Background:
On 28 March 2025, the Delhi High Court delivered a significant judgment in the matter of National Restaurant Association of India & Ors. v. Union of India & Anr addressing the legality of mandatory service charges levied by restaurants and hotels. The case arose from widespread complaints about automatic service charge additions to bills, prompting the Central Consumer Protection Authority (CCPA) to issue guidelines in July 2022 prohibiting such practices.
Issues for Consideration:
The Court considered the following key questions:
- Whether restaurants and hotels can lawfully add a mandatory service charge to customer bills.
- Whether the CCPA guidelines, which prohibit automatic or compulsory service charges, are valid and enforceable under the Consumer Protection Act, 2019.
Held:
The Delhi High Court upheld the validity of the CCPA guidelines, affirming the following principles:
- No Automatic or Compulsory Service Charge: Restaurants and hotels cannot add a service charge to bills by default. Service charges must be voluntary and at the consumer's discretion.
- Transparency and Consumer Choice: Establishments must clearly inform customers that any service charge is optional. Customers cannot be denied entry or service for refusing to pay a service charge.
- No GST on Service Charge: GST cannot be levied on service charges.
- Consumer Remedies: If a service charge is added against these rules, consumers have the right to request its removal and can seek redress through consumer helplines, commissions, or relevant authorities.
The Court emphasized that automatic or compulsory service charges constitute an unfair trade practice under the Consumer Protection Act, 2019. The judgment reinforces consumer rights and mandates that any service charge must be transparently communicated and entirely voluntary.
Implications:
This decision prioritizes consumer protection, requiring the hospitality industry to revise billing practices and ensure that service charges, if levied, are strictly optional. The ruling may impact revenue models for restaurants and hotels but provides clarity and legal backing to consumers' right to choose.
MHCO Comments:
The judgment marks a crucial policy stance in the ongoing debate between industry practices and consumer rights. By upholding the CCPA's guidelines, the Delhi High Court has effectively subordinated the interests of service providers to the statutory rights of consumers, ensuring that voluntary consent is central to any additional charges levied in the hospitality sector. This article was released on 30 June 2025.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
