Friday, January 6, 2017

Weather Department of Consumer Affairs is serious enough to address the unethical business practices of charging service charges and VAT by Restaurants and Hotels Industry?

Weather Department of Consumer Affairs is serious enough to address the unethical business practices  of charging service charges and VAT by Restaurants and Hotels Industry? 

I have written an article titled "Are Restaurants and Hotels adapting to unfair business practices?" on this blog on 21st April 2015, the link of which is

The said article stated importance of making service charges being charged by Restaurants in the form of tip need to be made optional and let it be left to the option of the diners whether to pay it or not to pay. Department of Consumer Affairs, Govt. of India has recently issued a press release No.  156064 which appeared in newspapers on 2nd January 2017. A copy of the press release is copied here for ready reference.
Department of Consumer Affairs have advised Restaurants and Hotel Industry to make service charge as optional and to waive off these charges if the consumer feel dissatisfied with the service. The advise to the Industry seems to have been softened despite a fact that the services charges are being charged from the consumers in an unethical manner. The facts have been substantiated in the article on 21st April 2015 which can be pursued further.  As stated therein:
1. When the Ministry of Finance has already notified for the purpose of service tax that the 40% value of the food bill is towards services and hence enacted that the service tax shall be applicable on 40% of the value of the bill, any additional amount charged in the bill under head service charge amounts to double charging. The food bill already has 60% value as cost of material and 40% value as service towards serving to the diners. 
2. As the advise states to waive off the service charges if requested by the consumer, it means that the charges could be added up in the bill. The moment the diner request to waive off the charges, it become discretion of the Restaurant whether to waive off or not more so because the Department of Consumer Affairs press release is of advisory in nature may be followed or not.
3. The compulsorily levy of service charges is not in a good taste as it become chargeable irrespective of whether the services offered have been good or not.
4. Despite the fact that the Restaurants were charging service charge in the bills, the waiters keep expecting the 'Tip'. More soever, the service charges are being mislead taken as "Govt. taxes" and the consumers also pay additional tip. It become double charging the so called tip.
5. The people go to hotels and restaurants for entertainment and relaxation, and not for arguing against levying of service-charge in case of dis-satisfactory service. As such most of the people do not care for clarifications/notifications issued by government-departments, thus paying ‘service-charge’ unnoticed by them being at their discretion. If the hotels/restaurants wish to pay something extra to their staff, they may do it at their own rather than forcing customers for 'compulsory’ contributions. It is also known fact that even after levy of ‘service-charge’ in bills, serving-staff stand before customers in anticipation of ‘tips’
 6. Some of the media reports have also checked in the few Restaurants in New Delhi. The Restaurants have clearly refused to waive off the service charges. It means that if any consumer is dis-satisfied with the services, he/she cannot opt 'not to pay' as the same is likely to result into tussle between Restaurants employees and the consumers. Indirectly despite the advise of Govt. of India as to make service charge as optional, these charges shall continue to be forced upon the consumers with a little option of not to pay. 

Department of Consumer Affairs may reconsider the issue and make it mandatory not to charge the service charge in the bill else face cancellation of their licences. While it is expected Govt. of India gets sensitized to the issue, it will also look into the way VAT is being charged on 100% of the value of the bill as well as charging of VAT and Service Tax on beverages which are sold on MRP. Hon'ble High Court of Uttarakhand has already adjudicated that the VAT is chargeable on 60% of the value of the bill as 40% of the bill is already taxed with service tax.

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