Difference Between Mixed Supply & Composite Supply under GST

What is a Supply Under GST?

"Supply" refers to any type of provision of goods or services made for consideration in the course of business. It includes:

• Sale
• Transfer
• Barter
• Exchange
• License
• Rental
• Lease
• Disposal
• Import of services for consideration (even if not related to business activities)

Additionally, certain activities listed in Schedule I of the GST Act are also considered supply.

What is Mixed Supply and Composite Supply?

The GST Council has specified rates for different goods and services, which are outlined in the GST Law. Identifying the rate for a specific good or service is usually straightforward. However, in cases where goods and services are supplied together—whether related or not, like selling an AC along with installation services—the GST Act provides guidance on how these should be taxed. This is where the concepts of composite and mixed supply come into play. These concepts ensure the correct GST rate is applied and provide uniform tax treatment for such bundled supplies.

What is a Bundled Supply?

A bundled supply refers to a combination of goods and/or services provided together. This concept originally came from service tax, where a bundled service involved combining two or more services.

How to Determine if the Supply is Naturally Bundled?

The concept of bundled supply in business depends on common industry practices. Here are a few ways to identify a naturally bundled supply:

• If buyers typically expect certain services to be offered together, the package is considered naturally bundled. For example, business conventions often include hotel accommodations, an auditorium, and meals as a package.
• If most service providers in an industry offer a package, it can also be seen as naturally bundled. For instance, airlines commonly provide both air transport and in-flight meals as part of a package.
• The nature of the services also matters. When one service is the main offering, and others are secondary, it is considered a bundled service. For example, in five-star hotels, free laundry is often included when renting a room. The room rental is the primary service, and laundry is an additional service only available to guests staying at the hotel.

Additional indicators of bundled services (though not definitive) include:

• A single price for the package, even if customers use fewer services.
• The package is advertised as a whole.
• The individual components are not offered separately.

What is Composite Supply Under GST?

Composite supply refers to the provision of two or more goods or services that are naturally bundled and usually offered together in the ordinary course of business, with one being the principal supply. This means the items are typically sold as a package and cannot be supplied separately.

How to Determine a Composite Supply?

The supply of goods/services is treated as a composite supply if it fulfills the following criteria -

• If there is a supply of two or more goods/services together.
• It should be a natural bundle, which means the goods and services must be provided together in the normal course of business.
• The goods and services supplied cannot be separated.

What Tax Rate Will Apply?

The tax rate applicable to the principal goods/services that are being supplied will apply to the entire supply. Here’s an example to help you understand better -

Goods are packed and transported with insurance. The supply of packing material, goods, insurance, and transport can be considered a composite supply as it fulfills all three conditions. Insurance and transport cannot be done separately. Therefore, the supply of goods is a principal supply. Tax liability, in this case, will be the tax rate applicable to the principal supply. If you don’t fulfill the second condition, it is considered as a mixed supply.

What is Mixed Supply Under GST?

• Mixed supply under GST refers to a combination of two or more goods or services made together and sold at a single price.
• Both the items can also be supplied ot sold separately and are not dependent on the sale of the other one.

Under GST, a mixed supply has the tax rate of the item having the highest tax rate. For example, a gift hamper consisting of different items like aerated drinks, cookies, and chocolates is sold at a single price and can also be sold separately, i.e., they do not depend on each other. Such supplies are considered a mixed supply. Since aerated drinks have the highest GST rate within the hamper, the GST rate of 28% will be applicable on the gift box, as aerated drinks will be treated as the principal supply.

How to Determine if it is a Mixed Supply or Composite Supply?

In order to determine if it is a mixed supply or a composite supply, it is important first to rule out a composite supply. If the bundled goods are capable of being sold separately and are not combined in the natural course of business, it is a mixed supply and not a composite supply. For example, if you buy chips, chocolates, juices, cookies, etc, separately and not as a hamper, it will not be considered a mixed supply.

What is the Difference Between Mixed Supply and Composite Supply?

Time of Supply

Time of Supply for Composite Supplies
If the principal supply is the purchase and transport of goods, then the supply of goods is treated as a principal supply. The composite supply will be the supply of goods, and the provision related to the supply of goods will apply. Similarly, if the principal supply is a service, then the supply of services will be considered a composite supply, and the provisions for the time of supply of services will apply.

Time of Supply for Mixed Supplies
Within mixed supplies, if the highest GST rate belongs to a service, then the mixed supply will be considered a supply of services, and provisions for the time of supply of services will be applicable. Similarly, if the highest tax rate belongs to goods, then the mixed supply will be treated as a supply of goods, and the provisions related to the time of supply of goods will be applicable.

In order to comply with the GST requirements accurately, it is important to know the difference between mixed supply and composite supply. While a composite supply consists of goods or services that are grouped together naturally, a mixed supply is a combination of goods that can be sold together or individually and are not combined in the normal course of business.

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