Good News for the Palm Oil Industry: Tax Court Confirms Palm Kernel Expeller (PKE) is VAT-Exempt as Animal Feed!

Strategic Goods Classification Dispute: VAT Status on the Delivery of Palm Kernel Expeller (PKE)

The dispute over the classification of strategic goods has resurfaced in the Tax Court, involving a debate between tax authorities and taxpayers regarding the Value Added Tax (VAT) status on the delivery of Palm Kernel Expeller (PKE). The core of the conflict centers on differing interpretations of Annex I of PMK-142/2017, where the Respondent made a positive correction to the VAT Base (DPP) on the grounds that PKE is not explicitly listed in the registry of animal feed ingredients entitled to exemption facilities. The Respondent argued that the delivery of PKE to entities that are not animal feed industries (based on their Business Classification Code/KLU) disqualifies the right to strategic VAT facilities as regulated in Government Regulation (PP) 81 of 2015.

The Petitioner's Rebuttal: Substance of Palm Kernel Waste and Higher Regulatory Hierarchies

On the other hand, the Petitioner (PT KPS) provided a strong rebuttal by referring to the substance of the goods and higher regulatory hierarchies. The Petitioner emphasized that technically, PKE is a waste product of the palm kernel industry which naturally serves as feed or animal feed ingredients. This argument is bolstered by Supreme Court Decision Number 70 P/HUM/2013 and SE-24/PJ/2014, which state that waste products used for animal feed remain entitled to VAT exemption facilities regardless of the buyer's profile.

Legal Considerations of the Panel of Judges: Objective Criteria vs. Administrative Buyer Profiles

In its legal considerations, the Panel of Judges provided a resolution crucial for legal certainty. The Panel held that the criteria for granting strategic VAT facilities in PP 81 of 2015 are based on the type of goods (object), not on who the buyer is (subject). Furthermore, although PKE is not specifically mentioned in the PMK annex, its existence has been recognized as a plant-based feed ingredient through Minister of Agriculture Regulation Number 57/2015. Therefore, restricting facilities solely based on HS codes or buyer profiles is considered to lack a strong legal basis.

Conclusion: Overturning of Correction and Precedence of Functional Substance Over Formalities

In conclusion, the Panel of Judges overturned the Respondent's correction and granted the entire appeal. This decision reaffirms that the functional substance of goods as animal feed takes precedence over mere administrative formalities. Consequently, palm oil industry players have a firmer legal standing to claim VAT facilities on by-products as long as these products meet the technical criteria for feed according to relevant sectoral regulations.

A Comprehensive Analysis and the Tax Court Decision on This Dispute Are Available Here