Wateen Telecom Limited v. Khyber Pakhtunkhwa Revenue Authority (KPRA) & Others

THE PESHAWAR HIGH COURT, PESHAWAR

(Judicial Department) Writ Petition No. 2695‐P/2021 & STR No. 23‐P/2021

WATEEN TELECOM LIMITED

V.

KHYBER PAKHTUNKHWA REVENUE AUHTORITY (KPRA) & OTHERS

For the petitioner(s): Barrister Syed Ali Zafar & Mr. Jahanzeb Sukera, Advocates.

For the respondent(s): Mr. Taimur Haider AAG; and Syed Asif Jalal, Advocate.

Research Assistance: Mazhar Ali Khan, Research & Reference Officer.

Date of hearing: 02.06.2026

JUDGMENT

MUHAMMAD FAHEEM WALI, J.‐

1. INTRODUCTION

1.1 Through this judgment, the Court addresses two consolidated matters: Writ Petition No. 2695‐P of 2021 and Sales Tax Reference No. 23‐P of 2021. Both proceedings, initiated by M/s Wateen Telecom Limited, center on a singular legal controversy: whether the grant of an “Indefeasible Right to Use” (IRU) of “dark fiber” optic cables constitutes a taxable “telecommunication service” under the Khyber Pakhtunkhwa Finance Act, 2013 (2013 Act), as amended and Khyber Pakhtunkhwa Sales Tax on Services Act, 2022 (STS Act).

1.2 The Petitioner, a registered service provider in the telecommunications sector, owns a network of “dark fiber,” which refers to optical fiber strands that have not yet been activated by transmission equipment but are physically capable of carrying telecommunication signals. While the Petitioner uses Page 1 of 23

some strands for its own services, it grants the right to use other strands to third‐party operators through long‐term IRU contracts

2. FACTS OF THE PETITIONS

2.1 The facts leading to Sales Tax Reference No. 23‐P of 2021 concern the tax period from August 2013 to October 2019. During this period, the Petitioner received a Show Cause Notice (impugned notice) alleging the wrongful declaration of certain services as exempt, involving a sales tax amount of approximately Rs. 202 million. The Petitioner maintained that the grant of IRU for dark fiber does not constitute a “telecommunication service” as defined under the Pakistan Telecommunication (Re‐organization) Act, 1996, as it involves no active transmission of information by the grantor. However, the Additional Collector issued an Assessment Order on September 18, 2020, concluding that the activity fell under the residual sub‐ heading “Others” at serial number 4 of the Second Schedule to the 2013 Act. This determination was upheld through subsequent appeals to the Collector Appeals and the Appellate Tribunal for Sales Tax on Services, which dismissed the appeal on March 18, 2021. The Petitioner challenges these findings, arguing that the tax authorities misapplied the principle of ejusdem generis by extending the residuary category to an activity fundamentally different from the enumerated telecommunication services.

2.2 In Writ Petition No. 2695‐P of 2021, the Petitioner challenges the post‐2019 period and the constitutional validity of the 2013 Act, as amended through Khyber Pakhtunkhwa Finance Act, 2019 (2019 Act). This petition arose from a Show Cause Notice dated February 9, 2021, classifying the IRU grant as a taxable service under the newly inserted Item 4(l) of the Second Schedule, which covers the rental of space or facilities on towers, structures, or installations. The Petitioner contends that Page 2 of 23

providing an IRU is not a “service” because the Petitioner plays no positive role once the right is granted, as the customer installs their own equipment to transmit data. Furthermore, they argue that Item 4(l) is unconstitutional and lacks a corresponding head in the First Schedule, which they assert must contain the entries of the Second Schedule as a subset.

2.3 The Respondent, the Khyber Pakhtunkhwa Revenue Authority (KPRA), opposes both matters, contending that the IRU in dark fiber is, in commercial substance, the wholesale supply of telecommunication transmission capacity. They argue that dark fiber is telecommunication infrastructure by its very nature and that its only commercial use is for telecommunications. For the pre‐2019 period, the Respondent asserts the service is covered by the residual “Others” entry, while for the post‐2019 period, it falls squarely within Item 4(l) as a rental of an installation on a sharing basis. The Respondent further argues that the principle of ejusdem generis supports their position because the genus of the schedule is “telecommunication,” and dark‐fiber IRU is genus‐similar to services like bandwidth and leased‐line provision. A primary contention raised by the Respondent is the doctrine of “approbate and reprobate,” noting that the Petitioner previously successfully claimed input‐tax credit for the same optical fiber by asserting it was an integral part of providing taxable services. Regarding the constitutional challenge, the Respondent maintains that the Provincial Assembly is fully empowered under Article 142(c) and Entry 49 of the Fourth Schedule of the Constitution of the Islamic Republic of Pakistan, 1973 (Constitution) to levy sales tax on services. Finally, the Respondent argues that the Writ Petition is not maintainable due to the existence of alternate statutory remedies and the premature nature of challenging a Show Cause Notice.

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3. ARGUMENTS OF THE PARTIES

3.1 The Petitioner, M/s Wateen Telecom Limited, has advanced several arguments in support of its stance. For the period prior to the 2019 amendments, the Petitioner contends that the grant of IRU for dark fiber does not constitute a “telecommunication service” taxable under the 2013 Act. It argues that the tax authorities erred in classifying this activity under the residual sub‐heading “Others” at serial number 4 of the Second Schedule. The Petitioner asserts that the principle of ejusdem generis dictates that the “Others” category must be interpreted narrowly, encompassing only services that are similar in nature to the specific telecommunication services enumerated within the same serial number. Since dark fiber IRU involves no active transmission of information by the grantor and is merely the provision of passive infrastructure, it is fundamentally different from active services like bandwidth provision, leased lines, or data transmission, and therefore cannot be subsumed under the “Others” category. Similarly, for the period subsequent to the 2019 Act, the Petitioner challenges the classification of IRU grant under the newly inserted Item 4(l) of the Second Schedule, which covers “rental of space or facilities on towers, structures, or installations.” The Petitioner argues that providing an IRU is not a “service” in the conventional sense, as its role is entirely passive once the right is granted, with the customer responsible for installing and operating their own equipment. Moreover, the Petitioner contends that dark fiber is an asset or infrastructure, not a ‘service’ per se. The Petitioner further challenges the constitutional validity of Item 4(l) itself, asserting that it lacks a corresponding head or entry in the First Schedule to the 2013 Act. It is argued that the First Schedule must contain the general categories of services, which are then elaborated upon in the Second Schedule. The absence of a Page 4 of 23

foundational entry in the First Schedule for “rental of space or facilities on installations” renders Item 4(l) unconstitutional.

3.2 The Respondent, KPRA, has vehemently opposed the Petitioner’s contentions on multiple grounds. First, they assert that, in commercial and economic substance, the IRU in dark fiber constitutes the wholesale supply of telecommunication transmission capacity. It is argued that dark fiber, by its intrinsic nature, is telecommunication infrastructure and that its exclusive commercial utility is for telecommunication purposes. Second, that for the pre‐2019 period, the Respondent maintains that the ejusdem generis principle supports its classification. It argues that the overall genus of serial number 4 of the Second Schedule is “telecommunication,” and dark fiber IRU is fundamentally “genus‐similar” to other listed telecommunication services such as bandwidth provision and leased‐line services, as all relate to the enablement of telecommunication. Therefore, its inclusion under the residual “Others” entry is appropriate. Thirdly, it was argued that for the post‐2019 period, the IRU grant falls squarely within the ambit of Item 4(l) as a “rental of an installation on a sharing basis.” Dark fiber, being an essential component of telecommunication infrastructure, qualifies as an ‘installation’ for the purpose of this provision. The grant of an IRU is, in essence, the rental of this installation. Another crucial contention raised by the Respondent is the application of the doctrine of “approbate and reprobate.” The Respondent highlights that the Petitioner had previously claimed input‐tax credit for the very same optical fiber, asserting that it formed an integral part of providing taxable services. The Respondent contends that the Petitioner cannot now take a contradictory position, disavowing the taxable nature of the underlying asset or activity when it comes to output tax liability. The Respondent further argues that Writ Petition No. 2695‐P of 2021 is not maintainable. It is Page 5 of 23

submitted that alternate statutory remedies exist under the 2013 Act, 2013, for challenging tax demands and assessments, which the Petitioner has not exhausted. Furthermore, challenging a mere Show Cause Notice is premature, and the Petitioner should await a final assessment before invoking the extraordinary constitutional jurisdiction of this Court. It was reiterated that the Provincial Assembly has full legislative competence under Article 142(c) and Entry 49 of the Fourth Schedule to levy sales tax on services, thereby validating the 2013 Act, and the subsequent amendments, including Item 4(l).

3.3 This Court has given due consideration to the submissions made by the learned counsel for both parties, the factual matrix, and the relevant statutory and constitutional provisions.

4. CONSTITUTIONAL SCHEME AND LEGISLATIVE

COMPETENCE

4.1 The legislative framework governing taxation in Pakistan underwent a profound transformation with the promulgation of the 18th Constitutional Amendment. Prior to this amendment, the power to levy sales tax on services primarily resided with the Federal Legislature, as “services” were not explicitly enumerated in the Concurrent Legislative List, rather the subject of taxes on sales and purchases of goods, imported, exported, produced, manufactured or consumed was originally included in the Federal Legislative List. However, the 18th Amendment, by virtue of omitting the Concurrent Legislative List and amending Article 142 of the Constitution, significantly redefined the distribution of legislative powers.

4.2 Article 142(c) of the Constitution, as amended, now stipulates that a Provincial Assembly shall, to the exclusion of the Federal Legislature, have power to make laws with respect to any Page 6 of 23

matter not enumerated in the Federal Legislative List. Concurrently, Entry 49 of the Fourth Schedule (Federal Legislative List Part‐I) enumerates “Taxes on sales and purchases of goods, imported, exported, produced, manufactured or consumed except Sales Tax on Services” as within the Parliament’s domain. The deliberate omission of “sales tax on services” from the Federal Legislative List, coupled with the amended Article 142(c), unequivocally vests the Provincial Assemblies with the exclusive competence to legislate and levy taxes on services. This constitutional architecture thus empowers the provincial legislatures to enact laws pertaining to sales tax on services within their respective jurisdictions.

4.3 Following the 18th Amendment, the Provincial Assembly of Khyber Pakhtunkhwa was undeniably endowed with the legislative competence to enact laws pertaining to sales tax on services. Consequently, the 2013 Act, including its subsequent amendments, which inter alia introduced a provincial sales tax on services regime, falls squarely within the constitutional ambit of the Provincial Assembly’s legislative powers. Any challenge to the legislative competence of the Provincial Assembly to enact such a law, in general terms, is therefore misconceived and untenable in light of the express constitutional provisions post‐ 18th Amendment.

5. GENERAL PRINCIPLES GOVERNING INTERPRETAITON

OF FISCAL STATUTES

5.1 In fiscal statutes, three different yet intertwined types of provisions ordinarily exist: (1) charging provisions, which specify the levy of tax, including the taxable matter, the rate, and the manner of assessment; (2) assessment provisions, which deal with the determination, calculation, and qualification of tax, including cases of tax evasion or under‐assessment; and (3) Page 7 of 23

collection provisions, which govern the method and manner of tax collection. Reference may be made to Messrs Super Engineering v. Commissioner Inland Revenue, Karachi (2019 SCMR 1111); and Messrs Friends Sons and Partnership Concern v. The Deputy Collector Central Excise and Sales Tax, Lahore and others (PLD 1989 Lahore 337). The charging provisions must be strictly construed, and any benefit derived from them should be granted to the taxpayer. In contrast, the assessment and collection provisions are procedural in nature and can be interpreted more liberally. Reference in this regard can be made to M/s. Pakistan Television Corporation v. Commissioner Inland Revenue (2017 SCMR 1136) & The Commissioner Inland Revenue, Zone‐II, Larger Taxpayers Unit, Lahore v. Kohinoor Sugar Mills Limited (2021 SCMR 536). Similarly, in the case of B.P. Biscuit Factory Ltd. v. Wealth Tax Officer (1996 SCMR 1470), the Hon’ble Supreme Court held that when the language of a statute is ambiguous and several interpretations of the same provision are possible, the doubt should be resolved in favour of the citizen. On the contrary, there is no scope for equity or judiciousness if the letter of the fiscal law is clear and unambiguous.

5.2 As regard the construction of fiscal statutes vis‐à‐vis language of the statute, the Hon’ble Supreme Court in Commissioner Inland Revenue, Lahore v. Educational Excellence Limited, Lahore (2025 SCMR 1248), held as follow:

“13. [...] The principles of statutory interpretation are well settled. Where the words of the statute are clear and unambiguous, the provision should be given its plain and normal meaning, without adding or rejecting any words. Departure from the literal rule, by making structural changes or substituting words in a clear statutory provision, under the guise of interpretation will pose a great risk as the changes may not be what the Legislature intended or desired. The Court cannot recast or reframe the legislation for the very reason it has no power to legislate. The Court cannot add words to a statute or read words into it which are not there unless the principles of interpretation of Page 8 of 23

statute require otherwise. The legislature means what it says and says what it means. It is the obligation of the Courts of law to further the clear intendment of the legislature and not to frustrate it by ignoring the same. Legislative wisdom cannot be replaced by the Judge's views.”

5.3 Reliance is also placed on Allied Bank Limited v. Commissioner of Income Tax (2023 SCMR 1166), wherein the Court noted in para 7 of the judgment:

“It is well settled that the literal approach is to be adopted while interpreting fiscal or taxing statutes, and the court cannot read into or impute something when the provision of a taxing statute are clear. While interpreting a taxing statute, the Court must look to the words of the statute and interpret it in light of what is clearly expressed therein, it cannot imply something which is not expressed or import provisions in the statute so as to support any assumed deficiency.”

5.4 It is a settled principle of law that fiscal statutes operate prospectively, except where a retrospective intent is established through express enactment or by necessary implication. The superior courts have consistently affirmed that when interpreting fiscal legislation, the courts must adhere strictly to the literal language of the statute, interpreting it solely in the light of what is clearly expressed. Nothing may be implied where it is not expressed, and no external elements may be imported to remedy perceived deficiencies. Furthermore, no statute shall be construed to have a retrospective operation unless its language explicitly permits such a result. There is no room for equitable considerations in tax matters; as the maxim holds, tax and equity are strangers to one another. The court’s role is confined to the plain text, ensuring that no burden is imposed upon the subject unless it falls clearly within the letter of the law. In this regard, reference may be made to the authoritative judgments of the Supreme Court in M/s. Hirjani & Co. (Pakistan) Ltd. v. Commissioner Sales Tax (1971 SCMR 128); Star Textile Ltd. v. Government of Sindh (2002 SCMR 356); Zila Council Sialkot v. Abdul Ghani (PLD 2004 SC 425); & Commissioner Inland Revenue and others v. Mekotex (Pvt.) Limited and others (PLD Page 9 of 23

2024 SC 1168). The crux of the above discussed principles has been amply summarized by the Supreme Court in Messrs Pakistan Television Corporation v. Commissioner Inland Revenue (Legal), Islamabad and others (2017 SCMR 1136) as follow:

“i. There is no intendment or equity about tax and the provisions of a taxing statute must be applied as they stand; ii. The provision creating a tax liability must be interpreted strictly in favour of the taxpayer and against the revenue authorities;

iii. Any doubts arising from the interpretation of a fiscal provision must be resolved in favour of the taxpayer; iv. If two reasonable interpretations are possible, the one favoring the taxpayer must be adopted;

v. When a tax is clearly imposed by a statutory provision any exemption from it must be clearly expressed in the statute or clearly implied from it;

vi. Where the taxpayer claims the benefit of such express or implied exemption, the burden is on him to establish that his case is covered by the exemption;

vii. The terms of the exemption ought to be reasonably construed; and viii. If a taxpayer is entitled to an exemption on a reasonable construction of the law it ought not to be denied to him by a strained, strict or convoluted interpretation of the law.”

6. CONSTITUTIONALITY AND VIRES OF A LAW

6.1 The constitutional interpretation of statutes is anchored by a strong presumption in favor of their validity, a principle meticulously delineated by the Honourable Supreme Court in Lahore Development Authority v. Ms. Imrana Tiwana (2015 SCMR 1739). This jurisprudence mandates that a statute must not be declared unconstitutional unless, after placing it next to the Constitution, no reasonable method of reconciliation exists, requiring courts to prefer interpretations that uphold validity over those that render a law void. Invalidity, therefore, must be established beyond reasonable doubt, with any ambiguity resolved in favour of the statute’s constitutionality. Furthermore, judicial restraint dictates abstaining from constitutional questions when a Page 10 of 23

case can be resolved on narrower grounds, avoiding the determination of larger constitutional issues than strictly necessary, and insisting on a violation of the “letter” of the Constitution rather than merely its “spirit,” while also refraining from attributing mala fides to the Legislature or questioning its wisdom, save for principles explicitly placed beyond legislative encroachment.

6.2 However, this strict interpretive framework is tempered by the understanding that the Constitution is a living document, as espoused in landmark decisions like Arshad Mehmood v. Government of Punjab (PLD 2005 SC 193); Sindh High Court Bar Association v. Federation of Pakistan (PLD 2009 SC 879) & Hamza Rasheed Khan v. Election Appellate Tribunal (PLD 2024 SC 1028), necessitating an interpretation that keeps its principles vibrant and adaptable. Thus, while legislative wisdom is accorded due deference, constitutional adjudication must extend to critically inquiring whether the practical consequences of a law lead to unequal treatment of individuals, particularly within the criminal justice system, thereby ensuring the Constitution’s enduring vitality and protective reach.

7. PRELIMINARY OBJECTIONS: APPROBATE AND

REPROBATE & ALTERNATE REMEDIES

7.1 Having set out the constitutional and legal scheme in the preceding sections, we now proceed to examine the preliminary objections raised by the respondents as regard the maintainability of the petitions.

7.2 The Respondent’s argument regarding the doctrine of approbate and reprobate holds significant weight. This principle of law, rooted in equity, prevents a party from simultaneously asserting and denying the same fact or from blowing hot and cold. If the Petitioner previously claimed input tax credit by treating the dark fiber as integral to providing taxable services, it would be Page 11 of 23

inconsistent and indeed inequitable for it to now argue that the very provision of the right to use such fiber does not constitute a taxable service. While this doctrine does not create an absolute estoppel against a legal position, it certainly weighs heavily on the conduct of the Petitioner. However, the legal characterization of an activity for tax purposes is a matter of law, and a party’s previous understanding or claim does not definitively alter that legal character. The Court’s primary duty is to correctly interpret the law, irrespective of the parties’ prior conduct, though such conduct may be indicative of commercial reality. We shall consider this aspect while evaluating the merits of the taxability.

7.3 Regarding the maintainability of Writ Petition No. 2695‐P of 2021 on grounds of alternate remedies and prematurity, it is a well‐established principle that the High Court’s extraordinary writ jurisdiction should not ordinarily be invoked where efficacious alternate statutory remedies are available. However, an exception to this rule is made where the vires or constitutional validity of a statutory provision itself is challenged. In the present case, the Petitioner has explicitly challenged the constitutional validity of Item 4(l) of the Second Schedule to the 2013 Act. Such a challenge transcends the scope of appellate remedies available under the tax statute, as the tax tribunals are creatures of statute and cannot pronounce upon the constitutionality of the very law they are tasked to administer. Therefore, to the extent of the constitutional challenge, the Writ Petition is maintainable. For other aspects, this Court will consider whether the challenge to the Show Cause Notice also merits intervention, bearing in mind that an illegal or ultra vires action may also warrant interference at an interlocutory stage. Given the common legal question underlying both petitions, and the constitutional aspect, we deem it appropriate to address the merits of both matters.

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8. CONSTITUTIONAL VALIDITY AND LEGISLATIVE

COMPETENCE

8.1 As discussed above, the legislative competence of the Provincial Assembly of Khyber Pakhtunkhwa to levy sales tax on services, including telecommunication services, is firmly established under Article 142(c) and Entry 49 of the Fourth Schedule to the Constitution, post‐18th Amendment. The general power to enact the 2013 Act, and its subsequent amendments, including the introduction of specific items in the Second Schedule for services, is beyond reproach. Reliance is placed on Pakistan International Freight of Forwarders Association through General Secretary v. Province of Sindh through Secretary and another (2017 PTD 1).

8.2 The statutory scheme of the 2013 Act clearly delineates distinct roles for its First and Second Schedules. The First Schedule is primarily descriptive, serving as an illustrative compendium that lists broad categories of services potentially subject to taxation, consistent with the inclusive definition of “service” under Section 2(48) of the Act, which states: ““service” or “services” means anything which is not goods or providing of which is not supply of goods and shall include, but not limited to, the services listed in First Schedule;”. In Association of Builders and Developers of Pakistan v. Province of Sindh (2018 PTD 1487 Sindh), Munib Akhtar J. while differentiating between the First and Second Schedule noted in para 19:

“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 Page 13 of 23

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.”

This descriptive nature was further emphasized in IMS Health Pakistan (Private) Limited v. Commissioner‐III, Sindh Revenue Board (2022 PTD 576), where it was clarified that the First Schedule “is more general and information specified services and more importantly described what services could be.” This reasoning squarely fits to the First Schedule of the 2013 Act.

8.3 Conversely, the Second Schedule functions as the definitive charging provision under Section 26 read with Section 19 of the 2013 Act. It provides a detailed and specific enumeration of the services upon which sales tax is actually levied. Section 19 defines “taxable service” as “A taxable service is a service listed in the Second Schedule to this Act...” Whereas, section 26 states: “...there shall be charged, levied, collected and paid a tax on the value of a taxable service at the rate specified in the Second Schedule.” A combined reading of section 2(48), 19 and 26 shows that First Schedule describe the services, whereas the Second Schedule Page 14 of 23

provides the services upon which tax is levied. The Hon’ble Supreme Court, in Habib Safe Deposit Vault Pvt Ltd v. The Province of Sindh (2016 SCMR 484), definitively ruled that not mentioning in the First Schedule does not exclude a service from taxability because the definition of “service” is inclusive and “not limited to” the First Schedule. This authoritative pronouncement establishes that the First Schedule is not exhaustive, nor does it act as a restrictive gateway for entries into the Second Schedule. It is by now settled that the First Schedule sets out general terms, the Second Schedule is part of the charging provisions and is a subset of the First. This establishes a clear hierarchy where the Second Schedule operationalizes and details the broader categories potentially referenced in the First.

8.4 It is therefore evident that there exists no constitutional or statutory imperative for every specific entry in the Second Schedule to possess an exact parallel or an explicitly dedicated head in the First Schedule. The First Schedule provides the umbrella categories, while the Second Schedule particularizes and imposes the tax. To argue that a service is not taxable simply because it lacks a precise mirror entry in the First Schedule is to misinterpret the legislative intent and the statutory framework as clarified by the superior courts. As long as Item 4(l) of the Second Schedule can be reasonably construed as falling under a broader, more general head already present within the First Schedule such as, “telecommunication services” or “rental of goods/services” or any other relevant descriptive category. Its constitutional and statutory validity, in this specific regard, cannot be legitimately impugned merely on account of the absence of a direct, exact, and separately designated mirror entry. The focus must remain on whether the service falls within the taxable ambit as defined by the Second Schedule, and whether it can be broadly categorized within Page 15 of 23

the descriptive parameters of the First Schedule, rather than demanding an unrealistic and statutorily unfounded exactitude.

9. PRE‐2019 PERIOD (“OTHERS” ENTRY)

9.1 For the tax period prior to the 2019 amendments, the controversy centers on whether the IRU of dark fiber falls under the residual entry “Others” at serial number 4 of the Second Schedule, which specifically lists various telecommunication services. The crucial principle here is ejusdem generis, which means “of the same kind.” When specific words enumerating a class of things are followed by general words, the general words are construed as limited to things of the same kind as those specified.

9.2 In Pakistan Television Corporation Limited v. Commissioner Inland Revenue (2019 SCMR 282), the Honourable Supreme Court of Pakistan elucidated the application of ejusdem generis. The Court emphasized that for the rule to apply, there must be a discernible genus or category from the preceding specific words. The general words must then be interpreted to include only things that share the essential characteristics of that genus. Similarly, in Commissioner Inland Revenue (Zone‐I) LTU, Karachi v. Messrs Linde Pak Ltd. Karachi (2025 PTD 549), the Supreme Court at para 8 held that ejusdem generis requires “when a general word or phrase follows a list of specifics the former will be interpreted to include only the items of the same class as those listed.” The Court while drawing upon the Bennion “Statutory Interpretation” further noted that “where a word of wider meaning is included in a string of genus describing terms of narrower meaning, the ejusdem generis will operate to restrict the meaning of the wider word, so as to keep to within the genus.”

9.3 Serial number 4 of the Second Schedule to the Khyber Pakhtunkhwa Finance Act, 2013 (pre‐2019), enumerated services such as “telecommunication services, including telephone, fax, Page 16 of 23

internet, telex, cellular, wireless, data transmission, and other related services.” The genus established by these specific entries is the provision of functional communication and data transfer services. Under the principle of ejusdem generis, the residual "Others" category must be strictly confined to this specific genus. As affirmed in Pakistan Television Corporation (supra) that:

13.[...] The sub‐heading “Others” is, therefore, to be read ejusdem generis with the preceding entries in the group. It will apply to and cover only such services which are similar to the ones specifically described before it. It cannot include every conceivable telecommunication service. Reading the sub‐heading “Others” to include all kinds of telecommunication services would render all the specific sub‐headings otiose. Such an interpretation being clearly flawed cannot be sustained.

9.4 The grant of an IRU of dark fiber, for the purpose of the pre‐2019 “Others” category, does not fall within the genus of the services specifically listed in Serial No. 4. The transaction in question involves the grant of a right to use a facility for a consideration, a transaction type that was not enumerated in the specific entries of that group. While Serial No. 4 targeted the provision of communication services, it did not, at that time, include the rental or arrangement of installations. Consequently, the residual “Others” entry cannot be expanded to include a class of transaction namely, the rental or sharing of facilities, that the legislature had not yet specifically identified as part of the genus for this category.

9.5 Applying the ejusdem generis rule, the “Others” entry must encompass services similar in nature to those specifically described. Since the specific entries in Serial No. 4 (pre‐2019) were limited to functional communication services and did not encompass the rental of installations or facilities, the grant of an IRU lacks the essential characteristics of the specified genus. To include such a transaction under the “Others” heading would violate the established rules of statutory interpretation for fiscal laws by Page 17 of 23

expanding the tax net beyond the specific scope defined by the legislature. Therefore, this Court finds that for the period August 2013 to October 2019, the grant of IRU of dark fiber by the Petitioner did not fall under the “Others” category as a taxable telecommunication service.

10. POST‐2019 PERIOD (ITEM 4(L))

10.1 For the period subsequent to the 2019 amendments, the focus shifts to Item 4(l) of the Second Schedule, which taxes “rental of space or facilities on towers, structures, or installations.” The question is whether dark fiber constitutes an “installation” and whether the IRU is a “rental” thereof, amounting to a taxable service. For ease of reference Item 4(l) is reproduced below:

l) Rental either full, partial or on sharing basis of space, place or any other facility or arrangement on towers or other structures or installations for any purposes;

10.2 The term “installation” in the context of telecommunication infrastructure refers to a piece of equipment, a system, or a structure put in place for a specific purpose. Optical fiber cables, laid over vast distances and forming a network, certainly qualify as an “installation” designed for telecommunication. The grant of an IRU, while conferring an indefeasible right, is fundamentally a long‐term lease or rental arrangement of a portion of this installation (specific fiber strands). The fact that the right is indefeasible and long‐term does not alter its character as a right to use an asset owned by another, which is a core characteristic of rental or leasing.

10.3 The distinction between passive infrastructure and active telecommunication services is critical to determining taxability. This issue was addressed in Augere Pakistan (Pvt.) Ltd. v. Province of Sindh (2015 PTD 1340 Sindh). It was argued before the Sindh High Court as:

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“2. Learned counsel submitted that the Pakistan Telecommunication Authority “"PTA”), established by and under the Pakistan Telecommunication (Re‐organization) Act, 1996 (“1996 Act”), drew a distinction between “passive” infrastructure and “active” infrastructure, and relied upon a consultation paper that had been issued by the authority in 2007. According to this paper, “sharing of passive infrastructure means sharing of physical sites, buildings, shelters, towers/masts, power supply and battery backup”, whereas “the active infrastructure sharing can broadly be defined [as] sharing of the active elements in the network amongst service providers”. Learned counsel emphasized that the agreements between the plaintiff and the defendants only amounted to passive infrastructure sharing, since it was limited to the plaintiff being entitled to install its own equipment on the latter’s poles, masts, etc. and certain ancillary rights such as access to the sites, meeting of power requirements etc. There was no active infrastructure sharing. This was the key aspect of the plaintiff's case.”

The Sindh High Court, in addressing this key distinction, focused on whether the term “capacity” in telecommunication law is inextricably linked to the active transmission of signals, stating in para 11:

As the third element makes clear the “capacity” is in relation, or with reference, to the transmission, emission or reception of signals. What does this mean? As the, circular issued by PTA (relied upon by learned counsel for the plaintiff) makes clear, different scenarios can arise here. For example, one scenario can be the sharing of spectrums allocated to service providers individually. Each person who obtains a licence from PTA must necessarily be allocated a certain portion of the radio frequency spectrum (within overall allocations made by the Frequency Allocation Board, another authority created by and acting under the 1996 Act). It is this allocation that determines a licence‐holder’s right to transmit, emit or receive signals. This is clearly the “capacity” of the service provider referred to in the definition in section 2(97). The licence of course grants the service provider the right to use this capacity. If therefore, this capacity is shared with another, then a "telecommunication service" is provided within the meaning of section 2(97). However, the "capacity" as used in the definition is not limited only to the allotted radio frequency spectrum. In my view, the fourth part of the definition essentially relates to different aspects of the active infrastructure, and the sharing of the same.

The Court further clarified that “capacity” shared in such arrangements could be equated with the physical characteristics of passive infrastructure. Rejecting the tax authority’s broad interpretation, the Court held

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“It is not this “capacity” (howsoever described, whether in terms of the height or load bearing capacity of the pole or tower, the rating of a power generator used at the site, the area of space available, etc.) that is within the scope of the definition.”

The Court concluded that the definition of telecommunication service “does not apply in respect of the facts and circumstances at hand,” effectively exempting passive infrastructure sharing from the tax net under that specific heading.

10.4 While the aforesaid case law clarifies that providing passive infrastructure (like dark fiber) is not an active “telecommunication service,” the legislative landscape in Khyber Pakhtunkhwa has been specifically modified to address this. The introduction of Item 4(l) in the Second Schedule to the Khyber Pakhtunkhwa Finance Act, 2013, targets the “rental... of space, place or any other facility or arrangement on towers or other structures or installations.” By specifically taxing “installations,” the Legislature has created a charging provision that operates independently of whether the underlying activity is an active telecommunication service. While the Augere Pakistan ruling (supra) remains the authority for the proposition that passive infrastructure is not a transmission service, Item 4(l) bridges this gap by explicitly taxing the rental of the physical installation itself. Consequently, the grant of an IRU for dark fiber, while passive in nature falls within the ambit of the tax as a rental of an installation under the 2013 Act.

10.5 While the Petitioner argues that it plays no active role once the IRU is granted, the essence of Item 4(l) is not to tax an active service provided by the grantor during the use, but rather the act of renting or providing the facility itself. The revenue is generated from allowing others to use the Petitioner’s installation. This constitutes a service of providing access to or the use of an installation. The word “rental” implies consideration for the use of an asset. An IRU, being a grant of a right to use, for consideration, Page 20 of 23

over a specified period, effectively falls within the commercial understanding of “rental of facilities on installations.”

10.6 Therefore, this Court finds that subsequent to the 2019 amendment, Item 4(l) of the Second Schedule effectively captures the grant of IRU of dark fiber as a taxable service, being the “rental of facilities on installations.” The legislative intent behind introducing such a specific item appears to have been to clarify the taxability of such arrangements, which previously fell into ambiguity under the general “Others” category.

11. CONCLUSION ON THE NATURE OF DARK FIBRE IRU

11.1 Dark fiber, in its physical manifestation, is undoubtedly an infrastructure asset. However, the grant of an Indefeasible Right to Use (IRU) of dark fiber, for commercial consideration, transitions this infrastructure into the realm of a “service” for taxation purposes, particularly when the taxing statute specifically addresses the rental or provision of such facilities. Prior to the 2019 amendment, the 2013 Act, lacked a specific provision to tax the passive provision of dark fiber infrastructure. The ejusdem generis rule prevented its inclusion under the general “Others” category.

11.2 However, with the insertion of Item 4(l) in 2019, the Legislature explicitly extended the tax net to cover the “rental of facilities on installations.” Dark fiber, being an installation, and IRU being a form of rental or provision of use of that installation, brings this activity squarely within the ambit of taxable services for the post‐2019 period. The commercial reality is that through an IRU, the Petitioner monetizes its investment in telecommunication infrastructure by providing a critical component that enables other operators to render active telecommunication services. This act of providing access to and use of infrastructure for consideration is a service.

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12. DECISION AND ORDER OF THE COURT

12.1 In light of the foregoing analysis, this Court concludes that the taxability of the grant of an Indefeasible Right to Use (IRU) of dark fiber hinges upon the specific statutory regime in force during the relevant period. Consequently, these consolidated matters are disposed of as follows:

a. Regarding Sales Tax Reference No. 23‐P of 2021 (Pre‐2019 Period), this Court holds that the grant of an IRU for dark fiber by the Petitioner did not constitute a taxable “telecommunication service” under the residual sub‐heading “Others” at serial number 4 of the Second Schedule to the Khyber Pakhtunkhwa Finance Act, 2013, for the period August 2013 to October 2019. The interpretation adopted by the tax authorities violated the principle of ejusdem generis, as the activity lacked the active transmission element inherent in the defined genus of telecommunication services. Accordingly, Sales Tax Reference No. 23‐P of 2021 is allowed and answered in affirmative. The impugned Assessment Order dated September 18, 2020, issued by the Additional Collector, and the subsequent orders passed by the Collector Appeals and the Appellate Tribunal for Sales Tax on Services, are hereby set aside to the extent they pertain to the taxability of IRU of dark fiber for the pre‐2019 period.

b. Regarding Writ Petition No. 2695‐P of 2021 (Post‐2019 Period), the challenge to the constitutional validity of Item 4(l) of the Second Schedule to the Khyber Pakhtunkhwa Finance Act, 2013, is hereby dismissed. The Provincial Assembly possesses the legislative competence to enact such a provision under Article 142(c) and Entry 49 of the Fourth Schedule to the Constitution of Pakistan, Page 22 of 23

1973. The argument regarding the absence of a corresponding head in the First Schedule is misconceived, as the charging power is derived from the Second Schedule. This Court holds that for the period subsequent to the 2019 amendments, the grant of an IRU for dark fiber falls squarely within the ambit of “rental... of space, place or any other facility or arrangement on towers or other structures or installations” as enumerated in Item 4(l). Therefore, it constitutes a taxable service for the post‐2019 period. Consequently, Writ Petition No. 2695‐P of 2021 is dismissed. The constitutional challenge to Item 4(l) is rejected, and the Show Cause Notice dated February 9, 2021, is found to be validly issued under the amended law. The Petitioner is directed to avail the statutory remedies against the said Show Cause Notice if it wishes to contest factual or calculation aspects in accordance with the law.

12.2 There shall be no order as to costs.

JUDGE

JUDGE

Date of hearing Date of signing

DB: Honorable Mr. Justice Muhammad Faheem Wali, and Hon’ble Mrs. Justice Farah Jamshid Page 23 of 23