Are restuarants in India ripping off customers?

Posted on 06. Nov, 2011 by Sarthak K in Featured

Have you noticed how expensive eating out has become all of a sudden? Are Indian restaurants ripping off customers, or is it the general price rise all around that has started to pinch us?

I am not quite sure if this eating out inflation has been felt in the rest of India, but in Delhi whoever I have talked to has felt the difference.

It seems to have happened during the past one or two years; not only have the prices on the menu of most restaurants skyrocketed but so have the amount of taxes you pay on the bill. Yes, taxes, and not tax; because while earlier you would only pay a VAT (value added tax) on your bill, you now pay VAT, service charge and a service tax. During a recent visit to a restaurant when I got a highly inflated bill, I realized that almost one-third of the amount component was made up of these taxes and charges. Let me post it here to put things in perspective:

1 MUSHROOM ON TOAST ………………… 140.00
1 HASHED BROWN POTATO………………. 70.00
1 SPICY CHEESE TOAST…………………… 155.00
1 FRESH FRUIT JUICE………………………  90.00
1 GARLIC BREAD……………………………… 70.00
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Sub total ………………………………………. 525.00
SERVICE CHARGE 10%………………………  52.50 
10.3% SERVICE TAX + SC…………………..  59.48
12.5% VAT……………………………………….  65.63
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Net Total (rounded) …………………………. 702.60

That’s exactly the bill I got when I went for breakfast with a friend at The All American Diner restaurant in India Habitat Centre, New Delhi. On a more recent trip to a restro-bar in Connaught place, a bill for two came out to Rs 1700 – for two drinks and two starters!  In any case, I lost that one so I have put up for analysis the one above. Let us rip into it:

Out of the total bill of Rs 702.60, about Rs 177 was taxes and charges. Now two questions arise:

1. Since when did restaurants start adding a service tax to the bill?
   This seems to have been a recent phenomenon, because at least till a year back it used to be either just VAT or VAT + service charge. Probably it was a recent government directive to fleece more money from the common man. In any case, the service charge bit leads us to the second question…
2. Is forcing a service charge on customers legal?
   This article in Economic Times makes it quite clear that service charge in restaurants is illegal. Its understandable that a restaurant has to pay taxes to the government…but why have a percentage based service charge on an already over-priced menu? This is what the ET article says in brief:

Please be clear that a service charge is not equal to or equivalent to service tax. The service tax is a government levied cess and you are obliged to pay the same if you are a citizen of India or an alien visiting this country.

But there is no such cess called the service charge. This is a fabrication of the hospitality industry. You are not supposed to pay for the service of carrying the food to your table. That cost is included in the cost of the food that is indicated on the menu.

If you think Indian restaurants are copying the west in levying a service charge, think again. Top restaurants in London have already scrapped the service charge, even as more are following suit. However, in India, the tribe of service charge levying restaurants is on the rise, and in a massive way. As the article in ET says: “If India and Indians are rising as a nation, we should also step up our awareness of consumer rights. Currently, eating lunch and gladly contributing to the fund for the proprietor’s new car is nothing sort of foolhardiness.”

We need to protest both the service charge and the service tax in restaurants, its like triple taxation. While the former has to be put up to the restaurants, the latter will be have to pushed to the Government of India. If you have any ideas how we can implement this, please share them in the comments section.