GST - Composite and Mixed Supply

 

Composite and Mixed Supply

 

Section 2(30) – Meaning of Composite Supply

Composite supply is a supply made by a taxable person to a recipient consisting of 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.

 

Illustration – Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply.

 

Section 2(74) – Meaning of Mixed Supply

Mixed supply is a supply of two or more individual goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply.

 

Illustration – A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drinks and fruit juices when supplied for a single price is a mixed supply. Each of these items can be supplied separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately.

 

Section 8 of the CGST Act, 2017:

Determination of tax liability on a composite or mixed supply

The tax liability on a composite or mixed supply shall be determined in the following manner, namely:—

(a)     A composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; and

(b)     A mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax.

 

Both Composite supply and Mixed supply consist of two or more taxable supplies of goods or services or both but the main difference between the two is that Composite supply is naturally bundled i.e., goods or services are usually provided together in normal course of business and cannot be separated, whereas in case of mixed supply the goods or services can be sold separately.

 

 

Composite Supply

Composite supply consists of two or more goods or services or both, which is naturally supplied with each other in the ordinary course of business and one of them is a principal supply. The items cannot be supplied separately.

 

Important note:

Principal supply means the supply of goods or services, which constitute the predominant element of a composite supply and to which another supply is ancillary/secondary.

 

Following two conditions are necessary for composite supply:

(a)     Supply of two or more goods or services together, and

(b)     It should be a natural bundle and they cannot be separated.

 

Example: 1

Booking of Air Tickets which involves cost of the meal to be provided during travel will be Composite supply and tax will be calculated on the principle supply which in this case is transportation of passengers through flight.

 

Example: 2

M/s P Ltd. entered into a contract with M/s Z Ltd. for supply of goods. Where goods are packed and transported with insurance. The supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply.

 

Example: 3

A Five-star hotel provides four days and three-night package, with breakfast. This is a composite supply as the package of accommodation facilities and breakfast is a natural combination in the ordinary course of business for a hotel. In this case, the hotel accommodation is the principal supply, and breakfast is ancillary to the hotel accommodation.

 

The hotel accommodation attracts 18% tax and the restaurant service attracts 28% tax. As per the example, hotel accommodation is the principal supply, and the entire supply will be taxed at 18%.

 

Example: 4

Mr. Ravi being a dealer in laptops sold a laptop bag along with the laptop to a customer, for Rs 55,000. CGST and SGST for laptop @18% and for laptop bag @28%. What would be the rate of tax leviable? Also find the GST liability.

Answer:

If the laptop bag is supplied along with the laptop in the ordinary course of business, the principal supply is that of the laptop and the bag is an ancillary.

 

Therefore, it is a composite supply and the rate of tax would be the rate that is applicable to the laptop.

 

Hence, at the applicable GST rate of 18% for laptop, GST payable on Rs 55,000 is Rs 55,000 × 18% = Rs 9,900 (CGST Rs 4,950 and SGST Rs 4,950).

 

Mixed Supply

In Mixed supply two or more individual supplies are supplied as a combination of goods or services or both with each other for a single price. Each of these items can be supplied separately and is not dependent on each other. In other words, the combination of goods or services or both are not bundled due to natural necessities, and they can be supplied individually separately in the ordinary course of business.

 

For tax liability purpose, mixed supply consisting of two or more supplies shall be treated as a supply of that item which has the highest tax rate.

 

Example: 5

Diwali gift hamper which consist of different Items like sweets, chocolates, cakes, dry fruits packed in one pack is mixed supply as these items can be sold separately and for GST purpose it shall be treated as a supply of that particular item which attracts the highest rate of tax.

 

Example: 6

M/s X Ltd. a dealer offer combo packs of shirt, watch, wallet, book and they are bundled as a kit and this kit is supplied for a single price and the supply of one item does not naturally necessitate the supply of other elements. Hence the supply is a mixed supply. Tax rate for a shirt, watch, wallet and book are 12%, 18%, 5% and Nil respectively. In this case, watch attracts the highest rate of tax in the mixed supply i.e., 18%. Hence, the mixed supply will be taxed at 18%.

 

Example: 7

Mr. A booked a Rajdhani train ticket, which includes meal. Is it composite supply or mixed supply?

Answer:

It is a bundle of supplies. It is a composite supply where the products cannot be sold separately. The transportation of passenger is, therefore, the principal supply.

 

Rate of tax applicable to the principal supply will be charged to the whole composite bundle.

 

Therefore, rate of GST applicable to transportation of passengers by rail will be charged by IRCTC on the booking of Rajdhani ticket.

 

Example: 8

Space Bazar offers a free bucket with detergent purchased. Is it composite supply or mixed supply? Assume rate of GST for detergent @28% and bucket @18%.

 

Answer:

This is a mixed supply. These items can be sold separately. Product which has the higher rate, will apply on the whole mixed bundle.