On completion of this lesson, you will be able to understand:
· Section 8 – Tax Liability on composite and mixed supply
· Section 2(30) – Definition of Composite Supply
· Section 2(74) – Definition of Mixed Supply
· Characteristics and Examples
Please go through the Third Video of the Chapter 2.
Tax Liability on Composite and Mixed Supply
Every supply should involve either goods, or services, or a combination of goods or a combination of services, or a combination of both. The law provides that such supplies should be classified as wholly goods or wholly services for tax treatment.
Means a “Supply made by a Taxable Person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply”.
Example:-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.
In such cases, the matters such as time of supply, invoicing, place of supply, value of supply, rate of tax applicable to the supply etc. shall all determined in respect of the principal supply. Here the rate of goods will apply to packing materials, transport and insurance also.
To treat a supply of combination of goods and/or services to be treated as a composite supply, the below conditions should be satisfied.
a) The supply should be done by a Taxable Person.
b) The supply must comprise two or more taxable supplies.
c) The goods/services involved in the supply must be naturally bundled.
d) They must be supplied in conjunction with each other in the ordinary course of business.
e) Only one of the supplies involved must qualify as the principal supply.
Means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply.
For example:-A supply of a package consisting canned foods, sweets, chocolates, cakes, dry fruits, aerated drinks and fruit juices when supplied for a single price is a mixed supply. Each of these items can be supplied separately and is not dependent on any other. It will not be a mixed supply if these items are supplied separately.
In such cases, the matters such as time of supply, invoicing, place of supply, value of supply, rate of tax applicable to the supply etc. shall all determined in respect of that supply which attracts the highest rate of tax. Here the rate of goods will apply to packing materials, transport and insurance also.
Characteristics of a Mixed Supply
a) It involves 2 / more individual supplies. It can include both taxable and non-taxable supplies.
b) It is made by a taxable person.
c) The supply is made for a single price.
d) The supply does not constitute a composite supply.
Example:-If toothpaste (GST 12%) is bundled along with a tooth brush (GST 18%) and is sold as a single unit for a single price, it will be treated as a mixed supply.