India's consumer protection watchdog on Monday said the charge, typically added to bills by restaurants in lieu of a tip, was an unfair trade practice, a violation of consumers' rights and should be levied only at the diner's discretion.
But restaurants say they already explicitly mention the charge in notices at the gate and on the menus, and if someone chooses to use their services, they are bound to pay it.
"There is no illegality on levying such a charge," the National Restaurant Association of India (NRAI), which represents over 500,000 restaurants, said in a statement.
No authority can interfere with the decision of a business owner, it said, adding that a new law or an amendment was required for such a change.
Restaurants have long argued that the charge is not unfair as it is equitably distributed among waiters, cooks and other staff, and is not part of the profit.
Anurag Katriar, an NRAI trustee who runs popular outlets such as Indigo Deli, said the service charge accounts for nearly half of an average restaurant worker's salary.
"We feel that this guideline is not legally binding, is creating confusion in the mind of the consumer and is creating anxiety among the poor restaurant workers," Katriar said. "If this confusion prevails for long, we will be constrained to got to the court to seek clarity."
Many consumers have complained against restaurants compulsorily levying a service charge and even embarrassing those who decline to pay it, the consumer ministry said in a statement on Monday about the new guidelines.
(Reporting by Abhirup Roy, Editing by William Maclean)
By Abhirup Roy