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HC overturns ban on levying service charge by default

Court also asks restaurants not to levy service charge on takeaway orders

July 21, 2022 12:48 am | Updated 12:48 am IST - NEW DELHI:

CCPA’s guidelines will be kept in abeyance till November 25, the next date of hearing, the court said.

CCPA’s guidelines will be kept in abeyance till November 25, the next date of hearing, the court said. | Photo Credit: FILE PHOTO

The Delhi High Court on Wednesday stayed the guideline recently issued by the Central Consumer Protection Authority (CCPA) banning restaurants and hotels across the country from levying service charge by default on food bills.

Justice Yashwant Varma gave the direction while hearing pleas by the National Restaurant Association of India (NRAI), Federation of Hotels and Restaurant Associations of India (FHRAI), and restaurant owners and promoters against the July 4 guideline by the CCPA.

‘Display charge prominently’

The court said that the CCPA’s guidelines will be kept in abeyance till November 25, the next date of hearing.

Meanwhile, the restaurants and hotels have been asked to ensure that the levy of service charge, in addition to the food bill and the obligation of customers to pay it, must be displayed prominently on the menu.

The High Court also asked restaurants and hotels not to levy or include the service charge on takeaway orders.

The CCPA said that its guideline banning levy of the service charge was meant to prevent unfair trade practices and protect consumer interest, after receiving many grievances on the National Consumer Helpline about restaurants and hotels levying service charge in the bill by default, without informing consumers that paying such charge was optional.

The NRAI, with approximately 7,000 restaurants across the country and about 2,500 member outlets in Delhi-NCR, said that levying service charge has been standard practice in the hospitality industry for more than 80 years.

Advocate Lalit Bhasin, representing the NRAI, told the court that there was no law that disallows restaurants from levying service charge. “There has neither been a new law nor an amendment in the existing laws which make charging of the service charge illegal,” Mr. Bhasin also said.

The NRAI also told the court, “the wide publicity of the issue regarding service charge has led to a fear psychosis among the restaurant owners and has created a wrong impression in the minds of the public. This has adversely affected the smooth functioning and business of the restaurants”.

Mr. Bhasin said that in the absence of service charge, tips are generally paid by the customers equivalent to 10% of the amount of the bill.

“This amount is pocketed by the waiters/stewards who come in direct contact with the customer. This results in deprivation of any components of the tips going to the back of the house staff including chefs/cooks /utility workers and others involved in the procurement of raw materials, preparation of foodstuff and service to the customer,” Mr. Bhasin said.

‘Helps backend workers’

He said the system of the service charge envisages pointwise distribution even to the backend of the establishment, whose contribution is thus acknowledged.

“This ensures that the benefit is divided equally among all the staff workers including the utility workers, back end staff etc.,” Mr. Bhasin also said.

The association also argued service charge is levied in various countries including U.K., Singapore, Japan and USA with varying percentages between 8% and 12.5%.

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