(Image source from: Hotels and restaurants fleecing people in Hyderabad)

A visit to the restaurants in hyderabad will reveal that these eateries are taking customers for a ride. Customers have to fish out much more than was anticipated, based on the price list in the menu.

Besides there seems to be no uniform rate that the various restuarents in the city charge its patrons. Most people are too busy to question what they are paying or are ignorant about the percentage that is to be charged by these establishments.

A careful scrutiny of the bills will reveal that customers are charged a service tax, a service charge and VAT. The service tax and VAT is legally applicable but service charge is an illegal tax that is definitely being pocketed by these eateries.

Tax structure

According to the government tax structure restaurants can collect service tax of 4.94% on the total bill or 12.5% on 40% of the bill, and Value Added Tax (VAT) of 14.5%. However, hotels in Hyderabad levy differently charges. Besides, customers pay a service charge ( ranging between 5% to 20%) levied on the food and beverages consumed.

As per rules the 4.95% service tax goes to the Centre and VAT goes to the state government. But service charge, a recent additional tax adopted by eateries in the twin cities, is an additional tax that has no legal basis.

As per Cenvat Credit Rules, service tax can be levied by a restaurant or hotel only if it has the facility of air conditioning or central air heating. So a non- air-conditioned / non-centrally air-heated restaurant is not entitled to levy service tax.

What is Service Charge?

Of the three taxes that places an unnecessary burden on the customers is the service charge. It's levied for the services provided by the restaurant and the money goes to the establishment.

In the absence of any guidelines from the tax authority, the hotels and restaurant are free to charge any amount.

Service charge varies between 5% to 20%. Also there are some establishment who don't charge it. The arbitrary service charge has no legal sanctity and is actually equivalent to tips given to waiters.

In case a service charge is included in your total bill, don't tip the attendant as the additional charge is meant to be shared by the staff.

Wishesh teams findings

Wishesh team, which had been to the different restaurants in the twin cities made a shocking discovery during its research. The bill revealed that 14.5% VAT was being levied on the final amount, which included food and beverages (as required) and also sales tax and service charge.

Besides a service charge ranging from 5% to 20% were being levied on the final bill. The service charge is an additional charge levied by the hotels and restaurants in the twin cities.

Most customers assume that these taxes have been correctly levied and leave a hefty tip along with the bill. Before making the payment it's imperative for customers to check the bill carefully or risk being taken for a ride.

A source reports that while most hotels deposit the excess levy (service charge) to the commercial taxes department, but there are quite a few who pocket the amount.

Go to consumers court for redressal

Consumer can go to court and get redressal for the excess amount charged. Recently, a women in Chennai dragged a restaurant to the consumer's court over an excess charge of Rs 71 as taxes. The court directed the establishment to pay Rs 10,000 as compensation and Rs 2,000 as cost incurred in the case.  

In December 2012, Uma Parameshwari had gone to Dhaba Express in Chennai's Anna Nagar, for dinner with her family. The restaurant gave her a bill of Rs 1,225, that included VAT and service tax. Parameshwari was charged Rs 101.79 as service tax instead of Rs 30. An extra amount of Rs 71.79 was charges as service tax. She dragged the establishment to a consumer's court for redressal.

Parameshwari first served a legal notice to the restaurant, asking for refund of the extra sum collected and a compensation of Rs 25,000. The restaurant didn't reply to the notice, nor was the demand complied to.

Uma Parameshwari then moved the district consumer disputes redressal forum (north Chennai) over the dispute. She asked for a compensation of Rs 25,101.79 from the restaurant for causing mental agony and case cost through the consumer's forum.

 

Finally she got justice when the court directed the restaurant to pay Rs 12,000 as compensation and also warned the establishment against its unfair trade practices in future.

Why restaurant continue with such unfair trade practices?

 

Most of us are not bothered about the service charge, even when we feel it's quite high. One reason for this is that we dont want to spoil the evening as it would ensue an arguement with the manager. Another reason is that we feel that nothing can be done about it.

But, there is a way out, as Uma Parameshwari raised her voice against the wrong act. Uma even got compensated by nearly 170 times the excess amount she had been charged.  

In case you are a vigilant citizen and would like to question such arbitrary practice then remember that if the menu mentions service charges, you have no option but to pay. But if there is no such mention of service charge then you can definitely question it.

The high tax structure and the additional tax has a spiralling effect on the people of Hyderabad. They should earn an amount that is much more than is required to pay for their comforts or else go to road-side eateries. If the people are being fleeced by one segment of society they will try to recover it from another segment. This will breed corruption, blackmoney, high inflation or failure of businesses in society.

Raise your voice and say no to corrupt practices. Why should someone charge even an extra Rupee than what is the rightful amount? Be the first one to protest and a make a difference to society.

(AW: Pratima Tigga)