Service charge

Why should service charge be recovered from consumers as an additional levy, Delhi HC asks

“You raise the salary. We’ll hear you’: Delhi High Court on restaurant associations’ argument that service charges benefit employees

“You raise the salary. We’ll hear you’: Delhi High Court on restaurant associations’ argument that service charges benefit employees

The Delhi High Court questioned on Tuesday why restaurants should recover service charges from consumers as an “additional tax” and a “separate tax”. A bench headed by Chief Justice Satish Chandra Sharma and Justice Subramonium Prasad pointed out that an ordinary man perceives the service charge like a government and restaurants can raise their food prices to absorb this charge instead of recouping it under the form of an additional charge on top of 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 “tipping”.

“You raise the salary. We’ll hear you,” the court said, which observed that the levy of the service charge was “very consumer-related” and not just restaurant employees.

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“That (the service charge as a government levy) is 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 do not charge it separately,” the court told the restaurant associations.

Additional Solicitor General Chetan Sharma, representing the appellant, said that although 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.

Can restaurants require customers to pay a service charge?

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 fee? You are in control of your price but you cannot then place an additional price you pay extra,” the court said.

“A person who does not 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 make a contract and they have to pay the service charge,” 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 commercial practices and infringement of consumer rights due of the mandatory collection of service charges and add these charges automatically or by default in the food bill without giving the consumer the choice or discretion to decide whether to pay these charges or not,” the appeal stated.

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. .

The bench of the single judge had suspended the order of the government

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 collection of the service charge in addition to the price and taxes and the customer’s obligation to pay them is duly and well 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” because it was issued without appreciation of the facts and circumstances.

Paid service a practice for 80 years: restaurant associations

“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 this concept in 1964,” the petition stated.

“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.