Understanding Composite Supply and Mixed Supply Under GST

In the world of goods and services, it’s common to see items or services sold together in bundles, whether as packages or sets. For example, a seller might offer a laptop along with a carry case, or a hotel may offer a room stay with complimentary breakfast. Under GST (Goods and Services Tax) in India, these combined offerings fall into two main categories: Composite Supply and Mixed Supply. Knowing how to differentiate between these types is crucial because each has its own tax treatment under GST.

Here’s a simplified look at Composite and Mixed Supplies, their differences, and how they’re taxed.

1. Composite Supply

Definition: Composite Supply refers to a situation where a supplier offers two or more goods or services together, and these items are naturally bundled. This means they’re commonly sold together in the usual course of business, and there’s a clear primary (or principal) supply in the bundle, with other items serving to enhance or support it.

Example: If you buy a water purifier that comes with installation, the purifier is the main item, while installation is an add-on service that helps you get the most out of it. This combination would be a Composite Supply, with the purifier being the principal item.

Key Features of Composite Supply:

• The items or services in the bundle are naturally combined, making sense to be sold together.
• One item (the principal supply) is dominant, and the other parts are ancillary or supportive.
• The entire bundle is taxed according to the rate applicable to the principal item.

Illustrations:

• Hotel Stay with Breakfast: If a hotel offers breakfast with a room stay, the stay is the principal item, and breakfast is an add-on.
• Purchase of Goods with Insurance and Transport: When goods are bought along with packing, transport, and insurance, the goods themselves are the main supply, with the other services supporting the main product.

2. Mixed Supply

Definition: Mixed Supply is when two or more individual items or services are sold together for a single price, but they’re not naturally bundled. In other words, the items are combined purely for convenience or promotional reasons, and each item in the mix can stand alone. Importantly, a Mixed Supply doesn’t have a principal supply.

Example: Consider a gift hamper with chocolates, cookies, soft drinks, and dry fruits. Each item is different and can be sold separately, but they’re sold together for a single price, making this a Mixed Supply.

Key Features of Mixed Supply:

• The items or services are bundled for a single price but aren’t naturally related to each other.
• There is no dominant (or principal) supply.
• The entire bundle is taxed based on the item with the highest tax rate in the mix.

Illustrations:

• Gift Basket with Food Items: A hamper containing chocolates, cookies, and juice, all priced together, is a Mixed Supply. Since these items are not naturally bundled, GST applies at the rate of the highest-taxed item in the basket.
• Sale of Toothpaste with a Free Toothbrush: If a retailer sells toothpaste and includes a toothbrush for a single price, it’s a Mixed Supply, as these items aren’t dependent on each other.

Comparing Composite Supply and Mixed Supply

Feature	Composite Supply	Mixed Supply
Bundling	Naturally bundled	Not naturally bundled
Principal Supply	Has a principal item	No principal item
Availability as Separate Items	Ancillary items are generally not sold alone	Each item can be sold separately
Tax Rate	Taxed based on the principal supply	Taxed at the rate of the highest-taxed item

How GST Tax Rates Apply to Composite and Mixed Supplies

• Composite Supply: Tax is based on the principal item. For example, if you buy a purifier with installation services, the GST rate applicable to the purifier is applied to the entire bundle.
• Mixed Supply: Tax is calculated based on the item with the highest GST rate in the package. For instance, in a gift hamper with chocolates and juice, if chocolates have a higher GST rate, then that rate is applied to the entire package.

Conclusion

Distinguishing between Composite and Mixed Supply is essential under GST because it affects the tax rate on bundled products and services. In short:

• If items are naturally bundled with a primary item, it’s a Composite Supply taxed by the principal item’s rate.
• If items are artificially bundled for a single price, with no clear primary item, it’s a Mixed Supply taxed at the rate of the highest-taxed item in the bundle.

Understanding these distinctions can help businesses accurately determine tax rates, avoid confusion, and ensure compliance with GST laws.