06-Jun-2020 Composite Supply and Mixed Supply
gst mixed-supply-under-gst composite-supply-under-gst mixed-supply composite-supply gst-rates time-of-supply-for-composite-and-mixed-supply tax-liability-on-composite-and-mixed-supply principal-supply clarification-on-mixed-and-composite-supplySupply is defined to include all forms of supply of goods and services such as sale, transfer, barter, exchange, license, rental, lease, or disposal made or agreed to be made for a consideration by a person or company in the course or furtherance of business.
INTRODUCTION:
Supply is defined to
include all forms of supply of goods and services such as sale, transfer,
barter, exchange, license, rental, lease, or disposal made or agreed to be made
for a consideration by a person or company in the course or furtherance of
business. GST will be payable on each and every supply of goods or services or
both unless otherwise exempted.
The application of
rates will pose no problem if the supply is of individual goods or services,
which is clearly identifiable and the goods or services are subject to a
particular rate of tax. But not all supplies will be such simple and easily
identifiable supplies. Some of the
supplies will be a combination of goods or a combination of services or a combination
of goods and services both. Each individual component in a given supply may
attract different rates of tax.
It poses greater challenge for taxpayers, legislators and tax administrators in supply involving combination of goods, services or both as each individual constituents of such supply may have different tax rates, exemptions, and place of supply or time of supply. This supply can be in the nature of “composite supply” and “mixed supply”. Composite Supply and Mixed supply are the determinate factors in respect of tax treatment for such supplies. Tax implications hugely differs for composite supply and mixed supply and hence understanding of these concepts is absolutely necessary.
Let's understand each
term individually and the tax implication on the same.
1. What is Composite Supply and Mixed Supply Under GST?
COMPOSITE SUPPLY [Sections 2(30) of CGST ACT, 2017]
And section 2 (90) of the CGST Act, 2017, defines principal supply as:
Principal Supply [Sections 2(90) of CGST ACT, 2017]
“Principal supply" means the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary;
Thus, the nature of supply can help in determining which part of a composite supply is the principal supply. Though value of supply can be used as a factor in determining composite supply, it cannot be the only factor.
Composite supply means a supply is comprising two or more goods/services, which are naturally bundled and supplied in with each other in the ordinary course of business, one of which is a principal supply. The items cannot be supplied separately. Any supply of goods or services will be treated as composite supply if it fulfills BOTH the following criteria:
The supply consists of 2 or more goods or services together,
AND
It is a natural bundle, i.e., goods or services are usually provided together in normal course of business. They cannot be separated.
Illustration 1.
In manufacturing company, where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply.
Illustration 2.
Hotel Services – accommodation services and breakfast. These services are generally provided as a combination and thus is considered a Composite Supply. Accommodation service is the principal supply.
Booking a train ticket – transport services including meals. These services are generally provided as a combination and thus is considered a Composite Supply. Transport service is the principal supply.
Thus, the supply of goods is the principal supply. Tax liability in such cases will be the tax on the principal supply i.e., GST rate on the goods.
2. Time of Supply in Case of Composite Supply
To determine the time of supply in case of a composite supply, it is essential to know whether the principal supply pertains to that of goods or services, if the principal supply involves supply of services. Accordingly, the provisions relating to time of supply of services as per Section 13 of CGST would be applicable.
However, if the principal supply in case of a composite supply involves supply of goods, then such a supply would qualify as supply of goods. And in such a case, the provisions relating to time of supply of goods as per Section 12 of CGST would be applicable.
In the above-mentioned criteria, if the second condition is not fulfilled then the supply is treated as a Mixed Supply.
3. MIXED SUPPLY [Section 2(74) of CGST ACT, 2017]
In order to identify if the particular supply is a mixed supply, the first requisite is to rule out that the supply is a composite supply. A supply can be a mixed supply only if it is not a composite supply. As a corollary it can be said that if the transaction consists of supplies not naturally bundled in the ordinary course of business then it would be a mixed supply. Once the amenability of the transaction as a composite supply is ruled out, it would be a mixed supply, classified in terms of supply of goods or services attracting highest rate of tax.
Illustration 1.
A laptop seller sold laptop (say for instance it is liable to GST at 18%) to customers along with laptop bag (say for instance it is liable to GST at 12%), now there are two products and sold together but because bag and laptop are not naturally bundled means bag and laptop can be sold separately also. Therefore, it will be liable to GST at 18% and treated as mixed supply.
Illustration 2.
If a tooth paste (say for instance it is liable to GST at 12%) is bundled along with a tooth brush (say for instance it is liable to GST at 18%) and is sold as a single unit for a single price, it would be reckoned as a mixed supply. This would therefore be liable to GST at 18% (higher of 12% or 18% applicable to each of the goods therein).
4. Time of Supply in Case of Mixed Supply
The mixed supply, involving supply of a service liable to tax at higher rates than any other constituent supplies, would qualify as supply of services and accordingly the provisions relating to time of supply of services would be applicable. Alternatively, the mixed supply, involving supply of goods liable to tax at higher rates than any other constituent supplies, would qualify as supply of goods and accordingly the provisions relating to time of supply of services would be applicable.
5. Tax liability on composite and mixed supplies (Section 8 of CGST ACT, 2017)
The tax liability on a composite or a mixed supply shall be determined in the following manner, namely: —
(a) A composite supply comprising two or more taxable supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; and
(b) A mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax.
6. The Department has come out with various clarification for categorization of supply:
Clarification given vide Circular No. 11/11/2017-GST dated 20.10.2017
* Whether supply of books, pamphlets, brochures, envelopes, annual reports, leaflets, cartons, boxes etc., printed with design, logo, name, address or other contents supplied by the recipient of such supplies, would constitute supply of goods or supply of services?
It is clarified that supply of books, pamphlets, brochures, envelopes, annual reports, leaflets, cartons, boxes etc. printed with logo, design, name, address or other contents supplied by the recipient of such printed goods, are composite supplies and the question, whether such supplies constitute supply of goods or services would be determined on the basis of what constitutes the principal supply.
In the case of printing of books, pamphlets, brochures, annual reports, and the like, where only content is supplied by the publisher or the person who owns the usage rights to the intangible inputs while the physical inputs including paper used for printing belong to the printer, supply of printing [of the content supplied by the recipient of supply] is the principal supply and therefore such supplies would constitute supply of service falling under heading 9989 of the scheme of classification of service.
In case of supply of printed envelopes, letter cards, printed boxes, tissues, napkins, wall paper etc. falling under Chapter 48 or 49, printed with design, logo etc. supplied by the recipient of goods but made using physical inputs including paper belonging to the printer, predominant supply is that of goods and the supply of printing of the content [supplied by the recipient of supply] is ancillary to the principal supply of goods and therefore such supplies would constitute supply of goods falling under respective headings of Chapter 48 or 49 of the Customs Tariff
7. Clarification given vide Circular No. 32/6/2018-GST dated 12.02.2018
* Whether food supplied to the in-patients as advised by the doctor is taxable under GST?
Food supplied to the patients:
Food supplied to the in-patients as advised by the doctor/nutritionists is a part of composite supply of health care and not separately taxable. Other supplies of food by a hospital to patients (not admitted) or their attendants or visitors are taxable (GST).
8. Clarification given vide Circular No. 34/8/2018-GST dated 01.03.2018
* Whether activity of bus body building, is a supply of goods or services?
In the case of bus body building there is supply of goods and services. Thus, classification of this composite supply, as goods or service would depend on which supply is the principal supply which may be determined on the basis of facts and circumstances of each case.
* Whether retreading of tyres is a supply of goods or services?
In retreading of tyres, which is a composite supply, the pre-dominant element is the process of retreading which is a supply of service. Rubber used for retreading is an ancillary supply. Which part of a composite supply is the principal supply, must be determined keeping in view the nature of the supply involved. Value may be one of the guiding factors in this determination, but not the sole factor. The primary question that should be asked is what the essential nature of the composite supply is, and which element of the supply imparts that essential nature to the composite supply.
Supply of retreaded tyres, where the old tyres belong to the supplier of retreaded tyres, is a supply of goods (retreaded tyres under heading 4012 of the Customs Tariff attracting GST @ 28%).
9. Clarification given vide Circular No. 47/21/2018-GST dated 08.06.2018
* How is servicing of cars involving both supply of goods (with spare parts) and services (with labour), where the value of goods and services are shown separately, to be treated under (Goods and Service Tax) GST?
The taxability of supply would have to be determined on a case to case basis looking at the circumstances and facts of each case. Where a supply involves supply of both goods (with spare parts) and services (with labour), and the value of such goods and services supplied are shown separately, the goods and services would be liable to GST at the rates as applicable to such goods and services separately.
Let’s try to understand the concept with some case laws:
10. AAR Karnataka: Columbia Asia Hospitals Private Limited.
AUTHORITY FOR ADVANCE RULINGS, KARNATAKA
ADVANCE RULING NO. KAR ADRG 26 OF 2018
FACTS:
The Columbia Asia Hospitals Private Limited is a company engaged in providing health care services categorizing them as In-patient (IP) and Out-patient (OP) services. The Company is also engaged in supply of medicines (pharmacy) to in-patients and out-patients. It also operates Restaurant / Canteen services in its premises which is used for supplying food and other eatable items to its patients and their attendants.
It sought advance ruling on the below question:
(a)Whether two or more supplies of goods or services which are naturally bundled in which principal supply is exempt and others are taxable can be treated as composite supply and if yes, principal supply being exempt supply, can the said composite supply be treated as exempt supply or the same cannot be treated as composite supply.
RULING:
The two or more supplies of goods or services or both which are naturally bundled in which the principal supply is exempt and others are taxable can be treated as a composite supply of the principal supply if such principal supply is not a non-taxable supply as per sub-section (78) of section 2 of the Central Goods and Service Tax Act, 2017 and such composite supply with the principal supply being exempt supply would be treated as an exempt composite supply.
11. AUTHORITY FOR ADVANCE RULINGS, WEST BENGAL
Switching AVO Electro Power Limited [2018-TIOL-04-AAAR-GST]
FACTS:
The applicant was a supplier of power solutions, including UPS, servo stabilizer, batteries etc.
It wants an advance ruling on the classification of the supply when it supplies UPS along with the battery. More specifically, he wants a ruling on whether such supplies can be treated as Composite Supply within the meaning of section 2(30) of the CGST/WBGST Act, 2017.
RULING:
The supply of UPS and Battery is to be considered as Mixed Supply within the meaning of Section 2(74) of the GST Act, as they are supplied under a single contract at a combined single price.
This ruling is valid subject to the provisions under Section 103(2) until and unless declared void under Section 104(1) of the GST Act.
12. AUTHORITY FOR ADVANCE RULINGS, MAHARASHTRA
Fermi Solar Farms (P.) Ltd., In Re
NO. GST-AAR-03/2017/B-03 MARCH 3, 2018
FACTS:
The applicant was engaged in operation of renewable energy power plant projects. These typically include operation of solar power plants set up across India for generation and distribution of electricity generated.
It sought advance ruling:
Whether in case of separate contracts for supply of goods and services for a solar power plant, there would be separate taxability of goods as 'solar power generating system' at 5 per cent and services at 18 per cent?
RULING:
The tax rate on solar panels is 5% and tax rate of installation charges is 18%. In case entire supply is treated as composite supply of works contract, the solar panel would be taxed at 18%. Hence there would be temptation to split goods (solar panels) and services components and taxed them at applicable rate. The authority have denied applicant the benefit of segregating the supply as supply or goods and supply of services. The entire bundled was treated as works contract liable to tax @ 18%.
13. APPELLATE AUTHORITY FOR ADVANCE RULING, WEST BENGAL
Sarj Educational Centre
APPEAL CASE NO. 05/WBAAAR/APPEAL/2019 JUNE 25, 2019
FACTS:
The Appellant is the owner of a private boarding house and is providing services of lodging and food exclusively to the students of St. Michael's School, a secondary school run by a Charitable Society.
The Appellant sought an advance ruling under section 97 on the question as to whether or not services provided by the appellant to the students of lodging and supply of food is a composite supply within the meaning of section 2(30), whether supply of such service is eligible for exemption under Sl. No. 14 of Notification No. 12/2017-CT (Rate) dated 28-6-2017 and the rate of tax applicable for the combination of services provided, if it is not considered a composite supply.
RULING:
The West Bengal Authority for Advance Ruling has passed an advance ruling by an order dated 26-2-2019, wherein it has been pronounced inter alia that the Appellant is offering several individual services in two different combinations to the recipients, depending upon their need for lodging facility. None of the combinations of services being offered is a composite supply, as defined under section 2(30) but are mixed supplies within the meaning of section 2(74) and, therefore, taxable in accordance with section 8(b). The services being mixed supplies, value of the entire combination of services offered by the Appellant is taxable at the applicable rate.
APMH comments:
Where the supply involves
the supply of goods and services or both, the taxability of the supply of goods
and services becomes difficult as this may differ on a case to case basis
looking at the circumstances and facts of each case. Therefore, to make things
easier, the GST Law classifies such entangled supplies either into composite
supply or mixed supply. The taxpayers could expect few litigations in the
treatment of supplies as composite or mixed supplies. In order to avoid
litigations taxpayers needs to understand the concept of composite and mixed
supply. It is also necessary to intimate the expert in the area of GST about
the understanding and treatment of supplies being made which could avoid higher
penalties in the future.
Author
Ankita Maurya
Associate
GST Advisory & Compliance
Please feel free to write to us on ankita@apmh.in / amlesh@apmh.in for any further queries on the above blog.