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Restaurants still within their rights to levy service charge, say industry bodies

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Restaurants can still lawfully impose a service charge on patrons as the Central Consumer Protection Authority’s (CCPA) guidelines remain under interim stay, restaurant associations and restaurateurs told ET, clarifying that the recent Delhi High Court ruling was misinterpreted.

“There has been no violation as regards the service charge directions,” said Pradeep Shetty, vice president of Federation of Hotel & Restaurant Associations of India (FHRAI).

The Delhi High Court imposed a fine of Rs one lakh on the National Restaurant Association of India (NRAI) and FHRAI in July to pay as costs for non-compliance of previous directions as per its order dated April 12. As per the order dated April 12, the court had directed that both NRAI and FHRAI shall file a complete list of all their members who are supporting the present writ petitions by April 30, and both the associations shall file specific affidavit on aspects such as percentage of members who impose a service charge as a mandatory condition in their bills; whether the associations shall have objections with the term service charge being replaced with alternative terminology so as to prevent confusion in the minds of consumer that the same is not a government levy such as ‘staff welfare fund’ or ‘staff charges’ etc.

“The cost and fine has been imposed by the court since there was a delay in filing of the affidavit. The delay was due to various factors including non-availability of order, research on applicability of court fees, vacations etc. All this has been placed before the honourable court and condonation for the delay has been prayed for. The interim stay on the CCPA guidelines continues,” Shetty said.

Pranav M Rungta, co-founder and director of Nksha restaurant and the Mumbai chapter head of NRAI said many customers have misinterpreted the recent Delhi High Court order to imply that the service charge cannot be levied by restaurants. “Some think that the service charge can’t be levied while others feel that since the stay on the guidelines was granted in the Delhi High Court, it’s not applicable in Mumbai. We try informing them,” he added. “Customers are very sparsely aware of the law at times and they don’t understand that it was a procedural error due to which the associations were fined and not because they were levying the service charge. There is a stay on the CCPA guidelines and that continues. Till this matter is settled once and for all, there will be confusion,” he added.

Cafe Delhi Heights founder Vikrant Batra said as directed by the Delhi High Court previously, his outlets are levying a service charge and the notifications are displayed on the menu as well as at the entrance. “The fine on the associations was to do with the submission of the documents and we continue to levy a service charge,” he added. In July last year, the Delhi High Court had stayed the CCPA guidelines that prohibited restaurants and hotels from levying any service charge on food bills. The stay was subject to restaurateurs ensuring that the levy of service charge in addition to the price and taxes, and obligation of the customer to pay it, was prominently displayed on the menu or other places.Industry insiders familiar with the matter said considering the confusion and the fear of customer backlash, many restaurateurs had stopped levying a service charge.

“The worrying thing is the power of CCPA to issue directions under the guise of guidelines and the most contentious ones were stayed by the court,” said a restaurateur who did not wish to be quoted.

The CCPA had issued a notification following the recent Delhi High Court order that stated that a number of consumers have complained against forceful collection of service charge on the National Consumer Helpline. It added that since the guidelines issued by CCPA in July last year, more than 4000 complaints have been registered.

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