‘Laws, not guidelines, needed to enforce service charge norm’

Meenakshi Verma Ambwani | | Updated on: Jul 07, 2022

Attempt to start a campaign against restaurant industry practices without legal basis, says NRAI

Reacting to the Centre’s recently released guidelines on levy of service charge, the National Restaurant Association of India (NRAI) on Wednesday said that the government cannot bring about any changes by just making guidelines and either a new law or an amendment in the existing laws will be required for enforcement.

“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 stressed in a statement.  

This came when experts told BusinessLine that the industry bodies could mount a legal challenge against the guidelines.  

The industry body said that the latest guidelines by the Central Consumer Protection Authority has once again created unnecessary confusion among consumers and are leading to disruption in smooth business operations of restaurants. It added that through repeated guidelines, “there is an attempt to start a campaign against this restaurant industry practice without any legal basis.”

“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,” it added.

The industry body said that consumers are made aware of the pricing, and its components before they place an order for the product and once the customer places an order after being made aware of 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.

Earlier judicial pronouncements

The industry body also pointed out that judicial pronouncements have upheld the levy of service charge by the Supreme Court, High Courts and National Consumer Disputes Redressal Commission, erstwhile Monopolies and Restrictive Trade Practices Commission and the Income Tax Authorities (ITAT).

It added that the levy of service charge also has a socio-economic angle since there is a point-wise distribution system of service charge 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 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. Levy of service charge is beneficial for the workmen as a class who are employed in the establishments. Any move to the contrary would be detrimental to the interests of workers – and against the labour-friendly stance of the Government,” the NRAI added.

Published on July 06, 2022
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