This article explains the distinction between composite and mixed supply under GST. We provide examples, clarify the determination of tax liabilities, and examine how Section 8 of the CGST Act affects these supplies.

Composite and Mixed Supply under GST: Understanding Tax Liabilities

Expert Article on Scope of Supply

Understanding Section 8 of the CGST Act: Tax Liability on Composite and Mixed Supplies

Section 8 of the Central Goods and Services Tax (CGST) Act, 2017 provides critical guidance on the tax liability concerning composite supplies and mixed supplies. This section defines how goods and services are treated for tax purposes when they are bundled together in a transaction. Understanding these concepts is essential for businesses to ensure proper compliance with GST laws and to correctly determine their tax liability.

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What is Composite Supply under GST?

A composite Supply refers to a transaction that involves two or more supplies of goods or services that are naturally bundled together and provided in the ordinary course of business. In a composite supply, one supply is considered the "principal supply," while the other supplies are ancillary.

According to Section 8(a), when there is a composite supply, the tax liability is determined based on the principal supply. This means that the primary supply (usually the dominant part of the transaction) dictates the GST treatment. The other supplies, which are ancillary or supplementary to the principal supply, follow the same tax treatment as the principal supply.

Examples of Composite Supply:

This provision ensures that businesses cannot separately tax each component of a bundled supply but must treat it according to the main supply's nature.

What is Mixed Supply under GST?

A mixed Supply, on the other hand, involves a combination of two or more supplies of goods or services that are not naturally bundled together. These supplies could be sold together as part of a single price but are not typically dependent on each other for consumption.

Under Section 8(b), for a mixed supply, the tax liability is determined based on the supply that attracts the highest rate of tax. This ensures that the overall tax rate applied to the transaction reflects the highest tax rate among the bundled supplies.

Examples of Mixed Supply:

Tax Liability Determination under GST

Section 8 clarifies the method of determining the tax liability on bundled transactions, which is crucial for businesses offering composite or mixed supplies. It helps in avoiding confusion regarding how to apply the appropriate GST rate and ensures that businesses comply with the taxation rules laid out under the GST framework.

For businesses, understanding whether a supply is a composite or mixed supply is essential because:

For composite supplies: the GST treatment depends on the nature of the principal supply.

For mixed supplies: businesses must apply the highest tax rate applicable to any of the bundled supplies.

Understanding Section 8 with Real World Applications

Composite Supply Example: A restaurant offers a meal package with food and beverages. The meal package is the principal supply, and the beverages are ancillary. The GST rate applicable to the meal package would apply to the entire transaction, even if beverages have a different rate.

Mixed Supply Example: A wedding package that includes a venue rental (subject to an 18% GST rate), catering services (12%), and floral decorations (5%) is a mixed supply. The tax rate applied to the entire package will be the highest rate (18%) applicable to the venue rental.

Conclusion

Section 8 of the CGST Act plays a vital role in streamlining the GST treatment of bundled supplies. By categorizing transactions into composite and mixed supplies, this section provides clear guidelines for determining tax liabilities.

Composite supplies are taxed based on the principal supply, ensuring that the dominant component dictates the GST treatment.

Mixed supplies are taxed at the highest applicable rate, simplifying the process for businesses when multiple goods or services with different rates are offered together.

For businesses offering bundled products or services, understanding this distinction is essential for compliance and for accurately applying GST. By adhering to these provisions, businesses can avoid complications in their tax filings and ensure they are applying the correct tax rates to their supplies.