By Sangeeta Sharma

New Delhi, Sep 2, In a landmark judgment, the Delhi High Court, last year upheld the CCPA guidelines and ruled that restaurants and hotels cannot make customers compulsorily pay a separate “service charge”.

The Court held that service charge or tip is a voluntary payment and cannot be imposed on a consumer as a mandatory condition.

Justice Pratibha M. Singh, in her judgment delivered on March 28, 2025, upheld the guidelines issued by the Central Consumer Protection Authority (CCPA) in 2022 to prevent unfair trade practices relating to service charges in hotels and restaurants.

The Court made it clear that consumers cannot be forced to pay a service charge merely because it has been mentioned on the restaurant's menu or displayed prominently at the establishment.

Justice Pratibha Singh observed that the terminology “service charge” can mislead consumers into believing that it is some kind of government-imposed tax or levy. The Court noted that the charge is often confused with service tax, GST or another statutory levy, although it is not a government tax.

The Court therefore agreed with the CCPA that collecting such a charge compulsorily, and using terminology that creates confusion in the minds of consumers, is misleading and deceptive and amounts to an unfair trade practice under Section 2(47) of the Consumer Protection Act, 2019.

The Court specifically held that a service charge or tip is voluntary and must remain at the discretion of the customer. Even if a consumer has seen a service charge mentioned on the menu before ordering food, that cannot by itself make the charge compulsory.

The Court held that treating such a condition as part of a contract would amount to an onerous and unfair contractual condition under Section 2(46) of the Consumer Protection Act.

Customers can still give a tip, The judgment does not prevent consumers from rewarding restaurant staff for good service.

The Court also rejected the argument that restaurants would be unable to recover the cost of providing services if they could not impose a mandatory service charge.

Justice Singh observed that restaurants are free to determine the prices of their food and services. If an establishment wants to recover the cost of services, it can factor that cost into the prices of its products rather than imposing a separate mandatory service charge on customers.

The court upheld that the CCPA has power to protect consumers. The Court's finding was that the CCPA had the authority under the Consumer Protection Act, 2019, to issue the guidelines.

The Court held that issuing guidelines in the interest of consumers is an essential function of the CCPA under Section 18(2)(l) of the Act and that the guidelines have to be complied with.

The Court also held that the guidelines do not unlawfully interfere with the restaurants' right to carry on business because they have been issued in the larger interest of consumers.

The CCPA guidelines, upheld by the High Court, prohibit restaurants and hotels from: Automatically adding service charge to the bill; Forcing a customer to pay service charge; Collecting the charge under another name; Making payment of service charge a condition for entry or providing services; Treating the charge as a government tax or levy; and Adding service charge to the bill and then levying GST on the combined amount.

According to the guidelines referred to in the judgment, a consumer who finds that a restaurant is violating the rules can first ask the restaurant to remove the service charge.

If the restaurant refuses, the consumer can approach the National Consumer Helpline by calling 1915, file a complaint before the appropriate Consumer Commission, or approach the District Collector for action under the consumer protection framework.

Court dismisses restaurant associations' challenge

The judgment came in petitions filed by the National Restaurant Association of India (NRAI) and the Federation of Hotels and Restaurants Association of India (FHRAI) challenging the CCPA's July 4, 2022 guidelines.

The restaurant associations had argued, among other things, that service charges had been prevalent in the hospitality industry for decades and that customers who were informed about the charge through the menu had effectively agreed to pay it. The Court rejected this reasoning, holding that consumer rights cannot be defeated by treating entry into a restaurant or placing an order as consent to mandatory service charge.

The Court concluded that the mandatory collection of service charge is contrary to law and violates consumer rights./