HYDRO-ELECTRIC DEVELOPMENT CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEAlS � QUEZON CITY FIRST DIVI SION ************* HYDRO-ELECTRIC DEVELOPMENT C.T.A. CASE NO. 7 263 CORPORATION, Members: Petitioner, -versus- ACOSTA, Chairperson BAUTISTA, and CASANOVA, JJ COMMISSIONER OF INTERNAL Promulgated: REVENUE, R dt AUG 20 2008 ;/!f.:>p.., e-s~~n -�~ -~ . x ___________ ____ _� ___ __ __ _____ ______ DECISION CASANOVA, J. : Nature of the Case The Petition for Review seeks for the issuance of tax credit certificate or refund for the unutilized value-added tax (VAT) for the period January 2003 to December 2003 in the amount of P2,209,934.38 arising from its domestic purchases of goods and services subject to VAT which are attributable to its VAT zero-rated sale~ of power generation services to the National Power Corporation (NPC) and are automatically zero-rated pursuant to EPIRA. Statement of the Facts Petitioner, Hydro Electric Development Corporation, is a domestic corporation duly orga nized and existing under and by virtue of the laws of the Phil ippines, with pri ncipa~

.OECISION J i ' ' c.T.A. CASE N0.7263 �Page 2 of 17 office address at 214 Obulan, Ambuklao Road, Beckel, La Trinidad, Benguet. It is registered with the Bureau of Internal Revenue under Revenue District No. 9 - Cordillera Administrative Region with Tax Identification No. 000-309-914 and a Value Added Tax Payer as evidenced by Certificate of Registration dated April 10, 2003. 1 ).,__ Respondent, on the other hand, is the Commissioner of the Bureau of Internal Revenue, who is duly appointed and empowered to perform the duties of his ofFice, including among others, the duty to act and approve claims for refund or ta x credit certificate as provided by law, with office address at the BIR National Office Building, BIR Road, Diliman, Quezon City. 2 Petitioner, for the four quarters of taxable year 2003, filed its Quarterly VAT Returns on April 15, 2003, July 18, 2003, October 20, 2003, and January 20, 2004, respectively. 3 With a validity period from June 11, 2003 to December 31, 2003, petitioner has been issued an approved application for zero-rating. 4 Then, on March 31, 2005, petitioner filed through counsel an administrative claim for refund/application for tax credit certificate of its unutilized input VAT for the period January 2003 to November 2003 in the amount of P946,409.45. 5 Petitioner again filed, on April 11, 2005, a similar claim of its unutilized input VAT for the month of December 2003 in the amount of P1,263,524.93. 6 Due to the inaction of the respondent on petitioner's claim and the two-year . prescriptive period was about to lapse, hence this Petition for Review filed on June 1, 2005. 7 Respondent in his Answer8 by way of special and/or affirmative defenses averred among others:~ 1 Paragraph 1, Page 2, Joint Stipulation of Facts and Issues; Page 79, CTA Records 2 Paragraph 2, Page 3, Joint Stipulation of Facts and Issues; Page 80, CTA Records 3 Paragraph 7, Page 3, Memorandum for the Petitioner; Page 573, CTA Records 4 Paragraph 10, Page 4, Joint Stipulation of Facts and Issues; Page 81, CTA Records 5 Paragraph 7, Page 3, Petition for Review; Page 3, CTA Records 6 Paragraph 8, Pages 3-4, Petition for Review; Pages 3-4, CTA Records 7 Paragraph 19, Page 9, Petition for Review; Page 9, CTA Records 8 Paragraphs 5, 6, 7, 8, and 9, Pages 2-4, Answer; Pages 54 -56, CTA Records

� DECISION C.T.A. CASE N0.7263 5. He reiterates and repieads the preceding paragraphs of this answer as part of his Special and Affirmative Defenses; 6. Petitioner's claim for refund is subject to administrative investigation/examination by t he respondent; 7. 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 the Revenue Regulations No. 6-97 in relation to Section 4. 107- 1 (a) of Revenue Regulations No. 7-95, and Section 236 of the 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 Sections 113 and 114 of the Tax Code as amended; c. Proof of compliance with the prescribed checklist of requirements to be submitted involving the claim for VAT refund in pursuance to Revenue Memorandum Order No. 53-98, otherwise there would be no sufficient compliance with the filing of administrative claim for refund which is a condition sine qua non prior to the filing of judicial claim in accordance with the provision of Section 229 of the Tax Code, as amended. It is worthy of emphasis that Section 112 (D) of the Tax Code, as amended, 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 t axpayer could avail of judicial remedies as provided for in the law. Hence, petitioner's failure to submit proof of compliance with the above-stated requirements warrants immediate dismissal of the petition for review; d. That the input taxes of P2,209,934.38 allegedly paid by the petitioner on its purchases of goods and services for the taxable year 2003 were attributable to its zero-rated sa les and such have not been applied against any output tax and were not carried over in the succeeding taxable quarter or quarters; e. That petitioner's administrative and judicia l claims for tax credit or refund of the unutilized input tax (VAT) was fi led within two (2) years after the close of the taxable quarter when the sales were made in accordance with Sections 112 (A) and (D) and Section 229 of the Tax Code, as amended;(i!A_ .. ...,' . ('\~ )

~I � DECISION c.T.A. CASE N0.7263 f . That petitioner's domestic purchases of goods and services were made in the course of its trade and 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 of the Tax Code as amended, and in pursuance to Section 4. 104-5 (a) and (b) of Revenue Regulations No. 7-95 (Re: Substantiation of Claims for Input Tax Credit); g. The requirements as enumerated under Section 4. 104-2 of the Revenue Regulations 7-95 . (Re: Persons who can avail of the Input Tax Credit) 8. Furthermore, in an action for refund the burden of proof is on the taxpayer to establish the right to refund and failure to sustain the burden is fatal to the claim for refund/credit. This is so because 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 common burden cannot be permitted to exist upon vague implications (Asiatic Petroleum Co. {P.I.} v. Llanes, 49 Phil 466 cited in Collector of Internal Revenue v. Manila Jockey Club, Inc., 98 Phil 670) 9. Claims for refund are construed strictly against the claimant for the same partake the nature of exemption from taxation. The parties, on October 26, 2005, entered their Joint Stipulation of Facts and Issues9, which was approved by this Court in a Resolution dated November 07, 2005. 10 Petitioner presented its evidence during trial. Respondent, on the other hand, was considered to have waived his right to present evidence in a Resolution dated August 23, 2007. 11 Thus, the case was submitted for decision on October 9, 2007, taking into consideration the memorandum filed by the petitioner on October 05, 2007, sans respondent's Memorandum. The Issues The issues to be resolvec;l by this Court: 1~ 9 Page 78, erA Records 10 Page 83, erA Records II Page 566, erA Reco rds 12 Page 4, Joint Stipulation of Facts and Issues; Page 81, erA Records

DECISION C.T.A. CASE N0.7263 I. Whether or not petitioner's sale of electricity to NPC is effectively zero-rated; II. Whether or not petitioner filed its claim for refund within the two (2) year prescriptive period; III. Whether or not petitioner's input VAT are properly supported; IV. Whether or not petitioner is entitled for [a] refund. The Court's Ru ling Claim for refund within the two-vear prescriptive period Section 112 (A) of the National Internal Revenue Code (NIRC) of 1997 provides that a VAT-registered person, whose sales are zero-rated or effectively zero-rated, may apply for the issuance of a tax credit certificate or refund of creditable input VAT which arises from its domestic purchases of goods and services subject to VAT, within two years after the close of the taxable quarter when the sales were made. However, Section 112 (A) should be construed with the first paragraph of Section 114 (A), in relation to Section 229 of the same Code, thus: "Section. 114. Return and Payment of Value-added Tax - (A) In General. - Every person liable to pay the va lue-added tax imposed under this Title shall file a quarterly return of the amount of his gross sales or receipts within twenty-five (25) days following the close of each taxable quarter prescribed for each taxpayer: Provide~ however, That VAT-registered persons shall pay the value-added tax on a monthly basis." "Section. 229. Recovery of Tax Erroneously or Illegally Collected -- No suit or proceeding sha ll be maintained in any court for the recovery of any national interna l revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly fi led with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening ca use t hat may aris~ after payment: Provided, however, That the Commissioner may, even without written claim therefore, refund or credit any tax, where on the~

DECISION �C.T.A. CASE N0.7263 face of the return upon which payment was made, such payment appears clearly to have been erroneously paid." (Emphasis supplied) In not a few cases did this Court held, that the two-yea r prescriptive period for the filing of a claim for VAT refund or tax credit should not be counted from the close of the quarter, but from the date of filing of the VAT Return for it is only during that date, that the ).,_ VAT liability or refundability can be determined. 13 The Supreme Court affirmed in this wise: "It is true that unlike corporqte income ta x, which is reported and paid on installment every quarter but is eventually subjected to a final adjustment at the end of the taxable year, VAT is computed and paid on a purely quarterly basis without need for a fin al adjustment at the end of the ta xable yea r. However, it is also equally true th at until and unless the VAT- registered taxpayer prepares and submits to the BIR its quarterly VAT return, there is no way of knowing with certa inty just how much input VAT the taxpayer may apply against its output VAT; how much output VAT it is due to pay for the quarter or how much excess input VAT it may carry- over to the following quarter; or how much of its input VAT it may claim as refund/ credit. xxx. xxx, it is more practical and reason able to count th e two-yea r prescriptive period for filing a claim for refund/credit of input VAT on zero- rated sales from the date of filing of the return and payment of th e tax due which, according to the law then existing, should be made within 20 clays from the end of each quarter." 14 Further, in the computation of the two-yea r period, a year is equivalent to 365 days regardless of whether it is a regular year or a leap year. 15 A ca lendar month is "a mon th designated in the ca lendar without regard to the number of clays it may contain ."16 However, as borne by the records, petitioner's claim for ta x refund or issuance of tax credit certificate does not fall entirely within the two-year prescriptive period. For the first quarter, petitioner merely proffered its Am ended Quarterly VAT Return .17 Without the introduction of the VAT Return originally fil ed for the first quarter, this Court cannot ascertain whether petitioner's claim for the said quarter in the amount of P67,481.01 was timely fil ed .~ 13 July 20, 1998 Resolution in Atlas Consolidated Mining and Development Corpora tion vs. Commissioner of Internal Revenue "Atlas Consolidated Mining and Development Corporation vs. Comm issioner of Internal Revenue, G.R. Nos. 141104 & 148763, June 8, 2007 15 Nationa l Marketing Corpora ti on vs . Tecson, 139 Ph il. 584 (1960), citing People vs. Del Rosario, 97 Ph il 70, 71 (1955) 16 Gutierrez vs. Ca rpio, 53 Ph il. 334 (1929) 17 Exhibit H

DECISION C.T. A. CASE N0.7263 Hence, the claim for the first quarter of taxable 2003 should be disallowed. As to claims for the 2nd, 3rd and 4th quarters/8 petitioner tendered its amended VAT Returns all filed on March 31, 2005. Unlike the claim for the first quarter, the submission of the original VAT Returns are no longer necessary. Even granting that petitioner's second )..._ quarterly VAT return was filed before the last day prescribed by law, which is July 25, 2003, still the same falls within the two-year prescriptive period, or until July 25, 2005, within which to file its claim. Since the administrative claim and the Petition for Review were filed on March 31, 2005 and June 1, 2005, respectively, the claims for the 2nd, 3rd and 4th quarters in the respective amounts of P335,611.02, P199,981.70 and P1,606,860.65 are well within the two-year prescriptive period. Sale ofelectricity to NPC is effectivelv zero-rated Citing the charter of the NPC19, Section 13 provides: Section 13. Non-profit Character of the Corporation: Exemption from All Taxes, Duties, Fee~ Imposts and Other Charges by the Government and Government Instrumentalities.- The Corporation shall be non-profit and shall devote all its returns from its capital investment as well as excess revenues from its operation, for expansion. To enable the Corporation to pay its indebtedness and obligations and in furtherance of effective implementation of the policy enunciated in Section One of this Act, the Corporation including its subsidiaries is hereby declared exempt: (a .) from the payment of all forms of taxes, duties, fees, imposts, as well as the costs and service fees including filing fees, appeal bonds, supersedeas bonds, in any court or administrative proceedings. x x x Further, in Maceda vs. Macaraig, Jr.20, the Supreme Court affirmed the NPC's tax exemption: The NPC is a non-profit public corporation created for the general good and welfare, wholly owned by the government of the Republic of the Philippines. From the very beginning of its corporate existence, the NPC enjoyed preferential tax treatment, to enable the Corporation to pay the@- 18 Exhibit Q, Z and II 19 Republic Act 6395, as amended by Presidential Decree 380 20 G.R. No. 88291, May 31, 1991 J;�,.0J '7

� DECISION � C.T.A. CASE N0.7263 � Page 8 of 17 indebtedness and obligation and in furtherance and effective implementation of the policy enunciated in Section one of "Republic Act No. 6395" which provides: Section 1. Declara tion of Policy. - Co ngress hereby declares th at (1) th e comprehensive development, util izati on and conservation of Phil ippine water resources for all benefici al uses, 'h. including power genera tion, and (2) the total elect rification of the Phi lippines th ro ugh the development of power from all sources to meet the need of rura l electrification are prima1y objectives of the nati on whi ch shall be pursued coordinately and supported by all instrum enta lities and agencies of the governm ent incl uding its finan cial instituti ons. XX X XXX XXX It is noted that in th e earlier law, R.A. No. 358 the exemption wa s worded in general term s, as to cover "a ll taxes, duties, fees, imposts, charges, etc. x x x" However, the amendment under Republic Act No. 6395 enumerated th e details covered by th e exemptions. Subsequently, P.O. No. 380, made ever more specific the details of the exemption of NPC to cover, among others, both direct and indi rect taxes on all petro leum products used in its operation. Presidential Decree No. 938 amended th e tax exemption by simplifying th e same law in g\=ri eral term s. It succin ctly exempts NPC from ''all forms of taxes, duties, fees, imposts, as well as costs and service fees including filin g fees, appea l bonds, supersedeas bonds, in any co urt or administrati ve proceedings. Th e use of th e phrase "a ll form s" of ta xes demonstrate the intention of the law to give NPC all the tax exempti ons it has been enjoying before. The rati onale for thi s exemption is that being non-profit the NPC "shall devote all its return s from its capital investment as well as excess revenues of its operation, for expansion. x x x XXX XXX XXX It is evident from the provisions of P.O. No. 938 th at its pu rpose of to maintain the tax exemption of NPC fro m all form of taxes including indirect taxes as provided for under R.A. No. 6395 and P.O. No. 380 if it is to attain its goals. Neverth eless, petiti oner must prove tha' t it actuall y se lls electri ci ty to NPC in order for such sales to be qua lifi ed as effective ly zero-rated under Secti on 108(8 )(3) of the NIRC of .� 1997, as amended, which states : Sec. 108 . Value-added Tax on Sale of Services and Use or Lease of Properties. - (A) Rate and base of tax. - xxx~ ~98

. DECISION � C.TA CASE N0 .7263 (B) Transactions Subject to Zero Percent (0 %) Rate. - The fo llowing services performed in the Phi lippines by VAT- registered persons shall be subject to zero percent 0% rate: (1) XXX ).,__ (2) XXX (3) Services rendered to persons or entities whose exemption under specia l laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate. However, Section 108 (B)(3) must be read with Section 113 of the same Code, as implemented by Section 4.108-1 of Revenue Regulations No.7-95, thus: "Section 113. Invoicing and Accounting Requirements for VAT- Registered Persons. - (A) Invoicing Requirements.- A VAT-registered person sha ll, for every sale, issue an invoice or receipt. In addition to the information required under Section 237, the following information shall be indicated in the invoice or receipt: (1) A statement that the seller is a VAT-regi stered person, fol lowed by his ta xpayer's identification number (TIN); and (2) The total amount which the purchas~ r pays or is obligated to pay to the seller with the indication that such amount includes the va lue-added ta x . " "Section 4.108 -1. Invoicing Requirements - All VAT registered persons shal l, for every sale or lease of goods or properties or services, issue duly registered receipts or sales or commercial invoices which must show: 1. the name, TIN and address of seller; 2. date of transaction; 3. quantity, un it cost and description of merchandise or nature of service; 4. the name, TIN, business style, if any, and address of the VAT- reg istered purchaser, customer or client; 5. the word "zero-rated" imprinted on the invoice covering zero- rated sales; and 6. the invoice value or consideration. XXX XXX XXX Only VAT-registered persons are required to print their TIN fo llowed by the word "VAT" in their invoice or receipts and this sha ll be considere~

DECI SION J C.T.A. CASE N0 .7263 as a "VAT Invoice". All purchases covered by invoices other than "VAT Invoice" shall not give rise to any input ta x." If the taxable person is engage in exempt operations, he should issue separate invoices or receipts for the ta xable and exempt operations. A "VAT Invoice" shall be issued on ly for sa les of goods, properties or services subject to VAT imposed in Section 100 and 102 of th e Code. xxx " ).._ Further, in the approved Application for VAT Zero-Rate21 issued by the respondent to the petitioner, the phrase ''Zero-rated sales must be indicated 1i1 the invoice/receipt. " is signified therein. Thus, ba sed on the foregoing law and reg ulations, as well as, petiti oner's approved Applica ti on for VAT Zero-Ra te, it is imperative th at petitioner must issue VAT invoices/offi cial receipts which are duly registered and contain all the necessary information such as petitioner's TIN -VAT number and the imprinted word "zero-rated" in order that its sales of electricity to NPC sha ll qualify for VAT zero-rating. Input VAT must be properlv supported. '� Petitioner declared the following zero-rated sa les for the taxable year 2003: ill!: Exhibit No. Zc1�o-Ha ted Sales p 16,842 ,639.78 Involved 1-1 52,067,403 .62 l st . 149 ,633 ,477 .5 3 2nd Q 74,8 19, 19 1.14 3rd p 293,362,712.07 4th z Total II Based on the examination of the Court-commissioned Independent CPA, Mr. Ronalda De Vera, on petitioner's documentary evidence, such as summary of zero-rated sa les, VAT invoices and official receipts, 22 out of the total reported zero-rated sa les amounting to P293,362, 712.07, only the amount of P231, 238,283. 72, representing petitioner's sale of electricity to NPC, was considered as zero-rated sa les. While the rema ining amount ~ 11 Paragraph 10, Page 4, Joint Stipul ation of Fa cts and Issues; Page 8 1, CTA Records 22 Exhibits TT, TT-l to TT-26, and TT-la toTT-26a

DECISION C.T.A. CASE N0 .7263 P62) 24,428.35, relating to petitioner's sale of electricity to various companies, other than NPC, was treated as exempt sales, thus: ~ Renorted Zero-Rated ��� Substantiated Zero- Invo lved Sa les Rated Sales ner JCP A Exemnt Sales ).._1st p 4,93 0,3 13.95 2nd p 16, 842,639.78 p 11 ,9 I2,325 .83 3rd 11 ,974,6 14.95 4th 52,067,403 .62 40,092,788 .67 27,6 11,504.5 1 17,607,994 .94 Total 149,633 ,477.53 122,021 ,973.02 p 62,124,428.35 74, 81 9,191.1 4 57 ,2 1 I , 196.2 0 p 293,362,712.07 . p 231 ,238,283 .72 Section 6 of the EPIRA Law23 provides that "sales of generated power by generation companies shall be value-added tax zero-rated." By modifying the VAT rate applicable to sales of generated power by generation companies from ten percent (10% ) to zero percent (0% ), the relevant provisions of the Tax Code are deemed amended by the EPIRA Law. However, based on the official receipts offered by the petitioner, only the following 2003 zero-rated sales to NPC were established, to wit: Exhibit No. OR No. OR Date Amount TT-7/TI' -7a 36 16 I 04/30/03 TT-9/TT-9a 3622 05 / 30 /03 p 9 15,3 10.2 1 TT- 10/TT- l Oa 3621 05 /3 0/03 TT- 11 /TT-ll a 3626 06/2 6/03 1, 128,409. 13 TT-12/TT- 12a 3627 06/26/03 TT- 13/TT- 13a 363 1 07 /25 /03 157, 793.86 TT- 14/TT- 14a 3630 07/25/03 TT- 15/TT- 15a 3637 08 / 28 /03 43 0,380.02 TT- 17/TT- 17a 3640 09/2 5/03 TT- 18/TT- 18a 3639 09/25/03 3,778,370.58 TT- 19/TT- 19a 3644 10/2 7/03 TT-20 /TT-2 0a 3643 I0/2 7/03 34 , 139, 759 . 14 TT-2 1/TT-2 1a 3646 11 /27/03 TT-22/TT-22a 364 7 11 /2 7/03 45 8,075 .94 TT-23 /Tf -23a 3650 12/2 9/03 TT-24/TT-24a 3649 12/2 9/ 03 33,883,8 12.06 Total 44,16 1,003.97 460,99 1.30 42,605 ,11 5.69 455 ,889.42 32,88I ,796.4 7 45 0,058 .70 15,462,805.43 390,658 .24 p 211,760,230.16 '$-. 23 Effective June 26, 2001 GOl

DECISION C.T.A. CASE N0.7263 The Court notes that the claim for the first quarter of 2003 was disallowed for reason of prescription. However, the total zero-rated sales concerning the first quarter of 2003 amounting to P11,912,325.83 shall not be entirely disallowed. OR No. 361624 dated April 30, 2003 is inside the coverage of second quarter of 2003, thus, within the two-year prescriptive ),_ period. On the other hand, for failure to comply with the invoicing requirements under Section 4.108.1 of Revenue Regulations No. 7-95, OR No. 363625 dated August 28, 2003 shall be disallowed for the words "zero-rated" were not imprinted on the official receipt covering zero-rated sales. In addition, OR Nos. 455326 and 455227 shall be denied, as well, for it was dated January 26, 2004, a date which is beyond the period of claim. Hence, the total disallowed zero-rated sales amounted to P19,478,053.56. The Independent CPA considered the sales amounting to P62,124,428.35 as exempt sales. Yet the official receipts presented bear the words "zero-rated sales". Thus, such should be considered as zero-rated sales and not as exempt sales. Nonetheless, out of the P62,124,428.35, only the amount of P42,927,095.74 shall be considered as zero-rated sales and the remaining amount of P19,197,332.61 shall be disallowed for being not properly substantiated by official receipts, to wit: Customet� Exhibit No. Amount a. Sales for the first quarter SS- 1 to SS- 13 p 4,930,313.95 b. Sale of service without supporting Official Receipts SS- 14 1, 189.49 Benguet Electric Cooperative SS-15 1,037,226. 05 Davao Light & Power Co. Inc. SS-20 Davao Light & Power Co. Inc. SS-2 1 967,777.34 Davao Light & Power Co. Inc. SS-26 939,230.72 Davao Light & Power Co. Inc. 1,082 ,726.66 Benguet Electri c Cooperative SS-39 Davao Light & Power Co. Inc. SS-46 983. I8 Davao Light & Power Co. Inc. SS-52a 766 ,2 77.76 Davao Light & Power Co. In c. SS-57a 953,988. 11 Davao Light & Power Co. Inc. SS-6 1 534,480.62 Philex Mining Corp. 1,075,859. 14 299,75 1.7~ 24 Exhibit TT-7 25 ExhibitTT-16 26 Exhibit TT-25 27 Exhibit TT-26

DECISION C.T. A. CASE N0.7263 Davao Light & Power Co. Inc. SS-66a 1, 100, 152.80 8,759,643.60 Sub-tota l SS-48 SS-56 102,861. 18 c. Suppo1�ting ORs not legible SS-58 2,620,456.09 Benguet E lectric Cooperative SS-59 I09,68 1.99 San Fernando E lectri c Light & Power Co., Inc. SS-55 145,308.72 Benguet Electri c Cooperative SS-65 2,978,307.98 Benguet E lectri c Coo perative 1,502 ,5 19 .51 ).._ Sub-total 1, 0 2 6 , 5 4 7 . 5 7 2,529,067.08 d. OR date is out of period of claim p 19,197,332.61 Phil ex Mining Corp. San Fernando E lectric Ligh t & Power Co., Inc. Sub-total TOTAL Since the input taxes sought to be refunded in the amount of P2,209,934.38 is attributable to petitioner's declared zero-rated sales of P293,362,712.07, the valid input VAT should be allocated against the supported zero-rated sales. Inasmuch as only the amount of P254,687,325.90 (P211,760,230.16 + P42,927,095.74) was proven as zero-rated sales, it is but proper to apportion the input taxes equivalent thereto. Thus, the rate to be applied will be based on the total volume of declared zero-rated sales, computed as follows: Substantiated zero-rated sa les 254,687,325.90 Divided by th e tota l declared ze ro-rated sa les 293,362,7 12.07 Rate of supported zero-rat"ed sales 86.82% Derived from various purchases of goods and services for the year 2003, petitioner has alleged unutilized input VAT in the aggregate amount of P2,209,934.38, as follows: ill!: Exhibit. Zero-Hated VAT Sales Out(1ul VAT Carried ln11u1 VAT Excess No. Sales P8,34 1,496.70 P834 , 149.67 Over P 90 I,630.68 ht(1ul VAT Involved 579,483. 17 p 67,48 1.0 I 1st 1-1 p 16,842,639.78 5,794 ,831.70 446 ,296.03 P67,48 1.01 52,067,403.62 4,462,960.30 405 ,686.66 403,092 .03 9 15,094. 19 403 ,092 .03 2nd Q 149 ,633,477.53 4,056,866.60 603,073.73 74,8 19, 191. 14 P22,656, 155.30 P2 ,265, 615 .53 646,277.73 603,073 .73 3rd z 4th P293,362,712 .07 2,01 2,547.3 1 2,209,934.38 II P4,475,549.91 ~ l.J. f\.) ,'))

r, loi' DECISION CT.A. CASE N0 .7263 . Page 14 of 17 Based on the Independent CPA's report, 28 the amount of the petitioner's claim that was substantiated by proper documents and were, therefore, valid for ta x refund/tax credit amounts to P1,479,077.87, thus: ).,_ Input VAT Ascertai ned to ill!: In~ut VAT ~er In nut VAT In nut VAT Output VAT Return Disallowed in Allowed ~cr p 834 , 149.67 be va lid fo1� Involved Tax I st p 90 1,63 0. 68 Audit Audit 579 ,<183 .1 7 2nd p 860,899 .63 446,296.03 -r e f u-n d /-c r e-d i t 9 15,0 94 . 19 p 40,73 1.05 405,6 86.66 3rcl 646,277.73 892,380.53 p 2,265,615.53 p 26,749.96 2,01 2,5 47 .3 1 22,7 13.66 3 12,897.36 4th 53 1,277 .64 p 4,475,549.91 11 5,000.09 84,98 1.6 1 552,41 1.71 ' 1,46 0, 135 .60 I,054,4 48 .94 p 730 ,856.51 p 3,744 ,693.40 p 1,479,077.87 The input VAT ascertained to be valid for tax refund/credit relating to th e fi rst quarter amounting to P26, 749.96 was previously disallowed for reason of prescripti on. However, of the total disallowances on th e 2nd, 3'd ans:J 4t" quarters arrived at by the Independent CPA in the amount of P690,125.46 (P730,856.51 less P40,731.05), only the amount of P127,760 .38 representing petiti oner's disa llowed input VAT on purchased of goods and servi ces should be disall owed, th e remaining amount of P56 2,3 65 .08 previously disa llowed by the independent CPA should be allovyed for th e presence of documents properly supporting th e claimed input VAT, thus: Period Per !CPA Per Com�t's Discrepancies Covered 12, l 04 .04 Verilication A pril 5,328. 15 II ,949.73 M ay 5,281 .47 12, I 04. 04 67,652.36 Jun e 2,738.05 5,328. 15 5 8, 844.6 0 Jul y 30,5 63.52 5,28 1.47 18 9,4 53.75 A ugust 8 1,69 8.53 2,738.05 23 4,464.64 Se pt emb er 66, 143.96 18,6 13.79 562,365.08 ~ O c t obe r 14,046 .1 7 N o vem b er 195, 173.98 7,299.36 D ece mber 29 1,093.76 5,72 0.23 Tota l 690,125.46 56,629. 12 127,760 .38 18 Page 3, Exhi bit NN

'lJ' DECISION CTA CASE N0.7263 However, further verification and examination of the records disclose that the additional amount of P1,025,807.01 should be disapproved for failure to properly document the same, to wit: F indings Input VAT a) Ii\put VAT on purchase of services supported by documents other than VAT 134 ,644.93 90,485.06 ORs 19,393.71 b) Input VAT on purchase of goods supported by documents other than VAT 98,600.9 1 Invo ices 5 12,043. 13 c) Input VAT on purchase of services wh ich are supported by 1TN-VAT OR 7,322.73 elated not within the period of claim 10,911.99 9,270.44 d) Input VAT on purchase of goods which are supported by T IN- VAT Invo ice 12,888.77 dated not with in the period of claim 22,624.11 e) Input VAT on purchase of services supported by VAT OR issued not in the Compa ny's name 59,28 1.31 47,020.35 t) Input VAT on purchase of goods supported by VAT Invoice issued not in the Company's name 794.57 272.73 g) Input VAT on purchase of services supported by TfN-NON VAT OR. 252.27 h) Input VAT on purchase of goods supported by TIN-NON VAT In voices 1,025,807.01 i) Input VAT on purchase of services supported by OR but the word "YAT" was not imprinted thereon j) Input VAT on purchase of goods supported by Invoice but the word "VAT" was not imprinted thereon k) Input VAT on purchases of goods and serv ices without supporting documents I) Overclaimed Input VAT on purchases of goods and serv ices. m) VAT Invoice supporting purchase of goods that was not forma lly offered as evidence n) Inpu t VAT on purchases of goods claimed twi ce o) In put VAT on purchase of goods supported by "TAN-VAT" Invoice TOTAL Thus, the input taxes that the petitioner were able to support, with proper VAT invoices and/or official receipts,�only amounts to P988,885. 98, as follows: Claimed Input Tax for Refund P2,209,934.3 8 Less: Disallowances per Commissioned Independent CPA's Report P(127,760.38) Second Quarter 2003 P(22,713 .66) (67,481.0 1~ Third Quarter 2003 (I 15,000.09) Fourth Quarter 2003 (552,411.7 1) Total P(690, 125.46) Adjustment on disa llowances made by Commissioned 562,365.08 ICPA as per thi s Court's further verification (Annex A} Input VAT for the first quarter disa ll owed due to prescription

DECISION ' CT.A. CASE N0 .7263 ' Page 16 of 17 Add iti onal disallowances per thi s Co urt's further verifi ca ti o n (Annex B) ( 1,025 ,807.0 1) ( 1,22 1,048.40) To tal S ubsta ntia ted A m oun t P 988,885.98 Consequently, an allocation of the above substantiated input VAT to the verified zero-rated sa les wou ld result to P858,516.49, computed as follows: h. P 988,885.98 Substantiated Input VAT x Rate of supported zero-rated sa les 86 .82% Input VAT a ttributabl e to ze r o- r a ted sa les p 858,5 16.49 Entitlement for a refund. Nonetheless, before petitioner can va lid ly claim for a refund or tax credit, it is imperative to prove that the claimed input taxes were not ca rri ed over or applied aga inst any output liabil ity in the succeeding quarters. Petitioner proffered its Amended Monthly VAT Return 29 for the month of January 2004. The return shows that there was no input tax carried over from the previous quarter. 30 However, the said document was insufficient to prove as to input ta xes applied against any output VAT liability for the succeeding quarters. It bears stressing that prior to the fil ing of the January 2004 Amended Monthly VAT Return which was fi led on March 21, 2005, petition er, as th e law requires, should have already fi led its VAT Returns for the four ta xab le quarters of 2?04. These VAT returns shou ld have been introduced by the petitioner in order to establish that the cla imed input taxes were not actually applied in the said periods. Thus, for fai lure of the petitioner to sufficiently prove that the substantiated input taxes of P858,516.49 was not applied against any oytput VAT liability in the succeeding qua rters, the same cannot be granted. ~ 29 Exhibit LL 10 Exhibit LL -5 GOG

DECISION C:.T.A. CASE N0 .7263 WHEREFORE, premises considered, this Court hereby DENIES the Petition for Review for insufficiency of evidence. SO ORDERED. CAESAR A. CASANOVA Associate Justice WE CONCUR : L lJ-- 0_~ ( C..01'1 c..u "'r;Y\9 a..nd .0 i sse n+i ""'9 Ofin;OV\) ERNESTO D. ACOSTA CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consu ltation before the case was . assigned to the writer of the opinion of the Court's Division. w__"'-R, ~ ERNESTO D. ACOSTA Presiding Justice Chairman, First Division u�. n. '7