On Wednesday, the Centre and the Central Consumer Protection Authority (CCPA) told the Delhi High Court that hotels and restaurants were collecting service charge on food bills while openly flouting the guidelines banning the levy. They claimed consumers were involuntarily paying service charge even when they were dissatisfied with the services.
The submissions were made by the authorities in their application seeking a vacation of stay granted by the high court on the CCPA's July 4 guidelines prohibiting hotels and restaurants from levying service charge on food bills. Justice Yashwant Varma was informed about the Centre and CCPA having also filed their counter affidavits in response to the petitions challenging the July 4 CCPA guidelines which have irked hotel and restaurant owners.
The court asked the counsel for the two authorities to bring the documents on record after which the petitioners — the National Restaurant Association of India (NRAI) and the Federation of Hotels and Restaurant Associations of India may file their replies. The court listed the matter for further hearing on October 6.
The single judge had on July 20 passed an interim order staying the guidelines. Thereafter, the Centre and CCPA challenged the order before the division bench which asked the authorities to approach a single judge for appropriate relief. The authorities contended in their vacation of stay plea they were not provided adequate time and opportunity to present their case and the interim order was passed post-haste.
They said this grave hardship has been caused to consumers at large who have been made to pay a service charge mandatorily without there being any element of discretion on their part. "It was noticed that restaurants and hotels were openly flouting the guidelines and collecting service charge from consumers involuntarily, even when they were dissatisfied with the services, the application said, adding that after the July guidelines were issued, 1105 more complaints were registered by consumers on the National Consumer Helpline about the unfair levy of service charge by hotels and restaurants.
The plea said the guidelines have been issued for safeguarding the rights and interests of consumers and seek to protect them from unfair trade practices and violation of consumer rights due to mandatory collection of service charge. It said service charge was added automatically or by default in the food bill without allowing consumers the choice or discretion to decide whether they want to pay such a charge or not.
It insisted the guidelines do not interfere with the right of restaurants or hotels to set the prices at which they want to offer their food and services to consumers which they are free to decide. The plea claimed the restaurant associations have sought to mislead the court by wrongly asserting that the service charge is in vogue all over the world which is far from the truth. Seeking dismissal of the petitions by hotel and restaurant associations, the CCPA, in its counter affidavit, said the petitioners have totally failed to appreciate the rights of the consumers whose hard-earned money is unjustly collected automatically or by default in the name of service charge.
The inclusion of service charge in the bill automatically or by default cannot be considered a binding contract between the consumer and the restaurant, it asserted. The CCPA affidavit added the objective of collecting mandatory service charge over and above the price of food items and applicable taxes is unlawful as no proportionate service is separately provided to consumers.
Mandatorily imposing service charge would defeat the provisions of the Consumer Protection Act as money is collected from consumers without allowing them the choice or discretion to decide if they want to pay it, CCPA said. The court, during an earlier hearing, questioned why restaurants should recover service charge from consumers as an additional and separate levy, remarking that a common man perceives it as a government levy.
The court had said restaurants can increase their food prices to absorb this charge instead of recovering it in the form of an additional charge over and above the total bill. The single judge had on July 20 said the stay is subject to the petitioners ensuring that the levy of service charge, in addition to the price and taxes, and the obligation of the customer to pay the same is duly and prominently displayed on the menu or other places.
Further, the members of the petitioner associations will also undertake not to levy service charge on takeaway items, the court had said in its July 20 order. The NRAI claimed before the single judge that the CCPA ban under the July 4 order was arbitrary, untenable and ought to be quashed as it was imposed without an appreciation of the facts and circumstances. Levy of service charge has been a standing practice in the hospitality industry for more than 80 years which is evident from the fact that the Supreme Court took notice of this concept way back in 1964, the petition had said. The levying of service charge has a socio-economic angle as well. The system of levying service charge ensures that there is a systematic and logical distribution of service charge collection amongst the employees and not just the employee serving the customer in the restaurant. This ensures that the benefit is divided equally among all the staff workers including the utility workers and back staff, it had added.
