The Delhi High Court on Friday ruled that service charge or tips is a voluntary payment by the customer, and it cannot be made compulsory or mandatory by hotels and restaurants.
The court ruled that “the mandatory collection of service charge is contrary to law and violates the guidelines”. It also opined that if consumers wish to pay any voluntary tip for services that they had enjoyed, the same would obviously not be barred.
The court rejected the plea by associations of hotel and restaurant owners such as National Restaurant Association of India (NRAI) and Federation of Hotel and Restaurant Associations challenging the Central Consumer Protection Authority’s (CCPA) July 2022 guidelines prohibiting hotels and restaurants from automatically levying ‘service charge’ over and above the cost of the food items.
The CCPA had been receiving several complaints regarding restaurants and hotels collecting ‘service charge’ in the range of 5-20% in lieu of ‘tip’ or ‘gratuity’ from consumers on a compulsory basis.
On July 4, 2022, the CCPA, under the Consumer Affairs Ministry, issued guidelines stating that hotels or restaurants cannot add service charge automatically or by default in the food bill. No collection of service charge shall be done by any other name, it said.
The court, on Friday, ruled: “All restaurant establishments would have to adhere to the guidelines passed by the CCPA. If there is any violation of the same, action would be liable to be taken in accordance with law”.
The court further added that the CCPA is not merely a recommendatory or advisory body and if its guidelines are not followed, the CCPA can direct an enquiry or an investigation by the concerned District Collector.
Reacting to the judgment, the Consumer Affairs Ministry said, “The judgment makes it clear that while consumers are free to leave a tip at their discretion, they cannot be compelled to pay a service charge. If any consumer is still being forced to do so, they can register their grievance at the National Consumer Helpline 1915”.
Don’t mislead consumer
On the issue of collection of service tax and use of different terminologies of the said charge, Justice Singh said: “It was misleading and deceptive in nature. The same constitutes an unfair trade practice.”
The restaurant associations had argued that so long as it is announced clearly on the menu card/display board that a service charge will be levied, the consumer, by choosing to consume food and enjoy the experience, implicitly agrees to it.
The court, however, rejected the argument saying, “The fact that service charge can be collected as it is part of a voluntary contract/agreement made by the consumer who enters the establishment and avails of the services after seeing the chargeability of service charge on the menu card is an argument which is not tenable as such a condition is onerous and constitutes an unfair contractual condition”.
“The camouflaged and coercive manner in which service charge is being collected by the restaurant establishments itself shows the unlawful nature of the charge,” the court said.
“This would clearly constitute an unfair trade practice under Section 2(47) of the CPA (Consumer Protection Act), 2019 as the collection of service charge materially misleads the consumer with respect to the price at which the food is being sold,” it added.
The CCPA said if any consumer finds that a hotel or restaurant is levying service charge in violation to the guidelines, they may make a request to the concerned hotel or restaurant to remove service charge from the bill amount. Also, the consumer may lodge a complaint on the National Consumer Helpline (NCH), it said.
Published - March 28, 2025 03:24 pm IST
