Sales tax liabilities against income tax refunds: No prior notice required for adjustment or recovery: FTO

ISLAMABAD: Federal Tax Ombudsman (FTO) has ruled that no prior notice or intimation is required under the law for the adjustment or recovery of sales tax liabilities against income tax refunds.

According to the latest FTO order, Section 170 (3) (b) of the Income Tax Ordinance, 2001 imposes a legal obligation on the Commissioner to apply any refundable amount to reduce outstanding tax liability under any other law, asserting that such adjustment is mandated by statute and therefore does not necessitate any notice to the taxpayer.

The issue of adjustment is already pending before the Appeal forum and therefore no intervention is warranted under the FTO Ordinance, FTO order added.

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The legal community has objected that the FTO office must have implemented the judgement of the Supreme Court of Pakistan in the landmark Pakistan LNG case. The issue was raised by the complainant.

FTO order states: “Perusal of record shows that the department passed order u/s 170(4) for tax year 2017 on 10.09.2025 by adjusting the outstanding sales tax demand for tax year 2020. It is noted that as per section 170 (3) (b) of the Ordinance the refund can be adjusted.

Department passed order u/s 170(4) created refund amounting to Rs. 193,289,798/- and adjusted the refund against the outstanding sales tax demand of Rs. 374,966,875/- for tax year 2020, which was created earlier on 03.09.2025. Refund order has been passed on 10.09.2025, and the adjustment of tax has been made in accordance with Section 170 (3) (b) which binds the commissioner to apply the refund to reduce the tax liability under any other law.

Adjustment is obligated by law while passing the refund order in case any liability of the same person is outstanding. Therefore, there is no maladministration involved in this complaint, FTO ordered.

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