The Goods and Services Tax (GST) has gradually eliminated the service tax, meaning customers are no longer required to pay it. However, the service charge still applies. This is a statutory tax imposed by the government, which applies to the service provider, but is ultimately generated by customers who use a specific service. According to a recent amendment, the service tax will only be charged if the restaurant is air conditioned.
Previously, a restaurant was required to also have a bar, but this condition has been removed. The guidelines state that the tip or service charge paid by the customer for hospitality that they received exceeds the basic minimum service. The minister noted that the imposition of service charges is clearly arbitrary and constitutes an unfair and restrictive business practice under the Consumer Protection Act. The government defines a service charge as a tip or direct transaction between the customer and the waiters.
It is very problematic to see the firm path taken by the food industry of continuously charging the highest price to the customer despite the massive reduction in taxes. Investopedia defines a service charge as the charge paid directly to the company for the service provided to the consumer or used for administrative or processing costs. In some restaurants, depending on their policy, the service charge is mandatory and, therefore, their staff often ends up explaining to customers every time a bill mentions a service charge higher than GST. However, there have been many cases where restaurants have forced customers to pay service charges despite the latter's disapproval.
According to restaurateurs, these charges are often kept as a corpus fund, which is used for the existence and livelihood of the company. In addition to this, restaurants also sell MRP products such as cold beverages and charge a sitting fee that is not mentioned anywhere on the bill. For example, if you purchase a 200 ml cold drink with an MRP of 15 rupees, they will charge you 18 rupees which includes GST. The new GST rule has once again raised questions about whether service charges should be paid and why they continue to be charged. A restaurant bill includes the cost of food (usually mentioned on the menu), a service charge and 5% GST on food services including takeout services.
Any person who provides a taxable service to any person must pay service tax at the rate specified in Sec. The government department also monitors food rates in restaurants and has required restaurants to lower their rates in order to reduce taxes paid and show benefits to customers simultaneously. The association explained that a service charge, like any other charge charged by an establishment, is part of an invitation offered by the restaurant to potential customers. According to the Ministry of Consumer Affairs, Food and Public Distribution, this charge is voluntary and paid at customers' discretion. However, since it is not mentioned in Consumer Protection Act, its interpretation is made by court.