Supply in the combination of two or more goods or services or both is known as ‘Composite Supply’ or ‘Mixed Supply’ under the Goods and Service Act. These are two terms defining whether goods and services that are provided together are related or not. This concept helps us to identify supplies which are a mixture of many goods and services.
- Supply of laptop along with other computer Accessories.
- Supply of Air Conditioner along with the installation process.
Why this concept?
It is very important to understand this concept as sometime when we supply multiple goods, they are taxable at different rate. Each individual good or service will be taxable as per tax rate prevailing. Sometimes goods or services are related or not related to each other but it is important to identify tax rate of each component independently to calculate correct tax liability.
Sometimes supply is not clearly identifiable due to multiple combinations of the goods and services. In this situation, GST Act identify these types of supply as either Composite or mixed supply on the basis of products for the calculation of tax liability. Sometimes goods and services having different tax rates are supplied together in a bundle, it creates a problem for the calculation of GST liability.
The supply of taxable goods or services or both is considered as Composite supply if-
- in the combination, one good or/and service is principal supply and other good or service is a secondary supply.
- those goods or/and services are naturally bundled due to natural necessities and provided together in the ordinary course of business.
- one needs the another, they can’t be separated.
Principal Supply –
The main element of the supply.
Secondary supply –
It is dependent on principal supply.
Services or/and goods which are provided together by the suppliers who are dealing in the same type of business.
Selling of AC at the electronic shop and installation service and transportation services are provided.
- Selling of AC is the principal supply.
- Transportation and installation services are the secondary supply.
The electronics shops provide installation and transportation services to the customers (Naturally bundled).
Air transport services provided by airlines includes the provision of catering service on board.
- Travelling is principal supply.
- Catering services are secondary supply
The suppliers providing the same type of supply will generally work on the same conditions (Natural bundled). Also, the main supply of company is to give travelling services not catering services. If they don’t provide catering, then even their air travel services will continue. But if they stop giving services of travelling, there will be no supply of catering.
Tax liability of composite supply
The rate of tax which is applicable to the principal supply will be the rate of tax for the whole composite supply. To calculate tax liability on the whole supply we have to apply that rate of tax which is applicable to the principal supply. Taking the above examples,
So on the whole composite supply rate of tax will be the rate of tax applicable to the selling of Air Conditioner. GST rate applicable to the transportation and installation services will be of rate of ‘selling A.C.’.
Also, on the whole composite supply rate of tax will be the rate of tax applicable for air travelling.
Time of supply of composite supply
Time of supply of composite supply will on the basis of the type of principal supply. If principal supply is related to Service then rules of Time of supply of service and section-13, will apply. On the other hand, if principal supply is related to Goods then rules of Time of supply of goods, section-12, will be applicable.
Continuing the above examples:
Principal supply- Selling of Air conditioner.
So, Time of supply of goods will apply.
Principal Supply- Air travelling services.
So, Time of supply of services will apply.
When a taxable person makes the supply of two or more separate supplies of goods or services or both together as a bundle for a single price is known as mixed supply. We can also sale this combination of supply separately and they are not dependent on any each other. Mixed supply is not compulsory or natural necessity. Mixed supply aims in the ordinary course of business to attract customers, to differentiate the business in the market, etc.
Gift package containing all sorts of Chips, snacks, soft drink, biscuit, toys and many more. Each item may be differently taxable.
In Mumbai, hotel gives a 6 day/5 nights package and 3 days Mumbai Darshan in their bus transport services. The inclusion of Mumbai Darshan in this package is not a natural requisite to accommodation in the hotel. Generally, the main motive behind it is to attract customers.
Tax liability of mixed supply
As per the provisions of the Act in a mixed supply, the tax liability is calculated on the basis of the particular rate of tax which is highest among the rate of tax of the other separate supplies.
Taking the above example:
Each item have a separate rate of tax but when this gift package is sold, then the package is taxable with the highest rate of tax.
Rate of tax of hotel accomodation is 18% and the rate of tax for bus transport service is 12% .
So if mixed supply is provided then it will be taxable at 18%.
Time of supply
Time of supply of mixed supply will on the basis of the type of supply which will be having the highest rate of tax. If the highest rate of tax supply is related to Service then Time of supply of service, Section-13, will apply. On the other hand, if the highest rate of tax supply is related to Goods then Time of supply of goods, Section-12, will be applicable.
Time of supply of gift package will be time of supply of the highest tax rate goods. So rules of Time of supply of goods will apply.
Supply of hotel services has the highest rate of tax. So the rules of Time of supply of service will apply.
How to determine the supply is composite or mixed?
On getting the understanding of concept from above identifying whether the supply is composite or mixed will be easily. Differentiation between two is summarized in the table-
|Not Naturally Bundled
|One supply is principal Supply
|No one is Principal Supply
|Other supply cannot be supplied separately
|Other supply can be supplied separately
The Author of the above article is Aditya Kishore, ICAI.
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