HC says service charges or tips are voluntary, restaurants can't levy it

Delhi High Court makes it clear that service charges are a voluntary payment at the discretion of customers

The Delhi High Court has ruled that the mandatory service charge of restaurants and hotels is unlawful, helping consumers but prompting the hospitality industry to express its concern. 

 

The ruling reinforces the principle that service charges must be voluntary for consumers, said legal experts.

 

Rahul Sundaram, partner at IndiaLaw LLP, explained the case.

 

The Central Consumer Protection Authority (CCPA), established under the Consumer Protection Act (CPA) 2019, received complaints from consumers about restaurants and hotels charging a mandatory service charge of 5-20 per cent over and above the cost of food items.

 

The CCPA had issued guidelines prohibiting restaurants and hotels from adding service charges to consumer bills automatically or by default. Payment of service charges must remain optional and cannot be forced upon consumers. Restaurants cannot restrict entry or service based on payment of service charges. Additionally, GST cannot be levied on service charges, and such charges cannot be collected under any other name.

 

The National Restaurants Association of India and the Federation of Hotels and Restaurants Association of India challenged the guidelines before the Delhi High Court, said Sundaram.

 

The court upheld the CCPA's authority to issue guidelines under the CPA, 2019, deeming them valid and in the interest of consumers. The ruling was delivered on March 28, 2025.

 

“The High Court has even ruled that the guidelines do not violate the fundamental right to trade. The High Court did however advise the CCPA to reconsider the nomenclature granted to service charge as it found the same to be misleading and suggested that terms such as tip or voluntary contribution could be used instead,” said Sukrit Kapoor, Partner, King Stubb & Kasiva, Advocates and Attorneys.

 

Consumers welcomed the ruling but some restaurant owners have said that removing of service charges may reduce the income of employees, particularly those in kitchen and cleaning roles who often receive a share of the pooled service charges.

 

Experts say restaurants and hotels may need to explore alternative compensation models to ensure fair remuneration for their employees without infringing upon consumer choice. This could include increasing menu prices, implementing performance-based incentives, or encouraging customers to tip individually.