KEPCO PHILIPPINES CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC O F TH E PH ILIPPINES COURT OFTAX APPEALS QUEZON CITY ENBANC KEPCO PHILIPPINES CORPORATION, Petitioner, C.T.A. EB NO. 299 (C.T.A. Case No. 6965) -versus- Present: Acosta, P.J. Castaneda, Jr. Bautista, Uy, Casanova, and Palanca-Enriquez, JJ. THE COMMISSIONER OF INTERNAL REVENU E, Respondent. Promulgated: . FEB 1 0 2008?/;k:J_/foc~/~' . X-----.------------------------------------------.--. --------------------------------------------X-?--'~ ~- ~ - D ECISI O N BAUTISTA,[.: The Case Before the Court En Bane is a Petition for Rev iewl filed pursuant tO Section 4, Rule 8 of the Revised Rules of the Court of Tax Appeals in relation to Rule 43 of the Revised Rules of Civil Procedure, praying for the reconsideration of: 1 Rollo, pp. 10 - 84 with Ann~xes.

DECISION E.B. No. 299 (C.T.A. Case No. 6965) 1. the Decision dated February 26, 2007 rendered by the Second Division of the Court ("Court �in Division") in CTA Case No. 6965, which partially granted petitioner's claim for tax refund in the amount of ~2,890,005. 96, representing petitioner's unutilized input value-added tax ("VAT") which it incurred from its zero-rated sales of electricity to the National Power Corporation ("NPC") for taxable year 2002; and 2: the Resolution of the Court in Di;vision promulgated on June 28, 2007, which denied petitioner's Motion for Partial Reconsid~ration. Antecedent Facts The material antecedents that precipitated the subject Petition for Review are summarized by the Court in Division as follows: "On December 4, 2001, petitioner filed an application for zero-rated sales with the respondent, through its RDO No. 43. The same was eventually approved under VAT Ruling 64-01. For the calendar (taxable) year 2002, petitioner filed its Quarterly VAT Returns declaring zero-rated sales in the aggregate amount of P3,285,308,055.85 as follows : Exhibit Quarter Involved Zero-Rated Sales B 1st Quarter P651 ,672,672.47 c 2nd Quarter 725,104,468.99 D 3rd Quarter 952,053,527.29 E 4th Quarter 956,477,387.10 --------------- Total P3,285,308,055.85 ============= In the same year, petitioner allegedly incurred expenses representing domestic purchases of goods and services in the amount of Pl17,108,688.60, which became the basis for the computation of its input VAT in the sum of Pl1,710,868.86 as declared in its Quarterly VAT Returns, to wit:

DECISION E.B. No. 299 (C .T.A. Case �"'o . 6965) Exhibit Quarter Involved Purchases Input VAT B 1 st Quarter P6,063,184.90 P606,318.49 1,841,019.32 c 2rid Quarter 18,410,193 .20 1,681,181.93 7,582,349.12 D 3rd Quarter 16,811,819.21 Pl1,710,868.86 E 4th Quarter 75,823,491 .20 =========== Total P117,108,688.51 ============ Allegedly, the expenses represent the costs attributable to its production and sale of elech�icity to the NPC, its sole customer. According to petitioner, such sale is effectively zero-rated for VAT purposes and the input VAT incurred in connection thereto is available for tax refund/ credit. Thus, on April�20, 2004, petitioner filed a claim for refund of the input VAT incurred in the amount of P11,710,868.86 for taxable year 2002 with respondent (through Revenue District Office No. 43). Two days later, the ,instant Petition for Review was filed with this Court on April22, 2004. In his Answer, respondent submits the following Special and Affil:mative Defenses: '6. Claims for rrfund are strictly construed against the taxpayer as the same partakes (sic) the nature of a tax exemption; 7. The taxpayer has the burden to show that the taxes were erroneously or illegally paid. Failure on the part of the Petitioner to prove the same is fatal to its cause of action; 8. The Petitioner should prove that (sic) its legal basis for claiming for the amount being refunded.' During trial, petitirner presented its evidence, both testimonial and documentary. This included the testimony .of. the court commissioned Independent Certified Public A-ccountant, Victor 0. Machacon, who conducted an audit of the voluminous documentary evidence of petitioner, such as .official receipts, invoices and vouchers ill support of its claim for refund of its unutilized input VAT. After the admission of petitioner's evid,ence in the Resolutio~1 dated May 3, 2006, presentation of respondent's evidence was set on July 19, 2006. However, due to the failu~�e of respondent's counsel to appear on said date, the Court considered respondent to have waived his right to present evidence and the parties were directed to file their respective memoranda. Only petitioner filed its Memorandum on August 23, 2006, and this case was considered submitted for decision in the Resolution dated September 6, 2006 without any memorandum having been filed by respondent. Hence, this Decision." 2 (Citations omitted) 2 Decision, C.T.A. Case No. 6965 , February 26, 2007, pp. 2- 4. I

DECISION E.B. No . 299 (C.T.A. Case t� o. 6965) c. Input taxes on purchase of goods/ service in the amount of IJ2,156.42 are not in the company's name; 1. d. Input taxes on purchase of goods in the amount of IJ627.54 are not within the period of claim; e. Input taxes on purchase of goods/ service supported by invoices/ official ~e~eipts in the amount of ~,720,725 . 63 are I not printed with "TIN-VAT"; and f. Input taxes on purchase of goods in the amo:unt of IJ648.73 are without date or year date. 5. The reduced claim for refund in the amount of IJ2,890,005.96 was not applied against any output tax for the succeeding quarters. The dispositive portion of the Court in Division's Decision reads as follows: "WHEREFORE, petitioner's claim for refund is hereby PARTIALLY GRANTED. Accordingly, respondent is ORDERED to REFUND petitioner the reduced amount. of TWO .MILLION EIGHT HUNDRED NINETY THOUSAND FIVE � PESOS AND 96/100 (P2,890,005.96) repres_gnting unutilized input value-added tax for taxable year 2002. SO ORDERED." Dissatisfied, petitioner filed a Motion for Partial Reconsideration which was denied by the Court in Division in its Resolution promulgated on June 28, 2007. Hence, the present recourse to the Court En Bane. I

DECISION E.B. No. 299 (C .T.A. Case No . 6965) The Ru ling of the Court in Division On February :26, 2007~ the Cour-t in Division rendered its Decision, partially granting petitioner's claim for refund of unutilized input VAT for taxable year 2002. The Court in Division applied the requisites needed for the refund of input VAT directly attributable to effectively zero-rated sales and made the following findings: 1. . Both administrative and judicial claims for refund were filed within two (2) years from the dates when petitioner filed its Quarterly VAT Returns for the four quarters of taxable year 2002; 2. Out-of the declared zero-rated sales of IJ3,285,308,055.85, petitioner was able to substantiate only the amount of IJ1,451,788,865.52 and the rate of substantiated zero-rated sales was computed to be 44.19 %; 3. Based on the findings of the commissioned independent Certified Public Accountant ("CPA"), petitioner's claimed input VAT in the amount of IJ11,710,868.86 should be reduced by IJ125,556.40; 4. The input VAT in the aggregate amount of IJ5,045,357.80 should also be disallowed for the following reasons: I, a . Input taxes in the amount of IJ64,509.50 on purchase of goods are not supported by invoices; b. Input taxes in the amount of ~256,689.98 are not supported by official receipts; / @

DECISION E.B. No . 299 (C .T.A . Case No. 6965) Page 6 o( 22 The Issue The sole issue submitted for resolution by petitioner is whether or not the Court in Division erred in not considering the amount of P8,691,873.81 in addition to the P2,890,005.96 already awarded, as refundable tax credit for petitioner's zero-rated sales to NPC for taxable year 2002. The Ruling of the Court En Bane The Petition for Review is devoid of merit. Under Republic Act 6395 as amended, or otherwise known as the NPC Charter, the NPC is declared exempt from the payment of all forms of taxes, duties, fees and imposts. Section 13 of the said law states that: \ "Section 13. Non-profit Character of the Corporation: Exemption from All Taxes, Duties, Imposts and Other Charges by the Government and Government Instrumentalities. - The Corporation shall be non-profit and shall devote all its returns from its capital investment as well as excess revenues from its operations, for expansion. To enable the Corporation to pay its indebtedness and obligations and in furtherance of effective implementation of the policy enunciated in Section one of this Act, the Corporation, including its subsidiaries, is hereby declared exempt from the payment of all forms of taxes, duties, fees, imposts as well as costs and service fees including filing fees, appeal bonds, supersedeas bonds, iJ:l any court or administrative proceedings.11 (Emphasis supplied) � Because of such exemption, p~titioner's sale of power generation services (electricity ) to NPC is indeed zero-rated under Section 108 (B) (3) of the 1997 National Internal Revenue Code ("NIRC"). It reads: "SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. - XXX XXX XXX

DECI SION E.B. No. 299 (C.T.A. Case No. 6965), ' Page 7 of 22 (B) Transactions Subject to Zero Percent (0%) Rate. - The following services performed in the Philippines by VAT- registered persons shall be subject to zero percent (0 %) rate: ! (1) XXX (2) XXX (3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0 %) rate; xxx" (Emphasis supplied) Consequently, petitioner may claim a refund or tax credit of input tax pursuant to Section 112 (A) of the 1997 NIRC, which provides: "SEC. 112. Refunds or Tax Credits of Input Tax. - (A) ' rated or Effectiv~ly Zero-rated Sales. - Any VAT- Zero registered person, whose sales are zero-rated or effectively zero- rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except h�ansitional input tax, to the extent that such input tax has not been applied against output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(l), (2) and (B) and Section 108(B)(l) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Senh�al ng Pilipinas (BSP) xxx" (Emphasis supplied) � � Corollary thereto, Sections 4.106-1 and 4.104-5 of Revenue Regulations 7-95 state, viz: "Section 4.106-1. Refunds �or tax credits of input tax. - (a) Zero-rated sales of goods or properties or services - Only a VAT-registered person may be given a tax credit certificate or refp.nd of VAT paid corresponding to the zero-rated sales of goods, properties or services, excluding the presumptive input tax and to the extent that such input tax has not been applied against the output tax. The application should be made within two (2) years after the close of the taxable quarter when the salesweremade." .~ (ij

DECISION E.B. No . 299 (C .T.A . Case No . 6965) "Sectiori 4.104-5. Substanti'ation of claims for input tax credit. - (a) Input taxes shall be allowed only if the domestic purchase of goods, properties or services is made in the course of h�ade or business. The input tax should be supported by an invoice or receipt showing the information as required under Section 108 (a) and 238 of the Code. Input tax on purchases of real property should be supported by a copy of the public instrument i.e. deed of absolute sale, deed of conditional sale, conh�act/ agTeement to sell, etc., together with the VAT receipt issued by the seller. xxx" (Emphasis supplied) Hence, to be entitled to a refunci.' or tax Credit of input VAT payments directly attributable to zero-rated or effectively zero-rated. sales, petitioner must comply with the following requisites: 1) there must be zero-rated or effectively zero-rated sales; 2) input taxes were incurred or paid; 3) such input VAT payments are directly attributable to zero-rated sales or effectively zero-rated sales; 4) the input VAT payments were not applied against any output VAT liability; and 5) the claim for refund was filed within the two-year prescriptive period. At this juncture, it bears stressing that to establish zero-rated sales of services as well as input taxes in claims for refund, the corresponding duly

DECISION E.B. No. 299 (C.T .A. Case No. 6965) , Page 9 of22 registered official receipts and invoices must be presented pursuant to Sections 113 and 237 of the 1997 NIRC3, which provide: "SEC. 113. Invoicing and �Accounting Requirements for VAT Registered Persons. - (A) Invoicing Requirem ents. - A VAT-registered person shall, for every sale, issue �an invoice or receipt. In addition to the information required under Section 237, the following 'information shall be indicated in the invoice or receipt: (1) A statement that the seller is a VAT-registered person, followed by his taxpayer's identification number (TIN); and (2) The total amount which the purchaser pays or is obligated to p ay to the seller with the indication that such amount includes the value-added tax. XXX l XXX xxx" "SEC. 237. Issuance of Receipts or Sales or Commercial Invoices. All persons subject to an internal revenue tax sh all, for each sale or transfer of merchandise or for services rendered valued at Twenty-five pesos (P25.00) or more, issue duly registered receipts or sales or commercial invoices, prepared at least in duplicate, showing the date of transaction, quantity, unit I cost and description of m erchandise or nature of service: ... xxx 11 (Emphasis ours) The foregoing provisions should not be taken in: isolation but in conjunction with Section 4.108-1 of Reve~ue Regulations 7-95 w hich provides: 11 Sec. 4.108-1. Invoicing Requirements. - All Vat registered p ersons shall for every sale or lease of goods or properties or services, issue duly registered receipts or sales or commercial invoices which must show: 3 American Express International, Inc. - Philippine Branch v. Commi ssioner of the Internal Revenue, C.T.A. E.B. No. 197 (C.T.A. Case No. 6468), May 23 , 2007.

DECISION E.B. No. 299 (C .T.A. Case No. 6965) 1. the name, TIN and address of seller; 2. date of transaction; 3. quantity, unit cost and description of merchandise or nature of service; 4. the name, 1TIN, business style, if any, and address of service; 5. the word 'zero-rated' imprinted on the invoice covering zero-rated sales; and 6. the invoice value or consideration." In the case of sale of real property subject to VAT and where the zonal or market value is higher than the actual consideration, the VAT shall be separately indicated in the invoice or receipt, Only VAT-registered persons are required to print their TIN followed by the word 'VAT' in their invoice or receipts and this shall be considered as a 'VAT Invoice'. All purchases covered by invoices other than 'VAT Invoice' shall not give rise to any in;put tax. If the taxable person is also engaged in exempt operations, he should issue separate invoices or receipts for the taxable and exempt operations. A 'VAT Invoice' shall be issued only for sales of goods, properties or services subject to VAT imposed in Sections 100 and 102 of the Code. The invoice or receipt shall be prepared at least in duplicate, the original to be given to the buyer and the duplicate to be retained by the seller as part of his accounting records." (Emphasis ours) In the recent case of Atlas Consolidated Mining and Development Corporation v. Commissioner of Internal Revenue4, the Supreme Court clearly recognized that applications for refund/ credit of input VAT filed with the BIR must comply with the appropriate Revenue Regulatiorts. The Supreme Court, in citing the case of Commissioner of Internal Revenue v. Manila Mining 4 G.R. Nos. 141104 & 148763 , June 8, 2007. I

DECISION E.B. No . 299 (C .T.A . Case No. 6965) Corporations, stressed the importance of complying with the substantiation requirements for claiming refund/ credit of input VAT on zero-rated sales in accordance with the appropriate Revenue Regulations, in this wise: "Although the foregoing decision focused only on the proof required for the applicant for refund/ credit to establish the input VAT payments it had made on its purchases from suppliers, Revenue Regulations No. 3-88 also required it to present evidence proving actual zero-rated VAT sales to qualified buyers, such as (1) photocopy of the approved application for zero-rate if filing for the first .time; (2) sales invoice or receipt showing the name of the person or entity to whom the goods or services were delivered, date of delivery, amount of consideration, and description of goods or services delivered; and (3) the evidence of actual receipt of goods or seryi~es." (Emphasis supplied) Thus, by analogy, il1 order for petitioner to be entitl~d to its claim for refund/issuance of tax credit certificate representing unutilized input VAT attributable to its zero-rated sales for taxable year 2002, it must comply with the substantiation requirements under the appropriate Revenue Regulations i.e. Revenue Regulations 7-95.6 In connection with the afore-quoted NIRC provisiOns and Revenue Regulations, it is noteworthy to quote a portion of the case of American Express International, Inc., Philippine Branch v. Commissioner of I:zternal Revenue7 which reads: "The law is very clear. Section 113 provides that 'a VAT registered person shall, for every sale, issue a duly registered VAT invoice or receipt for every sale transaction'. Such VAT invoice or receipt must show the taxpayer identification number, followed by the word 'VAT', the BIR Authority imprint or BIR permit m arker and the word 5 468 (SCRA) 57 1 (2005). 6 Panasonic Communications Imaging Corporation of the Philippines (formerly Matsushita Business Machine Corporation of the Philippines) v. Commissioner of Internal Revenue, C.T.A. EB No . 233 (C.T.A. Case No. 6245), November 20, 2007. 7 C.T.A . EB No. 103 (C.T.A. Case No . 6294), Mar.ch 3, 2006. (j& l

DECI S IO N E.B. No. 299 (C.T.A. Case No. 6965) ,Page 12 of 22 'zero-rated' imprinted on the invoice or receipt covering a zero-rated sale. Considering so, the sales of services referred to under Section 108 (B) (2) of the NIRC of 1997, as amended, as being subject to zero percent (0%) rate are those sales covered by duly r~gistered VAT official receipts. The VAT registered person must substantiate the input VAT paid by purchase invoices or official receipts. An official receipt issued by the taxpayer is an essential requirement to prove the existence of sale and receipt of income and thereafter duly recorded in the accounting records. �� � The afore-quoted revenue regulation issued to implement the NIRC provision on VAT invoicing and accounting requirements is mandatory as the word 'shall' is used. The word 'shall' is imperative, commonly operating to impose an obligation or duty which may be enforced; it is ' a word of command that must be given a compul~ory meiming (Pioneer Texturing Corp. vs. N LRC, 280 SCRA 806). Indeed, it is the duty of a seller-taxpayer to comply with the invoicing requirements laid down in the said NIRC provisions and Revenue Regulations." Here, the Court in Division did not grant petitioner's entire claim for I, refund on certain substantiation issues. Petitioner contends that its Quarterly VAT Returns for taxable year 2002, Audited Financial Statements for year 2002 and its Income Tax Return for 2002 are sufficient to prove thq.t petitioner had incurred IJ,3,285,308,055.85 worth of sales for 2002. The Court En Bane has previously ruled that VAT C?fficial receipts or VAT invoices issued by the seller (petitioner in this case) is the best evidence ' . to prove e~fectively zero-rated sales.s Thus, the Court in Division correctly used petitioner's official receipts as bases in computing petitioner's substantiated zero-rated sales. 8 Kepco Philippines Corporation v. The Commiss ioner of Internal Revenue, C.T.A. EB No . 174 (C.T.A. Case No. 6679 ), May 9, 2007. .(jj) I

DECISION E.B. No . 299 (C .T .A . Case No . 6965} P age 13 of 22 Petitioner also avers that the pro-rating or proportionate allocation made by the Court in Division with regard to its exclusive sales of electricity to NPC is erroneous for being an over-extended application of the law. Section 112 of the 1997 NIRC shoJ.ld not be applied to petitioner's case because petitioner's taxable sales are all effectively zero-rated. According to the Court in Division, since all of petitioner's sares are zero-rated, all payments of input VAT on its purchases of goods and services amounting to Pl1,710,868.8q should be directly attributable to petitioner's declared zero-rated �sales of ~3,285,.308,055.85. The Court in Division found . that out of the declared zero-rated sales of ~3,285,308,055.85, petitioner was able to substantiate bnly the ?-mount of �F1,451,788,865.52. Thus, as the Court En �Bane has previously declared on this matter, it is but logical that only a proportionate amount relating to the duly substantiated excess input VAT be allowed to be refunded.9 There is no plausible reason why petitioner should be entitled to a refund of the full amount of F11,710,868.86 pertaining to its substantiated input VAT, because this covers its entire reported zero-rated sales,- both substantiated and unsubstantiated. �In disallowing a portion of petitioner's zero-rated sales, it essentially follows that a portion of the claim for refund of input VAT attributable to such zero-rated sales should also be disallowed by the Court. Otherwise, the Court will be disregarding the substantiation of petitioner's zero-rated sales, thereby negating its effect on 9 Panay Power Corporation v. Comm issioner oflnternal Revenue, C.T.A. E.B. No. 286 (C.T.A. Case No. 6807), October 18, 2007.

DECISION E.B. No . 299 (C .T .A . Case No . 6965} � Page 14 of 22 the amount of unutilized input.V,AT claimed for refund.lO In this case, since some of the effectively zero-rated sales were not duly substantiated, it is apt for the Court to apportion the input VAT because it. is impossible to specifically pin-point what input VAT IS directly attributed to such substantiated effectively zero-rated sales.n Thus, the Court En Bane quotes with approval the ruling made by the Court in Division: " ...petitioner presented in evidence its Rehabilitation, Operation Maintenance and Management Agreement with the NPC and Korea Electric Power Corporation and the various official receipts to prove its sales to the NPC. Since all of its sales are zero-rated, all payments of input VAT on its purchases of goods and services amounting to P11,710,868.86 should be directly attributable to its declared zero-rated sales of P3,285,308,055.85. However, out of the declared zero-rated sales of P3,285,308,055.85, petitioner was .able to substantiate. only tl1e amount of Pl,451,788,865.52, to_wit: Exhibit OR No. Date Amount K 196 1/7/2002 P73,947,108 .77 K-1 197 1/17/2002 K-2 198 2/7/2002 93,128,704.04 K-3 199 2/11/2002 71,358,271.95 K-4 200 89,203,098.59 K-5 201 3/13/2002 73,381,775.74 K-6 202 4/10/2002 42,852,305.83 K-7 204 5/8/2002 73,308,066.29 K-8 205 5/15/2002 65,470,983.71 K-9 206 6/11/2002 85,847,822.37 K-10 209 7/11/2002 74,697,771.34 K-11 211 8/8/2002 72,299,993.43 K-12 213 9/6/2002 74,850,280.55 K-13 215 10/9/2002 72,325,968.86 K-14 216 10/30/2002 74,319,232.09 K-15 217 87,146,130.17 K-16 219 11/7/2002 128,230,460.22 K-17 220 12/11/2002 74,389,194.98 K-18 221 12/11/2002 34,880,455.30 K-23 212 88,192,294.29 8/8/2002 Total 1,958,947.00 ---------------- Pl,451,788,865.52 ============= 10 Marubeni Philippines Corporation v. Commissioner of Internal Revenue, C.T.A. E.B. No . 236 (C.T.A. Case No. 6581), October I, 2007. 11 Supra, note 8. I

DECISION E.B. No. 299 (C .T.A. Case No . 6965} � PagEj15 of 22 In view of the foregoing findings, it becomes necessaty to apportion the validly supported input VAT to its substantiated zero-rated sales of P1,451,788,865.52. The rate to be applied will be based on the total,I volume of declared zero-rated sales,.computed as follows: Substantiated zero-rated sales to NPC P1,451,788,865.52 Divided by the total declared zero-rated sales 3,285,308,055 .8 5 Rate of substantiated zero-rated s.ales 44.19 % Therefore, the proper subject of petitioner's claim for refund shall only be 44.19% ofthe validly supported input VAT."12 Petitioner likewise disagn~es with the Court in Division's disallowance of its input VAT on purchase of goods amounting to ~64,509.50 on the ground that there were no invoices, because it allegedly submitted official receipts. It avers that the presentation of an official receipt for the same transaction can also be recognized as basis for the computation of VAT. In the hierarchy of proof for the substantiation of purchases of goods and services, official 1. receipts occupy a higher plane because it is the best evidence of actual payment. The Court En Bane agrees with the disquisition on this issue by the Court in Division as follows: I "The disallowances referred to in items (a) and (b) are supported by the provisions of Section 110 (A) (2) (a) of the NIRC of 1997, which state: 'SEC.llO. Tax Credits. - (A' ) Creditable Input Tax. - X X X (2) The input tax on domestic purchase of goods or properties shall be creditable: 12 Deci sion, C.T.A. Case No. 6965, February 26, 2007, pp. 9- 10. I

DECISION E.B. No . 299 (C .T .A . Case No..6965) (a) To the purchaser upon consummation of sale and on importation of goods or properties; and X X X .. However, in the case of purchase of services, lease or use of properties, the input tax shall be creditable to the purchaser, lessee or licensee upon payment of the compensation, rental, royalty or fee .' [Underscoring supplied] In relation theretp, Sections 106(D)(l) and 108(C) of the NIRC of 1997 provide: 'SEC.106. Value-added Tax on Sale of Goods or Properties. - X X X (D) Determination of the Tax. - (1) The tax � shall be computed by multiplying the total amount indicated ih the invoice by one-eleventh (1/11). X X X 'SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. - X X X (C) Determination o'f the Tax. - The tax shall be computed by multiplying the total amount indicated in the official receipt by one-eleventh (1/11) .' [Underscoring supplied) The Court en bane clarified in BASF Philippines, Inc. v. Commissioner of Internal Revenue13 the use of an invoice and an official receipt as support for valid purchase of goods or service, to wit: 'The law is clear; it states "upon consummation of sale," in the case of domestic purchases of goods or properties; and "upon payment of compensation or fee," in the case of purchases of services. Pursuant to the afore-quoted Section 110, the input VAT on domestic purchases of goods or properties shall .be allowed i:J.S tax credit to the purchaser only upon consummation of sale, which means upon issuance by th~ seller of the VAt sales invoice evidencing the sale of goods/ properties. On the other hand, the input VAT on purchases of services shall be available as tax credit to the purchaser only upon payment of the compensation or fee i.e., upon issuance by the seller of the VAT official receipt evidencing receipt of the payment for services performed or yet to be performed. 13 C.T.A . EB No. 47, January 5, 2006. I

DEC ISIO N E.B. No . 299 (C .T .A . Case No . 6965) From the foregoing, it can be concluded that there is a clear delineation between .of.ficial receipts and invoices. Contrary to petitioner's position, these two documents cannot be used interchangeably as evidence to prove a particular transaction. Such as in the instant case, petitioner presented official receipts and statements of accounts to prove input VAT on its local goods purchases, .instead of invoices as required by law.'" (Emphasis supplied) Petitioner furt'her claims that the input VAT on purchases of service that were disallowed by the Court in Division for not being supported by official receipts, are evidenced by official receipts that were submitted to the independent CPA for verification. Copies of these receipts were allegedly submitted to the Court as annexes to the Report of the independent CPA. Based on petitioner's Formal Offer of Documentary Exhibits14 filed with Court in Division on March 16, 2006, Exhibits "0" to "0-6109" are photocopies of suppliers' invoices, statements of account and official receipts pertaining to petitioner's purchases of .goods and services for taxable year 2002. Upon verification of these documents, the Court in Division found that input VAT on petitioner's purchases of service in the aggregate amount of ~256,689.98 are not supported by official receipts, which are itemized as follows: "However, a careful scrutiny of petitioner's supporting documents reveals that input VAT in the aggregate amount of P5~045,357.80 should further be disallowed for the reasons hereund~r stated: Supplier Invoice/OR Amount Input VAT (a) Input VAT on purchase of goods not supported by an invoice XXX \ XXX XXX 14 Records, C.T.A. Case No, 6965, pp. 121 - 130. @I

DECISION E. B. No. 299 (C.T.A. Case No. 6965) (b) Input VAT on purchase of service not supported by an official receipt AML Auto Aircon & Elec. Supply 5/18/2002 P1,100.00 P100.00 Delfin's Portrait & Photo Supply 9/28/2002 143.50 13.05 Delfin's Portrait & Photo Supply 9/7/2002 148.00 13.45 DHL .6/28/2002 i,216.82 110.62 Ding's Auto Repair 2/5/2002 3,000.00 272.73 East Photo 10/29/2002 116.50 10.59 Eastern Telecoms 3/1/2002 88.77 8.07 Eurasian Motors Co5/27/2002 1,100.00 100.00 Eurasian Motors CoS/27/2002 1,160.00 100.00 First Imperial Cargo, Inc 10/30/2002 205,658.86 18,696.26 Globe Telecom 2/5/2002 2,064.75 404.13 Globe Telecom vario"us 26,497.67 2,408.88 Globe Telecom 11/20/2001 4,707.28 427.93 Globe Telecom various 30,769.64 2,797.24 Globe Telecom various 30,264.19 2,751.29 HD Edsa Auto Center Corp. 6/28/2002 27,803.05 2,527.55 INFOCOM 1/ 1/2002 16,500.00 1,500,00 INFOCOM 2/1/2002 41,454.60 3,768.60 INFOCOM 4/26/2002 37,159.10 3,378.10 INFOCOM 5/1/2002 16,500.00 1,500.00 INFOCOM 6/28/2002 30,800.00 2,800.00 Mr. Quickie Corp 1/31/2002 60.00 5.45 Mr. Quickie Corp 23-Nov 30.00 2.73 OrnniVVorkx,Inc 5/21/2002 652,415.06 59,310.46 Omni Workx, Inc various 253,225.26 23,020.48 PLOT 2/28/2002 4,523 .32 411.21 PLOT various 2,979.02 270.82 PLOT 2/24/2002 45,302.73 4,118.43 PLOT 4/26/2002 67,318.24 6,119.84 PLOT 5/15/2002 63,044.52 5,731.32 PLOT 5/27/2002 50,380.77 4,580.07 PT&T 6/30/2002 27,720.00 2,520.00 PT&T 6/28/2002 72,553 .14 6,595.74 St. Francis Transport System 6/20/2002 5,649.49 513.59 Unisun Supermarket, Inc 1/30/2002 172.00 15.64 Globe Telecom 5/23/2002 61,280.34 5,570.94 Philippine Fuji Xerox 6/28/2002 2,237.51 203.41 Fuji Zerox 12/2/2002 2,687.63 244.33 Fuji Zerox 8/31/2002 921.58 83.78 3N Copy Systems 9/6/2002 1,225.00 111.36 3N Copy Systems 9/9/2002 1,225.00 111 .37 Tirelandia, Inc. 8/ 9/2002 60.00 5.45 Globe Telecom various 31,640.73 2,876.43 Globe Telecom various 39,419.27 3,583.57 PLOT 10/11/2002 135,843.29 12,349.39 PLOT 10/30/2002 6,273 .30 570.30 Hankook Insurance Agency 6/27/2002 22,421.63 2,038.33 INFOCOM 12/1/2002 23,650.00 2,150.00 PLOT 12/1/2002 6,273.30 570.30 Fast Clean Laundry & Dry Cleanin,g 4/15/2002 952.00 86.55 Ihsung Engineering 12/27/2002 761,532.20 69,230.20 ------ ----- Subtotal P2,821,269.06 P256,689.98"1s :::::::========= =========== If the items enumerated above were indeed supp9rted by copies of official receipts that, were submitted to the Court, then petitioner, to buttress its claim, ~ould have identified or cited the corresponding Exhibit numbers of such receipts in its Petition for Review, but it failed to do so. 15 Decision, C.T.A. Case No. 6965, pp. 14 - 16.

DECISION E.B. No . 299 (C .T .A . Case Nci ..6965) The Court En Bane need not belabor that the question of whether or not the evidence submitted by a party is sufficient to warrant the granting of its pray er li~s within the sound discretion and judgment of the Court. Thus, in the absence of the Court1S abuse or improvident exercise of authority, findings of facts made by the Couf t in Division, especially if supported by the evidence, must be accorded deference and respect.16 Such is the situation in the present case. Lastly, petitioner posits that it is clear from the recently decided case of Intel Techno logy Philippines, �Inc. v. Commissioner of Internal Revenue 17("Intel") that the failure to comply with the requirements of invoicing (imprint of TIN-V) will not result in the automatic denial :of a claim for tax credit/ refund. Petitioner's reliance on the Intel case is misplaced. First. In the Intel case, the Supreme Court ruled that there is no law or BIR rule or regulation requiring petitioner1s authority from the BIR to print its saies invoices (BIR authority to print) to be reflected or indicated therein. However, it declared that a statement that the seller is a VAT-registered entity follo:wed by its TIN-V is one of the items 'required fo be indicated in the receipts or invoices. Here, the principal ground for the partial denial of 16 Commissioner oflnternal Revenue v. Philippi ne National Bank, C.T.A. EB No. 284 (C .T.A. Case No. 6680), November 15, 2007. y 17 G.R. No. 166732, April 27, 2007, 522 SCRA 657.

DEC ISION E.B. No. 299 (C .T.A . Case No. 6965) petitioner's claim for refund is the failure to print "TIN-VAT" on the invoices and receipts supporting petitioner's purchases of goods and services. Second. In the Intel case, the Supreme Court ruled that Revenue Memorandum Circular No. 42-200318 cannot be applied retroactiv ely to Intel's case because to do s'o would be prejudic'ial to Intel. The Supreme Court noted that said Circular was issued on July 15, 2003 by then Commissioner Guillermo L. Parayno, Jr., while Intel' s claim was filed on May 18, 1999. Ev!dently, the Supreme Court recognizes the validity of the Circular which clarified that failure to comply with the invoicing requirements on the documents supporting the sale of goods ar~d service~ would result in the disallowance of the clajm for refund of creditable input taxes. Here, petitioner's claim was filed with the BIR on April 20, 2004 and with this Court on April 22, 2004, which clearly shows that the said Circular applies to petitioner's case. Based on the foregoing discussion, the Court in Division was correct in disallowing a portion of petitioner's claim for refund on the ground that input taxes on petitioner's purchase of goods and services were not supported by invoices and receipt,s printed with "TIN-VAT" . 18Clarifying Certai n Issues Raised Relative to the Processing of Claims for Value-Added Tax (VAT) Credit/Refund, Including Those Filed with the Tax and Revenue Group, One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center, Department of Fi nance (OSS) by Di rect Exporters. I

DEC ISION E. B. No. 299 (C .T.A . Case No. 6965) In fine, the Court En Bane finds no (ogent reason to reverse the assailed Decision promulgated on February 26, 2007 and the Resolution dated June 28, 2007. ' WHEREFORE, the instant Petition for Rev iew is hereby DISMISSED. Accordingly, the assailed Decision and Resolution are hereby AFFIRMED. SO ORDERED. Associate Justice WE CONCUR: Q__\sl. \)t.-.--- (With Concurring and Dissenting Opinion) ERNESTO D. ACOSTA Presiding Justice ~~ G. ay-a.-<.L~ I~ . E~P.UY tUANITO C. CASTANEtsA, JR. Associate Justice Associate Justice CAESA~SANOVA ~ OL,dA~ PAL~ ANCA/~ ~NRIQUEZ Associate Justice Associate Justice

DEC ISION E.B. No. 299 (C .T.A. Case No: 6965) CERTIFICATION ' . Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the above Decision has been reached in consultation with �the members of the Court En Bane before the case was assigned to the � writer of the opinion of this Court. ~- ~- n__ ERNESTO D. ACOSTA Presiding Justice