Winning the VAT Lawsuit: Why a Formal Tax Invoice Defect of More Than 3 Months Failed to Cancel the Taxpayer's Credit Right

The application of the materiality principle has become the ultimate determinant in Value Added Tax (VAT) disputes concerning the right to credit Input VAT, particularly those involving a violation of the formal requirements of a Tax Invoice. In Tax Court Decision Number PUT-004956.16/2021/PP/M.XVIIIA Tahun 2025, the Panel of Judges explicitly granted the entire appeal petition of PT BML, revoking the Input VAT correction of more than Rp 1.5 billion carried out by the Directorate General of Taxes (DGT). The DGT based its correction on Article 9 paragraph (8) letter b in conjunction with Article 13 paragraph (5) of the VAT Law, asserting that tax invoices issued beyond the three-month deadline from the time VAT became due were deemed formally defective and could not be credited.
The core conflict in this case is the tension between enforcing formal tax administration compliance and fulfilling the substance (materiality) of taxation. The Appellant argued that the refusal of the VAT credit right solely due to the late issuance of the invoice by the Taxable Entrepreneur (TE) Seller was unfair, as the VAT had been paid and was materially related directly to business activities generating Output VAT. Removing this credit right would violate the principle of VAT neutrality and potentially lead to a cascading effect (double taxation). The DGT, on the other hand, adhered to the provision that compliance with the deadline for issuing tax invoices is an absolute prerequisite, so this formal violation must result in the rejection of the crediting right.
In the process of resolving the dispute, the Panel of Judges conducted a thorough examination of the evidence. The Panel acknowledged that formally, there was a violation of the tax invoice issuance deadline. However, the key legal consideration for the Panel was the conviction that the Input VAT was materially valid, evidenced by its close relation to the Appellant's business activities and the certainty that the VAT had been paid and deposited by the counterparty. The Panel took the view that sanctions for the late issuance of the tax invoice should be directed at the TE Seller as the party administratively negligent, and not nullify the crediting right for the TE Buyer (Appellant), as long as the substance and validity of the tax could be convincingly proven.
The implication of this decision is highly significant for Taxpayers (TP), especially those operating in industrial sectors susceptible to administrative issues with tax invoices from suppliers. This decision serves as a strong jurisprudence affirming that in VAT disputes, the principle of materiality can override formal defects provided that the substantial truth of the transaction and tax remittance can be convincingly demonstrated. The TP's litigation strategy should focus on gathering comprehensive material evidence, including proof of payment and reporting of the VAT by the TE Seller, to counter DGT corrections based solely on administrative formal grounds.

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