Taxable services

2026 PTD 854 PESHAWAR-HIGH-COURT Judicial Precedent

Ss. 2 & 3 & First Sched., PCT Head No. 9815.3000 & Second Sched., Entry No. 14Taxable servicesConstruction contractors and allied worksWorks contractDominant nature test in India after Forty Sixth AmendmentDistinct constitutional scheme in Pakistan after Eighteenth Amendment to the ConstitutionDominant intention test continues to apply in Pakistan

Held: Forty Sixth Amendment to Constitution of India inserted Art. 366(29A), creating legal fiction authorizing State Legislatures to tax transfer of property in goods involved in execution of works contract

Thereafter Indian Supreme Court clarified that dominant nature test or overwhelming component test no longer governs works contracts and goods element in a composite contract can be identified and taxed separately

However, under Pakistan's constitutional scheme, particularly after the Eighteenth Amendment, position is distinct; Federation retains exclusive legislative authority over sales tax on goods, while Provinces are vested with competence to levy sales tax on services

Consequently, in composite or complex contracts involving both supply of goods and provision of services, dominant intention test continues to be the applicable standard for determining true nature of the transaction

Where contract or activity is multi-dimensional, dominant intention test can usefully be resorted to in order to determine whether its nature is providing of construction services

In hybrid or mixed contracts, question is whether dominant factor, essence, thrust or purpose of transaction is rendition of service with goods incidentally involved, or a transaction of sale with labour incidentally involved

Applying such test to construction contracts under PCT Head No. 9815.3000, notwithstanding divisible elements of goods and services, exception to Entry No. 49 makes clear that power to tax construction work rests exclusively with Provincial Legislature.

2026 PTD 542 LAHORE-HIGH-COURT-LAHORE Judicial Precedent

Ss. 3(3), 11, 24, 52 & 67-AReferenceTaxable servicesTerritorial jurisdiction

Applicant / company was withholding agent and was aggrieved of show cause notice issued by Authorities for non-deducting of sale tax on the services

Plea raised by applicant / company was that taxable services were provided in other province and tax could not be charged only for the reason that head office was registered in the Province of Punjab

Validity

Mere residency of a company in Punjab or its classification as a prescribed withholding agent does not, by itself, create a substantive tax liability under Punjab Sales Tax on Services Act, 2012

Liability to sales tax under Ss. 11, 24 & 52 of Punjab Sales Tax on Services Act, 2012 was fastened exclusively upon a registered person providing taxable services

Punjab Revenue Authority was competent to initiate withholding tax proceedings on the basis of undisputed audited accounts showing composite amounts paid for services; final determination of withholding tax liability could not be made on aggregated figures alone

Each individual transaction was to be reconciled and examined to ascertain whether it had constituted a taxable service, the applicable rate of tax, and the obligation to deduct and deposit tax

Burden was upon the withholding agent to explain nature of transactions and justify non-deduction of tax

Once documentary evidence was produced before Appellate Tribunal, it was incumbent upon the Tribunal, as the final fact-finding authority, to scrutinize and reconcile each transaction and determine taxability accordingly

Appellate Tribunal's failure to undertake such exercise amounted to non-application of judicial mind, warranting annulment of its order and remand of the matter for fresh decision in accordance with law

High Court declared that the show cause notice was issued without any legal foundation and Appellate Tribunal had erred in upholding initiation of proceedings under S. 52 of Punjab Sales Tax on Services Act, 2012 against applicant / company, despite absence of any statutory authority permitting such proceedings against a service recipient

Appellate Tribunal wrongly placed reliance on Withholding Rules, 2015, as subordinate legislation could not enlarge or create a substantive tax liability not contemplated by the parent statute

High Court set aside order passed by Appellate Tribunal as well as Order in-Original and show cause notice, as the Appellate Tribunal fell in error by sustaining proceedings and by affirming jurisdiction of Punjab Revenue Authority against applicant / company

Reference was allowed in circumstances.

2023 PTD 1 LAHORE-HIGH-COURT-LAHORE Judicial Precedent

Ss.3, 5(3) & 10Constitution of Pakistan, Art.199Constitutional petitionTaxable servicesAmendment of Schedule of the Act

Petitioner/taxpayer assailed notification issued by Punjab Government amending Second Schedule to Punjab Sales Tax on Services Act, 2012

Plea raised by petitioner/taxpayer was that Schedule could not be amended without the same placing before Provincial Assembly

Validity

Nature of taxable services were listed in Second Schedule as per S.3 of Punjab Sales Tax on Services Act, 2012 and exclusions were not deemed to be services liable to tax under S.10 of Punjab Sales Tax on Services Act, 2012

Services provided by petitioner/taxpayer were covered by one of the exclusions and was originally not a taxable service to be subject to tax

Provincial Assembly did not deem it expedient to levy tax on petitioner in the first place

If such tax was sought to be imposed under purported authority of S.5 of Punjab Sales Tax on Services Act, 2012 then Government of Punjab could not apply the provision selectively

Power exercised by Government of Punjab was tantamount to amending S.3 of Punjab Sales Tax on Services Act, 2012, in actuality by seeking to include an exclusion as a taxable service

Such could only be done by a Money Bill and by an Act of Provincial Assembly

Such was precisely the reason Punjab Government laid before the Provincial Assembly all such notifications at the time of presenting Annual Budget Statement

Exercise of powers by Provincial Government under a statute had to be done collectively by Chief Minister and Provincial Ministers

Exercise of any power by an executive officer of the Province or even by the Chief Minister acting alone was ultra vires and a nullity

High Court declared notification in question ultra vires the powers of Provincial Government and was struck down

Constitutional petition was allowed accordingly.

2013 PTD 2048 KARACHI-HIGH-COURT-SINDH Judicial Precedent

S.3Constitution of Pakistan, Arts. 165, 165-A & 199Constitutional petitionProvincial sales taxTaxable servicesExemptionCivil Aviation Authority contended that it was a statutory body and not liable to pay provincial sales tax on servicesValidity

Terms "income" and "property" as used in relation to taxation in Art.165 of the Constitution, were to be given broad meaning and the same were not confined to narrow and strict meaning

Inter-governmental immunity granted by Art. 165 of the Constitution was lifted in relation to provincial entities in respect of income tax by Art.165-A of the Constitution, expressly provided therein and by extension thereof in relation to federal sales tax

Provincial sales tax levied by and under Sindh Sales Tax on Services Act, 2011, was within the broad meaning to be given to "income" in Art. 165 of the Constitution

Inter-governmental immunity from provincial sales tax was available to Civil Aviation Authority, just as immunity from octroi was available to Pakistan Telecommunication Corporation

Civil Aviation Authority was not liable to pay tax under Sindh Sales Tax on Service Act, 2011, and all demands made, proceedings initiated, orders passed or notices issued to the Authority by Provincial Government were quashed and set aside

Petition was allowed accordingly.