Delhi High Court Questions Legality of Service Charges in Restaurants

August 22, 2025

The Delhi High Court has raised significant questions over the legality of restaurants charging customers beyond the Maximum Retail Price (MRP) of goods under the guise of ambience costs and service charges. The observations came during hearings on appeals filed by the National Restaurant Association of India (NRAI) and the Federation of Hotel and Restaurant Associations of India (FHRAI) challenging earlier court orders restricting automatic service charges.

Court Observations: Charging Beyond MRP Under Scrutiny

A division bench of Chief Justice D.K. Upadhyay and Justice Tushar Rao Gedela expressed strong reservations about the practice of levying extra charges on goods, citing the Legal Metrology Act, which prohibits selling items above their declared MRP.

To drive the point home, the bench presented a striking illustration:

A ₹20 MRP water bottle billed at ₹100 in a restaurant, broken down as ₹80 for ambience and ₹10 as service charge.

The Court questioned the legality of such pricing, stating that ambience costs should already be included in the service charge and not treated as a separate charge above the MRP.

“If you can’t sell over and above the MRP, what are you charging ₹80 for?” the bench asked.

Background: Challenge to 2022 CCPA Guidelines

The case stems from the appeal filed by NRAI and FHRAI against a March 28 ruling by Justice Prathiba M. Singh, which upheld the Central Consumer Protection Authority (CCPA)’s 2022 guidelines.

Key provisions of these guidelines include:

Consumers cannot be forced to pay service charges regardless of service quality.
Service charges cannot be added automatically to bills without explicit customer consent.

The CCPA argued that this protection ensures fair trade practices and prevents undue financial burden on consumers.

NRAI and FHRAI’s Arguments

Represented by senior advocate Sandeep Sethi, NRAI and FHRAI argued:

Transparency in Menus: If service charges are clearly displayed in menus and at the establishment, they cannot be considered an “unfair trade practice.”
Employee Welfare: Service charges contribute to safeguarding the earnings of millions of hospitality employees.
Pricing Rights: Restaurant owners have the right to structure pricing under different heads, and CCPA cannot dictate pricing structures.
Jurisdiction Issue: They claimed that the CCPA’s guidelines exceeded its jurisdiction under the Consumer Protection Act.

CCPA’s Counterarguments

The CCPA, represented by Additional Solicitor General Chetan Sharma, argued that many restaurants continued to levy service charges despite the single judge’s order, asserting unjustified authority over consumers. The CCPA reinforced its position that automatic levying of service charges violates consumer rights.

Next Steps in the Case

The High Court has scheduled September 22, 2025, as the next date of hearing, stating that it will hear the matter finally instead of granting any interim relief. The bench noted that no interim stay has been in effect since the filing of the appeal in April 2025.

Legal Significance

This case raises critical questions about:

The intersection of consumer rights, pricing transparency, and restaurant business models.
The scope of powers of the CCPA under the Consumer Protection Act, 2019.
The application of the Legal Metrology Act to service-based industries, particularly hospitality.

A final ruling could set a precedent for service charge practices across India and reshape the pricing policies of hotels and restaurants.