The implementation of the VAT system in Indonesia adopts an invoice-based credit mechanism, requiring Taxable Entrepreneurs (PKP) to credit Input VAT (PM) against Output VAT (PK) to determine the VAT payable. Disputes frequently arise when the tax authority, the Directorate General of Taxes (DGT), rejects the crediting of Input VAT, citing that the Tax Invoices (FP) held by the taxpayer are deemed invalid or fail to meet the formal and material requirements as stipulated in Article 13 paragraph (5) and Article 9 paragraph (8) of the VAT Law. This conflict of interpretation forms the core of the dispute in Tax Court Decision Number PUT-004958.16/2021/PP/M.XVIIIA Tahun 2025, filed by PT BML (Appellant) concerning the Tax Period of November 2015.
The central conflict in this case stems from the Input VAT correction made by the DGT (Appellee). The Appellee contended that a number of Tax Invoices credited by the Appellant could not be recognized due to formal and material indications violating the provisions, such as doubts about the status of the Seller PKP or the DGT's inability to successfully confirm the transactions. The Appellee based this correction on the prohibition of Input VAT crediting according to Article 9 paragraph (8) of the VAT Law. However, the Appellant mounted a substantial defense by presenting a complete set of documentary evidence, including purchase orders, delivery orders, and proofs of payment, to substantiate that the acquisition of Taxable Goods (BKP) and/or Taxable Services (JKP) underlying the Tax Invoices were real transactions directly related to the company's business activities.
In the dispute adjudication process, the Panel of Judges at the Tax Court played a crucial role as the judex facti by testing the material truth beyond administrative formalities. The Panel affirmed that, pursuant to Article 77 paragraph (2) of the Tax Court Law, the burden of proof rests with the party making the correction, which is the Appellee. The Panel found that the Appellant had successfully proven the substance of the real transactions through evidence of fund transfers and receipt of goods. Conversely, the Appellee failed to present legally convincing evidence to invalidate the substance of these transactions or to prove that the Appellant acted dishonestly or deliberately used invalid Tax Invoices. Consequently, the Panel applied the principle of justice, stating that formal defects which may have occurred on the part of the Seller PKP (e.g., the PKP becoming non-effective after the transaction) should not automatically negate the right of the good-faith Appellant, who had collected and paid the VAT to the seller.
The implication of the Decision, which grants the Appellant's appeal in full, is highly significant for the taxpayer community. This ruling strengthens the jurisprudence that the material truth (economic substance) of a transaction carries a higher legal weight compared to mere administrative findings that are not supported by concrete proof of state loss by the tax authority. This case sets an important precedent that protects the fundamental right of PKPs to credit Input VAT, provided the taxpayer is able to prove the genuine supply of BKP/JKP and the VAT payment has been effected. The failure of the tax authority to prove its correction will result in the cancellation of the Tax Assessment Letter (SKP), as happened to PT BML.
A Comprehensive Analysis and the Tax Court Decision on This Dispute Are Available Here
tpc.consulting 
tpc.consulting 
info@taxindo.co.id