Composite and Mixed Supply Provisions under GST

The taxable event under GST is supply of goods or services or both. GST will be payable on every supply of goods or services or both unless otherwise exempted.

Normally, goods or services are supplied separately and these are taxed at the rate specified for each such identifiable goods or services. However, when two or more goods are sold in combination it becomes difficult to identify the rate of tax to be levied in such cases. It is for this reason, that the GST Act identifies composite supplies and mixed supplies and provides certainty in respect of tax treatment under GST for such supplies.

Composite Supply under GST

Composite supply means a supply made by a taxable person to a recipient comprising of two or more goods/services or both, or any combination thereof, which are naturally bundled and supplied in with each other in the ordinary course of business, one of which is a principal or main supply.

Thus, provisions of composite supply can be summarised as under:

Examples:

1. Supply is made for goods which are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is the principal supply.

2.  A gift-wrapped box of chocolates. Here, the chocolates are the principal supply, while the box, gift wrapper, message card and gift wrapping service offered are supporting elements.

3. When a dealer sells a brand-new vehicle along with registration, insurance, a tool kit and first aid kit, and 4 free maintenance services. The supply of vehicle is the principal supply and all other services are ancillary.

4. A hotel provides a 4-D/3-N package with the facility of breakfast. This is a natural bundling of services in the ordinary course of business. The service of hotel accommodation gives the bundle the essential character and would, therefore, be treated as service of providing hotel accommodation.

Mixed Supply under GST

A mixed supply is supply of two or more individual goods or services, or 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.

Thus, provisions of mixed supply may be summarised as under:

Examples:

1. A Diwali gift box consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drink and fruit juices supplied for a single price is a mixed supply. All are also sold separately. Since aerated drinks have the highest GST rate of 28%, aerated drinks will be treated as principal supply and 28% will apply on the entire gift box.

2. A shopkeeper sells storage water bottles along with the refrigerator. In this case, bottles and the refrigerator can be easily priced and sold separately. Hence, it is a mixed supply.

Tax Liability on Composite and Mixed Supplies

Buy One Get One Free Offer (Circular No. 92/11/2019 dt 07.03.2019)

1. Sometimes, companies announce offers like ‘Buy One, Get One free‟ For example, “buy one soap and get one soap free” or “Get one tooth brush free along with the purchase of tooth paste‟. As per section 7(1)(a) of the said Act, the goods or services which are supplied free of cost (without any consideration) shall not be treated as supply under GST (except in case of activities mentioned in Schedule I of the said Act). It may appear at first glance that in case of offers like Buy One, Get One Free, one item is being supplied free of cost without any consideration. In fact, it is not an individual supply of free goods but a case of two or more individual supplies where a single price is being charged for the entire supply. It can at best be treated as supplying two goods for the price of one.

2. Taxability of such supply will be dependent upon as to whether the supply is a composite supply or a mixed supply and the rate of tax shall be determined as per the provisions of section 8 of the said Act.

3. It is also clarified that ITC shall be available to the supplier for the inputs, input services and capital goods used in relation to supply of goods or services or both as part of such offers.

Differences between Composite Supply and Mixed Supply