Why should service charges be recovered from consumers as additional levy, asks Delhi HC
New Delhi: The Delhi High Court on Tuesday questioned why restaurants should recover service charges from consumers as an additional and separate levy."
A bench headed by Chief Justice Satish Chandra Sharma and Justice Subramonium Prasad remarked that a common man perceives service charge as a government levy and 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 high court was hearing an appeal by the Centre against a single judge's order staying its guidelines prohibiting hotels and restaurants from levying service charges automatically on food bills. It listed the matter for hearing on August 18.
Counsel appearing for one of the restaurant associations said that the service charge was not a government levy and it was for the benefit of the restaurant employees and was not a substitute for tips .
You increase the salary. We will hear you, stated the court which observed that the levy of service charge was very much connected with consumers and not just the employees of the restaurant. 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 court told the restaurant associations.
Additional Solicitor General Chetan Sharma, appearing for the appellant, said that while the service charge is in the nature of a tip, the impression given to consumers is as if it is a governmental levy or a governmental tax. The consumers face embarrassment when they don't pay or they are asked to pay. That is the reason hundreds of complaints were received, he said.
Counsels appearing for restaurants said that the government does not prohibit service charges and when it is made clear by the restaurant that there would be a levy of service charge, it becomes a matter of contract.
Can they compel a person to pay any kind of service charge? You are the master of your price but you can't then place an additional price that you pay an additional charge, the court said.
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, it remarked.
ASG Sharma further assailed the single judge order on the ground that it was passed in violation of principles of natural justice. In the appeal by the Centre as well as Central Consumer Protection Authority, the appellants said that the guidelines, which were admittedly issued in the public interest, were stayed without affording reasonable and adequate opportunity to the appellant to explain their position.
