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CA Intermediate · Taxation · Supply under GST

Ravi Foods Ltd, Chennai, supplies a food item at a lump-sum price of Rs 1,00,000 consisting of packed rice (a 5% GST item) and sweets (an 18% GST item), sold together as a gift hamper. The hamper is naturally bundled, and the principal supply is the sweets. What is the tax treatment?

The hamper is a composite supply because the items are naturally bundled, so the entire supply is taxed at the rate of the principal supply, namely sweets at 18%. The rice does not retain its 5% rate, and no averaging of rates is permitted.

  1. AEach item taxed at its own rate
  2. BWhole hamper taxed at 5%, being the lowest rate
  3. CWhole hamper taxed at 18%, the rate of the principal supplyCorrect
  4. DWhole hamper taxed at the average of the two rates

Explanation

A composite supply of two or more naturally bundled supplies is treated as the supply of the principal supply. The sweets are the principal supply, so the whole Rs 1,00,000 is taxed at 18%, giving GST of Rs 18,000. Taxing at separate rates applies to mixed supplies at the highest rate, not composite ones.

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