Understanding Composite and Mixed Supply under GST: Key Differences Explained

Understanding Composite and Mixed Supply under GST

Navigating the complexities of Goods and Services Tax (GST) requires a comprehensive understanding of the concepts of Composite Supply and Mixed Supply as outlined in Section 8 of the CGST Act, 2017.

Overview of GST and Its Challenges

GST law specifies different tax rates for various goods and services. However, certain transactions consist of bundles of individual goods or services, making it challenging to ascertain the applicable GST rate. To address this, GST law introduces Composite Supply and Mixed Supply to assist in determining the correct tax rates for bundled transactions.

Composite Supply

Definition: A Composite Supply involves two or more goods or services that are naturally bundled and supplied together in the ordinary course of business, with one item serving as the principal supply. These items are interdependent and cannot be offered separately.

• Tax Handling: For taxation, the GST rate applicable to the principal supply extends to the entire bundle.

• Examples:

  • If a bundle includes a service as the principal item and goods as secondary items, the entire bundle is treated as a supply of services.
  • Conversely, if goods are the principal item with services as secondary, the bundle is treated as a supply of goods.

Principal Supply Explained: Principal Supply refers to the predominant element within a Composite Supply, with ancillary supplies being supplementary to it.

Mixed Supply

Definition: In a Mixed Supply, a combination of two or more independent supplies of goods or services is bundled and sold for a single price. Unlike Composite Supply, each item in a Mixed Supply can be sold separately and is not interdependent.

• Tax Handling: For taxation purposes, a Mixed Supply is treated as a supply of the item with the highest GST rate, subjecting the entire bundle to this higher rate.

• Examples:

  • When a Mixed Supply includes a service with the highest GST rate, the whole set is treated as a supply of services.
  • If the highest rate belongs to goods, the entire bundle is treated as a supply of goods.

Tax Rates for Composite and Mixed Supplies

Nature of Supply	Primary Supply	GST Rate Applicable to the Bundle
Composite Supply	Principal Item	Rate of the Principal Item
Mixed Supply	Item of Highest Rate	Rate of the Item with the Highest GST Rate

Practical Examples for Clarification

1. Composite Supply Example:

   • UPS and Battery: If a UPS comes with built-in batteries that cannot be separated, this forms a Composite Supply. Conversely, if external storage batteries that are independently usable are supplied with a UPS at a combined price, they create a Mixed Supply.

2. Booking a Train Ticket:

   • When purchasing a train ticket from IRCTC, multiple services like meals and medical assistance are included. These services are logically bundled, making this a Composite Supply taxed at the rate of the principal supply, i.e., transportation.

3. Rental Usage:

   • If a landlord rents a house that is used for both commercial and residential purposes under one agreement, the arrangement is treated as a Mixed Supply. Since residential rental is tax-free but commercial rental is taxable, the entire rental bundle will be taxed at the commercial rate.

4. Hotel Booking:

   • Guests who book a hotel room usually select accompanying services like food, creating a Composite Supply. The entire bundle is taxed at the accommodation service rate.

Conclusion

The determination of GST rates for single items is relatively straightforward; however, complexities arise with bundled goods and services. A thorough understanding of Composite and Mixed Supply is essential for accurately applying tax rates. This knowledge aids businesses in complying with GST regulations and helps to minimize potential disputes with tax authorities. By clarifying these concepts, both dealers and tax officials can ensure fair and accurate tax enforcement.