TAGANITO MINING CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

;- REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY TAGANITO MINING CORPORATION, Petitioner, -versus- C.TA. CASE NO. 5634 COMMISSIONER OF INTERNAL REVENUE, Promulgated: Respondent. --fEB04 X - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -X DECISION This is a petition for review filed by Petitioner TAGANITO MINING CORPORATION against respondent COMMISSIONER OF INTERNAL REVENUE for the failure of the latter to act on the former's claim for refund in the amount of P7,402, 155.24 allegedly representing its Value-Added Tax (VAT) paid on its domestic purchases of goods and services for the period January 1 to December 31, 1996. As represented, petitioner is a corporation duly organized and existing under the laws of the Republic of the Philippines. It is engaged in the business of exploring, producing and exporting beneficiateQ Jickel silicate ores and chromite ores found in Parcel One of the Surigao Mineral Reservation Area in the municipality of Claver, � Surigao del Norte. It is registered with the Bureau of Internal Revenue as a VAT taxpayer in accordance with Section 107 of the then National Internal Revenue Code and the applicable rules and regulations (Exh. D) and is also registered with the Board of

DECISION- CTA CASE NO. 5634 PAGE2 Investments (BOI) as a non-pioneer enterprise under BOI Certificate No. EP 88-306 (Exh. A). For the period January 1, 1996 to December 31, 1996, petitioner alleges that it realized zero-rated sales amounting to TWO HUNDRED AND FORTY MILLION SEVENTY-ONE THOUSAND FIVE HUNDRED AND FOURTEEN PESOS (P240,071,514.00) which were paid for in acceptable foreign currency inwardly remitted to the Philippines and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). For the same period, petitioner made numerous domestic purchases and importations of goods and services, which were directly related to its mining operations, the alleged total of which is SEVENTY FOUR MILLION TWENTY ONE THOUSAND FIVE HUNDRED SIXTY SIX AND 261100 PESOS (P74,021,566.26), and had paid VAT input taxes on said domestic purchases and importation of goods and services in the total amount of SEVEN MILLION FOUR HUNDRED TWO THOUSAND ONE HUNDRED AND FIFTY FIVE AND 24/100 PESOS (P7,402,155.24). The aforesaid zero-rated export sales, domestic purchases and importations of taxable goods and services and VAT Input Taxes are summarized hereunder: Period Covered Zero-rated Domestic Purchases/ VAT Input Export Sales Importation of Taxable Taxes Goods/Services 01101/96-03/31/96 p 33,650,734.50 p 5,139,933.10 p 513,993.31 04/01/96-06/30/96 40,811,068.29 6,563,068.86 656,306.86 07/01/96-09/30/96 79,706,054.65 9,713,030.70 971,303.07 10/01/96-12/31/96 85,903,657.00 52,605,533.60 5,260,552.00 TOTAL P240,071,514.44 ?74,021,566.26 P72402,155.24 J

i DECISION- CTA CASE NO. 5634 PAGE3 The corresponding VAT returns comprising the aforestated quarters were filed with and received by the respondent on the dates imprinted in the said returns (Exhs. E, F, G, H, I and J). Petitioner asseverates that since the aforestated VAT Input taxes were all directly attributable to its zero-rated export sales and have not been applied to any VAT output tax liability during the period January 1, 1996 to December 31, 1996, or to any succeeding quarter or quarters of the taxable year 1996 (Exhs. L, M, N and 0), and considering further that they are properly supported by sales invoices and/or official receipts issued by its suppliers (Exhs. V to V-2268), it is entitled to a refund of the aforementioned VAT input taxes in accordance with Section 106 (now 112) of the National Internal Revenue Code (NIRC). Thus, on April 7, 1998, petitioner filed with respondent a written claim for refund of the aforesaid VAT input taxes in the amount ofP7,402,155.24 (Exhs. P and P-1). The same was not acted upon by respondent, hence, on April 17, 1998, petitioner filed with this Court the instant petition for review. In his Answer filed on May 30, 1998, respondent interposes, in his special and affirmative defenses that: ( 1) the petition states no cause of action as it does not allege the date/s when the taxies sought to be refunded were actually paid, (2) petitioner's claim for refund of alleged excess value added input taxes is yet subjected to and still under administrative investigation, (3) petitioner failed to show compliance to the provisions in Section 16(c)(3) of Revenue Regulations No. 5-87 as amended by Revenue Regulations No. 3-88, (4) the input taxes allegedly paid on its local purchases are not supported by

DECISION- CTA CASENO. 5634 PAGE4 invoices pursuant to Section 108 of the Tax Code, (5) claims for refund are construed strictly against claimants, the same being in the nature of exemption from taxes, and (6) one who claims to be exempt from the payment of a particular tax must do so under clean and unmistakable terms found in the statute which is not so in the instant case. Thus, respondent prays for the dismissal of the instant petition for lack of merit. Taking into account CTA Circular No. 1-95, petitioner engaged the services of Mr. Leonardo Cuaresma, Jr. of the auditing firm, Punongbayan & Araullo, to verify and certify on the herein petitioner's claim for refund. Mr. Cuaresma recommended the disallowance of the amount of P187,118.48 due to non-compliance with invoicing requirements (Exh. U-5-a) and since the total VAT input taxes duly supported by sales invoice and/or official receipts per his verification totalled onlyP7,400,407.48 (Exh. U-4- a), he recommended the refund of the amow1t ofP7,213,289.00. The issue for resolution is whether or not petitioner is entitled to the refund of P7,213,289.00 allegedly representing its unutilized VAT input taxes for the year 1996. Initially, it must be pointed out that petitioner has complied with the prescriptive period provided under Section 106 (now 112) in relation to Sections 110 (now 114) and 230 (now 229) of the Tax Code. It filed its administrative claim for refund with the respondent's Bureau on April 7, 1998 (Exh. P) and with this Court on April 17, 1998. Both dates fall within the two-year prescriptive period counting from April 18, 1996, the date when the first Quarterly VAT return of petitioner was filed with the respondent (Exh. E), hence, there is no question as to the timeliness of the instant petition. The Court finds no obscurity in the language of Section 100(a)(l ) [now 106 (A)(2)(a)] of the Tax Code, quoted below, that would pose an ambiguity in its

DECISION- CTA CASE NO. 5634 PAGE 5 application. The provision itself furnishes the best means of its own exposition that the export sales of a VAT registered person which are paid for in acceptable foreign currency inwardly remitted to the Philippines and accounted for in accordance with existing rules and regulations of the BSP is not subject to 10% VAT but to a 0% VAT. In other words, evidence as to its registration as VAT entity and the actual export such as sales invoices, bank credit memoranda, export declarations and export permit are necessary to be considered zero-rated. SEC. 100. Value-added tax on sale ofgoods. - (a) Rate and base of tax. - There shall be levied, assessed and collected on every sale, barter or exchange of goods, a value-added tax equivalent to I 0% of the gross selling price or gross value in money of the goods sold, bartered, or exchanged, such tax to be paid by the seller or transferor: Provided, That the following sales by VAT-registered persons shall be subject to 0%: (1) Export sales; and (2) X X X "Export Sales" means the sale and shipment or exportation of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported, or foreign currency denominated sales. "Foreign currency denominated sales", means sales to nonresidents of goods assembled or manufactured in the Philippines, for delivery to residents in the Philippines and paid for in convertible foreign currency remitted through the banking system in the Philippines. XXX XXX XXX Evidence on record shows that petitioner complied with the aforesaid requirement when it presented its VAT Registration Certificate (Exh. C) and the Export Sales Invoices, Bank Credit Memoranda, Bills of Lading and Export Declarations (Exhibits W,

DECISION- CTA CASE NO. 5634 PAGE6 W-1 to W-49), hence, doubt as to the status of the petitioner as a zero-rated VAT enterprise is eliminated. Moreover, Section 106(a) [now 112(A)] of the Tax Code, quoted hereunder, is explicit that the input tax attributable to the goods exported by a VAT-registered person is refundable/creditable to the exporter provided such has not been applied to any output tax and upon presentation of proof that the foreign exchange proceeds has been accounted for in accordance with the rules and regulations of the BSP, thus, the right to claim refund of VAT input taxes by an exporter who is a VAT registered person is not dubious. Section 106. Refunds or tax credits of creditable input tax. - (a) 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: Provided, however, That in the case of zero-rated sales under Section lOO (a)(2)(A)(i),(ii) and (b) and Section 102(b)(l ) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, 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 properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the 'l transactions, it shall be allocated proportionately on the basis of the volume of sales. XXX XXX In the case at bar, since petitioner was able to show (1) that it is indeed a zero-rated VAT enterprise, (2) that its export sales for the taxable year 1996 were properly supported by sales mvmces, Bank Credit Memos, Bills of Lading and Export Declarations (Exhs. W, W-1 to W-9), (3) that it received the total amount of 21 �I

DECISION- CTA CASE NO. 5634 PAGE 7 P235,971,179.74 as inward remittance/payment of its importers of its products during the year 1996 (Exhs. W-2, W-7, W-12, W-18, W-23, W-29, W-34, W-40 and W-46), (4) that it did not carry over the input taxes of the taxable year 1996 to the quarters of 1997 (Exhs. L, M, N and 0), (5) that said input taxes have not been applied to any VAT output tax, (6) that the said input taxes are properly supported by sales invoices and/or official receipts issued by petitioner's suppliers, as certified by the Auditing Firm,Punongbayan & Araullo (Exhs. U, V to V-2268), and considering that respondent did not submit any documentary evidence to support its case on the ground that the records of the case have not been forwarded to him (TSN, July 20, 1999) and considering further the uncontroverted evidence of the petitioner, the Court was persuaded to grant the relief sought by petitioner but in a lesser amount due to an additional disallowance by the Court ofP183,716.57 again on reasons of violations of invoicing requirements, the details ancl the breakdown of which are stated below: REASON FOR THE PER PER TOTAL INDEPENDENT COURT'S DISALLOWANCE VER1FICA TION CPA'S (I) Non-vat sales invoices/official VERJFICATJON p 48,157.45 p 58,683.69 13,491.59 179,710.74 receipts p 10,526.24 (2) Purchases with no supporting 166,219.15 3,632.32 12,032.41 documents 8,400.09 8,434.92 307.50 (3) Sales invoices/official receipts 307.50 108,287.38 665.50 665.50 not in the name ofTaganito 1,712.91 8,434.92 Mining Co. (4) Sales invoices/official receipts . �: not within the period ofclaim 108,287.38� ' (5) Recorded twice (6) Sales invoices/official receipts 1,712.91 with Handwritten TIN (7) Sales invoices/ official receipts without TIN or "V" I VAT after TIN (8) Official receipts without BIR Permit

DECISION- CTA CASE NO. 5634 PAGE 8 (9) Overstated Input tax (a) Per summary P1,395,607.00 Per sales invoices/ official receipts 1,394,607.00 I 000.00 1,000.00 TOTAL p 187.118.48 p 183.716.57 p 372.582.81 (see Annex A) Accordingly, the total allowable input taxes that should be granted to petitioner as a refund or as tax credit should only be P7,029,572.43, computed as follows: AMOUNT OF CLAIM P7,402,155.24 p 372,582.81 LESS: DISALLOWANCES (a) Discrepancy of input taxes claimed Amount appearing in the Petition for Review and VAT returns P7,402, 155.24 Input taxes per petitioner's summary (Exh. U-4-a) 7,400,407.48 p 1,747.76 187,118.48 (b) Per Independent CPA (Exh. U-5-a) 183,716.57 (c) Per Court's verification (Annex A) AMOUNT REFUNDABLE P7.029.572.43 IN THE LIGHT OF ALL THE FOREGOING, respondent is hereby ORDERED to REFUND or ISSUE a TAX CREDIT CERTIFICATE in favor of herein petitioner in the amount of P7,029,572.43 representing the latter's VAT input taxes for the taxable year 1996. No pronouncement as to costs. SO ORDERED.

DECISION- CTA CASE NO. 5634 PAGE9 WE CONCUR: - ERNESTO D. ACOSTA Presiding Judge ;-' fl. /"'it: MON 0. DE Associate Judg CERTil"'ICATION I hereby certify that the above decision was reached after due consultation with the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. (9- ERNESTO D. ACOSTA Presiding Judge 2dG

TAGANITO MINING CORPORATION VS. CIR ANNEXA CTA CASE NO. 5634 SCHEDULE OF COURT'S DISALLOWANCES ON CLAIMED EXCESS INPUT TAXES FOR THE PERIOD JANUARY 01, 1996 TO DECEMBER 31, 1996 (1) SALES INVOICES/OFFICIAL RECEIPTS WITH HANDWRITTEN TIN SUPPLIER EXHIBIT REFERENCE INVOICE INPUT AMOUNT VAT GEN. PARTS SUPPLY NEW & SECONDHAND V2033 353 21,780.00 1,980.00 V2034 362 5,530.03 502.73 V2035 1125 V2121 1123 15,794.02 1,435.82 V2123 371 7,260.00 660.00 V2122 370 V2238 375 14,520.00 1,320.00 26,000.04 2,363.64 1,900.03 172.73 SUBTOTAL p 92,784.12 p 8,434.92 ). (2) SALES INVOICES/OFFICIAL RECEIPTS WITHOUT TIN OR "V"/"VAT" AFTER TIN SUPPLIER EXHIBIT REFERENCE INVOICE INPUT AMOUNT VAT ASIAN SHIPPING CORPORATION V53 4780 VOCOM ENTERPRISES V1244 213 831,875.00 75,625.00 V1244 212 4,499.99 409.09 TONG YAK GROCERY & GEN. MDSE V1373 214 V1723 002 27,000.05 2,454.55 TO SUY HARDWARE V108/109 2471 21,199.97 1,927.27 FJT MARKETING & GEN.MDSE. V462/463 2485 163,999.99 GEN. PARTS SUPPLY NEW & SECONDHAND V464/465 2486 14,9o9.R9 V523/524 2499 8,400.04 V311 71814 22,499.95 763.64 V1314 362 2,045.4q V1417 1544 8,400.04 V1544 1501 13,049.96 ., V2236 1126 V2237 379 502.04 7(i.4 V2238 380 7,260.00 8,960.05 1,186.36 18,322.04 ' (); 24,232.01 45.()4 16,110.05 660.00 14,850.00 814.55 SUBTOTAL p 1,191,161.18 p 1,665.64 2,202.91 1,464.55 �1,350.00 .. 108,287.38 ' \ . . �. '�.

: (3) PURCHASES WITHOUT SUPPORTING DOCUMENTS SUPPLIER EXHIBIT REFERENCE INVOICE INPUT AMOUNT �' PILIPINAS SHELL PETROLEUM CORP. VAT MONARCK EQUIPMENT CORP. 2,020.59 146,386.90 183.69 SUBTOTAL p 13,307.90 148,407.49 p 13,491.59 (4) NON-VAT SALES INVOICES/OFFICIAL RECEIPTS SUPPLIER EXHIBIT REFERENCE INVOICE INPUT K-3 CENTER POINT AMOUNT VAT V811 9553 VOCOM ENTERPRISES V811 9552 276.98 25.1b V811 9551 2,006.95 182.45 V812 9593 3,289.55 299.05 V812 9696 1,320.00 120.00 V812 9697 1,397.99 127.09 V812 9792 V813 9926 176.77 16.07 V2037 004 859.98 78.18 V2037 005 545.71 49.61 V2038 006 163,999.99 14,909.09 V2038 007 5,757.95 523.45 4,100.03 3�72.73 346,000.05 31,454.55 SUBTOTAL p 529,731.95 p 48,157.4 ... (5) SALES INVOICES/OFFICIAL RECEIPTS NOT IN THE NAME OF TAGANITO MINING CORPORATION . . ., SUPPLIER EXHIBIT REFERENCE INVOICE INPUT AMOUNT VAT RCPI V915 824346 39.16 ? ,, ., V1028 820843 11.00 PRESTIGE JEWELRY CENTER V1029 838954 34.54 !� 13.5 MERCURY DRUG CORP. V1119 49261 771.98 1.00 PALMA TRADE CENTER V1357 111223 76.45 3.14 HI-TECH HEARING CENTRE INC. V1362 20349 110.00 E.G. NICKEL DRUG V1371 36,000.03 70.18 SURIGAO LKS MERCANTILE, INC. V1726 0524 497.64 6.t9, 5. V1724 321589 398.97 PATES ENTERPRISES V1725 29437 246.95 10.QR V1725 27637 73.81 3,272.7 SUBTOTAL V1734 27903 825.00 V1734 869.99 45.4 1111 36.27 1150 39,955.52 p 22.45 p 6.71 75.00 79.09 ti 3,632.32 j:. �) :l L !J\

r (6) OFFICIAL RECEIPTS WITHOUT BIR PERMIT SUPPLIER EXHIBIT REFERENCE INVOICE INPUT AMOUNT VAT FJT MARKETING & GEN.MDSE. V1656 886 FJ MARKETING V1908 1559 1,900.03 172.73 V1909 1560 10,890.00 990.00 550.18 SUBTOTAL p 6,051.98 1,712.91 18,842.01 p TOTAL p 2,020,882.27 p 183,716.57 'I ., .