Service charges in restaurants cannot be mandatory: Delhi HC

The court rejected the argument by the restaurant associations that the service charge is collected as the associations are part of labour settlements and agreements with staff. The court recorded that the assertion was not supported by any material.

Justice Singh’s verdict makes it clear that even as consumers are free to tip for services they enjoyed voluntarily, such “amount, however, ought not to be added by default in the bill/invoice and should be left to the customer’s discretion.”

The court also suggested the CCPA may consider changing the nomenclature of ‘service charge’ may be changed to terminology such as “voluntary contribution”, “staff contribution”, or “staff welfare fund’, opining that 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 also reiterated that “all restaurant establishments would have to adhere to the guidelines passed by the CCPA” and in case of any violation, “action would be liable to be taken in accordance with law,” with CCPA free to enforce its guidelines.

However, the Supreme Court has already held earlier that established establishments are free to include the charge for their services within the charge for the products themselves.

The court’s decision came in two petitions by restaurant and hotel associations, National Restaurant Association Of India and the Federation Of Hotel And Restaurant Associations Of India, challenging guidelines issued by CCPA on July 4, 2022, stipulating that no hotels or restaurants shall charge service charge and will not include the same by default in bills. It also stipulated that service charges shall not be collected by adding it along with the food bill and levying GST on the total amount.