The Goods and Services Tax (GST) framework introduces distinct classifications for supplies involving multiple goods or services: composite supply and mixed supply. These concepts are crucial for correctly determining tax liabilities when various items are delivered together. While composite supply shares similarities with naturally bundled services from previous tax regimes, mixed supply represents a novel introduction.

Defining Supply under GST

Under the Goods and Services Tax (GST) system, "supply" encompasses various transactions involving goods or services, typically for a fee and within the scope of business operations. These transactions include, but are not limited to:

• Sales
• Transfers
• Barters
• Exchanges
• Licenses
• Rentals
• Leases
• Disposals
• The import of services for payment, even if not directly for business advancement.

Furthermore, specific activities outlined in Schedule I of the GST Act are also classified as supplies.

Significance of Mixed and Composite Supply Classifications

The Goods and Services Tax (GST) Council has established specific tax rates for various goods and services within the GST legal framework. While individual items have easily identifiable rates, situations often arise where goods and services are supplied together, whether related or not. For instance, purchasing an air conditioner might include installation services. The GST Act provides guidelines for taxing such combined supplies, making the distinction between composite and mixed supplies vital. This differentiation ensures the application of the correct GST rate and promotes consistent tax handling for these types of transactions.

Understanding Bundled Supplies

A bundled supply involves combining multiple goods, services, or both. This idea was prominently featured in the service tax regime, where it referred specifically to the provision of two or more services as a package.

Identifying Naturally Bundled Supplies (Inseparable Components)

Determining if a bundled supply is "naturally bundled" within the regular course of business relies on industry standards and typical practices. Several factors can help in this assessment:

1. Consumer Expectations: If customers generally anticipate these services as a combined offering, it is likely a naturally bundled package. For instance, many business conferences expect a unified package including hotel stays, event space, and catering.
2. Industry Practice: When the majority of service providers in a sector offer a specific combination of services, it can be considered naturally bundled. An example is the provision of air travel and in-flight meals by most airlines. The hierarchical relationship between services also helps; if one is a primary service and others are incidental, it forms a bundled service. For example, a five-star hotel offering complimentary laundry with a room rental considers room rental as the main service and laundry as ancillary, as laundry services are only accessible to hotel guests.

Additional indicators for identifying naturally bundled services in the ordinary course of business, though not definitive, include:

• A single price for the entire package, even if not all components are utilized.
• Components typically promoted as a combined unit.
• Individual components not being available for purchase independently.

Composite Supply Definition under GST

A composite supply under GST refers to a provision of two or more goods or services that are naturally grouped together and delivered concurrently in the usual course of business. Within this bundle, one component stands out as the primary supply. Essentially, these items are typically marketed and sold as an integrated package, and crucially, they cannot be provided independently.

Criteria for Identifying a Composite Supply

A transaction involving goods, services, or both qualifies as a composite supply if it satisfies these conditions:

• It includes at least two goods or services provided concurrently.
• The components are naturally bundled, meaning they are customarily offered together in standard business operations.
• The individual components are inseparable.

Applicable Tax Rate for Composite Supplies

For a composite supply, the tax rate applicable to the principal supply will be levied on the entire bundled transaction. For instance, when goods are supplied, packaged, transported, and insured, this constitutes a composite supply. Since insurance and transport services cannot exist without the goods, the supply of goods is considered the principal element. Consequently, the tax liability for the entire bundle will be determined by the GST rate applied to the goods (the principal supply). If the condition of natural bundling is not met, the supply would instead be classified as a mixed supply.

Defining Mixed Supply under GST

A mixed supply under GST involves two or more distinct goods or services provided together for a single price. Unlike composite supplies, each item within a mixed supply can be offered independently and does not rely on the others. Under the GST framework, a mixed supply is taxed at the rate of the component with the highest applicable GST rate. For example, a Diwali gift hamper containing items like canned foods, sweets, chocolates, dry fruits, and aerated drinks, sold for one price, is a mixed supply because each item can be purchased separately. If the aerated drink has the highest GST rate, say 28%, then this 28% rate will apply to the entire gift box.

Distinguishing Between Mixed and Composite Supplies

To differentiate between a mixed supply and a composite supply, one must first ascertain if the transaction qualifies as a composite supply. A supply is categorized as mixed only if it fails to meet the criteria for a composite supply. If the individual items within a bundle can be purchased independently, meaning they are not naturally combined in typical business practices, then it is a mixed supply. For instance, if a customer acquires canned foods, sweets, and other items individually rather than as a pre-packaged gift box, these items are taxed separately and do not constitute a mixed supply.

Key Differences: Mixed vs. Composite Supplies

| Characteristic | Composite Supply | Mixed Supply | |---| | Primary Component | Principal supply | Item with the highest tax rate | | Applicable Tax Rate | Rate of the principal supply | Highest tax rate among all components |

Time of Supply for Bundled Transactions

Time of Supply for Composite Supply

If the predominant element in a composite supply is a service, such as air travel with onboard meals, the entire composite supply is treated as a supply of services, and the relevant time of supply regulations for services apply. Conversely, if the principal element is the supply of goods, as in the scenario of acquiring and transporting goods, the composite supply is classified as a supply of goods, and the time of supply rules for goods are then applied.

Time of Supply for Mixed Supply

Should the component with the highest tax rate in a mixed supply be a service, the entire mixed supply is deemed a supply of services, and the corresponding time of supply provisions for services are invoked. Similarly, if the item bearing the highest tax rate is a good, the mixed supply is considered a supply of goods, and the time of supply rules pertinent to goods are applied. For further details on the time of supply for both goods and services, refer to related resources.

Additional Illustrative Scenarios

Example 1: Rajdhani Train Ticket with Meal

When booking a Rajdhani train ticket that incorporates a meal, this represents a bundled supply. It is a composite supply because the meal cannot be purchased independently of the train journey. Consequently, passenger transportation is identified as the principal supply. The GST rate applicable to the primary service, which is the transportation of passengers by rail (5%), will be applied by IRCTC to the entire ticket booking.

Example 2: Detergent with a Complimentary Bucket

When retailers provide a free bucket with the purchase of detergent, this constitutes a mixed supply. It fails to meet the criteria for a composite supply because the bucket and detergent can be acquired separately. In such cases, the highest GST rate among the bundled items will be imposed. Assuming detergent has a higher GST rate (e.g., 28%), this rate will be applied to the entire combined offering.

Example 3: Works Contract

A works contract combines both services and the transfer of goods. For instance, in constructing a new building, various materials such as bricks, cement, and sand are combined with services from laborers, engineers, and architects to complete the structure. While traditionally seen as a composite supply, the GST Act specifically categorizes a works contract as a supply of service to eliminate prior ambiguities, assigning it specific tax rates.

Example 4: Restaurant Services

Restaurant operations involve a bundled supply comprising food preparation and serving. This is another classic instance of a composite supply. Nevertheless, to streamline taxation and prevent past confusions, the GST Act expressly defines restaurant services as a supply of service, each with its own specific tax rates.