Introductory tea bundles held mixed supply u/s2(74) CGST Act, taxed at 5% with uniform rate

The AAR held that supply of Instant Premix Tea sachets bundled with various tea products as an introductory offer does not constitute a composite supply, as the items are not naturally bundled, the premix is not ancillary or integral to the other teas, and the customer does not ordinarily expect such bundling. The transaction satisfies all elements of a mixed supply under s.2(74) CGST Act, being multiple independent supplies made together for a single price. Consequently, it is to be treated and taxed as a mixed supply. Since all constituent products, including Masala Instant Premix Tea, attract 5% GST, the mixed supply is taxable at 5%. The AAR noted that, where all components bear the same rate, the GST law is silent on the appropriate HSN classification for the mixed supply.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the bundled supply of instant premix tea sachets together with various tea products for a single price constitutes a "composite supply" or a "mixed supply" under the GST law.

1.2 Determination of the applicable rate of GST on such bundled supplies once characterized as composite or mixed supply.

1.3 Determination of the appropriate HSN classification to be adopted for such bundled (mixed) supplies, particularly where all constituent supplies attract the same rate of GST.

1.4 Tax treatment in future where instant premix tea sachets are supplied bundled with any other product taxable at 5% GST as principal supply, including the effect of any future change in the tax rate of instant premix tea.

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2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Characterisation of bundled supply of instant premix tea sachets with various teas - "composite supply" or "mixed supply"

Legal framework (as discussed)

2.1 The Court considered the statutory definitions in Section 2 of the CGST Act, 2017:

(a) "Principal supply" - supply of goods or services which constitutes the predominant element of a composite supply, other supplies being ancillary.

(b) "Composite supply" - a supply consisting of two or more taxable supplies of goods or services or both, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one being the principal supply.

(c) "Mixed supply" - two or more individual supplies of goods or services or any combination thereof, made in conjunction with each other for a single price where such supply does not constitute a composite supply.

2.2 The Court referred to the CBIC Flyer No. 4, dated 05.08.2019, which sets out indicators for "naturally bundled" supplies, including:

* Consumer perception and expectation of the bundle as a package in the ordinary course of business.

* Whether a majority of suppliers in the trade provide such bundles as standard practice.

* Whether one element is the main supply and others are incidental/ancillary facilitating better enjoyment of the main supply.

* Other indicators such as single price, advertising as a package, non-availability separately, and integrality of elements to one overall supply such that removal of one affects the nature of supply.

Interpretation and reasoning

2.3 The Court treated black tea, green tea, herbal tea, flavoured black tea and pyramid tea bags as the predominant element where bundled with instant premix tea sachets; if the transaction were a composite supply, these teas would be the principal supply and premix tea ancillary.

2.4 However, the Court held that the statutory requirement of "naturally bundled and supplied in conjunction with each other in the ordinary course of business" was not satisfied, applying the CBIC indicators:

* Consumers do not reasonably expect premix tea sachets as a normal or standard part of buying tea; the bundling is not based on consumer perception.

* Similar businesses do not generally bundle premix tea with tea products as a matter of regular trade practice.

* Premix tea is not an ancillary item required for enjoyment or use of tea; tea can be consumed without premix sachets.

* The applicant normally sells premix tea separately and only proposes bundling as an "introductory offer" to test demand, indicating that bundling is not in the ordinary course of business.

* The premix tea is not integral to the overall supply; removal of premix sachets does not affect the nature of the tea supply.

2.5 On these findings, the Court concluded that the supplies are not "naturally bundled" and hence do not fall within "composite supply".

2.6 The Court then examined whether the bundles constitute "mixed supply" under Section 2(74). Relying on the statutory illustration (package of canned foods, sweets, chocolates, cakes, dry fruits, aerated drinks and fruit juices supplied for a single price), the Court distilled the following conditions for "mixed supply":

* The bundle should not be a composite supply (i.e., not naturally bundled).

* The bundle should be supplied for a single price.

* Each item can be supplied separately and is not dependent on the others.

* In the bundle, the items are supplied together and not separately.

2.7 Applying these elements, the Court found:

* The combination of instant premix tea sachets with different teas is not a composite supply (as already held).

* The bundled teas and premix sachets are supplied for a single price.

* Instant premix tea and the various teas are each marketed and capable of being supplied separately, and are not mutually dependent.

* Under the proposed introductory scheme, the premix sachets are provided together with the teas as part of the bundle, not invoiced or supplied separately.

Conclusions

2.8 The Court held that the supply of instant premix tea sachets bundled with:

* Black tea leaf 5 kg pouch,

* Premium CTC leaf black tea jars,

* Premium lemon, jasmine and mint green tea,

* Herbal tea (Chai Vedic),

* Pyramid tea bags, and

* Flavoured black tea (saffron and rose),

constitutes a "mixed supply" and not a "composite supply".

2.9 The same characterization as "mixed supply" will apply when instant premix tea sachets are supplied in future with any other 5% GST-rated principal product, so long as the factual matrix remains analogous (i.e., not naturally bundled in the ordinary course of business).

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Issue 2: Applicable GST rate on the mixed supply of instant premix tea sachets with various teas

Legal framework (as discussed)

2.10 The Court applied Section 8(b) of the CGST Act, 2017, which provides that 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.

2.11 The Court examined the GST rates applicable to the relevant HSN codes as provided by the applicant:

* Various teas (black tea, CTC tea, green tea, herbal tea, flavoured tea, pyramid tea bags) under HSN 09024010, 09023020, 09024040 - taxable @ 5% GST.

* Instant premix tea under HSN 21012010 - taxable @ 18% from 01.07.2017 to 21.09.2025, and @ 5% with effect from 22.09.2025.

Interpretation and reasoning

2.12 For the current period considered in the ruling, the Court noted that the rate of GST on instant premix tea and on all the tea products is 5%.

2.13 Since, at the relevant time, each component of the mixed supply attracts the same rate (5%), application of Section 8(b) results in the mixed supply being liable at that uniform rate.

Conclusions

2.14 The Court held that each of the identified bundled supplies of instant premix tea sachets with the different tea products is a "mixed supply" chargeable to GST at 5%.

2.15 For future supplies where instant premix tea sachets are bundled with any other product taxable at 5%, the mixed supply will be taxable at the highest rate among the constituent supplies. If, at that future time, instant premix tea continues to be taxed at 5%, the mixed supply will be taxed at 5%. If the rate on instant premix tea or any other component becomes higher than 5%, the mixed supply will then be taxed at that higher rate.

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Issue 3: Appropriate HSN code for the mixed supply

Legal framework (as discussed)

2.16 The Court again relied on Section 8(b) of the CGST Act, which mandates that a mixed supply be treated as a supply of that particular supply which attracts the highest rate of tax; classification/HSN should follow that particular supply.

2.17 The Court noted that the GST law is silent on the precise HSN to be adopted where all components of a mixed supply attract the same rate of tax.

Interpretation and reasoning

2.18 In principle, where a mixed supply includes items attracting different rates, the HSN should be that of the item attracting the highest rate, since the mixed supply is deemed to be that supply under Section 8(b).

2.19 In the present case, as all supplies within the mixed supply currently attract the same GST rate (5%), no one supply attracts a "higher" rate for purposes of HSN determination.

Conclusions

2.20 For the present factual situation, the Court held that any of the HSN codes of the constituent supplies in the mixed supply may be used while supplying the goods, as long as the GST rates of all items in the mixed supply remain the same.

2.21 If, in future, the GST rates on the constituent supplies differ, the HSN code adopted for the mixed supply should be that of the supply which attracts the highest rate of tax, in accordance with Section 8(b).

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