Delhi restaurants defy HC ruling, continue to levy service charge

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Restaurants across Delhi and the National Capital Region (NCR) are continuing to impose service charges on diners, despite a clear Delhi High Court ruling declaring the practice unlawful and in violation of consumer rights, according to a report published in Business Standard. The recent verdict has sparked a standoff between the hospitality industry and consumer advocates, with many eateries reluctant to comply.

On March 28, the Delhi High Court delivered a landmark judgment, stating that mandatory service charges on food bills are “violative of consumer rights” and amount to unfair trade practices under the Consumer Protection Act, 2019. Justice Prathiba M Singh observed that such charges, often added in a “camouflaged and coercive” manner, mislead consumers about the true cost of their meal and can result in a “double whammy” as diners are forced to pay both GST and the service charge.

The court dismissed petitions by the National Restaurant Association of India (NRAI) and the Federation of Hotels and Restaurant Associations of India (FHRAI), which had challenged the Central Consumer Protection Authority (CCPA) guidelines prohibiting automatic levying of service charges. The court imposed a cost of Rs 1 lakh each on the two associations, to be deposited with the CCPA for consumer welfare.

Despite the ruling, a survey of restaurants in Delhi’s upscale Khan Market and other parts of the NCR reveals that most continue to add a 5-10% charge to bills, often labelling it as “service charge”, “staff welfare contribution charge”, or “staff contribution charge”. Managers claim the charge is voluntary and will be removed if a customer objects, but it is still routinely included in the bill, placing the onus on diners to spot and challenge it.

Some restaurant owners argue that the removal of the service charge could impact staff remuneration, particularly for kitchen and cleaning staff who benefit from pooled service charges. As a result, several eateries are considering raising menu prices or introducing performance-based incentives to compensate employees.

Meanwhile, consumers have largely welcomed the court’s decision, viewing it as a victory for transparency and fairness. Legal experts note that restaurants cannot restrict entry or service based on payment of service charges, and GST cannot be levied on such charges or collected under any other name.

However, the hospitality industry remains divided. Some restaurants have started removing the service charge from bills, while others are seeking legal counsel on potentially challenging the ruling in the Supreme Court. The NRAI has advised its members to comply with the directive, but compliance remains inconsistent across the region.