any unfair trade practice," it added.

Claiming that levy of service charge is beneficial for the workmen as a class who are employed in the establishments, NRAI said, "Any move to the contrary would be detrimental to the interests of workers -- and against the labour-friendly stance of the government."

Stating that the levy of service charge also has a socioeconomic angle, NRAI said, "Generally tips are paid to and pocketed by staff (waiters/stewards) who serve the customers and nothing is shared with those back of the house employees who contribute to the overall product/service."

The system of service charge envisages point-wise distribution even to the back of the house staff whose contribution is thus recognised and acknowledged in the form of a part of the service charge collected from the customer, it added.