Provincial ST levy: Sale of developed plots not a taxable service: PRA AT

ISLAMABAD: The Appellate Tribunal of the Punjab Revenue Authority (PRA), 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.

The tribunal has issued a consolidated judgement in two appeals filed against the orders of the Commissioner (Appeals-II) PRA, Lahore.

The Appellate Tribunal of the PRA, Lahore stated that the short but substantial question that falls for determination in these appeals is whether the activity of a landowner who develops his own land into a housing scheme by providing basic infrastructure and thereafter sells developed plots through registered sale deeds for lump-sum consideration amounts to provision of “services provided by property developers, builders and promoters (including their allied services)” within the meaning of Serial No. 15 of the Second Schedule so as to attract the charge of Punjab Sales Tax under section 3 of the Act?”.

The charging section (Section 3) is the heart of the statute. It levies tax only on “taxable services”.

The tribunal has held that the expression “taxable service” is defined in Section 2(33) to mean a service which is leviable to sales tax under the Act. Thus, the existence of a “service” is the sine qua non for invoking the charging provision. A legislative entry in the Second Schedule cannot create a charge independent of Section 3; it can only specify the rate for services that are otherwise taxable under the Act.

The tribunal ruled that the expression “services provided by property developers, builders and promoters (including their allied services)” must, therefore, be construed strictly. The word “provided” is crucial. It connotes rendering or supplying a service to another person for consideration. Where the developer is the absolute owner of the land, incurs the entire development expenditure himself, bears the commercial risk, and thereafter transfers the developed immovable property by way of sale, no service is “provided” to the purchaser. The purchaser simply acquires title to a more valuable immovable property than raw land. The value addition is inseparable from the immovable property itself and merges into the transfer of such property.

The amenities such as roads, parks, sewerage, electricity lines, etc., are affixed to the land and become part of the immovable property. They are not supplied as independent services. The consideration received by the appellant is exclusively for transfer of immovable property and has already been subjected to various provincial and federal levies applicable to transfer of immovable property. To subject the same consideration again to sales tax on services would offend the basic principle of avoidance of double taxation on the same economic activity.

The tribunal opined that the constitutional distribution of legislative powers post the 18th Amendment. Entry 49 of the Federal Legislative List (Part I) read with Article 142(a) of the Constitution reserves taxation on capital value of assets and taxation on immovable property (except taxes on capital gains) to the Federation. The Province’s competence is confined to taxes on services (Entry 53of the Provincial List). When the substance of the transaction is transfer of immovable property, it cannot be artificially dissected to impose a tax on services merely because value addition has been made to the immovable property by its owner.

The Department’s reliance on the mere existence of Serial No. 15 is misplaced. A delegated legislation or a schedule entry cannot override the charging section or expand the legislative competence of the Province. The Second Schedule is subordinate to Section 3 and must yield to the constitutional limitations and the substantive provision creating the charge.

None of the judgments cited by either side at the bar is squarely applicable to the precise controversy before us. We have, therefore, independently examined the statutory scheme, the constitutional provisions and the indisputable nature of the transaction and have arrived at the conclusion that no taxable service hasbeen provided by the appellants within the meaning of the Act.

The impugned orders of the Commissioner (Appeals) as well as the orders-in-original are hereby set aside. The demands created against the appellants are annulled and deleted from the records of the Punjab Revenue Authority. No tax, default surcharge or penalty is payable by the appellants on the transactions in question, the tribunal added.

Copyright Business Recorder, 2025