India’s Goods and Services Tax (GST) Act, implemented on July 1, 2017, is one of the most significant tax reforms in the country’s fiscal history. It was implemented to streamline the complex indirect tax system by consolidating multiple Central and State impositions, such as excise duty, VAT, service tax, and others, into a single, overarching tax.
GST is based on the destination principle of taxation, that is, it is taxed at the destination point and not at the point of origin to bring about uniformity and avoid cascading effects of taxes.
The GST structure is administered by two elements: the Central GST (CGST), which is payable to the Central Government, and the State GST (SGST), which is payable by State Governments for intra-state transactions, as well as the Integrated GST (IGST) imposed on inter-state transfers. The GST Council, a constitutional body that consists of members from the Centre and the States, is responsible for the administration of the law aimed at improving tax administration with transparency and compliance.
The introduction of GST will benefit businesses in terms of simplification of taxation procedures, creation of a common national market, and facilitation of smooth input tax credit across goods and services. Moreover, GST makes tax collection more efficient and reduces tax evasion. It is a major milestone in India’s development into a modern, transparent, and digital taxation approach.
What is Supply Under GST?
The definition of “supply” is very important under India’s Goods and Services Tax (GST) legislation, because GST is charged on the supply of goods as well as services.
Section 7 of the Central Goods and Services Tax (CGST) Act, 2017, defines “supply” to mean any supply of goods or services, or both, including sale, transfer, barter, exchange, license, rental, lease, or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.
Supply can be classified as tax payable or not tax payable, interstate or intrastate, and can happen with or without consideration if such is within the conditions as stated in Schedule I. For example, a supply between related or unrelated parties, even if without consideration, can still be a supply within GST.
In addition, the importation of services for consideration is recognized as a supply, whether it is in the course of or in relation to business activities. Schedule II of the CGST Act lays down specific activities that are considered the provision of goods or services.
In essence, supply encompasses both traditional and non-traditional interactions. It defines the taxable occurrence under GST, outlining the conditions under which GST applies and to whom it applies.
What is Mixed Supply in GST?
A mixed supply is defined in India’s Goods and Services Tax (GST) law as a composite of two or more different supplies of goods or services, or both, supplied together for a single consideration, where each such supply may be separately identifiable and is not typically bundled in the ordinary course of business. This is defined under Section 2(74) of the CGST Act 2017.
In a mixed supply, the individual items are not related and are independent of each other. The only thing is that the aggregated items are offered at one price, and the supply does not meet the requirements of a composite supply.
A mixed supply is taxed at the top rate applicable to any of the components of the mix individually. Assuming that the gift hamper contains chocolates which are taxed at 18%, dry fruits which are taxed at 12%, and a bottle of perfume taxed at 28%, and the hamper overall is sold for an even price, it would be treated as a mixed supply and taxed at the highest rate applicable among the items.
Understanding the provision of mixed supply enables companies to impose the correct rate of GST and comply with tax requirements.
How to Determine Mixed Supply?
In order to ascertain whether a supply is a mixed supply in accordance with Indian GST law, there are some key factors and elements that need to be thoroughly analysed. The classification determines the charging GST rate because a mixed supply is charged at the highest rate applicable to the supplied goods.
Proper classification ensures concordance and prevents disputes or imposition of penalties in the future.
1. Two or more supplies are manufactured simultaneously.
The first step is to determine if more than one supply (product, service, or both) is being given at one time. One product or service cannot be termed a mixed supply.
As an example, take a combo pack with chocolates, a soft drink, and a greeting card.
2. Given for a single consideration
The goods should be sold together at a single price. When they are sold individually, even if together, it is not a mixed supply.
A Diwali gift box priced at ₹1,000 with no individual pricing of items is a mixed supply. But when the goods are individually priced, it might not fall into such a category.
3. Every good can be supplied separately.
Every component of the supply must be able to be sold separately, i.e., it should not rely on the other goods available for sale or utilization.
Chocolates, dry fruits, and drinks can all be purchased and sold independently.
4. Not naturally packaged.
Goods supplied shall not be inherently packaged in the ordinary course of business. Composite supply is defined by natural packaging (e.g., a mobile phone with its charger).
For example, toothpaste and a toothbrush bought as a package are composite because they are naturally packaged, but a bottle of wine and flowers are not composite.
5. Compared with Composite Supply.
It is important to ensure that the transaction does not qualify as a composite supply, a situation in which a main supply and ancillary products are inherently bundled. The applicability of this distinction is crucial since the tax consequence varies immensely.
6. Application of Tax Rate
If the above conditions are fulfilled, the supply is regarded as a mixed supply. The whole supply will be charged tax at the highest GST rate applied to any of the goods in the package.
In doubtful cases, rely on advance rulings, CBIC circulars, or judicial precedents for interpretations in specific circumstances.
What is a Composite Supply in GST?
A composite supply is defined in India’s Goods and Services Tax (GST) law as two or more taxable supplies of goods or services, or both, that are necessarily bundled and supplied together in the ordinary course of business, one of which is the dominant supply. This is defined in Section 2(30) of the CGST Act 2017.
In a composite supply, the different components are so interwoven that they are normally provided together. The recipient hopes to get the whole package as a single supply; hence, supplying the components separately would be the exception. The most important component in this package is also called the major supply, which gives the overall character and objective to the supply.
The GST rate for a composite supply is the same as that of the principal supply by itself. This simplifies tax treatment and eliminates the use of various rates.
As an example:
A composite supply happens when a supplier sells a bundle consisting of a mobile phone (the primary supply), a charger, and earphones (the ancillary supplies) at one price. As the mobile phone is the main supply, the whole bundle will be taxed according to the GST rate for mobile phones.
Another example is a supply of goods that includes transportation and insurance, with the goods being the main supply. The whole supply is taxed at the rate of GST applicable to the products.
Understanding composite supply enables companies to apply the correct tax rates, meet compliance requirements, and avoid overcharging or undercharging GST.
How to Determine Composite Supply?
Whether the transaction is a composite supply under Indian GST law requires a careful analysis of the nature of the bundled goods and their interrelationship. A correct classification assures application of the proper GST rate, that of the principal supply. A proper decision provides proper GST compliance and prevents legal or penal penalties.
1. The occurrence of two or more supplies
The first test has two or more taxable supplies of goods or services, or both, being supplied at the same time. These are to be used within a single transaction.
2. Supplies have to be naturally bundled.
The elements of the supply have to be “naturally bundled” in the ordinary course of trade. This implies:
- Supplies are generally sold together.
- People expect these items to come in bundles.
- Splitting the supply is not usual or impractical.
Think of a hotel room booking with breakfast. This is a typical bundling in the hotel industry.
3. One of the supplies must be the major supply.
One of the items in the bundle should be prominent or superior. It provides character to the whole bundle and is the main reason why the recipient buys the supplies.
For instance, in a courier service that includes both insurance and transportation, transportation is the main supplier.
4. Submitted for one consideration.
The parts are to be supplied together for a single price rather than being charged separately. This supports the fact that the supplies are bundled together.
5. No Separate Contractual Identity
A composite supply is one in which the suppliers do not have a separate contractual identity and are inseparable in accordance with service agreements.
For example, a yearly maintenance service agreement covering both materials and labor is a composite supply.
6. Compared with Mixed Supply
To avoid misclassifying mixed supply as composite supply, it is essential to know about the definition of mixed supply:
- Composite supply is naturally connected with the principal supply.
- Mixed supply refers to goods artificially grouped without a principal supply and charged the highest GST rate.
7. GST Rate Application
Once determined to be a composite supply, the whole package is taxed at the GST rate applicable only to the main supply, as specified in Section 8(a) of the CGST Act.
For clarification of doubtful cases, refer to industry policies, advance rulings, CBIC circulars, and judicial precedents.
Why are the Concepts of Mixed Supply and Composite Supply Important?
These principles are important for the purposes of correct taxation, legal compliance, and transparency in operation under GST.
- Determines the Applicability of GST Rates – The composite supply is charged at the same rate as the major supply. The mixed supply is charged at the highest rate applicable to all items covered in the lot.
- Avoids Misclassification – It helps companies identify bundled transactions accurately and prevents erroneous GST usage and related penalties.
- Promotes Compliance – Proper GST classification eliminates risks of audits and ensures compliance.
- Shapes Pricing Strategy – Impacts the way organisations structure combo offers and bundle pricing.
- Impacts the supplier’s overall GST liability.
- Impacts Input Tax Credit (ITC) eligibility as proper classification can affect ITC claims in different parts.
- Proper classification of the supply of goods is crucial for generating accurate invoices and GST return filing.
- Clarifies the tax position for bundled offers, especially during festive periods, promotional campaigns, and service contracts.
Conclusion
Understanding the differences between mixed and composite supplies under GST is important for accurate tax classification and compliance. Proper identification allows the proper application of GST rates, avoids disputes, and promotes smooth business operations. Such principles are important in pricing strategy, invoicing, and preventing excess taxation or penalties.
Related Services
