Restaurants Must Charge Separate GST for Hookah even if served with food, Rules West Bengal AAR

In a decision that may affect numerous restaurants and lounges, the West Bengal Authority for Advance Ruling (AAR) has clarified that serving hookah alongside food does not qualify as restaurant service under the GST framework.

The decision came in a case involving Indian Wire Products Company, which runs a restaurant named Pappu Chaiwala. The restaurant serves hookah only along with food or non-alcoholic beverages and not separately.

However, the AAR said that hookah and restaurant food are fundamentally different and cannot be classified under the same category for tax purposes.

According to the authority, restaurant services fall under Clause 6(b) of Schedule II of the Central GST Act.

But the AAR clarified that hookah, whether tobacco-based or herbal, cannot be considered part of restaurant service.

The authority noted that food and beverages provide nutrients to the human body, while smoking hookah only provides pleasure or sensation and can even lead to addiction.

“Even if we stretch our imagination to the farthest point, we cannot put food, drink, and smoking hookah in the same bracket, even if they are served on the same table,” the authority said.

The AAR also explained that the phrase “any other article for human consumption” in the law refers to edible items such as water, condiments, spices, and accompaniments served with meals. Since smoke is not an edible substance, hookah cannot be treated as food or drink.

Different GST rates will apply

Based on this interpretation, the authority ruled that restaurants serving hookah along with food must charge different GST rates for each supply.

• Restaurant service (food and beverages): 5% GST
• Tobacco-based hookah: 40% GST (HSN 2403)
• Non-tobacco hookah made from products like dried tea leaves, mint, or rose petals: 18% GST

The AAR stated that supplying hookah in a restaurant is a separate composite supply of goods. Therefore, when a restaurant provides both food and hookah, two different composite supplies take place, one for restaurant service and another for the smoking product.

Industry may face tax impact

Tax experts say the ruling could have a major impact on restaurants and lounges that offer hookah as many restaurants had been treating hookah as part of restaurant service and charging the lower GST rate of 5%. This Ruling changes that position by classifying hookah as a separate supply of goods, taxable at 18% for non-tobacco variants and 40% plus a cess for tobacco products.

This could affect businesses that built their pricing around the lower tax rate.

AAR Conclusion

The West Bengal AAR concluded that hookah served in restaurants cannot be treated as part of restaurant service just because it is offered alongside food or beverages.

Instead, it should be treated as a separate taxable supply of goods, with GST applied according to the type of product used.