When a single price is charged for multiple goods or services, determining whether the transaction is a composite supply or a mixed supply decides the GST rate. Misclassification can lead to demand of tax, interest and penalty.
Definitions
Composite Supply
Section 2(30) of the CGST Act defines composite supply as 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.
Illustration: Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and the supply of goods is the principal supply.
Mixed Supply
Section 2(74) defines mixed supply as 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.
Illustration: A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drinks and fruit juices when supplied for a single price is a mixed supply.
Key Differences
Natural Bundling
Composite supply must be naturally bundled. This means the items are typically supplied together in the ordinary course of business and are integral to each other. For example, a car supplied with warranty, toolkit and insurance is naturally bundled because the principal supply is the car.
Mixed supply lacks natural bundling. The items are artificially bundled for convenience or commercial reasons. For example, a Diwali gift hamper containing sweets, dry fruits, chocolates and a pen is not naturally bundled.
Principal Supply
Composite supply has a clear principal supply. Section 2(90) defines principal supply as the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary.
Mixed supply has no principal supply. The items are independent and separately identifiable.
Tax Rate Impact
Composite Supply
Under Section 8(a), a composite supply is taxed at the rate applicable to the principal supply.
Example: A hotel provides accommodation with breakfast at a single price. The principal supply is accommodation service. The composite supply is taxed at the rate applicable to hotel accommodation.
Mixed Supply
Under Section 8(b), a mixed supply is taxed at the highest rate of tax applicable to any of the component supplies.
Example: A gift hamper contains chocolates (18%), dry fruits (5%), and a bottle of shampoo (18%). The highest rate among all items is 18%, so the entire hamper is taxed at 18%. If any item had 28% GST, the entire mixed supply would be at 28%.
Practical Tests to Determine Nature
- Are the items naturally supplied together in the ordinary course of business? If yes, likely composite.
- Is there a predominant item to which others are ancillary? If yes, composite with principal supply.
- Are the items separately available and independently useful? If yes and artificially bundled, likely mixed.
- What is the customer expectation? A customer buying a car expects it with engine, wheels and warranty. A customer buying a Diwali hamper does not expect a specific combination.
- Does the combination serve a single objective? If yes, composite. If the objective is arbitrary marketing, mixed.
Examples
Composite Supply
- Air ticket with baggage allowance.
- Laptop with pre-installed software.
- Hotel room with breakfast.
- Goods sold with freight and insurance where freight is ancillary.
- Works contract (explicitly treated as composite supply under Schedule II, supply of services).
Mixed Supply
- Gift basket with multiple unrelated items.
- Package of a smartwatch and a bottle of wine sold together.
- Travel package with hotel, sightseeing, and a free shopping voucher at an unrelated store.
Why This Matters
The rate difference can be significant. A composite supply may attract 5% or 12% based on principal supply, while a mixed supply may attract 28% if any component is in the 28% slab. Businesses must document the basis for classification to defend against assessments.
How Anuj Desai & Associates Can Help
We help businesses analyse bundled offerings, determine principal supply, apply correct GST rates, draft invoicing and maintain documentation to support composite vs mixed classification.
Contact Anuj Desai & Associates
Email: office@anujdesaiassociates.com
Phone: 9619456656
Website: https://anujdesaiassociates.com
LinkedIn: linkedin.com/in/ca-anuj-desai-122547230