Composite SupplyMixed Supply

GST Composite & Mixed Supply — Section 2(30), 2(74), Principal Supply, Highest Rate

Complete guide to composite supply (naturally bundled, principal supply test) and mixed supply (artificially bundled, highest rate) under GST: Section 8 treatment, works contract classification, bundled services across industries, anti-avoidance rules, Schedule II deemed supply, valuation principles, and practical case laws.

Sec 2(30)

Composite Supply

Sec 2(74)

Mixed Supply

Applies

Principal Supply Rate

Applies

Highest Rate (Mixed)

Composite

Naturally Bundled

Mixed

Artificially Bundled

Valuation

Section 8 Treatment

Active

Anti-Avoidance

Composite & Mixed Supply — Legal Framework

Composite Supply — Section 2(30) Definition & Legal Framework

COMPOSITE SUPPLY — SECTION 2(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.' THREE ESSENTIAL CONDITIONS: (1) TWO or more supplies (goods, services, or both). (2) NATURALLY BUNDLED (supplied together in ordinary course of business). (3) One supply is PRINCIPAL SUPPLY (to which others are ancillary). ILLUSTRATION (from Section 2(30)): 'Where goods are packed, transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is the principal supply.' Analysis: Goods (computer) + Packing (box/bubble wrap) + Transport (delivery) + Insurance (transit insurance). All naturally bundled (you can't sell without packing, transport, or insuring in transit). Principal supply: goods (computer) — that's what customer actually wants. Other supplies: ancillary/incidental to delivering the computer. NATURALLY BUNDLED — THE TEST: Standard business practice test: Are these items normally supplied together? Ask: 'Would a reasonable businessman sell these items together in normal trade?' YES → naturally bundled → composite supply. NO → not naturally bundled → may be mixed supply. Examples of NATURALLY BUNDLED: Hotel room + breakfast (standard hotel package — naturally bundled in hospitality). Air ticket + meal + luggage (airline naturally provides all together). Goods + packing + transport (goods supply naturally includes packing and delivery). Mobile phone + charger + earphones (sold as standard package). Annual maintenance contract: inspection + parts + labor (naturally bundled in AMC). Examples of NOT NATURALLY BUNDLED: TV + washing machine + free grocery voucher (Diwali combo — artificially combined for promotion). Hotel room + movie ticket + restaurant voucher (not naturally bundled in hotel business). Suitcase + dry fruits + T-shirt (festival gift hamper — artificial). PRINCIPAL SUPPLY — SECTION 2(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.' TEST: What is the MAIN PURPOSE of the supply? What did the customer PRIMARILY want? Other supplies: merely support/complement the principal supply. Example: Customer buys air conditioner with installation: Principal supply: goods (AC) — customer wants the AC. Ancillary: installation service — supports the goods supply. Rate: AC goods rate applies (28%) — not installation service rate (18%). TAX TREATMENT — SECTION 8(a): 'The tax liability of 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.' Meaning: ENTIRE composite supply is taxed at the rate of the PRINCIPAL SUPPLY. Other supplies: merged into principal supply rate (no separate taxation). Single invoice: one composite supply at one rate. No need to bifurcate: value of individual components.

Mixed Supply — Section 2(74) & Highest Rate Application

MIXED SUPPLY — SECTION 2(74): 'Mixed supply means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a SINGLE PRICE, where such supply DOES NOT constitute a composite supply.' KEY DIFFERENCES FROM COMPOSITE: (1) NOT naturally bundled (artificially combined). (2) Could be supplied separately (each has independent demand). (3) Sold for a SINGLE PRICE (bundled pricing — not naturally). (4) Does NOT qualify as composite supply. ILLUSTRATION (from Section 2(74)): '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.' Analysis: Each item has INDEPENDENT demand (customer could buy any one separately). They are NOT naturally bundled (not normal course of business to sell food + drinks together). Combined for promotional purpose (Diwali gift hamper). Single price (₹2,000 for entire basket — not priced individually). RESULT: MIXED SUPPLY → highest rate of any item applies to ENTIRE supply. TAX TREATMENT — SECTION 8(b): '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.' Meaning: Identify the item with the HIGHEST GST rate in the bundle. Apply that rate to the ENTIRE mixed supply value. Example — Diwali gift hamper (₹5,000): Dry fruits: 5%. Chocolates: 18%. Aerated drinks: 28%. Sweets: 5%. Basket/packaging: 18%. HIGHEST RATE: 28% (aerated drinks). ENTIRE ₹5,000 taxed at 28% = ₹1,400 GST. Even though most items are 5%: the one 28% item makes everything 28%. THIS IS PUNITIVE — designed to DISCOURAGE artificial bundling. WHY SECTION 8(b) IS HARSH: Purpose: prevent tax avoidance through bundling. Without this rule: sellers would bundle high-tax items with low-tax items to claim lower composite rate. With this rule: bundling INCREASES tax (highest rate applies) — no incentive to bundle artificially. Anti-avoidance: encourages separate supply (each at its own rate) over artificial bundling. WHEN SINGLE PRICE = MIXED SUPPLY: Condition: 'for a single price.' If items are individually priced but sold together: May be separate supplies (each at own rate) — not mixed supply. If items bundled under ONE price (₹5,000 for hamper): Mixed supply (cannot allocate to individual items). PRACTICAL DISTINCTION: Separately priced: Invoice shows: Dry fruits ₹1,000 (5%), Chocolates ₹2,000 (18%), Drinks ₹1,500 (28%). Each taxed separately → total GST: ₹50 + ₹360 + ₹420 = ₹830. Single price (mixed): Invoice shows: Gift hamper ₹4,500 (28% — highest item). Total GST: ₹1,260 (28% on entire ₹4,500). HUGE DIFFERENCE: ₹830 vs ₹1,260 → mixed supply costs ₹430 more in GST. ALWAYS BETTER: price separately (if items are not naturally bundled). FESTIVAL HAMPER ADVISORY: Business advice: DON'T sell as 'hamper' at single price. Instead: itemize invoice (each product separately priced). Each product: own HSN code and own GST rate. Result: lower total GST for customer. Legal: perfectly fine (separate supplies — not artificial splitting of composite). Only 'splitting' is bad when it's genuinely COMPOSITE (naturally bundled).

Principal Supply Test — How to Identify the Dominant Element

PRINCIPAL SUPPLY — DETERMINATION CRITERIA: No statutory formula — but guidance from CBIC circulars and judicial precedents: TEST 1 — PREDOMINANT PURPOSE (what does customer primarily seek?): What is the MAIN reason customer enters the transaction? Other elements: merely support the main purpose. Example: Restaurant meal + ambiance + service: Principal: food/beverages (customer comes to eat). Ancillary: ambiance, table service, crockery, live music. All taxed as 'restaurant service' (5% without ITC). TEST 2 — VALUE PROPORTION (which element has highest value?): If goods are 80% of total value and service is 20%: Goods likely principal supply. But: value alone is not determinative (must consider purpose). Example: Annual maintenance contract (AMC): Labor/service component: ₹8,000 (80%). Spare parts: ₹2,000 (20%). Despite lower value: parts are ancillary to maintenance SERVICE. Principal supply: maintenance service (18%). Illustration: Software + hardware + installation: Software: ₹50,000 (50%). Hardware: ₹30,000 (30%). Installation: ₹20,000 (20%). Principal: likely SOFTWARE (customer wants software solution). All components support software delivery. Rate: software rate applies (18%). TEST 3 — REMOVAL TEST (can elements exist separately?): Can each element be provided independently? If YES: may not be composite (separate supplies or mixed). If NO (inseparable): composite supply — identify principal. Example: Catering service (food + service + crockery): Food without service/crockery: meaningless (cannot separate). Service without food: impossible (catering = food supply). Composite supply: principal = catering service (outdoor: 5%). Example: TV + refrigerator sold together (combo offer): TV without fridge: perfectly usable independently. Fridge without TV: perfectly usable independently. NOT composite (not naturally bundled). Sold at single price: MIXED SUPPLY. Sold separately priced: SEPARATE SUPPLIES. TEST 4 — INDUSTRY PRACTICE (normal course of business): How does the industry normally supply? If industry standard is to bundle these items: composite. If only THIS supplier bundles (unusual): may be mixed. Example: Works contract (construction): Industry always bundles: materials + labor + design + supervision. Naturally bundled: YES (construction industry norm). Principal supply: identified specifically by Section 2(119) — treated as SERVICE. Rate: works contract rate (12%/18% depending on type). MARGINAL CASES — DIFFICULT DETERMINATIONS: (1) Hotel accommodation + breakfast: Naturally bundled? YES (global hotel practice — room includes breakfast). Principal supply: accommodation (room). Rate: hotel rate applies (based on room tariff: 12%/18%). Breakfast: ancillary to accommodation (even if separately charged — still composite). (2) Coaching + study material + test series: If by same coaching institute (integrated program): Naturally bundled: YES (educational practice). Principal: coaching service (18%). Study material + tests: ancillary. If study material sold independently (separate purchase): SEPARATE supply — goods rate for books (exempt/5%). (3) Gym membership + diet consultation + supplements: Gym + diet consultation: naturally bundled (fitness industry). Supplements (protein powder): separate goods — independent demand. If single price: MIXED supply (supplements are separate product). If gym+diet at one price + supplements priced separately: Composite (gym+diet) + separate supply (supplements).

Bundled Services — Telecom, IT, Financial & Healthcare Examples

INDUSTRY-WISE APPLICATION — COMPOSITE vs MIXED: (1) TELECOM — BUNDLED PLANS: Monthly plan: voice + data + SMS + OTT subscription. Naturally bundled? Voice + data + SMS: YES (telecom industry — standard package). OTT subscription (Netflix/Hotstar included): May be MIXED (telecom + entertainment — not naturally bundled). If Jio includes Netflix free: is it composite or mixed? Argument for composite: value-added service (ancillary to telecom). Argument for mixed: entertainment is independent demand. CURRENT PRACTICE: treated as composite (principal = telecom service, 18%). BUT if OTT is primary draw: could argue principal = entertainment. Handset + plan (locked): Composite supply — handset is principal (goods rate if more valuable). Or: telecom is principal (if plan is predominant value). Depends on pricing and intention. (2) IT / SOFTWARE — BUNDLED SOLUTIONS: Software license + implementation + training + support (1 year): Naturally bundled: YES (IT industry norm — you can't use software without implementation). Principal supply: SOFTWARE LICENSE (what customer actually buys). Training, implementation, support: ancillary. Rate: 18% (information technology software service). Hardware + software + networking + installation: If single contract (IT solution): Composite supply — principal = software/IT (if predominant). If server hardware is majority value: principal = goods (hardware rate). If software license is majority: principal = service (18%). SEPARATE CONTRACTS (common in IT): Server purchase contract (goods): 18% goods. Software license contract (service): 18% service. AMC contract (service): 18% service. Each separate supply — not composite (independent contracts). (3) FINANCIAL SERVICES — BUNDLED: Bank account + debit card + SMS alerts + online banking: Naturally bundled: YES (banking industry — standard package). Principal: banking service (account maintenance). Rate: 18% (banking/financial service). Insurance + investment (ULIP): Composite? Life insurance + investment component. Historically treated as single supply (insurance). Post-GST: IRDAI mandates bifurcation (insurance vs investment). Currently: taxed on insurance premium portion only (18%). Loan + processing fee + insurance (credit life): Naturally bundled: YES (lending industry). Principal: loan service (interest — may be exempt or 18%). Processing fee: ancillary to loan (18% if charged). Credit insurance: may be separate supply (if separately charged/contracted). (4) HEALTHCARE — BUNDLED: Hospital treatment (room + surgery + medicines + nursing): Naturally bundled: YES (healthcare industry). Principal: healthcare service. Rate: EXEMPT (entire composite supply — principal is exempt healthcare). Even if room is ₹5,000/day, medicines ₹50,000, surgery ₹2,00,000: All composite = healthcare = EXEMPT. CRITICAL: If healthcare is principal and exempt → entire composite supply EXEMPT. Including: medicines consumed during treatment, room rent, food to patient. EXCEPTION: Room > ₹5,000/day (post-2022): That portion may be 5% (separate carve-out by notification). But healthcare services (surgery, treatment, consultation): remain EXEMPT. Pharmacy selling medicines over counter: SEPARATE supply (goods — not part of treatment). (5) RESTAURANT — COMPOSITE: Food + service + ambiance + takeaway containers: Naturally bundled: YES (restaurant industry). Principal: restaurant service (supply of food by restaurant). Rate: 5% (without ITC) for non-AC; 5% (without ITC) for AC/non-AC (post-2019 — all restaurants 5% except specified). Takeaway: If restaurant sells food for takeaway: STILL restaurant service (5%). If pre-packaged food sold (like packed snacks from counter): May be goods (5%/12% depending on HSN). Swiggy/Zomato delivery: Restaurant service (5%) — platform collects TCS.

Composite Supply — Works Contract, Job Work & Construction

WORKS CONTRACT — DEEMED COMPOSITE SUPPLY: SECTION 2(119): 'Works contract means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any IMMOVABLE PROPERTY wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such a contract.' KEY: Works contract = ALWAYS composite supply (by definition). Always: SERVICE (not goods — even though materials are supplied). Cannot be: separated into goods + services. Always: supply of SERVICE (even if 60% is materials). RATES — WORKS CONTRACT: (a) Works contract for government (railways, ports, airports, government buildings): 12% GST. (b) Works contract for affordable housing (PMAY, Carpet area ≤ 60 sqm): 12% (effective rate with ITC proportionality). Actually: 1.5% (net — after land deduction and ITC reversal). Complex calculation — simplified rate. (c) Works contract for other residential (non-affordable): 18% (full rate). Effective on construction value (excluding land — 1/3 deduction). (d) Works contract for commercial buildings: 18%. (e) Repair/maintenance/renovation: 18% (standard service rate). (f) Composite supply of works contract to government/local authority (for historical monument, canal, dam, etc.): 12%. ITC — WORKS CONTRACT: Section 17(5)(c): ITC BLOCKED on works contract service when: Used for construction of IMMOVABLE PROPERTY (other than plant and machinery). Meaning: If you receive works contract to build your office/factory BUILDING: NO ITC on 18% GST paid to contractor. If you receive works contract for PLANT/MACHINERY (production line, equipment installation): ITC AVAILABLE. If you're the CONTRACTOR (doing works contract): ITC available on your inputs (cement, steel, labor hire, etc.). You can claim ITC to offset your output GST (12%/18%). Only the RECIPIENT (building owner) is blocked — not the contractor. JOB WORK — COMPOSITE SUPPLY TREATMENT: Job work often involves: materials (provided by principal) + labor + machinery use. Since principal provides materials: job worker supplies SERVICE (labor + processing). Rate: Job work rates (see separate page — 5%/12%/18% based on type). If job worker uses OWN materials significantly: May become 'manufacturing' (supply of goods). If customer's materials: always service (job work). CONSTRUCTION (REAL ESTATE): Ongoing projects (booked before completion): Effective rates: Affordable housing: 1% (without ITC — after April 2019). Non-affordable housing (metro — carpet ≤ 60 sqm): 1% (without ITC). Non-affordable (others): 5% (without ITC — after April 2019). WITH ITC (old projects): 12% (affordable), 18% (non-affordable) — with ITC. Post-April 2019: most opted for new rates (1%/5% without ITC). Construction for own use (not for sale): Not a supply (self-supply — no GST). But: no ITC on inputs used for construction of own immovable property. Land + construction (mixed): Land: exempt (no GST on sale of land). Construction: applicable rate. Composite value: 2/3 of total consideration = construction value (for valuation). 1/3 = deemed land value (exempt). GST charged: on 2/3 of total (construction portion). MAINTENANCE / REPAIR — WORKS CONTRACT: If repair/renovation of EXISTING immovable property: Works contract: 18% GST. ITC: blocked for recipient (if for own building). If repair/renovation of PLANT/MACHINERY: Works contract: 18% GST. ITC: AVAILABLE (plant and machinery exception). Practical: factory building repair → ITC blocked. Factory machinery repair → ITC available. Distinguish carefully in invoicing.

Anti-Avoidance — Artificial Splitting, Valuation & Case Laws

ANTI-AVOIDANCE PROVISIONS: ARTIFICIAL SPLITTING OF COMPOSITE SUPPLY: If supply is GENUINELY composite: cannot split into separate supplies to reduce tax. Example: Goods at 28% + transport at 5% (if sold separately): If naturally bundled: COMPOSITE at 28% (principal = goods). Cannot issue: two invoices (goods + transport) to save tax. If split: department can invoke Section 8(a) → treat as composite → 28% on all. PENALTY: if splitting is to evade tax: Section 74 (fraud) → penalty up to 100% of tax evaded. WHEN SPLITTING IS LEGITIMATE: If supplies are NOT naturally bundled and sold independently: Separate invoices: each at own rate → PERFECTLY LEGAL. Example: Customer buys furniture AND painting services (different dates, different contracts): Furniture: 18% (goods invoice). Painting: 18% (service invoice). These are GENUINELY separate → not composite. Splitting is only illegal when supply is genuinely COMPOSITE but artificially divided. VALUATION — COMPOSITE SUPPLY: How to value composite supply? Rule: entire consideration = value of composite supply. No bifurcation needed (single rate on single value). Example: AC with installation: ₹50,000 total. Tax: 28% × ₹50,000 = ₹14,000 (goods rate — AC is principal). Don't split: ₹40,000 goods (28%) + ₹10,000 installation (18%) = wrong approach. Composite: one supply, one rate, one value. VALUATION — MIXED SUPPLY: Section 8(b): highest rate on ENTIRE value. Value = single price charged. No bifurcation even if individual values are known. Example: Hamper ₹5,000 (contains items at 5%, 18%, 28%): Tax: 28% × ₹5,000 = ₹1,400. Cannot argue: dry fruits portion at 5%, rest at higher. ENTIRE ₹5,000 at 28%. HSN CODE — COMPOSITE SUPPLY: Use HSN/SAC of PRINCIPAL supply for entire composite. E-way bill: principal supply HSN. Invoice: principal supply description (mention composite nature). Example: Computer with accessories + transport: HSN: 8471 (computer — principal). Not: 9965 (transport) or 3923 (packing). CASE LAWS & RULINGS: (1) Micro Inks (Advance Ruling — Rajasthan): Supply of printed goods (printing + paper + design). Held: composite supply — principal = printing service. Rate: 18% (printing — not 12% paper goods rate). Printing with content provided by customer: service dominates. (2) Caltech Polymers (Kerala Advance Ruling): Sale of printed flex banners (customer gives design, supplier prints on flex). Held: composite supply — principal = supply of GOODS (banner). Because: physical banner is what customer takes away (goods — tangible). Printing is means to an end (ancillary to creating the goods). Rate: goods rate for banner (18%). Distinction from Micro Inks: here, tangible goods are delivered. (3) Gift hamper / Diwali package cases: Multiple rulings: festival hampers = MIXED supply. Highest rate applies regardless of composition. Lesson: never sell hampers at single price — itemize. (4) Honda case (two-wheeler + accessories): Accessories fitted at time of sale: If standard fitment (naturally bundled with vehicle): composite (vehicle rate). If optional extras (chosen by customer, not standard): separate supply (own rate). Key: standard vs optional determines naturally bundled test. PRACTICAL COMPLIANCE: (1) Invoice clearly states: 'composite supply' or 'mixed supply.' (2) HSN: use principal supply HSN (composite) or highest-rate HSN (mixed). (3) Don't split composite supply across multiple invoices. (4) Do itemize if supplies are genuinely separate (not composite/mixed). (5) Maintain documentation for 'naturally bundled' test justification. (6) If uncertain: apply higher rate (conservative approach). (7) Seek Advance Ruling (Section 98) for borderline cases.

Schedule II — Deemed Supply, Composite Treatment & Exceptions

SCHEDULE II — ACTIVITIES TREATED AS SUPPLY: Schedule II specifies whether certain activities are supply of GOODS or SERVICES. Relevant for composite/mixed supply determination: (1) TRANSFER OF TITLE IN GOODS — supply of GOODS: Sale of goods (including installment sale/hire purchase with transfer of title): GOODS. Relevance: if combined with service → composite (goods may be principal). (2) TRANSFER OF RIGHT TO USE — supply of SERVICES: Lease, license, rental of goods (without transfer of title): SERVICES (18%). If rental + maintenance combined: composite (rental = principal, maintenance = ancillary). (3) WORKS CONTRACT — supply of SERVICES: Construction/building/modification of immovable property: SERVICES. Even if materials are majority component: STILL service. (4) RESTAURANT / CATERING — supply of SERVICES: Supply of food/drinks by restaurant, mess, canteen: SERVICES. Even though food is goods: restaurant supply = service. Rate: 5% (restaurant service — not goods rate). This is specific classification (overrides composite supply analysis). (5) SOFTWARE — SUPPLY OF GOODS OR SERVICE: Pre-packaged software (media): GOODS (18%). Custom software (development): SERVICES (18%). Software as Service (SaaS): SERVICES (18%). Loaded on hardware (pre-installed): part of composite supply of hardware (goods). Rate: same (18%) — but classification matters for place of supply. EXCEPTIONS — NOT COMPOSITE/MIXED: (a) If statute SPECIFICALLY classifies the supply: Works contract: specifically = service (not composite). Restaurant: specifically = service. No need to apply principal supply test — statute already decided. (b) If different supplies to DIFFERENT recipients: Composite/mixed: must be to SAME recipient. Goods to Customer A + service to Customer B: separate supplies (even if related transaction). (c) If FREE supply (no consideration): Free items: not supply (Schedule I exceptions aside). If 1 item paid + 1 item free: entire consideration is for paid item. Free item: gift (not part of composite/mixed — unless it's consideration). Example: 'Buy phone, get free earphones.' Total price: ₹50,000 (for phone). Earphones: free (not supply — no separate consideration). Some argue: composite supply (phone + earphones = naturally bundled in sale). But: no separate consideration for earphones → may not be supply at all. Conservative: treat as composite supply of phone (principal) — phone rate applies. Either way: phone rate (18%) on ₹50,000. (d) BUNDLED SERVICES with EXEMPT component: Composite supply where principal supply is EXEMPT: Entire composite: EXEMPT. Example: Education (exempt) + hostel (exempt) + transport (exempt) by institution: All exempt — composite of exempt services. Example: Healthcare (exempt) + food (would be taxable separately) + room: Principal: healthcare (exempt). Composite: EXEMPT (entire supply exempt). Food/room: ancillary to healthcare — not separately taxable. BUT: if ancillary supply is taxable and DOMINANT in value: Question: is the 'principal supply' really the exempt one? Careful: department may argue principal = taxable (if value is higher). Always ensure: genuine principal supply test passes (not just lowest-rate component). (e) MIXED SUPPLY where ALL items are SAME rate: If mixed supply: all items at 18%. Highest rate: 18% (same for all). No practical difference — entire supply at 18% anyway. No incentive to separate (rates equal). (f) ZERO-RATED + TAXABLE in composite: Export of goods (zero-rated) + domestic insurance (18%): If composite (naturally bundled — export goods with insurance): Principal: goods (zero-rated). Entire composite: zero-rated (export). Insurance: ancillary → zero-rated (as part of export composite). This benefits exporters: even taxable ancillary services become zero-rated in export composite. SEZ supplies: similar treatment (all composite = zero-rated if principal is zero-rated).

Composite & Mixed Supply — Rate Application Table

Supply TypeHSN / SACRate AppliedNotes
Composite supply (goods + packing + transport)Principal HSNGoods rateGoods is principal supply — goods rate applies
Mixed supply (gift hamper — single price)Highest HSNHighest rateRate of highest-taxed item applies to all
Works contract (immovable property — government)995412%Section 2(119) — deemed composite service
Works contract (commercial/residential)995418%Full rate on construction value
Restaurant service (food + service)99635%Composite — Schedule II deems it service
Hotel room + breakfast (composite)9963Room rateRoom tariff-based: 12% or 18%
Healthcare (treatment + room + medicine)9993ExemptPrincipal = healthcare — entire exempt
Software + hardware + installation (IT)8471/998418%Principal depends on predominant value
Education (tuition + hostel + transport)9992ExemptBy institution — principal = education
Telecom bundle (voice + data + SMS)998418%Naturally bundled — telecom service
Real estate (affordable housing — no ITC)99541%Post-April 2019 — carpet ≤ 60 sqm
Real estate (non-affordable — no ITC)99545%Post-April 2019 — other projects

Frequently Asked Questions

We sell Diwali gift hampers containing dry fruits, chocolates, sweets, and a decorative box — all at one price. How should we charge GST?
MIXED SUPPLY — highest rate applies to ENTIRE hamper: ANALYSIS OF YOUR HAMPER: Dry fruits: 5% (if branded) / 0% (if unbranded — but in hamper = branded). Chocolates: 18% (1806 — chocolate preparations). Sweets: 5% (1704 — sugar confectionery). Decorative box: 18% (packaging material). HIGHEST RATE: 18% (chocolates OR decorative box). RESULT: ENTIRE hamper value taxed at 18% GST. If hamper price = ₹3,000: GST = 18% × ₹3,000 = ₹540. TOTAL customer pays: ₹3,540. WHY MIXED SUPPLY (NOT COMPOSITE): Each item has INDEPENDENT demand (customer can buy any separately). NOT naturally bundled (dry fruits + chocolates are not 'ordinary course of business' together). Artificially combined for festive promotion. Sold at SINGLE price (₹3,000 for hamper — not individually priced). BETTER APPROACH — SAVE GST: Instead of single-price hamper, ITEMIZE: Invoice line 1: Dry fruits 500g — ₹1,200 — GST 5% — ₹60. Invoice line 2: Chocolates box — ₹800 — GST 18% — ₹144. Invoice line 3: Sweets box — ₹700 — GST 5% — ₹35. Invoice line 4: Decorative box — ₹300 — GST 18% — ₹54. TOTAL GST: ₹293 (vs ₹540 for mixed supply). SAVINGS: ₹247 per hamper! If selling 1,000 hampers: ₹2.47 LAKHS saved. HOW TO LEGALLY ITEMIZE: (1) Each item must be separately described on invoice. (2) Each item: separate HSN code, separate rate, separate value. (3) Customer can theoretically buy any item independently (even if sold together). (4) This is NOT artificial splitting — these are genuinely separate goods. (5) 'Hamper' is just packaging/presentation — not a single product. CAUTION — WHEN IT'S STILL MIXED: If you create a SINGLE SKU product ('Diwali Hamper — Premium'): Single product code, single description, single price. Even if components vary inside: it's ONE product (mixed supply). Itemization must be on INVOICE (legal document) — not just internal breakdown. KEY: Customer's invoice determines classification, not internal cost sheet. PRACTICAL TIP: Never sell hampers/gift sets at 'combo price.' Always: detailed invoice with line items. Each product taxed at its own rate. Result: composite/mixed supply analysis doesn't apply (separate supplies).
Our hotel offers a 'stay package' — room + breakfast + airport transfer + spa session — all at one inclusive price. Is this composite or mixed? What GST rate?
DEPENDS on what's included — part composite, part potentially mixed: ANALYSIS: (1) ROOM + BREAKFAST: COMPOSITE SUPPLY (naturally bundled). Hotel industry: standard global practice (room includes breakfast). Naturally bundled: YES (every hotel offers room+breakfast as one package). Principal supply: ROOM (customer books hotel for room — breakfast is complimentary/ancillary). Rate: based on room tariff (declared tariff). If room tariff ₹3,000-7,500/day: 12% GST. If room tariff > ₹7,500/day: 18% GST. BREAKFAST: ancillary to room (not charged separately — part of composite). (2) AIRPORT TRANSFER: Can argue: NATURALLY BUNDLED with hotel stay (common in hospitality). Hotels commonly include airport pickup as standard service. Test: does a reasonable hotelier provide transfer as normal course? Premium hotels: YES (standard service — composite with room). Budget hotels: usually NOT (separate charge — not naturally bundled). If included as standard: composite (part of room package — room rate applies). If add-on (separately bookable): may be separate supply (transport rate). (3) SPA SESSION: NOT NATURALLY BUNDLED with hotel room. Spa: independent service (many guests don't use spa). Separate demand: customers book spa independently. Most hotels: spa is SEPARATE service (own pricing, own booking). Including spa in 'package': ARTIFICIAL bundling (not natural in hospitality). Spa portion: makes the package potentially MIXED SUPPLY. OUTCOME — YOUR PACKAGE: If package = room + breakfast + airport transfer + spa (single price): Spa makes it MIXED supply (not naturally bundled with accommodation). Highest rate item: room at 18% (if > ₹7,500 declared tariff). Entire package: 18% on full price. EVEN worse: if spa has higher implied rate (wellness = 18%): All at 18% anyway (same as room — no practical difference). BETTER APPROACH: Break the invoice: (a) Room + breakfast (composite): ₹8,000 at 18% = ₹1,440 GST. (b) Airport transfer: ₹1,500 at 5% (GTA if applicable, or 18% service) = ₹75 or ₹270. (c) Spa session: ₹3,000 at 18% = ₹540. Total (separate): ₹2,055 - ₹2,250 (vs ₹2,250 on ₹12,500 if mixed at 18%). If all at 18%: no difference in rate (same result either way). But: if transfer is at 5%: separating saves some GST. PRACTICAL HOTEL ADVICE: Room + breakfast: always composite (book together). Spa, excursions, special dining: invoice separately. Airport transfer: if complimentary (free): not supply (no consideration). If charged: invoice separately for clarity. Most hotels: invoice each service separately (industry standard). Package pricing: marketing tool, but INVOICE must show separate services.
We sell air conditioners with free installation. Is installation separate or part of composite supply? Should we charge 28% on everything or split?
COMPOSITE SUPPLY — 28% on entire value (AC + installation): LEGAL ANALYSIS: (1) AC (goods) + Installation (service) = TWO supplies. (2) Naturally bundled? YES — AC requires installation to function. Customer buying AC EXPECTS installation (standard practice in industry). You can't effectively use split AC without installation. Selling AC without installation: incomplete (customer can't use it). Industry norm: AC sold with installation is STANDARD. (3) Principal supply: AC (GOODS) — customer buys AC (wants cooling). Installation: ancillary (supports the goods — makes it usable). TAX TREATMENT: Section 8(a): entire composite supply = rate of principal supply. Principal: AC (goods) = 28% (HSN 8415). Installation (service): would be 18% separately. But: as part of composite → 28% applies to ENTIRE value. EXAMPLE: AC unit: ₹35,000. Installation: ₹5,000 (free — but included in product price). Total consideration: ₹35,000 (customer pays this for AC + installation). GST: 28% × ₹35,000 = ₹9,800. DON'T split invoice: ₹30,000 goods (28%) + ₹5,000 service (18%) = WRONG. It's ONE composite supply: ₹35,000 at 28% = ₹9,800. CAN YOU CHARGE INSTALLATION SEPARATELY? If installation is SEPARATE contract (customer can opt out): Customer buys AC: ₹35,000 at 28% (goods). Customer separately hires installer: ₹5,000 at 18% (service). This is LEGITIMATE: two genuinely separate supplies. But: if you ALWAYS install (customer has no choice): Composite supply — cannot split. Department may challenge: artificial separation. IF FREE INSTALLATION: 'Free installation' = part of AC price (bundled). Total price already includes installation cost. No separate supply (no consideration for installation alone). Entire amount: AC rate (28%). Section 15 (value of supply): total payment for the composite supply. COMPARISON WITH SPLIT AC vs WINDOW AC: Split AC (requires professional installation): Installation is ESSENTIAL (cannot use without it). Clearly composite supply (AC + installation = naturally bundled). Window AC (self-installable): Customer CAN install themselves. Installation: optional service (not naturally bundled). If sold separately: goods + separate service (own rates). If sold together with installation: still likely composite (industry practice). PRACTICAL COMPLIANCE: Invoice: describe as 'Air Conditioner with installation' (single line or composite). HSN: 8415 (air conditioning machines). Rate: 28% on total value (including installation component). ITC for buyer: 28% available (if used for business). Don't complicate: it's simply 28% on total price. WARRANTY/AMC: Extended warranty sold WITH AC (at time of purchase): If included in price: part of composite (28% — ancillary to AC). If separately priced (optional purchase): separate supply of service (18%). AMC purchased later (after sale): always separate supply (18%). Not composite (not sold in conjunction at same time).
What is the difference between composite supply and bundled services under old Service Tax? Has anything changed under GST?
KEY DIFFERENCES — Old Service Tax 'Bundled Services' vs GST 'Composite/Mixed Supply': OLD REGIME — SERVICE TAX (BUNDLED SERVICES): Section 66F of Finance Act, 1994: (a) If services naturally bundled in ordinary course: taxed as PRINCIPAL service. (b) If services not naturally bundled (combination for single price): taxed at service attracting HIGHEST rate. Similar concept — but ONLY for services (not goods + services). Service tax: only covered SERVICES. Goods: separate VAT/excise. Combination of goods + services: was awkward (split between VAT and service tax). Works contract: split 60% goods (VAT) + 40% service (ST) — messy. GST REGIME — COMPOSITE/MIXED SUPPLY: Sections 2(30), 2(74), 8: (a) Composite supply (naturally bundled): taxed at PRINCIPAL SUPPLY rate. (b) Mixed supply (not naturally bundled, single price): taxed at HIGHEST RATE. COVERS: goods + services + both (no more splitting). Single tax on entire supply (no VAT/ST division). KEY CHANGES: (1) SCOPE — Now includes GOODS: Old: only services could be 'bundled.' Now: goods + services combined → composite/mixed. Example: computer + transport + insurance = composite (goods principal). This was impossible under old regime (computer = excise/VAT, transport = service tax). (2) MIXED SUPPLY — NEW CONCEPT: Old 'bundled services' at highest rate: only for services. Now: mixed supply includes GOODS at highest rate. Hamper (goods mix) = 28% for everything. This is new: old regime would tax each good at its own excise/VAT rate. (3) WORKS CONTRACT — SIMPLIFIED: Old: split between goods (VAT) and services (ST). Now: ENTIRELY service (Section 2(119)). No splitting needed. One rate on total value. (4) RESTAURANT — SIMPLIFIED: Old: food portion (VAT) + service portion (ST). Now: entirely SERVICE at 5% (composite — deemed service). No abatement calculations. (5) PRINCIPAL SUPPLY — CLEARER DEFINITION: Old: 'predominant element' (vague). Now: Section 2(90) — 'predominant element to which others are ancillary.' Same concept but codified in statute (more legal certainty). (6) ANTI-AVOIDANCE — STRONGER: Old: splitting was common (exploit VAT/ST boundary). Now: composite supply cannot be split (Section 8 — mandatory treatment). Mixed supply at highest rate: discourages artificial bundling. WHAT HASN'T CHANGED: The PRINCIPLES are same: Naturally bundled → principal element determines tax. Artificially bundled → punitive (highest rate). The TEST is same: Ordinary course of business. Would reasonable person supply these together? PRACTICAL IMPACT: (a) Simpler compliance (one tax, one invoice, one return). (b) No more VAT/ST disputes on classification (single regime). (c) Mixed supply concept: new vigilance needed (hampers, combos). (d) Composite supply: beneficial if principal supply is at lower rate or exempt. (e) Educational material: healthcare + food = exempt composite (entire exempt). (f) Harmful if: high-rate item dominates composite (28% goods + 18% service = 28% for all).

Composite & Mixed Supply — Classification, Valuation & Compliance

Laabam.One handles composite/mixed supply GST: principal supply identification, naturally bundled test documentation, highest rate computation for mixed supply, works contract classification, bundled service invoicing, anti-avoidance compliance, and advance ruling support.

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