SECOND HAND GOODS in GST

Normally GST is charged on the transaction value of the goods. However, in respect of second hand goods, a person dealing is such goods may be allowed to pay tax on the margin i.e. the difference between the value at which the goods are supplied and the price at which the goods are purchased. If there is no margin, no GST is charged for such supply. The purpose of the scheme is to avoid double taxation as the goods, having once borne the incidence of tax, re-enter the supply and the economic supply chain.

Valuation of Second Hand Goods:
As per Rule 32(5) of the CGST Rules, 2017, where a taxable supply is provided by a person dealing in buying and selling of second hand goods i.e., used goods as such or after such minor processing which does not change the nature of the goods and where no input tax credit has been availed on the purchase of such goods, the value of supply shall be the difference between the selling price and the purchase price and where the value of such supply is negative, it shall be ignored.
The proviso to the above rule further provides that in case of the purchase value of goods repossessed from a unregistered defaulting borrower, for the purpose of recovery of a loan or debt shall be deemed to be the purchase price of such goods by the defaulting borrower reduced by five percentage points for every quarter or part thereof, between the date of purchase and the date of disposal by the person making such repossession.
In this regard, Notification No.10/2017-Central Tax (Rate) New Delhi, dated 28th June, 2017 exempts intra-State supplies of second hand goods received by a registered person, dealing in buying and selling of second hand goods and who pays the central tax on the value of outward supply of such second hand goods as determined under sub-rule (5) of rule 32 of the CGST Rules, 2017, from any unregistered supplier, from the whole of the central tax levied under the CGST Act, 2017. Similar exemptions are also there in respective SGST Acts.
Illustration:
For instance, a company say M/s First Source Ltd, which deals in buying and selling of second hand cars, purchases a second hand Maruti Celerio Car of March, 2014 make (Original price Rs. 5 lakhs) for Rs. 3 lakhs from an unregistered person and sells the same after minor furbishing in July, 2017 for Rs. 3,50,000/-. The supply of the car to the company for Rs. 3 lakhs shall be exempted and the supply of the same by the company to its customer for Rs. 3.5 lakhs shall be taxed and GST shall be levied. The value for GST purpose shall be Rs. 50000/-, i.e. the difference between the selling and the purchase price of the company.
In case any other value is added by way of repair, refurbishing, reconditioning etc., the same shall also be added to the value of goods and be part of the margin.
If margin scheme is opted for a transaction of second hand goods, the person selling the car to the company shall not issue any taxable invoice and the company purchasing the car shall not claim any ITC.

Tax Invoice and other such instruments in GST

Introduction
Generally speaking, an invoice is a commercial instrument issued by a seller to a buyer. It identifies both the trading parties, and lists, describes, and quantifies the items sold, shows the date of shipment and mode of transport, prices and discounts, if any, and the delivery and payment terms.
In certain cases, (especially when it is signed by the seller or seller’s agent), an invoice serves as a demand for payment and becomes a document of title when paid in full. Types of invoices include:
Bill of Sale or Contract of Sale.
Invoice under GST
Under the GST regime, an “invoice” or “tax invoice” means the tax invoice referred to in section 31 of the CGST Act, 2017. This section mandates the issuance of an invoice or a bill of supply for every supply of goods or services. It is not necessary that only a person supplying goods or services needs to issue an invoice. The GST law mandates that any registered person buying goods or services from an unregistered person needs to issue a payment voucher as well as a tax invoice. The type of invoice to be issued depends upon the category of registered person making the supply. For example, if a registered person is making or receiving supplies (from unregistered persons), then a tax invoice needs to be issued by such registered person. However, if a registered person is dealing only in exempted supplies or is availing the composition scheme (composition dealer), then such a registered person needs to issue a bill of supply in lieu of invoice. The invoice should contain description, quantity and value & such other prescribed particulars (in case of supply of goods), and the description and value & such other prescribed particulars (in case of supply of services). An invoice or a bill of supply need not be issued if the value of the supply is less than Rs. 200/-, subject to specified conditions.
Importance of tax invoice under GST
Under GST, a tax invoice is an important document. It not only evidences the supply of goods or services, but is also an essential document for the recipient to avail Input Tax Credit (ITC). A registered person cannot avail Input Tax Credit unless he is in possession of a tax invoice or a debit note.
GST is chargeable at the time of supply. Invoice is an important indicator of the time of supply. Broadly speaking, the time of supply of goods or services is the date of issuance of an invoice or receipt of payment, whichever is earlier.
Thus the importance of an invoice under GST cannot be over-emphasized. Suffice it to say, the tax invoice is the primary document evidencing the supply and vital for availing Input Tax Credit.
When a tax invoice or a bill of supply should be issued by a registered person
Goods
The time for issuing an invoice would depend on the nature of supply viz. whether it is a supply of goods or services. A registered person supplying taxable goods shall, before or at the time of removal of goods (where supply involves movement of goods) or delivery or making available there of to the recipient, issue a tax invoice showing the description, quantity and value of goods, the tax charged thereon and such other particulars as prescribed in the Invoice Rules.
The Government may, on the recommendations of the Council, by notification, specify the categories of goods or supplies in respect of which a tax invoice shall be issued, within such time and in such manner as may be prescribed.
Contents of invoice
There is no format prescribed for an invoice, however, Invoice rules makes it mandatory for an invoice to have the following fields (only applicable field are to be filled):
(a) Name, address and GSTIN of the supplier
(b) A consecutive serial number, in one or multiple series, containing alphabets or numerals or special characters like hyphen or dash and slash symbolized as “-” and “/” respectively, and any combination there of, unique for a financial year
(c) Date of its issue
(d) Name, address and GSTIN or UIN, if registered, of the recipient
(e) Name and address of the recipient and the address of delivery, along with the name of State and its code, if such recipient is un-registered and where the value of taxable supply is fifty thousand rupees or more
(f)   HSN code of goods or Accounting Code of Services
(g) Description of goods or services
(h) Quantity in case of goods and unit or Unique Quantity Code there of
(i)    Total value of supply of goods or services or both
(j)    Taxable value of supply of goods or services or both, taking into account the discount or abatement, if any
(k) Rate of tax (Central tax, State tax, Integrated tax, union territory tax or cess)
(l)    Amount of tax charged in respect of taxable goods or services (Central tax, State tax, Integrated tax, union territory tax or cess)
(m)         Place of supply along with the name of State, in case of a supply in the course of inter-State trade or commerce
(n) Address of delivery where the same is different from the place of supply
(o) Whether the tax is payable on reverse charge basis
(p) Signature or digital signature of the supplier or his authorized representative
Contents of Bill of Supply
A bill of supply shall be issued by the supplier containing the following details:
(a) Name, address and GSTIN of the supplier
(b) A consecutive serial number, in one or multiple series, containing alphabets or numerals or special characters like hyphen or dash and slash symbolised as “-” and “/”respectively, and any combination there of, unique for a financial year
(c) Date of its issue
(d) Name, address and GSTIN or UIN, if registered, of the recipient
(e) HSN Code of goods or Accounting Code for Services
(f)   Description of goods or services or both
(g) Value of supply of goods or services or both taking into account discount or abatement, if any
(h) Signature or digital signature of the supplier or his authorized representative
Services
A registered person supplying taxable services shall, before or after the provision of service but within a prescribed period, issue a tax invoice, showing the description, value, tax charged thereon and such other particulars as prescribed in the Invoice Rules.
The Government may, on the recommendations of the Council, by notification and subject to such conditions as may be mentioned therein, specify the categories of services in respect of which:
(a) Any other document issued in relation to the supply shall be deemed to be a tax invoice; or
(b) Tax invoice may not be issued.
Thus, it can be seen that in case of goods, an invoice has to be issued before or at the time of supply. In case of services, however, an invoice has to be issued before or after the provision of services. If the invoice is issued after the provision of service, it has to be done within the specified period of 30 days from the date of supply of service, as per invoice rules.
Revised Invoice
A registered person may, within one month from the date of issuance of certificate of registration and in such manner as prescribed in the Invoice Rules, issue a revised invoice against the invoice already issued during the period beginning with the effective date of registration till the date of issuance of certificate of registration to him. This provision is necessary, as a person who becomes liable for registration has to apply for registration within 30 days of becoming liable for registration. When such an application is made within the time period and registration is granted, the effective date of registration is the date on which the person became liable for registration. Thus there would be a time lag between the date of grant of certificate of registration and the effective date of registration. For supplies made by such person during this intervening period, the law enables the issuance of a revised invoice, so that ITC can be availed by the recipient on such supplies.
Receipt Voucher/Refund voucher on receipt of advance payment
Whenever a registered person receives an advance payment with respect to any supply of goods or services or both, he has to issue a receipt voucher or any other document, containing such particulars as prescribed in the Invoice Rules, evidencing the receipt of such payment.
Where any such receipt voucher is issued, but subsequently no supply is made and no tax invoice is issued, the registered person who has received the advance payment can issue a refund voucher against such payment.
A receipt voucher needs to contain the following particulars:
(a) Name, address and GSTIN of the supplier
(b) A consecutive serial number containing alphabets or numerals or special characters like hyphen or dash and slash symbolised as “-” and “/” respectively, and any combination thereof, unique for a financial year
(c) Date of its issue
(d) Name, address and GSTIN or UIN, if registered, of the recipient
(e) Description of goods or services
(f)   Amount of advance taken
(g) Rate of tax (Central tax, State tax, Integrated tax, Union territory tax or cess)
(h) Amount of tax charged in respect of taxable goods or services (Central tax, State tax, Integrated tax, union territory tax or cess);
(i)   Place of supply along with the name of State and its code, in case of a supply in the course of inter-State trade or commerce
(j)   Whether the tax is payable on reverse charge basis
(k) Signature or digital signature of the supplier or his authorized representative

It has also been provided in the Invoice Rules that if at the time of receipt of advance,

(i)   He rate of tax is not determinable, the tax may be paid@18%;
(ii)  The nature of supply is not determinable, the same shall be treated as inter-State supply.
Invoice and payment voucher by a person liable to pay tax under reverse charge

A registered person liable to pay tax under reverse charge (both for supplies on which the tax is payable under reverse charge mechanism and supplies received from unregistered persons) has to issue an invoice in respect of goods or service or both received by him. Such a registered person in respect of such supplies also has to issue a payment voucher at the time of making payment to the supplier.

Invoice in case of continuous supply of goods
In case of continuous supply of goods, where successive statements of accounts or successive payments are involved, the invoice shall be issued before or at the time each such statement is issued or, as the case may be, each such payment is received.
Invoice in case of continuous supply of services
In case of continuous supply of services, where:
(a) The due date of payment is as certain able from the contract, the invoice shall be issued on or before the due date of payment.
(b) The due date of payment is not as certain able from the contract, the invoice shall be issued before or at the time when the supplier of service receives the payment.
(c) The payment is linked to the completion of an event, the invoice shallbe issued on or before the date of completion of that event.
Issue of invoice in case, where supply of service ceases under a contract before the completion of supply
In a case where the supply of services ceases under a contract before the completion of the supply, the invoice shall be issued at the time when the supply ceases and such invoice shall be issued to the extent of the supply made before such cessation.
Sale on approval basis
Where the goods being sent or taken on approval for sale or return are removed before the supply takes place, the invoice shall be issued before or at the time of supply or six months from the date of removal, whichever is earlier.
Credit and Debit Notes
In cases where tax invoice has been issued for a supply and subsequently it is found that the value or tax charged in that invoice is more than what is actually payable/chargeable or where the recipient has returned the goods, the supplier can issue a credit note to the recipient. A registered person who issues such a credit note has to declare details of such credit note in the return for the month during which such credit note has been issued but not later than September following the end of the financial year in which such supply was made or the date of furnishing of the relevant annual return, whichever is earlier. The tax liability of the registered person will be adjusted in accordance with the credit note issued, however no reduction in output tax liability of the supplier shall be permitted, if the incidence of tax and interest on such supply has been passed on to any other person.
In cases where tax invoice has been issued for a supply and subsequently it is found that the value or tax charged in that invoice is less than what is actually payable/chargeable, the supplier can issue a debit note to the recipient.
Any registered person who issues a debit note in relation to a supply of goods or services or both, shall declare the details of such debit note in the return for the month during which such debit note has been issued and the tax liability shall be adjusted in such manner as may be prescribed.
A revised tax invoice and credit or debit note has to contain the following particulars:
(a) The word “Revised Invoice”, wherever applicable, indicated prominently
(b) Name, address and GSTIN of the supplier
(c) Nature of the document
(d) A consecutive serial number containing alphabets or numerals or special characters like hyphen or dash and slash symbolised as “-” and “/”respectively, and any combination thereof, unique for a financial year
(e) Date of issue of the document
(f)   Name, address and GSTIN or UIN, if registered, of the recipient
(g) Name and address of the recipient and the address of delivery, along with the name of State and its code, if such recipient is un-registered
(h) Serial number and date of the corresponding tax invoice or, as the case may be, bill of supply
(i)   Value of taxable supply of goods or services, rate of tax and the amount of the tax credited or, as the case may be, debited to the recipient.
(j)   Signature or digital signature of the supplier or his authorized representative.
Manner of issuing invoice
The invoice shall be prepared in triplicate, in case of supply of goods, in the following manner:
(a)The original copy being marked as ORIGINAL FOR RECIPIENT
(b) The duplicate copy being marked as DUPLICATE FOR TRANSPORTER
(c) The triplicate copy being marked as TRIPLICATE FOR SUPPLIER
The invoice shall be prepared in duplicate, in case of supply of services, in the following manner:
(a) The original copy being marked as ORIGINAL FOR RECIPIENT
(b) The duplicate copy being marked as DUPLICATE FOR SUPPLIER

The serial number of invoices issued during a tax period shall be furnished electronically through the Common Portal in Form GSTR-1.

Tax invoice in Special Cases
An ISD invoice or, as the case may be, an ISD credit note issued by an Input Service Distributor shall contain the following details:
(a) Name, address and GSTIN of the Input Service Distributor
(b) A consecutive serial number containing alphabets or numerals or special characters like hyphen or dash and slash symbolised as , “-”, “/”, respectively, and any combination thereof, unique for a financial year
(c) Date of its issue
(d) Name, address and GSTIN of the recipient to whom the credit is distributed
(e) Amount of the credit distributed
(f)   Signature or digital signature of the Input Service Distributor or his authorized representative
Tax Invoice in special cases
Where the Input Service Distributor is an office of a banking company or a financial institution, including a non-banking financial company, a tax invoice shall include any document in lieu thereof, by whatever name called, whether or not serially numbered but containing the prescribed information.
Where the supplier of taxable service is an insurer or a banking company or a financial institution, including a non-banking financial company, the said supplier shall issue a tax invoice or any other document in lieu thereof, by whatever name called, whether or not serially numbered, and whether or not containing the address of the recipient of taxable service but containing other information as prescribed under rule 1 of Invoice Rules.
Where the supplier of taxable service is a goods transport agency supplying services in relation to transportation of goods by road in a goods carriage, the said supplier shall issue a tax invoice or any other document in lieu thereof, by whatever name called, containing the gross weight of the consignment, name of the consignor and the consignee, registration number of goods carriage in which the goods are transported, details of goods transported, details of place of origin and destination, GSTIN of the person liable for paying tax whether as consignor, consignee or goods transport agency, and also containing other information as prescribed under rule 1 of Invoice Rules.
Where the supplier of taxable service is supplying passenger transportation service, a tax invoice shall include ticket in any form, by whatever name called, whether or not serially numbered, and whether or not containing the address of the recipient of service but containing other information as prescribed under rule 1 of Invoice Rules.
Transportation of goods without an invoice
In the following cases it is permissible for the consignor to issue a delivery challan in lieu of invoice at the time of removal of goods:
(a) Supply of liquid gas where the quantity at the time of removal from the place of business of the supplier is not known
(b) Transportation of goods for job work
(c) Transportation of goods for reasons other than by way of supply
(d) Such other supplies as may be notified by the Board
The delivery challan, serially numbered not exceeding 16 characters, in one or multiple series, shall contain the following details:

(i)   Date and number of the delivery challan

(ii)  Name, address and GSTIN of the consigner, if registered
(iii)          Name, address and GSTIN or UIN of the consignee, if registered
(iv)         HSN code and description of goods
(v) Quantity (provisional, where the exact quantity being supplied is not known)
(vi)         Taxable value
(vii)        Tax rate and tax amount – Central tax, State tax, Integrated tax, Union territory tax or cess, where the transportation is for supply to the consignee
(viii)      Place of supply, in case of inter-State movement
(ix)Signature
The delivery challan shall be prepared in triplicate, in case of supply of goods, in the following manner:
(a) The original copy being marked as ORIGINAL FOR CONSIGNEE
(b) The duplicate copy being marked as DUPLICATE FOR TRANSPORTER
(c) The triplicate copy being marked as TRIPLICATE FOR CONSIGNER
Where goods are being transported on a delivery challan in lieu of invoice, the same shall be declared in FORM [WAYBILL].
Where the goods being transported are for the purpose of supply to the recipient but the tax invoice could not be issued at the time of removal of goods for the purpose of supply, the supplier shall issue a tax invoice after the delivery of goods.
Where the goods are being transported in a semi knocked down or completely knocked down condition:
(a) The supplier shall issue the complete invoice before dispatch of the first consignment
(b) The supplier shall issue a delivery challan for each of the subsequent consignments, giving reference of the invoice
(c) Each consignment shall be accompanied by copies of the corresponding delivery challan along with a duly certified copy of the invoice
(d) The original copy of the invoice shall be sent along with the last consignment

Accounts and records in GST

Assessment in GST is mainly focused on self-assessment by the taxpayers themselves. Every taxpayer is required to self-assess the taxes payable and furnish a return for each tax period i.e. the period for which return is required to be filed. The compliance verification is done by the department through scrutiny of returns, audit and/or investigation. Thus the compliance verification is to be done through documentary checks rather than physical controls. This requires certain obligations to be cast on the taxpayer for keeping and maintaining accounts and records.

Section 35 of the CGST Act and “Accounts and Records” Rules (hereinafter referred to as rules) provide that every registered person shall keep and maintain all records at his principal place of business. It has cast the responsibility on the owner or operator of warehouse or godown or any other place used for storage of goods and on every transporter to maintain specified records. The section also empowers the Commissioner to notify a class of taxable persons to maintain additional accounts or documents for specified purpose or to maintain accounts in other prescribed manner. It also provides that every registered person whose turnover during a financial year exceeds the prescribed limit shall get his accounts audited by a chartered accountant or a cost accountant.
Section 35 provides that every registered person shall keep and maintain, at his principal place of business, as mentioned in the certificate of registration, a true and correct account of:  production or manufacture of goods inward and outward supply of goods or services or both stock of goods input tax credit availed output tax payable and paid and such other particulars as may be prescribed In addition, the rules also provide that the registered person shall keep and maintain records of- goods or services imported or exported or supplies attracting payment of tax on reverse charge along with the relevant documents, including invoices, bills of supply, delivery challans, credit notes, debit notes, receipt vouchers, payment vouchers, refund vouchers and e-way bills. In case more than one place of business is specified in the certificate of registration, the accounts relating to each place of business shall be kept at such places of business. A registered person may keep and maintain such accounts and other particulars in electronic form in such manner as may be prescribed. Following accounts and records will have to be maintained by every registered person:   accounts of stock in respect of goods received and supplied; and such account shall contain particulars of the opening balance, receipt, supply, goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples and balance of stock including raw materials, finished goods, scrap and wastage thereof a separate account of advances received, paid and adjustments made thereto

( c) an account containing the details of tax payable, tax collected and paid, input tax, input tax credit claimed together with a register of tax invoice, credit note, debit note, delivery challan issued or received during any tax period

(d )names and complete addresses of suppliers from whom goods or services chargeable to tax under the Act, have been received

( e ) names and complete addresses of the persons to whom supplies have been made

(f )  accounts of stock in respect of goods received and supplied; and such account shall contain particulars of the opening balance, receipt, supply, goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples and balance of stock including raw materials, finished goods, scrap and wastage thereof

(g )a separate account of advances received, paid and adjustments made thereto

(h ) an account containing the details of tax payable, tax collected and paid, input tax, input tax credit claimed together with a register of tax invoice, credit note, debit note, delivery challan issued or received during any tax period

(i ) names and complete addresses of suppliers from whom goods or services chargeable to tax under the Act, have been received

(j )names and complete addresses of the persons to whom supplies have been made

(k )the complete addresses of the premises where the goods are stored including goods stored during transit along with the particulars of the stock stored therein

(l ) monthly production accounts showing the quantitative details of raw materials or services used in the manufacture and quantitative details of the goods so manufactured including the waste and by products thereof

( m ) accounts showing the quantitative details of goods used in the provision of services, details of input services utilised and the services supplied

( n ) separate accounts for works contract showing the names and addresses of the persons on whose behalf the works contract is executed description, value and quantity (wherever applicable) of goods or services received for the execution of works contract description, value and quantity (wherever applicable) of goods or services utilized in the execution of works contract the details of payment received in respect of each works contract and the names and addresses of suppliers from whom he has received goods or services The books of account shall be kept at the principal place of business and at every related place(s) of business mentioned in the certificate of registration and such books of account shall include any electronic form of data stored on any electronic devices. The data so stored shall be authenticated by way of digital signature. Any entry in registers, accounts and documents shall not be erased, effaced or overwritten and all incorrect entries, other than those of clerical nature, shall be scored out under attestation and thereafter the correct entry shall be recorded and where the registers and other documents are maintained electronically, a log of every entry edited or deleted shall be maintained. Further each volume of books of account maintained manually by the registered person shall be serially numbered. Period for preservation of accounts: All accounts maintained together with all invoices, bills of supply, credit and debit notes, and delivery challans relating to stocks, deliveries, inward supply and outward supply shall be preserved for seventy- two months (six years) from the due date of furnishing of annual return for the year pertaining to such accounts and records and shall be kept at every related place of business mentioned in the certificate of registration. Electronic Records: The following requirements have been prescribed for maintenance of records in electronic form.

Proper electronic back-up of records Produce, on demand, the relevant records or documents, duly authenticated, in hard copy or in any electronically readable format

(9)       Records to be maintained by owner or operator of godown or warehouse and  transporters: The   transporters,  owners or operators of godowns, if not already registered under the GST Act(s), shall submit the details regarding their business electronically on the Common Portal in FORM GST ENR-01. A unique enrolment number shall be generated and communicated to them. A person in any other State or Union territory shall be deemed to be enrolled in the State or Union Territory.

(10)      Every person engaged in the business of transporting goods shall maintain records of goods transported, delivered and goods stored in transit by him and for each of his branches. Every owner or operator of a warehouse or godown shall maintain books of accounts, with respect to the period for which particular goods remain in the warehouse, including the particulars relating to dispatch, movement, receipt, and disposal of such goods. The goods shall be stored in such manner that they can be identified item wise and owner wise and shall facilitate any physical verification or inspection, if required at any time.     

Composite Supply and Mixed Supply in GST

Introduction

A taxable event under GST is supply of goods or services or both. GST will be payable on every supply of goods or services or both unless otherwise exempted. The rates at which GST is payable for individual goods or services or both is also separately notified Classification of supply (whether as goods or services, the category of goods and services) is essential to charge applicable rate of GST on the particular supply. The application of rates will pose no problem if the supply is of individual goods or services, which is clearly identifiable and the goods or services are subject to a particular rate of tax.

But not all supplies will be such simple and clearly identifiable supplies. Some of the supplies will be a combination of goods or combination of services or combination of goods and services both. Each individual component in a given supply may attract different rate of tax. The rate of tax to be levied on such supplies may pose a problem in respect of classification of such supplies. It is for this reason, that the GST Law identifies composite supplies and mixed supplies and provides certainty in respect of tax treatment under GST for such supplies.

Composite Supply under GST

Under GST, a composite supply would mean a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply:

 Illustration: Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply.

 A works contract and restaurant services are classic examples of composite supplies, however the GST Act identifies both as supply of services and chargeable to specific rate of tax mentioned against such services (works contract and restaurants)

In respect of composite supplies (other than the two categories mentioned above), the need to determine the supply as a composite one, will arise, so as to determine the appropriate classification. It will be necessary to determine as to whether a particular supply is naturally bundled in the ordinary course of business and what constitutes principal supply in such composite supplies.

The concept of composite supply under GST is identical to the concept of naturally bundled services prevailing in the existing service tax regime. This concept has been explained in the Education Guide issued by CBEC in the year 2012 as under:

“Bundled service means a bundle of provision of various services wherein an element of provision of one service is combined with an element or elements of provision of any other service or services. An example of ‘bundled service’ would be air transport services provided by airlines wherein an element of transportation of passenger by air is combined with an element of provision of catering service on board. Each service involves differential treatment as a manner of determination of value of two services for the purpose of charging service tax is different.”

The rule is – ‘If various elements of a bundled service are naturally bundled in the ordinary course of business, it shall be treated as provision of a single service which gives such bundle its essential character’

Illustrations :
•        A hotel provides a 4-D/3-N package with the facility of breakfast. This is a natural bundling of services in the ordinary course of business. The service of hotel accommodation gives the bundle the essential character and would, therefore, be treated as service of providing hotel accommodation.
•        A 5 star hotel is booked for a conference of 100 delegates on a lump sum package with the following facilities:
•        Accommodation for the delegates
•        Breakfast for the delegates
•        Tea and coffee during conference
•        Access to fitness room for the delegates
•        Availability of conference room
•        Business centre

As is evident, a bouquet of services is being provided, many of them chargeable to different effective rates of tax. None of the individual constituents are able to provide the essential character of the service. However, if the service is described as convention service, it is able to capture the entire essence of the package. Thus, the service may be judged as convention service and chargeable to full rate. However, it will be fully justifiable for the hotel to charge individually for the services as long as there is no attempt to offload the value of one service on to another service that is chargeable at a concessional rate.

Whether the services are bundled in the ordinary course of business, would depend upon the normal or frequent practices followed in the area of business to which services relate. Such normal and frequent practices adopted in a business can be ascertained from several indicators some of which are listed below :

•       The perception of the consumer or the service receiver

- If large number of service receivers of such bundle of services reasonably expect such services to be provided as a package, then such a package could be treated as naturally bundled in the ordinary course of business.

•       Majority of service providers in a particular area of business provide similar bundle of services. For example, bundle of catering on board and transport by air is a bundle offered by a majority of airlines.

•       The nature of the various services in a bundle of services will also help in determining whether the services are bundled in the ordinary course of business. If the nature of services is such that one of the services is the main service and the other services combined with such service are in the nature of incidental or ancillary services which help in better enjoyment of a main service. For example, service of stay in a hotel is often combined with a service or laundering of 3-4 items of clothing free of cost per day. Such service is an ancillary service to the provision of hotel accommodation and the resultant package would be treated as services naturally bundled in the ordinary course of business.

 •       Other illustrative indicators, not determinative but indicative of bundling of services in the ordinary course of business are:

-       There is a single price or the customer pays the same amount, no matter how much package they actually receive or use
-       The elements are normally advertised as a package

-       The different elements are not available separately

-       The different elements are integral to one overall supply. If one or more is removed, the nature of the supply would be affected

No straight jacket formula can be laid down to determine whether a service is naturally bundled in the ordinary course of business. Each case has to be individually examined in the backdrop of several factors some of which are outlined above.

The above principles explained in the light of what constitutes a naturally bundled service can be gainfully adopted to determine whether a particular supply constitutes a composite supply under GST and if so what constitutes the principal supply so as to determine the right classification and rate of tax of such composite supply.

Mixed Supply

Under GST, a mixed supply means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply:

Illustration: A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drinks and fruit juices when supplied for a single, price is a mixed supply. Each of these items can be supplied separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately.

In order to identify if the particular supply is a mixed supply, the first requisite is to rule out that the supply is a composite supply. A supply can be a mixed supply only if it is not a composite supply. As a corollary it can be said that if the transaction consists of supplies not naturally bundled in the ordinary course of business then it would be a mixed supply. Once the amenability of the transaction as a composite supply is ruledout, it would be a mixed supply, classified in terms of supply of goods or services attracting highest rate of tax.

The following illustration given in the Education Guide of CBEC referred above can be a pointer towards a mixed supply of services:

A house is given on rent one floor of which is to be used as residence and the other for housing a printing press. Such renting for two different purposes is not naturally bundled in the ordinary course of business. Therefore, if a single rent deed is executed it will be treated as a service comprising entirely of such service which attracts highest liability of service tax. In this case, renting for use as residence is a negative list service while renting for non-residence use is chargeable to tax. Since the latter category attracts highest liability of service tax amongst the two services bundled together, the entire bundle would be treated as renting of commercial property.

Determination of tax liability of composite and mixed supplies

The tax liability on a composite or a mixed supply shall be determined in the following manner:

(a) A composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply

(b) A mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax

Time of supply in case of composite supply

If the composite supply involves supply of services as principal supply, such composite supply would qualify as supply of services and accordingly the provisions relating to time of supply of services would be applicable. Alternatively, if composite supply involves supply of goods as principal supply, such composite supply would qualify as supply of goods and accordingly, the provisions relating to time of supply of goods would be applicable.

 Time of supply in case of mixed supplies

The mixed supply, involving supply of a service liable to tax at higher rates than any other constituent supplies, would qualify as supply of services and accordingly the provisions relating to time of supply of services would be applicable. Alternatively, the mixed supply, involving supply of goods liable to tax at higher rates than any other constituent supplies, would qualify as supply of goods and accordingly the provisions relating to time of supply of services would be applicable.