We submitted PPAP that met every spec on the drawing and was within all tolerances and call outs.
The remaining question is, what did you know, and when did you know it? It appears that at the time PPAP was submitted, you offered evidence (the PPAP submission) that
in accordance with the AIAG's quoted definition of the purpose of PPAP....all customer engineering design record and specification requirements [were] properly understood...and...the manufacturing process [had]the potential to produce product consistently meeting these requirements...
But--if you knew there was a potential problem and didn't inform the customer, depending instead on falling back on having met contractual requirements if the poop did hit the fan, then the customer might say, "Yes, you met the requirements, but why should we do business with you if you're not going to share what you know?"
As I said in an earlier post in this thread, I have experience with automotive OEMs and their attempts to blame their design problems on suppliers. Nonetheless, at some point you might have to make a decision as to whether to just swallow the bitter pill, or hold your ground and lose the business. Sometimes, unfortunately, it's not a matter of whether or not you meet the specifications.