Determination of Composite and Mixed Supplies in GST

Introduction

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:

• Bundle of two or more goods: Keyboard and mouse sold for a single price; supply of goods with packaging; gift packs containing assorted bakery items.
• Bundle of two or more services: Accommodation service with food; gym with spa; transportation with insurance; renting for residence and office in a single contract.
• Bundle of both goods and services: Transportation of goods by supplier; works contract; printing of pamphlets and brochures; sale of air conditioner with installation.

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:

• Two or more supplies can become composite supply whether they have been charged in the invoice singly or separately. This means that if the supplier of goods is also transporting the goods to the recipient and charging separately for the same in his invoice, it will still be a composite supply and taxed at the rate of goods.
• All the supplies in such bundled supplies should be taxable. Even if one of the supplies in non-taxable, it cannot be a composite supply.
• The supplies should be of goods or services or both.
• The supplies should be naturally bundled in the ordinary course of business. This is best known from prevailing business practices and how the parties to the transaction view the same.
• One of the supplies should be a principal supply which constitutes the predominant element, and all other supplies should be ancillary to the principal supply i.e. dependent on the principal supply (even non-existent in absence of the principal supply).
• All composite supplies shall be treated as the supply of principal supply, for the purpose of taxability.

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:

• A composite supply will not be checked for its inclusion in mixed supply.
• A supply can be a mixed supply only if single price has been charged for it. There is no such requirement in case of composite supply.
• All the supplies in case of mixed supply need not be taxable supplies. This is again different from composite supply.
• All mixed supplies shall be treated as the supply of that particular supply which attracts the highest rate of tax, for the purpose of determining taxability.

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:

• Perception of the consumer or service receiver – Whether the recipient views it as naturally bundled?
• Industry practice – Whether majority of the suppliers in a particular area of business provide similar bundles?
• Nature of the supplies – Whether there is one principal supply?
• Pricing – Single pricing or separate pricing?
• Advertising – Whether it is normally advertised as a package?
• Availability – Whether the elements are available separately?

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.

Conclusion

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.

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