Nothing illegal about service charge in restaurants: NRAI

New Delhi, July 6 (Representative) The National Restaurant Association of India (NRAI) on Wednesday reiterated that there is no illegality in levying service charge in restaurants.’Service charge is a part of the owner’s discretion / 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,’ a statement from the association said.

‘The customer is made aware of the pricing and its components before the customer places an order for the 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,’ the association said.It pointed out 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).

The levy of service charge has been upheld in various judicial pronouncements, it said.’Levy of service charge also has a socio-economic angle. Generally tips are paid to and pocketed by staff who serve the customers (waiters/stewards) 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 recognized and acknowledged in the form of a part of the service charge collected from the customer,’ it said. The association said the latest guidelines issued by the Central Consumer Protection Authority (CCPA) has created unnecessary confusion amongst the consumers, leading to disruption in smooth business operations of restaurants.’Through these repeated guidelines, there is an attempt to start a campaign against this restaurant industry practice without any legal basis. 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 restaurant industry,’ it said. Stating that is 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 association said the government cannot bring about a change insofar as a levy of service charge is concerned by making guidelines.’ Guidelines by the very nature of things are only for guidance and in case there is a need for such change, there has to be either a new law or an amendment in the existing laws,’ it said. The Central Consumer Protection Authority (CCPA) on Monday issued guidelines preventing unfair trade practices and violation of consumer rights with regard to levying of service charge in hotels and restaurants. The guidelines stipulated that hotels or restaurants shall not add service charge automatically or by default in the food bill.