National Restaurant Association of India and ors. Vs Union of India and anr.

Court- Delhi High Court

Case- National Restaurant Association Vs UoI
Brief Facts-
Through many complaints filed with the National Consumer Helpline, it has come to the attention of
the CCPA that restaurants and hotels bill the service charge by default, without informing consumers
that paying this fee is optional. In addition, a service charge is usually charged under the guise of
another charge or fee, in addition to the total price of the food items listed on the menu and any
applicable taxes.

A component of the service may be mentioned in the price of food and beverages offered by the
restaurant or hotel. Thus, the pricing of the product covers both the goods and services component.
There are no restrictions on setting the prices at which hotels or restaurants are willing to serve food
or drink to consumers. Therefore, ordering involves agreeing to pay the prices of the food items
displayed on the menu and applicable taxes. Making any payment other than the said amount will
constitute an unfair trade practice within the scope of the Law.

The Court notes that the main issue that seems to have been taken into account by the CCPA is that
a service charge is charged in addition to the total price of the foodstuffs listed on the menu. It also
goes on to note that placing an order is consenting to pay the prices displayed on the menu along
with applicable taxes. According to the CCPA, charging any fees above the same amount would
constitute an unfair trade practice under the Consumer Protection Act 2019. started to issue the
following directives:-
Therefore, to prevent unfair trade practices and protect consumer interest in service fee collection,
the CCPA issues the following guidelines:
(i) No hotel or restaurant may automatically or by default add a service charge to the invoice.
(ii) Consumers are not charged a service fee under any other name.
(iii) No hotel or restaurant can force the consumer to pay a service fee and cannot clearly inform
the consumer that the service fee is voluntary, optional and at the consumer's discretion.
(iv) Consumers cannot be restricted in entry or service provision based on the collection of the
service fee.
(v) A service fee is not charged by adding it with the meal invoice and deducting GST over the total
amount.

The Court notes that the issue of a service charge tax by the hotel industry was noticed by the
Dewan Chaman Lal Committee, which submitted its report in June 1958. He recommended the
application of the continental service fee system in terms of both collection and payment. The
Court's attention was then drawn to the Remuneration Board formed by the Chief Commissioner of
Delhi, in a notice of 28 October 1964. In terms of the recommendations that were framed and
declared to be accepted, this Board also stipulated the following:
service charge tax ranging from 5% to 10% on customer invoices.
10% of the collections made in this way would be distributed to the social welfare fund, 15% to the
management against deductions, 45% to the workers and employees at the workplace and the
remaining 30% to the workplace. Petitioners allege that various agreements have been made
between workers and individual organisations, that awards have been given by industrial judges and
that they would clearly be offended if these Guidelines were applied.

On a more fundamental level, the Court notes that there would be serious doubt as to whether the
pricing issue and a service charge tax would fall within the scope of Section 2(47) of the Consumer
Protection Act 2019.