Developed plots: PRA AT Lahore rules sale not liable to provincial ST

ISLAMABAD: In a landmark judgment, the Appellate Tribunal of the Punjab Revenue Authority, Lahore has held that sale of developed plots by a real estate developer is not a taxable service for levy of provincial sales tax at the rate of Rs.100/- per square yard of development.

This recent judgment is a deviation from dozens of earlier judgments of the PRA Tribunal as well as of High Court where earlier the departmental version was accepted.

As per experts, the reason of different view is that first time the arguments have been considered in totality, in letter and spirit and the same have been addressed threadbare.

Appellate forum sets aside show-cause notice of PRA

The relevant facts are that a real estate developer was issued a show cause notice that they have not paid provincial sales tax at the rate of Rs.100 per square yard of area developed as per Sr.no.15 of Second Schedule to the Punjab Sales Tax on Services Act, 2012. The taxpayer contended that in respect of immovable property only rental services have been brought under the provincial sales tax and not the outright sale of developed plots.

However, the contention was rejected without discussing the applicable provision rather observing that all the other Housing Societies including, DHA, Bahria Town etc. have been paying the due sales tax in the government treasury under Sr.No.15 of the Second Schedule of the Act. The assessment order was endorsed by the Commissioner (Appeals) with the following conclusion:

“The taxpayer’s transactions fall under section 6(1)(b) of the Act read with section 3, Section 10 and serial no.15 of the Second Schedule of the Act and non-payment of tax thereupon is to be construed as wilful and deliberate act of violating the law of the land.”

The taxpayer filed second appeal before the PRA Tribunal and the legal references made by the Commissioner (Appeals) in the aforesaid conclusion were examined. The scheme of the Act is that section 10(1) is the charging section of the Act and it reads as follows:

“10. Scope of tax and allied matters- (1) Subject to the provisions of this Act and the rules, there shall be charged, levied, collected and paid the tax on the value of a taxable service at the rate or rates specified in the Second Schedule.” The key expression used in charging section 10(1) is taxable service. Section 3 of the Act pertains to taxable service. Section 3(1) reads as follows:

“3. Taxable service – (1) Subject to such exclusion as mentioned in Second Schedule, a taxable service is a service listed in Second Schedule, which is provided by a person from his office or place of business in Punjab in the course of an economic activity, including commencement or termination of the activity.”

There are two key expressions in section 3(1). First is that a service listed in the Second Schedule is a taxable service. Whereas services provided by property developers, builders and promoters are listed at serial no.15 of Second Schedule and as such is taxable service as per first part of section 3(1). Second key expression is that later part of section 3(1) stipulates that taxable service is provided in the course of economic activity.

The expression “economic activity” is covered in section 6 and section 6(1)(b) relevant to the point in issue reads as follows:

6- Economic activity – (1) An economic activity means any activity carried on whether continuously, regularly or otherwise by a person that involves or is intended to involve the provision of services to another person and includes —(a) — (b) Supply of moveable or immoveable property by way of lease, licence or such similar arrangements; and (c ) ———” Supply of moveable and immoveable property by way of lease, licence or such similar arrangements is economic activity of service envisaged under section 6(1)(b) liable to sales tax and under section 10(1) being a taxable service as per section 3(1). Whereas the taxpayer has sold the developed plots (immoveable property).

Whereas as per doctrine of equsdem generis” as explained by the Supreme Court in PLD 2000 SC 111 the expression “other similar arrangements “will be of the nature of lease and licence where ownership remains with the service provider.

However, in this case admittedly the taxpayer is selling/transferring its ownership rights. The Appellate Tribunal PRA comprising Bakht Fakhar Bahzad, Chairperson and Kaukab Nazir, Accountant Member and the judgment has been authored by the Chairperson.

In the judgment it has been observed that as per section 3(1) the services listed in the Second Schedule are taxable services and the services of property developers are listed at Sr.No.15 whereas as per charging section 10(1) read with section 3(1) and 6(1)(b) for a service to be taxable it should be in the course of economic activity. Whereas, economic activities mentioned in section 6(1)(b) are only license and lease of the immovable property and not the outright sale. Hence, there is a conflict between the entry in Second Schedule and the charging section. The Tribunal has resolved the aforesaid conflict as under:

“13. The department contents that, because services provided by the property developers, builders and promoters appear at Sr.No.15 of the Second Schedule and the appellant’s activities are, by that listing along, taxable. The contention cannot prevail where the schedule, read in isolation would collide with the acts, charging matrices and definitional boundaries: in case of irreconcilable inconsistency, the operative provision of the Act prevail of the Schedule. The supreme Court has held that where the charging section and the schedule stand at cross-purposes the latter must yield to the former 1993 SCMR 338; 2007 PTD 67 SC.”

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