Delhi High Court stays CCPA ruling on levying service charges in hotels and restaurants as an unfair trade practice

Delhi High Court

Delhi High Court: Yashwant Varma, J. stayed the ruling passed in the form of guidelines by the Central Consumer Protection Authority (‘CCPA’) vide order dated 04-07-2022 holding that the issue of whether the levy of service charge would amount to a restricted and unfair trade practice under Consumer Protection Act, 2019 requires consideration in view of precedents and incidental facts of the subject matter.

CCPA passed an order dated 04-07-2022 issuing guidelines which stated that restaurants and hotels are levying service charges in the bill by default, without informing consumers that paying such charge is voluntary and optional. Further, service charges are being levied in addition to the total price of the food items mentioned on the menu and applicable taxes, often in the guise of some other fee or charge. Thus, placing an order involves consent to pay the prices of food items displayed on the menu along with applicable taxes. Charging anything other than the said amount would amount to unfair trade practice under the Act. The instant petition challenges the above ruling impugning the guidelines.

The Court noted that the issue of a levy of a service charge by the hotel industry was deprecated by the Dewan Chaman Lal Committee recommending the implementation of the continental system of service charge both with regards to its collection as well as disbursement. Later, a Wage Board was constituted by the Chief Commissioner of Delhi vide notification dated 28-10-1964 which recommended the levy of a service charge on customers’ bills varying from 5% to 10%. The collections made were then to be distributed with 10% going to a welfare fund, 15% being retained by the management towards breakages and 45% to be distributed to the workmen and employees of the establishment and the remaining 30% to be allocated to the wage bill.

In view of this, counsel for petitioner brings to notice of the Court that various settlements were entered between the workmen and individual establishments and awards were, thereby rendered by industrial adjudicators and thus, the impugned guidelines will clearly upset them.

The Court also noted that there exists a serious doubt whether the issue of pricing and the levy of a service charge would fall within the ambit of Section 2(47) of Consumer Protection Act, 2019 or not.

Reliance was placed on S S Ahuja v. Pizza Express, 1999 SCC OnLine MRTPC 2 wherein it was observed that service charges are levied for the service of food at the table in the restaurant. The choice rests with the customer either to take food in the restaurant bearing the service charges, as-is also a practice in other restaurants, or to carry away the food avoiding the aforesaid levy, there could, however, be no tie or up between the sale of food and service of it on the table as is in the present case. This goes along with it. These two cannot be separated. The practice followed by the respondent as well as the others in trade in no way harms the competitor in general or customer in particular. It has, thus, been sufficiently demonstrated that the respondent did not indulge in unfair or restrictive trade practices as alleged.”

The Court affirmed that the matter requires consideration and thus stayed the impugned guidelines dated 04-07-2022 till the next date of listing the directions subject to following conditions:

(1) The members of the petitioner Association shall ensure that the proposed levy of a service charge in addition to the price and taxes payable and the obligation of customers to pay the same is duly and prominently displayed on the menu or other places where it may deem to be expedient.

(2) The members of the petitioner Association further undertake not to levy or include service charge on any “take away” items.

The matter is next listed for 25-11-2022.

[National Restaurant Association of India v. UOI, 2022 SCC OnLine Del 2172, decided on 20-07-2022]


Advocates who appeared in this case :

Mr. Lalit Bhasin, Ms. Nina Gupta, Ms. Ananya Marwah, Ms. Ruchika Joshi and Mr. Ajay Pratap Singh, Advocates, for the Petitioner;

Mr. Sandeep Mahapatra, CGSC, Advocate, for UOI;

Mr. Varun Kumar Garg, Advocate, for R-1 & 2.


Read our previous story

CCPA issues Guidelines to prohibit automatic levy of service charge in hotels and restaurants


*Arunima Bose, Editorial Assistant has reported this brief.

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