FOSECO PHILIPPINES, INC. v. COMMISSIONER OF INTERNAL REVENUE

Republic of t he Phil ippi nes COURT OF TAX APPEALS Quezon City FIRST DIVISION FOSECO PHILIPPINES, INC., Petitioner, CTA Case No. 8879 For: Refund Members: -versus- DEL ROSARIO, P.J., Chairperson UY, and MINDARO-GRULLA, JJ . COMMISSIONER OF INTERNAL REVENUE, Respondent. Promulgated: ~ x- - - - - - - - - - _____________N_O_~ ~~ -~--~x DECISION MINDARO-GRULLA, J.: This resolves the Petition for Review fi led by Foseco Phili ppines, Inc., pursuant to Section 7(a)(2)1 of Republic Act (RA) No. 1125 otherwise known as "An Act Creati ng the Court of Tax Appeals", as amended, as well as Section 3(a)(2)2 of Ru le 4 and Section 4(a)3 of Rule 8 of the Revised Rules of the Court of Tax Appeals, as amended. 1 SEC. 7. Jurisdiction. - The CTA shall exercise: (a) Exclusive appellate jurisdiction to review by appeal, as herein provided: XXX (2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relations thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period of action, in which case the inaction shall be deemed a denial; 2 SEC. 3. Cases within thejurisdiction ofthe Court in Division. - The Court in Division shall exercise: (a) Exclusive original over or appellate jurisdiction to review by appeal the following: XXX (2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code or other applicable law provides a specific period for action: xxx; 3 SEC. 4. Where to appeaf-� mode ofappeal.- c

CTA CASE NO. 8879 Page 2 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION Petitioner seeks the refund or issuance of a tax credit certificate in the amount of P4,635,229.77, representing alleged excess and unutilized input value-added tax (VAT) paid for the four (4) quarters of calendar year (CY) 2012. Petitioner Foseco Philippines, Inc. is a domestic corporation duly registered with and authorized by the Securities and Exchange Commission (SEC) to operate as a domestic corporation. Its principal office address is located at Warehouse No. 8, cjo Sun-Made Agri Plus Inc. Cpd., No. 1706 Manggahan St., Barangay Dita, Sta. Rosa City, Province of Laguna.4 On the other hand, respondent is the duly appointed Commissioner of the Bureau of Internal Revenue (BIR) who has the power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto or other matters arising under the National Internal Revenue Code (NIRC) or other laws or portions thereof administered by the BIR. He holds office at the BIR National Office Building, Agham Road, Diliman, Quezon City. Petitioner is engaged in the importation, distribution, marketing and wholesale of FOSECO metallurgical branded chemical products.5 It is registered with the BIR as a VAT taxpayer under Certificate of Registration No. OCN 9RC0000266419.6 The Quarterly VAT Returns of petitioner for the four quarters of calendar year 2012 were filed on April 12, 20127, on July 6, 20128, on January 9, 20139, and on January 7, 201310, respectively. Its Annual Income Tax Return11 was filed on April 11, 2013. (a) An appeal from a decision or ruling or the inaction of the Commissioner of Internal Revenue on disputed assessments or claim for refund of internal revenue taxes erroneously or illegally collected, the decision or ruling of the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry, the Secretary of Agriculture, and the Regional Trial Court in the exercise of their original jurisdiction, shall be taken to the Court by filing before it a petition for review as provided in Rule 42 of the Rules of Court. The Court in Division shall act on the appeal. 4 Par, 1, Parties, Petition for Review, Docket, p. 7; Exhibit "P-1", Green Folder 1 of 9. 5 Exhibit "P-2", Green Folder 1 of 9. 6 Exhibits "P-3" and "P-4", Green Folder 1 of 9. 7 Exhibit "P-7", Green Folder 1 of 9. 8 Exhibit "P-8", Green Folder 1 of 9. 9 Exhibit "P-9", Green Folder 1 of 9. 10 Exhibit "P-10", Green Folder 1 of 9. 11 Exhibit "P-5", Green Folder 1 of 9. ~

CTA CASE NO. 8879 Page 3 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION On March 27, 2014, petitioner filed with respondent, through BIR Revenue District Office (ROO) No. 57, an administrative claim12 for refund of its alleged excess and unutilized input VAT for the four quarters of calendar year 2012 in the amount of P4,635,229.77. Respondent failed to act on petitioner's administrative claim for refund of its excess and unutilized input VAT for the four quarters of calendar year 2012, prompting petitioner to file the instant Petition for Review13 with the Court on August 22, 2014. Within the extended time granted by the Court, 14 respondent filed his Answer15 on November 24, 2014, interposing the following special and affirmative defenses: "SPECIAL AND AFFIRMATIVE DEFENSES 4. She reiterates and re-pleads the preceding paragraphs of this Answer as part of her Special and Affirmative Defenses. 5. To support its claim, it is imperative for petitioner to prove the following, viz. a. The registration requirements of a value-added taxpayer in compliance with section 6 (a) and (b) of Revenue Regulations No. 6-97 in relation to Section 4.107-1 (a) ofRevenue Regulations No.7- 95, and Section 236 ofthe Tax Code, as amended; b. The invoicing and accounting requirements for VAT-registered persons, as well as the filing and payment of VAT in compliance with the provisions of Section 113 and 114 of the Tax Code, as amended; c. Proofofcompliance with the prescribed checklist of requirements to be submitted involving claims 12 Exhibit "P-18", Green Folder 1 of 9. 13 Docket, pp. 7-18. 14 Order dated September 30, 2014 and Resolution dated October 30, 2014, Docket, pp. 76 and 83. 15 Docket, pp. 84-97. c

CTA CASE NO. 8879 Page 4 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION for VAT refundpursuant to Revenue Memorandum Order No. 53-98, otherwise there would be no sufficient compliance with the filing of an administrative claim for refund which is a condition sine qua non prior to the filing ofa judicial claim in accordance with Section 112 of the Tax Code, as amended. This requires the submission of complete documents in support of the application filed with the Bureau of Internal Revenue before the 120-day audit period shall apply, and before the taxpayer could avail ofthejudicial remedies as provided for in the law. Hence, petitioner's failure to submit proof of compliance with the above-stated requirements warrants immediate dismissal ofpetitioner's petition for review; d. That the input taxes of Php 4,635,229.77 allegedly paid by petitioner on its purchases of goods and services for the pt to 4h quarters of calendar year 2012 were attributable to its zero- rated sales and such have not been applied against any output tax and were not carried over to the succeeding taxable quarter or quarters; e. That petitioner's administrative and judicial claims for tax credit or refund ofthe unutilized input tax (VAT} were filed within the periods provided in Sections 112 (A) and (0) ofthe Tax Code, as amended; f. That petitioner's domestic purchases of goods and services were made in the course of its trade or business, properly supported by VAT invoices and/or official receipts and other documents, such as subsidiary purchase Journal showing that it actually paid VAT in accordance with Sections 110 (A) (2) and 113 ofthe Tax Code, as amended, and pursuant to Section 4.104-5 (a) and (b) of Revenue Regulations No. 7-95 (Re: Substantiation of Claims for Input Tax Credits); g. The requirements as enumerated under Section 4.104-5 of Revenue Regulations No. 7-95. (Re: Substantiation of Claims for Input Tax Credits). L.

CTA CASE NO. 8879 Page 5 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION 6. Petitioner must prove that the aggregate amount of Php 4,635,229.77 allegedly representing excess and unutilized input VAT for the pt to 4th quarters of calendar year 2012 is properly documented. 7. As petitioner states in its petition before this Honorable Court, the subject of its claim for refund are zero-rated sales to PEZA and 801 registered entities covering the 1st to 4th quarters of taxable year 2012. 8. The instant petition involving petitioner's claim for refund in the amount of Php 4,635,229.77 allegedly paid and incurred for the 1st to 4th quarters of taxable year 2012 is not warranted for lack of jurisdiction as petitioner failed to exhaust all administrative remedies before elevating this case to the Honorable Court 9. Unmistakably, Section 1 (j) of Rule 16 of the 1999 Rules of Civil Procedure provides that: 'MOTION TO DISMISS' Section 1. Grounds. - Within the time for but before filing the answer to the complaint or pleading asserting a claim, a motion to dismiss may be made on any of the following grounds: XXX (j) That a condition precedent for filing the claim has not been complied with. ' 10. Corollary thereto, Section 112 (D) [now Section 112(c) of the Tax Code of 1997] provides as follows, to wit: 'SEC. 112. Refunds or Tax Credits of Input Tax.- XXX (D) Period Within Which Refund or Tax Credit of Input Taxes Shall be Made. - In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred L:.

CTA CASE NO. 8879 Page 6 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsections (A) and (8) hereof. In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt ofthe decision denying the claim or after the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals.'(Emphasis supplied) Pursuant to the aforequoted provision of law, the Commissioner of Internal Revenue has 120 days from the submission of the complete supporting documents to decide the claim for refund. It logically follows that a taxpayer must first submit the complete supporting documents before the 120-day period should commence. The CIR cannot decide the claim for refund without the complete supporting documents. 11. The implementing rule for these complete documents required by law is RMO No. 53-98. Annex B-1 of said RMO lists all the required documents as follows: XXX XXX XXX As stated above, the first documentary requirement is that provided in Annex B of the same RMO. Annex B provides for more requirements as follows: VALUE-ADDED TAX A) Requirements from Taxpayers 1) Proofof claimed tax credits 2) Proofof Tax Compliance Certificates applied 3) Xerox copy of used Tax Credit Certificate {TCC) with annotation of issued TDM at the back, ifapplicable L

CTA CASE NO. 8879 Page 7 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION 4) Proofofpayment ofdeficiency tax, if any a) current year/period b) previous year/period 5) Certification ofthe appropriate government agency as to taxpayer's entitlement to tax incentives, ifapplicable 6) Xerox copies of the Official Receipts evidencing VAT payment on imported purchases, ifapplicable 7) Proof of exemption under special law, if applicable 8) Certification of the appropriate regulatory agency as to the exempt orzero-ratedsales of the taxpayer under its regulatory supervision, ifapplicable 9) Certificate of Registration issued by the appropriate regulatory agency, together with the conditions attached to such registration, ifapplicable 10) Proof of 'Approval for Effective Zero- Rating ofSales; if applicable 11) Sample invoicejs for 'Export/Exempt Sales; ifapplicable 12) Proofthat the acceptable foreign currency exchange proceeds on export sales/ foreign currency denominated sales had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP), if applicable. Indubitably, the law requires the submission of complete documents in support of the application filed with the Bureau of Internal Revenue before the 120-day audit period shall apply, and before the taxpayer could avail of judicial remedies as provided for in the law. ~

CTA CASE NO. 8879 Page 8 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION Far from complying with the checklist of requirements, evidence on record (Annex 'B' of the petition) shows that petitioner counted the 120 days from petitioner's submission of the application for VAT refund on March 27, 2014. From the aforesaid application, petitioner allegedly submitted: XXX XXX XXX 12. A careful examination of the foregoing reveals that petitioner has not submitted complete documents to substantiate its administrative claim for refund to reckon the commencement of the 120-day period for the respondent. This is a requirement established by law and jurisprudence. Ergo, respondent humbly submits that failure on the part of petitioner to submit the required complete supporting documents would render the instant petition with this Honorable Court to have been prematurely filed. 13. This is not a claim for refund of erroneously or illegally collected taxes where petitioner may choose the evidence it wishes to submit to prove its case. This is merely a claim for excess input taxes where the prescribed documentation is needed by the BIR 14. Petitioner's alleged claim for refund is subject to administrative routinary investigation/examination by the Bureau of Internal Revenue. A claim for refund is not ipso facto granted because respondent CIR still has to investigate and ascertain the validity of the claim. 15. Respondent respectfully avers that before judicial inquiry into the issue of whether taxpayers, in general, are entitled to a refund/tax credit under substantive law may be considered, they have an initial burden to discharge. They must prove that they complied with all the administrative requirements continuing up to judicial review. In other words, before trial de novo proceeds and disposes of the issue of refund entitlement under substantive law, it must first be proved that there was procedural compliance in pursuing the administrative claim leading to the appellate proceedings. As stated by the Honorable Supreme Court: 'Petitioner's contention that non-compliance with Revenue Regulations 3-88 could not have adversely affected its case in the CTA indicates a L:.

CTA CASE NO. 8879 Page 9 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION failure on its part to appreciate the nature of the proceedings in that court. First, a judicial claim for refund or tax credit in the CTA is by no means an original action but rather an appeal by way of petition for review of a previous, unsuccessful administrative claim. Therefore, as in every aopeal or petition for review, a petitioner has to convince the appellate court that the quasi-judicial agency a quo did not have any reason to deny its claims. In this case, it was necessary for petitioner to show the CTA not only that it was entitled under substantive law to the grant ofits claims but also that it satisfied all the documentary and evidentiarv reauirements for an administrative claim for refund or tax credit. Second, cases filed in the CTA are litigated de novo. Thus, a respondent should prove every minute aspect of its case by presenting, formally offering and submitting its evidence to the CTA. Since it is crucial for a petitioner in a judicial claim for refund ortax creditto show thatits administrative claim should have been granted in the first place, part of the evidence to be submitted to the CTA must necessarily include whatever is required for the successful prosecution of an administrative claim.' (Emphasis and underscoring supplied) 16. The doctrine of exhaustion of administrative remedies ensures an orderly procedure which favors a preliminary sifting process, particularly with respect to matters peculiarly within the competence of the administrative agency. After this sifting process comes the availability of judicial review of administrative decisions. Judicial review of administrative decisions entails the Court to examine the method in which the decision was arrived at, and finding no error, lets the administrative decision stand. This is precisely because, as previously stated, these are matters peculiarly within the competence of the administrative agency. 17. Well-settled is the rule that exhaustion of available administrative remedies is a condition sine qua non before taking a judicial action. The Honorable Supreme Court, in a long line of cases, has consistently held that if a remedy within the (.

CTA CASE NO. 8879 Page 10 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION administrative machinery can still be resorted to by giving the administrative officer every opportunity to decide on a matter that comes within his jurisdiction, then such remedy must be exhausted first before the court's power of judicial review can be sought. 18. More so, the Honorable Supreme Court had the occasion to rule that where a remedy is available within the administrative machinery, this should be resorted to before resort can be made to courts, not only to give the administrative agency the opportunity to decide the matter by itself correctly, but also to prevent unnecessary and premature resort to courts. Thus, the party with an administrative remedy must not merely initiate the prescribed administrative procedure to obtain relief but also pursue it to its appropriate conclusion before seeking judicial intervention in order to give the administrative agency an opportunity to decide the matter itself correctly and prevent unnecessary and premature resort to the court. 19. The doctrine of exhaustion of administrative remedies has practical and legal reasons. Resort to administrative remedies entails lesser expenses and provides for speedier disposition of controversies. Thus, for reasons of comity and convenience, courts will shy away from a dispute until the system of administrative redress has been completed and complied with so as to give the administrative agency every opportunity to correct its error and to dispose of the case. The underlying principle of the rule rests on the presumption that the administrative agency, if afforded a complete chance to pass upon the matter, will decide the same correctly. 20. Respondent respectfully submits that the 120-day period provided for by law within which the CIR has to act on petitioner's claim for refund has not yet commenced considering petitioner's failure to comply with the duly mandated legal requirements in such claims for refund/tax credit (i.e submission of complete supporting documents). While it is true that petitioner filed an administrative claim for refund, the same is considered merely pro forma as it failed to submit documentary evidence to prove its entitlement thereto. Petitioner here failed to substantiate its administrative claim for refund. 21. Had petitioner submitted all relevant documents to substantiate its claim for refund or tax credit, respondent would have the opportunity to determine the veracity of its claim and <

CTA CASE NO. 8879 Page 11 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION might refund or issue a tax credit certificate for the claimed amount. Such failure of petitioner to submit relevant documents deprived respondent of the opportunity and time to study petitioner's claim for refund and to fully exercise its function. It must be remembered, that in the case of Jariol vs. Commission on Elections, the Supreme Court reasoned that a party must not merely initiate the prescribed administrative procedure to obtain relief, the party concerned must pursue this relief until the appropriate conclusion takes place before seeking judicial intervention in order to give the administrative an opportunity to decide the matter by itself correctly and prevent unnecessary and premature resort to the court. 22. It is well settled rule in tax laws, that the taxpayer who feels aggrieved by the actions taken by tax authorities may not seek redress in the courts of justice without first exhausting available administrative remedies, except for certain well- recognized exceptions. It is the policy of the law and good practice to discourage court litigations and encourage resort to administrative action whenever the latter is feasible, adequate and speedy. Another thing, the respect and consideration due to each branch of the government demand that the judicial department abstain, whenever possible from interfering in the acts of the other departments except when the latter transcend their respective shares of action and suitable remedies cannot be obtained by them. 23. Equally noteworthy is the fact that the Highest Tribunal in the case of Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue, held: XXX XXX XXX Thus, as clearly stated by the above jurisprudence, the necessity for petitioner to submit all relevant documents to substantiate its administrative claim for refund is imperative. The filing of the petition for review to this Honorable Court must be due to the denial of its claim or inaction which is tantamount to a denial of the said action. Absent these circumstances, the judicial claim merely becomes an attempt by the taxpayer to circumvent the role and duties of the Commissioner in evaluating taxpayer's claim for refund. ~

CfA CASE NO. 8879 Page 12 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION 24. Failure of petitioner to exhaust all administrative remedies is fatal to its claim considering that such non- exhaustion is not merely for purposes of formality but is jurisdictional in nature. 25. Prescinding from and anent the foregoing considerations, petitioner's failure to exhaust all available administrative remedies which led to the premature filing of the instant petition divests the Honorable Court jurisdiction over the instant petition. 26. Exemptions from taxation are highly disfavored in law and he who claims exemption must be able to justify his claim by the clearest grant of organic or statutory law. An exemption from the common burden cannot be permitted to exist upon vague implications. 27. In an action for refund, the burden of proof is on the taxpayer to establish its right to refund, and failure to sustain the burden is fatal to the claim for refund. Hence, a taxpayer is charged with the heavy burden of proving that he has complied with and satisfied all the statutory and administrative requirements to be entitled to the tax refund. Failure to comply therewith warrants a dismissal of the taxpayer's claim for refund. Respondent humbly submits that petitioner failed to establish its right to refund. 28. It can never be emphasized enough that in this jurisdiction tax refunds/credits are in the nature of tax exemptions, hence, laws relating to them call for a strict application against the claimant. As held by the Honorable Supreme Court: Tax refunds are in the nature of tax exemptions, and are to be construed strictissimi juris against the entity claiming the same. Thus, the burden of proof rests upon the taxpayer to establish by sufficient and competent evidence, its entitlement to a claim for refund. ' 29. Taxes collected are presumed to be in accordance with laws and regulations. c..

CTA CASE NO. 8879 Page 13 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION 30. Claims for refund are construed strictly against the claimant for the same partake of the nature of exemption from taxation and as such, they are looked upon with disfavor. Basic is the rule that tax refunds are regarded as tax exemptions that are in derogation of the sovereign authority and are to be construed in strictissimi juris against the person or entity claiming the exemption. The law does not look with favor on tax exemptions and that he who would seek to be thus privileged must justify it by words too plain to be mistaken and too categorical to be misinterpreted. 31. Based on the foregoing, petitioner's claim for refund has no basis in fact and in law. Thus, the instant petition should be dismissed for lack of jurisdiction and/or for lack of merit." The Pre-Trial Conference was set on March 12, 2015.16 Accordingly, respondent's Pre-Trial Brief17 was filed on March 6, 2015, while the Pre-Trial Brief for the Petitioner18 was filed on May 19, 2015. On October 8, 2015, the parties filed a Joint Motion to Admit Joint Stipulations of Facts and Issues. This was granted by the Court in the Resolution19 dated November 2, 2015 and the Joint Stipulations of Facts and Issues20 was admitted and approved. Subsequently, the Court issued the Pre-Trial Order21 on November 13, 2015. Upon motion22 of petitioner, the Court commissioned Mr. Richard S. Querida, as the Independent Certified Public Accountant (!CPA) for the case. 23 During trial, petitioner presented the following witnesses: Ms. Bricel Ann Reyes24, its Finance Manager; and Mr. RichardS. Querido25, the Court-commissioned !CPA. 16 Notice of Pre-Trial Conference, Docket, p. 99. 17 Docket, pp. 102-105. 18 Docket, pp. 129-141. 19 Docket, pp. 203-204. 20 Docket, pp. 192-196. 21 Docket, pp. 207-214. 22 Docket, pp. 164-166. 23 Oath of Commission, Docket, p. 220. 24 Minutes of the Hearing dated February 9, 2016 and May 31, 2016, Docket, pp. 217-219 and 280-284; Sworn Statement of Bricel Ann Reyes In Lieu of Direct Testimony, and Supplemental Sworn Statement of Bricel Ann Reyes In Lieu of Direct Testimony, Docket, pp. 116-128 and 252- 257. 25 Minutes of the Hearing dated May 31, 2016, Docket, pp. 280-284; Sworn Statement of Mr. Richard S. Querida In Lieu of Direct Testimony, Docket, pp. 264-272. (

CTA CASE NO. 8879 Page 14 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION The Formal Offer of Evidence for the Petitioner26 was filed on August 1, 2016. In the Resolution27 dated September 21, 2016, the Court admitted petitioner's Exhibits "P-1"I "P-2"I "P-3"I "P-4"I "P-5"I "P-5-a" "P-6" "P-7" "P-8" "P-9" "P-10" "P-11" "P-12" "P-12-1" "P-'III I I I I I 13" "P-13-1" "P-14" "P-14-1" "P-15" "P-15-1" "P-16" "P-16-4" "P-'III I I I I 16-2"I "P-16-3"I "P-17"I "P-17-1"I "P-17-2"I "P-17-3"I "P-18"I "P-19"I "P-20"I "P-21"I "P-22"I "P-23"I "P-24"I "P-25"I "P-26"I "P-27"I "P-28"I "P-29"I "P-30"I "P-31"I "P-32"I "P-33"I "P-34"I "P-36"I "P-37"I "P-38"I "P-39"I "P-40"I "P-41"I "P-42"I "P-43"I "P-44"I "P-45"I "P-46"I "P-47"I "P-48" "P-49" "P-50" "P-51" "P-53" "P-53-1" "P-54" "P-54-1" "P-'III I I I I 55" "P-55-1" "P-56" "P-56-1" "P-57" "P-58" "P-60 to P-244" "P-'II I I I I 245" to "P-303" "P-304" to "P-318" "P-319" "P-320" to "P-332" "P-' I I I 333", "P-334" to "P-362", "P-363", "P-364", "P-365" to "P-367", "P- 368" to "P-394" "P-395" "P-396" to "P-400" "P-401" to "P-406" "P-'I I I 407"to "P-409" "P-410"to "P-416" "P-417"to "P-476" "P-477"to "P-' I I 479", "P-480", "P-481" to "P-503", "P-504" to "P-505", "P-506" to "P- 533" "P-534" to "P-613" "P-614" to "P-627" "P-628 " "P-629" "P-'I I I I 630" to "P-631" "P-632" "P-633" to "P-857'' "P-858" to "P-1074" "P-'I I I 1075", "P-1076" to "P-1078", "P-1079", "P-1080" to "P-1086", "P-1087" to "P-1315" "P-1316" to "P-1540" "P-1541" to "P-1676" "P-1677" "P-' I I I 1678" to "P-1683" "P-1684" to "P-1686" "P-1687" "P-1688" to "P-' I I 1691", "P-1692" to "P-1695", "P-1696" to "P-1699", "P-1700", "P- 1701", "P-1702", and "P-1703". However, the Court denied the admission of Exhibit "P-33-a" for not having been found in the records of the case and for not being identified, and Exhibit "P-35" for failure to submit the duly marked document. Petitioner's documentary exhibits are as follows: Exhibit: Nature and Description: Certified true copy of the SEC Certificate of Registration P-1 issued on February 5, 2001 P-2 Certified true copy of the SEC Certificate of filing Amended P-3 Articles of Incorporation Certified Xerox copy of the BIR Certificate of Registration P-4 issued by ROO No. 057 City of Binan, Laguna Certified true copy of the BIR RDO No. 0538 Certificate of P-5 Registration Alabang Muntinlupa City Certified true copy of CY 2012 Annual Income Tax Return filed through eFPS on April 11, 2013 consisting of eight (8) pages 26 Docket, pp. 295-314. 27 Docket, pp. 324-326. L..

CfA CASE NO. 8879 Page 15 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION P-5-a Original copy Comparative Audited Financial Statements for CY 2012 and 2011 issued by Manabat Sanagustin & P-6 Co., CPA on March 30, 2013 consisting of twenty three P-7 (23) pages P-8 Certified true copy of petitioner's CY 2012 Alpha List and P-9 BIR Form 1604-CF P-10 Certified true copy of CY 2012-First Quarterly VAT return P-11 Certified true copy of CY 2012-Second Quarterly VAT P-12 return P-12-1 Certified true copy of CY 2012-Third Quarterly VAT return P-13 Certified true copy of CY 2012-Fourth Quarterly VAT return P-13-1 Certified true copy of CY 2013-First Quarterly VAT return P-14 Certified true copy of CY 2013-Amended Second Quarterly P-14-1 VAT return P-15 Certified true copy of CY 2013-Second Quarterly VAT P-15-1 return P-16 Certified true copy of CY 2013-Amended Third Quarterly P-16-4 VAT return Certified true copy of CY 2013-Third Quarterly VAT return P-16-2 Certified true copy of CY 2013-Amended Fourth Quarterly P-16-3 VAT return Certified true copy of CY 2013-Fourth Quarterly VAT return P-17 Certified true copy of amended Monthly Value Added Tax P-17-1 Declaration for the month of January 2014 P-17-2 Certified true copy of Monthly Value Added Tax P-17-3 Declaration for the month of January 2014 P-18 Certified true copy of Amended Monthly Value Added Tax Declaration for the month of February 2014 P-19 Line 20D of the amended Monthly Value Added Tax P-20 Declaration for the month of February 2014 marked as Exhibit P-16 P-21 Certified true copy of the Monthly Value Added Tax Declaration for the month of February 2014 Line 20D of the originally filed Monthly Value Added Tax Declaration for the month of February 2014 marked as Exhibit P-16-2 Certified true copy of CY 2014-Amended First Quarterly VAT return Line 23D of CY 2014 amended First Quarterly VAT return marked as Exhibit P-17 Certified true copy of CY 2014-First Quarterly VAT return Line 23D of CY 2014 First Quarterly VAT return marked as Exhibit P-17-2 Original copy of petitioner's formal application for VAT refund filed with BIR RDO No. 057 Binan, Laguna on March 27, 2014 on its CY 2012 unutilized input VAT in the amount of P4,635,229.77 consisting of seven (7) pages Original copy of the Certification issued by the Department of Finance as of February 2, 2015 Original copy of the BIR Application for VAT Zero-Rated dated December 28, 2011 submitted by petitioner for Aichi Forging Company of Asia, Inc. (formerly Aichi Forging Asia, Inc.) Original copy of the BIR Application for VAT Zero-Rate dated December 28, 2011 submitted by petitioner for ~

CTA CASE NO. 8879 Page 16 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION P-22 Citizen Machinery Philippines Inc. (formerly Miyano Phils., P-23 Inc.) P-24 Original copy of the BIR Application for VAT Zero-Rate P-25 dated December 28, 2011 submitted by petitioner for P-26 Creative Diecast Phils., Corp. P-27 Original copy of the BIR Application for VAT Zero-Rate P-28 dated December 28, 2011 submitted by petitioner for P-29 Ebara Benguet Inc. P-30 Original copy of the BIR Application for VAT Zero-Rate P-31 dated December 28, 2011 submitted by petitioner for FVC P-32 Philippines, Inc. P-33 Original copy of the BIR Application for VAT Zero-Rate P-34 dated December 28, 2011 submitted by petitioner for P-36 Honda Parts Manufacturing Corp. P-37 Original copy of the BIR Application for VAT Zero-Rate P-38 dated December 28, 2011 submitted by petitioner for Kito P-39 Philippines, Inc. P-40 Original copy of the BIR Application for VAT Zero-Rate dated December 28, 2011 submitted by petitioner for Menima Casting Products, Inc. Original copy of the BIR Application for VAT Zero-Rate dated December 28, 2011 submitted by petitioner for Mikado Philippines Corp. Original copy of the BIR Application for VAT Zero-Rate dated December 28, 2011 submitted by petitioner for Philippine Denrai, Inc. Original copy of the BIR Application for VAT Zero-Rate dated December 28, 2011 submitted by petitioner for Philippine Phosphate Fertilizer Corp. Original copy of the BIR Application for VAT Zero-Rate dated December 28, 2011 submitted by petitioner for Toyota Autoparts Philippines, Inc. Original copy of PEZA Certification dated August 27, 2014 issued by Ms. Ma. Lorna L. Alden, Division Chief, Enterprise Services Division Certified true copy BOI Certificate of Registration dated May 26, 1994 issued to FVC Phils., Inc. consisting of four (4) pages Certified true copy BOI Certificate of Registration dated May 19, 1997 issued to Ebara Benguet, Inc. consisting of four (4) pages Original copy of the SEC Certification of Non-Registration of Company dated April 15, 2015 issued to Ashapura International Ltd. Original copy of the SEC Certification of Non-Registration of Company dated April 15, 2015 issued to Ashapura Minechem Ltd. Original copy of the SEC Certification of Non-Registration of Company dated April 15, 2015 issued to Vesuvius UK Limited Original copy of the SEC Certification of Non-Registration ofCompanydated April15, 2015 issued to Vesuvius GmbH (Foseco Borken) Original copy of the SEC Certification of Non-Registration ofCompany dated April 15, 2015 issued to Foseco Golden Gate Co., Ltd ~

CTA CASE NO. 8879 Page 17 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION P-41 Original copy of the SEC Certification of Non-Registration P-42 of Company dated April 15, 2015 issued to Foseco India P-43 Limited P-44 Original copy of the SEC Certification of Non-Registration P-45 of Company dated April 15, 2015 issued to Foseco Japan P-46 Limited P-47 Original copy of the SEC Certification of Non-Registration P-48 of Company dated April 15, 2015 issued to Foseco Korea P-49 Limited P-50 Original copy of the SEC Certification of Non-Registration P-51 of Company dated April 15, 2015 issued to Foseco P-53 Nederland B.V. P-53-1 Original copy of the SEC Certification of Non-Registration P-54 of Company dated April 15, 2015 issued to Foseco Pty P-54-1 Limited P-55 Original copy of the SEC Certification of Non-Registration P-55-1 of Company dated April 15, 2015 issued to Foseco P-56 (Thailand) Ltd. P-56-1 Original copy of the SEC Certification of Non-Registration P-57 of Company dated April 15, 2015 issued to Jiangsu Surun High Carbon Co., Ltd Original copy of the SEC Certification of Non-Registration of Company dated April 15, 2015 issued to Pt Foseco Indonesia Original copy of the SEC Certification of Non-Registration of Company dated April 15, 2015 issued to Siambrator Company Limited Original copy of the SEC Certification of Non-Registration of Company dated April 15, 2015 issued to Vesuvius Foundry Products (Suzhou) Co., Ltd Original copy of the SEC Certification of Non-Registration of Company dated April 15, 2015 issued to Zu-lon Industrial Co., Ltd Original copy of the Qualifying Sworn Statement of Mr. Richard S. Querida for Commissioning as Independent CPA consisting of six (6) pages dated August 25, 2015 On page 3, the Name and signature on "Richard S. Querida" Original copy of the Sworn Statement ofBrice/ Ann Reyes in Lieu of Direct Testimony consisting of sixteen (16) pages dated May 18, 2015 On page 11, the Name and Signature on "Bricel Ann Reyes" Original copy of Supplemental Sworn Statement of Brice/ Ann Reyes in Lieu of Direct Testimony consisting of eight (8) pages dated May 12, 2016 On page 6, the Name and Signature on "Bricel Ann Reyes" Original copy of the Sworn Statement of Mr. RichardS. Querida in Lieu ofDirect Testimony consisting of fourteen (14) pages dated May 24, 2016 On page 7, the Name and Signature on "Richard S. Querida" Original copy of the !CPA Report dated March 8, 2016 - FOSECO PHILIPPINES INC. Results of the Procedures Performed Relative to the Company's Claim for Refund of its Unutilized Input Tax Covering the pt, ?d, Jd & 4h ~

CTA CASE NO. 8879 Page 18 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION P-58 Quarters ofCalendar Year 2012. CTA Case No. 8879 (First P-60 to P-244 Division) Soft copy or Compact Disc containing scanned copies of P-245 to the Independent CPA Report, its annexes and exhibits P-303 Input VAT on domestic purchase of services supported by VAT ORs P-304 to P-318 Input VAT on domestic purchase of services supported by VAT ORs wherein the amount of input VAT in the OR does P-319 not tie-up with the amount of input VAT in the Company's schedule P-320 to Input VAT on domestic purchase of service supported by P-332 VAT ORs dated outside the quarter of period of claim but P-333 within CY 2012 Input VAT on domestic purchase of services supported by P-334 to VAT OR wherein the amount of input VAT in the OR does P-362 not tie-up with the amount of input VAT in the Company's P-363 schedule and dated outside the quarter of period of claim but within CY 2012 P-364 Input VAT on domestic purchase of services supported by VAT to establish domestic purchase of services ORs but P-365 to amount of VAT not shown as separate item in the ORs P-367 Input VAT on domestic purchase of services supported by Certified True Copy VAT OR P-368 to Input VAT on domestic purchase of services supported by P-394 ORs with no BIR authority to print P-395 Input VAT on domestic purchase of services supported by Certified True Copy VAT OR wherein the amount of input P-396 to VAT in the OR does not tie-up with the amount of input P-400 VAT in the Company's schedule Input VAT on domestic purchase of services supported by P-401 to ORs with no BIR authority to print wherein the amount of P-406 input VAT in the OR does not tie-up with the amount of input VAT in the Company's schedule P-407 to Input VAT on domestic purchase of services supported by P-409 duplicate copy of VAT ORs Input VAT on domestic purchase of services supported by P-410 to ORs printed with "NOT VALID AS SOURCE OF INPUT P-416 TAX/NOT VALID FOR CLAIMING INPUT TAX" Input VAT on domestic purchase of services supported by P-417 to ORs printed with "NOT VALID AS SOURCE OF INPUT P-476 TAX/NOT VALID FOR CLAIMING INPUT TAX" and amount of VAT not shown as separate item in the OR Input VAT on domestic purchase of services supported by ORs with no BIR authority to print dated outside the quarter of period of claim but within CY 2012 Input VAT on domestic purchase of services supported by duplicate copy of VAT ORs dated outside the quarter of period of claim but within CY 2012 Input VAT on domestic purchase of services supported by ORs printed with "NOT VALID AS SOURCE OF INPUT TAX/NOT VALID FOR CLAIMING INPUT TAX" and dated outside the quarter of period of claim but within CY 2012 Input VAT on domestic purchase of services supported by VAT ORs dated outside the period of claim Input VAT on domestic purchase of goods other than capital goods supported by VAT invoices .

CTA CASE NO. 8879 Page 19 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION P-477 to Input VAT on domestic purchase of goods other than P-479 capital goods supported by VAT invoices dated outside the quarter of period of claim but within CY 2012 P-480 Input VAT on domestic purchase of goods other than capital goods supported by VAT invoice dated outside the P-481 to period claim P-503 Input VAT on domestic purchase of goods supported by documents other than VAT invoices P-504 to Input VAT on domestic purchase of goods supported by P-505 documents other than VAT invoices dated outside the quarter of period of claim but within CY 2012 P-506 to Input VAT on importation of goods supported by Import P-533 Entry & Internal Revenue Declarations (IEIRDs) and ORs Input VAT on importation of goods supported by Import P-534 to Entry & Internal Revenue Declarations (IEIRDs) and ORs P-613 which are not of the same amount of VAT Input VAT on importation of goods supported by P-614 to photocopied Import Entry & Internal Revenue P-627 Declarations (IEIRDs) but original ORs Input VAT on importation of goods supported by import P-628 Entry & Internal Revenue Declarations (IEIRDs) which are the same amount of VAT not tie up with the schedule P-629 Input VAT on importation of goods supported by ORs P-630 to Input VAT on importation of goods supported by Import Entry & Internal Revenue Declarations (IEIRDs) P-631 Input VAT on importation of goods supported by form P-632 other than IEIRD and OR Sale of Goods subject to 12% VAT supported by invoices P-633 to printed with "TIN VAT" and dated within CY 2012 P-857 Sale of Goods subject to 12% VAT supported by invoices printed with "TIN VAT" and dated within CY 2012 P-858 to Sale of Goods subject to 12% VAT supported by invoices P-1074 wherein the amount of output VAT in the invoice does not P-1075 tie-up with the amount of output VAT in the Company's schedule P-1076 toP- Sale of Goods subject to 12% VAT supported by 1078 photocopied invoices Sale of Goods subject to 12% VAT supported by invoices P-1079 printed but stamped "Zero-rated Sale" Gross receipts from Commission Income Subject to 12% P-1080 to VAT supported by documents other than ORs P-1086 Zero-rated sale of goods supported invoices printed with "TIN VAT" and stamped with "ZERO-RATED SALES" and P-1087 to dated within CY 2012 P-1315 Sales invoices on sale of goods P-1316 to Zero-rated sale of goods supported invoices printed with P-1540 "TIN VAT" and stamped with "ZERO-RATED SALES" and dated within CY 2012 P-1541 to Zero-rated sale of goods with invoices which value does P-1676 not tie up with the schedule Zero-rated sale of goods with supporting invoices but not P-1677 stamped "Zero-rated sales" Zero-rated sale of goods with supporting invoices but not P-1678 to stamped "Zero-rated sales" but with VAT computation P-1683 P-1684 to P-1686 c.

CTA CASE NO. 8879 Page 20 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION P-1687 Zero-rated sale of goods with supporting documents other than invoice P-1688 to Original filing for the Pt, 2nd, 4th quarter VAT returns, and P-1691 amended VAT return for the 3rd quarter of CY 2012 Original filing of 1st quarter VAT return for CY 2013; and P-1692 to amended quarterly VAT returns for 2nd, 3rd, and 4th P-1695 quarters of CY 2013 Amended 1st Quarter VAT return for CY 2014; and P-1696 to Quarterly VAT returns for the 2nd, 3rd, and 4th quarters of P-1699 CY 2014 Schedule of Input VAT for CY 2012 P-1700 Schedule of Sales for CY 2012 P-1701 Schedule of Zero-Rated Sales for CY 2012 P-1702 Petitioner's audited financial statements [AFS] for CY 2012 P-1703 During the hearing on May 31, 2016, the counsel for respondent manifested that he will no longer be presenting any evidence.28 Both parties failed to file their memorandum as per Records Verification issued by this Court's Judicial Records Division dated November 8, 2016.29 Thus, in the Resolution30 dated November 29, 2016, the instant case was declared submitted for decision. The parties stipulated the following issue31 for resolution of this Court: Whether petitioner is entitled to a refund or tax credit in the total amount of P4,635,229.77 allegedly representing excess and unutilized input VAT for the 1st to 4th quarters of calendar year 2012. The relevant provision to petitioner's refund claim is Section 112(A) and (C) of the National Internal Revenue Code of 1997, as amended, which is quoted hereunder for easy reference: "SEC. 112. Refunds or Tax Credits ofInput Tax. - (A) Zero-Rated or Effectively Zero-Rated Sales. - Any VAT-registered person, whose sales are zero-rated or 28 Minutes of the Hearing dated May 31, 2016, Docket, pp. 280-284; Order dated May 31, 2016, Docket, pp. 285-286. 29 Docket, p. 327. 30 Docket, p. 331. 31 Issue, Joint Stipulation of Facts and Issues (JSFI), Docket, p. 193. ~

CTA CASE NO. 8879 Page 21 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION 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 transitional 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)(1), (2) and (b) and Section 108(8)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the 8angko Sentral ng Pilipinas (8SP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods of properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales: Provided, finally, That for a person making sales that are zero-rated under Section 108(8)(6), the input taxes shall be allocated ratably between his zero-rated and non-zero-rated sales. XXX XXX XXX (C) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsection (A) hereof. In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals." Corollary thereto, Section 4.112-1(d) of Revenue Regulations (RR) No. 16-2005 states: "SECTION 4.112-1. Claims for Refund/Tax Credit Certificate ofInput Tax. - ~

CTA CASE NO. 8879 Page 22 of 44 FOSECO PHILIPPINES, INC. vs. CIR XXX DECISION XXX XXX (d) Period within which refund or tax credit certificate/refund ofinput taxes shall be made In proper cases, the Commissioner of Internal Revenue shall grant a tax credit certificate/refund for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with subparagraph (a) above. In case of full or partial denial of the claim for tax credit certificate/refund as decided by the Commissioner of Internal Revenue, the taxpayer may appeal to the Court of Tax Appeals (CTA) within thirty (30) days from the receipt of said denial, otherwise the decision shall become final. However, if no action on the claim for tax credit certificate/refund has been taken by the Commissioner of Internal Revenue after the one hundred twenty (120) day period from the date of submission of the application with complete documents, the taxpayer may appeal to the CTA within 30 days from the lapse of the 120-day period." From the foregoing provisions, and based on the ruling of the Supreme Court in the case of Southern Philippines Power Corporation vs. Commissioner ofInternal Revenu&2, citing the case of San Roque Power Corporation vs. Commissioner ofInternal Revenu&3, in order to be entitled to a tax credit certificate or refund of excess input VAT attributable to zero-rated or effectively zero-rated sales, the following requisites must be present: (1) The taxpayer is VAT-registered; (2) The taxpayer is engaged in zero-rated or effectively zero-rated sales; (3) The input taxes are due or paid; (4) The input taxes are not transitional input taxes; (5) The input taxes have not been applied against output taxes during and in the succeeding quarters; (6) The input taxes claimed are attributable to zero-rated or effectively zero-rated sales; 32 G.R. No. 179632, October 19, 2011. 33 G.R. No. 180345, November 25, 2009. ~

CTA CASE NO. 8879 Page 23 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION (7) For zero-rated sales under Section 106(A)(2)(1) and (2); 106(8); and 108(8)(1) and (2), the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with 8SP rules and regulations; (8) Where there are both zero-rated or effectively zero- rated sales and taxable or exempt sales, and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on the basis of sales volume; and (9) The claim is filed within two years after the close of the taxable quarter when such sales were made. The Court shall first ascertain whether it has jurisdiction to take cognizance of the instant Petition for Review, before proceeding to determine whether or not petitioner is entitled to its refund claim. Petitioner's administrative and judicial claims were filed within the prescriptive period Pursuant to the above-quoted Section 112(A) of the NIRC of 1997, as amended, the administrative claim for the issuance of a tax credit certificate or refund of input VAT must be filed with the 8IR within two (2) years after the close of the taxable quarter when the zero-rated or effectively zero-rated sales were made. Hence, petitioner's last day for filing of its administrative claim for the four taxable quarters of calendar year 2012 fell on the following dates: Last day of the Two-vear oeriod March 31. 2014 June 30, 2014 Seotember 30, 2014 December 31. 2014 Clearly, petitioner's administrative claim34 for refund filed on March 27, 2014 was filed well within the two-year prescriptive period. 34 Exhibit "P-18", Green Folder 1 of 9. ~

CTA CASE NO. 8879 Page 24 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION As to petitioner's judicial claim, Section 112(C) of the NIRC of 1997, as amended, provides that respondent has one hundred twenty (120) days from the date of submission of complete documents within which to act on petitioner's claim. In this case, petitioner simultaneously submitted its complete supporting documents35 upon filing of its administrative claim. And, since there was no written notice sent by respondent informing petitioner that the documents it submitted were not complete or requiring the latter to submit additional documents, the 120-day period started and continued to run from March 27, 2014, the date when petitioner filed its administrative claim for refund, until July 25, 2014. After the lapse of the 120-day period, petitioner had thirty (30) days or until August 26, 201436 within which to file an appeal before this Court. Due to respondent's inaction on its claim, petitioner filed its appeal via Petition for Review before this Court on August 22, 2014, which is within the required 30-day period. Hence, both the administrative and judicial claims were filed within the prescriptive period. The Court shall now determine petitioner's entitlement to the instant claim. Petitioner is a VAT-registered entity and had zero-rated or effectively zero-rated sales during calendar year 2012 Petitioner is a duly registered VAT taxpayer37 engaged in the development, manufacture, importation, distribution, marketing and wholesale of metallurgical and construction chemical products and provides technical service and assistance to its buyers.38 Petitioner asserts that its sales of goods to Philippine Economic Zone Authority (PEZA) and Board of Investments (BOI)-registered enterprises in CY 2012 are subject to zero percent (0�/o) VAT. 35 As enumerated in pp. 6-7 of Exhibit "P-18", Green Folder 1 of 9. 36 Next working day after August 24, 2014, which is Sunday, and followed by a holiday. 37 Exhibits "P-3" and "P-4", Green Folder 1 of 9. 38 Exhibit "P-2", Green Folder 1 of 9. 4.

CTA CASE NO. 8879 Page 25 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION Indeed, sales of goods by a VAT-registered taxpayer, such as herein petitioner, to PEZA-registered entities or SOl-registered 100�/o exporters are subject to zero percent (0�/o) VAT. Pertinent provisions of Section 106(A)(2)(a)(S) and (c) of the NIRC of 1997, as amended, state that: SEC. 106. Value-added Tax on Sale of Goods or Properties. - (A) Rate and Base of Tax. - XXX XXX XXX (2) The following sales by VAT-registered persons shall be subject to zero percent (0�/o) rate: (a) Export Sales.- The term 'export sales'means: XXX XXX XXX (5) Those considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987, and other special laws. XXX XXX XXX (c) Sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to zero rate." The special law specific to this case is Republic Act (RA) No. 7916, as amended, otherwise known as "The Special Economic Zone Act of 1995". Section 8 of RA No. 7916, as amended, mandates that the PEZA shall manage and operate the Ecozones as separate customs territory, thus: (

CTA CASE NO. 8879 Page 26 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION "SECfiON 8. ECOZONE to be Operated and Managed as Separate Customs Territory. - The ECOZONES shall be managed and operated by the PEZA as separate customs territory. The PEZA is hereby vested with the authority to issue certificates of origin for products manufactured or processed in each ECOZONE in accordance with the prevailing rules of origin, and the pertinent regulations of the Department of Trade and Industry and/or the Department of Finance." Since the Ecozone is viewed as a foreign territory by legal fiction, sales of goods and services made by a VAT-registered person in the Philippine customs territory to an entity registered and operating within the Ecozone are considered exports to a foreign country subject to zero percent (0�/o) VAT. It is now a settled rule that based on the Cross Border Doctrine, PEZA-registered enterprises are VAT-exempt and no VAT can be passed on to them.39 This was elucidated by the Supreme Court in the case of Commissioner of Internal Revenue vs. Toshiba Information Equipment (Phils.), Inc.40, to wit: "This Court agrees, however, that PEZA-registered enterprises, which would necessarily be located within ECOZONES, are VAT-exempt entities, not because of Section 24 of Rep. Act No. 7916, as amended, which imposes the five percent (5�/o) preferential tax rate on gross income of PEZA-registered enterprises, in lieu of all taxes; but, rather, because of Section 8 of the same statute which establishes the fiction that ECOZONES are foreign territory. xxx An ECOZONE or a Special Economic Zone has been described as- ... [S]elected areas with highly developed or which have the potential to be developed into agro-industrial, industrial, tourist, recreational, commercial, banking, investment and financial 39 Toshiba Information Equipment (Phils.), Inc. vs. Commissioner of Internal Revenue, G.R. No. 157594, March 9, 2010. 40 G.R. No. 150154, August 9, 2005. ~

CTA CASE NO. 8879 Page 27 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION centers whose metes and bounds are fixed or delimited by Presidential Proclamations. An ECOZONE may contain any or all of the following: industrial estates (IEs), export processing zones (EPZs), free trade zones and tourist/recreational centers. The national territory of the Philippines outside of the proclaimed borders of the ECOZONE shall be referred to as the Customs Territory. Section 8 of Rep. Act No. 7916, as amended, mandates that the PEZA shall manage and operate the ECOZONES as a separate customs territory; thus, creating the fiction that the ECOZONE is a foreign territory. As a result, sales made by a supplier in the Customs Territory to a purchaser in the ECOZONE shall be treated as an exportation from the Customs Territory. Conversely, sales made by a supplier from the ECOZONE to a purchaser in the Customs Territory shall be considered as an importation into the Customs Territory. Given the preceding discussion, what would be the VAT implication of sales made by a supplier from the Customs Territory to an ECOZONE enterprise? The Philippine VAT system adheres to the Cross Border Doctrine, according to which, no VAT shall be imposed to form part of the cost of goods destined for consumption outside of the territorial border of the taxing authority. Hence, actual export of goods and services from the Philippines to a foreign country must be free of VAT; while, those destined for use or consumption within the Philippines shall be imposed with ten percent (10�/o)41 VAT." (Emphasis supplied) With respect to sales by a VAT-registered supplier to a SOl- registered 100�/o exporter, Section 4.106-5 of Revenue Regulations No. 16-05, as amended, provides: "SEC. 4.106-5. Zero-Rated Sales of Goods or Properties. XXX 41 Now at 12% VAT rate. c

CTA CASE NO. 8879 Page 28 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION The following sales by VAT-registered persons shall be subject to zero percent (0�/o) rate: (a) Export Sales. -'Export Sales'shall mean: XXX XXX XXX (5) Transactions considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987, and other special laws. 'Considered export sales under Executive Order No. 226' shall mean the Philippine port F.O.B. value determined from invoices, bills of lading, inward letters of credit, landing certificates, and other commercial documents, of export products exported directly by a registered export producer, or the net selling price of export products sold by a registered export producer to another export producer, or to an export trader that subsequently exports the same; Provided, That sales of export products to another producer or to an export trader shall only be deemed export sales when actually exported by the latter, as evidenced by landing certificates or similar commercial documents; Provided, further, That pursuant to EO 226 and other special laws, even without actual exportation, the following shall be considered constructively exported: (1) sales to bonded manufacturing warehouses of export-oriented manufacturers; (2) sales to export processing zones pursuant to Republic Act (RA) Nos. 7916, as amended, 7903, 7922 and other similar export processing zones; (3) sale to enterprises duly registered and accredited with the Subic Bay Metropolitan Authority pursuant to RA 7227; (4) sales to registered export traders operating bonded trading warehouses supplying raw materials in the manufacture of export products under guidelines to be set by the Board in consultation with the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC); (5) sales to diplomatic missions and other agencies and/or instrumentalities granted tax immunities, of locally manufactured, assembled or repacked products whether paid for in foreign currency or not. For purposes of zero-rating, the export sales of registered export traders shall include commission income. The exportation of goods on consignment shall not be deemed export sales until the export products consigned are in fact sold by the consignee; and Provided, finally, that sales of goods, properties or services made by a VAT-registered supplier t:.

CTA CASE NO. 8879 Page 29 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION to a SOl-registered manufacturer/producer whose products are 100�/o exported are considered export sales. A certification to this effect must be issued by the Board of Investment (BOI) which shall be good for one year unless subsequently re-issued by the BOI." (Emphasis supplied) Clearly, sales of goods by a VAT-registered taxpayer, such as herein petitioner, to entities located in Ecozones and to SOl-registered manufacturers/producers whose products are 100�/o exported are considered "export sales" subject to zero percent {0�/o) VAT rate pursuant to Section 106{A)(2)(a)(S) and (c) of the NIRC of 1997, as amended, and Section 4.106-5 of RR No. 16-05. In its Quarterly VAT Returns for CY 201242, petitioner's reported zero-rated sales amounted to P61,203,098.00, broken down as follows: EXHIBIT PERIOD COVERED ZERO-RATED SALES "P-7" 1st Quarter p 16,108,327.25 "P-8" 2nd Quarter 15,344,937.75 "P-9" 3rd Quarter 16,199 493.25 "P-10" 4th Quarter 13,550 339.75 P61,203,098.00 TOTAL A perusal of petitioner's Schedule of Sales43 with the related sales invoices44 for the four quarters of CY 2012 shows that the amount of P61,203,098.00, treated by petitioner as zero-rated sales, pertains to its sales of goods to the following PEZA-registered entities or BOI- registered 100�/o exporters: BOI/PEZA registered enterprises Exhibit-45 Proof of BOI/PEZA Registration Aichi Forging Company of Asia Inc. P-20� P-32 BIR Application for VAT Zero-Rate� PEZA Certification Citizen Machinery Philippines Inc. P-21� P-32 BIR Application for VAT Zero-Rate� PEZA Certification Creative Diecast Phils. Corp P-22� P-32 BIR Application for VAT Zero-Rate� PEZA Certification Ebara Benguet inc. P-23� P-34 BIR Application for VAT Zero-Rate; BOI Certificate of Registration FVC Philippines Inc. P-24" P-33 Honda Parts Manufacturinq Corp. P-25� P-32 BIR Application for VAT Zero-Rate; Kito Philippines Inc. P-26; P-32 BOI Certificate of Registration Menima Casting Products, Inc. P-27_�L__P_ -32 BIR Application for VAT Zero-Rate; PEZA Certification BIR Application for VAT Zero-Rate� PEZA Certification BIRApplicationfor VAT Zero-Rate; PEZA Certification 42 Exhibits "P-7" to "P-10", Green Folder 1 of 9. 43 Exhibits "P-1701" and "P-1702", Green Folder 9 of 9. 44 Exhibits "P-1087" to "P-1687", Green Folder 7 of 9 to 9 of 9. 45 Green Folder 1 of 9. ~

CTA CASE NO. 8879 Page 30 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION Mikado Philippines Corp. P-28 BIR Application for VAT Zero-Rate Philippine Denrai Inc. P-29 BIR Application for VAT Zero-Rate Philippine Phosphate Fertilizer Corp. P-30� P-32 BIR Application for VAT Zero-Rate; PEZA Certification Tqy9ta Auto Parts Philippines Inc. P-31� P-32 BIR Application for VAT Zero-Rate; PEZA Certification Nakashima Philippines Corporation P-32 Kyoto Global Exterior Inc. P-32 PEZA Certification PEZA Certification Thus, petitioner's sales of goods to the afore-mentioned entities covering the four quarters of CY 2012 qualify for VAT zero-rating pursuant to Section 106(A)(2)(a)(S) and (c) of the NIRC of 1997, as amended, provided that the same are properly supported by VAT zero- rated sales invoices in accordance with Sections 113(A)(1), (8)(1), (2)(c) and (3) of the NIRC of 1997, as amended, as implemented by Sections 4.113-1(A)(1), (8)(1) and (2)(c) of RR No. 16-05, which are all quoted hereunder: "SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons. - (A) Invoicing Requirements. -A VAT-registered person shall issue: (1) A VAT invoice for every sale, barter or exchange of goods or properties; and XXX XXX XXX (B) Information Contained in the VAT Invoice or VAT Official Receipt -The following information shall be indicated in the VAT invoice or VAT official receipt: (1) A statement that the seller is a VAT-registered person, followed by his Taxpayer's Identification Number (TIN); (2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value-added tax: Provided, That: XXX XXX XXX (c) If the sale is subject to zero percent (0�/o) value- added tax, the term 'zero-rated sale' shall be written or printed prominently on the invoice or receipt; c..

CTA CASE NO. 8879 Page 31 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION XXX XXX XXX (3) The date of transaction, quantity, unit cost and description of the goods or properties or nature of the service; and xxx" (Emphasis supplied) "SEC. 4.113-1. Invoicing Requirements.- (A) A VAT-registered person shall issue:- (1) A VAT invoice for every sale, barter or exchange of goods or properties; and XXX XXX XXX Only VAT-registered persons are required to print their TIN followed by the word 'VAT' in their invoice or official receipts. Said documents shall be considered as a 'VAT Invoice' or VAT official receipt. All purchases covered by invoices/receipts other than VAT Invoice/VAT Official Receipt shall not give rise to any input tax. VAT invoice/official 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. (B) Information contained in VAT invoice or VAT official receipt.- The following information shall be indicated in VAT invoice or VAT official receipt: (1) A statement that the seller is a VAT-registered person, followed by his TIN; (2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the VAT; Provided, That: XXX XXX XXX c_

CTA CASE NO. 8879 Page 32 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION (c) If the sale is subject to zero percent (0�/o) VAT, the term 'zero-rated sale' shall be written or printed prominently on the invoice or receipt;" (Emphasis supplied) Upon examination of the supporting sales invoices submitted by petitioner, the Court-commissioned Independent Certified Public Accountant accounted a total amount of P61,180,058.00 zero-rated sales, detailed as follows: 46 Exhibit 1stQtr 2nd Qtr 3rd Qtr 4th Qtr Total No. Findings Annex Amount In Philippine Pesos Properly P-1087 Substantiated C-1 to 16 053 927.25 14 792 029.75 16 183 243.25 13 096 764.75 60 125 965.00 C-2 Zero-rated sales of P-1676 - 15 228.00 - - 15 228.00 goods supported by invoices printed P-1677 with ''TIN VAT'' and stamped with P-1677 "ZERO-RATED P-1678 SALES" and dated within Cf 2012 to Zero-rated sale of P-1683 goods with invoices which P-1684 value does not tie to up with the schedule P-1686 P-1687 16,053 927.25 14 807,257.75 16,183 243.25 13,096,764.75 60,141,193.00 Not Properly Substantiated Zero-rated sale of goods with invoices which value does not tie up with the - - schedule C-2 - 14 429.00 14 429.00 Zero-rated sales of goods with supporting invoices but not stamped "Zero- rated sales" C-3 - 84 500.00 - 479 825.00 564 325.00 Zero-rated sales of goods with supporting invoices with stamped "Zero- rated sales" but with VAT - computation C-4 - 176 080.00 16 250.00 192 330.00 Zero-rated sales of goods with supporting documents other - - than invoice C-5 - 331 500.00 331,500.00 Zero-rated sales of goods with no available supporting - documents C-6 54 400.00 (91,869.00) 16,250.00 (26 250.00) (63 719.00) 54 400.00 514 640.00 16,199,493.25 453,575.00 1 038,865.00 Total 16,108 327.25 15,321897.75 13 550,339.75 61180,058.00 46 Exhibit "P-57", ICPA Report, Annex C. t:.

CTA CASE NO. 8879 Page 33 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION The difference of P23,040.00 between the reported zero-rated sales of P61,203,098.00 and the accounted zero-rated sales of P61,180,058.00 was found by the !CPA as pertaining to a second quarter sale subject to 12�/o VAT per Invoice No. 1441147, thus, shall be denied VAT zero-rating. Moreover, petitioner's reported zero-rated sales in the amount of P1,038,865.00 classified by the !CPA as "Not Properly Substantiated" shall be denied VAT zero-rating for failure to meet the afore-stated invoicing requirements. In addition, the reported zero-rated sales in the amount of P511,064.00 shall also be denied VAT zero-rating for the reasons stated below: Reason for disallowance Exhibit Customer Name Invoice Amount First Quarter No. No. Supported by VAT invoice with alteration on the date (year) P-1188 Menima casting Products Inc. 14123 p 2500.00 Third Quarter Sale without corresponding P-1395 Applegate Technologies Inc. 14555A p 4 339.00 PEZA/BOI certification Citizen Machinery Philippines Supported by VAT invoice with P-1428 Inc. 14770 210 000.00 date (year) not clearly verifiable P-1504 FVC Philippines Inc. from the document P-1505 FVC Philippines Inc. 14711 138 240.00 Supported by VAT invoice with P-1506 FVC Philippines Inc. incorrect date (year) P-1544 Metalcrest Technologies Inc. 14712 65 000.00 Supported by VAT invoice with incorrect date (year) P-1571 Applegate Performance 14714 23 250.00 Supported by VAT invoice with P-1601 Products Inc. incorrect date (year) P-1602 FTECH Philippines MFG Inc. 14763 5 250.00 Sale without corresponding P-1647 FTECH Philippines MFG Inc. PEZA/BOI certification P-1660 Honda Parts P44fi 079.00 Metalcrest Technologies Inc. Subtotal 14860 p 8 485.00 Fourth Quarter Sale without corresponding 14836 7 600.00 PEZA/BOI certification Sale without corresponding 14885 1 900.00 PEZA/BOI certification Sale without corresponding 14986 34 000.00 PEZA/BOI certification Supported by VAT invoice but 14949 10,500.00 not stamped "zero-rated" p 62,485.00 Sale without corresponding PEZA/BOI certification P511,064.00 Subtotal Total 47 Exhibit "P-1075", Green Folder 6 of 9. L

CTA CASE NO. 8879 Page 34 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION In sum, out of the total reported zero-rated sales of P61,203,098.00, only the amount of P59,630,129.00 represents petitioner's valid zero-rated sales, computed as follows: Zero-Rated Sales Per VAT 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total Return Amount in Philippine Pesos Less: Sales subject to 12% 16 108 327.25 61 203 098.00 15 344 937.75 16 199 493.25 13 550 339.75 VAT per Inv. 14411 16,108 327.25 found by the !CPA 23 040.00 23 040.00 to have been 54,400.00 erroneously 2 500.00 15,321 897.75 16 199,493.25 13,550 339.75 61 180 058.00 reported as Zero- Rated Sales 56 900.00 514,640.00 16,250.00 453,575.00 1,038,865.00 Adjusted Zero-Rated Sales 16,051,427.25 514 640.00 446 079.00 62 485.00 511 064.00 Per VAT Return 14,807 257.75 516 060.00 462 329.00 1 549,929.00 Less: Disallowances 15,737,164.25 13 034 279.75 59,630,129.00 Per !CPA's report Per this Court's further verification Total Disallowances Valid Zero-Rated Sales Petitioner incurred input taxes for CY 2012 which are attributable to its zero-rated or effectively zero-rated sales for the same period For the four (4) taxable quarters of CY 2012, petitioner declared input VAT arising from its current transactions in the amount of P6,398,827.88, out of which, only the amount of P4,635,229.77 is the subject of petitioner's claim, which consisted of the following: Exhibit Taxable Total Input Tax Allocation48 Amount of input "P-7" Quarter p 1,729,403.35 rate tax per claim "P-8" p 1 264 366.79 "P-9" 1st 1,605 155.76 73.11% 1160 046.07 "P-10" 2nd 1,568 262.75 72.27% 1159 573.48 3rd 1,496 006.02 73.94% 1 0511243.43 4th p 6,398,827.88 70.27% p 4,635,229.77 Total 48 Ratio of Zero-Rated Sales to Total Sales. �t::

CTA CASE NO. 8879 Page 35 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION The breakdown of the reported input VAT of P6,398,827.88 for CY 2012 is as follows: 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Total (Exh. "P-7") (Exh. "P-8") (Exh. "P-9") (Exh. "P-10") Input VAT on Domestic p 64 135.71 p 88 291.34 p 73,929.38 p 36 336.43 p 262 692.86 Purchases of Goods Other than Capital Goods (Line 1411143.00 1 331 790.00 1 308 843.00 1 296 519.00 5 348 295.00 21F) Input VAT on Importation 254 124.64 185 074.42 185 490.37 163 150.59 787 840.02 of Goods Other than Capital Goods {Line 21H) P1,729,403.35 P1,605,155.76 P1568,262.75 P1,496,006.02 P6,398,827.88 Input VAT on Domestic Purchase of Services (Line 21]} Total Input for the period In support of its reported input VAT, petitioner submitted various official receipts (0Rs)49, invoices50 and Import Entry and Internal Revenue Declarations (IEIRDs)5\ which were also examined by the ICPA. In his report, the ICPA noted the following exceptions, which shall be disallowed for failure to meet the substantiation requirements under Sections 110(A), 113(A) and (B), and 237 of the NIRC of 1997, as amended, in relation to Sections 4.110-1, 4.110-2, 4.110-8, and 4.113-1 of RR No. 16-05, as amended: 52 Exhibit 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Total No. Findings Annex Amount In Philippine Pesos P-245 Domestic Purchase of services to Input VAT on domestic P-303 purchase of services P-319 supported by VAT ORs wherein the amount of input VAT in the OR does not tie-up with the amount of input VAT in the Company's schedule A-2 (876.38) (14 672.35) (383.29) (86.12) (16,018.14) Input VAT on domestic purchase of services supported by VAT ORs wherein the amount of input VAT in the OR does not tie-up with the amount of input VAT in the Company's schedule and dated outside the quarter of period of - - - claim but within cr 2012 A-4 (68.30) (68.30) 49 Exhibits "P-60" to "P-416". 50 Exhibits "P-417" to "P-505". 51 Exhibits "P-533" to "P-632". 52 Exhibit "P-57", !CPA Report, Annex A. t:..

CTA CASE NO. 8879 Page 36 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION Input VAT on domestic A-5 P-320 5 405.83 4 639.11 7 023.24 6 964.76 24 032.94 purchase of services A-6 to 1 571.76 - supported by VAT ORs A-7 4 513.36 - - 1 571.76 but amount of VAT not P-332 4 490.06 shown as separate item A-8 31 842.60 4 125.36 4 350.67 17 479.45 in the ORs P-333 - Input VAT on domestic A-9 P-334 - - - 31 842.60 purchase of services A-10 - - supported by Certified A-ll to 265.64 - 265.64 True Copy of VAT OR P-362 7 500.00 4 156.45 803.57 Input VAT on domestic A-12 14 794.62 15 080.02 - 4 960.02 purchase of services A-13 P-363 - supported by ORs with A-14 - - 7 500.00 44 874.64 no BIR authority to print P-364 229.02 Input VAT on domestic P-365 1,357.10 477.64 435.96 294.64 294.64 purchase of services 748.68 - supported by Certified to - 1142.62 True Copy VAT OR P-367 wherein the amount of - 2,105.78 input VAT in the OR P-368 does not tie-up with the to amount of input VAT in the Company's schedule P-394 Input VAT on domestic purchase of services P-395 supported by ORs with no BIR authority to print P-396 wherein the amount of to input VAT in the OR does not tie-up with the P-400 amount of input VAT in the Company's schedule P-401 Input VAT on domestic to purchase of services supported by duplicate P-406 COPY of VAT ORs Input VAT on domestic purchase of services supported by ORs printed with "NOT VALID AS SOURCE OF INPUT TAX/NOT VALID FOR CLAIMING INPUT TAX" Input VAT on domestic purchase of services supported by ORs printed with "NOT VALID AS SOURCE OF INPUT TAX/NOT VALID FOR CLAIMING INPUT TAX" and amount of VAT not shown as separate item in the OR Input VAT on domestic purchase of services supported by ORs with no BIR authority to print dated outside the quarter of period of claim but within Cf 2012 Input VAT on domestic purchase of services supported by duplicate copy of VAT ORs dated outside the quarter of period of claim but within C{ 2012 4...

erA CASE NO. 8879 Page 37 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION Input VAT on domestic A-15 P-407 3 750.00 42.86 3,750.00 - 7 542.86 purchase of services A-16 to 9 118.28 supported by ORs A-17 - - - 9 118.28 64 048.17 printed with "NOT P-409 4 833.43 VALID AS SOURCE OF 14 685.85 1 085.40 43 443.49 193 192.96 INPUT TAX/NOT VALID P-410 32,975.66 FOR ClAIMING INPUT to 15 762.47 74,475.69 257.14 TAX" and dated outside - 59 445.53 the quarter of period of P-416 - - claim but within CY p 16 518.75 8 475.00 2012 p 26 780.35 p 16 339.29 5 903.04 Input VAT on domestic - purchase of services 4 039.29 4 435.71 74,080.71 supported by VAT Ors 2 849.47 3 053.57 dated outside the period - 55.00 of claim 33 669.11 19,572.32 10 226.00 Input VAT on domestic 20 775.00 purchase of services 55.00 - 3 271.00 with no available - supportinq documents - - 6 531.00 13,552.00 - 280,825.67 subtotal 69,979.14 3 271.00 - - Domestic Purchase of Goods other than Capital Goods 3L326.00 6,531.00 52,757.58 95 250.69 59,078.98 Input VAT on domestic purchase of goods other than capital goods supported by VAT invoice dated outside the period of claim A-20 P-480 257.14 Input VAT on domestic purchase of goods P-481 supported by documents to other than VAT invoices A-21 P-503 (192.86) Input VAT on domestic purchase of goods supported by documents other than VAT invoices dated outside the quarter of period of P-504 claim but within CY to 2012 A-22 P-505 - Input VAT on domestic purchase of goods other than capital goods with no available supporting documents A-23 - subtotal 64.28 Importation of Goods other than Capital Goods Input VAT on importation of goods supported by Import Entry & Internal Revenue Declaration (IEIRD) wherein the amount of VAT does not tie up with the schedule A-27 P-628 - Input VAT on importation of goods P-630 supported by to photocopied OR A-29 P-631 3 695.00 Input VAT on importation of goods supported by form other than IEIRD and OR A-30 P-632 - subtotal 3,695.00 Total 73,738.42 t:.

CTA CASE NO. 8879 Page 38 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION Further review of the ICPA report and petitioner's supporting documents reveals that in addition to the disallowance of P280,825.67, input VAT in the amount of P145,681.97 should likewise be disallowed from petitioner's claim because the supporting documents failed to meet the substantiation requirements under the afore-mentioned VAT law and regulations. Below is the breakdown of the additional input VAT disallowances of P145,681.97: Invoice/ OR 1st Qtr 2nd Qtr 3rd Otr 4th Qtr No. Exhibit Supplier Amount in PhiliJ!2jne Pesos 1. Domestic purchases ofservices supported by VAT ORs without address and/or TIN ofpetitioner International Container P-71 4084556 Terminal Services Inc 388.92 International Container P-72 4093856 Terminal Services Inc 417.80 Nyk-Fil Japan Shipping P-84 5088AV Corporation 105.96 Ocean Link Container P-85 142375 Terminals Centers Inc 1 335.68 Transorient Container P-104 276272 Terminal Services 3 145.75 International Container P-259 4001544 Terminal Services Inc 451.24 International Container P-260 4007619 Terminal Services Inc 1 001.35 International Container P-261 4012356 Terminal Services Inc 566.75 International Container P-262 4012357 Terminal Services Inc 653.39 International Container P-263 4026118 Terminal Services Inc 1 214.09 International Container P-264 4030811 Terminal Services Inc 1 098.58 International Container P-265 4045801 Terminal Services Inc 1156.06 International Container P-266 4064727 Terminal Services Inc 451.24 International Container P-267 4064728 Terminal Services Inc 1 098.58 International Container P-116 4105357 Terminal Services Inc 1 036.26 International Container P-117 4105358 Terminal Services Inc 405.48 International Container P-118 4125326 Terminal Services Inc 1 036.26 International Container P-119 4127425 Terminal Services Inc 939.03 International Container P-120 4150566 Terminal Services Inc 388.92 International Container P-121 4158694 Terminal Services Inc 405.48 International Container P-122 4169259 Terminal Services Inc 939.03 International Container P-123 4169260 Terminal Services Inc 388.92 International Container P-124 4186422 Terminal Services Inc 417.80 P-134 5631AV Nyk-Fil Japan Shipping Corp 206.64 P-135 5652AV Nyk-Fil Japan Shipping Corp 103.32 P-152 280775 Transorient Container 5 657.80 Terminal Services ~

CTA CASE NO. 8879 Page 39 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION P-268 BFM-1- Digitel Mobile Philippines Inc 45.29 P-269 000374924 Diqitel Mobile Philippines Inc 67.82 P-270 Digitel Mobile Philippines Inc 73.59 BFM-1- 000374926 BFM-1- 000374925 P-271 BSS-1-000389199 Digitel Mobile Philippines Inc 50.54 P-272 BSS-1-000389200 Diqitel Mobile Philippines Inc 81.21 P-273 BSS-1-00038920 1 Digitel Mobile Philippines Inc 54.61 P-274 BFM-1- 80.57 P-275 Digitel Mobile Philippines Inc 40.20 P-276 000388705 54.61 P-165 BFM-1- Digitel Mobile Philippines Inc P-166 126.00 P-167 000388706 Diqitel Mobile Philippines Inc 28.88 P-176 BFM-1- International Container P-193 Terminal Services Inc 136.08 P-217 000388704 International Container 239.26 P-227 Terminal Services Inc 2 158.54 P292 4224529 International Container P293 Terminal Services Inc 448.88 P294 4300269 People's Air Cargo and 297.12 P295 Warehousinq Co. Inc P296 4324438 Transorient Container 83.06 P297 Terminal Services 64.86 1148589 International Container 55.34 Terminal Services Inc 61.80 284064 People's Air cargo and 77.64 Warehousinq Co. Inc 93.02 4481013 Diqitel Mobile Philippines Inc 1248615 BFM-1- Digitel Mobile Philippines Inc 000419270 BFM-1- Diqitel Mobile Philippines Inc 000419269 BFM-1- Diqitel Mobile Philippines Inc 000419271 BFM-1- Digitel Mobile Philippines Inc 000429263 BFM-1- Diqitel Mobile Philippines Inc 000429262 BFM-1- 000429261 P298 BSS-1-000438528 Digitel Mobile Philippines Inc 67.89 P299 BSS-1-000438529 Digitel Mobile Philippines Inc 73.23 P300 BSS-1-000438530 Digitel Mobile Philippines Inc 65.19 subtotal 13085.39 12,473.38 2,688.76 1,388.03 2. Domestic purchases ofservices supported by VAT ORs with notation "NOT VALID AS PROOF TO CLAIM INPUT VAT" International Container P-206 4391893 Terminal Services Inc 1 014.12 International Container P-207 4401566 Terminal Services Inc 1176.88 International Container P-208 4402967 Terminal Services Inc 1 014.12 International Container P-209 4412841 Terminal Services Inc 420.00 International Container P-210 4412842 Terminal Services Inc 1119.12 International Container P-211 4415321 Terminal Services Inc 593.27 International Container P-212 4429669 Terminal Services Inc 580.95 International Container P-213 4433718 Terminal Services Inc 420.00 International Container P-214 4442128 Terminal Services Inc 1,205.75 (

CTA CASE NO. 8879 Page 40 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION P-215 4465564 International Container 1119.12 P-216 4478958 Terminal Services Inc International Container 420.00 Terminal Services Inc - - - 9.083.33 subtotal 3. Domestic purchase ofservice supported by VAT OR but VAT amount was not separately shown Tri-star Cargo Express Int'l. P-240 27941 Phils. Inc. 1 035.36 1,035.36 subtotal - - - 4. Domestic purchases ofservices supported by documents other than VAT OR P-256 GANTAE21000980 Globe Telecom Inc. 657.02 P-257 GLPSAP14034297 Globe Telecom Inc. 732.02 P-258 GANTAE20005176 Globe Telecom Inc. 987.86 P-277 GANTAE21010432 Globe Telecom Inc. 836.67 P-278 GLPSAP13033581 Globe Telecom Inc. 742.39 P-279 GANTAE21016996 Globe Telecom Inc. 672.41 P-290 GANTAE20017200 Globe Telecom Inc. 1123.64 P-291 GANTAE20020125 Globe Telecom Inc. 1127.06 P-319 GANTAE21030314 Globe Telecom Inc. 1169.51 P-301 GANTAE20026167 Globe Telecom Inc. 1118.28 P-302 GLPSAP13051030 Globe Telecom Inc. 1 247.36 P-303 GLPSAP13054184 Globe Telecom Inc. 1 223.15 subtotal 2,376.90 2251.47 3.420.21 3,588.79 5. Domestic purchases ofservices supported by VAT ORs with unreadable details BFM-1- P-284 000404926 Diqitel Mobile Philippines Inc. 62.14 BFM-1- P-285 000404928 Diqitel Mobile Philippines Inc. 61.18 BFM-1- P-286 000404927 Diqitel Mobile Philippines Inc. 49.35 subtotal - - 172.67 - 6. Domestic purchase ofgoods other than capital goods supported by document other than VAT invoice P-469 1121027 Silicon Valley 347.68 subtotal - - 347.68 - 7. Importation ofgoods supported by IEIRD but without proofof VATpayment P-628 C63843 Foseco Golden Gate Co Ltd 93 770.00 subtotal - 93,770.00 - - Total per quarter 15,462.29 108 494.85 6 629.32 15,095.51 Grand Total 145,681.97 Therefore, out of petitioner's reported input VAT of P6,398,827.88, only the amount of P5,972,320.24 represents petitioner's valid input VAT, computed as follows: 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Total 1 729 403.35 Amount in Philippine Pesos 6 398,827.88 Input tax per Returns 1 605 155.76 1,568 262.75 1496 006.02 Less: Disallowances 73 738.42 52 757.58 95 250.69 59 078.98 280 825.67 Per ICPA's findings Per Court's further 15 462.29 108 494.85 6 629.32 15 095.51 145 681.97 verification 89 200.71 161 252.43 101880.01 74 174.49 426 507.64 Total Disallowances 1,640,202.64 1 443,903.33 1,466,382.74 1,421,831.53 5,972,320.24 Valid Input VAT L:

CTA CASE NO. 8879 Page 41 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION The valid input VAT of P5,972,320.24 is not entirely attributable to petitioner's zero-rated sales since petitioner had VATable sales to private entities and VATable sales to government for the year 2012. Allocating, therefore, the input VAT of P5,972,320.24 among petitioner's zero-rated sales, VATable sales to private entities and VATable sales to government would result in the following input VAT attributable to VATable sales to private entities in the amount of P1,641,052.41, input VAT attributable to VATable sales to government in the amount of P6,675.82 and input VAT attributable to zero-rated sales in the amount of P4,324,592.01, as shown below: CY 2012 Input VAT Input VAT Input VAT Total 1st Quarter Attributable to Attributable to Attributable to Input VAT 2nd Quarter 120/o VATable 120/o VATable p 1,640 202.64 3rd Quarter Sales to Private Zero-Rated 1,443 903.33 Sales to Sales 1,466 382.74 4th Quarter Entities Government p 440 976.57 p 1,199,226.07 Total - 401 921.00 1,041,982.33 382 111.30 - 1,084,271.44 416 043.55 - p 1,641,052.41 p 6,675.82 999,112.16 1L421 831,53 p 6,675.82 P4,324,592.01 P5,972,320.24 Allocation was based on the percentage ofeach type ofsales to total sales as shown below: CY 2012 120/o VATable 120/o VATable Zero-Rated Total 1st Quarter (Exh. "P-7") Sales to Private Sales to Sales p 22,031,643.15 % to Total Sales Entities Government 16,108,327.25 100% p 5 923!315.90 - 73.114507% 26.885493% - 2nd Quarter (Exh. "P-8") 5 910 073.8153 - 15 321 897.7554 21 231,971.56 % to Total Sales 27.835728% 100% - 72.164272% 53 p 5,887 033.81 Amount per VAT Return 23,040.00 Add: Sales subject to 12% VAT per Inv. 14411 found by the ICPA to P5,910,073.81 have been erroneously reported as Zero-Rated Sales Adjusted Amount of 12�/o VATable Sales to Private Entities 54 p 15,344 937.75 Amount per VAT Return 23 040.00 Less: Sales subject to 12% VAT per Inv. 14411 found by the !CPA to P15,321,897. 75 have been erroneously reported as Zero-Rated Sales Adjusted Amount of 12�/o VATable Sales to Private Entities (

CTA CASE NO. 8879 Page 42 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION 3rd Quarter (Exh. "P-9") 5,708,911.18 - 16,199,493.25 21,908,404.43 % to Total Sales 26.058087% - 73.941913% 100% 4th Quarter (Exh. ''P-10") 5 642,541.05 % to Total Sales 29.261100% 90,540.00 13,550,339.75 19,283,420.80 0.469523% 70.269377% 100% After deducting the input tax of P1,641,052.41 attributable to VATable sales to private entities from its output VAT liability on the said sales of P2,782,181.03, petitioner still has a net amount of output VAT payable for 2012 in the amount of P1,141,128.62, computed as follows: Output VAT Due 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total p 710 797.91 p 709,208.86 p 685 069.34 p 677 104.93 p 2 782 181.03 Less: Input VAT Net Output VAT 440,976.57 401,921.00 382 111.30 416,043.55 1 641 052.41 Payable p 269,821.34 p 307,287.86 p 302,958.05 p 2611()61.38 P1,141,128.62 Thus, by deducting the net amount of output VAT payable of P1,141,128.62 from petitioner's input tax attributable to the zero-rated sales of P4,324,592.01, there remains an excess input VAT of P3,183,463.39 attributable to zero-rated sales, as shown below: Input VAT Attributable Zero- 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total Rated Sales P1,199,_226.07 P1,041,982.33 Pt084,271.44 p 999 112.16 p 4 324 592.01 Less: Net Output VAT Payable 269 821.34 307 287.86 302 958.05 261 061.38 1141128.62 Excess Input VAT p 929,404.73 P734,694.47 P781,313.40 P738,050.79 P3,183,463.39 Attributable Zero-Rated Sales However, as stated earlier, out of petitioner's adjusted declared zero-rated sales of P61,180,058.00, only the amount of P59,630,129.00 represents petitioner's valid zero-rated sales. Consequently, only the excess input VAT of P3,102,813.87 is attributable to the valid zero-rated sales of P59,630,129.00, as detailed below: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total Excess Input VAT Attributable to p 929 404.73 p 734 694.47 p 781 313.40 p 738 050.79 p 3 183 463.39 Declared Zero-Rated Sales 16 051 427.25 14 807 257.75 15 737 164.25 13 034 279.75 59,630,129.00 Multiply by Valid Zero-Rated Sales 16 108 327.25 15 321 897.75 16 199,493.25 Divide by Adjusted Declared Zero- p 926,121.76 p 710 017.17 p 759,014.93 13 550 339.75 61,180 058.00 Rated Sales p 709,942.38 P3,102,813.87 Refundable Excess Input VAT ~

CTA CASE NO. 8879 Page 43 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION The excess input taxes were not applied against any output VAT liability during calendar year 2012 and in the succeeding periods Even though the claimed input VATwas carried over by petitioner to the succeeding quarters up to the first quarter of CY 201455, the same was not applied against any output VAT in the said quarters and remained unutilized until it was deducted as "VAT Refund/TCC claimed'156 in the first quarter of 2014, thus, preventing the carry over or application of the claimed input VAT in the next taxable quarters. In fine, petitioner has sufficiently proven its entitlement to a refund or issuance of tax credit certificate in the reduced amount of P3,102,813.87, representing its excess and unutilized input value- added tax attributable to its zero-rated sales for the four quarters of CY 2012 which are attributable to its zero-rated sales for the same period. WHEREFORE, premises considered, the instant Petition for Review is PARTIALLY GRANTED. Accordingly, respondent is ORDERED TO REFUND or TO ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner in the amount of P3,102,813.87, representing its excess and unutilized input value- added tax attributable to its zero-rated sales for the first to fourth quarters of calendar year 2012. SO ORDERED. ltJx N.-M._'l~,�C~ CIELITO N. MINfSARO-GRULLA Associate Justice 55 Exhibits "P-11", "P-12", "P-13", "P-14", and "P-17'', Green Folder 1 of 9. 56 Exhibit "P-17-1", Green Folder 1 of 9.

CTA CASE NO. 8879 Page 44 of 44 FOSECO PHILIPPINES, INC. vs. CIR DECISION ER~P.UY WE CONCUR: Associate Justice Presiding Justice CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. Presiding Justice Chairperson, 1st Division