In India, §8 of the Central Goods and Services Tax Act, 2017 (CGST Act) taxes a composite supply at the rate of its principal supply, and a mixed supply at the highest rate of any component. CBIC Circular 206/18/2023-GST confirms electricity bundled with renting stays composite even when billed separately, unless the landlord recovers only the actual DISCOM charge as a pure agent.
TL;DR for founders
When you sell two things together for one price, GST asks a single question: were they naturally bundled? If yes, the whole package takes the rate of the main item — which is usually good news when the main item is taxed low or exempt. If no, the whole package takes the highest rate of anything inside it — which is how a low-rate product ends up taxed at the rate of the promotional item you threw in. The lever you control is the invoice. Show separate values for genuinely separate supplies and each is taxed on its own; bundle them into one price and you have handed the classification question to a tax officer.
The two definitions, and why the gap between them costs money
Two definitions and one charging rule do all the work.
§2(30) — composite supply: 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.
§2(74) — mixed supply: two or more individual supplies made in conjunction for a single price, where the supply does not constitute a composite supply.
§8 then applies the consequence. A composite supply is treated as a supply of the principal supply and takes its rate. A mixed supply is treated as a supply of that particular supply which attracts the highest rate of tax.
The asymmetry is the whole point. Composite treatment pulls the package down to the principal supply's rate — or out of tax altogether where the principal supply is exempt. Mixed treatment pushes the entire package up to the highest rate present. On a bundle of a 5% item and a 28% item, the characterisation decides whether the bundle is taxed at 5% or 28%.
The separate-value escape hatch
Before running the §8 analysis at all, check the invoice — because there is a route that avoids the question entirely.
CBIC Circular 47/21/2018-GST (CIR_47_2018) addresses car servicing, where a workshop supplies both spare parts and labour. The clarification: where both goods and services are supplied and their values are shown separately on the invoice, each component is taxable at its own applicable rate — spare parts at the goods rate, labour at the services rate. The circular's field-practice directive is explicit that mixed supply analysis applies only when values are not shown separately.
That is the single most useful drafting lever in this area. Two genuinely distinct supplies, separately priced and separately shown, are two supplies. The §8 machinery engages when a single price is charged for the package.
The same circular carries a related valuation point: where an OEM provides moulds and dies free of cost to a component manufacturer (not related or distinct persons), that is not a supply under §7 and the value is not includible in the components under §15(2)(b), because the cost was never the manufacturer's to bear. The exception reverses it — if the contract required the manufacturer to use its own moulds and the OEM supplied them instead, the amortised cost goes into the component value and the OEM must reverse ITC.
Identifying the principal supply: essential character, not value
Where a single price is charged, the question becomes which supply is principal. CBIC Circular 34/08/2018-GST (CIR_34_2018) is the clearest official statement of the test, and it deliberately refuses to give a formula.
On bus body building, the circular holds there is a composite supply involving both goods (body parts, materials) and services (fabrication), and that classification as goods or services depends on which is the principal supply, determined on the facts and circumstances of each case. No blanket rule is prescribed; the essential nature of the composite supply governs, and value is one guiding factor but not the sole determinant.
On retreading of tyres, it applies that test to a conclusion: the predominant element is the retreading process, a supply of service, with the rubber ancillary. But it then flips the fact pattern — where the retreaded tyres belong to the service provider rather than the customer, the transaction is a supply of goods, retreaded tyres under heading 4012 at 28%. The same physical activity, two characterisations, decided by who owns the thing being supplied.
| Fact pattern | Characterisation | Driver |
|---|---|---|
| Bus body built on customer's chassis | Composite — principal supply fact-specific | Essential nature; value guides but does not decide |
| Retreading customer's tyres | Composite — service principal | Retreading process imparts essential character |
| Selling own retreaded tyres | Supply of goods, heading 4012 | Ownership of the tyres sits with the supplier |
| Spare parts and labour separately valued | Two supplies at their own rates | Separate disclosure on the invoice |
Veritect Legal AI
The most common classification error is running the composite-versus-mixed analysis before checking whether the analysis is needed at all. Sequence it properly: first ask whether the components are separately valued on the invoice, because Circular 47/21/2018-GST (
CIR_47_2018) then taxes each at its own rate and §8 never engages. Only where a single price is charged do you reach §2(30) and ask whether the bundling is natural and in the ordinary course of business. Only if it is not do you fall to §2(74) and the highest-rate rule in §8(b). Two further traps sit downstream. Separate billing is not the same as separate supply — Circular 206/18/2023-GST (CIR_206_2023) holds electricity bundled with renting composite even when billed separately, so an invoice line is not by itself an answer. And an amount labelled "interest" or "penalty" is characterised by its underlying transaction, not its label. Veritect Legal AI holds §§2(30), 2(74) and 8 alongside the full run of CBIC classification circulars, so a query such as "is separately-billed electricity recovered by a mall operator part of the renting supply" resolves against the operative circular rather than general commentary.
Bundled recoveries: the electricity line
The highest-value application of §8 in current practice is the recovery of electricity by landlords, malls, airports and IT parks.
CBIC Circular 206/18/2023-GST (CIR_206_2023), implementing 52nd GST Council recommendations, holds that where electricity is supplied bundled with renting of immovable property or maintenance of premises, it is part of a composite supply under §8. The principal supply is the renting or maintenance; electricity is ancillary; the principal supply's rate applies. And the sentence that resolves years of dispute: billing electricity separately does not break the composite-supply characterisation.
The carve-out is narrow but real. Where the owner, RWA or developer charges only the actual amount charged by the State Electricity Board or DISCOM, with no markup, they are treated as a pure agent under Rule 33 of the CGST Rules, 2017, and the electricity charge does not form part of taxable value. The operative discriminator is markup, not invoice layout — which is why lease drafting in commercial leasing, mall management, airport land-use and IT-park contracts turns on how the recovery is defined rather than how it is presented.
The same circular carries the same line of business restriction that most often bites: for passenger transport under SAC 9964 and renting of a motor vehicle with operator under SAC 9966, both at 5% with ITC restricted to the same line of business, the qualifying input services are only SAC 9964 and 9966 — not leasing without operator under SAC 9973, which tracks the rate applicable to sale of the underlying vehicle. Cab aggregators and tour operators on the 5% rate therefore cannot claim credit on dry-lease inputs.
When the whole bundle is exempt, and when a label misleads
Exemption flows through the principal supply. CBIC Circular 100/19/2019-GST (CIR_100_2019) treats seed certification tags supplied by State Seed Certification Agencies as an element of one composite supply of seed testing and certification, exempt under Notification 12/2017-Central Tax (Rate) S. No. 47. Every fee in the chain — registration at ₹25, field inspection, seed analysis at ₹30 or ₹200, tag issuance at ₹2 to ₹3 per tag — is consideration for that single exempt supply. But tags manufactured by an external third party and sold to the Agency are a separate taxable supply of goods, classified by predominant material.
Labels do not decide characterisation. CBIC Circular 102/21/2019-GST (CIR_102_2019) splits penal interest by the underlying transaction. Penal interest charged by a seller of goods on delayed instalments is included in the value of the goods under §15(2)(d) and taxed at the goods rate. Penal interest charged by a lender on a loan is "interest" under Notification 12/2017-Central Tax (Rate) Sl. No. 27 read with clause 2(zk), and exempt. Schedule II §5(e) — tolerating an act — does not apply where the amount satisfies the interest definition. Lenders' service fees and administrative charges are not interest and remain taxable, so the contract must separate the components.
The broader service-side circulars work the same seam. Circular 177/09/2022-GST (CIR_177_2022) and Circular 164/20/2021-GST (CIR_164_2021) run this analysis across dozens of service categories — from ice-cream parlours and educational admission fees to body-corporate motor vehicle hire, where hire for a period falls under Heading 9966 with reverse charge while transport for a specific journey falls under Heading 9964 without it. Same vehicle, same operator, different characterisation and a different person liable to pay.
FAQ
Q: What is the difference between a composite supply and a mixed supply?
A: Under §2(30) of the Central Goods and Services Tax Act, 2017 (CGST Act), a composite supply consists of two or more taxable supplies naturally bundled and supplied together in the ordinary course of business, one of which is the principal supply. Under §2(74), a mixed supply is two or more individual supplies made together for a single price where the bundling is not natural. The consequence under §8 is significant: a composite supply is taxed at the rate applicable to the principal supply, while a mixed supply is taxed at the highest rate of any component. The distinction is therefore worth money, not just labels.
Q: Is electricity recovered by a landlord part of a composite supply?
A: Yes, in the ordinary case. CBIC Circular 206/18/2023-GST dated 31 October 2023 (CIR_206_2023), implementing 52nd GST Council recommendations, clarifies that where electricity is supplied bundled with renting of immovable property or maintenance of premises, it forms part of a composite supply under §8 of the CGST Act. The principal supply is the renting or maintenance and electricity is ancillary, so the principal supply's rate applies. Critically, billing the electricity separately does not break that characterisation. The carve-out is narrow: where the owner, RWA or developer charges only the actual amount charged by the State Electricity Board or DISCOM with no markup, they are treated as a pure agent under Rule 33 of the CGST Rules, 2017 and the electricity charge falls outside taxable value.
Q: If goods and services are billed separately on one invoice, is it still a composite supply?
A: No. CBIC Circular 47/21/2018-GST dated 8 June 2018 (CIR_47_2018) addresses this directly in the car-servicing context: where both goods such as spare parts and services such as labour are supplied and their values are shown separately on the invoice, each component is taxable at its own applicable rate — spare parts at the goods rate and labour at the services rate. No composite or mixed supply analysis is required at all when values are separately disclosed. The circular's field-practice directive states expressly that mixed supply analysis applies only when values are not shown separately.
Q: How is the principal supply identified when goods and services are both substantial?
A: By essential character, not by value alone. CBIC Circular 34/08/2018-GST dated 1 March 2018 (CIR_34_2018) is the clearest statement of the test. On bus body building, it holds that there is a composite supply of goods and services and that classification depends on which is the principal supply, determined on the facts and circumstances of each case — no blanket rule applies, and value is one guiding factor but not the sole determinant. On retreading of tyres, the same circular finds the predominant element to be the retreading process, a supply of service, with rubber ancillary. The corollary is set out too: where the retreaded tyres belong to the service provider rather than the customer, the supply is a supply of goods under heading 4012.
Q: Can a composite supply be exempt as a whole?
A: Yes, where the principal supply is exempt. CBIC Circular 100/19/2019-GST dated 30 April 2019 (CIR_100_2019) treats the supply of seed certification tags by State Seed Certification Agencies as an element of one composite supply of seed testing and certification, exempt under Notification 12/2017-Central Tax (Rate) S. No. 47. Fees at every stage — registration at Rs 25, field inspection, seed analysis at Rs 30 or Rs 200, and tag issuance at Rs 2 to Rs 3 per tag — are consideration for that single exempt supply. But where the tags are manufactured by an external third party and supplied to the Agency, that is a separate taxable supply of goods, with classification depending on the predominant material.
Q: Does an amount labelled interest or a penalty escape the composite-supply analysis?
A: It depends on the underlying transaction, not the label. CBIC Circular 102/21/2019-GST dated 28 June 2019 (CIR_102_2019) draws the line with two cases. Where a seller of goods charges penal interest on delayed instalments, it is included in the value of the taxable goods under §15(2)(d) of the CGST Act and taxed at the goods rate — no exemption. Where a lender charges penal interest on a loan, it qualifies as interest under Notification 12/2017-Central Tax (Rate) Sl. No. 27 read with clause 2(zk) and is exempt. Service fees and administrative charges of lenders do not qualify as interest and remain taxable, so the documentation must separate the two components clearly.
Q: Where does the composite-supply analysis interact with input tax credit restrictions?
A: Most sharply in the same-line-of-business rules. CBIC Circular 206/18/2023-GST (CIR_206_2023) clarifies that for passenger transport by motor vehicle under SAC 9964 and renting of a motor vehicle with operator under SAC 9966, both at 5% with input tax credit restricted to the same line of business, the qualifying input services include only SAC 9964 and SAC 9966 — not leasing of motor vehicles without operator under SAC 9973, which instead attracts tax at the rate applicable to supply of the underlying vehicle by way of sale. The practical effect is that cab aggregators and tour operators holding the 5% output rate cannot claim credit on dry-lease inputs.
Related on Veritect: §15 valuation — transaction value and related-party Rules 27 to 35 · Goods classification disputes and the CBIC HSN circular chain · Time of supply, reverse charge and self-invoicing — the 30 and 60 day tests
Sources
Primary CBIC and Government of India sources relied on for this explainer:
- CBIC Tax Information Portal — circular text: taxinformation.cbic.gov.in
- CBIC GST portal (archival instruments, 2017–2022): cbic-gst.gov.in
- CGST Act, 2017 — §§2(30), 2(74), 8, 15, 168, and CGST Rule 33: indiacode.nic.in
- GST Council — 52nd meeting recommendations underlying Circular 206/18/2023-GST: gstcouncil.gov.in
- Gazette of India — notification publication: egazette.gov.in
Corpus anchors: CIR_34_2018, CIR_47_2018, CIR_100_2019, CIR_102_2019, CIR_164_2021, CIR_177_2022, CIR_206_2023.
This explainer is general information on Indian central GST law and is not legal or tax advice. Verify the operative statutory text, rate entries and circular paragraphs applicable to the period in question before acting.
Beyond this brief Preview
This article covers the framework. The full picture includes the verbatim text of §2(30), §2(74) and §8(a) and (b), §15(2)(b) and §15(2)(d) on inclusions in transaction value, Rule 33's pure-agent conditions in full, the complete five-issue text of Circular 47/21/2018-GST including the OEM mould and die valuation exception, all four issues of Circular 34/08/2018-GST with the bus body building and retreading analysis and the Priority Sector Lending Certificate and DISCOM entries, the full five-issue text of Circular 206/18/2023-GST covering same-line-of-business SAC mapping, the electricity pure-agent carve-out, malted barley job work, DMFT governmental-authority status and CPWD horticulture exemption, the sixteen-service run of Circular 177/09/2022-GST, and the two-case penal-interest analysis of Circular 102/21/2019-GST with the Schedule II §5(e) reasoning. Veritect Legal AI holds all seven anchor circulars cited above in full text, supersession-tracked, so practitioners can resolve queries such as "is a facility-management charge recovered with a fixed markup over the DISCOM bill within Rule 33" or "does a bundled installation charge shown as a separate line item on the same invoice constitute a separate supply" against the operative sources rather than secondary summaries. Access through veritect.ai.