Composite and Mixed supply - Time of supply.pdf

(a) A composite supply comprising two or more supplies, one of. which is a principal supply, shall be treated as a supply of such. principal supply; and. (b) A mixed supply comprising two or more supplies shall be treat- ed as a supply of that particular supply which attracts the highest rate of tax.

1. Composite Supply and Mixed Supply
This is a new concept introduced in GST which will cover supplies made together whether the
supplies are related or not. Supplies of two or more goods or services can be either ‘composite
supply’ or ‘mixed supply’. The concept of composite supply in GST regime is similar to the
concept of naturally bundled services under Service Tax Law. However, the concept of mixed
supply is entirely new.
What is a supply under GST?
The expression “supply” simply means all forms of supply of goods/ services. It is made for a
consideration during the course of business and includes the following:
 Sale
 Transfer
 Barter
 Exchange
 License
 Rental
 Lease
 Disposal
 Import of services for a consideration (if even it is not in the course or furtherance of
business)
Certain activities specified in Schedule I of GST Act will also be treated as supply.
Why is the concept of mixed supply & composite supply important?
Specific rates for goods and services have been defined by the GST Council. GST Rate for
each type of goods and services have been defined in the GST Law. So if you are supplying a
particular good or a service rates are easy to identify. However, sometimes supply of a good
and service may be connected or may be done together even though not connect. Say for
example, an AC is supplied and AC installation services are also supplied along with it. The
GST Act defines how such supply must be rated. Therefore, the concept of composite supply
and mixed supply becomes important. It helps to determine the correct GST rate and provides
uniform tax treatment under GST for such supplies.

2. What is a bundled supply?
A bundled supply is a combination of goods and/or services. This concept was mainly found
in service tax where a bundled service meant a combination of two or more services.
How to determine if it is naturally bundled, i.e., it cannot be separated?
The question of bundled supply in the ordinary course of business depends on the normal
practices followed in the industry. Here are some ways to identify them:
1. If buyers mostly expect such services to be provided as a package, then the package will
be treated as naturally bundled. For example, most business conventions look for
combination of hotel accommodation, auditorium and food.
2. If most of the service providers in the industry provide a package of services then it can
be considered as naturally bundled. For example, air transport and food on board is a
bundle offered by most airlines. The nature of the various services in a bundle of services
will also help to identify whether the services are bundled. If there is a main service and
the others are ancillary service then it becomes a bundled service. For example, five- star
hotels often provide free laundry services on staying at the hotel. Renting the room is the
primary service and laundry is ancillary. A person can opt for laundry services only if he
is staying at the hotel.
Other indicators of bundling of services in the ordinary course of business (but they are not a
foolproof identification): – There is a single price for the package even if the customers opt for
less – The components are normally advertised as a package – The different components are
not available separately.
What is composite supply under GST?
Composite supply means a supply is comprising two or more goods/services, which are
naturally bundled and supplied in with each other in the ordinary course of business, one of
which is a principal supply. It means that the items are generally sold as a combination. The
items cannot be supplied separately.
How to determine if it is a composite supply?
A supply of goods and/or services will be treated as composite supply if it fulfills the following
criteria:

3.  Supply of 2 or more goods or services together; AND
 It is a natural bundle, i.e., goods or services are usually provided together in the
normal course of business.
 They cannot be separated.
What tax rate will apply?
The tax rate of the principal supply will apply on the entire supply.
Example: Goods are packed and transported with insurance. The supply of goods, packing
materials, transport and insurance is a composite supply. Insurance, transport cannot be done
separately if there are no goods to supply. Thus, the supply of goods is the principal supply. Tax
liability will be the tax on the principal supply i.e., GST rate on the goods. If the second
condition is not fulfilled it becomes a mixed supply.
What is Mixed supply under GST?
 Mixed supply under GST means a combination of two or more goods or services made
together for a single price.
 Each of these items can be supplied separately and is not dependent on any other.
Under GST, a mixed supply will have the tax rate of the item which has the highest rate
of tax. For example- A Diwali gift box consisting of canned foods, sweets, chocolates, cakes,
dry fruits, aerated drink and fruit juices supplied for a single price is a mixed supply. All are
also sold separately. Since aerated drinks have the highest GST rate of 28%, aerated drinks will
be treated as principal supply and 28% will apply on the entire gift box.
How to determine if it is a mixed supply or a composite supply?
You have to rule out that the supply is a composite supply. A supply can be a mixed supply
only if it is not a composite supply. If the items can be sold separately, i.e., the supplies not
naturally bundled in the ordinary course of business, then it would be a mixed supply. For
example: If a person buys canned foods, sweets, chocolates, cakes, dry fruits, aerated drink and
fruit juices separately and not as a Diwali gift box, then it is not considered a mixed supply.
All items will be taxed separately.

4. Differences between Mixed and Composite supplies
Particulars Composite Supply Mixed supply
Main item Principal item Item with highest tax rate
Tax rate applicable

Tax rate of principal item

Highest tax rate of all the items

Time of supply
Time of supply in case of composite supply
If the principal supply is a service (for example, air transport and food on board) then the
composite supply will be treated as a supply of services. The provisions relating to time of
supply of services will apply. Similarly, in the case of purchasing and transporting the goods,
the supply of goods is the principal supply. The composite supply will qualify as supply of
goods and the provisions relating to time of supply of goods will apply.
Time of supply in case of mixed supplies
If the highest tax rate belongs to a service then the mixed supply will be treated as the supply
of services. The provisions relating to time of supply of services would be
applicable. Similarly, if the highest tax rate belongs to goods then the mixed supply will be
treated as supply of goods. The provisions relating to time of supply of services would be
applicable.
Further examples
Example 1: Booking train tickets
You are booking a Rajdhani train ticket which includes meal. It is a bundle of supplies. It is a
composite supply where the products cannot be sold separately. You will not buy just the train
meal and not the train ticket. The transportation of passenger is, therefore, the principal
supply. Rate of tax applicable to the principal supply will be charged to the whole composite
bundle. Therefore, rate of GST applicable to transportation of passengers by rail (5%) will
be charged by IRCTC on the booking of Rajdhani ticket.

5. Example 2: Buy detergent Get bucket free
Many shops offer a free bucket with detergent purchased. This is a mixed supply as it does not
satisfy the 2nd condition, i.e., it can be sold separately. You can buy either just a bucket or just
detergent. The highest rate of GST will then apply. Since detergents have the higher rate (28%),
this rate will apply on the whole mixed bundle.
Example 3: Works Contract
A works contract is a mixture of service and transfer of goods. For example, construction of a
new building where a combination of materials like bricks, cement, sand along with services
of labourers, engineers, architects etc. produce a building (goods).
It is a classic example of composite supply. But to avoid the confusion under earlier tax law,
GST Act clearly clarifies works contract as a supply of service with specific tax rates.
Example 4: Restaurant
Restaurant business provides a bundled supply of preparation of food and serving the same. It
is also a classic example of a composite supply. However, to avoid the confusion under earlier
tax law, GST Act clearly clarifies restaurants as a supply of service with specific tax rates.