Dining out? Check if you’re paying service charge over and above GST

Service charge

• Delhi HC says restaurant service charges must be voluntary
• CCPA bars eateries from adding mandatory service charges
• Consumers can refuse service charges and seek bill correction

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Before you pay your next restaurant bill, take a closer look; you may be charged a service fee over and above GST. The Delhi High Court had ruled that restaurants cannot impose a mandatory service charge, making it clear that such charges must be voluntary and left to the customer’s discretion. The court upheld guidelines issued by the Central Consumer Protection Authority, which prohibit eateries from automatically adding service charges or presenting them as compulsory. In a related case, the CCPA also directed Barbeque Nation Hospitality Limited to stop levying service charges after complaints that it was adding them alongside GST.

What are CCPA guidelines?

The CCPA was set up under Section 10 of the Consumer Protection Act, 2019, and has issued guidelines to address unfair trade practices related to service charges in hotels and restaurants and to safeguard consumer interests.

Under these guidelines:

• Hotels and restaurants cannot automatically or by default add a service charge to the food bill.

• Service charges cannot be collected under any alternative name.

• Consumers cannot be compelled to pay a service charge. Establishments must clearly inform customers that payment of a service charge is voluntary, optional, and entirely at the customer’s discretion.

• No customer can be denied entry or service for refusing to pay a service charge.

• Service charges cannot be included in the bill in a manner that attracts GST on the combined amount of food and service charge.

“The CCPA guidelines are quite clear that a restaurant cannot force a consumer to pay service charge and cannot collect by adding it alongwith the food bill and levying GST on the total amount. However, if a restaurant still imposes the service charge, the consumer can request the restaurant to remove the service charge from the bill amount,” said Kamal Agarwal, Senior Partner, Singhania & Co.

If a restaurant adds a service charge along with GST, what rights do customers have, and what is the correct way to get it removed?

The automatic addition of service charges on bills has been held to constitute an unfair trade practice under the Consumer Protection Act, 2019. “If a restaurant adds a service charge automatically along with GST, the customers have rights to refuse such payment of service charge, demand correction in the bill, to get the extra charge removed, and if still they are forced to pay, then they may complain against it and seek compensation in consumer courts,” Shashank Agarwal, Founder, Legum Solis.

You can file a complaint via the National Consumer Helpline (1915) or the e-Daakhil portal.

Can GST legally be levied on the service charge amount?

GST cannot be levied on service charges, as doing so would inflate the final bill unlawfully. “Violating establishments face severe penalties, including fines up to Rs 50,000, mandatory refunds, and orders to modify their billing software to ensure transparency,” said Prerna Robin, Principal Associate, B. Shanker Advocates LLP.

“In sum, the law now speaks with clarity and authority: service charges are a matter of personal choice, not contractual obligation, and any attempt to convert them into a compulsory levy is legally impermissible and commercially perilous,” said Tushar Kumar, Advocate, Supreme Court of India.

So, the next time you visit a restaurant, remember to carefully review your bill before making the payment. A service charge is optional, not mandatory, and you are fully within your rights to ask for its removal if it has been added automatically. Being aware of the rules can help you avoid paying extra and ensure that your dining experience doesn’t come with an unfair cost.