[HA_Law_Graduate]

A significant legal ambiguity within the Punjab Sales Tax on Services Act 2012 created a foundational conflict between taxpayers and the revenue authority. The core of the issue lay in the Act's definition of a taxable "economic activity," which included the "supply of movable or immovable property by way of lease, licence or such similar arrangements." This language was interpreted by the Punjab Revenue Authority (PRA) in its broadest sense, leading it to contend that all supplies of property by developers, including outright sales, were taxable "services." This interpretation was contested by developers, who argued that their specific activity which was outright sales, did not fall under the legal definition of "lease, licence or such similar arrangements" and therefore was not a taxable service.

This fundamental disagreement was decisively settled by the Appellate Tribunal in its judgment on Appeal No. 282/2024 (M/s Noor Pak Developers), dated October 23, 2025. The PRA had levied sales tax on the developer for the outright sale of developed plots. The Tribunal, in its ruling, dismantled this assessment. It established a critical legal distinction, ruling that a "sale, being a conveyance of proprietorship," is a transfer of title and fundamentally different from a "lease" or "licence," where ownership is retained by the provider. The Tribunal concluded that an outright sale "falls outside that genus and is not a 'service' so conceived" by the statute. This judgment effectively invalidated the PRA's interpretation and confirmed that the law, as written, did not empower the authority to tax the sale of immovable property.

Simultaneously, the executive branch also tried to provide clarity. On October 22, 2025, the Punjab Finance Department released Notification No. SO(TAX)1-10/2025-26. This notification amended the schedules of the Sales Tax Act to insert a new, distinct taxable service: "Sr. No. 27: Supply of immovable property by way of lease, license or such similar arrangement." This action codified the very distinction the Tribunal would affirm. By explicitly and separately listing only these service-based arrangements, the government prospectively clarified the law. The notification did not create a new tax on property sales; rather, it reinforced that the only taxable component of immovable property transactions was the service of leasing or licensing, not the act of selling.

In effect, the Tribunal's decision and the government's notification worked in concert to achieve a single, definitive clarification. The judgment acted retrospectively, ending PRA's attempts to tax property sales under an ambiguous interpretation. The notification acted prospectively, providing a clear and explicit statutory basis for the future, ensuring that only the specific services of leasing and licensing would be subject to the tax. Together, these actions firmly established the legal boundary: the sale of immovable property is not a taxable service in Punjab, while the act of leasing or licensing it is.