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

[Padmanathan Kollengode]

Learned Amit Ji,

After going through your in-depth analysis, which is not only enlightening academically but also equally helpful practically, the following doubts cropped up in my mind.

Please consider this as only a pure academic discussion:

1. As per the facts, There are three supplies involved:

A. Supply of goods at 5%

B. Supply of goods at 18%

C. Supply of transportation

2. If this is a composite supply, which of the above will be principal supply? Supply of transportation is ruled out as it is the anciliary supply. But whether the Principal supply is supply of goods at 5% or supply at 18%?

3. This becomes all the more important as the definition reads:

(30) “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;

(90) “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;

3.1. On a combined reading of above definitions, can it be understood that in a composite supply, there can be only ONE principal supply?

4. If the answer to above is affirmative, will supply in the query under consideration fails to be a composite supply as ONE principal supply cannot be identified?

5. In that case, GST rate should apply as per the individual line items in the invoice (nobody's case that it is a mixed supply).

6. Lastly, kindly consider the decision of Court of Appeals of England and Whales in Commissioner for His Majesty's Revenue and Customs vs Gray Farrar International LLP [2023] EWCA Civ 121, wherein it was held as under:

I acknowledge, as did the UT, that this may not always be possible. There may be cases where there is no predominant element in a single composite supply viewed through the eyes of a typical consumer. College of Estate Management might be regarded as such a case: in the context of a single supply of education, the typical student purchased the courses in order to obtain the qualification offered by the College. Viewed by the student, the supply of books was part of that larger composite supply of education with a view to qualification, and could not be said to predominate for the purposes of the Mesto test, even if the provision of books was regarded as an important element of the single supply. A similar analysis applies to Byrom (t/a Salon 24), where the supply was of “massage parlour services” to those offering their services to clients. An important element of the single supply was the provision of a room. But viewed from the perspective of the masseuse the provision of the room could not be said to predominate in the larger supply provided, which included toilet, changing and shower facilities, a seating and other areas for clients, bed linen and towels. In such cases, the overarching supply test might remain relevant, either to help decide whether a particular element predominates in the eyes of the typical consumer and the qualitative importance attached to a particular element of the single supply; or as reflecting how the typical consumer views the transaction where there is no predominant element so that the predominant element test cannot be applied. Equally, I do not rule out the possibility, given the diversity of commercial transactions to which these provisions might apply, that there may be cases where the economic reality justifies the application of the overarching supply test as a separate test to be applied.

I do completely agree that provisions of EU VAT directive and Indian GST may be difference, EU VAt judgements are not binding on Indian Court etc., But only point I wish to convey is similar issues have been dealt in Foreign Jurisdictions though it may be new in Indian GST Law.

[Amit Agrawal]

@ Shri Padmanathan Kollengode Ji,

From the facts shared in the query (where tax-payer is charging different tax-rates for two different goods supplies) and question raised therein, here, it is clear that there is not a case raised by the Querist where there is a single composite supply involving three supplies (i.e. two type of goods & one services, as listed by you).

As understood from the facts shared read with legal provisions quoted in earlier posts, this is a case where there are two composite supplies where 'principal supplies' are two type of goods goods (having rate-rate @ 5% & 18% respectively) & transport service is incidental / ancillary supply for both of these 'principal supplies'.

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

[Padmanathan Kollengode]

Learned friend Amit Ji,

This was my initial understanding too. But since it was suggested to apply the higher, I was confused.

As per your explanation in previous reply, shouldn't the tranportation service attributable to 5% goods and 18% goods be apportioned based on some logical factor such as space taken up?

[Amit Agrawal]

@ Shri Padmanathan Kollengode Ji,

I have already explained difficulties of apportionment of transport charges in above post of mine at serial No. 5 & hence, practical suggestion to avoid disputes / litigation to the extent possible, relevant portion of which reads as follows:

"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."

For background for above views & more importantly, for the practical suggestion made therein, kindly note the factual aspect of the query raised where tax-payer is raising only one invoice for subject supplies under discussion here.

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