The Delhi High Court has upheld guidelines that stop hotels and restaurants from automatically adding a service charge to food bills, calling the practice unfair and a violation of consumer rights.
These guidelines were originally issued by the Central Consumer Protection Authority (CCPA) on July 4, 2022, but were put on hold later that month after hotel and restaurant associations challenged them in court. Now, with the court’s latest ruling on March 29, the stay has been lifted — and the rules are back in force.
The court clearly stated that making service charge compulsory goes against consumer rights and collecting it under various names amounts to “unfair trade practices.” In simple terms: restaurants can no longer sneak a fixed service charge onto your bill. If you want to tip for good service, you can — but it’s entirely up to you.
Justice Prathiba M Singh, who pronounced the judgement, dismissed the petitions filed by two major restaurant bodies — the Federation of Hotels and Restaurant Associations of India (FHRAI) and the National Restaurant Association of India — which had opposed the CCPA’s guidelines.
Back in 2022, when the guidelines were first rolled out, FHRAI and the National Restaurant Association felt they were too restrictive and decided to challenge them legally. Their argument was that service charge helps in fairly distributing tips among staff. But with the court now siding with consumers, the message is clear — the discretion lies with the diner.
On a different front, FHRAI has been voicing concerns over how GST is applied to food and beverage (F&B) services in hotels. On March 9, the association reportedly urged authorities to delink GST on F&B from hotel room tariffs.
Here’s the issue: Under the current system, if a hotel charges ₹7,500 or more per night for a room, then its restaurant has to apply 18% GST on food — but can also claim input tax credit (ITC), which helps reduce tax burden. On the other hand, if the hotel charges less than ₹7,500, the restaurant must levy only 5% GST — but without any ITC benefits.
FHRAI believes this setup is unfair and makes daily operations more complicated. They’re now proposing a more flexible system where any hotel restaurant can choose between the two tax structures, regardless of room prices.
For diners, the bottom line is simple: if you see a compulsory service charge on your bill, you can question it — and even ask to have it removed.