Central Government vide Notification No. 07/2012-ST had inserted a new entity no. 48 in the Mega Exemption notification that ‘any service provide by a Government or a Local Authority to a business entity with a turnover up to rupees ten lacs in the preceding financial year” is exempt.

On the basis of above, it was appeared all the Services Provided by government or local authority to a business entity with a turnover up to rupees ten lacs in the preceding financial year would be exempt even taxable under forward charge or reverse charge.

Now central government vide Notification No. 26/2012-ST, dated 20.05.2016, has inserted an Explanation in Entry no. 48 of Mega Exemption to clarify that above exemption shall not be applicable to the following services namely:-

1. services specified in sub-clauses (i),(ii) and (iii) of clause (a) of section 66D of the Finance Act 1994
2. services by way of renting of immovable property

It is clarified here that as per Section 66D of sub-clause (a) of Finance Act, 1994, any service provided by Government or a local authority are covered in negative list except the following service-

1. services by the Department of posts by way of speed post, express parcel post, life insurance and agency services provided to a person other than Government
2. services in relation to an aircraft or a vessel, inside or outside in the precincts of a port or an airport
3. transport of goods or passengers
4. any service, other than services covered under clauses (i) to (iii) above provided to business entities.

Further, Notification 30/2012-ST states that service provided by Government or local authority to business entities located in taxable territory, is taxable under reverse charge mechanism except any service relating to immovable property, and service specified in sub-clause (i),(ii) and (iii) of Section 66D of the Finance Act, 1994.

Thus, exemption relating to services provided by Government or a local authority to a business entity with a turnover up to rupees ten lacs in the preceding financial year would be available only in respect of those services where service receiver is liable to pay tax under reverse charge mechanism.

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