Composite supply and Mixed supply – Section 8 of the CGST Act

The Goods and Services Tax (GST) framework in India has introduced clear rules regarding the taxability of different types of supplies. One such important provision is Section 8 of the CGST Act, which determines the tax liability for composite and mixed supplies. Understanding these provisions is crucial for businesses to ensure correct tax compliance and avoid unnecessary penalties.

What is a Composite Supply?

According to the GST Act, a composite supply consists of two or more taxable supplies that are naturally bundled and supplied in conjunction with each other. One of these supplies is the principal supply, which determines the tax rate applicable to the entire supply.

Example of Composite Supply

Consider a hotel providing accommodation along with complimentary breakfast. Since both services are supplied together and the primary purpose of the customer is to avail lodging, accommodation is the principal supply. Therefore, the entire supply will be taxed at the GST rate applicable to accommodation services.

Tax Liability on Composite Supply

As per Section 8(a), the tax liability on a composite supply is determined based on the principal supply. The entire transaction is treated as a supply of the principal service or product, and the applicable GST rate is that of the principal supply.

What is a Mixed Supply?

A mixed supply consists of two or more individual supplies that are not naturally bundled and can be provided separately. However, they are sold together as a single package for a single price.

Example of Mixed Supply

A gift hamper containing chocolates, dry fruits, cosmetics, and soft drinks is considered a mixed supply. Since these items are not naturally bundled and do not depend on each other, the supply is not composite.

Tax Liability on Mixed Supply

As per Section 8(b), in the case of a mixed supply, the entire transaction is taxed at the highest GST rate applicable to any of the individual items in the package. For instance, if the highest GST rate among the items in the gift hamper is 28%, then the entire hamper will be taxed at 28%.

Key Differences Between Composite and Mixed Supply

Importance of Understanding Composite and Mixed Supply

• Avoid incorrect tax classification: Misclassification can lead to higher taxes or penalties.

• Ensure GST compliance: Businesses must correctly identify supplies to apply the correct GST rate.

• Optimize pricing strategies: By structuring supplies effectively, businesses can optimize tax liability.

Conclusion

Section 8 of the GST Act plays a crucial role in defining how businesses should classify their transactions for tax purposes. Proper identification of composite and mixed supplies ensures accurate tax calculation, compliance, and cost-effectiveness. Businesses should carefully analyze their supply structures and consult CA to make informed decisions under GST.