CMA Intermediate · Direct and Indirect Taxation

Concept of Supply including Composite and Mixed Supplies: formula sheet

Full chapter guide

Key formulas

General test for supply: Supply = goods/services/both + a form of supply (sale, transfer, barter, exchange, licence, rental, lease, disposal) + consideration + by a person + in the course or furtherance of business; This is Section 7(1)(a). All elements must be present, unless an extension in clause (aa), (b) or (c) applies.
Extensions to the general test: Supply also includes: (aa) activities by a non-individual person to its members or constituents, or vice-versa, for consideration; (b) import of services for consideration, business or not; (c) Schedule I activities without consideration; In (b), the business condition is not required. In (c), consideration is not required.
Exclusions: Schedule III activities, and notified activities of Government or local authority as public authority = neither supply of goods nor supply of services; Section 7(2). These override Section 7(1).
Classification: Section 7(1A): Schedule II decides whether a supply is goods or services; Section 7(3) allows the Government to notify a transaction as goods only or services only.
Rule for supply without consideration: Supply = activity listed in Schedule I (section 7(1)(c)), even if consideration = nil; If the activity is not in Schedule I and there is no consideration, it is not supply.
Business asset transfer: Permanent transfer or disposal of business assets is supply only if ITC was availed on them; No ITC availed means no supply under this entry.
Related or distinct persons: Supply between related persons or distinct persons, in course or furtherance of business = supply; Related persons are as explained in the valuation provisions. Distinct persons are as in section 25, for example registrations of the same entity in different States.
Employee gifts: Gifts to an employee in a financial year ≤ ₹50,000 = not supply; above ₹50,000 = supply; The limit applies per employee per financial year, with gifts added together. In exam answers, tax the full value of the gifts once the limit is crossed.
Principal and agent: Goods supplied principal → agent or agent → principal, where the agent supplies or receives on the principal's behalf = supply; This covers goods only, not services.
Import from related person: Import of services from a related person or other establishment outside India, in course or furtherance of business = supply; Applies even if no consideration is paid.
Role of Schedule II: Section 7(1) supply + Schedule II = treated as supply of goods OR supply of services; Section 7(1A). Schedule II classifies a supply. It does not decide whether there is a supply.
Role of Schedule III: Schedule III activity = neither supply of goods nor supply of services; Section 7(2)(a). It applies notwithstanding section 7(1). No GST arises on such activities.
Government activities: Notified activities of Central Government, State Government or local authority as public authorities = neither goods nor services; Section 7(2)(b). Only those activities that are notified on the Council's recommendation.
Title versus right to use: Transfer of title in goods = goods; transfer of right to use goods without title = services; Core Schedule II distinction. Hire or lease without transfer of title is a service.
Land and building: Lease, tenancy or licence to occupy land = services; sale of land = Schedule III; sale of building = Schedule III, subject to clause (b) of paragraph 5 of Schedule II; Building sold before completion certificate or first occupation (where full consideration is not received after that) is taxed as a service of construction. This is the Schedule II paragraph 5(b) rule. Check the exact wording in your study material.
Business assets: Permanent transfer or disposal of business goods = supply of goods, with or without consideration; business goods put to private use = supply of services; Schedule II. Check the exact conditions and exceptions in your study material.
Credit apportionment link: Value of exempt supply (section 17(3)) includes sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building; Section 17(3) uses these words. Schedule III activities are excluded from this value, except paragraph 5 of Schedule III and prescribed activities under clause (a) of paragraph 8 of that Schedule. Check the Schedule II paragraph 5(b) wording for construction sales.
Composite supply rule: Tax on composite supply = Total value × rate of the principal supply; Section 8(a). The whole bundle is treated as a supply of the principal supply. Do not split the value.
Mixed supply rule: Tax on mixed supply = Total value × highest rate among the items; Section 8(b). The supply that attracts the highest rate of tax decides the rate for the whole bundle.
Test to classify: Naturally bundled with a principal supply → composite; otherwise bundled for a single price → mixed; Classify first, then apply the rule. Wrong classification gives a wrong rate.

Quick revision

Supply under Section 7(1)(a) needs consideration, a person, and course or furtherance of business.
Supply forms include sale, transfer, barter, exchange, licence, rental, lease and disposal.
Import of services for a consideration is supply even if not in the course or furtherance of business.
Schedule I activities are supply even when made without consideration.
Under Section 7(1)(aa), a person other than an individual and its members or constituents are deemed two separate persons.
Section 7(1A): supply is treated as goods or services as set out in Schedule II.
Section 7(2): Schedule III activities are neither supply of goods nor supply of services.
Government may notify transactions as goods and not services, or services and not goods, under Section 7(3).
Composite supply is taxed as the principal supply (Section 8(a)).
Mixed supply is taxed as the supply attracting the highest rate of tax (Section 8(b)).
Composite means naturally bundled with a principal supply; mixed means two or more supplies made together for a single price but not naturally bundled.
Check the exact items of Schedules I, II and III in your study material before the exam.

Common mistakes

Treating the list sale, transfer, barter, exchange, licence, rental, lease, disposal as closed. Fix: Remember that Section 7(1)(a) covers all forms of supply. The listed items are examples.
Saying a supply needs payment in money. Fix: Consideration can be other than money. A barter or exchange is a supply because goods or services are given in return.
Treating every free transfer of assets as supply. Fix: Always ask whether ITC was availed on the asset. No ITC means no supply under this entry.
Taxing only the excess over ₹50,000 on employee gifts. Fix: The limit is a test, not a deduction. Once total gifts to an employee exceed ₹50,000 in the year, treat the full value as supply.
Treating Schedule II as the list of things that are taxable supplies Fix: Schedule II only classifies as goods or services a transaction that is already a supply under section 7(1).
Calling renting or leasing of goods a supply of goods Fix: Ask if title passes. Transfer of right to use without title is a supply of services.
Taxing each item of a composite supply at its own rate Fix: Under Section 8(a) the whole composite supply is taxed as the principal supply. Use one rate on the full value.
Using the lowest or average rate for a mixed supply Fix: Section 8(b) says the supply that attracts the highest rate of tax. Always pick the highest.

Exam tips

In theory questions, write the elements of supply as a numbered list, then apply each to the facts. This earns step marks.
In MCQs, look for the missing element: no consideration, no business, or a Schedule III activity. That usually decides the answer.
Quote the phrase 'such as sale, transfer, barter, exchange, licence, rental, lease or disposal' accurately and mention that the list is illustrative.
Always state the extensions: clause (aa), clause (b) and clause (c). Examiners often test import of services without business nexus.
Close each answer with a conclusion referring to Section 7 of the CGST Act, 2017.
In MCQs, the ITC condition on asset transfers and the ₹50,000 gift limit are the favourite traps. Check them first.
Quote section 7(1)(c) when you say Schedule I activities are supply without consideration. It earns the step mark.
For gift problems, show a small table or lines per employee with the annual total. Then state the conclusion.