The implementation of Article 9 paragraph (8) letter b of the Indonesian VAT Law, which regulates that Input VAT cannot be credited because it is not based on actual transactions, often becomes a central issue in tax disputes in Indonesia. In the case of PT LSS (Decision Number PUT-004188.16/2021/PP), the Directorate General of Taxes (DJP) maintained an Input VAT correction for the February 2016 Tax Period amounting to Rp8,884,742.00. This correction was based on the finding that the credited Tax Invoices were issued by a Taxable Entrepreneur (PKP) indicated as fictitious or whose existence could not be verified. The DJP firmly relied on administrative data showing non-compliance on the part of the Selling PKP, which directly impacted the crediting right of the Purchasing PKP, PT LSS.

The Core Conflict and Burden of Proof

The core conflict in this trial revolved around the burden of proof and the application of the good faith principle. The DJP argued that the mere indication of the Selling PKP's invalidity was sufficient to cancel the Input VAT credit. In contrast, PT LSS rebutted the correction by arguing that the transaction for the purchase of Taxable Goods (BKP) was genuinely executed, not fictitious. They emphasized having acted prudently and fulfilled their VAT payment obligation to the Selling PKP. The proof of the real transaction was supported by comprehensive documents, ranging from purchase orders, handover receipts, to proof of payment via bank transfer, all recorded in the company's books.

Judicial Analysis and Resolution

In the resolution process, the Tax Court Panel meticulously applied the principle of substance over form. The Panel concluded that the key to the fictitious Tax Invoice dispute is the Purchasing Taxpayer's ability to prove the material truth of the transaction. The Judge imposed the burden of proving that the transaction was fictitious upon the DJP. Since the DJP could not present convincing material evidence to refute all the transaction proofs provided by the Appellant, the Panel held that a good-faith Purchasing Taxpayer should not be held responsible for the violations committed by the Selling PKP.

Implications and Recommendations

This decision carries significant implications for VAT litigation strategy, especially concerning problematic Tax Invoice issues. The decision reaffirms that the crediting of Input VAT cannot be canceled solely based on administrative problems of the Selling PKP, as long as the Purchasing PKP (Taxpayer) can present strong and comprehensive evidence showing that the BKP/JKP was actually received and used in its business activities that generate Output VAT or meet the crediting requirements. Taxpayers are advised to enhance due diligence towards vendors and ensure that internal and external transaction documentation is meticulously preserved to face similar potential disputes in the future. Consequently, the Tax Court Panel decided to grant the Taxpayer's appeal in its entirety, thus cancelling the VAT correction and the associated administrative penalties.

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