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CMA Intermediate · Direct and Indirect Taxation · Concept of Supply including Composite and Mixed Supplies

Mehta Electronics sells a refrigerator (taxable at 18%) with a mandatory delivery and installation service, billed at one price. The sale of the refrigerator is the principal supply of this naturally bundled composite supply. The installation service, if supplied alone, would attract 12%. At what rate is the whole composite supply taxed?

The composite supply is treated as a supply of its principal supply, which is the refrigerator. The whole bill is therefore taxed at 18%, the principal supply's rate, and the 12% rate on installation does not apply separately.

  1. A12%, the rate of the installation service
  2. B18%, the rate of the principal supplyCorrect
  3. C30%, the sum of both rates
  4. D15%, the average of the two rates

Explanation

Under section 8(a), a composite supply is treated as a supply of the principal supply. The principal supply is the refrigerator, taxable at 18%, so the whole bill bears 18%. The installation rate is irrelevant, and adding or averaging rates has no legal basis.

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