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Informist, Friday, Mar. 28, 2025

 

--HC: Restaurants can't levy service charge mandatorily with food bills 

--CONTEXT: Consumer body said hotels can't levy svc charge automatically 

--HC upholds consumer body order to hotels to not levy svc charge by default 

 

NEW DELHI – The Delhi High Court on Friday upheld the Central Consumer Protection Authority's 2022 guidelines that said hotels and restaurants should not add service charge automatically, or by default, on their food bills. The high court said service charge and tips were voluntary payments by consumers and cannot be made compulsory or mandatory on food bills by restaurants or hotels.

 

Mandatory collection of service charge on food bills was contrary to law as it was in violation of Consumer Protection Act, 1986 and if consumers wish to pay any voluntary tip, the same was not barred, said Justice Prathiba M. Singh. The high court rejected petitions filed by the Federation of Hotels & Restaurant Associations of India and the National Restaurant Association of India against the 2022 guidelines and imposed a cost of INR 100,000, to be given to the consumer body.

 

The high court said that the Central Consumer Protection Authority is not merely a recommendatory body and it has power and jurisdiction to issue guidelines. The collection of service charge automatically would amount to unfair trade practices, said the court. All the restaurants and hotels have to adhere to the guidelines issued by the consumer body, said the court. The high court said that the Central Consumer Protection Authority may consider changing the terminology of service charge to something else to reduce confusion amongst the consumers.

 

Last year, the high court had observed that the service charge levied by restaurants and hotels, along with goods and services tax, was a "double whammy" for customers and, collectively, the restaurant bills became "quite high". The high court also questioned the hotels and restaurant associations on why they don't call service charge something else, as people confuse it with service tax.

 

In 2022, the court had questioned the Federation of Hotel & Restaurant Associations of India's explanation that service charge is levied for the services rendered by the employees. Restaurants should instead increase the salaries of their employees, the court had said.

 

The petitioners had questioned the power of the Central Consumer Protection Authority to frame those guidelines. The Central Consumer Protection Authority had said that the levy of service charge by restaurants makes customers think that it is a government tax.

 

On Jul. 20, 2022, the high court had stayed the Central Consumer Protection Authority's guidelines. It had also directed members of the restaurant associations to ensure that the levy of service charge in addition to the price and taxes, and the obligation of customers to pay the same, was prominently displayed on the menu.  End

 

Reported by Surya Tripathi

Edited by Ashish Shirke

 

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