Supply of individual goods or services which can be clearly identified are subject to GST at a specified rate. However, in business you will have situations where supply of goods and/or services are not clearly identifiable and it’s a mix of different goods or combination of different services or combination of both goods and services. In such cases, you can not levy GST as you will find different rates for each of these goods or services. Due to this reason, GST law has specifically talked about composite supplies and mixed supplies of goods and/or services.
In this article, we will discuss how to find out the rate of GST in case of composite supply of goods and/or services. We have written another article on how gst is charged on mixed supply of goods and/or services, if you are interested then, you can read that article.
Before getting into how the rate of tax is determined in the case of composite supply, we should first understand the meaning of composite supply.
What is composite supply under GST
As per section 2(30) of the CGST Act, 2017, composite supply means a supply made by a taxable person to a recipient comprise 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 principal supply.
As per section 2(90) of the CGST Act, 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.
How to determine rate of GST in case of composite supply
As per section 8 of CGST Act, 2017, tax liability in case of a composite supply comprising two or more supplies, one of which is principal supply, shall be treated as a supply of such principal supply.
So the first thing you need to find out is whether the supply is a composite supply or not. To find out, following points need to be satisfied as specified in section 2(30) and 2(90) of CGST Act, 2017,
- There must be two or more taxable supplies of goods and/or services or any combination thereof.
- They must be naturally bundled in the ordinary course of business.
- One of those taxable supplies must be principal supply.
In case of a composite supply, we have to first look for the principal supply. Composite supply shall be treated as supply of such principal supply. If it is determined as a composite supply then, the rate of tax should be the one that is applicable to the principal supply.
If the nature of service is such that one of the services is the main service and all others are incidental or ancillary to it then, it will be treated as a composite supply.
Example
In general, in a manufacturing organisation, Goods are packed, transported with insurance to the recipient. In such a case, it will be treated as a composite supply. As goods constitute the predominant element of this composite supply, it will be treated as principal supply.
Works contract and restaurant business are also two classic examples of composite supply. However as per GST law both are treated as supply of services and chargeable to GST at a specific rate mentioned against such services.
CBIC has issued circulars to clarify rate of GST in case of composite supply.
Circular No 47/21/2018 GST dated 08.06.2018
In case of servicing of a car, both services and goods are supplied. If the value of goods and services are shown separately, then the applicable rate of GST can be known. In this type of case, CBIC has clarified that the goods and services would be liable to tax at the rates as applicable to such goods and services separately.
link to download the circular
Circular No 11/11/2017 GST dated 20.10.2017
Supply of books, pamphlets, brochures,envelopes, annual reports, leaflets, cartons, boxes etc. printed with logo, design, name, address or other content supplied by the recipient of such printed goods, are composite supplies and the question, whether such supplies constitute supply of goods or services would be determined on the basis of what constitutes the principal supply.
In the case of printing of books, pamphlets, brochures, annual reports, and the like, where only content is supplied by the publisher or the person who owns the usage rights to the intangible inputs while the physical inputs including paper used for printing belong to the printer, supply of printing [of the content supplied by the recipient of supply] is the principal supply and therefore such supplies would constitute supply of service falling under heading 9989 of the scheme of classification of services.
In case of supply of printed envelopes, letter cards, printed boxes, tissues, napkins, wallpaper etc. falling under Chapter 48 or 49, printed with design, logo etc. supplied by the recipient of goods but made using physical inputs including paper belonging to the printer, predominant supply is that of goods and the supply of printing of the content [supplied by the recipient of supply] is ancillary to the principal supply of goods and therefore such supplies would constitute supply of goods falling under respective headings of Chapter 48 or 49 of the Customs Tariff.
link to download the circular
Circular No 34/08/2018 GST dated 01.03.2018
In the case of bus body building there is supply of goods and services. Thus, classification of this composite supply, as goods or service would depend on which supply is the principal supply which may be determined on the basis of facts and circumstances of each case.
In retreading of tyres, which is a composite supply, the predominant element is the process of retreading which is a supply of service. Rubber used for retreading is an ancillary supply. Which part of a composite supply is the principal supply, must be determined keeping in view the nature of the supply involved. Value may be one of the guiding factors in this determination, but not the sole factor. The primary question that should be asked is what is the essential nature of the composite supply and which element of the supply imparts that essential nature to the composite supply. Supply of retreaded tyres, where the old tyres belong to the supplier of retreaded tyres, is a supply of goods (retreaded tyres under heading 4012 of the Customs Tariff attracting GST @ 28%).
In Reserve Bank of India FAQ on PSLC, it has been mentioned that PSLC may be construed to be in the nature of goods, dealing in which has been notified as a permissible activity under section 6(1) of the Banking Regulation Act, 1949 vide Government of India notification dated 4thFebruary, 2016. PSLC are not securities. PSLC are akin to freely tradeable duty scrips, Renewable Energy Certificates, REP license or replenishment license, which attracted VAT. In GST there is no exemption to trading in PSLCs. Thus, PSLCs are taxable as goods at a standard rate of 18% under the residuary S.No. 453 of Schedule III of notification No. 1/2017-Central Tax(Rate). GST payable on the certificates would be available as ITC to the bank buying the certificates.
(1) Service by way of transmission or distribution of electricity by an electricity transmission or distribution utility is exempt from GST under notificationNo.12/2017-CT (R), Sl. No.25. The other services such as, –
i. Application fee for releasing connection of electricity;
ii. Rental Charges against metering equipment;
iii. Testing fee for meters/ transformers, capacitors etc.;
iv. Labour charges from customers for shifting of meters or shifting of service lines;
v. charges for duplicate bill;
provided by DISCOMS to consumers are taxable.
(2) The service provided by Central Government/State Governmentto any business entity including PSUs by way of guaranteeing the loans taken by them from financial institutions against consideration in any form including Guarantee Commission is taxable.
link to download the circular
