THE CHAMBER OF TAX CONSULTANTS 3, Rewa Chambers, Ground Floor, 31, New Marine Lines, Mumbai - 400 020 Tel.: 2200 1787 / 2209 0423 / 2200 2455 E-mail: office@ctconline.org Website: www.ctconline.org INDIRECT TAX STUDY CIRCLE MEETING ON 23 RD APRIL, 2019 Jai hind College, A. V. Room, 4th Floor, A Road, Churchgate, Mumbai – 400 020 ISSUES UNDER MIXED & COMPOSITE SUPPLY CA Aditya Surte 1. INTRODUCTION At the very outset, we must first come to consensus as to the need and consequence of identifying a supply as a composite or a mixed supply. Identifying a transaction as a composite or mixed supply is essential to determine the applicable rate of tax. The Indian GST tariff has seven rates of taxes as of today – 0%, 0.25%, 3%, 5%, 12%, 18% and 28%. Additionally there is a cess on demerit and sin goods resulting in more tax slabs. Multiple tax slabs breed classification disputes. Similarly, provisions relating to time of supply and place of supply of goods are at a variance than those for services under the GST law. As such, in case of a transaction involving supply of goods and services, identifying whether the supply is classified as a supply of goods or supply of services is critical to know when and how much of tax is to be paid and whether the transaction is in the nature of intra-State or inter-State supply. 2. WORKS CONTRACT VIS-À-VIS COMPOSITE SUPPLY 2.1. A composite contract involving supply of goods and labour, popularly known as “works contract” under the earlier sales tax laws, has an elaborate and well known history. Under the erstwhile tax regime, the controversy was primarily with regard to the power of the State Governments to tax the sale element involved in such contracts. That aspect of the controversy has been put to rest under the GST regime, with the Centre and States having equal power to levy GST. 2.2. Sec.2(119) of the CGST Act, 2017 defines a works contract to mean a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in Issues under Mixed & Composite Supply by CA. Aditya Surte Page 1 of 9
goods (whether as goods or in some other form) is involved in the execution of such contract. 2.3. Para 6 of Schedule II appended to the CGST Act states that following composite supplies shall be treated as a supply of services: (a) works contract as defined in clause (119) of section 2. 2.4. We may, therefore, conclude that a works contract is a composite supply in relation to an immovable property. Any contract wherein transfer of property in goods (whether as goods or in some other form) is involved and such contract is in relation to a movable property would no longer qualify to be a works contract. The contract will then have to be looked at from the lenses of a “composite supply”. 2.5. Another aspect that must be noted is that the crux of whether a particular supply would be classified as a composite supply or works contract lies in the determination of the fact as to whether the supply is in relation to a movable or immovable property. There have been a number of advance rulings delivered by the Authorities of different States on this very aspect already. Following are a few instances of advance rulings delivered by the Maharashtra ARR: Giriraj Renewables (Order No. GST-ARA-01/2017/B-01 dated 17/02/18) Fermi Solar Farms (Order No. GST-ARA-03/2017/B-03 dated 03/03/18) Eiffel Hills & Dales Developers (P.) Ltd. (GST-ARA-46/2018-19/B-119 dated 25/09/18) Allied Digital Services (GST-ARA-90/2018-19/B-159 dated 19/12/18) 3. HISTORY OF COMPOSITE & MIXED SUPPLY 3.1. The concept of composite and mixed supply is akin to that of “bundled services” under the erstwhile Service Tax regime. Sec. 66F of the Finance Act, 1994 defined a “bundled service” to mean a bundle of provision of various services wherein an element of provision of one service was combined with an element or elements of provision of other services. The taxability of such bundled services was determined under sub-section (3) of sec. 66F as follows: (a) If various elements of a bundled service were naturally bundled in the ordinary course of business, it was to be treated as provision of a single service which gave the bundle its essential character. (b) If various elements of such service were not naturally bundled in the ordinary course of business, it was to be treated as provision of the single service which resulted in highest liability of service tax. 3.2. Clause (a) of sub-section (3) of section 66F of the Finance Act, 1994 is what we know today as “composite supply” and clause (b) is what has been propounded as “mixed supply” under the GST law. 4. MEANING OF COMPOSITE AND MIXED SUPPLY 4.1. Composite Supply Issues under Mixed & Composite Supply by CA. Aditya Surte Page 2 of 9
4.1.1. Sec. 2(30) of the CGST Act defines a “ composite supply ” to mean 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. 4.1.2. On a close examination of the definition, following essential characteristics of a composite supply are noticed: a) The supply should consist of two or more taxable supplies; b) The supply may be of goods or services or both, or any combination thereof; c) Such supplies should be naturally bundled and supplied in conjunction with each other in the ordinary course of business; d) One of the supplies should be a principal supply. 4.1.3. Sec. 2(90) of the CGST Act defines a “principal supply” as the supply which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary. 4.1.4. The phrases “naturally bundled” and “predominant element” have not been defined under the Act. 4.2. Mixed Supply 4.2.1. Sec. 2(74) of the CGST Act defines a “mixed supply” as 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. 4.2.2. On studying the definition of mixed supply, following characteristics become evident: a) The goods and/or services supplied together have an identity independent of each other. These goods or services can be bought and sold individually and the supply of one does not necessitate the supply of the other. b) No individual price is assigned to any of the goods and/or services supplied together and they are deliberately supplied for a single consolidated price. c) The supply should not constitute a “composite supply”. This means that the supplies are not naturally bundled and supplied conjointly in the ordinary course of business, and none of the supplies qualifies as the principal supply. Issues under Mixed & Composite Supply by CA. Aditya Surte Page 3 of 9
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