Restaurants Cannot Serve Hookah under 5% Tax, Food Stays at 5%, But Hookah Faces 18% or 40% Tax: AAR [Read Order]

In a recent ruling, the West Bengal Authority for Advance Ruling (WBAAR) has drawn a clear line between food and hookah under the Goods and Services Tax (GST) . Authority held that meals served in restaurants will continue to enjoy the concessional 5% tax rate, and herbal hookah will attract 18% GST, and tobacco-based hookah will face the steep 40% GST plus cess.

The applicant, Indian Wire Products Company, operating the restaurant, had sought clarity on whether providing hookah alongside food could be treated as part of a composite restaurant service taxable at 5% GST.

The company argued that hookah preparation involved food-grade ingredients, elaborate processes, and was inseparable from the dining experience. They also submitted that hookah preparation resembled cooking, used consumable ingredients like tea leaves, fruit pulp, glycerine, and molasses, and required trained staff and apparatus.

Since hookah was consumed only within the restaurant premises, they contended it should fall under Clause 6(b) of Schedule II of the CGST Act, which treats the supply of food or any article for human consumption as a service.

The Applicant further submits that hookah is not served independently. It is provided only when customers avail food or beverages and enjoy the overall hospitality services, including seating, ambience, air-conditioning, music and service personnel. The dominant intention of the customer is to avail restaurant service as a whole.

On the other hand, revenue countered that hookah flavours, especially tobacco-based, are classifiable under HSN 2403 as tobacco products, attracting 28% GST plus 72% Compensation Cess, and it argued that restaurants were misusing the concessional 5% rate by disguising hookah sales as restaurant service, even though the dominant supply was hookah, not food.

The authority observed that the phrase “any other article for human consumption” in Clause 6(b) must be read in the context of food and drink items ingested and digested. Hookah smoke, however, is inhaled, not ingested. Thus, hookah cannot be treated as food or drink for GST purposes.

The bench, comprising Shafeeq S and Jaydip Kumar Chakrabarti, concluded that serving hookah is a composite supply, but the principal supply is the hookah flavour (goods), not restaurant service also made it clear that food and hookah must be treated as separate supplies, each attracting its own GST rate.

Food served in restaurants (not in specified premises) will continue to be taxed at 5% GST (2.5% CGST + 2.5% SGST). Tobacco-based hookah, classified under HSN 2403, is treated as goods and taxed at a steep 40% GST (20% CGST + 20% SGST) plus cess. Herbal or non-tobacco hookah, prepared from ingredients like tea leaves, mint, or rose petals, is also treated as goods but taxed at a lower 18% GST (9% CGST + 9% SGST).

In short, food remains at 5%, herbal hookah at 18%, and tobacco hookah at 40% plus cess.

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