INTRODUCTION
The Goods and Services Tax (hereinafter referred to as “GST”) is levied on the “supply” of goods or services, or both to a recipient by a registered taxable person. As the liability to pay GST arises at the time of supply of goods or services or both, supply becomes the taxable event under GST.
The concepts of composite supply and mixed supply were introduced for the first time in India’s indirect tax regime by the Central Goods and Services Tax Act, 2017 (hereinafter referred to as “the CGST Act”). Essentially, a composite supply is made when a naturally bundled combination of goods, services or both are supplied; and a mixed supply is made when the combination of goods, services or both supplied is not naturally bundled and are independent of each other.
As the GST regime intends to levy GST on each supply made, when a supply is made in combination of goods, services or both, the rate of GST applicable on such a supply depends upon the nature of such supply being a composite or mixed supply.
This Blog shall elaborate upon the concepts of composite and mixed supply and the norms for levy of GST on such supplies.
CONCEPT OF SUPPLY, COMPOSITE SUPPLY AND MIXED SUPPLY
A. Supply
The term “supply” has been defined under Section 7 of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as “the CGST Act”), to include various forms of supply of goods or services or both such as sale, transfer, exchange, barter, license, rental, lease or disposal made or agreed to be made for a consideration in the course or furtherance of business. Subject to certain conditions, a transaction without consideration may also be treated as a supply under the CGST Act.
B. Composite Supply
Section 2(30) of the CGST Act defines the term ‘composite supply’ as a supply that is made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or which is naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is the principal supply and the other is the ancillary supply. Hence, the concepts of principal supply and ancillary supply come into play in a composite supply.
Principal and Ancillary Supply: The concept of ‘principal supply’ is defined under Section 2(90) of the CGST Act, as a supply that forms the predominant element of the composite supply, with the remaining part of the supply being the ancillary supply.
For example, accommodation services provided by a hotel along with breakfast services are naturally bundled, where the principal supply of service is accommodation and the ancillary supply is breakfast. The purchase of vehicles with insurance services is a naturally bundled supply, with the principal supply of service being the purchase of a car and the ancillary supply being the insurance services. Additionally, Works Contracts are prominent supplies which have been recognised as composite supplies under the GST regime.
C. Mixed Supply
‘Mixed supply’ is defined under Section 2(74) of the CGST Act as a supply of two or more individual supplies made together by a taxable person for a single price, and where such supply does not constitute a composite supply as defined under the CGST Act. A supply of goods, services or both made separately cannot be termed as a mixed supply.
For example, a laptop seller who sells a laptop to customers along with a laptop bag is a mixed supply as the laptop and the laptop bag can be sold separately, and they are not naturally bundled together.
LIABILITY OF GST
Section 8 of the CGST Act provides for the manner of determination of the GST liability on composite supply and mixed supply, as follows:
A. Composite Supply
As a composite supply is a supply of two or more supplies, one of which is a principal supply and the other is ancillary supply, the entire supply should be treated as a supply of the principal supply. Hence, the HSN code and rate of GST applicable on the entire composite supply shall be the HSN code and rate of GST of the principal supply.
B. Mixed Supply
As a mixed supply is a supply of two or more individual supplies, the entire supply should be treated as a supply of that particular supply which attracts highest rate of GST. Thus, the rate of GST applicable on the entire mixed supply shall be of the supply with the highest rate of GST.
TIME OF SUPPLY
A. Composite Supply
Section 12 and 13 of the CGST Act provide for the time of supply of goods and services, respectively. In the case of composite supply, the time of supply of principal supply, be it a supply of goods or service, will be considered as the time of composite supply.
Where the principal supply is a supply of goods, the time of composite supply will be the earliest of the date of receipt of payment or the date of issuance of invoice by the supplier, as per Section 12(2) of the CGST Act.
Where the principal supply is a supply of service, the time of composite supply will be the earliest of the date of receipt of payment, the date of issuance of invoice by the supplier, the date or provision of service or the date on which the recipient shows the receipt of service in his books of account as per Section 13(2) of the CGST Act.
B. Mixed Supply
In the case of mixed supply, the time of supply of the supply carrying highest GST liability, will be considered for determining the time of supply of the mixed supply.
Where the supply of highest GST liability is a supply of goods, the time of mixed supply will be the earliest of the date of receipt of payment or the date of issuance of invoice by the supplier, as per Section 12(2) of the CGST Act.
Where the supply of highest GST liability is a supply of service, the time of mixed supply will be the earliest of the date of receipt of payment, the date of issuance of invoice by the supplier, the date or provision of service or the date on which the recipient shows the receipt of service in his books of account as per Section 13(2) of the CGST Act.
JUDICIAL PRECEDENTS ON DETERMINATION OF THE NATURE OF SUPPLY
Various rulings of the High Courts, the Authority for Advanced Ruling (“AAR”) and the Appellate Authority for Advanced Ruling (“AAAR”) have provided judicial delineation of the concepts of composite and mixed supply and have identified the nature of certain supplies as composite or mixed supply.
A. Decisions on Composite Supply
In Torrent Power Ltd. v. Union of India (2018 SCC OnLine Guj 4804), the Gujarat High Court held that the supply made by power distribution companies is a composite supply, as it involves the supply of transmission and distribution of electricity as the principal supply, and the supply of electricity meters and services of meter inspection, testing, etc. as the ancillary supplies.
In the case of Samsung (India) Electronics Pvt. Ltd. v. Commissioner of Commercial Taxes [(2018) 11 GSTL 367], the Allahabad High Court declared the supply of mobile with charger as a composite supply, wherein the supply of mobile is the principal supply and the supply of charger is the ancillary supply. The High Court observed that there is no intention to effect the separate sale of charger, and thus it is a naturally bundled supply.
Similarly, in In re Nikhil Comforts [Mah AAAR-GST 55], the Maharashtra AAAR held that the service of executing air conditioning works in a new building is a composite supply as it involved the ancillary supply of installation, testing, and commissioning of variable refrigerant flow indoor and outdoor units, refrigerant piping with insulation, drain piping with insulation, MS stands, cabling, additional refrigerant, and related electrical works, and the principal supply of air conditioning units.
B. Decisions on Mixed Supply
The Rajasthan AAAR, in In re, Kalani Infrastructure (P) Ltd [(2021) 46 GSTL 285], held that the monthly amount collected from students for the provision of hostel accommodation and other services such as food facility, playroom, gym, housekeeping, room cleaning, washing/dry cleaning, etc. is a mixed supply and cannot be claimed as a composite supply. The AAAR observed that services like food facility, laundry, gym, etc. are independent services and can be provided separately. As all the services provided are separate, not ancillary, and not naturally bundled, it is not a composite supply.
In In re Sarj Educational Centre [(2019) 27 GSTL 131], the West Bengal AAAR, while determining the nature of supply of lodging service, held that the supply of food, laundry service, housekeeping service, electricity, etc., are not naturally bundled with the lodging service and are independent of each other. Thus, the nature of supply is a mixed supply for lodging services.
Similarly, in In re Switching Avo Electro Power Ltd. (Case No. 04/2018), the West Bengal AAR held that the supply of UPS and battery separately under a single contract with combined price is a mixed supply under Section 2(74) of the CGST Act. However, the AAR noted that if the UPS was sold with an inbuilt battery, it would become a composite supply. The decision of the AAR was upheld by the West Bengal AAAR in In re Switching Avo Electro Power Ltd. (Appeal Case No. 04/WBAAAR/Appeal/2018).
AMLEGALS REMARKS
As per the prevailing business practices, it is a common practice to supply certain goods, services or both in a combination under one single contract or invoice and for a combined price. However, the applicability of GST on such a supply needs to be determined with a cautious approach.
A combined supply, having one supply with a predominant element and the other supply/supplies being ancillary to the predominant element in a natural bundle, is a composite supply. Such a supply would be levied GST as if it were a supply of the predominant or principal supply alone.
On the contrary, a mixed supply comprises of supplies which can be made separately and are not dependent on each other. However, as they are supplied in a combination at a single price, they become mixed supplies and would be subject GST at the same rate as that of the supply attracting the highest rate of GST.
Irrespective of a supply comprising of combination of supplies, the applicability of GST and its rate varies considerably depending upon the nature of supply being composite or mixed supply. While a composite supply would only attract the rate of GST of the principal supply, a mixed supply attracts the highest rate of GST applicable on its constituent supplies.
Thus, suppliers making combined supplies must be aware of the judicial approach for determination of composite and mixed supplies, and be certain about the predominant element of supply in the combination made in a natural bundle, to avail the benefit of composite supply in GST.
– Team AMLEGALS, assisted by Ms. Komal Soni (Intern)
For any queries or feedback, please feel free to get in touch with chaitali.sadayet@amlegals.com or riddhi.dutta@amlegals.com.
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