TaxTMI 
TaxTMI 
2025 (4) TMI 65
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....e collection of mandatory Service Charge by restaurants and other establishments is permissible under the Consumer Protection Act, 2019 (hereinafter, the 'CPA, 2019')? Background: 3. The Central Consumer Protection Authority ('CCPA') established under Section 10 of the CPA, 2019 received several complaints regarding restaurants and hotels (hereinafter, the 'restaurant establishments') charging 'Service Charge' over and above the cost of the food items. This Charge in the range of 5-20% in lieu of 'Tip' or 'Gratuity', was being collected from consumers on a compulsory basis. In addition, Goods and Services Tax ('GST') was charged on the said service charge, resulting in substantial burden consumers. The CCPA then issued guidelines to prevent unfair trade practices and protect consumer interest with regard to levying of service charge, on 4^th July, 2022. The same are extracted hereinbelow for ready reference: "3. It has come to the notice of the CCPA through many grievances registered on the National Consumer Helpline that restaurants and hotels are levying service charge in the bill by default, without informing consumers that paying such charge is voluntary and opti....
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.... at consumer's discretion. (iv) No restriction on entry or provision of services based on collection of service charge shall be imposed on consumers. (v) Service charge shall not be collected by adding it along with the food bill and levying GST on the total amount. 8. The aforementioned guidelines shall be in addition to and not in derogation of the guidelines dated 21.04.2017 published by the Department of Consumer Affairs. 9. If any consumer finds that a hotel or restaurant is levying service charge in violation to the above mentioned guidelines, a consumer may:- (i) Make a request to the concerned hotel or restaurant to remove service charge from the bill amount. (ii) Lodge a complaint on the National Consumer Helpline (NCH), which works as an alternate dispute redressal mechanism at the pre-litigation level by calling 1915 or through the NCH mobile app. (iii) File a complaint against unfair trade practice with the Consumer Commission. The Complaint can also be filed electronically through e-daakhil portal www.edaakhil.nic.in for its speedy and effective redressal. (iv) Submit a complaint to the Distric....
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...., Food, Civil Supplies and Consumer Protection of all States and Union Territories. The said letter is extracted hereinunder for a ready reference: "Sir/Madam, I am directed to say that it has come to the notice of this Ministry through a number of complaints from consumers received in the National Consumer Helpline that hotels and restaurants are following the practice of charging 'service charge' in the range of 5-20%, in lieu of tips. A consumer is forced to pay this charge irrespective of the kind of service provided to him. The consumers are also required to pay service tax on this service charge so collected by the hotels and restaurants. 2. The Consumer Protection Ac, 1986 provides that a trade practice which, for the purpose of promoting the sale, use or the supply of any goods or for the provision of any service, adopts any unfair method or deceptive practice, is to be treated as an unfair trade practice. The said Act further provides that a consumer can make a complaint to the appropriate consumer forum established under the Act against (i) an unfair trade practice adopted by any trader or service provider (ii) the serv....
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....ed by the Ministry of Consumer Affairs, Food and Public Distribution on 2nd January, 2017 to the effect that service charge is a voluntary charge that can be waived off by a consumer, dissatisfied with the service of the restaurant establishment. The relevant portion of the same is extracted hereinunder: "The Department of Consumer Affairs has asked the State Governments to sensitize the companies, hotels and restaurants in the states regarding aforementioned provisions of the Consumer Protection Act, 1986 and also to advise the Hotels/Restaurants to disseminate information through display at the appropriate place in the hotels/restaurants that the 'service charges' are discretionary/ voluntary and a consumer dissatisfied with the services can have it waived off." 13. A reply to the letter dated 14th December, 2016 and the advisory published on 2nd January, 2017 by the Department of Consumer Affairs was sent by the NRAI to the Department of Consumer Affairs on 4th January, 2017. However, on 21st April, 2017 an advisory was again issued by the Department of Consumer Affairs, inter alia, stating that service charge is to be paid at the discretion of the customer. The rele....
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.... hotel management. It is a separate transaction between the customer and the staff of the hotel or restaurant. which is entered into at the customer's discretion. (4) The point of time when a customer decides to give a tip/gratuity is not when he/she enters the hotel/restaurant and also not when he/she places his/her order. It is only after completing the meal that the customer is in a position to assess quality of service, and decide whether or not to pay a tip/gratuity and if so, how much. Therefore, if a hotel/restaurant considers that entry of a customer to a hotel/restaurant amounts to his/her implied consent to pay a fixed amount of service charge, it is not correct. Further, any restriction of entry based on this amounts to a trade practice which imposes an unjustified cost on the customer by way of forcing him/her to pay service charge as condition precedent to placing order of food and beverages. and as such it falls under restrictive trade practice as defined under section 2 (1) (nnn) of the Act (5) In view of the above, the bill presented to the customer may clearly display that service charge is voluntary, and the service charge column of the bill ....
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....cant ramification on the rights of consumers, it is necessary that it is examined with closer scrutiny and detail. Therefore, you are requested to attend the meeting as per the above-mentioned schedule." 15. On 23rd May, 2022 the Department of Consumer Affairs issued a press release, wherein a meeting was called by the Department with stakeholders to discuss the levying of service charge by the restaurant establishments. The said circular is extracted below: "The Department of Consumer Affairs (DoCA) has scheduled a meeting on 2nd June, 2022 with the National Restaurant Association of India to discuss the issues pertaining to Service Charge levied by restaurants. The meeting follows as a result of DoCA taking notice of a number of media reports as well as grievances registered by consumers on the National Consumer Helpline (NCH). In a letter written by Shri Rohit Kumar Singh, Secretary, Department of Consumer Affairs to President, National Restaurant Association of India, it has been pointed out that the restaurants and eateries are collecting service charge from consumers by default, even though collection of any such charge is Voluntary and at the discretion of consum....
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.... Department of Consumer Affairs wherein, it explained the significance of service charge for the hospitality sector. 17. The Department of Consumer Affairs, then issued a press release dated 2nd June 2022, inter alia stating that the framework of service charge, as charged by the restaurant establishments requires a complete overhaul so as to ensure strict compliance by the stakeholders concerned with regard to the nature of levying service charge by the establishments. 18. On 4th July, 2022 the impugned guidelines were then issued by CCPA inter alia clarifying the nature of implementation of the service charge. The relevant portion of the Guidelines are extracted above in paragraph 3. 19. Further, on 6th July, 2022 the Ministry of Consumer Affairs, Food and Public Distribution issued a communication to the District Collectors of all States and Union Territories inter alia intimating them that levying of service charge in violation of the guidelines dated 4th July, 2022 would be an unfair trade practice under the contours of the CPA, 2019. The communication dated 6th July, 2022 is extracted hereinunder for ready reference: "As you might be aware, the Central Consu....
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....liable to be set aside. The stand of both the Petitioners is that the collection of service charge has been prevalent in the hospitality industry for more than 80 years and the same is valid as there exists no law that prohibits the Petitioners from charging the same. 22. Sometime in 2016, the Department of Consumer Affairs had issued a letter dated 14th December, 2016, as per which, information was directed to be disseminated that the payment of service charge is discretionary and voluntary at the behest of the consumer and that the same can be waived off if the consumer is dissatisfied with the service. This was followed by another advisory by the Department of Consumer Affairs dated 21st April, 2017 wherein again the Department sought to direct that the bills raised by establishments ought to display clearly in the menu card that payment of service charge is voluntary. 23. According to the Petitioners, after the advisory dated 21st April, 2017, the Petitioners and their members continued to collect service charge from consumers. It is their case that service charge is recognized as valid, in various decisions. Further, the CCPA has no power or jurisdiction under the CPA, 2....
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....e was no reply before the Learned Single Judge either to the Applications for grant of interim relief or to the main Writ Petitions. Therefore, without averting to the merits of the case, liberty is granted to the Union of India to file a reply to the Application for grant of interim relief as well as to the main Writ Petition, and they shall certainly be free to file an Application for vacating the stay in the petitions as well. The Office is directed to list the matters i.e. W.P.(C) No. 10683/2022 and W.P.(C) No. 10867/2022 immediately after 10 days before the Learned Single Judge on 31.08.2022. The Leamed Single Judge is requested to pass appropriate order in respect of the Application for vacating Stay/ Final Hearing in accordance with law without being influenced by the interim order passed by him." 27. On 15th February, 2023, certain practices adopted by the restaurant establishments were brought to the notice of the Court wherein the stand of the Respondents was that the interim order dated 20th July, 2022 was being used by the restaurant establishments, as the basis for charging service charge, by displaying it both, in the menu card as also the display....
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....round the same. The guest was informed about the same before levying the charge. 4. Distillery Responds as "it is submitted that we levy a 10% service charge on all invoices. The said charge ensures well being of our staff which diligently serves the consumers at the cafe. The said levy of service charge @ 10% has been priorly intimated to the consumers by way of specific mention on our menu card (reference picture attached) and the said charge is not hidden at the time of placing of an order by the consider and the consumer willing and consciously makes a choice of ordering from the menu despite knowing the fact that we levy service charge mandatorily. The said levy is also in line with the interim order passed by the Hon'ble High Court, Delhi allowing restaurants to collect service charges by way of prior intimation to the consumers. 5. Vapour Pub & Brewery Respond as "Our policy was clear. If a guest asks for service charge removal we should remove it without question. Now attached an article of high court stay and say the matter is sub-judice and appropriate course of action will be followed as per directions of the Honourable court" 29. Considering these s....
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....logy, to be used in place of 'service charge' was also suggested. 31. Pursuant to the above order, affidavits were filed by NRAI and FHRAI. On 5th September, 2023 the Court perused the said affidavits, and recorded the following facts: "5. Ld. Counsels for both the Petitioners claim that the affidavits in terms of the order dated 12th April, 2023 have been placed on record by the National Restaurant Association of India ('NRAI') and Federation of Hotel and Restaurant Associations of India ('FHRAI'). The position that emerges after a perusal of the said affidavits is as under: (i) Insofar as the NRAI is concerned, as per the affidavit filed by Mr. Prakul Kumar, Secretary General of NRAI, there are a total of about 1100 members, whose list has been placed on record. As per the said affidavit, 80% of the NRAI members impose service charge on the customers as a mandatory condition. In the said affidavit, it has been stated that the members of NRAI are not willing to change the terminology from 'Service Charge' to any of the alternatives proposed by the Court as put to them in the order dated 12th April, 2023. The minutes of the meeting of the Managing Committee dat....
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.... the 'Service Charge' which is being imposed currently, has been considered in a number of decisions and thus, the same would require consideration." 34. As recorded in the order dated 5th September, 2023, the FHRAI made a submission that its members are willing to change the terminology for charging their customers for service, from 'service charge' to 'staff contribution'. However, NRAI was not willing to make the said change. On the said date, therefore, the following observations were made: "10. At this stage, the Court notes that it is already 4:45 pm. The matter would now require to be heard further. However, considering that the issues raised would affect customers across the country, the matter would be taken up expeditiously. In view of the submissions made in Court today as also in the affidavits by the two associations, in the meantime, while the Court considers this petition, the following interim directions are issued: (i) That the members of FHRAI, who are collecting the charges, shall with immediate effect cease the usage of the term 'Service Charge' and only use the terminology 'Staff Contribution' for the amount being charged as 'Service Charge....
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....the customers. xxx xxx xxx However, Service Charge of a restaurant is a voluntary fee paid by the customer which is disclosed well in advance before placing an order. Also, the same is clearly included as a separate heading in the bill as a "Charge", and not as a "Tax". Service Charge is neither a hidden charge nor a compulsory fee in any guise as the restaurants maintain utmost transparency with regard to the amount, the rate and the purpose of the charge. It is shown separately in the final bill and payment of the same is up to the prerogative of customer / guest." 8. In response to the above reference to the representation of FHRAI, Mr. Parekh, ld. Counsel submits that his client's stand ought to be considered from the representation dated 2nd June, 2023. However, he would like to seek instructions insofar as the representation 24th June, 2022 is concerned." 36. An affidavit was thereafter filed on 10th April, 2024. The same was taken on record on 23rd April, 2024. On the said date, Mr. Jaison Chacko, Secretary General of the FHRAI was present in Court. He confirmed that the signatory of the letter dated 24th June, 2024 i.e., Mr. Gurbaxish Singh Koh....
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....e. 38.7. The impugned guidelines are operating in rem and not qua any category of restaurant establishments. 38.8. For the guidelines to have teeth, the impugned guidelines ought to have been enacted in the form of a law, either as a rule or as a regulation by the Central/State Government. Further, the CCPA has also not placed the same before the Parliament under Sections 101, 102, 104 and 105 of the CPA, 2019 and thus, the impugned guidelines have no mandate as per law. 38.9. The CCPA, by simply publishing the guidelines through a notification and further issuing directions to District Collectors, is in contravention of the law. The said Authority has overreached its mandate under the scheme of the CPA, 2019. To circumvent the proper process for enacting a law, rule, or regulation, the Respondent has adopted this indirect method. 38.10. The aspect of service charge being imposed is a practice which has been continuing for the last 80 to 90 years. It has been repeatedly recognized by the Supreme Court and High Courts in various judicial decisions. The rationale behind imposing service charge or levying a service charge is in order to ensure equit....
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....the CPA, 2019 do not vest any such power in the CCPA to issue such guidelines. Reliance is placed upon Section 2 (47) which defines unfair trade practices. 38.15. Service charge was a result of an expert committee report submitted by Mr. Diwan Chaman Lal, which recognized that service charges could be collected from consumers. 38.16. Reliance is placed upon Section 2 (6) of the CPA,2019 to argue that if there is an agreement between the consumer and the establishment, there can even be no complaint against such an establishment. 38.17. There are broadly two types of service charges, one is a known service charge, and the other is an unknown service charge. Insofar as the unknown service charge is concerned, which is included into other aspects of the bill, the Petitioners do not support the same. The stand of the Petitioners is that so long it is announced clearly on the menu card/display board that a service charge will be levied, the consumer, by choosing to consume food and enjoy the experience, implicitly agrees to it. Thus, an implicit contract exists between the establishment and the consumer, which cannot be overridden. Moreover, this implicit cont....
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....ment. Service charge collected by the restaurant establishments has been recognised in various decisions: * M/S Quality Inn Southern Star v. The Regional Director, Employees State, [(2014) 10 SCC 673] * Gulf Co. Ltd. v. Union of India [(2014) 10 SCC 673] * Commissioner of Income Tax v. ITC Ltd. [(2011) SCC OnLine Del 2215] * ITC Limited Gurgaon v. Commissioner of I.T. (TDS) Delhi, AIR 2016 SC 2127 * The Rambagh Palace Hotel, Jaipur v. The Rajasthan Hotel Worker's Union Jaipur, (supra) 38.23 On the strength of all these decisions, it is submitted that service charges are a part and parcel of running of a hospitality establishment especially once the menu card makes it clear that the establishment would be charging the service charge. 38.24. Mr. Bhasin, ld. Counsel emphasises that the interests of customers who can afford to pay the service charge must be balanced against the interests of the workmen, who are in a much more vulnerable position. 38.25. The next submission is that the trade and industry across the world recognizes service charge as a uniform industry practice. The following authorities are referred....
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.... enforceable. Further, in the judgment, it was clarified that executive and administrative instructions cannot constitute law. 38.30. Under Section 2 (6) of the CPA, 2019, a complaint can only be filed if the price of a commodity exceeds the agreed-upon price between the parties. Therefore, as long as establishments inform customers about the service charge by displaying it on the menu, no complaint can be registered under the CPA, 2019. 38.31. The right to set prices is a managerial function and cannot be interfered with. For example, a restaurant establishment that is air-conditioned or offers live music may charge slightly higher prices. This is the establishment's right, which cannot be undermined by the CCPA by way of issuing guidelines. 38.32. The present case does not fulfil the parameters of 'unfair trade practice' as laid out under Section 2 (47) of the CPA, 2019. The basic pre-condition to constitute an unfair trade practice, under the Act, is for the practice to be for the purpose of promoting the sale, use or supply of any goods or services. However, in the present case, the service charge is not meant to promote sale, use or supply of any....
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.... the Court as to what is the source of power of the authority for issuing guidelines, reliance is placed upon Section 18( 2) (l) of the CPA, 2019 to submit that apart from the specifically mentioned powers of the authority, the authority also has the power to issue guidelines to prevent unfair trade practice and to protect consumer interest. 39.8. Power of the CCPA can also be read into Section 10 of the CPA, 2019 which clearly sets out four categories of matters which can be regulated by the authority: * Violation of rights of consumers, * Unfair trade practices, * False or misleading advertisements which are prejudicial to the consumer interest, * To protect, promote and enforce the rights of consumers. 39.9. The mandate of the CCPA under Section 10 of the CPA, 2019 being so broad, any complaint received from the consumer can be looked into by the authority and steps can be taken under Section 18 of the CPA, 2019. The emphasis is, therefore, on the fact that Section 10 of the CPA, 2019 provides the mandate and Section 18 of the act permits the authority to issue guidelines. 39.10. Hundreds of complaints were received ....
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....n response to various consumer complaints received across the country. The release clarified that the service charge is optional and that its payment is at the consumer's discretion. 39.14. The guidelines dated 21st April, 2017 required the establishment to give a bill whenever payment is received. It also required the establishment to put up a board. The service charge column ought to be left blank and discretion should be to the customer. The rights of customers to be heard and redressed was also reserved. The said guidelines which were issued under the Consumer Protection Act of 1986 has stood the test of time and have never been challenged. 39.15. There were various sets of complaints which were received when the consumer helpline was started by the Government. The said complaints raised multiple issues: * Service charge being made mandatory by the establishments. * Service charge being touted as a charge being levied by the Government. * Coercive measures undertaken by the establishments to force the consumers to pay service charge, even when they were dissatisfied with the service. * Measures such as employment of boun....
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....record which reflects that employees' associations or labor unions have confirmed service charges as part of an agreement with the employers. 39.21. Concerns are raised by the Union of India as to the manner in which the money which is collected as service charge is used by the establishment. Whether the same is even disbursed to the employees or not. If the service charge is being seen as beneficial provision under labour law, then some proof ought to have been adduced that the same is being paid to the labour and the employees. 39.22. There is no consistency between the NRAI and the FHRAI as to whether service charge is a tip or a gratuity. The consultation process which took place in May and June, 2022, FHRAI issued fresh releases contemporaneously to show that service charge is voluntary and not mandatory. It can therefore be waived off. It is because of this reason that the guidelines say that service charge is voluntary. 39.23. An attempt has been made to distinguish all the three judgments relied upon by the Petitioner. As far as Amazon v. Amway (supra) is concerned, reliance is placed upon the decision in Poonam Verma v. Delhi Development Auth....
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....by the consumer in the establishment. Analysis: I. Evolution of Consumer Protection Law in India - Jurisdiction of the Central Consumer Protection Authority 40. Caveat Emptor- 'let the buyer beware' was historically, the principle of caution to buyers of goods. Subsequently, in the United States, the doctrine of Caveat Venditor- 'let the seller beware' developed which imposed greater obligations on sellers. [MacPherson v. Buick Motor Co., 217 N.Y. 382 (1916)] 41. In Common law jurisdictions, the mutual obligations of buyers and sellers were governed by laws relating to the sale of goods. Further, any dissatisfaction of the consumer in respect of a product or service could be adjudicated as a tortious claim. 42. However, the realities of the markets, the modes of conducting trade have all undergone enormous change in the last 40 to 50 years resulting in the statutory codification of consumer protection law. Laws were enacted across the globe, for protection of consumer rights. 43. In India, the first consumer protection legislation is the Consumer Protection Act of 1986 which was a law enacted for better protection of the interest of consumers. This was sought to b....
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....tute which has been enacted for the purpose of protecting the interest of consumers in the modern world. Some of the provisions of CPA, 2019 insofar as they are relevant for the adjudication of the present two writ petitions are discussed hereinbelow: i. Section 2 (4) of the CPA, 2019 defines 'Central Authority' as the Central Consumer Protection Authority established under Section 10 of the Act. ii. Section 2 (7) of the CPA, 2019 defines 'consumer' as a person who either buys any goods for consideration or avails any service for a consideration. iii. Section 2 (9) of the CPA, 2019 defines 'consumer rights' as rights of a consumer. This provision includes the right of a consumer to be informed about the price of goods so as to insulate the consumer against any unfair trade practice. Such rights also include the right to consumer awareness. This provision is of utmost relevance for deciding the present issue and the same is extracted below for ready reference: "Section 2 (9) "consumer rights" includes,- xxx xxx xxx (ii) the right to be informed about the quality, quantity, potency, purity, standard and price of goods, products or....
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....public any warranty or guarantee of the performance, efficacy or length of life of a product or of any goods that is not based on an adequate or proper test thereof: Provided that where a defence is raised to the effect that such warranty or guarantee is based on adequate or proper test, the burden of proof of such defence shall lie on the person raising such defence; (h) makes to the public a representation in a form that purports to be- (A) a warranty or guarantee of a product or of any goods or services; or (B) a promise to replace, maintain or repair an article or any part thereof or to repeat or continue a service until it has achieved a specified result, if such purported warranty or guarantee or promise is materially misleading or if there is no reasonable prospect that such warranty, guarantee or promise will be carried out; (i) materially misleads the public concerning the price at which a product or like products or goods or services, have been or are, ordinarily sold or provided, and, for this purpose, a representation as to price shall be deemed to refer to the price at which the product or goods or services has or have been ....
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....wers and functions of the CCPA. This is an important provision and is extracted below: "18. Powers and functions of Central Authority. (1) The Central Authority shall- (a) protect, promote and enforce the rights of consumers as a class, and prevent violation of consumers rights under this Act; (b) prevent unfair trade practices and ensure that no person engages himself in unfair trade practices; (c) ensure that no false or misleading advertisement is made of any goods or services which contravenes the provisions of this Act or the rules or regulations made thereunder; (d) ensure that no person takes part in the publication of any advertisement which is false or misleading. (2) Without prejudice to the generality of the provisions contained in sub-section (1), the Central Authority may, for any of the purposes aforesaid,- (a) inquire or cause an inquiry or investigation to be made into violations of consumer rights or unfair trade practices, either suo motu or on a complaint received or on the directions from the Central Government; (b) file complaints before the District Commission, the State Commissio....
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....ecessary including those provided under the sub clauses (a), (b) and (c) of Section 20. Section 20 of the CPA, 2019 is extracted below: "20. Power of Central Authority to recall goods, etc.- Where the Central Authority is satisfied on the basis of investigation that there is sufficient evidence to show violation of consumer rights or unfair trade practice by a person, it may pass such order as may be necessary, including- (a) recalling of goods or withdrawal of services which are dangerous, hazardous or unsafe; (b) reimbursement of the prices of goods or services so recalled to purchasers of such goods or services; and (c) discontinuation of practices which are unfair and prejudicial to consumers' interest: Provided that the Central Authority shall give the person an opportunity of being heard before passing an order under this section." 53. Section 21 of the CPA, 2019 outlines the powers of the CCPA to issue directions and penalties against false or misleading advertisements. Section 22 of the CPA, 2019 outlines the power of search and seizure. Section 19(1) of the Act authorizes the CCPA to direct an investigation to be carried ....
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....ntral Authority is satisfied after investigation that any person is found to publish, or is a party to the publication of, a misleading advertisement, it may impose on such person a penalty which may extend to ten lakh rupees. (5) No endorser shall be liable to a penalty under sub-sections (2) and (3) if he has exercised due diligence to verify the veracity of the claims made in the advertisement regarding the product or service being endorsed by him. (6) No person shall be liable to such penalty if he proves that he had published or arranged for the publication of such advertisement in the ordinary course of his business: Provided that no such defence shall be available to such person if he had previous knowledge of the order passed by the Central Authority for withdrawal or modification of such advertisement. (7) While determining the penalty under this section, regard shall be had to the following, namely:- (a) the population and the area impacted or affected by such offence; (b) the frequency and duration of such offence; (c) the vulnerability of the class of persons likely to be adversely affected by such offence; and ....
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....s report to the CCPA. 3. Section 18 (2) (b) CCPA has a right to file complaints before the District, State or National Commissions to protect the interest of consumers as a class. 4. Section 18 (2) (c) The CCPA can even intervene in proceedings pending before District, State or National Commissions in respect of any allegation of violation of consumer rights or unfair trade practices. 5. Section 18 (2) (l) The CCPA may issue guidelines to prevent unfair trade practices. 6. Section 19 The CCPA is empowered to conduct a preliminary inquiry to ascertain whether there exists a prima facie case of violation of consumer rights. Further, post the preliminary inquiry, if the CCPA is satisfied that there is violation of right of the consumers, it shall cause investigation to be made by the Director General or by the District Collector. 7. Section 20 The CCPA, if satisfied on the basis of investigation that there is sufficient evidence to show violation of consumer rights, can pass an order inter alia directing recalling of goods, reimbursement of prices of goods and discontinuation of practices 8. Section 88 Failure to comply with any di....
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.... of the Act, satisfy itself, that a practice is an unfair trade practice. After arriving at that satisfaction, in order to protect consumer interest, the CCPA is fully empowered to issue guidelines. Such guidelines have the complete statutory backing of the Act and can always be tested in a Court of law. It cannot, however, be argued that such guidelines would not be binding as the CCPA is fully empowered to ensure enforcement of its guidelines. 64. The following flow chart illustrates the powers of the CCPA relevant to the present case: Mandate of the Central Consumer Protection Authority Ascertain whether a trade practice is an 'unfair trade practice' within the contours of Section 2 (47) of the CPA, 2019 Issuing necessary guidelines under Section 18 (2) (l) of the CPA, 2019 to prevent such unfair trade practices. Refer the matter for investigation by the Director General/District Collector or any Regulator under Section 19 of the CPA, 2019 On the basis of investigation, if the CCPA is satisfied that there is a violation of consumer right, it can pass directions under Section 20 of the CPA, 2019 Non-compliance of directions passed by the CCPA under Section 20....
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....nder the CPA, 2019, to frame the guidelines and the power can be clearly traced back to Section 10 of the CPA 2019. 67. In Poonam Verma v. Delhi Development Authority (supra) it was held that guidelines which do not have statutory backing, remain advisory. However, in the present case the guidelines do have proper statutory backing. The CCPA, established under Section 10 of the CPA, 2019 has the mandate of law to pass the impugned guidelines in the interest of consumers as a class. 68. The decision in Maharashtra State Electricity Board v. Sheshrao [(1997) SCC OnLine NCDRC 14] is not relevant to the present decision. In the said case, it was inter alia held by the NCDRC that the cost or price charged for rendering of service would not be a matter falling within the purview of the Consumer Protection Act, 1986 and the same would not constitute a consumer dispute. The NCDRC further held that all that the consumer forums need to be concerned with, in such cases, is whether there has been any deficiency in the manner of rendering the service that has been contracted for. 69. This judgment was passed by the NCDRC in 1997, keeping in mind the principles enshrined in the Consumer....
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....hem. Further, the vires of law is capable of being challenged if the issuing authority lacks statutory backing. However, if the same derives authority from a statute or regulation, it is valid. The relevant portion of the judgment is extracted hereinunder: "15. The words "rules" and "regulations" are used in an Act to limit the power of the statutory authority. The powers of statutory bodies are derived, controlled and restricted by the statutes which create them and the rules and regulations framed thereunder. Any action of such bodies in excess of their power or in violation of the restrictions placed on their powers is ultra vires. The reason is that it goes to the root of the power of such corporations and the declaration of nullity is the only relief that is granted to the aggrieved party. 16. In England subordinate legislation has, if validly made, the full force and effect of a statute, but it differs from a statute in that its validity whether as respects form or substance is normally open to challenge in the Courts. 17. Subordinate legislation has, if validly made, the full force and effect of a statute. That is so whether or not the statute unde....
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....gulations saves time and is intended to deal with local variations and the power to legislate by statutory instrument in the form of rules and regulations is conferred by Parliament and can be taken away by Parliament. The legislative function is the making of rules. Some Acts of Parliament decide particular issues and do not lay down general rules. 20. The justification for delegated legislation is three-fold. First, there is pressure on parliamentary time. Second, the technicality of subject-matter necessitates prior consultation and expert advice on interests concerned. Third, the need for flexibility is established because it is not possible to foresee every administrative difficulty that may arise to make adjustment that may be called for after the statute has begun to operate. Delegated legislation fills those needs. 21. The characteristic of law is the manner and procedure adopted in many forms of subordinate legislation. The authority making rules and regulation must specify the source of the rule and regulation making authority. To illustrate, rules are always framed in exercise of the specific power conferred by the statute to make rules. Similarly, regu....
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....nforces breach of contractual terms. The remedy in such contractual relationship of master and servant is damages because personal service is not capable of enforcement. In cases of statutory bodies, there is no personal element whatsoever because of the impersonal character of statutory bodies. In the case of statutory bodies it has been said that the element of public employment or service and the support of statute require observance of rules and regulations. Failure to observe requirements by statutory bodies is enforced by courts by declaring dismissal in violation of rules and regulations to be void. This Court has repeatedly observed that whenever a man's rights are affected by decision taken under statutory powers, the Court would presume the existence of a duty to observe the rules of natural justice and compliance with rules and regulations imposed by statute." 75. The impugned guidelines clearly recite the source of powers of the CCPA, as is required, and thus have the force of law in terms of the law discussed above. The nomenclature `Guidelines' does not take away the character of guidelines being statutory stipulations that are binding and enforceable. The powe....
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....ss' of a restriction imposed, the Court has to bear in mind several factors like, the nature of right alleged to be infringed, purpose of restriction, extent of restriction, etc. The same needs to be done on the touchstone of catering to the larger interest of society. This principle was upheld by the Supreme Court in Modern Dental College and Research Centre and Others v. State of Madhya Pradesh and Others [(2016) 7 SCC 353] wherein while upholding inter alia the Rules enacted by the Madhya Pradesh Government to regulate admission of students, fixation of fees and the reservation in post graduate courses in the private professional educational institutions, the Court observed as under: "57. It is well settled that the right under Article 19 (1) (g) is not absolute in terms but is subject to reasonable restrictions under clause (6). Reasonableness has to be determined having regard to the nature of right alleged to be infringed, purpose of the restriction, extent of restriction and other relevant factors. In applying these factors, one cannot lose sight of the directive principles of State policy. The Court has to try to strike a just balance between the fundamental rights....
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.... controlled by the State, of any trade, business, industry or service, whether to the exclusion, complete or partial, of citizens or otherwise." 60. Another significant feature which can be noticed from the reading of the aforesaid clause is that the State is empowered to make any law relating to the professional or technical qualifications necessary for practising any profession or carrying on any occupation or trade or business. Thus, while examining as to whether the impugned provisions of the statute and rules amount to reasonable restrictions and are brought out in the interest of the general public, the exercise that is required to be undertaken is the balancing of fundamental right to carry on occupation on the one hand and the restrictions imposed on the other hand. This is what is known as "doctrine of proportionality". Jurisprudentially, "proportionality" can be defined as the set of rules determining the necessary and sufficient conditions for limitation of a constitutionally protected right by a law to be constitutionally permissible. According to Aharon Barak (former Chief Justice, Supreme Court of Israel), there are four sub-components of proportionality whic....
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.... Article 19 itself when we read clause (1) along with clause (6) thereof. While defining as to what constitutes a reasonable restriction, this Court in a plethora of judgments has held that the expression "reasonable restriction" seeks to strike a balance between the freedom guaranteed by any of the sub-clauses of clause (1) of Article 19 and the social control permitted by any of the clauses (2) to (6). It is held that the expression "reasonable" connotes that the limitation imposed on a person in the enjoyment of the right should not be arbitrary or of an excessive nature beyond what is required in the interests of public. Further, in order to be reasonable, the restriction must have a reasonable relation to the object which the legislation seeks to achieve, and must not go in excess of that object (see P.P. Enterprises v. Union of India [P.P. Enterprises v. Union of India, (1982) 2 SCC 33 : 1982 SCC (Cri) 341]). At the same time, reasonableness of a restriction has to be determined in an objective manner and from the standpoint of the interests of the general public and not from the point of view of the persons upon whom the restrictions are imposed or upon abstract consideratio....
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.... general public or not. The term 'in the interest of general public' in clause (6) of Article 19 is of wide import and comprehends in it, public order, public health, public security, economic welfare of the community, etc. The relevant portion of the judgment is extracted below for a ready reference: "38. There are two Latin legal maxims, which need to be kept in mind while deciding the questions arising in this appeal. One is salus populi supremo lex which means the safety of the people is the supreme law and the other is salus reipublicae supremo lex which means safety of the State is the supreme law. 39. In our considered view, it is the prime duty, rather statutory duty, of the police personnel/administration of every State to maintain and give precedence to the safety and the morality of the people and the State. Indeed, both are important and lie at the heart of the doctrine that the welfare of an individual must yield to that of the community. The Act and the 2005 Order are enacted keeping in view the safety and the morality of the people at large. 40. In our view, whenever the impugned action is challenged on the touchstone of Articles 14 and 19 ....
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....occurring in clause (6) of Article 19 is an expression of wide import which comprehends in it public order, public health, public security, morals, economic welfare of the community, and lastly, objects mentioned in Part IV of the Constitution. (See Municipal Corpn., Ahmedabad v. Jan Mohammed Usmanbhai [Municipal Corpn., Ahmedabad v. Jan Mohammed Usmanbhai, (1986) 3 SCC 20] and Deepak Theatre v. State of Punjab [Deepak Theatre v. State of Punjab, 1992 Supp (1) SCC 684]. 49. This Court has also ruled, as mentioned above, that the State has a right to regulate running of any business by putting reasonable restrictions under clause (6) of Article 19 in the interest of general public. It was held in Minerva Talkies v. State of Karnataka [Minerva Talkies v. State of Karnataka, 1988 Supp SCC 176] that the right to carry on the business of exhibiting cinematograph films, which is governed by the provisions of the Karnataka Cinemas Regulation Act and the Rules framed thereunder, is subjected to the rigour of reasonable restrictions and the State Government has a power to limit/restrict the exhibiting of the number of shows in the talkies in a day. It was held that such provisions ....
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....onstitutional. III. Determining the nature of enforceability of service charge in restaurants and other establishments 86. The stand taken by the restaurant establishments is that the levying of service charge is informed prior to the customer placing the order, by printing the same on the menu card itself. Hence, as per the Petitioners, once the customer is aware of the collection of service charge at an establishment and then continues to avail of the services, the customer is bound to pay the service charge. The collection of service charge is justified by establishments on several grounds - each of which is discussed below. The levying of service charge is a contractual issue 87. It is the case of the Petitioners that levying of service charge is a contractual issue and not within the jurisdiction of the CCPA. The Petitioners have argued that after being aware of the fact that a restaurant establishment is going to collect service charge, if the customer still goes ahead and places the order, the customer and the restaurant establishment have entered into a contract and the same is binding in nature. This issue being a contractual issue is further not under the juri....
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.... even customers who make a conscious choice to visit an establishment. In either case, once the customer enters the establishment, it is unlikely that any customer would go away merely upon seeing the menu card. Once the customer has been handed the menu card, the focus is on ordering of the food. Most customers opt for the food joints of their choice based upon the approximate cost that they may incur, depending on the occasion - whether a celebration of a special occasion, a relaxing meal with friends or family, a formal meal with professional associates or colleagues etc., This assessment is based on the price printed on the menu card for the food. However, what invariably happens in most establishments is that after the food is charged, service charge of 10% - 12% is added by default and taxes are charged over and above the said amount. In effect therefore, the consumer ends up paying 10-12% more simply because of addition of the service charge. This can be illustratively demonstrated herein below: Illustration-I: Sample Bill of High - end Restaurant Establishments High-end Restaurant Establishments (Including Service Charge of 10%) Food Bill Rs. 5000 Service Cha....
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....thout reasonable cause; or (v) permitting or has the effect of permitting one party to assign the contract to the detriment of the other party who is a consumer, without his consent; or (vi) imposing on the consumer any unreasonable charge, obligation or condition which puts such consumer to disadvantage; " 96. A perusal of the definition provided in Section 2(46) of the CPA, 2019 shows that any practice which misleads the customer regarding price of the product, by imposing an unreasonable mandatory charge, would be an unfair contract. The restaurant establishments, by mandatorily collecting service charge, are in fact misleading the consumer about the actual price of products on the menu card. A consumer is conscious that apart from the amount mentioned on the menu card as the price of the product, the amount payable would only be such amount as is collected by the Government as a tax and nothing more. In fact, when a large number of food items are ordered, most consumers may not even notice the levy of the service charge that too in small print and may land up paying a much higher amount than what is chargeable. This constitutes unfair trade practice. 97.....
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.... Edn., Vol. I, in para 4]. 100. The principle of unconscionable bargain was first judicially recognized in Indian jurisprudence in a seminal judgment of the Supreme Corut, being, Central Inland Water Transport Corpn. Ltd. v. Brojo Nath Ganguly [(1986) 3 SCC 156]. In the said judgment, the Supreme Court adjudicated the validity of a contract between the employer and the employee wherein the terms of the contract therein inter alia provided that the employer can terminate the services of the permanent employees without assigning reasons on three months' notice or pay in lieu thereof on either side. The Supreme Court while holding the said terms in the contract to be void inter alia held that contracts entered into by the party with superior bargaining power with a large number of persons who have far less bargaining power or no bargaining power at all. Such contracts which affect a large number of persons or a group or groups of persons, if they are unconscionable, unfair and unreasonable, are injurious to the public interest and the same shall be void. The relevant portion of the judgment is extracted hereinunder "88. As seen above, apart from judicial decisions, the Uni....
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....f this type. No court can visualize the different situations which can arise in the affairs of men. One can only attempt to give some illustrations. For instance, the above principle will apply where the inequality of bargaining power is the result of the great disparity in the economic strength of the contracting parties. It will apply where the inequality is the result of circumstances, whether of the creation of the parties or not. It will apply to situations in which the weaker party is in a position in which he can obtain goods or services or means of livelihood only upon the terms imposed by the stronger party or go without them. It will also apply where a man has no choice, or rather no meaningful choice, but to give his assent to a contract or to sign on the dotted line in a prescribed or standard form or to accept a set of rules as part of the contract, however unfair, unreasonable and unconscionable a clause in that contract or form or rules may be. This principle, however, will not apply where the bargaining power of the contracting parties is equal or almost equal. This principle may not apply where both parties are businessmen and the contract is a commercial transacti....
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....ious to the public interest. To say that such a contract is only voidable would be to compel each person with whom the party with superior bargaining power had contracted to go to court to have the contract adjudged voidable. This would only result in multiplicity of litigation which no court should encourage and would also not be in the public interest. Such a contract or such a clause in a contract ought, therefore, to be adjudged void. While the law of contracts in England is mostly judge-made, the law of contracts in India is enacted in a statute, namely, the Indian Contract Act, 1872. In order that such a contract should be void, it must fall under one of the relevant sections of the Indian Contract Act. The only relevant provision in the Indian Contract Act which can apply is Section 23 when it states that "The consideration or object of an agreement is lawful, unless ... the court regards it as ... opposed to public policy." 101. In the present case, even if an implied contract is deemed to exist between the consumer and the restaurant establishment, upon the consumer placing an order after being informed about the service charge, it would be rendered void. This is becaus....
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....s. DDA (supra). Contract to be vitiated if contrary to public interest: 105. It is trite law that contracts which are against public interest or public welfare are contrary to public policy and the same are therefore, unlawful and void. This principle has been recognised by the Supreme Court in Rattan Chand Hira Chand v. Askar Nawaz Jung and others [(1991) 3 SCC 67] wherein it was inter alia observed that contracts which have a tendency to injure public interest are against public policy and the determination as to what contracts would constitute injury to public interest would be different from case to case and the same needs to be considered by the Court. The relevant portion of the judgment is extracted hereinunder: "17. I am in respectful agreement with the conclusion arrived at by the High Court. It cannot be disputed that a contract which has a tendency to injure public interests or public welfare is one against public policy. What constitutes an injury to public interests or welfare would depend upon the times and climes. The social milieu in which the contract is sought to be enforced would decide the factum, the nature and the degree of the injury. It is con....
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....ll the gap. In performing this duty they do not foist upon the society their value judgments. They respect and accept the prevailing values, and do what is expected of them. The courts will, on the other hand, fail in their duty if they do not rise to the occasion but approve helplessly of an interpretation of a statute or a document or of an action of an individual which is certain to subvert the societal goals and endanger the public good. 23. In the face of the concurrent findings with which we agree, I have no doubt in my mind that the contract relating to the payment of the amount is not severable from the agreement to promote the cause of Sajjid Yar Jung by wielding the influence the plaintiff had. Every agreement of which the object or consideration is unlawful is void. The consideration or object of an agreement is unlawful when the court regards it as opposed to public policy. If anything is done against the public law or public policy that would be illegal inasmuch as the interest of the public would suffer in case a contract against public policy is permitted to stand. Public policy is a principle of judicial interpretation founded on the current needs of the co....
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....d against the directives of RBI. We are not impressed by the submission made on behalf of the appellant. The fact which cannot escape notice is that recently there has been a large-scale change and improvement in the working and method and manner of functioning of various institutions, including banks. Very many services, which were not available earlier, have been introduced with the aid of mechanical and technological devices. Introduction of computerisation has its own effect, one of which is introduction of MICR cheques. There is no denying of the fact, from either side, that it facilitates the clearance of the cheques and avoids an unduly long time-consuming process in cheque clearance, which are issued by the customers within the city or in any other part of the country. Therefore, to say that it was only for the facility of the Bank itself that MICR cheques were introduced, would not be correct nor the argument that it could not be permissible for the Bank to make up some amount of the cost incurred in introducing the new and modern infrastructure for improving its working. We also feel that for such small charges necessitated due to general modernisation of its functioning ....
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....nce of this practice. Hotels and restaurants are among the biggest employers of persons with less than secondary education, those socially and economically deprived and/or with disabilities. The earnings from service charge go a long way in improving their earnings, which would otherwise be much less. The industry is a very large vocational skills trainer and trains lakhs of unskilled youth yearly. Service charges and fair wages enable the industry to recruit the otherwise opportunity deprived and raise their social standing. We urge the Department of Consumer Affairs, GOI to allow industry to continue this standard global, especially considering the precedence of the case in the Punjab & Haryana High Court. * 112. In view of the stand of the HAI, the Ministry of Consumer Affairs on 14th December, 2016 had directed as under: "3. The Hotel Association of India. Bhikaji Cama Place, New Delhi, on the matter being taken up with them, observed that the service charge is completely discretionary Should a customer be dissatisfied with the dining experience he/she can have it waived off. Therefore, it is deemed to be accepted voluntarily. 4. In the ci....
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....to placing order of food and beverages, and as such it falls under restrictive trade practice as defined under section 2(1 )(nnn) of the Act. (5) In view of the above, the bill presented to the customer may clearly display that service charge is voluntary, and the service charge column of the bill may be left blank for the customer to fill up before making payment. (6) A customer is entitled to exercise his/her rights as a consumer, to be heard and redressed under provisions of the Act in case of unfair/restrictive trade practices, and can approach a Consumer Disputes Redressal Commission/Forum of appropriate jurisdiction." 114. As per the above guidelines, any bill issued by a restaurant establishment, would have a separate column displaying service charge, the same would be left blank, to be filled by the customer after availing of the service. Despite these guidelines, establishments continued to charge mandatory service charge. 115. As per the counter affidavit, on the portal of the Department of Consumer Affairs, a large number of complaints were received from consumers. The grievances raised by consumers were to the following effect: i) Consum....
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....th the National Restaurant Association of India to discuss the issues pertaining to Service Charge levied by restaurants. The meeting follows as a result of DoCA taking notice of a number of media reports as well as grievances registered by consumers on the National Consumer Helpline (NCH). In a letter written by Shri Rohit Kumar Singh, Secretary, Department of Consumer Affairs to President, National Restaurant Association of India, it has been pointed out that the restaurants and eateries are collecting service charge from consumers by default, even though collection of any such charge is Voluntary and at the discretion of consumers and not mandatory as per law. It has been pointed out in the letter that the consumers are forced to pay service charge, often fixed at arbitrarily high rates by restaurants. Consumers are also being falsely misled on the legality of such charges and harassed by restaurants on making a request to remove such charges from the bill amount. "Since this issue impacts consumers at large on a daily basis and has significant ramification on the rights of consumers, the department construed it necessary to examine it with closer scrutiny and detail", ....
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....of Consumer Affairs with respect to service charge found enormous support amongst consumers and an online poll which was run by the said Department on 'X' platform (formerly known as, 'Twitter'). The same shows that that 88.5% of consumers did not wish to have a service charge by default on their bills. The same has been reflected below: 120. According to the Ministry of Consumer Affairs, various decisions have also been passed by Consumer Forums directing that service charge shall not be levied and forceful collection of the same is a violation of consumer rights. The details of the said orders are extracted hereinunder for a ready reference: "(i) Mr. Rajashekhar Kanaganti vs. AnTeRa Kitchen and Bar Case No. CC/610/2021 District Commission, (Hyderabad-I) decided on 26.04.2022 "Thus in the present case, the Opposite Party deliberately failed and / or neglected to pay heed to the grievance of the complaint. When the complainant resisted the payment of service charge, the Opposite Party should not have forced him to pay the same. It is the discretion of the customer to pay the amount, if he likes the services. In the instant case, the complainant's e....
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....so required to pay service tax on this service charge so collected by the hotels and restaurants. The Hotel Association of India observed that the service charge is completely discretionary. Should a customer be dissatisfied with the dining experience he I she can have it waived off. Therefore, it is deemed to be accepted voluntarily. In the hotel/restaurants that the 'service charges' are discretionary / voluntarily and a consumer dissatisfied with the services can have it waived off proves that the service charge is voluntary not compulsory. Considering the facts and circumstances of the case this Forum is of the considered view that the opposite party is not entitled to collect service charge compulsorily." The Commission directed the restaurant to refund the service charge amount of Rs. 9.90, pay a sum of Rs. 10,000 towards mental agony along with Rs. 5,000 as cost. (iv) Smt. Manisha Banavalikar vs. Mini Punjab's Lakeside, Restaurant & Banquets Case No. CC/151/2017 District Commission, Mumbai Suburban, decided on 10.12.2019 (Decision in Marathi) The Commission directed the restaurant to refund the service charge ....
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.... double whammy i.e., they are forced to pay service tax and GST on the service charge as well. This position cannot be ignored by the Court. 124. The submission on behalf of the Petitioners that service charge is used in some way for benefit of staff, is a feeble argument to say the least. There is no evidence provided to show that the amount collected by way of service charge is in some way benefitting the staff. Even if it were so, it is only such amount which is voluntarily paid by customers that can be utilised for the welfare of the staff. Mandatory collections which are detrimental to customers cannot be justified on the basis of some hidden benefit to staff of the establishments. 125. A compulsory mandatory levy is a sovereign function. The same has been held in a catena of judgments. The Respondents rely on the decision of Assistant Collector of Central Excise v. National Tobacco Co. (MANU/SC/0377/1972) to argue that the word levy or levying of any tax charge is a sovereign function. 126. Further, the Supreme Court in Patna Municipal Corporation & Ors. v. M/s Tribro Ad Bureau & Ors., [(2024) SCC OnLine SC 2874], inter alia, held that the royalty imposed by the Patn....
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....b-delegates the power to levy and collect fees to NTBCL, is unlawful, and the Regulations justifying such sub-delegation undermine the objective of Section 6A of the 1976 Principal Act. 51. Not only this, the Regulations came to be enacted only after the Concession Agreement had been executed, and were seemingly designed to validate the actions already taken by NTBCL and NOIDA. We may also hasten to add that the subject Regulations are neither retroactive nor can be applied retrospectively and are thus alien to the terms and conditions of the Concession Agreement. 52. It seems that NTBCL and NOIDA have indulged in trickery and placed the cart before the horse, in attempting to authorise actions post facto, thereby obscuring the full extent of misuse of power. We find it evident that these Regulations were introduced by NOIDA in the aftermath of enacting the Concession Agreement, serving merely as an afterthought, while having no authority to do so. We thus hold that NOIDA did not have any competence to delegate the power to levy fees and toll to NTBCL, and thereby overstepped its statutory bounds. Accordingly, we are not inclined to interfere with the findings of ....
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....ected the establishments to place on record any documents to support this argument, hardly anything was forthcoming. Moreover, settlements with labour and work force have to be on the basis of the revenues generated by the establishments and service charge cannot be justified on the ground that salaries or bonuses of staff have to be paid. 134. There can be a settlement between the restaurant establishments and work force as to the manner in which any voluntary tip or gratuity that is paid by the customer is divided so that it is not appropriated by any particular individual or class of waiters, bearers, etc., Such agreements are understandable. However, any agreement that has the effect of impinging on the right of the consumer would be wholly untenable. The establishments are free to price their products in whatever manner they deem appropriate so long as the consumer is not being misled. 135. The CCPA is an authority which has been established by law under Section 10 of the CPA, 2019. Further, Section 18 of the said Act vests various powers and prescribes the functions of the CCPA. Under Section 18 (2) (l) of the CPA, 2019 one of the CCPA's essential functioning is to issu....
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....transparency with regard to the amount, the rate and the purpose of the charge. It is shown separately in the final bill and payment of the same is up to the prerogative of customer / guest." As per FHRAI itself, the payment of service charge is the prerogative of the customer. 139. Thus, it is clearly represented by FHRAI that the establishments themselves did not deem payment of service charge as mandatory. They also took the position that the same would be in the form of a voluntary contribution. The initial letter from the HAI dated 28th October, 2015 was also to this effect that service charge is a voluntary payment which can be waived by the restaurant establishments on request of the customer. 140. Despite issuing these letters to the Ministry of Consumer Affairs, Food and Public Distribution both the Associations which are before the Court have taken a contrary stance which would be impermissible. The establishments would be bound by the stand taken by them before the Ministry and they cannot be permitted to renege from the same. 141. The camouflaged and coercive manner in which service charge is being collected by the restaurant establishments itself shows the ....
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....t, and the consumer has necessarily to be informed of the additional cost for carry bags and of their salient specifications and price before he makes his selection of the goods for purchase." 144. The lack of clarity of the price of the product or the misleading nature of the price of the product by charging compulsory and mandatory service charge, results in an unfair trade practice under Section 2 (47)(i) of the CPA, 2019. This provision is being misread by the Petitioners when the argument is made that it would only be an unfair trade practice if the said practice is for the purpose of promotion, sales, use or supply of goods. However, a perusal of the definition of unfair trade practice under the Act shows that a trade practice which is unfair for the 'provision of any service' would also be an unfair or a defective trade practice. This part of the definition i.e., "or for the provision of any service" is being ignored by the Petitioners. 145. The mere display of collection of service charge in a small display board or in hardly readable font on the menu or on the bill does not obviate the responsibility of the establishments to properly inform the consumer. The....
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.... question as to whether the collection of mandatory service charge from consumers is valid or not did not arise. 149. In The Rambagh Palace Hotel, Jaipur v. The Rajasthan Hotel Workers' Union, Jaipur (supra) the question that arose for consideration was whether the workers are entitled to dearness allowance. The Industrial Tribunal had reduced the dearness allowance considerably. The argument of the hotel was that tips which were given to the staff which take the shape of half the salary are also distributed by management to the workers and thus, some adjustment needs to be given in that regard. The Court held that tips are not amounts paid by the management from its own pocket but merely a transfer of money which is collected by the establishment to the staff. The receipt of tips cannot reduce the award of dearness allowance and therefore, the Supreme Court did not interfere with the award of the Industrial Tribunal. This decision cannot in any manner be relied upon by the Petitioners to argue that mandatory service charge has been legalized by the Supreme Court especially if the same is collected in a completely disapproved manner. The legality and validity of mandatory servic....
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.... customer. There is, therefore, no reference to the contract of employment when these amounts are paid by the employer to the employee. Shri Kaul, however, argued that there is an indirect reference to the contract of employment inasmuch as but for such contract, tips to employees could not possibly have been paid at all. We are afraid that this argument must be rejected for the simple reason that the payments received by the employees have no reference whatsoever to the contract of employment and are received from the customer, the employer only being a conduit in a fiduciary capacity in between the two. Indeed, if Shri Kaul's arguments were to be accepted, even the position accepted by the revenue and consequently the High Court that tips given in cash, which admittedly are not covered by Section 192, would also then be covered inasmuch as such tips also would not have been given but for the contract of employment between employer and employee. Clearly, therefore, such argument does not avail Revenue." The above judgement in fact recognises the fact that Tips are purely voluntary in nature. 153. In M/s Quality Inn Southern Star v. The Regional Director, Employees State,....
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....for food/meal. A customer who can read the order for kind of dishes mentioned in the menu card as is the case, can very well read the conditions mentioned in the said card before placing the order for the food/meal. Non- reading of the same would necessarily be at his peril. It is difficult to comprehend that a customer choosing dishes amongst others as mentioned/offered in the menu card can mistake 'service charges' for sales tax as is the contention of the complainant. Non-disclosure of reasons for levying service charges, as is the practice in other similar restaurants/hotels, does not make the practice as unfair within the meaning of Section 36A of the Act. There is thus no unfair practice or deceptive method adopted by the respondent as contended by the complainant. In fact the extra levy at 9% would act as a disincentive to the promotion of sales, which is a pre-requisite condition for holding the trade practice to be unfair. 9. It is true that, as generally understood and also impliedly accepted by the respondent, the tip is a voluntary contribution, which cannot be quantified. To the extent the averments of the complainant are correct. In view of the stand ....
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....eneral or customer in particular. It has, thus, been sufficiently demonstrated that the respondent did not indulge in unfair or restrictive trade practices as alleged. The observations of the Commission made in the order passed under Section 12A of the Act were without considering the evidence on both sides rendered during the course of trial, as such, the same cannot be considered to be conclusive. In our considered view, the Notice of Enquiry is not maintainable and the same deserves and is directed to be discharged with no order as to the costs on the facts and in the circumstances of the case." 155. In the present case, however, no such approval has been granted by the Ministry of Tourism towards collection of the service charge. Thus, while noting that the MRTP decision would not be binding of this Court, the above fact would be of significance and would change the basic foundation laid down in the judgment of S.S. Ahuja v. Pizza Express (supra) itself. 156. The Respondents rely upon Rajashekar v. AnTeRa Kitchen and Bar (Case No. CC/610/2021) wherein the complainant sought refund of the service charges collected from consumers. The establishment was cha....
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....ld that the service charge was considered as part of the employees' regular rate of pay. It was not a tip because Tips are solely determined by customers whether to pay or not. The Court primarily upheld the Department of Labor regulation which provided that a compulsory charge for service is not a tip. 165. It was only in those facts that the Court held that the 18% service charge was a bona fide service charge and not a tip because it was a compulsory charge of a service it was not determined solely by the customers. The establishment succeeded in view of the labour law regulations prevalent in the said jurisdiction. 166. The Court agrees with the Respondents that service charge being collected compulsorily or mandatorily by the restaurant establishments would be contrary to law, as the same violates the right of consumers. The CCPA being the regulator empowered by the CPA, 2019 to protect the rights and interest of the consumers has rightly framed the guidelines for barring the mandatory collection of service charge by the restaurant establishments. 167. It also needs to be noted that there are no documents filed on record by the Petitioners to show in what manner servi....
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.... and Ors. (supra) wherein the Supreme Court did not interfere with the decision of the High court which inter alia observed that the restaurant establishments selling mineral water in excess of MRP printed on the packaging, did not violate any law as the same did not merely constitute a sale or transfer of commodities by the restaurant establishment to its customers. The relevant paragraphs of the judgment are extracted hereinunder for a ready reference: "13. On a reading of the said Act and the Rules made thereunder, it is clear that the position qua "sale" remains exactly the same as that contained in the 1976 Act, which now stands repealed. This being the case, we are of the view that the learned Single Judge was absolutely correct in his conclusion that despite the constitutional amendment having been passed, the definition of "sale" contained both in the 1976 Act and now in the 2009 Act would go to show that composite indivisible agreements for supply of services and food and drinks would not come within the purview of either enactment, and that this is for the very good reason that the object for both these enactments is something quite different-the object being, as....
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....al on record and the same is accordingly rejected; (vi) The fact that service charge can be collected as it is part of a voluntary contract/agreement made by the consumer who enters the establishment and avails of the services after seeing the chargeability of service charge on the menu card is an argument which is not tenable as such a condition is onerous and constitutes an unfair contractual condition under Section 2(46) of the CPA, 2019; (vii) Consumer rights cannot be subjugated to an argument that a contract is being entered into by the consumer while entering the establishment to pay service charge as the payment and collection of service charge is itself contrary to law; (viii) While this Court holds that the mandatory collection of service charge is contrary to law and violates the guidelines, it is also of the opinion that if consumers wish to pay any voluntary Tip for services which they had enjoyed, the same would obviously not be barred. The amount however, ought not to be added by default in the bill/invoice and should be left to the customer's discretion. (ix) The CCPA may consider permitting change in the nomenclature for Service ....