Composite supply principle: hookah supplied in restaurants treated as goods by principal-element test; food remains restaurant service.

The AAR addressed whether serving hookah in a restaurant is a service under Clause 6(b) Schedule II or a supply of goods, applying ejusdem generis to confine "any other article for human consumption" to ingested food and drink and using the principal-supply test under Section 8 and composite-supply definition. It concluded hookah (tobacco or non-tobacco) is a composite supply whose principal element is goods and thus taxed as goods under relevant HSN/notifications, while food served remains a restaurant service taxable under Notification No. 11/2017-CT (Rate).

---

---

Issues: (i) Whether serving non-tobacco or tobacco-based hookah in a restaurant along with food is a supply of goods or services within the ambit of Clause 6(b) of Schedule II to the Central Goods and Services Tax Act, 2017; (ii) If so, what rate of tax applies to such supply(s)?

Issue (i): Whether serving hookah (non-tobacco or tobacco-based) in a restaurant constitutes supply within Clause 6(b) of Schedule II and is therefore to be treated as a supply of service.

Analysis: Clause 6(b) of Schedule II treats supply of food or any other article for human consumption or any drink (other than alcoholic liquor) as supply of service when supplied by way of or as part of any service. The ejusdem generis principle requires construing "any other article for human consumption" with reference to "food" and "drink," which are ingested and digested. Smoke inhaled from hookah (tobacco or non-tobacco) is inhaled into the respiratory tract and not ingested for nutritional purposes. The composite supply definition (Section 2(30)) and practical aspects of preparation and service show that hookah involves both goods (tobacco/non-tobacco product) and service (use of apparatus and ambience), but the principal element is the goods used for smoking. The fact that hookah is served within restaurant infrastructure does not convert the goods element into a restaurant service under Clause 6(b).

Conclusion: Serving hookah in a restaurant is not covered by Clause 6(b) of Schedule II as a restaurant service; it is a composite supply in which the principal supply is goods (tobacco or non-tobacco hookah products).

Issue (ii): The rate of tax applicable on the supplies identified (food service and hookah supplies).

Analysis: Section 8 determines tax treatment of composite and mixed supplies by reference to the principal supply. Food supplied in a restaurant that falls within Clause 6(b) continues to be treated as restaurant service and attracts rates specified for restaurant services under Notification No. 11/2017-CT (Rate) dated 28.06.2017. Hookah supplies, being supplies of goods with the goods element as principal, are taxable under the applicable HSN/notification entries: tobacco-based hookah products under HSN 2403 at the rate and cess prescribed by relevant notifications; specified non-tobacco ingredients classified under applicable entries with the corresponding rates in Notification No. 01/2017-Central Tax (Rate) as amended.

Conclusion: Food served in the restaurant is taxable as restaurant service at the rates under Notification No. 11/2017-CT (Rate) dated 28.06.2017. Tobacco-based hookah supplies are taxable as goods under HSN 2403 at the rates and cess prescribed by Notification No. 01/2017-Central Tax (Rate) and Notification No. 19/2025 - Central Tax (Rate) dated 31.12.2025. Non-tobacco hookah ingredients are taxable as goods at the rates applicable under Notification No. 01/2017-Central Tax (Rate) as amended.

Final Conclusion: The supplies are to be treated as two separate composite supplies: (a) supply of food in the restaurant treated as restaurant service under Clause 6(b) of Schedule II and taxed under Notification No. 11/2017-CT (Rate); and (b) supply of hookah (tobacco or non-tobacco products) treated as supply of goods, taxed under the relevant HSN entries and rate notifications. The Authority accordingly rules on classification and applicable rates for each supply.

Ratio Decidendi: Where a supply comprises both goods for smoking and ancillary use of restaurant infrastructure, the phrase "any other article for human consumption" in Clause 6(b) of Schedule II must be read ejusdem generis with "food" and "drink," excluding inhaled smoke products; the tax character of a composite supply is determined by its principal element under Section 8 and Section 2(30) of the Central Goods and Services Tax Act, 2017.

---