Can increase food price, why charge separately: Delhi HC to restaurants on service charge

The division bench of Chief Justice Satish Chandra Sharma and Justice Subramonium Prasad made the observation during the hearing of Central Consumer Protection Authority (CCPA)’s appeal against the stay ordered on July 20 by a single bench on the guidelines prohibiting hotels and restaurants from adding service charge automatically or by default in the bill.

“That is what a common man perceives. Increase your food price, no problem, because you are entitled to fix a rate for your food but don’t levy it separately…,” said the court when the counsel representing the Federation of Hotel and Restaurant Associations of India submitted that nobody thinks of it as a government levy.

Additional Solicitor General Chetan Sharma, representing the CCPA, argued that they were served with the petition challenging the guidelines on July 19 and the order by single bench was passed a day later.

“It is being made to feel to the consumers as if this is a governmental levy or a governmental tax which it is not. The consumers face embarrassment when they don’t pay or are asked to pay, that is the reason hundreds of complaints were received. This [CCPA guideline] is totally consumer friendly,” submitted Sharma.

While addressing the counsel representing the Federation of Hotel and Restaurant Associations of India, Chief Justice Sharma asked about their “right to claim service charge,” to which the counsel submitted that the impugned guidelines do not prohibit service charge and “say please add it to the price of food but don’t charge separately”.

Justice Prasad asked whether a person can be compelled to pay any kind of service charge. “You are the master of your price but you can’t then place an additional price that you pay additional charge,” he added.

The counsel representing National Restaurant Association of India (NRAI) submitted that service charge is a matter of contract as it is made very clear on the menu card and displayed in restaurants that there will be a levy of service charge.

However, Chief Justice Sharma asked, “You are talking about a contract. A person who does not know law or an illiterate person goes to a restaurant, you mean to say he will enter into a contract? A person who does not understand law goes for a cup of tea, so he is entering into a contract and he has to pay service charge?”

The counsel representing NRAI said that here, service charge is not connected to consumers but to employees. However, the court said, “[But] recoverable from consumers? Very much connected with consumers. You are recovering it from consumers”.

The counsel then submitted that service charge is an element which goes to those employees “who are back of the house” and is not a substitute for tips. “You increase the salary. We will hear you. Be ready,” said the court, while listing the matter for hearing on August 18.

The matter was adjourned as a similar case is expected to come up for hearing on Thursday.

While hearing the petitions filed by NRAI and Federation of Hotel and Restaurant Associations of India, Justice Yashwant Varma last month stayed the CCPA guidelines subject to the members of the unions ensuring that the levying of service charge in addition to the price and taxes and the obligation of the customer to pay the same “is duly and prominently displayed on the menu or other places”.

The court also had recorded an undertaking of the unions that no service charge will be included in the bill on takeaway orders.

Seeking a reply from the Centre and CCPA to the petitions challenging the guidelines, Justice Varma had said that there would be “a serious doubt” with respect to whether the issue of pricing and the levy of a service charge would fall within the ambit of Section 2 (47) of the Consumer Protection Act, 2019 – the provision on unfair trade practice.

CCPA in the guidelines issued on July 4 had also said that service charge shall not be collected from consumers by any other name. “Service charge shall not be collected by adding it along with the food bill and levying GST on the total amount,” it said in guidelines issued to prevent unfair trade practices and protection of consumer interest with regard to levy of service charge in hotels and restaurants.

The NRAI argued last month that the levy of service charge has been a standing practice in the hospitality industry for more than 80 years. Stating that the guidelines cannot be made binding, the NRAI further contended that the levy of service charge is a matter of contract and decision of the management.

NRAI further argued that the system of levying service charge ensures that there is a systematic and logical distribution of service charge collection amongst the employees and not just the employee serving the customer in the restaurant.

“In the absence of service charge, tips are generally paid by the customers normally equivalent to 10% of the amount of the invoice. This amount is pocketed by the waiters/stewards who come in direct contact with the customer. This results in deprivation of any components of the tips going to the back of the house staff including chefs/cooks /utility workers and others involved in procurement of raw materials, preparation of food stuff and service to the customer,” the petition before the single bench argued further.