Service Charge Rule: Should You Pay It At Restaurants and Hotels? Explained

The Delhi High Court has stayed the recent guidelines prohibiting hotels and restaurants from levying service charges automatically on food bills until November 25, when the next hearing of the case registered by the National Restaurants Association of India has been fixed. Justice Yashwant Varma, while dealing with petitions by NRAI and Federation of Hotels and Restaurant Associations of India challenging the Central Consumer Protection Authority (CCPA)’s July 4 guidelines, said the issue requires consideration and directed the authority to file its reply.

Service Charge Row: Here is What Happened So Far

CCPA Issues Guidelines Prohibiting Service Charge

The CCPA on July 4 issued guidelines saying that hotels or restaurant shall not add service charge automatically or by default in the food bill. “No collection of service charge shall be done 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,” it said.

“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 GST on the total amount,” the guidelines further added.

What did the Delhi High Court Say?

“The matter requires consideration. Consequently, until the next date of listing the directions as contained in paragraph seven of the impugned guidelines of July 4, 2022, shall remain stayed,” the court ordered.

“Further, the members will also undertake not to levy service charges on any takeaway items, it added. If you don’t want to pay, don’t enter the restaurant. It is ultimately a question of choice. I have stayed the paragraph 7 guidelines subject to these two conditions,” Justice Varma said.

NRAI Issues Statement

The NRAI on Wednesday, following the Delhi HC’s order issued a statement saying that the authority has always been “steadfast in its assertion that there is nothing illegal in levying of service charge and it is a very transparent system.”

“We are very glad that the Hon’ble Delhi High Court has upheld and confirmed this view. As a responsible Restaurant Body, NRAI will soon send out advisories to all its ,embers about the conditions spelled out by the Hon’ble Delhi High Court and will urge all Members to comply with them in totality,” said the restaurant body.

“NRAI is very relieved with the passing of this order because it otherwise had a direct adverse impact on the human capital employed in the trade,” it added.

Should You Pay Service Charge?

“Delhi High Court has stayed only para 7 of the July 4, 2022 CCPA Guidelines. Therefore legal position considering aforesaid guidelines read with guidelines dated April 21, 2017 published by the Department of Consumer Affairs, is still the same that service charge cannot be added in the bill involuntarily, without allowing consumers the choice or discretion to decide whether they want to pay such charge or not,” said Harvinder Singh, Partner at DSK Legal.

Moiz Rafique, managing partner at Privy Legal Service LLP said that hotels and restaurants can continue to charge service fee till November 25 as the stay has been implemented. “The restaurants, hotels and eateries can continue automatically levying service charges to the food bills till then,” he said.

Meanwhile, Siddharth Joshi, Senior Associate, SKV Law Offices said that the Delhi HC order also stays the guidelines issued by the CCPA. “Therefore, the right of the consumers as provided in Rule 9 of the Guidelines i.e. to make a request to remove the service charge or lodge a complaint with Consumer Commission or District Collector cannot be invoked till the adjudication of Writ Petition by the Hon’ble High Court of Delhi,” he added.

“The order of stay implies that Restaurants can now levy service charge on the bills. By staying the guidelines, even the complaints mechanism under it becomes inoperative for the duration of the stay,” added Sameer Jain, managing partner at PSL Advocates & Solicitors.

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