The Tax Court system recently announced Decision Number PUT-005820.16/2022/PP/M.XVB Year 2025, which partially granted the Appeal request from PT RMI (formerly PT SDMI) concerning a Value Added Tax (VAT) dispute for the December 2018 tax period. The crux of the dispute was the rejection by the Directorate General of Taxes (DGT) of the Input VAT credit claimed by the Taxpayer, where although the transaction was generally deemed non-fictitious, its substantive requirements were questioned. This Partial Grant Decision confirms that mere formal compliance with Tax Invoices (Article 13 of the VAT Law) is insufficient; it must be accompanied by strong evidence of a direct link (nexus) between the Input VAT and the business activities generating Output VAT, as stipulated in Article 9 of the VAT Law.

The DGT Correction: Demanding Proof of Essential BKP/JKP Utilization

The conflict arose when the DGT carried out the correction based on audit findings that a portion of the Input VAT credited by the Appellant did not fully meet the crediting requirements. The DGT's argument centered on the Appellant's failure to convincingly prove that the Taxable Goods (BKP) or Taxable Services (JKP) resulting in the Input VAT were genuinely utilized to support the Taxpayer’s business activities subject to VAT. The DGT demanded documentary proof that was not only administratively valid but also demonstrated the essential and specific utilization of the BKP/JKP for generating Output VAT.

The Appellant's Stance: Formal Requirements Met and Core Operational Integration

Conversely, the Appellant argued that they had met all formal Tax Invoice requirements and that all Input VAT expenditures were legitimate and directly related to the company's core operational activities. The company maintained that the acquisition of the BKP/JKP was an integral part of the business process that ultimately led to taxable supplies. The Appellant presented various supporting transaction documents to strengthen its tax credit claim, challenging the strict interpretation applied by the DGT.

Prudent Judicial Evaluation: The Partial Grant Verdict and Internal Value Chain Verification

In addressing these two contradictory arguments, the Tax Court Panel adopted a prudent stance, manifested in the Partial Grant Verdict. This decision indicates that the Panel found some of the Appellant's arguments and evidence acceptable, thus revoking the DGT’s correction for a certain amount. However, for the remaining correction of Rp4,671,517.00, the Panel concluded that the Appellant failed to provide adequate and convincing evidence to prove the nexus or the formal/substantive validity of that specific Input VAT. This Panel Decision serves as a crucial reminder for Taxpayers not only to rely on Tax Invoices but also to supplement them with internal documentation that can demonstrate the flow and purpose of BKP/JKP utilization within the company's value chain. Failure to prove this direct connection will directly impact the rejection of Input VAT, even if the transaction is generally not categorized as fictitious.

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