Composite or mixed supply

[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?

[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 KV]

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.

AI Summary

Composite supply: transportation bundled with goods is taxed as the principal supply, apply highest applicable rate to avoid disputes.
Transportation charges bundled with the supply of goods are normally a composite supply and, being ancillary, are taxed as the principal supply of goods even if shown separately. If an invoice contains goods taxed at different rates plus transport, taxpayers may either apportion transport to each principal goods supply or, for conservative compliance and to reduce disputes where the recipient claims input tax credit, apply the highest rate among the goods to the transport charges. Separate invoicing does not alter this tax characterisation.