Composite Supply and Mixed Supply – Sec 8 – Simplified

The concept of composite supply and mixed supply originates from the supply of bundled services. Supply of goods and services as defined u/s 7(1) of the CGST Act, 2017 includes the supplies on which tax is payable unless if specifically exempted in the GST law. However, for every supply of goods and/or services that is provided as a bundled service or as a combination, the classification of such supplies becomes a challenge to determine the rate of tax. To address this issue, Section 8 has been laid down the CGST Act, 2017 that provides guidelines to simplify the process of determination of rate of GST.

Origin of Composite Supply and Mixed Supply – Concept of Bundled Supply

A bundled supply is a supply that is a combination of goods and/or services. When the goods and/or services can be naturally bundled together, the bundled service will be treated as a composite supply and when the goods and/or services cannot be naturally bundled together, the bundled service will be treated as a mixed supply.

Need for classification

Classification of supplies is important since the tax liability and the time of supply applicability on these two diverse kinds of bundled services is different in the GST law.

Composite Supply – Meaning, Elements

As per Section 2(30) of the CGST Act, 2017, a composite supply means 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.

Example – A car dealer sells a vehicle along with a tool kit, first aid kit, and maintenance and registration services. Here, the principal supply is the sale of car and the ancillary services are providing tool kit, first aid kit, and maintenance and registration services. This will be categorized as a composite supply since tool kit, first aid kit, and maintenance and registration services cannot be supplied without the vehicle i.e. the principal supply.

The two key elements are:-

Naturally Bundled – Supplies can be considered naturally bundled when the supply of goods and/or services is usually provided together in the ordinary course of business and they cannot be separated. They are usually advertised as a package deal.

Example – Breakfast buffet service provided to all guests who are availing the accommodation services in the hotel. These services are naturally bundled together as this is an industry practice and is in the ordinary course of business.

Principal Supply – As per Section 2(90) of the CGST Act, 2017, principal supply means the supply of goods or service which constitutes the predominant element of a composite supply and to which any other supply forming part is ancillary.

Example – Free internet services provided with hotel accommodation services. Here, the hotel accommodation service is the predominant supply and the free internet service is only an ancillary supply to make the experience of the stay better and more comfortable.

Composite Supply – Determination of Tax liability

For composite supplies, the tax rate under GST will be the GST rate applicable on the principal supply will be applied on the entire supply.

Example – M/s ABC Interiors from New Delhi has placed an order for purchase of 100 pieces of furniture from M/s XYZ Furniture Store from Mumbai. The chairs will have to be sent from New Delhi to Mumbai and thus it was prudent to take transit insurance. In this case, the GST rate on the sale of furniture will be applicable on the entire supply i.e. supply of chairs and the service of transit insurance.

Mixed Supply – Meaning, Elements

As per Section 2(74) of the CGST Act, 2017, mixed supply means two or more individual supplies of 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.

Example – M/s ABC Store is selling festival hampers that have aerated beverages, cakes, fruits, clothes and some appliances at a single price. Since all these items are individual supplies i.e. can be sold separately, thus this a mixed supply.

The two key elements are as under:-

Individual supply – Individual supplies are the supplies that are independent of each other and are not naturally bundled. Thus, it can be said that if the transaction has supplied that cannot be naturally bundled in the ordinary course of business, then it would be called a mixed supply.

Not a composite supply – If a transaction of two or more goods or services or any combination thereof cannot be categorized as a composite supply, it would be called a mixed supply.

Mixed Supply – Determination of Tax Liability

For the determination of GST tax rates in this case, supply comprising of two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax.

Example – M/s ABC Store is selling festival hampers that have aerated beverages, cakes, fruits, clothes and some appliances at a single price. Since all these items are individual supplies i.e. can be sold separately, thus this a mixed supply. Here, the appliances have the highest rate of tax i.e. 28% and thus the GST rate of 28% will be applicable on the single price of the entire hamper.

Circular No. 34/8/2018 – GST

Issue – Whether re-treading of tyres is a supply of goods or services?

Explanation in the Circular – In the re-treading of tyres, which is a composite supply, the predominant element is the process of re-treading which is a supply of service. Rubber used for re-treading is an ancillary supply. Which part of a composite supply is the principal supply must be determined keeping in view the nature of the supply involved. Value may be one of the guiding factors in this determination, but not the sole factor.

The primary question that should be asked is what the essential nature of the composite supply is and which element of the supply imparts that essential nature to the composite supply.

Conclusion – Supply of re-treaded tyres, where the old tyres belong to the supplier of re-treated tyres, is a supply of goods attracting GST @ 28%.

The detailed explanation for these supplies have been given by CBIC in their publications.