India Law Update
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INCLUSION OF SERVICE CHARGE ILLEGAL

Government of India has clarified an important issue pertaining to hotel, restaurant bills, pertaining to service charge.

In a path-breaking move, Government has declared inclusion of service charge as illegal, unfair trade practice if customer’s consent is missing regarding the service charge. If the customer feels that service charge has been included in the bill without his or her approval, then complaint can be filed against that service provider, and Consumer Affairs Department can take action as well.

Indian Government was aware for this issue from long time and is thinking now of amending the Consumer Protection Act to make appropriate changes to handle this issue.

This was revealed by the Government in a written reply to a question inside the Lok Sabha. Last year, i.e. 2015 and had clarified that service charge is not same as service tax. While service tax is being charged by the Government, service charge is an alias for ‘enforced tips’ to the hotel staff for providing their services. Let take up as an example, for a bill of Rs 1000, restaurants add Rs 100 as service charge, and then include service tax on 40% of the main bill + service charge (Rs 1100), rather than only the main bill (Rs 1000).

As per an official from Consumer Affairs Ministry, every hotel and restaurant will be soon ordered to display a notice inside their compounds, wherein they will seek the customer’s approval before charging service charge. The Government also plans to issue an advisory to hotels and restaurants to display prominently that consumers have a choice to pay or not pay the charge.

Charging anything without informing consumers falls under unfair trade practice. This clearly means that in case there is no such notice or information, and still the restaurant or the hotel includes a service charge in the main bill, then it shall be unlawful and unfair trade practice.

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14 December 2016
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