Service charge by restaurants, hotels with GST a 'double whammy' for customers: Delhi High Court

The Delhi High Court on Friday said that the service charge levied by restaurants and hotels along with GST was a “double whammy” for customers and this collectively with the restaurant bills becomes “quite high” for them to pay.

Questioning the National Restaurant Association of India and Federation of Hotels and Restaurant Associations on why they should consider changing the “service charge” terminology to some alternate term like “staff charges,” Justice Pratibha Singh said this “service charge” terminology should be changed to some alternate term like “staff charges” so that the consumers are not misled into believing it to be a government tax/ service tax.

Counsel Sameer Parekh, appearing for Federation of Hotels and Restaurant Association, said that changing the name at this stage might confuse people as they have now become familiar with the term service charge. He further said that there is no agreement among its members on any alternate term for the service charge.

The hotel bodies argued that there was nothing illegal in levying service charge and this transparent system was followed worldwide and does not amount to unfair consumer practice. The hotel associations also said that the service charge was to ensure equitable distribution of the tip amount.

The high court was hearing petitions by the two associations challenging the Central Consumer Protection Authority’s July 4, 2022 guidelines. The HC had on July 20, 2022 stayed the guidelines stipulating that hotels or restaurants should not add service charge automatically or by default to food bills. It had also directed members of the restaurant associations to ensure that the levy of service charge in addition to the price and taxes, and the obligation of customers to pay the same, was prominently displayed on the menu.

The guidelines were issued with the aim of preventing unfair trade practices and violation of consumer rights with regard to levying of service charges. As per the guidelines, the hotels and restaurants were prohibited from collecting service charge by any other name. Hotels and restaurants generally levy a service charge of 10% on the food bill.The case will be next heard on May 29.


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