Mixed Supply & Composite Supply under GST

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.

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:

• 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.

Differences between mixed and composite supplies

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. For more details on time of supply of goods and services please refer to our various articles. 

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.

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.

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