Analysis of Composite & Mixed Supply in GST Section 8

Composite supply

What is composite supply?

According to section 2(30), 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, out of which one is Principal Supply

For example: A gift- wrapped box of chocolates. In this, the chocolates are the principal supply and the gift wrapping service offered by the salesperson is supporting elements that cannot be supplied individually without the chocolates.

What is meant by Principal supply?

Supply of goods and services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary is the principal supply.

Analysis of provisions related to composite supply

The following conditions need to be satisfied for composite supply:

• If two things are sold together then we need to know whether they are composite supply or not.
• Both supplies should be taxable supply, both of them or one of them is non- taxable (like petrol) then it can’t be classified as composite supply.
• These supplies should be naturally bundled in ordinary course – means it is common practice to supply such combos.

Taxability of composite supply

The taxability of 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, such supply shall be treated as a supply of such principal supply.
• Discuss later with mixed supply.

Means tax rate will be same as on Principal Supply like say on room is 12% and tax on food service is 18% since it is a composite supply and room rent is Principal supply. Here tax on whole package will be 12% even if both items have separate value mention or combined on bill.

Mixed supply

What is mixed supply?

According to section 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.

For example: a supply of a package consisting of canned foods, sweets, 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.

Taxability of mixed supply

A mixed supply comprising two or more supplies shall be treated as supply of that particular supply that attract highest rate of tax.

Like combo of commercial and residential building rent, here, residential building rent is exempt and commercial building is exempt, so we will charge rate of commercial on whole package including residential building rent.