Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Indirect Tax Laws

GST Supply, Levy and Composition Scheme for CA Final

Updated 5 October 2026 · Fact-checked

Supply is the taxable event under GST: a transfer, sale, barter, licence or similar activity for consideration in the course or furtherance of business, plus specified deemed supplies. To solve a case, test if it is a supply, classify it as composite or mixed, find who pays (supplier or recipient under reverse charge), then check composition eligibility.

Understand GST Supply, Levy and Composition Scheme

GST is levied on supply of goods or services, not on sale alone. So the first question in every case is: is there a supply? Normally you need a supply of goods or services, made for consideration, in the course or furtherance of business, by a taxable person, within the taxable territory. Barter, exchange, rental, lease, licence and disposal all count, not just sale.

The law also widens the net. Some activities are deemed supplies even without consideration, such as supplies between distinct persons (registrations of the same entity in different states are treated as distinct persons under GST law), supplies of goods or services between related persons in the course or furtherance of business, principal-to-agent supplies, and permanent transfer or disposal of business assets on which input tax credit was availed. Import of services by a taxable person from a related person located outside India, in the course or furtherance of business, is also a deemed supply even if made without consideration. Schedule III items, such as services by an employee to the employer in the course of employment, are neither goods nor services, so no GST applies. Gifts from an employer to an employee up to ₹50,000 per employee in a financial year are not treated as a supply under the related-person (employer-employee) entry in Schedule I. For gifts above that limit, the related-person entry in Schedule I may apply, subject to the condition that the gift is made in the course or furtherance of business.

When goods and services are sold together, you must decide the tax treatment. A composite supply is two or more taxable supplies that are naturally bundled in the ordinary course of business, and one of them is the principal supply. The whole bundle is taxed as the principal supply, on the total consideration. For example, when a supplier sells a machine and installs it, the machine (goods) is the principal supply and installation is an ancillary service naturally bundled with it. A separate line for one component on the invoice does not change this. A mixed supply is two or more individual supplies made together for a single price that are not naturally bundled. The whole bundle is taxed at the rate of the supply that attracts the highest rate.

Normally the supplier pays the tax. Under reverse charge mechanism (RCM) the recipient pays it instead. RCM applies to notified goods or services, to notified supplies by unregistered suppliers to registered persons, and to import of services (under IGST). The recipient pays in cash and can claim credit later, subject to ITC conditions.

The composition scheme is an optional, simple scheme for small taxpayers. They pay tax at a low flat percentage of turnover, do not collect tax from customers, and cannot claim input tax credit. Eligibility depends on turnover limits, type of business and several conditions. Always check the current notified limits and rates in your updated material before the exam.

Key rules to remember

Elements of supply: Supply = goods or services + consideration + course or furtherance of business + taxable person + taxable territory; Deemed supplies without consideration (Schedule I type) are an exception to the consideration element. This includes import of services by a taxable person from a related person outside India in the course or furtherance of business, even if made without consideration. Always say which element is missing when you conclude 'not a supply'.
Composite supply: Tax rate = rate of the principal supply, applied on the full value of the bundle; Test is 'naturally bundled in the ordinary course of business'. Look for dependence of one item on another and customer expectation. Name the principal supply (for example, the machine) and the ancillary supply (for example, installation).
Mixed supply: Tax rate = highest rate among the items in the bundle, applied on the full single price; No natural bundling, single price. Do not split the value item-wise.
Reverse charge: Tax payable by recipient (not supplier) on notified goods or services, certain notified supplies by unregistered suppliers, and import of services; Recipient pays in cash, issues a self-invoice where required, and claims ITC if eligible. State the category in your answer.
Composition scheme conditions: Eligible only if turnover is within the notified limit and none of the disqualifying conditions apply; Disqualifiers include inter-state outward supplies, supplies through e-commerce operators (with notified exceptions) and notified goods such as ice cream, pan masala and tobacco. Rates are notified: 1% for manufacturers and traders (in effect, 0.5% CGST + 0.5% SGST), 5% for restaurants not serving alcohol, and 6% for specified service providers under Section 10(2A). Use the figures given in the question.
Composition taxpayer restrictions: No ITC, no tax collected from customers, bill of supply instead of tax invoice, all registrations of the same PAN must opt in; A composition taxpayer still pays RCM on its inward supplies where applicable.

How to solve GST Supply, Levy and Composition Scheme questions

Use this order for any supply, levy or composition case. It keeps your answer in provision, facts and conclusion form.

1Read the facts and list every transaction separately: who supplies, who receives, what is given, and what is received in return.
2Test each transaction for supply: goods or services, consideration, business, taxable person and territory. Check Schedule I deemed supplies (including import of services from a related person outside India, even without consideration) and Schedule III exclusions.
3If items are sold together, decide if they are naturally bundled. If yes, it is composite and taxed at the principal supply rate. If no, it is mixed and taxed at the highest rate.
4Identify who pays tax: forward charge on the supplier, or reverse charge on the recipient. Check supplier registration status and the notified category.
5If the supplier is a small taxpayer, check composition eligibility: turnover limit, type of supply, inter-state sales, e-commerce and excluded goods.
6Apply the rate to the full value where the rule requires it, and compute tax or the consequence (such as ITC denial under composition).
7Write a conclusion that answers the exact question, with the reason in one line.

Quickest way: Four-question scan for case studies

When to use it: Use when a long IBS case has several GST issues and you have about 6 to 7 minutes per question.

Underline the transaction, the parties and any 'free' or 'without consideration' phrase.
Ask: Is it a supply? If free, check related or distinct person, agent, asset disposal or gift limit.
Ask: Is it one bundle? Natural bundle means composite (principal rate); random bundle at one price means mixed (highest rate).
Ask: Who pays, and under what scheme? Check RCM category and composition eligibility, then write one line each and compute only what is asked.

Common mistakes in GST Supply, Levy and Composition Scheme

Saying 'no consideration means no supply' in every case.
Students remember consideration as a must-have element and forget deemed supplies.
Fix: Always check related persons, distinct persons, principal-agent and permanent transfer of business assets with ITC availed before concluding.
Calling any package a composite supply.
The word 'bundle' feels like composite. Students ignore the natural-bundling test.
Fix: Ask if the items normally go together in the ordinary course of business. If a customer could just as easily buy them separately and the pairing is a marketing choice, it is mixed.
Taxing a mixed supply item by item.
Students apply each item's own rate to split values.
Fix: For a mixed supply, tax the whole single price at the highest rate. No splitting.
Treating reverse charge as an exemption or as a tax the supplier pays.
Confusion between who collects and who deposits tax.
Fix: State clearly that the recipient pays the tax to the government. It is not an exemption. ITC is available to the recipient subject to eligibility conditions.
Allowing a composition taxpayer to charge tax or take ITC.
Students focus on the low rate and forget the restrictions.
Fix: Remember the pair: low flat rate, no ITC and no tax collected. A bill of supply is issued, not a tax invoice.
Quoting old composition limits or rates from memory.
Limits and rates are notified and have been changed over time.
Fix: Revise the limits from the latest updated study material and use the figures given in the question. When none are given, state the rule and say 'as notified'.

Worked examples

Example 1

Mehta Industries Ltd is registered in Pune. It has a separate registration in Hyderabad. During the year it (a) sends goods worth ₹8,00,000 from Pune to the Hyderabad branch for sale, (b) gives its employee Rohan a gift voucher of ₹40,000 on his anniversary and no other gift in that year, and (c) the CEO's employment services to the company are paid by salary. Discuss the GST position.

Show the solution

Transaction (a): Pune and Hyderabad are registrations of the same entity in different states. Under GST law such establishments are treated as distinct persons. A supply between distinct persons in the course or furtherance of business is a deemed supply under Schedule I even without consideration, so the stock transfer is a deemed supply by Mehta.
Because the goods move from one state to another, it is an inter-state supply, so IGST applies on the transaction value of ₹8,00,000.
Transaction (b): Gifts by an employer to an employee up to ₹50,000 in a financial year are not treated as a supply under the related-person entry in Schedule I. Rohan's gift is ₹40,000 and there is no other gift, so the limit is not crossed and the related-person entry does not make the gift a supply.
Transaction (c): Services by an employee to the employer in the course of or in relation to employment are neither a supply of goods nor of services (Schedule III). So no GST applies on the CEO's salary services.

Answer: (a) Taxable deemed supply between distinct persons under Schedule I; IGST applies on ₹8,00,000 as an inter-state supply. (b) Not a supply under the related-person entry, as the gift is within the ₹50,000 limit in the year. (c) Not a supply; no GST on employment services.

Example 2

Aarav Equipments sells a machine for ₹1,00,000 along with installation, which it provides itself for a separate charge of ₹10,000 under the same contract. Assume the machine attracts 18% GST. Separately, Aarav sells a festival pack for a single price of ₹1,000 containing three unrelated items: item P (assume GST 5%), item Q (assume 12%) and item R (assume 18%). Find the GST on each and name the supply type.

Show the solution

Machine with installation: installation is an ancillary service naturally bundled with the machine in the ordinary course. So it is a composite supply. The machine (goods) is the principal supply and installation is the ancillary service.
The whole bundle takes the rate of the principal supply, the machine, at 18%. The tax value is the total consideration of ₹1,00,000 + ₹10,000 = ₹1,10,000. The separate installation charge on the invoice does not split the value, so installation is not taxed on its own.
GST = 18% × ₹1,10,000 = ₹19,800.
Festival pack: items P, Q and R are not naturally bundled and are sold together for a single price. It is a mixed supply.
The highest rate among 5%, 12% and 18% is 18%. GST = 18% × ₹1,000 = ₹180. No item-wise split is done.

Answer: Machine plus installation: composite supply, with the machine as the principal supply and installation as the ancillary service. It is taxed at the principal supply rate of 18% on the total consideration of ₹1,10,000, so GST is ₹19,800, even though the invoice shows installation separately. Festival pack: mixed supply, GST ₹180 at 18% on ₹1,000.

Exam tips

In MCQs, read the one sentence that decides the answer: 'single price', 'naturally bundled', 'without consideration' or 'unregistered supplier'.
Write Schedule I and Schedule III ideas in plain words and apply them to the facts. Give a section number only if you are sure of it.
For RCM, always name who pays and whether it is a notified category. Add a line on ITC availability to earn the extra mark.
For composition, list every condition as a mini checklist. One failed condition is enough to deny eligibility, so state which one fails.
In an integrated Paper 6 case, GST supply facts may be linked with valuation, ITC and place of supply. Mention the link in one line and move on.

Practice questions from Indirect Tax Laws

GST Supply, Levy and Composition Scheme in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

GST Supply, Levy and Composition Scheme: frequently asked questions

What is the difference between composite and mixed supply under GST?

A composite supply is a natural bundle of supplies with one principal supply, and the whole bundle is taxed at the principal supply rate. A mixed supply is a combination sold at a single price without natural bundling, and the whole is taxed at the highest rate among the items.

Is supply without consideration taxable under GST?

Generally consideration is needed, but certain activities are deemed supplies even without it. Examples are supplies between related or distinct persons in the course or furtherance of business, principal-agent supplies, permanent transfer of business assets on which ITC was availed, and import of services from a related person outside India in the course or furtherance of business. Gifts from an employer to an employee up to ₹50,000 per employee in a financial year are not treated as a supply under the related-person entry; for gifts above that value, the related-person entry may apply, subject to the course-or-furtherance-of-business condition.

Who pays GST under reverse charge?

The recipient of the supply pays the tax to the government instead of the supplier. This applies to notified goods and services, notified supplies by unregistered suppliers to registered persons, and import of services. The recipient can claim ITC subject to the usual conditions.

Can a composition taxpayer claim input tax credit?

No. A composition taxpayer pays tax at a flat notified rate on turnover and cannot claim ITC. It also cannot collect tax from customers and issues a bill of supply instead of a tax invoice.

How do I solve a supply case study in the CA Final exam?

Break the facts into separate transactions and test each for supply. Then classify bundles, decide who pays tax, check composition if relevant, and write a short conclusion for each. Keep the answer in provision, facts and conclusion form.