INTEL PHILIPPINES MANUFACTURING, INC. v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES Cllrlll TIIIPPIIIS I. QUEZON CITY EIIBANC INTEL PHILIPPINES MANUFACTURING, C.T.A. E.B. NO. 209 (C.T.A. CASE NO. 6263) INC., Present: .Petitioner, -versus- ACOSTA, P.J. CASTANEDA, JR., BAUTISTA, UY, CASANOVA, and PALANCA-ENRIQUEZ, JJ. COMMISSIONER OF INTERNAL Promulgated: REVENUE, FEB 2 .0 2008~1PrlA;..-.-.Jt ~1--tt--r-�-/ Respondent. u-:r .!1\j~ .. ~--------------------------------------------------------X / ' ' ?J"\ r DECISION UY, J.: . This is a Petition for Review befo. .'.re the. Court of Tax Appeals En Bane - filed on August 31, 2006 pursuant to Republic Act No. 1125-, as amended by Republic Act No. 9282, seeking a review of the denial of petitioner's claim for � refund or issuance of tax credit certificate in the Decision dated March 6, 2006, as well as the Resolution d~ted June 22, 2006, both rendered by the Second Division of this Court (Court in Division) 1 in CTA Case No. 6263 entitled "Intel Philippines Manufacturing, Inc., petitioner, vs. Commissioner of . Internal Revenue, respondent".�~ ������. 1 of Associate J~stice Juanito C. Castaneda, Jr. and concuned by Associate Justice Erlinda P. Ponencia Uy and Associate Justice Olga Palanca-Enriquez. .�..� .t F ...J

, DECISION C.T.A. EB NO. 209 Page 2 of20 Petitioner's subject claim represents its alleged unutilized excess input ~ 'r value-added taxes (VAT) incurred from domestic purchases of goods and services and importation of goods/capital equipment ~rich are attributable to zero-rated sales for the first quarter of the taxable year 1999 (period from January 1, 1999 to March 31, 1999) in the total amount of P64,457 ,520.45. THE FACTS The antecedent facts, as found by the Court in Division, are as follows: . I Petitioner Intel Philippines Manufacturing, �Inc. is a corporation duly organized and existing under the laws of the Republic of the Philippines, with principal office at No. 1321 Apolinario St., Bangkal, Makati City. It is primarily engaged in the business of designing, developing, manufacturing and exporting advance and large-scale integrated circuit components, commonly referred to in th~ industry as Integrated Circuits or "IC's". On the other hand, respondent Commissioner of Internal Revenue is the appointed government official vested with authority to exercise the functions of his office, including, among others, the, power to refund any internal revenue tax erroneous or illegally �assessed or collected under the National Internal Revenue Code (NIRC) of 1997, as amended, with office address at the BIR National Office Building, Diliman, Quezon City. I Petitioner is registered with the Bureau of Internal Revenue as a VAT taxpayer with Certificate of Registration bearing ROO Control No. 94-048- 02621 dated July 6, 1994. It is likewise registered with the Board of .Investments as a preferred pioneer enterprise enjoying a six-year income tax holiday in accordance with the provisions of the Omnibus Investments Code ~nd now enjoying the preferential rate of 5%.; 217

, ' DECISION C.T.A. EB NO. 209 Page 3 of20 For the period January 1, 1999 to March 31, 1999, petitioner seasonably filed its Quarterly Value-Added Tax Return on April 22, 1999 reflecting, among others, output VAT in the amQt~nt of P145,316.96, input VAT on domestic purchases and importation of goods in the respective amounts of P20,041,888.41 and P44,560,949.00, and zero-rated export sales in the sum of P929,186,493.91. On the belief that it is entitled to the refund of input taxes attributable to its recorded zero-rated export sales, petitioner, on August 6, 1999, filed with the One-Stop-Shop� Inter Agency Tax Credit and Duty Drawback Center of the Department of Finance (DOF) a Claimant Information Sheet with No. 35420 together with an Application for Tax Credit/Refund of Value-Added Tax Paid covering the following input t~xes for the first quarter of 1999: Tax Paid on Imported/Locally Purchased Amount Capital Equipment P44,560,949.00 Total VAT Paid on Purchases per Invoices 19,896,571.45 Received During the Period for which P64.457.520.45 this Application is Filed Amount of Tax Credit/Refund Applied For On March 30, 2001, petitioner filed a Petition for Review with the Court in Division in order to toll the running of the two-year prescriptive period provided under Section 229 of the NIRC of 1997. During the pendency of the trial, petitioner filed on August 26, 2002 a Manifestation2 stating that it was granted by the DOF a tax credit certificate (TCC) equivalent to fifty percent (50%) of its total claimed input VAT on local purchases (P19,896,571.45) in the amount of P9,948,285.73 covered by ~laimantlnformation Sh<:><:>l No. 35420. Thus, th<:> Court in Division limit<:>d its.~ Docket, CTA Case No. 6263, pp. 77-80. f'" .1� .,::. .. ?.!1

, DECISION C.I.A. EB NO. 209 Page 4 of20 review on the remaining balance of the claimed input VAT on domestic purchases of goods and services, and the claimed input VAT on imported or locally imported capital equipment, in the amounts of P9,948,285.72 and .;-., P44,560,949.00, respectively. On March 6; 2006, the Court in Division rendered a decision denying petitioner's claim for refund or issuance of a TCC for its failure to substantiate its claim. Specifically, it ruled t~a~ petitioner's export sales invoices are of no probative value in establishing its zero-rated sales for VAT purposes as the same were not duly registered with the Bureau of Internal Revenue and the required information, particularly the BIR authority to print, was likewise not indicated therein, in: violation of the provisions of Sections 113, 237 and 238 of the NIRC of 1997. Consequently, the remaining input VAT on local purchases of goods and services attributable thereto in the amount of P9,948,285.73 was not granted. With regard to the denial of claimed amount of P44,560,949.00 allegedly representing petitioner's input VAT paid on imported capital equipment, the Court in Division held th<;~t: "However, petitioner failed to comply with equally significant second requisite that the payment of input taxes on capital goods must be duly supported by VAT invoices and official receipts. It should be noted that petitioner is claiming input VAT on imported capital equipment. Hence, it must present duly machine validated Import Entry Revenue Declarations or Bureau of Customs official receipts or any other document proving .~ctual payment. of VAT on the imported goods as required in the afore-quoted Section 4.104-5 of. Revenue Regulations (R.R.) No. 7-95. Lamentably, such documents were never presented. Neither did petitioner submit any evidence to prove that the subject imported capital equipment qualify as capital goods pursuant to Section 4. 106-1 (b) of R.R. No. 7-95.; 1 9 ,~,.. ~ I

, DECISION C.T.A. EB NO. 209 Page 5 of20 Without these documents, petitioner's claimed input VAT payment in the amount of P44,560,949.00 cannot b~ granted. Moreover, what was presented to prove payment of input VAT on importation of capital equipment was the 1999 first quarterly VAT return which carry. no probative value in establishing actual ~ payment (Exhibit D-3). The required evidence is the import entry or other equivalent document."3 On March 28, 2006, petitioner filed its Motion for Reconsideration seeking reconsideration of the aforesaid Decision. Subsequently, the Court in Division denied the said Motion in its Resolution4 dated June 22, 2006 for lack of merit. Hence, this recourse before the Co!Jrt En Bqnc praying that the Decision and Resolution dated March 6, 2006 and June 22, 2006, respectively, be reconsidered and set aside, and a new one be issued granting petitioner's claim for refund/issuance of a TCC in its favor in the amount of P64,457,520.45 representing its excess and unutilized input VAT incurred which are attributable to its zero-rated sales for the first quarter of the taxable year 1999. THE ASSIGNED ERROR Petitioner points out the sole assigned error, to wit: "The �second Division of the Honorable Court of Tax Appeals erred in denying petitioner's claim for refund/issuance� of TCC of its excess and unutilized input VAT in the amount of Php64,457,520.45 for the first quarter of 1999 for alleged failure to comply with invoicing requirements under the Tax Code". In support of its Petition for Review, petitioner presents the following arguments: a. "There is no law requ1nng the imprinting of respondent Bureau's authority to print (ATP) on sales invoices...~ 3 Docket, CTA EB Case No. 209, pp. 37-38. ~. 4 Ibid., at pp. 73-74. '..' ) �'\ "" f.. t:

I DECISION C.T.A. EB NO. 209 Page 6 of20 Neither is the failure to imprint P.enalized� by any law or statute such that the invoices are rendered inadmissible in evidence"; b. "Petitioner had proven by more than sufficient and competent evidence that its input VAT,, paid on domestic importation of goods/capital equipment were all attributable to its zero-rated sales"; and c. "Petitioner's claim for refund of its unutilized input VAT for the first quarter of 1999 is duly substantiated/supported by docurt:lentary evidence". THE ISSUES From the foregoing arguments, the issues for the consideration of the Court En Bane may be summarized as follows: (1) Whether or not the absence of the BIR authority to print' in petitioner's export sales invoices operates to forfeit its entitlement to a tax refund I credit of its unutilized input VAT attributable to its zero-rated sales; (2) Whether or no~ the petitioner has fully substantiated, by VAT invoices and official receipts, its claim for refund or issuance of tax credit certificate for its input VAT on imported I locally purchased capital equipment; and (3) Whether or not petitioner's creditable input taxes due or paid attributable to its zero-rated sales or input taxes paid on capital goods imported or locally purchased have not been applied against output ta~e~ pursuant to Section 112 (A) and (B) of the NIRC of 1997. On October 9, 2006, this Court issued a Resolution requiring respondent to file a Comment to the instant Petition for Review. However, upon the expiration of the given period, respondent failed to file the same. ' In ~ Resolution dated November 24, 2006, the parties were required to submit their respective memorandum within the period of thirty (30) days from notice. ;;: ?. t

t DECISION C.T.A. EB NO. 209 Page 7 of20 After petitioner filed its Memorandum on January 5, 2007, this case was deemed submitted for decision on February 21, 2007 sans respondent's memorandum. Hence, this Decision. THE COURT EN BANG'S RULING 1. The pertinent provisions of the NIRC of 1997 in claiming for refund or issuance of a tax credit certificate for input taxes arising from domestic purchases of taxable goods and services and importation of goods/capital equipment, is Section 112 (A) and (B), which provides: "Section 112. Refunds or Tax Credits of Input Tax. - (A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-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 p:aid 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 Bangko Sentra/ ng Pilipinas (BSP): 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 or 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 b~sis of t~e _volume of sales. (B) Capital Goods. - A VAT-registered person may apply for the issuance of a tax credit certificate or refund of input taxes paid on capital goods imported or locally purchased, to the extent that such input taxes have not been applied against output taxes. The application may be made only within two (2) years after the close of the taxable quarter when the importation or purchase was made.'~

DECISION ' C.T.A. EB NO. 209 Page 8 of20 Based on the above-cited provisions, a taxpayer engaged in zero-rated or effectively zero-rated transactions may apply for a refund or issuance of a tax credit certificate for input taxes paid attribut~ble thereto if the following requisites are complied with:. (1) the taxpayer is engaged in sales which are zero-rated (like export sales) or effectively zero-rated; (2) the taxpayer is VAT- registered; (3) the claim must be filed within two years after the close of the taxable quarter when such sales were made; (4) the creditable input tax due or�paid must be attributable to such sales, except the transitional input tax, to the extent that such input tax has not been applied against the output tax; and (5) in case of zero-rated sales under Section .1 06(A)(2)(!3)(1) and (2), Section . I 106(8), and Section 108(8)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with BSP rules and regulations.5 To substantiate its claim and prove that it was engaged in export sales, petitioner presented its computer generated export sales invoices and other various documents to prove actual exportation of goods like certification of inward remittance, export declarations and airway bills, all covering the First quarter of 1999. However, the Court in Division found no probative value of petitioner's subject export sales invoices as they are not deeme~ duly registered VAT sales invoices, and that the same failed to reflect the BIR authority to print in violation of Section 113 in relation to Section 237 of the NIRC of 1997, as w~ll as the related requirements under Revenue Regulation 7-95 entitled Consolidated Value-Added Tax Regulation~ 5 Intel Technology Philippines, Inc. vs. Commissioner oflntemal Revenue, G.R. No. 166732, April27, 2007, 522 SCRA 657.

of DECISION C.T.A. EB NO. 209 Page 9 of20 Petitioner asserts that there is no legal basis in requiring the imprinting of th.e SIR authority to print number qn its export sales i"nvoices. It explained . ., that there is allegedly nothing under the aforesaid,~tax provisions which states that absence of such information on the face of the official receipts or export sales invoices invalidates the same for� purposes of proving the zero-rated export sales. Moreover, petitioner stresses that its use of the computer generated export sales invoices is under the authority of the permit secured from no less than the respondent's bureau in a letter dated May 27, 1988, signed by the Regional Director of Revenue Region No. 4-B-2, Perfecto T. Domingo. The use of . computer generated sales invoices finds support in Revenue Memorandum Order No. 21-00, pertinent portion of which states that: "Taxpayer requesting approval for a Computerized Books of Accounts with Computer-Generated Accounting Records, whether the accountihg system to be used is off-the-shelf or customized, need not apply for an Authority to Print (ATP) invoices and receipts. The Permit to Adopt Computerized Accounting System shall include the Authority to Print (ATP) for the underlying accounting records (e.g., official receipts, sales and cash invoices, cash vouchers, journal vouchers, billing statements, sales tickets, as the case may be). However, taxpayer requesting approval for a Computerized Books of Accounts without Computer-Generated Accounting Records shall need an ATP fbr their official receipts, invoices and the like." After careful evaluation of the records and thoroug~ consideration of petitioner's allegations and arguments raised in the instant petition, and in line t with the decision of the Supreme Court in Intel Technology Philippines, Inc. vs. Commissioner of Internal Revenue,6 the Court En Bane finds it 6 Ibid.

DECISION C.T.A. EB NO. 209 Page lO of20 necessary to review, and if needed, to recompute, petitioner's supporting sales invoices and other documentary evidence. In the said Intel Technology Philippine~., case, the Supreme Court clarified the issue as to whether or not the provision of Section 113, in relation to Section 237 of the NIRC of 1997, was violated by reason of petitioner's 1 failure to indicate the BIR Authority to Print on its sales invoices in the following manner: "It is clear from the foregoing (pertaining to Sections 113, 237 and 238 of the NIRC of 1997, Section 4.108-1 of RR 7-95 and Section 19d of RR 2-90) that while� entities engaged in business are required to� secure from the BIR an authority to print receipts or' invoices and to issue duly registered receipts or invoices, it is not required that the BIR authority to print be reflected or indicated therein. Only the following items are required to be indicated in the receipts or i11voices: (1) a statement that the seller is a VAT-registered entity followed by its TIN-V; (2) the total amount which the purchaser pays or is obligated to : pay to the seller .yvith the indication that such amount includes the value-added tax; (3) date of the transaction; (4) quantity of merchandise; (5) unit cost; (6) description of merchandise or nature of service; (7) the name, business style, if any, and address of the purchaser, customer or client in the case of sales, receipt or transfers in the amount of P.1 00.00 or more, or regardless of the amount, where the sale or transfer is made by a person liable to VAT to another person also liable to VAT, or where the receipt is issued to cover payment made as rentals, commissions, compensations or fees; and (8) the TIN of the purchaser where the purchaser is a VAT- registered person. XXX XXX � �xxx It bears reiterating that while the pertinent provisions of the Tax Code and the rules and regulations implementing them require entities engaged in business to secure a BIR authority to print invoices or receipts and to issue duly registered invoices or receipts, it is not specifically required that the BIR authority t to print be reflected or indicated therein. Indeed, what is important with respect to the BIR authority to pript is that it has been secured or obtain:: :'l the taxpa'ler, and that

DECISION C.T.A. EB NO. 209 Page 11 of20 invoices or receipts are duly registered (Emphasis and underscoring Ours)."1 ' As gleaned from the foregoing jurisprudence, although entities �"-. : engaged in business are required to secure from the BIR an authority to print receipts or invoices,: and to issue duly registered receipts or invoices, it is not necessary that the BIR authority to print be reflected or indicated therein. It is sufficient that the BIR authority to print has been secured or obtained by the taxpayer, and that invoices or receipts are duly registered. In view of the foregoing discussion and jurisprudential pronouncement, the invalidation of petitioner's sales invoices submitted in support of its claim for refund/tax credit by the Court in Division in the inst~nt case must be set' . aside. Correspondingly, it becomes essential to re-examine and re-evaluate petitioner's documentary substantiation of its input VAT paid, consisting of the subject sales invoices. Upon perusal of said sales invoices, the Court En Bane was� able to determine that out of the P929, 186,493.91 declared zero-rated sales, only P483,014,584.74 is fully substantiated, details of which are as follows: Invoice Exchange No. Ex h. Date Sales (USD) Rate8 Sales (PhP) N33-N35 2-Jan-99 3851 2,328.19 N55-N57 5-Jan-99 3855 2,059.40 N65-N67 7-Jan-99 3859 948.00 N68-N70 13-Jan-99 3859a 355,132.56 N88-N90 9-Jan-99 3866 2,328.19 N117-N119 11-Jan-99 3879 83,216.26 - N120-N122 11-Jan-99 3880 205,215.00 N123-N125 12-Jan-99 3881 431,005.56 N126-N128 14-Jan-99 38.112 1,079,276.27 N157-N159 16-Jan-99 3893 397,768.69 ~ 7 Id. �:� ') .., 8 Exhibit N4. ..... �-� t)

DECISION o~! J C.T.A. EB NO. 209 Page 12 of20 N169-N171 19-Jan-99 3901 743,330.61 N194-N196 21-Jan-99 3906 2,053.30 N212-N214 22-Jan-99 3912 936,634.50 N215-N217 22-Jan-99 3913 81,675.00 N218-N220 23-Jan-99 3914 2,680.50 449,421:18. -:..., N258-N260 25-Jan-99 3930 N284-N266 26-Jan-99 3932 '465,823.80 N267-N269 27-Jan-99 �- 3933 16,130.33 N270-N272 27-Jan-99 3934 360,466.47 N273-N275 28-Jan-99 3935 1,357,779.28 N276-N278 28-Jan-99 3936 1,580.00 N294-N296 30-Jan-99 3942 36,240.00 N297-N299 30-Jan-99 3943 46,030.33 Sub-total- January 7,059,123.42 38.65 272,835,120.18 N321-N323 2-Feb-99 3953 53,688.23 86,867,817.31 N330-N332 4-Feb-99 3956 1,256,046.55 123,311,647.24 483,014,584.74 ~ N333-N335 4-Feb-99 3957 1,737.70 N336-N338 5-Feb-99 3958" 22,482.00 N366-N368 8-Feb-99 3973 53,688.23 N369-N371 8-Feb-99 3974 50,737.05 N375-N377 9-Feb-99 3976 97,598.00 N378-N380 9-Feb-99 3977 5,583.00 N380-N382 9-Feb-99 3978 2,126.70 N389-N391 11-Feb-99 3981 4,626.05 N392-N394 11-Fe' b-99 3982 1,760.34 N395-N.397 12-Feb-99 3983 1,853.30 N426-N428 17-Feb-99 4000 657,916.67 N455-N457 23-Feb-99 4015 18,430.33 N458-N460 27-Feb-99 4016 21,022.00 Sub-total- February 2, 249,296. 15 38.62 N496-N498 2-Mar-99 4032 1,947.00 N505-N507 4-Mar-99 4035 1,143.99 N508-N510 5-Mar-99 4036 1,403.42 N511-N513 5-Mar-99 4037 577,416.67 N551-N553 8-Mar-99 4051 1 ,021,924.68 N554-N556 10-Mar-99 4052 1,060.55 N557-N559 12-Mar-99 4053 1,063,364.94 N560-N562 18-Mar-99 4054 33,734.16 N619-N620 16-Mar-99 4077 39,138.89 N621-N623 17-Mar-99 4078 5,050.00 N624-N626 18-Mar-99 fl079 2,463.96 N656-N658 26-Mar-99 4097 418,438.00 N659-N660 25-Mar-99 4098 1,250.00 Sub-total- March 3,168,336.26 38.92 TOTAL 12,476,755.83 '

DECISION C.T.A. EB NO. 209 Page 13 of20 Moreover, invoices that do not bear the word "zero-rated",9 those not supported by airway bills and export documents, and those pertaining to export sales outside the period of the subject claim, 10 are disallowed. Therefore, only the portion of the input VAT claimed attributable to the said sales will be considered for refund. The rate to be applied is based on the volume of sales and is computed as follows: p 483,014,584.74 p 929,186,493.91 Substantiated zero-rated sales 51.98% 1 Divided by declared zero-rated sales Rate of supported zero-rated sales Although this Court now rules that a portion of petitioner's reported export sales are qualified to be subject to zero percent (0%) under Section 106(A)(2)(a)(1) of the NIRC of 1997 and its claim for refund or tax credit have zero-rated sales to be attributed with, there is still a need to properly substantiate its unutilized input VAT for the First quarter of 1999, through documentary evidence, in order for petitioner's claim to prosper. Substantiatioh of input VAT is necessary in order to ascertain that what will be refunded to the petitioner are only those taxes that have actually been remitted and paid to the Government, in accordance with the requirements of 9 See Mirant (Navotas II) Corporation (Fmmerly: Southem Energy Navotas II Power, Inc) vs. Commissioner of Intemal Revenue, CTA EB No. 226, September 11, 2007; Southern Philippines Power Corporation vs. Commissioner oflnternal Revenue, CTA EB No. 214, July 31, 2007; Panasonic Communications Imaging Corporation of the Philippines, (formerly, MATSUSHITA BUSINESS MACHINE CORPORATION OF THE PHILIPPINES) vs. Commissioner oflnternal Revenue, CTA EB No. 239, May 23, 2007; Kepco Philippines Corporation vs. Commissioner of Intemal Revenue, CTA EB No. 186, May 17, 2007; Kepco Phjlippines Corp.oration vs. Commissioner of Internal Revenue, CTA EB No. 174, May 9, 2007; Applied Food Ingredients Co., Inc. vs. Commissioner of Intemal Revenue, CTA EB No. 220, May 7, 2007; Intel Technology Philippines Inc. vs. Commissioner oflntemal Revenue, CTA EB No. 181, March 27, 2007; and J.R.A. Philippines'Inc. vs. Commissioner oflntemal Revenue, CTA EB No. 128, January 15,2007. �1 CTA Case Nos. 6368 and 6480, December 15, 2004, cited in the cases of Mirant (Navotas Il) Corporation (formerly Southem Energy Navotas II Power, Inc. vs. Commissioner of Internal Revenue, 1 CTA Case No. 6418, April 11, 2006 (Entry of Judgment dated September 14, 2006) and Takenaka Corp. Phil. Branch vs. Commissioner oflntemal Revenue, CTA Case No. 6752, January 2, 2007 (Entry of Judgment dated February 16, 2007). ~� ') .'.)... 8 '"""

DECISION C.T.A. EB NO. 209 Page 14 of20 the law and also, to determine whether or not such input VAT has been utilized by the petitioner in the succeeding quarters. Records reveal that the input VAT refund b~ing claimed by petitioner in the amount of P64,457,520,45 is composed of the input VAT on domestic purchases of goods and services in the amount of P19,896,571.45 and input VAT on importation of capital goods/equipment in :the amount of P44,560,949.00. A review and validation made by the Court-commissioned independent certified public accountant (ICPA), as contained in her Final Report and Supplemental Final Report dated September 12, 2003 and January 22, 2004, r~spectively, 11 reveal that out of petitioner's claimed input VAT on domestic purchases of goods and services in the amount of P19,896,571.45, the amount of P3,092,801.84 should be disallowed due to the following reasons: Exception A Missing Invoices and Official Receipts p 2,657,606.44 Exception B Purchases with No Official Receipts 195,126.46 Exception C Claimant is Not the Actual Buyer 208,489.28 Exception 0 Incorrect Computation of Input VAT 31,579.66 Total p 3,092.801.84 However, upon further verification of the aforesaid ICPA Reports12 and petitioner's supporting documents, this Court rules that the amount of P2, 101,718.23. should be further deducted from petitioner's claimed input VAT, based on the following reasons: Supplier Exhibit No. Claimed Input VAT 1.) Without suppOrting documents AtEJA BLOWER CORPORATION p 24;545.46 ALEJA BLOWER CORPORATION INPAM INC. 8,181.82 \ 11 Exhibits TandY. 33,004.80 ~� 12 Ibid.

o~~ DECISION C.T.A. EB NO. 209 Page 15 of20 JUNNA INDUSTRIAL CORP. 106,343.28 NCR CORPORATION (PHILIPPINES) 71,896.76 NCR CORPORATION (PHILIPPINES) 179,823.39 70,419.90 NCR CORPORATION (PHILIPPINES) NCR CORPORATION (PHILIPPINES) 177,123.33 NCR CORPORATION (PHILIPPINES) 64,396.94 NCR CORPORATION (PHILIPPINES) 6,000.00 OLIVE MAINTENANCE SERVICES 121,202.55 OLIVE MAINTENANCE SERVICES 34 190.10 Sub- Total p 897,128.33 2.). Invoices or Official Receipts with TIN-V only and not TIN- VAT p 16,400.00 8,181.82 CYTRONICS INTERNATIONAL, INC. M-698 18,600.00 EARVIN CONSTRUCTION M-1133 28,865.45 109,090.91 EARVIN CONSTRUCTION M-1135 15,909.09 ENVIRONMENTAL SYSTEMS SPECIALISTS M-1358 1,688.18 1,151.73 ENVIRONMENTAL SYSTEMS SPECIALISTS M-1359 30,676.98 3,331.91 EOL SUPPLIES & SERVICES M-1360 1,620.36 4,727.27 EOL SUPPLIES& SERVICES M-1361 10,440.55 5,818.18 EOL SUPPLIES & SERVICES M-1362 5,818.18 23,409.09 EOL SUPPLIES & SERVICES M-1363 3,636.36 3,225.00 EOL SUPPLIES & SERVICES M-1364 5,'800.00 1,800.00 EOL SUPPLIES & SERVICES � M-1365 829.09 EOL SUPPLIES & SERVICES M-1366 6,012.81 EOL SUPPLIES & SERVICES M-1367 818.18 377.27 FOLGUERAS MARKETING M-1438 990.91 25,445.45 FOLGUERAS MARKETING M-1439 13,090.00 2,000.00 FOLGUERAS MARKETING M-1440 24,545.45 2,727.27 FOLGUERAS MARKETING M-1441 32,727.27 4,909.09 FOLGUERAS MARKETING M-1442 7,909.10 9,727.27 FOLGUERAS MARKETING M-1443 16,363.64 FOLGUERAS MARKETING M-1444 t1,363.64 FOLGUERAS MARKETING M-1445 4,181.82 FOLGUERAS MARKETING M-1446 113,664.22 p 567,893.54 FOLGUERAS MARKETING M-1447 GRAJM ENGINEERING i M-1735 GRAJM ENGINEERING M-1736 GRAJM ENGINEERING M-1737 R.C.F. CONTRACTOR SERVICES M-3875 R.C.F. CONTRACTOR SERVICES M-3876 R.C.F. CONTRACTOR SERVICES M-3203 R.C.F. CONTRACTOR SERVICES M-3204 R.C.F. CONTRACTOR SERVICES M-3204 R.C.F. CONTRACTOR SERVICES M-3205 R.C.F. CONTRACTOR SERVICES M-3205 R.C.F. CONTRA,CTOR SERVICES M-3206 I M-3207 R.C.F. CONTRACTOR SERVICES R.C.F. CONTRACTOR SERVICES M-3208 R.C.F. CONTRACTOR SERVICES M-3209 ROADSTAR ENTERPRISES M-3230. Sub-Total 2�30

co_~/ J DECISION C.T.A. EB NO. 209 Page 16 of20 3.) Invoices or Official Receipts Dated Outside the Period of Claim ATLAS LIFTING SERVICES, INC. M-510 p 20,272.70 AUTOMATED TOOL FABRICATION RESOURCES M-544 16,620.00 AUTOMATED TOOL FABRICATION ,., M-545 11,400.00 RESOURCES AUTOMATED TOOL FABRICATION M-547 21,660.00 RESOURCES CONSOLIDATED INDUSTRIAL GASES, INC. M-692 13,449.68 CONSOLIDATED INDUSTRIAL GASES, INC. M-721 73,923.10 CONSOLIDATE;D INDUSTRIAL GASES, INC. M-722 67,842.98 CONSOLIDATED INDUSTRIAL GASES, INC. M-723 59,~14.90 CONSOLIDATED INDUSTRIAL GASES, INC. M-724 67,803.93 CONSOLIDATED INDUSTRIAL GASES, INC. M-725 59,042.87 EGO-TRIANGLE TECHNOLOGIES, INC. M-1148 13,660.01 EGO-TRIANGLE TECHNOLOGIES, INC. M-1149 7,394.20 SM EQUICOM COMPUTER SERVICES, INC. M-3384 17,275.75 SM EQUICOM COMPUTE~ SERVICES, INC. M-3385 17,275.75 SM EQUICOM COMPUTER SERVICES, INC. M-3386 31,366.25 SM EQUICOM COMPUTER SERVICES, INC. M-3387 77,839.62 SM EQUICOM COMPUTER SERVICES, INC. M-3388 16,236.38 SM EQUICOM COMPUTER SERVICES, INC. M-3389 44 218.24 Sub- Total p 636,696.36 Total Additional Disallowances ~2,:1 0:1,Z:1.8..23. Thus, only the amount of P14,702,051.38 can be considered a proper subject for refund from the total claimed input taxes on domestic purchases of goods and services, detailed as follows: Input VAT Claim on Domestic Purchases P19 896 571.45 of Goods/Services Less: Disallowances p 3,092,801.84 2,101,718.23 1) per CPA reports p 5,194,520.07 2) per this Court's further verification Total Disallowances ~14,702,05:1.38 Validly Supported Input VAT Claim on Domestic Purchases of Goods/Services With regard to petitioner's input VAT on its importation of goods for the First quarter of 1999 amounting to P44,560,949.00, as evidenced by various bank official receipt~ and Import Entry and Revenue Declarations (I EROs), 13 ' this' Court finds that onlythe amouni of P3,635:o7o.oo is v~lidly supported in; 13 Exhibits M3890 to M5219.

"'.'. ,f ,rI .) DECISION C.T.A. EB NO. 209 Page 17 of20 order to prove actual payments of VAT. The said amount is composed of the following: Ex h. Date Bank OR No. Input VAT M5094 M5100 1/11/1999 4676665 p 3,727.00 M5106 M5111 1/11/1999 4676607 571,933.00 M5116 M5121 1/11/1999 4676667 181.00 M5126 M5131 1/11/1999 4676666 421.00 M5136 M5144 1/11/1999' 4676670 17,432.00 M5149 M5165 1/11/1999 4676669 830.00 M5170 M5175 1/11/1999 4676668 181.00 M5180 M4921 1/13/1999 4879838 233,070.00 M4924 M4929 2/2/1999 4880942 . 7,953.00 M4934 M4941 2/2/1999 4880943 1,'375,653.00 M4946 M4951 2/4/1999 4881203 1,793.00 M4956 M4966 2/15/1999 4881874 7,296.00 M4971 M4976 2/15/1999 4'881873 3,700.00 M4988 M4993 2/15/1999 4881871 344.00 M4998 M5002 2/15/1999 4881872 576.00 M5013 M5018 2/24/1999 5006840 425.00 M5025 M5030 2/24/1999 5006847 1,313.00 M4982 M5038 2/24/1999 5006850 2,671.00 M5043 M5048 2/24/1999 5006851 222,914.00 M5053 M5058 2/24/1999 5006848 333.00 M5063 M5068 2/24/1999 5006842 5,207.00 M5073 M5077 2/24/1999 5006843 813,699.00 2/24/1999 5006845 20,018.00 2/24/1999 5006841 2,865.00 2/24/1999 5006849 24,557.00 2/24/1999 5006844 387.00 3/5/1999 . 5007564 427.00 3/5/1999 5007565 1,083.00 3/5/1999 5007566 3,156.00 3/5/1999 5007559 1,242.00 3/5/1999 5007560 2,666.00 3/5/1999 5007561 1,782.00 3/5/1999 5007562 1,388.00 3/5/1999 5007563 634.00 3/9/1999 5007799 258,829.00 3/17/1999 5008441 32,955.00 . 3/17/1999 5008443 813.00 3/17/1999 5008444 4,325.00 3/17/1999 5008442 1,705.00 3/17/1999 5008440 1,751.00 �' 3/24/1999 5008914 425.00 5008912 3/24/1999 647.00 3/24/1999 5008911 t 1,388.00 375.00 3/24/1999 5008913 3,635,070.00 TOTAL p 2.32

loo DECISION C.T.A. EB NO. 209 Page 18 of20 This finding is based on the fact that the remaining claimed input VAT on importation of goods/capital equipment in the amount of P40,925,879.0014 was disallowed on the grounds that the dates of said bank official receipts \ were found to be outside the subject period of claim and the IERDs were not machine validated. Therefore, based on the foregoing discussion, petitioner's valid input VAT. for refund is reduced to P9,531 ,6~5,.69, computed as follows: Validly Supported Input VAT Claim on Domestic Purchases of Goods/Services P14,702,051.38 3,635,070.00 on Importations of Capital Goods/Equipment P18,337, 121.38 Total Valid Input VAT Claim . 51.98% Multiplied by Rate of Substantiated Zero-Rated Sales p 9.531,635.69 Input VAT Claim Attributable to Substantiated Zero-Rated Sales However, as previously mentioned and already established through petitioner's own admission, 15� the DOF already granted petitioner a TCC on January 24, 2002 covering 50% of the input tax on domestic purchases for the same period involved amounting to P9,948,285.73. 16 Pursuant to Section 112(A) and (B) of the NIRC of 1997, in order to be entitled to a refund/tax credit of input VAT paid on goods or services purchased, one of the requirement is that petitioner must prove that the creditable input taxes due ~x paid attributable to zero-rated sales or input taxes paid on capital goods have not been applied against output tax liability. Hence, upon receipt of the TCC issued by the DOF on January 24, 2002, We could therefore conclude that such amount has been applied against output VAT liability of petiti6ner in period~ subsequent to such issuance. ; 14 Total claimed input VAT on importation of good less Total input VAT on importation of goods validly supported (P44,560,949.00- P3,635,070.00 = P40,925,879.00). 15 Manifestation filed on August 26, 2002, Docket, CTA Case No. 6263, pp. 77-80. 16 Total claimed input VAT on domestic purchases x 50% (P19,896,571.45 x 50%= P9,948,285.73). 2JJ,

DECISION C.T.A. EB NO. 209 Page 19 of20 Consequently, petitioner can no longer claim for the refund or issuance of a TCC of its input tax for the First quarter of taxable year 1999 since the amount of input tax covered by the TCC issued by the DOF on January 24, 2002 was even more than the amount found by this Court to be validly refundable to petitioner: Input VAT Claim Attibutable to Substantiated Zero-Rated Sales 9,531,635.69 Tax Credit Certificate issued by DOF on January 24, 2002 9,948,285.73 Amount still Refundable (416,650.04) To emphasi~e, the rule in this jurisdiction to which our jurisprudence clung with unrelenting grasp is that "[t]ax refunds are in the nature of tax exemptions. As such, they are regarded as in derogation of sovereign ., authority and to be construed strictissimi juris against the person claiming the exemption". 17 WHEREFORE, premises considered, the instant Petition for Review is hereby DENIED for lack of merit. SO ORDERED. AEs~~~.stUicYe WE CONCUR: . L-~ o~ (With Concurring and Dissenting Opinion) ERNESTO D. ACOSTA Presiding Justice ~~~C.~~~/ Q., , �JUANITO C. CASTANEDA, iR. Associate Justice 17 Commissioner of Internal Revenue vs. Procter and Gamble Philippine Manufacturing Corporation (204 SCRA 377 [1991]) and Commissioner of Internal Revenue vs. S. C. Johnson & Son, Inc. (309 SCRA 87 [1999]).

DECISION ~7~--~ C.T.A. EB NO. 209 OLGAIPALANCA-EN~ Page 20 of20 A., ssociate Justice ~ CAESAR A. CASANOVA Associate Justice CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions � in the above decision were reached in consultation before .!he case' was assigned to the writer of the opinion of the Court En Bane. ~~-~ ERNESTO D. ACOSTA Presiding Justice