PHIL. BEST CANNING CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

� REPUBLIC OF THE PHILIPPINES Court of Tax Appeals QUEZON CITY Special Second Division PHIL. BEST CANNING CTA CASE N0.10505 CORPORATION, Petitioner, Members: -versus- RINGPIS-LIBAN, P.J., Chairperson, MODESTO-SAN PEDRO, and FERRER-FLORES, JJ COMMISSIONER OF INTERNAL REVENUE, Promulgated: Respondent. JAN X ----------------------------------------------------------------------------------- --------------------------------- X MODESTO-SAN PEDRO, J.: The Case The instant case involves a claim for refund of petitioner's alleged excess and/or unutilized input value-added tax ("VAT") arising from its domestic purchases of goods and services attributable to zero-rated transactions and purchases/importations of capital goods for the 15 2nd, 3rct \ and 4th quarters of taxable year ("TY") 2018 in the total amount of Php65,400,720.72. 1 The Parties Petitioner is a domestic corporation duly organized and existing under the laws of the Philippines. It is engaged in the business of processing, packing, and selling fish and other products for local and export markets. Petitioner is registered with the Bureau of Internal Revenue ("BIR") as a VAT taxpayer with Taxpayer Identification Number ("TIN") 005-735-785-000 and with BIR Certificate of Registration No. 2RCOO 1862621 issued by BIR~ 1 See Summary ofthe Case, Pre-Trial Order, Records, p. 333.

------~ DECISION CTA Case No. I0505 Revenue District Office No. 110. It is also registered with the Board of Investments ("BOI") as an Expanding Export Producer of Processed/Canned Fish and Fish Meal (by product) under Certificate of Registration No. 2013- 063, dated March 8, 2013.2 Meanwhile, respondent is the duly appointed Commissioner of Internal Revenue ("CIR") empowered to perform the duties of the said office, including, among others, the power and authority to decide, approve, and grant applications/claims for refund and/or issuance of tax credit certificate ("'TCC") of erroneously paid or overpaid taxes, as provided by law, particularly the National internal Revenue Code, as amended ("NJRC ''). He holds office at the BIR National Office Building, BIR Road, Diliman, Quezon City.3 The Facts As reflected in petitioner's 1st to 4th quarter VAT return forTY 2018,4 it is claiming that it has unutilized input VAT in the amount of Php65,400,720.72. Petitioner filed on July 15, 2020 its administrative claim for the refund of its accumulated (excess) input tax arising from zero rated sales with the BIR's VAT Credit Audit Division ("VCAD").5 On February 26, 2021, petitioner received a VAT Refund Notice, dated October 2, 2020, from respondent, effectively denying its administrative claim for VAT refund.6 The same provided, as follows: VAT Refund Claimed Php65,400, 720.72 Deductions from Claim: Php (15,51 0,076.33) Disallowed input on local purchases in violation of invoicing (22,762,202.0 1) requirements pursuant to Section 113 of the National Internal Revenue Code, as amended, ("NJRC '') Annex A.1 -------------/ ~ See Stipulation of Facts, Pre-Trial Order, Records, pp. 333-334; Exhibits "P-3", "P-4" and "P-5". Records, p. 12. 4 Exhibits "P-6" to "P-9". Exhibits ''P-10", "P-11" and "P-12"; Records, p. 13. 6 Exhibit "P-1 "; Records, pp. 13-14.

DECISIO~ (7,706,133.72) (267,50 1.34) CTA Case No. I 0505 Page 3 of 13 (6,720,757.06) ( 1,846, 786.83) Discrepancy between the amount of claim and its supporting schedule (453,684.12) Additional outp_ut tax per audit (355,681.50) Deferred input tax on current (14,558,004.78) purchases ofcapital goods exceeding Php1 million (Annex A.3) (25,000.001 Disallowed input tax on purchases of (90,321.17) capital goods exceeding Php1 Ph_p (70,296, 11 0.86) million from prior period (Annex Php (4,895,390.14) A.4) Discrepancy in 2018 available input tax net of output tax v. amount of 2018 claim Unaccounted input tax on services rendered to non-residents Output VAT on exempt sales subjected to 12% VAT rate Ill violation of invoicing requirements pursuant to RR No. 16-2018 in relation to Section 113 of NIRC of 1997, as amended, including other VATable transactions classified as exempt (Annex A.5) Compromise penalty Input tax attributable to exempt sales and unremitted export sales (Annex A.6} Total Deductions from Claim Excess Deductions from Claim Following such denial of its administrative claim, petitioner filed the instant Petition for Review ("Petition") before this Court on May 17, 2021.7 As such, on February 20, 2023, Summons were issued to respondent to file an Answer to the Petition.8 Respondent then filed an Answer on April20, 2023. 9 Accordingly, on April 26, 2023, a Notice of Pre-Trial Conference was issued setting a Pre-Trial Conference.v-- 7 Records, pp. 11-203. 8 /d., pp. 215-216. 9 /d., pp. 222-230. 10 !d., pp. 231-232.

DECISION CTA Case No. I0505 On May 2, 2023, respondent filed his Pre-Trial Brief. 11 He also submitted on May 8, 2023 the Judicial Affidavit of Revenue Officer ("RO") Orlando B. Torre. 12 On same date, respondent elevated the BIR Records. 13 Then, on October 20, 2023, petitioner filed its Pre-Trial Brief. 14 Subsequently, on October 24,2023, Pre-Trial ensued. 15 Petitioner, on November 28, 2023, filed a Motion to Commission Ms. Jennifer Porsuelo as Independent Certified Public Accountant ("ICPA"). 16 On February 27, 2024, Ms. Porsuelo was placed on the witness stand to testify on her qualification as ICPA for the instant case. She was subsequently commissioned as such by this Court. In the same hearing, petitioner's main witnesses, Romel B. Eyoy and Jixseylo C. Portacion, were also placed in the witness stand. 17 The parties filed Manifestations that they were not able to come up with a Joint Stipulation of Facts and Issues due to distance constraints. 18 This Court then issued a Pre-Trial Order on February 27, 2024}9 On May 17, 2024, the Ms. Porsuelo submitted her ICPA Report. 20 On July 4, 2024, Ms. Porsuelo testified in relation to the ICPA Report.21 After this, on June 24, 2024, petitioner filed its Formal Offer of Documentary Evidence,22 to which respondent interposed no objections.23 In a Resolution, ..da1cfA.ugust 1, 2024, this Court admitted all of petitioner's Exhibits.Y II fd., pp. 233-237. 12 Exhibit "R-6"; Records, pp. 238-276. 13 Records, pp. 277-280. 14 !d., pp. 287-292. 15 !d., pp. 293-295. 16 !d., pp. 296-304. 17 !d., pp. 328-331. 18 /d.,pp.311-314. 19 !d., pp. 332-337. 10 Exhibit "P-16" to "P-18"; !d., pp. 343-347. 21 !d., pp. 349-351. 12 !d., pp. 358-380. 13 !d., pp. 381-384. 24 !d., pp. 398-399.

DECISION CTA Case No. I0505 Respondent presented his witness, RO Torre, on October 1, 2024.25 He then filed his Formal Offer of Evidence on October 4, 2024.26 In a Resolution, dated November 29, 2024, this Court admitted all of respondent's Exhibits.27 On January 10, 2025, respondent filed his Memorandum.28 Meanwhile, petitioner filed its Memorandum on January 16, 2025.29 Thus, in a Resolution, dated January 21,2025, the instant case was submitted for Decision.30 Hence, this Decision. The Issue31 Whether or not petitioner is entitled to a refund of its unutilized input VAT arising from purchases of goods and services attributable to zero-rated sales and purchases/importations of capital goods amounting to Php65,400,720.72 forTY 2018. Arguments of the Parties Petitioner's Arguments32 Petitioner avers that it is entitled to a refund of excess and unutilized input VAT. Petitioner posits the following arguments: The invoicing requirements pursuant to Section 113 of the NIRC was duly complied with in relation to its invoices and official receipts; and The ded~on of 12% Output VAT against the unutilized input VAT is not proper/"'"" 25 !d., pp. 396-397. 26 !d., pp. 390-395. 27 !d., p. 403. 28 /d.,pp.405-415. 29 !d., pp. 418-427. 30 Records. 31 See Issue, Pre-Trial Order, Records, p. 334. 32 Records, pp. 420-424.

DECISION CTA Case No. 10505 Respondent's Arguments33 In refutation, respondent alleges that the instant Petition must be dismissed for failure of petitioner to substantiate its administrative claim for refund. Decisions rendered by administrative bodies like the BIR are given great weight by the Court. Petitioner failed to prove before this Court that it is indeed entitled to a VAT refund amounting to Php65,400,720.72 covering the 1st to 4th quarters ofTY 2018. The Ruling of the Court The instant Petition is DENIED for lack of merit. Requisites for claiming unutilized input VAT attributable to zero-rated sales. The provision that governs the present claim for refund of excess and/or unutilized input VAT attributable to zero-rated sales is Section 112 (A) and (C) ofthe NIRC, which reads: SEC 112. Refunds or Tax Credits oflnput 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, applyfor the issuance ofa tax credit certfficate or refimd ofcreditable 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 106(A)(2)(a)(l), (2) and (b) and Section 108 (B)(l) and (2), the acceptable foreign currency exchange proceeds thereofhad been duly accountedfor in accordance with the rules and 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 of 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(B) (6), the input taxes shall be allocated ratably between his zero-rated and non-zero-rated sales. (B) ... (C) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the Commissioner shall grant a refund for creditable input taxes within ninety (90) days.fi'om the date ofsubmission,......-- 33 !d, pp. 406-412.

DECISIO:\ CTA Case No. I0505 of the official receipts or invoices and other documents in support of the application filed in accordance with Subsections (A) and (B) hereof Provided, That should the Commissioner find that the grant of refund is not proper, the Commissioner must state in writing the legal and factual basis for the denial. In case offull or partial denial of the claim for tax refund, the taxpayer affected may, within thirty (30) days.fi'om the receipt ofthe decision denying the claim, appeal the decision with the Court of Tax Appeals: Provided, however, That failure on the part of any official, agent, or employee of the BIR to act on the application within ninety (90) days period shall be punishable under Section 269 of this Code. (Italics, Ours.) Based on the foregoing provisions, jurisprudence has laid down the following requisites that must be complied with by the taxpayer-applicant to successfully obtain a tax refund/credit: As to the timeliness of the filing of the administrative and judicial claims: 1. the refund claim is filed with the BIR within 2 years after the close of the taxable quarter when the sales were made;34 2. the judicial claim is filed with this Court within 30 days from receipt of an adverse decision (i.e., partial or full denial of the administrative claim);35 With reference to the taxpayer's registration with the BIR: 3. the taxpayer is a VAT-registered person;36 In relation to the taxpayer's output VAT: 4. the taxpa~ is engaged in zero-rated or effectively zero-rated sales�' 3Y " 34 Intel Technology Philippines, Inc. v. Commissioner of Internal Revenue, G.R. No. 155732, 27 April2007; San Roque Power Corporation v. Commissioner of Internal Revenue, G.R. No. 180345, 25 November 2009; AT&T Communications Services Philippines, Inc. v. Commissioner of Internal Revenue, G.R. No. 182364, 3 August 2010. 35 Steag State Power, Inc. vs. Commissioner of internal Revenue, G.R. No. 205282, 14 January 201 9; Rohm Apollo Semiconductor Philippines vs. Commissioner of Internal Revenue, G.R. No. 168950, 14 January 2015. 36 Intel Technology Philippines, Inc. v. Commissioner of Internal Revenue, G.R. No. 155732,27 April2007; San Roque Power Corporation v. Commissioner of Internal Revenue, G.R. No. 180345, 25 November 2009; AT&T Communications Services Philippines, Inc. v. Commissioner of Internal Revenue, G.R. No. I 82364, 3 August 20 I0. 37 Ibid.

DECISIOI\ CTA Case No. I0505 5. for zero-rated sales under Section 106(A)(2)(1) and (2), 106(B), and 108(B)(l) and (2) of the NIRC, the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with Bangko Sentral ng Pilipinas ("BSP") rules and regulations;38 As regards the taxpayer's input VAT being refunded: 6. the input taxes are not transitional input taxes;39 7. the input taxes are due or paid;40 8. the input taxes claimed are attributable to zero-rated or effectively zero-rated sales. However, where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and the input taxes cannot be directly and entirely attributable to any ofthese sales, the input taxes shall be proportionately allocated on the basis of sales volume;41 and 9. the input taxes have not been applied against output taxes during and in the succeeding quarters.42 At this juncture, it must be emphasized that cases filed before the Court of Tax Appeals ("CTA") are litigated de novo.43 Parties are thus expected to litigate and prove every minute aspect of their case anew by presenting, formally offering, and submitting to the Court of Tax Appeals all evidence required for the successful prosecution of its claim.44 Consequently, petitioner must competently establjsl:Yits claim for refund or tax credit following the foregoing requisites~ 38 ibid. 39 Ibid. 40 ibid. 41 Intel Technology Philippines, Inc. v. Commissioner of Internal Revenue, G.R. No. I55732,27 April2007; San Roque Power Corporation v. Commissioner of Internal Revenue, G.R. No. 180345, 25 November 2009. 42 Intel Technology Philippines, Inc. v. Commissioner oflnternal Revenue, G.R. No. 155732,27 April2007; San Roque Power Corporation v. Commissioner of Internal Revenue, G.R. No. 180345, 25 November 2009; AT&T Communications Services Philippines, Inc. v. Commissioner of Internal Revenue, G.R. No. 182364, 3 August 20 I0. 43 Commissioner of Internal Revenue v. Univation Motor Philippines, Inc., G.R. No. 231581, I0 April2019. 44 !d.; Philippine Airlines, Inc. v. Commissioner of Internal Revenue, G.R. No. 206079-80 and 206309, 17 January 2018.

DECISION CTA Case No. I 0505 Petitioner's administrative and judicial claims for refund were timely filed. Pursuant to Sections 112 (A) and (C) of the NIRC, the refund of unutilized input VAT attributable to zero-rated or effectively zero-rated sales must be administratively filed with the BIR within two years counted from the close of the taxable quarter when the relevant sales were made. Meanwhile, the judicial claim for refund must be filed in Court within 30 days from receipt of respondent's decision. Applying the foregoing, the table below summarizes the relevant dates pertaining to the filing of the administrative and judicial claims for refund: Period Close of Last day for Date of filing Date of receipt Last day Date of of the filing of the of the of the CIR's for filing filing of administrative denial of the judicial claim taxable administrative of the quarter claim claim administrative judicial claim pt Quarter claim claim ofTY March 31, July 15, 202045 July 15, 202046 February 26, (30 days) May 17, 2018 2018 2021 47 May 24, 2021 49 2nd 2021 48 Quarter June 30, August 31, July 15, 202051 February 26, May 17, ofTY 2018 202050 2021 52 May 24, 2021 54 2018 2021 53 yd September September 30, July 15, 202055 February 26, May 17, Quarter 2021 56 May 24, 2021 58 ofCY 30,2018 2020 2021 57 2018 - - - J..,r-- 45 Revenue Regulation No. 16-2020, Section 2. 46 Exhibits "P-10", "P-11" and "P-12"; Records, p. 13. 47 Exhibit "P-1 "; Records, pp. 13-14. 48 See Supreme Court Administrative Circular Nos. 14-2021, 15-2021, 21-2021, 22-2021, 29-2021 and 33- 2021, dated March 28,2021, April3, 2021, April 10,2021, April 14,2021, April30, 2021 and May 14, 2021, respectively. 49 Records, pp. 11-203. 50 Revenue Regulation No. 16-2020, Section 2. 51 Exhibits "P-10", "P-11" and "P-12"; Records, p. 13. 52 Exhibit "P-1 "; Records, pp. 13-14. 53 See Supreme Court Administrative Circular Nos. 14-2021, 15-2021, 21-2021, 22-2021, 29-2021 and 33- 2021, dated March 28,2021, April3, 2021, April 10,2021, April 14,2021, April30, 2021 and May 14, 2021, respectively. 54 Records, pp. 11-203. 55 Exhibits "P-10", "P-11" and "P-12"; Records, p. 13. 56 Exhibit "P-1 "; Records, pp. 13-14. 57 See Supreme Court Administrative Circular Nos. 14-2021, 15-2021,21-2021,22-2021,29-2021 and 33- 2021, dated March 28,2021, April3, 2021, April 10,2021, April 14,2021, April30, 2021 and May 14, 2021, respectively. 58 Records, pp. 11-203.

DECISIOi\ CTA Case No. l 0505 Pagel0ofl3 4th December December 31, July 15, 2020)-9 February 26, May 24, May 17, 31,2018 2020 2021 60 2021 61 2021 62 Quarter ofCY 2018 The present case covers the 1st to 4th quarters ofTY 2018. Counting two years from close of the each quarter ofTY 2018 on March 31, 2018, June 30, 2018, September 30, 2018 and December 31, 2018, respectively, petitioner had until March 31,2018, June 30,2018, September 30,2018 and December 31, 2018 to file its administrative claim for VAT refund for the pt to 4th quarters of TY 2018. However, following the effects of COVID-19, the BIR issued Revenue Regulation No. ("RR '') 16-2020 effectively extending the periods to file administrative VAT refund claims. Under Section 2 ofRR 16- 2020, administrative VAT refund claims for calendar quarter ending March 31, 2018 and June 30, 2018 are moved to July 15, 2020 and August 31, 2020, respectively. Applying this in the present case, petitioner timely filed its administrative VAT refund claims with the BIR's VCAD on July 15,2020. With respect to the judicial claim for VAT refund, petitioner likewise timely filed the same. The pre-Ease of Payment of Taxes Act version of Section 112 ofthe NIRC requires that a judicial claim for VAT refund be made within 30 days from receipt of the denial of a taxpayer's administrative claim for refund. In the case at bar, petitioner received the actual denial of the administrative claim on February 26, 2021. This means that petitioner had until March 28, 2021 within which to file a judicial claim before this Court. However, considering that the said date is a Sunday and following Supreme Court Administrative Circular Nos. 14-2021, 15-2021,21-2021,22-2021,29- 2021 and 33-2021, dated March 28,2021, April3, 2021, AprillO, 2021, April 14, 2021, April 30, 2021 and May 14, 2021, respectively, which moved the filing dates of pleadings due to the quarantine being effected across Metro Manila, the deadline to file the judicial claim was further moved to May 24, 2021. As petitioner filed the Peti~n May 17, 2021, it timely filed its judicial claim for VAT refundr-- 59 Exhibits "P-10", "P-11" and "P-12"; Records, p. 13. 60 Exhibit"P-1";Records,pp.l3-14. 61 See Supreme Court Administrative Circular Nos. 14-2021, 15-2021, 21-2021, 22-2021, 29-2021 and 33- 2021, dated March 28,2021, April3, 2021, ApriliO, 2021, Aprill4, 2021, April30, 2021 and May 14, 2021, respectively. 62 Records, pp. 11-203.

DECISIO:'>I CTA Case No. I0505 Page II of I3 Petitioner is a VAT-registered taxpayer. Petitioner is registered with the BIR as a VAT taxpayer with Taxpayer Identification Number ("TIN") 005-735-785-000 and with BIR Certificate of Registration No. 2RC001862621 issued by BIR Revenue District Office No. 110.63 Petitionerfailed to prove that its sales in which the present claim for input VAT refund are indeed VAT zero- rated sales. As duly noted above, issues before this Court are tried de novo.64 Parties are thus expected to litigate and prove every minute aspect of their case anew by presenting, formally offering, and submitting to the CTA all evidence required for the successful prosecution of its claim.65 The present case for VAT refund is hinged upon petitioner's claim that it is engaged in zero rated sales under Section 106(A)(2)(a)(J) of the NIRC, which provides that "[t]he sale and actual shipment 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 and paid for in acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP)" shall be subject to 0% VAT. The critical requisites for proving VAT zero-rating under said provision are: a) that there was an actual export sale to a foreign country (regardless of the shipping arrangement), and b) that the sale was paid for in foreign currency or its equivalent in goods or services, as accounted for in accordance with the BSP rules. Unfortunately, petitioner failed to offer any evidence showing that the subject unutilized VAT relates to export sales made to a foreign country such as contracts or delivery receipts. While petitioner offered in evidence its BOI Certifications that it is engaged in export sales,66 the same does not conclusively show that the subject sales are indeed export sales subject to 0% VAT. Said BOI Certifications pertain to the taxpayer itself but not to the sale~ 63 See Stipulation of Facts, Pre-Trial Order, Records, pp. 333-334; Exhibits "P-3", "P-4" and "P-5". 64 Commissioner of Internal Revenue v. Univation Motor Philippines, Inc., G.R. No. 231581, I0 April20 19. 65 !d.; Philippine Airlines, Inc. v. Commissioner of Internal Revenue, G.R. No. 206079-80 and 206309, 17 January 2018. 66 Exhibits "P-3" and "P-4".

DECISIO:\" CTA Case No. I0505 under consideration here. They consequently fail to prove that said sales are export sales. Accordingly, petitioner failed to prove a critical requisite, that the sales in which the alleged unutilized input VAT have been incurred are zero-rated sales. Petitioner's claim must therefore fail. This Court deems it unnecessary to discuss the remaining requisites, considering the above. ACCORDINGLY, the Petition for Review filed by petitioner PHIL. BEST CANNING CORPORATION is hereby DENIED for lack of merit. SO ORDERED. MARIARO

DECISION CTA Case No. I0505 WE CONCUR: ~. ~ -v--- MA. BELEN M. RINGPIS-LIBAN Presiding Justice ~#.(~' CORA~ G. FERRER- Associate Justice CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court. ~. ~ l - - - MA. BELEN M. RINGPIS-LIBAN Presiding Justice