Law: Constitution of Pakistan, 1973

Section: 260, 142(c)

Law: Khyber Pakhtunkhwa Sales Tax on Services Act, 2022

Section: 53, 54

SUMMARY; 

As noted above, the central issue is whether a works contract falls within the ambit of \"sale of any goods,\" thereby excluding it from the legislative domain of the Province to levy tax thereon. The term \"goods\" has been defined in Article 260 of the Constitution to include all materials, commodities, and articles. However, the term \"sale\" has not been defined in the Constitution, and thus must be accorded its ordinary and natural meaning. It is a well-settled principle of constitutional interpretation that such expressions, when occurring in legislative entries, are to be construed in their widest amplitude and not in a narrow or restrictive sense.
The crux of the foregoing discussion is that a works or construction contract essentially comprises both the provision of labour and services as well as the use of materials, goods, and equipment. Such materials, whether wholly or partially finished and intended for execution of the contract, cannot be regarded as appropriated to the contract, nor does their title pass to the other party, unless and until they are affixed, consumed, or utilized in the completion of the works. The mere use or provision of materials in the course of a works contract does not, therefore, constitute a \"sale\" of such materials, and consequently falls outside the ambit of Entry No. 49 of the Fourth Schedule to the Constitution. It thus does not lie within the legislative competence of Parliament. Rather, being in the nature of services, it falls within the exception to Entry No. 49, and accordingly lies within the exclusive domain of the Provincial Legislature under Article 142(c) of the Constitution to levy tax on construction works.
In view of what has been stated above, we hold and declare that:-
i. The construction contract essentially involves provision of work (labour & service) and use of material goods and equipment be that wholly or partially finished and intended to be used in the execution of contract does not amount to sale of goods, therefore, is beyond the remit of Parliament to legislate for imposition of tax on the aforesaid goods being used in a construction agreement.
ii. Applying the dominant intention/object test the work/construction contract amounts to sale of services and thus entry No. 14 of the second schedule is intra vires to the Constitution.