Why recover service charge separately, HC asks restauranters

‘Common man perceives it as a govt. levy’

The Delhi High Court on Tuesday questioned why service charges are recovered from consumers as an “additional” and “separate levy” when restaurants can instead increase their food prices.

A Bench of Chief Justice Satish Chandra Sharma and Justice Subramonium Prasad said, “That (service charge as a government levy) is what a common man perceives. Increase your food price. No problem. Because you are entitled to fix a rate for your food but don’t levy it separately”.

The Bench’s observation came while it was hearing an appeal by the Centre against a July 20 order of the High Court staying its guidelines that prohibited hotels and restaurants from levying service charges automatically on food bills.

Additional Solicitor General Chetan Sharma, appearing for the Centre, argued that while the service charge is in the nature of a tip, the impression given to consumers is that it is a governmental levy or a governmental tax.

“The consumers face embarrassment when they don’t pay or they are asked to pay. This is the reason why we have received hundreds of complaints,” Mr. Sharma said referring to complaints received by the Department of Consumer Affairs (DoCA) by consumers who said they were forced to pay service charges.

The counsel appearing for restaurant associations stated that the service charge was not a government levy. He said the charge was levied for the benefit of the restaurant employees and was not a substitute for “tips”. The counsel argued when it is clarified by the restaurant that there would be a levy of service charge, it becomes a matter of contract.

To this, the Bench shot back saying, “[If] A person who does not know the law or an illiterate person goes to a restaurant, you mean to say he is entering into a contract? A person who does not understand law goes for a cup of tea, so he is entering into a contract and he has to pay the service charge”.