Hookah Must Be Taxed Separately from Restaurant Services: West Bengal AAR

The West Bengal Authority for Advance Ruling (AAR) has ruled that hookah served in restaurants cannot be treated as part of restaurant services for the purpose of Goods and Services Tax (GST). In its February 27 order, the authority held that restaurant food and hookah constitute two distinct supplies under GST law and must be taxed at different rates. While restaurant food will continue to attract 5 per cent GST, tobacco-based hookah will be taxed at 40 per cent plus applicable cess, and non-tobacco (herbal) variants at 18 per cent.

The ruling came in response to an application by Indian Wire Products Company, which operates the restaurant ‘Pappu Chaiwala’ and sought clarification on whether hookah served alongside food could qualify for the concessional 5 per cent restaurant GST rate. Rejecting the plea, the AAR observed that the phrase “any other article for human consumption” under Clause 6(b) of Schedule II applies only to items that are ingested and digested. Since hookah smoke is inhaled into the respiratory tract rather than digested, it does not fall within that category. The authority further noted that although hookah supply involves both goods and service elements, the principal supply is the tobacco or herbal product used for smoking, thereby classifying it as a supply of goods.

Tax officials had argued that several hookah bars were incorrectly availing the lower 5 per cent GST rate meant for restaurant services despite hookah flavours forming the dominant supply. Industry experts say the ruling could have significant financial implications for hospitality operators, particularly those who have structured pricing models around the concessional rate. The decision is expected to prompt businesses to reassess past tax positions, provisioning strategies and compliance frameworks, as authorities signal a stricter interpretation of composite supply provisions under GST.

Pic Courtesy: google/ images are subject to copyright