The Goods and Services Tax (GST) law came into effect from 1 July 2017, after which all other existing laws were repealed. GST is a significant reform in the field of indirect taxes in our country. Multiple taxes levied and collected by the Centre and states are replaced by one tax called Goods and Services Tax (GST). GST is a multi-stage value added tax that is levied when you consume any goods or services or both.
The GST law stipulates multiple GST rates for various commodities and services, and anything beyond the set rates is speculative. But on occasion, we work with goods/services that represent a collection of distinct items and/or services. In comparable circumstances, it might be difficult to calculate the GST rate that will be applied to the items that were purchased and sold together as a package. In order to calculate the appropriate GST rates in situations that are similar to these typical ones, the concepts of Composite force and Mixed force have been added into the GST law.
Supply under GST
Section 7 of the GST Act defines "supply" as including: It is possible to comprehend the definition and range of a supply under GST in terms of the following six criteria that can be used to classify a transaction as supply:
- Provision of products/services. GST is only applicable on the supply of goods/services and not to the supply of anything else.
- A supply should be supplied in exchange for payment (‘consideration’).
- The supply should be in line with the business process.
- Supplier should be a taxable individual.
- The supply should be taxable.
- The territory where products/services are supplied must be taxable.
Schedule II of the Central Goods and Services Tax (CGST) Act, 2017 includes numerous activities that have been classified as the delivery of goods/services. As per the Act, if there is a transfer of title of goods, it shall be considered a supply of goods. On the other hand, in case of a transfer of rights in goods, where the title to such goods is not transferred, it is regarded as supply of services.
Additionally, Schedule III to the CGST Act, 2017 lists activities that are neither classified as a supply of commodities nor a provision of services, nor are they exempt from GST.
- Services provided by an employee to their employer while performing their job-related duties.
- Transportation of a deceased individual falls under funeral, burial, crematorium, or mortuary services.
- Land and building sales where the whole consideration has been paid after the completion certificate has been issued or following the building's initial occupation.
Composite and Mixed Supply
Composite supply refers to a supply that comprises of two or more goods/services that are paired together and supplied alongside each other as part of the usual business activities, where one of the supplies is considered to be the ‘Principal Supply’.
- Because of their interdependence, the components cannot be given separately.
- For taxes purposes, the entire bundle is subject to the same GST rate as is in effect for the ‘principal supply’.
- When a bundle of composite supplies contains both goods and services as secondary items, the entire bundle is considered to be a supply of services. Similar to how a bundle of composite supply is considered when its primary component is a good and its secondary component a service.
- Definition of Principal Supply
The goods or services that make up the majority of the composite supply and to which other goods/services are secondary is known as the principal supply.
A composite supply always consists of two taxable supplies. One of these is known as the ‘principal supply,’ while the other components of a composite supply are referred to as ‘supplementary supplies’. The accuracy of the principal supply determination is crucial since the tax liability for the composite supply depends on the principal supply's principal supply rate.
As per the GST Act, the following requirements must be met for composite supply to exist:
- Supplies must be made by a taxable individual.
- A combination of two or more products and/or services must be supplied.
- It is necessary to naturally bundle these materials.
- These must be provided in tandem with one another.
- One of the goods/services must be a principal supply as provided under Section 2(90) of the Act.
- The price may be a flat cost for all suppliers or a different price for each supply.
If the given transaction satisfies all of the aforementioned requirements, it will be categorized as a composite supply, handled as a primary supply, and subject to the principal supply tax.
This is basically a mix of two or more independent suppliers of goods and/or services that are supplied as a combination and for a single cost.
- Basically, although these commodities are sold together, they are not actually interdependent and can be sold separately as well.
- A mixed supply comprising of two or more supplies is classified as a supply of the item that has the highest GST rate for taxation reasons and the entire package of commodities is taxed at that rate.
If a mixed supply includes a service, which is actually the item in the mixed supply with the highest GST rate, the entire package shall be considered a ‘supply of services’. Similarly, if the highest GST rate in a mixed supply is that of a certain commodity, the package is deemed a supply of goods.
Scope of Mixed Supply: The taxable person must meet the requirements listed below in order to determine the mixed supply.
- It needs to combine two or more distinct supply of commodities or services.
- Must be provided concurrently by the taxable individual.
- The supply in question shouldn’t be a composite supply.
- It must be offered for a flat rate.
You must consider that if a supply does not fall under composite supply, it could be a mixed supply. As such, in case of a transaction that comprises of supplies that are not usually packaged together, it would fall under a mixed supply and shall be subject to the highest rate of taxation.
Applicable Tax Rates for Composite and Mixed Supplies
| Nature of Supply |
Primary Supply |
GST Rate Applicable to the Entire Package |
| Mixed Supply |
Goods/service that has the highest GST rate |
Rate of the highest rated commodity in the package (goods/service) |
| Composite Supply |
Principal commodity |
Rate of the principal commodity (goods/service) |
Some Examples of Composite/Mixed Supplies
When booking a train ticket in the Indian Railway Catering and Tourism Corporation (IRCTC), the IRCTC not only provides you with the transportation ticket but also offers you other related services like insurance, catering, security, etc. All such services are packaged together with the train ticket as no one would choose to give up any one item. As such, as all the supplies are packaged together, the main transportation service is considered the ‘Principal Supply’ while purchasing the train ticket from IRCTC is considered a composite supply. Further, the entire package is liable to be taxed as per the GST rate for the principal supply, which in this case is the transportation service.
When you buy a television and also receive certain guarantees or warranties for the same along with a maintenance contract, the supply can be deemed as composite supply. Here the Principal Supply is the supply of televisions (goods) while the other aspects like warranty and maintenance contract are secondary. As such, the entire package of purchasing a television shall be taxed as per the GST rate applicable to the television.
- Getting Treatment in a Hospital/Clinic
Some hospitals and clinics provide medical services along with other facilities like food, etc. While healthcare services are exempt from GST, food is liable to be charged with 5% GST. In this case, the principal supply is the healthcare service, while the food and other facilities offered to the patient fall under auxiliary supply. As such, considering the principal supply in this package are the healthcare services, the entire package is exempt from being charged with any GST.
Case Laws
Mixed Supply
In 2018, the
West Bengal Appellate Authority of Advance Ruling held in the case of
M/s Switching Avo Electro Power Ltd. that a battery sold separately with an uninterrupted power supply (UPS) (which is not built-in) is not composite supply but rather falls under mixed supply as the commodities are not inherently interchangeable.
Composite Supply
In the matter of
M/s CMC Vellore Association (2020 order of Andhra Pradesh Advance Ruling Authority), the Assessee was seeking advance ruling pertaining to the question ‘whether any duty must be paid on the drugs, medicines, stents, implants, etc. administered during medical treatment or procedure.’ The Advance Ruling authority held that the drugs and other consumables are an integral part of the medical treatment provided in hospitals. As such, the services during the treatment shall be considered composite supply, where healthcare services are principal supply and the drugs, stents and other consumables shall fall under auxiliary supply.
Conclusion
The applicability of GST on mixed contracts can be determined solely by reviewing the goods/services offered. The supply shall be taxed depending on whether it is a mixed supply or a composite supply. Further, in the case of composite supply, if the principal supply is not liable to be charged with any GST, the entire package shall be exempt from the same.
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