A composite supply refers to a combination of two or more taxable goods or services that a seller naturally bundles together and supplies in the ordinary course of business. In such cases, the seller considers one of the goods or services as the principal supply, while the others serve as ancillary or supplementary.

What is Composite Supply?

A Composite Supply refers to a combination of two or more taxable goods or services that are naturally bundled together and supplied in the ordinary course of business. In such cases, one of the goods or services is considered the principal supply, while the others are ancillary or supplementary.

Key Characteristics of Composite Supply:

  1. Natural Bundling: The goods or services are naturally bundled and typically sold together as a package. This could be due to consumer demand, industry practices, or inherent business processes.
  2. Principal Supply: One of the items is the dominant or main component of the supply, and the others are supplementary to it.
  3. Single Tax Rate: The GST rate applied to the entire composite supply is based on the rate of the principal supply, regardless of the tax rate of the ancillary items.

Example of Composite Supply:

When a seller sells a mobile phone with a charger, earphones, and warranty service, the seller considers the mobile phone as the principal supply. GST is levied based on the tax rate for the mobile phone, with the charger, earphones, and warranty service considered supplementary to it in a composite supply.

What is Mixed Supply?

In contrast, a seller combines two or more individual goods or services in a mixed supply, supplies them together for a single price, but can also supply them separately. The key difference here is that the bundling does not arise from any natural or customary business practice; it is merely for convenience, marketing, or promotional purposes.

Key Characteristics of Mixed Supply:

  1. Non-Natural Bundling:The seller does not bundle the goods or services out of natural necessity or business practice. The seller can sell the items separately.
  2. Separate Goods or Services: The seller can independently supply each item in the bundle.
  3. Highest Tax Rate: The tax authority taxes the entire supply at the highest GST rate applicable to any individual component within the bundle.

Example of Mixed Supply:

Imagine a seller offering a gift basket containing chocolates, fruits, wine, and cheese for a single price. The seller can sell each item separately, and since the wine likely attracts the highest GST rate, the seller taxes the entire gift basket at the rate applicable to wine.

Distinguishing Between Composite Supply and Mixed Supply

While both involve bundling goods or services, there are significant differences between the two:

  1. Nature of Bundling: Sellers bundle composite supplies together naturally in the ordinary course of business (e.g., a car with its battery), while they combine mixed supplies for sale convenience or promotional reasons (e.g., a bundle of different household items).
  2. Tax Implication: The GST treatment differs significantly:
    • In Composite Supply, the tax rate is based on the principal supply, which reflects the predominant element of the bundle.
    • In Mixed Supply, the highest applicable tax rate of any individual item in the bundle applies to the entire supply.
  3. Business Impact: Businesses need to understand these differences to apply the correct GST rate, avoid errors in invoicing, and ensure compliance. Misclassification of a composite supply as a mixed supply (or vice versa) could result in tax miscalculations.

Real-World Examples for Clarity

  1. Composite Supply Example:

    • When a seller sells a laptop with pre-installed software, the seller considers the laptop as the principal supply, and the software as an ancillary service. The seller applies the GST based on the tax rate for the laptop.

  2. Mixed Supply Example:

    In a supermarket promotion, a seller may offer a promotional bundle containing shampoo, conditioner, soap, and a towel at a discounted price.Since the towel likely attracts the highest GST rate, the seller taxes the entire bundle at that rate.

Conclusion

Understanding the distinction between Composite Supply and Mixed Supply helps businesses and consumers ensure compliance with GST regulations. Sellers naturally bundle items in a composite supply and tax them based on the principal supply, while sellers combine independently sellable items in a mixed supply and apply the highest applicable tax rate. Businesses can avoid tax-related issues and provide clear pricing to their customers by recognizing these differences