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Composite Supply and Mixed Supply Under GST

By Yogesh Verma (CS/LLB) / 2 min. read / GST Article

In the Goods and Services Tax (GST) regime, understanding how multiple goods or services bundled together are taxed is crucial for businesses. The concepts of composite supply and mixed supply are key to determining the tax implications when multiple goods or services are sold together. This article explains the differences between these two terms and how they impact GST compliance.

Content of this Article:

1. What is a Composite Supply?

2. What is a Mixed Supply?

3. Key Differences Between Composite and Mixed Supply

4. Tax Implications

5. How to Identify Composite and Mixed Supply

6. Conclusion

What is a Composite Supply?

A composite supply refers to a situation where a taxable person supplies two or more goods or services together that are naturally bundled and supplied in conjunction with each other in the ordinary course of business. In a composite supply, one of the items is considered the principal supply, while the others are ancillary or supportive. The tax rate of the principal supply is applied to the entire bundle.

Legal Definition: As per Section 2(30) of the CGST Act, 2017:

"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."

In simpler terms, a composite supply involves a group of goods or services that are typically sold together in a way that the consumer expects them as a package. These goods or services are inherently linked, and one item forms the core (principal) while the others support it.

Example of Composite Supply

Illustration: Imagine a situation where a business sells goods and provides packing services along with insurance and transportation. The supply of goods is the principal supply, while packing, insurance, and transportation are secondary but necessary for the delivery of the goods. The entire supply is treated as a composite supply, and the GST rate for the principal supply (the goods) is applicable to the whole package.

What is a Mixed Supply?

A mixed supply, on the other hand, occurs when a taxable person supplies two or more individual goods or services together for a single price, and these goods or services are not naturally bundled. Unlike composite supply, in mixed supply, each of the items can be sold independently, and they are not dependent on each other.

Legal Definition: As per Section 2(74) of the CGST Act, 2017:

"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."

In other words, mixed supplies consist of goods or services that are sold together, but each has its own identity and purpose, and the combination is not essential for business as a whole.

Example of Mixed Supply

Illustration: A retailer offers a gift package that includes a variety of items like sweets, chocolates, aerated drinks, dry fruits, and fruit juices, all sold for a single price. Each of these items can be sold separately, and none is dependent on the other. This is a mixed supply, and the GST rate applicable will be the highest rate among the items included in the package.

Key Differences Between Composite and Mixed Supply

Understanding the difference between composite and mixed supply is essential for determining how to apply GST correctly. Here are the main distinctions:

Tax Implications

The difference between composite and mixed supply affects the GST rate to be applied.

·       Composite Supply: The tax rate applicable to the principal supply is levied on the entire bundle. For example, if the principal supply (such as goods) attracts 18% GST, the entire package, including transportation and insurance, will be taxed at 18%.

·       Mixed Supply: The tax rate applicable is based on the highest GST rate among the items in the package. For instance, if a gift pack includes chocolates (which attract 28% GST) and dry fruits (which attract 5% GST), the entire supply will be taxed at the highest rate, which is 28%.

How to Identify Composite and Mixed Supply

The fundamental test to determine whether a supply is composite or mixed lies in understanding the relationship between the items:

·       Composite Supply: Are the items typically supplied together in the ordinary course of business? Is one item the primary supply, and are the others merely supportive? If yes, it is a composite supply.

·       Mixed Supply: Are the items individual and independent of each other, merely sold together for convenience or promotional reasons? If so, it is a mixed supply.

For example, the sale of a mobile phone with accessories like earphones and a charger can be considered a composite supply since they are typically supplied together and complement each other. On the other hand, a package containing a variety of snacks and beverages, each of which could be sold separately, would be a mixed supply.

Conclusion: Distinguishing between composite and mixed supplies is essential for businesses to comply with GST regulations. The correct classification determines how GST is applied and impacts the overall tax liability. Understanding these concepts helps ensure that businesses charge the right amount of tax and avoid any disputes or errors in GST filings.

In essence, if the goods or services are naturally bundled and one is the principal supply, it’s a composite supply. If they are independent items bundled together for a single price, it’s a mixed supply. Proper classification will lead to better compliance and accurate tax computation.

Disclaimer: All the Information is based on the notification, circular and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.