CE CEBU GEOTHERMAL POWER COMPANY INC. v. COMMISSIONER OF INTERNAL REVENUE (Consolidated with CTA Case No.6836)

REPUBLIC OF THE PHILIPPINES Courtol ToIPPIIIS QUEZON CITY SECOND DIVISION CE CEBU GEOTHERMAL POWER C.T.A. CASE NO. 6791 COMPANY, INC., Petitioner, - versus- COMMISSIONER OF INTERNAL REVENUE, Respondent. X---------------------------------------------X CE CEBU GEOTHERMAL POWER C.T.A. CASE NO. 6836 COMPANY, INC., Members: Petitioner, -versus- CASTANEDA, JR., Chairperson UY, and PALANCA-ENRIQUEZ, JJ. COMMISSIONER OF INTERNAL Promulgated: REVENUE, NAY f 5 2008 / Respondent. X------------------------------ --- ----------~- y~�~- t ~-�--X DECISION CASTANEDA, JR., d_.: This case is a consolidation of two separate Petitions for Review which seek the refund of or issuance of tax credit certificate in the amount of NINETEEN MILLION ONE HUNDRED ONE THOUSAND TWENTY-ONE :Jt- AND 78/100 PESOS (P19, 101 ,021.78), representing petitioner's alleged

,. DECISION C.T.A. CASE NOS . 679 1 and 6836 unutilized excess input value-added tax (VAT) for the period covering September 1, 2001 to December 31 , 2002 , arising from zero-rated sales by virtue of Republic Act No . 9136 or the "Electric Power Industry Reform Act of 2001 " (EPIRA) . CE Cebu Geothermal Power Company, Inc. (petitioner) is a domestic corporation organized and existing under and by virtue of the laws of the Republic of the Philippines, with principal business address at the 241h Floor, 6750 Bldg ., Ayala Avenue , Makati City.1 Petitioner is registered as a VAT taxpayer with the Bureau of Internal Revenue (BIR) with Certificate of Registration No. 96-047-005171 and Taxpayer Identification No. 047-0003- 459-879-V.2 On the other hand , respondent is the duly appointed Commissioner of Internal Revenue , vested with authority to administer and enforce national internal revenue laws, including , inter alia, the power to grant claims for refund of any internal revenue taxes erroneously or excessively paid , assessed or collected . He holds office at the BIR National Office Building , BIR Road , Diliman , Quezon City.3 Petitioner is engaged in the business of power generation and the subsequent sale of generated power4 to its sole customer, Philippine National Oil Company-Energy Development Corporation (PNOC-EDC), by virtue of a Build-Operate Transfer Agreement. On April 16, 1994, petitioner was Jh- accredited and certified by the Department of Energy to own and operate a 1 Par. I, Petition for Review, Rollo, p. I. 2 Par. 6, Joint Stipu lation of Facts and Issues, Rollo, p. 93; Exhibit "C". 3 Par. I, Joint Stipulation of Facts and Issues, Rollo, p. 92. 4 Exhibit "A".

DECISION C.T.A. CASE NOS . 679 1 and 6836 Page 3 of22 125-Megawatt power plant facility in Barangay Lin-ao , Kananga , Province of Leyte .5 On January 29, 1996, petitioner was registered as a VAT taxpayer with the BIR Revenue District Office No. 47, East Makati , in accordance with Section 236 of the National Internal Revenue Code. However, on June 26, 2001 , Republic Act (R.A.) No. 9136 took effect, and the relevant provisions of the National Internal Revenue Code of 1997 (1997 Tax Code) were deemed modified . R.A. No. 9136, also known as the "Electric Power Industry Reform Act of 2001 ", was enacted by Congress to ordain reforms in the electric power industry, highlighting , among others, the importance of ensuring the reliability, security and affordability of the supply of electric power to end-users. Under the provisions of this Republic Act and its implementing rules and regulations , the delivery and supply of electric energy by generation companies became VAT zero-rated , which previously were subject to ten percent (10%) VAT. In relation thereto , Section 6 of Chapter II and Section 6 of Rule 5 of its Implementing Rules and Regulations state that: "Republic Act No. 9136 Electric Power Industry Reform Act of 2001 (EPIRA} CHAPTER II Organization and Operation of the Electric Power Industry XXX XXX XXX ~ 5 Exhibit " 8 ".

DEC ISION C.T.A . CASE NOS . 6791 and 6836 Page 4 of22 SECTION. 6. Generation Sector - Generation of electric power, a business affected with public interest shall be competitive and open. Upon the effectivity of this Act, any new generation company shall, before it operates, secure from the Energy Regulatory Commission (ERC) a certificate of compliance pursuant to the standards set forth in this Act, as well as health, safety and environmental clearances from the appropriate government agencies under existing laws . Any law to the contrary notwithstanding , power generation shall not be considered a public utility operation . For this purpose, any person or entity engaged or which shall engage in power generation and supply of electricity shall not be required to secure a national franchise . Upon the implementation of retail competition and open access , the prices charged by a generation company for the supply of electricity shall not be subject to regulation by the ERC except as otherwise provided in this Act. Pursuant to the objective of lowering electricity rates to end-users, sales of generated power by generation companies shall be value added tax zero-rated. The ERC shall , in determining the existence of market power abuse or anti-competitive behavior, require from generation companies the subm ission of their financial statements ." (Emphasis supplied) "Rules and Regulations to Implement Republic Act No. 9136, entitled 'Electric Power Industry Reform Act of 2001' RULE 5 Generation Sector XXX XXX XXX SECTION 6. Generation Charges and VAT.- XXX XXX XXX fJv (b) Pursuant to the policy of reducing electricity rates to End- users, sales of generated power by a Generation Company

DECISION C.T.A. CASE NOS . 679 1 and 68 36 Page 5 of22 sha ll , from the effectivity of the Act, be zero-rated for the pu rpose of imposition of value-added tax. Towards this end , the imposition of zero percent (0%) VAT shall apply to the sale of generated power by a Generation Company through all stages of sale until it reaches the End-user. The DOE , through the BIR , shal l iss ue the necessary reven ue regulation with in sixty (60) calendar days from effectivity of these rules ." The amendment of the 1997 Tax Code mod ified the VAT rate applicable to sales of generated power by generation companies from ten (10%) percent to zero (0%) percent. Thus, when the EPIRA took effect on June 26, 200 1, petiti oner adopted the VAT zero-rating of the EPIRA in computing for its VAT payable when it filed its VAT Returns , on the bel ief that its sales qualify for VAT zero-ratin g. The details of its Returns are as follows : 3rd Qtr-2001 4th Qtr-200 1 1st Qtr-2002 2nd Qtr-2002 3rd Qtr-2002 4t h Qtr-2002 (Exh ib it G-9) (Exhibit H) (Exhibit I) (Exhibit KKKI !Exhibit LLLI (Exhibit 000) - Taxable Sales 370,010,144.56 - - - - 531 ,476 ,804.82 518,556 ,299.41 539 ,224 ,676 .85 558,705 ,386.43 Zero-rated Sales/ Receipts - 544,278 ,562.87 1111 47R Rn4 R? '11 R '1'1R 2.9.9A1 '11Q ??4 R7R R'1 558.705.1RR 41 '144 ?7R '1n? R7 Total Sales/ Receipts :nn n1n 144 '1R - - - - - Less : Output Tax 19,293,602 .29 2,990 ,129.85 4,544 ,726.91 5,907 ,711 .64 8,501 ,848.78 827 ,896 .24 1,28 9 ,890 .35 1,362 ,984.73 1,362 ,948.51 1,409 ,110 .25 Input Tax - 2,102,22 3.01 6 ,186 ,2 37.46 Carried over from - - 919,671 .86 1,206 ,712 .30 previous quarter. - - - 104,030 .77 1,797 ,113.00 - - 207,486 .00 19,101 ,021 .79 Domestic Purchases 1' 101 ,854 .65 264 ,706 .71 8,501 ,848.78 (19,101 ,021 .79) Domestic Purchases- 60,010 .60 4 ,544 ,726 .91 5,907,711 .64 (8,501 ,848 .78) - 2,990 ,129.85 (4 ,544,726 .91) (5,907,711 .64) - Services (2 ,990 ,129.85 ) - Services rendered by - - - - - - - - Non-resident - - - - - 14 544 721> 91 1 - 119.101 .021 .791 Importation of Goods 487 ,905 .30 12 990 129 851 18 !'.01 848.781 I!'. <107 711 1>41 Total Available Input Tax 1,589 ,759.95 VAT Payable/ (Excess Input Tax) 17'703,842 .34 Less: Tax Credits/ Payments Monthly VAT Payments 6,482 ,627.77 Creditable VAT withheld 11 ,576,161 .38 Total 18,058,789 .15 Tax Payable/ (Overpayment) 1354.946.811

DECISION C.T.A. CASE NOS . 6791 and 6836 Page 6 of22 On November 12, 2001 , petitioner filed an Amended Quarterly VAT Return for the Third Quarter of 2001 . On September 24 , 2003 , petitioner again filed an Amended Quarterly VAT Returns for the Second and Third Quarters of 2002 . Finally, on April 24, 2003, petitioner amended its Quarterly VAT Return for the Fourth Quarter of 2002 . The Amended Returns reflect the following details : Taxable Sales Final Amended 4th Qtr-2001 1st Qtr-2002 Final Amended Final Amended Final Amended Zero-rated Sales/ Receipts 3rd Qtr-2001 (Exh ibit H) (Exhibit I) 2nd Qtr-2002 3rd Qtr-2002 4th Qtr-2002 (Exhibit G) (Exhibit K) (Exhibit L) Total Sales/ Receipts 192,936,022 .90 - - (Exhibit J) 357 ,606,988.20 - - - 550 513 011 10 544,278 ,562 .87 531 ,476,804 .82 522 ,124,257.00 633 ,525,402.19 511 2Z8 562 BZ 520 ,800,306.58 522 121 25Z 00 19,293,602 .29 531 1Z6 801 82 n::l::l "i?"i 40? 1 ~ 520 800 306 58 - - Output Tax 1'101 ,854.65 - - - - 8,501 ,848 .78 Less: Input Tax - 1 ,409 ,110 .25 Carried over from 6,186,237.46 - 827 ,896 .24 2,990 ,129.85 4,544 ,726.91 5,907,711 .64 1,206,712 .30 previous quarter 2, 102 ,223 .01 1,289 ,890.35 649 ,065.04 1,362 ,948.51 1,797, 113.00 487,905 .30 451 ,439 .84 19,101 ,021 .79 Domestic Purchases 1,589 ,759 .95 - - 59 ,270.85 919 ,671.86 (19,101 ,021 .79) Domestic Purchases- 17,703,842 .34 203 ,209.00 104 ,030.77 - - 207 ,486 .00 - Se rv ices 6,955,577 .20 60 ,010 .60 5,907,711 .64 8,501 ,848 .78 - Services rendered by 11 ,576 ,161 .38 2,990 , 129 .85 264 ,706.71 (5 ,907 ,711.6 4 ) (8 ,50 1 ,848 .78) 18,531 ,738 .58 (2 ,990 ,129.85) 4,544 ,726 .91 - Non-res ident (4 ,544,726 .91) Importation of Goods Total Available Input tax VAT Payable/ (Excess Input Tax) �- Less: Tax Credits/ Payments Monthly VAT Payments - - - - Creditable VAT withh eld - - - - Total - - - - Tax Payable/ (Ove rpayment) IR?7 R!l!; ?41 I? qqo 1 ?Q RJ;I 14 1;44 7?!; Q11 (<; Q07 711 1:41 IR <;01 R4R 7R\ 11!1 101 021 7!1 1 On September 26, 2003, petitioner filed an administrative claim for refund or issuance of tax credit certificate in the amount of P827 ,896 .24, 9V representing alleged excess input VAT for the Third Quarter of 2001 . 6 6 Exhibit "E".

DEC ISION C.T.A . CASE NOS . 679 1 and 6836 Page 7 of22 Thereafter, it filed the corresponding Petition for Review on September 30, 2003 in order to comply with the prescriptive period required in Section 112(A) of the National Internal Revenue Code of 1997. Its administrative claim for refund or issuance of tax credit certificate for the Fourth Quarter of 2001 and all quarters of 2002 , in the amount of P18,273,125.54 was filed on December 18, 2003.7 The corresponding Petition for Review was filed on December 19, 2003. Respondent interposed the following Special and Affirmative Defenses in his Answer8: "3. He reiterates and repleads the preceding paragraphs of this answer as part of his Special and Affirmative Defenses ; 4. Petitioner's claim for refund is subject to the administrative investigation/examination by the respondent; 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 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 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 )k--- 7 Exhibit " F". 8 CTA Case No. 679 1.

DECIS ION C.T.A. CASE NOS. 679 1 and 6836 Page 8 of22 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 taxpayer 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 P827 ,896.24 allegedly paid by the petitioner on its purchase of goods and services for the third quarter of taxable year 2001 were attributable to its zero-rated sales 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 judicial claims for tax credit or refund of the unutilized input tax (VAT) was filed within two (2) years after the close of the taxable quarter when the sales were made in accordance with Section 112 (A) and (D) and 229 of the Tax Code, as amended ; f. That petitioner's domestic purchases of goods and services were made in the course of 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 11 0 (A) (2) and 113 of the Tax Code as amended , and in pursuance to Section 4.104-5 (a) & (b) of Revenue Regulations No. 7-95 (Re: Substantiation of Claims for Input tax Credit) ; g. The requirements as enumerated under fJt' Section 4.104-2 of the Revenue Regulations 7- 95. (Re: Persons who can avail of the Input Tax Credits) ;

D EC IS IO N C.T.A. CASE NOS. 679 1 and 6836 Page 9 of22 6. Furthermore, 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/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 vs . Manila Jockey Club, Inc. 98 Phil. 670) ; 7. Claims for refunds are construed strictly against the claimant for the same partake the nature of exemption from taxation ." Petitioner pleaded the same Special and Affirmative Defenses in CTA Case No. 6836, except for the claimed amount of tax refund in No . 6(d) which is P18,273,125.54 instead , allegedly paid by petitioner on its purchases of goods and services and importation of goods for the Fourth Quarter of 2001 and the four quarters of 2002 . Petitioner presented various testimonial and documentary evidence mainly to prove compliance with the accounting and invoicing requirements for the granting of its claim . Petitioner likewise moved for the commissioning of an Independent Certified Public Accountant (ICPA) to help determine the veracity of its application for refund , which the Court granted on February 16, 2005 .9 Respondent presented documentary evidence to show that he investigated the claim for refund and that due process was accorded petitioner in denying its claim .10 ~ 9 Minutes of the February 16, 2005 hearin g, Rollo, p. 122 . 10 Exhibits " 1", "2" and "3, BIR Records, pp. 224, 277, and 285, respecti vely.

DEC ISION C.T.A. CASE NOS . 679 1 and 6836 Page 10 of22 On November 20, 2007, the case was submitted for decision after both parties filed their respective Memorandum . The issues11 as stipulated by the parties are as follows: "1. Whether or not the Petitioner generated zero-rated sales for the third and fourth quarters of taxable year 2001 and for each of the four quarters of taxable year 2002 as a result of the applicability of the EPIRA law; 2. Whether or not Petitioner incurred unutilized input VAT, as a result of its VAT zero-rated sales, as follows : for the third quarter of taxable year 2001 in the amount of P827,896.24; for the fourth quarter of taxable year 2001 and for all the four quarters of taxable year 2002 in the amount of P18 ,273 ,125 .54 ; 3. Whether or not the unutilized input VAT sought to be refunded herein were applied against any output VAT liability in succeeding taxable quarters in 2001 and 2002 and thereafter; 4. Whether or not the claims for refund of the unutilized input VAT for the third and fourth quarters of taxable year 2001 and for all the four quarters of taxable year 2002 with the Bureau of Internal Revenue were filed by Petitioner within the two-year period provided by law. 5. Whether or not both the present Petitions for Review filed by the petitioner with th is Honorable Court were filed within the two-year period provided by law." The Court will address the issues in seriatim. In order to resolve the issue of whether petitioner generated zero-rated sales for the Third and Fourth Quarters of taxable year 2001 and for each of the four quarters of taxable year 2002, petitioner must first qualify for VAT zero-rating under R.A. No. 9136 by proving that (1) it is a generation company ; and (2) it derived sales from power generation. ~ 11 Joint Stipu lation of Facts and Iss ues, Rollo, p. 94 .

DEC IS ION C.T.A . CAS E NOS . 679 1 and 6836 Page 11 of22 Petitioner presented its Certificate of Accreditation 12 issued by the Department of Energy, which states that petitioner is engaged in the sale of power generation services to PNOC-EDC under a Build-Operate-Transfer Agreement. Petitioner also submitted to the Court its VAT invoices and official receipts13, together with its VAT Returns for the Third Quarter of taxable year 2001 to the Fourth Quarter of taxable year 2002 .14 These showed that there were sales generated from PNOC-EDC for the period of September 1, 2001 to December 31 , 2002 amounting to P3,109,812 ,321 .66 . From these documents, it is clear that petitioner complied with the two requirements stated above. However, petitioner is not entitled to the full amount applied for due to certain reportorial discrepancies in its zero-rated sales. A comparison of the total amount of zero-rated sales for the Third Quarter of taxable year 2001 to the Fourth Quarter of 2002 , as reflected in the Quarterly VAT Returns and Schedule of Official Receipts Issued to PNOC-EDC 15 and the amount supported by petitioner's invoices and official receipts , disclosed the following difference : Gross Receipts from the Sales of P 192,936 ,022.90 July 1, 2001 to Generated Power 3,109,812 ,321 .66 December 31, VAT Returns 2002 Subjected to the 10% VAT Treated as Zero-rated Sales p 3,302 ,748 ,344 .56 Schedule of Official Receipts 3,097 ,418 ,262.49 Variance p 205.330.082.07 ~ 12 Exhibit " B" . 13 Exhibits "Z- 1 to Z- 18" and " BB-1 to BB-54". ,:MM". ' . 14 Exhibits "G" " H" " !" "J" " K" and " L" 15 Annex "2" of Ex hibit

DECIS ION C.T.A. CASE NOS. 6791 and 6836 Out of the reported sales per VAT returns in the amount of P3,109,812 ,321 .66, the amount of P3,097,418,262.49 can be used as initial basis in claiming for refund since it is this amount that was substantiated by official receipts. Nonetheless, this amount shall be further reduced because petitioner's documents indicate that some official receipts were not imprinted with the word "zero-rated ", in violation of Section 113(A) of the 1997 Tax Code and Section 4.108-1 of Revenue Regulations No. 7-95, which states "SEC. 113. Invoicing and Accounting Requirements for VAT Registered Persons. - (A) Invoicing Requirements. - A VAT-registered person shall , for every sale , issue an invoice or receipt. In addition to the information required under Section 237 , the following information shall be indicated in the invoice or receipt: (1) A statement that the seller is a VAT-registered person, followed by his taxpayer's identification number (TIN); and (2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value-added tax ." "SECTION 4.108-1. Invoicing Requirements- All VAT- registered persons shall , 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, unit cost and description of merchandise or nature of service; 4. the name, TIN , business style, if any, and address of the VAT-registered 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 followed by the word 'VAT' in their invoice or receipts and ~

DEC IS ION C.T.A. CASE NOS. 679 1 and 6836 Page 13 of22 this shall be considered as a 'VAT Invoice'. All purchases covered by invoices other than 'VAT Invoice' shall not give rise to any input tax. If the taxable person is also engaged in exempt operations, he should issue separate invoices or receipts for the taxable and exempt operations . A 'VAT Invoice' shall be issued only for sales of goods, properties or services subject to VAT imposed in Section 100 and 102 of the Code. XXX XXX xxx" Out of P3,097,418,262.49, the amount of P78 ,661 ,646.28 16 shall be deducted because this is supported by official receipts without the word "zero- rated" imprinted thereon . After the deduction , the Court arrives at the amount of P2,821 ,754,992.64, the computation of which is as follows : Gross Receipts per Schedule of ORs P197,001 ,623.57 P3,097,418,262.49 Less : Amount Treated as Taxable Sales 78,661 ,646.28 275,663,269 .85 Zero-Rated Sales supported by ORs without the word "zero-rated" P2,821 ,754,992 .64 Substantiated Zero-Rated Sales From the foregoing , although petitioner's declared sales were reduced , the said sales still qualify for zero-rating under the EPIRA; hence , the Court decides the first issue in the affirmative. Going now to the second issue of whether or not petitioner incurred unutilized input VAT in the amount of P827,896.24, for the Third Quarter of taxable year 2001 , and of P18,273,125.54, for the Fourth Quarter of taxable year 2001 and all quarters of taxable year 2002, this Court considered petitioner's Summary List of Purchases for the Period July 1, 2001 to December 31 , 2002 17 and suppliers' invoices/official receipts 18. Based on th~ 16 Annex "2", OR Nos. 2 16 and 2 17, Rollo, p. 665. 17 Exhibits "CC- I to CC-25". 18 Exhibits ""DD- 1 to DD-3383 ".

DEC IS IO N C.T.A. CASE NOS . 679 1 and 6836 Page 14 of22 review and validation made by SGV & Co., petitioner did incur unutilized input VAT but not in the full amount of P19,101 ,021 .78. Out of this sum , only the amount of P14,183,430.64 was duly substantiated and the remaini ng amount of P4,917,591 .14 should be disallowed due to the following reasons: FI NDIN GS REFERENC E INPUT VAT a) Importation of goods supported by original copy of IERD and {Exhibit Y} 21,438 .00 Annex 7 original SOC OR but not issued in the name of the Company. Annex 8 46 ,526.21 / b) Domestic purchases of goods supported by pre-printed TIN-V Annex 9 Annex 10 194,554 .57 / invoices after July 31 , 1991 but before January 1, 1996. Annex 11 104,742 .30 c) Domestic purchases of services supported by pre-printed TIN-V Annex 12 Annex 13 15,216.40 ORs after July 31 , 1991 but before January 1, 1996 . Annex 14 304 ,512.13 d) Domestic purchases of goods supported by documents other Annex 15 Annex 16 24 ,149.90 than a VAT Invoice. Annex 17 55 ,606 .75 e) Domestic purchases of services supported by documents other Annex 18 Annex 19 4 ,817.45 than a VAT OR. Annex 20 2 ,144 .97 f) Domestic purchases of goods supported by VAT Invoices but are Annex 21 9 ,642 .35 15,308 .79 not original copies. Annex 22 15 , 108 . 19 g) Domestic purchases of services supported by VAT OR but are 56,245 .55 Annex 23 47,061 .51 not original copies. h) Domestic purchases of goods supported by original VAT Annex 24 141 ,643.05 / Annex 25 Invoices not issued in the name of the Company. I 360,871 .73 i) Domestic purchases of services supported by original VAT ORs 149 , 122 .28 not issued in the name of the Company. 12,120.18 ~ j) Domestic purchases of goods supported by a tape receipt without the Company's name and/or TIN . k) Domestic purchases of goods supported by a VAT Invoice but no date indicated. I) Domestic purchases of services supported by a VAT OR but no date indicated. m) Domestic purchases of goods supported by zero-rated VAT Invoice. n) Domestic purchases of goods supported by VAT Invoices not dated within the ta xable year. o) Domestic purchases of services supported by VAT ORs not dated within the taxable year. p) Domestic purchases of goods supported by invoices with TIN# only, TIN-V, TAN-VNAT, TIN-NV/NONVAT, stamped/handwritten TIN-VNAT (printed after January 1, 1996). q) Domestic purchases of services supported by ORs with TIN# only, TIN-V, TAN-VNAT, TIN-NV/NONVAT, stamped/handwritten TIN-VNAT (printed after January 1, 1996). r) Domestic purchases of services supported by a TIN-NV/NON VAT ORs but stamped with "VAT/TIN -VAT" or the word "NON" was erased. s ) Over-claimed input tax on purchases of goods and services due to erroneous computation .

D EC IS IO N C.T.A. CASE NOS . 679 1 and 6836 Page 15 of22 t) Input tax claimed on purchase of vehicles with engine Annex 26 272 ,727.30 displ acement of more than 2000cc. Annex 27 289 .74 u) Input tax on payments to insurance companies for DST and local Annex 28 11 .93 taxes . Annex 29 1,368 .00 Annex 32 3,062 ,361.86 v) Input tax overstatement arising from the effect of foreign 4,917,591 .14 exchange tra nslation/adjustment on foreign currency denominated purchases. w) Input tax on payment to travel agencies for airfare, security fare , terminal fee and other charges . x) Input taxes claimed on purchases of goods and services without supporting documents. TOTAL After a further examination of the documents supporti ng the input taxes claimed, this Court also found out th at in put taxes in the sum of P633,206.17 cannot be allowed for the following reasons : Vendor's Name REFERENCE INPUT VAT a) Input VAT on domestic purchases of goods which are outside the period of cla im (Included in Annex 4-1 of Exhib it Y) Coca Co la Bottlers Philippines , Inc. 3485116 48 .00 Williams Commercial Company Inc. 75691 71.80 Williams Commercial Company Inc. 50 .09 Williams Commercial Company Inc. 75874 115 .91 EBR Marketing Corp. 20078 231.91 King's Baragain Center 108400 53.64 King's Baragain Center 108275 145 .45 Mercury Drug Corp. 21365 40 .60 Mercury Drug Corp . 21222 155 .00 Mercury Drug Corp. 21241 60 .95 Monark Equipment Corp. 260521 4,442 .09 Monark Equipment Corp. 261308 2,483 .66 Serv-well Drugstore 61852 2 ,992 . 17 Serv-well Drugstore 61853 1,875 .93 Cogan Family Bakeshop 59730 50 .54 Mercury Drug Corp. 21405 46 .93 ~

DECISION C.T.A. CASE NOS. 679 1 and 6836 Page 16 of22 Mercu ry Drug Corp . 21391 38 .69 Mercury Drug Corp. 21197 23 .93 Mercury Drug Corp . 21 40 9 10.58 Mercury Drug Corp. 21 46 3 58 .33 Mercury Drug Corp. 21324 21.45 Mercury Drug Corp. 21272 72.44 Mercury Drug Corp . 21323 28.47 Mercury Drug Corp. 213 47 21 .01 Trad epoints Inc. 4196 1,500 .00 Zenith Wire and Conduit Inc. 7065 153 ,0 30.63 Gendiesel Phils., Inc. 638 0 1,219 .82 Instrumentation & Cntrl. Specialist 7493 1,090 .91 Mercury Drug Corp. 21431 7.91 169 ,988 .84 Input VAT on domestic purchases of services which are outside the period of claim b) (Included in Annex 4-2 of Exhibit Y) Dunkin' Donuts 147524 57 .27 Holiday Plaza Hotel 39041 207 .27 Trigs Food Corporation 551 4 131 .82 Trigs Food Corporation 5520 133 .64 NCH Phils., Inc. 711 42 720 .00 Inter-Ocean 37520 11 ,040 .91 12 ,290 .91 c) Input VAT on domestic purchases of goods without supporting documents (Included in Annex 4-1 of Exhibit Y) Vizad 's Boutique 79.27 Amzen Industries 4,436 .36 EBR Marketing Corp. 200.00 Amze n Industries 3,245 .38 Amzen Industries 7,854 .53 ~

DECISION C.T.A . CASE NOS. 679 1 and 6836 Page 17 of22 GE Energy Parts, Inc. 6,461 .00 Industrial & Environmental Sol. Inc. 6,604 .00 Industrial & Environmental Sol. Inc. 5,527 .00 Kato Engineering 72 ,303 .00 Fisher-Rosemount Singapore 8,380 .00 Kato Engineering 233 ,808 .00 HV Techno LLC 13,065 .00 361,963.54 Input VAT on domestic purchases of services without supporting documents (Included d) in Annex 4-2 of Exhibit Y) Stargate Steelers, Inc. 6,033 .82 Globe Telecom GMC 4,833 .33 Standard Insurance Co. , Inc. 44 .91 Standard Insurance Co., Inc. 44 .55 Standard Insurance Co., Inc. 44 .55 Standard Insurance Co ., Inc. 44 .55 Standard Insurance Co ., Inc. 87.27 Standard Insurance Co ., Inc. 87 .27 House of Travel 534 .63 11,754.88 e) Importation of goods supported by a photocopy of IEIRD without machine validation and the corresponding ORs were not presented (Included in Annexes 5 & 6 of Exhibit Y) Maxwell Engineering 01 -1264 4,404.00 GE Energy Parts, Inc. 02-1802 27 ,245 .00 Waukesha Electric Systems 9390-01 45 ,559.00 TOTAL 77,208.00 633,206.17 The above disallowances were not included in the exception of the commissioned auditor which only disallowed P4,917 ,591 .14. Therefore, only ~

DEC ISION C.T.A. CASE NOS. 679 1 and 6836 Page 18 of22 the input taxes in the sum of P13,550,224.47 are validly supported by VAT invoices and/or official receipts , to wit: Total Input VAT claimed p 19 ,101 ,021 .78 Less: Disallowance Based on Commissioned ICPA's Summary Report P4 ,91 7,591.14 5,550 ,797 .31 Per Court's further verification 633 ,206.17 P13,550,224.47 Substantiated Input VAT Consequently, of the substantiated input VAT of P13,550,224.47, only the input VAT of P12 ,295,087 .16 can be attributed to the duly substantiated zero-rated sales of P2 ,821 ,754,992.64, computed as follows : Substantiated Zero-Rated Sales P2,821 ,754,992.64 Divided by Total Reported Zero-Rated Sales 3,109,812 ,321 .66 Multiplied by Substantiated Excess Input VAT 13 ,550 ,224.47 Input VAT attributable to Substantiated Zero-Rated Sales p 12,295,087.16 As to the issue of whether petitioner's unutilized input VAT were applied against any output VAT liability in succeeding taxable quarters after the Third Quarter of taxable year 2001 , this Court again rules in petitioner's favor. Petitioner's VAT Returns reveal that petitioner indeed carried-over the claimed input VAT to the succeeding taxable quarters until the Third and Fourth Quarters of taxable year 2003. Despite this , the input VAT was still unutilized because there was no output VAT due from petitioner during these quarters. Petitioner's Quarterly VAT Returns for the Third and Fourth Quarters of taxable year 2003 also show that it deducted the claimed input VAT of P827 ,896.2419 and P18,273,125.5520 , respectively , as "Any VAT Refund/TCC Claimed" from the "Total Available Input Tax." Hence, the substantiated claim 19 Exhibi t "T-4". 20 Exhibit "U-4".

DEC ISION C.T.A. CASE NOS . 6791 and 6836 Page 19 of22 of P12,295,087.16 was no longer included as part of the excess input tax of P31 ,044,177.60 as of the First Quarter of taxable year 2004 that was to be carried-over to the succeeding quarters .21 Finally, on the issue of whether petitioner's administrative and judicial claims were seasonably filed , the Court also finds for petitioner. This Court has repeatedly ruled that the two-year period for the filing of a VAT refund claim is counted from the filing of the corresponding Quarterly VAT Return .22 In the case of Jideco Manufacturing Philippines, Inc. vs. Commissioner of Internal Revenue23 , this Court explained the rationale for the said rule in the following manner: "xxx in the case of Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue, CTA Case No. 5296, the two-year prescriptive period for the filing of claims for VAT refund should be reckoned from the date of filing of the corresponding quarterly VAT returns in order to harmonize the provisions of Section 112(8) of the NIRC of 1997 with Sections 114(A) and 229 of the same Code , viz: XXX XXX XXX In the cases of Commissioner of Internal Revenue vs. TMX Sales, Inc. and the Court of Appeals, G.R. No. 83736, dated January 15, 1992 and ACCRA In vestments Corporation vs. Commissioner of Internal Revenue, 204 SCRA 957, the Supreme Court held that the two (2)-year period should be counted from the filing of the final income tax return, because it is only during that date that the exact tax liability or refundability of the tax can be determined. In the same manner, it is only after the filing of the quarterly VAT return that we can determine the VAT liability or refundability of VAT. It should be noted that the basic requirement is that VAT refund can only be granted to the extent that the input taxes have not been applied against output tax. All these matters can only be determined if a return is filed. It is ~ 21 Exhibit " Y-4". 22 Jideco Manufacturing Philippines, Inc. vs. Commissioner of Internal Revenue, CTA EB No. 53 , June 7, 2005 . 23 C.T.A. CASE No. 6552 , September 16, 2004.

DECISION C.T.A. CAS E NOS. 679 1 and 6836 Page 20 of22 logical therefore, that the two-year period should not immediately be counted from the close of the quarter but from the prescribed date of filing of the VAT return ." (Emphasis supplied) In the present case , petitioner filed its VAT Returns , administrative claims and Petitions for Review on the following dates: Period Exhibit Date Return is Date Admin. Claim Date Judicial Claim Filed CTA Case No. 6791 is Filed is Filed 3ra qtr. of 2001 Exhibit "G-9" October 25 , 2001 September 26 , 2003 September 30 , 2003 CTA Case No . 6836 4"' qtr. of 2001 Exhibit "H-2 January 10, 2002 December 18, 2003 December 19 , 2003 1s gtr. of 2002 Exhibit "1-2" April 10, 2002 2"0 qtr. of 2002 Exhibit "K0 " July 24 , 2002 3'u qtr. of 2002 Exhibit "L~.. October 25, 2002 4'" qtr. of 2002 January 27 , 2003 Exhibit "0 �" Clearly, both the administrative and judicial claims were filed well within the two-year prescriptive period provided by law. In sum , since petitioner has complied with the requirements for tax refund claim provided in 1997 Tax Code and applicable jurisprudence, this Court finds petitioner entitled to the refund of its unutilized input VAT, but in the reduced amount of P12 ,295,087 .16, computed as follows : Amount of Claimed Input VAT p 4,917 ,591 .14 P19 ,101 ,021 .78 Less: Disallowances 633 206 .17 5,550,797 .31 Per the ICPA's Summary Report P2,821 ,754 ,992.64 P13 ,550 ,224.47 Per the Court's further verification +P3 ,109,812 ,321 .66 Substantiated Input VAT 90.7371475 % Multiply by Ratio of Substantiated Zero-Rated P12.295.087.16 Sales to the Total Reported Zero-Rated Sales Refundable Input VAT WHEREFORE, the consolidated Petitions for Review are hereby PARTIALLY GRANTED . Accordingly , respondent is hereby ORDERED TO REFUND or TO ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner in the reduced amount of TWELVE MILLION TWO HUNDRED NINETY-FIVE ~

DEC IS ION C.T.A. CASE NOS. 679 1 and 6836 Page 2 1 of22 THOUSAND EIGHTY SEVEN PESOS and 16/100 (P12,295,087.16), representing petitioner's excess and unutilized input VAT for the period covering September 1, 2001 to December 31 , 2002 . SO ORDERED. fafU.AN~ ITO C.aC.A~ST-AoNE-D4A, 'JQ~. -. Associate Justice WE CONCUR: ~~~%_t:NRIQUEZ Associ;7e~ce AERs~ s~sti.cUYe ATTESTATION attest 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 . Q ~~ C2.~ 9,;. Cd'uANITo c. cAsTANEDA, :JR. Associate Justice Chairperson

DEC IS ION C.T.A. CASE NOS . 679 1 and 683 6 Page 22 of22 CERTIFICATION Pursuant to Article VIII , Section 13 of the Constitution , and the Division Chairperson's Attestation , 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. ~ -~ ERNESTO D. ACOSTA Presiding Justice