Decoding the name game of service charge added in a restaurant bill

Can one blame the government when their bill at a restaurant turns out to be fatter than their expectation?

It is worth noting that a big portion of what one ends up paying and above the price of their dinner is usually termed as a service charge, which sounds like the government's way of charging more without letting one know it's a tax.

According to an Economic Times report, the 'service charge' that one ends up paying at a restaurant sounds deceptively something like that the government wants to take, however, that is not the case. The service charge usually stays with the restaurant and it is something that a consumer cannot be forced to pay.

Nevertheless, some consumers have often been misled into paying extra as a service charge is automatically added to the bill similar to taxes. 

The Delhi High Court on Wednesday directed the National Restaurant Association of India and the Federation of Hotels and Restaurants Association to consider revising the terminology for 'service charge' to some alternate terms like 'staff welfare charges'. High Court's order was aimed to ensure that the consumers are not misled into believing it to be a government tax. 

CCPA guidelines

The Central Consumer Protection Authority (CCPA) on July 4, 2022, issued guidelines that no hotel or restaurant should add a service charge by default in the bill and that it should not be collected from the customers under any other name.

In the guidelines, CCPA stated that "no hotel or restaurant shall force a consumer to pay a service charge, and that they shall clearly inform the consumer that service charge is voluntary, optional, and at consumer's discretion. No restriction on entry or provision of services based on a collection of service charges shall be imposed on consumers. The service charge shall not be collected by adding it along with the food bill and levying GST on the total amount, the guidelines stated. They also mentioned that if consumers find that a hotel or restaurant is levying service charges in violation of the guidelines, they could lodge a complaint on the National Consumer Helpline or at the Consumer Commission."

The court also stayed the CCPA's ban on unilaterally levying service charges in the bill. The government appealed against the court's order.

How restaurants perceive the issue

The Restaurants' Association said that levying of service charges has been a standing practice for more than 80 years in the hospitality industry. It further added that adding service charges also has a socioeconomic angle to it as well. It ensures that there is a systematic and logical distribution of the charge collected amongst all the employees, not just the ones serving inside the restaurant, thereby allowing the equal distribution of the benefit among all the staff workers. 

What the courts have said

A service charge is often perceived as a tax levied by the government in order to gain more from the public. The restaurants can increase the prices of their food items to absorb this charge, instead of recovering it from the customers in this form, the Delhi High Court observed last year.