Shangri-La hotel fined ₹1 lakh for levying service charge on customers

The Central Consumer Protection Authority (CCPA) has imposed a penalty of ₹1 lakh on Shangri-La Eros New Delhi’s restaurant ‘Mister Chai’ for levying service charge on customers without obtaining their explicit consent.

In an order dated October 22, the consumer watchdog held that the hotel's practice of automatically adding a service charge to customers' bills violated consumer rights and amounted to an unfair trade practice under the Consumer Protection Act, 2019.

The CCPA said the hotel had levied a discretionary service charge of 10% on food bills, despite guidelines prohibiting hotels and restaurants from adding such charges automatically or by default.

The authority took cognisance of complaints dated May 30, 2025, and June 10, 2025, against Shangri-La Eros' restaurant, Mister Chai, in New Delhi.

According to the order, the restaurant charged a service fee of ₹435 on a subtotal of ₹4,350 in an invoice dated May 30, 2025. After the addition of GST on the service charge, the total bill came to ₹5,646.

In another invoice dated June 10, 2025, the restaurant levied a service charge of ₹125 on a subtotal of ₹1,250, followed by CGST and SGST of ₹123.75, taking the total to ₹1,623.

The CCPA said the practice of automatically adding a service charge could mislead customers into believing that the payment was compulsory.

"Where a customer has not been clearly informed or provided explicit consent for the service charge, the automatic inclusion of a 10% service charge constitutes an unfair contract," the order said.

The authority also noted that placing the burden on customers to identify and dispute the charge at the billing counter created undue pressure and undermined the voluntary nature of the payment.

The hotel had maintained that the service charge was discretionary and that customers could request its waiver. It also said the charge was mentioned on the restaurant menu and that refunds were available upon request.

The hotel subsequently informed the CCPA that it had changed the nomenclature of the charge to "Charges for voluntary staff contribution (optional)" and stated that customers could waive it upon request.

However, the regulator rejected the explanation, observing that automatically adding the charge to the bill and requiring customers to seek its removal effectively created an "opt-out" mechanism rather than obtaining consent upfront.

The CCPA said merely describing the charge as optional on the menu did not address the problem if it was automatically included in the invoice.

The authority referred to the Delhi High Court's March 28, 2025, judgment in the National Restaurant Association of India case, which upheld the CCPA's guidelines on service charges. The court had held that service charges could not be imposed by default and that consumers must be free to decide whether to pay them.

"...the Restaurant is directed to pay a penalty of Rs 1,00,000/- only," the CCPA said.

The hotel has also been directed to submit a compliance report to the CCPA within 15 days of receiving the order.