CTA Case No. 5058 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY BENGUET CORPORATION, Petitioner, - versus - C.T.A. CASE NO. 5058 COMMISSIONER OF INTERNAL Promulgated: REVENUE AND COMMISSIONER OF CUSTOMS, -NOV 06 1998 Respondents. X- - - - - ---------------X DECISION This petition for review is asking for the issuance of a tax credit certificate for unutilized input value- added tax (VAT) attributable to zero-rated export sales pursuant to Section 106(a) of the 1992 Tax Code in the amounts of P53,106,992.79 for the period February 1, 1992 to Apri I 30, 1992 and P35,814,270.47 for the period May 1, 1992 to July 31, 1992. The antecedent facts of the case are as fo I Iows: Petitioner is a domestic corporation duly organized and existing under the lawsofthe Philippines. It is engaged in the mining business which includes, the exploration, development and operation of mining properties for purposes of commercial production, and in marketing mine products produced by it. It is registered with the Bureau of Internal Revenue <BIR) as a VAT registered person with VAT Registration Certificate No. 31-9-000027, dated January 1, 1988 <Exh. A).

DECISION - C.T.A. CASE NO. 5058. - 2- On May 4, 1988, petitioner was able to secure from the BIR an approval for zero-rating with respect to its export sales of mine products <Exhs. B, B-1, B-2, and B- 3) � For taxable quarters ended Apri I 30, 1992 and July 31, 1992, petitioner seasonably filed its VAT returns reflecting, among others, the alleged excess input VAT credits as follows: Exh. Amount Date Filed With the BIR For the quarter ended c P52,724,329.41 Apri I 30, 1992 May 20, 1992 D 35,987,749.04 For the quarter ended Aug. 20, 1992 J u Iy 31 , 1992 Tot a I P88,712,078.45 On two separate occasions, petitioner f i I ed Applications for Tax Credit/Refund of Value-Added Tax Paid with the BIR anchor i ng its entitlement on Section 106(a) of the Tax Code, as implemented by Section 16 of Revenue Regulations No. 5-87. The first application which covers the period February to Apr i I 1992 was f i Ied on February 19, 1993 <Exhs. E, E-1 to E-4)) and the second app I i cation which covers the period May to Ju I y 1992 was f i Ied on September 13, 1993 (Exhs. F, F-1 to F-4) in the respective amounts of P53,106,992.79 and P35,814,270.47.1 1These amounts differ from the excess input VAT credits reflected in petitioner's corresponding quarterly VAT returns.

DECISION - C.T.A. CASE NO. 5058. - 3- After waiting for more than sixty (60) days for the respondent to act on said claims as ruled under Section 106(e) of the Tax Code, petitioner was compelled to file on January 14, 1994 the instant petition for review in order to preserve its right to judicially claim for the refund of excess input VAT payments. During the proceedings of this case , respondent processed, approved and issued two tax credit certif i cates in the amounts of P38,665,851.55 for the period February to Apri I 1992 <Exh. L) and P27,522,340.54 for the period May to July 1992. Furthermore, the amounts of P3,759,158.87 for the period February to Apri I 1992 and P5,025,765.16 for the period May to July 1992, representing va I i d input taxes on importations, were also processed and approved but the authority to issue tax credit certificates were indorsed to the Commissioner of Bureau of Customs pursuant to the memorandum agreement executed by and between the Bureau of Internal Revenue and the Bureau of Customs (BOC). The rest of the claims were denied for the following reasons: 1. Input VAT applied to the alleged p 7,447,272.13 output tax I iabi I ity on sale 9,306.34 of gold to CB Feb. to Apr. 1992 3,234,710.24 May to July 1992 3,256,858.43 P13,948,147.14 2. Non-compliance with VAT invoicing requirements Feb. to Apr. 1992 May to July 1992 T0 TAL

DECISION - C.T.A. CASE NO. 5058. - 4- Meanwh i I e, on May 9, 1997, petitioner filed a "Motion for Leave to Amend Petition So As To Implead Additional Parties" in an effort to join the Commissioner of Customs as party respondent to the case on the theory of incumbent respondent Commissioner of Internal Revenue that she cannot be obliged to issue tax credit certificates on the approved input VAT refund on importations in view of the aforementioned memorandum of agreement. In a Resolution, dated June 3, 1997, the said motion was granted and the amended petition was deemed admitted. The Court then ordered the respondents, Commissioner of I nterna I Revenue and the Commissioner of Customs, to f i Ie their respective answers on the amended petition for review. On June 30, 1997, while the respondent Commissioner of Internal Revenue filed her Amended Answer, the respondents Commissioner of Customs and Bureau of Customs2 fa i Ied to f i Ie their Answer, hence were declared by the Court in default, per Resolution dated September 1 ' 1997. The trial on the merits then continued sans the representation from the respondent Commissioner of Customs. 2 should just be "Commissioner of Customs" (Rule 5, Section 1, Rules of the Court of Tax Appeals).

DECISION - C.T.A. CASE NO. 5058. - 5- In sum, what remains to be the issue is the refund of the balance of P14,441,141.24 for the period February to Apri I 1992 and the sum of P8,291,929.93 for the period May to July 1992, detailed as follows: For the Period For the Period Particulars 02-01-92 to 04-30-92 05-01-92 to 07-31-92 Processed and approved p 3,759,158.87 P5,025,765. 16 but indorsed to BOC Input tax app Iied on the 7,447,272 . 13 9,306.34 3,234, 710.24 3,256,858.43 alleged output tax P14,441,141.24 P8,291 ,929.93 liability on sale of gold to CB Non-co11pl iance with VAT invoicing require~~ents Tot a I Is petitioner entitled for further issuance of tax credit certificates in the above-mentioned amounts? We shall tackle each item individually. Input taxes which have been processed and approved but indorsed to BOC for issuance of tax credit certificates: There is no doubt that the invoices and official receipts pertaining to input taxes in question were already examined by both the revenue examiner and the independent CPAs, hence, their findings can be relied upon for the final adjudication of the instant case. We agree with the respondent Commissioner of Internal Revenue that petitioner is entitled to the amounts of P3,759,158.87 for the period February 1, 1992 to April 30, 1992 and P5,025,765.16 for the period May 1,

DECISION - C.T.A. CASE NO. 5058. - 6- 1992 to July 31 ' 1992, representing input VAT on importations and it is incumbent upon the respondent Commissioner of Customs to issue the corresponding tax credit certificates for these amounts. Input taxes applied against output tax I iabi I ity on sales of gold to CB: The revenue examiner in disallowing the input taxes in the total amount of P7,456,578.47 for the period February 1, 1992 to July 31 , 1992 opined that sales of mine products to the Central Bank are not considered export sales and therefore subject to 10% VAT. In arriving at such conclusion, respondent reI i ed on VAT Ruling No. 008-92 issued on January 23, 1992, which classified the sales of gold to Central Bank as local sales subject to 10% value-added tax and further opined that a retroactive application of said VAT ruling wi II not cause prejudice to the petitioner . After reviewing the pleadings of both parties, We find the issue of retroactive application of VAT Ruling No. 008-92 already settled in the cases of Mani Ia Mining Corporation vs. Commissioner of Internal Revenue, CA-G.R. SP No. 38287, dated June 5, 1997 and Atlas Consolidated Mining & Development Corporation vs. Court of Tax Appeals and Commissioner of Internal Revenue, CA G.R. SP No. 34152, dated February 6, 1998, where it was ruled that "VAT Ru/ ing No. 008-92, in imposing VAT on sales of

DECISION - C.T.A. CASE NO. 5058. - 7- copper concentrates to PASAR, pyrite to PHILPHOS and~ to the Central Bank lacks legal bases, hence of no effect". The aforementioned pronouncement of the Court of Appeals is clear that VAT Ruling No. 008-92 is bereft of legal basis and therefore ineffective, hence, petitioner is entitled to the issuance of a tax credit certificate in the total amount of P7,456,578.47 for the period February 1 , 1992 to July 31, 1992, representing output taxes on sales of gold to Central Bank. Disallowed input taxes due to non-compliance with VAT invoicing requirements: In order to dispute the disallowances made by the respondent, petitioner presented as evidence various invoices and official receipts2. However, verification of these documents together with that of the certification of independent auditorsJ and the report of the revenue examiner 4 disclose a situation where the exceptions made by the independent auditors are greater than that of the revenue examiner, to wit: For the Period For the Period Particulars 02-01-92 to 04-30-92 05-01-92 to 07-31-92 Per revenue exa~iner's 3 Exhs. P-1 to P-15A, P-16A, P-176, P-17C, P-186, P-18C, P-19B to P-266, F-26F to F-27C, P-28A, P-286, P-280 to P-30C, P-30E to P-36F, and P-361 to P-44T. 4Exhs. J and 0. sExhs. G and a.

DECISION - - 8- P3,256,858. 13 C.T.A. CASE NO. 5058. P3,234, 710.24 P3,416,871.93 P3,416,871.93 investigation P2,550,243. 17 8,097.00 Per independent CPA report 1,909,450.24 - purchases of goods P4,467, 790.41 and serv ices without supporting invoices and/or ORs - importation without supporting documents - purchases of goods and serv ices not supported by original invoices and/or ORs Total Given this scenario, this Court is inclined to give more credence to the findings of the independent CPA rather than that of the revenue examiner, pursuant to Section 26 of Rule 130 of the Rules of Court, which states that: SEC. 26. Admissions of a party. - The act, declaration or omission of a party as to a relevant fact may be given in evidence against him. Therefore in this particular aspect, petitioner is not entitled to a refund of input taxes, rather a deduction from the previously ruled allowable refund is in order. In summary, petitioner is now entitled to the following input VAT refund: For the Period For the Period 02-01-92 to 04-30-92 Particulars 05-01-92 to 07-31-92 Total p 3, 759,158.87 Processed and app roved P5,025, 765.16 P8,784,924.03 but indorsed to BOC Less: - i11portation without

DECISION - C.T.A. CASE NO. 5058. supporting documents - 9- P5,0Z5,765.16 8,097.00 Total P8, 776,827.03 8,097.00 P 3,751,061.87 Input tax app Iied on the P 7,447,Z7Z. 13 p 9,306.34 P7,456,578.47 aII eged output tax liability on sale of 1,ZZ4,983.17 160,013.80 1,384,996.97 gold to CB P 6,ZZZ,Z88.96 (P 150,707.46) P6,071,581.50 Less: -discrepancy in the findings arrived at by the revenue examiner and the independent CPA Total WHEREFORE, in view of the foregoing, the petition for review is hereby PARTIALLY GRANTED. Respondent Commissioner of Customs is ORDERED to ISSUE a tax credit certificate in favor of the petitioner the sum of P8,776,827.03, representing input VAT on importation for the period February 1, 1992 to July 31, 1992. Likewise, respondent Commissioner of Internal Revenue is ORDERED to ISSUE another tax credit certificate in the sum of P6,071,581.50, representing input VAT on purchases of domestic goods and services for the same period. SO ORDERED. WE CONCUR: 4 ',dflJud/ ~ � t2L~ ERNESTO D. ACOSTA ~~~A~AMsOsNoci0a.te0J~u~~A I I

DECISION - C.T.A. CASE NO. 5058. - 10 - CERTIFICATION hereby certify that this decision was reached after due consultation with the members of the Court of Tax Appeals in accordance with Section 13, Article VI I I of the Constitution. ~t(2t~ ERNESTO D. ACOSTA Presiding Judge Court of Tax Appeals