Input VAT Denied by DJP? Taxpayer Wins Resoundingly in Tax Court, The Key is Proof of Direct Relation to Business Activity!

Tax Court Ruling on Input Tax Credit Dispute of PT MS

The issue of Input Tax Credit (PM) remains one of the most frequently disputed tax issues in Indonesian VAT litigation, especially concerning the fulfillment of the material requirements under Article 9 paragraph (8) letter b of the Indonesian VAT Law. In the case study of Tax Court Decision Number PUT-006202.16/2023/PP/M.XIIA Year 2025, the Appellant, PT MS, successfully overturned the correction made by the Respondent (Director General of Taxes/DJP) on the PM for the January 2020 Tax Period. This decision provides a critical affirmation regarding the burden of proof and the interpretation of the concept "having no direct relation to business activity."

Core Conflict and Differing Interpretations of BKP/JKP Procurement

The core conflict in this dispute lies in the differing interpretation of the procurement of Taxable Goods/Taxable Services (BKP/JKP) for which the PM was credited. The Respondent insisted that these expenditures were consumptive in nature and were not within the scope of production, distribution, marketing, or management activities, and thus must be excluded from creditability. Conversely, the Appellant argued that these expenditures were essential and integral costs supporting the smooth running of the company's business activities, and therefore met the requirements for creditability.

Judicial Considerations and the Burden of Proof Principle

The Panel of Judges in this Decision adhered to the legal principle of the burden of proof. The Panel assessed that the Taxpayer's right to credit Input Tax (pursuant to Article 9 paragraph (2) of the VAT Law) can only be revoked if the Respondent can conclusively prove that the exception under Article 9 paragraph (8) letter b truly applies. During the trial, the Panel found that the evidence presented by the Appellant, linking each expenditure to core and supporting business processes, was stronger and more logical. Because the Respondent failed to present sufficient evidence or arguments to refute the claim of direct relation, the Panel decided to Grant the Appellant's Appeal in Full.

Strategic Implications and Documentation Requirements for Taxpayers

The implication of this decision is the emphasis for Taxpayers to strategically prepare and maintain documentation that is not only formal (Tax Invoices) but also material (Justification for Use). This decision confirms that in an Input Tax credit dispute, the burden of proof for the correction rests absolutely with the tax authority, and failure to meet this burden will result in the cancellation of the correction. This serves as a vital reminder for Taxpayers to always be prepared to defend every expenditure with solid business and legal arguments.

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