Mandatory Service Charge Banned: Delhi High Court Delivers Justice
Imagine you are in a restaurant with your family, enjoying the meal. When the bill arrives, it shocks you at how much extra you have been charged for bringing the food to your table. When, in fact, you should have only been charged for the meals you ordered.
Wont it be disappointing that you are forced to pay for something that you are not inclined to?
WELL, NOT ANYMORE!!!
Following several complaints received on its customer care hotline, the Central Consumer Protection Authority released guidelines on this issue on 4th July 2022 (“CCPA Guidelines”). According to these guidelines, no hotel or restaurant can levy a service charge compulsorily.
Just a few days ago, Barbeque Nation was hauled up for levying a mandatory service charge on its customers in complete violation of the 2022 CCPA guidelines. However, post-public lashing, Barbeque Nation released a clarificatory press release stating, "In light of recent media reports regarding the Hon'ble CCPA's observations on levy of service charge, we wish to clarify that Barbeque Nation does not levy any service charge across the country. We are in compliance with all statutory regulations and provide a transparent, enjoyable dining experience to our guests. We look forward to hosting you soon!"
The entire genesis of this issue springs from the mandatory levy of a service charge, which was cured through the 2022 CCPA guidelines. But as they say, nothing fruitful comes without a good fight.
As soon as these guidelines came into force, they were challenged before the Delhi High Court under Article 226 by the National Restaurant Association of India and the Federation of Hotel and Restaurant Associations of India on behalf of the restaurants and hotels claiming that these guidelines violate their rights under Article 19(1)(g) of the Constitution of India, to set free prices.
Thus, a legal battle had begun over whether the mandatory service charge imposed by the restaurants is justifiable or not. Let’s look at the battle.
Arguments by the Restaurants
The Restaurants’ Association argued that these charges are not forcibly imposed. Tipping culture has always been in practice and it is voluntarily undertaken by customers who visit these restaurants. Moreover, intimation of levying service charge is already provided in the menu and the customers are apprised of the same; still, the customer utilises their services. It was argued that by interfering in such a manner, the Ministry has exceeded its jurisdiction. It was also stated that such a service charge is utilised for staff welfare under the labour settlement.
Stand of the Ministry of Consumer Affairs
The Ministry of Consumer Affairs rebutted the Associations’ contentions, stating that the issued guidelines are not violative of anyone’s rights; instead, they are meant to protect the customers from unfair trade practices. Service charge is not inherent in food pricing; adding it mandatorily without consent is deceptive and constitutes an unfair trade practice under Section 2(47) of the Consumer Protection Act, 2019. Mandatory charges impose unjustified costs and restrict entry, which is a restrictive trade practice. The use of misleading terminology as ‘service charge’ and confusing it with taxes, is deceptive. It is distinct from tips, which are voluntary post-service gratuities. Moreover, as the Associations claim that these charges are being used for staff welfare, there is no evidence to support the same.
Ratio Dendi
After hearing both sides, the Delhi High Court on 28th March 2025 put an end to this dilemma and gave its common final judgement in the matters of W.P.(C) 10683/2022 titled as National Restaurant Association of India v. Union of India and in W.P.(C) 10867/2022 titled as Federation of Hotel and Restaurant Associations of India v. Union of India, in support of the Ministry that the restaurants have to follow the 2022 CCPA guidelines and the customers have the right to decline payment of service charge if they are not satisfied with their services.
Legal Takeaway
The court has made it crystal clear: Service charges must be voluntary, optional and left entirely to the diner's discretion. No automatic additions to the bill, no coercion and certainly no GST on these charges. If a restaurant insists otherwise, it's not just bad manners—it's illegal.
So, rest assured and dine out without having the fear of being overcharged, as the restaurants can no longer impose a mandatory service charge.
Authors: Shashank Agarwal / Kalyani
LEGUM SOLIS in association with GRATA International
