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CA Intermediate · Taxation · Supply under GST

Gupta Brothers, Delhi, supplies goods to Nair Stores, Kochi, for Rs 5,00,000 with 18% GST. Separately, Gupta Brothers, as part of a composite arrangement, supplies a laptop (Rs 60,000) together with free installation of software and a 2-year warranty, for one price of Rs 70,000, the principal supply being the laptop. Which of the following is correct on the tax rate for the bundle?

The whole Rs 70,000 is taxed at the rate applicable to the laptop. The laptop, installation and warranty are naturally bundled in the ordinary course of business, forming a composite supply, and a composite supply is treated as a supply of its principal supply, here the laptop.

  1. AEach element is taxed at its own rate separately
  2. BThe whole Rs 70,000 is taxed at the rate applicable to the laptop, being the principal supply of a composite supplyCorrect
  3. CThe whole is taxed at the highest rate among the elements, as a mixed supply
  4. DThe warranty is exempt and only Rs 60,000 is taxed

Explanation

Laptop, software installation and warranty are naturally bundled in the ordinary course, so this is a composite supply. A composite supply is taxed at the rate of its principal supply, the laptop, on the full Rs 70,000. Highest rate applies to a mixed supply, not a composite one.

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