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

Under the CGST Act, 2017, how is the tax liability on a composite supply comprising two or more supplies determined?

A composite supply is treated as a supply of its principal supply. Under Section 8(a) of the CGST Act, the principal supply determines the tax liability for the whole bundle. The highest-rate rule belongs to mixed supplies, not composite supplies.

  1. AIt is treated as a supply of that particular supply which attracts the highest rate of tax
  2. BIt is treated as a supply of the principal supplyCorrect
  3. CEach supply is taxed separately at its own rate
  4. DIt is taxed at the average of the rates applicable to the supplies

Explanation

Section 8(a) provides that a composite supply comprising two or more supplies, one of which is a principal supply, is treated as a supply of such principal supply. The highest-rate rule in option A is the rule for a mixed supply under Section 8(b), so it is wrong for composite supplies. Separate or averaged taxation is not provided for.

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