What Is Composite Supply?
A composite supply is a supply of two or more taxable goods or services that naturally go together, with one main item. GST taxes the whole bundle as that main item, at its rate.
The definition sits in section 2(30) of the CGST Act, and the main item is called the principal supply. The Act’s own illustration is goods sold with their packing, transport and insurance: the goods are the principal supply, so the whole package is taxed as goods. Section 8(a) is what taxes the bundle as its principal supply.
How to Tell a Bundle Is Natural
“Naturally bundled” is the phrase that usually decides the question, and the law does not define it. CBIC’s flyer on composite and mixed supply draws on the old service tax idea of naturally bundled services, and these are among the signs it lists:
- Customers expect it as a package. In the flyer’s words, a large number of buyers reasonably expect the parts together.
- Most sellers in the trade offer it that way. The flyer’s example is airlines bundling a meal with the flight.
- One part is the main thing. The rest only helps you enjoy it, like free laundry with a hotel stay.
- There is one price, and the parts are not usually sold separately.
No single test settles it: in CBIC’s words, “No straight jacket formula can be laid down”.
Finding the Principal Supply
The principal supply is the part that gives the bundle its essential character. Value matters but does not decide on its own. In its circular on tyre retreading, CBIC treated the retreading service as the principal supply even though rubber goes into it, because the service is what the customer is paying for. Where the supplier sells retreaded tyres it already owns, though, CBIC treats that as a sale of goods.
Get it wrong and the rate on the whole bundle changes, so settle it before the first invoice, not after a notice.
Composite Supply vs Mixed Supply
The two are often confused because both put several items on one bill.
| Aspect | Composite supply | Mixed supply |
|---|---|---|
| Bundled | Naturally, in normal trade | By the seller’s choice |
| Main item | Yes, the principal supply | None |
| Rate | The principal supply’s rate | The highest rate inside |
| Example | Goods with packing and delivery | A hamper of sweets, dry fruits and drinks |
CBIC’s order of thinking helps: rule out composite first, and only then consider mixed.
Composite Supply Example
A sweet maker in Morbi supplies 120 Diwali boxes to a tile manufacturer in late October 2026, gift-packed and delivered to the factory, on one invoice.
| Line | Amount | Taxed as |
|---|---|---|
| Sweets | Rs.1,02,000 | Principal supply |
| Gift packing | Rs.1,800 | Usually part of the sweets |
| Delivery | Rs.2,400 | Usually part of the sweets |
| Total | Rs.1,06,200 | All at the sweets’ rate |
Note: this is an invented example for illustration only. The businesses and amounts are not real.
The packing and delivery exist only because of the sweets, so they usually take the sweets’ rate rather than one of their own.
Whether separate lines for packing and delivery change that is a judgement call. CBIC accepted separate rates where car servicing showed parts and labour separately, while the older service tax guidance its flyer quotes warns against shifting value onto a lower-rated part, so agree the treatment with your CA.
Where Businesses Get It Wrong
Errors often come from treating the label on the invoice as the decision:
- Splitting a natural bundle to lower the tax. The older service tax guidance CBIC quotes accepts separate charges, but not to move value onto a lower-rated part.
- Picking the principal supply by value alone. What the bundle is really for decides, and value is only one guide.
- Calling a gift hamper composite. Sweets and a brass diya are not naturally bundled; sold for one price, they form a mixed supply instead.
Once the classification is settled, the right HSN code or SAC code follows from the principal supply.
Settle Each Composite Supply Before Billing
Write down which of your regular bundles are composite, what the principal supply is in each, and why. That one page, agreed with your CA, is what you will reach for if a GST officer ever asks. And the page keeps every invoice in the same shape, with our GST rate finder giving the rate for each principal supply.
Frequently Asked Questions
CBIC calls restaurant service and works contracts classic composite supplies. But the law gives both their own specified rates, so a restaurant does not need to work out a principal supply for each meal.
Yes. CBIC’s examples include a hotel package with breakfast, taxed as hotel accommodation, and an air fare that includes an onboard meal.
Yes, when it goes to admitted patients as advised by a doctor or nutritionist. CBIC treats it as part of the composite supply of healthcare, while food supplied to non-admitted patients, attendants or visitors is taxable.
The principal supply’s. If the main item is a service, the time of supply rules for services apply. If it is goods, the rules for goods apply.
