♦ A composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as supply of such principal supply.
♦ A mixed supply comprising two or more supplies shall be treated as supply of that particular supply that attracts highest rate of tax.
In order to determine whether the supplies are ‘composite supplies’ or ‘mixed supplies’, one needs to determine whether the supplies are naturally bundled or not naturally bundled in ordinary course of business.
Composite supply means a supply made by a taxable person to a recipient and:
This means that in a composite supply, goods or services or both are bundled owing to natural necessities. The elements in a composite supply are dependent on the ‘principal supply’.
Principal supply means the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary. [Section 2(90)]
Examples of Composite supplies: Works contract and restaurant services.
How to determine whether the services are bundled in the ordinary course of business?
Whether the services are bundled in the ordinary course of business, would depend upon the normal or frequent practices followed in the area of business to which services relate. Such normal and frequent practices adopted in a business can be ascertained from several indicators some of which are listed below:
Mixed supply means:
The individual supplies are independent of each other and are not naturally bundled.
How to determine if a particular supply is a mixed supply?: In order to identify if the particular supply is a mixed supply, the first requisite is to rule out that the supply is a composite supply. A supply can be a mixed supply only if it is not a composite supply. As a corollary, it can be said that if the transaction consists of supplies not naturally bundled in the ordinary course of business then it would be a mixed supply. Once the amenability of the transaction as a composite supply is ruled out, and a single consideration is charged for the entire supply of different components, it would be a mixed supply, classified in terms of supply of goods or services attracting highest rate of tax.
Example: A supply of package consisting of canned foods, sweets, chocolates, cakes, dry fruits , aerated drink and fruit juices when supplied for a single price is a mixed supply.
How to determine the tax liability on mixed supplies?: A mixed supply comprising of two or more supplies shall be treated as supply of that particular supply that attracts highest rate of tax.