Winning a VAT Lawsuit: When Are Buyers Protected from Sellers' "Fictitious" Tax Invoices? A Tax Court Case Study

In the framework of implementing the Value Added Tax (VAT) Law, disputes surrounding the crediting of input tax often center upon the legal validity of tax invoices issued by the selling Taxable Person for VAT Purposes (PKP Penjual).

Tax Court Decision Number PUT-002980.16/2022/PP/M.IVB Year 2025 serves as a crucial judicial affirmation of the buyer's "good faith" principle. This landmark judgment establishes that the non-compliance risks of a selling vendor do not automatically invalidate the purchasing taxpayer's statutory right to claim input tax credits, provided that the underlying material transactions are fully substantiated by adequate and empirical evidence. This particular dispute involved PT KEF as the Appellant, whose Input VAT credits for the November 2018 tax period had been subject to a positive fiscal adjustment by the Directorate General of Taxes (DGT).

The core conflict within this litigation originated from the DGT's tax audit findings, which indicated that several Input Tax Invoices credited by the Appellant were issued by non-compliant or high-risk vendors whose corporate statuses were either flagged as fictitious or had been formally revoked.

The DGT argued, based on Article 9 paragraph (8) letter b of the VAT Law, that the disputed tax invoices failed to satisfy the compulsory formal and material statutory requirements, rendering the Input VAT non-creditable. Consequently, this administrative adjustment led to the issuance of an Underpayment Tax Assessment Notice (SKPKB) for VAT.

Conversely, the Appellant strongly countered the adjustment using a robust argument rooted in the material reality of the transactions.

The Appellant presented a comprehensive cross-check evidentiary package, encompassing valid procurement contracts, official Good Receipts, and verifiable banking wire transfer slips proving that the corresponding VAT component had been fully paid to the suppliers. The Appellant emphasized that they had acted in absolute good faith and executed reasonable corporate due diligence. They asserted that any administrative non-compliance on the seller's part is a distinct regulatory matter between that seller and the DGT, which should not penalize an tax-compliant buyer acting in verified good faith.

In resolving this dispute, the Panel of Judges adopted a jurisprudential stance that prioritized economic substance over absolute legal formalism.

Upon meticulously examining the physical evidence submitted by the Appellant, the Panel was fully satisfied that the physical delivery of Taxable Goods or Services (BKP/JKP) had genuinely occurred and that the corresponding Input VAT had been completely settled. The Panel opined that stripping a buyer of their tax crediting rights is only legally justified if it can be proven that the buyer acted in bad faith or engaged in collusion. Because the Appellant successfully demonstrated the transaction's materiality and indisputable payment trail, the Panel ruled to grant the appeal in its entirety.

This judgment carries significant implications for a taxpayer's tax litigation strategy.

Analytically, this decision strengthens legal protections for corporate taxpayers who have precisely fulfilled their documentation and payment obligations. By implication, the DGT must provide a higher threshold of evidence going forward, moving beyond merely citing the formal administrative status of a vendor and instead proving that the buyer was either aware or should have been aware of the seller's tax irregularities. The future strategy for taxpayers is to reinforce internal vendor due diligence protocols and ensure that all transaction flows are fully anchored by accountable, non-cash payment instruments.

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