Warning! Input Tax Credits Can Be Rejected by Judges Without Competent Payment Proof: Lessons from the PT JCI Case

Legal Dispute Analysis: VAT Input Tax Crediting and the Burden of Proof (PT JCI)

This dispute over Input Tax crediting for the April 2020 Tax Period centers on the Taxpayer's failure to meet the material and formal evidentiary threshold mandated by Article 9 paragraph (2) and paragraph (8) of the VAT Law, along with the technical provisions in PER-13/PJ/2019. The conflict arose when the Respondent (DJP) issued a correction of IDR 24,892,000.

The Conflict: "Data Inconsistent" vs. VAT Neutrality

The dispute emerged due to discrepancies within the tax authority's internal confirmation system:

• Respondent's Argument: Internal confirmations showed "Data inconsistent". Per Article 12 paragraph (3) of the KUP Law, the burden of proof rests with the Taxpayer to provide valid and competent proof of VAT payment.
• Petitioner's Argument: PT JCI argued that acquisitions followed legitimate procedures related to 3M activities. They appealed to the principle of VAT neutrality, stating that tax paid to counterparties should be creditable.

Judicial Review: The Absence of Traceable Cash Flow

The Board of Judges focused on the formal-material aspects of the documents in their legal considerations:

1. Insufficient Evidence: The Judges opined that despite the physical flow of goods, the absence of an empirical cash flow proof specifically referencing the disputed VAT payment rendered the Petitioner's position weak.
2. System Validity: Supporting documents failed to override the negative confirmation results from the tax authority's system.
3. Verdict: The Board of Judges decided to REJECT the appeal as the Petitioner failed to present valid and competent evidence.

Implications: The Critical Role of Data Reconciliation

This decision reaffirms that within the self-assessment system, the validity of data in the tax authority's system plays a crucial role. It is insufficient for Taxpayers to merely possess documents; they must ensure every transaction is documented with traceable payment proof.

Conclusion: Failure to perform data reconciliation and maintain payment records can result in the loss of crediting rights, harming the company's cash flow. Ensuring that reported data is synchronized with the DGT system is the only way to safeguard Input Tax credits.