Law: Sindh Sales Tax on Services Act, 2011

Section: 2(72C), 2, 2(72B), 2(79), 3, 4, 2(48), 5, 8, 7, 24, 2(64), 3(1)(a), 15, 15A, 16, 17, 9

Law: Income Tax Ordinance, 2001

Section: 15

Law: Transfer of Property Act, 1882

Section: 05

SINDH SALES TAX ON SERVICES ACT, 2011

Sections 2(72C), 3,4 & 8

Mere letting out of an immoveable property by the landlords to a tenants on rent for consideration does not involve any element of providing any taxable service, the amount of rent received by the landlord from the tenant cannot be subject to tax.-Examine the effect and implication of the amendment introduced through Finance Act, 2015, while inserting Section 2(72C) i.e. renting of immoveable property service, in the definition clause, as well as a new Tariff Heading 9806.3000 in the First Schedule as well as in Part-B of the Second Schedule to the Act. The term renting of immoveable property services has been defined to mean any service provided or rendered to any person by another person, which shows an element of performing of an act, falling within the definition of service provided or rendered to any other person, by renting of an immoveable property as defined in Section 2(72B), or any other service in relation to such renting for use as offices or factories or in the course of furtherance of business and commerce. In order to bring such activity or service as defined in terms of sub-section 2(72C), within the tax net, it is necessary to examine as to whether such service is taxable service in terms of Section 3 of the Act or not. In terms of Section 3 of the Sindh Sales Tax on Services Act. 2011, taxable service has been defined as service listed in the Second Schedule to the Act, which is provided by a registered person from his registered office or place of business in Sindh in the course of an economic activity. Whereas, the term economic activity has been defined under Section 4 of the Act, which means any activity carried on by a person that involves or is intended to involve the provision of services to another person and includes, an activity carried on in the form of a business including a profession, calling, trading or undertaking of any kind, whether or not the activity is undertaken for profit. The term economic activity as per definition also includes the supply of moveable property by way of lease, licence or similar arrangement, however, it is interesting to note that the supply of immoveable property by way of lease, licence or similar arrangement has been excluded by the legislature from the purview of the definition of the term economic activity, which reflects upon the intention of the legislature to the effect that renting an immoveable property by itself has neither been considered as an economic activity under Section 4 of the Act, nor the same can be treated as a taxable service under Section 3 of the Act, to bring such renting of immoveable property within the scope of tax in terms of Section 8 of the Sindh Sales Tax on Services Act, 2011. Mere renting of immoveable property by a landlord to a tenant for consideration (rent), does not involve any element of service, or taxable service or economic activity, as defined under the Sindh Sales Tax on Services Act, 2011, therefore, the intention of the respondents as chargeable to tax under Sindh Sales fax on Services Act, 2011, have been issued without lawful authority. It is hereby declared that mere letting out of an immoveable property by the landlord to a tenant on rent for consideration does not involve any element of providing any taxable services, therefore, the amount of rent received by the landlord from the tenant cannot be subjected to tax, while invoking the provisions of Section 2(72C) read with Tariff Heading 9806.3000 of First Schedule and Part-B of the Second Schedule to the Sindh Sales Tax on Services Act, 2011.

The supply of immoveable property by way of lease, licence or similar arrangement has been excluded by the legislature from the purview of the definition of the term economic activity, which reflects upon the intention of the legislature to the effect that renting an immoveable property by itself has neither been considered as an economic activity under Section 4, nor the same can be treated as a taxable service under Section 3, to bring such renting of immoveable property within the scope of tax under Section 8.

Sections 2(72C), 3, 4 & 8; First & Second Schedule-Heading 9806.3000

The term service refers and relates to performance of an act by any person for the benefit of another person either for consideration or otherwise.

Legislative competence of the Provincial legislation in relating to imposition of tax on service as declared by learned Division Bench of High Court, Sindh.-The learned Divisional Bench in cited has in fact examined the legal issue to the effect "as to where lies the legislative competence to impose a fiscal levy (whether tax or duty) on the rendering or providing of services?" After having examined the effect of Eighteenth Amendment, while referring to relevant constitutional provisions and by placing reliance or various case law on subject, the learned Divisional Bench of this Court has been pleased to declare as under:-

"73. In light of the discussion and analysis undertaken in this , the following declarations are made:

a. The provisions of the Federal Excise Act, 2005, insofar as they relate to the providing or rendering of services, were valid when enacted (01.07.2005) since at that time the exclusive power to impose a levy on the rendering or providing of services vested in the Federation alone. However, on account of the 18th Amendment to the' Constitution (and in particular by reason of the addition of the "exception" to entry No.49 of the Federal Legislative List), the said provisions are declared to be ultra vires the Constitution, with effect form 01.07.2011 in relation to the Province of Sindh.

b. it is declared that the Sindh Sales Tax Ordinance, 2000 was ultra vires the Constitution.

c. It is declared that on account of the 18th Amendment to the Constitution (which took effect from 19.10.2010) the Provinces alone have the legislative power to levy a tax on the rendering or providing of services, but this is subject to Article 270AA(7) of the Constitution (as substituted by the said Amendment), and by reason thereof the legislative competence has manifested in the Province of Sindh from 01.07.2011 onwards, the date on which the Sindh Sales Tax on Services Act, 2011 came into force.

d. Subject to sub-para (e) below, the Sindh Sales Tax on Services Act, 2011 is validly enacted and intra vires the Constitution.

e. The provisions of the Sindh Sales Tax on Services Act, 2011 as relate to shipping agents etc. (being clauses (47), (80), (82) and (89) of section 2 and headings. Nos. 9805.1000, 9805.2000, 9805.2100 and 9805.3000 of the First and Second Schedules thereof) are ultra vires the Constitution, being a direct encroachment on the exclusive federal taxing power contained in entry No. 53 of the Federal Legislative List."

We do not find any error in the aforesaid declaration by the learned Divisional Bench of this Court with regard to legislative competence of the Provincial legislature relating to imposition of tax on service, therefore, would not record our own reasoning while reaching to aforesaid conclusion on the subject. However, the issue before us is more complex.

Sections 2(79) & 3

Scope and chargeability of sales tax on service.-- Whereas, the definition given in terms of Section 2(79) and Section 3 to the terms service, and taxable service is inclusive in nature, therefore, in order to examine the scope and chargeability of sales tax on service, we will have to make reference to ordinary definitions of the term service as given in various Dictionaries, as well as legal Dictionaries, In concise Oxford English Dictionary, Revised Eleventh Edition, the term service has been defined as the action or process of serving, an act of assistance etc, a system supplying a public need such as transport or utilities, such as electricity and water. In Judicial Dictionary Thirteenth Edition by K J Aiyar, the term service has been defined as "the duty which a subordinate owes to the superior and paymaster, the mode of bringing a notice or process to the knowledge of the person mentioned in it. It has been further defined as to usually mean, permanent service or temporary service, which is likely to be made permanent in the course of time, if certain usual conditions are satisfied. The word 'service' must necessarily mean something more than being merely subject to the order of government or control of the government. Coal Mines Provident Fund Commissioner v Ramesh Chander Jha (AIR 1990 SC 648). Facilities in connection with banking have been included in the definition of 'service' as defined in clause (o) of Section 2(1) of the Consumer Protection Act. In another Dictionary i.e. Legal Terms & Phrases, 2006 Edition, the term service has been defined as "the word service has two folds meaning. It is used to signify duty performed by a servant or employee for his master and employer and also used for the method of notifying a party to litigation about the case. The word 'services' with-regard to a trade, profession or similar Association would mean to perform specific service, 'conferring on its members' some benefit which otherwise would not be available to them, except the payment received by the Association in respect of those services bills. The term service has been further defined as the act of serving, the act or instance of helping or benefitting; the act of helping another; the deed of one who serves. The word service is further defined as meaning aid or assistance rendered; a benefit, advantage, or obligation conferred; that which promotes interest or happiness. Similarly, in Black's Law Dictionary, Sixth Edition, the term service has been defined as variety of meaning dependent upon the context or the sense in which used. Duty or labor to be rendered by one person to another, the former being bound to submit his will to the direction and control of the latter. The act of serving the labor performed or the duties required. The term service has been defined in the Chambers Twentieth Century Dictionary as the condition or occupation of a servant or of one who serves; work; the act or mode of serving: employ performance of a duty or function.

From perusal of hereinabove definitions of the term service as given in the aforesaid Dictionaries, it can be safely concluded the term service refers and relates to performance of an act by any person for the benefit of another person either for consideration or otherwise, whereas.

Sections 3, 8 & 9

Chargeability and scope of tax.-Perusal of the provisions of Section 8 of the Sindh Sales Tax on Services Act, 2011, which defines the chargeability and scope of tax, shows that a charge of tax has been created on the value of a taxable service provided by a registered person or a class of a registered person at the rate specified in the Schedule to the Sindh Sales Tax on Services Act, 2011, whereas, in terms of Section 9 of the Sindh Sales Tax on Services Act, 2011, liability to pay tax has been fixed on the registered person, according to which, where a service is taxable by virtue of sub-section (1) of section 3, the liability to pay the tax shall be on the registered person providing the service, and in case, where service is taxable by virtue of subsection (2) of Section 3, the liability to pay the tax shall be on the person receiving the service. 

WORDS AND PHRASES

"Service".-Meaning.

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 clement of providing taxable services, therefore, the same cannot be brought within the tax net under the Sindh Sales Tax on Services Act, 2011.