Different tax rates may apply to each individual component of a given supply. The rate of tax that is to be levied on such supplies becomes a problem. Because of this, GST distinguishes between composite and mixed supplies and applies different taxation policies to each.
In this article, we will discuss the concept of composite supply and mixed supply under the Goods and Servies Tax (GST), the distinction between the two, and discuss why is there a need to have this distinction under the law.
What is Composite Supply under GST?
According to Section 2(30) of the Goods and Services Act 2017, a composite supply is defined as a supply made by a taxable person to a recipient that consists of two or more taxable supplies of goods or services, or both, or any combination of the two, that are naturally bundled and supplied in conjunction with one another in the ordinary course of business, one of which is a principal supply;
As an example, when goods are packed and transported with insurance, the supply of goods, packing materials, transport, and insurance is a composite supply, and the supply of goods is the principal supply.
Although restaurant services and work contracts are two well-known examples of composite supplies, the GST Act recognizes both as services that must be charged at the applicable rate of tax.
The supply must be recognized as a composite supply in order to determine the appropriate classification. It will be necessary to establish whether a specific supply is naturally bundled in the normal course of business and what exactly counts as the principal supply in such composite supplies.
The concept of composite supply under GST is identical to the concept of naturally bundled services prevailing in the existing service tax regime.
“Bundled service” refers to a collection of services that are provided together, each of which consists of a combination of one or more elements from another service. An illustration of a “bundled service” would be an airline’s air transportation services, which combine the provision of onboard catering with the transportation of passengers by air. As a way of determining the value of two services for the purpose of applying a different service tax rate, each service involves differential treatment.
“If various elements of a bundled service are naturally bundled in the ordinary course of business, it shall be treated as provision of a single service which gives such bundle its essential character,” states the rule.
Mixed Supply Under GST
The CGST Act of 2017’s Section 2(74) defines a mixed supply as two or more separate supplies of goods or services, or any combination of them, made concurrently by a taxable person for a single price as long as such a supply does not qualify as a composite supply.
Illustration: A mixed supply is one that is sold for a single price and includes canned foods, sweets, cakes, chocolates, dry fruits, aerated drinks, and fruit juices. Because each one is independent of the others, if these items are supplied separately, it will not be considered a mixed supply.
To establish whether a specific supply is a Mixed Supply, it is first necessary to rule out the possibility that it is a composite supply. A supply can only be a mixed supply if it is not a composite supply. As a logical extension, it can be said that a transaction involves supplies that aren’t ordinarily bundled together in the normal course of business and is therefore deemed to involve a Mixed Supply. Once the suitability of the transaction as a composite supply is proven to be false, it would be classified as a mixed supply and be subject to the highest rate of taxation for supplies of goods or services.
The following illustration given in the Education Guide of CBEC referred to above can be a pointer towards a mixed supply of services: – “A house is given on rent one floor of which is to be used as a residence and the other for housing a printing press. Such renting for two different purposes is not naturally bundled in the ordinary course of business. Therefore, if a single rent deed is executed it will be treated as a service comprising entirely of such service which attracts the highest liability of service tax.
In this case, renting for use as residence is a negative list service while renting for non-residence use is chargeable to tax. Since the latter category attracts the highest liability of service tax amongst the two services bundled together, the entire bundle would be treated as renting of commercial property.
Why is it necessary to distinguish between Composite and Mixed Supply?
In Section 8 of the CGST Act of 2017, the tax obligations for particular types of supplies are explained as follows.
The process for calculating a composite or mixed supply’s tax liability is as follows:
- a) A composite supply made up of two or more supplies, one of which is a principal supply, is considered to be a supply of that principal supply; and
- b) A mixed supply made up of two or more different supplies is treated as a supply of the one that is subject to the highest rate of tax.
Time of supply in case of Composite supply:
If the composite supply includes the provision of services as the principal supply meets the requirements for a provision of services, the provisions relating to the timing of the supply of services are applicable. Alternately, if a composite supply includes the supply of goods as the primary supply, then that composite supply qualifies as the supply of goods and is therefore subject to the rules governing the timing of the supply of goods.
Time of supply in case of mixed supplies:
The mixed supply would qualify as a supply of services and, as a result, the rules relating to the timing of the supply of services would be applicable if it included the provision of a service subject to tax at a higher rate than any other constituent supplies. Alternatively, the mixed supply would qualify as a supply of goods and, as a result, the rules governing the timing of the supply of services would apply if it involved the supply of goods subject to tax at higher rates than any other constituent supplies.
Under GST, the supply of goods or services is taxable. Unless otherwise exempted, GST is payable on every supply of goods, services, or both. Additionally, each good or service or both of them separately notified rates at which GST is payable. To charge the appropriate rate of GST on a given supply, the supply must be classified (as either goods or services or as a category of both goods and services).
- Shreshtha Banerjee, Difference Between Mixed Supply and Composite Supply Under GST, Vakil Search, 17 November 2022, available at: https://vakilsearch.com/blog/difference-between-mixed-supply-and-composite-supply-under-gst/#:~:text=Mixed%20supply%20under%20GST%20refers,supply%20of%20goods%20and%20services
- Mixed Supply & Composite Supply under GST, Clear Tax, 12 January 2022, available at: https://cleartax.in/s/mixed-composite-supply-gst
- Composite Supply and Mixed Supply under GST, Zoho, available at: https://www.zoho.com/in/books/gst/what-is-mixed-composite-supply-under-gst.html