Composite Supply and Mixed Supply under GST: Section 8 of CGST Act, 2017

“Dive into the intricacies of Composite Supply and Mixed Supply under GST as per Section 8 of the CGST Act, 2017. Uncover the distinctions between these concepts, exploring scenarios where goods and services are naturally bundled. Understand the tax rates applicable to Composite and Mixed supplies, distinguishing the primary supply and item of highest GST rate. Gain clarity with real-world examples, from booking train tickets to renting houses for dual purposes. Equip yourself with insights to navigate GST complexities effectively.”

According to GST law, different rates of GST are prescribed for different goods and services, and there is nothing to think beyond the prescribed rates. But sometimes we deal with some supplies which consist of a bundle of individual goods and/or services. In such cases, it becomes difficult to determine the rate of GST which will be applicable to the items purchased/sold as a bundle. Therefore, the concept of Composite supply and Mixed supply has been incorporated in the GST law in order to determine the applicable GST rates in such typical cases.

1. Composite Supply: Composite supply consists of two or more goods or services, which is naturally bundled and supplied with each other in the ordinary course of business and one of them is a principal supply. The items are dependent on each other and cannot be supplied separately. For taxation purpose, the GST rate applicable to the principal supplies applies to the whole bundle.

In case of a bundle of composite supplies in which the principal item is a service and secondary item is goods, the whole bundle is treated as a supply of services. Similarly, in case of a bundle of composite supplies in which the main item of the bundle is goods and secondary item is service, the whole bundle is treated as a supply of goods.

Meaning of principal supply: Principal supply means the supply of goods or services, which constitute the predominant element of a composite supply and to which another supply is ancillary/secondary.

2. Mixed supply: In Mixed supply, a combination of two or more independent supplies of goods and/ or services bundled with each other and supplied for a single price. Each of these items can be supplied separately and is not dependent on each other. In other words, the combination of goods or services is not bundled due to natural necessities, and they can be supplied individually in the ordinary course of business. For taxation purpose, mixed supply consisting of two or more supplies shall be treated as a supply of that item which has the highest GST rate and the whole bundle of items taxed at that highest rate.

In case of a bundle of Mixed supplies in which the item having highest GST rate is a service, the whole bundle is treated as a supply of services. Similarly, in case of a bundle of Mixed supplies in which the item having highest GST rate is goods, the whole bundle is treated as a supply of goods.

Tax Rates applicable to Composite & Mixed supplies:

Let us go through the below given examples of composite and mixed supplies for having some more clarity on this topic.

Examples of Composite/ Mixed Supplies:

(i) Supply of external storage battery with UPS: When a UPS is supplied with built-in batteries in a manner that the supply of the battery is inseparable from the supply of the UPS, and the two items are ‘naturally bundled’, then it should be treated as a composite supply. Whereas, if the storage batteries having multiple uses is supplied with the static converter i.e. UPS, it cannot be said that they are naturally bundled even if the same is supplied under a single contract at a combined single price and the supply of external storage battery with UPS in this case would be considered as a ‘mixed supply’.

(ii) Booking a train ticket: When a passenger books a train ticket in IRCTC, IRCTC does not provide only the transportation services but many other related goods and services like meals, insurance, catering, security, medical etc. All these individual items of supplies are naturally bundled in this case, because no one will want to procure a single item out of this bundle from IRCTC. Because all such items of supplies are naturally bundled and the transportation service is the principal supply here, purchase of train ticket from IRCTC is treated as a ‘Composite supply’ and the whole bundle is taxed at a rate which is applicable to the principal supply i.e., the transportation service.

(iii) Renting of house partly for commercial purpose and partly for residence purpose: Suppose a landlord has given his/her house on rent to a single tenant under a single rent agreement under which part of the house is used by the tenant for commercial purpose and partly for residence purpose. In such a situation, when renting of house for residential purpose is tax free, renting of house for commercial purpose is taxable. But, in this case, both are not naturally bundled and the landlord can make two different rent agreement for this purpose and invoicing can be made differently. So, the renting of whole building under single agreement and single invoicing unnecessarily making it a bundle of service which becomes a mixed supply under GST law and accordingly the tax rate applicable to renting of house for commercial use applies to the whole bundle of services.

(iv) Booking a hotel: When a customer books a hotel, he does not only avail the accommodation service but in majority of cases customers prefer to also avail the foods of that hotel. In such a situation, it becomes a bundle of services consisting of goods and services both. Because the services are naturally bundled, the supply in this case is treated as a ‘Composite supply’ and the whole bundle is charged at the tax rate which is applicable to the ‘Accommodation service’.

Conclusion: In normal cases of purchase or sale of single items of goods or services, it is not difficult to determine the GST rate. But complexity arises in case of purchase or sale of items in bundles. So, a clear understanding of the concept of Composite and Mixed supply will help in correct determination of tax rate in such typical cases. This also helps the department to levy and collect appropriate tax from the dealers. Moreover, a clear understanding of this concept can help the dealers to reduce any future litigations with the GST department.