Lahore: In a landmark ruling, the Appellate Tribunal of the Punjab Revenue Authority (PRA) 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.
The decision, issued by a two-member bench comprising Chairperson Bakht Fakhar Bahzad and Accountant Member Kaukab Nazir, marks a major deviation from several earlier judgments by the tribunal and the Lahore High Court, where the PRA’s stance had been upheld.
The case involved a real estate developer who was issued a show-cause notice for failing to pay provincial sales tax at the rate of PKR 100 per square yard of developed land, as specified under Serial No. 15 of the Second Schedule to the Act. The developer contended that the sale of immovable property did not fall within the ambit of taxable services, which only include leasing or licensing arrangements.
In its detailed judgment, the tribunal agreed with the taxpayer’s position, ruling that the outright sale of developed plots cannot be classified as a taxable service. It observed that under Section 3(1) and Section 10(1) of the Act, a service is taxable only if it is provided in the course of an economic activity, as defined in Section 6(1)(b). This section covers the supply of movable or immovable property by way of lease or licence, but not through outright sale or transfer of ownership.
The tribunal noted that treating the sale of developed plots as a taxable service would create a conflict between the charging provisions of the Act and its Second Schedule. Citing Supreme Court precedents, the judgment stated that when such a conflict arises, the operative provisions of the Act take precedence over the Schedule.
“The contention that property developers’ services are taxable merely because they appear in the Second Schedule cannot prevail where the schedule, read in isolation, collides with the Act’s charging provisions and definitional boundaries,” the tribunal ruled.
The judgment effectively sets aside the PRA’s show-cause notice and the earlier assessment order, providing significant relief to real estate developers who have long contested the applicability of provincial sales tax on the sale of developed plots.
Tax experts have described the verdict as a major development in provincial taxation jurisprudence, noting that it could have far-reaching implications for the real estate sector and the revenue authority’s future assessments.
Samra Zulfiqar, a real estate analyst at Zameen.com, is passionate about finding projects that offer buyers the best returns. Her keen insights spotlight the market’s most promising opportunities.
