In a major relief to consumers, the Delhi High Court on Friday held that service charge on food bills was voluntary and restaurants could not impose it oncustomers.  The Court made it clear that the collection of such a cess was in contravention of the law and violation of consumer rights.

Dismissing two petitions of the restaurant bodies challenging the Central Consumer Protection Authority (CCPA) guidelines prohibiting hotels and restaurants from mandatorily levying service charge on food bills, Justice Prathiba M Singh said this was “misleading” and “deceptive” as it gave an impression to the consumers that they were imposed in the form of service tax or GST

The Court underscored that the society’s interest is paramount and the rights of consumers as a class would prevail over the rights of restaurants. 

The judge said that such a practice amounts to “unfair trade practice” and the amount cannot be mandatorily added to the bill.

Upholding the guidelines, the court also imposed ` one lakh cost each on the petitioners to be deposited with the Central Consumer Protection Authority towards consumer welfare. The Federation of Hotels and Restaurant Associations of India and the National Restaurant Association of India had moved the court in 2022 by filing two separate petitions, challenging the Central Consumer Protection Authority guidelines prohibiting hotels and restaurants from mandatorily levying service charge on

food bills.

The Court also held that the CCPA was not merely an advisory body but was empowered to issue guidelines for prevention of unfair trade practices and for protecting consumer interest.

“The CCPA is an authority empowered to pass the guidelines under CPA 2019. Issuing guidelines is an essential function of Central Consumer Protection Authority. The same has to be mandatorily complied with by all the restaurants,”

it said. The Court had on December 13, 2024, reserved its verdict and later stayed the guidelines, issued by the CCPA on July 4, 2022. The CCPA guidelines provided that the hotels or restaurant shall not add service charge automatically or by default in the food bill and no collection of service charge be imposed by any other name. 

The guidelines said that 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.  

The counsel for FHRAI had argued that the CCPA had no power or jurisdiction to impose such a ban, without following the principles of natural justice.

“Merely holding a meeting with the industry body is not in compliance with natural justice and the guideline could only be advisory in nature.”

The counsel said service charge was levied on customers for the benefit of the restaurant staff, in line with the fundamental right of the owners to carry on any occupation, trade, or business. The Centre’s counsel said no material was placed on record to show how service charge was benefitting the staff. Petitioners, however, argued that service charge, applicable in the last several years, was a “traditional charge” and sought by restaurants after a due display of notice on menu cards and premises.

They asserted the CCPA order as arbitrary, untenable and ought to be quashed.