HC stays guidelines prohibiting levying of service charge by restaurants

The Delhi High Court listed the matter for further hearing on November 25

July 20, 2022 01:10 pm | Updated 02:28 pm IST - New Delhi

Photo used for representative purpose only.

Photo used for representative purpose only. | Photo Credit: File Photo

The Delhi High Court on July 20 stayed the recent guidelines issued by the Central Consumer Protection Authority (CCPA) banning restaurants and hotels across the country from levying service charge by adding it along with the food bill.

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), restaurant owners and promoters against a July 4 guidelines issued by CCPA.

The high court said that CCPA’s guidelines, which effectively barred restaurants and hotels from adding service charge automatically or by default in the bill, will be kept in abeyance till November 25, the next date of hearing.

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

The high court further said that the restaurants and hotels will not levy or include service charge on any takeaway orders.

CCPA had said that its guidelines banning levy of service charge were meant to prevent unfair trade practices and protect consumer interest. CCPA had said it received many grievances on the National Consumer Helpline that restaurants and hotels are levying service charge in the bill by default, without informing consumers that paying such charge is voluntary and optional.

National Restaurant Association of India (NRAI), with approximately 7,000 restaurant outlets pan-India and about 2,500 member outlets in Delhi NCR, said that the levy of service charge has been a standing practice in the hospitality industry for more than 80 years.

“It is submitted that there is no law which disallows restaurants to charge service charge. There has neither been a new law nor an amendment in the existing laws which make charging of the service charge illegal,” advocate Lalit Bhasin, representing the Association, said.

NRAI, in its petition filed through advocate Nina Gupta, said, “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 normally equivalent to 10% of the amount of the invoice.

“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 procurement of raw materials, preparation of food stuff and service to the customer,” Mr. Bhasin explained.

He said the system of service charge envisages point-wise distribution even to the back of the house staff whose contribution is thus recognised and acknowledged in the form of a part of the service charge collected from the customer.

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

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

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