CTA Case No. 6679 (Decision)

REPUBUC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY FIRST DIVISION ************* KEPCO PHILIPPINES CORPORATION, Petitioner, C.T.A. CASE NO. 6679 - versus - Members: ACOSTA, Chairperson BAUTISTA, and CASANOVA, JJ. THE COMMISSIONER OF INTERNAL REVENUE, Promulgated: Respondent. OCT 2�6 ?IR~ ~1}J,h1;&;~ x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ~ - - - - - -x DECISION ACOSTA, E. fd.: This is a judicial claim seeking the refund of alleged input value-added tax incurred for the calendar year 2001 , from petitioner's sale of electricity to the National Power Corporation in the amount of P5,670,275.63. Petitioner likewise prays that respondent be ordered to pay attorney 's fees in the amount of at least P500,000.00 and the cost of suit. Petitioner is a domestic corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines, with principal place of business located at Suite 2501-A, 25th Floor, Tektite Tower I, Exchange Road, Ortigas Centre , City of Pasig. It is a value-added tax (VAT) registered taxpayer engaged in the

DECISION C.T.A. CASE NO . 6679 Poge2 production and sale of electricity as an independent power producer and sells electricity to the National Power Corporation [NPC]. Petitioner. on December 22. 2000. filed with the respondent its Application for Effective Zero-Rating for its sale of electricity to the NPC for the year 2001. This application was duly approved by the respondent. For the calendar year 2001 . petitioner was a duly registered Value-Added Tax IVAT) taxpayer under the jurisdiction of Revenue District Office !RDO) No. 43 of Pasig City. During the four (4) quarters of 2001. petitioner allegedly incurred expenses representing domestic purchases of goods and services. for which it incurred an input VAT in the amount of P5.670,275.63. The aforementioned expenses allegedly represent costs attributable to its production and sale of electricity to the NPC. Thus, petitioner filed with the respondent. thru its RDO No. 43, claims for refund of excess input VAT incurred for the four !4) quarters of calendar year 2001 in the total amount of P5.670.275.63 on October 1, 2001, for the first two quarters and on June 24. 2002, for the third and fourth quarters. Due to respondent's inaction on its claims and to toll the running of the prescriptive period, the instant Petition for Review was filed on April 22. 2003. In his Answer filed on June 24. 2003. respondent raised the following Special and Affirmative Defenses: "6. The claim for refund is still under examination by the respondent's Bureau; 7. The burden of proof is upon the petitioner to prove that it is entitled to the claim for refund; 8. The grant of a claim for refund tanamounts [sic] to an exemption from taxation which is construed strictly against the claimant and in favor of the taxing authority; 9. The taxes sought to be refunded were paid in accordance with the law: the burden of proof to the contrary is upon the petitioner-

DECISION C.T.A CASE NO. 6679 Pog e3 claimant to show with clear and unambiguous provision of law supporting the same. " 1 The parties stipulated the following issues for resolution of the Court: " 1, Whether or not the sale of electricity by a VAT-registered entity, as the Petitioner, to the National Power Corporation (NPC) , qualifies as a sale of services subject to a VAT rate of zero percent (0%) or otherwise called a zero-rated VAT transaction. 2. Whether Petitioner, as a VAT-registered entity and during the calendar (taxable) year 2001, actually incurred expenses representing domestic purchases of goods and services and which expenses represent costs attributable to Petitioner's production and sale of electricity to the NPC. 3. Whether or not Petitioner is entitled to the refund of the total amount of P5,670.275.63, representing the input VAT incurred for the four (4) taxable quarters of the calendar(taxable) year 2001 from its sale of electricity to the NPC." 2 The issues being interrelated and all relate to whether or not petitioner, based on the evidence presented. is entitled to the refund of the amount of P5,670,275. 63 allegedly representing unutilized input VAT on domestic purchases of goods and services which are directly attributable to effectively zero-rated sales for the taxable year 2001, shall be discussed jointly. Petitioner is a VAT-registered entity with Certificate of Registration No. OCN 3RC0000154314 dated January 1, 1997.3 As a VAT- registered entity, petitioner filed its Quarterly VAT Returns for the four quarters of taxable year 2001 declaring, among others, the following information: QUARTER EXHIBIT DATE ZERO-RATED INPUT INVOLVED FILED SALES TAXES 1st Qtr. s~ 5/30/01 p 647.453, 136.79 p 682,991.08 200 Qtr. 7/25/01 846,401.571.38 1,406,628.80 3rd Qtr. C 10/25/01 827,316,739.27 1' 135,229.24 4th Qtr. D 2/20/02 2.445.426.51 ES l.JQ9.819,954.72 P..J..4.~~21.AO~.J~ e,5,,,67,Q.2Z~QJ Totals 1 Records, pages 50-51 1 Joint Stipulation ofIssues, Records, page 90 3 Exhibit A 4 Amended :fl Quarterly VAT Return 5 Amended 4" Quarterly VAT Return ...

DECISION C.T.A. CASE NO. 6679 Page4 Believing that it is entitled to the refund of input VAT attributable to the above-declared zero-rated sales of electricity to NPC. petitioner filed four separate applications for refund of input VAT with the respondent on two occasions. The first two applications6 were made on October 1, 2001 , for input VAT paid for the first and second quarters of taxable year 2001 in the sum of P2.089,619.88 (P682,99l.08 + P1.406.628.80) . The second two applications were made on June 24, 2002 for input VAT paid for the third and fourth quarters of 200F in the total amount of P3.580,655.75 (Pl ,135.229.24 + P2.445.426.51 ). Petitioner's claim for refund is anchored on Section 108(8)(3) of the National Internal Revenue Code of 1997. The issue of whether the sale of electricity to the National Power Corporation (NPC) qualifies as a sale of services subject to VAT at zero-percent rate (0%) has already been resolved by this Court in favor of the independent power producer, such as petitioner. in a number of cases. The recent decisions regarding the matter are Mirant Pagbilao Corporation [Formerly Southern Energy Quezon, Inc. ], vs. Commissioner of Internal Revenue, CTA Case No. 6417, August 31 , 2005 and Kepco Philippines Corporation vs. Commissioner of Internal Revenue, CTA Case No. 6287, August 31 . 2005. The governing law is Section 108(8)(3) of the National Internal Revenue Code in relation to Section 13 of Republic Act No. 6395 {The Revised NPC Charter) , as amended by Presidential Decree Nos. 380 and 938. To quote: "SEC. 108. Value-added Tax on Sole of Services and Use or Lease of Properties. -- " (A) Ra te and base of tax.- 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 perc ent (0%) rate: 6 Exhibits G & H 7 Exhibits I & J

DECISION C .T.A. CASE NO. 6679 Poge5 "(1) XXX "(2) XXX ''(3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate. (Emphasis suppfied} "Section 13. Non-profit Character of the Corporation, Exemption from All Taxes, Duties, Fees, Imposts and Other Charges by the Government and Government Instrumentalities. - The Corporation shall be non-profit and shall devote all its returns from its capital investments. as well as excess revenues from its operation, for expansion. To enable the Corporation to pay its indebtedness and obligations and in furtherance of effective implementation of the policy enunciated in Section one of this Act, the Corporation, including its subsidiaries, Is hereby declared exempt from the payment of all forms of taxes, duties, fees, Imposts as well as costs and service fees Including filing fees, appeal bonds, supersedeas bonds, In any court or administrative proceedings." (Emphasis supplied}. Clearly from the foregoing. NPC is an entity with a special charter. which categorically makes it exempt from payment of all taxes, whether direct or indirect. including VAT. Hence. by virtue of the said charter, services rendered by a VAT registered entity, like herein petitioner. to NPC are effectively subject to zero percent (0%) VAT.S Moreover, in the case of Macedo vs. Macaraig, Jr., 223 SCRA 217, the Supreme Court affirmed NPC's tax exemption. thus: " A chronological review of the NPC laws will show that it has been the lawmaker's intention that the NPC was to be completely tax-exempt from all forms of taxes - direct or indirect. XXX XXX XXX One common theme in all these laws is that the NPC must be enabled to poy its indebtedness which, as of P.D. No. 938 was P12 Billion in total domestic indebtedness, at any one time, and US$4 Billion in total foreign loans at any one time. The NPC must be and has to be exempt from all forms of taxes if this goal is to be achieved. " Further. that petitioner filed and was granted by respondent an Application for Effective Zero-Rating for its sale of electricity to the NPC for the taxable year 2001 , is among the stipulated facts by the parties. Thus, petitioner's sale of electricity to NPC is subject to VAT at zero-perc ent (0%). However, before petitioner may be entitled to the claim for refund, it must

DECISION C.T.A. C ASE NO . 6679 Poge6 substantiate its claim by compliance with the requisites laid down by law and its implementing rules and regulations: (1) Section 112(B) of the 1997 Nationallntemal Revenue Code which provides: SEC. 112. Refunds or Tax Credits of Input Tax. - (A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the soles were mode, apply for the issuance of a tax credit certificate or refund ot creditable input tax due or paid attributable to such soles. except transitional input tax. to the extent thai such input tax has not been applied against output tax: Provided. however. That in the case of zero- rated sales under Section I 06(A)(2)(a)( 1). (2) and (B) and Section I 08 (B)(l) and (2). the acceptable foreign currency exchange proceeds !hereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided. turther, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales. (2) Sections 4.1 06-1 of Revenue Regulations No. 7-9 5 which states: "SEC. 4.106-1. Refunds or tax credits of Input tax. - (a) Zero-rates sales of goods and properties or services - Only a VAT-registered person may be given a tax credit certificate or refund of VAT paid corresponding to the zero-rated sales of goods, properties or services. excluding the presumptive input tax and to the extent that such input tax has not been applied against the output tax. The application should be made within the two (2) years after the close of the taxable quarter when the sales were made. XXX XXX XXX (3) Section 4.104-5 of Revenue Regulations No. 7-95 quoted hereunder. "SEC. 4.104-5. Substantiation of claims for Input tax credit. - (a) Input taxes shall be allowed only if the domestic purchase of goods, properties or services is made in the course of trade or business. The input tax should be supported by an invoice or receipt showing the information as required under Section 108(a) and 238 of the Code 'XXX'. In the case of Mirant Pagbi/oo Corporation [Formerly Southern Energy Quezon, Inc.] vs. Commissioner of Infernal Revenue. CTA Case No. 6417, August 31, 2005. this Court had the opportunity to again enumerate the requirements in order ����-- - ��- -�� - - � - - � � - - - - - - - - - - - - -- - - - - -- - 8 Kepco Philippines Corporation ~- Commissioner ofInternal Revenue, CTA case No. 6287, August 31, 2005

DECISION C.T. A. C ASE NO. 6679 Page 7 to be entitled to the refund of input VAT on purchases of goods and services attributable to zero-rated sales: 1. Both the administrative and judicial claims for refund were filed within the two year prescriptive period; 2. The claimed input VAT payments are directly attributable to zero-rated sales; 3. The claimed input VAT payments are duly supported by VAT invoices or official receipts and; 4. The claimed input VAT payments were not applied against any output tax carried over to the succeeding month (s). Were the administrative and judicial claims for refund filed within the two- year prescriptive period? For purposes of computing the two-year prescriptive period. the counting should be reckoned from the date of the filing of the corresponding original quarterly VAT return." The instant claim covers the four quarters of taxable year 2001. For the first quarter. petitioner merely presented its Amended Quarterly VAT Return. Without the presentation of the VAT return originally filed by petitioner for the said quarter. the Court cannot ascertain whether petitioner's claim for the 1'1 quarter in the amount of P682.99 1.08 was timely filed . Hence. the Court deems it proper to d isallow the amount of P682.99 1.08 from the total claim of P5.670.275.63. Anent the claims for the second and third quarters. records reveal that the corresponding original VAT returns were filed on July 25. 2001 and October 25. 200 1. respectively. Counting from these dates. petitioner had until July 25. 2003 and October 27. 200310 within which to file its claim for the said quarters both in the administrative and judicial levels. Since the administrative claim for refund was flied on October 1. 2001 for the 2nd quarter and June 24. 2002 for the 3rc1 quarter and the 9 Mirant Pagbllao Corporation [Formerly Southern Energy Quezon, Inc.] vs. Commissioner ofInternal Revenue, supra 10 October 25, 2003 being a Saturday

DECISION C.T.A. CASE NO. 6679 Page8 Petition for Review on April 22, 2003. the claims for refund for the 2nd and 3'd quarters in the respective amounts of P1,406.628.80 and P1,135.229.24 fall within the two-year prescriptive period. Regarding the claim for the 41h quarter in the amount of P2.445,426.51 , petitioner presented its amended VAT return filed on February 20, 2002. Unlike the claim for the first quarter, the submission of the original VAT return is no longer necessary because even if petitioner filed its 4 tt1 quarterly VAT return earlier than the supposed date of filing. which is January 25. 2002. the same falls within the two-year period. Based on the foregoing, petitioner partially complied with the first requirement. Were the claimed input VAT payments directly attributable to zero-rated sales? As to the second requisite, petitioner presented in evidence the Rehabilitation. Operation. Maintenance and Management Agreement between the National Power Corporation and Korea Electric Power Corporation and the Accession Undertaking of petitioner11� Petitioner likewise presented the various official receipts it issued to the National Power Corporation as follows: ExhlbH Date Issued Amount 0 3/7/2001 p 74.805.719.27 74.809.416.27 0-1 4/6/2001 74,783.865.75 67.339.449.22 0 -2 6/5/2001 72.324.894.68 74.432.437.9 1 0-3 5/4/2001 72.253.521 .24 74. 713.164.44 0-4 7/4/2001 73.9 18.480.44 71 .483.260.05 0-5 8/7/2001 � f730 864 209.27 0-6 9/6/2001 0 -7 10/8/2001 0-8 11/7/2001 0-9 12/5/200 1 Total 11 Exhibits K & K-1

DEC ISIO N C.T.A CASE NO. 6679 Poge 9 * Two official receipts (Exhibits 0-10 & 0-11) are denied for dates were in 2002. In its Quarterly VAT Returns. petitioner declared zero-rated sales in the aggregate amount of P3.430.991 .402.16, broken down as follows: 1st Quarter p 647.453,136.79 2nd Quarter 846.401,571.38 3rd Quarter 827,3 16.739.27 4th Quarter Total 1'109,819 ,954.72 f3.430,191A02.1lt From the foregoing, it can easily be seen that petitioner failed to substantiate all its declared zero-rated sales. Hence, the Court is constrained to allocate the input taxes against the substantiated zero-rated sales. Petitioner's total claim for refund of P5,670,275.63 input VAT is attributable to zero-rated sales in the amount of P3.430,991.402.16. However. since petitioner was able to substantiate zero-rated sales in the aggregate amount of P730.864.209.27 then only an aliquot portion of the total input VAT thereto may be subject of a refund pursuant to Section 1I2 of the 1997 National Internal Revenue Code and Section 12 of Revenue Regulations No. 5- 87. computed as follows: Substantiated Zero-rated Sales p 730.864,209.27 Divided by Total Declared Zero-rated Sales P3.430,991 .402.16 Ratio of Substantiated Sales to Total Declared Sales 21.% Therefore. only 2 1% of the allowable input VAT may be a proper subject of a claim for refund. Were the claimed input VAT payments duly supported by VAT invoices or official receipts? Based on the findings of the commissioned independent CPA 12, the following amounts should be disallowed: 12 Exhibit p

DECISION C.T.A. CASE NO. 6679 Page 10 Annex Total Amount of Input VAT claimed A P5.670.275.64 � Invoices and/or statements of account and / or official receipts subject to overseas communication tax B (1 04.987.50) � Input VAT recognized for unpaid service Invoices and/or statements of accounts C (58.559 .23) � Erroneous amounts indicated in the Schedule of Input VAT as compared to related invoices or statements of account or official receipts resulting to net overstatement of the Input VAT Claim D ( 10.43 1.28) � Erroneous rate used for input VAT recognized and recorded in the books E 817.36 P5.497.114.99 Ukewise. after careful scrutiny, the Court also notes that the following input VAT payments in the sum of P199,993.55 were not duly supported by valid VAT invoices or official receipts in accordance with Section 4. 104-5 of Revenue Regulations No. 7-95 in relation to Sections 113 and 237 of the NIRC of 1997, to wit: Exhibit Supplier Reference Tax Input Number Base VAT (a) Purc hase of goods/services not In the name of KEPCO P-18-F Photoline Entrp OR 9884 p 105.50 p 10.55 P-18-N Allied Seal Auto Supply Sl252728 3,627.27 P-19-00 NE Measures OR 187 1.272.70 362.73 P-19-P Tanay Hardware & Const. 690.91 127.27 P-19-PP Hi-Octane Motorist Center Sl8196 398.20 69 .09 P-19-QQ Hi-Octane Motorist Center OR 38820 300.00 39.82 P-20-AA Ruvyrich Trading OR 01918 68.18 30.00 P-20-C MFTrading 127 .60 P-20-Z Ruvyrich Trading Sl 7704 540.91 6.82 P-21-B Allied Seal Auto Supply Sl12158 1.818.18 12.76 P-21-C Black Sea Marine Services Sl6602 1.318.18 54.09 P-23-K Christine Auto Supply 5125803 1 58 1.80 181.82 P-24-B Data Hardware 136.36 131.82 P-26-S Pililla Shell Rling Station Sl 646 528.00 58.18 P-26-T Pililla Shell Filing Station Sl 18315 539.00 13.64 P-26-U Pililla Shell Filing Station 5109890 550.00 52.80 P-28-ll Maya Parts Enterprises Sl 123686 1,927.30 53.90 P-28-S Robinson's Sl 123839 55.00 P-29-1 Pililla Shell Filing Station Sl 124254 81. 59 192.73 $1280324 454 .50 8.16 45.45 Sl 125489

DECISION C.T.A. CASE NO. 6679 Page II P-29-J Pililla Shell Filing Station Sl 125578 454.50 45.45 P-30-K Milwa ukee Builders Center 511113 54.09 5.41 P-32-AA CG&E Sh ell Service Sl32053 P-32-CC Shell Station 545.40 54.54 P-32-EE Cityfill Service Station Sl 4516/7179 1,272.80 127.28 P-33-CCC Allied Seat Auto Sl 171616 P-34 -A Hi-Octane Motorist C enter Sl 268762 181.80 18.1 8 P-35-AA MIA Caltex Sl34649 972.80 97 .28 P-35-S Alabang Gas &. Service Sl 221784 454.50 45.45 P-35-T Alabang Gas &. Service Sl 126540 454.50 45.45 P-35-X Gashouse Mdsg Sl 101467 181.80 18. 18 P-35-Y Ha rvard Service Center $180551 272.70 27.27 P-35-Z MS Petron Service Station Sl586131 636.40 63.64 P-38-FFF Gashouse Mdsg $1293345 454.50 45.45 P-38-GGG Gashouse Mdsg Sl 176027 636.40 63.64 P-38-HHH Goshouse Mdsg Sl191100 636.40 63.64 P-38-111 Harvard Service Center $156678 454 .55 45.46 P-38-WW Edsa/Boni Serv Ctr Sl 102067 454.55 45.46 P-38-XX Edsa/Boni Serv Ctr OR 572916 454.55 45.46 P-38-Z Caltex South Serv Rd OR 602281 P-40-A Allied Seat Auto 51549503 90.90 9.09 P-41-0 F. Fernando Auto Supply 51272409 454.50 45.45 P-41 -P NE Manzures Aircon Sl 200742 309.10 30.91 P-��41 -Q Powerway Mktg Sl2145 1.054.50 105.45 P-4 1-R Powerway Mktg 511910 P-42-C Bulawan Floating Restaurant Sl 1909 90.90 9.09 P-42-G Caltex Service Station OR I 734 272.70 27.27 P-42-QQ Goshouse Mdsg Sl 232803 P-43-HH Photo Shoppe &. Gen Mdse Sl 126666 90.90 9.09 P-43-NN Quisao Hardware Sl68293 3,31 8.30 331.83 P-43-00 Quisao Hard ware Sl16417 Subtotal Sl 15783 672.70 67.27 636.40 63.64 454.50 45.45 209 . 10 20.91 909.10 90.91 29.JQ ____..Q.9l p 32.271 .12 p 3.227.1 1 (b) Purchase of goods/services supp orted only by statement of account or billing statement P-18-B Globe Telecom Various P25.91l.10 p 2,591 . 11 P-18-MM PLOT 1900396537 30.452.30 3.045.23 P-18-S PLOT 5,181.60 518.16 P-20-A PLOT Various 5, 181.80 518.18 P-20�L Globe Telecom Various 4.701.90 470.19 P-21-BB Globe Telecom Various 6,317.70 631.7 7 P-21-G PLOT Various 35,852.90 3.585 .29 P-21-K Globe Telecom Various 24,869.30 2.486.93 P-23-D Fairways &. Bluewater Resort Various 109,090.90 10,909.09 P-23-1 PLOT 3,359.90 335.99 P-23-V PLOT Various 19,005.20 1.900.52 P-24-D Globe Telecom Various 6,802.20 680.22 P- 25-B PLOT Various 5.449.20 544.92 P-26-Y Globe Telecom Various 7.427.80 742.78 P-27-A PLOT Various 5,358.40 535.84 P-28-V Globe Telecom Various 26,530.70 2,653.07 P-29-F Globe Telecom Various 8.727.40 872.7 4 P-29-Y PLOT Various 5,592.00 559.20 P-31-H Globe Telecom Various 19,996.40 1,999.64 Various

DECISION C.T. A. CASE NO. 6679 Poge 12 P-3 1-II PLOT Various 3..'>,472.70 3,547 .27 P-32-B PI.DT Various 5,699.20 569.92 P-34-VV PLOT Various 5,479.20 547.92 P-37-B Globe Telecom Various P-37-FF PLDT Various 27,313.50 2,731.35 P-38-C Globe Telecom 21827836 5,479.00 547.90 P-41 -DD Eastern Telecoms 1,219.10 121.91 P-41-T PLOT Various 351.30 35.13 P-42-DD Eastern Telecoms Various 5.538..40 553.84 P-42-WW INFOCOM B-722493 2,878.70 287.87 P-42-XX INFOCOM B-681872 P-43-BB PLOT Various 30,000.00 3,000.00 P-43-CC PLOT Various 30,000.00 3,000.00 P-43-DD PLOT Various 130.050.00 13,005.00 P-43-EE PLOT Various 66,578.40 6,657.84 P-43-FF PLOT Various 48,025.60 4.802.56 P-43-J MAPFRE Asian Insurance SA 6750017 Subtotal 5,526.80 552.68 46,503.00 4,650.30 1~.7aZ.~Q p 818,711.10 J .~Z�.Z5 PB1 .871. 11 {c) Purchase of goods/services supported by NONVAT invoice, TAN official receipt P-31-�PP Caltex North Point Sl 036571 p 450.50 p 45.45 P-26--LL Fifipinas Fabricators & Sales OR985 Subtotal 120.788.20 12,078.82 p 121.242.70 p 12,124.27 Total p 2Z2 224.~2 P ~z 222.4~ Out of the total claimed input VAT payments of P5,670,275.63, only the amount of P4. 716.901.41 are fully substantiated for VAT purposes. computed as follows: Total Claim for Refund P5,670,275.63 Less: Disallowances 953,374.22 ~~Z16 701.41 (a) Per commissioned independent CPA's verification Pl73, 160.65 780.213.57 (b) Per Court's further verification i. Without Original Quarterly VAT Return P682,991.08 fi. Invalid documents for VAT purposes -'!Z.222...49 Validly Supported Input VAT Were the claimed input VAT payments unapplied against any output tax carried over to the succeeding month{s}?

DECISION C.T.A. CASE NO. 6679 Poge 13 Petitioner deducted from the total available input VAT the claim for refund for the first and second quarters of taxable year 2001 in the sum of P2,089,619.88 as shown in its second Quarterly Value-Added Tax Return for taxable year 2002.13 likewise, the claim for refund for the third and fourth quarters of taxable year 2001 in the total amount of P3,580,655.75 was deducted from the total available input VAT as shown in petitioner's 3rd Quarterly VAT Return for taxable year 2002.14 Thus, petitioner was able to fully establish that the input taxes remained unapplied against any output tax. In fine, the Court finds petitioner to have sufficiently proven its claim in the amount of P990,549.30, computed as follows: Validly Supported Input VAT P4,716,90l.41 Multiply by Ratio of Substantiated Sales to Total Declared Sales Refundable Amount With regard to petitioner's claim for attorney's fees and cost of suit the same cannot be granted. Although as a general rule the prevailing party as a matter of course shall be allowed to recover costs, Section I of Rule 142 of the Revised Rules of Court, provides that no cost shall be adjudged against the Republic of the Philippines unless otherwise provided for by law. The Court hereby finds that there is no basis in law for the claim of attorney's fees and costs prayed for by petitioner. WHEREFORE, petitioner's claim for refund is PARTIAllY GRANTED. Respondent is hereby ORDERED to REFUND the petitioner the reduced amount of ?990,549.30 representing unutilized input value-added tax for taxable year 2001 . SO ORDERED. Q.z-"'-~ ERNESTO D. ACOSTA Presiding Justice 13 Exhibit L H ExhibitM /' { l

DECISiON C.T.A. CASE NO. 6679 Page 14 WE CONCUR: ssociate Justice CAESAR A. CASANOVA Associate Justice CERTIFICATION I hereby certify that the above decision was reached after due consultation with the members of the Division of the Court of Tax Appeals in accordance with Section 13. Article VIII of the Constitution. LL- ~ ~ ~ ERNESTO D. ACOSTA Chairperson, First Division Presiding Justice