Sweets shop with restaurant

Yes business can be done this way. Rates for bakery items will be different and rates for restaurant services will be different. Special care will have to be taken for claiming ITC as ITC not allowed for restaurant services. 

@ Shivam Verma

If you are able to maintain separate accounts for both supply of restaurant services and sale of sweets, then you can continue. However, as @ Altamush sir said special care should be given while availing ITC, as common ITC will be there.