Restaurants Mandatorily Levying 'Service Charge' In Teeth Of Consumers Rights, No Separate Service Availed From Staff: CCPA To Delhi HC

The Central Consumer Protection Authority (CCPA) has informed the Delhi High Court 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.

Defending its guidelines prohibiting hotels and restaurants from levying service charges automatically or by default on bills, the authority has 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.

On July 7, CCPA had issued guidelines stating that hotel or restaurant shall add service charge automatically or by default in the bill and that the same shall not be collected from consumers by any other name.

The development came after CCPA filed a counter affidavit in the plea filed by National Restaurant Association of India challenging the said guidelines.

The Authority has informed the Court that the objective of collecting mandatory service charge from consumers over and above the price of food items and applicable taxes is unlawful as no proportionate service is separately provided to consumers.

"Mandatorily imposing service charge would defeat the provisions of Consumer Protection Act, 2019 as money is collected from consumers without allowing them the choice or discretion to decide if they want to pay it," the affidavit reads.

Furthermore, it has been stated the onus of wages of the employees or staff of the restaurant or hotel cannot be imposed on consumers as they do not have any role or link in determining the terms and conditions of employment of staff.

"When a consumer is availing the service of a hotel or restaurant, she/he is availing the service of the hotel or restaurant as a whole and is not taking any separate service from the staff/employees of the restaurant/hotel individually. Therefore, the question of levying service charge separately does not arise," the Court has been informed.

The counter affidavit has also averred that after the guidelines were issued, a public poll was run on the twitter wherein 88.5% of the consumers voted that they are against levying of service charge by default in the food bill.

CCPA has also submitted that merely by printing on the menu, entering the restaurant or hotel, or ordering the food without any communication from consumers on willingness to pay such charge, it cannot be assumed that a consumer is ready and willing to pay service charge.

"When a consumer is not satisfied with the service provided to her/him, it cannot be assumed that she/he is ready and willing to pay service charge. The amount of service charge is recovered from the money that is taken from consumers who visit the hotel or restaurant. It is respectfully submitted that levying of service charge automatically or by default in the bill without allowing consumers the choice or discretion to decide whether they want to pay such charge or not is a violation of their rights as a consumer," the affidavit adds.

While a single judge had stayed the guidelines in July, Centre as well as CCPA has moved an application for vacation of stay of the said order after a division bench recently gave them the liberty to do so.

While staying the guidelines, the single judge had said that the stay was subject to the members of the restaurant associations ensuring that the levy of service charge in addition to the price and taxes and obligation of the customer to pay the same is duly and prominently displayed on the menu or other places.

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