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Shivani (Querist)
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09 April 2017 Dear Experts

During Diwali if Samsung company offers a free music system with a 4K television, then will it be considered a composite supply or mixed supply or none.

And how are u going to tax music system as in GST consideration is not required to tax it if it is covered under schedule 1.
will free supply of music system covered under serial no.2 of schedule 1?

another example is that earphones come natural supplied with mobile so it is composite supply but what if the Samsung company offer headphones with mobile which no other mobile manufacturer is supplying?

regards
shivani

Rajesh Kumar

Rajesh Kumar (Expert)
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10 April 2017 Supplying a music system, along with TV for a consideration does not attract Schedule -I as the schedule is for situations where supply is made with consideration.
It is a case of either composite supply of mixed supply (Section 8 of CGST Act). If it is a composite supply, it shall be treated as supply of the principal item (TV) and attract rate of TV. If it is a mixed supply, it shall attract highest of the rates of TV or music system. In my view this is not a naturak bundling of supplies, and hence it ought to be treated as mixed supply. In view of this GST shall be amount calculated as value of consideration received at the rate of higher rate of either TV or music system.

Shivani

Shivani (Querist)
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11 April 2017 Dear Sir
Thanks for your reply.
I want to ask you a question that as to when is the supply of goods without consideration is taxable under GST?
regards

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Rajesh Kumar

Rajesh Kumar (Expert)
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11 April 2017 That is there in Schedule I of the CGST Act. It includes permanent transfer of business assets where input tax credit has been taken, supply of goods or services between related persons or distinct persons (different branches of same person), between principal and agent or import of services by a registered person from a related person or a branch of the person located outside India.

Shivani

Shivani (Querist)
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12 April 2017 Dear Sir

I agree with you that TV and music system are unrelated and not naturally bundled.

But consider the following point:

In case of mixed supply if we take one supply out of the equation then it casts an effect on the overall price of mixed supply I.e. the price of mixed supply reduces by the amount of supply taken out.

In this case even if the buyer doesn't take music system the price of TV remains the same.
Also if you consider it composite supply the ancillary supply of music system is coming into play once the principal supply is accepted by recipient. Only thing missing is that it is not naturally bundled. But then taking out ancillary supply is casting no effect on the price of combined supply !

But ofcourse it is not naturally bundled.

Don't you think this will give rise to classification disputes between composite and mixed supply and litigation avoidance of which was one of the principal goal of introducing GST.

regards

Rajesh Kumar

Rajesh Kumar (Expert)
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12 April 2017 The concept of composite supply or mixed supply as envisaged in Section 8 of the CGST Act has nothing to do with valuation. Hence we should not worry about cost and other factors affecting valuation. In legal parlance one of the worst mistake made by practitioners is trying to use a provision to solve an issue entirely unrelated to that provision. The provision is entirely to determine rate of duty on bundled supply. Value of the bundled supply is known as transaction value is known.
Off course it shall give rise to certain disputes as to whether it is a composite supply or mixed supply, particularly when different parts of the bundled supply attract different rates. Say for example a bottle of pepsi is supplied free with a packet of wheat flour. In case of tv/music system there is likely to be no dispute as both the products are expected to attract same rate of duty. Coming to the litigation avoidance, it is impossible to draft a law, particularly taxation law which shall not give rise to any dispute. Clear cut provisions results in fewer disputes off course, but nevertheless disputes shall be there.

Shivani

Shivani (Querist)
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13 April 2017 I will ponder upon it and get back to you.

Shivani

Shivani (Querist)
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19 April 2017 Dear Sir

I am back.

I considered above query resolved but then it came to my mind that in mixed supply all the supplies are independent supplies which can be supplied separately but they are intentionally supplied in a package (bundle). if they are supplied separately then it cant be mixed supply. this is mentioned in the example of mixed supply itself.

If you agree, then read further.

If now supplier is supplying music system only with TV and not separately.
then what supply it will be?
it cant be composite supply coz its not naturally bundled.
and it cant be mixed supply coz in order to be mixed supply the supplies should be capable of being supplied separately. But in this case supplier cant supply them separately as per Samsung policy.

so which supply it will be?

ball in your court.

shivani

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Guest

Guest (Expert)

19 April 2017 According to me supply of music system with TV is mixed supply because supplier is charging single price and products can be supplied separately. Whether they are supplied or not is not important i.e capability of product to supply separately is to be seen.

Rajesh Kumar

Rajesh Kumar (Expert)
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19 April 2017 Let us not waste time on hypothetical questions. Every issue is to be decided in the facts and circumstances of a case. Further, whether a particular combination is a mixed supply or a composite supply is a question of fact, to be decided in the facts and circumstances of a case.
Coming back to your example, if music system is something which is not sold separately and always sold as part of combination only, it should be treated as composite supply. Say, a music system carry a stamp on it- "Free with TV, not to be sold separately", certainly that supply shall be treated as composite supply.

Shivani

Shivani (Querist)
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21 April 2017 Dear Rajesh Sir

Firstly I don't think its a hypothetical question.
Only last year I bought a TV on which music system was supplied free of cost.
So its a real situation.

Secondly, I beg to differ with you that just because a company has put a stamp that this item cant be sold separately, then it will be a composite supply.
What needs to be seen first is whether the supply is naturally bundled in ordinary course of business. Just because you put a stamp you cant make it seem a composite supply.

We should remember that in case of composite supply, taxation is based on Principal Supply.
If the music system carry a higher tax rate (assumption) and TV carry a lower tax rate, then its easy to escape some tax (tax differential rate) by putting a stamp on music system.

Also in this case who is to decide that what was the main supply recipient was after.
Both can justifiably be argued as principal supply.

Classification disputes are sadly going to result in litigation.

Regards

Rajesh Kumar

Rajesh Kumar (Expert)
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21 April 2017 True. Classification disputes shall happen. It has to. There is no way one can legislate a law where there shall be no classification dispute. This is one of the dispute which can happen. But this is an easy dispute, supplier knows before supply that dispute may arise so he will take enough precaution like I said stamping of free supply etc.
Other dispute which will happen in classification of goods and services. Schedule II defines certain area as to whether it is goods or services. The Government is empowered to specify whether such supply is goods or services by notification only. Still, there shall be hundreds of area where this dispute shall arise.
Another point of classification dispute is differing rate of duty. Presently they are proposing zero, 5, 12, 18 and 28. If they manage to impose same rate on similar types of goods, it is manageable. Still it will create numerous disputes.
Tax is about money. Governments will get around 20 lakh crores though GST. Nobody expects to get that kind of money without any dispute.

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