Restaurant owners say service charge not illegal; it’s for the benefit of staff

Restaurant owners have reiterated that levying of service charge by them is not illegal and the amount of service charge is clearly mentioned on menu cards for customers to exercise their choice before availing the services. They said the charge is for the benefit of restaurant staff and serves as an incentive to motivate them.

“On behalf of the entire restaurant industry, we have firmly reiterated all facts with proof to the department of consumer affairs that levy of service charge is neither illegal, nor an unfair trade practice as alleged, and this debate in public domain is creating unnecessary confusion and disruption in smooth operations of restaurants,” National Restaurant Association of India (NRAI) said in a statement.

The service charge is transparent, worker-friendly and is also recognised by many judicial orders which have been shared with DoCA, NRAI said, adding that the government also earns revenue from the service charge as tax is paid by restaurants on it.

The view was echoed by a similar industry body, Federation of Hotel & Restaurant Associations of India (FHRAI). Its joint secretary Pradeep Shetty told FE that the June 2 meeting with the ministry was fruitful as the industry could present its side and explain the nuances behind levying service charge at restaurants.

Individual restaurant owners FE spoke with also reiterated that levying of service charge was not illegal, but a matter of individual policy, and as per the practice followed by other industries as well.

Rachel Goenka, CEO and founder, The Chocolate Spoon Company, said, “The levying of service charge is neither illegal nor is it an unfair trade practice as alleged. GST is collected and paid on service charge, hence it is odd that the legality is being debated. Service charges exist in many industries but is termed differently. Aggregators call it a delivery fee, ticketing platforms call it a convenience fee, various government departments call it processing fees, airlines and airports levy all sorts of fees and surcharges. Yet restaurants are being singled out as usual. We are always a soft target for the government.”

She added, “Service charge exists for the benefit of restaurant staff and serves as an incentive to motivate employees. After extending zero support to the restaurant industry during the pandemic, it is unfortunate the government is now targeting the earning capacity of restaurant staff. Ultimately, this could set a poor precedent of government overreach and can lead to further undue influence in pricing policies across industries.”

Based in Mumbai, The Chocolate Spoon Company owns restaurant brands like The Sassy Spoon, House of Mandarin, Wicked China and Baraza Bars & Bites.

Foodlink F&B Holdings India CEO Sanjay Vazirani said our focus has always been to provide a quality experience and customer satisfaction. “We would welcome any policies and framework announced by the government with regards to the service charges that would benefit the customer and keep them happy,” he added. The Mumbai-based Foodlink F&B Holdings India owns restaurant brands like Glocal Junction, China Bistro and India Bistro.

“In nine of ten places, the outlet mentions on the menu itself that they levy a service charge. So the customer has the right to decide if they wish to dine there or go somewhere else. In many places if there is a standee with the menu printed on it, it mentions at the bottom that the outlet has a service fee,” said Subhankar Dhar, owner, Esplanade, a specialty Bengali restaurant in Bengaluru.

“Dining-in is a luxury service and it is for the employees that the restaurant levies a service charge. It is to incentivise the employees and give them a little extra for the service they provide to each table or customer. The service charge which goes to the employees makes them feel they are being taken care of and rewarded for their service over and above their salary,” Dhar said.