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2019-05-13 14:24:21Accounting & TaxesEnglishComposite supply involves two or more naturally bundled taxable supplies, supplied in conjunction with each other in the ordinary course of... is Composite Supply Under GST?

What is Composite Supply Under GST?

13 min read

Under GST, only supply of goods or services is considered as a taxable event. This means the liability to pay GST arises only when there is a supply of goods or services or both. Furthermore, the rate at which GST is payable for individual goods or services is also separately notified.

Now, the question arises as to what rate of GST is applicable on a specific supply. So to determine that, it is important to classify supply into goods or services or category of goods and services.

Determination of GST rates is not challenging if a supply involves individual goods or services. This is because it is easy to identify the supply as well as the rates of tax applicable. In such cases, there is no ambiguity with regards to the GST rates applicable on such a supply. It is because the supply involves individual goods or services,

But not all supplies will be such simple and clearly identifiable supplies. Some supplies would involve a:

(a) combination of goods or

(b) combination of services or

(c) combination of both goods and services.

And in such cases, each individual component in a given supply may attract a different rate of tax.

Hence, it becomes quite challenging to determine the tax rate to be levied on such supplies. This is because a combination of goods or services or both are supplied instead of individual goods or services. It is for this reason that the GST Law identifies composite supplies and mixed supplies.

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What is Composite Supply and Mixed Supply Under GST?


The dynamics of running a business are changing. Hence, the supplies made by an entity are also getting complex. These supplies involve a combination of goods or services. This is against the supplies made erstwhile where independent supplies were made. Such supplies either involved goods or services individually rather than a combination.

So in the current scenario, there are numerous situations where a combination of goods or services make a part of supply. These include supply of:

  • Two or more goods together (Machine with Packing)
  • Goods with supply of services (Wall Painting with Paint)
  • Two or more services together (Storage and Transportation)
  • Services with supply of goods (Machine with Installation)
  • Goods with supply of neither goods nor services (Exchange of Currency with Sale of Currency)
  • Exempted and taxable supplies together (Sale of Bakery item with Vegetables)
  • Non-GST and taxable supplies together (Sale of Lubricant with Petrol)
  • Taxable and transactions specified in Schedule-III (Sale of Furniture with sale of Building)

Now, the above cases do not clearly represent the categories under which given supplies can be classified. Furthermore, it is also difficult to determine whether these supplies together as a whole are supply of goods or supply of services or both.

Hence, it will be challenging to identify the rate of tax to be applicable on such supplies. This is because it is not clear whether such a levy is on supply of goods or supply of services. Therefore, to make things easier, the GST Law classifies such entangled supplies either into composite supply or mixed supply.

Composite Supply

“Composite supply 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.”

And section 2 (90) of the CGST Act, 2017, defines principal supply as:

“Principal supply means the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary.”

Characteristics Of A Composite Supply

For any supply to be a composite supply, it should have the following attributes:

  • Supply should consist of two or more supplies.
  • Both supplies should be taxable supplies under GST.
  • Supply can be either of goods or services or a combination of both.
  • The combination of supplies made should be conjunctive to each other, that is, should be made together at the same time.
  • Supplies should be naturally bundled.
  • It is possible to bundle two or more supplies in the ordinary course of business.
  • Out of the combination of supplies made, one should be a principal supply.

For instance, if you buy a home theater system along with warranty, such a supply is a composite supply. In this case, the supply of home theater system is the principal supply and warranty is ancillary service.

What are Taxable Supplies and Exempt Supplies?

According to the CGST Act, the term taxable supply is defined as:

a supply of goods or services or both which is leviable to tax under this Act.

And to add to this, the term exempt supply means:

supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply.

Keeping the above definitions into consideration, the term taxable supply means a supply that is leviable to GST. Whereas the term “exempt supply” refers to the supplies on which  rate of GST is Nil or which are exempt under Section 11 of the Act.

What Are Naturally Bundled Supplies?

GST law does not define the term ‘Naturally Bundled’ specifically. But according to CBEC, the term ‘Bundled Service’ means:

“a bundle of provision of various services wherein an element of provision of one service is combined with an element or elements of provision of any other service or services. “

For example, airlines providing air transport service is an example of a ‘bundled service’. Such a service includes two set of services:

  • transportation of passengers by air combined with
  • catering service on board.

Each service involves differential treatment in terms of determining value of the two services for the purpose of charging tax .”

Bundled Service Examples
  • A hotel offering a 4 Days, 3 Nights package including breakfast is a natural bundling of services in the ordinary course of business. In this case, the hotel accommodation service is giving the whole bundle its essential character. Therefore, the entire bundle would be treated as service of providing hotel accommodation.
  • A 5 star hotel booked for a conference of 100 delegates on a lump sum package offers following facilities:
        • Accommodation for the delegates
        • Breakfast for the delegates
        • Tea and coffee during conference
        • Access to fitness room for the delegates
        • Availability of conference room
        • Business center

In the hotel booked for conference example, a host of services are offered. Out of these services, many are taxable at different effective tax rates. And none of the individual components is able to provide the essential character to the service as a whole. However, as per the Service Tax Act, if we consider such a service as a convention service, then such service is able to capture the entire essence of the package.

Accordingly, we can say that a 5 star hotel booked for 100 delegates can be considered as a convention service as a whole. However, the hotel can charge for the facilities offered in the package individually. Provided, it does not attempt to offload the value of one service on to another service that is chargeable at a concessional rate.

Parameters For Ascertaining Bundled Services

A set of services are considered bundled services depending upon the industry convention in the ordinary course of business. There are certain parameters that help in ascertaining the normal practices adopted in a particular industry. These are as follows:

  • Perception or expectation of the consumer to receive services as a package.
  • Majority of the service providers in a specific industry providing similar bundle of services.
  • Nature of the services offered is such that one is the main service and the other services combined with such a service are ancillary.
  • Other indicators include:
    • Customer paying a single price no matter how much of the package they actually use
    • Elements advertised as a package
    • Different elements not available separately
    • Elements integral to one overall supply where removing one or more elements affects the nature of supply

So, there is no specific formula to determine a naturally bundled service in the ordinary course of business. Accordingly, each situation has to be analysed separately based on the factors laid out above.

Therefore, you can use the principles described above in context of naturally bundled service in case of GST. These rules help to determine the composite supply under GST. Once you determine the composite supply, you can ascertain the principal supply to know the correct classification and the rate of tax.

What is Principal Supply?

A principal supply is a supply of goods or services and constitutes the predominant element of a composite supply
Any other supply forming part of such a composite supply is ancillary supply.

Thus, the nature of supply can help in determining which part of a composite supply is the principal supply. Though value of supply can be used as a factor in determining composite supply, it cannot be the only factor.

Instead, focus should be on recognizing the essential nature of the composite supply. Also, effort should be made in determining the element of the supply that imparts the essential nature to the composite supply.

How To Determine Tax Liability Under Composite Supply

“In case of a composite supply that involves two or more supplies, the one which is a principal supply shall be treated as a supply.”

According to the GST law, a principal supply should have the following features:

  • A principal supply is a supply of goods or services and constitutes the predominant element of a composite supply
  • Any other supply forming part of such a composite supply is ancillary supply.

However, a supply may also involve a combination of a taxable supply and a non-taxable supply. Like alcohol served with snacks. In these scenarios, we cannot say that two taxable supplies are offered together under the given supply.

This is so because, the CGST Act defines non-taxable supply as:

“a supply of goods or services or both which is not leviable to tax under the Act or under the Integrated Goods and Services Tax Act”

Now, a non-taxable supply cannot be treated as a taxable supply, although it is an exempt supply. Therefore we can say that any taxable supply or exempt supply will never be treated as a composite supply. Provided it is offered in combination with a non-taxable supply as a naturally bundled supply  in normal course of business.

Following table will help you understand the concept of composite supply in a better way:

Table explaining different scenarios where a bundle of services are treated as composite supply.

Composite Supply Example

But it is important to note that the accommodation services offered by the hotel is an exempt supply according to section 11 of the CGST Act. Still such a supply is leviable to GST. This is because in situations like these, though a supply has been exempted under a specific notification, it shall still qualify as a supply that is leviable to GST.

Now assume that you choose a plan where the basic room tariff is less than Rs 1000 per room per night. And this room tariff also includes the charges for breakfast. As per the CGST Act, such a Hotel Accommodation service is eligible for exemption under GST. But since this supply also includes restaurant service, the restaurant services are still taxable. Therefore, such a bundle of services is treated as composite supply.

Now, to determine the tax liability on such a composite supply, the principal supply of Hotel Accommodation is considered as supply. This is in accordance with section 8 of the CGST Act as mentioned above.

Time of Supply in Case of Composite Supply

To determine the time of supply in case of a composite supply, it is essential to know whether the principal supply pertains to that of goods or services. In case of a composite supply, if the principal supply involves supply of services, then such a supply would qualify as the supply of services. Accordingly, the provisions relating to time of supply of services would be applicable.

However, if the principal supply in case of a composite supply involves supply of goods, then such a supply would qualify as supply of goods. And in such a case, the provisions relating to time of supply of goods would be applicable.

Multiple Prices and Composite Supply

There might be cases where each constituent of a composite supply has a price attached to it. And each such price is charged separately. This is to say that under composite supply, there is no particular condition that the price charged by the supplier from the recipient should be single and composite. Therefore, in such situations, there will always remain an issue whether such a supply would remain a composite supply or not.

Suppose, a vendor supplies machines to a company. Under one of the transactions, if supplies a machine costing Rs 1 Lakh. Now, this machine can be installed either through a third party or through the supplier itself. The charges for the installation are Rs 10 thousand. The company decides to purchase as well as get the machine installed through the supplier. The total cost for the same turns out to be Rs 1.10 Lakhs. The invoice charged for machine supply and installation services separately. Though both the supplies are charged separately, the supply as a whole shall remain a composite supply. This is because both supplies are in conjunction with each other. Moreover, machine installation is ancillary to the predominant supply of machine. Therefore, in this case, the predominant supply shall be supply of machine only.

This infographic explains what is composite supply under GST.

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Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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