Punjab Revenue Authority Barred from Charging Sales Tax on Developed Plots

The Appellate Tribunal of the Punjab Revenue Authority (PRA) has ruled that the sale of developed plots by real estate developers is not a taxable service, striking down the PRA’s attempt to levy provincial sales tax at the rate of Rs. 100 per square yard of development. The tribunal issued a consolidated judgment in two cases challenging orders from the Commissioner (Appeals-II), PRA, Lahore. At the heart of the dispute was whether a landowner who develops their own land into a housing scheme, by providing basic infrastructure and then selling developed plots through registered sale deeds for a lump-sum amount, can be considered as providing a taxable service under Serial No. 15 of the Second Schedule of the Punjab Sales Tax Act. The tribunal found that Section 3 of the Act, which is the main charging section, only allows tax on “taxable services.” Citing the constitutional distribution of legislative powers after the 18th Amendment, the tribunal noted that taxation on the capital value of assets and immovable property (except capital gains) is reserved for the federal government, while provinces can only tax services. The judgment stated that when the core of a transaction is the transfer of immovable property, it cannot be artificially classified as a service simply because the owner has added value to the property. The tribunal also clarified that a schedule entry or delegated legislation cannot override the main charging section or expand the province’s legislative authority. After reviewing the statutory scheme and constitutional provisions, the tribunal concluded that the appellants had provided no taxable service. As a result, the Commissioner’s (Appeals) orders and the original orders were set aside. All tax demands, default surcharges, and penalties against the appellants were annulled and deleted from PRA records.