By CA Surekha Ahuja
Indian Wire Products Company, In re (185 taxmann.com 475) (AAR – West Bengal): A significant GST ruling on hookah supplied in restaurants, cafés, bars and lounges
A significant GST issue in the hospitality sector has now received legal clarity:
Can hookah supplied in restaurants and lounges be taxed at the concessional 5% GST rate applicable to restaurant services?
The West Bengal Authority for Advance Ruling (AAR) has answered the issue decisively:
No. Hookah is not restaurant service.
Its taxability follows its own statutory classification, even when supplied alongside food and beverages in the same premises.
This distinction has direct commercial implications.
Food supplied in restaurants continues to attract 5% GST (without ITC), whereas hookah may attract 18% GST or 40% GST, along with Compensation Cess wherever applicable, depending upon product classification.
The ruling reinforces a core GST principle:
Taxability follows legal classification and principal supply—not the commercial format in which the supply is offered.
What the West Bengal AAR Held
The applicant sought an advance ruling on whether hookah supplied within restaurant premises, together with food and beverages, could be treated as restaurant service under Paragraph 6(b) of Schedule II to the CGST Act.
The applicant argued that hookah forms part of the integrated hospitality experience and should therefore be treated as naturally bundled with restaurant services.
The AAR rejected that position.
The Authority held that restaurant service under Paragraph 6(b) is confined to supply of food, drink or similar consumable articles for human consumption.
Hookah does not fall within that statutory category merely because it is supplied at the same premises.
Further, where hookah is supplied with apparatus, preparation, coal arrangement and service support, the transaction may qualify as a composite supply under Section 2(30) of the CGST Act.
However, under Section 8(a), taxability follows the principal supply.
The Authority held that the principal supply remains the hookah consumable itself.
The apparatus and service elements remain ancillary.
Therefore, the entire supply follows goods classification.
The practical conclusion is clear:
Hookah cannot be taxed under the concessional 5% restaurant GST framework merely because it is supplied inside a restaurant or lounge.
Why Hookah Failed the Restaurant Service Test
The dispute centred on the phrase in Paragraph 6(b) of Schedule II:
“food, drink or any other article for human consumption”
The applicant argued that hookah falls within “any other article for human consumption.”
The Authority rejected this interpretation.
Applying the principle of ejusdem generis, the Authority held that the general phrase must derive meaning from the preceding words.
This means the law contemplates articles consumed in a manner similar to food or drink.
The distinction is legally important:
| Category | Nature of Consumption |
|---|---|
| Food | Eaten |
| Drink | Swallowed |
| Similar consumable article | Ingested |
| Hookah smoke | Inhaled |
The Authority held that inhalation is not equivalent to ingestion.
That distinction became the legal basis for denying restaurant service classification.
Correct GST Classification: HSN vs SAC
This ruling settles an important industry confusion.
Restaurant supply follows SAC. Hookah supply follows HSN.
The correct tax treatment is:
| Supply Type | Nature | Classification Code | GST Rate |
|---|---|---|---|
| Food supplied in restaurant | Service | SAC 996331 | 5% (without ITC) |
| Tobacco-based hookah mixture / flavoured tobacco | Goods | HSN 2403 | 40% GST + Compensation Cess (where applicable) |
| Herbal / non-tobacco hookah mixture | Goods | HSN 2106 or HSN 2403 (depending on composition) | Rate depends on final HSN classification and product composition |
| Hookah apparatus sold separately | Goods | Product-specific HSN | Applicable product rate |
| Coal supplied separately | Goods | Product-specific HSN | Applicable product rate |
For herbal hookah, classification depends on product composition, nicotine content, packaging declaration and actual product use.
Absence of tobacco does not convert herbal hookah into restaurant service.
The classification principle remains unchanged.
Comparative Position: Why Hookah Is Different
The distinction becomes clearer when compared with similar supplies:
| Supply | GST Position | Reason |
|---|---|---|
| Restaurant dine-in food | Restaurant service | Core edible supply |
| Cloud kitchen / takeaway food | Restaurant service | Pure food supply |
| Masala paan | Goods | Single edible finished product |
| Hookah | Goods | Independent inhalation-based supply |
The principle is simple:
Supplying multiple items together does not merge their tax identity.
Each supply retains its own statutory character unless the law specifically provides otherwise.
Immediate Compliance Priorities
Businesses supplying hookah should immediately focus on:
| Priority Area | Immediate Action |
|---|---|
| Billing Structure | Separate hookah and food billing |
| Product Classification | Correct HSN identification |
| Tax Application | Apply product-specific GST rates |
| ITC Position | Review admissibility separately |
Past transactions should also be reviewed where hookah may have been billed under restaurant GST.
Conclusion
The West Bengal AAR has drawn a clear legal distinction:
Food remains restaurant service. Hookah remains goods.
Hookah does not acquire concessional restaurant tax treatment merely because it is supplied in a restaurant, café, bar or lounge.
Its taxability follows its own legal identity and the principal supply test under GST law.
The compliance position is now clear:
Food may continue at 5% under restaurant services. Hookah must be separately classified, separately billed and taxed at its applicable rate.
Under GST, the place or format of supply does not determine tax character; legal classification does. That is the real significance of this ruling.
