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The Central Consumer Protection Authority has issued guidelines to prevent unfair trade practices and protection of consumer interest with regard to levy of service charge in hotels and restaurants

The Central Consumer Protection Authority has issued
Trade & Regulatory Compliance Practice | Jasman Dhanoa

The Central Consumer Protection Authority (“CCPA”) established under the Consumer Protection Act, 2019 has issued Guidelines to prevent unfair trade practices and protection of consumer interest with regard to levy of service charge in hotels and restaurants (“Guidelines”) on 4th July 2022.

While the Department of Consumer Affairs has already issued similar guidelines dated 21.04.2017 on “Guidelines on Fair Trade Practices Related to Charging of Service Charge from Consumers by Hotels/Restaurants” these CCPA issued Guidelines are in addition to the existing 2017 guidelines by the Department of Consumer Affairs.

These Guidelines have been issued in furtherance of Section 18(2)(l) of the Consumer Protection Act, 2019 (“CPA”) which authorizes the CCPA to “issue necessary guidelines to prevent unfair trade practices and protect consumers' interest”. The Guidelines stipulate that hotels or restaurant shall not add service charge automatically in the food bill or force consumers to pay service charge and shall clearly inform the consumer that service charge is voluntary, optional and at consumer’s discretion.

Rationale behind the Guidelines:

  • Many restaurants and hotels are levying service charge in the bill by default, without informing consumers that paying such charge is voluntary and optional.
  • Service charge is being levied in addition to the total price of the food items mentioned in the menu and applicable taxes, often in the guise of some other fee or charge.
  • Charging anything other than prices of food items displayed in the menu along with applicable taxes would amount to an unfair trade practice under the CPA. Such prices already include component of goods and services rendered by hotels/restaurants who retain the economic freedom to fix food and beverage prices.
  • A tip or gratuity is towards hospitality received beyond basic minimum service contracted between the consumer and the hotel/restaurant. This constitutes a separate transaction between the consumer and staff of the hotel or restaurant, at the consumer's discretion and does not arise merely by entering the restaurant or placing an order. Therefore, service charge cannot be added in the bill involuntarily.
  • Any restriction of entry based on collection of service charge amounts to a trade practice which imposes an unjustified cost on the customer by way of forcing him/her to pay service charge as a condition precedent to placing order of food and beverages would constitute a restrictive trade practice as defined under Section 2 (41), CPA.
  • In the stakeholder consultation preceding the issuance of these guidelines, the Department of Consumer Affairs had noted in a press release that consumer organizations had raised major issues relating to compulsory levy of service charge, adding the charge by default without express consent of consumer, suppressing that such charge is optional and voluntary and embarrassing consumers if they resist paying such charge etc.

Salient Features: The CCPA, with the objective of preventing unfair trade practice and to protect consumer interest has issued the following guidelines -

  • no hotel or restaurant shall add service charge automatically or by default in the bill.
  • service charge shall not be collected from consumers by any other name.
  • no hotel or restaurant shall force a consumer to pay service charge and shall clearly inform the consumer that service charge is voluntary, optional and at consumer's discretion.
  • no restriction on entry or provision of services based on collection of service charge shall be imposed on consumers.
  • service charge shall not be collected by adding it along with the food bill and levying GST on the total amount.
  • Grievance Redressal: In case a consumer finds that a restaurant or hotel is violating these Guidelines, the consumer has the following grievance redressal mechanisms -

    • Consumer can make a request to the concerned hotel or restaurant to remove service charge from the bill amount.
    • Lodge a complaint on the National Consumer Helpline (NCH), which works as an alternate dispute redressal mechanism at the pre-litigation level by calling 1915 or through the NCH mobile app.
    • File a complaint against unfair trade practice with the Consumer Commission. The Complaint can also be filed electronically through edaakhil portal www.edaakhil.nic.in for its speedy and effective redressal.
    • Submit a complaint to the District Collector of the concerned district for investigation and subsequent proceeding by the CCPA. The complaint may also be sent to the CCPA by e-mail at com-ccpa@nic.in.

    Our Take:

    The CCPA has sought to give legislative teeth to the 2017 Guidelines which had initially prohibited levying of service charge by hotels/restaurants. Due to the large number of complaints before the National Consume Helpline of the wide spread non-compliance of 2017 guidelines prohibiting levying of service charge by hotels/restaurants, the CCPA appears to have issued these guidelines with the intent of mandating and enforcing this prohibition. The promulgation of these guidelines along with the recent notification of the ‘Guidelines on Prevention of Misleading Advertisements and Endorsements for Misleading Advertisements, 2022’ mark a proactive approach adopted by the CCPA for ensuring consumer protection across different domains of the ‘digital economy’.

    Links:
    Link to PIB Press Release dated 2nd June 2022:https://pib.gov.in/PressReleasePage.aspx?PRID=1830586

    Link to PIB Press Release dated 4th July 2022: https://pib.gov.in/PressReleasePage.aspx?PRID=1839133

    Link to Guidelines on Fair Trade Practices Related to Charging of Service Charge from Consumers by Hotels/Restaurants dated 21st April 2017:https://consumeraffairs.nic.in/sites/default/files/file-uploads/latestnews/Guidelines.pdf

    Guidelines to prevent unfair trade practices and protection of consumer interest with regard to levy of service charge in hotels and restaurants dated 4th July 2022: https://consumeraffairs.nic.in/sites/default/files/file-uploads/latestnews/Guidelines%20to%20prevent%20unfair%20trade%20practices%20and%20protection%20of%20Consumer%20Interest%20with%20regard%20to%20levy%20of%20service%20charge%20in%20hotels%20and%20restaurants.pdf

Practice Contacts

Ameet Datta - Partner (Practice Lead) | ameet@saikrishnaassociates.com

Suvarna Mandal - Partner | suvarna@saikrishnaassociates.com

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