Need to end high markups by hospitality industry
Actor Rahul Bose’s tweet about JW Marriott in Chandigarh charging Rs 422.50 for a pair of the cheapest of fruits -- the humble banana – has not only focused attention on the unreasonably high mark-up or the unbridled profiteering on certain foods by the hotel industry, but has also triggered a major debate on the imposition of Goods and Services Tax by the hospitality industry on fresh fruits that are exempt from the levy.
The retail price of two bananas would be anywhere between Rs 14 and Rs 20. The wholesale price would be much cheaper. But even if you take the highest price of 20, the hotel jacked it up by almost 19 times and charged Rs 375 , excluding GST. True, there is no cap, by law, on the price tag that a hotel puts on the food it sells/ serves or the room it rents out. However, there has to be some logic, some limit to the profit margin.
In response to the actor’s tweet, many consumers shared their experiences. ’Rs 400 for a packet of chips costing Rs 20!’ said one of them. So that’s 20 times the retail price! But what I feel most agitated is about the pricing of bottled water at hotels and restaurants. Of course, with the Supreme court’s pronouncement that the Legal Metrology Act does not prohibit the sale of bottled water at prices above the MRP at hotels and restaurants, one cannot legally stop them from charging 10 to 15 times the cost of a bottle of water, but by openly giving expression to their unhappiness, consumers can certainly bring about a change . And here, actors like Rahul Bose, with their huge fan following, can really make an impact .
The other issue is the 18% GST imposed by the hotel on the bananas. Following the actor’s tweet, the Excise and Taxation department, Chandigarh, got into action and according to media reports, served a show cause notice on the hotel and on getting no satisfactory reply, imposed a penalty of Rs 25,000 for illegal collection of 18% tax on an exempted item -- fresh fruit (Violation of Section 11 of the CGST Act). In fact if you go to the website of the GST Council and see the list of goods which attract zero levy, you will see the names of all fruits and “bananas, including plantains, fresh and dried” appear clearly.
Hopefully, the Excise and Taxation Commissioner will look into all the old bills of the hotel to see how many customers have been similarly charged GST on goods like fresh fruits that are not taxed and ensure that the hotel returns this illegal levy to each of the customers.
Having said that, I must point out that this is not the end of the matter. Already, the Federation of Hotels and Restaurants Association of India has pointed out that the hotel was not simply selling the banana, but was serving it to the guest. So it had a legal obligation to levy a service charge.
This is more or less similar to the argument that the hotel industry put forward in respect of its right to sell bottled water at a price above the maximum retail price marked on the bottle. And one can be sure that the humble banana will be at the centre of a major debate on whether or not hotels can impose GST on fresh fruits and such other foods that attract zero tax (curd, lassi and buttermilk, for example), till it is settled either by the taxation authorities or the court. Whatever the end result, one hopes that Rahul Bose’s tweet will be the beginning of consumer resistance to high markups by the hospitality industry.