The
Delhi High Court ruled on Friday that restaurants and hotels cannot impose
mandatory service charges on food bills, stating that such a practice amounts
to unfair trade.
The
court upheld the guidelines issued by the Central Consumer Protection Authority
(CCPA), which prohibit mandatory service charges and ensure that consumers have
the right to decide whether to pay them.
Justice
Prathiba M Singh, who delivered the verdict, dismissed petitions filed by
restaurant associations challenging the CCPA’s guidelines. The court also
imposed a penalty of ?1 lakh on the associations for contesting the guidelines.
Reaffirming the CCPA’s authority, the court stated that
the body is not merely advisory but has the legal power to regulate unfair
trade practices and protect consumer rights.
The
CCPA issued its guidelines in 2022, explicitly stating:
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Restaurants cannot add service charges automatically to food bills.
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Service charge cannot be disguised under any other name.
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Customers must be clearly informed that service charges are voluntary.
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No restaurant or hotel can deny service based on whether a customer pays a
service charge.
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Service charges cannot be added to the total bill amount and subjected to GST.
Rejecting
objections raised by restaurant groups, the High Court ruled, “The CCPA is an
authority empowered to pass the guidelines under CPA 2019. Issuing guidelines
is an essential function of the CCPA. The same has to be mandatorily complied
with.”
Restaurant
associations argued that the guidelines were arbitrary and could not be
enforced as a government order. However, the court pointed out that mandatory
service charges mislead customers by making them believe they are paying a
government tax or GST.