In a judgement that comes as a major relief to consumers, the Delhi High Court on Friday ruled that service charge levied by restaurants and hotels is a voluntary payment and cannot be made compulsory or mandatory. Upholding the guidelines of Central Consumer Protection Authority (CCPA), the court held that mandatory collection of service charge is contrary to law and violative of consumer rights.
In 2022, the CCPA had issued guidelines that prohibited hotels and restaurants from levying service charge automatically or by default in the food bill. These guidelines were challenged by two industry bodies- the National Restaurant Association of India and Federation of Hotels and Restaurant Associations of India (FHRAI) in the court.
The court has also levied a penalty of ₹1 lakh on these two industry bodies
Minister of Consumer Affairs , Food and Public Distribution Pralhad Joshi in a post on X stated:”Consumer Wins! The CCPA guidelines prohibiting mandatory imposition of service charges by hotels and restaurants has been upheld by the Delhi HC. The service charge on food & beverage bills is only voluntary in nature.”
“Service charge or TIP as is colloquially referred to, is a voluntary payment by the customer. It cannot be compulsory or mandatory. The practice undertaken by the restaurant establishments of collecting service charge that too on a mandatory basis, in a coercive manner, would be contrary to consumer interest and is violative of consumer rights,” the Delhi High Court’s judgement stated.
“The collection of service charge and use of different terminologies for the said charge is misleading and deceptive in nature,” the judgement added.
Issuing guidelines
Noting that CCPA is fully empowered to pass guidelines under Consumer Protection Authority, 2019, it added that issuing guidelines in consumer interest is its essential function. “The said guidelines would have to be mandatorily complied with as the scheme of the Act clearly provides for enforcement of guidelines,” the judgement noted.
The court rejected the industry bodies’ justification , that the collection of service charge is part of labour settlements and agreements with staff.
The court also opined that while mandatory collection of service charge is contrary to law and violates the guidelines but if consumers wish to pay any voluntary tip it should not be barred and left on consumer’s discretion. The use of the word ‘service charge’ is misleading as consumers tend to confuse the same with service tax or GST or some other tax which is imposed and collected by the government.
