Not a Sale! Taxpayer Wins VAT Dispute After Proving Third-Party Stock Transfer is Not Taxable Supply of Goods (BKP)

Tax Court Decision Number PUT-007250.16/2023/PP/M.XIVA Tahun 2024 emphatically asserts that the substance of a taxable supply of Goods (Barang Kena Pajak/BKP) for Value Added Tax (VAT/PPN) purposes is the transfer of ownership title, and not merely the physical movement of inventory. In the dispute between PT DM and the Directorate General of Taxes (DJP), the Panel of Judges revoked a VAT DPP correction of Rp267,300,000.00 after the tax authority failed to substantiate the transfer of rights over seashell inventory that the taxpayer had shipped to a third-party warehouse in Surabaya. This decision establishes a crucial legal precedent for taxpayers utilizing stock storage schemes at premises outside their main business location.

PT DM filed an appeal against the VAT Output DPP correction, which was based on the physical finding of goods shipment (seashells) to Surabaya. The DJP, as the Respondent, suspected that this shipment constituted an undisclosed sale and deemed it to fulfill the elements of a taxable supply of BKP as regulated under Article 4 paragraph (1) of the Indonesian VAT Law. This suspicion was triggered by the discovery of inconsistencies between the shipping address and the counterparty data recorded on tax invoices issued during other tax periods.

The Taxpayer, PT DM, firmly refuted the correction, arguing that the transaction’s core substance was a stock transfer or consignment of inventory to a warehouse owned by PT PNP, which merely acted as a logistics management service provider. Citing Article 1A paragraph (1) letter a of the VAT Law, the Petitioner asserted that there was no transfer of ownership title. To support its argument, the Taxpayer presented evidence showing the absence of sales documents, no invoices issued to PT PNP, and no cash/bank flow indicating payment for the goods. The crux of the disagreement lay in differing perspectives: the DJP focused on physical movement, while the Taxpayer adhered to the lack of title transfer and payment.

The Tax Court Panel, in its ex-officio legal consideration, maintained that the primary burden of proof to sustain the correction lay with the Respondent. The Panel ruled that the physical movement of goods does not automatically meet the criteria for a Supply of BKP. The essential prerequisite for a transaction to be subject to VAT is the transfer of ownership title to another party, which is legally proven through a sales contract or equivalent, followed by the issuance of sales documents and proof of payment. Since the DJP failed to present sufficient and convincing evidence to establish the transfer of rights from PT DM to the party in Surabaya (PT PNP), the Panel concluded that the VAT DPP correction lacked a strong legal basis and must be annulled.

The implication of this Decision is highly significant, particularly for companies with complex supply chains or those using third-party warehouses. This ruling reinforces the substance over form principle in VAT, stipulating that tax imposition must not be based solely on assumptions derived from physical movement. This decision serves as a strategic reminder for taxpayers to ensure that every stock movement, especially to affiliated or non-affiliated parties providing logistics services, is meticulously supported by robust internal documentation. The absence of sales invoices, the lack of revenue recognition journals, and strong synchronization between inventory movement data and the Corporate Income Tax (PPh Badan) Income Statement will be the main line of defence against DJP's commodity flow audits.

In conclusion, the Panel of Judges, with comprehensive considerations, granted the Taxpayer's appeal in its entirety. This decision reaffirms that, for VAT Output purposes, the taxable event is the legal occurrence of the transfer of ownership of BKP, and not merely the relocation of inventory storage.