Either this is satire, or it's a devilish new tactic being attempted by the anti-smoking gestapo.
If serving of food or drink is not allowed in the outdoor area, it impacts the utility of the area and the premises' profit.
Further, by defining "smoking" as having a lit cigarette going continuously (an absurd definition), it impacts everyone smoker and non-smoker alike.
Don't know about Australia, but in the U.S. that is clearly within the no-no actions of any authority: arbitrary and capricious,.
The wording is kind of ambiguous, but the regulations could be interpreted as drinking is allowed, but drinks can't actually be served in the smoking areas. The regulation specifically prohibits the consumption of food, but prohibits only bar service.
The council document goes on to say, "there shall be no bar service or consumption of food within the terrace".