![Service Charge Misleadingly Seen As GST, Burdens Consumers with Double Levy: Delhi High Court [READ ORDER]](https://www.jurishour.in/wp-content/uploads/2025/03/Service-charge.webp "Service charge")
Recently, the Delhi High Court has held that the service charge collected by restaurants is not mandatory and Some customers confused service charge and Goods and Service Tax (GST) levied by the Government.
The bench of Justice Prathiba M. Singh has observed that in some cases, service charge is being confused with service tax or a mandatory tax imposed by the government. In fact, for the consumers, the collection of service charge is proving to be a double whammy i.e., they are forced to pay service tax and GST on the service charge as well. This position cannot be ignored by the Court.
“When the bills of establishments are generated, it is noticed that the service charge is added right below the total amount of the cost of the food, followed by GST and taxes. For any consumer who does not examine the bill thoroughly, the impression given is that the service charge is a component of tax,” the bench noted
The Central Consumer Protection Authority (CCPA) established under Section 10 of the CPA, 2019 received several complaints regarding restaurants and hotels charging ‘Service Charge’ over and above the cost of the food items. This Charge inthe range of 5-20% in lieu of ‘Tip’ or ‘Gratuity’, was being collected from consumers on a compulsory basis.
In addition, Goods and Services Tax (GST) was charged on the said service charge, resulting in substantial burden on consumers. The CCPA then issued guidelines to prevent unfair trade practices and protect consumer interest with regard to levying of service charge.
The CCPA prescribed various guidelines.
Firstly, the restaurant establishments are prohibited from adding service charge to the bills of the consumers automatically or by default.
Secondly, payment of service charge cannot be forced by such establishments and it ought to be made optional.
Thirdly, consent for payment of service charge cannot be made a basis for permitting entry of consumers into the restaurant establishments;
Fourthly, no GST can be charged on the service charge amount.
Lastly, service charge shall not be collected from consumers by any other name.
Two writ petitions were filed. The first petition was filed by the National Restaurants Association of India (NRAI) through its Secretary General, along with two other office bearers. The second petition has been filed on behalf of the Federation of Hotels and Restaurants Association of India (FHRAI) along with two members as co- Petitioners.
The facts that can be gleaned from both the petitions are that on 14th December, 2016 the Ministry of Consumer Affairs, Food and Public Distribution had issued a letter regarding levy of service charge by hotels and restaurants to the Secretary, Food, Civil Supplies and Consumer Protection of all States and Union Territories.
As per the above letter, the Ministry, while taking cognizance of the collection of Service Charge, relied upon the stand of the Hotel Association of India that the payment of the said charge is discretionary. The Ministry thus instructed the Secretary, Food, Civil Supplies and Consumer Protection of all States and Union Territories, that this position be publicised and information be disseminated to the effect that service charge can be waived off.
In effect, the said letter recognised that payment of service charge, charged by the restaurant establishments is within the discretion of the consumer and waiver can be sought.
An advisory was issued by the Ministry of Consumer Affairs, Food and Public Distribution on 2nd January, 2017 to the effect that service charge is a voluntary charge that can be waived off by a consumer, dissatisfied with the service of the restaurant establishment.
The Petitioners submitted that the impugned guidelines are arbitrary, untenable and are liable to be set aside. The stand of both the Petitioners is that the collection of service charge has been prevalent in the hospitality industry for more than 80 years and the same is valid as there exists no law that prohibits the Petitioners from charging the same.
The court noted that the nomenclature used by restaurant establishments to impose mandatory charges for the services they render i.e., the term ‘levy’ and ‘service charge’ is not permissible in law as it is misleading and deceptive, apart from the mandatory collection of the charge itself being contrary to law. 129. The CCPA being an authority which is consciously established under Section 10 of the CPA, 2019 for the purpose of safeguarding consumer interest, could not have ignored such a large number of complaints coming from different quarters of the country and from across Courts in respect of service charge collection. The authority has rightly intervened in the matter and has passed the guidelines dated 4th July, 2022.
The court highlighted that The collection of service charge has also proved to be a mode and method of increasing the revenues of establishments without increasing the cost of the food items. There can be no doubt that establishments are free to price their goods in the manner as they deem appropriate. However, a hidden cost such as service charge which cannot be deciphered from the menu card at the time of ordering the product, cannot be permitted. This is so because, in effect, service charge is being mandatorily collected along with the price of the food items – on most occasions either unknowingly or forcibly.
The court while dismissing the writ petition imposed the cost of Rs. 1 Lakh and held that each to be deposited with Central Consumer Protection Authority to be utilized for consumer welfare and held that All restaurant establishments would have to adhere to the guidelines passed by the CCPA. If there is any violation of the same, action would be liable to be taken in accordance with law. CCPA is free to enforce its guidelines in accordance with law.
Case Details
Case Title: National Restaurant Association Of India & Ors. Versus Union Of India
Case No.: W.P.(C) 10683/2022 & CM APPLs.31033/2022, 45891/2023
Date: 28th March, 2025
Counsel For Petitioner: Lalit Bhasin
Counsel For Respondent: Chetan Sharma
