I. Introduction to Bundled Supplies under GST

A. Context: The Need for Specific Rules

The Goods and Services Tax (GST) regime in India fundamentally shifted the landscape of indirect taxation, establishing ‘supply’ as the taxable event.¹ Under the Central Goods and Services Tax (CGST) Act, 2017, GST is levied on every supply of goods or services or both, unless specifically exempted.¹ Determining the applicable GST rate is straightforward when dealing with individual supplies of goods or services that are clearly identifiable and subject to a notified rate.¹

However, commercial transactions frequently involve the supply of a combination of goods, services, or both, bundled together.¹ In such scenarios, the individual components of the bundle may attract different GST rates.¹ This presents a classification challenge: which rate should apply to the entire package? Without specific legislative guidance, ambiguity would prevail, leading to uncertainty for taxpayers and potential disputes with tax authorities.¹

To address this complexity, the CGST Act introduces two distinct classifications for bundled supplies: ‘composite supply’ and ‘mixed supply’.¹ The concept of composite supply finds parallels in the ‘naturally bundled services’ principle under the erstwhile Service Tax regime.⁶ Conversely, the concept of mixed supply is a novel introduction under GST, designed to cover combinations that do not meet the criteria for a composite supply.⁶

B. Overview of Section 8, CGST Act, 2017: Purpose and Scope

Section 8 of the CGST Act, 2017, serves as the cornerstone provision for determining the tax liability specifically for these bundled supplies.³ Its scope is precisely focused on establishing the methodology for levying tax on composite and mixed supplies.

The core mandate of Section 8 is twofold:

1. For a composite supply, which comprises multiple supplies with one identifiable principal supply, the entire bundle is treated as a supply of that principal supply for tax purposes. Consequently, the tax rate applicable to the principal supply governs the entire transaction.³
2. For a mixed supply, which involves two or more supplies bundled for a single price but not naturally combined, the entire bundle is treated as a supply of that particular component which attracts the highest rate of tax among the constituents.³

The fundamental purpose of Section 8 is, therefore, to inject certainty and clarity into the tax treatment of bundled supplies.¹ By providing these distinct mechanisms, the law aims to simplify compliance for businesses undertaking such transactions and streamline administration for tax authorities, ensuring a consistent approach to classification and taxation.¹

C. Legislative Intent behind Section 8

The distinct approaches outlined in Section 8 for composite and mixed supplies reflect a considered legislative intent aimed at achieving a balance between facilitating commerce and safeguarding revenue. Businesses commonly bundle goods and services in the ordinary course of their operations.¹ Taxing such naturally occurring bundles based on the principal element aligns the tax treatment with the underlying economic reality and essential character of the transaction.⁶ This simplifies taxation for common business practices, such as supplying goods along with necessary packing, transport, and insurance.⁶

Conversely, the rule for mixed supplies – applying the highest tax rate – serves a different purpose. It addresses situations where items, potentially taxable at varying rates (including lower or exempt rates), are bundled together artificially, often for a single promotional price.³ Applying the highest rate discourages taxpayers from strategically bundling high-tax goods or services with low-tax or exempt items solely to reduce the overall tax incidence on the high-tax component. This mechanism acts as an anti-avoidance measure, protecting the tax base from erosion through artificial bundling arrangements.³ Therefore, Section 8 embodies a dual objective: recognizing and simplifying tax on genuine economic bundles (composite supplies) while preventing potential revenue leakage from artificial combinations (mixed supplies).

II. Defining Key Concepts: Composite, Mixed, and Principal Supplies

Understanding the application of Section 8 necessitates a precise grasp of the definitions provided within the CGST Act for composite supply, principal supply, and mixed supply. These definitions, primarily located in Section 2 of the Act, lay the foundation for classification.

A. Composite Supply: Official Definition (Section 2(30))

Section 2(30) of the CGST Act, 2017, defines ‘composite supply’ 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”.⁴

Analyzing this definition reveals several essential components:

• Supplier and Recipient: The supply must be made by a taxable person to a recipient.⁴
• Multiple Taxable Supplies: It must consist of two or more taxable supplies. This implies that if all components are exempt, the concept may not directly apply for tax liability determination under Section 8, although the bundling itself might exist. However, a scenario where the principal supply is exempt but other components are taxable can still qualify as a composite supply, provided the principal supply is not classified as a non-taxable supply.²⁰
• Natural Bundling: The supplies must be ‘naturally bundled’. This suggests an inherent connection or expectation for these items to be supplied together.³
• Supplied in Conjunction: The components are provided together as part of a unified transaction.⁴
• Ordinary Course of Business: The bundling must be a normal practice within the relevant trade or industry.³
• Presence of a Principal Supply: Critically, one of the supplies within the bundle must qualify as the ‘principal supply’.³

The Act itself provides an illustration to clarify this definition:

“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”.4

In this example, the goods are the core item being supplied. The packing, transportation, and insurance are naturally associated services required to deliver the goods, typically provided together in the ordinary course of selling and delivering goods. Hence, it meets the criteria of a composite supply, with the goods identified as the principal element.

B. Principal Supply: Official Definition (Section 2(90))

The identification of a ‘principal supply’ is central to the concept of composite supply. Section 2(90) of the CGST Act defines it as:

“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”.⁴

The principal supply is thus the core or dominant component of the bundle.⁴ It represents the main objective of the transaction for the recipient and gives the composite supply its essential character.⁷ The other supplies included in the bundle are considered ancillary or incidental; they support, facilitate, or enhance the enjoyment of the principal supply.⁴

The significance of correctly identifying the principal supply cannot be overstated. As mandated by Section 8(a), the tax rate applicable to this principal supply dictates the rate applied to the entire value of the composite supply.²

C. Mixed Supply: Official Definition (Section 2(74))

Distinct from composite supply, ‘mixed supply’ is defined under Section 2(74) of the CGST Act as:

“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”.⁷

The key characteristics emerging from this definition are:

• Multiple Individual Supplies: It involves two or more supplies that are identifiable as distinct, individual items or services.¹
• Made in Conjunction: These individual supplies are offered together by the supplier.⁷
• Single Price: A crucial condition is that the entire bundle must be sold for a single, consolidated price.¹
• Not a Composite Supply: This is a defining negative condition. A supply can only be classified as a mixed supply if it fails to meet the criteria of a composite supply (i.e., it’s not naturally bundled, or lacks a principal supply, or components are readily separable in the ordinary course).¹
• Separability: Implicitly, the items in a mixed supply can typically be supplied separately and are not inherently dependent on each other.¹

The Act provides the following illustration for mixed supply:

“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”.1

This example contrasts sharply with the composite supply illustration. The items in the gift package (canned foods, sweets, etc.) are not naturally bundled; they are combined for convenience or as a promotional offer. Each item retains its individual identity and could be sold separately. The defining elements are the combination of distinct items and the single price, coupled with the absence of natural bundling.

D. Interpretational Considerations in Definitions

While the definitions aim to provide clarity, a critical examination reveals a reliance on terms that inherently involve subjective judgment. Concepts like “naturally bundled,” “ordinary course of business” ⁴, and “predominant element” ⁴ are not defined with mathematical precision within the Act.¹⁸ Their interpretation often requires looking beyond the statutory text to external factors. Determining what constitutes ‘natural’ bundling or the ‘ordinary’ course of business frequently depends on prevailing industry norms, established trade practices, and the reasonable perception of consumers or service recipients.⁷ Similarly, identifying the ‘predominant element’ to pinpoint the principal supply involves a qualitative assessment of which component gives the bundle its essential character, rather than a purely quantitative measure.¹⁸

This reliance on subjective criteria means that classifying supplies, particularly those near the borderline between composite and mixed, can be challenging and potentially contentious.¹⁸ What one taxpayer perceives as a natural bundle integral to their business might be viewed differently by tax authorities. Furthermore, the definition of mixed supply operates as a residual category.⁷ Its application is triggered only when a supply, offered for a single price, is definitively determined not to be a composite supply. This establishes a clear procedural hierarchy in classification: the assessment must always begin by evaluating whether the criteria for a composite supply are met.¹ Only upon ruling out composite supply does the possibility of classifying it as a mixed supply arise. This sequential logic is a crucial aspect derived directly from the interplay of the definitions. Consequently, despite the legislative goal of certainty ¹, the definitional framework introduces an unavoidable element of interpretational nuance, underscoring the importance of careful analysis and documentation in practice.

III. Composite Supply: Analysis and Tax Liability (Section 8(a))

Section 8(a) of the CGST Act governs the tax treatment of composite supplies. Understanding its application requires a deeper dive into the characteristics that define such supplies and the methodology for identifying the principal supply.

A. Essential Characteristics

A supply qualifies as a composite supply only if it exhibits a specific set of characteristics derived from the definition in Section 2(30):

• Naturally Bundled: This is the cornerstone characteristic. The constituent supplies are inherently linked and are usually provided together as a package in the normal course of business.³ Attempting to supply the components separately would often be impractical or alter the fundamental nature of the offering. This natural linkage is often dictated by the standard practices within a particular industry or business sector.⁷
• Supplied in Conjunction: The various components are delivered, performed, or made available together as part of a single, integrated supply transaction from the supplier to the recipient.⁴
• Ordinary Course of Business: The practice of bundling these specific goods and/or services must be a common or standard practice within the relevant business environment.¹ Several indicators can help ascertain this, although none are solely determinative:

• Consumer Perception: A large number of recipients reasonably expect to receive these services or goods as a package.⁷
• Industry Practice: The majority of service providers or suppliers in that particular business sector offer similar bundles.⁷ For example, airlines commonly bundle transport with on-board catering.⁶
• Marketing and Pricing: The bundle is often advertised as a package, potentially with a single price, although separate pricing does not automatically disqualify it if natural bundling exists.⁹

• Existence of Principal Supply: Within the naturally bundled items, one supply must be identifiable as the ‘principal supply’ – the main component driving the transaction – with the other components being ancillary or incidental to it.³
• Inseparability (in practice): While theoretically possible to unbundle, the components of a composite supply are typically not offered or priced separately in the ordinary course of business. Attempting to procure only the ancillary components without the principal supply would often not make commercial sense or be feasible.⁵ For instance, one wouldn’t typically purchase hotel laundry services without staying at the hotel ⁹, or buy an airline meal without the flight ticket.⁶

B. Identifying the Principal Supply

Correctly identifying the principal supply is paramount, as it dictates the tax treatment of the entire composite bundle under Section 8(a). The definition in Section 2(90) points to the “predominant element” test.⁴ This requires determining which supply forms the core essence of the transaction and to which the other supplies are merely ancillary.⁴

Several factors aid in this determination:

• Customer’s Primary Objective: What is the main good or service the customer seeks to acquire through this transaction?
• Essential Character: Which component gives the bundle its fundamental nature or identity?.⁷
• Value/Cost Contribution: While not solely decisive, the relative value or cost of the components can be an indicator, though the ‘predominant element’ is not strictly defined by value.¹⁸
• Ancillary Nature of Other Supplies: Are the other supplies necessary for, or incidental to, the effective provision or enjoyment of the main supply? Do they merely support or facilitate the principal supply?.⁴

Examples illustrate this identification process:

• Goods + Transport + Insurance: The primary objective is acquiring the goods; transport and insurance facilitate this delivery. Principal Supply: Goods.⁴
• Hotel Accommodation + Breakfast: The main service sought is accommodation; breakfast is an ancillary facility often included. Principal Supply: Hotel Accommodation.⁴
• Train Ticket (Rajdhani) + Meal: The core service is passenger transportation; the meal is an incidental offering during the journey. Principal Supply: Transportation of Passengers.⁶
• Television Set + Warranty: The customer buys the TV; the warranty is a related service enhancing the product’s value. Principal Supply: Television Set.³
• Hospital Stay (In-patient) + Food: Healthcare service is the primary reason for admission; food provided as per medical advice is ancillary to the healthcare. Principal Supply: Healthcare Services (Note: Healthcare services might be exempt, impacting overall tax liability).⁴

C. Determining Tax Liability (Section 8(a))

The rule for determining the tax liability of a composite supply is explicitly stated in Section 8(a) of the CGST Act:

“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”.²

The direct implication of this provision is that the entire value of the composite supply transaction is subject to the GST rate applicable to the identified principal supply.² The tax rates applicable to the ancillary components are disregarded for the purpose of calculating the tax on the bundle.

D. Detailed Examples and Case Studies

Examining specific examples and relevant clarifications provides practical insights into the application of composite supply rules:

• Example 1: Goods + Packing + Transport + Insurance: As established, the supply of goods is principal. If the goods are taxable at 18%, the entire invoice value (including charges for packing, transport, insurance) will be taxed at 18%.³
• Example 2: Hotel Accommodation + Breakfast: Accommodation is principal. The GST rate applicable to hotel accommodation services (which may vary based on tariff) applies to the total charge for the room and breakfast package.⁴
• Example 3: Laptop + Pre-installed Software: The laptop is considered the principal supply. The GST rate for the laptop applies to the combined price, irrespective of the rate applicable to software supplied independently.⁸
• Example 4: Train Ticket (Rajdhani) + Meal: Transportation of passengers by rail is principal. The 5% GST rate applicable to this service (as per the example source) applies to the total ticket fare including the meal component.⁶
• Example 5: Works Contracts: These contracts involve both goods (building materials) and services (construction, labour). While conceptually a composite supply, Schedule II of the CGST Act specifically deems works contracts to be a supply of service.⁴ Therefore, they are taxed at the rates notified for construction services, effectively overriding a case-by-case principal supply determination for rate application, although the underlying nature remains composite.
• Example 6: Restaurant Services: Supply of food or beverages by restaurants also involves both goods (food ingredients) and services (preparation, serving). Schedule II again provides a specific deeming fiction, classifying this as a supply of service.⁴ Specific GST rates apply to restaurant services, simplifying the tax treatment.
• Example 7: Printing Services (CBIC Clarification – Circular No. 11/11/2017-GST): This circular addresses the classification of printing contracts.²

• If the printer uses their own physical inputs (like paper) but prints content supplied by the recipient (e.g., printing books, brochures, annual reports), the principal supply is considered printing (a service), and the service GST rate applies.²
• However, if the supply is of printed goods like envelopes, letterheads, cartons, or boxes where the recipient provides the content (logo, name, address), the determination of principal supply depends on the facts. Often, if the physical item itself (envelope, box) holds significant value independent of the printing, the supply of goods might be considered principal.² This highlights the need for careful analysis in printing-related supplies.

• Example 8: Car Servicing (CBIC Clarification – Circular No. 47/21/2018–CGST): This circular addresses car servicing involving both parts (goods) and labour (services).² It clarifies that if the value of goods and services are shown separately on the invoice, they should be taxed at their respective applicable rates.² This suggests that invoicing practice can influence the tax treatment. If a single price were charged for the entire service, the composite supply rules would likely apply, often with the service component being principal. The circular implies that separate invoicing overrides the composite supply tax treatment under Section 8(a) for rate application purposes in this specific scenario.
• Example 9: Retreading of Tyres: In tyre retreading, the service of the retreading process is considered the predominant element, making it the principal supply. The rubber used is ancillary to this service.² The GST rate for the retreading service applies to the entire charge.
• Example 10: Selling Purified Water in Containers: An Advance Ruling Authority (AAR) ruling (in the case of Aquaa Care) determined that selling purified water filled in containers is a composite supply, as water cannot be sold standalone without a container in this context.² The supply of purified water was held to be the principal supply.²

E. Dynamics and Specific Provisions Affecting Composite Supplies

The concept of “natural bundling,” being central to composite supply, is inherently dynamic. It is shaped significantly by evolving industry norms, technological advancements, marketing strategies, and consumer expectations.⁷ What constitutes a ‘natural’ bundle in the ‘ordinary course of business’ is not static. For instance, services that were once commonly bundled (like free check-in baggage on airlines) might become unbundled over time, changing the landscape of what is considered ‘ordinary’. Consequently, businesses must continually assess their bundled offerings against the prevailing market context to ensure accurate classification as a composite supply. The classification isn’t a one-time determination but requires periodic review based on current business practices and consumer understanding.

Furthermore, while Section 8(a) provides the general principle for taxing composite supplies based on the principal element, its application is not absolute across all scenarios. Specific provisions within the GST framework can modify or override this general rule. As seen in the examples of Works Contracts and Restaurant Services, Schedule II of the CGST Act introduces deeming fictions, explicitly classifying these composite supplies as supplies of service for tax purposes.⁴ This legislative intervention dictates the classification and applicable tax rate, regardless of whether goods might constitute the predominant element in terms of value. Additionally, administrative clarifications, such as the CBIC circular regarding car servicing with separate invoicing ², demonstrate that procedural aspects like billing practices can influence the final tax calculation, potentially leading to separate taxation of components even within what might otherwise be considered a natural bundle. Therefore, taxpayers cannot rely solely on the Section 8(a) principle in isolation. A comprehensive approach requires considering specific classifications in the Schedules, relevant notifications, and administrative guidance issued via circulars, which may prescribe a specific treatment for certain types of composite supplies.

IV. Mixed Supply: Analysis and Tax Liability (Section 8(b))

When a bundled supply does not meet the criteria for a composite supply, it may fall under the category of a mixed supply, governed by Section 8(b) of the CGST Act. This classification carries distinct characteristics and a different method for determining tax liability.

A. Essential Characteristics

The defining features of a mixed supply, derived from Section 2(74), are:

• Not Naturally Bundled: This is the primary differentiator from composite supply. The combination of goods and/or services is artificial, often created for promotional purposes, convenience, or as a marketing strategy, rather than arising from the inherent nature of the items or standard business practice.¹ The items lack an intrinsic link that necessitates their bundling.
• Separable Items: Each constituent good or service within the bundle retains its individual identity and can, in principle and often in practice, be supplied independently.¹ The supply of one component is not necessarily dependent on the supply of another within the bundle.
• Single Price: This is a mandatory condition for a bundle to be classified as a mixed supply. The entire package must be offered to the recipient for one consolidated price.¹ If the supplier invoices the items separately, even if delivered together, the transaction does not qualify as a mixed supply under Section 2(74), and the respective tax rates would apply to each item.¹⁶

B. Distinction from Composite Supply

The relationship between mixed and composite supply is one of mutual exclusion, defined sequentially. The critical test involves first evaluating whether a bundled supply meets the definition of a composite supply.¹ Does it consist of two or more taxable supplies? Are they naturally bundled? Are they supplied in conjunction in the ordinary course of business? Is there an identifiable principal supply? If the answer to these questions leads to a classification as composite supply, then it cannot be a mixed supply.

Only if the supply fails the composite supply test (i.e., it is determined not to be naturally bundled, or lacks a principal supply, or its components are readily separable and individually supplied in the ordinary course) and it is offered for a single price, does it default to being classified as a mixed supply.¹ This hierarchical approach underscores that mixed supply is essentially a residual category for bundled supplies sold at a single price that do not fit the ‘natural bundle’ paradigm.

C. Determining Tax Liability (Section 8(b))

The rule for determining the tax liability of a mixed supply is stipulated in Section 8(b) of the CGST Act:

“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”.¹

The implication is clear: the entire value of the mixed supply bundle is subjected to the highest rate of GST applicable to any single component within that bundle.¹ This contrasts sharply with the composite supply rule, where the principal supply’s rate governs. For mixed supplies, the tax treatment is driven by the component with the peak tax rate, irrespective of its value or significance within the bundle.

D. Detailed Examples and Case Studies

Practical examples help illustrate the concept and tax treatment of mixed supplies:

• Example 1: Diwali Gift Hamper: A pre-packaged hamper containing items like canned foods (e.g., 12% GST), sweets (e.g., 5% GST), chocolates (e.g., 18% GST), dry fruits (e.g., 5% GST), and aerated drinks (e.g., 28% GST + Cess), sold for a single price.¹ Since these items are not naturally bundled and can be sold separately, and the bundle is offered for a single price, it’s a mixed supply. The highest tax rate applicable is to the aerated drinks (28% + Cess). Therefore, the entire value of the hamper will be taxed at 28% + Cess.³
• Example 2: Refrigerator + Storage Water Bottles: A retailer offers a refrigerator bundled with a set of storage water bottles for a single promotional price.³ These items are independent and not naturally bundled. If the refrigerator attracts 18% GST and the bottles attract 12% GST, the entire bundle is taxed at the higher rate of 18%.³
• Example 3: Detergent + Free Bucket: A common promotional offer where a bucket is given ‘free’ with a large pack of detergent powder, sold for a single price.⁵ The detergent and bucket are distinct items. If the detergent has a higher GST rate (e.g., 28%) than the bucket (e.g., 18%), the entire sale value is taxed at 28%.⁶
• Example 4: Combo Offer (Laptop + Headphones + Pen Drive): A tech store bundles a laptop, headphones, and a pen drive for a special combo price.²³ Assuming these can be sold separately and are bundled for promotion, it’s a mixed supply. If the laptop is taxed at 18%, headphones at 18%, and the pen drive at 18%, the highest rate is 18%, which applies to the combo. If one item had a higher rate (e.g., 28%), that rate would apply to the entire package.²³
• Example 5: Renting a Building (Part Residence, Part Commercial): A single property is rented out under one lease agreement (implying a single price/rent) where one floor is used for residence (potentially exempt or lower tax rate) and another floor for housing a commercial printing press (taxable at standard rates).¹ This is not considered a natural bundle of services in the ordinary course. Therefore, it constitutes a mixed supply. The entire rent received under the single deed will be taxed at the rate applicable to the commercial renting service, as this attracts the higher tax liability.¹
• Example 6: UPS + Battery: While functionally linked, if a UPS and its battery are sold together under a single contract for a combined price, and they are considered capable of being supplied separately (perhaps different brands or specifications available individually), it could be argued as a mixed supply.⁵ The tax rate applicable would be the higher of the rates applicable to the UPS and the battery individually.⁵ (Note: Classification here can be debatable, potentially leaning towards composite if market practice treats them as an inseparable unit).

E. Pricing Strategy and Tax Implications

The “single price” criterion is a definitive gatekeeper for classifying a bundle as a mixed supply.⁷ If a supplier combines items that are not naturally bundled but lists separate prices for each component on the invoice, the transaction, by definition, cannot be a mixed supply. In such cases, each item would simply be taxed at its own applicable GST rate. This provides businesses with a clear choice when designing promotions involving non-naturally bundled items: offer a single, potentially attractive, consolidated price, but bear the consequence of the highest tax rate applying to the entire value; or, maintain price transparency by itemizing components, thereby applying individual tax rates, which might result in a lower overall tax burden but potentially less marketing appeal than a single bundled price. This contrasts with composite supplies where the concept of natural bundling is primary, and while often sold for a single price, separate invoicing (as suggested by the car servicing circular ²) might, in specific contexts, lead to separate tax calculations without necessarily negating the underlying composite nature conceptually.

The “highest rate” rule embedded in Section 8(b) carries significant strategic implications for businesses, particularly concerning promotional activities and product bundling.³ When creating bundles like gift hampers or combo deals involving items with disparate tax rates (e.g., mixing standard-rated goods with luxury items or even exempt supplies), the inclusion of even a single high-tax item can dramatically increase the effective tax cost for the entire bundle if sold for a single price.³ This potential tax escalation needs careful consideration. It might render a promotion less attractive to consumers once the final price inclusive of the higher GST is calculated, or it could significantly erode the seller’s profit margin if they choose to absorb the additional tax cost. Consequently, the Section 8(b) rule compels businesses to strategically evaluate the tax rate mix of products included in single-price, non-naturally bundled offers. This might incentivize creating bundles with items taxed at similar rates, avoiding the inclusion of very high-tax items, or opting for itemized pricing within the bundle to circumvent the highest rate rule altogether.

V. Comparative Overview: Composite vs. Mixed Supply

Distinguishing between composite and mixed supplies is crucial for correct GST compliance. A clear understanding of their contrasting features and tax implications is essential for businesses and tax professionals.

A. Key Differences Summarized

The following table encapsulates the fundamental distinctions between composite and mixed supplies under the CGST Act, 2017:

Feature	Composite Supply	Mixed Supply
Nature of Bundling	Naturally bundled; supplied together in the ordinary course of business.4	Not naturally bundled; artificial combination for convenience or promotion.1
Separability	Components are typically inseparable in the ordinary course; supplying ancillary parts alone is unusual.6	Components are individual supplies and can be supplied separately.5
Principal Element	Contains one identifiable ‘principal supply’ which gives the bundle its essential character.4	No inherent principal supply; components are independent.6
Basis of Tax Rate	Tax rate applicable to the Principal Supply applies to the entire bundle.2	Tax rate applicable is the Highest Rate among all components in the bundle.3
Primary Condition(s)	Natural bundling, ordinary course of business, presence of principal supply.4	Combination of two or more individual supplies for a Single Price, AND Not being a composite supply.6

This comparative view serves as a practical tool for classification. It highlights that the core distinction lies in the ‘natural bundling’ aspect versus an artificial combination, which in turn dictates the method for determining the applicable tax rate.

B. Guidance on Classification

The process for classifying a bundled supply under Section 8 should follow a sequential logic:

1. Evaluate for Composite Supply: The first step is always to determine if the supply meets the criteria of a composite supply as defined in Section 2(30). Are the components naturally bundled? Is the bundling done in the ordinary course of business? Is there an identifiable principal supply?.¹
2. If Composite, Apply Section 8(a): If the supply qualifies as a composite supply, identify the principal supply and apply its GST rate to the entire value of the supply as per Section 8(a).
3. If Not Composite, Evaluate for Mixed Supply: If the supply fails the composite supply test, the next step is to check if it meets the conditions for a mixed supply under Section 2(74). Are two or more individual supplies being made in conjunction? Is it offered for a single price?.¹
4. If Mixed, Apply Section 8(b): If the supply is not composite and meets the single price condition for a bundle of individual supplies, it is classified as a mixed supply. Identify the component attracting the highest rate of tax and apply that rate to the entire value of the supply as per Section 8(b).
5. If Neither: If a bundle fails the composite test and is not sold for a single price (i.e., components are priced separately), then neither Section 8(a) nor 8(b) applies directly to the bundle as a whole. In such cases, each component is treated as an independent supply and taxed at its respective applicable rate.

This structured approach ensures adherence to the definitions and the hierarchy established by the Act. Crucially, the determination of ‘natural bundling’ and ‘ordinary course of business’ requires careful consideration of industry practices, consumer perceptions, and the specific facts and circumstances surrounding the supply.² Maintaining documentation that supports the rationale behind the classification chosen is highly advisable for audit purposes.

C. Importance of Documentation and Judgment

The classification framework under Section 8, while aiming for clarity, inherently relies on judgment, particularly concerning the concept of ‘natural bundling’ for composite supplies.⁷ The legislative structure prioritizes taxing bundles based on their economic substance where a natural link exists (composite supply).⁴ The mixed supply rule, with its potentially higher tax incidence, acts as a backstop for artificial combinations sold at a single price.⁶

However, because terms like ‘natural’ and ‘ordinary’ are subjective, the burden often falls on the taxpayer to substantiate their classification, especially when claiming composite supply treatment. Tax authorities may challenge a classification based on their interpretation of the facts or industry norms. Therefore, businesses must not only perform a thorough analysis based on the legal definitions and guidance but also maintain robust internal documentation. This documentation should clearly articulate the reasoning behind classifying a particular bundled offering as either composite (justifying the natural bundle and identifying the principal supply) or mixed. Consistent application of classification principles across similar transactions is also important. Such documentation becomes vital in demonstrating due diligence and defending the chosen classification during assessments or audits.¹⁹ The framework demands careful factual analysis and reasoned judgment, making documentation a key element of compliance strategy.

VI. Official Text and References

For precise application and legal reference, consulting the official text of the relevant provisions and authoritative clarifications is essential.

A. Verbatim Text of Section 8, CGST Act, 2017

Section 8 of the Central Goods and Services Tax Act, 2017, reads as follows:

“8. Tax liability on composite and mixed supplies.— The tax liability on a composite or a mixed…source to address specific interpretational issues and provide guidance on the application of these principles in particular scenarios. Key examples include:

• Circular No. 11/11/2017-GST dated 20.10.2017: This circular clarified the classification of supply of books, pamphlets, brochures, etc., printed with content/design supplied by the recipient. It distinguished between scenarios where printing is the principal supply (service) versus where the printed good itself is principal, emphasizing the need to determine the principal supply based on the transaction’s specifics.²
• Circular No. 47/21/2018–CGST dated 08.06.2018: This addressed the taxability of car servicing involving both spare parts (goods) and labour (services). It notably stated that if the values of goods and services are shown separately on the invoice, they are to be taxed at their respective applicable rates, suggesting a potential deviation from the standard composite supply tax treatment based on invoicing practice in this context.²

Additionally, rulings by the Authority for Advance Rulings (AAR) and the Appellate Authority for Advance Rulings (AAAR), such as the Aquaa Care ruling on water sold in containers ², offer insights into how these provisions are interpreted in specific factual situations. However, it is important to note that AAR/AAAR rulings are legally binding only on the applicant and the jurisdictional tax officer concerning the specific transaction ruled upon, though they hold persuasive value for others.

C. Interconnectedness of GST Law Provisions

The concise wording of Section 8, while providing the fundamental rules for taxing bundled supplies, highlights the interconnected nature of the GST legislation. Effective application of Section 8 is impossible without referring to other parts of the CGST Act and related materials. The definitions of “composite supply,” “mixed supply,” and “principal supply” provided in Section 2 are prerequisites for applying Section 8.¹⁷ Furthermore, specific classifications mandated in the Schedules to the Act, such as Schedule II deeming works contracts and restaurant services as supplies of service ⁴, directly impact the tax treatment, sometimes overriding the general principal supply rule of Section 8(a) for rate determination.

Moreover, the practical application often requires consulting supplementary guidance issued by the CBIC through circulars, which clarify ambiguities or address specific industry practices.² This multi-layered structure – involving the main provision (Section 8), definitions (Section 2), specific classifications (Schedules), and administrative interpretations (Circulars) – demonstrates that navigating the tax treatment of bundled supplies requires a holistic understanding of the relevant legal framework. Taxpayers must consult these interconnected sources to ensure accurate compliance, as relying solely on the text of Section 8 can be insufficient in complex or specific scenarios.

VII. Conclusion and Practical Implications

Section 8 of the CGST Act, 2017, provides a structured framework for determining the tax liability on bundled supplies, categorizing them into composite and mixed supplies to ensure certainty and prevent ambiguity in taxation.¹

A. Summary of Tax Treatment under Section 8

In essence, Section 8 mandates that:

• Composite Supplies, characterized by natural bundling in the ordinary course of business with an identifiable principal supply, are taxed at the rate applicable to that principal supply.
• Mixed Supplies, comprising artificially bundled individual items sold for a single price, are taxed at the highest rate applicable to any constituent item within the bundle.

This dual approach aims to tax genuine business combinations based on their economic essence while applying a stricter rule to potentially contrived bundles to safeguard revenue.

B. Recommendations for Businesses

To navigate the complexities of Section 8 effectively and ensure compliance, businesses should adopt the following practices:

• Meticulous Classification: Carefully analyze all bundled offerings against the definitions in Section 2 and the criteria outlined in Section 8. Distinguish rigorously between natural bundles (composite) and artificial combinations (potentially mixed).⁸
• Accurate Identification: For composite supplies, correctly identify the principal supply based on the ‘predominant element’ test. For mixed supplies, accurately determine which component attracts the highest tax rate.¹⁹
• Strategic Pricing and Bundling: Evaluate the tax impact of offering non-naturally bundled items for a single price due to the Section 8(b) highest rate rule. Consider whether separate pricing for components is more advantageous from a tax perspective, balancing it against marketing objectives.
• Clear Invoicing: Ensure invoices accurately reflect the nature of the supply. While a single price is common for composite supplies, clear descriptions can aid classification. For mixed supplies sold at a single price, the highest rate applies; consider itemized invoicing if seeking to apply individual rates to non-naturally bundled items.
• Robust Documentation: Maintain detailed records justifying the classification of bundled supplies. For composite supplies, document the rationale for ‘natural bundling’, ‘ordinary course of business’, and the identification of the ‘principal supply’. This documentation is crucial for substantiating the classification during audits.
• Continuous Monitoring: Stay informed about relevant CBIC circulars, notifications, and judicial/quasi-judicial pronouncements (including AAR/AAAR rulings for their persuasive value) that may provide further guidance or interpretation on the application of Section 8.²

C. Potential Challenges and Final Thoughts

Despite the framework provided by Section 8, challenges remain, primarily stemming from the subjective nature of terms like “naturally bundled” and “predominant element”.¹⁸ These terms can lead to differing interpretations between taxpayers and tax authorities, potentially resulting in disputes over classification and tax liability.

In conclusion, Section 8 of the CGST Act establishes essential rules for taxing bundled supplies, contributing significantly to certainty in the GST regime. However, its practical application demands diligent analysis of each transaction’s specific facts and circumstances, careful consideration of related legal provisions and administrative clarifications, strategic decision-making regarding pricing and bundling, and meticulous documentation to support classification choices.⁸ Adherence to these practices is vital for businesses to manage their GST obligations effectively and mitigate risks associated with the complexities of composite and mixed supplies.

Works cited

1. Composite Supply and Mixed Supply – GST Council,   https://www.gstcouncil.gov.in/sites/default/files/e-version-gst-flyers/Composite%20supply%20&%20Mixed%20Supply-050819.pdf
2. Section 8 – GST liability on composite and mixed supplies,   https://gstgyaan.com/section-8-gst-liability-on-composite-and-mixed-supplies
3. Understanding the Importance of Composite and Mixed SupplY – ICMAI,   https://icmai.in/TaxationPortal/upload/IDT/Article_GST/108_1.pdf
4. Composite and Mixed Supply | PDF – Scribd,   https://fr.scribd.com/document/607031103/Composite-and-Mixed-Supply
5. GST Composite Supply with Examples – Tally Solutions,   https://tallysolutions.com/gst/gst-composite-supply/
6. Mixed Supply and Composite Supply under GST – ClearTax,   https://cleartax.in/s/mixed-composite-supply-gst
7. GST- Section 8 Tax liability on composite and mixed supplies,   https://taxguru.in/goods-and-service-tax/gst-section-8-tax-liability-composite-mixed-supplies.html
8. GST on Composite & Mixed Supplies under CGST Act, 2017 – TaxGuru,   https://taxguru.in/goods-and-service-tax/gst-composite-mixed-supplies-cgst-act-2017.html
9. Difference Between Mixed Supply and Composite Supply Under GST – CaptainBiz,   https://www.captainbiz.com/blogs/difference-between-mixed-supply-and-composite-supply-under-gst/
10. Explore – CBIC,   https://taxinformation.cbic.gov.in/content-page/explore-act/1000277/1000001
11. CGST ACT – Section 8 – CGGST,   https://www.cggst.com/wp-content/uploads/2017/11/CGGSTActSection-8.pdf
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14. mixed supply – Tax Information – CBIC!,   http://taxinformation.cbic.gov.in/content-page/explore-act/1000277/1000001
15. BRIEF FACTS: – GST Council,   https://www.gstcouncil.gov.in/sites/default/files/AAR/gujarat_aar_order_no.52-2022_doms_industries_pvt_ltd.pdf
16. GST (GOODS AND SERVICES TAX) – Composite Supply and Mixed Supply – CBIC-GST,   https://cbic-gst.gov.in/pdf/e-version-gst-fliers/Composite-Mixed-Supply-Online-Version_20_July.pdf
17. cbic-gst.gov.in,   https://cbic-gst.gov.in/pdf/CGST-Act-Updated-30092020.pdf
18. Composite and Mixed Supplies under GST: Demystifying the Conceptual Tenets,   https://www.scconline.com/blog/post/2021/09/02/composite-and-mixed-supplies-under-gst-demystifying-the-conceptual-tenets/
19. Composite Supply under GST: Taxes, Examples, and Mixed Supply Comparison,   https://blog.tatanexarc.com/msme/composite-supply-under-gst-taxes-examples-and-mixed-supply-comparison/
20. apmhconsulting.com,   https://apmhconsulting.com/blogs/composite-supply-and-mixed-supply#:~:text=The%20two%20or%20more%20supplies,of%20the%20Central%20Goods%20and
21. Difference Between Mixed Supply & Composite Supply under GST – Tax2win,   https://tax2win.in/guide/difference-between-mixed-supply-composite-supply-gst
22. Difference Between Composite Supply and Mixed Supply Under GST – Pice,   https://piceapp.com/blogs/difference-between-composite-supply-and-mixed-supply-under-gst/
23. Understanding Mixed Supply & Composite Supply under GST – Swipe,   https://getswipe.in/blog/article/mixed-supply-and-composite-supply-under-gst
24. Difference Between Mixed Supply and Composite Supply Under GST – StartupFino,   https://www.startupfino.com/blogs/difference-between-mixed-supply-and-composite-supply-under-gst/
25. Composite Supply & Mixed Supply under GST (Example & Difference) | Zoho Books, https://www.zoho.com/in/books/gst/what-is-mixed-composite-supply-under-gst.html