Basic Concepts: Supply, Composite and Mixed Supplies
A composite supply is two or more goods or services that are only sold as a set and cannot be sold individually.
Every composite supply has a principal supply, which is the main product or service that the buyer primarily wants. The rest of the supply is made up of supporting elements that add value to the principal supply.
A composite supply is taxed at the GST rate of the principal supply.
Example 1: A gift-wrapped box of chocolates. Here, the chocolates are the principal supply, while the box, gift wrapper, message card and gift wrapping service offered by the salesperson are supporting elements that cannot be supplied individually without the chocolates. This is a composite supply, and its GST rate will be same as the rate for the chocolates.
Example 2: A dealer sells a brand-new vehicle along with registration, insurance, a tool kit and first aid kit, and 4 free maintenance services. This is a composite supply, because vehicle insurance, registration and free maintenance services cannot be supplied without the vehicle (which is the principal supply).
Note: Whenever a shopkeeper ships the contents of a composite supply, the tax rate associated with the shipping charge will be equivalent to the tax rate of the principal supply (in case of example 1, the GST on shipping will be equal to the GST on the box of chocolates).
A mixed supply is two or more independent products or services which are offered together as a bundle but can also be sold separately.
In a mixed supply, the item or service with the highest GST rate is treated as the principal supply (whether or not it is the main part of the bundle). The mixed supply is taxed at the GST rate of the principal supply.
Example: A plant nursery sells cut flowers, ornamental plants, and gardening services together as a bundle. When they’re sold separately, the plants and flowers incur GST at a rate of 5%, and the gardening services incur GST at a rate of 18%. When they’re offered together as a bundle, the whole bundle will incur GST at the 18% rate.
Note: Whenever a shopkeeper ships the contents of a mixed supply, the tax rate associated with the shipping charge will be equivalent to the tax rate applied on the bundle.
How to distinguish between composite supply and mixed supply
At first glance, composite supplies and mixed supplies may look very similar to each other. In both cases, we talk about supplying goods and/or services as a bundle for a single price. But then, why have our tax authorities gone to great lengths to differentiate them? Well, let’s see why:
Difference No.1: Principal supplies: In a composite supply, one item or service is clearly the main part of the supply. In a mixed supply, no one part is necessarily the principal supply (though the part with the highest GST rate is treated as principal).
Difference No.2: Individually available supplies: In a composite supply, it wouldn’t make sense to sell the secondary parts separately from the principal supply (for instance, the towels provided along with a hotel room). In a mixed supply, each piece could be sold separately (for instance, a grocery bundle containing an assortment of snacks and drinks).