Explainer: Why is the CCPA penalising restaurant chains over service charges?
The Central Consumer Protection Authority (CCPA) has fined Shangri-La Eros, a luxury hotel in New Delhi, ₹1 lakh for automatically adding a 10% service charge to bills at its Mister Chai restaurant. The regulator found that describing the charge as optional on the menu did not make it voluntary when customers had to actively ask for its removal. The CCPA’s order, dated 22 October 2026, reflects the regulator’s broader efforts to protect consumer rights in restaurant billing. It follows a Delhi High Court judgment in March 2025 upholding the CCPA’s service-charge guidelines. The CCPA’s penalty against a luxury hotel is a first of its kind, even though the authority has taken action against restaurants across the country over similar practices. Mint explains the rationale behind the regulator’s action, which aims to protect consumer interests and ensure compliance with existing consumer protection laws.
Why is CCPA taking action against restaurants?
The central issue is how service charges are collected. As per CCPA, restaurants cannot automatically add a service charge to a bill and then require customers to opt out if they do not want to pay it. In the Shangri-La Eros case, the authority examined two consumer complaints involving bills dated 30 May and 10 June 2025. The restaurant had added a 10% service charge, even though its menu described the levy as discretionary. The hotel argued that customers had enough time to refuse payment and that the charge was voluntary. It also said that customers could request refunds. CCPA rejected this reasoning. It found that automatically adding the charge creates an opt-out system in which consumers must identify the levy, challenge it and request its removal at the billing counter. This shifts the burden onto customers and creates pressure to pay. The authority also found that the service charge had been included in the amount on which goods and services tax (GST) was calculated, increasing the total bill.
What are the rules governing service charges?
CCPA issued its Guidelines to Prevent Unfair Trade Practices and Protection of Consumer Interest with Regard to Levy of Service Charge in Hotels and Restaurants on 4 July 2022. The guidelines establish five key requirements such as restaurants cannot automatically add a service charge to bills, they cannot collect the charge under another name, they cannot force customers to pay it and must clearly communicate that it is voluntary, they cannot restrict entry or the provision of services because a customer refuses to pay, they cannot add the service charge to the food bill and levy GST on the combined amount. These (CCPA) guidelines were also upheld by the Delhi High Court on 28 March 2025, ruling that mandatory service charges violate consumer rights and that CCPA has the authority to enforce its directions. The court also distinguished between a voluntary tip and a compulsory levy. Customers remain free to reward good service, but the payment must be left to their discretion rather than added automatically to the bill.
Why did CCPA reject the hotel’s argument that the charge was optional?
The authority’s reasoning centres on the difference between an opt-in and an opt-out system. Under an opt-in system, a customer actively agrees to pay a service charge. Under an opt-out system, the charge is included by default, and the customer must ask for it to be removed. CCPA held that the latter arrangement undermines free and informed consent. A small-print statement on a menu that a charge is optional does not necessarily resolve the problem if the billing system adds it automatically. As per the order, in the Shangri-La Eros case, the hotel said that it was taking steps to stop collecting the charge and had refunded the complainant. It also changed the description on its invoices to “Charges for Voluntary Staff Contribution (optional)”. CCPA found that changing the terminology did not address the underlying issue. If the charge were still included by default, customers would still have to take action to avoid paying it.
The regulator noted that the hotel had begun completely stopping the levy only from 1 October 2026, after CCPA took cognisance of the matter. It concluded that the continued collection of the charge, despite the guidelines and the court judgement, warranted a penalty.
Is this an isolated case or part of a wider crackdown?
The Shangri-La Eros case is not an isolated instance, but it appears to be the first involving a luxury hotel in this category. Other establishments penalised include Café Blue Bottle in Patna, fined ₹30,000, and China Gate Restaurant’s Bora Bora outlet in Mumbai, fined ₹50,000, under CCPA orders announced on 10 January 2026. Chaayos was fined ₹50,000 on 14 July 2026 for automatically levying a service charge. CCPA has also passed orders against Fiesta by Barbeque Nation, FOO Ahmedabad Restaurant and L’Opéra French Bakery in its 19 July 2026 order. More recently, the authority fined Curry House CoCo Ichibanya ₹20,000 on 19 October for automatically adding a 10% service charge. In January 2026, CCPA took suo motu action against 27 restaurants across the country for allegedly violating consumer rights by mandatorily collecting service charges. The authority imposed penalties of up to ₹50,000 in those cases and directed restaurants to refund charges and modify their billing systems. In July 2026, the regulator initiated suo motu action against 41 restaurants following complaints received through the National Consumer Helpline. The complaints were supported by invoices showing that service charges had been added without customers’ explicit consent.
What does the penalty mean for restaurant chains and consumers?
Under Section 21(7) of the Consumer Protection Act, 2019, CCPA can consider factors such as the number of consumers affected, the frequency and duration of the offence, the vulnerability of consumers and the revenue generated from the sales involved when determining a penalty in cases concerning misleading advertisements. For consumers, the ruling reinforces the right to decide whether to pay a tip or voluntary staff contribution. A restaurant cannot make payment a condition for serving customers or leave them to negotiate the removal of an automatically added charge.