WHAT IS COMPOSITE SUPPLY
Composite supply means a supply comprises two or more goods/services, which are naturally bundled and supplied in with each other in the ordinary course of business, one of which is a principal supply.
It means that the items are generally sold as a combination. The items cannot be supplied separately.
A supply of goods and/or services will be treated as composite supply if it fulfills the following criteria:
- Supply of two or more goods or services together AND
- It is a natural bundle,i.e., goods or services are usually provided together in the normal course of business.
- They cannot be separated.
Examples:
- Goods are packed and transported with insurance. The supply of goods, packing materials, transport and insurance is a composite supply. Insurance, transport cannot be done separately if there are no goods to supply. Thus, the supply of goods is the principal supply.
- Buying a Dry Fruit Gift Box for Diwali. It includes dry fruits, a box and a wrapper. Box and wrapper cannot be sold individually without the main content which is dry fruit. This is composite supply.
CHARACTERISTICS OF COMPOSITE SUPPLY
For any supply to be a composite supply, it should have the following attributes:
- Supply should consist of two or more supplies.
- Both supplies should be taxable supplies under GST.
- Supply can be either of goods or services or a combination of both.
- The combination of supplies made should be conjunctive to each other, that is, should be made together at the same time.
- Supplies should be naturally bundled.
- It is possible to bundle two or more supplies in the ordinary course of business.
- Out of the combination of supplies made, one should be a principal supply.
For instance, if you buy a home theater system along with warranty, such a supply is a composite supply. In this case, the supply of home theater system is the principal supply and warranty is ancillary service.
Principal supply – As per Section 2(90) of CGST Act means 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.
Naturally bundled – Another important factor is that supplies must be naturally bundled. ‘Bundled service’ means a bundle of provision of various services wherein an element of provision of one service is combined with an element or elements of provision of any other service or services. The rule is – ‘If various elements of a bundled service are naturally bundled in the ordinary course of business, it shall be treated as provision of a single service which gives such bundle its essential character’.
TIME OF SUPPLY IN CASE OF COMPOSITE SUPPLY
If the composite supply involves supply of services as principal supply, such composite supply would qualify as supply of services and accordingly the provisions relating to time of supply of services would be applicable.
Alternatively, if composite supply involves supply of goods as principal supply, such composite supply would qualify as supply of goods and accordingly, the provisions relating to time of supply of goods would be applicable.
TIME OF SUPPLY OF GOODS
Time of supply of goods is earliest of:
1. Date of issue of invoice.
2. Last date on which invoice should have been issued.
3. Date of receipt of advance/ payment*.
For example:
Mr. X sold goods to Mr. Y worth Rs 1,00,000. The invoice was issued on 15th January. The payment was received on 31st January. The goods were supplied on 20th January.
Time of supply is earliest of –
1. Date of issue of invoice = 15th January
2. Last date on which invoice should have been issued = 20th January
Thus the time of supply is 15th January.
If an advance of Rs 50,000 is received by Mr. X on 1st January?
The time of supply for the advance of Rs 50,000 will be 1st January (since the date of receipt of advance is before the invoice is issued). For the balance Rs 50,000, the time of supply will be 15th January.
TIME OF SUPPLY FOR SERVICES
Time of supply of services is earliest of:
1. Date of issue of invoice
2. Date of receipt of advance/ payment.
3. Date of provision of services (if invoice is not issued within prescribed period)
Example:
Mr. A provides services worth Rs 20000 to Mr. B on 1st January. The invoice was issued on 20th January and the payment for the same was received on 1st February.
Firstly check if the invoice was issued within the prescribed time or not. The prescribed time is 30 days from the date of supply i.e. 31st January. The invoice was issued on 20th January. This means that the invoice was issued within a prescribed time limit.
The time of supply will be earliest of –
1. Date of issue of invoice = 20th January
2. Date of payment = 1st February
This means that the time of supply of services will be 20th January.
TIME OF SUPPLY UNDER REVERSE CHARGE
In case of reverse charge the time of supply for service receiver is earliest of:
1. Date of payment*
2. 30 days from date of issue of invoice for goods (60 days for services)
For example:
M/s ABC Pvt. Ltd undertook service of a director Mr. X worth Rs. 50,000 on 15th January. The invoice was raised on 1st February. M/s ABC Pvt Ltd made the payment on 1st May.
The time of supply, in this case, will be earliest of –
1. Date of payment = 1st May
2. 60 days from date of date of invoice = 2nd April
Thus, the time of supply of services is 2nd April.
TIME OF SUPPLY FOR VOUCHERS
Vouchers are an instrument where there is an obligation to accept:
- It as consideration
- Part consideration for a supply of goods or services
For vouchers, the time of supply is the date of issue of voucher, if the supply is identifiable at that point. Else, the time of supply for vouchers is the date of redemption of voucher.
OTHER TYPES OF SUPPLY
In case, it is not possible to determine the time of supply under any of the methods mentioned above, the time of supply would be determined as under:
- In a case where a periodical return has to be filed, the date on which such return is to be filed.
- In any other case, be the date on which the tax is paid.
Time of Supply for Interest, Late fee or Penalty
The time of supply for any interest, late fee or penalty for delayed payment as an addition consideration for the supplies made, is the date on which the supplier receives such addition in value.
Time of Supply in case Change in rate of tax
When there is a change in rate of tax, the time of supply shall be determined in the following manner:
1. Supply is made before the change in rate of tax
- Invoice is issued and payment is also received after the change in rate of tax – the time of supply will be the date of invoice or the date of payment – whichever is earlier.
- Invoice is issued before the change in rate of tax and payment is received after the change in rate of tax – the time of supply will be the date of invoice.
- Payment is received before the change in rate of tax and the invoice is issued after the change in rate of tax – the time of supply will be the date of receipt of payment.
2. Supply is made after the change in rate of tax
- Payment is received after the change in rate of tax but the invoice is issued before the change in rate of tax – the time of supply will be date of receipt of payment.
- Invoice is issued and payment is also received before the change in rate of tax – the time of supply shall be the date of receipt of payment or data of invoice – whichever is earlier.
- Invoice is issued after the change in rate of tax but the payment is received before the change in rate of tax – the time of supply shall be date of invoice.
MULTIPLE PRICES AND COMPOSITE SUPPLY
There might be cases where each constituent of a composite supply has a price attached to it. And each such price is charged separately. This is to say that under composite supply, there is no particular condition that the price charged by the supplier from the recipient should be single and composite. Therefore, in such situations, there will always remain an issue whether such a supply would remain a composite supply or not.
Suppose, a vendor supplies machines to a company. Under one of the transactions, if supplies a machine costing Rs 1 Lakh. Now, this machine can be installed either through a third party or through the supplier itself. The charges for the installation are Rs 10 thousand. The company decides to purchase as well as get the machine installed through the supplier. The total cost for the same turns out to be Rs 1.10 Lakhs. The invoice charged for machine supply and installation services separately. Though both the supplies are charged separately, the supply as a whole shall remain a composite supply. This is because both supplies are in conjunction with each other. Moreover, machine installation is ancillary to the predominant supply of machine. Therefore, in this case, the predominant supply shall be supply of machine only.
TAX RATE APPLICABLE
The tax rate of the principal supply will apply on the entire supply.
Example: Goods are packed and transported with insurance. The supply of goods, packing materials, transport and insurance is a composite supply. Insurance, transport cannot be done separately if there are no goods to supply. Thus, the supply of goods is the principal supply.
Tax liability will be the tax on the principal supply i.e., GST rate on the goods.
QUESTION COVERED
Write a detailed note on the liability of GST in case of Composite supply of goods and services?
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