FAITH has requested the urgent intervention of Secretary – Tourism, Government of India, Secretary – Consumer Affairs, Government of India, Deputy Secretary – Consumer Affairs, Government of India and Tourism Secretaries of all state governments, on a very important development. Ministry of Consumer Affairs has on 14th December 2016 issued an advice to secretaries – ‘food, civil supplies & consumer protection’ of state governments that service charges as levied on restaurant bills over and above taxes are optional and that they may choose to sensitise customers to not to pay the same in case they are dissatisfied with the quality of service.
FAITH has opined, that service charges wherever they are levied on invoices, are pre – disclosed in advance on the menu, where it normally says that ‘service charges & government taxes as applicable are extras’. Whenever consumers, then order, it is implied that they are legally aware of that food service establishment’s disclosed commercial policies & offer of sale. Service tax is thereafter, levied on service charge which is remitted to department of revenue & adds to our country’s indirect tax collections. Once they are disclosed & thereafter accepted by the consumer, it is thus not an unfair consumer practice.
FAITH believes that levying of service charge on invoices is a healthy, cashless, practice designed to motivate staff through an additional financial incentive. Over & above the ‘staff compensation’ paid by hotels / restaurants to their staff, service charges are normally, proportionately distributed to staff across both the ‘front of the house’ I.e. Waiters / Stewards & to the ‘ back of the house’ – utensil cleaners, trainees, sweepers & other service staff. This category of staff is highly unskilled, they don’t come in customer contact, come from remote hinterlands of India & need all kinds of motivation to make healthy career living for themselves. Levy & proportionate distribution of ‘service charges’ enable enhanced financial support to staff from lower economic groups.
FAITH has voiced concern that the ‘letter ‘ by Ministry of Consumer Affairs may create confusion in the minds of diners when they eat out. Additionally, it has the potential to create an unhealthy distrust towards food service establishments among those diners who may not be able to discern distinction between service charge & service tax. Furthermore, if service charges start getting disputed by consumers, it may create unwanted litigation hotel / restaurants & department of revenue, since service tax is levied on all service charges on invoices. All in all, there is scope for large scale litigation & a business environment of distrust, across the country between diners, food service establishments & ‘department of revenue’ Government of India.
FAITH has recommended a retraction to be released from MCA to Secretaries – Food, Civil Supplies & Consumer Protection.
