VAT Base Corrections and Masterlist Facilities in the TEP Train III Project: CJO Tax Dispute

The Director General of Taxes (DGT) established a positive correction of the VAT Base (DPP) on the delivery of goods and services by CJO to B in the TEP Train III project worth IDR 18.37 billion, as it was deemed not to meet the criteria for pure reimbursement. The legal issue began when the Respondent assessed that imported goods using the Masterlist facility (VAT not collected) in the name of B must still be subject to VAT when billed by CJO. The Respondent argued that since CJO recorded these goods as inventory and recognized them as revenue in the financial statements, the delivery constituted a VAT object under Article 4 paragraph (1) of the VAT Law, which must be collected using Tax Invoice code 03.

However CJO Firmly Refuted This With Upstream National Strategic Project Regulations

However, CJO firmly refuted this with the argument that the project is a National Strategic Project in the upstream oil and gas sector that received import duty exemptions and VAT not collected facilities in accordance with Minister of Energy and Mineral Resources Regulation Number 17 of 2018. CJO explained that in a turnkey (EPC) contract, billing is based on milestones, where the value of imported Masterlist goods has been deducted from the total bill to determine the VAT Base. The use of an inventory account was merely a temporary accounting recording mechanism to track the flow of goods, not indicating material ownership since the goods were intended for and owned by the state through B as the PSC Contractor from the outset.

The Panel of Judges in Its Legal Considerations Prioritized the Principle of Substance Over Form

The Panel of Judges, in its legal considerations, prioritized the principle of substance over form. The Judges assessed that these goods were indeed used for upstream oil and gas operational activities, the facilities for which are attached to B. The Panel opined that there was no transfer of ownership rights from CJO to B in a standard commercial context, but rather the procurement of state-owned goods. Furthermore, the fact that tax audits of B for previous years did not challenge this pattern served as evidence of consistent tax treatment. Therefore, the Panel of Judges decided to cancel all of the Respondent's corrections and granted the Petitioner's appeal.

This Decision Confirms That the Integrity of Fiscal Facilities Should Not Be Annulled Merely by Interpretations

This decision confirms that the integrity of fiscal facilities in upstream oil and gas projects should not be annulled merely due to differences in administrative accounting interpretations. For Taxpayers operating in the infrastructure and energy sectors, this case provides an important lesson on the criticality of data reconciliation between customs documents (Masterlist) and contract and invoice values. Transparency in separating delivery components that receive facilities from those that do not is the primary key to winning similar disputes at the litigation level.