Press Note regarding service charges/tips charged by restaurants

This press note is being issued for clarifying the issue of service charge in restaurants, particularly in the wake of the press note dt. 2.1.2017 issued by the Ministry of Consumer Affairs, Food and Public Distribution, and the consequent attention that it has attracted in the media.

Service charge, colloquially known as “tip”, is the amount paid to the staff of, the restaurant or other similar establishment.

In some instances, the establishment may choose to include this amount in the bill itself, and the percentage may vary from 5% to 15% of the value billed.

This is a common and accepted practice in India as well as several other countries. This practice has already been specifically upheld by the highest consumer forum of the country, i.e. National Consumer Disputes Redressal Commission, New Delhi in Nitin Mittal vs.

Pind Baluchi, (2012) NCDRC 444. Thus, the Association has been advised that such a practice is not an “unfair trade practice” within the Consumer Protection Act. It is neither unfair, nor deceptive, and nor is it meant to promote sale, use or supply or any goods; nor provision of any service.

It is merely a nominal charge – a fraction of the total bill – charged for the benefit of the staff of the establishment, and is clearly disclosed under a separate heading in the bill which specifies, the amount, the % rate at which it has been calculated and the fact that it is a “service charge” and not a tax.

Further this practice of including “service charge” in the bill has also been specifically acknowledged by the Hon’ble Supreme Court way back in 1976 in Rambagh Palace Hotel vs. Hotel Workers’ Union (1976) 4 SCC 817, as well as more recently on 3.12.2007 in the case of Quality Inn Souther Star vs. Regional Director, ESI (C.A. No. 1250/2001).

This practice has also been noted by the Hon’ble Delhi High Court [Income Tax vs. ITC Ltd., (2011) 338 ITR 598] and the Income Tax Appellate Tribunal [Rajinder kumar Jain vs. ACIT, New Delhi, Order dt. 24.2.2015 in ITA Nos. 328-329. Del./2013] in the context of the Income Tax Act, 1961. Service Charge is not a government levy, and is not to be confused with VAT or service tax.

It is an amount meant for the staff of the establishment, which in some cases, may be charged in the bill itself. It is a charge like any other, and it is up to the establishment to decide whether and how much to charge in the bill. It is an additional earning for the staff of the establishment, apart from their regular salary.

Establishments are advised by the Association to clearly mention on their menu cards, or in any other prominent place, in case they are following the practice of including service charge in the bill. In this view of the matter, the Association believes that the Press Note issue does not lay down the correct position in law.

Comments

0