HC flags restaurant service charges: 'Why ask ₹100 for ₹20 water bottle?'

The Delhi High Court questioned restaurants over service charges, asking why customers pay extra when prices are already above MRP; the court called it unfair and coercive

The Delhi High Court on Friday questioned restaurant associations about levying service charges on customers, especially when restaurants already charge higher prices on the menu in the name of “experience".

 

A Bench of Chief Justice Devendra Kumar Upadhyaya and Justice Tushar Rao Gedela raised the issue with lawyers representing hotel and restaurant associations, who had approached the court against a single judge's March order, news agency PTI reported.

 

Earlier, a single judge had ruled that restaurants cannot make service charges compulsory on bills in a “camouflaged and coercive” manner. The order said such practices go against public interest and amount to unfair trade practices.   

 

 

Restaurants charging in three ways

 

The division Bench noted that restaurants were billing customers under three components — the price of food, the ambience, and service.

 

"You (restaurants) are charging more than MRPs, for the experience being enjoyed by the person visiting your restaurant. And you're also charging the service charges for the service rendered... providing an ambience for a certain kind of experience will not include the services you're providing? This we don't understand," the Bench said.

 

The court added that the service charge should also cover the ambience and related services.

 

The Bench gave an example, asking the National Restaurant Association of India (NRAI) and Federation of Hotels and Restaurant Associations of India (FHRAI): when a restaurant charges ₹100 for a water bottle that costs ₹20, why should a customer pay extra for service?

 

"And why are you quoting ₹100 in your menu for a ₹20 rupee water bottle, without specifying that this ₹80 extra is for the ambience you're providing? This can't be like this. This is an issue. Providing the ambience will form part of the services being provided by you... Can you charge any amount over and above the MRP? And for the service you're charging, what's that ₹80 for?" the Bench asked.   

 

Service charge called 'double whammy'

 

The March 28 order had called the collection of service charges a “double whammy” for customers, who were also forced to pay Goods and Services Tax on top of service tax.

 

Referring to consumer complaints and restaurant bills, the court said it was convinced that service charges were being collected arbitrarily and enforced coercively. In such a situation, the court said, it could not “be a mute spectator".

 

(With agency inputs)