Composite or mixed supply, Goods and Services Tax - GST

[SUNIL NATH]

On one sales invoice, in different material both 5% and 18% are charged. We are also claiming transportation charge on the same invoice, what will the rate of transportation charge?

Posts / Replies

[Charu Tyagi]

In case of transportation charges, Where the supply of services of GTA (unregistered person) is availed - GST to be paid on RCM basis @ 5%

[KASTURI SETHI]

I agree with Sh.Charu Tyagi Ji. I like his brevity in drafting reply.

Major supply is of goods. Cannot take the shape of composite supply for the purpose of payment of GST on transportation charges in this scenario..

[Shilpi Jain]

I understand that in the invoice raised to customer for the price charged for the supply of goods, transportation charges are also included.

The query is regarding rate of tax for such charges recovered from customer.

This will be a composite supply.

In case your customer is eligible for credit and GST is paid extra to you consider the highest rate 18% on transportation as well.

Else pro-rate the transportation charges against 18% and 5% and charge accordingly. This would involve some math and justification in case department asks.

[KASTURI SETHI]

If transportation charges are included in the price of goods, it will be a composite supply.

[Amit Agrawal]

I agree with Ms. Shilpi Jain Mam.

In this regard, definition of 'composite' supply u/s 2 (30) needs to be noted and same is as follows:

“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;

Illustration: Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply."

W.r.t. prorata the transportation charges, method of bifurcation - based on value of goods having different rate of GST - can be disputed by Dept. as transportation charges can vary depending upon weight / volume (space) of goods involved. One needs to check entire factual aspects related to business before choosing least-controversial method of bifurcation.

Hence, Ms. Shilpi Ji's practical suggestion of charging GST against transportation on higher rate of taxes - among the goods involved - is better choice to avoid disputes / litigation, specially when recipient is entitled to avail ITC there-against & supplier are getting GST extra.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Jayaram Hiregange]

There is a slight difference in the definition of composite supply and mixed supply. In mixed supply , law requires single price. However, it is very interesting to note the composite supply definition does not employ a term ' single price' etc. From legal perspective, I see that when separate prices are available, the tax rate should also apply as per the type of supply.

[Amit Agrawal]

As rightly pointed out by Shri Jayaram Hiregange, there is no mention to have a single price for falling under 'Composite supply' u/s 2 (30) (whereas for falling under 'mixed supply', it is specifically mentioned that there has to be single price). But, I am not sure I followed the conclusion he sought from given legal position in the scenarios under discussion here.

Also, I respectfully differ with Shri Kasturi Sethi Ji for his views above in post at serial No. 2 read with serial No. 4.

In my view, there can also be different prices for two or more supplies involved the 'Composite Supply' where criteria is that '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'.

Moreover, despite having either single price or different prices, as per Section 8 (a) of the CGST Act, the tax liability on a composite supply shall be determined in the following manner, namely:-

"a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply"

Hence, in the subject scenario under discussion here, said supply is a Composite supply where principal supply is that of goods. And hence, secondary/incidental supply of service/transportation (despite having separate price) will be treated as 'Supply of Goods' only inviting tax-rate is those apply to the principal supply.

W.r.t. mixed supply u/s 2 (74), there has to be single price against two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person where such supply does not constitute a composite supply;

Illustration: A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drinks and fruit juices when supplied for a single price is a mixed supply. Each of these items can be supplied separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately.

And only because there is single price for defined mixed supply involving two or more supplies where same is not composite supply, as per Section 8 (b), the tax liability on a mixed supply shall be determined in the following manner, namely:-

"a mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax."

If there are different prices for different supplies involved, there cannot be a mixed supply. Furthermore, mixed supply comes into picture only if same does NOT fall under 'composite supply'.

In other words, for taxability under GST, there is no supply of service / transportation in subject situation under discussion here being same is 'composite supply' despite charging separately for the same. And entire supply is that of principal supply i.e. goods only.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

To put it differently, where is two or more supplies are involved, it necessarily means that there is consideration for each of these supplies involved u/s 7 (1) (a). And that consideration can be either combined (i.e. single price) or at separate price.

Definitions of composite supply and mixed supply and its different implications prescribed under Section 8 needs to be viewed from above legal position.

Reading of definition of 'composite supply' as covering situation of two or supplies for 'single price' only is wrong (as consideration can be either combined or separate, though there will always be consideration for each supply), in my humble view. This is more so when there is no such requirement prescribed under law (& when same being specifically prescribed for 'mixed supply') as well as taking into account the objects behind Section 8.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Padmanathan Kollengode]

I agree with Ld. Shilpi Ma'am in toto. The supply of transportation service shall be a composite supply in this case and the principal supply shall be supply of goods. The rate of tax of transportation charge can be either at pro-rata rate of 5% and 18%, or to be on safer side, it is better to charge 18%, if recipient is eligible for ITC.

[Amit Agrawal]

@ Shri Kasturi Sethi Ji,

With reference to the query under discussion, kindly elaborate your views about composite supply given in brief in your posts at serial No. 2 read with No. 4 after taking into account my different understanding thereon (as explained in my posts above).

Thanking you in anticipation

[Ganeshan Kalyani]

Transportation charges recovered from customer shall attract 18% GST.

[Charu Tyagi]

Though! its late to reply, But thank u @kasturi Sethi Sir for acknowledging and praising, means alot.

[KASTURI SETHI]

Sh.Amit Agrawal Ji,

This is w.r.t. your cross query at serial no. 10 above.

Undisputed facts :

(i) Composite supply : It is naturally bundled. In other words which cannot be separated. The definition does not talk of a single price.

(ii) Mixed supply : This is separatable. It talks of a single price.

(iii) Third kind of supply : There is another category of supply and that is which is neither composite supply nor mixed supply. (examples are available which is not out of your reach)

Now I humbly request you to opine on the following points :

(a) What is the definition of a single price ?

(b) Where is the single price present in this situation ?

A comprehensive reply (as usual) is expected from you.

After your reply, I shall revert.

[Amit Agrawal]

@ Shri Kasturi Sethi Ji,

First, I have shared definition of composite supply where illustration itself says that transportation is covered under composite supply where supply of goods is principal supply (and by implications, supply of transportation is secondary / incidental supply).

Second, as you admit, definition of composite supply cannot talk about single price (i.e. combined consideration towards multiple supplies which together form the composite supply) though definition of mixed supply specifically requires the same.

Third, for commercial point of view, two & more supplies involved in composite supply (i.e. naturally bunded) can have either separate price or single price, for taxability under GST, both will be taxed as that of supply of principal supply as per Section 8 (a). This aspect is already explained in detail in my earlier posts above.

Forth, it is nobody's case that subject situation under discussion here is mixed supply.

Lastly, considering the subject situation is 'composite supply' where goods are principal supply, it can NOT fall under 'third category' (i.e. two or more supplies which are NEITHER 'naturally bundled and supplied in conjunction with each other in the ordinary course of business' NOR 'mixed supply').

Hence, and with due respect, I find that your views about composite supply given in brief in your posts at serial No. 2 read with No. 4 are contrary to law.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion. And I respect contrary views.

[Amit Agrawal]

Just to add to my last post,

Kindly note that under composite supply, there will be two or more supplies which are naturally bundled and supplied in conjunction with each other in the ordinary course of business.

And the words, 'two or more supplies', 'naturally bunded' & 'supplied in conjunction with each other in the ordinary course of business' themselves signify that they are otherwise commercially separable.

Whole reason behind definition of composite supply and Section 8 (a) is precisely to tax 'two or more supplies involved in a composite supply' as supply of principal supply (i.e. even when they are structured commercially as separate (i.e. at separate / individual prices)).

These are ex facie views of mine and the same should not be construed as professional advice / suggestion. And I respect contrary views.

[Amit Agrawal]

If one holds otherwise, this will lead to serious level of tax-evasion. For example: One is suppling cold-drinks (i.e. Coca-cola, Pepsi etc.) which are levied one of highest amount of GST (including cess).

If seller is allowed to bifurcate its value of supply between goods and transport services just because he choose to invoice two elements separately, this will lead to serious revenue-leakages.

One can quote umpteen number of examples where serious tax-reduction (i.e. evasion) is otherwise possible.

And this is precisely what is not allowed due to definition of composite supply u/s 2 (30) read with Section 8 (a).

Similarly, if one notice definition of mixed supply (i.e. at single price) with Section 8 (b), it is easy to see that same is is clearly to avoid "tax-evasion by fanciful structuring business-supplies involving lower / nil rates".

These are ex facie views of mine and the same should not be construed as professional advice / suggestion. And I respect contrary views.

[Amit Agrawal]

Please read second Para from my above post at serial no. 14 as follows:

Second, as you admit, definition of composite supply does not talk about single price .......

[KASTURI SETHI]

There is a flaw in the law. Rightly explained/analysed by Sh. Jayaram Hiregange Ji at serial no.6 above.

[Amit Agrawal]

With due respect, I hold a view that reading non-existent requirement of 'single price' into the definition of composite supply cannot be called as flaw in law.

This is more so when such requirement is specifically made for defining mixed supply. Thus, law-makers were fully aware of & have purposefully kept this difference between composite supply and mixed supply.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion. And I respect contrary views.

[KASTURI SETHI]

In order to levy higher rate of tax in the interest of Revenue ???

Technicalities should not come in the way of justified and reasoned benefit to the tax payers.

The purpose of law is to provide justice to the public.

[Amit Agrawal]

When legal provisions are constitutional & clear (as the situation under discussion here), one cannot ignore it just because one does not like it.

Furthermore, I find that same is very reasonable & logical. And same is made - by applying deep thoughts - to avoid tax-evasion by any aggressive tax-paper by indulging into fancy commercial structuring of a supply involving two or more supplies.

And I also believe that the distinction between composite & mixed supply & its implications (as elaborated in my earlier posts) are testimony to reasonableness of these provisions.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion. And I respect contrary views.

[Jayaram Hiregange]

Flyer issued by CBIC on composite supply and mixed supply gives some insight into the matter.It is relevant to note that flyer in the context of clarifying the mixed supply clarifies as below:

"However, it will be fully justifiable for the hotel to charge individually for the services as long as there is no attempt to offload the value of one service on to another service that is chargeable at a concessional rate."

Another aspect is that the mixed supply excludes composite supply. Does it mean, composite supply also requires single price?

Hence, there is an element of ambiguity on the interpretation of composite supply. Also, if one raises a separate invoice/debit note for transportation, instead of reflecting on the invoice which reflects the supply of goods, what is the treatment one has to adopt. Another example is 2-3 different kinds of goods supplied along with transportation charges. In this case, which supply one has to tag the transportation?

[Jayaram Hiregange]

Please read "It is relevant to note that flyer in the context of clarifying the composite supply "

[Amit Agrawal]

@ Shri Jayaram Hiregange Ji,

W.r.t. GST Flyer quoted by you, please note the followings:

First, using flyers for interpretation of GST provisions is very risky, as they do not have any legal force what-so-ever.

Second, for many of its portions, said flyer actually is a preproduction from the Education Guide issued by CBIC in the year 2012 and does NOT deal with GST provisions per se.

As you must be aware, provisions under service tax regime (for bunded services etc. u/s 66 (2) & 66 (3) of the Finance Act, 1994 (32 of 1994)) cannot be equated with provisions of gst regime which deals with both goods & services as well as both composite supply & mixed supply with proper definitions given for both (which is different from erstwhile regime) and its differential tax-treatment is also specified u/s 8 of the CGST Act, 2017.

This line quoted by you is from a big Para of the flyer. If one reads that Para in its entirety, it is full of contradictions. Anyway, lets deal with what the flyer quoted by you actually says.

Relevant Para (which contains the lines preproduced by you) is as follows:

"A 5 star hotel is booked for a conference of 100 delegates on a lump sum package with the 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 centre

As is evident a bouquet of services is being provided, many of them chargeable to different effective rates of tax. None of the individual constituents are able to provide the essential character of the service. However, if the service is described as convention service it is able to capture the entire essence of the package. Thus, the service may be judged as convention service and chargeable to full rate. However, it will be fully justifiable for the hotel to charge individually for the services as long as there is no attempt to offload the value of one service on to another service that is chargeable at a concessional rate."

As can be seen from above, said clarificatory is contradictory at many levels.

A. First, it says that none of the individual constituents are able to provide the essential character of the service. This in-turn rules out subject supply falling under composite supply in GST.

B. Example deals with 'a lump sum package'.

C. Then, it says that if the service is described as convention service it is able to capture the entire essence of the package.

D. But, in both cases, it wants tax-payer to pay taxes at full rate in entire value.

E. Then, again, it also says that it will be fully justifiable for the hotel to charge individually for the services as long as there is no attempt to offload the value of one service on to another service that is chargeable at a concessional rate'.

E1. Now, from GST point of view, if it is mixed supply (at single price), then, tax it on full rate on entire value. If there are separate price for each elements & there is no attempt to offload the value of one service on to another service that is chargeable at a concessional rate, then, it will not fall under mixed supply. And one cannot need pay taxes at full rate and total combined consideration under the category of mixed supply.

E2. Under GST, there cannot be mixed supply if same falls under composite supply. Said GST flyer mixes the two, without noting this distinction & its implication under GST.

Moreover, following portion from the Flyer also needs to be noted, in the context of ongoing discussion here:

"Other illustrative indicators, not determinative but indicative of bundling of services in ordinary course of business are -

• There is a single price or the customer pays the same amount, no matter how much of the package they actually receive or use.

• The elements are normally advertised as a package.

• The different elements are not available separately.

• The different elements are integral to one overall supply - if one or more is removed, the nature of the supply would be affected.

No straight jacket formula can be laid down to determine whether a service is naturally bundled in the ordinary course of business. Each case has to be individually examined in the backdrop of several factors some of which are outlined above."

First, said flyer specifically says that given illustrative indicators are NOT determinative but indicative of bundling of services in ordinary course of business where one of the factor listed is 'single Price'.

So, if one wants to rely of this flyer to interpret GST provisions, it specifically says that single price is NOT determinative but ONLY indicative factor for determining what constitutes composite supply.

Then, it also says that no straight jacket formula can be laid down to determine whether a service is naturally bundled in the ordinary course of business. Each case has to be individually examined in the backdrop of several factors some of which are outlined above.

So, one applies definition of composite supply u/s 2 (30) with illustration given therein-under in GST and use above flyer to interpret it, then, it is clear that subject supply under discussion here falls under composite supply despite separate prices for goods and transportation services.

Lastly, as far as I am concerned, I will NEVER use any of these flyers for interpreting any provisions of GST.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion. And I respect contrary views.

[Amit Agrawal]

@ Shri Jayaram Hiregange Ji,

Now, kindly allow me to address other two posers from your last post above:

Another aspect is that the mixed supply excludes composite supply. Does it mean, composite supply also requires single price?

My views: There is no such interpretation possible. As far as the facts of "specific requirement of having 'single price' for falling under 'mixed price' and having no such requirement for falling under 'composite supply'" clearly means that there can be either single price or multiple price for elements involved in composite supply.

Hence, there is an element of ambiguity on the interpretation of composite supply. Also, if one raises a separate invoice/debit note for transportation, instead of reflecting on the invoice which reflects the supply of goods, what is the treatment one has to adopt. Another example is 2-3 different kinds of goods supplied along with transportation charges. In this case, which supply one has to tag the transportation?

My views: I find no such ambiguity while interpreting composite supply for reasons explained in answer above as well as more elaborately, in my earlier posts. Furthermore, raising a separate invoice/debit note for transportation (instead of reflecting on the invoice which reflects the supply of goods) does NOT allow escape from taxability (or lower liability) against transportation services forming part of composite supply due to Section 8 (a) of the CGST Act, 2017. For entire consideration (including transport charges) for subject situation under discussion, tax-liability u/s 8 (a) is as a supply of such principal supply (i.e. goods) and hence, raising a separate invoice/debit note for transportation should be avoided.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion. And I respect contrary views.