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    In order to eliminate certain legacy issues and setbacks under the erstwhile indirect taxation regime, the goods and services tax (GST) was implemented in our country with effective from 01st July, 17. The GST laws have tried to remove certain legacy issues but have introduced new issues which will take years of litigation to obtain clarity on such aspects. The drafting of the law was not up to the mark in certain areas which will make sure the tax payers approach the judiciary to get the appropriate relief. In this article, we tried to address certain issues which are prominent from the day of the inception but not being answered by the authorities.


    The area of such confusion is the concept of composite supply and mixed supply. By this time, the reader knows that the term ‘supply’is the backbone of the entire GST legislation. Section 7 of Central Goods & Services Tax Act, 2017 (CGST Act) details the term ‘supply’ and please note that there would be a tax under GST only if there was a ‘supply’ as detailed in Section 7 ibid. But in a transaction, there would be multiple supplies and in such a situation, the taxation of transaction is guided by Section 8 of CGST Act, which deals with the determination of tax liability of composite and mixed supplies.


    If there is a composite supply comprising of two or more supplies, one of which is a principal supply, then such a composite supply shall be treated as transaction of principal supply and the tax treatment applicable for principal supply shall be applicable for the entire transaction consisting two or more supplies.


    However, if there is a mixed supply comprising two or more supplies, then the transaction shall be treated as that supply which is attracting the highest rate of tax.


    To put it in simple words, if the transaction is treated as composite supply, the tax treatment of principal supply shall be applicable to the entire transaction and if the transaction is treated as mixed supply, then the supply with the highest rate shall be applicable for the entire transaction. Let us take few examples (as provided in the GST laws) to understand the concept of composite supply and mixed supply before we proceed to analyse the issues relating to these concepts.


    The example provided for composite supply under the GST laws is as under:


    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.


    That is to say, if the goods are subjected to 12% rate of tax and transportation is subjected to 5% rate of tax and insurance is subjected to 18% rate of tax, since the supply of goods is the principal supply, then the entire transaction would be subjected to rate of tax at 12% and not 5% or 18%.









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    The example provided for mixed supply under the GST laws is as under:


    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.


    Hence, the entire transaction shall be subjected at the rate of tax which is highest among all the products. Suppose if aerated drinks are subject to tax @ 40%, the entire transaction shall be subject to 40% irrespective of the fact, there are products which are chargeable to rate of tax lower than 40% in the transaction.


    Hence, it is very important to categorise a transaction as to whether it becomes a composite supply or mixed supply as the taxation is completely different. Now, the challenge before the tax payer is how to decide whether a transaction is a composite supply or mixed supply.


    The phrase ‘composite supply’ has been defined vide Section 2(30) of CGST Act as ‘means 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’.


    The phrase ‘principal supply’ is defined under section 2(90) of CGST Act, 2017 as— ‘means the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary’.


    The phrase ‘mixed supply’ has been defined vide Section 2(74) of CGST Act as ‘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’.


    From the above, it is evident that a transaction shall become a mixed supply only if it is not a composite supply in the first place. Hence, we have to examine whether a transaction becomes a composite supply and if not, then we have to conclude such transaction is mixed supply. Let us take certain issues now and proceed to analyse them.


    Issue 1:


    A Hotel has entered contract with a customer for provision of accommodation services. The declared tariff of such accommodation is Rs 9,500/-. The Hotel has agreed to give such room along with complimentary meal and pick and drop to airport for a single price of Rs 8,500/-. The rate of tax applicable for accommodation, complimentary meal and transport facility is 28%, 18% and 5%. In such a case, what rate of tax should the hotel charge the customer for the entire Rs 8,500/-?


    Will the answer change, if the accommodation is given for Rs 7,000/-, meal is given for Rs 1,000/- and transport facility is given for Rs 500/- and separately disclosed and charged from the customer, instead of single price?


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    Composite vs Mixed Supply - Certain Issues




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    The question before the hotel is whether the transaction of supply of accommodation services, complimentary meal and transport facility is a composite supply or not. If it is a composite supply, then the tax rate of principal supply shall be applicable to the entire transaction.


    Here, the principal supply is the accommodation services because it is the predominant element of the composite supply and hence, the rate applicable for accommodation that is 28%, has to be charged on the amount of Rs 8,500/-.


    Now, the question is can the hotel charge 28% on Rs 7,000/- (Rs 1,960), 18% on Rs 1,000/- (Rs 180) and 5% on Rs 500/- (Rs 25), or is it mandatory to charge 28% on entire Rs 8,500/- (Rs 2,380). The tax impact would be Rs 215/- (2,380 – 1,960 – 180 – 25) between both the methods.


    We are of the opinion that when the hotel discloses and offers the prices of supplies independently to the customer, then there cannot be any determination of tax liability under Section 8 of CGST Act. Since, the definition of ‘composite supply’ envisages that from the inception of the transaction there are two or more taxable supplies flowing with the main supply.


    However, in the instant case, the accommodation services are provided at initial instance and the meal service and transportation service were given at a separate instance at the request of the customer. In such a scenario, the department cannot say that the transaction is a composite supply and the entire amount has to be subjected to 28% rate of tax. At the same time, the hotel cannot split the transactions into different supplies when offered for a single price to gain the tax advantage.


    Hence, an important take away from the above issue is, when there are two or more supplies, we have to see whether each supply is an independent in nature or an ancillary to the main supply. Now, the challenge is how to determine whether each service is an independent or ancillary to the main supply. What we understand is, a service shall be in ancillary if it does not constitute for the buyer an aim in itself, but a means of better enjoying the principal/main service supplied 1.


    Now let us look at the example laid out in CGST Act for the ‘composite supply’ to understand the intention of legislature. In the example, there are 3 supplies, namely supply of goods, supply of transportation services and supply of insurance services. Now, the question is whether the supply of transportation and insurance services constitute an independent supply or ancillary to the main supply that is supply of goods.


    In order to answer the above, we have to apply the test as laid above, whether the transportation and insurance services are constituting an aim in themselves for the recipient or whether such services are provided for a better enjoyment of the main service that is supply of goods. It is very clear that the buyer is not interested in the transportation and insurance services per se and hence we can conclude such services are ancillary to the main supply and hence the tax treatment of the main/principal supply shall be applicable to the entire transaction.



    1Customs and Excise Commissioners v. Madgett and Baldwin (trading as Howden Court Hotel) (Joined Cases C-308/96 and 94/97) [1998] STC 1189, 1206, para 24." (p 627.)


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    Composite vs Mixed Supply - Certain Issues




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    Accordingly, when the hotel provides accommodation services and after the guest walks in and orders for a meal and transportation to airport, the meal and transportation services constitute an aim in themselves and does not in any way can be called as for better enjoyment of accommodation services. However, if the hotel offers all the three services as a single supply for a single price, then there is no option left for the hotel except to charge the tax rate applicable for the accommodation to the entire transaction.


    Issue 2:


    A school is engaged in provision of educational services which are exempt from GST. Along with such educational services, the school is also selling the uniforms and other essentials. Now, whether the school is required to pay GST on such sale of uniforms and other essentials?




    On application of the theory of ‘composite supply’, the above issue becomes clear. Here, there are two or more supplies and undoubtedly, the supply of educational services are the principal supply and tax treatment applicable to the principal supply shall become applicable to the entire transaction, since the supplies are ancillary to the main supply.


    However, the issue here is, when applying the concept of ‘composite supply’ under the GST laws, it is necessary that the two or more supplies should be taxable supplies since the definition of ‘composite supply’ as laid down under Section 2(30) uses the phrase ‘consisting of two or more taxable supplies of goods or services…….’or can there be one supply which is taxable and other supply which is exempted as stated in the issue.


    The educational services are exempted and supply of uniform is taxable, hence, can we use the concept of composite supply in such an instance and not pay tax on supply of uniform because of the tax treatment to the educational services? or should we say that since the definition of ‘composite supply’ deals only with taxable supplies and since the supply of educational services is not a taxable supply, accordingly the concept of ‘composite supply’ shall not be applicable and hence the supply of uniforms becomes taxable? Hence, in order to resolve the issue, one has to look into the definition of ‘taxable supply’, which is being used in the definition of ‘composite supply’. As per Section 2(108) of CGST Act, ‘taxable supply’‘means a supply of goods or services or both which is leviable to tax under this act’. The phrase ‘leviable’ assumes significance in this context.


    ‘Levy’ means ‘to impose or assess (a fine or tax) by legal authority’ as per Black’s Legal Dictionary. In order to exempt a supply from tax, firstly the same has to be subjected to tax. Without a supply being subjected to tax, there is no question of exemption. The same has been upheld by the Supreme Court in the case of CCE v Smithkline Beecham Consumer Health Care Limited [2003] 151 ELT 5.










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    Composite vs Mixed Supply - Certain Issues




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    Hence, applying the above rationale, the phrase ‘leviable’ covers not only taxable supplies but also exempted supplies in its ambit. Accordingly, the taxable supplies would mean supplies which are both taxable and exempted. Further, the release issued by Central Board of Excise and Customs on 13th July, 17 regarding the ‘Press Release on Lodging in Hostels’ clarifying that the annual subscription/fee collected by educational institutions as lodging/boarding charges shall not attract GST, also clarifies that concept of ‘composite supply’ can be used even when there is a taxable and exempted supply.


    In this article, we have tried to address certain issues in the areas of composite and mixed supply, going forward this is going to be a huge area of litigation if the circulars do not come in time.
























    Foreign Corrupt Practices Act (FCPA) and the U.K Bribery Act enforcement actions have increased the pressure on companies to be more proactive to deter fraud and misconduct


    The UK Bribery Act (the Bribery Act) was passed on 8 April 2010 and comes into force on 1 July 2011. Until recently, international anti-corruption enforcement has been largely dominated by the US Foreign Corrupt Practices Act 1977 (the FCPA). The Bribery Act has been cause of some considerable controversy, in particular , given the implication which breadth of some of its provisions may have for British companies operating abroad.


    The Bribery Act, however, represents part of a broader international trend and has an even wider application than the FCPA. While organisations may consider that their anti-corruption procedures are sufficiently robust for the purposes of the FCPA, this may not be the case where the Bribery Act is concerned. It is therefore important for organisations operating on a global basis to be aware of the differences between the FCPA and the Bribery Act and to be prepared for the implications of the Bribery Act coming into force.


    The main differences between the Bribery Act and the FCPA


    Bribery of foreign (public) officials


    Both the Bribery Act and the FCPA make it an offence to bribe foreign (public) officials. Under the Bribery Act a “foreign public official” is defined more narrowly than under the FCPA but still includes (i) anyone who holds a foreign legislative or judicial position; (ii) individuals who exercise a public function for a foreign country, territory, public agency or public enterprise; or (iii) any official or agent of a public organisation.




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    Private-to-private bribery


    The FCPA does not cover bribery on a private level, unlike the Bribery Act, although such conduct can be caught under other US legislation.


    Active and passive bribery


    The FCPA only covers active bribery, that is to say the giving of a bribe. In contrast, the Bribery Act prohibits both active and passive bribery i.e. the taking of a bribe.


    Failure to prevent bribery


    The Bribery Act creates a strict liability corporate offence for failure to prevent bribery (as opposed to vicarious liability) subject to being able to establish that a company has “adequate procedures”. Under the FCPA, however, a company subject to US jurisdiction can be held vicariously liable for acts of its employees and agents. The UK offence extends to acts of “associated persons” which means anyone who performs services for or on behalf of the commercial organisation.




    Under the FCPA it must be proved that the person offering the bribe did so with a “corrupt” intent. The Bribery Act makes no requirement for a “corrupt” or “improper” intent in relation to the bribery of a foreign public official, although the requirement remains for the general bribery offence.


    Facilitation payments


    The FCPA creates an exemption for facilitation payments whereas the Bribery Act makes no such exception. The Ministry of Justice guidance, however, confirms that prosecutors will exercise discretion in determining whether to prosecute. In addition, informal guidance received from the SFO indicates that where it is considering action, it will be guided by the following six principles:


    ØWhether the company has a clear and issued policy.


    ØWhether the company has written guidance available to employees as to the procedures they must follow where a facilitation payment is requested or expected.


    ØWhether such procedures are really being followed (monitoring).

    ØEvidence that gifts are being recorded at the company.


    ØProper action, collective or otherwise, to inform the appropriate authorities in countries when a breach of the policy occurs.


    ØThecompany is taking what practical steps it can to curtail such payments.


    Promotional expenses


    The FCPA provides for a “defence” to promotional expenses in so far as it can be demonstrated that they were a reasonable and bona fide expenditure. There is no such defence concerning promotional expenses under the Bribery Act, in relation to foreign public officials, although the Ministry of Justice has provided some comfort on this aspect in its guidance.


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    Bribery Act vs FCPA - Compartive Study



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    An individual found to have committed an offence under the Bribery Act is liable to imprisonment of up to ten years and/or to an unlimited fine. A company found guilty is subject to an unlimited fine.


    For offences committed under the FCPA an individual can be fined up to US$250,000 per violation and may also be given up to five years imprisonment. A company guilty under the FCPA is liable for a fine of up to US$2,000,000 per violation.


    Key considerations for FCPA compliant organisations


    • Business-to-business or commercial bribery must be taken as seriously as bribery of public officials.


    • Companies should review gift, hospitality and promotional expense guidelines.


    • Companies should reconsider policies that allow facilitation payments and develop strategies to reduce such payments.


    • Companies should formalize or revise risk assessment processes.


    • Companies should expand the scope of their anti-corruption programmes to include all “associated persons” and review third party due diligence, contractual protection and monitoring.


    • Companies should ensure they have adequate procedures in place; they are a complete defence for companies under the Bribery Act and represent significant protection and/or “sentence mitigation” elsewhere.


    The Bribery Act has a significantly wider scope than the FCPA and so FCPA-compliance programs are unlikely to be sufficient to ensure compliance with the Bribery Act. While the FCPA applies only to the bribery of foreign public officials, the Bribery Act covers bribery in both the public and private sectors. In addition, the Bribery Act, unlike the FCPA, does not have exclusion for facilitation payments and so such payments will constitute bribery offences if they fulfill the other criteria. The Bribery Act also creates a new strict liability offence of failure by a commercial organisation to prevent bribery. As the only defence available to such an offence is that adequate procedures to prevent bribery were in place, commercial organisations will need to ensure that their anti-bribery policies are adequate in light of the extensive scope of the Bribery Act.


    The Organization for Economic Cooperation and Development (“OECD”), has recently revised the Transfer Pricing (“TP”) Guidelines for Multinational Enterprises (“MNEs”) and Tax Administrations. Mainly incorporating its guidance provided in the 2015 BEPS reports to align transfer pricing outcomes with value creation and transfer pricing documentation.


    The purpose of the revision is to bring consistency in the guidelines with there commendations & outcomes ensuing from the OECD 2015 Base Erosion and Profits Shifting (“BEPS”) Project along with its alignment with globally recognized Safe Harbour Rules.


    The revised OECD TP Guidelines 2017 (Issued in July 2017) aim to sturdily support& build the international consensus on application of arm’s length principle on cross-border transactions between associated enterprises; and to reduce the compliance / tax burden of MNEs by propagating a consistent mechanism across jurisdictions.


    The key changes have been tabulated below:


    Sl No.


    Revised Guidelines








    ? Fresh guidance in conducting a functional analysis, especially




    around allocation of risks to the parties in a transaction.




    ? Stress on risks being allocated to the parties undertaking the



    risk irrespective the contractual allocation of risks.





    ? Risk ought to be allocated to the party with most control over




    the risk.








    ? Attribution of returns from intangibles to entities performing




    significant of intangibles to entities.




    ? Guidance on approach to deal with transfer pricing on hard to




    value intangibles (HTVI), people functions of development,


    enhancement,  maintenance,  protection  and  exploitation






    (DEMPE) of the intangibles.




    ? The revised UN TP Manual incorporated the above guidance on




    DEMPE functions (development, enhancement, maintenance,




    protection and Exploitation)










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    ? Situations in which a profit split is the most appropriate transfer




    pricing method




    ? How the profits need to be split and the several profit-splitting







    Profit Split approaches

    ? Importance of the master file and local file components in






    splitting the profits




    ? The principal contributions to value creation by entities within




    the group and key group intangibles.








    ? Separate entity approach has been stressed upon.




    ? Taxing rights of the host country are not necessarily exhausted



    Attribution of profits

    by ensuring an arm’s length compensation to the intermediary.


    to PE

    This is against the principles established in SC decision of





    Morgan Stanley (additional attribution is required for a PE even




    if the intermediary has been compensated on an arm’s length







    Certainity on Dispute

    ? Safe Harbour – Bilateral and Multilateral to be agreed upon – i.e



    application of fixed prices/ margins or specific transfer pricing




    methods for a given class of transactions









    Changes to the TP Documentation landscape:


    BEPS Action Plan 13 emphasised three-tiered documentation structure consisting of Master File, Local File and CbC reporting. The revised Guidelines follow the objective of simplifying and standardizing rules in relation to maintenance of TP documentation across jurisdictions. It also targets to provide all the required and relevant information to revenue authorities for conducting effective TP audit proceedings.


    Three objectives of preparing and maintaining a Three tiered transfer pricing documentation, as follows:


    • To ensure that taxpayers give due weightage to transfer pricing requirements in establishing prices;


    • To provide tax authorities with robust information to enable to them to conduct informed risk assessment; and


    • To enable tax authorities to undertake thorough audit.












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    Revised OECD guidelines



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    Concluding Remarks:


    The revised OECD guidelines have certainly taken a new shape and flavour as impacted by the BEPS action plans. The focus was mainly on the PE, Intangibles, Documentation and Comparability aspects of the TP analysis.


    Indian Tax authorities have already started incorporating the BEPS questions as part of their audit procedures and once the official notification of the templates and the disclosure requirements are notified, the real heat of the BEPS Impact on India would be felt.

    SBS DIGEST E Journal July 2017

    Key Topics Covered:

    • AUDIT


    • COMPANIES ACT, 2013

    This article is contributed by Partners of SBS and Company LLP - Chartered Accountant Company. You can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

    SBS WIKI E Journal July 2017

    Key Topics Covered:

    • AUDIT
    • COMPANIES ACT, 2013

    This article is contributed by Partners of SBS and Company LLP - Chartered Accountant Company. You can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

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