Service charge on top of ₹100 rupee water bottle? Delhi High Court miffed

The Delhi High Court on Friday pulled up restaurant associations for levying service charge on top of already inflated prices for pre-packaged goods sold above the Maximum Retail Price (MRP).

A Division Bench of Chief Justice Devendra Kumar Upadhyaya and Justice Tushar Rao Gedela was hearing an appeal by the National Restaurant Association of India (NRAI) and the Federation of Hotels and Restaurant Associations of India (FHRAI) challenging the judgment of a single-judge who had held that levy of service charge over and above the bill amount was illegal.

The Bench pressed the counsel for the associations to explain why service charge was being imposed when restaurants were already inflating the cost of basic items.

“When you are charging ₹100 for a ₹20 water bottle, why should the customer also pay a service charge? And why are you not disclosing in your menu that the extra ₹80 is specifically for ambience...You are charging more than the MRP for the experience of dining in your establishment. And then you’re also levying a service charge for the same service rendered. Providing an ambience for a certain kind of experience should already cover that—this we don’t understand,” the Bench said.

The judges cautioned that such practices could not continue unchecked.

“This can’t be like this. Providing ambience forms part of the service. Can you charge any amount over and above the MRP? And then again collect a service charge—what is that extra for?” the Court asked.

The Court also questioned how restaurants can charge GST on service charge. It directed the standing counsel for GST department to remain present on the next date of hearing to clarify this aspect. The matter will be heard next on September 22.

NRAI was represented by Advocates Lalit Bhasin, Nina Gupta, Ananya Marwah, Devvrat Tiwari and Ajay Pratap Singh from Bhasin & Co.

FHRAI was represented by Senior Advocate Sandeep Sethi.

Additional Solicitor General (ASG) Chetan Sharma appeared for the CCPA.

A single-judge of the Delhi High Court had on March 28 upheld guidelines issued by the Central Consumer Protection Authority (CCPA) in 2022 stipulating that hotels and restaurants should not add service charge automatically or by default to food bills.

Justice Prathiba M Singh also imposed costs of ₹1 lakh on the restaurant associations that challenged the guideline.

The order was passed on pleas filed by NRAI and FHRAI.

The CCPA had issued guidelines with the aim of preventing unfair trade practices and violation of consumer rights.

The guidelines stipulated the following:

• Hotels or restaurant shall not add service charge automatically or by default in the food bill;

• No collection of service charge shall be done by any other name;

• No hotel or restaurant shall force a consumer to pay service charge and shall clearly inform the consumer that service charge is voluntary, optional and at consumer’s discretion;

• No restriction on entry or provision of services based on collection of service charge shall be imposed on consumers; and

• Service charge shall not be collected by adding it along with the food bill and levying GST on the total amount.

The plea by NRAI contended that there is no law which disallows restaurants from levying service charge and there has been no amendment to the existing laws which would render levy of the service charge illegal.