Service Charge Row: Can Restaurants Ask You to Pay Extra? Here’s What We Know So Far


Even as the Delhi High Court has asked the Centre to approach a single-judge Bench for relief against an order banning the service charge by hotels and restaurants, the eateries can levy the charge on customers till the next hearing on August 31. Here’s what we know so far on the issue and also who has said what:

What’s The Issue?

Hotels and restaurants levy service charge on customers in the range of 5-10 per cent over and above the bill. The consumer affairs department has been getting complaints from consumers about restaurants making such a charge compulsory, which was embarrassing consumers in case they resist from paying the service charge.

After the complaints, the department swung into action. It called a meeting with restaurants and hotels on June 2, in which the levy of service charge was discussed. The department during the meeting called the service charge illegal and asked the National Restaurant Association of India (NRAI) to immediately stop the practice.

Subsequently, on July 4, the Central Consumer Protection Authority (CCPA) issued guidelines to prevent unfair trade practices and the violation of consumer rights with regard to levying of the service charge in hotels and restaurants. The guidelines stipulated that hotels or restaurants shall not add service charge automatically or by default in the food bill.

The restaurants challenged the guidelines in the Delhi High Court, after which the court ordered in their favour and stayed the guidelines on July 20.

What Govt Says?

The consumer affairs ministry has called the service charge levied by restaurants illegal. It has said there is no legal sanctity attached to this levy that is charged to consumers and the government will come up with a legal formulation regarding this.

In a letter to the NRAI at the end of May, Department of Consumer Affairs Secretary Rohit Kumar Singh had said the restaurants and eateries are collecting the service charge from consumers by default, even though the collection of any such charge is voluntary and at the discretion of consumers and not mandatory as per law.

Singh also said consumers are also being falsely misled on the legality of such charges and harassed by restaurants on making a request to remove such charges from the bill amount. “Since this issue impacts consumers at large on a daily basis and has significant ramification on the rights of consumers, the department construed it necessary to examine it with closer scrutiny and detail,” the letter said.

On Thursday, the Delhi High Court also, Additional Solicitor General (ASG) Chetan Sharma, appearing for the Centre and the CCPA, said service charges “takes colour” of a “quasi-government or government charge” and cause embarrassment if one refuses to pay.

What Hotels and Restaurants Have Said?

During the meeting in early June, restaurant associations countered the claims of the government by saying that when service charge is mentioned on the menu, it involves an implied consent of the consumer to pay the charge. Service charge is used by restaurants/hotels to pay the staff and workers and is not charged for the experience or food served to consumer by the restaurant/hotel, they added.

“Media reports regarding decision allegedly taken at Department of Consumer Affairs meet today with respect to the legality of service charge are untrue. Department heard views of all stakeholders and will review all inputs before deciding on the matter. Until final disposal, service charge is still very much legal,” the NRAI said in a tweet in June following the meeting.

In its petition before the Delhi HC, the industry body had said, “Levy of service charge has been a standing practice in the hospitality industry for more than 80 years, which is evident from the fact the Supreme Court took notice of this concept way back in 1964.”

What Court Has Said

While staying the guidelines banning the service charge on July 20, the Delhi High Court, “Don’t pay. Don’t enter the restaurant. It’s a matter of choice.” Justice Yashwant Varma, who was hearing the case, also said eateries must prominently display the levy of service charge on their menus and other places.

On Thursday (August 18) while hearing the case, a Bench of Delhi Chief Justice Satish Chandra Sharma and Justice Subramonium Prasad allowed the Centre and the CCPA to make a submission before the single-judge Bench on pleas challenging the guidelines, which will now hear the case on August 31.

Also, the division bench told restaurants, “You (restaurants) don’t have to levy service charges to pay your employees. You are liable and bound to pay your employees under various enactments, that is your obligation under law.”

However, the court has said the restaurants can levy service charges on customers for the time being.

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