HOTEL & RESTAURANT ASSOCIATION APPEALS TO CONSUMER AFFAIRS DEPARTMENT TO WITHDRAW ITS NEW SERVICE CHARGE NOTIFICATION

Hotel & Restaurant Association Appeals To Consumer Affairs Department To Withdraw Its New Service Charge Notification

Maintains Service Charge As NEITHER Unfair Trade Practice NOR Illegal

Mumbai: In the wake of a statement issued by the Department of Consumer Affairs on Jan 02, 2017 implying Service Charge billed by restaurants are optional, the Hotel and Restaurant Association of Western India (HRAWI) has come out with a clarification to all industry stakeholders. In a letter to the Department of Consumer Affairs, the Federation of Hotel and Restaurant Associations of India (FHRAI) the apex body of hotels and restaurants, has appealed for withdrawal of the advisory as it has been creating chaos and disruption in the smooth functioning of restaurants across the country.

The association has clarified that there is nothing illegal about levying the fee and has citied judgments by the National Consumer Disputes Redressal Commission, New Delhi which is the highest consumer forum of the country as well as by the Hon’ble Supreme Court, which have upheld the legitimacy of this practice.

“Service Charge like any other charge is a proposal from the restaurant or an establishment to potential customers. It is for the customers to decide whether they wish to patronise the said restaurant or not,” says Mr Dilip Datwani, President, HRAWI. “A restaurant or hotel may just as easily absorb the said service charge into the remaining charges being collected by it from the consumer (by simply including it in the prices on the menu). Service charge is considered a beneficial payment since it is meant for the benefit of the staff of the establishment. So, some establishments make a conscious choice to adopt a beneficial policy towards its staff members by assuring them a minimum tip which is a percentage of the rest of the charges.”

The association has pointed out to cases in which the practice of levying a Service Charge has been upheld by the law. In one of the cases, the National Consumer Disputes Redressal Commission, New Delhi in Nitin Mittal vs. Pind Baluchi, (2012) NCDRC 444 the Association has been advised that such a practice is not an “unfair trade practice” within the Consumer Protection Act. In another case, the Hon’ble Supreme Court too has specifically acknowledged the practice of including “service charge” in the bill by hoteliers and other cases in lower courts which too have recognized the practice.

“Service charge is the amount paid to the staff of the restaurant or other similar establishments. An establishment may choose to include this amount in the bill itself and the percentage may vary from 5 per cent to 15 per cent of the value billed. This is a common and accepted practice in India as well as several other countries. Service Charge is not a government levy, and is not to be confused with VAT or Service Tax. We regret that the department came out with such an advisory which is misleading and has built a wrong notion about hotels and restaurants amongst their customers,” says Mr Pradeep Shetty, Hon’ Secretary, HRAWI & Chairman of legal matters subcommittee, FHRAI & HRAWI. “While consumer rights are paramount, the rights of individual establishments should not be impinged upon,” he adds.

“Generally patrons do not pay tips once they see they have been charged for service. The Service Charges are justly distributed amongst not only the stewards, but to everyone from the chefs to the dishwashing helper. The rationale behind putting it in the bill as a separate charge is also to clearly disclose to the customer that a specified portion of the amount paid by them is being given to the staff of the establishment that has been serving the customer,” concludes Mr Datwani.

About Hotel & Restaurant Association Western India (HRAWI)

The Hotel and Restaurant Association (Western India) is a 66 years old Association of Hotels and Restaurants in Western India. Its members include smaller Hotels up to 5-Star Deluxe categories. The bulk of its members like any growth economy are made up of budget hotels. HRAWI covers Maharashtra, Gujarat, Madhya Pradesh, Chhattisgarh, Goa and the Union Territories of Daman, Diu & Silvassa, and is considered to be the voice of the Hotel Industry. The association is part of the national body of Federation of the Hotels & Restaurants Associations of India (FHRAI), located in New Delhi, which was originally founded in Mumbai in 1950 by the late Mr. J.R.D. Tata.

For more information about the association please visit: www.hrawi.com

FHRAI SUBMITS PRE-BUDGET MEMORANDUM TO MOT AND MOF

Hotel Industry Hopes For Tangible Resolutions In FY 2016 – 17

Mumbai: Ahead of the Budget, the Federation of Hotel and Restaurant Associations of India (FHRAI) has appealed to the government to rationalize taxes and amend certain policies for aligning the tourism sector with the rest of the world and give boost to the hospitality industry. In the pre-budget memorandum submitted to the Ministry of Tourism (MOT) and Ministry of Finance (MoF), the association has outlined in details the critical taxations and policy initiatives and recommendations that would provide the hotel industry the much needed stimulus.

Some of the key recommendations on taxation include the impact of GST on Tourism Arrivals, availing of Export Promotion Capital Goods Scheme (EPCG) and Service Exports from India Scheme (SEIS) without a Classification mandate, Issuance of Tax-free ‘Hospitality Infrastructure Bonds’.

"The hospitality industry has been at the receiving end for last few years but with the Government’s focus on tourism development things may be turning around for hospitality too. High decibel events and initiatives organised by respective States for promoting tourism and hospitality are indicators of commitment towards these sectors and we feel positive about the future. However, besides campaigns and promotions, the ministries will also have to revisit and remodel some of the prevailing tax structures, laws and policies to bring it at par with competing tourism economies of the world,” says Mr. Bharat Malkani, President, FHRAI & Hotel and Restaurant Association of Western India (HRAWI).

“For instance, our neighbouring south-east Asian countries like Thailand and Malaysia have a GST of 7 and 6 per cent respectively. In contrast, GST applicable for hotels in India amounts to a whopping 25 to 30 per cent. Our industry is competing with a difference of roughly 20 per cent while matching with all global the service amenities and requirements. Also, we hope that the government considers granting infrastructure status to hotels with a project cost of INR 25 crore as against the present INR 250 crore,” he adds.

On policy initiatives, FHRAI has suggested increasing the threshold limit of INR 25,000 to INR 1,00,000 for payments to hotels and restaurants against bills raised and to allow bank loans up to INR 10 crores per unit or borrower extended to hotels and restaurants and be reckoned as 'priority sector lending' within the RBI guidelines.

"Small and Medium Enterprises (SMEs) are a vital catalyst for employment generation, skill development and innovation in the hospitality sector. It is imperative to facilitate timely and adequate flow of credit for their sustainable growth and expansion. For the purpose of inclusion under the priority lending norms, the categorization of SMEs in the hospitality industry should be delinked from the restrictive criteria stipulated by the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 and instead be based on liberal, industry specific and globally accepted parameters such as number of employees, annual turnover and such quantifiable parameters. A broad spectrum of institutional mechanisms should be made accessible by which the hospitality industry, including our small and medium enterprises, can access lower cost long-term finance,” concludes Mr. Kamlesh Barot, past-President, FHRAI & HRAWI.