‘Service charges are common global practice’

The Department of Consumer Affairs’ stance, that it is not mandatory for customers to pay service charge at restaurants, has sent the industry in a tizzy.

Restaurant owners believe the government’s statement will create confusion and lead to friction between guests and outlet managers.

Karan Tanna, founder and CEO, Yellow Tie Hospitality, said: “Till now, restaurants imposed a service charge on the bill after informing the guests. Now, guests can refuse to pay service charge after dining at the restaurant even after being informed, which will lead to discrepancies at the outlet level. Or, they may look for subjective reasons to state their dissatisfaction and refuse to pay the service charge. Therefore, this issue can’t be left open to subjective interpretations.”

Tanna further said restaurants are now going to “even more explicitly” inform diners that they levy service charge. He pointed out that this could have a bigger impact on wages in restaurants. “On an average, nearly 60 per cent of the service charge is passed on to the employees. This issue could impact their wages,” he added.

The National Restaurant Association of India (NRAI) has stated that inclusion of service charge in the restaurant bill is a common and accepted practice.

It cited previous judicial pronouncements from the National Consumer Disputes Redressal Commission, Monopolies and Restrictive Practices Commission and the Supreme Court that support the levy of such charges.

Rahul Singh, founder and CEO, The Beer Café, also said levying service charges is a globally accepted practice in the hospitality industry, and is done at the discretion of restaurants. Riyaaz Amlani, President of NRAI and MD & CEO of Impresario Hospitality, said the Ministry’s latest diktat overrides judicial pronouncements that recognise that restaurants can decide on levying service charges.

The association has asked its members to clearly display or mention information about the amount of service charge at their restaurants and customers can use their discretion on whether to dine there or not, he added.

With VAT and service tax, the restaurants industry is already heavily taxed, pointed out industry executives.

A senior executive at a casual dining restaurant chain said: “We do not levy service charge. But the government should not have come out with such a confusing statement. (Instead) they could have asked restaurants to stop levying service charge.”

Meanwhile, some hospitality players have decided to do away with the charge.

Umang Tewari, founder, Big Fish Ventures, which runs several restaurant brands such as the Junkyard Café and Vault Café, said: “We decided to stop the practice of service charge in December itself. The issue was raised even last month and we wanted to avoid any disputes with guests.”