Yesterday we saw that mixing services into a goods business halves your registration limit. Today we deal with what happens when you sell two or more things together for one price — because GST has two very different answers, and the gap between them can be thirty-five percentage points.

Composite supply

Section 2(30) defines a composite supply as a supply consisting of two or more taxable supplies of goods or services or both, naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.

The principal supply, under Section 2(90), is the predominant element. Everything else is ancillary to it.

Section 8(a) then gives the treatment: a composite supply is treated as a supply of the principal supply, and the rate applicable to the principal supply applies to the whole value.

How do you know whether something is "naturally bundled"? The working tests are these. Does the customer reasonably expect the elements together? Can the ancillary element practically be supplied on its own? Are the elements advertised, priced and sold as a package across that line of business? Does industry practice treat them as one?

Examples make it concrete.

A manufacturer in Haldia sells machinery for ₹10,00,000 and charges ₹40,000 for transport and ₹10,000 for transit insurance on the same invoice. The machinery is the principal supply; freight and insurance exist only because of it. The whole ₹10,50,000 is taxed at the machinery rate.

A hotel room at ₹4,000 a night including breakfast. Accommodation is the principal supply, breakfast is ancillary. The entire amount is taxed at the accommodation rate.

A refrigerator sold with a one-year manufacturer's warranty built into the price. The warranty service is ancillary to the goods. The whole thing is taxed as a supply of the refrigerator.

And a works contract, involving both materials and labour, is deemed by Schedule II to be a supply of service — a statutory example where the law resolves the bundling question for you rather than leaving it to the general test.

Mixed supply

Section 2(74) defines a mixed supply as two or more individual supplies of goods or services made in conjunction with each other for a single price, where the supply does not constitute a composite supply.

The distinguishing feature is independence. Each item can be sold separately. None is ancillary to another. They travel together only because the seller chose to put them in one box at one price.

Section 8(b) is unforgiving here: a mixed supply is treated as a supply of that particular item which attracts the highest rate of tax, and the entire value is taxed at that rate.

Now the hamper. A Diwali box sold for a single price of ₹2,000 containing dry fruits, chocolates, canned juice, a scented candle and an aerated drink. Every item is separately saleable. None is ancillary. Aerated beverages sit in the 40% slab. Therefore the whole ₹2,000 is taxed at 40% — the candle, the dry fruits, everything.

Had the items been priced and billed separately, each would have carried its own rate. The single price is what triggered the outcome.

A smaller version of the same trap: a stationery shop offers a "back to school" pack for ₹1,000 containing exercise books at 5% and a branded backpack at 18%. The entire ₹1,000 is taxed at 18%.

The line between the two is not always obvious. Toothpaste supplied with a toothbrush in the same carton at a single MRP is generally regarded as naturally bundled by trade practice, and treated as a composite supply of toothpaste. But a shampoo bottle taped to an unrelated wristwatch and sold for one price is a mixed supply taxed at the higher rate. The test is whether the trade sells them that way, not whether the seller finds it convenient.

The decision path

Work through it in order.

Are two or more supplies being made together for a single price? If no, they are separate supplies and each is taxed on its own. If yes, go on.

Are they naturally bundled in the ordinary course of business? If no, it is a mixed supply and the highest rate applies. If yes, go on.

Is one of them clearly the principal supply? If yes, it is a composite supply and the principal supply's rate applies to everything. If no, treat it as a mixed supply.

Why this matters commercially

Two things follow for anyone designing offers, combos or festive packs.

First, before you fix a single price for a bundle, check the highest rate inside it. One 40% item in a box of 5% items converts the entire box to 40%. If the items are genuinely independent, price and bill them separately.

Second, if a bundle is genuinely a composite supply, say so on the invoice and describe it correctly. The relief flows from the substance of what you sell, but the documentation is what you will be asked to produce.

And recall the point from Part 2. Whether your after-sales work is a separate service or part of a composite supply of goods can decide whether your registration threshold is ₹40 lakh or ₹20 lakh. These rules are not academic classification exercises. They move real numbers.

Tomorrow, in Part 4: Pay 1% of turnover, file five times a year instead of twenty-five, forget input tax credit entirely. The composition scheme sounds like an obvious win for a small business. For some it is. For others it quietly destroys their ability to sell to anyone who matters. We look at who qualifies, what it costs, and the restrictions that are not in the brochure.