Difference between Composite Supply and Mixed Supply

Ashish M. Shaji

29 Oct, 2020

In this blog, we will discuss two different concepts: Composite supply and Mixed supply. Many people confuse the two with each other; however, they are very distinct in nature. Let us consider them intensely in this blog.

Meaning of supply

Supply means all forms of supply of goods or services. It is made for a consideration during the course of business.

Meaning of Composite supply and Mixed supply

First let’s try to decode the meaning of Composite Supply and Mixed Supply through the definitions given under Section 2 of CGST Act, 2017^[1]. The Act provides the following definitions:

“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.’

As we can interpret from the definition here, the following conditions are to be satisfied in order to determine if any supply is a composite supply:

• Supply must be affected by a registered taxpayer,
• Supply should consist of two or more goods or services or more,
• Such goods or services must be taxable in nature,
• This combined package is a natural bundle, i.e. they are supplied together in the natural course of business.
• One of such goods or services is principal in nature i.e. it’s the main product, and the other accompanying ones are ancillary in nature.

One typical example of composite supply is when any supplier sells his goods, and sends it to the supplier, then such goods are packed and transported by insurance. Here the goods, packing material, transport, and insurance together form a composite supply. And the goods are the principal supply here.

Now Let’s Discuss What Mixed Supply actually is:

‘“Mixed Supply” means two or more individual supplies of goods or services, the person for, or any combination thereof, made in conjunction with each other by a person for a single price where such supply does not constitute a composite supply.’

After analyzing the definition of mixed supply, we can interpret that the following conditions are required to be satisfied in order to determine if any supply is a mixed supply:

• Supply must be affected by a taxpayer registered under GST.
• Supply should consist of two or more goods or services or more.
• Such goods or services forming part of the combination are individual in nature, which basically means that they are not dependent on each other and can be supplied individually.
• A single price is charged for all these individual supplies.
• These supplies do not constitute a composite supply.

Let us try and understand the concept of mixed supply with the help of an example:

If a package is supplied containing dry fruits, chocolates, and flavoured artificial mineral water, a single price is charged for this whole package, then such a package will form a mixed supply as each item on the list can be supplied separately, and are not dependent on each other.

Tax Rate Determination

As we understood the meaning of composite supply and mixed supply, the next important topic to be covered is how the GST Rates will be determined in such cases. Section 8 of CGST Act, 2017 explains how to determine the tax liability on composite and mixed supplies.

• In the Case of Composite Supply

As we have already discussed, such supply comprises two or more supplies, one of which is the principal supply and the others are ancillary. Here, the tax rate applicable to such principal supply will be the applicable rate and the tax will be charged on the value of the whole composite bundle.

In the previously discussed example, goods were accompanied with packing materials, transportation, and insurance. But the tax rate of such goods, which is the principal supply, will be considered.

• In Case of Mixed Supply

When two or more individual supplies are sold together as a package, then such a supply is called mixed supply. These goods or services are dependent on nature and can be sold individually. Here the tax rate of that particular supply which attracts the highest rate of tax will be considered.

Let’s try to understand it with the previously given example. There was a package supplied containing dry fruits, chocolates, and flavoured artificial mineral water. All these elements attract a different rate of taxes.

• Dry fruits are zero-rated.
• Chocolates(not containing cocoa) are taxed @ 28%, and,
• Flavoured artificial mineral water is taxed @ 18%, as chocolates attract the highest rates, this rate will be applicable on the whole package.

Conclusion

The concept of Composite supply and Mixed supply is a significant one. It helps in determining the right GST rate and provides a uniform tax treatment under GST for supplies.

Read our article: Filing of Form GST ITC-03: All you need to know