Restaurant industry nervous about service charge, says neither illegal nor unfair

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Mumbai: Restaurants and the government have been at odds over service charges for some time. However, the issue has only recently come under public scrutiny and consumer organizations have joined the fight. The Department for Consumer Affairs, Food and Public Distribution called the practice “unfair,” and the government said last week it was considering a legal framework to prevent restaurants from charging customers a service charge in the first place. This has landed restaurants and restaurants across the board in a soup.

After several consumer complaints to online consumer hotlines and media reports from the same, the Department of Consumer Affairs took a firm stance against restaurants charging service fees without following standard guidelines. In the absence of uniform guidelines for service costs, restaurants charge the amount at their own discretion, depending on the service and restaurant management between five and 20 percent of the bill.

We asked several restaurant managers and restaurant owners for their opinions on this issue as this practice is about to become illegal.

Mumbai-based CEO and Founder of The Chocolate Spoon and National Restaurant Association of India (NRAI), Head of Mumbai Chapter Rachel Goenka stated: “Charging service charges is not illegal nor an unfair trade practice as claimed, and adding that this debate in the public domain creates unnecessary confusion and disruption to restaurant operations.”

Without mincing words while offering her take on the ongoing dispute, she continued, “Service fees exist in many industries. Aggregators call it a delivery fee, ticketing platforms call it a convenience fee, and airports charge all sorts of fees and surcharges. Why are restaurants being singled out as usual? We are always a soft target for the government.”

The government previously issued guidelines for hotels/restaurants charging a service charge in April 2017, stating that restaurants or restaurants cannot charge a service tax by default in an invoice. However, this rule has been found to have been broken on numerous occasions. Customers have frequently raised concerns that some restaurants make service fees mandatory, while others add it as a standard without consumer consent.

The Department of Consumer Affairs convened a meeting with the NRAI and consumer organizations present on 2 June 2022 to discuss growing complaints that consumers are being forced to pay service charges without their express consent as transparent business practices and consumer rights are increasingly at stake.

The Kolkata Consumer Disputes Redressal Commission ruled in January that restaurants cannot levy a service charge on a consumer without their consent and ordered restaurants to refund the service charge levied on a customer along with an amount of compensation.

Sarvesh Chauby, founder and chairman of Delhi-based The Biryani House, agreed with the Consumer Commission’s view, acknowledging that restaurants should not impose service fees on customers. “But it can be optionally placed where customers can pay if they like the hospitality of the restaurant.”

“We at The Biryani House do not charge customers for any service fees, but mostly customers pay additional service fees as a sign of our good hospitality,” he added.

On the contrary, Delhi-based Mama’s Buoi co-founder Gaurav Luthra shared a different view. He explained that the F&B (food and drink) industry has been battered due to the financial strain that the multiple waves of Covid have placed on everyone involved, including their employees. “We’re trying to overcome the same and provide a stable environment for our employees and service fees have been a means of compensating them beyond salaries. In my opinion, a service charge should be applied as it is a formal and more standardized way of incentivizing staff.”

“The service charge is a means by which the distribution is done in a more organized manner across all employees and not just the front-end staff who keep track of tips offered by guests,” he added. Other restaurateurs share this thought.

Saurabh Luthra, also Delhi-based Romeo Lane co-founder, agreed with his brother and business partner Gaurav, noting that while the service fee is viewed as an imposed move by the F&B industry, consumers are unaware that “the service fee is Not for us, the sum is shared by the entire staff – from the cleaners to the waiters.”

“You might end up tipping the one person who served you, but the service provided is not a matter of a single server, the effort is shared equally by the cleaner, kitchen staff and waiters. Therefore, the service fee is important to increase the trust of our employees and serve consumers better every day,” he explains.

Ankit Anand, owner of Fable & True Tramm Trunk from Mumbai said: “We want to create a better restaurant culture in India. We only demand our employee rights, while in other countries, especially in Europe, in some restaurants not only service charge but also cover charge is mandatory.”

Anand believes that both her employees and her customers are equally important to her. He added: “We want to make sure they get the best service from our staff. To do this, we need to add this surcharge to our regular prices to cover the cost of improving our products and services.”

Raghu Raj Tanwar, co-founder of Delilah’s Cafe in Delhi, takes a middle ground on this issue. From a restaurateur’s perspective, he believes the service charge should be legal, albeit with some modifications. He noted, “Since service is different in a coffee shop and service in a fine dining restaurant in a five-star hotel, the percentage should be correspondingly different,” adding that this is true for both the hospitality industry and the consumer would apply.

At the moment, an amicable solution to the problem has to be found, which is not so easy for the time being, as the industry is eagerly awaiting a concrete decision and the government’s next step.

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