Why restaurants adding service charge to bill should be declared illegal

S Murlidharan
S MurlidharanJan 04, 2017 | 18:50

Why restaurants adding service charge to bill should be declared illegal

Apologists for service charges levied upfront by restaurants and hotels in invoices hold out a not-so-veiled threat - pay up without heeding the department of consumer affairs' advisory as to the voluntary nature of such extortion, or else the restaurants and hotels would be constrained to jack up the menu prices.

They ought to have protested against the potentially confusing and disruptory nature of the advisory, which says a customer can have the service charges waived off if they weren't satisfied with the service. 


That such an act of defiance would be both embarrassing and dilatory has not occurred to both hoteliers and the department of consumer affairs, whose heart of course is in the right place.  Be that as it may.

Those making a case for business as usual in so far as service charges are concerned aver with a straight face that if the status quo is disturbed, restaurants would have no choice but to raise the menu prices because after all the customer has to bear the cost. Touché! 

It is as if the menu prices do not factor in the cost of services provided, including the salary to the waiters. And it is as if the menu prices strictly adhere to cost plus pricing formula.

The truth is that almost all posh restaurants and hotels follow what the market can bear principle while fixing prices. 

A restaurant attached to a 7-star hotel billed my foreigner host Rs 1,500 for two scoops of a tasteless pigeon-dropping-sized ice-cream. Can anyone seriously say it was following a cost-plus policy? On the contrary, there is a bit of rip-off in the billing policy of posh hotels and restaurants. 


One is not grudging their right to mulct their guests and patrons but they should not have the gall to say they would be out of pocket and incurring losses if service charges are stopped. To be sure, there are hotels and restaurants in the red but that is due to other reasons such as decline in tourist traffic, poor occupancy, high overheads, etc. 

Coming back to the main issue, posh restaurants can walk their talk and hike the menu prices if the government does not roll back its clarification to the effect that service charges included in the bill could be got waived off by the dissatisfied customer if he/she wants. 

The government’s heart was in the right place but it has vitiated the air by speaking with a forked tongue on the issue. (Photo: India Today)

But the truth is hike in prices is a function of cost normally but with fancy restaurants it is what the market can bear. One patronising a star hotel with leisurely and soothing ambience may not even scrutinise the bill carefully before paying. 

They are not going to lose sleep over service charges much less haggle with the billing clerk to waive off the disagreeable impost in the bill. But a restaurant catering to the middle class would soon realise the folly of raising menu prices in a huff. 


The government’s heart was in the right place but it has vitiated the air by speaking with a forked tongue on the issue... get charges waived if not satisfied and similar such woolly expressions.

It should have categorically and unambiguously stated if needed through an amendment in the Consumer Protection Act that adding service charges to the bill is illegal, period. Instead it has beaten round the bush. Indeed whether to tip or not is entirely the discretion of the customer, satisfied or dissatisfied.

In the US, customers add tip to the invoice themselves and the waiter then takes the invoice with card for swiping. That may not be acceptable in India where the real service providers, be they drivers of Ola or waiters in posh restaurants, are always skeptical about payments being made to their masters digitally because there is no guarantee that they in turn would faithfully pay these real workers. 

In the event, tips, euphemistically called service charges, must ideally be paid in cash so that it goes to the intended beneficiary who would not be at the tender mercies of his master to pay up.

Last updated: January 04, 2017 | 18:52
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