Lok Sabha Question No. 3477 (UNSTARRED), answered on 2017-08-08
Subject: Service Charge
Ministry: CONSUMER AFFAIRS, FOOD AND PUBLIC DISTRIBUTION
Asked by: S. RAJENDRAN

## Government of India Ministry of Consumer Affairs, Food and Public Distribution Department of Consumer Affairs

## LOK SABHA UNSTARRED QUESTION NO. 3477

TO BE ANSWERED ON 08.08.2017

## SERVICE CHARGE

## 3477.  SHRI S. RAJENDRAN:

## Will the Minister of CONSUMER AFFAIRS, FOOD AND DISTRIBUTION miHkksDrk ekeys] [kk| vkSj lkoZtfud forj.k ea=h be pleased to state:

## PUBLIC

- (a) whether  it  is  a  fact  that  the  Government  has  issued  a  public  statement  that  the  service charge can not be forced on consumers;
- (b) if so, the details thereof;
- (c) whether the Government has clarified that the service charge is voluntary; and
- (d) if so, the details and guidelines issued thereof ?

## ANSWER

## miHkksDrk ekeys] [kk| vkSj lkoZtfud forj.k jkT; ea=h ¼Jh lh- vkj- pkS/kjh½

## THE MINISTER OF STATE CONSUMER AFFAIRS, FOOD AND PUBLIC DISTRIBUTION (SHRI C. R. CHAUDHARY)

(a) to (d) : The Government has issued guidelines on fair trade practices  related to charging of service charge from consumers by hotels/restaurants. As per these guidelines, the bills presented to customers may clearly display that service charge is voluntary and the service charge column of the bill may be left blank for the customer to fill up before making payment. A copy of the guidelines issued on 21 st April, 2017 is at Annexure .

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## STATEMENT REFERRED IN REPLY TO PARTS (a) TO (d) OF LOK SABHA UNSTARRED QUESTION NO.3477 FOR 08.08.2017 REGARDING SERVICE CHARGE.

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## No.J.24/9/2014-CPU (pt.) Government of India Ministry of Consumer Affairs, Food and Public Distribution (Department of Consumer Affairs)

Krishi Bhavan, New Delhi The 21st April, 2017

## GUIDELINES ON FAIR TRADE PRACTICES RELATED TO CHARGING OF SERVICE CHARGE FROM CONSUMERS BY HOTELS/RESTAURANTS

Whereas,  the  Department  of  Consumer  Affairs,  Government  of  India  is  mandated  to ensure that consumers are protected as per the provisions of the Consumer Protection Act, 1986 (hereinafter referred as 'The Act');

Whereas,  a  customer  visiting  a  hotel  or  restaurant  for  availing  its  hospitality,  which includes  buying  the  food  &  beverages  and  availing  services  connected  therewith  or  incidental thereto for consideration, falls under the definition of consumer as per the Act;

Whereas, it has come to the notice of this Department that some hotels and restaurants are charging tips/gratuities from the customers without their express consent in the name of service charges;

Whereas, it has also come to the notice of this Department that some customers have been paying tips to waiters in addition to service charges under the mistaken impression that service charge is a part of taxes;

Whereas,  it  has  also come  to  the  notice  of  this  Department  that  in  some  cases hotels/restaurants  are  restraining  customers  from  entering  the  premises  if  they  are  not  in  prior agreement to pay the mandatory service charge;

Whereas,  public  interest  has  arisen  due  to  a  number  of  grievances  reported  against mandatory levy of service charges by the hotels and restaurants;

Now therefore, the Government considers it appropriate to clearly distinguish between the fair and unfair trade practices in respect of service charges, charged by the hotels/restaurants, and issues the following guidelines.

(1) A  component  of  service  is  inherent  in  provision  of  food  and  beverages  ordered  by  a customer.  Pricing  of  the  product  therefore  is  expected  to  cover  both  the  goods  and  service components.

- (2) Placing  of  an  order  by  a  customer  amounts  to  his/her  agreement  to  pay  the  prices displayed on the menu card along with the applicable taxes. Charging for anything other than the afore-mentioned, without express consent of the customer, would amount to unfair trade practice as defined under the Act.
- (3) Tip or gratuity paid by a customer is towards hospitality received by him/her, beyond the basic  minimum  service  already  contracted  between  him/her  and  the  hotel  management.  It  is  a separate transaction between the customer and the staff of the hotel or restaurant, which is entered into, at the customer's discretion.
- (4) The point of time when a customer decides to give a tip/gratuity is not when he/she enters the hotel/restaurant and also not when he/she places his/her order. It is only after completing the meal that the customer is in a position to assess quality of service, and decide whether or not to pay a tip/gratuity and if so, how much. Therefore, if a hotel/restaurant considers that entry of a customer to a hotel/restaurant amounts to his/her implied consent to pay a fixed amount of service charge, it is not correct. Further, any restriction of entry based on this amounts to a trade practice which  imposes  an  unjustified  cost  on  the  customer  by  way  of  forcing  him/her  to  pay  service charge as condition precedent to placing order of food and beverages, and as such it falls under restrictive trade practice as defined under section 2(1)(nnn) of the Act.
- (5) In view of the above, the bill presented to the customer may clearly display that service charge is voluntary, and the service charge column of the bill may be left blank for the customer to fill up before making payment.
- (6) A customer is entitled to exercise his/her rights as a consumer, to be heard and redressed under  provisions  of  the  Act  in  case  of  unfair/restrictive  trade  practices,  and  can  approach  a Consumer Disputes Redressal Commission/Forum of appropriate jurisdiction.

(G.C. Rout) Sd/Deputy Secretary to the Government of India

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