New Delhi: The Delhi High Court, on Friday, held that ‘service charge’ levied by restaurants and hotels amounts to unfair trade practice and imposing it in a mandatory manner violates consumer rights. The Central Consumer Protection Authority (CCPA) had, in 2022, had prohibited hotels and restaurants from automatically levying a service charge on food bills.
This guideline of the CCPA was challenged before the Delhi High Court by the Federation of Hotels and Restaurants Associations of India (FHRAI) and the National Restaurant Association of India (NRAI). After hearing their plea, the court had granted an interim stay with conditions.
One of the conditions was that it has to be clearly mentioned in the menu that a ‘service charge’ is applicable, beyond the bill amount and tax. This would ensure that a diner is aware of such a charge before s/he orders and has the option to leave. The second condition was that the interim order should not be mentioned in the menu card as it would be misconstrued that the court has ratified the imposition of a service charge.
Hearing of the matter continued with the FHRAI and NRAI submitting that a service charge helps in bringing about parity and allows equal distribution of ‘tips’ among all staff members. The CCPA had contended that the mandatory charging of service charge goes against the rights of consumers who should be the ones to decide whether and how much to pay as ‘tip’.
The hearing concluded in December 2024 and the judgement was passed on Friday. The court dismissed the two petitions by FHRAI and NRAI and imposed costs of Rs 1 lakh each. This sum is to be paid to the CCPA for utilisation for consumer welfare.
According to LiveLaw, the court observed: “The CCPA is an authority empowered to pass the guidelines under CPA 2019. Issuing guidelines is an essential function of CCPA. The same has to be mandatorily complied with.”
The Court also held that the mandatory collection of service charge on food bills is misleading as the same puts the consumers under the impression that they are imposed in the form of service tax or Goods and Services Tax (GST).
