Last week, the Supreme Court issued a landmark ruling banning service charge that drew cheers from the public, but a row rages over where the decision applies.

Government officials say the no-service-charge order only pertains to hotels and restaurants; but consumer activists and lawyers say, nope, that means no service charge anywhere.

All service providers ranging from airports, drinking water suppliers, electric utilities and hospitals to banks, telecom companies, educational institutions, restaurants and hotels cannot add a service charge to the bill anymore.

The constitutional bench headed by Acting Chief Justice Hari Krishna Karki and consisting of Justices Bishowambhar Prasad Shrestha, Ishwar Prasad Khatiwada, Ananda Mohan Bhattarai and Anil Kumar Sinha ruled that service charge was illegal, effective immediately as per the full text of the judgement.

One of the judges told the Post last week that since Section 87 (3) of the Labour Act, 2017 had been declared void for contradicting the constitution, service charges were no longer legal.

But the Department of Commerce, Supplies and Consumer Protection, the government body tasked with monitoring and regulating the market, thinks it is applicable to hotels and restaurants only.

“The decision is not for other goods and services,” said Mahesh Bhattarai, director general of the Commerce Department.

Prem Lal Maharjan, president of the National Consumer Forum who filed the case against the service charge policy that culminated in the court ruling, says it has become illegal in all sectors governed by the Labour Act 2017.

He says service charge has been prohibited in all organisations like the Nepal Electricity Authority, Civil Aviation Authority of Nepal, Nepal Water Supply Corporation and Nepal Telecom which have authorised trade unions where the Labour Act applies.

But Maharjan says it is not applicable to banks and financial institutions and hospitals which are governed by a separate act.

On October 8, 2019, Maharjan filed a writ petition at the Supreme Court seeking cancellation of the 10 percent service charge being added to the bill by hotels and restaurants.

Annulling the fee, the Supreme Court ruled that Section 87 (3) was against the spirit of Articles 44 and 115 (1) of Nepal’s Constitution. Article 44 says that every consumer shall have the right to obtain quality goods and services; and Article 115 (1) says that no tax shall be levied and collected except in accordance with the law.

The full text of the verdict says that Section 87 (3) of the Labour Act 2017 under Article 133 (1) has been declared void on the ground of inconsistency with the constitution because it imposes unreasonable restrictions on the enjoyment of the fundamental right conferred by the constitution.

“How will Nepal Water Supply Corporation or the Civil Aviation Authority of Nepal or the Nepal Electricity Authority survive without collecting service charge from consumers? They take service charge and provide service to people,” Bhattarai said.

"The court has removed Section 87 (3) from the Labour Act and it has nothing to do with other sectors that are governed by the Financial Act," he said. “The Legislature Parliament passes the Financial Act annually,” he said.

Bhattarai says the service charge collected by Nepal Telecom is in accordance with the Financial Act, and the money goes into the government treasury. “But the service charge taken by hotels and restaurants is shared by the owner, employees and trade unions,” he said.

“Some consumer rights activists did not understand the decision, and said that service charge had been removed from all establishments,” Bhattarai said.

"The case was filed against the service charge added to hotel and restaurant bills, and it is extremist thinking to say that the fee has been removed from all sectors," he said.

But consumer lawyer Bishnu Prasad Timilsina counters, "The government too cannot take service charge from customers for providing a service. The government is benefiting from the service charge policy, so it is saying that the fee cannot be removed from sectors other than hotels and restaurants.”

Gunakar Bhatta, spokesperson for Nepal Rastra Bank, said the central bank had not received any communication regarding service charge. “We will act accordingly if the court order is also against taking service charge in banks and financial institutions.”

Maharjan said consumers were being made to pay service charge because government officials seem to be confused about where the ruling applies. “And the governing body does not appear to be serious about the matter,” he said.

The mandatory service charge system came into force on January 1, 2007 in the hospitality industry. Other sectors adopted the policy soon after.

Since then, hotel and restaurant customers have been paying 24.3 percent more than the menu price—10 percent compulsory service charge, 13 percent VAT and 1.3 percent service tax. The VAT and service tax go to the government.

"A consumer can file a case if they are made to pay service charge in any sector," Timilsina said.