Can The Central Consumer Protection Authority Penalize Chaayos For Mandatory Service Charge Practices?

In a decisive move to uphold consumer rights, the Central Consumer Protection Authority (CCPA) has officially sanctioned the popular food and beverage chain Chaayos (Sunshine Teahouse Pvt. Ltd.) for engaging in unfair trade practices. Led by Chief Commissioner Ms. Nidhi Khare and Commissioner Mr. Anupam Mishra, the authority found that the restaurant chain had been automatically levying service charges on its customers, a practice that directly violates established legal guidelines.

The Dispute Emerges

The case originated from a consumer complaint filed by Mr. Shashank Sood via the National Consumer Helpline, alleging that an unauthorized "Service Tax"—later identified as a service charge—was added to his bill despite his objections. When requested to remove or refund the amount, the restaurant refused, citing company policy. This grievance highlighted a systemic issue, as such charges were embedded in the restaurant's automated billing software, affecting a wide class of consumers across their 180+ outlets.

Arguments and Regulatory Scrutiny

During proceedings, the management of Chaayos maintained that their service charge was voluntary and optional. They stated that they had displayed signage at points of sale and were willing to waive the charge if requested. However, an investigation directed by the CCPA contradicted these claims. The investigation revealed that the charge was added by default in the billing software, effectively stripping the consumer of the freedom to choose, which constitutes an unfair trade practice under Section 2(47) of the Consumer Protection Act, 2019.

Upholding the Law of the Land

The CCPA's decision heavily relied on the recent pronouncement by the High Court of Delhi in National Restaurant Association of India & Ors. v. Union of India & Anr. , which explicitly upheld the 2022 CCPA Guidelines. The Court clarified that while voluntary tips are permitted, forcing a mandatory levy is illegal.

Key Observations

The CCPA underscored the severity of the violation through the following findings: - "The genesis of the service charge in the bill is the command embedded in the billing software, leading to default addition of service charge to every bill." - "The restaurant has demonstrated a blatant violation of both judicial and regulatory directives." - "The collection of service charge and use of different terminologies for the said charge is misleading and deceptive in nature."

Financial Penalties and Future Compliance

By failing to align its operational practices with the mandatory guidelines even after judicial intervention, Chaayos was found liable for significant procedural non-compliance. The Authority has ordered the company to reimburse the complainant, fundamentally modify its software-generated billing system to remove the default charge, and pay a penalty of ₹50,000. The restaurant is required to submit a comprehensive compliance report within 15 days, ensuring that the legacy of "compulsory" service charges at their counters is permanently brought to an end.