Recently, the Delhi High Court strongly scrutinized the practice of restaurants levying a service charge on customers, despite already charging prices far above the Maximum Retail Price (MRP) of products.
A division bench comprising Chief Justice Devendra Kumar Upadhyaya and Justice Tushar Rao Gedela pressed the counsel representing the National Restaurant Association of India (NRAI) and the Federation of Hotels and Restaurant Associations of India (FHRAI) to explain why diners are compelled to pay an additional service fee when the so-called “experience” of dining is already factored into the hiked price of food and beverages.
The Court observed, “Restaurants are already charging more than the MRP in the name of providing an experience. Why then is there a separate service charge? Providing ambience itself forms part of the services being offered. We fail to understand this additional levy".
To illustrate, the bench cited the example of a water bottle with an MRP of ₹20 being sold for ₹100 in restaurants. The judges questioned why eateries do not openly disclose that the extra ₹80 is charged for the ambience and service provided. “Can you charge any amount above the MRP and then add service charge separately? What exactly does that extra ₹80 account for?” , the bench asked.
The sharp remarks come against the backdrop of a March 28 order by a single-judge bench of the Delhi High Court, which had categorically held that restaurants cannot impose service charges in a “camouflaged and coercive manner”, branding such practices as unfair trade conduct. The Court in that ruling had also underscored the financial strain on consumers, describing the simultaneous levy of service charge and Goods and Services Tax (GST) as a “double whammy”.
The present proceedings now reignite the larger debate on the legitimacy of mandatory service charges in restaurants, with the bench clearly signaling judicial disapproval of practices that burden consumers under the guise of providing a premium dining experience.
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