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

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

Sir, I agree with you in toto. I think 'friendly match' should be over now. Ball is already in the court of Govt.

Humble suggestion : We should devote our time and energy to some other burning and complicated issue.

[Sadanand Bulbule]

Respected Sethi sir ji

I respectfully accept your suggestion.

Warm regards.

[Amit Agrawal]

Dear Shri Sadanand Bulbule Ji,

I agree that I do not have first hand experience & my knowledge about this trade (i.e. hookah bar) is based on 'google search'.

W.r.t. Para F1, it is same as you said 'No customer is allowed to carry unconsumed hookah nor is it carriable unlike it is quite common in food sector'.

And it is precisely "the fact" on which Apex Court held that such goods cannot be said as 'sold' by the restaurant to its customers.

I also agree with you that 'this discussion forum is not a "court" to decide the legality of illegal demand of taxes'. But, one can never be prevented to gives own views on legal matters, as one see it, specially when same is backed by series of Supreme Court rulings resulting into 46th amendment to Constitutional of India.

Taxation matter needs to be analysed and decided as per application legal provisions & Supreme Court's rulings dealing about when can food (or any other article for human consumption, for that matter) be said as 'sold' by restaurant to its customers. Same cannot be twisted (& legal position, including SC rulings, ignored) just because subject trade (i.e. hookah bar) has ill-effects on health on its customers.

I do not see any reason to suggest to these hookah-bars to charge / pay higher rate of 28% GST plus 72% Cess etc. on its hookah services (i.e. by wrongly treating the transaction as 'supply of goods i.e. tobacco'), when law do not require them to do so in given set of facts read with series of Apex Court rulings.

As part of its policy of taxation or otherwise, Govt. can always change the "present" taxation & even other laws to get it's desired social & economic objectives (which may even include closing these hookah bars, non-allowing selling of cigarettes / pan masala / alcohol & so on). But, such policy-considerations are totally irrelevant, to my mind, while giving my views on given set of 'facts' as stated in your query and my understanding of "present" legal provisions and my application of 'series of Apex Court rulings' to given set of facts.

In summary, I stand by my views that the 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. Hence, these restaurants (popularly called as “hookah bars”) can not be charged as 'supplier of goods i.e. tobacco' while servings its customers for so-called 'hookah services' in given set of facts.

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