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COMPOSITE SUPPLY

Sec 2(30) of CGST Act, 2017 defines “composite supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.

A supply will be regarded as a ‘composite supply’ if the following elements are present:

(a) The supply should consist of two or more taxable supplies;

(b) The supplies may be of goods or services or both;

(c) The supplies should be naturally bundled;

(d) They should be supplied in conjunction with each other in the ordinary course of business;

(e) One of the supplies should be a principal supply

In the definition of “composite supply”, there are two vital terms included – “principal supply” and “naturally bundled”.

“Principal supply” means the predominant supply of goods or services of a composite supply and to which any other supply is ancillary.

“Naturally bundled” implies that the recipient of the supply has no option to decide whether he wishes to receive the various elements of the supply provided as a bundled supply. Whereas, if such an option to decide is possible, then the supply cannot be said to be “naturally bundled” and such a supply will not be treated as a “composite supply”.

Thus the following aspects should be noted while classifying a supply as a “composite supply”:

1. The way the supplies are bundled must be examined. Mere conjoint supply of two or more goods or services does not constitute composite supply.
2. The two (or more) supplies must appear natural when bundled and presented to the recipient.
3. The ancillary supply becomes necessary only because of the acceptance of the predominant supply.
4. The method of billing, assignment of separate prices etc. may not be relevant.

Tax treatment of a composite supply:

The tax treatment of a composite supply would be as applicable to the principal supply.

Illustrations:

1. Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply.

2. A hotel provides 4D/3N package with breakfast facility. This is a natural bundling of services in the ordinary course of business. The service of hotel accommodation is the principal supply, and shall, therefore, be treated as supply of providing hotel accommodation.

3. A training programme is organized at an institute. The entire package of the programme includes training by renowned faculty, provision of study material and provision of high tea to the trainees. Here the training programme is composite supply with the principal supply being training by renowned faculty.

4. An AC dealer sells a Split AC and does the installation at the customer’s premises. This is a case of composite supply of equipment and installation of the same. Principal supply is the supply of AC. Installation is ancillary to the same.

5. Other examples include - Supply of laptop and carry case, Supply of repair services on computer along with requisite parts and Supply of health care services along with medicaments.

MIXED SUPPLY

Sec 2(74) of CGST Act, 2017 defines “mixed supply” means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply.

When two (or more) goods, or two or more services, or a combination of goods and services, that each have individual identity and can be supplied separately, are deliberately supplied conjointly for a single consolidated price, the supply would be treated as a mixed supply.

A supply to be treated as a mixed supply should not qualify as a composite supply,i.e., in case of a mixed supply:

1. The two or more supplies are not naturally bundled and supplied conjointly in the ordinary course of business;
2. The principal supply cannot be identified – more than one of the supplies form the “predominant element” of the supply.

Tax treatment of a mixed supply:

The tax rates applicable in case of mixed supply would be the rate of tax attributable to that one supply (goods, or services) which suffers the highest rate of tax from amongst the supplies forming part of the mixed supply.

Illustrations:

1. A house is given on rent – one floor of which is to be used as residence and the other floor to be used as a printing press. Such renting for two different premises is not naturally bundled in the ordinary course of business. Therefore, if a single rent deed is executed, it will be treated as a service comprising entirely of such service which attracts the highest liability of GST.

2. Supply of laptop and printer - the two goods are not naturally bundled and supplied conjointly in the ordinary course of business. Therefore, this supply is a mixed supply.

3. Supply of lectures in a coaching centre and monthly excursions such as trekking, etc. The two services are not naturally bundled in the ordinary course of business. Therefore, this supply is a mixed supply.