Mixed and Composite Supply under GST.pptx

GST and Types of supply under GST

1. Mixed and Composite Supply under GST

2. Types of Supply - Mixed & Composite Supply refers to any transaction where goods or services are exchanged for payment as part of business activities. GST Law categorizes bundled goods/services supply into two types, Composite Supply and Mixed Supply . The distinction between these types determines the tax rate applicable, as the GST law has different provisions for each. Composite Supply refers to a combination of goods or services naturally bundled and supplied together, where one is the principal supply. Mixed Supply consists of two or more individual supplies that are offered together but are not naturally bundled and can be sold separately.

3. Composite Supply Composite supply occurs when two or more supplies are naturally bundled, meaning they are supplied together in the normal course of business. The supplies involved in a composite supply are inseparable, meaning they cannot be split for separate taxation. This type of supply simplifies the taxation process by applying a single rate of tax to the entire bundle. Common examples include a service provided with the sale of goods, such as transportation and insurance with the sale of goods.

4. Key Features of Composite Supply Natural Bundling: The goods or services must be naturally bundled, meaning they are supplied together in the ordinary course of business. Principal Supply Rule: The tax rate applied to the entire supply is based on the tax rate of the principal supply. Inseparability: The supplies involved are inseparable and cannot be supplied independently without affecting the transaction. Simplified Taxation: Composite supply simplifies the application of GST by eliminating the need to calculate different tax rates for each component. Legal Recognition: Composite supply is explicitly defined in the GST law to provide clarity on its application and taxation.

5. Real-World Examples of Composite Supply Example 1: A business selling air conditioners also provides free installation services. Here, the sale of the air conditioner is the principal supply, and installation is ancillary. Example 2: The supply of a laptop with pre-installed software is another example, where the laptop is the principal supply and the software is incidental. Example 3: Travel packages often include accommodation and meals, where accommodation is the principal supply. Example 4: A telecom company offering mobile services along with handsets bundled together. Example 5: Sale of a car with warranty services where the car is the principal supply, and the warranty services are included as part of the package.

6. Mixed Supply Mixed supply refers to two or more goods or services sold together, but which are not naturally bundled and can be supplied separately. In a mixed supply , the components are independent of each other and have no necessary connection for their sale. The highest tax rate among the items in the mixed supply applies to the entire bundle, potentially increasing the tax burden. Unlike composite supply , there is no principal supply in mixed supply , and each component is of equal importance. Misclassification of mixed supply as composite supply can lead to incorrect tax filings and penalties.

7. Key Features of Mixed Supply Independence: The items in a mixed supply are independent and not naturally bundled together in the course of business. Highest Rate Rule: The tax rate applicable to the entire supply is the highest tax rate among the items in the bundle. Separate Identification: The components of a mixed supply can be separately supplied, with no dependency between them. Higher Tax Burden: Businesses face a higher tax burden as the highest rate applies to all items in the supply. Regulated Classification: GST law specifically provides guidelines to distinguish mixed supply from composite supply, reducing ambiguity in tax treatment.

8. Real-World Examples of Mixed Supply Example 1: A gift basket containing chocolates, cosmetics, and toys, where each item can be sold independently. Example 2: A festive promotion offering a watch and a pair of sunglasses together as a single package, each having a different tax rate. Example 3: A combo meal in a restaurant offering a burger, fries, and a soft drink together, where the items could be sold separately. Example 4: A retail store offering a promotion of a mobile phone with accessories like headphones and chargers sold together.

9. Key Differences between Composite & Mixed Supply Bundling Nature: Composite supply involves natural bundling of goods/services supplied together in the normal course of business, while mixed supply involves goods/services that are not naturally bundled and can be sold separately. Tax Rate Application: In Composite supply , the tax rate is determined by the principal supply. In mixed supply , the highest rate among the supplies is applied to the entire transaction. Inseparability: Composite supply components are inseparable, whereas mixed supply components are independent and separable. Business Relevance: Composite supply reflects common business practices (e.g., service packages), while mixed supply often arises from promotional or marketing strategies. GST Impact: Composite supply can simplify tax calculations, whereas mixed supply often results in higher tax rates due to the application of the highest tax rate among the items.

10. Thank you Praduman Sharma BBA 3 ‘C’ 2213101096352 22E2354