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Restaurants Should Not Levy Service Charge, Delhi HC Observes

While listing the matter early from November 25 to August 31, the division bench of Chief Justice Satish Chandra Sharma and Justice Subramonium Prasad observed, “you (restaurants) don’t have to levy service charges to pay your employees. You are liable and bound to pay your employees under various enactments, that is your obligation under law.”

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The Delhi High Court, on August 18, Thursday, observed that restaurants were not required to levy service charges to compensate their employees. The Court set the Centre and Central Consumer Protection Authority (CCPA) at liberty to move before the single bench for setting aside of stay on the guidelines that prohibited hotels and restaurants from addition of service charge on its own or by default in the bill.

While listing the matter early from November 25 to August 31, the division bench of Chief Justice Satish Chandra Sharma and Justice Subramonium Prasad observed, “you (restaurants) don’t have to levy service charges to pay your employees. You are liable and bound to pay your employees under various enactments, that is your obligation under law.”

Apart from giving the Centre and CCPA the freedom to plead for setting aside of the stay order pronounced by a single bench on July 20, the court also allowed them to submit a response to the pleas of the Federation of Hotel and Restaurant Associations of India and National Restaurant Association of India (NRAI) challenging the guidelines.

The Centre and CCPA, represented by Additional Solicitor General Chetan Sharma and advocate Sandeep Mahapatra, had on an earlier ocassion, contended that the guidelines announced the service charge as anti-consumer and restaurants were at liberty to raise their prices instead.

“The ordinary man perceives it to be some government levy which he has to pay and if you don’t pay, there is an embarrassment to the consumer. This has engaged the attention of the government since 2017. There are some associations which are against this,” urged Sharma.

Sharma also submitted that it would have been reasonable if the authorities were given time to submit a reply by the single bench to the pleas that challenged the CCPA guidelines. He also argued interim relief or stay was in the nature of final relief.

After the petitions filed by NRAI and Federation of Hotel and Restaurant Associations of India were heard, Justice Yashwant Varma last month stayed the CCPA guidelines. The guidelines were stayed on the condition that the members of the unions would make ensure that the levy of service charges in addition to the price and taxes and the requirement of the customer to pay it “is duly and prominently displayed on the menu or other places”.

The Centre and CCPA in their appeal before the division bench had contended the guidelines were issued to stop infraction of the consumers' rights who were compelled to pay service charges by default without affording them the opportunity to decide.


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delhi high court Service Charge Issue