Centre’s service charge guidelines disappoint industry, may lead to price hikes

Meenakshi Verma Ambwani | | Updated on: Jul 05, 2022

Industry players seek legal opinion on guidelines

The restaurant and hotel industry has expressed disappointment with the Centre’s guidelines barring levy of service charge by default. The guidelines state that entry or placement of an order cannot be seen as the customer’s consent to service charge payment.

While some industry players and bodies have sought legal opinion, others said the guidelines could lead to an increase in prices of food and beverage offerings at restaurants.

According to industry estimates, only 20-25 per cent of the players levy service charge, including casual dining restaurants, bars, lounges and fine dining restaurants.

Samir Kuckreja, Founder & CEO, Tasanaya Hospitality said, “If restaurants find most customers objecting or not agreeing to paying service charge with the release of these guidelines, they may need to increase prices of food and beverage offerings to offset the loss.

Service charge contributes substantially to the monthly compensation of restaurant employees. In fact in some high volume restaurants, it can be higher than their monthly salaries. Levying service charge is a global practice and is left to market forces. Service and convenience fees are charged by other sectors, too, and, therefore, any guidelines should be enforced uniformly across all sectors.”

Rajat Wahi, Partner, Deloitte India, also pointed out that since a lot of hotel and restaurant staff “may be on minimum or just above minimum wages, the service charge helps augment their incomes, while ensuring they provide a good or great service. “

Pointing to additional fees charged by sectors such as airlines, e-commerce operators and aggregators, the Federation of Hotel & Restaurant Associations of India (FHRAI) said the hospitality industry should not be singled out.

Pradeep Shetty, Joint Honorary Secretary, FHRAI said, “Our members who want to keep it voluntary and optional will continue to levy this charge, while others may need to incorporate it within the cost of the product offerings by hiking prices. These are a new set of guidelines that have been issued by CCPA and are not a new law. We were expecting the enactment of a comprehensive law that would curbn levying charges over and above the cost of a product or service, and which would be applicable across industries.”

Legal experts have mixed views. Biswajit Dubey, Partner, Cyril Amarchand Mangaldas said, “The restaurants and the government have been discussing this issue for long. The guidelines now reflect the view that the government seemed to have taken during the meetings. We expect the industry to challenge it in court.”

Sameer Jain, Managing Partner, PSL Advocates & Solicitors pointed out the new guidelines have been issued under the Consumer Protection Act and can be enforced in terms of the remedies available under the Act, which includes filing a complaint with the Consumer Commission or with the National Consumer Helpline.

Published on July 05, 2022
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