Why a Bottle Costs Rs. 100 in Restaurants – The Real Reason

The National Restaurant Association of India (NRAI) and the Federation of Hotels and Restaurant Association of India (FHRAI) in a legal battle over restaurant service charges in India came up when the Central Consumer Protection Authority (CCPA) Guidelines 2022 were issued to prevent hotels and restaurants from automatically adding a service charge. These guidelines were meant to protect the consumer from what may be considered unfair trade practices.

The ongoing legal proceedings, including a recent hearing at the Delhi High Court restaurant service charge case, highlighted a fundamental conflict between:

• A consumer’s right to transparent pricing, and

• A business’s right to set its own charges for the dining experience.

The Court’s critical stance on what it calls “Double Charging” – once through inflated prices and again through service charge – underscores the complexity of this issue and its potential to reshape the restaurant industry’s business model.

Main Arguments of the Bench

• Price Discrepancy and Lack of Transparency – The restaurants’ price discrepancy lacks any transparency as they are not disclosing it. The menu simply shows the high price, without explaining that a large portion of it is for the dining experience.

• Double Charge – The court is of the view that the restaurant is charging for the same item twice. So, there is:

  1. The Inflated Price

  2. Service Charge
     The court argues that if the restaurant is already embedding the cost of the dining experience into the price of food and drinks, a separate service charge becomes redundant and unfair.

• Ambiguity of “Service” – It touches the legal and the ethical grey area of what constitutes “Service.” Is the service an act of a waiter bringing food to your table? Or is it the entire package of the restaurant experience that is already being paid for through the inflated prices? Therefore, an additional service charge is not justified. The court is challenging the restaurants to either justify the high markups for the service charges, but not to have both as it amounts to charging customers twice for the same thing.

• GST on Service Charges – The court questioned the legality of levying Goods and Services Tax (GST) on the service charge, which itself is a discretionary fee. This point raises further questions about the tax implications in restaurants.

• Unfair Trade Practices – The CCPA guidelines were issued to prevent unfair trade practices and to protect consumer rights in India. It has already been stated that the restaurants cannot automatically add a service charge to a bill and force a consumer to pay for it.

Main Argument of Restaurant Associations

• No Legal Prohibition – The Association argues that there is no law that explicitly disallows restaurants from adding a service charge to the bill. In the absence of specific legal amendment, the practice should be considered legal.

• Voluntary Nature of Service Charge – The service charge is not illegal because it is a discretionary fee. CCPA has already upheld that service charges should be voluntary, optional, and at the consumer’s discretion.

• Not Legally Binding – The Association believes that these guidelines are an overreach of authority and hence not legally binding.

Conclusion

The judgement will likely redefine the relationships between the restaurants and their patrons, ensuring greater clarity on billing and strengthening the consumer’s position in an industry where pricing has often been a point of confusion.

The outcome of this case could set a significant precedent, potentially forcing restaurants to either absorb the cost of “ambience” into their menu prices or make the service charge in restaurants truly voluntary and transparent.

❓ FAQs on Why a Bottle Costs ₹100 in Restaurants

1. Is it legal for restaurants to charge more than MRP?

Yes, restaurants can charge more than MRP because they are not just selling the product but also the dining experience, ambience, and service. However, the courts are questioning whether such inflated prices plus a service charge amount to double charging. Read more: Why Restaurants Charge More Than MRP – Legal Insights.

2. Are service charges mandatory in India?

No. As per the CCPA Guidelines 2022,  restaurants cannot automatically add service charges to the bill. It must be voluntary, and customers have the right to refuse to pay it.

3. What did the Delhi High Court say about restaurant pricing?

The Delhi High Court observed that restaurants already recover costs of ambience, service, and staff through inflated prices (like charging ₹100 for a ₹20 bottle). Adding a service charge on top of this is unfair and amounts to double charging.

4. Can GST be charged on service charges?

The Court raised concerns about the legality of charging GST on service charges,  since service charges themselves are discretionary. This issue is still under legal scrutiny.

5. What is the role of NRAI and FHRAI in this case?

The National Restaurant Association of India (NRAI) and Federation of Hotels and Restaurant Association of India (FHRAI) argue that there is no legal prohibition on adding service charges and that the guidelines are not legally binding.

Advocate Mamta Singh Shukla
Supreme Court of India
📞 Mob. No. - 9560044035