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Govt. questions Service Charge legality, on-site inspection begins


The Consumer Affairs department is studying the existing laws to ascertain whether the practice of collecting “service charges” from consumers is legal.

“We have started checking the bill records of certain restaurants, eateries and hotels to see service charges are being levied by them. During the checking of a sample of restaurants and hotels, we are finding that most of them are collecting service charges from consumers,” a senior official of Consumer Affairs department said here today.

He informed that the department would go through rule books, including the Constitution, Consumer Protection Act, Excise and Taxation Rules, to see the justification of levying service charges on consumers. “We will be ready with a report within a week for taking decision in this regard,” he said.

Meanwhile, Chandigarh-based consumer activists have complained that certain restaurants and hotels were collecting service charges in the range of 5-10% of total bill. Notably, on July 14, Union Finance Ministry had clarified that “service charge” collected by certain restaurants and hotels is not “service tax”, which is levied at a rate of 5.6% on the total bill. The Ministry statement had said that some hotels, restaurants and eateries, besides charging for the food and beverages, were also levying “service charges” in their bills which were retained by them.

“It is clarified that these ‘service charges’ collected by the restaurants/hotels/eateries are retained by the restaurants/hotels/eateries and are not ‘service tax’ imposed by the government,” the Ministry had said.

In case of air-conditioned eateries and hotels, the service tax at the rate of 14% is charged only on 40% of the bill amount. Chandigarh-based activist Ajay Jagga, who is spearheading the campaign against service charges, said that imposing service charges on consumers was completely illegal.

“Service charges are private tax pocketed by certain restaurant and hotel owners. The levy of service charge is completely in violation of Article 265 of the Constitution of India. No charges can be levied unless it has the authority of law,” said Jagga, who is also an advocate.

With Union Finance Ministry issuing clarification regarding “service charges”, UT Chandigarh administration has started inspecting city-based restaurants and hotels to enquire about collection of such charges from consumers.

Source: Economic Times

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