INTRODUCTION

In India, the GST was implemented beginning in July 2017. It is a ‘supply‘ tax on goods and services. Identification of the supplier, or ‘classification,’ is essential to the practical workings of GST because it establishes the amount of tax, the duration of tax duty, and other procedural elements like invoicing and compliances. Therefore, determining the correct classification is the first step in adhering to the GST rules. However, because business dynamics are complex, it is incorrect to anticipate total segregation of the goods and services delivered in each transaction. It is acknowledged that a “bundle” of supplies may be purchased in a single transaction. Different laws have different definitions for this topic. For instance, the “bundled supply” notion was used to convey this idea under the former service tax law of India. To handle these instances of bundles of supplies, the GST laws have developed the notions of “mixed supply” and “composite supply.” By referencing conceptual intricacies, applications, implication, etc., this article demystifies the idea of mixed supply in the context of GST.

Mixed Supply under GST

Mixed supply is defined under Section 2(74) of CGST Act and it states:

“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.”

Illustration — A mixed supply is one that is sold for a single price and includes canned foods, candies, cakes, chocolates, dry fruits, aerated drinks, and fruit juices. These goods are not interdependent and can each be delivered separately. If these things are delivered separately, it is not considered a mixed supply.

According to this definition, which was cited by the AAAR in Sarj Educational Centre, “supply of goods and/or services will be treated as mixed supply if it fulfils the following two criteria: (a) it is a combination of two or more goods or services supplied at a single price; and (b) each of these items can be supplied separately and is not dependent on any other.” Based on this, the AAAR came to the conclusion that because there is no principal supply here, the supply of food, laundry, housekeeping, and other services that are not naturally bundled with the lodging service and are independent of one another and can therefore be supplied separately, qualify as mixed supply.

The aforementioned makes clear the characteristics of mixed supply, including the requirement that it be provided by a single individual for a single price. To put it another way, for the transaction to fall under the category of mixed supply, none of the various ingredients must have a dominating supply that would meet the criteria for a principle supply. This basic principle also seems to be supported by the image that is attached to the statutory definition of mixed supply. “A package consisting of canned foods, candies, chocolates, cakes, dry fruits, aerated drinks, and fruit juices” that is sold for a single price is referred as. Despite a single price being charged for the transaction, the figure does not depict a composite supply because each of these supplies is distinct and may be produced individually. As a result, despite the graphic representing a composite supply, it is an example of mixed supply.

In the aforesaid lines [1] The AAAR came to the conclusion that a collection of services offered by one entity to another for a single consolidated price qualified as mixed supply because they lacked a principal supply.

The AAAR affirmed that the UPS and battery supply should be regarded as a mixed supply.[2] The AAAR rejected the claim in this instance that UPS cannot function without battery and therefore it is bundled and the supply of static converter along with external battery should be construed as a composite supply. It is only when a UPS is supplied with built-in batteries it should be treated as a composite supply, according to the AAAR, and in all other circumstances the transaction would constitute a mixed supply.

The aforementioned makes it evident that, just like with composite supply, one must pass both objective and subjective requirements even in cases of mixed supply. A key condition even for evaluating whether there is a mixed supply or not is whether there is a principal supplier in the transaction.

The aforementioned makes it evident that, just like with composite supply, one must pass both objective and subjective requirements even in cases of mixed supply. A key condition even for evaluating whether there is a mixed supply or not is whether there is a principal supplier in the transaction. As the transaction may only be classed as either composite supply, mixed supply, or neither, but not both, the classification result is fairly binary, one with an either/or determination.

The following properties of mixed supply are clear by analysing its definition:

a) The combined commodities and/or services provided have an identity that is distinct from one another. These products or services can be purchased and offered separately, thus the availability of one does not require the availability of the other.

b) All products and/or services are purposefully provided for a single consolidated price and no individual price is ascribed to any of the goods and/or services offered collectively.

c) The supply must not fall under the definition of “composite supply.” This indicates that none of the supplies meets the criteria for the major supply and that the goods are not organically bundled and supplied together in the normal course of business.

d) A separate sale of the goods or services is not considered a mixed supply or a composite supply.

Conditions for treating a supply as mixed supply under GST

The following criteria must be met in order to classify a supply as mixed supply:

1) The supply should be made up of two or more separate deliveries of products or services, or any combination thereof.

2) The deliveries should be provided concurrently and for a single price.

3) This supply is not a composite supply.

To consider a supply a mixed supply, each of these requirements must be met in total. The following discussion covers all three of the aforementioned conditions at once. In order to be considered a mixed supply, a supply must, above all else, not meet the criteria for a composite supply. It is not appropriate to organically bundle more than two separate sources of either commodities or services, or both. Such supplies shouldn’t be provided concurrently in the normal course of business. In other terms, a mixed supply is any combination of two or more distinct supplies that are unrelated to one another, all of which are prominent in nature, artificially packaged, and sold together for a single price. In other words, if a supply combines two or more separate supplies and the principle supply cannot be determined or there are several principal suppliers, the supply will be regarded as a mixed supply as long as a single price is charged for it. However, a supply will not be recognised as a mixed supply if prices are assigned to individual products that are artificially grouped and supplied together. To put it another way, supplies of two or more commodities or services made at various rates cannot be categorised as mixed supplies. In this scenario, the value of each supply will be taxed at the corresponding GST rate. Additional factors applicable to each supply, such as the time of provision, the location of supply, and the value of supply, will be used for that supply. It should be emphasised that “taxable supplies” are not used in the context of mixed supply; instead, “individual supplies” are. As a result, both taxable and non-taxable items might be included in a mixed supply. For composite supply, the single price stipulation is irrelevant.

Judicial Interpretation related to Mixed Supply under GST

The first requirement is to rule out that the supply is a composite supply in order to determine if the specific supply is a mixed supply. Only if a supply is not a composite supply can it be a mixed supply. As a logical extension, it can be claimed that the transaction would be a mixed supply if the supplies were not naturally packaged in the normal course of business. Once the transaction’s suitability as a composite supply is disproved, it would be a mixed supply, which is categorised as a provision of commodities or services subject to the highest rate of taxation.

The mixed supply would qualify as a supply of services and, therefore, the rules relating to the timing of the supply of services would be applied if it included the provision of a service subject to tax at a higher rate than any other constituent supplies.

Alternately, the mixed supply would qualify as a supply of goods and, therefore, the rules governing the timing of the supply of services would apply if it involved the supply of commodities subject to tax at greater rates than any other constituent supplies.

Printing service

In re: M/S. Infobase services pvt. Ltd.[3], The AAR noted that the applicant has agreed to the obligation to match the cost of financing the project of printing from the proceeds from selling space for advertisements, in addition to providing printing service and the service as an intermediary on behalf of the Club for selling space for advertisements. 75% of the difference between the proceeds from selling advertising space and the cost of printing is the incentive for success. If it doesn’t fulfil its responsibility, it must compensate the club for tolerating the failure by paying the difference between the earnings from selling advertising space and the cost of printing.

It is clear that the applicant is providing a combined supply of printing services and intermediate services to the club and billing a single fee for the combined supply as the printing project cost. The two services are not typically combined or offered together in the normal course of business. They are a specific part of the agreement between the applicant and the club and are subject to an obligation. As a result, it is not a composite supply. It is a mixed supply, according to the Authority for Advance Ruling (AAR), as defined by section 2(47) of the Act. Therefore, it should be viewed as the delivery of the service subject to the highest rate of tax.

Mixed Supply Levy Post GST

Lodging services

In Re: M/S. Sarj Educational Centre[4], The appellant is the owner of a private boarding home that only accommodates and feeds children attending a school managed by a charitable organisation.

On the following issues, the appellant requested a preliminary judgement.

  • Whether or not services provided by the appellant to the students of lodging and supply of food is composite supply within the meaning of section 2(30) of the Act?
  • The tax rate applicable for the combination of services provided if it is not considered a composite supply.

Depending on the beneficiaries’ demand for a lodging facility, the AAR determined that the appellant is providing multiple distinct services to the recipients in two different combinations.

The findings of the lower authority were contested by the appellant in an appeal filed with the Appellate Authority. The appeal has two components.

  • The applicant should be considered as an educational institution within the meaning of 2(y) of the exemption notification.
  • The service provided by them is a composite supply.

The appellate authority noted that the applicant is involved in providing services such as meal delivery, laundry, housekeeping, etc., which are not necessarily associated with lodging business. These parts can be purchased independently and are not dependant on one another. There appears to be no primary service because none of the services are naturally packaged together. The appeal submitted by the appellant was denied by the Appellate AAR, who upheld the AAR’s decision.

Supply of electro-Ink

In Re: Hp India Sales Private Limited[5], The applicant asked for a preliminary determination on how electro-Ink delivered with consumables should be classified under the Act.

The AAR noted that because the recipient of the supply has no choice in the matter, the transaction including the delivery of electro-Ink and consumables cannot be viewed as a naturally bundled supply but rather as a mandatory supply. Each of these supplies can be supplied independently because each has its own pattern of usage.

The supply cannot be regarded a composite supply under section 2(74) of the Act since it lacks the basic characteristics of bundled goods, according to the AAR.

Before the Appellate AAR, the applicant appealed the decision made by the AAR. In their argument, the appellant claimed that their supply was a composite supply. The Act doesn’t define “compulsory supply,” as determined by the AAR. The applicant’s arguments were taken into consideration by the Appellate AAR. According to the Appellate AAR, when considering the case, all of the products are crucial for printing to take place. One of the key components of a composite supply is that only one of the sources is the “primary supply,” with the rest serving as its adjuncts or byproducts. This is not the situation. Although it cannot be stated that other supplies, such as the plate developer, are incidental and only serve to round out the supply, they are as crucial. The appellant has not shown any proof that the given programme is standard practise in the industry. The Appellate Authority for Advance Finding upheld the ruling made by the AAR.

Lodging with food for students

In Re: M/S. Sarj Educational Centre[6], The applicant is a private boarder who offers accommodation and food services only to secondary school pupils attending a charitable organization-run secondary school.

According to the AAR, the applicant’s services are delivered directly to students rather than to educational institutions, so the exemption granted to educational institutions under Sl. No. 66 of Notification No. 12/2017 Central Tax (Rate) is not applicable. The applicant offers services at fixed rates for various services to both “day boarders” without lodging and boarders with lodging and additional services including food, medical care, housekeeping, laundry, etc. Because they are not indivisible and subject to separate payment, all of these services are not naturally grouped together. These are specific services that can be given to the receiver in various combinations depending on their needs and wants.

These services, according to the AAR, are a mixed supply of services rather than a composite supply. On the various components of the aforementioned blended supply, various GST rates are applicable.

Storage and warehousing services

In Re: M/S. Awla Infra[7], Under the PEG 2008 plan of the Government of India, the applicant was given a letter of allocation authorising the construction of godowns for a certain category at a single location at predetermined rents per quintal per month. The applicant leased the aforementioned godowns to Food Corporation of India on a lease and service basis, which in addition to renting out the aforementioned godowns also includes offering Food Corporation of India’s wheat storage, preservation, and warehousing services. According to the application, all of the supply is “Storage and Warehousing Services,” which is an exempt supply for agricultural products. The applicant’s argument was rejected because, according to the provisions of the agreement, the lessee is free to store any products owned by other third parties as well.

It is obvious that the applicant is offering two services, namely real estate services and support services related to agricultural products. These two services are not organically bundled because they can be offered separately, making them a mixed supply.

According to the AAR, the applicant must pay the higher of the two rates that apply to these two suppliers.

Medicines

In Re: M/S. Columbia Asia Hospitals Private Limited[8], The AAR ruled that where doctors prescribe medications and patients are free to purchase those medications from any pharmacist (need not be from the same hospital), that purchase of those medications from the applicant’s pharmacies cannot be treated as a component of composite supplies but must instead be considered a mixed supply because it is unrelated to the applicant’s healthcare services. Additionally, the patients’ food and beverages are not included in the composite supply. However, if patients are unable to choose between the supply of medicines, food, and beverages and the supply of healthcare services, then these items would combine to form a composite supply, with healthcare services serving as the primary supply.

Workwear

In Re: M/S. Lindstorm Services India Private Limited[9], The applicant rents out work clothes. Additionally, the applicant handles ancillary tasks such workwear transportation, weekly cleaning, maintenance, repairs, and finishing.

The AAR noted that there are more than two taxable services supply included in the contract. Services other than renting out workwear supplies are not provided in the normal course of business but rather are required of the client by the applicant. Services like washing, maintenance, and transportation, among others, are stand-alone and typically offered individually. These services stand apart from workwear rental services.

According to the AAR, the supply is a mixed supply rather than a composite supply. There is no need to answer the second question, which asks about composite supply, because the first question can be answered as a mixed supply.

Valuation

In Re: Hp India Sales Private Limited[10] The contested transaction is a mixed supply with a continuous flow of commodities at a fixed price. The AAR determined that the transaction value shown on the applicant’s invoice issued in accordance with Section 31(4) shall be the value of the supply of goods.

UPS

In Re: Switching Avo Electro Power Ltd.[11] The applicant is a provider of power solutions, such as batteries, UPSs, and servo stabilisers.

When it supplies UPS along with the battery, the applicant requests a decision on the classification of the supply. The applicant particularly requests a decision on whether such supplies qualify as composite supplies under section 2(30) of the CGST/WBGST Act, 2017.

According to the AAR, a UPS cannot operate independently unless it has a built-in battery or a separate battery is supplied, either as a component of the same contract or as a separate supply. In the first scenario, where a built-in battery is included with the UPS, both components are unavoidably grouped together. According to Note 3 to Section XVI of the Customs Tariff Act of 1975, such a product would constitute a composite machine because it combines two separate devices with the primary function of UPS. In this situation, the supply would also be a composite supply, and it would need to be classified as UPS under Heading 8504 of the Customs Tariff Act of 1975. According to Sl. No. 375 of Schedule III of Notification No. 01/2017 Central Tax (Rate), issued 28.06.2017, it would be subject to taxation.  While UPS would be classed as above if these commodities were supplied separately under separate contract pricing, batteries would be classifiable separately under Heading 8507 as accumulator batteries. These would be subject to Schedule IV, Section 139, taxation. The petitioner believes that the situation in which these goods are supplied separately but for a single contract price on a single invoice constitutes a naturally bundled composite supply and should be subject to UPS taxation. The aforementioned argument was rejected because a natural bundled supply is one in which the contract is unbreakable. However, if the recipient so chooses, the UPS with battery supply can be divided into two distinct supplies. According to GST rules, a combination of commodities that does not constitute a composite supply must be classified as mixed supplies if it is being sold at a single price.

The supply of UPS and batteries in this situation would constitute a mixed supply as described by section 2(74) of the CGST Act, 2017, and taxable in accordance with that definition, i.e., at the highest of two rates, according to the AAR.

The applicant appealed the decision made by the AAR to the Appellate AAR.

The AAR’s remark that the UPS is useless without a battery is supported by the Appellate AAR, who also agreed with this statement. Without the battery, it is unable to act as a UPS. However, it is important to take into account whether or not these two things are “naturally packaged.” The GST Act’s stated example for section 2(30) refers to a supply in which the auxiliary services are intrinsic to the composite supply and cannot be distinguished from the primary supply. A composite machine is one made up of two or more separate machines that have been assembled to form a whole, according to Note 3. A UPS should be classified as a composite supply and as a composite machine in accordance with Note 3 when it is furnished with built-in batteries that cannot be separated from the UPS’s supply.

The storage battery has numerous functions and can be used for a variety of purposes. According to the Appellate AAR, when it is provided independently with static converters (UPS), it cannot be regarded as a composite supply.

Management Support services of relocation related services

In Re: M/S. Cartus India Private Ltd.[12], The applicant’s main role as an agent was to make it easier for its personnel to transfer from one station to another. The application either provides the services directly or obtains the facilities through a third party who bills the company directly for those services, with the applicant merely receiving agency fees.

The AAR noted that the services provided in the aforementioned two ways are not consistent and are instead based on the needs of each employee. For a specific service, separate service fees are set, therefore it cannot be referred to as a single supply with a common price.

The AAR determined that it is a mixed independent supply of diverse services/goods rather than a naturally bundled composite supply.

The AAR additionally determined that the “management support services of relocation related services” offered to the company as an agent are a single service covered by SAC 9985 and are covered under Entry 23(ii) of Notification No. 11/2017 Central Tax (Rate), dated 28.06.2017.

CONCLUSION

Given the tax incidence, it is clear that typically no supplier would want to classify the supply as a mixed supply, as this would mean that all elements of the transaction would be subject to the tax rate set for the specific supply that is subject to the highest rate of tax. However, in the situation of composite suppliers, when the primary supply affects both the classification and the GST rate for the entire transaction, such an inclination might not exist. Nevertheless, each transaction needs to be carefully examined to determine the categorization of the supply and whether it draws composite supply or mixed supply characterization because the amount of tax cannot be decided by anyone. Despite the fact that the classification process is difficult because the determination involves both objective and subjective tests, it is essential for the suppliers to understand the complex ideas that underlie composite and mixed supplies in order to classify the supplies correctly in light of the statutory requirement.

[1] (2019) 28 GSTL 172

[2] (2018) 15 GSTL 636

[3] 2019 (12) TMI 1118

[4] 2019 (7)TMI 314

[5] 2018 (10) TMI 1515

[6] 2019 (2) TMI 1605

[7] 2019 (2) TMI 1002

[8] 2018 (12) TMI 474

[9] 2018 (12) TMI 1275

[10] 2018 (10) TMI 1515

[11] 2018 (4) TMI 810

[12] 2019 (10) TMI 1135

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