The Bill That Went Too Far: Service Charge Meets the Law
CCPA Orders Refunds, Fines Over Default Service Charge
GST on Service Charge is Illegal
New Delhi: For many diners across India, the moment of reckoning has long arrived not with the menu but with the bill. Tucked beneath the total, often in smaller print yet firm in consequence, a “service charge” would appear—added automatically, difficult to question, and frequently explained as standard practice. Some consumers objected, some paid reluctantly, and others accepted it as the price of avoiding an awkward conversation. Over the years, such charges have been challenged before consumer dispute redressal commissions and examined in regulatory advisories, but the practice has persisted across much of the hospitality industry.
That long-standing friction between diners and restaurants has now reached a decisive phase. The Ministry of Consumer Affairs, Food, and Public Distribution stated today that the Central Consumer Protection Authority (CCPA) has taken enforcement action against 27 restaurants nationwide for mandatorily levying service charges, declaring the automatic addition of such charges an unfair trade practice under the Consumer Protection Act, 2019. Acting on consumer complaints supported by invoices, the Authority has ordered refunds, imposed penalties of up to ₹50,000 and directed establishments to reconfigure their billing systems to ensure that service charge is neither imposed nor presented as compulsory.
The regulatory action follows a crucial judicial development. In a judgment dated March 28, 2025, the High Court of Delhi upheld the CCPA’s Guidelines to Prevent Unfair Trade Practices and Protection of Consumer Interest with Regard to Levy of Service Charge in Hotels and Restaurants, originally issued on July 4, 2022. The court held that the mandatory collection of service charges by restaurants is contrary to the law and violates consumer rights. It further ruled that all restaurant establishments are bound by the guidelines and affirmed that the CCPA is fully empowered to enforce them in accordance with the law.
The guidelines make clear that no hotel or restaurant can add a service charge automatically or by default to a bill, collect it under any alternate description or compel consumers to pay it in any manner. Consumers must be clearly informed that the service charge is voluntary and optional, refusal to pay it cannot result in denial of entry or service, and the charge cannot be added to the bill and subjected to Goods and Services Tax. The High Court also clarified that while consumers remain free to pay a voluntary tip if they so choose, such payment must be left entirely to their discretion and cannot be pre-loaded into the bill.
Investigations conducted by the CCPA revealed that despite these guidelines and their judicial affirmation, several restaurants continued to levy a service charge by default through software-generated billing systems. In a number of cases examined by the Authority, the service charge was not only added automatically but was also included in the taxable base, resulting in Central Goods and Services Tax and State Goods and Services Tax being levied on an amount that itself was impermissible under the guidelines. The Authority noted that this practice compounded the violation by increasing the financial burden on consumers through unlawful tax computation.
Many of these violations came to light through complaints lodged on the National Consumer Helpline, where consumers uploaded invoices clearly reflecting the default addition of a service charge. The CCPA observed that where billing systems are configured to automatically generate such charges, the practice cannot be treated as an isolated lapse but must be viewed as affecting consumers as a class, particularly in establishments with multiple outlets or significant footfall.
One such case involved ‘Café Blue Bottle’ in Patna. A consumer complaint showed that a 10 per cent service charge had been added automatically to the bill along with Central Goods and Services Tax and State Goods and Services Tax. After examining the invoice and the restaurant’s response, the CCPA found that the charge had not been presented as voluntary and that the consumer’s consent had not been obtained. The Authority also observed that offering a credit note or adjustment in place of a direct refund was misleading and lacked legal basis. It directed the restaurant to refund the full service charge amount to the consumer, discontinue the practice with immediate effect and pay a penalty of ₹30,000 for violation of consumer rights and adoption of unfair trade practices.
A similar pattern emerged in the case of ‘China Gate Restaurant Private Limited’, which operates the Bora Bora outlet in Mumbai. The investigation established that the restaurant’s billing software automatically added a 10 per cent service charge to customer bills, and that the charge was subject to Goods and Services Tax, contrary to the CCPA guidelines. The Authority further recorded that the restaurant failed to resolve the consumer grievance despite multiple communications from the National Consumer Helpline and did not initially cooperate with the investigation proceedings, including non-response to notices and non-appearance at scheduled hearings. It was also found that the email address displayed by the restaurant on public platforms was non-functional for a period, obstructing consumer access to grievance redressal mechanisms mandated under law.
Although the service charge was refunded during the hearing before the Authority, the CCPA held that the violations warranted corrective and punitive action, particularly in view of the restaurant’s scale of operations and the likelihood that a software-driven default billing command would have impacted a wide base of consumers across its outlets. The restaurant was directed to modify its billing system to remove the default addition of a service charge, pay a penalty of ₹50,000 and ensure that its publicly listed email address remains active and functional at all times to facilitate consumer grievance redressal, as required under the Consumer Protection Act, 2019.
In its reasoning, the Authority reiterated that the price displayed on a restaurant’s menu already includes the cost of service. When a consumer places an order, consent extends only to paying the listed price along with applicable taxes. Any additional amount charged without the consumer’s free and informed consent, the Authority noted, undermines transparency and constitutes an unfair trade practice under Section 2(47) of the Act. The use of default software commands to add service charge, it added, effectively converts a purportedly voluntary payment into a compulsory one, to the disadvantage of consumers.
Officials said the action reflects a shift from fragmented, case-by-case adjudication to structured enforcement backed by judicial clarity. While consumer dispute redressal commissions had earlier addressed complaints relating to service charges in individual cases, the High Court’s 2025 ruling has provided authoritative legal certainty, enabling uniform regulatory action across the country. The CCPA said it is closely monitoring complaints received through the National Consumer Helpline and will continue to take strict action against non-compliant establishments to safeguard consumer rights and prevent unfair trade practices.
– global bihari bureau
