Winning Against the DJP: The Key to Crediting Input VAT Corrected for Being Deemed Irrelevant to Core Business.

The application of Article 9 paragraph (8) letter b of the Value Added Tax (VAT) Law, which restricts the crediting of Input VAT that does not have a direct relation to the business activities generating Output VAT, is a frequent source of dispute between Taxpayers and tax authorities. The case study in Tax Court Decision Number PUT-008803.16/2024/PP/M.XIIB Tahun 2025, which fully granted the appeal of PT Sari Pangan Sejati, sets a strong precedent regarding the emphasis on the burden of proof and the interpretation of direct relation. In this decision, the Panel of Judges fundamentally tested the validity of the Tax Authority's (DJP's) correction on Input VAT for the August 2020 tax period, which was claimed to lack functional linkage to the Taxpayer's core business process.

Core Conflict: Substance of Transactions and Business Causality

The core conflict of this dispute centered on differing perspectives regarding the substance of the transactions. The Directorate General of Taxes (DJP) maintained the correction on the grounds that the Taxpayer failed to convincingly prove an explicit causal relationship, questioning the material truth behind the credited tax invoices. The DJP argued that not all costs incurred by a company automatically meet the criteria of Article 9 paragraph (8) letter b of the VAT Law to be credited.

Appellant Rebuttal: Genuine Transaction and Formal Requirements

In response, the Taxpayer countered the correction by focusing on the principle of genuine transaction and the fulfillment of formal VAT requirements. The Taxpayer convincingly presented comprehensive supporting evidence, including bank payment slips and internal operational documents, to assert that the acquisition of Taxable Goods (BKP) or Taxable Services (JKP) forming the basis of the Input VAT was an integral part of the company's operational value chain. The Taxpayer's argument emphasized that a "direct relation" must be interpreted functionally and logically within the context of the overall business operation, not merely those directly attached to the final product.

Resolution: Adherence to the Burden of Proof

The resolution of this dispute was determined by the Panel of Judges, who adhered to the legal principle that the burden of proving the correction rests absolutely on the Tax Authority. The Panel concluded that the Taxpayer had adequately fulfilled its obligations by presenting valid Tax Invoices supported by tangible evidence of real transactions and the use of the BKP/JKP in operational activities. Since the Tax Authority failed to provide sufficient counter-evidence, such as confirmation results proving fictitious invoices or examinations showing irrelevant usage, the Input VAT correction made by the DJP was deemed unsustainable.

Strategic Implications for Taxpayers

The implications of this decision are crucial for Taxpayers in Indonesia. This ruling serves as jurisprudence reaffirming that documentation due diligence is the primary line of defense. Taxpayers must ensure not only the formal legality of the Tax Invoices but also the clear documentation of the functional causality of the Input VAT to the business activities generating Output VAT, even for supporting costs. A litigation strategy focusing on shifting the burden of proof back to the Tax Authority, by preparing comprehensive material evidence from the objection stage, has proven effective in winning this Input VAT dispute.

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