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Restaurant body moves Delhi HC challenging the guidelines restraining charging of service charge

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Delhi High court, Representative Image,
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The National Restaurant Association of India (NRAI) on Monday moved to Delhi High court challenging the guidelines restraining the restaurant from charging service charges.

Justice Yashwant Verma listed the matter for July 20 after counsel for one of the respondents sought time to take instructions.

NRAI and others have moved a petition through advocate Nina Gupta and Ananya Marwah seeking inter alia for quashing or setting aside guidelines of July 4, 2022, issued by the Central Consumer Protection Authority (CCPA) for ‘Preventing Unfair Trade Practices and Violation of Consumer Rights with regard to levying of service charge in hotels and restaurants.

Senior Advocate Lalit Bhasin argued that there are three categories of restaurants. Firstly, those who do not levy service charge, second are those who levy service charges without consent of the consumer and thirdly those who levy service charges and it is reflected in their menu.

The Senior advocate argued that these guidelines should not be applied to those who are reflecting this on the menu. It is a police matter and the rate of service charge is subject to price, it may be different. Service charge is always meant for the staff.

It is submitted that guidelines issued on July 4, 2022, iss On the other hand, the counsel for CCPA sought time to take instructions. The court asked him to come with complete instructions on Thursday.

Thereafter the court fixed the next date of hearing.ued by CCP are arbitrary, untenable and ought to be quashed/set aside by this Court in as much as the same has been issued without an appreciation of the facts and circumstances.

It is also submitted that levy of service charge has been a standing practice in the hospitality industry for more than 80 years which is evident from the fact that the Supreme Court took notice of this concept way back in 1964 in the case of Management of Wenger and Co. Vs. Their Workmen.

The petition has stated that there is no law which disallows restaurants to charge service charges. There has neither been a new law nor an amendment to the existing laws which makes charging the service charge illegal.

In the absence of due authentication and promulgation of the guidelines, the contents thereof cannot be treated as an order of the Government. The wide publicity of the issue regarding Service Charge has led to a fear psychosis among the restaurant owners and has created a wrong impression in the minds of the public.

This has adversely affected the smooth functioning and business of the restaurants, the petition stated. It is also stated that the levying of service charges has a socio-economic angle as well.

The system of levying service charge ensures that there is a systematic and logical distribution of service charge collection amongst the employees and not just the employee serving the customer in the restaurant.

This ensures that the benefit is divided equally among all the staff workers including the utility workers, back end staff etc. The levying of service charge is a universally accepted trade practice.

Service charge is being levied in various countries like UK, Singapore, Japan and USA with varying percentages between 8 and 12.5 per cent.

In the UK, accounting and distribution of service charge is also done through an independent agency through a system called Tronc, the plea stated The legality, reasonableness or justification of levying service charge has been considered by the Supreme Court of India, High Courts, National Consumer Disputes Redressal Commission, erstwhile Monopolies and Restrictive Trade Practices Commission and by the Income Tax Authorities (ITAT).

The levy of service charge as a substitute for tips has been upheld in various judicial pronouncements, the petition submitted.

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