Understanding of the concept of Mixed Supplies and Composite Supplies under GST

Introduction: This article discusses in detail about the concept of Mixed Supplies and Composite Supplies under GST.

Let us first understand GST Tax rate Structure. The Indian GST tariff has multiple rates - to be precise eight:

• 5, 12, 18, 28 are the four main rates,
• 28 + Cess upto 25% (on tobacco, cars, aerated drinks, other sin products etc.)
• 3%  on Gold and other precious metals
• 0.25% on raw diamonds
• Nil (on food grains & other essential items etc).

These multiple rates may create classification disputes.

For example, a car speaker can fall under the category of a loudspeaker under the heading 8518 attracting an 18% rate and can also fall under automobile parts under the heading 8708 at 28% rate.

In a B2B supply, it would not matter as the buyer would get the credit of all taxes paid to the supplier. However, in B2C supply, for example, if the common man goes to an auto accessories shop to replace a faulty speaker in his car, the rate difference would matter. Thus, It is necessary to determine classification appropriately and with due care and diligence.

Combined supplies create bigger taxation problems

Many a times, goods are packed together and sold.

Sometimes goods and services are sold together and that may result in a taxation problem, like a festival pack of sweets may have candies as well as chocolates, which may attract different rates of GST.
Let us take another example, a manufacturer may sell a car to a dealer and arrange for its transport. Would such a supply be taxed separately for a car and separately for transport?

Buying grocery and other items at a mall attracting different rates from nil (for food grains) to 28% (for perfumes), all billed under a single bill.

In all of the above cases, it is not easy to decide what rate should be charged.

In order to solve these problems, GST law has introduced below mentioned two concepts in the law:

Mixed supply : As per section 2(74) of CGST Act, mixed supply means two or more individual supplies of goods or services made in conjunction with each other for a single price.

However, it should not be a composite supply. The items of mixed supply can be supplied separately and is not dependent on any other. Mixed supplies would be taxed at the highest rate of tax for any of the constituents in that package.

e.g. A festival pack of confectionary items may contain sugar confectionary taxed at 18% and chocolates taxed at 28%. The combination pack would however be taxed at 28%, being the higher rate.

Following points may suggest a transaction to be mixed supply:

1. The components are not interdependent or connected.
2. There can be time differential between parts of the supply.
3. The components are available separately.
4. The individual components are not integral to each other.

The abovementioned points are not exhaustive or conclusive proof of a mixed supply but if the transaction has more of these indicators, it is likely that it is a mixed supply.

Composite supply : As per section 2(30) of CGST Act, composite supply is a supply consisting of two or more taxable supplies of goods or services or both, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.

The GST law in such cases requires us to charge the tax applicable to the principal supply.

Principal supply : As per section 2(90) of CGST Act, principal supply is a supply of goods or services which constitutes the predominant element of a composite supply and any other supply forming part of composite supply is ancillary.

Following aspects may be considered in determining a supply to be a composite supply:

1. The components are sold as a package at a single price.
2. The components are advertised as a package.
3. The different components are not available separately.
4. Goods are physically packaged together (e.g. a plastic toy enclosed in a packet of cereal).
5. It would not normally make sense to supply part of the package independently (e.g. a new fridge and its delivery from the warehouse).
6. Although components are separately priced, the value of each component is arbitrarily assigned.
7. The customer perceives what he has received as a single supply, not independent components (e.g. one supply of a tailor-made suit, not separate supplies of cloth and tailoring services).
8. The different components are aspects of the quality or grade of the overall supply.
9. The different components are integral to one main supply. If one or more of the components is removed, the nature of the main supply would be affected.
10. Some components are clearly incidental or ancillary to an identifiable main supply.
11. The separation of components, on an invoice or otherwise, is artificial.

The above indicators are not exhaustive or conclusive proof of a composite supply. If the transaction has more of these indicators, it is likely that it is a composite supply.

So, in case of a car sold by an auto Original Equipment Manufacturer (OEM) along with transportation to the dealer, ordinarily the principal supply would be that of the car.

The transport service is purely incidental to that supply and the whole supply would be a composite supply and therefore attract 53% GST on the combined value.

Query:  We are Mall company. We receive power from Electricity Department and the same is used by our mall tenants. But Electricity Bill is in Mall Name. Based on Sub meter Reading of each tenant, we sent electricity bill to each tenant. As per my understanding, we should charge GST Because of Following Reasons

1. We hold title (Electricity Invoice is received in the name of Mall Company) to the goods/Service Procured on behalf of recipient & we do not fall under Pure Agent Definition of GST.
2. We have installed Sub meter at each tenant level at our Mall and We Personally Go & Read the Meter raise the Invoices accordingly.

Kindly Suggest and correct me if we wrong. 

Ans: Yes, you are providing composite supply so GST shall be charged on electricity amount also @18%

The author is a practicing CA based in Delhi and is registered Insolvency Professional. He can also be reached at cavinodchaurasia@gmail.com

Disclaimer: The views expressed in this article are strictly personal. The content of this document are solely for informational purpose. It doesn’t constitute professional advice or recommendation. The Author does not accept any liabilities for any loss or damage of any kind arising out of information in this article and for any actions taken in reliance thereon.