EMERSON ELECTRIC (ASIA) LIMITED-ROHQ v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SECOND DIVISION EMERSON ELECTRIC (ASIA) CTA CASE NO. 8384 LIMITED - ROHQ, Members: Petitioner, -versus- CASTANEDA, JR., Chairperson CASANOVA, and COTANGCO-MANALASTAS, JJ. COMMISSIONER OF INTERNAL REVENUE, Promulgated : Respondent. MAR 31 Z015 / J / <j:o(",.~ . X-- ---- --- - --- ----- - ------ - ---- - --- - --- - -- --X DECISION CASTANEDA, JR., J.: STATEMENT OF THE CASE This Petition for Review filed by Emerson Electric (Asia) Limited- ROHQ seeks the refund or the issuance of tax credit certificate in the amount of P16,888,043.74, representing its alleged unutilized input value-added tax (VAT) for the first (1st) quarter of fiscal year ending September 30, 2010. STATEMENT OF FACTS Petitioner Emerson Electric (Asia) Limited-ROHQ is a Regional Operating Headquarters in the Philippines duly registered with the Securities and Exchange Commission (SEC) under Certificate of Registration and License Company Reg. No. FS200703133.1 It is Jz- 1 Exhibits "T4", "T4-1", and "T4-2".

DECISION CfA Case No. 8384 engaged in general administration and planning; business planning and coordination; sourcing/procurement of raw materials and components; corporate finance advisory services; marketing control and sales promotion; training and personnel management; logistics services and product development; technical support and maintenance; data processing and communication; and business development. Petitioner is likewise registered with the Bureau of Internal Revenue (BIR) as evidenced by its Certificate of Registration No. OCN3RC0000537738 as of May 30, 2007.2 Respondent is the Commissioner of the Bureau of Internal Revenue, empowered to perform the duties of her office, including, among others, the duty to act upon claims for refund or issuance of tax credit certificate as provided by law. She holds office at the BIR National Office Building, Agham Road, Diliman, Quezon City. Petitioner rendered services to its non-resident foreign clients during the 1st quarter of fiscal year ending September 30, 2010.3 Petitioner filed its Quarterly VAT Return for the 1st quarter of fiscal year ending September 30, 2010 on January 25, 20104 and filed its Amended Annual Income Tax Return (ITR) on February 24, 2011.5 On June 28, 2011, petitioner filed its Application for Tax Credits/Refunds6 with the One Stop-Shop Inter-Agency Tax Credit and Duty Drawback Center7 of the Department of Finance (DOF-OSS), together with the transmittal letterS of the supporting documents. Due to respondent's inaction on petitioner's administrative claim, J-- petitioner filed the instant Petition for Review on November 24, 20119. 2 Exhibits "U4"a nd "U4-1". 3 Exhibits "CC", " DD", " DD-2", "EE", "FF", "FF-2", "GG", "HH", "II", "JJ", "KK", "KK-2", "LL", "MM", "MM-2", "N N", "00", "PP", "QQ", " RR", "RR-2", "SS", "TI", " UU", "UU-2", "W", "VV-2", "WW", "XX", "YY", "YY-2", "ZZ", "AM", "AAA-2", "BBB", "BBB-2", "CCC", "DDD", "EEE", "FFF", "GGG", "GGG-2", " HHH", "III", "JJJ", "KKK", "LLL", "MMM", "MMM-2", "NNN", "000", "PPP", "QQQ", "QQQ-2"I "RRR"I "RRR-2"I "SSS"I "SSS-2"I "TIT"I and "UUU"� 4 Exhibits "J", "J-1", and "J-2". 5 Exhibits "G", "G-1", and "G-2". 6 Exhibits "B", "B-1", "B-2". 7 Exhibits "D", "D-1", "E", "E-1", "F", and "F-1". 8 Exhibits "A", "A-1", and "A-2". 9 Docket, p. 6.

DECISION CTA Case No. 8384 Respondent filed her Answer10 on January 20, 2012, interposing the following special and affirmative defenses: "3. She reiterates and re-pleads the preceding paragraphs of this Answer as part of her Special and Affirmative Defenses; 4. Petitioner's claim for the issuance of tax refund/tax credit certificate is subject to administrative investigation/examination by respondent's Bureau; 5. Taxes paid and collected are presumed to have been paid in accordance with law and regulations, hence, not refundable; 6. Moreover, in order to validly claim for tax credit/refund, it is imperative for petitioner to prove its compliance with the following, viz: a. The registration requirements of a value- added taxpayer under the pertinent provision of the 1997 NIRC, as amended, and its implementing revenue regulations; b. The invoicing and accounting requirements for VAT-registered persons, as well as the filing and payment of VAT pursuant to the provisions of Sections 113 and 114 of the 1997 NIRC, as amended. Failure to comply with the invoicing requirements on the documents supporting the sale of goods and services will result in the disallowance of the claim for input tax of the taxpayer claimant (Revenue Memorandum Circular No. 42-2003). c. The submission of complete documents in support of the administrative claim for tax refund pursuant to Section 112 (C) of the 1997 NIRC, as amended, otherwise, there would be no sufficient Jt- compliance with regard to the filing of administrative 10 Docket, pp. 143 to 146.

DECISION CTA Case No. 8384 claim for tax credit/refund which is a condition sine qua non prior to the filing of the such claim. d. That the input taxes of P16,888,043.74 allegedly representing unutilized input VAT from its purchases of goods and services from VAT registered suppliers were: i. paid by the petitioner; 11 . attributable to its zero-rated or effectively zero-rated sales; and iii. such input taxes paid should not have been applied against any output tax. e. That petitioner's claim for tax credit/refund allegedly representing unutilized input VAT in the amount of P16,888,043.74 was filed within two (2) years after the close of the taxable quarter when the sales were made in accordance with Section 112 (A) of the 1997 NIRC, as amended. 7. In an action for tax credit/refund, the burden of proof rests upon the taxpayer to establish by sufficient and competent evidence its entitlement to a claim for refund; 8. A tax credit or refund, like tax exemption, is strictly construed against the taxpayer. The taxpayer claiming the tax credit or refund has the burden of proving that he is entitled to the refund or credit, in this case VAT input tax, by submitting evidence that he has complied with the requirements laid down in the tax code and the BIR's revenue regulations under which such privilege of credit or refund is accorded (Microsoft Philippines, Inc. vs. Commissioner ofInternal Revenue, G.R. No. 180173, April 6, 2011)." Petitioner filed its Reply (Re: Answer dated 18 November 2011)11 on February 6, 2012. ~ 11 Docket, pp. 147 to 159.

DECISION CTA Case No. 8384 Petitioner filed its Pre-Trial Brier2 on February 24, 2012; while respondent's Pre-Trial Brief13 was filed on February 27, 2012. On March 15, 2012, petitioner filed an Omnibus Motion14, praying, among others, for the early resolution of the issue of whether its claim for refund of excess and unutilized input taxes can be deemed granted should respondent fail to act within the 120-day period under Section 112 of the National Internal Revenue Code (NIRC) of 1997, as amended. The Court denied the said motion through its Resolution 15 dated April 13, 2012, and denied the Motion for Reconsideration16 on June 25, 2012. 17 Subsequently, petitioner moved to comm1ss1on Emmanuel Y. Mendoza as the Independent Certified Public Accountant (CPA) for the case,l8 which the Court granted on August 2, 2012.19 On June 11, 2013, the parties jointly stipulated regarding the Application of Multinational Company for Registration and License to Establish a Regional Operating Headquarters in the Philippines as petitioner's evidence. 20 During trial, petitioner presented Emmanuel Y. Mendoza, Pamela B. Ariaga, Ana Mae G. Santos, and Atty. Raquel Dujungco as witnesses. Petitioner also formally offered its documentary and testimonial evidence. On April 7, 2014, respondent's counsel manifested that respondent will not present evidence and will rest the case.21 The Court declared the case submitted for decision on June 27, Jk- 201422, after petitioner filed its Memorandum23 through registered mail 12 Docket, pp. 161 to 174. 13 Docket, pp. 290 to 292. 14 Docket, pp. 313 to 337. 15 Docket, pp. 345 to 348. 16 Docket, pp. 364 to 382. 17 Docket, pp. 387 to 391. 18 Motion to Commission an Independent Certified Public Accountant, docket, pp. 402 to 407. 19 Minutes of the Hearing dated August 2, 2012, docket, p. 419. 20 Exhibit " L10" . 21 Minutes of the Hearing dated April 7, 2014, docket, p. 2239. 22 Resolution, docket, p. 2295. 23 Docket, pp . 2257 to 2281.

DECISION CTA Case No. 8384 on May 27, 2014 and received by the Court on June 4, 2014 and respondent filed her Memorandum24 on June 24, 2014. STATEMENT OF ISSUE The issue, as determined by this Court, is whether or not petitioner is entitled to the refund or issuance of tax credit certificate in the amount of P16,888,043.74 allegedly representing its unutilized input VAT for the 1st quarter of fiscal year ending September 30, 2010. DISCUSSION/ RULING Petitioner contends that it filed the instant Petition for Review within the two-year prescriptive period as provided by law. Respondent counter-argues that petitioner failed to prove that it submitted complete documents in support of its application on June 28, 2011. As such, the period of 120 days will not commence to run. Section 112 of the NIRC of 1997, as amended, provides: "SEC. 112. Refunds or Tax Credits ofInput Tax- (A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: Providect 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 Sentral ng Pilipinas (BSP): Providect 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~ 24 Docket, pp. 2286 to 2294.

DECISION CTA Case No. 8384 properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales: Provided, finally, That for a person making sales that are zero-rated under Section 108(8)(6), the input taxes shall be allocated ratably between his zero-rated and non-zero- rated sales. XXX XXX XXX (C) Period within which Refund or Tax Credit ofInput Taxes shall be Made. - In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsection (A) hereof. In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty-day period, appeal the decision or the unacted claim with the Court of Tax Appeals." In relation thereto is Section 4.112-1(c) of Revenue Regulations (RR) No. 16-2005, which states: "SECTION 4.112-1. Claims for Refund/Tax Credit Certificate ofInput Tax. - XXX XXX XXX (c) Where to file the claim for refund/tax credit certificate ~

DECISION CTA case No. 8384 Claims for refunds/tax credit certificate shall be filed with the appropriate BIR office (Large Taxpayers Service (LTS) or Revenue District Office (ROO)) having jurisdiction over the principal place of business of the taxpayer; Providect however, that direct exporters may also file their claim for tax credit certificate with the One Stop Shop Center of the Department of Finance; Provided, finally, that the filing of the claim with one office shall preclude the filing of the same claim with another office." (Emphasis supplied) The Supreme Court explained in Commissioner of Internal Revenue vs. Aichi Forging Company ofAsia/ Inc.25 (Aichi case) that in case of tax refunds under Section 112 of the NIRC of 1997, as amended, the phrase "within two years" applies only to the filing of the administrative claim for refund and not to the filing of the judicial claim. Pertinent portions of the decision are quoted as follows: "There is nothing in Section 112 of the NIRC to support respondent's view. Subsection (A) of the said provision states that 'any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales.' The phrase 'within two (2) years xxx apply for the issuance of a tax credit certificate or refund' refers to applications for refund/credit filed with the CIR and not to appeals made to the CTA. This is apparent in the first paragraph of subsection (D) of the same provision, which states that the CIR has '120 days from the submission of complete documents in support of the application filed in accordance with Subsections (A} and (B)' within which to decide on the claim. In fact, applying the two-year period to judicial claims would render nugatory Section 112(D} of the NIRC, which already provides for a specific period within which a taxpayer should appeal the decision or inaction of the CIR. The fr 25 G.R. No. 184823, October 6, 2010, 632 SCRA 422.

DECISION CTA Case No. 8384 second paragraph of Section 112(0) of t he NIRC envisions two scenarios: (1) when a decision is issued by the CIR before the lapse of the 120-day period; and (2) when no decision is made after the 120-day period. In both instances, the taxpayer has 30 days within which to file an appeal with the CTA. As we see it then, the 120-day period is crucial in filing an appeal with the CTA." (Emphasis supplied) Applying the foregoing to the present case, the two-year period to file the administrative claim for refund or issuance of tax credit certificate for the alleged unutilized input VAT for the period of October to December 2009 or the 1st quarter of fiscal year ending September 30, 2010 would expire on December 31, 2011. Petitioner filed its Application for Tax Credits/Refunds26 with the DOF-OSS27 and the transmittalletter28 of the supporting documents on June 28, 2011. Therefore, the administrative claim was filed within the two-year prescriptive period provided by law. From the date of submission of petitioner's documents in support of the claim for refund or issuance of tax credit certificate on June 28, 2011, respondent had one hundred twenty (120) days or until October 25, 2011 to act on the claim. Upon failure of respondent to act on the claim within the prescribed period, petitioner filed the instant Petition for Review on November 24, 2011. It is apparent that both the administrative and the judicial claims were timely filed. As regards the issue of the submission of complete documents in support of petitioner's administrative claim for refund, the Court does not concur with respondent's arguments. The term "complete documents" under Section 112(C) of the NIRC of 1997, as amended, should be understood to refer to those documents that are necessary to support the application for refund or tax credit certificate, as determined by the taxpayer. The SIR examiner can require the taxpayer to submit additional documents but the examiner cannot demand what type of supporting documents should be submitted. Otherwise, the taxpayer will be at the mercy of the !z-- 26 Exhibits " B", "B-1", and " B-2". 27 Exhibits " D", " D-1", "E", "E-1", "F", and "F-1". 28 Exhibits "A", " A-1", and " A-2".

DECISION CTA Case No. 8384 examiner, who may require the production of documents that the taxpayer cannot submit. Moreover, it is basic that respondent ought to know the tax records of all taxpayers.29 Records disclose that on June 28, 2011, petitioner submitted its letter30 dated June 27, 2011, stating that the pertinent documents are transmitted to the DOF-OSS as a mandatory requirement for VAT refund claims. Likewise, the records do not show that a written notice was sent by the BIR to inform petitioner that the supporting documents are incomplete or to require petitioner to submit additional documents. Clearly, it is safe to say that on June 28, 2011, petitioner submitted the complete documents required by respondent in order for petitioner to claim a refund or tax credit. The Court will now proceed to determine whether petitioner is entitled to a refund or issuance of tax credit certificate in the amount of P16,888,043.74, representing the alleged excess and unutilized input VAT paid for the 1st quarter of fiscal year ending September 30, 2010. Petitioner posits that its sales of services for fiscal year 2010 were zero-rated and that it had no output VAT. It likewise asserts that its input VAT for the 1st quarter of fiscal year 2010 was incurred from its domestic purchases of goods and services attributable to its zero- rated sales. On the other hand, respondent contends that petitioner failed to observe the strict substantiation requirements, as provided by law and Revenue Regulations. Petitioner anchors its claim on the afore-quoted Section 112(A) of the NIRC of 1997, as amended . As such, in order to be entitled to a refund or tax credit of input tax due or paid attributable to zero-rated or effectively zero-rated Jv sales, the following requisites must be satisfied : 29 Diageo Philippines, Inc. vs. Commissioner ofInternal Revenue, CTA Case Nos. 7846 and 7865, January 16, 2012. 30 Exhibit "A".

DECISION CTA Case No. 8384 1. that the taxpayer-claimant is VAT-registered; 2. that there must be zero-rated or effectively zero-rated sales; 3. that input taxes were incurred or paid; 4. that such input taxes are attributable to zero-rated or effectively zero-rated sales; 5. that the input taxes were not applied against any output VAT liability; and 6. that the claim for refund was filed within the two-year prescriptive period. Anent the timeliness of the instant claim, the Court has already found that both the administrative and the judicial claims were filed within the period prescribed by law. As regards the other requisites, petitioner is VAT-registered as evidenced by its Certificate of Registration31 with the BIR dated May 30, 2007 and Certification32 issued by Revenue District No. 43A. As to its zero-rated or effectively zero-rated sales, petitioner asserts that the services it rendered to its non-resident affiliates qualify for VAT zero-rating in accordance with Section 108(8)(2) of the NIRC of 1997, as amended by Republic Act No. 9337, which is quoted hereunder for easy reference: "SEC. 108. Value-added Tax on Sale ofServices and Use or Lease ofProperties. - XXX XXX XXX (B) Transactions Subject to Zero Percent (0%) Rate. - The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0�/o) rate: XXX XXX XXX c;v 31 Exhibit " U4" . 32 Exhibit " U4-l ".

DECISION CTA Case No. 8384 (2) Services other than those mentioned in the preceding paragraph rendered to a person engaged in business conducted outside the Philippines or to a nonresident person not engaged in business who is outside the Philippines when the services are performed, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);" For the first quarter of fiscal year 2010 covering the period October to December 2009, petitioner generated zero-rated sales in the amount of P487,383,195.28 per its Quarterly VAT Return for the same taxable period.33 In the case of Commissioner ofInternal Revenue vs. Burmeister and Wain Scandinavian Contractor Mindanao/ Inc.34, the Supreme Court held that in order for the supply of services to be VAT zero-rated under Section 108(B)(2) of the NIRC of 1997, as amended, the following requisites must be met: 1. the services must be other than processing, manufacturing or repacking of goods; 2. the payment for such services must be in acceptable foreign currency accounted for in accordance with the BSP rules and regulations; and 3. the recipient of such services must be doing business outside the Philippines. Petitioner complied with the first requisite as the services35 it renders to the following non-resident clients are not in the same category as "processing, manufacturing or repacking of goods": 36 1. Air Comfort Products 2. Alber Corporation 3. ASCO Numatics 4. ASCO Power Technologies LP 5. CIM - Industrial Motors Division 6. Closetmaid 7. EGS Electrical Group, LLC 33 Exhibits "J " or " F8" and "G8". 34 G.R. No. 153205, January 22, 2007, 512 SCRA 124. 35 Exhibit ''T4". 36 Exhibit " P8" , Q7 A7.

DECISION erA case No. 8384 8. Electrical Reliability Services Inc. 9. Emerson Climate Technologies 10. Emerson Electric Co. 11. Emerson FZE 12. Emerson Hermetic Motors 13. Emerson Network Power (Australia) Pty. Ltd. 14. Emerson Network Power (Hong Kong) Ltd. 15. Emerson Network Power (Malaysia) SDN BHD 16. Emerson Network Power (Singapore) Pte Ltd. 17. Emerson Network Power (Thailand) Co Ltd. 18. Emerson Network Power Connectivity Solutions 19. Emerson Network Power Division/ Emerson Japan Ltd. 20. Emerson Network Power S.R.L. 21. Emerson Network Power UK Ltd. 22. Emerson Power Transmission 23. Emerson Process Management (Australia) 24. Emerson Process Management (Malaysia) SDN BHD 25. Emerson Process Management Flow B.V. 26. Emerson Process Management Ltd. Daniel Division- Europe 27. Emerson Process Management Shared Services Ltd. 28. Emerson Tool Company 29. Fisher Rosemount Systems Inc. 30. Fusite 31. Insinkerator 32. Instrument & Valve Services Company 33. Intermetro 34. Kato Engineering, Inc. 35. KNAACK L.L.C. 36. Liebert Corporation 37. Liebert Services 38. LLLP Corporate Headquarters 39. Micro Motion Inc. 40. Regulator Technologies Inc. 41. Ridge Tool Company 42. Therm-o-Disc 43. Emerson Network Power - Energy Systems, N.A. Inc. 44. Emerson Process Management Valve Automation Inc. 45. Emerson (Thailand) Ltd. Anent the second requisite, petitioner avers that for the services rendered for the period October to December 2009, it received foreign currency payments, which were accounted for in accordance with the BSP rules and regulations; as evidenced by the credit advices issued by Standard Chartered Bank37 and the official receipts and invoices38 r;v issued by petitioner to its clients. 37 Exhibits " EEEEEEEE- 1" to " EEEEEEEE-285". 38 Exhibits " DDDDDDDD-1" to " DDDDDDDD-206".

DECI SI ON CIA Case No . 8384 Examination of the Schedule of Zero-rated Sales39 submitted by petitioner, which reflected sales in the amount of P487,383,178.98 ($10,364,098.07), is based on the invoices issued. However, the said documents indicate that the total remittances amounted to $14,154,386.04. The Independent CPA accounted for the difference in the following manner:40 Billings from export sales: $ 10 364 098.08 Zero-rated sa les (export) fo r first quarter of fisca l year ending Sept. 30 2010 Invoices not perta ining to first quarter of fiscal year end ing Sept. 30, 2010 3 790,287.96 but traced to Schedule of Billings and Remittances and bank credit advices T ot a l $ 14 154,386.04 Less : Bank charges 1 529.23 Balance Actual inward remittances $ 14 152,856.81 Difference 14 152, 856.81 $ - Moving on to the third requisite, petitioner submitted Certificates of Non-registration of its non-resident clients issued by the Securities and Exchange Commission, certificates of registration with their respective countries, as well as the service contracts between petitioner and its clients to prove that petitioner's clients are doing business outside the Philippines. A summary of the said documents is shown as follows: SEC Foreign Certificate Registration/ of Non- Certificate of Service Registration Incorporation Contract Client Name (Exhibit) (Exhibit) (Exhibit) A. With SEC Certificate ofNon-registration, Certificate ofRegistration or Incorporation in Foreign Country and Service Contract with petitioner 1. Air Comfort Products Is QB cc 2. Alber Corporation JS R8 R8- 1 R8-2 DD 3. ASCO Numatics Ks S8 S8- 1 EE 4. ASCO Power Technologies LP Hs TB FF 5. Closetmaid Ns U8 U8- 1 HH 6. EGS Electrical Gro up, LLC QS W8 W8-1 II 7. Electrica l Reliability Services Inc. Rs X8 X8-1 X8-2 JJ 8. Emerson Electric Co. xs A9, A9-1 A9-2 LL 9. Emerson FZE ys B9 B9-1 to B9-3 MM 10. Emerson Hermetic Motors A6 (9 NN 11. Emerson Network Power (Hong Kong) Ltd. (6 D9, 09- 1 pp 12. Emerson Network Power (Malaysia) SDN BHD L6 E9 QQ 39 Exhibit "CCCCCCCC-1" . 40 Ex hibit "Z7" , p. 12.

DECISION CfA Case No. 8384 13. Emerson Network Power (Singapore) Pte Ltd. F6 f9 f9-1 f9-2 RR 8. With SEC Certificate ofNon-registration and Certificate ofRegistration or Incorporation in Foreign Country 1. Daniel Measurement & Control (CA) os vs 2. Daniel Measurement & Control (TX) ps vs 3. Emerson Electric Asia-Pacific ]6 zs Z8-1 to Z8-5 c With SEC Certificate ofNon-registration and Se!Vice Contract with petitioner 1. CIM - Industrial Motors Division Ms GG 2. Emerson Climate Technologies us KK 3. Emerson Network Power (Australia) Ptv. Ltd. 86 00 4 . Emerson Network Power (Thailand) Co Ltd. G6 55 5. Emerson Network Power Connectivity Solutions M6 TT 6. Emerson Network Power Division/ Emerson Japan Ltd . H6 uu 7. Emerson Network Power S.R.L. N6 w 8. Emerson Network Power UK Ltd. Q6 ww 9. Emerson Power Transmission R6 XX 10. Emerson Process Manaqement (Australia) T6 yy 11. Emerson Process Management (Malaysia) SDN BHD U6 zz 12. Emerson Process Management Flow B.V. W6 AAA Emerson Process Management Ltd . Daniel Division - 13. Europe yG BBB 14. Emerson Process Manaqement Shared Services Ltd. z6 CCC DDD 15. Emerson Tool Company C7 EEE 16. Fisher Rosemount Systems Inc. F7 17. Fusite G7 FFF 18. InSinkErator F GGG 19. Instrument & Valve Services Company J7 HHH 20. Intermetro III 21. Kato Engineering Inc. K7 JJJ 22. KNAACK L.L.C. KKK 23. Liebert Corporation L7 LLL 24. Liebert Services MMM 25. LLLP Corporate Headquarters w NNN 26 . Micro Motion Inc. w 000 Q7 p7 ccccc 27. Regulator Technologies Inc. GGGGG ppp 28. Ridge Tool Company FFFFF QQQ 29. Therm-o-Disc BBBBB RRR 30. Emerson Network Power - Enerqy Systems N.A. Inc. p6 sss 31. Emerson Process Manaqement Valve Automation Inc. N TTT 32. Emerson (Thailand) Ltd. ss uuu D. With SEC Certificate ofNon-registration only 1. Machinery Health Management vwv 2. Rosemount Analytical Inc. 3. Rosemount Tank Radar AB wwww xxxx 4. Process Systems & Solutions Global Service Center yyyy 5. Stratos International Inc. zzzz 6. Rosemount Measurement AAAAA 7. Mallory Controls DDDDD 8. Valves-Fisher Controls Marshall Town EEE EE

DECISION CTA Case No. 8384 9. Asset Optimization Ls 10. Emerson Appliance Motor DIV ,-s 11. Emerson Heating Products zs 12. Emerson Network Power (Indonesia) D6 13. Emerson Network Power Electrical Reliability Service 16 14. Emerson Energy Systems KG Emerson Process Management-Power & Water 15. Solution S6 16. Emerson Process Management Asia Pacific Pte Ltd V6 Emerson Process Management GMBH & Co. OHG 17. Argelsri X6 18. Emerson Process Management (Netherlands) B7 19. EPM Process Systems & Solutions D7 20. FCII E7 21. Hurst Manufacturing w E. With Certificate ofRegistration in Foreiqn Country only 1. Emerson Electric (Asia) Ltd ys Petitioner's clients with SEC Certificate of Non-registration and Certificates of Registration or Incorporation in a foreign country (those under Items A and B only) are considered to have complied with the requisite of doing business outside the Philippines. Hence, petitioner's sales involving clients without the aforesaid documents cannot be considered zero-rated sales for failure to comply with the third requisite. Examination of petitioner's Schedule of Zero-rated Sales shows that only sales to the following non-resident clients amounting to P215,816,767.89 qualify as zero-rated sales: Invoice Invoice Amount in USD Client No. Date 1 654.73 Amount in PhP 17 123.41 78 796.67 1. Alber Corporation 1271 10/28/2009 29 167.45 11 085.69 815 400.52 2. ASCO Numatics 1272 10/28/2009 9,976.38 1 388 926.26 57 251.53 3. ASCO Power Technologies LP 1273 10/28/2009 2/676.33 527 890.03 4/815.86 475 065.74 4. Closetmaid 1276 10/28/2009 27/620.39 2 726 263.47 3 716.33 127 444.29 5. Daniel Measurement & Control (CA) 1277 10/28/2009 84,272.21 229 326.68 31/852.01 1 315 256.73 6. Daniel Measurement & Control (TX) 1278 10/28/2009 24/270.12 176,968.10 4 012,962.58 7. EGS Electrical Group 1279 10/28/2009 635 415.03 1 516J62.46 429 310.32 1/155/720.06 8. Electric Reliability Services 1280 10/28/2009 30 257/860 .08 20 443,349.59 9. Emerson FZE 1286 10/28/2009 10. Emerson Hermetic Motors 1288 10/28/2009 11. Emerson Network Power (Hong Kong) Co. Ltd. 1294 10/28/2009 12. Emerson Network Power (Malaysia) SDN BHD 1297 10/28/2009 13. Emerson Network Power (Singapore) Pte. Ltd. 1299 10/28/2009 14. Emerson Electric Co. 1335 10/28/2009 15. Emerson Electric Asia-Pacific 1336 10/28/2009

DECISION erA case No. 8384 16. Air Comfort Products 1337 11/ 24/ 2009 2 534.90 118 122.08 17. Alber Corporation 1338 11/ 24/ 2009 2 777.27 129 416.12 18. ASCO Numatics 1339 11/ 24/ 2009 19 914.86 927 999.02 19. ASCO Power Technologies LP 1340 11/24/2009 36 282.41 1 690 699.35 20. Closetmaid 1343 11/24/2009 13 821.27 644 047 .96 21. Daniel Measurement & Control (CA) 1344 11/24/2009 10 782.20 502 432.41 22. Daniel Measurement & Control (TX) 1345 11/ 24/ 2009 58 388.53 2 720 807.41 23. EGS Electrical Group 1346 11/ 24/ 2009 6 534.30 304 487.40 24. Electric Reliability Services 1347 11/ 24/ 2009 5,897 .30 274 804.27 25. Emerson Electric Asia-Pacific 1352 11/ 24/ 2009 500,943 .22 23 343 112.47 26. Emerson Electric Co. 1353 11/ 24/ 2009 731,760 .23 34 098 797.36 27. Emerson FZE 1355 11/24/2009 40 306.31 1878 206.33 28. Emerson Hermetic Motors 1357 11/ 24/ 2009 4/983 .88 232 240.44 29. Emerson Network Power (Hong Kong) Co. Ltd. 1359 11/ 24/ 2009 163/495 .31 7 618 606.77 30. Emerson Network Power (Malaysia) SDN BHD 1361 11/ 24/ 2009 39 260.63 1 829 479.40 31. Emerson Network Power (Singapore) Pte. Ltd . 1363 11/24/ 2009 27,873 .44 1 298 855.48 32. Air Comfort Products 1408 12/22/2009 2, 521.86 118,397.19 33. Alber Corporation 1409 12/22/2009 2 714.50 127,441.32 34. ASCO Numatics 1410 12/ 22/2009 25 464.17 1 195,501.02 35. ASCO Power Technologies LP 1411 12/ 22/ 2009 34/233.93 1 607/226.87 36. Closetmaid 1414 12/ 22/ 2009 12/173.23 571/513 . 18 37. Daniel Measurement & Control (CA) 1415 12/ 22/ 2009 10 394.71 488,014.59 38. Daniel Measurement & Control (TX) 1416 12/ 22/ 2009 59 168.75 2,777,875.78 39. EGS Electrical Group 1417 12/ 22/ 2009 4 901.51 230 117.86 40. Electric Reliability Services 1418 12/ 22/ 2009 5 492.51 257 864.34 41. Emerson Electric Asia -Pacific 1423 12/ 22/ 2009 490 968.04 23 050 144.29 42. Emerson Electric Co. 1424 12/ 22/2009 680 807.18 31 962 780.58 43. Emerson FZE 1426 12/22/2009 26 462.77 1 242 383.65 44. Emerson Hermetic Motors 1428 12/22/2009 4 941.18 231 980.30 45 . Emerson Network Power ( Hong Kong) Co. Ltd. 1430 12/ 22/ 2009 138 947.27 6,523 346.45 46 . Emerson Network Power (Malaysia) SDN BHD 1432 12/ 22/ 2009 32 135.13 1,508 691.65 47. Emerson Network Power (Singapore) Pte. Ltd. 1433 12/ 22/ 2009 22 650.02 1 063,381.29 TOTAL 4,589 740.61 215,816 767.89 Notwithstanding, after checking the invoices and the corresponding official receipts, the Court found that the following zero- rated sales in the amount of $1,469,585.45 are not supported by official receipts: Reference Invoice Invoice Amount in OR No. OR Date Amount in Difference No. Date USD 01862 4/ 13/2010 USD Exh. 01609 1/ 27/ 2010 $ 419 353.23 CCCCCCCC-2, 1335 10/ 28/2009 635 415.03 9 868.84 1336 10/28/2009 pp. 10-13 206 192.96 216 061.80 Exh. CCCCCCCC-2, 429 310.32 - 429 310.32 pp. 14-15

DECISION CTA case No. 8384 Exh. 1343 11/24/2009 13 821.27 01724 2/22/2010 1 217.52 12 603.75 CCCCCCCC-2, 1352 11/24/2009 500 943.20 1355 11/24/2009 500 943.20 01706 2/16/2010 - p. 15 1357 40 306.31 01597 1/20/2010 17 008.74 Exh. 1361 1 385.77 CCCCCCCC-2, 1363 21 911.80 p, 16 1416 23 297.57 Exh. 1424 11/24/2009 4 983.88 - 4 983.88 CCCCCCCC-2, 11/24/2009 39 260.63 11/24/2009 27 873.44 - 39 260.63 p. 20 - 27 873.44 Exh . CCCCCCCC-2, 12/22/2009 59 168.75 01766 3/10/2010 58 673.71 495.04 01862 4/13/2010 4 939.7641 p. 20 12/22/2009 680 807.18 01728 2/23/2010 Exh. TOTAL 2,431,890.01 01609 4/13/2010 232 797.29 CCCCCCCC-2, p. 20 425 316.91 Exh. 663 053.96 CCCCCCCC-2, p. 20 Ex h. CCCCCCCC-2, p. 26 Exh. CCCCCCCC-2, p. 28-88 17 753.22 962 304.56 $1 469 585.45 Using the foreign currency exchange rate on the invoice date per petitioner's Schedule of Zero-rated Sales,42 the foregoing zero-rated sales not supported by official receipts amount to P69,352,401.65, to wit: Invoice Invoice Client Amount in USD Exchange Amount in No. Date Emerson Electric Co. 419 353.23 Rate PhP 1335 Emerson Electric Asia-Pacific 429,310.32 1336 10/28/2009 12 603.75 47 .61905 19 969 202.43 1343 10/28/2009 Closetmaid 500 943.20 47.61905 20 443 349.59 1352 11/24/2009 Emerson Electric Asia-Pacific 17 008.74 46.59832 1355 11/24/2009 46 .59832 587 313.58 11/24/2009 Emerson FZE 46 .59832 23 343 112.47 792 578.71 41 Petitioner claimed that $22,683.25 of Invoice No. 1424 was receipted with OR No. 01862, broken down as follows: Exhibit " CCCCCCCC-2" pp. 28-29 $ 12 471.69 Exhibit "CCCCCCCC-2" pp. 31-32 10 211 .56 Total $22 683.25 However, after deducting other invoice amounts receipted by the same OR, the remaining amount in OR No. 01862 is only $4,939.76, computed as follows : Official Receipt No. 01862 dated 4/13/10 (Exhibits DDDDDDDD-SOc and DDDDDDDD-112a) $23 131.75 Less: Invoice# 1335 (Exhibit CCCCCCCC-2 pp. 10-12) I $(9 868.84) (18 191.99) $4,939.76 Invoice# 1353 (Exhibit CCCCCCCC-2 pp. 17-19) I (8 323.15) Remaining amount in the official receipt 42 Exhibit "CCCCCCCC-1".

DECISION CTA Case No. 8384 1357 11/ 24/2009 Emerson Hermetic Motors 4 983.88 46.59832 232 240.44 Emerson Network Power (Malaysia) 1361 11/24/2009 39 260.63 46 .59832 1 829 479.40 SDN BHD 1363 11/24/2009 Emerson Network Power 27 873.44 46.59832 1 298 855.48 1416 12/22/2009 495.05 46.94836 23 241.79 1424 12/22/2009 (Singapore) pte. Ltd. 46 .94836 17 743.49 833 027.76 Daniel Measurement & Control (TX) 1,469,575.73 69 352,401.65 Emerson Electric Co. TOTAL Thus, petitioner's substantiated zero-rated sales for the fi rst quarter of fiscal year 2010 is P146,464,366.24, computed as follows : Sa les considered to be zero-rated p 215_L816 767.89 Zero-rated sa les without official receipts 69,352,401.65 Substantiated zero-rated sales P146,464,366. 24 Since only a portion of petitioner's zero-rated sales is substantiated, only the portion of the claimed input tax attributable thereto will be refunded. The rate to be applied is 30.0512�/o, broken down as follows: Substantiated zero-rated sales P146,464 366.24 Divided by tot al declared zero-rat ed sales P487,383 , 178.98 Rate of substantiated zero-rated sales 30.0512�/o As regards the claimed input taxes, petitioner declared in its Amended Quarterly VAT Return for the 1st quarter of fiscal year 2010 input taxes from domestic purchases of services in the total amount of P16,888,043.74.43 However, petitioner's Schedule of Input VAT for the 1st quarter of fiscal year ending September 30, 2010 shows a tota l of P17,266,835.61.44 Concerning the difference of P378,791.88, the Independent CPA reported :45 "According to the Company, the difference of P378,791.88 resulted from the transition of the Company's computer accounting system from BPCS to Oracle in year 2009. During this transition, additional accounts, which were not present in BPCS, were ta ken up fV in the Oracle." 43 Exhibit "G8" . 44 Exhibit " A8" . 45 Exhibit "27" , p. 4.

DECISION CfA Case No. 8384 The Independent CPA examined the voluminous documents supporting petitioner's input taxes amounting to P17,266,835.61, and presented the following findings in his supplemental and consolidated report: 46 Findings Annex Services Annex Goods Capital Goods Total Annex Exceeding PlM 1. Input VAT on domestic purchases supported by documents such as VAT A-3 and p 539 243.46 A-16 p 1 375 354.08 p 6 038 661.30 ORs and VAT invoices A-1 P4 124 063.76 A-3 2. Input VAT on domestic P1 005 382.43 purchases supported by 246 016.81 certified true copies of P1 251 399.24 ORs a. On our report dated A-4 and - A-1 6 Sept. 3 2012 A-4 p p 30 120.19 p 1035 502.62 b. Additional findings presented as no. 2 on page 3 of this - - supplemental report A-4 246 016.81 Sub-total p - p 30 120.19 p 1 281 519.43 3. Input VAT on domestic purchases supported by certified true copies of ORs dated outside the period of claim a. On our report dated A-5 and - A-16 Sept. 3 2012 A-5 p 679 829.59 p p 21 861.50 p 701 691.09 b. Additional findings presented as no. 2 on page 3 of this - supplemental report A-5 146 235.22 - 146 235.22 p 826 064.81 Sub-total p - p 21 861.50 p 847 926.31 4. I nput VAT on domestic p - A-6 p 3 983.10 p -p 3 983.10 purchases supported by certified true copies of invoices 5. I nput VAT on domestic purchases supported by documents such as invoices, provisional receipts, acknowledgement receipts, billing statements, and statement of accounts (presented as no. 2 on page 3 of this supplemental report) A-7 2 802 486.53 - - 2 802 486.53 6. Input VAT on domestic p - A-8 p 13 655.36 p -p 13 655.36 purchases supported by quotation reports, - A-8 4 039 235.49 - 4 039 235.49 check reports, check vouchers, and p - P4 052 890.85 p - p 4 052 890.85 statement of accounts a. On our report dated Sept. 3 2012 b. Additional findings presented as no. 1 on page 3 of this supplemental report Sub-total 46 Exhibit " Z7-2", pp. 3-6.

DECISION CTA Case No. 8384 7. Input VAT on domestic purchases supported by documents not issued under the Company's -p name A-9 p 1 568.54 p - p 1 568.54 8. Input VAT on domestic A-10 5 250.24 - - 5 250.24 purchases supported by A-l l 18 712.97 20 405.93 documents with pre- A-ll 1 692.96 printed TIN only and A- 9. Input VAT on domestic - 16 purchases supported by documents with pre- printed Non-vAT/ NV 10. Input VAT on A-12 305 079.19 A-12 381.22 - 305 460.41 domestic purchases supported by documents dated outside the period of claim 11. Input VAT on domestic purchases supported by documents wherein the amount of input VAT in the supporting document does not tie- up to the amount of input VAT in the - Company's schedule* A- 13 260 730.67 - 260 730.67 12. Input VAT on 10 687.80 1 635 264.52 domestic purchases 1'17,266 835.63 supported by documents with no BIR - authority to print A- 14 3 404.23 A-14 7 283.57 13. No available supporting documents TOTAL 1'9 598,760.18 1'4 603 782.20 1'1 429 028.73 *Amount ofinf)ut VATf)er SUIJIJOrting documents is 1'254 390.45 resulting in a difference ofl'fi 340.22 Based on the foregoing, only input taxes in the amount of P6,038,661.30 under Item No. 1 are properly supported. Documents supporting input taxes under Item Nos. 2, 3, and 4 cannot be given credence and probative value since they were merely handwritten with or stamped as "Certified True Copy", and the Court cannot ascertain whether the certifier whose name or signature appearing on each of the said document is actually the authorized custodian of the same. Therefore, it should be disallowed. Under Item No. 11, the amount of input VAT in the Company's Schedule does not tally with the amount of input VAT in the supporting documents, resulting in a difference of P6,340.22, representing the over-claimed input taxes; which should be also disallowed. The rest should likewise be disallowed for failure to comply with the invoicing requirements provided by Sections 110(A) and 113(A) of the NIRC of 1997, as amended, in relation to Sections 4.110-1, 4.110-8, and 4.113-1 of Revenue Regulations No. 16-2005. fv Further scrutiny of the said report and petitioner's supporting documents shows that in addition to the disallowances found by the

DECISION CTA Case No. 8384 Independent CPA, the following input taxes amounting to P1,841,184.48 should be disallowed for the reasons stated below: OR/Invoice OR/ Invoice Exhibit Number Date Su_QQ(ier I nput Tax 1. Input tax on purchase ofservices not separately indicated in the official receipt p 1 054.76 1126.67 BBBBBBBB-1 0911 11/17/2009 Mrs. Myrna Pyun 1 305.24 6 300.00 BBBBBBBB-2 1691 11/25/2009 Ezra General Services Inc. 7 020.00 30 772.86 BBBBBBBB-3 61220 11/13/2009 Veterans Philippine Scouts 1 607.14 56 982.38 BBBBBBBB-4 0379 10/23/2009 Geoscience Technologies Inc. 1 500.00 15 000.00 BBBBBBBB-5 0825 11/ 27/2009 Assessment Analytics Inc. 107 923.81 BBBBBBBB-6 1692 11/25/2009 Ezra General Services Inc. 36 305.99 15 597.62 BBBBBBBB-7 0778 10/ 29/2009 DNXI Sound System Rental 11983.81 17 298.58 BBBBBBBB-8 1439 10/30/2009 Hewitt Associates Inc. 7 429.05 BBBBBBBB-9 0021 10/30/2009 Platinum 168 Inc. 6 503.81 5 785.71 BBBBBBBB- 11 1032 12/ 4/2009 MDC Group Inc. 5 478.10 4 790.48 BBBBBBBB- 12 1448940 10/23/2009 DHL Express (Phils) 3 557.62 6 887.62 BBBBBBBB- 13 1437232 10/ 15/2009 DHL Express (Phils) 1 523.33 BBBBBBBB-1 4 147414 11/6/2009 EDSA Shanqri-la Manila 945.24 915.24 BBBBBBBB-15 0373 10/9/ 2009 Geoscience Technologies Inc. 801.90 146.67 BBBBBBBB-16 1437231 10/13/ 2009 DHL Express {Phils) 23 100.00 12 335.97 BBBBBBBB-17 2389 11/ 13/ 2009 Global Quest Consulting Group 12 335.97 652.38 BBBBBBBB-18 17223 10/16/2009 MMLDC Foundation Inc. 88 643.96 271.67 BBBBBBBB-20 11954 10/ 23/ 2009 SGV-Development Dimensions International Inc. 553.58 719.94 BBBBBBBB-21 19038 11/6/2009 Oracle (Phils) Corp. 19 290.78 2 678.94 BBBBBBBB-22 147415 11/6/2009 EDSA Shanqri-La Manila 501.40 2 512.58 BBBBBBBB-23 4773 10/22/2009 Amberland Corporation 11159.37 42 663.56 BBBBBBBB-24 2976 10/9/2009 Businessworks Inc. 69 494.40 BBBBBBBB-25 3985 11/20/2009 Ages Aviation Center Inc. BBBBBBBB-27 1351868 10/6/2009 DHL Express (Phils) BBBBBBBB-28 0073 10/ 16/2009 Goldengrace Marketing Inc. BBBBBBBB-29 0754 10/16/2009 Mrs. Myrna Pyun BBBBBBBB-33 7216 11/20/2009 Micro Imaqe International BBBBBBBB-36 1823 10/9/2009 Eon Stakeholder Relations Firm BBBBBBBB-38 0646 11/19/ 2009 Electric Skye Inc. BBBBBBBB-39 0668 12/ 12/ 2009 Electric Skye Inc. BBBBBBBB-40 104642 11/ 6/ 2009 Toyota Pasong Tamo Inc. BBBBBBBB-41 1438 10/30/2009 Hewitt Associates Inc. BBBBBBBB-42 14803 10/30/2009 Seagull Glass Works Inc. BBBBBBBB-45 61219 11/13/2009 Veterans Philippine Scouts BBBBBBBB-49 1453314 10/29/2009 DHL Express (Phils) BBBBBBBB-50 1454385 11/9/2009 DHL Express (Phils) BBBBBBBB-51 00009788 10/30/2009 Database Wizards Inc. BBBBBBBB-52 1456662 11/ 12/ 2009 DHL Express (Phils) BBBBBBBB-53 288 10/28/ 2009 Renata D. Nayona BBBBBBBB-54 00720 11/ 27/ 2009 . Quantuvis Resources Corporation BBBBBBBB-55 0382 11/ 13/ 2009 Geoscience Technologies Inc. BBBBBBBB-56 0231 11/ 13/ 2009 JCL International Inc.

DECISION CTA Case No. 8384 BBBBBBBB-57 80541 11/20/2009 Astoria Plaza 8 899.81 116 349.95 BBBBBBBB-59 1440 11/13/20 09 Hewitt Associates Inc. BBBBBBBB-60 26444 11/13/20 09 The Peninsula Manila 683.60 BBBBBBBB-61 4448 11/25/2009 Amberland Corporation 3 557.78 BBBBBBBB-62 1525 11/3/ 2 009 Seafood Ventures Corporation BBBBBBBB-64 0141 12/ 4 / 2 009 Woof Produxions Inc. 219.48 BBBBBBBB-66 0454 12/15/2009 Alliance Fashion Wear 360.21 BBBBBBBB-67 1080 11/17/2009 Transport and Traffic Planners Inc. 35 160.76 BBBBBBBB-68 147719 11/20/2009 EDSA Shangri-la Manila 64 285.64 BBBBBBBB-72 0291 12/8/2009 Yellow Mango Affiliates Inc. 1 853.68 BBBBBBBB-74 2651 12/8/2009 Hire Inc. 21 214.36 BBBBBBBB-78 0174 12/ 11/2009 Rhodelia's Duerme 36 504.23 BBBBBBBB-79 0271 11/27/2009 Yellow Mango Affiliates Inc. 10 115.96 BBBBBBBB-80 5326196 12/2/2009 Development Academy of the Philippines 30 170.88 BBBBBBBB-81 1082 12/ 4/2009 Transport and Traffic Planners Inc. 4 899.06 BBBBBBBB-83 5156 12/13/2009 Metro Phi 7 Corporation 25 714.09 BBBBBBBB-89 4449 12/28/2009 Amberland Corporation 3 568.08 BBBBBBBB-90 1458468 11/24/2009 DHL Express (Phils) 3 557.75 BBBBBBBB-9 1 1460305 12/1/2009 DHL Express (Phils) 16 784.98 BBBBBBBB-94 0009 12/18/2009 Isputing Enterprise 14 986.86 BBBBBBBB-95 1537A 12/ 11/ 2009 Environmental Compliance Consultants I nt'l Corp. 10 221.60 BBBBBBBB-96 44181 12/ 18/2009 American Express Transnational I nc. 9 600.00 BBBBBBBB-99 1461979 12/11/2009 DHL Express (Phils) 5 506.92 BBBBBBBB- 100 0454 12/15/2009 Alliance Fashion Wear 5 717.37 BBBBBBBB- 104 0301874 12/29/2009 Innove Communications 35 160.57 Subtotal 42 248.36 ft1, 150 800.11 2. Input tax on purchase ofservices not supported with official receipts BBBBBBBB-56b 0428 10/19/2009 JCL International Inc. p 104 915.27 BBBBBBBB-56c 0429 9/25/2009 JCL International Inc. 241 739.11 BBBBBBBB-56d 0435 10/19/2009 JCL International Inc. 228 437.23 BBBBBBBB- 112 0867 10/29/2009 Seafood Ventures Corporation 428.70 BBBBBBBB- 113 0732 10/29/2009 The Topnotch Group Corp. 3 653.52 BBBBBBBB- 114 0905 10/29/2009 Ace Millenium Graphic 47.89 BBBBBBBB- 115 0910 10/29/2009 Ace Millenium Graphic 192.02 BBBBBBBB- 116 0912 Ace Millenium Graphic 144.13 BBBBBBBB- 11 7 0913 Ace Millenium Graphic 239.91 BBBBBBBB-118 0914 Ace Millenium Graphic 192.02 Subtotal ft 579 989.80 3. Input tax on purchase ofgoods not separately indicated in the invoice BBBBBBBB-43 277 9/18/2009 Promo One Trading p 51 315.93 805.24 BBBBBBBB-111 0755 10/9/2009 Mrs. Myrna Pyun 2 035.68 BBBBBBBB- 119 1115 11/13/2009 Mabanag Marketing Enterprises 19.25 BBBBBBBB-138 21482 9/8/2009 Files Enterprises 665.26 ft 54 841.36 BBBBBBBB-275 1283 11/ 12/2009 Cedorada Glass & Aluminum Supplies Subtotal 4. Input taxes supported by official receipts or invoices dated outside the period ofclaim BBBBBBBB-84 11992 1/15/2010 Development Dimensions International Philippines Inc. p 2 250.23 BBBBBBBB-101 0917 1/8/2010 DNXI Sound System Rental 11 279.81 Subtotal ft 13 530 .04

DECISION CTA case No. 8384 5. Input tax supported by offidal receipts or invoices which are not duly registered BBBBBBBB- 120 124 11/11/ 2009 Mrs. Myrna Pyun p 287.79 BBBBBBBB-144 2999 10/21/ 2009 3D Networks Philippines Inc. 5 435.21 BBBBBBBB-354 133 12/ 4/2009 Mrs. Myrna Pyun 1 931.93 Subtotal p 7 654.9 3 6. Overc/aimed input taxes BBBBBBBB-73 791289 10/27/ 2009 Directories Philippines Corp. p 54.24 BBBBBBBB-222 36802 9/ 11/ 2009 The New Albergus Inc. 1 387.24 Subtotal p 1 441.48 7. Not properly supported input taxes BBBBBBBB-98 9048 12/ 16/ 2009 Daiichi Properties and Development I nc. p 32 926.76 Subtotal p 3 2 926.76 TOTAL P1 841 184.48 In addition, the Independent CPA found that petitioner's input taxes on purchase of capital goods exceeding 1 million pesos for the period October to December 2009 amounting to P1,375,354.08 are properly substantiated.47 The same should be amortized over the life of the asset, as shown below:48 Vendor Description Input Tax Amortized Deferred for of Cost Portion for Succeeding Neptel System Integrator Inc. Building Oct. to Dec. RON Construction and Periods Development Corp. Improvement 2009 RON Construction and Building Development Corp. p 857.14 p 14.29 p 842.85 I mprovement Mannasoft Tachnology Corp. Building 8 035.71 133.93 7 901.78 3D Networks Phils. Inc. Improvement 107 678.57 1 794.64 105 883.93 Accent Micro Technologies Computer Inc. Equipment 40 031.46 667.19 39 364.27 1126 863.46 18 781.06 1108 082.40 Main Hardware Inc. Telephony Tri-Sky Link Sales and Computer 4 124.41 68.74 4 055.67 Equipment 39 275.65 654.59 38 621.06 Services Inc. Office Equipment 13 885.71 231.43 13 654.28 Accent Micro Technologies Inc. RON Construction and Office Equipment 2 458.93 40.98 2 417.95 Development Corp. Computer Equipment 32 142.86 535.71 31 607.15 TOTAL Building Pl 375 353.90 P22,922.56 P1,352,431.34 Improvement This means that petitioner can only claim the portion of the input taxes allocated for the subject quarter wh ich amounts to P22,922.56, r and the remaining P1,352,431.34 should be deferred to the succeeding taxable periods. However, the Court found that of the total 47 Exhibit " Z7-2", Annex A-3. 48 Exhibit "Z7-2", Annex A-16 .

DECISION CTA Case No. 8384 P1,375,354.08 input taxes from purchase of capital goods, P152,838 .51 should be disallowed for failure to comply with the substantiation requirements as provided by law: OR/Invoice OR/Invoice Exhibit Number Date Suoolier Input Tax 1. Input tax on purchase ofgoods not seoaratelv indicated in the invoice BBBBBBBB-393 1072 9/18/2009 Neptel Svstem Intearator Inc. p 857.28 Subtotal p 857.28 2. Input tax on purchase ofservices not suooorted with official receiots BBBBBBBB-394 3005 8/25/2009 RON Construction and DeveloPment Coro. p 8 035.68 BBBBBBBB-395 3048 10/19/2009 RCW Construction and Development Corp. 107 678.41 4 124.41 BBBBBBBB-398 105744 10/26/2009 Accent Micro Technoloqies Inc. 32 142.73 BBBBBBBB-402 3073 11/12/2009 RON Construction and Development Corp. P151,981.23 Subtotal P152,838.51 TOTAL Consequently, the following input taxes in the amount of P2,547.31 should be disallowed, as previously discussed: Vendor Description InoutTax Amortized Neptel System Inteqrator Inc. of Cost Portion for Oct.- p 857.14 Buildina Improvement Dec. 2009 p 14.29 RON Construction and Development Corp. Buildina Improvement 8 035.71 133.93 RON Construction and Development Corp. Buildina Improvement 107 678.57 1 794.64 Accent Micro Technoloaies Inc. Computer Eauipment 4 124.41 68.74 RCW Construction and Development Corp. Building Improvement 32 142.86 535 .71 P2,547.31 TOTAL P152 838.69 Hence, petitioner's substantiated input taxes for the first quarter of fiscal year ended September 2010 amount to P2,836,157.95, computed as follows: Claimed input taxes p 16 888 043.74 P10 855 722.66 Less: Disallowances Per ICPA: Claimed input taxes P16 888 043.74 6,038,661.30 Less: Input tax on domestic purchases supported by documents such as VAT ORs and VAT invoices Disallowed input taxes P10,849 382.44 Add: Overclaimed input taxes 6 340.22 Per Court's findings p 1 841184.48

DECISION CTA case No. 8384 Add: Input tax on purchase of 1 352 431.34 3 196,163.13 14 051 885 .79 capital goods - deferred for 2 547.31 P2,836 157.95 succeeding periods Disallowed input tax on purchase of capital goods - amortized portion for the period Oct to Dec 2009 Substantiated input taxes The substantiated input taxes of P2,836,157.95 forms part of the P99,371,673.22 excess input taxes at the end of the first quarter of fiscal year ending September 2010,49 which was carried over to the succeeding taxable periods until the third quarter of fiscal year ending September 2011, when it was claimed for refund50 and included in the deduction as VAT Refund/TCC claimed in the amount of P42,732,299.48.51 Even so, it was not applied against petitioner's output taxes as evidenced by its Quarterly VAT Returns52, which show that input taxes incurred for the succeeding taxable quarters would always exceed the output tax due. In sum, petitioner has proven that it is entitled to a refund or issuance of tax credit certificate in the amount of P852,298. 76, computed as follows : Substantiated input taxes P2,836 157.95 Portion of substantiated zero-rated sales X 30.0512% Refundable input taxes P852,298.76 WHEREFORE, premises considered, the instant Petition for Review is hereby PARTIALLY GRANTED. Accordingly, respondent is hereby ORDERED TO REFUND or TO ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner in the amount of P852,298.76 representing its excess unutilized input taxes for the period covering October 1, 2009 to December 31, 2009 or the 1st quarter of fiscal year ending September 30, 2010. SO ORDERED. ~~c.a~~. Q J6ANiio C. CASTANEi:i~; jR. Associate Justice 49 Exhibit "G8" , Line 29 . 50 Exhibits " A", " A-1", " A-2", and " B" with sub-ma rkings. 51 Exhibit "M8", Line 23D; Memorandum for the Pet itioner, par. 48, docket, p. 2273. 52 Exhibits " H8" to " L8" .

DECISION d-4-~o./~- CTA Case No. 8384 AMELfAR.COTANGCO-MANALASTAS Associate Justice WE CONCUR: CAES Associate Justice ATTESTATION I 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. ~ ~�~ c_ a...v-~~ Q, JUANITO c. CASTANEDA/ :iR. Associate Justice Chairperson 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 oft � �on of th Presiding Justice