CTA Case No. 4603 (Decision)

.- REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY MARCOPPER MINING CORPORATION, Petitioner, - versus - C.T.A. CASE N0.4603 & 4677 JOSE U. ONG, Commissioner ot Promulgated: Internal Revenue, OCT 031900 Respondent. I X- - - - - - - - - - - - - - - - - - - - - - -X DECISION This is a consolidated case involving a claim for refund limited to the portion of input Value Added Taxes (VAT) paid during the years 1989 and 1990 in the respective amounts of P6,373,350.38 and P8,149,074.90. Petitioner is a domestic corporation duly organized and existing under Philippine laws and duly registered with the Board of Investments (HOI) as an export producer of copper concentrates. Petitioner sells its copper concentrates (Exh. A) to the Philippine Association of Smelters and Refiners, Inc., (PASAR), another BOI registered export producer (Exh. B) pursuant to a copper concentrate agreement between the two parties dated July 10, 1990 (Exh. C). As a duly registered VAT taxpayer and exporter, Petitioner is subject to 0% VAT and is therefore 1274

s� DECISION C.T.A. CASE NO. 4603 & 4677 - 2- allegedly entitled to apply for the issuance of a tax credit certificate or refund of the input tax attributable to the goods exported to the extent that such input tax has not been applied to the output tax pursuant to Section 106 of the National Internal Revenue Code (NIRC). Petitioner filed its quarterly VAT returns showing unused input tax in the amount of Thirty Eight Million Two Hundred Eighty Six Thousand Eight Hundred Seventy Four and 91/100 (P38,286,874.91) Pesos for 1989 and Forty Four Million Three Hundred Twenty Thousand Six Hundred Eleven and 62/100 (P44,320,611.62)pesos for 1990. Petitioner correspondingly filed applications using the prescribed form for tax credit/refund of the VAT paid for the same years. Originally, the claims for refund by petitioner for 1989 and 1990 were P44,640,043.29 and P42,435,968.22 respectively. However, since Respondent has already granted a partial refund (Exhs. E, F, 0 and P) , Petitioner is now seeking the sum of�only P6,373,350.38 for 1989 and P8,149,074.90 for 1990 the amounts disallowed by the Respondent on the ground that the input taxes they represent correspond to local sales of PASAR. Hence, this appeal. 1275

DECISION C.T.A. CASE NO. 4603 & 4677 - 3- The issue brought for resolution is whether or not Petitioner is entitled to the refund of the amounts which were disallowed on the ground that those amounts correspond to the local sales of PASAR. We answer in the affirmative. The applicable provision of law is Section 2 of Revenue Regulations No. 2-88 (The Application of Zero Rate, Exemption On Certain Transactions Related To Exports and Refunds of Input Taxes) which provides, thus: Sec. 2. Zero-rating. - (a) Sales of raw materials to nor-registered exporters.- Sales of raw materials to export-oriented nor-registered enterprises whose export sales, under rules and regulations of the Board of Investments, exceed seventy percent (70%) of total annual product ion, sha 11 be subject to zero-rate under the following conditions: "(1) Thf� seller shall file an application with the RIR, ATTN.: Division, applying for zero-rating for each and every separate buyer, iu accordance with Section 8(d) of HevetLHP HeguJatiuns No.5- 87. The application should be accompanied with a favorable recommendation from the Board of Investments." _, " ( 2 ) T h e_r a~---"~?_! e t:J a 1 s s 52_~ a r e to _!) e u Sf' cl _ e x c 1 us i v c_!_y___l1.1.:_______!_ ~~~____!J u y e r __!_!l__t.!.!!; man11facture, pr�oc�_~;siug or rEJ2_acking____9.! his own registered export product; (Emphasis supplied) XXX. .X X X XXX 1276

�- DECISION C.T.A. CASE NO. 4603 & 4677 - 4- During the hearing of the case, it was undisputed that PASAR actually exported 75.67% in 1989 and 77.26% in 1990 (Exhs. K-1 and K-2) of its manufactured goods. Under the above-quoted law, "Sales of raw materials to export-oriented HOI-registered enterpr~ses whose expor~ sales, undet� rules and regulations of the Board of Investments, ~xceed seventy percent (70%) of total annual production shall be subject to zero-rate ... " Thus, Petitioner's claim for refund is within the ambit of the law. It was also established during the trial that the products of the Petitioner sold to PASAR were indeed actually used "in the manufacture, processing or repacking of his (buyer's) own registered export product" when Mr. Leonardo Vinzon, petitioner's supervisor testified, thus: Q. As a supplier of copper concentrates can you please tell us who your customers are? A. Our main buyer is PASAR which is Philippine Associated Smelting and Refining Corporation and the rest of our production was sold to foreign buyers. Q. Can you please tell us what is the nature of PASAR as your main buyer? A. PASAR is a BOT registered enterprise and engaged in the smelting and refining of raw materials such as 1277

.... DECISION C.T.A. CASE NO. 4603 & 4677 - '1 - copp~r. gold anrl silver among others were and its final products the subsequently exported to international market. Q. You mentioned that PASAR is a BOI registered enterprise, do you have any evidence to prove this? A. I have here a certified true copy of PASAR'S certificate ~f registration with the BOJ.. ATTY. GONZALES Your Honors, we request that this certified � true copy of BOI certificate of registration of PASAR be marked as our Exhibit "B". Q. Being your main customer, do you have anj knowledge as to the disposition of the copper concentrates you supplied to PASAR? A. Yes, sir. PASAR utilizes these copper concentrates as raw materials for their refining and smelting activity anrl its products are being exported abroad as evidenced by this supplier agreement with them and their 1990 annual report. ATTY. GONZALES Your Honors, a copy of this document is attached to the docket of this case which forms part of the records, so we request, your Honor, that this document be marked as our exhibit, the copper concentrates agreement between PASAR and Marcoppe~ Mining Corporation dated July 10, 1990 be marked as Exhibit "C". (Emphasis supplied) which testimony was corroborated by documentary evidences. ( Exhs. C, D, D- l) . 1278

DECISION C.T.A. CASE NO. 4603 & 4677 - 6- From the foregoing, it is indubitably clear that in order for the Petitioner to avail of �zero-rating� of input taxes, the only requirement to be complied is for it to sell its �raw materials to export-oriented BOI- registered enterprises whose expor;t sales ... exceed seventy percent (70%) of total annual production ... " In other words, the law does not require a one-hundred percent export sales. Hence, 1oca 1 sa 1es in excess of the 70% requirement may be allowed, contrary to the contention of the Respondent. The above requirement, although also subject to the condition that "the raw materials sold are to be used exclusively by the buyer in the manufacture, processing or repacking of his own registered .export pro~uct� yet, in this particular case, was satisfactorily established by the Petitioner through documentary and testimonial evidences. Hence, We cannot do otherwise but grant Petitioner's claim for refund. It is, however, lamentably observed that the Respondent ,and/or her counsels, instead of being satisfied with run-of-the-mill generalities in their defenses, should have pursued other avenues within the law to prevent diffusion of revenues brought about by mediocre defenses. Much could have been done had Respondent not submitted this case for decision without offering any evidence except "the pleadings and the 1279

DECISION C.T.A. CASE NO. 4603 & 4677 - 7- records of the case" and without any Memorandum. Let the Respondent, therefore, be reminded that We can only decide cases as they are presented to us. Nothing more and nothing less. WHEREFORE, in all the foregoin,g, Respondent is. hereby ORDER~D Lo ISSUE A TAX CREDIT CERTIFICATE in favor of the Petitioner in the total amount of Pl4,522,425.28 representing the 1989 and 1990 input taxes improperly disallowed by her. SO ORDERED. <e. ...~ cz., ~ ERNESTO D. ACOSTA Presiding ,Judge WE CONCUR: 1280

DECISION C.T.A. CASE NO. 4601 & 4677 - 8- CERTIFICATION I hereby certify that this decision was reached a f t e r due cons u 1 t a t- i on am on g t h P me mbe r s o f the Court of i3 Tax Appeals in accordance with�Section Article VIII of the Coristitution. ~Q. C?~ ERNESTO D. ACOSTA Presiding Judge Court of Tax Appeals 1281