ISLAMABAD: In a significant ruling, the Appellate Tribunal of the Punjab Revenue Authority (PRA), Lahore has held that the sale of developed plots by real estate developers does not constitute a taxable service under the Punjab Sales Tax on Services Act, 2012, and therefore, is not liable to provincial sales tax at the rate of Rs.100 per square yard of development.
This marks a departure from previous judgments of both the PRA Tribunal and the Lahore High Court, which had earlier upheld the tax department’s interpretation. Experts note that this is the first time the Tribunal has examined the legal provisions comprehensively, considering the legislative intent in full.
The case involved a real estate developer who was issued a show-cause notice for failing to pay sales tax under Sr. No. 15 of the Second Schedule to the Act. The taxpayer argued that only rental services of immovable property fall under provincial jurisdiction, while the outright sale of developed plots does not. Earlier, the department had rejected this view, citing that major housing schemes like DHA and Bahria Town were paying the tax.
However, upon appeal, the PRA Tribunal comprising Bakht Fakhar Bahzad (Chairperson) and Kaukab Nazir (Accountant Member) set aside the assessment order, holding that the charging sections of the Act take precedence over the Schedule.
The Tribunal observed that while property developers are listed under Sr. No. 15 of the Second Schedule, the charging provisions in sections 3(1) and 10(1) require that a taxable service must be provided in the course of an economic activity as defined in section 6(1)(b) — i.e., through lease, licence, or similar arrangements where ownership remains with the service provider. Since the sale of developed plots involves transfer of ownership, it does not qualify as a taxable service.
Quoting the Supreme Court’s interpretation in PLD 2000 SC 111, the Tribunal clarified that “other similar arrangements” under section 6(1)(b) refer to transactions akin to lease or licence, not outright sales.
In its written order, the Tribunal ruled:
“The contention cannot prevail where the Schedule, read in isolation, would collide with the Act’s charging provisions and definitional boundaries. In case of irreconcilable inconsistency, the operative provision of the Act must prevail over the Schedule.”
The decision is being hailed as a landmark judgment that may have far-reaching implications for the real estate and development sectors across Punjab.
