1. Composite Supply
Section 2(30) of the CGST Act, 2017 defines the term “Composite Supply” as follows:
“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.
Therefore, a supply to be considered as composite supply following conditions must be fulfilled:
(i) A taxable person is supplying to a recipient two or more taxable supplies of goods or service or both or any combination thereof in one supply
(ii) Such supply of two or more goods or service in one supply are naturally bundled.
Therefore can’t be supplied one goods or service independently without others goods or service by such supplier or class of suppliers.
(iii) Such goods or service or both are supplied in conjunction with each other and in the ordinary course of business.
(iv) One of such goods or service is a principal supply.
Example of Composite supply: Today commercial goods and services are supplied in such a fashion that one can cite many examples of composite supply. Two examples are described below:
(i) Sale of flight ticket by an airline company: It is very common and natural today that airline companies provide food and beverages to their passengers on board. Here we see, two supplies, one transportation of passenger and another supplying of foods and beverages to passengers on board, are supplied by an airline company against sale of a flight ticket. This is an example of composite supply. Because both supplies are supplied in the ordinary course of business of an airline company. Both are naturally bundled in the present scenario of airline service providing business because right of having food and beverage automatically comes to a passenger on board. Here principal supply is transportation of passenger by flight.
(ii) Transportation of goods with insurance, packing materials, etc.: This example has been given in the CGST Act, 2017. Where goods are packed and transported with insurance, the supply of goods and packing materials, transport and insurance is a composite supply and supply of goods is a principal supply.
2. Mixed Supply
Section 2(74) defines the term “Mixed Supply” as follows:
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.
Therefore, a supply to be considered as mixed supply following conditions must be fulfilled:
(i) Two or more individual supplies of goods or service or any combination thereof are supplied in one supply.
(ii) Such supply is made at a single price
(iii) Such supply does not constitute a composite supply. Therefore, such supplies of goods or services or both are not naturally bundled and not in the ordinary course of business of the supplier.
If a supply falls under the definition of composite supply such supply can’t be considered as mixed supply. Therefore, the first test should be whether a supply of two or more goods or services or both in one supply at a single price fulfills the conditions of being treated as composite supply. If such supply does not fulfill the conditions for being treated as composite supply only then it can be treated as mixed supply.
Example of mixed supply: Three examples of mixed supplies are described below:
(i) A departmental store is selling some packaged food staff and daily usable cosmetic items in a larger container at a single price. This is an example of mixed supply. Because, packaged food staffs and cosmetic items are not naturally bundled. Individual items of packaged food staff and cosmetic items can be sold separately by the departmental store itself.
(ii) A five star hotel in Kolkata, providing lodging, fooding and sight seeing services for 2 days and 3 nights at a single fixed price for their guests. It is an example of mixed supply. Because, services of hiring out of hotel room to its guest and taking them to sight seeing are not naturally bundled and not in the ordinary course of business of a hotel. Such two services can be supplied independently and separately. Therefore, such packaged supply of services and goods at a single price does not fulfill the condition of a composite supply. Hence, it is a mixed supply.
(iii) The example has been given in the CGST Act, 2017: 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.
3. Tax Liability on Composite & Mixed Supply
(i) Tax liability on composite supply
According to the section 8 (a) of the CGST Act, 2017 “a composite supply comprising of two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply”.
Therefore, tax rate of the goods or service treated as principal supply shall be applicable on the entire value of composite supply.
In the above given example (i) under composite supply the principal supply is transportation of passenger by flight. Therefore, the tax rate applicable on service of transportation of passengers by air is to be applied on the entire value of tickets ignoring the value of food and beverages to be supplied to the passengers on the board by the
airline company. Supposing the price of the air ticket is Rs.5,000.00 excluding GST. The journey is by air in economy class. Applicable rate of GST is @5%. Therefore, GST shall be added to the price of ticket is Rs. 250.00. Gross price of the ticket (including GST) shall be Rs. 5,250.00.
In the above given example (ii) under composite supply the supply of goods is principal supply. Supposing the supplier is supplying parts of motor vehicle. Such goods will be delivered at the place of business of the recipient by the supplier. Value of such supply includes transportation charges, packing charges and insurance charges. Therefore, there are four supply (i) Supply of Motor parts (i.e. principal supply), (ii) Supply of transportation service, (iii) Supply of packing materials, (iv) Supply of insurance service. But the parts of motor vehicle being the principal supply, the GST rate applicable on parts of motor vehicle shall be applied on entire value of the supply. Supposing value of the supply (excluding GST) is Rs.5,00,000.00. GST rate on motor vehicle is 28%. Therefore, GST liability on such transaction is coming to Rs.1,40,000.00. Hence, the value of supply including GST will be Rs. 6,40,000.00.
(ii) Tax liability on mixed supply
According to the section 8 (b) of the CGST Act, 2017, “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”.
In the above example (i) under mixed supply supposing cosmetic items are a bottle of perfume and a makeup box. Therefore, the tax rate shall be applicable @28%. Rate of tax of packaged food stuff is @12%. Therefore, 28% being the highest tax rate of goods containing in the mixed supply, tax shall be calculated @28% on the entire value of such supply.
In the above example (ii) under mixed supply GST rate applicable for accommodation in a five star hotel is 28%. GST rate of on tour operator service is 5%. The tax rate of 28% being the higher of two, shall be applicable on the entire value of such supply by the five star hotel.