Know why restaurant owners want you to pay service charges while dining out

Eating out will not get cheaper with Monday’s government’s clarification that service charge on food bill is not compulsory and a dissatisfied customer can choose not to pay the service charge.

However, taking the strong note of government clarification National Restaurant Association of India (NRAI) said that it is the matter of policy for a restaurant to decide if service charge is to be levied or not.

The apex body has also that information regarding the amount of service charge is to be clearly mentioned / displayed by restaurants on their menu cards or otherwise also displayed, so that customers are well aware of this charge before availing the services and can use their discretion of not using the facility offered by the restaurant.

Presently, while dining out, restaurant owners charge between 6-10 per cent of service charge and 14 per cent service tax. On this Value added Tax (VAT) is also charged, the rates for the same depends from different states. VAT can be as low as 5 per cent and can be as high as 20 per cent depending on the states. 

However, despite the clear mention in government order that service tax and service charge must be charged on 40 per cent on the total bill amount, restaurants owners have been charging it on a full bill amount.

In its December circular the National Restaurant Association of India (NRAI) has clearly mentioned some example of judicial adjudication, where service tax charge is upheld by Supreme Court too. The body mentioned judicial pronouncements to support that ‘service charge’ can be charged by hotels and restaurants. The same has been upheld by the National Consumer Disputes Redressal Commission, in Nitin Mittal vs. Pind Baluchi, (2012) NCDRC 444; by Monopolies and Restrictive Practices Commission, New Delhi (MRTP) in 2001; and Judgments passed by Hon’ble Supreme Court in the cases of Wenger & Company and others Vs. Their workmen (1963) and Ram Bagh Palace Hotel, Jaipur Vs. The Rajasthan Hotel Workers Union, Jaipur (1976).