Representational image of a bunch of bills at a restaurant
| Photo Credit: PTI
The Delhi High Court on Friday (March 28, 2025) ruled that service charge or tips is a voluntary payment by the customer, and it cannot be made compulsory or mandatory by hotels and restaurants.
“The practice undertaken by restaurant establishments of collecting service charge, that too on a mandatory basis in a coercive manner, is contrary to consumer interest and is violative of consumer rights,” Justice Prathiba M. Singh said.
The court rejected plea by associations of hotel and restaurant owners such as National Restaurant Association of India (NRAI) challenging the Central Consumer Protection Authority’s (CCPA) July 2022 guidelines prohibiting hotels and restaurants from automatically levying service charge on food bills.
The guidelines issued by CCPA, stated that hotels or restaurant cannot add service charge automatically or by default in the food bill. No collection of service charge shall be done by any other name, it said.
The CCPA said if any consumer finds that a hotel or restaurant is levying service charge in violation to the guidelines, they may make a request to the concerned hotel or restaurant to remove service charge from the bill amount. Also, the consumer may lodge a complaint on the National Consumer Helpline (NCH), it said.
On Friday, the court ruled that, “all restaurants establishment would have to adhere to the guidelines passed by CCPA, if there any violation, action will be taken in accordance with law”.
The court further added that the CCPA is not merely a recommendatory or advisory body. It has the power to issue guidelines to protect consumer interest. “The use of service charge is misleading as consumer tend to confuse the same with service tax or GST. The guidelines framed by CCPA are in the interest of the consumers and are upheld,” the court said.
On the issue of collection of service tax and use of different terminologies of the said charge, Justice Singh said it was “misleading and deceptive in nature. The same constitutes an unfair trade practice”.
“The fact that service charge can be collected as it part of a voluntary contract made by the consumer who enters the establishment and avails of the services after seeing the changeability is an argument which is not tenable as such a condition is onerous and constitutes an unfair contractual condition,” the court clarified.
The court ruled that the mandatory collection of service charge is contrary to law and violates guidelines. It was of the opinion that if the consumer wishes to pay any voluntary tip for services which they enjoyed, the amount would not be added to the bill.
Published – March 28, 2025 03:24 pm IST
