Understanding Mixed and Composite Supply in GST

Last updated on July 16th, 2017 at 11:45 pm

If you look at the market today, you will notice very often, two or more goods, or a combination of goods and services, are supplied together. This could be due to either of the following reasons:

  • A sales strategy – to attract more customers
  • The nature or type of goods or services, which requires them to be bundled or supplied together

Under Service Tax, this mechanism is called Bundled Service – which is the rendering of a service or services with another element of service of services.

Under the revised model draft GST law, supplies which are bundled with two or more supplies of goods or services or combination of goods and services are classified, with distinct characteristics, as:

  • Mixed Supply
  • Composite Supply

Mixed supply

The supply of two or more individual supplies of goods or services, or any combination of goods and services, by a taxable person, for a single price, is called Mixed Supply.

In Mixed Supply, the combination of goods and/or services are not bundled due to natural necessities, and they can be supplied individually in the ordinary course of business.

Determining mixed supply

Let us understand this with an example.

Consider a kit which contains a tie, a watch, a wallet, and a pen, as a combo, for Rs. 4,500

GST Mixed Supply

As per the example,

  • Tie, watch, wallet, and pen are bundled as a kit
  • The supply of a tie does not naturally necessitate the supply of other elements (watch, wallet, pen) and vice versa.
  • The kit is supplied for a single price.

Hence, the supply of this kit is a mixed supply.

Tax liability on mixed supply

To calculate the tax liability on mixed supply, the tax rate applicable on the goods or services attracting the highest rate of tax, in the combination of goods and services, will be considered.

Let us consider the example of the kit again.

Product Rate of Tax*
Tie 12%
Watch 18%
Wallet 12%
Pen 5%

*Indicative rates

In this case, the watch attracts the highest rate of tax in the mixed supply i.e., 18%. Hence, the mixed supply will be taxed at 18%.

Composite supply

Composite Supply of goods and services is made by a taxable person to a recipient, and:

  • It comprises two or more supplies of goods or services, or
  • A combination of goods and services, which are naturally bundled and supplied, in the ordinary course of business.

This means that the goods and services are bundled owing to natural necessities. The elements in a composite supply of goods and services are dependent elements on the ‘principal supply of goods or services.

What is principal supply?

The pre-dominant element in the supply of goods or services, forming part of composite supply, is  principal supply, and any other dependent supply, forming part of composite supplies, are secondary to principal supply.

Determination of Composite Supply

Let us understand this with an example,

  1. A 5-star hotel in Mumbai provides a 4 days/3 nights package, with breakfast.GST Composite supply

This is a composite supply as the package of accommodation facilities and breakfast is natural combination in the ordinary course of business for a hotel. In this case, the hotel accommodation is the principal supply, and breakfast is ancillary to the hotel accommodation.

2. A 5-star hotel in Mumbai provides a 4 day/3 nights package with the breakfast and one day Mumbai Darshan.
The inclusion of Mumbai Darshan in this package is not a natural requisite to accommodation in the hotel. Hence, this does not amount to composite supply. This is a mixed supply.

3. Sale of laptop with bag -this is a composite supply because laptop bag is natural requisite to carry the laptop. But if the customers opts for a multipurpose bag like backpack bag, it is not a composite supply since it is not naturally bundled.

Tax liability of composite supply

For purpose of calculating tax liability, the rate of tax applicable on the principal supply of such goods and services will be effected on the composite supply. Let us consider the same example,

A 5-star hotel in Mumbai provides a 4 days/3 nights package with the breakfast. Let us assume, the hotel accommodation attracts 18% tax and the restaurant service attracts 12% tax.

As per the example, hotel accommodation is the principal supply, and the entire supply will be taxed at 18%.

It is important for businesses to look at the types of supplies made by them and re-assess them in order to achieve the objectives of bundling the goods and services, in context with the concepts of mixed supply and composite supply.

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Pugal T & Yarab A

55 Comments

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  • Dear sir we manufacture of aluminium partition with glass, partical board, we got po for supply separate and labour separate. My query, can we supply all the items in mixed supply. What is the hsn code for mixed supply( is higher rate of partical board,).
    What is the Sac code for labour portion. Please confirm

  • Dear sir
    we are an aluminium partition fabricator we are used aluminium section, partical board and glass. wether it is come under nixed supply and what is HSN code can i put in invoice

  • What happens when I sell assemble a computer which has a component ams VB power supply unitand monitor too s obvious posts of sale both can be sold individually too at 28 % as standard 18% for rest of components that constitute a computer.
    What will be tax to be charged.
    18% or 28%>
    Mixed or composite supply.
    To be our not be that’s the question. Need to be answered.
    Confusion prevails
    And terror prevails too
    .

  • Mixed or composite
    It’s complex.
    Infact officer assessing the case can twist the day he wants in many of the cases.
    Where supply is a b natural bundle however it can be sold surely too in qty.
    So what’s next is.
    Wait and watch or oppose.
    It should complex in nature and depends a lot on individual judgements and agents arguments too

  • We are sending Hand tools , Grinding machine etc … to site for job work . Whether tools are taxable and what is the procedure to send the tools ( inter /INTRA )

  • we are car dealers whr labour charges attract 18% and spare parts attract 24% tax.under composite billing what will be the tax rate for labour and spare parts 18 or 24

  • If a school hires another organization to train their students in a particular subject or skill and the same is delivered during the regular school hours, will it be considered as a composite supply ? Education being the principal supply in a school the service given by the third party to the students will it be Education or commercial coaching? ( This is not after school hours coaching)

    Kindly clarify…

    • Hello Bhaskar,

      You query is quite interesting, on a plain reading it falls under the composite supply and your classes are ancillary to the principal supply, which is education. Hence in your case if the whole fees is collected by the school and shared an amount with you for your service it will be considered as a principal supply.

      In your case it being “educational services” your tax rate will be NIL.

  • SUPPOSE AN ARCHITECT IS PROVIDING SERVICE OF PREPARING MAP, INTERIOR DECORATIVES IDEAS, AND ALSO PROVIDING UNITS LIKE SOFA, PAINTINGS ETC, THEN WHAT WILL BE THE RATE OF TAX? DOES THE CONCEPT OF COMPOSITE AND MIXED SUPPLY APPLIES ON SUPPLY OF GOODS AND SERVICES BOTH IN ONE BUNDLE SINCE THE LANGUAGE OF THE DEFINITION DOESNOT INCLUDE THE TERM “GOODS OR SUPPLY OR “BOTH”. KINDLY EXPLAIN

  • If a school hires another organization to train their students in a particular subject and the same is delivered during the regular school hours, what will be the dominant supply ? Education or commercial coaching? ( This is not after school hours coaching)

    Kindly clarify…

    • I think Education will be the dominant suppy (principal supply) as students will be enrolled for education in a said school. It’s the school providing complementary services. Thus coaching will be ancillary to the school education.

      I hope this helps you understand!

  • Intrastate branchtransfer is taxable if the person has register seprate registration numbers in a state but please explane if multipale business places in one state under singal ragistration is taxable branchtrasfere or as per current law it will exampted under gst and in above first example input credit should availe for the same or not

  • a person dealing in vat or taxfree goods or exempt sales of goods under vat or these comes as exempt sales in gst also is required to get registered with gst or not?
    is dealer or registered person deals in only exempted or zero rated tax liable to pay composition gst tax in gst regime?
    DHARMESH GUPTA

    • A person dealing in fully exempt goods is not required to be registered under GST. A person dealing in zero rated goods is required to be registered under GST, as per the threshold limit. Person dealing in zero rated goods can opt for the composition scheme if his turnover does not exceed Rs. 50 Lakhs.

  • Hello Sir, we run a multi item Retail Store in Assam. Goods sold by us belong to multiple chapters of the HSN Classifications. For Example PVC Pipes & Fittings, (CH-39), GI Pipes & Fittings (CH-73) Water Pumps (Ch-84) Electric Motors (Ch-85), Hand Tools (Ch-82) and so on. We maintain our Accounts on Tally ERP9. Please explain whether we shall have to enter each and every item of our closing stock separately with their respective HSN Codes. All the different items put together could run into 4000 items.
    Kindly Clarify. Thanks

  • The Concept of Mixed & Composite Sale is well understood as explained above. Kindly explain the inventory management part of it for the Tax Purposes. We have say four items – Watch, Tie, Wallet & Pen which we have sold as Mixed (Bundled) Sale. Now how will we maintain the inventory. In the GST invoice shall we be required to enter all the four items individually. ? If yes then calculating TAX at the maximum rate slab of these four items as explained by you do not seem to hold good.
    Assuming that the Bundled Sale will not be billed for each item separately and sold as a KIT, then how do we maintain the inventory of our store. Shall we have to follow a process to combine items into a KIT then sell. ?
    Kindly Explain, Thanks Profoundly.

    • In a mixed supply, billing will be for the kit and not the individual items separately. Hence, inventory will need to be maintained accordingly, where the individual items are combined into a kit and then sold.

  • Presently, most FMCG are offering one product free on purchase of another, both with different tax rates. But, the tax is applicable for the principal product only. For e.g. jamun mix ( APVAT 14.5%) is offered free for Vermicelli(APVAT 5%). Although, the cost of jamun-mix is included in the Vermicelli, the tax is levied only @ 5% . Would the same trend continue in GST also?

      • Not necessarily. Another point to highlight is whether there will be a reduction in price by the seller if the buyer refuses to buy socks.(test whether they are naturally bundled) If there is no price reduction, then the supply is a composite supply otherwise it will be treated as a mixed supply, since they are not naturally bundled.

      • If socks is a necessary requirement for shoes, it makes it a Principal supply which cannot be the case as socks is not the dominant element in the bundle. It would be Mixed Supply as both the elements could be sold separately and, thus, do not form a natural bundle. It could also be observed that shoes and socks are not sold together in the ordinary course of business. Therefore, considering it as a Composite Supply would be incorrect.

  • Sir,

    If a compnay is prividing maintenance services and let us say they charges Rs.10000\- for a work which includes both material and labour
    And If the material composition is 70% and labour composition 30% then what would be the GST for these type of sale ?
    or if the compositon is viseversa ?

  • Suppose, Mine is a business of Construction Equipment where I sale machines, spares, lube and also provide service to customers. Now if I sell spare parts to a customer and also provide service personal to fit the same part correctly into the machine . what shall be the status where supply of Goods and Services as well take place at a same time and the tax rate applicable in this case?

    • In your case, if providing the service is “naturally bundled” with the supply of machinery, sale of machinery would be the principal supply in the Composite Supply and the entire supply shall attract the rate of tax applicable to supply of machinery (irrespective of the rate of tax applicable to supply of service).
      Here supply of machinery is the basic supply without which the provision of service would not arise at all.

    • Ideally if goods attract higher tax v/s services, then it makes it customer sense to bill customer two differently. (1 bill for Consumables – higher tax rate 18% and another bill for service chgs – lower tax rate 5 %) keeping customer interest in perspective. If you do composite billing, then customer tend to migrate to dealer who accomodates them.

  • We manufacture Rubber coated Rollers. In this we receive the old metal rollers with worn out rubber coating from our customers. The old rubber is removed and new rubber applied on these metal shells. Is this a composite supply? What will be the taxation rate?

  • If there is a scenario in composite supply by which goods along with service is provided but the service is covered under reverse charge mechanism.. how to tax such composite service?

  • Let us consider the example of the kit again.

    Product Rate of Tax*
    Tie 12%
    Watch 18%
    Wallet 12%
    Pen 5%
    *Indicative rates

    In this case, the wallet attracts the highest rate of tax in the mixed supply i.e., 18%. Hence, the mixed supply will be taxed at 18%.
    P.S…..in example it is watch not wallet that attracts the highest rate of tax

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