Easy Explanation About Composite & Mixed Supply Under GST

Supply of goods or services or both is considered a taxable event under GST. Unless exempted, every such supply is subject to GST.

Typically, goods or services are supplied independently and taxed at specific rates for each category. However, when multiple goods are sold together, determining the applicable tax rate becomes challenging. To address this, the GST Act distinguishes between composite supplies and mixed supplies under GST, providing clarity regarding their tax treatment under GST.

Composite Supply Provision Under GST

Composite supply refers to a taxable person’s supply of two or more goods/services, or a combination of both, that are typically provided together as a package in the regular course of business, where one of them is considered the primary or main supply. Following is a summary of composite supply provisions.

Composite Supply	Taxable Supplies
Essential Elements of a Composite Supply	i. Supply is made by a Taxable Person ii. It is made to a recipient iii. A composite supply comprises two or more taxable supplies of goods or services, or a combination of both, which are commonly offered together in the usual course of business and cannot be conveniently separated. Iv. Among the supplies, one of them is considered the primary or main supply.
Taxation of Composite Supply	It will be regarded as a supply of the primary supply.

For Explain

• When goods are packed and transported with insurance, the packaging materials, transportation, supply of goods, and insurance are a composite supply, with the supply of goods being the main component.
• An example of a gift-wrapped box of chocolates where the chocolates are the main component, and the box, message card, gift wrapper, and gift wrapping service provided are additional elements.
• When a bike dealer sells a new vehicle, which includes registration, insurance, a tool kit, a first aid kit, and four free maintenance services, the supply of the vehicle is the primary supply, and all other services are secondary.
• A hotel offers a 4-day/3-night package that includes breakfast. This is a natural bundling of services provided in the regular course of business. The service of hotel accommodation is the key component of the bundle and, as a result, will be regarded as a service of providing hotel accommodation.

Mixed Supply Provision under GST

A mixed supply refers to the provision of two or more individual goods or services, or a combination of both, by a taxable person together for a single price, without constituting a composite supply. In summary, the provisions related to mixed supply can be described as follows:

Mixed Supply	Supply of Goods Services
Key components of mixed supply	i. It is made by a taxable person ii. It is made to a recipient iii. It comprises two or more separate supplies of goods, services, or a combination of both. iv. The supply is made for a single price v. The supply is not naturally bundled and is not commonly provided together in the regular course of business.
Tax Liability for Mixed Supply	It will be considered a supply that incurs a higher tax rate.

For Instance

1. An example of a mixed supply is a gift box containing sweets, chocolates, dry fruits, aerated drinks, and fruit juices, all supplied together for a single price, but also available for individual purchase. As aerated drinks are subject to the highest GST rate in the slab of 28%, they will be considered the principal supply, and the entire gift box will be subject to a 28% tax rate.
2. If a shopkeeper sells storage water bottles alongside refrigerators, and these items can be priced and sold separately without difficulty, this would constitute a mixed supply.

Tax Obligation for Composite and Mixed Supplies

Situation	Rate of GST Applicable
Composite supplies consisting of two or more supplies, one of which is the principal supply	The GST rate applies to the main supply.
A mixed supply is a combination of two or more individual supplies.	The GST rate will apply to a specific supply that incurs a higher tax rate.

1. Companies offer “Buy One, Get One Free” deals, such as “buy one soap and get one soap free” or “Get one toothbrush free with the purchase of toothpaste.” According to section 7(1)(a) of the GST Act, goods or services provided without any consideration shall not be treated as supply under GST, except for activities listed in Schedule I of the Act. While it may seem that such offers provide one item for free, they involve multiple individual supplies charged at a single price, best treated as providing two goods for the price of one.
2. The tax liability of a supply is contingent on whether it is a composite or mixed supply, and the applicable tax rate is determined under section 8 of the Act.
3. It should be noted that the Input Tax Credit (ITC) can be claimed by the supplier for the inputs, input services, and capital goods utilized in connection with the supply of goods or services, or both, as part of such promotional offers.

Main Difference B/W Composite Supply and Mixed Supply

Particulars	Composite Supply	Mixed Supply
Definition	Composite supply refers to a taxable person’s supply to a recipient that consists of two or more goods, services, or a mix of both, which are intrinsically combined and supplied together in the usual course of business, where one of the supplies is the main or principal supply.	A mixed supply is the provision of two or more separate goods, services, or a combination of both, which are supplied together by a taxable person for a single price and do not qualify as a composite supply.
Naturally Bundled	Supplies are naturally bundled	Supplies are not naturally bundled
Principal Supply	One of the supplies involved is Principal Supply	None of the supplies involved is principal supply
Single Price	The price factor alone is not a significant determinant for a composite supply.	In a mixed supply, the single price is a significant factor.
Availability of Individual Supplies	The supplies involved are not available separately.	The supplies involved are available separately.
Tax Treatment	The main supply shall be considered a Composite Supply.	A Mixed Supply will be considered as a specific supply that incurs a higher tax rate.