Composite Supply and Mixed Supply: In the realm of GST regulations, distinct rates are assigned to various goods and services. However, complexities arise when dealing with bundled supplies that encompass a mix of individual goods and/or services. Determining the precise GST rate for items within these bundles can pose a challenge. To address this, GST legislation introduced the concepts of Composite Supply and Mixed Supply. These concepts aid in accurately identifying and applying the applicable GST rates in such unique scenarios. Let’s explore composite supply and mixed supply in greater depth, accompanied by a few illustrative examples to enhance our understanding.
Composite Supply
Composite supply is a vital aspect of GST, encompassing the combination of two or more goods or services that are naturally bundled and provided together in the regular course of business. One of these bundled elements is identified as the principal supply, and the items are interdependent, making it impractical to offer them separately. From a tax perspective, the GST rate applicable to the principal supply is extended to the entire bundled package.
In scenarios where a composite supply involves a primary service and secondary goods, the entire bundle is treated as a service for taxation purposes. Conversely, when the primary component of the bundle is goods and the secondary component is a service, the entire package is categorized as a supply of goods.
The core concept of a principal supply is pivotal in composite supply. It signifies the primary element, be it goods or services, that forms the substantial part of the composite supply. All other supplies associated with it are considered ancillary or secondary. Understanding this hierarchy is crucial in determining the applicable GST rate for a composite supply.
Mixed supply
Mixed supply is a crucial concept in the realm of GST, involving a combination of two or more distinct supplies of goods and/or services packaged together and offered at a single price. The unique aspect of mixed supply is that, each of these individual items can be supplied separately and are not reliant on one another. Unlike composite supply, where items are naturally bundled due to their interdependence, mixed supply items are capable of independent supply in the regular course of business.
For tax purposes, when a mixed supply comprises two or more supplies, it is categorized as a supply of the item with the highest GST rate. The entire bundle of items is taxed at the rate applicable to the highest-rated item within the bundle.
In scenarios where a mixed supply includes an item with the highest tax rate being a service, the entire bundle is treated as a supply of services. Conversely, if the highest tax rate pertains to an item of goods within the bundle, the entire package is classified as a supply of goods.
Understanding the concept of mixed supply is fundamental as it aids in determining the appropriate GST rate for the entire bundle based on the highest-rated item included.
Tax Rates applicable to Composite & Mixed supplies
| Nature of Supply | Primary Supply | Tax Rate Applicable to the Bundle |
| Composite Supply | Principal Item | Rate of the Principal Item |
| Mixed Supply | Item Having Highest Tax Rate | Rate of the item having Highest Tax Rate |
Let’s explore a few examples of both composite and mixed supplies to enhance our understanding of this topic and gain more clarity.
Examples of Composite/ Mixed Supplies
(i) Supply of external storage battery with UPS: When a UPS is supplied with built-in batteries in a manner that the supply of the battery is inseparable from the supply of the UPS, and the two items are ‘naturally bundled’, then it should be treated as a composite supply. Whereas, if the storage batteries having multiple uses is supplied with the static converter i.e., UPS, it cannot be said that they are naturally bundled even if the same is supplied under a single contract at a combined single price and the supply of external storage battery with UPS in this case would be considered as a ‘mixed supply’.
(ii) Booking a train ticket: When a passenger books a train ticket in IRCTC, IRCTC does not provide only the transportation services but many other related goods and services like meals, insurance, catering, security, medical etc. All these individual items of supplies are naturally bundled in this case, because no one will want to procure a single item out of this bundle from IRCTC. Because all such items of supplies are naturally bundled and the transportation service is the principal supply here, purchase of train ticket from IRCTC is treated as a ‘Composite supply’ and the whole bundle is taxed at a rate which is applicable to the principal supply i.e., the transportation service.
(iii) Renting of house partly for commercial purpose and partly for residence purpose: Suppose a landlord has given his/her house on rent to a single tenant under a single rent agreement under which part of the house is used by the tenant for commercial purpose and partly for residence purpose.
In such a situation, when renting of house for residential purpose is tax free, renting of house for commercial purpose is taxable. But, in this case, both are not naturally bundled and the landlord can make two different rent agreement for this purpose and invoicing can be made differently. So, the renting of whole building under single agreement and single invoicing unnecessarily making it a bundle of service which becomes a mixed supply under GST law and accordingly the tax rate applicable to renting of house for commercial use applies to the whole bundle of services.
(iv) Booking a hotel: When a customer books a hotel, he does not only avail the accommodation service but in majority of cases customers prefer to also avail the foods of that hotel. In such a situation, it becomes a bundle of services consisting of goods and services both. Because the services are naturally bundled, the supply in this case is treated as a ‘Composite supply’ and the whole bundle is charged at the tax rate which is applicable to the ‘Accommodation service’.
Conclusion
Navigating the world of GST is generally straightforward when it comes to purchasing or selling individual goods or services — determining the applicable GST rate is a relatively simple task. However, things get intricate when dealing with bundled items. That’s where a thorough grasp of Composite and Mixed supply concepts becomes crucial.
Understanding these concepts accurately ensures the correct assessment of tax rates in these complex cases. It’s not just beneficial for businesses; tax departments also benefit by levying and collecting the right taxes from dealers. A clear comprehension of Composite and Mixed supply can potentially shield dealers from future disputes or legal entanglements with the GST department, promoting smoother operations.
You may follow the Link of CBIC for more clarity on the Scope of supply (including composite & mixed supply)–https://old.cbic.gov.in/resources//htdocs-cbec/gst/The_Meaning_and_Scope_of_Supply_new.pdf
Follow the Link to watch the video on Composite Supply & Mixed Supply–https://www.youtube.com/watch?v=gsm_UXcW73Q
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