Beware! Your Restaurant Is Over-Charging You! The Service Tax-Service Charge Mess.

Beware! Your Restaurant Is Over-Charging You! The Service Tax-Service Charge Mess.

Beware! Complaint Against Restaurant Charging Excessive Service Tax Wrongly!(Picture Credit:Legally India)
Beware! Complaint Against Restaurant Charging Excessive Service Tax Wrongly!(Picture Credit:Legally India)

Hard Rock Cafe and a bill of around 5K is hardly a surprise.

But it is, when you figure that around 1300 bucks of that meticulously crafted bill were wrongly charged!

When one of my friends came to this rude realization, he immediately dug out a post we had done ages ago (Read ‘Tax’ing-Decoding Your Restaurant Bill! ) on this issue along with a recent notice by Delhi High Court Bar Association (See picture, credit Legally India).

We have been crying hoarse for months now. But we will still refresh your memory so that at least next time when your restaurant overcharges you, you think twice before shelling out those hard earned bucks!

Service Tax is NEVER charged on the whole amount of the bill. It is only charged on the service component of bill which the Finance Ministry has pegged at 40% of the invoice amount. Thus, as per Finance Ministry stipulations, the service tax is to be charged ONLY on 40% of the invoice amount (excluding the VAT charges). Therefore, the effective service tax becomes around 4% of your invoice. (percentage updated as per latest Finance Ministry notification)

Decoding Your Restaurant Bill!
Decoding Your Restaurant Bill!

This is more or less what Delhi High Court Bar Association has also told its members albeit with a slight error. According to this notice, service tax is chargeable only on ‘service charge’ which is incorrect. Service tax is chargeable on the service component of the invoice, as pegged by the regulations.

What Bar Council has also not mentioned is that ‘service charge’ in itself is not a legal charge and is more of a discretionary thing. Which means that if you don’t like the restaurant’s services, you can refuse to pay the service charge.

It may or may not work, but it is worth a try. If it is actually a place which cares for its consumers (rare but such places do exist), they will oblige. (This only applies to objective customers who really have an issue with the services and definitely not the ones who believe in baseless tantrums. After all, as consumers, we too have a duty of

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care and a sense of responsibility which must be adhered to!)

Also, the ‘service tax’ is charged as per ministry guidelines on a percentage of the invoice as determined by ministry regulations. No restaurant can actually vary this component at will, not at least to the disadvantage of the consumers.

If your restaurant is charging service tax on the entire invoice or bill amount, PROTEST and DON’T PAY. This is a seriously disturbing trend, an outright violation of not only consumer rights but the regulations laid down by the concerned authorities and needs to be curbed.

And the ones who can actually really and truly impose an effective curb on the practice, are aware, vigilant and pro-active consumers!





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  3. But is service charge itself legal? Why should a customer pay service charge on top of exorbitant rates for the food? Well, if you look at it, you are paying for the food, so the food prices should be inclusive of everything offered – why should a customer pay for them to deliver the food to the table?

  4. I ate at Chungwa, GK2, Delhi restaurant today on my 10th wedding anniversary. Well we were 12 of us and enjoyed the Soup, Starters, Main Course and Dessert. But when the bill came, I was in for a rude shock. They have put in an amount called Service Charge @ 10% which I outrightly denied to pay. The manager, Mr. Manoj Rajwanshi kept all my questions aside and kept harping that all restaurants charge it. He even mentioned that they pay tax to Govt @ 4.94% on the Service Charge. I tried explaining to him that Service Tax is not on Service Charge + Bill Amount but only on Bill Amount. He did not agree to it. I called Citibank and asked the same question. They agreed that no restaurant can compel me to pay Service Charges and I can ask for a charge back. If the restaurant is unable to prove that the charges are legitimate, they will not be paid and I wont be charged. I thanked Pankaj (Citibank Official) and stated same to the restaurant manager. Well as expected, he did not budge even after going all guns blazing on him. I to end the conversation there, paid the full amount on bill but mentioned that I dispute the Service Chages taken from me on the Service Slip of my card swipe. I will now raise the dispute with Citibank and hope that I get them to agree not charge that amount from me. Lets see!!!!! How fair is judicial system in India.