Do restaurants have the right to charge a service fee?

The legal tussle over the legitimacy of service charges in restaurants has been fiercely contested for three years in the Delhi High Court, with both the Central Consumer Protection Authority (CCPA), representing consumer interests, and restaurant associations refusing to back down.

- 

What's the issue?

At the heart of the issue is whether the service charge, typically ranging between 5% to 20% across restaurants, is a legitimate business practice or an unfair imposition on consumers.Following a series of consumer complaints about compulsory service charges being added over and above the cost of the food items in restaurants and hotels, the CCPA issued guidelines in July 2022 prohibiting restaurants from levying such charges by default.The National Restaurants Association of India (NRAI), with over 7,000 restaurant members in India, and the Federation of Hotels and Restaurants Association of India (FHRAI) representing the interests of 55,000 hotels and 5,00,000 restaurants, challenged the guidelines in court.

How is it different from a tip?

A customer typically decides to give a tip, or gratuity, only after the meal is completed, when they are in a position to assess the quality of food and service. The decision to pay a tip or gratuity by a consumer does not arise merely by entering the restaurant or placing an order, however, service charges are pre-fixed percentages added to the bill regardless of the service experience.

What is the historical perspective?