Service charge

Why recover service charge from consumers as an additional levy, Delhi HC asks

The Delhi High Court questioned on Tuesday why restaurants should collect service charges from consumers as an additional and separate levy. »

A bench headed by Chief Justice Satish Chandra Sharma and Justice Subramonium Prasad pointed out that an ordinary man views service charges as a government levy and that restaurants can raise their food prices to absorb these charges instead of paying them. recover in the form of additional costs. the total bill.

The high court was hearing an appeal by the Center against a single judge’s order suspending its guidelines banning hotels and restaurants from automatically levying service charges on food bills.

He scheduled the case for hearing on August 18.

The lawyer representing one of the restaurant associations said the service charge was not a government levy and was for the benefit of restaurant employees and did not replace tips.

You raise the salary. We will hear you, said the tribunal which observed that the collection of the service charge was very much related to consumers and not only to restaurant employees.

This is (service charge as a government levy) what an ordinary man gets. Raise the price of your food. No problem. Because you have the right to set a price for your food but not charge it separately, the court told the restaurant associations.

Additional Solicitor General Chetan Sharma, representing the appellant, said that even though the service charge is in the nature of a tip, the impression given to consumers is as if it were a government levy or a government tax.

Consumers are embarrassed when they don’t pay or are asked to pay. This is why hundreds of complaints have been received, he said.

Lawyers representing restaurants said the government does not ban service charges and when the restaurant clearly states there would be a levy on the service charge, it becomes a matter of contract.

Can they force a person to pay any type of service charge? You are in control of your price but you cannot then place an additional price you pay extra, the court said.

A person who doesn’t know the law or an illiterate person goes to a restaurant, you mean he makes a contract? A person who doesn’t understand the law goes for a cup of tea, so they enter into a contract and have to pay the service fee, he noted.

ASG Sharma further challenged the Single Judge’s order on the grounds that it was passed in breach of the principles of natural justice.

In the appeal by the Center as well as the Central Consumer Protection Authority, the appellants said that the guidelines, which admittedly were issued in the public interest, had been suspended without giving the appellant a reasonable opportunity and adequate to explain its position.

The contested order was hastily passed without realizing that the guidelines were issued to protect the rights and interests of consumers and are intended to protect consumers against unfair business practices and violation of consumer rights due to the mandatory collection of service fees and the addition of these fees automatically or by default in the food bill without giving the consumer the choice or discretion to decide whether to pay these fees or not, according to the appeal.

Since another appeal against the Single Judge’s order had not yet been entered, counsel for the defendants urged the court to enter the present case, which concerned the motion of the Federation of Hotel Associations and of restaurants in India, to be heard on the same day. .

On July 20, the Single Judge suspended July 4 directives prohibiting hotels and restaurants from automatically levying service charges on food bills while dealing with petitions from the National Restaurant Association of India (NRAI) and the Federation hotels and restaurants in India.

The court in its joint order had stated that the stay is subject to the limbs of the claimants ensuring that the levy of the service charge in addition to the price and taxes and the customer’s obligation to pay them is duly and properly in view displayed on the menu or other places.

In addition, members will also pledge not to levy a service charge on takeout, he added.

The NRAI argued before the Single Judge that the ban under the July 4 order was arbitrary, untenable and should be overturned as it was issued without appreciation of the facts and circumstances.

The collection of service charges has been a common practice in the hospitality industry for more than 80 years, which is evident from the fact that the Supreme Court took cognizance of the concept in 1964, according to the petition.

The collection of service fees also has a socio-economic aspect. The service charge collection system ensures a systematic and logical distribution of service charge collection among employees and not just the employee serving the customer in the restaurant. This ensures that benefits are distributed equally among all staff, including utility workers and support staff, he added.

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