Restaurants No Longer Barred From Levying Service Charge: What It Means For You

Delhi High Court stayed the recent guidelines prohibiting hotels and restaurants from levying service charges automatically on food bills. Image used for representation.

(Photo Courtesy: iStock)

In a latest development, the Delhi High Court on Wednesday, 20 July, stayed the recent guidelines by Central Consumer Protection Authority (CCPA) prohibiting hotels and restaurants from levying service charges automatically on food bills.

While staying the guidelines, the court said that the issue requires consideration and directed CCPA to file its reply.

“The matter requires consideration. Consequently, until the next date of listing the directions as contained in paragraph seven of the impugned guidelines of 4 July 2022, shall remain stayed,” the court ordered.

Here's everything you need to know the service charge, CCPA's guidelines, and Delhi High Court's order.

What is a service charge?

A service charge is the gratuity/tip paid by a customer in appreciation of the staff’s service. A direct tip is received by the particular waiter, whereas the service charge is collected and paid to the service staff proportionally up to the supervisory level by hierarchy.

It is to make up for the traditionally low salaries received by service staff such as waiters, bartenders, etc, and is usually 10-15 percent calculated on the total food bill before taxes.

What is CCPA?

The CCPA is a regulatory body established under Section 10(1) of the Consumer Protection Act, 2019. The CPA, 2019 replaced the Consumer Protection Act of 1986.

The CCPA’s aim is to protect customers from improper trade practices and false advertisements. It is also supposed to protect customers from hazardous goods and services.

Whats are CCPA's new guidelines?

The CCPA issued the following guidelines to protect customers from levying of service charges, which are considered a ‘restrictive trade practice’ by the body.

(i) No hotel or restaurant shall add a service charge automatically or by default in the bill.

(ii) Service charge shall not be collected from consumers by any other name.

(iii) No hotel or restaurant shall force a consumer to pay the service charge and shall inform the consumer that the service charge is voluntary, optional, and at the consumer's discretion.

(iv) No restriction on entry or provision of services based on the collection of service charge shall be imposed on consumers.

(v) Service charge shall not be collected by adding it along with the food bill and levying GST on the total amount.

Who challenged CCPA's Guidelines?

The petition against CCPA's guidelines was filed by the National Restaurant Association of India (NRAI) and Federation of Hotels and Restaurant Associations of India.

The petition claimed that the prohibition under the 4 July order was “arbitrary, untenable and ought to be quashed” as it has been issued without an appreciation of the facts and circumstances.

What did the Delhi High Court say?

The Delhi High Court said that the stay on the guidelines prohibiting hotels and restaurants from levying service charges automatically is subject to the members of the petitioners ensuring that the levy of service charge in addition to the price and taxes and obligation of the customer to pay the same is duly and prominently displayed on the menu or other places.

The members will also undertake not to levy service charges on any takeaway items, the court added.

While staying the guidelines, the court said that the issue here is 'question of choice'.

“If you don't want to pay, don't enter the restaurant. It is ultimately a question of choice. I have stayed the paragraph 7 guidelines subject to these two conditions,” the court said.