Delhi High Court validates CCPA’s Guidelines which prohibit mandatory levy of a Service Charge by a Restaurant or Hotel

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

Service charge shall not be collected from a consumer by any other name.

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

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

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

Once CCPA has satisfied itself that a practice is an unfair practice, CCPA is empowered to issue guidelines under Section 18 of the Act and guidelines issued by CCPA under section 18 of the Act have the force of law and are enforceable.

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

An establishment is free to price its products in any manner taking into account cost of raw materials, salaries, expenditure, capital expenses on premises, however, once the product is priced, to collect charges over and above the product price is not justified.

Restriction on a restaurant to mandatorily charge service charge is for the benefit of larger interest of the society and therefore, the restriction satisfies the test of reasonability under Article 19(1) (g) of Constitution.

As per general practice, on most occasions, a customer does not notice the disclaimer regarding service charge on a menu as the customer’s focus is on placing an order for purchase of food and beverages. A customer chooses a hotel or restaurant based on the approximate expenses that may be incurred. However, after a customer pays for the food or beverages consumed, if a customer is asked to pay 10-12% extra in the name of service charge, this amounts to an unfair trade practice.

The Court rejected the argument that there is an implied contract between an establishment and a consumer once the establishment displays the collection of service charge on menu on the ground that a consumer has little bargaining power against a restaurant.

Service charge imposes an additional financial burden on a customer and distorts the principle of fair trade as a customer is mandatorily asked to pay service charge irrespective of the consumer’s satisfaction with the food and service.

Regarding argument that service charge is a matter of contract between management and the workmen, the Court held that there was not enough evidence produced in this regard and further any such agreement cannot override law. Further, salary of the workmen is decided on the basis of revenue generated by the establishment and not on the basis of service charge.

The Court held that the guidelines were issued after proper stakeholder consultation and a stage wise process was undertaken with the initial guidelines dating back to the year 2017.

Imposition of service charge creates lack of clarity with respect to the price of food item and therefore, this amounts to an unfair trade practice.

The guidelines issued by CCPA under Section 18(2) (I) have to be mandatorily complied with.

Service charge cannot be made compulsory or mandatory.

Collection of service charge and use of different terminologies is misleading and deceptive and constitutes an unfair trade practice. 

Voluntary tipping for services is not barred. However, such tip cannot be added by default in the bill or invoice and should be left to a customer’s discretion.

CCPA may consider permitting a change in nomenclature for Service Charge as the phrase “service charge” is misleading as consumers tend to confuse a service charge with service tax or GST. Terminology such as voluntary contribution, staff contribution, staff welfare fund or similar terminology should be used instead of “service charge”.