FHRAI to Consumer Affairs Department: Withdraw service charge notification

In the wake of a statement issued by the Department of Consumer Affairs on Jan 02, 2017 implying Service Charge billed by restaurants are optional, the Hotel and Restaurant Association of Western India (HRAWI) has come out with a clarification to all industry stakeholders. In a letter to the Department of Consumer Affairs, the Federation of Hotel and Restaurant Associations of India (FHRAI) the apex body of hotels and restaurants, has appealed for withdrawal of the advisory as it has been creating chaos and disruption in the smooth functioning of restaurants across the country. The association has clarified that there is nothing illegal about levying the fee and has citied judgements by the National Consumer Disputes Redressal Commission, New Delhi which is the highest consumer forum of the country as well as by the Hon’ble Supreme Court, which have upheld the legitimacy of this practice. The association has pointed out to cases in which the practice of levying a Service Charge has been upheld by the law. In one of the cases, the National Consumer Disputes Redressal Commission, New Delhi in Nitin Mittal vs. Pind Baluchi, (2012) NCDRC 444 the Association has been advised that such a practice is not an “unfair trade practice” within the Consumer Protection Act. In another case, the Hon’ble Supreme Court too has specifically acknowledged the practice of including “service charge” in the bill by hoteliers and other cases in lower courts which too have recognized the practice. “Service charge is the amount paid to the staff of the restaurant or other similar establishments. An establishment may choose to include this amount in the bill itself and the percentage may vary from 5 per cent to 15 per cent of the value billed. This is a common and accepted practice in India as well as several other countries. Service Charge is not a government levy, and is not to be confused with VAT or Service Tax. We regret that the department came out with such an advisory which is misleading and has built a wrong notion about hotels and restaurants amongst their customers,” says Mr Pradeep Shetty, Hon’ Secretary, HRAWI & Chairman of legal matters subcommittee, FHRAI & HRAWI. “While consumer rights are paramount, the rights of individual establishments should not be impinged upon,” he adds.