Case Summary & Legal Holding

This judicial decision was delivered by the LAHORE-HIGH-COURT-LAHORE. The matter involves proceedings between FOUNDATION WIND ENERGY-II and COMMISSIONER PUNJAB REVENUE AUTHORITYHonorable Justice Jawad HassanBarrister Saad M. Hashmi,Khudayar Khan, officially reported as 2026 PTD 542. The court reviewed applicable Pakistani statutes, procedural requirements, and governing case-law authorities. The full text below contains the complete facts, arguments, and legal reasoning rendered by the honorable bench.

Full Judgment Text & Judicial Ruling

2026 P T D 542 [Lahore High Court (Rawalpindi Bench)] Before Mirza Viqas Rauf and Jawad Hassan, JJ FOUNDATION WIND ENERGY-II Versus COMMISSIONER PUNJAB REVENUE AUTHORITY and others Sales Tax Reference No.06 of 2025, heard on 28th January, 2026. Punjab Sales Tax on Services Act (XLII of 2012)--- ----Ss. 3(3), 11, 24, 52 & 67-A---Reference---Taxable services---Territorial 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. Nagina Silk Mill, Lyallpur v. The Income Tax Officer, Award Lyallpur and others PLD 1963 SC 322; Messrs Dewan Cement Ltd. v. Collector of Customs and Sales Tax and another 2009 SCMR 1126; Federation of Pakistan through Secretary, Finance, Islamabad and 4 others v. Messrs Ibrahim Textile Mills Ltd. and others 1992 SCMR 1898; Pak Gulf Constructions (Pvt.) Limited v. Government of Punjab and others 2025 PTD 255; Fauji Cement Company Limited v. Government of Punjab and others 2025 PTD 864; Additional Commissioner Inland Revenue, Audit Range, Zone-I and others v. Messrs Eden Builders Limited and others 2018 PTD 1474; Collector of Customs, Sales Tax (West), Karachi v. Messrs K&A Industries, Karachi 2006 PTD 537; M/s Khawaja Tanneries (Pvt.) Ltd. v. Commissioner Punjab Revenue Authority and others Tax Reference (PRA) No.03 of 2025; M/s Jawa Pharmaceuticals (Pvt.) Ltd. v. Commissioner Punjab Revenue Authority and others Tax Reference (PRA) No.60652 of 2021 and Rahat Caf , Rawalpindi v. Government of Punjab through Secretary Finance and others 2024 PTD 898 ref. Barrister Saad M. Hashmi, Advocate Supreme Court, Yawar Mukhtar, Muhammad Abdul Sajjad and Shahid Razzaq for Appellant. Muaz ul Mulk with Ms. Nadia Murad, Legal Officer, Punjab Revenue Authority. Barrister Raja Hashim Javed, Assistant Advocate General. Khudayar Khan for Respondent. Date of hearing: 28th January, 2026. JUDGMENT JAWAD HASSAN, J.---This Reference Application in terms of Section 67A of the Punjab Sales Tax on Services Act, 2012 (hereinafter referred to as Act ) stems from the order dated 25.02.2025 ( impugned order ) whereby Appellate Tribunal of Punjab Revenue Authority, Lahore (Bench-I) (hereinafter referred to as Appellate Tribunal ) proceeded to partially accept the appeal preferred by the applicant by setting aside penalty imposed by way of order dated 16.09.2021 passed by the Commissioner (Appeals), Punjab Revenue Authority, Lahore. I. OVERTURE 2. Facts, in brief, necessary for the determination of the questions raised in the present reference application, are that the Assessing Officer issued a show-cause notice dated 15.06.2016 alleging therein that during the tax period from 01.07.2014 to 30.06.2015 the applicant received taxable services and made payments to contractors amounting to Rs.3,051,749,123/- without deducting and withholding Punjab Sales Tax of Rs.488,279,856/-, and further failed to file the requisite returns/withholding statements before the Punjab Revenue Authority in violation of the provisions of the Act . The applicant submitted a reply to the SNC ; however, the Assessing Officer, being dissatisfied therewith, passed an assessment order dated 05.01.2017 determining Punjab Sales Tax along with penalty and default surcharge under Sections 48 and 49 of the Act . The said assessment order was challenged before the Commissioner (Appeals), Punjab Revenue Authority, Lahore, who dismissed the appeal vide order dated 16.09.2021. The applicant thereafter preferred an appeal before the Appellate Tribunal , which was partially allowed through the impugned order . II. SUBMISSIONS OF APPLICANT 3. Barrister Saad M. Hashmi, ASC learned counsel for the applicant inter alia argued that the Order-in-Original was barred by limitation as mandated by subsection (4) of Section 52 of the Act because the SNC was issued on 15.06.2016, whereas the Order-in-Original was passed on 05.01.2017, beyond the prescribed statutory period of six months, that Order-in-Original is illegal and unlawful as the provisions of subsection (3) of Section 3 of the Act restrict the applicability of the Act exclusively to a person having a registered office or place of business within the Province of Punjab, whereas the applicant does not fall within the said territorial jurisdiction in respect of the impugned services; that the Assessing Officer has failed to appreciate that the services mentioned in the SNC were received in the Province of Sindh, where sales tax on services was duly withheld and deposited by the applicant under the Sindh Sales Tax on Services Act, 2011; hence, the PRA has no lawful authority to levy or recover sales tax on such services; that the demand raised through the SCN is based on a misreading and misapplication of Section 4(1) of the Act as the said provision does not create any tax liability upon the recipient of services; rather, even in cases of erroneous charging of tax by a service provider located in another province, the obligation to pay tax lies solely upon the service provider and not upon the recipient of services; that the applicant was not registered in terms of Section 4(2) of the Act prior to 15.02.2016 and was not legally required to be registered before 20.02.2015; therefore, no obligation to withhold or deposit sales tax could lawfully be imposed upon the applicant for the period prior thereto. Barrister Saad M. Hashmi, ASC the counsel for the applicant has relied on Nagina Silk Mill, Lyallpur v. The Income Tax Officer, Award Lyallpur and others (PLD 1963 Supreme Court 322), Messrs Dewan Cement Ltd. v. Collector of Customs and Sales Tax and another (2009 SCMR 1126), Federation of Pakistan through Secretary, Finance, Islamabad and 4 others v. Messrs Ibrahim Textile Mills Ltd. and others (1992 SCMR 1898), Pak Gulf Constructions (Pvt.) Limited v. Government of Punjab and others (2025 PTD 255), Fauji Cement Company Limited v. Government of Punjab and others (2025 PTD 864), Additional Commissioner Inland Revenue, Audit Range, Zone-I and others v. Messrs Eden Builders Limited and others (2018 PTD 1474), Collector of Customs, Sales Tax (West), Karachi v. Messrs K&A Industries, Karachi (2006 PTD 537), Tax Reference (PRA) No.03 of 2025 passed in judgment dated 19.11.2025 in case titled M/s Khawaja Tanneries (Pvt.) Ltd. v. Commissioner Punjab Revenue Authority and others and Tax Reference (PRA) No.60652 of 2021 passed in judgment dated 05.06.2024 in case titled M/s. Jawa Pharmaceuticals (Pvt.) Ltd. v. Commissioner Punjab Revenue Authority and others . III. SUBMISSIONS OF RESPONDENTS 4. Learned counsel for the Respondents, on the other hand, supported the impugned order and stated that Punjab Revenue Authority was empowered to recover the amount of withholding tax from the applicant. 5. After having heard learned counsel for the parties, we have perused the record. IV. PROCEDURAL HISTORY OF THE CASE 6. The present reference application was filed under Section 67A of the Ordinance , wherein the applicant raised, inter alia, questions of law regarding the legality of confirmation of sales tax under the Act on services allegedly received in the Province of Sindh, as well as the jurisdiction of the authorities to invoke the provisions of the Act in respect of such services. Upon preliminary consideration, the reference application was admitted for regular hearing vide order dated 30.04.2025, and on the same date, relying upon the judgment rendered in Pak Gulf Constructions (Pvt.) Limited v. Government of Punjab and others (2025 PTD 255), notices were issued to the respondents. Relevant portion of the said judgment is reproduced hereunder: At the outset, when confronted to the maintainability of this STR, Hafiz Muhammad Idrees, ASC while relying on the judgment reported as Pak Gulf Constructions (Pvt.) Limited v. Government of Punjab and others (2025 PTD 255), submitted that the Applicant is a Private Limited Company and engaged in generation of electricity in the Province of Sindh. Added that on 15.06.2016, the Applicant received a show-cause notice regarding charge of sales tax to the tune of Rs.488,279,856/- on account of non-withholding on services. The Applicants raised objections by filing reply of the said show-cause notice, which were not considered by the Respondent No.2, who without lawful authority passed an order dated 16.09.2021. Feeling aggrieved thereof, the Applicant filed Appeals before the Respondent No.3/Additional Commissioner (Appeals), PRA and then the Respondent No.4/Tribunal, respectively, which were rejected/dismissed. Further stated that the Applicant is providing services in Province of Sindh, therefore, the Applicant is not liable to withhold tax on service rendered in the other Province. He further submitted that the Preamble of the Act clearly mentions that it is expedient to provide for the levy of a tax on services provided, rendered, initiated, originated, executed, received or consumed in the Punjab. Whereas the Tribunal has rejected the appeal on the ground that the Applicant being resident Company of Punjab falls under the lawful jurisdiction of PRA under Section 2(35)(b) of the Act and is a prescribed withholding agent of PRA as per Rule 2(f)(v) of the Punjab Sales Tax on Services (Withholding) Rules, 2015 (the Rules ) Thereafter on 19.06.2025, the Court pointed out the nub of the matter to the following effect: The nub of the matter raised by learned counsel for the applicant is that whether the applicant who has its registered office in Rawalpindi is liable to pay the tax of activity which happened in the province of Sindh because the show-cause notice was to the effect that he has not paid the sales tax and when the applicant raised objections by filing reply of show-cause notice then the stance of the department-PRA was changed. On this point Ms. Fatima Midrar, Advocate, learned counsel for the PRA states that the department-PRA has already submitted its reply which has been reproduced in the impugned order which order has to be upheld . 7. During the course of hearing of this reference application, the court confronted to learned counsel for the Respondents-PRA on what legal foundation, the show cause notice was issued under Rule 14 of the Withholding Rules, 2012 and 2015 read with Section 52 of the Act , but he could not tender any satisfactory answer. The relevant extract of the show cause notice reads as under: Whereas sales tax on the services was levied through the Punjab Sales Tax on Services Act, 2012 and the construction services, services provided by consultants, service provided by advertising agents, repair and maintenance service and services provided by commission agents accordingly were made taxable through their incorporation at Sr.Nos.15, 24, 29, 39, 40 and 52 of the second schedule of the Act. 3. In the light of above, scrutiny of record in your case viz-a-viz the information available with this office revealed that you were engaged in construction of building and civil works repair and maintenance and were also recipient of legal and professional consultancy, commission agents services and advertisement services during the subject period . 8. After issuance of above show-cause notice, the Order-in-Original was passed without considering the points raised by the applicant and even without mentioning any direct provision of law which violates the judgment passed by this Court on the same provision of law reported in Fauji Cement Company Limited v. Government of Punjab and others (2025 PTD 864) in which earlier judgment cited in Rahat Caf , Rawalpindi v. Government of Punjab through Secretary Finance and others (2024 PTD 898) and M/s Jawa Pharmaceuticals (Pvt.) Ltd v. Commissioner Punjab Revenue Authority and others , was relied upon. V. DETERMINATION 9. Admittedly, the SNC was issued on 15.06.2016 under Section 52 of the Act read with Rule 14 of the (Withholding) Rules, 2012 and 2015 for the tax period 01.07.2014 to 30.06.2015. The primary question of law in this case is whether the PRA has authority to charge and collect sales tax under the Act on services received outside the territory of the Province of Punjab. Pertinently, the scope, application and legal import of Section 52 of the Act read with Rule 14 of the Withholding Rules, 2012 and 2015 stand conclusively elaborated and settled by this Court in Fauji Cement Company Limited v. Government of Punjab and others (2025 PTD 864) that was passed while relying earlier judgment cited in Rahat Caf , Rawalpindi v. Government of Punjab through Secretary Finance and others (2024 PTD 898), paragraphs Nos.4 and 5 thereof read as under: 4. It is pertinent to mention here that in the judgment reported as Rahat Caf , Rawalpindi v. Government of Punjab through Secretary Finance and others (2024 PTD 898), this Court has already interpreted provisions of Section 52 of the Act by observing that the officer concerned shall determine the tax liability after considering the objections of the person served with notice as per Subsection (3) of Section 52 of the Act. In this case, the Authority has straightway invoked the provisions of Section 52(3) before fulfilling the mandatory requirement of issuing a notice in terms of Section 52(1) of the Act, which clearly states that where by reason of inadvertence, error, misconstruction or for any other reason, any tax or charge has not been levied or has been short levied, the person liable to pay such amount of the tax or charge shall be served with a notice, within [eight] years of the relevant tax period requiring him to show-cause for payment of the amount specified in the notice. Moreover, paragraph-3 of the impugned show-cause notice only mentions that various services were obtained which were taxable as per provisions of Second Schedule of the Act and scrutiny of the Petitioner s taxpayer profile shows that it failed to clear its due tax liability, which is not valid reason to bound the Petitioner to deposit the due amounts of Punjab Sales Tax in lieu of the taxable services. The stance taken by Hafiz Muhammad Idris, ASC is that the Petitioner do not fall within the category of taxpayer rather it comes within the definition of a withholding agent for which relevant provision is Section 14 of the Act, which is reproduced hereunder for ready reference: 14. Special procedure and tax withholding provisions. (1) Notwithstanding anything contained in this Act, the Authority may, by notification in the official Gazette, prescribe a special procedure for the payment of tax, registration, book keeping, invoicing or billing requirements, returns and other related matters in respect of any service or class of services, as may be specified. (2) Notwithstanding other provisions of this Act, the Authority may require any person or class of persons whether registered or not for the purpose of this Act to withhold full or part of the tax charged from such person or class of persons on the provision of any taxable service or class of taxable services and to deposit the tax so withheld, with the Government within such time and in such manner as it may, by notification in the official Gazette, specify. Explanation: The word charged used in this subsection means and includes the tax liable to be charged under this Act or the rules made thereunder. (3) Where a person or class of persons is required to withhold or deduct full or part of the tax on the provision of any taxable service or class of taxable services and either fails to withhold or deduct the tax or having withheld or deducted the tax, fails to deposit the tax in the Government treasury, such person or class of persons shall be personally liable to pay the amount of tax to the Government in the prescribed manner. For further assistance a quick glance can also be taken on Section 14A of the Act, which reads as under: 14A. Special procedure for collection of tax, etc. (1) Notwithstanding anything contained in this Act, the Authority may require any other person or class of persons, not necessarily being a service provider or a service recipient in a particular transaction, to collect full or part of the tax charged from another person or class of persons on the provision of any taxable service or class of taxable services and to deposit the tax so collected, in the Government treasury within such time and in such manner as the Authority may, by notification in the official Gazette, specify. (2) For purposes of subsection (1), the special procedure prescribed for collection and payment of tax may also provide for registration, book keeping, invoicing or billing requirements, returns and other related matters in respect of any service or class of services, as may be specified. (3) Where a person or class of persons is required to collect full or part of the tax on the provision of any taxable service or class of taxable services and either fails to collect the tax or having collected the tax, fails to deposit the tax in the Government treasury, such person or class of persons shall be personally liable to pay the amount of tax to the Government in the prescribed manner. After perusal of the afore-quoted provisions of law, it will clarify that Subsection (2) of Section 14 of the Act discusses the powers of the Authority in connection with a withholding agent whereas Section 14A(2) of the Act describes a special procedure for collection and payment of tax in respect of any service or class of services, as may be specified but unfortunately, without first meeting the mandatory requirements of these provisions, straightway notice under Section 52 of the Act has been issued to the Petitioner. 5. Since the issue in this case relates to withholding tax and according to stance of learned counsel for the Petitioner, the same cannot be levied or collected under Section 52 of the Act, therefore, to better understand legal proposition involved in the matter, it would be appropriate if a minute comparison is made between the relevant provisions of law, the Act, which in this case are Section 52 and Section 14 of the Act. When a quick glance is taken on Chapter VIII of the Act, which also comprises Section 52, it would clarify that this Chapter describes the procedure regarding offences and penalties, including the procedure meant for (i) exemption from penalty and default surcharge and (ii) recovery of tax not levied or short-levied. Whereas, Section 14 comes within the purview of Chapter II of the Act, which is most relevant here because it mentions the scope of tax with charging sections/provisions by giving a complete mechanism regarding (i) person, who is liable to pay tax [Section 11]; (ii) liability of a registered person [Section 11A]; exemptions [Section 12]; (iii) effect of change in the rate of tax [Section 13]; (iv) special procedure and tax withholding provisions [Section 14]; (v) special procedure for collection of tax, etc. [Section 14A]; (vi) delegation of power to collect, administer and enforce tax on certain services [Section 15]; (vii) deduction and adjustment of tax on inputs to the business [Section 16]; (viii) certain transactions not admissible [Section 16A]; (ix) tax credit not allowed [Section 16B]; (x) extent of adjustment of input tax [Section 16C] and (xi) refunds [Section 16D]. 10. The legal position crystallized through above said judgments was that impugned notice issued under Section 52 of the Act was legally unsustainable due to the fact that Respondents/Authority, without first invoking or complying with the mandatory provisions regarding withholding and collection of tax, proceeded directly to issue a notice under section 52 of the Act and tax liability could only be determined after the person served with notice was afforded an opportunity under section 52(1) to show-cause. In that particular case, the Respondent Authority failed to issue the mandatory show-cause notice before invoking section 52(3) and the reasons stated in the show-cause notice merely citing taxable services and alleged unpaid tax cannot, in law, compel the applicant to deposit the amounts. It evinces from the impugned order that the applicant was held liable to pay Punjab Sales Tax on the grounds of having registered office in Rawalpindi, being a private limited company and resident of Punjab in terms of Section 2(35)(b) of the Act , registered person under Section 2(33) of the Act and a withholding agent under Rule 2(f)(v) of the Withholding Rules, 2015. Learned counsel for the applicant contends that the applicant is engaged in the generation of wind energy, with its power plant located in the Province of Sindh, and merely maintains a registered office at Rawalpindi. It is urged that the applicant was not a person under Section 4(2) of the Act prior to 15.02.2016, nor was it liable to registration before 20.02.2015; consequently, the Punjab Revenue Authority lacked lawful authority to levy sales tax on services received by the applicant during the period from 01.07.2014 to 20.02.2015. We have carefully examined the impugned order passed by the Appellate Tribunal and are unable to concur with the same for the reason that the Appellate Tribunal proceeded on the premise that the applicant, being a private limited company and a resident of Punjab within the meaning of Section 2(35)(b) of the Act , was ipso facto amenable to the jurisdiction of the Punjab Revenue Authority and liable as a withholding agent under the Withholding Rules, 2015. This approach, in our considered view, reflects a clear misreading and non-reading of the statutory scheme of the Act . 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 the Act . Liability to sales tax under Sections 11, 24, and 52 of the Act is fastened exclusively upon a registered person providing taxable services. The Appellate Tribunal failed to appreciate that the applicant is admittedly a recipient of services and not a service provider, and the Act , unlike statutes of other Provinces, does not contain any express provision authorizing recovery proceedings against a recipient of services in the capacity of a withholding agent for tax not levied or short-levied. The finding of the Appellate Tribunal that the establishment of IPPs in Sindh and the sale of electricity therein has no nexus with the controversy is also legally untenable. The place where services are rendered and received, and the territorial nexus of the taxable event, are…

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