The applicability of GST requires determination of each transaction as supply of ‘goods’ or supply of ‘services’. However, many a times the nature of transactions are such that they cannot be clearly classified as the supplies are bundled. It could take the following forms:
To determine taxability in case of bundled supplies, they have to be identified as either ‘composite supply’ or ‘mixed supply’. If a transaction is ‘composite supply’, it shall be treated as a supply of the principal supply. If it is a ‘mixed supply’, it shall be treated as supply of that particular supply which attracts the highest rate of tax.
Meaning of composite supply
It 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.
‘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.
Illustration: Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply.
From the above, we understand:
Meaning of mixed supply
It 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.
Illustration: 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.
From this, we understand:
Naturally bundled in the ordinary course of business
There are several indicators of the fact whether supplies have been naturally bundled in the ordinary course of business, or it is an unnatural bundle laid out to evade taxes:
Determination of Time of Supply
Time of supply provisions are different in case of goods and services. Therefore in case of composite supplies, time of supply shall be determined with reference to the principal supply. In case of mixed supplies, time of supply shall be determined with reference to the supply attracting the highest rate of tax.
Each transaction we come across needs to be examined from the perspective of composite and mixed supplies. More often than not, we may realise that what seemed to be a supply of a particular goods or a particular services is actually a bundled supply.
The author may be reached at firstname.lastname@example.org.