CGST Section 8: Tax Liability on Composite and Mixed Supplies

Section 8 determines how tax liability is to be computed once a transaction is identified as a composite supply or a mixed supply under Section 2 of the CGST Act. The provision does not define these supplies; it only prescribes the rate-determination mechanism, thereby preventing artificial splitting of supplies to gain tax advantage.

Clause (a): Tax Liability on Composite Supply

A composite supply consists of two or more taxable supplies that are:

• naturally bundled, and

• supplied in conjunction with each other,

• in the ordinary course of business,

• with one principal supply.

Statutory Rule

The entire composite supply shall be treated as a supply of the principal supply.

Key Implications

• One tax rate applies to the whole consideration.

• Ancillary or incidental supplies lose independent identity.

• Classification, rate, and time of supply follow the principal supply.

Illustrative Understanding

If goods are supplied along with transportation and insurance, and the goods constitute the principal supply, the entire transaction is taxed as a supply of goods at the applicable rate.

Practical Significance

This clause ensures:

• commercial reality is respected, and

• bundled supplies are not fragmented for tax arbitrage.

Disputes typically arise on identification of the principal supply, not on application of Section 8 itself.

Clause (b): Tax Liability on Mixed Supply

A mixed supply consists of two or more individual supplies:

• made together for a single price,

• not naturally bundled, and

• capable of being supplied separately.

Statutory Rule

The mixed supply shall be treated as a supply of that item which attracts the highest rate of tax.

Key Implications

• Highest GST rate governs the entire transaction.

• Taxpayer intent or dominant supply is irrelevant.

• Encourages correct pricing and structuring of supplies.

Illustrative Understanding

If a package includes taxable goods with different GST rates and is sold for a single consolidated price, the highest rate among the items applies to the full value.

Compliance Impact

Businesses often restructure invoicing or pricing to avoid unintended mixed supply treatment, particularly in promotional or bundled offers.

Interaction with Section 7 and Definitions

Section 8 operates only after:

• the transaction qualifies as a “supply” under Section 7, and

• it is identified as composite or mixed based on definitions in Section 2.

It does not:

• create tax liability independently, or

• determine whether a supply exists.

Practical and Litigation Significance

Section 8 is frequently examined in disputes involving:

• bundled service contracts

• works contracts and AMC arrangements

• hospitality, travel, and logistics packages

• promotional offers and gift hampers

Litigation typically focuses on whether a supply is composite or mixed, rather than the tax rule prescribed under this section.

Section 8 provides a clear, mechanical rule for determining GST liability on bundled supplies. By linking taxation to either the principal supply or the highest-taxed supply, it reinforces certainty, curbs tax planning through artificial bundling, and aligns GST treatment with commercial substance.