CMA Intermediate · Direct and Indirect Taxation

Concept of Supply including Composite and Mixed Supplies under GST

Under Section 7 of the CGST Act, 2017, supply includes all forms of supply of goods or services made for a consideration in the course or furtherance of business, plus items like import of services and Schedule I activities without consideration. Schedule III items are not supply. For composite supply, tax follows the principal supply; for mixed supply, the highest-rate supply.

What this chapter covers

This chapter answers the first question in GST: is this transaction a supply at all? Tax is charged only on a supply of goods or services or both. Section 7 of the CGST Act, 2017 gives the scope. Supply includes sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. It also includes import of services for a consideration, whether or not in the course or furtherance of business, and the activities in Schedule I made without consideration.

The Act then adds layers. Section 7(1)(aa) treats activities by a person other than an individual to its members or constituents, and the reverse, as supply, with the person and its members deemed to be two separate persons. Section 7(1A) says that activities which are supply must be treated as supply of goods or of services as set out in Schedule II. Section 7(2) says that Schedule III activities, and notified activities of Government and local authorities as public authorities, are neither supply of goods nor supply of services. Section 7(3) lets the Government notify transactions as goods and not services, or the reverse.

Section 8 then deals with bundles. A composite supply is taxed as its principal supply. A mixed supply is taxed as the supply that attracts the highest rate of tax. This chapter feeds the rest of the paper. Time of supply, place of supply, value of supply, input tax credit and the levy of tax all begin only after you have decided that a supply exists and what kind it is. Section 17 on blocked credits and exempt supplies also depends on the idea of supply, since the value of exempt supply is defined with reference to Schedule III.

Questions from this chapter are short, rule-based and easy to score if your base is clear. MCQs ask whether a given transaction is a supply, or whether a bundle is composite or mixed. Written questions give a small case with facts and ask you to decide and justify, which earns step marks for each correct point. The chapter is also the base for later GST chapters, so weak understanding here costs marks in time of supply, place of supply, value and credit questions as well.

Concept of Supply including Composite and Mixed Supplies: topics in the order to study them

1Meaning and Scope of Supply under CGST ActStart with Section 7(1) because every later rule is an addition to, or exclusion from, this basic definition.
2Supply without Consideration and Schedule INext learn the exceptions to the consideration rule, since Schedule I extends supply to certain activities made without consideration.
3Schedule II, Schedule III and Activities Not Treated as SupplyThen classify supplies as goods or services under Schedule II and learn what is excluded under Section 7(2) and Schedule III.
4Composite Supply and Mixed SupplyFinish with Section 8, which applies once you know a bundle of supplies exists and need to fix its tax treatment.

How to prepare Concept of Supply including Composite and Mixed Supplies

Treat this chapter as a decision process, not a list to memorise. Practise running each fact pattern through the same questions in the same order.

Read Section 7 slowly and write its parts in your own words: the main clause, import of services, Schedule I activities, and the members and constituents clause.
Learn the test words in Section 7(1)(a): consideration, a person, and course or furtherance of business. Ask which of them is missing in each case.
Learn Schedules I, II and III as separate lists. Group items by theme so you recall them as ideas, then check the exact wording in your study material.
Build a decision flow: is there a supply under Section 7(1), is it excluded under Section 7(2), is it goods or services, and is it a single or bundled supply.
For Section 8, practise with your own bundles. Ask whether the items are naturally bundled with one principal supply, or are simply sold together. If they are only sold together, pick the highest rate.
Solve past MCQs for quick recognition, then write two or three short case answers. State the rule, apply the facts, then give the conclusion.
In revision, test yourself by covering the answers and stating the rule, its section and one example for each topic.

Common mistakes in Concept of Supply including Composite and Mixed Supplies

Saying every transaction without consideration is not a supply.
Fix: Always check Schedule I before concluding that a no-consideration transaction is outside GST.
Applying the business test to import of services.
Fix: Remember that Section 7(1)(b) covers import of services for a consideration whether or not in the course or furtherance of business.
Confusing Schedule II with Schedule III.
Fix: Schedule II decides whether a supply is goods or services. Schedule III lists activities that are neither goods nor services, so no GST arises.
Taxing a mixed supply at the principal supply's rate, or a composite supply at the highest rate.
Fix: Link each with a keyword: composite goes with principal, mixed goes with highest rate.
Treating any bundle as a composite supply.
Fix: Ask if the items are normally supplied together in the ordinary course of business. If not, and they are sold together for a single price, it is a mixed supply.
Writing a conclusion without stating the section or reasoning.
Fix: Write the rule, apply each fact to it, and then conclude. Step marks come from the reasoning.

Last-day revision: Concept of Supply including Composite and Mixed Supplies

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.

Concept of Supply including Composite and Mixed Supplies practice questions

Concept of Supply including Composite and Mixed Supplies in other exams

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

Concept of Supply including Composite and Mixed Supplies: frequently asked questions

What is supply under the CGST Act?

Section 7 says supply includes all forms of supply of goods or services or both, such as sale, transfer, barter, exchange, licence, rental, lease or disposal, made for a consideration in the course or furtherance of business. It also includes import of services for a consideration and the activities in Schedule I made without consideration.

What is the difference between a composite supply and a mixed supply?

A composite supply has two or more supplies with one principal supply and is taxed as that principal supply. A mixed supply has two or more supplies made together and is taxed as the supply that attracts the highest rate of tax. Section 8 gives both rules.

Are Schedule III activities taxable?

No. Under Section 7(2), the activities in Schedule III are treated neither as a supply of goods nor as a supply of services. So no GST is charged on them as a supply.

Is consideration always needed for a supply?

Not always. Under Section 7(1)(c), the activities in Schedule I are supply even when made without consideration. For other transactions, consideration is a core requirement.

What is the role of Schedule II?

Under Section 7(1A), where activities or transactions are supply, they are treated either as a supply of goods or as a supply of services as set out in Schedule II. It settles the classification.