Lok Sabha Question No. 2869 (UNSTARRED), answered on 2018-03-13
Subject: Service Charge
Ministry: CONSUMER AFFAIRS, FOOD AND PUBLIC DISTRIBUTION
Asked by: SUMEDHANAND SARASWATI

## Ministry of Consumer Affairs, Food and Public Distribution

## Government of India Department of Consumer Affairs

## LOK SABHA UNSTARRED QUESTION NO. 2869

## TO BE ANSWERED ON 13.03.2018

## SERVICE CHARGE

2869.  SHRI SUMEDHANAND SARSWATI: (OIH)

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

- (a) whether the Government has issued any guidelines to the companies, hotels and restaurants located in States to display easily visible and comprehensible information that service charge is voluntary;
- (b) whether the Government has set up any agency to ensure its compliance in Rajasthan, if so, the details thereof; and
- (c) the number of complaints received so far by the Government in this regard?

## 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)  : In  December,  2016,  the  Department  of  Consumer  Affairs  issued  an  advisory  to  State Governments to advise the hotels and restaurants to disseminate information through display at the appropriate  place  in  hotels/restaurants  that  the  service  charges  are  discretionary/  voluntary  and  a consumer  dissatisfied  with  the  services  can  have  it  waived  off.    Further,  the  Department  issued guidelines on service  charge to all the State Governments/UTs vide circular No. J-24/9/2014-CPU dated 21.4.2017 which is at Annexure.

- (b)   : No, Madam.

(c)   : 591 complaints from April 2017 till 20 th February 2018 with regard to service charges have been received in National Consumer Helpline run by the Department.

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## STATEMENT  REFERRED  IN  REPLY  TO  PART  (a)  OF  LOK  SABHA  UNSTARRED QUESTION NO.2869 FOR 13.03.2018 REGARDING SERVICE CHARGE.

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## Ministry of Consumer Affairs, Food & Public Distribution

Krishi Bhavan, New Delhi The 21st. April, 2017

## No.J-24/9/2014-CPU (Pt) Government of India (Department of Consumer Affairs)

To,

The Secretary/Principal Secretary Food, Civil Supplies and Consumer Protection of All State Governments/UT Administrations

Subject: -   Issuance of guidelines on fair trade practices related to charging of service charge from consumers by the hotels/restaurants

Sir/Madam,

I  am  directed to  refer to  this  Ministry's  letter  of  even  number  dated  14 th December, 2016 , wherein  an advisory was issued to the State Governments for sensitizing the companies, restaurants in the state regarding the provisions in the Consumer Protection Act, 1986  relating to unfair trade practices and the provision for making a complaint by the consumer against unfair trade practices to the  appropriate  consumer  forum  and  also  to  advise  the  hotels  and  restaurants  to  disseminate information through display at the appropriate place in hotels/restaurants that the service charges are discretionary/voluntary and a consumer dissatisfied with the services can have it waived off.

2. With a view to bring clarity on the matter, the Ministry of Consumer Affairs, Food and Public Distribution,  Government  of  India,  hereby  issues  guidelines  on  'fair  trade  practices  related  to charging of service charge from  consumers by  the hotels/restaurants', as enclosed.
3. The State Governments are requested to give wide publicity to these guidelines for educating the consumers of their rights to be heard and get their disputes redressed through the Consumer Fora, and  also  to  circulate  these  guidelines  among  the  hotels/restaurants  in  the  State  for  bringing  about clarity on fair trade practices on the subject and their liability thereto.

Yours faithfully

Sd/(G C Rout) Deputy Secretary to the Govt of India Telfax:-011-23389936

## 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 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 the 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.

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

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