Plea in Delhi HC challenges order holding restaurants can't mandatorily levy service charge

New Delhi, A plea in the Delhi High Court has challenged an order holding that restaurants cannot mandatorily levy service charge on food bills as it was against public interest and amounted to unfair trade practice.
The appeal filed by National Restaurants Association of India is likely to be listed before a division bench on Tuesday.
The association challenged the single judge's March 28 verdict dismissing the petitions of restaurant bodies against the Central Consumer Protection Authority guidelines prohibiting hotels and restaurants from mandatorily levying service charge on food bills.
The single judge upheld the guidelines and imposed ₹1 lakh cost each on the petitioners to be deposited with the CCPA towards consumer welfare.
The mandatory levy of service charge by the restaurant establishments, the single judge said, was against public interest and undermined the economic and social fabric of consumers as a class.
The single judge further said the collection of service charge was a "double whammy" for consumers who were forced to pay Goods and Services Tax on top of the service tax.
NRAI, in its appeal through advocate Lalit Bhasin, raised several questions of law including whether a levy of service charge, which is specifically mentioned on the menu card of a restaurant and displayed elsewhere in the establishment, constituted an unfair trade practice under the Consumer Protection Act, 2019.
"Where it is specifically and distinctly provided on the menu card that service charge at a certain percentage of the bill is payable by the customer does it not constitute a contract where the customer becomes liable to pay the total amount of the bill which is inclusive of the service charge and taxes?" the plea asked.
It added, "Is it permissible in law to treat the levy of service charge as a consumer protection right, as against the rights of millions of employees in catering establishments across the country. Is it not an anti labour practice?"
Is it open to the authorities under the Consumer Protection Act to dictate to the owners of restaurants as to how they should structure the price, particularly when the Consumer Protection Act is not a price control legislation, it argued further.
"Is it not open to the owners of restaurants to fix the price of the product by splitting the same under different nomenclatures?" the plea asked.
The appeal further asked if the guidelines were not beyond the jurisdiction of the CCPA.
"Is it not open to the customer not to avail the services of the restaurant if he does not wish to pay service charge?" it added.
Before the single judge, Federation of Hotels and Restaurant Associations of India and NRAI had filed two separate petitions in 2022.
The single judge, while referring to consumer complaints and restaurant bills in its judgment, said it was convinced that service charge was being "arbitrarily collected and coercively enforced" and it couldn't "be a mute spectator" in such a situation.
"An establishment is free to price its products in the manner as it pleases taking into account the raw-materials, salaries, expenditure, capital expenses on premises, man and machinery, etc. However, once the pricing is done, to collect over and above the price, a prescribed rate of service charge – that too on a mandatory basis would not be justified," it added.
The single judge said consumer rights couldn't be subjugated to an argument that a contract was being entered into by the consumer while entering the establishment to pay service charge as the payment and collection of service charge was contrary to the law.
The verdict, however, said if consumers wished to pay any voluntary tip for the services, it wasn't barred.
"The amount, however, ought not to be added by default in the bill or invoice and should be left to the customer's discretion," it ruled.
The single judge clarified all restaurants would have to adhere to the guidelines passed by the CCPA and in case of any violation, would face action.

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