Composite and Mixed Supply in GST

By Registrationwala

1st June 2017

 

Now days we observe the market where two or more goods, or a combination of goods and services are often supplied together. The reasons behind this are as follows:-

  • Sales strategy - to attract more customers
  • Nature or type of goods or services-which requires them to be bundled or supplied together

Under Service Tax, this is called Bundled Service – which is the rendering of a service or services with another element of service of services.

Supplies which are bundled with two or more supplies of goods or services or combination of goods and services are classified, with distinct characteristics, as:

  • Mixed Supply
  • Composite Supply

Supply means a stock or amount of something available for use. These are of two type i.e. composite supply and mixed supply.

 

Composite supply

 

Composite supply means a supply comprises 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. The items cannot be supplied separately.

The key element in the supply of goods or services which is the forming part of composite supply, is called principal supply and any other dependent supply of forming part of composite supplies, are secondary to principal supply.

If any supply of goods or services fulfills both the following criteria then it will be treated as composite supply:

1. Supply of two or more goods or services together, and it is a naturally bundle, i.e., they are usually provided together in normal course of business. They cannot be separated.

2.It cannot be supplied separately.

Let us understand this with an example,

Illustration: 1

Where goods are packed, and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply. If there is no supply of goods then insurance and transport cannot be done separately. Thus, the supply of goods is the principal supply.

Illustration:2

A 5-star hotel in Mumbai provides a 4 days/3 night’s package, with breakfast. This is a composite supply because the package of accommodation facilities and breakfast is naturally bundled together in the ordinary course of business for a hotel. In this case, the hotel accommodation is the principal supply, and breakfast is ancillary to the hotel accommodation.

Illustration: 3

A 5-star hotel in Mumbai provides a 4 day/3 night’s package with the breakfast and one day Mumbai Darshan. The inclusion of Mumbai Darshan in this package is not a natural requisite to accommodation in the hotel. Hence, this does not amount to composite supply. This is a mixed supply.

Illustration:4

Sale of laptop with bag -this is a composite supply because laptop bag is natural requisite to carry the laptop. But if the customers opts for a multipurpose bag like backpack bag, it is not a composite supply since it is not naturally bundled.

Mixed supply

Mixed supply means two or more individual supplies or any combination of supplies of goods or services made together with each other by a taxable person for a single price. Each of these items can be supplied separately and is not dependent on any other.

Let us understand this with an example,

Illustration : 1

A supply of a computer with internet connection when supplied for a single price is a mixed supply. Both can be sold separately.

Illustration : 2

You are booking a Rajdhani train ticket which includes meal. It is mixed supply. It can be sold separately. You can buy just the train ticket and not the meal.

Illustration: 1

A kit which contains a tie, a watch, a wallet, and a pen, as a combo, for Rs. 4,500.Tie, watch, wallet, and pen are bundled as a kit. The supply of a tie does not naturally necessitate the supply of other elements (watch, wallet and pen) and vice versa. The kit is supplied for a single price. Hence, the supply of this kit is a mixed supply.

Illustration: 1

Many shops offer a free bucket with detergent purchased. This is a mixed supply as it can be sold separately. You can buy either just a bucket or just detergent.

Tax liability
 
Tax liability of Mixed Supply

Let us consider the same example,

Here, the lamp has the highest rate of tax i.e.20% in the mixed supply. Therefore, the mixed supply of goods will be taxed at 20%.

Tax liability of composite supply

Let us consider the same example,

A 5-star hotel in Mumbai provides a 4 days/3 night’s package with the breakfast and lunch. Let us assume, the hotel accommodation attracts 20% tax and the restaurant service attracts 15% tax. In this example, hotel accommodation is the principal supply, and the entire supply will be taxed at 20%.

It is important for businesses to look at the types of supplies made by them and re-assess them in order to achieve the objectives of bundling the goods and services, in relation to the concepts of mixed supply and composite supply.

 

Composite and Mixed Supply in GST

2017-06-01