NEW DELHI: The Delhi HC has upheld the guidelines issued by the Central Consumer Protection Authority (CCPA) that prohibit hotels and restaurants from automatically adding service charges to food bills. In a ruling delivered on Friday, Justice Prathiba M Singh imposed a cost of Rs 1 lakh on the restaurant associations that had challenged these directives.
The National Restaurants Association of India (NRAI) and the Federation of Hotel and Restaurant Association of India (FHRAI) had moved the court against the guidelines, which were initially stayed by the HC on July 20, 2022. However, with the latest ruling, the court has reaffirmed the validity of these regulations.
The CCPA introduced these guidelines in 2022 to curb unfair trade practices and safeguard consumer rights. The directives explicitly state that hotels and restaurants must not include service charges in food bills by default, nor can they enforce payment under any alternative name. Consumers should be informed that service charges are entirely voluntary, and no establishment can deny entry or services based on a customer’s refusal to pay them.
“Service charge or tip is colloquially referred to as a voluntary payment by the customer. It cannot be compulsory or mandatory. The practice of restaurants collecting service charges on a mandatory basis, in a coercive manner, would be contrary to consumer interests and a violation of consumer rights,” the order read.
The guidelines also prohibit service charges from being integrated into the bill and subjected to VAT on the total amount. “The CCPA may consider permitting change in the nomenclature for Service Charge which is nothing but a ‘Tip or a voluntary contribution’. Terminology such as ‘voluntary contribution’, ‘staff contribution’, ‘staff welfare fund’ or similar terminology can be permitted. 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,” the order said.
The court in its order further said that all restaurant establishments would have to adhere to the guidelines passed by the CCPA. “If there is any violation of the same, action would be liable to be taken in accordance with law. CCPA is free to enforce its guidelines in accordance with law,” it added.
NRAI argued that no existing law prohibits restaurants from imposing service charges and that there has been no legislative amendment rendering such levies unlawful.