Centre alerts states on illegal levy of 'service charge' by hotels

The central government has once again warned against the levy of service charges by hotels on consumers, which is over and above the service tax, and has issued an advisory to state governments in this regard.

The Department of Consumer Affairs issued the advisory to the state governments on the levy of service charge by hotels following complaints received from consumers in the National Consumer Helpline that hotels and restaurants are following the practice of charging 'service charge' in the range of 5-20 per cent, in lieu of tips to waiters.

''A consumer is forced to pay this charge irrespective of the kind of service provided to him. The consumers are also required to pay service tax on this service charge so collected by the hotels and restaurants,'' the department pointed out in it advisory.

The Consumer Protection Act, 1986 provides that a trade practice which, for the purpose of promoting the sale, use or the supply of any goods or for the provision of any service, adopts any unfair method or deceptive practice is to be treated as an unfair trade practice. The Act further provides that a consumer can make a complaint to the appropriate consumer forum established under the Act against:

  • An unfair trade practice adopted by any trader or service provider;
  • The services hired or availed of, suffered from deficiency in any respect; 
  • A trader or service provider, as the case may be, has charged for the goods or for the services a price in excess of the price (a) fixed by or under any law for the time being enforce, (b) displayed on the goods or any package containing such goods, (c) displayed on the price list exhibited by him or under any law for the time being in force or (d) agreed between the parties.

The ministry has advised the state governments to sensitise the companies, hotels and restaurants regarding the provisions of the Consumer Protection Act, 1986 and to disseminate the information through display at the appropriate place in the hotels / restaurants that the 'service charges'' are discretionary / voluntarily and a consumer dissatisfied with the services can have it waived off.

Service tax is levied uniformly as per statutory provisions, which is different from the service charge, minister of state for consumer affairs, food and public distribution, CR Chaudhary, informed the Rajya Sabha in a written reply.