ASSOCIATION OF BUILDERS AND DEVELOPERS OF PAKISTAN VS PROVINCE OF SINDH, 2018 PTD-KARACHI-HIGH-COURT-SINDH 1487 (2018)

2018 P T D 1487

[Sindh High Court]

Before Munib Akhtar and Abdul Maalik Gaddi, JJ

ASSOCIATION OF BUILDERS AND DEVELOPERS OF PAKISTAN

Versus

PROVINCE OF SINDH and others

Constitutional Petition No.D-3723 of 2013, decided on 23/01/2018.

(a) Interpretation of statutes---

----Fiscal statute---Charging provision---Scope---Interpretation of a charging provision in a fiscal statute, favourable to taxpayer is to be adopted.

(b) Sindh Sales Tax on Services Act (XII of 2011)---

----Ss.2 (79)(96), 3(c)(d), Second Sched., Heading No. 9807.0000, 9814.3000 & 9824.0000---Transfer of Property Act (IV of 1882), S.54---Constitution of Pakistan, Art. 199---Constitutional petition---Tax on services---Construction industry---Petitioners were related to construction industry in one way or the other and they were aggrieved of notices issued by authorities for recovery of tax under Tariff Heading Nos. 9807.0000, 9814.3000 & 9824.0000 of Second Schedule, Sindh Sales Tax on Services Act, 2011, from them for providing their services---Validity---Any activity in which relationship between service provider and recipient was governed by a contract for sale in terms of S.54 of Transfer of Property Act, 1882, was not to constitute a service within the meaning and scope of the Tariff Heading---Tariff Heading was applicable to a situation where (i) the activity could be regarded as a service directly and materially related to the construction of immovable property as such, and (ii) the activity could not more naturally and properly be regarded as coming within the scope of some other Tariff Heading; condition (i) must be shown to exist, and condition (ii) must not be applicable---Tariff Heading No. 9824.0000 of Second Schedule, Sindh Sales Tax on Services Act, 2011, could raise complex issues and question and its application might not be a simple and straightforward as the bare language of the Entry might suggest at first sight---Application of Tariff Heading No. 9824.0000 of Second Schedule, Sindh Sales Tax on Services Act, 2011, was quite fact-sensitive and much more than the other two Headings---Sindh Revenue Board and departmental authorities had seriously and to an extent fundamentally misunderstood and misapplied Sindh Sales Tax on Services Act, 2011, and more specifically the three Tariff Headings in question---Notices issued to petitioners disclosed an approach that was rather simplistic and superficial and had run counter to the requirements of the statute---Serious errors of law were made at a fundamental level and no attempt was made to discover the facts applicable to each petitioner and to the extent that the facts were set out at all the same were not fully appreciated or explored---High Court quashed the notices and orders in question as the same were not sustainable---High Court restrained the authorities from taking or continuing with any action or proceedings in terms or in respect thereof---High Court clarified that the same would not prevent the authorities from initiating fresh proceedings or taken action anew in accordance with Sindh Sales Tax on Services Act, 2011 (if at all such proceedings and / or actions were lawfully sustainable) but at all times and in manner only that was consistent with the judgments of superior courts---Constitutional petition was allowed accordingly.

Federation of Pakistan and others v. Haji Muhammad Sadiq and others 2007 PTD 67 = 2007 CLD 1; Defence Authority Club and others v. Federation of Pakistan and others 2007 PTD 398; Pakistan International Freight Forwarders Association v. Province of Sindh and another 2017 PTD 1; State of Madras v. Gannon Dmkerley and Co. AIR 1958 SC 560; K. Raheja Development Corporation v. State of Karnataka AIR 2005 SC 2350, (2005) 5 SCC 162; Magus Construction (Pvt.) Ltd. and another v. Union of India and others (2009) 3 GLT 161; Larsen and Touhro Limited and another v. State of Karnataka and another (2014) 1 SCC 708; BSNL v. Union of India (2006) 3 SCC 1; Propulsion Technologies Inc. v. Aitwood Corporation 369 F.3d 896 (2004) and Bunebrake v. Cox 499 F.2d 951 (1974) ref.

Dr. Muhammad Farogh Naseem along with Pooja Kalpana, Munawwar Hussain, Nasir Latif Khan and Syed Ziauddin, Amjad Jawed Hashmi, Muhammad Ali Lakhuni, Umar Lakhuni, Taimur Ali Mirza, Khalid Jawed Khan along with Asad Raza Khan and Muhammad Aleem for Petitioners.

Anwar Mansoor Khan along with Umaimah Anwar Khan, Atifuddin along with Syed Zainul Abdin Shah, Deputy Commissioner, SRB Saifullah, A.A.G. along with Ms. Nasreen Sehto State Counsel for the Province, Asim Mansoor Khan, D.A.G. for the Federation for Respondents.

ORDER

MUNIB AKHTAR, J.---(1) By this judgment, we intend disposing off the petitions listed in para 45 below. The petitions arise under the Sindh Sales Tax on Services Act, 2011 ("Act"). The petitioners, who are in one way or another Part of the construction industry (a term used here not in any legal sense), are, for reasons stated herein below, aggrieved by the levy, or intended levy, of provincial sales tax under the Act. Their case, stated briefly, is that they do not come within the ambit of the Act as they do not provide services at all, or at any rate do not provide services within the meaning of the Act. The petitions can, for convenience, be regarded as primarily challenging two types of show-cause notices. In one category are those notices whereby the petitioners are required to show cause why they should not be registered in terms of the Act. The petitioners submit that such registration is an obvious preclude to the levy of the provincial sales tax. In the other category are those notices whereby the petitioners are not merely directed to get themselves registered, but also to show cause why certain stated amounts may not be recovered from them as tax payable under the Act. In at least one case it appears that an order-in-original has been made against the petitioner concerned requiring registration under the Act, and payment of the tax as specified in the order. The issues raised in all the petitions are however the same.

2.Before proceeding to note the submissions made by learned counsel, it will convenient to set out some of the relevant provisions of the Act. Section 2(79) defines "services" as, inter alia, including those services listed in the First Schedule to the Act. The tax itself is levied on a "taxable service" which expression, section 2(96) tells us, has the meaning as given in section 3. That section, in its subsection (1), inter alia states that a taxable service is one that is listed in the Second Schedule to the Act. We are concerned with tariff headings Nos. 9807.0000, 9814.3000 and 9824.0000. These entries, as set out in the First and Second Schedules, are as follows:--

Tariff Heading No.	First Schedule	Second Schedule
9807.0000	Services provided or rendered by property developers and promoters	Services provided or rendered by property developers or promoters for (a) development of purchased or leased land for conversion into residential or commercial plots. (b) construction of residential or commercial units.
9814.3000	Services provided or rendered by architects, town planners, contractors, property developers or promoters, interior decorators . Property developers, or promoters	Property developers or promoters
9824.0000	Construction services	Construction services

(We may note that in the period over which these petitions are spread, 2013-2016, various provisions of the Act, including the entries noted above and the rate of the tax, underwent certain changes and amendments. However, the position as set out herein above suffices for present purposes.)

3.Learned counsel appearing for the petitioner in C.P. D-5194/ 2013 drew attention to the show-cause notice issued under section 24 of the Act (which, in its first two subsections, sets out the persons required to be registered) and to the tariff headings referred to above. Referring to heading No. 9807.0000 as set out in the First Schedule, learned counsel submitted that the "and" between "property developers" and "promoters" had to be read conjunctively. However, the Second Schedule used the word "or", which would indicate a disjunctive reading. Referring to the notice, it was submitted that the petitioner was identified as a "builder", a term not used in the Act itself. In any case, none of the terms and expressions used (such as "developer" and "promoter") was defined. It was submitted that since the Act was a fiscal statute, its charging provisions had to be construed accordingly. The First Schedule Controlled, and the "or" in the Second Schedule therefore had to be read as an "and" and applied accordingly. The notice gave three different categories under which the petitioner was to be brought to tax. Therefore, it was obvious that the Sindh Revenue Board ("SRB"), which is the authority under the Act, was itself unsure as to what applied to the petitioner. It was submitted that in such circumstances the petitioner was not liable to be registered under the Act and could not be brought to tax in terms thereof.

4.Learned counsel for the petitioners in C.P. D-3723/2013 (who include the Association of Builders and Developers of Pakistan (ABAD), the trade body), submitted that in the course of their business activities, the petitioners sometimes acted as developers, other times as builders and from time to time as both. Learned counsel submitted that as "builders" the petitioners would buy a plot or piece of land, raise construction thereon (typically a multistorey building or "project") and sell the units (flats, apartments, shops, offices or some combination thereof, depending on the nature of the project) therein to the public. As "developers", the petitioners would typically buy a piece or tract of land, develop it by creating infrastructure (by way of roads, utilities etc) thereon and dividing it into plots and then sell the same to the public. Learned counsel emphasized (and in many ways this was the core of the case set up by all learned counsel appearing for the petitioners) that in all relevant situations, all that was happening was that immoveable property was being sold. No services whatsoever were being rendered. Thus, the petitioner's activities were wholly beyond the scope of the Act and, it was submitted, even the legislative competence of the Province insofar it related to the taxing of services. With regard to the latter submission, learned counsel referred to various provisions of the Constitution including in particular Entry No. 49 of the Fourth Schedule, and the position that emerged after the 18th Amendment, whereby the legislative competence to impose a tax on services was shifted exclusively to the Provinces. Learned counsel also referred to a pre-18th Amendment decision of the Supreme Court, Federation of Pakistan and others v. Haji Muhammad Sadiq and others 2007 PTD 67 = 2007 CLD 1. That decision was rendered at a time when the providing of services was taxed by the Federation under its competence to impose duties of excise. Learned counsel read various passages from the judgment and respectfully submitted that it was distinguishable and did not apply in the situation that had come about as a result of the 18th Amendment, and the facts and circumstances now before the Court Reliance was also placed on a Division Bench decision of this Court, Defence Authority Club and others v. Federation of Pakistan and others 2007 PTD 398. Learned counsel also referred to the Sindh Building Control Ordinance, 1979 under which the petitioners were registered for purposes of their business. Reliance was placed, in particular, on the following definitions contained in clauses (c) and (g) of section 3 thereof:

"(c) "builder" means a person or body of persons, including a society engaged in construction of a building on contract, or, as owner or agent of the owner for the purpose of transferring such building on hire or by sale or on the basis of ownership, but does not include a person or persons engaged as masons or such other artisan";

"(g) "developer" means a person or body of persons including a society, engaged in developing a plot, or plots for any kind of building activity, for transfer by allotment to the members if the developer be a society, or to other persons on basis of ownership or by sale".

5.Learned counsel submitted that insofar as the facts and circumstances of the present case were concerned, the key question was, what was the dominant purpose of the activity that was sought to be brought within the tax net. Was it the rendering of any services (as contended by the SRB) or (as submitted by the petitioners) merely a sale of immoveable property? Reliance was placed in this regard on certain Indian decisions. Learned counsel referred to Article 366 of the Indian Constitution, which contains the various definitions as used therein (corresponding to Article 260 of our Constitution) Reference was made to clause (29A) (which was inserted by an amendment made in 1982), which defines "tax on the sale or purchase of goods". We pause here to note that under the Indian Constitution, the power to levy a tax on the sale and purchase of goods is (subject to certain exceptions) exclusive to the States (i.e. the Provinces) and the power to levy a tax on services is exclusive to the Union (i.e., the Federation). In other words, the position in India is the reverse of what prevails under our Constitution after the 18th Amendment. (Reference in this context may also be made to a Division Bench decision of this Court, Pakistan International Freight Forwarders Association v. Province of Sindh and another 2017 PTD 1 where the position in India is explained in para 37.) Learned counsel referred to decisions of both of the Indian Supreme Court and High Courts to submit that whenever a question arose as to the taxation of a contract comprising of elements of a service on the one hand and a sale of goods on the other, the test applied was that of the dominant purpose. It was the dominant purpose that determined whether the contract was taxable (whether in whole or in respect of its constituent parts) as one of the rendering of services or the supply of goods. In this regard reliance was also placed on an American decision (of the US Court of Appeals for the 5th Circuit). Learned counsel submitted that the question was whether the sale of immoveable property could ever be regarded as a service? To this, it was submitted, an answer had to be given in the negative. To illustrate his point, learned counsel gave the example of a property dealer who, if the sale of the property went through, was entitled to a commission. It was submitted that here there were two contracts. One was the sale of the immoveable property between the vendor and the vendee. This did not constitute a service, and hence, was not within the ambit of the Act. The other was that between the property dealer and his client (whether the vendor or vendee or, sometimes, both). The property dealer did provide a service and therefore his contract could be brought within the ambit of the Act. (Indeed, the Act contains, in section 2(64D), a definition of "property dealer", whose services are brought to tax under tariff heading No. 9806.2000.) Learned counsel submitted that the legislative competence of tax on services had to be rationally understood and applied and could not conceivably be stretched to include what were nothing other than, and only, contracts/ transactions for the sale of immoveable property. Learned counsel referred to various provisions of the Act, and clauses in the definition section, to submit that services that could be brought to tax were provided in relation to something, but that that something itself (here immoveable property) could never be properly the subject of the levy.

6.Learned counsel appearing in C.P. D-1774/2016 submitted that the charging provisions being applied were vague and undefined. Thus, tariff heading No. 9824.0000 simply said "construction services" and nothing more. There was no classification or elaboration of the services being brought to tax Indeed, learned counsel submitted, that the entries were so vague and there was such an overlap that they were sought to be applied together, which was clearly impermissible. It was also emphasized that although the Act had a sprawling definition section, it did not define "builder", "developer" or "promoter". Learned counsel submitted that in some cases notices had been issued to builders who had not even launched their projects. In other cases, notices had been issued to builders who had not yet started taking "bookings", although construction had started. Learned counsel submitted that if at all any tax was payable, it would be at the time of the sub-lease of the unit being sold to a particular person. Yet, the impugned notices had been issued in haste and much before that time could conceivably have arisen.

7.Learned counsel in C.P. D-679/2016 submitted that the correct test to apply was that of dominant purpose as laid down by the Indian courts, and referred to above. It was submitted that the primary transaction was that of transfer of immoveable property. That would come about only when the project was completed and all the installments paid by a given allottee for his unit. It was submitted that the "service" purported to be taxed may never be provided. Thus. e.g., if the allottee failed to make payment of all the installments, he would not be entitled to the property. In such situations, there could be no levy of the tax.

8.Learned counsel in C.P. D-7657/2015 referred to the overall scheme of the Act, and submitted that there were three types of services brought within the ambit of the Second Schedule. Firstly, there were services that were specifically and expressly referred to by name. Secondly, there were services that were specified by reference to the person providing the service. And, thirdly, there were services provided in respect of something. Referring to sections 3 and 4, learned counsel submitted that in all cases there had to be a specific service provider and a recipient and there had to be conscious transaction of supply of services. For a transaction to be brought within the tax net, it had to be established that there was a "service" within a specific tariff heading contained in the Second Schedule, and that the dominant purpose of the transaction was the providing of the said service. The object had to be to tax the service and not any product or thing resulting from the service. Referring to the judgment of the Supreme Court in Federation of Pakistan and others v. Haji Muhammad Sadiq and others 2007 PTD 67 = 2007 CLD 1, learned counsel submitted that there the levy was on services in relation to loans or advances. However, these were intangibles, which could not be separated from the service itself (which was what was being taxed). As opposed to that, there could be many cases which involved a tangible in which, e.g., the elements of supply of goods could be ascertained and identified separately from any service being provided. Learned counsel submitted that in such cases the recipient was invariably more interested in the end product or result (which was something tangible) rather than any element of service as may be involved in the transaction. By way of illustration, the example of a painting was referred to. Learned counsel submitted that in the situation at hand, the transaction involved immoveable property but also carried a strong element of the supply of goods. However, it was only the Federation that could tax the latter. The Act, as sought to be enforced against the petitioners, did not draw the necessary distinction. It was too broadly stated and therefore could not be enforced, at least in the facts and circumstances of the present ease.

9.Learned counsel in C.P. D-2719/2016 submitted that the tariff headings challenged went far beyond levying a tax on "services" and had to be properly read down. It was submitted that if an activity produced a tangible, then it could not be regarded as providing a service. The distinction between services on the one hand and goods on the other was that of tangibility and perishability. A service had to be both intangible and perishable. Goods on the other hand were tangible and (at least in a relative sense) permanent. Learned counsel submitted that it was only that which was, holistically, a service that could be brought to tax under the Act. In the facts and circumstances of the present case, there were no objective criteria that could determine what were the service and the goods components. Learned counsel submitted that in all the tariff headings that were sought to be applied, there were elements of both service and goods, which could not be disentangled and hence no tax could be levied in the present circumstances. The case against the petitioners accordingly failed.

10.Learned counsel in C.P. D-807/2016 submitted that the petitioners were involved in the transfer of immoveable property and that did not amount to an "economic activity" within the meaning of section 4 of the Act. It was submitted that if a transaction did not come within the legislative competence of the federation (as being liable to tax as a supply of goods) that did not mean that it automatically could be brought to tax under the Act. It was submitted that it was crucial to keep in mind that the petitioners, as builders or developers, also supplied the land itself. That would not be the situation where the land belonged to someone, and in respect thereof or thereon construction activities were carried out by the builder or developer. The petitioners were sought to be taxed in the former and not the latter situations. Learned counsel also submitted that services are "consumed" when received. The tangibility of the cases at hand (i.e., the sale of immoveable property) was such that if completely overshadowed any other element.

11.Learned counsel appearing for the petitioners in other petitions adopted the arguments and submissions as noted above.

12.The learned AAG, opening the case for the respondents, submitted there was a presumption of constitutionality of a statute and the onus lay, on the person claiming that the impugned statutory provision was unconstitutional to show that this was so. It was submitted that in respect of their projects the builders and developers were definitely offering services within the meaning of the Act, which could be taxed accordingly. It was submitted that the projects were publicized through advertisements and brochures and invariably a site office with a "model" unit were set up, which could be perused and visited by the public. The price of a unit and the installments in terms of which it could be paid were prominently displayed. It was only then that any interested person entered into a contract with the builder/developer, and booked a unit as per his requirements. Development charges were also charged by the builder/developer in relation to the project. The learned AAG submitted that as presently relevant the services could be divided into two categories: property based and performance based services. The cases at hand fell in the former category. Reliance was placed in particular on the aforementioned judgment of the Supreme Court. Federation of Pakistan and others v. Haji Muhammad Sadiq and others 2007 PTD 67 = 2007 CLD 1 and the learned AAG also relied on certain decisions of the Indian Supreme Court. Certain dictionary entries in relation to the meaning of terms such as "developer", etc. were also relied upon. It was denied that the tariff headings sought to be applied to the petitioners under the Act suffered from the vice of vagueness. The maintainability of the petitions was also challenged inasmuch as it was contended that statutory remedies were available to the petitioners to contest the show-cause notices. Case law was also cited in this regard.

13.Learned departmental counsel for the SRB (Mr. Atifuddin) submitted that the housing and construction industries were regarded as falling in the service sector of the economy. The services included providing and developing the infrastructure such as laying down roads, sewage lines and systems, boundary walls, providing of security, demarcation and other services of a common nature. Other services included improving the land and making it fit for purpose, plotting, etc. and charges were obtained from the allottees for all these activities. Learned counsel submitted that the petitioners were focusing only on the end result: i.e., the developed plot or constructed unit that was acquired by them. However, the services provided not merely the end result but the entire gamut of activities preceding and leading up to, and culminating in the end result. Learned counsel submitted that there was a difference between a tax on property, and a tax on services as levied under the Act. The former was an annual recurring levy on the property. The latter was a one-time levy, which was charged when the services were rendered. It was submitted that the builders and developers were the providers of the services as aforesaid and therefore liable to the payment of tax under the Act.

14.Learned counsel referred to various scenarios that could arise, all of which according to him were liable to tax under various tariff headings. It was submitted that one possibility was that the builder/ developer built the property with his own resources without any actual or potential buyer in sight. The property, once constructed, was then sold. It was submitted that here tariff heading No. 9824.0000 (construction services) would apply. A second possibility was where shops, flats, etc. were booked and payment was made in installments. Here also services were being provided and were liable to be taxed. Yet another situation was where land was developed and sold by a developer. It was submitted that the tax was leviable on the services being provided for such development. It was emphasized that the tax was not on the land, but rather on the services rendered. Learned counsel submitted that the builders and developers were not selling any goods at all and the dominant purpose of the activity and the transaction was clearly and obviously a service. It was denied that the tariff headings were vague or incapable of resolution in terms of the principles applicable to the interpretation of a taxing statute. The maintainability of the petitions was also challenged on grounds similar to those taken by the learned A.A.G., submitting also that the issues raised involved a factual controversy; which could not be decided in exercise of constitutional jurisdiction.

15.Learned counsel for SRB (ML Anwar Mansoor Khan) submitted that the Act was intra vires the Constitution and the levy was squarely on services rendered and not otherwise. Learned counsel challenged the maintainability of the petitions, submitting that the show-cause notices should be allowed to go forward to a hearing and determination, which, if adverse to the petitioners could be challenged by them through appropriate statutory remedies. Various provisions of the Act, including in particular sections 3 and 4 and sections 8 and 9 were referred to and relied upon. It was submitted that the efforts done towards an act as came within the scope of the Second Schedule were the services provided under the Act. Learned counsel referred to the First and Second Schedules to the Act and elaborated the relationship between and interaction of the two, referring in this regard to the various tariff headings in issue in these cases. Various decisions were relied upon. As regards the Indian decisions and the rule of dominant purpose, learned counsel submitted that in a building contract, the aspect of the service of building (i.e., the act of construction) was always, there although it may manifest itself in different ways in different contracts. However, the essence was the act of construction, which always had to be there and which was the service being provided. It was submitted that the petitions were liable to be dismissed.

16.The right of reply was exercised by Mr. Farogh Naseem Learned counsel submitted that when the show-cause notice was patently without jurisdiction, extraneous to the statute and the questions raised involved general and important issues of interpretation, then the fact that there may be an alternate remedy was not material and no bar to the petition. The provisions and the tariff headings were vague and liable to be struck down. It was emphasized that the dominant purpose of the transaction was indeed the selling of property and nothing else.

17.We have heard learned counsel as above, considered the record and material referred to and the case law relied upon. Before proceeding further two preliminary points may be made. Firstly, a caveat, It needs to be kept in mind that we are here concerned with immoveable property. The question whether any services are, or are not, being rendered revolves around this type of property. Now, it is well known that under the general law immoveable property is subject to rules that are sometimes peculiar to it. As will be seen shortly, this aspect has a material bearing on the outcome of these petitions. This should be kept in mind at all times.

18.Secondly, we need to consider in more detail the impugned notices issued to the petitioners, being the manner in which they are sought to be taxed. Section 8 of the Act provides in subsection (1) that "there shall be charged, levied and collected a tax known as sales tax on the value of a taxable service at the rate specified in the Schedule in which the taxable service is listed". Subsection (2) allows for the tax in respect of any taxable service to be "charged, levied and collected at such higher or lower rate or rates as may be specified", by means of a notification to be issued under the subsection. On 24.08.2011 Notification No. SRB 3-4/ 2/2011 was issued under section 8(2). This Notification, as presently relevant, dealt only with tariff heading No. 9807.0000. It was superseded on 01.07.2013 by Notification No. SRB 3-4/8/2013 ("Notification"). The Notification dealt with all three tariff headings presently relevant, i.e., Nos. 9807.0000. 9814.3000 and 9824.0000. The first two headings were put together, and the Notification provided in relation to all three as under:--

Tariff Heading No.	Description of services	Rate of tax	Conditions and restrictions
9807.0000 and 9814.3000	Services by Property Developers or Promoters for: (a) development purchased or land for conversion into residential or commercial plots; and (b) construction of residential or commercial units	(a) Rs. 100/= per square yard of land; and (b) Rs. 50/- per square foot of constructed covered area.	Input tax credit/ adjustment shall not be admissible
9824.0000	Construction services	4%	1. The persons providing construction services who do not elect to be governed by the Special Procedure, prescribed by the Board in relation to the application of the lower rate as specified in this notification, shall not be entitled to the benefits of this notification. 2. Input tax credit/ adjustment shall not be admissible.

(We may note that the rates set out in the notification of 2011 in relation to tariff heading No. 9807.0000 were the same as those set out herein above for both headings.) An examination of the impugned notices shows that the tax was demanded primarily and essentially in terms of tariff headings Nos. 9807.0000 and 9814.3000, by applying the rates as set out in the Notification to the projects being, or to be, constructed or carried out by the petitioners. Typically, those projects were multi-storeyed buildings comprising either exclusively of flats, apartments, shops or offices, or some combination of one or more of these types of units.

19.Turning now to the Act, the first point that needs to be considered is the relationship, if any, between the First and Second Schedules. As already noted, as per section 2(79), the First Schedule lists, in a non-exclusive manner, what is meant by "services". The tax itself is levied on the services set out in the Second Schedule. While there is, as such, no express linkage between the Schedules, a reading of the Act as a whole shows that there is indeed an intimate relationship between the two. In our view, the correct approach to applying the Schedules is as-follows. The first Schedule should be regarded as descriptive, i.e., as setting out in general terms the nature and scope of the services brought within the terms of the Act. The Second Schedule on the other hand is part of the charging provisions, specifying the services actually brought to tax. The Second Schedule should be regarded as a subset of the First Schedule. By this we mean that the scope of a tariff heading as given in the Second Schedule cannot go beyond the description as given in the corresponding entry in the First Schedule. However, the manner of interpreting the two Schedules is different. Being only descriptive in nature the entries in the First Schedule are to be construed in terms of the principles of interpretation that apply generally to statutes. The Second Schedule on the other hand is to be interpreted in terms of the special rules that apply to the charging provisions of a fiscal statute. Another point that needs consideration is how to deal with an overlap, between different tariff headings. In our view, this question (and if there be any, the degree of the overlap) is to be dealt with by first examining the First Schedule, and interpreting the entries in terms as just noted. If it is concluded that there is an overlap, then the degree thereof has to be established. Once this has been done then the corresponding entries in the Second Schedule are to be applied in light of such conclusions, though of course now interpreting the entries in the different terms as stated above. In other words whether there is, or is not, an overlap is to be assessed in terms of the First Schedule; the consequences of a conclusion that there is, are to be addressed in terms of the Second Schedule.

20.Now, the three tariff headings here relevant, and the manner in which they are given in the two Schedules, have been set out in para 2 above. When tariff headings Nos. 9807.0000 and 9814.3000 as set out in the First Schedule are compared, it will be seen that they are almost the same, the apparent difference being that heading No. 9807.0000 uses "and" in between "property developer" and "promoter" whereas heading No. 9814.3000 uses "or", (It is not relevant for present purposes to consider whether the word "property" prefixes both "developer" and "promoter", or only the former.) Is this a substantive difference? In our view, it is not. Since the entries in the First Schedule are descriptive and are to be interpreted in terms of the principles generally applicable, the "and" used in heading No. 9807.0000 should be construed in the sense of being an "or". As is obvious, from this conclusion it follows that the degree of the overlap is complete. Moving to the Second Schedule to consider the consequences of this overlap, tariff heading No. 9807.0000 is clearly more limited than the description given of it in the First Schedule. In other words, in respect of this tariff heading only a subset of the services being rendered (if any) are brought to tax, the subset of course comprising of the two clauses as given in the Second Schedule. When tariff heading No. 9814.3000 in the Second Schedule is considered, it corresponds to the description of it as given in the First Schedule, i.e., appears to cover the entire gamut of services (if any) provided by property developers or promoters. Notwithstanding the complete overlap in the description of the headings in the First Schedule, the entries in the Second Schedule must be applied in terms of the principles applicable to fiscal statutes. Taking all of these Factors into account, in the Second Schedule tariff heading No. 9814.3000 must be regarded as being no broader than tariff heading No. 9807.0000 and, in its scope, should not cover any services beyond the latter. It is only in this manner that, given the complete overlap in the First Schedule, the two can be reconciled in the Second. If tariff heading No. 9814.3000 were there to be given what seems to be its apparent meaning, then that would render the other, and narrower, heading otiose, the reason being that the latter would, be subsumed in the former. But, since we are now concerned with a charging provision in a fiscal statute, the interpretation more favorable to the taxpayer is to be adopted. Clearly, an application that narrows the focus of heading No. 9814.3000 and aligns it with heading No. 9807.0000. is more favorable to the taxpayer. The former must therefore be read down to the point of coincidence. We may note that this is, at least implicitly, also recognized by the SRB, inasmuch as the Notification (which of course relates to the Second Schedule) deals with the services (if any) rendered under both tariff headings together.

21.The third tariff heading No. 9824.0000, may now be considered. Since we have concluded that the there is a complete overlap between the other two tariff headings, heading No. 9824.0000 can be compared with both together. Again, the starting point must be the descriptions as given in the First Schedule. When so considered, in our view there is the possibility of an overlap, but any such would be far from complete. The reason is that if at all property dealers or promoters provide services in relation to immoveable property, "construction" services (if provided) would only be a part of the sort of services that they may provide. On the other hand "construction services" can be provided by persons other than property dealers or promoters. (We do not need to consider here the question whether "construction" services can be provided in relation to immoveable property only and not otherwise: it suffices for present purposes to consider the heading only in respect of such property.) Given the conclusion that there may be some overlap, the consequences need to be assessed in terms, and for purposes, of the Second Schedule. However, this assessment is deferred to later in the judgment.

22.We are now in a position to consider whether the petitioners provide any services within the meaning of the Act, and if so, the nature, scope and extent thereof. As already noted, the SRB seeks to tax the petitioners in terms of the Notification. It therefore suffices to consider the question just posed in the context thereof and not on any broader plane. It will be convenient to first consider tariff headings Nos. 9807.0000 and 9814.3000 since they can be taken up together. The question therefore is do the petitioners provide any services in relation to these two tariff headings in respect of either of the two clauses set out in the Notification? Also as already noted, the impugned notices seek to tax the petitioners in respect of building projects being, or to be, constructed by them, the general nature of which is described in para 18 above. Typically, whenever a building project is advertised any person interested in acquiring a unit (whether shop, flat, office or apartment) "books" the same by entering into a contract with the developer. The contract can and does, have many clauses, of which two are relevant here: (a) the time period within which the unit is to be handed over, and (b) the total price to be paid for the same, including especially the installments in which the price is to be paid. Even more importantly and crucially for present purposes, the legal nature of this contract under the general law must be kept in mind. It is, of course, nothing other than a contract for sale within the meaning of section 54 of the Transfer of Property Act, 1882 ("1882 Act"), more usually known as an agreement to sell. Now, it is an essential aspect of such a contract, and indeed section 54 expressly so provides, that it "does not, of itself, create any interest in or charge on" the property being sold. What this means is well established and requires no elaborate reference to the ease law. The position is set out as follows in Mulla on the Transfer of Property Act (12th (Indian) ed., 2015), the law in Pakistan and India being the same (internal citations omitted):--

"An Agreement to sell does not create on interest in the proposed vendee in the suit property, but only creates an enforceable right in the parties. An agreement for sale is not the same as 'sale', and the title to the property agreed to be sold, still vests in the vendor in case of an agreement for sale, but in the case of sale, title of the property vests with the purchaser. An 'agreement for sale' is an executory contract, whereas 'sale' is an executed contract. In all agreements for sale, the two most important conditions would be the date of payment of price, and date of delivers of possession of the property...." (pg. 375)

"The law of India does not recognize equitable estates, and the English rule that the contract makes the purchaser owner in equity of the estate, does not apply.... Section 54 of the TP Act specifically, provides that the contract of sale does not, of itself create any interest in or charge on immovable property which is subject mailer of contract of sale. A person having an agreement to sell in his favour does not get any right in the property, except the right of litigation on that basis. In the absence of registered sale deed, nobody can call himself as owner by purchase on the basis of agreement to sell...." (pg. 376-7)

"If the transaction is still in the stage of contract, the buyer, even if he has paid the price or part of the price and even if he has taken possession, is not the owner, and the property is still in the seller. However, these circumstances may give rise to equities in favour of the buyer. A buyer who has paid the price or part of the price in anticipation of a conveyance is entitled under section 55(6)(b) to a charge on the property for the amount paid. If the contract is still capable of specific performance, the buyer may file a suit for specific performance, and complete his title. If the buyer is in possession in pursuance of the contract, he is protected from dispossession by the right enacted in section 53A...." (pg. 379)

23.As is clear from the above passages, other than the limited circumstances spelt out in sections 53A and 55(6)(b) (which are considered below), an agreement to sell creates no interest in the immoveable property. Thus, when a person has "booked" a unit in a building project, that "booking" creates no right or interest therein in his favour. He may be entitled to sue the developer for specific performance of the contract (and may, in such suit, also be entitled to injunctive relief and/or other remedies) but at the stage of the agreement to sell, there is no interest in the property itself. This is a fundamental rule of the general law in respect of immoveable property. In our view, the Notification must be applied in light of this basic rule. It is in this context therefore that we consider the two clauses that apply in relation to tariff headings Nos. 9807.0000 and 9814.3000. Taking up clause (b) first, it can be stated as follows: "Services by property developers or promoters for construction of residential or commercial units". It must be remembered that the Notification is not issued as an exemption (that power being contained in section 10) but is part of the charging provisions. It is to be construed accordingly. While a residential or commercial unit is being constructed the matter is still at the stage of an agreement to sell. The question therefore is this. Can there be provision of services by way of, or for, construction of a unit, to the person who has "booked" the unit, during the period of the agreement to sell, i.e., when as a matter of law he has no interest in the unit? Section 3 of the Act provides that a taxable service must be provided "in the course of an economic activity", and section 4 defines "economic activity" as meaning "any activity carried on by a person that involves or is intended to involve the provision of services to another person". Here, the activity is the carrying on the construction of the unit. To come within the scope of the Act, such construction must involve or be intended to involve the provision of services by the developer or builder to the person who has "booked" the unit. But, Such activity is in respect of immoveable property, More importantly, it is not merely "on" immoveable property: the nature of the activity is the creation of the immoveable property itself (the unit agreed to be sold). While this activity is being carried on, as a matter of law the person who has booked the unit has no interest in the said property. Can it be said in any meaningful sense that he is being provided services within the meaning of the Act? In our view, the answer to this question must be in the negative. It is true that both sections 3 and 4, in the context of "economic activity", expressly provide that it includes the "termination" of the activity. However, in our view, this provision does not bring the matter within the ambit of the tax. When the activity here under consideration is completed (i.e., "terminated") the result is the constructed unit that was "booked". The unit may be complete in all respects. But such completion still does not, of itself, create any interest therein in the person who has "booked" the same. The stage of the agreement to sell is still not over. For that to happen requires another discrete, independent and separate act transaction, namely the transfer by means of a registered sale deed. Therefore, insofar as clause (b) is concerned, the construction of the residential or commercial unit does not, amount to, or involve, any services being provided by the developer to the person who "booked" the unit. This follows directly and necessarily from the fundamental rule of the general law applicable to immoveable property, as set out in section 54 of the 1882 Act.

24.We turn to clause (a). This can be stated as follows:

"Services by property developers or promoters for development of purchased or leased land for conversion into residential or commercial plots". In the typical case, the land in question is of course purchased or leased by the developer or promoter, or at any rate by some person other than those to whom the residential or commercial plots are to be sold after the "conversion". Here, the typical situation could be as described by one of the learned counsel (see para 4 above). The developer or promoter buys a piece or tract of land, develops it by creating, infrastructure (by way of roads, utilities etc) thereon and dividing it into plots, and then sells the plots to the public. The services being rendered would have to be by way of developing the land and dividing it into plots. Here, the same point as made in relation to clause (b) would apply. The contract with the person agreeing to buy a plot (usually referred to as an "allottee") would be an agreement to sell and section 54 would apply accordingly. It may be that in circumstances to which clause (a) applies the allottee also has to pay "development' charges to the developer or promoter. However, such payments (if at all any) would still not overcome the "hurdle" created by the rule of the general law applicable to immoveable property. There is no interest in the property during the period of the agreement to sell, and the entire "economic activity" that could constitute the provision of services (including its "termination") falls within the said period. The conclusion with regard to clause (a) would therefore have to be the same as arrived at in relation to clause (b).

25.Before proceeding further, sections 53A and 55(6)(b) of the 1882 Act may, be considered. The former, as is well known, applies to a situation where, in part performance of a contract, the transferee has taken possession of the property or part thereof. Since this situation does not appear to exist in the present petitions and, typically, would hardly come about in the sort of facts and circumstances now before the Court, nothing more need be said about this section. Section 55(6) spells out certain rights of the buyer of immoveable property. Clause (b) provides, inter alia, that unless the buyer, has improperly refused to take delivery of the property being sold he has a charge on the property "for the amount of any purchase-money properly paid by the buyer in anticipation of the delivery". Section 100, inter alia, provides in respect of such a charge that the provisions in respect of a simple mortgage shall apply in relation thereto. Now, as noted above in respect of units "booked" in a building project the price is typically payable in installments (and indeed, this would also be so where an allottee agrees to buy a plot being, or to be, developed). As the installments are paid, it would seem that section 55(6)(b), and hence section 100, would become applicable thereto. Does this after the analysis and conclusions arrived at above? In our view, this question should be answered in the negative. Any charge that may come about would be for a limited and specific purpose. It would also operate contingently. In our view, it would have no bearing on whether any services are being provided by the developer to the buyer during the stage of the agreement to sell. Thus, the limited exceptions that exist under the general law to the fundamental rule contained in section 54 do not have any relevance in the facts and circumstances now before us.

26.It should also be kept in mind that the Act is provincial legislation and the 1882 Act is also within the legislative competence of the Provincial Assembly. Therefore, if at all the provincial legislature were so minded, it could have expressly altered the rule enunciated in section 54, at least for the purposes of applying the Act in respect of the two clauses considered above. However, this has not been done, the provisions of the Act considered above being charging provisions of a fiscal statute are to be interpreted and applied accordingly. If the result is that the legislature must be regarded as having "missed fire", that is a consequence that follows from an application of well settled propositions and principles.

27.It will be convenient at this stage to consider the decision of the Supreme Court in respect of which submissions were made by learned counsel for both the sides. Federation of Pakistan and others v. Haji Muhammad Sadiq and others 2007 PTD 67 = 2007 CLD 1. Learned counsel for the petitioners of course sought to distinguish this case, whereas learned counsel for the respondents relied upon it to press their point that the petitioners came within the ambit of the Act. It will be recalled that at the time this judgment was given, the taxation of the rendering of services was in the Federal domain, being taxed as a duty of central excise. The levy in contention was in the following terms (emphasis supplied); "Services provided or rendered by banking companies, financial institutions, insurance companies, co-operative financing societies, other lending banks or institutions and other persons dealing in advancing of loans, in respect of advances made to any person". Although the levy itself was on the financial institutions (the service providers), they sought to recover the same from their customers i.e., the borrowers to whom advances were made and to whom the services were being provided. The levy was therefore challenged by the latter. Although many arguments were advanced the principal submission was that no services were being rendered to them, the making of the advances themselves not being a service. This (and other) submissions were rejected and the Supreme Court held that services had been rendered within the meaning of the statute and were liable to be taxed accordingly. In our respectful view, the decision of the Supreme Court is distinguishable. In the facts and circumstances before the Supreme Court, the advances made to the borrowers, in respect of which services were being rendered and brought to tax, constituted property in the hands of the service providers (i.e., the financial institutions). That property was moveable property, being a debt or actionable claim owed by the borrowers to the financial institutions. The property came about as soon as the loan was advanced. In each case there was a corresponding liability and obligation on the part of the borrower, and this liability also arose and came about as soon as the property came into existence. Furthermore, no services were rendered or provided unless such property existed. Thus, all three elements--the service provider, the recipient and the service itself--existed immediately find simultaneously along with the property itself, with corresponding rights and obligations therein. This position was therefore materially different from the facts and circumstances at hand. Here, it is immoveable property that is involved and in the entire course of the "economic activity" that could constitute the providing of services ("including the determination" of the activity) the putative recipient--the one who has "booked" the unit or the allottee of the plot--has by operation of law no interest in the property. In our respectful view, in the present facts and circumstances, the decision of the Supreme Court does not render any support to the respondents' case.

28.Before proceeding to consider tariff heading No. 9824.0000, which relates to "construction services", it will be appropriate to consider the Indian decisions that were relied upon by learned counsel for both the sides. In order to properly appreciate this case law the position under the Indian Constitution needs to be set out first. It will be recalled that the Indian Constitution, like the Government of India Act, 1935 ("GOIA") divides legislative power in terms of three lists, one exclusive to the Union (i.e., the Federation), the other exclusive to the States (i.e., the Provinces) and the third shared between them (i.e., concurrent). In both constitutions, the power to levy sales tax on goods vests exclusively in the States: see Schedule 7, List 11, entry No.48 of the GOIA and Schedule 7, List 11, entry No. 54 of the Indian Constitution. (This is subject to certain exceptions in the case of the Indian Constitution but that is not relevant for present purposes.) Entry 54 relevantly is as follows: "taxes on the sale and purchase of goods...". Furthermore, it needs to be noted that under the Indian Constitution the "residuary" legislative power, i.e., those competences, not to be found in any of the Lists, vests exclusively in the Union, and this includes the power to levy a tax not enumerated in the Seventh Schedule (see Article 248 and Schedule 7, List 1, entry No. 97). It is under this power that the Union imposes taxes on services, (A specific entry has been added to List 1 in this regard, being entry No. 92C ("Taxes on Services"), but apparently it has not yet been brought into force. However, this does not have any material effect.) Now, quite early on the States attempted to impose a sales tax on works contracts on the ground that such contracts included or had an element of the sale of goods (being the materials being supplied under such contracts). The matter ultimately came before the Supreme Court of India in State of Madras v. Gannon Dmkerley and Co. AIR 1958 SC 560. The Supreme Court held that where the contract was one and indivisible it could not be divided by legislative that into a "sale of goods" component and a "works" portion and that therefore the States could not impose a sales tax on the former in such contracts. (We may note that the actual case arose under entry No. 48 of the GOIA, but the position under the Indian Constitution was the same.) This eventually led to a constitutional amendment (the 46th) in 1982, whereby a new definition was inserted in Article 366. This is the definitions provision of the Indian Constitution, and the definition added was of "tax on the sale or purchase of goods", inserted as clause (29A). The definition was inclusive in form, containing six sub-clauses which dealt with goods transferred in various types of specific transactions and situations, and which transfer was expressly deemed to be a sale of goods. For present purposes, sub-clause (b) is relevant, and clause (29A) can be read as follows: "tax on the sale or purchase of goods" includes- ... (b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; ...". Thus, by constitutional device, a works contract was divisible into two components, one of which related to the transfer of goods and which, being a deemed sale, could therefore be taxed by the States.

29.When the Indian cases relied upon are considered, they present, at least from the perspective of our Constitution and the statutory position under the Act, a rather complicated picture. Some of the cases involved immoveable property while others related to moveable property. In some it was the Union seeking to impose a tax on services and in others it was a State attempting to tax the "goods" element of a contract that had other components as well. In many there were lengthy and detailed definitions given in the relevant statute. Much turned on the specific language used, especially in the definitions. We intend no disrespect to the assistance provided by learned counsel, but perhaps to go through each and even case relied upon will unnecessarily burden this judgment. Therefore, we consider only certain selected cases, being those that in our view bring to the fore the position in India, and also consider how, if at all. It relates to the situation under the Act and in the facts and circumstances before us.

30.The first case to consider is K. Raheja Development Corporation v. State of Karnataka AIR 2005 SC 2350, (2005) 5 SCC 162 ("Raheja"), a decision relied upon by learned counsel for the respondents. The relevant facts are set out in para 2 of the judgment (pg. 2351):--

"The Appellants carry on the business of real estate development and allied contracts.... They enter into development Agreements with owners of lands. Thereafter they get plans sanctioned. After approval of the plans they construct residential apartments and/or commercial complexes. In most cases before they construct the residential apartments and/or commercial complexes they enter into Agreements of Sale with intended purchasers. The Agreements would provide that on completion of the construction the residential apartments or the commercial complex would be handed over to the purchasers who would get an undivided interest in the land also. The owners of the land would then transfer the ownership directly to the society which is being formed under the Karnataka Ownership Flats (Regulation of Promotion of Construction. Sales, Management and Transfer) Act, 1974."

The appellants were sought to be taxed on their activities under the Karnataka Sales Tax Act. This had a definition of works contract in the following terms: "works contract" includes any agreement for carrying out for cash, deferred payment or other valuable consideration, the building, construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement modification, repair or commissioning of any moveable or immovable property". The Supreme Court observed (pg. 2352) that this definition was very wide. It was not restricted to a works contract as "commonly understood", which according to the Court meant "a contract to do some work on behalf of somebody else". It was also observed as follows (ibid):--

"To be also noted that the definition does not lay down that the construction must be on behalf of an owner of the property or that the construction cannot be by the owner of the property. Thus even if an owner of property enters into an agreement to construct for cash, deferred payment or valuable consideration a building or flats on behalf of anybody else it would be a works contract within the meaning of the term as used under the said Act."

It was in the foregoing terms that the Supreme Court held as follows, in passages strongly relied upon by learned counsel for the respondents (emphasis supplied):--

"16..... As has been rightly submitted... the definition of the term 'works contract' in the said Act is an inclusive definition. It does not include merely a works contract as normally understood. It is a wide definition which includes "any agreement" for carrying out building or construction activity for cash, deferred payment or other valuable consideration. The definition does not make a distinction based on who carries on the construction activity. Thus even an owner of the properly may also be said to be carrying on a works contract if he enters into an agreement to construct for cash, deferred payment or other valuable consideration. We, therefore, do not need to go into the question whether the Appellants are owners as even if the Appellants are owners to the extent that they have entered into Agreements to carry out construction activity on behalf of somebody else for cash, deferred payment or other valuable consideration, they would be carrying out a works contract and would become liable to pay turnover tax on the transfer of property in the goods involved in such works contract...." (pp. 2353-4)

"19. Thus the Appellants are undertaking to build as developers for the prospective purchaser. Such construction/ development is to be on payment of a price in various installments set out in the Agreement... Of course, under clause 7 they have right to terminate the Agreement and to dispose off the unit if a breach is committed by the purchaser. However, merely having such a clause does not mean that the agreement ceases to be a works contract within the meaning of the term in the said Act. All that this means is that if there is a termination and that particular unit is not resold but retained by the Appellants, there would be no works contract to that extent. But so long as there is no termination the construction is for and on behalf of purchaser. Therefore, it remains a works contract within the meaning of the term as defined under the said Act. It must be clarified that if the agreement is entered into after the flat or unit is already constructed, then there would be no works contract. But so long as the agreement is entered into before the construction is complete it would be a works contract." (pg. 2355-6)

31.In our view, the cited case amply demonstrates the difference between the position in India and the position under the Act. The Act contains no definition equivalent to the definition of "works contract" under the Karnataka statute. As is clear, the case essentially turned on this broad and encompassing definition. The Indian Supreme Court itself highlighted the difference between a works contract as "commonly understood", and as used in the statute. It was the statutory terms that brought about a situation such that even at the stage of the agreement to sell, the matter came within the terms of the Karnataka statute. The position under the Act before us is completely different. This decision therefore, while illuminating, does not, with respect, provide any assistance in resolving the issues in the facts and circumstances before us.

32.The next case to consider is a decision of the Gauhati High Court strongly relied upon by learned counsel for the petitioners. Magus Construction (Pvt.) Ltd. and another v. Union of India and others (2009) 3 GLT 161. This was a case where the Union sought to bring the activities of the petitioners to tax as services. The relevant facts were as follows (para 1: emphasis supplied):--

"Petitioner No. 1 is a private limited company engaged in the business of development and sale of immovable properties, i.e., real estates. The petitioner-company constructs buildings and sells premises/flats in such buildings. During the course of development of such property and construction of buildings thereon and also after completion of such construction, the petitioner-company enters into "flat purchase agreements" with various premises/flat purchasers, whereunder the petitioner-company allots and sells flat premises, in such buildings, to the purchasers. The said transaction is a transaction of sale of flats/premises and the consideration is payable to the petitioner-company in instalments as per the terms, which may be mutually agreed upon, though the terms of the agreement are, usually, co-related to the extent and the stage of the development of the constructional work. The agreement for sale of such flats is stamped as sale of flat premises for the entire consideration. Before accepting money as advance payment or deposit out of the sale price, the petitioner-company enters into an agreement for sale, which is registered. The agreement contains various details and price including area of the flat the price of the flat (the price of common areas and facilities being shown separately) and various other facilities concerning the flat, etc. For the purposes of carrying out construction work of the buildings, the petitioner-company engages various contractors for obtaining construction related services to the petitioner-company. Thus, in their various projects, the petitioners have engaged reputed contractors. The petitioners, at times, engage contractors, who supply Labour. Sometimes, the petitioners carry out part of the constructional, activities. However, the petitioners carry out such constructional activities for themselves and for their own purposes and not for any one else. The transaction between the petitioners and the flat purchasers is purely a transaction for sole of the flat/premises and cannot be treated as a contract for rendering of service of any nature whatsoever. On certain occasions, instead of purchasing the land from the owners, the petitioners enter into agreements with the owners of the land, such agreements being popularly known as "development agreement". Under such agreements, the petitioners become entitled to construct a building on the land and sell the flats, which may be constructed thereon. The petitioners acquire all the rights, title, interest and advantages of the owners including the entitlement to sell, transfer, deal with, dispose of all the premises and areas in the building or structures to be constructed by the petitioners. The petitioners are given the right to enter upon the land, to raise constructions thereon and sell flats constructed on such land. Even after execution of such agreements, the constructional activities, carried out by the petitioners, are mostly through other persons working as external contractors. In any case, such constructional developmental activities are carried out by the petitioners for themselves and for their own benefits and not for any other entity or person."

The High Court stated the question before it in the following terms:--

"4. The moot question, which the present writ petition has raised, is this: whether the petitioner-company has been working, as a "service provider", for those persons with whom the petitioner-company enters into agreements and constructs flats for the purpose of sale to those with whom such agreements are entered into?"

The Union sought to tax the petitioner's activities as a "construction of complex" service or a "commercial or industrial construction service". The former was defined as follows in the statute:--

"construction of complex" means--

(a). construction of a new residential complex or a part thereof; or

(b). completion and finishing services in relation to residential complex such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services: or

(c) repair, alteration, renovation or restoration of, or similar services in relation to, residential complex."

The expression "residential complex" used in the definition was itself a defined term. "Commercial or industrial construction service" was defined as meaning

"(a)construction of a new building or a civil structure or a part thereof; or

(b)construction of pipeline or conduit : or

(c)completion and finishing services such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services, in relation to building or civil structure : or

(d)repair, alteration, renovation or restoration of, or similar services in relation to, building or civil structure, pipeline or conduit, which is--

(i) used, or to be used, primarily for; or

(ii) occupied, or to be occupied, primarily with; or

(iii) engaged, or to be engaged, primarily in,

commerce or industry, or work intended for commerce or industry, but does not include such services provided in respect of roads, airports, railways, transport terminals, bridges, runnels and dams;".

The High Court referred to two departmental circulars, one dated 17.09.2004 and the other 01.08.2006 which were to the effect that where the builder, promoter or developer undertook construction work "on his own", and in the case of "estate builders" ("who construct building/civil structures for themselves (for their own use, renting it out or for selling it subsequently)"), there was no liability under the statute as no taxable services were being provided. The High Court considered a number of decisions as to the effect of departmental circulars, finally concluding as follows (emphasis supplied):--

"48. In the light of what has been laid down in the catena of decisions referred to above, it becomes clear that the circular, dated August 1, 2006, aforementioned, is binding on the department and this circular makes it more than abundantly clear that when a builder, promoter or developer undertakes construction activity, for its own self, then, in such cases, in the absence of relationship of "service provider" and "service recipient", the question of providing "taxable service" to any person by any other person does not arise at all. In the present case too, the materials placed by the writ petitioners clearly show that the construction activities, which the petitioners have been undertaking, are in respect of the petitioners' own work and it is only the completed construction work, which is sold by the petitioner-company to the buyers, who may have made agreements for sale before the construction had actually started or during the progress of the construction activity or at the end or completion of the construction activity. Any advance, made by a prospective buyer, or deposit received by the petitioner-company, is against consideration of sale of the flat/building to such prospective buyer and not for the purpose of obtaining "service" from the petitioner-company."

Finally, we may note that although Raheja was cited before the High Court, it distinguished the decision both on the facts and the statute under which the appellants there were brought to tax. The petition was accordingly allowed.

33.The facts of the cited case are similar to those at hand, where the present petitioners undertake the construction of "building projects", which are sought to be taxed under the Act. However, notwithstanding this apparent similarity, in our view, and with respect, the cited decision does not provide substantial assistance. This is because ultimately what proved decisive for the High Court were the departmental circulars, and especially the one dated 01.08.2006. Here of course the department (i.e., the SRB) takes an altogether different view of the position under the Act. The High Court did not, in the circumstances before it, feel it necessary to consider the detailed and complex statutory definitions reproduced above. In our view, with respect, it is possible that had such need arisen, the conclusion could have been different. The statutory position under the Indian statute on the one hand and the Act on the other is so materially different that the decision, though interesting, does not, provide what might be called actionable assistance.

34.The next case to consider (and the last one in the present context) is Larsen and Touhro Limited and another v. State of Karnataka and another (2014) 1 SCC 708, a decision relied upon by learned counsel for the respondents. The central point in issue was whether the view taken in Raheja was correct (pg. 722). The judgment disposed off appeals from the Karnataka and the Bombay High Courts. The Karnataka statute was the same as had been before the Court in Raheja. The facts in the Karnataka appeals were as follows (pg. 723):

"2. . The ECC division of Larsen and Toubro (for short. "L&T") is engaged in property development along with the owners of vacant sites. On 19.10.1995, L&T entered into a development agreement with Dinesh Ranka. owner of the land ... together measuring 34 acres ... for construction of a multi-storeyed apartment complex. The owner was to contribute his land and L&T was to construct the apartment complex. After development, 25% of the total space was to belong to the owner and 75% to L&T.

3. A power of attorney was executed by the owner of the land in favour of L&T to enable it to negotiate and book orders from the prospective purchasers for allotment of bulit up area. Accordingly, L&T entered into agreements of sale with intended purchasers. The agreements provided that on completion of the construction, the apartments would be handed over to the purchasers who will get an undivided interest in the land also. Sale deeds, thus, were executed in favour of the intended purchasers by L&T and the owner."

The challenge mounted to Raheja was on many grounds, a principal one being that the definition of "tax on the sale or purchase of goods," inserted as Clause (29A) in Article 366 of the Indian Constitution had not been properly understood, especially as regards its sub-clause (b) (see para 28 above). The Supreme Court explained the meaning and effect of the clause as follows (pp. 744-5: emphasis supplied):--

"56. It is important to ascertain the meaning of sub-clause (b) of clause (29A) of Article 366 of the Constitution.... The definition of expression "tax on sale or purchase of the goods" is contained in clause (29A). If the first part of clause 29A is read with sub-clause (b) along with latter part of this clause, it reads like this: "tax on the sale or purchaser of the goods" includes a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivers or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made. The definition of "goods" in clause 12 [of Article 366] is inclusive. It includes all materials, commodities and articles. The expression, 'goods' has a broader meaning than merchandise. Chattels or movables are goods within the meaning of Clause 12. Sub-clause (b) refers to transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract. The expression "in some other form" in the bracket is of utmost significance as by this expression the ordinary understanding of the term 'goods' has been enlarged by bringing within its fold goods in a form other than goods. Goods in some other form would thus mean goods which have ceased to be chattels or movables or merchandise and become attached or embedded to earth. In other words, goods which have by incorporation become part of immovable property are deemed as goods. The definition of 'tax on the sale or purchase of goods' includes a tax on the transfer or property in the goods as goods or which have lost its form as goods and have acquired some other form involved in the execution of a works contract.

57. Viewed thus, a transfer of property in goods under clause 29A(b) of Article 366 is deemed to be a sale of the goods involved in the execution of a works contract by the person making the transfer and the purchase of those goods by the person to whom such transfer is made.

58. The States have now been conferred with the power to tax indivisible contracts of works. This has been done by enlarging the scope of "tax on sale or purchase of goods" wherever it occurs in the Constitution. Accordingly, the expression "tax on the sale or purchase of goods" in Entry 54 of List II of Seventh Schedule when read with the definition clause 29A, includes a tax on the transfer of property in goods whether as goods or in the form other than goods involved in the execution of works contract. The taxable event is deemed sale."

The Court also held that the "dominant intention" test, which has been pressed before us by learned counsel for the petitioners, was not relevant insofar as clause (29A) was concerned, and expressly overruled the contrary view that had been expressed earlier. It was held as follows (pg. 746):--

"60. Whether contract involved a dominant intention to transfer the property in goods, in our view, is not at all material. It is not necessary to ascertain what is the dominant intention of the contract. Even if the dominant intention of the contract is not to transfer the property in goods and rather it is the rendering of service or the ultimate transaction is transfer of immovable property, then also it is open to the States to levy sales tax on the materials used in such contract if it otherwise has elements of works contract. The view taken by a two-Judge Bench of this Court in Rainbow Colour Lab v. State of M.P. (2000) 2 SCC 385 that the division of the contract after the Forty-sixth Amendment can be made only if the works contract involved a dominant intention to transfer the property in goods and not in contracts where the transfer of property takes place as an incident of contract of service is no longer good law. Rainbow Colour Lab has been expressly overruled by a three-Judge Bench in Associated Cement Companies Ltd. v. Commissioner of Customs (2001) 4 SCC 593."

The Court then considered the term "works contract" appearing in sub-clause (b) of clause (29A) in great detail, holding as follows (pp.755-6):--

"87. It seems to us (and that is the view taken in some of the decisions) that a contract may involve both a contract of work and labour and a contract of sale of goods. In our opinion, the distinction between contract for sale of goods and contract for work (or service) has almost diminished in the matters of composite contract involving both (a contract of work/labour and a contract for sale for the purposes of Article 366(29A)(b). Now by legal fiction under Article 366(29A)(b). It is permissible to make such contract divisible by separating the transfer of property in goods as goods or in some other form from the contract of work and labour. A transfer of property in goods under clause 29(A)(b) of Article 366 is deemed to be a sale of goods involved in the execution of a works contract by the person making the transfer and the purchase of those goods by the person to whom such transfer is made. For this reason, the traditional decisions which hold that the substance of the contract must be seen have lost their significance. What was viewed traditionally has to be now understood in light of the philosophy of Article 366(29A)."

The Court then applied its conclusions and findings to a contract for the construction of a flat in the following terms (pg. 756):--

"88. The question is: Whether taxing sale of goods in an agreement for sale of flat which is to be constructed by the developer/promoter is permissible under the Constitution? When the agreement between the promoter/developer and the flat purchaser is to construct a flat and eventually sell the flat with the fraction of land, it is obvious that such transaction involves the activity of construction inasmuch as it is only when the flat is constructed then it can be conveyed. We, therefore, think that there is no reason why such activity of construction is not covered by the term "works contract". After all, the term "works contract" is nothing but a contract in which one of the parties is obliged to undertake or to execute works. Such activity of construction has all the characteristics or elements of works contract. The ultimate transaction between the parties may be sale of flat but it cannot be said that the characteristics of works contract are not involved in that transaction. When the transaction involves the activity of construction, the factors such as, the flat purchaser has no control over the type and standard of the material to be used in the construction of building or he does not get any right to monitor or supervise the construction activity or he has no say in the designing or lay-out of the building, in our view, are not of much significance and in any case these factors do not detract the contract being works contract insofar as construction pari is concerned.

89. For sustaining the levy of tax on the goods deemed to have been sold in execution of a works contract, in our opinion, three conditions must be fulfilled: (i) there must be a works contract, (ii) the goods should have been involved in the execution of a works contract, and (iii) the property in those goods must be transferred to a third party either as goods or in some other, form. In a building contract or any contract to do construction, the, above three things are fully met. In a contract to build a flat there will necessarily be a sale of goods element. Works contracts also include building contracts and therefore without any fear of contradiction it can be stated that building contracts are species of the works contract.

90. Ordinarily in the case of a works contract the property in the goods used in the construction of the building passes to the owner of the land on which the building is constructed when the goods and materials used are incorporated in the building. But there may be contract to the contrary or a statute may provide otherwise. Therefore, it cannot be said to be an absolute proposition in law that the ownership of the goods must pass by way of accretion or exertion to the owner of the immovable property to which they are affixed or upon which the building is built."

The Court also summarized its findings in a series of propositions set out in para 97 of the judgment (pp. 759-60). The Court then, after another elaborate discussion, held that the view taken in Raheja was correct.

35.We have quoted somewhat extensively from the cited decision to show that the constitutional and legal position in India was, and is, materially different from that obtaining under the Act. While Letrsen and Toubro Limited and another v. State of Karnataka and another (2014) 1 SCC 708 is undoubtedly a case of interest, for present purposes that interest must in the end, and with respect, be regarded as largely academic. But, as will be seen shortly, this is not wholly so.

36.Turning now to tariff heading No. 9824.0000, the first point that needs to be considered is the one that was deferred in para 21 above, namely, given that there is at least some overlap between this and the other two headings, what is the consequence in terms of the Second Schedule? In our view, tariff heading No. 9824.0000 can apply to the construction activities of property developers or promoters and also to any other person. However, in respect of property developers or promoters, if any services could be regarded us "construction services" but are rendered in the course of any activity as would directly and materially be part of the activity or service under the other two tariff headings then such services would stand excluded from heading No. 9824.0000.

37.We now come to the main question: what sort of services can be regarded as coming within the ambit of the tariff heading? We begin by noting what ought not to come within its scope. Any activity in which the relationship between the service provider and the recipient is governed by a contract for sale in terms of section 54 of the 1882 Act should not, for reasons already given, constitute a service within the meaning and scope of the tariff heading. Having considered the matter, in our view the tariff heading will apply to a situation where (i) the activity can be regarded as a service directly and materially related to the construction of immoveable property as such, and (ii) the activity cannot, more naturally and properly, be regarded as coming within the scope of some other tariff heading. Thus, there are two requirements: condition (i) must be shown to exist, and condition (ii) must not be applicable. Furthermore, the last two words ("as such") of condition (i) are of importance. It is possible that the putative service provider is engaged in an activity that is related to the construction of immoveable property, and that this connection is both direct and material. However, the activity may not necessarily be connected "as such" with the construction, in which case it will not be a service within the meaning of the tariff heading. It may be useful to make use of an example, which will help illuminate the foregoing points. Take the case of a person ("owner") who wishes to build a house for himself on his own plot. The owner would of course be the service recipient. He may engage an architect to design the house and prepare the construction drawings, etc. The architect may well be regarded as coming within the scope of condition (i), as being "as such" engaged in an activity that is a service directly and materially related to the construction of the house. However, the services of architects are specifically brought to tax under tariff heading No. 9814.1000. Therefore, since condition (ii) would also apply, the services of the architect would not come within the scope of heading No. 9824.0000. Continuing further with the example, the owner may make purchases of the materials that are to go into the building of the house. To take one instance, he may engage a person to make/procure the doors, windows and other fittings for the house. The activity of such a person would be directly and materially related to the construction of the house but, unless such person has also been engaged to install the same in the actual construction of the house, would not be related "as such". Such a person would only be a supplier of goods. Condition (i) would not therefore be applicable. The reason is that the actual task of construction may well be entrusted to another person, e.g., a contractor engaged for this purpose whose obligations and activities would, inter alia include the installation of the doors windows and other findings in the house at the appropriate stage of the construction. Now, if a contractor is engaged by the owner, he would of course amply fulfill condition (i) and it would prima facie seem that he is eminently a person to whose services heading No. 9824.0000 is applicable. However, even this is not necessarily so, the reason being tariff heading No. 9814.2000, which specifically provides as follows:--

"Contractors of building (including water supply, gas supply and sanitary works), roads and bridges, electrical and mechanical works (including air conditioning), horticultural works, multi-discipline works (Including turn-key projects) and similar other works."

By reason of this specific tariff heading, it could be that condition (ii) would apply to the contractor and hence heading No. 9824.0000 would be inapplicable.

38.The position of the contractor (to continue with the example taken) is interesting. He may in some instances be a service provider and in others a service recipient. As a service provider he may (but not necessarily so, much depending on the actual facts and circumstances) come within heading No. 9814.2000. However, he may himself also be a service recipient. For example, he may enter into sub-contracts and engage, e.g., an electrician, plumber, etc, to install the various utilities and other systems in the construction of the house as it proceeds. What would be the position of the activities of such sub-contractors, as service providers, in the context of heading No. 9824.0000? It may be that some at least may also come within the ambit of heading No. 9814.2000 and hence fall outside the scope of entry No. 9824.0000. However, there may be other situations where this is not so. To extend the example further, suppose the house is completed and occupied by the owner. After some time, he decides to construct a swimming pool. This would be a subsequent, discrete and separate construction event activity. Suppose the owner engages a contractor for this purpose and the latter sub-contracts the laying and installation of the systems used in a modern swimming pool to a third party. What would now be the situation? Here, the activities of the contractor vis-a-vis the owner may well come within the scope of heading No. 9824.0000 since condition (i) would apply and condition (ii) would not. The reason the latter would not apply is that heading No. 9814.2000 appears to apply to a "building" and works related thereto, "multi-disciplinary works" and "similar other works". A swimming pool would not seem to it into any of these categories. Likewise, the activities of the sub-contractor, vis-a-vis the contractor, may also come within the scope of entry No. 9824.0000.

39.In addition to the foregoing, there is another aspect of "construction services" that must be considered. It could be that a construction contract, and activities associated with it is multi-dimensional in the sense that the contract may contain elements that constitute "construction services" and others that do not. For example, the owner may engage the contractor on an omnibus basis, engaging the latter not only to undertake the actual construction but also to procure the necessary materials and supplier, etc, required for the same what would be the position of such a contractor? Here, for illustrative purposes only we assume that the contractor does not come within the scope of heading No. 9814.2000. i.e., that he could be covered by entry No. 9824.0000. But would that be so? Would a contract that contains different elements, some of which may well fall outside the scope of "construction services" nonetheless come within the scope of the tariff heading by reason of those elements that do come within its ambit? Such a situation, by no means uncommon of exceptional, would, it our view, require application of the "dominant intention" test relied upon by learned counsel for the petitioners. It is therefore necessary to consider this aspect.

40.It will be recalled that in Larsen and Toubro Limited and another v. State of Karnatka and another (2014) 1 SCC 708, the Indian Supreme Court held that the "dominant intention" test did not apply to situations where sub-clause (b) of clause (29A) of Article 366 is involved (see para 34 above). Now, the Supreme Court also noted (see pg. 747. para 62), with reference to an earlier decision (BSNL v. Union of India (2006) 3 SCC 1) that the "dominant intention" test did remain relevant and valid for situations where Article 366(29A)(b) did not apply. Indeed, while exercising the right of reply learned counsel for petitioners made a similar submission, relying on the very case just cited. In our view, if the contract or activity to which heading No. 9824.0000 is sought to be applied is multi-dimensional in the sense noted above, then the "dominant intention" test can usefully be resorted to in order to determine whether the nature is such that it can be regarded as the providing of "construction services". It will be recalled that in this context learned counsel for the petitioners also relied upon an American case, a decision of the Court of Appeals for the 5th Circuit. This is Propulsion Technologies Inc. v. Aitwood Corporation 369 F.3d 896 (2004). It was there held as follows (relying on a decision of the Texas Supreme Court); "In such hybrid transactions [such as building contracts involving the sale of both services and materials], the question becomes whether the dominant factor or essence of the transaction is the sale of materials or of services". Reference may also be made to a decision of the Court of Appeals for the 8th Circuit. Bunebrake v. Cox 499 F.2d 951 (1974), where multi-dimensional contracts were referred to as "mixed contracts". It was observed that such contracts were "legion", and it was held as follows: "The test ... is not whether they are mixed, but, granting than they are mixed, whether their predominant factor, their thrust, their purpose, reasonably stated, is the rendition of service, with goods incidentally involved ...or is a transaction of sale, with labor incidentally involved ...". These formulations can usefully be applied while determining whether a multi-dimensional contract is such that it constitutes the providing of "construction services".

41.It will be seen from the foregoing that tariff heading No. 9824.0000 can raise complex issues and questions, and its application may not be as simple and straightforward as the bare language of the entry may suggest at first sight. The application of the tariff heading would seem to be quite fact-sensitive, and perhaps much more so than the other two headings with which we are concerned.

42.Keeping all of the above analysis and discussion in mind, and now examining the impugned notices and orders in the light thereof, we are of the view that the SRB and departmental authorities have seriously, and to an extent fundamentally, misunderstood and misapplied the Act and, more specifically, the three tariff headings here involved. The impugned notices and orders disclose an approach that is rather simplistic and superficial, and in our view clearly runs counter to the requirements of the statute. Serious errors of law have been made at a fundamental level. No attempt appears to have been made to discover the specific facts applicable to each petitioner, and to the extent that the facts are set out at all, the same have not been fully appreciated, or explored. The impugned notices and orders are not sustainable and cannot therefore be allowed to stand.

43.Before concluding, we turn to consider the objection taken as to the maintainability of the petitions. In our view, with respect, this objection cannot be sustained. The issues raised in these petitions are of first impression and go to the very root of how the First and Second Schedules, which are absolutely fundamental to the operation of the Act, are to be interpreted and applied. Even the three tariff headings actually involved have presented several knotty issues as to their proper interpretation and application furthermore, the issues raised are of general application. These matters involving issues and questions of law of primary importance, are peculiarly the province of the Superior Courts. The petitions are therefore maintainable.

44.In view of the foregoing, we hereby quash the notices and orders impugned in the petitions and restrain the respondents from taking, or continuing with, any action or proceedings in terms or in respect thereof. However, this shall not prevent the SRB or the departmental authorities from initiating fresh proceedings or taken action anew in accordance with the Act (if at all such proceedings and/or action are lawfully sustainable), but at all times and in manner only that is consistent with what has been held and laid down in this judgment.

45.This petition shall apply to, and dispose off, the following petitions: C.Ps. Nos. D-3723/2013, 5194/2013, 1242/2014, 1912/2014, 252/2014, 725/2014, 7656/2015, 7657/2015, 1080/2016, 1122/2016, 1125/2016, 1483/2016, 1504/2016, 1722/2016, 1759/2016, 1774/2016, 1778/2016, 1902/2016, 2058/2016, 2192/2016, 230/2016, 2321/2016, 2719/2016, 679/2016, 680/2016, 774/2016 and 807/2016.

46.Accordingly, these petitions are allowed in terms of para 44 above. There will be no order as to Costs.

MH/A-53/Sindh Petitions allowed.