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About The Service Charge in Restaurants


The Delhi High Court in an interim order has directed members of the Federation of Hotel and Restaurant Association of India (FHRAI) to replace the term ‘service charge’ with ‘staff contribution’.

GS II: Polity and Governance

Dimensions of the Article:

  1. Service Charges
  2. Context of the Current Case
  3. Reasons Behind CCPA’s Guidelines

Service Charges

  • A service charge is a fee charged to customers for something specific, such as a bank charging a fee for using an ATM that’s not part of its network or a vendor charging a fee for making a payment with a credit card.
  • Alternative Terms: It may also be referred to as a customer service fee or maintenance fee.
Service Charges in Restaurants and Hotels
  • Typical Practice: Restaurants and hotels commonly apply a service charge of around 10% to the food bill.
  • Optional Nature: While the Goods and Services Tax (GST) is a compulsory component, the service charge is generally considered optional.
  • Comparison: It is akin to the concept of gratuity or tips seen globally.
  • Independence: Most restaurants independently determine the service charge rate, usually denoted at the menu’s bottom with an asterisk.

Context of the Current Case

  • Initial Directive: In July 2022, the Central Consumer Protection Authority (CCPA) released directives stating that restaurants and hotels should not automatically include service charges on the bill or collect them using alternative names.
  • Challenges Filed: The National Restaurant Association of India (NRAI) and the Federation of Hotel & Restaurant Associations of India (FHRAI) contested this directive in the Delhi High Court.
  • Court’s Interim Stay: In response, the Delhi High Court, in the previous year, temporarily suspended the CCPA guidelines. However, this suspension came with the condition that members of these associations clearly display the imposition of service charges on menus or other noticeable locations, in addition to the customer’s responsibility to pay them.
  • Consumer Complaints: The Ministry of Consumer Affairs and CCPA reported to the High Court that more than 1,105 consumer complaints regarding unjust service charge levies were filed after the release of the guidelines.
  • Court’s Extension: Following this development, the court granted the petitioner associations (NRAI & FHRAI) an extended period to respond to the government’s position while preserving the interim stay.

Reasons Behind CCPA’s Guidelines

  • Staff Compensation: Service charges collected by restaurants and hotels are typically intended to remunerate their staff and employees. These charges are not applied for the dining experience or the food provided to consumers.
  • Consumer Advocacy: Consumer advocacy groups contended that imposing service charges was inherently arbitrary and constituted an unfair and restrictive trade practice according to the Consumer Protection Act of 2019.
  • Consumer Redressal: If a consumer identifies that a hotel or restaurant is imposing a service charge against the guidelines, they have the right to request the establishment to exclude it from the bill.
  • Complaint Mechanisms: Consumers have several avenues to voice their concerns. They can lodge complaints with the National Consumer Helpline (NCH) by calling 1915 or using the NCH mobile app. Alternatively, they can file complaints with the Consumer Commission, utilizing the e-Daakhil portal for swift and efficient dispute resolution.
  • E-Daakhil Portal: The E-Daakhil portal, initiated by the Indian National Consumer Disputes Redressal Commission (NCDRC) in 2020, facilitates both offline and online complaints related to the Consumer Protection Act of 2019. It serves as a platform for consumers to register and address their grievances effectively.

-Source: Indian Express

February 2024