40% GST on Tobacco Hookah; 18% on Non-Tobacco Variant: AAR

The West Bengal Authority of Advance Ruling (AAR) has held that 40% goods and service tax (GST) is payable on Tobacco Hookah and 18% is applicable on non-tobacco based hookah. The bench of Shafeeq S and Jaydip Kumar Chakrabarti has observed that when a restaurant serves tobacco or non-tobacco based hookah in the restaurant along with food, there occurs two separate composite supplies. One is the supply of food which is covered by sub-clause (b) of Clause 6 of Schedule II supra and will be regarded as composite supply of service and will be taxed accordingly. The other composite supply is the supply of tobacco or non-tobacco products for the purpose of smoking in which the principal supply is that of tobacco or non-tobacco products and as such it will not be covered by sub-clause (b) of Clause 6 of Schedule II. The applicant runs a restaurant under the name and style of Pappu Chaiwala and is duly registered under the Goods and Services Tax law as a provider of restaurant services. In the course of operating the said restaurant, the applicant also proposes to serve hookah, whether herbal or tobacco based, to customers within the restaurant premises as part of the overall dining experience. The applicant has sought an advance ruling on whether the service of providing hookah at the restaurant, as part of the composite restaurant offering, would fall within the scope of clause 6(b) of Schedule II to the Central Goods and Services Tax Act, 2017 and consequently be taxable at the rate applicable to restaurant services, that is 5 percent. Clause 6(b) of Schedule II to the CGST Act provides that supply, by way of or as part of any service or in any other manner whatsoever, of goods being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), for consideration, shall be treated as supply of service. The provision is wide in scope and is intended to cover all articles meant for human consumption supplied in a restaurant environment. The definition of ―restaurant service‖ under Notification No. 11/2017-CT (Rate) makes it clear that supply of food or any other article for human consumption or drink provided by a restaurant, whether consumed on or away from the premises, is treated as service. Thus, what is relevant is the nature of activity and the setting in which the consumable item is supplied. The Applicant submits that preparation of hookah flavours is not a mere trading activity. It involves a systematic and elaborate culinary-type process carried out within the restaurant kitchen. The preparation is comparable in complexity and method to preparation of food or beverages served in the restaurant. The department contended that restaurants are misclassifying the supply of hookah flavours under the guise of restaurant service and availing the concessional rate of 5% GST meant exclusively for supply of food or drink for human consumption under Clause 6(b) of Schedule II read with Notification No. 46/2017-Central Tax (Rate). According to the officer, the benefit of 5% GST was intended only for digestible food or drink and not for tobacco-based articles such as hookah, cigarettes or pan masala. The department submitted that there is no provision under the GST law permitting a registered person to procure goods taxable at 28% GST with 72% Cess and subsequently resupply the same goods at a reduced rate of 5% by clubbing them under restaurant service. It is contended that such treatment amounts to reduction of tax liability contrary to the classification prescribed under the tariff and notifications. “Even if we stretch our imagination to the farthest point, we cannot put food, drink and smoking hookah within the same bracket even when they are served in the same restaurant and on the same table. A man cannot consume tobacco or non-tobacco smoke in the same way he consumes foods and drinks. We must understand the term ‗any other article for human consumption‘ with reference to the other two words encompassing the term. We can comprehend the legislative intention for inclusion of the term by adopting this approach only,” the AAR said. The AAR held that ‘any other article for human consumption‘ when read with reference to ‘food‘ and ‘any drink (other than alcoholic liquor for human consumption)’ it creates a comprehensive picture ensuring that supply, by way of or as part of any service or in any other manner whatsoever, of any form of edible substance is to be considered as a service. Smoke to be inhaled from any origin, be it tobacco or non-tobacco, does not qualify for any form of edible substance to be included in the phrase ‘any other article for human consumption’. The AAR held that the two supplies are to be regarded as separate supplies. Serving of food will be termed as supply of services within the ambit of Clause 6(b) of Schedule II to the CGST Act. However, serving of hookah in the restaurant will be regarded as a composite supply of goods. As such, Clause 6(b) of Schedule II of the CGST Act, 2017 is not applicable to this supply. The court held that since the two supplies are regarded as two separate supplies, different rate of tax will be applicable on the referred supplies. The supply of food in the restaurant under question (which is not at any ‗specified premises) is to be taxed @ 2.5% CGST + 2.5% SGST vide serial no. 7(ii) of Table in Notification No. 11/2017 – Central Tax (Rate) Dated 28.06.2017 read with the corresponding StateTax notification, as amended. In case of tobacco based hookah, the supply will be treated as supply of goods and will be taxed at the rate of 20% CGST + 20% SGST vide serial no. 17 (HSN code being 2403) of Schedule III of Notification No. 01/2017 – Central Tax (Rate) Dated 28.06.2017 read with Notification No. 19/2025 – Central Tax (Rate) dated 31.12.2025 read with the corresponding StateTax notification, as amended. The AAR said that in case of non-tobacco (dried tea leaves, mint leaves or dried rose petals etc. as stated by the applicant) based hookah, the supply will also be treated as supply of goods and will be taxed @ 9% CGST + 9% SGST vide serial no. 639 of Schedule II of Notification No. 01/2017 – Central Tax (Rate) Dated 28.06.2017, read with the corresponding StateTax notification, as amended. Ruling Details Applicant’s Name: Indian Wire Products Company Citation: JURISHOUR-205-AAR-2026(WB) Ruling Date: 27th February, 2026 Click Here To Read Ruling Read More: Same Bank Deposits Can’t Be Subjected To Reassessment Twice: Orissa HC

40% GST on Tobacco Hookah; 18% on Non-Tobacco Variant: AAR

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