The only thing that can cheer you up on a gloomy Monday morning is a travel package to a breath taking destination. Six days and five nights in a five-star hotel, promises of three-steaming hot and scrumptious meals and a personal tour guide seemed inviting to say the least. The carrier of this tempting offer was a text message along with the words ‘especially for you’. I felt confident that there was some karma at work. The happiness didn’t last long when someone explained to me that the tour guide wasn’t a reward but a sales strategy. This was when I learnt about the concepts of different types of supply i.e. Mixed and Composite Supply.
Quite often, people sell two or more goods or a combination of goods and services together. The reason for this is either a marketing strategy or because of the nature of the goods and/or services. For instance, shopkeepers sell a pen and a refill together because one can’t work without the other. While a DSLR and a tripod together would gain more customers. Under Service Tax, this was the concept of Bundled Services. In simple terms it means providing two or more goods or services together. In the new tax regime these Bundled Services are classified into Mixed Supply and Composite Supply.
Mixed Supply is when a taxable person supplies two or more goods or services or a combination of goods and services for a single price. The goods or services are independent of each other and are available separately. It is not necessary to sell these goods or services together. This combination is for marketing or sales strategy.
Consider a meal containing namkeen, pastry and aerated drinks. A shopkeeper sells these three edibles together at a single price. It is not compulsory
to sell them together at a single price. It is done to increase the sales of the above mentioned products.
This is an example of a mixed supply. The individual tax rates for the products are 12%, 18% and 28% respectively. But since they are being supplied together, they will be taxed together.
Tax Rate in case of Mixed Supply:
The tax rate applicable on the goods or services which has the highest tax rate within the combination will be considered. In the example, since the highest tax rate is 28%, the tax on meal will be 28%. Remember to avoid that carbonated, sugar loaded drink the next time. It’s unhealthy and expensive!
After more research, I realized that the travel package to the Islands was a Composite Supply. Well, at least the hotel stay and the meals.
Composite supply refers to a supply of two or more goods/services which are naturally bundled. They are supplied with each other in the ordinary course of business, one of which is a principal supply. One cannot sell these items alone. The hotel stay and meals package is a natural combination in the ordinary course of business for a hotel.
One will consider a supply as composite supply if:
Supply of 2 or more goods or services together,
It is not possible to separate the goods or services. They form a natural bundle and are usually provided together.
A few examples of Composite Supply are tea and sugar, and sale of laptop with a charger. When you order
for tea, sugar naturally comes along with it. This will be a composite supply irrespective of whether you use the sugar or not. A laptop charger is a natural requisite to charge the laptop. Hence
this supply will also be a composite supply.
Tax Rate in Case of Composite Supply:
The tax on composite supply is the rate applicable to the principal supply. Principal supply is the good or service that is the predominant element of supply. In simple terms, the primary product like the tea or the laptop is the principal supply. Thus, the tax rate applicable on the laptop or the tea will be charged on the entire supply.
Likewise, for the stay at Andaman & Nicobar Islans the GST will be the tax on the entire supply. Which means that if the tax on accommodation is 18% and the tax for restaurant service is 12%, the total tax will be 18%.