Composite and Mixed Supply
Significance on Composite and Mixed Supply
Specific rates for goods and services have been defined in the GST Council clearly. So it is easy to identify the rate of supply of any goods or services. However there are some supply of goods and services may be connected (composite Supply) or may be done together even though not connected (Mixed Supply). Therefore, the concept of composite supply and mixed supply becomes important. It helps to determine the correct GST rate and provides uniform tax treatment under GST for such supplies.
The concept of composite supply in GST regime is similar to the concept of naturally bundled service under Service Tax law. Here the supply are generally sold as a combination. It is a supply comprising two or more goods/services, which are naturally bundled and supplied in with each other in the ordinary course of business, one of which is a principal supply.
Example 1 – TV and Remote. This will be a composite supply as the package of TV and remote is a natural combination in the ordinary course of business. Here TV is the principal supply and remote is a dependent Supply.
Example 2 – 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.
As per Sec 2 (30) Composite supply 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”. As per Sec 2(90) Principal supply constitutes supply of Predominant element of a composite supply.
Determination of Composite Supply
If a supply should be considered as a composite supply, such supply of goods or services should be naturally bundled.
Following nature of services can be ascertained to be naturally bundled * If the different elements are not available separately. * Where the different elements are integral to one overall supply. If one or more is removed, the nature of the supply would be affected * On the perception of the consumer or the service receiver * Majority of service providers in a particular area of business provide similar bundle of services. * The nature of the various services in a bundle of services will also help in determining whether the services are bundled in the ordinary course of business. * Where the elements are normally advertised as a package.
However as per Schedule II of CGST Act, 2013, works contract service and restaurant services are considered to be composite supply.
As per Schedule II CGST Act, 2017 Composite supply The following composite supplies shall be treated as a supply of services, namely:—
a) works contract as defined in clause (119) of section 2; and
b) Supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration.”
Mixed supply under GST means a combination of two or more goods or services made together for a single price. Each of these items can be supplied separately and is not dependent on any other.
As per Sec 2(74) “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.
Example – A Kit which contains a tie, a watch, a wallet and a pen which are supplied and priced together. However each of these items can always be supplied individually and hence this supply will be a mixed supply.
Determination of Tax Rates
Tax liability on Composite Supply shall be the tax rate of the principal supply will apply for the entire supply
Tax liability on Mixed Supply shall be the tax rate of the supply of particular supply which attracts the highest rate of tax.
Sec 8 – The tax liability on a composite or a mixed supply shall be determined in the following manner namely:
a) Composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply.
b) A mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax.