The new guidelines to prevent unfair trade practices

• Central Consumer Protection Authority (CCPA) announced five guidelines to prevent unfair trade practices and to protect consumer interests regarding levy of service charges in hotels and restaurants.

Powers of the CCPA

• Regulate matters related to violation of rights of consumers under Consumer Protection Act (CPA), 2019.
• Objective: Regulate violations of consumer rights, unfair trade practices, and false or misleading advertisements that are prejudicial to the interest of the public.

Powers

• Protect, promote and enforce rights of consumers and prevent violation of their rights under the Act.
• Empowered to issue guidelines to enforce rights of the consumers laid down in the Act.

What is a service charge?

• A tip or a direct transaction b/w customer and restaurant staff.
• It is a fee collected to pay for services associated with purchase of a primary product or service.
• Collected by hospitality sectors and food and beverage industries as a fee for serving customers.

What do the new guidelines specify?

• Hotels or restaurants are prohibited from levying extra charges automatically or by default in the bill or by any other name.
• Not allowed to force service charges.
• Clearly inform consumers that service charges are voluntary, optional, and at their discretion.
• Hotels and restaurants are no longer allowed to restrict entry or services based on collection of service charges.
• Hotels cannot add service charges to their bills and charge GST on the total.

Why were new guidelines issued?

• Various grievances were registered on National Consumer Helpline (NCH) related to unnecessary levying of service charges in the bill.
• Price of any product covers both the cost of the product and service.
• There is no restriction on hotels or restaurants to set the prices at which they want to offer food or beverages to consumers.
• Placing an order involves consent to pay only the prices of food items displayed on the menu along with applicable taxes.

What are the redressal mechanisms?

• In caseof violation, customer may request concerned hotel or restaurant to remove the service charge or may lodge a complaint on NCH.
• Complaint may also be filed with Consumer Commission electronically through edaakhil.nic.in. for its speedy and effective redressal.

Conclusion

• Consumers will no longer be subject to involuntary payments under heading of 'service tax'.
• It will be interesting to observe the effective compliance of these guidelines by restaurants since levying a service charge has become an ‘accepted trade practice’ in India.