👍👍👍👍👍Tax liability on Composite & Mixed Supply under GST act 2017

Clipped from: https://taxguru.in/goods-and-service-tax/tax-liability-composite-mixed-supply-gst-act-2017.html

In this article provisions regarding levy of tax on composite supply and mixed supply are discussed.

Levy of GST on supply of goods or service.

Section 9 of the act, which  is charging section, state that  taxable person is liable to pay tax on all  supplies of goods or services or both, on the value of such supply as determined  as per section 15 , at  the rate notified by the Government.

Scope of the term ” Supply “ has been defined in the section 7 of the act. Accordingly, supply includes all  forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease, or disposal made or agreed to be   made for consideration, by a person during the course of business. Import of services for consideration whether or not in the course of business is also supply. Activities specified in the schedule I made without considerations has been deemed as supply.

In order to understand concept of  “composite supply “ and “ mixed supply” under GST, it is necessary to understand scheme of levy of tax and liability of taxable person on supply of goods or service under GST act.

Once, it is confirmed that taxable person has made any supply within ambit of section 7, it is necessary to determine value of such supply for collection and payment of tax. Section 15 of the act deals with value of supply. Accordingly, value of supply shall be the transaction value, which is actually paid or payable for the said supply, where supplier and recipient are not related and price is the sole consideration for supply.

Next question arises when taxable person is liable to pay tax on supply. Taxable person is liable to pay tax at the time of supply of goods or service. Since different provisions prescribed for time of supply for goods and services, taxable person require to determine nature of supply ( whether supply of goods or service ) after considering definition of goods and service. Section 12 prescribe the provisions related to time of supply of goods and section 13 prescribes provisions related to supply of service. Taxable person is required to determine date of liability ie time of supply by applying criterion stipulated in the said provisions and issue Tax invoice, and  pay tax in the relevant tax period by filing return.

Thereafter, next question regarding tax liability on any transaction is classification of supply which decide rate of tax applicable on supply. Section 9(1) of the act state that taxable person shall collect and pay tax on all supplies at rate notified by the Government. Accordingly, Government has issued various notification for taxable schedule of goods , taxable schedule for taxable services, nil rated goods /services, exempted goods / services, under CGST/SGST/IGST act and notified tax rates for all supplies of goods or services. Taxable person is required to determine rate of tax on supply by considering said notification.

The taxable event under GST is supply of goods or services or both. GST will be payable on every supply of goods or services or both unless otherwise exempted. The rates at which GST is payable for individual goods or services or both is also separately notified. Classification of supply (whether as goods or services, the category of goods and services) is essential to charge applicable rate of GST on the particular supply. The application of rates will pose no problem if the supply is of individual goods or services which is clearly identifiable and the goods or services are subject to a particular rate of tax. But not all supplies will be such simple and clearly identifiable supplies. Some of the supplies will be a combination of goods or combination of services or combination of goods and services both. Each individual component in a given supply may attract different rate of tax. The rate of tax to be levied on such supplies may pose a problem in respect of classification of such supplies. It is for this reason, that the GST  act  identifies  Composite Supply and Mixed Supply to provides certainty in respect of tax treatment under GST for such supplies.

Therefore, in order to understand tax implications on composite and mixed supply, it is worthwhile to analyse the provisions relating to composite supply, mixed supply, and principal supply . relevant provisions are reproduced hereunder for ready reference.

Tax liability on Composite and Mixed Supply 

Definition of Composite supply under section 2(30) of the act.

“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;”

Definition of principal supply- section 2(90).

“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”

Definition of mixed supply under section 2(74) of the act

“ 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.  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.”

Scope of principal supply.

In the composite supply there are always more than two taxable supplies. Out of which one which is predominant and essential in character is termed as principal supply and other supplies of composite supply are ancillary supplies. Correct determination of principal supply has great significance as tax liability in composite supply is depend on rate applicable to principal supply.

Ambit and scope of composite supply.

In view of definition of composite supply, in order to constitute composite supply, following conditions are to be satisfied.

A) supplies should made by taxable person.

B) it must be combination of two or more supplies of goods or services or both.

C) these supplies must be naturally bundled.

D) these must be supplied in conjunction with each other.

E) one of the supply must be principal supply as defined u/s 2(90) of the act.

F) It may be for single price for all supplies or separate price for each supplies.

If all above conditions are satisfied in the given transaction, then it would be classified as composite supply and it will be treated as supply of principal supply and tax  applicable to principal supply will be levied on composite supply.

Concept of composite supply under GST is identical to the concept of naturally bundled service prevailing under earlier service tax regime. No specific formula has prescribed in the GST law to determine naturally bundled service in the ordinary course of business. In each case it is to be determine by considering the facts and provision u/s 2(30) & 2(90). However, in the act itself one illustration of composite supply is inserted in section 2(30) of the act. Accordingly, 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. Thus supply of goods, supply of transportation and insurance service, supply of packing material are naturally bundled supplies in the ordinary course of business and  it is combination of  more than two taxable supplies which are supplied in conjunction to each other. Most importantly supply of goods is principal supply. Hence, it is composite supply since all conditions has satisfied. It is crystal clear that supplies involving supply of goods and transportation of said goods are certainly naturally bundled supplies with supply of good is principal supply.

Scope of mixed supply

In order to determine mixed supply taxable person has to satisfy following conditions.

A) it must be combination two or more individual supplies of goods or services.

B) must be supplied in conjunction to each other by taxable person.

C) such supply should not be composite supply.

D) it must be supplied for single price.

It is pertinent to note that supply can be mixed supply if it is not composite supply. Thus, if transactions consist of supplies which are not naturally bundled in the ordinary course of business then it would be mixed supply which required to classify in term of supply of goods or service attracting highest rate of tax. However, in the act itself one illustration of mixed supply is inserted in section 2(74) of the act.

Tax liability on composite supply and mixed supply under section 8

Section 8-  ” The tax liability on a composite or a mixed supply shall be determined in the following manner, namely:—

(a) 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; and

(b) 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. “

Section 8 prescribe method of determination of tax liability on composite supply and mixed supply. In case of composite supply, such supply shall be treated as supply of principal supply and tax applicable to such principal supply would apply to composite supply. However, in the case of mixed supply it should be treated as supply of   goods or service attracting highest rate of tax.

In view of aforesaid discussion, it is clear that where taxable person has supplied combination of two or more supplies and which found as composite supply within meaning of section 2(30) of the act,  such composite supply shall be treated as supply of principal supply of said composite supply and tax should be levied on  all supplies ie ancillary supplies at  the rate applicable to  principal supply. If rate of tax applicable to principal supply is nil or zero or exempted then rate of tax applicable to composite supply ( including ancillary supplies ) will be nil or zero or exempted respectively. Act does not empower to segregate supplies involving under composite supply for the purpose of levy of tax.

Some important advance ruling on “ mixed supply”

In the case of M/s HP India Sales (P) Ltd (2019- order of  Maharashtra Appellate  Authorityfor Advance ruling ) , the Appellate authority has held that “ it was rightly held by the AAR that the supply of ElectroInk along with the other consumables comprising of blanket, photo imaging plate, binary ink developers, HP imaging oil, blanket web and other machinery products is ‘mixed supply’ and not ‘composite supply’.

In the case of M/s Switching Avo Electro power Ltd (2018 -order of West Bengal Appellate Authority for Advance ruling ) the Appellate authority has held that battery sold separately with UPS ( which is not inbuilt) is not composite supply but is mixed supply as goods are not naturally bundled . It is further observed that storage battery has multiple uses and can be put to different uses.

In the  case of M/s Infobase Services (P) Ltd  (2019 Order of The Advance Ruling Authority of West Bengal )   the Advance ruling authority has observed that” the applicant is making a bundled supply to the Club of printing service and intermediary service for selling space for advertisement on behalf of Club and charging single price for the bundle as the project cost of printing. The two services are not naturally bundled nor supplied in conjunction with each other in the ordinary course of business and said supply of bundle of services  for single price  does not constitute  as composite supply and is mixed supply.”

In the case of  M/s Kalani Infrastructure (P) Ltd  ( 2021 order of Rajasthan Appellate Authority for Advance ruling)  the Appellate authority has observed that the provision of hostel accommodation along with food, gym etc facilities to the students wherein consolidated amount is charged is mixed supply as supplies of said services  is not naturally bundled.

Some important advance ruling on “ Composite supply “.

In the case  of M/s Siemens Ltd ( order of  Maharashtra Appellate  Authority  for Advance ruling dated 23-08-2019 )  the applicant has been awarded two separate contract for supply of goods and supply some services including  transportation of goods. The  Applicant had sought a ruling as to whether the freight charges recovered by them from the customer without issuance of consignment note will be eligible for exemption from GST as per notification 12/2017-CTR, Sr. no. 18. The applicant has contended  “that two contracts are independent and distinct, having different scope of works, separate consideration and separate invoices. These two contracts can not be composite contract and should be treated separately. Provision of service of transportation should be treated separately for levy of tax and said service is exempted as per notification.

The Authority for advance ruling has held that “ that supply of goods, their transportation to the contractee’s site delivery and related services are not separate contracts but only form part of an indivisible composite works contract supply. Composite nature of the contract is clear from the fact that the first contract cannot be performed satisfactorily unless the goods have been transported and delivered to the contractor’s site . Inasmuch as the two contracts are not separately enforceable.  Therefore, the supply is in the nature of ‘Composite supply of Works Contract’ which is a service and would be taxable @18% in terms of notfn. 11/2017-CTR .”  Being  aggrieved by the ruling of AAR, applicant as filed  appeal before the AAAR.

The Appellate Authority has upheld  ruling of the  Advance Ruling Authority and observed that  (para 42,43 and 44)

Para 42 – The two contracts for supply of the goods and allied services are not separately enforceable. The recipient has not contracted for ex- factory supply of materials, but for the composite supply. It is important that these two contracts if were separate and independent then inclusion of clause 2.1 was in fact not necessary. But by including the said  clause the PGCIL has created interdependency between the two contracts  so as to ensure the quality of the material and effective performance in execution of services related to contracts. It is seen from agreement that though the parties have entered into distinct and separate contracts, one for transfer of material and other for supply of services, this is in effect a single instrument embodying the intention of the parties.

Para 43 – Thus, from the above it is seen that supply of goods and supply of services are inextricably linked with each other. The contract awarded in substance and  essence is composite contract as defined in section 2(30) of the act for supply of goods and service. A reading of definition of ‘composite supply ’ under section 2(30) shows that there should be a). Two or more taxable supplies; b) of goods or services or both; c) or in combination thereof; d) which are naturally bundled and supplied in conjunction with each other; e) in the ordinary  course of business. f) one of which is principal supply.

Para 44 – The contract involve two supplies, one for supply of goods and other for the supply of services. The contracts fulfil the conditions of ‘ composite supply ‘. There is supply of goods and services. They are naturally bundled in the sense that both goods and services may require to fulfill  the intention of the buyer in giving contract. The supply of goods and services are provided as package and if one or more is removed, nature of  supply would be affected. Thus, we hold that though there are two contracts made one for supply of goods and other for supply of services, what can be easily gathered from the tenor of the agreement is that buyer has given a contract which is single indivisible contract which involve element of two supplies- one for supply of goods and other for the supply of services. By making two separate agreement – one for the supply  of goods and  other for the supply of service  what is purported  to be done is an artificial division of contracts which though done, can not take away the true and inherent nature of the contract. It is important to note that in GST, under composite supply, whether the two taxable supplies are arising from one indivisible contract or from two separate contract is immaterial till these two supplies are naturally bundled and one supply being principal  and other being ancillary supply to principal supply. Even if the considerations for two taxable supplies are separately quoted or there is single consideration for two supplies, both type of scenarios are covered under composite supply till the conditions as mentioned above for composite supply fulfilled( i.e. naturally bundled supplies and one being principal supply and other ancillary supply to principal supply). The entire transaction of providing the goods and services is naturally bundled and hence this is clearly case of composite supply of goods and supply of services.

In  case of M/s San Engineering and Locomotive corporation Ltd ( Order dated 23-042020,  of the Authority of Advance Ruling of Karnataka ) advance ruling was sought on the issue “ whether supply of powerpack , freight, insurance, installation has to be treated as composite supply or freight, insurance charges can be treated as independent of supply of power pack. The Authority of Advance Ruling  has “held that Supply of power packs and the supply of freight and insurance services involved in such service shall be treated as ‘supply of power packs’ and the applicable tax related to such power packs at the time of supply would apply to the entire transaction and supply of commissioning/installation services supplied by the applicant are independent services and is independent of the supply of power packs.

“It is observed in the para 9.2 that “ even  if these supplies ie . supply of  power pack and supply of freight and insurance are distinct supplies, the same would be covered under definition of “ Composite supply ”as per section 2(30) of the CGST act , as the case may be naturally bundled and supplied in conjunction with each other in the ordinary  course of business. The principal supply in the case is the supply of power pack. Further section 8  of the act clearly  states that the tax liability on composite supply shall be determined by treating them as supply of such principal supply. Hence, going by this also, the composite supply of power pack and supply of freight and insurance would be treated as “ supply of power pack” only as per section 8 of the act.

In the case of M/s IAC Electricals ( order dated 28-05-2018 of The Advance Ruling Authority of West Bengal )  The Applicant is stated to be a manufacturer of Overhead Power Transmission Line Hardware and Accessories. His question is related to contracts obtained from M/s Power Grid Corporation of India (hereinafter referred to as “the Contractee”) who has entered into two separate contracts – one for supply of materials at ex-factory price (hereinafter referred to as “the First Contract”), and the other for supply of allied services like transportation, insurance, loading/unloading etc for delivery of materials at the contractee’s site (hereinafter referred to as “the Second Contract”). The Applicant states that as per the Second Contract, since they are not a Goods Transport Agency they arrange for the supply and delivery of materials through various other suppliers of these services. The Contractee is charged for these services at a pre-fixed rate, irrespective of the actual cost incurred. However, the Contractee is unwilling to bear the cost of GST on such services provided to them by the Applicant through various Service Suppliers. The Applicant, hence, wants a Ruling regarding the taxability of these services supplied by them.

The Advance Ruling Authority has observed that “  the supplies of goods and services of transportation etc are, therefore, naturally bundled. The recipient has not contracted for ex-factory supply of materials, but for the composite supply involving delivery of the goods at the contractee’s site, which includes transportation, in-transit insurance etc. Terms of the contracts are such that all these supplies are inseparable and, therefore, naturally bundled. While defining Composite Supply under Section 2(30) of the GST Act, the legislature provides an illustration. It is specified therein that supply of goods, packed and transported with insurance, is a composite supply and supply of goods is the principal supply. The illustration being part of the Section, supplies as that of the applicant’s should be construed as specifically mentioned under the GST Act as Composite Supply with supply of goods as the principal supply and services like transportation, in-transit insurance etc ancillary or incidental to the principal supply. And held that in view of the Services of transportation, in-transit insurance and loading/unloading, being ancillary to the principal supply of goods, shall be treated to taxation as Composite Supply u/s 8 (a) of the GST Act, and the consideration receivable on that account is to be taxed accordingly. “

In the case of M/s Aditya Birla Nuvo ltd ( Order dated of The Authority of Advance Ruling of Gujrat state  ). The applicant has sought advance ruling on the following questions.

a) Whether the Ex works plus freight and insurance to be treated as composite supplies

b) Whether showing and charging freight and insurance portion separately in invoice would attract GST

The Advance Ruling Authority has observed that  “  in the case of the applicant the  supply of goods at ex works is principal supply and accordingly the tax liability. Further, if freight and insurance portion are shown and charged separately in invoice, it would not change the fact that the supply is a composite supply and hence there cannot be different type of treatments of tax liability of supply of different goods/services naturally bundled together. And  held that Supply of principal goods/services along with freight and insurance is a composite supply u/s 2(30) of the Act; GST is chargeable on freight and insurance portion even if shown separately in invoice since there cannot be different types of treatment of tax liability on supply of different goods/services naturally bundled together; where the value of freight as per pre-contracted fixed freight per unit of product is different from the actual cost, higher of the two shall be included in the value of composite supply. “

In the case of M/s Tarajeet singh Tuteja & Bros  ( order dated 10-10-2018 of The Advance Ruling Authority of Madhya Pradesh ) the applicant wants  to know the tax liability for such activity carried out of Custom Milling of Paddy for producing Rice  on job work basis, as well as the transportation of rice and the usage charges of gunny bags. The authority has held  as per the applicant’s agreement with the Chhattisgarh State Marketing Co-Operative Federation Limited, the former was given the principal task of Custom Milling of Paddy for producing Rice. The applicant also received payment for transportation of Rice & Paddy and for the gunny bags used to pack such grains . There is a single contract for the supply of such goods & services, which comprises of two more supplies, which includes transportation, packing material & incentives . The principal supply is the Customs Milling of Paddy. Hence such activities must be treated as composite supply u/s 2(30) & u/s 8(a) of the Chhattisgarh GST ActThus the tax liability of the composite supply will be decided as per the tax liability of the principal supply @ 5%, as per mandate of Notification No 31/2017-CT(R) & Notification No 11/2017-CT(R).

In the case of M/s CMC Vellore Association  ( 2020 order of Andhra Pradesh Advance  ruling authority   The applicant has sought advance ruling on the question  “ Whether tax is liable to be paid on the medicines, drugs, stents, implants etc. administered to in-patients during the medical treatment or procedure?

 “ The Advance  ruling authority has held that, the health care services provided by the Applicant are exempt under Sl. No. 74 of Services Exemption Notification and the supply of medicines and the consumables are integral part of the treatment extended to the in-patients by the hospital. Hence, the services rendered by the Applicant is a composite supply as defined under Section 2(30) of Central Goods and Services Tax Act, 2017 (“CGST Act”), in which the principal supply is health care services, being predominant and the supply of medicines, drugs, implants, stents, and other consumables, come under ancillary supplies and accordingly tax liability has to be determined under Section 8 of the CGST Act, which is exempt under Sl. No. 74 of Services Exemption Notification.

Government Of India Tax Research Unit, after approval from GST Council in 25th meeting , issued circular 32/06/2018 on 12-02-2018 and clarified that  “ Food supplied to the in-patients as advised by the doctor/nutritionists is a part of composite supply of healthcare and not separately taxable. Other supplies of food by a hospital to patients (not admitted) or their attendants or visitors are taxable.”.

In the case of M/s Baby Memorial Hospital Ltd ( 2019) or Advance ruling authority of Kerala ) held that supply of medicine, drugs, and other surgical goods to the outpatient is not part of composite supply of  health care treatment  and is taxable.

In the case of M/s Toshniwal Brother (SR) (P) Ltd ( 2018 order of Karnataka Advance ruling authority) the Advance ruling authority has observed that the applicant provides after sales services and promotion services and held that after sales services provided are not in the nature of composite contract and they are independent  of the services of promotion and marketing and hence it is mixed supply.

In the case of M/s Halliburton Offshore services Inc  ( 2020 order of Andhra Pradesh  Advance ruling authority ) the Advance ruling authority has held that the supply of mud engineering services along with the supply of imported mud chemical and additives provided on consumption basis is not composite supply.

High court judgment in the case of Torrent Power Ltd on composite and mixed supply.

The Petitioner M/s Torrent Power Ltd has filed writ petition no 5343 of 2018 before the Hon High Court of Gujrat  and challenged  para 4(1) of the  circular no 34/08/2018 dated 1-03-2018 and sought  following substantive relief.

“ this Hon’ble Court may be pleased to declare that charges such an application fee, meter rent, testing fee, etc collected by the Petitioners are part of composite supply( u/s 2(30) of GST act,) of which principal supply is the actual supply of electricity and therefore the entire composite supply is exempt from tax under Entry 25 of Notification No.12/2017 dated 28.6.2017. “

The High Court has held that  the services provided ( charges such as application fee, meter rent, testing fee, etc collected by the Petitioners towards activities directly and closely connected with the transmission or distribution for electricity) by the petitioner are in the nature of composite supply and therefore, in view of the provisions of clause (a) of section 8 of the CGST Act, the tax liability thereof has to be determined by treating such composite same as a supply of the principal supply of transmission and distribution of electricity. Consequently, if the principal supply of transmission and distribution of electricity is exempt from levy of service tax, the tax liability of the related services shall be determined accordingly.

Important observations of Hon High Court  made in para 26, 27 & 28 reproduced hereunder.

Para 26  –Insofar as the phase relating to the CGST/SGST Acts regime is concerned, section 8 of the CGST Act makes provision for tax liability on composite and mixed supplies and postulates that the tax liability on a composite or a mixed supply shall be determined in the manner provided in clauses (a) and (b) thereunder. Clause (a) says that 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; and clause (b) says that 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. To fall within the ambit of clause (a) the supply has to be a composite one. Composite supply has been defined under section 2(30) of the CGST Act 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 the principal supply. Thus, sections 8 read with section 2(30) of the CGST Act are more or less akin to section 66F (3)(a) of the Finance Act. Both require that to fall within the ambit thereof the services should be naturally bundled in the ordinary course of business. While clause (a) of section 66F(3) of the Finance Act uses the expression “shall be treated as provision of the single service which gives such bundle it essential character”; clause (a) of section 8 of the CGST Act uses the expression “shall be treated as a supply of such principal supply”. As to what is a principal supply is defined in section 2(90) of the CGST Act to mean 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. In other words “principal supply” is the supply which gives the bundle its essential character. Reverting to the facts of the present case, the principal supply of transmission and distribution of electricity is naturally bundled and supplied in conjunction with the related/ancillary services in the ordinary course of business, accordingly, in view of the provisions of clause (a) of section 8 of the CGST Act, the tax liability of such composite supply is required to be determined by treating the same as a supply of the principal supply namely, transmission and distribution of electricity.

Para 27  It has been contended on behalf of the respondents that clause (a) of section 8 of the CGST Act would not be applicable where the principal supply is exempt from levy of service tax. In the opinion of this court, there is nothing in section 8 of the Act to read any such construction. What the section says is that the tax liability of a composite or a mixed supply shall be determined in the manner provided thereunder. In a given case, the tax liability may be nil, but that would not take such service out of the purview of section 8 of the Act, which would be attracted if the supply is either composite or mixed in nature, notwithstanding that the end result may be nil tax liability.

Para 28 – While on behalf of the petitioners it has been contended that the services rendered by them are in the nature of composite supply, on behalf of the respondents it has been contended that the same are in the nature of mixed supply within the meaning of such expression as contemplated in section 2(74) of the CGST Act and would, therefore, fall within the ambit of clause (b) of section 8 of that Act which provides that 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. Mixed supply has been defined under section 2(74) of the CGST Act to mean 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. The illustration thereunder reads thus: “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;” The above illustration gives an indication of the intent of the legislature, viz. it makes it clear that what is to be treated as “mixed supply” is a combination of supplies wherein each of the items forming part of the supply can be supplied separately and are independent of each other, but are supplied in conjunction with each other. Adverting to the facts of the present case, the related supplies cannot be supplied separately nor are the principal supply and related supplies independent of each other. The related supplies are dependent on the principal supply of transmission and distribution of electricity and vice versa, neither service can be provided independent of the other. The transmission and distribution of electricity cannot be done without the help of electric line, electric plant and electric meter, and nor can the related services be used for any purpose other than for transmission and distribution of electricity. The principal supply and the related/ancillary services go hand in hand and one cannot be provided independent of the other. The upshot of this discussion is that the services provided by the petitioner are in the nature of composite supply and therefore, in view of the provisions of clause (a) of section 8 of the CGST Act, the tax liability thereof has to be determined by treating such composite same as a supply of the principal supply of transmission and distribution of electricity. Consequently, if the principal supply of transmission and distribution of electricity is exempt from levy of service tax, the tax liability of the related services shall be determined accordingly.

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Author: Motiram Kanadje | Retired Joint Commissioner of State Tax. Pune

Author can be reached via email. Id momakanadje@gmail.com

Disclaimer: Nothing contained in this document is to be construed as legal opinion or view of author whatsoever and the content is to be used strictly for informational and educational purposes. While due care has been taken in preparing this article, certain mistakes and omissions may creep in. The author does not accept any liability for any loss or damage of any kind arising out of any inaccurate or incomplete information in this article nor for any action taken in reliance thereon.

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