GST is payable on individual goods or services at the given rate. The application of rates is easy to identify in case if there is a supply of individual goods or services. However, where there are 2 or more than 2 supplies in a combination, then each supply may attract a different rate of tax. In such a case, determining the actual rate to be charged on the combination may be a challenge. Thus, there is a requirement of identifying whether it is a composite or mixed supply.
The term “supply” includes all forms of supply of goods or services. The two main pre-requisites are that the supply should be for consideration (other than 1st Schedule) and it should be related to business or incidental to it.
If 2 or more individual supplies are supplied together for a single price, and it does not fall in the ambit of Composite supply and is not bundled naturally (can be supplied individually in the regular course) then such supplies are known as mixed supply.
Example: Gift hamper including cosmetics of different types and different brands supplied together.
In case of mixed supply, the supply of two or more supplies shall be treated as a supply of that particular supply that attracts the highest rate of tax.
Composite supply consists of 2 or more taxable supplies which are naturally bundled and are supplied in conjunction with one another in the ordinary course of business, amongst which one is a principal supply.
A supply will be considered as a ‘composite supply’ if the following elements are present:
To determine whether it is a composite supply or not, we should first check whether there is some principal supply and also whether the Items are bundled naturally.
“Principal supply” in context of composite supply means it is the predominant supply of goods or services in a composite supply and to which any other supply is supportive or in conjunction with the other.
A composite supply may usually occur due to either of the following reasons:
The tax rate of the “Principal supply” will be applicable on the entire supply.
The goods are packed and transported with insurance copy. The supply of goods, packaging materials, transport and insurance copy, is a composite supply.
It satisfies all the following conditions as mentioned above:
Thus, the tax liability will be the tax on the principal supply, i.e., GST rate on the goods.
If the second condition is not fulfilled, it becomes a mixed supply.
A supply of goods and services will be considered as composite supply if it fulfils the following criteria:
|Composite Supply||Mixed Supply|
|Consists of two or more supplies||Consists of two or more supply|
|Naturally bundled||Not naturally bundled|
|Supplied in conjunction with each other||Though can be supplied independently, still supplied together|
|Tax liability shall be the rate of principal supply||Tax liability shall be the rate applicable to the supply that attracts the highest rate of tax|
|One of which is principal supply||No such bifurcation of principal supply as supplies can be provided individually as well|
|Example: Charger supplied along with mobile phones.
WCT, Restaurant services.
|Example: A Diwali gift pack comprising of chocolates and sweets.|
However, each supply should be independently viewed and studied.
Now, the businesses will need to relook all their potential bundled goods and services. This article deals with the categorisation of supplies as mixed supply and composite supply under GST law.
It is vitally important for businesses to clearly understand composite supply vs mixed supply, their tax implications and accordingly operate to fulfil their desired objective of bundling goods and services.
For all your GST related queries, including registration, compliance and reconciliation enlist the aid of the experts at earlyGST by H&R Block India.