HOOKAH. WHETHER FOOD OR OTHER ARTICLE FOR HUMAN CONSUMPTION HOOKAH., Goods and Services Tax - GST

[Sadanand Bulbule]

HOOKAH. Whether food or any other article for human consumption?

Dear all experts

I solicit the experts' opinion on the following subject. I make it very clear, this is not a regular query. This is only for academic discussion on subject issue to take it to the logical end.

1. In metro and cosmopolitan cities, it is the modern trend of throwing weekend parties in restaurants, normally by affluent young guys, of course above 18 years, to experience inhaling of hookah in extremely mesmerizing ambiance from dusk till dawn. Generally such restaurants popularly called as “hookah bars” provide predominantly Hookah services besides ancillary food items in exclusive smoking zones. Secondly such restaurants opt for payment of GST @ 5% for supply of foods/drinks and Hookah.

2.From the highly reliable sources, it is gathered that the base vendors charge 28% GST and 72 % Cess on the supply price of Assorted Hookah Flavours packed in jars or tins which is classified under HSN Code 2403 11 10. The information is that, normally hookah contains tobacco, molasses, glycerine, honey, natural and nature identical flavouring substances and colours. Nicotine percentage is o.5% and tar is zero. The expiry period is generally within two years from the date of manufacture. However every package of such hookah carries a health warning that smoking is the main cause for lung, heart cancer etc. Most of the popular brands of hookah flavours are imported from abroad by the domestic base vendors and some are manufactured in India too.

3. It is my experience that, the principal supply in such posh restaurants is a supply of hookah flavours and therefore GST at 28% is liable to be paid on the supply value of assorted hookah flavours after classifying it under the appropriate heading HSN 2403 11 10 with applicable Cess at 72% on the supply price to the end customers. The principal goods being Assorted Hookah Flavours which is supplied to the end customers at premier price per session of say 45 minutes or per hour.

4.There is no ambiguity that “assorted hookah flavours” is classifiable under Heading 2403 11 10 and attracts GST @28% with Cess at 72% as supply of assorted hookah flavours.

5. However it is stated that some restaurants are manipulating the supply of “assorted hookah flavours” under the guise of supply of food and drinks in terms of following Notification and making payment of GST @ 5% only for sales of foods and Hookah. The GST @ 5% (CGST & SGST at 2.5% each)

Notification No. 46/2017-Central Tax (Rate) New Delhi, the 14th November, 2017

“(i) 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 drink, where such supply or service is for cash, deferred payment or other valuable consideration, provided by a restaurant, eating joint including mess, canteen, whether for consumption on or away from the premises where such food or any other article for human consumption or drink is supplied, other than those located in the premises of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes having declared tariff of any unit of accommodation of seven thousand five hundred rupees and above per unit per day or equivalent. Explanation.- “declared tariff” includes charges for all amenities provided in the unit of accommodation (given on rent for stay) like furniture, air conditioner, refrigerators or any other amenities, but without excluding any discount offered on the published charges for such unit.

2.5

Provided that credit of input tax charged on goods and services used in supplying the service has not been taken [Please refer to Explanation no. (iv)].”;

6. In my understanding, the chief object of the above mentioned Notification is to provide the benefit of 5% GST only on the “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 drink”. As such it shall not include any sin goods like hookah, cigarettes, pan masala etc., nor is it intention of the Legislature and the Government.

7. Now coming back to core issue, the principal supply being hookah flavours, in my considered opinion, GST at 28% with 72% Cess will have to be paid on the supply value of assorted hookah flavours after classifying it under the appropriate HSN 2403 11 10. Because nowhere under the GST Act, there is any such Notification entitling the dealer to purchase the notified goods taxable at 28% GST coupled with 72% Cess and resupply the same goods at reduced rate of GST at 5%.

8.Therefore there is huge apprehension that such Notification is prone to abuse. In case of abuse of the said Notification by any one, the natural question is, if hookah can be considered as goods/articles for human consumption to be supplied in restaurants attracting reduced rate of GST @ 5%, then why not pan masala and cigarettes too?

9. So all the experts are requested to throw further floodlight on this topic so that the GST law works the way it is desired by its makers.

Posts / Replies

[Padmanathan Kollengode]

The moot question in your query is whether it is "supply of goods" i.e. other manufactured tobacoo i.e. HSN 2403 11 10 or "supply of service" i.e. restaurant service.

It is pretty clear that in these "Hookah bars", hookah is not sold over the counter but it is supplied to customers as part of a larger service i.e, food, beverages, ambiance etc. In other words, there is an element of service involved and hence, it is a composite supply.

Now, According to Schedule II to the CGST Act, 2017:

The following composite supplies shall be treated as a supply of services, namely:-

(b) 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), where such supply or service is for cash, deferred payment or other valuable consideration.

Thus, the composite supply would qualify as "supply of service" in my opinion. Hence it would be taxable at 5% subject to conditions if any specified in Not No. 11/2017-CT (R).

Ps: I have not smoked hookah ;) so it is only my academic view and not practical one.

[Padmanathan Kollengode]

Since ITC shall not be available the 28% + 72% cess paid by "hookah bar" to supplier would add up to the final cost to the end consumer. Hence, regulatory objective of Govt would not be affected by taxing at 5%. Let the experts pls share your thoughts on this aspects

[Amit Agrawal]

I agree with Shri Padmanathan Kollengode Ji for his views in post at serial number 1 above.

I have shared my in similar situation in post at serial No. 3, 8 & 9 under discussion - id: 118143 bearing subject as 'Rate of Tax', where bar / restaurant is supplying 'cigarettes' as part of its service / composite supply and NOT otherwise.

Entire dispute - in the context of query raised, arising out of perceived difference between 'sin' & 'other goods' for human consumption does not apply, in my humble view, when one notice the difference between Serial No. 6 of SCHEDULE II of CGST Act, 2017 & 'Restaurant services' as defined in Notification No. 11/2017-Central Tax (Rate) (as amended till date).

W.r.t. claim about 'abuse / prone to abuse' etc., these are matter of individual perceptions & for Govt. policy decision making (where multiple facets are involved before arriving at any decision). I will not comment on them as 'a professional assisting people dealing with compliance of GST provisions'.

As far as my reading of current provisions are concerned, those provisions do not differentiate between 'cigarettes', 'hookah', chapati, roti, subji (veg / non-veg), rice etc., where a bar / restaurant is supplying 'them' as part of its service / composite supply (but NOT otherwise).

These are ex facie views of mine and the same should not be construed as professional advice / suggestion. And I respect contrary views.

[Sadanand Bulbule]

While sincerely welcoming the quick opinions, I once again request the esteemed experts to be more holistic with personal articulation based on the practicality of such businesses rather than reproducing the phrases of the Notifications/Circulars in support of their contentions. My intention is also to provide the best guidance to taxpayers about safe & lawful compliance. This would be more fruitful when the legal and factual position is deciphered from all dimensions and guide tax payers the way they deserve to avert major set backs during adjudication proceedings. A stitch in time saves nine. Otherwise it's like groping through the fog. Hope it is accepted in the right perception.

[Amit Agrawal]

Dear Sir,

I stand by whatever I said earlier. And unless and until, someone contradict legal position with same, logical legal provisions, I donot want t

These are ex facie views of mine and the same should not be construed as professional advice / suggestion. And I respect contrary views

[Amit Agrawal]

Correction in my earlier post:

Dear Sir,

I stand by whatever I said earlier. And unless and until, someone contradict legal position with logical legal provisions, I do not want to comment any further.

[Shilpi Jain]

Agree with the views given by Padmanathanji and Amitji.

Consumption would mean - the action of using up a resource.

Also the entry refers to 'any other article for human consumption'.

[Sadanand Bulbule]

In continuation of my earlier postings, I add the following analysis for the profit of tax payers to have “life-jackets” in case of adversities that may arise during adjudication proceedings.

1. Article.47. Duty of the State to raise the level of nutrition and the standard of living and to improve public health.-

The State shall regard the raising of the level of nutrition and the standard of living of its people and the improvement of public health as among its primary duties and, in particular, the State shall endeavour to bring about prohibition of the consumption except for medicinal purposes of intoxicating drinks and of drugs which are injurious to health.

2. Under the scheme of the GST Act, the meaning of food or any other article for human consumption is not defined. So it is profitable to take the help of following meaning:

The term `food' is defined in section 2(v) of the Prevention of Food Adulteration Act, 1954 as under:

"(v) "food" means any article used as food or drink for human consumption other than drugs and water and includes—

(a) any article which ordinarily enters into or is used in the composition or preparation of human food,

(b) any flavouring matter or condiments, and

(c) any other article which the Central Government may, having regard to its use, nature, substance or quality, declare, by notification in the Official Gazette, as food for the purposes of this Act;"

3.Food for human consumption means all food and drink items, including bottled water, intended primarily for human consumption except beverages with alcohol content of 1/2 of 1% or more by volume and tobacco products.

4.If one carefully observes the list of goods covered in the Notification No.1/2017-Compensation Cess-(Rate) dated 28/06/2017 issued under the GST [Compensation to States] Act, 2017 it clearly transpires that, the Government in its wisdom has chosen essentially negative/sin goods like 35 tobacco products attracting hefty Cess. The other such sin goods are Aerated water, Lemonade & others. However there is exception to such list which also includes non-sin goods like motor vehicles and such other goods. In addition to the Cess, there is Excise Duty and National Calamity Contingent Duty (NCCD) levied under Central Excise laws on tobacco products. It is pertinent to note that, this notification does not include food or any other article for human consumption as itemized in the Notification No.46/2017-Central Tax (Rate) dated 14/11/2017 entitling 5% GST. It means it is the unquestionable objective of the Legislature to include mainly negative goods viz; 35 tobacco products largely recognised as “sin goods”. So I refrain from sanctifying sin goods just for the purpose enjoying reduced rate of 5% GST on par with essential food items /other articles nor is it the intent of law makers.

5. Sin goods are goods which consider harmful to society. Example of sin goods: Alcohol and Tobacco, Candies, Drugs, Soft drinks, Fast foods, Coffee, Sugar etc. Sin tax is placed on goods that adversely affect health, most notably tobacco and alcohol. Three principal arguments are used to justify this type of taxation: It can reduce consumption through increased prices, compensate society for things like increased health system costs and increase resources for the health sector.

6.It is gathered that, sin goods like cigarettes, pan masala, chewing tobacco, hookah, narcotic drugs, alcohol for human consumption and other such negative goods etc., are exclusively in the exceptional domain of the Government. Such goods cannot enjoy liberty like any general goods but are strictly controlled/administered with responsibility and accountability focussing utmost priority for the protection of health of its consumers as mandated under Article 47 of the Constitution of India [supra]. So such sin goods cannot be equated on par with nutritious food or other articles for human consumption usually served in all restaurants or foods joints just like that.

7. Assuming it is so for a while, is it practically possible to supply food with other articles like cigarettes or hookah, pam masala or narcotic drugs to anyone including innocent children? It is impossible even in dreams. It amounts to shielding liberalisation of sin goods on par with food and similar articles. It appears to me, no government affords to do so for different angles of the nation, much less levy of GST on it. The fundamental policy of every Government is not to gift concessional rate of tax to such sin or intoxicating goods. The Government values more the health of its citizens rather than revenue from such sources.

8.As part of discouraging the excessive consumption of such sin goods, they are covered under the special category of 28% GST plus hefty Cess. No common man can enter such hookah bars being afraid of unreachable prices. It’s only the affluent class of young folks who afford for premium services at exorbitant prices. But common man can certainly enter any restaurants and have food of his choice at affordable price plus 5% GST.

9.In support of my understanding, I rely upon the maxim Quando aliquid prohibetur fieri, prohibetur ex directo et per obliquum- The maxim denotes the settled position of law that whenever a thing is prohibited, it is prohibited, whether done directly or indirectly.

10.In this connection, I take shelter on the following rulings:

A.The division bench judgement dated 20/04/2022 of the Hon’ble High Court of Karnataka rendered in the case of M/s. V S Products, Tumkuru, Karnataka Vs. Union of India [2022 (6) TMI 962] in its 72 page order has upheld the begnin object of levying NCCD in addition to GST on tobacco products.

B.The Tamil Nadu Authority for Advance Ruling vide its Order No.28/AAR/2020 dated 12/05/2020 rendered in the case of MFAR Hotels & Resorts Private Limited [2020 (10) TMI 853] which has ruled the applicability of 28% GST plus Cess on the sale of cigarettes in the hotel, being one of the sin goods.

C.The Hon’ble Supreme Court has discussed the issue in detail in the matter of Collector of Central Excise Vs Parle Exports (P) Ltd reported in 1988 (11) TMI 108 – Supreme Court and decided that non -alcoholic beverages were not eligible to exemption as food products. Everything consumed by human cannot be considered as food or food products for the purpose of exemption from GST. The context, spirit and reason of law need to be examined to extend exemption. The Hon’ble Supreme Court in the said judgment had opined that “it cannot be contended that expensive items like Gold-Spot base, Limca-base or Thums up-base were intended to be given exemption at the cost of public exchequer.” Similarly, it would have never been the intention of law to exempt expensive item like ‘alcoholic liquor’ under the category of food and food products even though the same is for human consumption.

D.Additionally, Hon’ble Supreme Court in the matter of Commissioner of Customs (Import) Vs Dilip Kumar & Company reported in 2018 (7) TMI 1826 has given a landmark judgment concluding that:

“Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification. When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the revenue.”

11.In view of the above judgments & the AAR ruling, I conclude that the benefit of reduced rate of 5% GST under Notification No.46/2017-C.T.(Rate) dated 28.06.2017 is not available to the supply of hookah, being highly expensive and injurious to health. So my earlier opinion on supply of hookah classified under HSN Code 2403 11 00 in restaurants or irrespective of its place of supply, attracts 28% GST plus 72% Cess stands intact and it is in line with the objective of the GST Acts.

12. No evidence is required to say the sky is blue or the grass is green. There is no need to say anything; the quiet truth speaks for itself. Truth is always single, silent, calm and perfect. To reach the full truth, one need not have marathon footrace on the hot, lava-baked Kona coast of Hawaii.

13. Further instead of battling with half the truth, I take this opportunity to sincerely request the Hon’ble CBIC to come out with a clarificatory bulletin to remove dark clouds gathered over this unusual business model so that stakeholders do not suffer later and also to pre-empt the litigations reaching the corridors of judicial courts unnecessarily spending horrendous amount of time and money.

[KASTURI SETHI]

Sh. Sadanand Bulbule Ji,

Sir, My views are as under :-

It is neither the intention of Govt. nor of legislature to grant any concessional rate of tax to tobacco products in the 'guise' of 'composite supply' because products are health hazards and it is intoxication. On tobacco products Govt. has levied highest rate of GST in addition to Central Excise duty, in order to discourage the people to buy such harmful substances. In case concessional rate of tax is allowed to such products, the very purpose of levying highest rate of GST will be defeated. If there is any flaw in the law, that should be removed by way of amendment. Your article deserves to be brought to the notice of Govt. in the interest of nation.

[KASTURI SETHI]

Sin goods/tax should be out purview of composite supply.

[Sadanand Bulbule]

The Constitution of India--Article.21. Protection of life and personal liberty, reads as under:

No person shall be deprived of his life or personal liberty except according to procedure established by law.

1. Indian judiciary has provided excellent clarification to right to life and personal liberty under Article 21 of the Indian Constitution. The Hon’ble Supreme Court has not only explained the instinctive human qualities of the Article 21 but also established certain procedure to implement them. This makes the Rule of Law magnificent and meaningful. Each interpretation or the procedure laid down with regard to Article 21 is particularly aimed to achieve justice mentioned in the Preamble through all round development of the citizens. Each explanation provided attempts to fulfil the basic needs of the human being while safeguarding ones dignity.

2.The Hon’ble Supreme Court of India in one of the landmark decisions dated 2nd November, 2001 rendered in the case of Murli S. Deora v. Union of India - 2001 (11) TMI 1057 - SUPREME COURT observed that the fundamental right guaranteed under Article 21 of the Constitution of India provides that none shall be deprived of his life without due process of law. The Court observed that smoking in public places is an indirect deprivation of life of non-smokers without any process of law.

3. Taking into consideration the adverse effect of smoking on smokers and passive smokers, the Hon’ble Supreme Court directed the prohibition of smoking in public places. The statement of objects and reason of the Cigarettes Regulation of Production, Supply and Distribution Act, 1975, inter alia, provides, "Smoking of cigarettes is a harmful habit an, in course of time, can lead to grave health hazards. Researches carried out in various parts of the world have confirmed that there is a relationship between smoking of cigarettes and lung cancer, chronic bronchitis; certain diseases of the heart and arteries; cancer of bladder, prostrate, mouth pharynx and oesophagus; peptic ulcer etc., are also reported to be among the ill- effects of cigarette smoking."

4.Similarly, the statement of objects and reasons of the Cigarettes and Other Tobacco Products (Prohibition of Advertisement and Regulation of Trade and Commerce, Production, Supply and Distribution) Bill, 2001, provides, "Tobacco is universally regarded as one of the major public health hazards and is responsible directly or indirectly for an estimated eight lakh deaths annually in the country. It has also been found that treatment of tobacco related diseases and the loss of productivity caused therein cost the country almost Rs. 13,500 crores annually, which more than offsets all the benefits accruing in the form of revenue and employment generated by tobacco industry".

5. As already stated by me, under the GST Act, 2017 there is no definition of “food & any other article for human consumption” for the limited purpose of deriving the benefit of reduced rate of GST @ 5%. So the expression of "food" as defined in the Lexicon could only be "a substance taken into the body to maintain life and growth". As such no one in his right perception would consider that hookah or pan masala or gutka or cigarette or any other tobacco products or narcotic drugs would be consumed for maintenance and development of health of human.

6. The Hon’ble Delhi High Court in Sugandhi Snuff King Pvt. Ltd. & Anr. v. Commissioner (Food Safety) Government of NCT of Delhi - 2023 (4) TMI 67 - DELHI HIGH COURT (a batch of petitions) noted, "...FSSA warrants to lay down science-based standards for food and regulating their manufacture, storage, distribution, sale and import to ensure availability of wholesome food for human consumption. In view of the aforesaid, tobacco cannot be termed as “food” within the meaning of the FSSA as no science-based standards can be laid down for tobacco to regulate its sale, distribution and storage in order to ensure safe and wholesome tobacco for human consumption". Similarly the Hon’ble Andhra Pradesh High Court recently reiterated that tobacco does not fall within the definition of "food" as specified under Section 3(i)(j) of the of the Food Safety Standards Act, 2006.

Conclusion

So in my limited conscious perception, I conclude that ’hookah smoking’ is not food as it is not understood as ’food’ or ’foodstuff’ or “any other article human consumption” either in common parlance or by the opinion of lexicographers, for the purpose of availing reduced rate of GST @ 5%.

[Sadanand Bulbule]

Dear all

Consequent to my yesterday’s posting on the subject issue, I received many calls via email to supply further strength substantiating that, “tobacco products in any forms” are not foodstuffs for human consumption as far as GST Act is concerned. So my humble attempt is as under:

A. Section 3(p) of the COTPA defines tobacco products meaning the products defined in the Schedule to the Act. The products are as follows;

1. Cigarettes

2. Cigars

3. Cheroots

4. Beedis

5. Cigarette tobacco, pipe tobacco and hookah tobacco

6. Chewing tobacco

7. Snuff

8. Pan Masala or any chewing material having tobacco as one of its ingredients (by whatever name called)

9. Gutka

10. Tooth powder containing tobacco"

B. Further a reference to the fact that tobacco is not food is found in the case of ITC Ltd. v. Agricultural Produce Market Committee, reported in 2002 (1) TMI 1285 - SUPREME COURT wherein the Hon’ble Supreme Court has, with reference to levy of taxes and the expression industry, observed, in no uncertain words, that tobacco is, admittedly, not a foodstuff.

C. The fact that tobacco is not foodstuff is further strengthened by the fact that Food Safety and Standards (Food Products Standards and Food Additives) Regulations, 2011, does not define tobacco, because no standards can be possibly laid down for tobacco.

D. Hence, it is found that COTPA is exclusive law which deals with tobacco and tobacco products; whereas the Food Act is exclusive law which deals with foods other than tobacco.

E.Hope this would be enough to distinguish between the essential functionality of “food for human consumption” and the deadly “tobacco products”. The former being indispensable for human growth/survival and the latter being seriously injurious to human health. That's all.

[Padmanathan Kollengode]

Respected sir,

There is no doubt that hookah is not "food for human consumption". However, the entry in Schedule II uses the word "any other article for human consumption".

Conclusion

It is covered under "restaurant services" attracting 5% in view of Schedule II and Notification No 11/2012 - CGST (R)

[Sadanand Bulbule]

My dear learned brother

May I request you to substantially distinguish between what is meant for human consumption and smoking of tobacco in any form by human beings with the support of settled law for the benefit of tax payers?

Since there are [and there should be] contrary opinions on the subject issue, which is most common under taxation from the time immemorial, I wish that the readers are not pushed into the gray zone. As far as determination of GST thereon is concerned, the adjudicating authorities shall take action as per the factual and legal position manifest before them and everyone has alternative legal remedy for redressal. When diverse opinions are churned in the right way, the output is more relishing for all. We being tax professionals, our only endeavour is just to clear the cloudiness. Nothing beyond that.

With warm regards.

[Amit Agrawal]

Following factual position in Para 2 of the query is worth noting: "However every package of such hookah carries a health warning that smoking is the main cause for lung, heart cancer etc."

This itself proves that such hookah falls under 'any other article for human consumption' under common parlance & understanding of trade.

Query in Para 1 further state the fact that 'In metro and cosmopolitan cities, it is the modern trend of throwing weekend parties in restaurants, normally by affluent young guys, of course above 18 years, to experience inhaling of hookah in extremely mesmerizing ambiance from dusk till dawn.'.

And as far as I know, these hookah-bars are not illegal and legally allowed to operate in all-over India.

All above further unequivocally proves, at-least to my mind - that subject hookah are indeed falls under 'any other article for human consumption' which is term used in Serial No. 6 of SCHEDULE II of CGST Act, 2017 & 'Restaurant services' as defined in Notification No. 11/2017-Central Tax (Rate) (as amended till date).

And I find that there is nothing under current GST law which states (even, implies) that said term namely 'any other article for human consumption' does NOT cover sin goods like like hookah, cigarettes, pan masala etc.

Under above-said notification, ‘Restaurant service’ means supply, by way of or as part of any service, of goods, being food or any other article for human consumption or any drink, provided by a restaurant, eating joint including mess, canteen, whether for consumption on or away from the premises where such food or any other article for human consumption or drink is supplied.

Query in its Para 1 itself clarifies that hookah-bars also serve food items in their exclusive smoking zones while providing hookah services.

Lastly, query in its Para 7 claims that 'the principal supply is hookah flavours', but same also at-least means that there are two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply (Reference: Section 2 (30))

Moreover, Para 1 also talks about 'experience inhaling of hookah in extremely mesmerizing ambiance from dusk till dawn.'

And Clause 6 (b) of Schedule-II makes it very clear that following 'Composite supply' shall be treated as a supply of services:

"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), where such supply or service is for cash, deferred payment or other valuable consideration."

And Section 7 (1A) states that 'where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II.'

Summarising above, I continue to hold a view that where any bar / restaurant is supplying 'cigarettes / hookah' as part of its service / composite supply, applicate tax-rate under GST is 5% as 'restaurant service' as per current provisions of GST law & notifications issued thereunder.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion. And I respect contrary views.

[KASTURI SETHI]

Hope the author's voice will reach Govt. of India and Govt. may take suitable steps to avoid misuse of 'composite supply'. Intoxicating items should be excluded from the gamut of 'composite supply' in the interest of our nation. It is Govt.'s policy to levy the highest rate of tax on tobacco products and other such substances.

Which is fatal (cancer causing) for health, does not deserve to be fit for human consumption and should be excluded from composite supply for denial of concessional rate in any way.

[Sadanand Bulbule]

Dear all

Article 366 of the Indian Constitution provides “definitions” under the Miscellaneous Chapter XIX.

Article 366[29A][f] defines levy of tax on food or any other article human consumption as under:

(f) a tax on the 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 (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration.

Further international lexicographers define “food” as below:

A substance consisting essentially of protein, carbohydrate, fat and other nutrients used in the body of an organism to sustain growth and vital processes and to furnish energy. The absorption and utilisation of food by the body is fundamental to nutrition and facilitated by digestion.

So the Constitution of India, the mother of all laws in India, does not recognise “tobacco products” as either food or any other article for human consumption. Any other article for human consumption means related food only. Unarguably tobacco products are not consumed for digestion for nutrition purpose essentially required for human growth and energy. It’s just inhaling and exhaling of smoke derived by burning tobacco in the form of beedies, cigarettes, hookah etc.

The visitors of TMI discussion forum may form any opinion the way it is convenient to them.

[KASTURI SETHI]

Dear Shri Sadanand Bulbule Ji,

Sir, Let us examine the phrase ,'food or any other article for human consumption' from grammatical point of view.

The phrase, ' any other article for human consumption ' is NOT independent of the word, 'food' despite the word, 'or' between both phrases. Any other article must qualify 'food'. In other words, 'OR' does not

[KASTURI SETHI]

separate both phrases. For example ; In the phrase, "canal, dam or other irrigation works;" only those canal and dams were allowed exemption from Service Tax which were used for irrigation purpose. In the phrase, 'other' includes well, tubewell etc. only meant for irrigation purpose.

Thus only those articles for human consumption are to be covered under Composite Supply which fall under the category of 'FOOD'. So it is undisputed that tobacco is not food. So not to be allowed concessional rate of 5% in the guise of , 'Composite Supply'..

The word, 'OR' is coordinating conjunction.

[Sadanand Bulbule]

Dear dealers in hookah business,

Please note that:

The Hon’ble Supreme Court of India in its judgement dated 14/10/1988 rendered in the case of United Offset Process Pvt Ltd Vs. Assistant Collector of Customs [1988 (10) TMI 39] while deciding the “common-sense test” of the classification or usage of a particular product or goods has held as under:

4.The question involved in this matter is as to what is the proper tariff entry under which the goods in question fall and are as such classifiable. There is no specific technical definition as such provided in the Customs Tariff Act or in the notification. If there is no meaning attributed to the expressions used in the particular enacted statute then the items in the customs entries should be judged and analysed on the basis of how these expressions are used in the trade or industry or in the market or, in other words, how these are dealt with by the people who deal in them, provided that there is a market for these types of goods. This principle is well-known as classification on the basis of trade parlance. This is an accepted form of construction- It is a well-known principle that if the definition of a particular expression is not given, it must be understood in its popular or common sense, viz., in the sense how that expression is used everyday by those who use or deal with those goods. See, in this connection, the observations of this Court in C.I.T. Andhra Pradesh v. M/s. Taj Mahal Hotel, Secunderabad (19721 SCR 168). In incorporating items in the statutes like Excise, Customs or Sales-tax whose primary object is to raise revenue and for which to classify diverse products, articles and substance, resort should be had not to the scientific and technical meaning of substance but to their popular meaning, viz., the meaning attached to these expressions by those dealing in them. See the observations in King v. Planter's Company [1951 CLR (Ex) 122] and Two Hundred Chests of Tea (1824 6 L. ed. 128). In the former case, Justice Cameron referred to the reason for adopting the test of commercial understanding in respect of the tariff items of an Excise Act and observed that the legislature did not suppose our merchants to be naturalists, or geologists, or botanists. These principles were adopted by this Court in State of West Bengal & Ors. v. Washi Ahmed etc. (1977 3 SCR 149). See also Union of India v. Delhi Cloth & Gen. Mills (1963 Suppl. 1 SCR 586) = 1977 ELT (J 199) and Ramavatar Budhaiprasad v. Assistant S.T.O., Akola (1962 1 SCR 279). See also South Bihar Sugar Mills Ltd. v. Union of India (1968 3 SCR 21) = 1978 ELT (J 336). This principle was reiterated by this Court by Bhagwati, J., as the learned Chief Justice then was, in Porritts & Spencer (Asia) Ltd. v. State of Haryana (1979 1 SCC 82) =1983 ELT 1607.

5. However, in the instant case, as noted above, there is no evidence as to how these goods are dealt with in the trade or industry. There is no technical definition of the expressions used. In that view of the matter, in our opinion, the true approach of the Tribunal should have been to find out the correct meaning of the items, i.e., the meaning attributed to the expressions used by those dealing with it in the trade.

Comment:

So similar common-sense test also applies in the subject issue under discussion. In the instant case, there is medical and empirical evidence as to how “Hookah” is dealt within the trade, the smoking community in restaurants [or at private places] and other statutory authorities. End of the day, it is for the taxpayers to prove that the assertion of reduced rate of GST on supply of “Hookah” as falling under the category of “ food or any other article for human consumption” in the manner claimed by them. Mere contention in that regard is of no avail. Hope such dealers are prudent enough to take wise decision or re-decision in place of their own advantageous decision, which might burn the fingers later. They need not test the patience of the law. Era of encroachment of law is over. Playing safe game as per rules is always reliable and relishing.

[Amit Agrawal]

RELEVANT EXTRACT FROM 'Model All India GST Audit Manual 2023' prepared by The Committee of Officers on GST Audits:

"(ii) 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), where such supply or service is for cash, deferred payment or other valuable consideration is a supply of service –

There were several judgements before the 46th amendment of the Constitution of India in this respect. Hon'ble Apex Court in the matter of State Of Punjab vs M/S. Associated Hotels Of India (1972 (1) TMI 80 - SUPREME COURT) analyzed the nature of contract where a customer stays in the hotel and meals are served as part of and incidental to that service.

Hon'ble Andhra High Court in the matter of Durga Bhavan And Ors. vs The Deputy Commercial Tax Officer - 1980 (9) TMI 260 - ANDHRA PRADESH HIGH COURT on 19th September, 1980 categorized the sale of food in restaurant into two parts -

The supply of food, etc., by restaurants may be made to customers who sit in the restaurants and consume the food. In such a case they enjoy the amenities provided by the owners of the restaurants.

The second class of cases comprise of supply of food-stuffs, snacks, drinks, etc., across the counter where there is practically no service rendered or amenities provided except in the manner of supplying the goods like packing, etc.

Finally, it was needed to make 46th Constitutional Amendment in the year 1981.

Key Elements of Article 366(29A)(f) "

"Tax on the sale or purchase of goods includes: (f) a tax on the 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 (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery of supply is made."

Thus, in the pre-GST regime both Service Tax and VAT was levied on this supply. This entry 6(b) of the Schedule II is expected to reduce any confusion in respect of determination of this particular nature of supply since entry 6(b) of the Schedule II specifies the supply as the supply of service.

However, there may still prevail some confusion regarding the nature of certain supplies.

Illustration - a. Whether tobacco consumed in hookah bars would get covered in the entry 6(b) of Schedule – II "as any other article for human consumption?

To analyse this, we need to take resort to a well-recognised and established principle of a law which is “Ejusdem Generis”. “Ejusdem Generis” is an aspect of the principle of "Noscitur a sociis”. The Latin word 'sociis' means 'society', 'Society' of the same nature. It is an established principle of law that when general words follow specific words, such cannot be read in isolation. Their colour and their contents are to be derived from the context of specific words. In this case "any other article for human consumption‖ can't be read in isolation. It must be read as "being food or any other article for human consumption‖.

The phrase 'any other article' takes its colour from the word 'food'. Now the question arises whether hookah is a food? Since it is not a food it will not be covered under this entry of Schedule II. In hookah bars, hookah paste is supplied with the right to use a smoking apparatus. So, it is a composite supply, where hookah paste is the principal supply.

[There is a very famous judgement in respect of the principle of “Ejusdem Generis”. Interested readers may go through the judgement in the case of McBoyle v. United States 283 U.S. 25 (1931)].

[Amit Agrawal]

Even though I do not agree with reasoning adopted by 'The Committee of Officers on GST Audits', I feel it is necessary to note & know these views of Dept. (which endorses stand taken by our Shri Sadanand Bulbule Ji!) in fairness to each & every visitor of TMI.

Congratulations to Shri Sadanand Bulbulde Ji!

Now, one can safely expect demand of taxes (& disputes / litigation thereon) all over India upon all these hookah bars.

As said in the beginning, I do not agree with said reasoning of 'The Committee of Officers on GST Audits'. And I continue to believe that such demand of gst taxes on hookah bar (by treating hookah paste' as 'principal supply' & supply is that of 'goods') are legally not sustainable specially considering 'facts' given in current Issue Id: - 118434 under discussion here.

I will share my reasoning for disagreement in next few days.

[Sadanand Bulbule]

Respected Amit Sir ji

I remain grateful for your heartfelt compliments. But in reality I don't deserve any congratulations. I am aware that, we all as a united team members[TM] on TMI doing constant research on most ticklish issues to rescue the honest tax payers from needless litigation.

Being citizens of this nation, it is everyone's fundamental duty to respect the levy of any taxes, provided it is legal and sustainable at all judicial forums including the Hon'ble Apex Court. Or else, legal war begins against the illegal and unsustainable foisting of taxes by the quasi-judicial authorities.

Having spent 35 years in the Karnataka Commercial Tax Department, I realise how meticulously the tax administration works in generating revenue from 360 degree angles, particularly during the present GST regime founded on digital platform.

Like you, I am also one of the trouble-shooters against the troublemakers. Let's continue our journey together in the right direction as usual.

Warm regards

[Amit Agrawal]

W.r.t. relevant extract from 'Model All India GST Audit Manual 2023' prepared by The Committee of Officers on GST Audits, as quoted by me in post at serial number 21, my views are as under:

A. Entire sequence of quoted extract starts with emphasising 'several judgements before the 46th amendment of the Constitution of India in this respect'. One can find lot many more judgements of Supreme Court if one starts even reading multiple judgements quoted / relied upon in these 2 judgements quoted in said manual. I invite & urge readers to go through as many such judgements as possible, covering period pre-46 amendment in the constitution, where restaurant / hotel is serving 'foods' to its customers is involved & where ambience / experience which customer seeks, is involved .

B. In each of these rulings, you will find that serving of 'food' by a hotel / restaurant was treated at Apex court as 'Service' and not 'Sale of foods'.

C. This has lead to insertion of Article 366(29A)(f) by way of 46th Constitutional Amendment in the year 1981, where deeming friction is created to allow states to levy sales tax / VAT on value of goods / services involved in specified six types of 'services'.

D. Even the Andhra Pradesh High Court in case of in the matter of Durga Bhavan And Ors. vs The Deputy Commercial Tax Officer - 1980 (9) TMI 260 - ANDHRA PRADESH HIGH COURT (which is quoted in said GST audit manual) has stated the followings:

"To summarise the position at the end of the three decisions of the Supreme Court discussed earlier appears to be as follows:

"1.. If there is no right to carry away the food there would be no sale in favour of the customer.

2. Even if there is a right to carry away if in essence the transaction is a transaction of service and not a transaction of sale it would not be exigible to tax.

3.. If, however, where the customer has a right to take away the food if the dominant object is the sale of food and the rendering of service is merely incidental, then the transaction would be a transaction of sale and not a service contract.

4.. The question whether the dominant object was the sale of food or rendering of service would depend upon the facts and circumstances of each case which has to be decided by the assessing authority in the light of the evidence before it."

E. NOW, lets check the 'facts' given in subject query under discussion here:- In metro and cosmopolitan cities, it is the modern trend of throwing weekend parties in restaurants, normally by affluent young guys, of course above 18 years, to experience inhaling of hookah in extremely mesmerizing ambiance from dusk till dawn. Generally such restaurants popularly called as “hookah bars” provide predominantly Hookah services besides ancillary food items in exclusive smoking zones. Secondly such restaurants opt for payment of GST @ 5% for supply of foods/drinks and Hookah.

F. Given facts are themselves proves that entire supply is treated as 'service' both by the restaurants (popularly called as “hookah bars”) and customers getting so-called hookah services.

F1. As far as I know, no customer has right to take away remaining 'tobacoo' (if any) in hookah, afterwards. (And I do not think anyone will be interested to do so, considering the entire process of generating smoke using tobacco & flavours for consumption)

G. Taking into account the series of judgements of apex Court (i.e. for period prior to 46th amendment of the Constitution of India) read with factual position as listed in Para E & F1 above, entire contract by these restaurants (popularly called as “hookah bars”) and its customers is in nature of 'service' and not as sale of goods.

H. Now, assuming - for sake of argument - that 'any other article for human consumption' used in Article 366(29A)(f) and Clause (6) in Schedule-II of the CGST Act, 2017 does NOT include 'tobacco' used in these hookah-bars, then also, in view of series of Apex Court rulings, entire contract is that of service and not 'sale of goods' in given facts.

H1. No customer - in given set of facts - is interested as buying 'tobacco' per se and no restaurant is selling 'tobacco' per se to its customers.

I. Summarising above, I believe that reasoning adopted by 'The Committee of Officers on GST Audits' in GST manual prepared by it is seriously faulty - both factually and legally - on multiple grounds and same is in total disregard to law settled by Apex Court in series of judgements. Said committee simply ignored the fact that customer is coming to the restaurants (popularly called as “hookah bars”) to get served and enjoy entire experience / ambiance of such restaurants (as per admitted 'facts' under discussion here) and not for buying 'tobacco' per se.

H1. Hence, these restaurants (popularly called as “hookah bars”) can not be charged as 'supplier of goods' while servings its customers for so-called hookah services in given set of facts.

I. As explained in my last post above, one can & should safely expect demand of taxes (& disputes / litigation thereon) all over India upon all these hookah bars. Hence, it is necessary for these hookah bars to prepare themselves with supporting documents / evidence to make their defence better and stronger against such illegal demands and to defend themselves judicially.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion. And I respect contrary views.

[Sadanand Bulbule]

Dear Amit ji

While drawing your kind attention to your point raised at "F1", I wish to inform you that before placing this topic on discussion forum on TMI, I have visited couple of hookah bars to study and to have first hand experience on how this specific business practically runs there. No customer is allowed to carry unconsumed hookah nor is it carriable unlike it is quite common in food sector. So I suggest you to visit the nearest hookah bar and witness the business in reality.

Secondly this discussion forum is not a "court" to decide the legality of illegal demand of taxes.The hands of law are too long. Let it separate "milk from water". Since ancient times,legislation has no sympathy for sin goods like tobacco products in any forms. Such goods do not enjoy liberty like any generic goods but are strictly controlled/administered with high responsibility and accountability focusing top most priority for the protection of health of its smokers. As part of discouraging massive consumption of tobacco products ,there is conscious levy of higher rate of 28% GST plus 72% Cess . Universally it is the policy of every Government not to gift concessional rate of tax for tobacco products and other intoxicating drinks.

Thirdly assuming but not accepting that hookah falls under the banner of food article for human consumption, then why the boys and girls upto 18 years are strictly prohibited to have the so called food article for consumption in the form of hookah? It cannot be without valid reason.

Hard facts never wither.