NRAI appeals Delhi HC’s order against automatic levy of service charge

The National Restaurant Association of India (NRAI) has moved the Delhi high court challenging a single judge’s decision last month against the automatic levy of service charges in restaurants and hotels. The court had held that such a practice imposed an “extraordinary burden” on consumers without their explicit consent.

The appeal is scheduled to be heard on Tuesday by a bench of chief justice DK Upadhyay and justice Tushar Rao Gedela. The restaurant body, represented by Dr Lalit Bhasin, contended that the levy of the specifically mentioned service charge on the restaurant’s menu card and displayed in the establishment did not constitute an unfair trade practice under the Consumer Protection Act, since it protects the rights of millions of employees in catering establishments across the country.

On March 28, a bench of justice Prathiba M Singh reinforced the guidelines issued by the Central Consumer Protection Authority (CCPA) in 2022, affirming that consumers held the unequivocal right to refuse payment of service charges, irrespective of the quality of service rendered.

The appeal said that restaurant owners had the right to fix the price of products by splitting the same under various nomenclatures and the CCPA had no authority to dictate to them about the structuring.

NRAI’s petition argued that the guidelines issued by CCPA were beyond its jurisdiction. “The guidelines have sought to interfere with labour management relations and CCPA has acted wholly without justification in describing service charge as unfair trade practice,” the plea stated.

In its 131-page ruling, the single-judge bench termed service charge or “tip” as a voluntary payment by customers and cannot be compulsory or mandatory. Such a charge, justice Singh said, created an unfair pricing structure lacking transparency. Although the court upheld CCPA’s guidelines, it granted the authority liberty to change the nomenclature of service charge by naming it “voluntary contribution” or “staff contribution.”

“The use of word service charge is misleading as consumers tend to confuse the same with service tax or GST, imposed or collected by the government,” the court said.

The judgment arose from legal challenges posed by NRAI and the Federation of Hotel and Restaurant Associations of India (FHRAI) against the CCPA’s 2022 guidelines. The ruling has only been challenged by NRAI, but HT has learnt that the FHRAI is also likely to challenge the verdict in a day or two, before the high court’s division bench.