Tipping in restaurants, a preserve of customers and traditionally linked to service satisfaction, is being mandatorily charged in new-age restaurants in Kolkata. The move has not only evoked sharp reaction from the rest of the industry, but has also attracted the scrutiny of tax experts as restaurants are interpreting tax laws differently, leading to billing discrepancies.
Pizza Hut, Spaghetti Kitchen, Cafe Mezzuna and Chili's are among a handful of restaurants that have begun levying 10% service charge on the food bill. Chili's Kolkata master franchisee Rishi Bajoria defends it, saying mandatory tipping is prevalent all over the world. "We see it beneficial in the long run. It will standardize the tip amount and drive staff to work hard and maximize billing so that service charge increases," he argued.
Established restaurateurs rubbish the concept. Suresh Kumar Khullar, proprietor of five-decade-old popular joint Amber on Waterloo Street, vetoed mandatory tip. "Tipping should remain the discretion of customers. Why should a patron be forced to pay a 10% tip if he or she is dissatisfied with the service? Those that are levying the charge actually deduct a portion for upkeep of crockery and cutlery," said Khullar.
Chinese restaurant Red Hot Chilli Pepper attempted to introduce the concept some years ago but discontinued it after VAT rate was hiked and Service Tax was introduced in July 2010. "With mandatory tax hiking the bill by nearly 20%, we felt it was unfair to further burden the customer. If they are happy, they always leave behind a generous tip," said Red Hot Chilli Pepper Hospitality Services director Asim Mewar.
Trader Sumit Ghosh, a regular diner at Park Street, didn't mind leaving a 10% tip till he discovered that Pizza Hut was levying service charge in the bill. "I never scrutinize a bill closely but did because this one appeared to be more than anticipated. When I asked the manager about the service charge, he pointed to the menu where it was mentioned in nearly illegible fine print," he said.
But he found difficult to reconcile with VAT and Service Tax being levied on tips euphemistically named service charge. Not only was he charged 10% or Rs 200 on a food bill of Rs 2,000, he paid both VAT of 14.5% and service tax of 4.944% on this amount. He was even more flummoxed when a week later, he discovered that the taxation at Chili's was different. "By making tipping mandatory and levying taxes on it, a customer is being fleeced by the restaurant and the government," said Ghosh.
Saroj Kumar Sahoo of Devyani International, the master franchisee of Pizza Hut in India, insists its computation is correct. But Bajoria, whose restaurant has opened only a couple of months ago, says his lawyers have studied the Service Tax Rules 2(c) closely before finalizing on billing system at Chili's. The same computation is done at Barbeque Nation.
Service Tax expert Pulok Saha, too, terming the computation of VAT on service charge incorrect. "Kerala high court had ruled against levy of Service Tax in restaurants according to a Supreme Court ruling in which it stated that VAT and Service Tax were mutually exclusive. Thereafter, Central Excise department artificially created a value of service in the restaurant by taking into account the ambience and levied Service Tax. But quick service restaurants are also charge Service Tax on takeaway food. That is illegal as there is a specific exclusion for food that is purchased but not consumed in a restaurant," he said.
Unions have been demanding that service charge be introduced but most of the well-known restaurants that have been around for decades have been resisting it. Standalone restaurants in the city are quite clear on the issue and feel it will be flirting with disaster. "Salaried staff will have no incentive to be more polite, efficient and productive as tip is ensured. The discretion of tipping should remain with customers," said Nitin Kothari, proprietor of popular Park Street fine dining destinations Mocambo and Peter Cat.
Source:- timesofindia.indiatimes.com
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