Service Charge Is Voluntary Payment By Consumers, Can't Be Made Mandatory On Food Bills: Delhi High Court

The Delhi High Court on Friday held that service charge and tips are voluntary payments by consumers and cannot be made compulsory or mandatory on food bills by restaurants or hotels.

Justice Prathiba M Singh thus rejected two petitions filed by Federation of Hotels and Restaurant Associations of India (FHRAI) and National Restaurant Association of India (NRAI), challenging CCPA guidelines of 2022 prohibiting hotels and restaurants from levying service charges “automatically or by default” on food bills.

Judgment in the matter was reserved in December last year.

Upholding the guidelines today, the Court dismissed the writ petitions with Rs. 1 lakh each to be deposited with CCPA for utilization for consumer welfare.

The Court has clarified that mandatory collection of service charge on food bills is contrary to law and if consumers wish to pay any voluntary tip, the same is not barred. The amount however, ought not to be added by default in the bill/invoice and should be left to the customer's discretion, it added.

The Court held that the CCPA is not merely an advisory body and has the power to issue guidelines for prevention of unfair trade practices and for protecting consumer interest.

It said that the rights of consumers as a class prevail over the rights of restaurants, emphasising that the society's interest is paramount.

“The CCPA is an authority empowered to pass the guidelines under CPA 2019. Issuing guidelines is an essential function of CCPA. The same has to be mandatorily complied with,” the Court said.

It added: “The guidelines issued by the CCPA would not curtail fundamental rights under Article 19(1)(g) in any manner in view of the discussion above as the guidelines are in the larger interest of the consumers and have been issued in accordance with law.”

Furthermore, the Court added that the mandatory collection of service charge on food bills is misleading as the same puts the consumers under the impression that they are imposed in the form of service tax or GST. The Court said that such a practice amounts to unfair trade practice.

Justice Singh also said that the CCPA may consider permitting change in the nomenclature for Service Charge which is nothing but a 'Tip or a gratuity or a voluntary contribution'. 

“Terminology such as 'voluntary contribution', 'staff contribution', 'staff welfare fund' or similar terminology can be permitted. The use of the word 'service charge' is misleading as consumers tend to confuse the same with service tax or GST or some other tax which is imposed and collected by the government,” the Court said.

The restaurant bodies had challenged the guidelines of Central Consumer Protection Authority (CCPA) prohibiting the hotels and restaurants from levying service charges “automatically or by default” on bills.

The guidelines, which were issued on July 4, 2022, were stayed by a coordinate bench later that month. While doing so, the Court had specified that the service charge and obligation of the customer to pay must be “duly and prominently displayed on the menu or other places”.

Later, Justice Singh clarified that the interim order staying the guidelines shall not be shown on the menu cards or display boards in a manner to mislead the consumers that the service charge has been approved by the court.

The petitioners took a stand that the service charge, applicable in the last several years, was a traditional charge and was sought by restaurants after a due display of notice on menu cards and premises.

It was their case that the CCPa guidelines were illegal and arbitrary and must be quashed.

On the other hand, the CCPA had defended its guidelines by submitting that mandatory levy of service charge by hotels and restaurants is "directly in teeth of the rights of consumers" as well as provisions on unfair contract, unfair trade practices and restrictive trade practice under the Consumer Protection Act.

The authority had further said that by paying such a service charge, a consumer is not buying a distinct good or availing a separate service from the restaurant or hotel.

Case Title: National Restaurant Association v. Union Of India & Anr  

Citation: 2025 LiveLaw (Del) 378