- By Shibra Siddiqui
- Fri, 28 Mar 2025 04:12 PM (IST)
- Source:JND
Dismissing a petition of restaurant bodies challenging Central Consumer Protection Authority (CCPA) guidelines regarding service tax in restaurants, the Delhi High Court on Friday said that levying mandatory service tax is a ‘violation of consumer rights’. The Delhi HC upheld the guidelines issued by CCPA, prohibiting hotels and restaurants from automatically levying a service charge on food bills.
The CCPA issued the guidelines in July 2022 to prevent unfair trade practices and violations of consumer rights. The high court said that the imposition of a service charge in a mandatory manner is “violative of consumer rights and the collection of service charge in various names amounts to unfair trade practices.”
Pronouncing the Judgement, Justice Prathiba M Singh added that the restaurants should not add the service charge; however, if the customer wants to pay the service tax, the restaurant can charge it.
The Federation of Hotels and Restaurant Association of India (FHRAI) and National Restaurant Association of India moved to court in 2022 by filing two separate petitions, news agency PTI reported. Later that month, the high court stayed the guideline of the CCPA.
According to a report by PTI, the FHRAI, on March 9, proposed that there should be a delinking of GST on food and beverage services from accommodation charges in hotels. According to FHRAI, the practice is unfair and operationally challenging.
Under the current system, hotels charging ₹7,500 or more per room per day must pay 18% GST on F&B services, with input tax credit (ITC) benefits. Meanwhile, hotels with lower tariffs are taxed at 5% without ITC benefits. FHRAI suggests delinking F&B revenue from hotel room tariffs, allowing hotels to charge GST at 5% without ITC or 12% with ITC.
FHRAI has proposed a flexible system allowing all hotel restaurants to independently opt for either 18 per cent GST with ITC or 5 per cent without ITC, irrespective of the room rates.