KATHMANDU, Jan 26: Hotels and restaurants cannot take the 10 percent service charge from now on, with the Supreme Court (SC) on Wednesday issuing a verdict prohibiting the eatery business from taking any payment beyond the menu prices.

As of now, hotels and restaurants have been taking an additional 10 percent of the food prices in the form of the service charge from the customers. On top of it, they also impose 13 percent VAT on the cumulative amount. “If the business entities, by some laws, are delegated to fix a certain amount in service fee, the group of employers cannot make a common agreement to fix such fee,” the Supreme Court stated in its final decision.

The constitutional bench issued a mandamus in response to a writ petition filed by Prem Lal Maharjan, a consumer rights activist. The SC verdict has come into effect since Wednesday. In its verdict, the apex judicial organ has stated that charging fee should not be considered mandatory, but is subjected to receiving the services and facilities.

Last September, the Kathmandu District Court also issued a verdict prohibiting the restaurants, hotels and resorts from charging their customers more than the price listed on the menu. “However, the hoteliers, in the pretext of a separate law, gave continuity to the taking service charge,” said Jyoti Baniya, chairman of Nepal Consumers’ Forum. According to him, the SC’s verdict has now outlawed all other provisions related to the issue.

The mandatory service charge system came online on January 1, 2007. Since then, hotel and restaurant customers have been paying 24.3 percent more than the menu price — 10 percent compulsory service charge and 13 percent VAT. Of the amount collected in service charge, employees used to get 68 percent and management received 32 percent of the amount collected as service charge.

The provision had been sought to be mandatory in a bid to narrow the differences between hotel management and employees when their dispute reached a peak. Later in June 2018, Hotel Association Nepal (HAN) and the Nepal Tourism and Hotel Laborers Association agreed that hotel employees would get 72 percent, the hotel management would get 23 percent, HAN would get 2 percent and the three trade unions affiliated to the Nepali Congress, CPN-UML and CPN (Maoist Centre) would get 1 percent each.

The Restaurant and Bar Association of Nepal in January 2019 made optional to its member eatery outlets to charge 10 percent service charge.