Restaurants collecting 'service charge' may face action

The government is all set to bring to book restaurants continuing to collect a ‘service charge’ from diners.

Consumer Affairs Minister Ramvilas Paswan on Friday said the ‘charge’ was a tip, and no restaurant could force customers to pay it. When told about restaurants persisting with the charge in their bills, Paswan termed it an “unfair trade practice,” saying it was “not a tax but a voluntary tip.”

Officials say the law offers no provision for action against errant restaurants, and customers would have to move consumer courts. The government is now stepping in to make action possible.

 “We are planning to issue an advisory to state governments.... A draft advisory has been sent to the PMO for approval,” Paswan told reporters here. He said there was no such thing as a service charge among the government’s levies, and if restaurants were collecting it, “it is wrong”.

The advisory will be useful for voluntary organisations fighting for consumer rights, he said.

A person dining at an air-conditioned restaurant pays a service tax of 14%, a Swachh Bharat cess of 0.5%, and a Krishi Kalyan cess of 0.5%, besides value added tax (VAT), which varies from state to state.  Effective service tax is calculated at 5.6% of the total bill for service delivered by a restaurant.

Still coughing it up?
In January, the Department of Consumer Affairs had said ‘service charge’ was not mandatory, and a customer could have it waived if dissatisfied with the dining experience.

The Centre had told states to ensure hotels and restaurants disseminated the information, but it has largely been ignored.