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Petitioner: Young's (Private) limited and others VS Respondent: Province of Sindh and others.
Court Name: Sindh High Court Judge(s): Aqeel Ahmed Abbasi, Nazar Akbar Title: Young's (Private) limited and others vs Province of Sindh and others. Case No.:Const. Petition Nos.D-2421/2016 a/w 4524/2015, 1070, 1585, 2247, 2687 &
3462 of 2016, 2167, 2532 & 2800 of 2017 Date of Judgment:2017-08-18 Reported As: 2019 PTD 389, PTCL 2018 CL. 881 Result: Petition allowed Judgment JUDTMENT MR. JUSTICE AQEEL AHMED ABBASI.--(1). Since a common controversy has been agitated in the aforesaid petitions by the petitioners, who have challenged the levy of Sindh Sales Tax at the rate of 6% on renting of immoveable property services in terms of Section 2(72C) read with Tariff Heading 9806.3000 of the Sindh Sales Tax on Services Act, 2011, for being ultra-vires to the Constitution of Islamic Republic of Pakistan, 1973, whereas, alternatively it has been prayed that provisions of Section 2(72C) read with Tariff Heading 9806.3000 may be read down and interpreted to mean that renting of immoveable property itself is not a taxable service under Sindh Sales Tax on Services Act, 2011, therefore, the aforesaid petitions, by consent of learned counsel for the parties, are heard and disposed of through this common judgment. 2. Instant petitions have been filed by the landlords as well as the tenants of various immoveable properties, which have been let-out on rent, whereas, Notices have been issued to the petitioners by the Commissioner, Sindh Revenue Board, whereby, petitioners have been required to pay 6% sales tax on renting of immoveable property services in terms of Section 2(72C) read with Tariff Heading "9806.3000" pursuant to amendment through Sindh Finance Act, 2015. Petitioners being aggrieved by proposed treatment to renting of immovable property and charging of sales tax under the Sindh Sales Tax on Services Act, 2011, have approached this Court under Article 199 of the Constitution seeking a declaration to the effect that renting of immovable property does not involve any element of providing taxable services, therefore, the same cannot be brought within the tax net under the Sindh Sales Tax on Services Act, 2011. 3. Mr. Aminuddin Ansari, learned counsel for the petitioners while leading the arguments on behalf
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of the petitioners, has vehemently argued that imposition of 6% sales tax by virtue of amendment through Finance Act, 2015, while inserting clause 72(B) and 72(C) under Section 2 of the Act, and Tariff Heading "9806.3000" is ultra-vires to the Constitution as well as to the Sindh Sales Tax on Services Act, 2011, for the reason that letting out an immoveable property on rent does not involve any element of services or taxable services in terms of Section 2(79), Section 2(96) and Section 3 of the Sindh Sales Tax on Services Act, 2011. It has been contended by the learned counsel for the petitioners that while an immoveable property is let out on rent the right to use such property is transferred from the landlord to the tenant in terms of Section 105 of the Transfer of Property Act, 1882, whereas, such transfer of right to use the premises does not involve any element of providing or receiving services, hence cannot be subjected to imposition of sales tax under the Sindh Sales Tax on Services Act, 2011. Per learned counsel, the amount of rent received by the landlord in respect of any immoveable property has already been subjected to any tax in terms of Section 15 of the Income Tax Ordinance, 2001, whereas, taxes on income other than agricultural income falls within the legislative competence of the Federal legislation in terms of entry 47 of the Federal Legislative List to the 2nd Schedule of the Constitution, hence the same cannot be subject to tax through Provincial legislation by inserting Section 2(72C) and the Tariff Heading "9806.3000" through Sindh Finance Act, 2015. Per learned counsel, under the Sindh Sales Tax on Services Act, 2011, no exhaustive definition of the term services or taxable services has been given, whereas, in terms of Section 2(79) service means anything which is not goods and shall include but not limited to the services listed in the 1st Schedule of the Act and the term taxable service is defined under Section 3 as service listed in the 2nd Schedule to the Act, which is provided by registered person from his registered office or place of business in Sindh, in the course of an economic activity. Learned counsel for the petitioners has also referred to the provision of Section 4 of the Act, whereby the term economic activity has been defined activity carried on by a person that involves or is intended to involve the provision of services to another person and includes (a) activity carried on in the form of a business, including a profession, calling trade, or undertaken of any kind, (b) the supply of moveable property by way of lease, license or similar arrangement; and (c) a one-off adventure or concern in the nature of trade, however, according to learned counsel, letting out of an immoveable property has not been included in the definition of economic activity for the purposes of imposing sales tax under the Act, 2001. According to learned counsel, giving immoveable property by way of lease, license has been recognized by the legislature as an economic activity for the purpose of Sindh Sales Tax on Services Act, 2011, however, to let-out an immoveable property on rent has been excluded from such definition deliberately, which shows that any economic activity relating to an immoveable property, which otherwise has not been expressly included in the definition of taxable services in terms of Section 3 of the Act. Learned counsel for the petitioners has further argued that the levy of sales tax on goods on services involved the element of value addition and the concept of input and output tax, whereas, while letting out an immoveable property on rent neither any element of value addition is involved nor the landlord or the tenants are allowed to claim input or output in respect of the sales tax to be paid/collected at the rate of 6% in terms of Tariff Heading "9806.3000". It has been contended by the learned counsel for the petitioners that a tax is to be imposed through clear and unambiguous words provided there is legislative competence under the Constitution, whereas, in case of any ambiguity in the charging provision of any taxing provision the benefit is to be extended in favour of the tax-payer and against the legislature. While concluding his arguments, learned counsel for the petitioners has prayed that imposition of sales tax at the rate of 6% in terms of Section 2(72-C) read with Tariff Heading "9806.3000" and renting of immoveable property services may be declared ultra-vires to the Constitution as well as Sindh Sales Tax on Services Act, 2011, and alternatively the provision of Section 2(72) may read down to exclude the mere act of letting out of
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immoveable property on rent from the purview of such levy and it may be declared that the aforesaid provision may be applicable only on the services provided or rendered by renting of immoveable property. In support of his arguments, learned counsel for the petitioners has placed reliance in the following case law:-- 1. Iftikhar Ahmed and others v. President, National Bank of Pakistan and others (PLD 1988 SC 53) 2. Collector Sales Tax and Federal Excise v. Messrs Abbot Laboratories (Pakistan) Ltd., Karachi. (PTCL 2010 CL. 741) 3. Superintendent, Central Excise, Sheikhupura v. Fauji Sugar Mills, Sangla Hills, Sheikhupura and others. (PTCL 2016 CL 1) 4. Commissioner of Income Tax Legal Division, Lahore and others v. Khurshid Ahmed and others (PTCL 2016 CL. 574) 5. Messrs Pakistan Begverage Limited Karachi v. Large Taxpayer Unit (L. T U), Karachi (PTCL 2011 CL. 235) 6. Agha Syed Mushtaque Ali Shah v. Mst. Bibi Gul Jan and others (2016 SCMR 910) 7. Pakistan International Freight and Forwarders Association v. Province of Sindh and another (PTCL 2017 CL. 527) 4. Mr. Amjad Javed Hasmi, appearing on behalf of the petitioners in some of the cases, while adopting the arguments of Mr. Aminuddin Ansari, has referred to entry No. 43 to 53 of the 2nd Schedule to the Constitution and submitted that from perusal of the aforesaid taxing entries, it can be seen that taxes can be imposed on income, on corporation, on the sales and purchase of goods, on the capital value of the assets, on mineral oil, natural gas etc., duty of customs, duty of excise through clear and unambiguous term to avoid any dispute with regard to legislative competence while imposing tax. However, according to learned counsel, after 18th Amendment of the Constitution, tax on services has been excluded from the domain of Federal Legislative List and has been brought within the legislative competence of provinces to impose sales tax on services. Learned counsel for the petitioner after having readout the provision of Section 2(48) and 2(72C) has contended that the term service involves an activity, whereas, mere renting out of immoveable property does not involve any element of service. It has: been further contended by the learned counsel that no specified service relating to renting immovable property has been mentioned under Section 2(72C), whereas, there can be no presumption as to tax, nor there can be any ambiguity on the part of the legislature while creating a charge or burden of tax, Per learned counsel, charge or any levy of tax can be imposed through express and clear words, whereas, in case of any ambiguity towards the charge of tax, the same has to be resolved against the revenue and in favour of the subject. It has been further argued by learned counsel that through amendment in the definition clause, instead of brining an amendment in the charging provisions of Sales Tax on Services Act, 2011, any charge or burden cannot be created. According to learned counsel, perusal of provisions of Sections 3, 4, 5 and 8 of the Sindh Sales Tax on Services Act, 2011 clearly reflects that the immoveable property, and income derived from renting out any immoveable property, has been excluded from the charge of sales tax on services, as it does not involve any element of rendering any service. Moreover, according to learned counsel for the petitioners, the income derived from letting-out of immoveable property is already subjected to income tax in terms of Section 15 of the Income Tax Ordinance, 2001, as income from house property falls within the legislative competence of Federal Legislation in terms of Entry 49 of Federal Legislative List and cannot, by any stretch of imagination, be brought within the domain of Provincial Legislation, by merely treating such economic activity of earning rental income, as services towards renting of immoveable property under the Sindh Sales Tax on Services Act, 2011. While concluding his arguments, learned counsel for the petitioner has prayed that insertion of Section 2(72C) and Tariff Heading 9806.3000 through Finance Act, 2015 may be declared to be
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ultravires to the Constitution as well as to the Sindh Sales Tax on Services Act, 2011, and alternatively, may be read down to exclude mere renting of immoveable property from the charge of sales tax on services. 5. Mr. Khalid Jawaid Khan Advocate, appearing on behalf of the petitioner in CP.No. D-2167/2017, at the very outset submitted that the act of renting of an immoveable property by the landlord to a tenant is not a service, and in case, if it has been brought within the definition of service through Amendment in Section 2(72C), then it is not a taxable service in terms of Section 3 of the Sindh Sales Tax on Services Act, 2011. It has been further contended by the learned counsel that definition of the term taxable service has to be read with reference to the definition of term economic activity as defined under Section 4 of the Sindh Sales Tax on Services Act, 2011, according to which, an economic activity means any activity carried on by a person that involves the provision of services to another person and includes the supply of moveable property by way of lease, licence or similar arrangement, whereas, according to learned counsel, nowhere in the definition of taxable service or economic activity there is any reference to immoveable property. Learned counsel for the petitioner has also referred to provisions of Section 8 of the Sindh Sales Tax on Services Act, 2011, and has contended that the charge of sales tax on services under the aforesaid section has been created on the value of taxable service provided by a registered person at the rate specified in the schedule in which, the taxable service is listed, according to which, the terms service includes the element of an economic activity provided by a registered person from his registered office or place of business, whereas, renting of immoveable property by the landlord to the tenant does not involve any element of providing service, as according to learned counsel for the petitioner, such act of renting of immoveable property by the landlord for consideration to a tenant is merely a transfer of right to use such property in terms of Section 105 of the Transfer of Property Act, 1882. Learned counsel for the petitioner has also referred to the provisions of section 7 of the Sindh Sales Tax on Services Act, 2011, wherein, according to learned counsel, there is reference to the goods leased out by a registered person and not the immoveable property, which reflects upon the intention of the legislature to exclude renting of immoveable property from the purview of Sindh Sales Tax on Services Act, 2011. It has been further contended by the learned counsel that the place of business as defined in terms of Section 2(64) and Section 3(1)(a) as well as under Section 24 of the Sindh Sales Tax on Services Act, 2011. does not include any immoveable property rented out to a tenant in consideration of rent. On the contrary, according to learned counsel, only such property can be treated as place of business in Sindh where a registered person carries on an economic activity in terms of Section 4 of the Sindh Sales Tax on Services Act, 2011. Learned counsel for the petitioner while referring to the provisions of Section 2(72C) has contended that there is reference to any service provided or rendered, to any person by another person, by renting of an immoveable property as defined in clause (72B) of Section 2 or any other service in relation to such renting for use as offices or factories or in the course or furtherance of business and commerce, which reflects that mere renting of immoveable property on rent has not been brought within the definition of taxable service. On the contrary, according to learned counsel, it refers to some additional economic activity or taxable service, if provided, in relation to such renting. While concluding his arguments, learned counsel for the petitioner submits that a land or any immoveable property, by itself, does not generate any taxable service, therefore, cannot be brought into the net of Sindh Sales Tax on Services Act, 2011. In support of his contention, learned counsel for the petitioner has placed reliance in the following case law:-- (1) Collector of Sales Tax and Federal Excise v. Messrs Abbot Laboratories (Pakistan) Ltd. Karachi (PTCL 2010 CL. 741) (2) Superintendent, Central Excise., Sheikhupra v. Fauji Sugar Mills Sangla Hills, Sheikhupura and others (PTCL 2016 CL 1)
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(3) Collector of Income Tax Legal Division, Lahore and others v, Khurshid Ahmed and others (PTCL 2016 CL. 574) (4) Messrs Pakistan Beverage Limited Karachi v. Large Taxpayer Unit (L.T.U), Karachi (PTCL 2011 CL. 235) (5) Agha Syed Mushtaque Ali Shah v. Mst Bibi Gul Jan and others (2016 SCMR 910) (6) Pakistan International Freight of Forwarders Association v. Province of Sindh and another (PTCL 2017 CL. 527) It has been prayed by the learned counsel for the petitioner that insertion of Section 2(72C) and Tariff Heading 9806.3000 through Finance Act, 2015 may be declared to be ultravires to the Constitution as well as to the Sindh Sales Tax on Services Act, 2011, and alternatively, may be read down to exclude mere renting of immoveable property from the charge of sales tax on services. 6. Conversely, Mr. Farooq H. Naek, while leading the arguments on behalf of the respondents has opposed the contention of the learned counsel for the petitioners and submitted that after Eighteenth Amendment to the Constitution tax on services has been excluded from the purview of legislative competence of the Federal Legislature, whereas, in terms of Entry 49 of the Fourth Schedule to the Constitution, while excluding the sales tax on immoveable property from entry 49, the sales tax on services has been brought within the legislative competence of the provincial legislation. Per learned counsel, in none of the petitions, the petitioners have challenged the vires of the Eighteenth Amendment or the enactment of Sindh Sales Tax on Services Act, 2011, with particular reference to Entry 49 of the Fourth Schedule of the Constitution of Islamic Republic of Pakistan, 1973, therefore, mere challenge to amendment in Section 2(72C) and insertion of Tariff Heading 9806.3000 in the First and Second Schedule to Sindh Sales Tax on Services Act, 2011 is misconceived in law and facts. Learned counsel for the respondents has readout the various provisions of Sindh Sales Tax on Services Act, 2011, with particular reference to. the provision of Section 2(64), 2(72B), 2(72C), 2(79) and Sections 3 to 8, whereby, according to learned counsel for the respondents, a charge has been created in respect of various economic activities and for providing taxable services, including renting of immoveable property service under the Sindh Sales Tax on Services Act, 2011. Per learned counsel, renting of residential immoveable property has not been taxed under the Act, however, renting of commercial properties has been brought within the net of Sindh Sales Tax on Services Act, 2011, therefore, according to learned counsel, the plea of arbitrariness and hardship as raised by the learned counsel for the petitioners in this regard is misconceived. According to learned counsel for the respondents, renting of immoveable property by itself is an economic activity which is taxable under the Sindh Sales Tax on Services Act, 2011. It has been further argued by the learned counsel for the respondent that concept of value addition is not necessary. in the case of services rendered under the Sindh Sales Tax on Services Act, 2011. According to learned counsel, there are various types of services, which are considered as taxable service under the Sindh Sales Tax on Services Act, 2011, inspite of the fact that there is no value addition nor any adjustment of input tax is permissible. Per learned counsel, the concept of value addition, is only available under the Sales Tax Act, 1990, which is relatable to supply of goods and not to the services rendered or provided by a person to another person. Learned counsel further submits that the term any service in terms of Section 2(72C) cannot be read in isolation, and the same is to be read in conjunction with provisions of Section 2(72B) read with explanation (ii)(a). Per learned counsel Sale tax on services is a tax on service and not on the service provider, therefore, any service provided or rendered is covered under the definition of taxable service liable to be charged to sales tax under the Sindh Sales Tax on Services Act, 2011. Learned counsel has further argued that concept of taxing immoveable property services is not new, as according to learned counsel, in the Indian jurisdiction, in terms of similar legislation i.e. "Goods and Services Tax in India", the renting of immoveable property has been considered as a taxable service, however, according
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to learned counsel, under Goods, and Services Tax in India, the sales tax on services is a Federal Legislation, and as per Indian law, it is a value added tax, according to which, while any immoveable property is let-out on rent, value is added keeping in view the location and facility attached to the immoveable property. In support of his contention, learned counsel for the respondent has placed reliance in the case of Purshottam Das Malpani v. Union of India and others (2012) 52 VST 409 (Raj), Messrs Colony Sugar Mills Ltd. through Deputy Manager v. Province of Punjab and 5 others (2017 PTD 406), Badshah Gul Wazir v. Government of Khyber Pakhtunkhwa and others (PLD 2014 Peshawar 210), Muhammad Khalid Qureshi v. Province of Punjab and another (2017 PTD 805), Fecto Belarus Tractor Ltd. v. Government of Pakistan and others (PTCL 2005 CL. 754), K A. Abbas v. The Union of India & another (AIR 1971 SC 485), Pakistan International Freight of Forwarders Association v. Province of Sindh and another (PTCL 2017 CL. 527). Athar Ijaz Khan v, Station House Officer (2015 YLR 1919 [Lahore]). 7. Mr. Mohsin Shahwani Advocate, appearing on behalf of the respondents in some of the petitions, while adopting the arguments advanced by M/s. Farooq counsel, the concept of value addition, is only available under the Sales Tax Act, 1990, which is relatable to supply of goods and not to the services rendered or provided by a person to another person. Learned counsel further submits that the term any service in terms of Section 2(72C) cannot be read in isolation, and the same is to be read in conjunction with provisions of Section 2(72B) read with explanation (ii) (a). Per learned counsel, Sale tax on services is a tax on service and not on the service provider, therefore, any service provided or rendered is covered under the definition of taxable service liable to be charged to sales tax under the Sindh Sales Tax on Services Act, 2011. Learned counsel has further argued that concept of taxing immoveable property services is not new, as according to learned counsel, in the Indian jurisdiction, in terms of similar legislation i.e. "Goods and Services Tax in India", the renting of immoveable property has been considered as a taxable service, however, according to learned counsel, under Goods and Services Tax in India, the sales tax on services is a Federal Legislation, and as per Indian law, it is a value added tax, according to which, while any immoveable property is let-out on rent, value is added keeping in view the location and facility attached to the immoveable property, in support of his contention, learned counsel for the respondent has placed reliance in the case of Purshottam Das Malpani v. Union of India and Others (2012) 52 VST 409 (Raj), Messrs Colony Sugar Mills Ltd. through Deputy Manager v. Province of Punjab and 5 others (2017 PTD 406), Badshah Gul Wazir v. Government of Khyber Pakhtunkhwa and others (PLD 2014 Peshawar 210) Muhammad Khalid Qureshi v. Province of Punjab and another (2017 PTD 805), Fecto Belarus Tractor Ltd. v Government of Pakistan and others (PTCL 2005 CL. 754), K A. Abbas v. The Union of India & another (AIR 1971 SC 485), Pakistan International Freight of Forwarders Association v. Province of Sindh and another (PTCL 2017 CL. 527), Athar Ijaz Khan v. Station House Officer (2015 YLR 1919 [Lahore]). 7. Mr. Mohsin Shahwani Advocate, appearing on behalf of the respondents in some of the petitions, while adopting the arguments advanced by M/s. Farooq H. Naek and Khalid Jawaid Khan, Advocates, has drawn our attention to provisions relating to input or output adjustment by referring to Section 2(52), Section 15, 15A, 16, 17 of the Sindh Sales Tax on Services Act, 2011, as well as Section 22(a)(2) of the Sindh bales Tax on Services Rules, 2011, and has submitted that to provide for input adjustment of Sales tax on Services is the legislative competence of the Provincial legislation, therefore, the landlord cannot be treated as an aggrieved party, hence, the petitions filed by the landlords of immoveable property are liable to be dismissed in this account. Learned counsel for the respondent has also referred to the provisions Canadian Excise Act, as well as Australian Law, wherein, according to learned counsel for the respondents, the renting of immoveable property has been treated as a taxable activity, hence liable to be taxed. Per learned counsel, Provincial Legislature is competent to impose sales tax on services after 18th Amendment
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to the Constitution and also to include various services within the domain of Sindh Sales Tax on Services Act, 2011, therefore, amendment in Section 2(72C) and insertion of Tariff Heading 9806.3000 in the First and Second Schedule to Act is not ultra vires to Constitution or the Sindh Sales Tax on Services Act, 2011. It has been prayed that petitions being misconceived may be dismissed. 8. Mr. Muhammad Najeeb Jamali Advocate, appearing on behalf of the respondents in some of the petitions, after…
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