How PT KMP Proved Flow of Goods Through Government Contracts Despite Supplier Non-Compliance 

Tax Lawsuit Analysis: PT KMP and the Logic of "Matching Cost Against Revenue" in COGS Disputes

The tax authority imposed a significant correction on the Cost of Goods Sold (COGS) regarding medical equipment procurement, triggering a dispute over the validity of source documents and the existence of goods flow. Under the "matching cost against revenue" principle, the inability to verify a counterparty’s identity in the tax portal does not automatically disqualify a taxpayer's right to deduct purchase costs if the subsequent sale has been recognized.

The Conflict: "Ghost" Suppliers vs. Verified Government Contracts

The conflict arose when the Respondent (DJP) corrected purchases totaling IDR 23,298,675,301, claiming PT KMP failed to provide valid delivery notes and that the suppliers' identities (TIN and addresses) were missing from the tax database. The Respondent argued that without confirmation of VAT Invoices from suppliers, the flow of money and goods could not be verified. Conversely, PT KMP asserted that the purchases were authentic, made specifically to fulfill procurement contracts with government agencies (Pusdokkes Polri and Health Office of Taliabu Island), where all sales were reported and taxed by government treasurers.

Judicial Consideration: Business Rationality and Inter-item Reconciliation

The Board of Judges employed a business rationality approach and inter-item financial statement reconciliation. The Board found it illogical for the Respondent to recognize the total sales value while simultaneously rejecting the cost of the goods sold. The Board accepted the flow of goods amounting to IDR 21,184,948,727 based on government contracts and handover certificates proving the goods reached the end-user. However, regarding the IDR 2.1 Billion in VAT Input that was expensed, the Board upheld the correction because the Taxpayer failed to prove VAT payments to legitimate suppliers under the joint liability principle.

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