Lok Sabha Question No. 3941 (UNSTARRED), answered on 2018-03-20
Subject: Service Charges
Ministry: CONSUMER AFFAIRS, FOOD AND PUBLIC DISTRIBUTION
Asked by: K. C. VENUGOPAL, OM PRAKASH YADAV, ELUMALAI VELLAIGOUNDER

## Government of India

## Ministry of Consumer Affairs, Food and Public Distribution

## Department of Consumer Affairs

## LOK SABHA UNSTARRED QUESTION NO. 3941

TO BE ANSWERED ON 20.03.2018

## SERVICE CHARGES

## 3941.  SHRI K.C. VENUGOPAL: SHRI OM PRAKASH YADAV: SHRI V. ELUMALAI:

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 it is true that the hotels/ restaurants should not decide how much service charge is to be paid by the customer and it should be left to the discretion of customer;
- (b) whether hoteliers and restaurateurs are of the opinion that levying of service charge is a global practice and a legitimate tax and if so, the views of the Government in this regard;
- (c) whether the Government will take any measures to remove the service charge at restaurants and hotels against the will of consumers and if so, the details thereof;
- (d) whether  the  Government  has  made  any  survey  in  this  regard  among  the  public  and  if  so,  the details thereof; and
- (e) whether  the  Government  has  constituted  any  agency  in  Bihar  to  ensure  compliance  of  the guidelines issued by the Government to the companies, hotels and restaurants to ensure display of notice that the payment of service charge is voluntary if so, the details thereof along with the number of complaints received in this regard by the Government so far?

## 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 (c) :  The Govt. issued guidelines on unfair trade practices related to charging of service  charge from consumers by hotels/restaurants. The bill presented to the customer may clearly display that service charge is voluntary, and the service charge column of the bill should be blank before making payment. A copy of the guidelines is at Annexure .
- (d) :   An online poll conducted by Local Circles, a social media platform, among 8013 consumers revealed that  37% consumers did not pay service charge at restaurants in January, 2018. On an earlier poll conducted in this regard, the figure stood at 35% for the month of November, 2017.

- (e) : No, Madam.

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## STATEMENT REFERRED IN REPLY TO PARTS (a) TO (c) OF LOK SABHA UNSTARRED QUESTION NO.3941 FOR 20.03.2018 SERVICE CHARGES.

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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.

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(C.c. out)

Deputy Secretary to the Government of India

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