MIRANT SUAL CORPORATION (FORMERLY SOUTHERN ENERGY PANGASINAN, INC.) v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY FIRST DIVISION *********** MIRANT SUAL CORPORATION C.T.A. CASE NO. 6958 (formerly SOUTHERN ENERGY Members: PANGASINAN, INC.), Petitioner, - versus - ACOSTA, Chairperson BAUTISTA, and CASANOVA, JJ. COMMISSIONER OF INTERNAL Promulgated: :~~~~~~�--------::::::t~-~~~~~~~~:p~ CASANOVA, J.: On August 29, 2007, this Court rendered a Decision partially granting petitioner's claim for refund or issuance of a tax credit certificate in the amount of P95,228,409 .81 allegedly representing unutilized input VAT paid on its domestic purchases of goods and services attributable to effectively zero-rated sale of services for the four quarters of 2002. Respondent and petitioner received their copy of said Decision on September 6 and 10, 2007, respectively. On September 17, 2007, respondent filed a "Motion for Partial Reconsideration" of the assailed Decision on the ground that contrary to the finding of this Court, petitioner failed to prove that it has complied with the registration requirements of a value-added taxpayer as provided in the National Internal Revenue Code (NIRC) and applicable regulations . Likewise,~

Amended Decision CTA Case No. 6958 petitioner allegedly failed to show that its purchases of goods and services were made in the course of its trade or business and that said purchases were properly supported by Value-added Tax (VAT) invoices, official receipts, and other pertinent documents. On September 25, 2007, petitioner likewise filed a "Motion for Partial Reconsideration" of the subject Decision based on the following grounds: "I. The Honorable Court erred in ruling that the petitioner failed to substantiate its claim for input VAT in the amount of P6,824,402.12. II. The Honorable Court erred in ruling that the output VAT of P17,793,418.43 shall be deducted from the substantiated input VAT of P114,501,461.30. III. The Honorable Court erred in ruling that petitioner's sale of electricity to Mirant (Philippines) Energy Corporation (MPEC) is not effectively VAT zero-rated, thus, the input VAT corresponding to or allocable to sales to MPEC should be disallowed." Both respondent and petitioner filed an "Opposition" to each other's "Motion for Partial Reconsideration" on October 1 and 23, 2007, respectively. During the hearing on October 5, 2007, respondent's counsel submitted her motion without further oral arguments and the Court submitted for resolution petitioner's and respondent's "Motion for Partial Reconsideration". Regarding respondent's "Motion for Partial Reconsideration", this Court finds the same unmeritorious inasmuch as the arguments raised are mere reiterations and in fact had been comprehensively discussed and resolved in the assailed Decision. On the other hand, after a thorough review an~

Amended Decision CTA Case No. 6958 examination of the pieces of evidence submitted by petitioner and the applicable laws and jurisprudence, the Court partially grants petitioner's claim. In its first argument, petitioner submits that out of the allegedly unsupported input VAT of P18,333,332.17, it is entitled to the amount of P6,824,402.12. A review of the Independent Certified Public Accountant's Report shows his observations and the breakdown of the amount of P6,824,402.12, as follows: Input taxes on purchases of goods Reference Amount Invoices issued in the former name of Annex 6 p 169,726.88 the company Annex 7 3,589 .24 Input taxes on purchases of services Annex 18 ORs issued in the former name of the Annex 16 21 ,292.00 company Annex 25 Annex 26 43 ,967 .00 ln(lut taxes claimed on importations 17 ,566 .00 Supported by bank or BOC Ors issued in the former name of the 6,568 ,261 .00 company Supported by informal lEOs certified p 6,824,402.12 by the BOC and bank or BOC ORs Supported by lEOs certified by BOC only Supported by lEOs certified by BOC, photocopied BOC ORs and original bank debit advices TOTAL The Court noticed that petitioner's claimed amount of 6,824,402.12 did not pass the substantiation requirement, except the amount of P39,987.00. The invoices issued for the amount mentioned in Annexes 6, 7, and 18 were issued in petitioner's former name. And records indicate that the name of petitioner was changed to Mirant Sual Corporation effective April 26, 2001. Thus, the aforesaid invoices should have been issued in petitioner's present name.~

Amended Decision CTA Case No. 6958 The Court also cannot allow the amount stated in Annex 25. While they are supported by Import Entry Declarations (IEDs) certified by the Bureau of Customs (BOC), no machine validation was found to exist. Hence, there is no way of finding out whether petitioner actually made payments. Similarly, Annex 26 is supported by invalidated !ED's certified by BOC, thus it cannot be considered. Even the photocopied BOC official receipts (ORs) and original bank debit advices cannot be considered, for there is no way of determining their veracity. Nevertheless, the amount stated in Annex 16 should be allowed in part. From the input tax of P43,967.00, only the amount of P39,987.00 was found to be supported by proper BOC official receipts, broken down as follows: Exh. OR Date Payee BOC OR Number Input Tax Bureau of Customs 92417437 00-170 1/14/2002 Bureau of Customs 92708603 p 1,757 .00 Bureau of Customs 93027697 00-174 2/6/2002 Bureau of Customs 93131997 2 ,818 .00 Bureau of Customs 93132006 00-301 2/13/2002 Bureau of Customs 95011436 1,072 .00 Bureau of Customs 95686613 00-313 2/21/2002 Bureau of Customs 93701623 1,382 .00 Bureau of Customs 96144063 00-317 2/21/2002 Bureau of Customs 96520182 2 ,469 .00 Bureau of Customs 97335341 EE-249 5/7/2002 Bureau of Customs 97789964 5,164.00 Bureau of Customs 97857365 FF-217 6/4/2002 Bureau of Customs 98091883 1,018 .00 Bureau of Customs 98737667 EE-48 6/14/2002 Bureau of Customs 98644786 2 ,382 .00 Bureau of Customs 99088796 FF-239A 6/27/2002 Bureau of Customs 99088814 3,149.00 FF-536 7/11/2002 1,120.00 FF-607 8/7/2002 2 ,789 .00 GG-327 9/2/2002 1,514 .00 GG-486 9/8/2002 2,400 .00 GG-403 9/12/2002 3,440 .00 GG-427 10/10/2002 2 ,918 .00 GG-447 10/16/2002 1,522 .00 GG-431 10/24/2002 1,339 .00 GG-490 10/24/2002 1,734 .00 Total E! 3~Ml8Z.OO ~

Amended Decision CTA Case No. 6958 Bureau of Customs OR No. 92802193 in the amount of P3,980.001 was disallowed because it was issued in the former name of petitioner. Anent the second issue, petitioner claims that the output VAT in the amount of P17,793,418.43 should not have been deducted from the substantiated input VAT of P114,501,461.30. The aforesaid output VAT had already been set off with the existing input VAT for the First Quarter of 2002 as testified to by Ms. Maria Corazon Juliana Brillantes. In addition to this, the Amended First Quarterly VAT Return shows that an unutilized input VAT in the amount of P346,034,254.80 has been accumulated from the previous quarter from which this amount of output VAT can be applied based on the principle of "first in, first out". Contrary to petitioner's allegation, records prove that the output VAT of P17,793,418.43 was not deducted from the amount of the whole claimed amount of P132,847,793.47. Accordingly, the output VAT of P17,793,418.43 should be deducted from the substantiated input VAT of P114,501,461.30. As regards the amount of P346,034,254.80 allegedly carried-over from the previous quarter against which the amount of output VAT can be applied based on the principle of "first in, first out", the same cannot be done under the present circumstances. The amount of P346,034,254.80 allegedly carried- over from the previous quarter was not substantiated, which means that the output VAT will be charged against the substantitated input VAT. Regarding the issue on the sale of electricity to MPEC, the Court agrees that it is zero-rated pursuant to Paragraph 5, Section 6 of Republic Act No. ~ I Exhibit "DD-193"

Amended Decision CTA Case No. 6958 9136, also known as the Electric Power Industry Reform Act (EPIRA) of 2001, which provides: "SEC. 6. Generation Sector... XXX XXX XXX Pursuant to the objective of lowering electricity rates to end-users, sales of generated power by generation companies shall be value added tax zero-rated." The Court affirmed the foregoing in Mindanao 1 Geothermal Partnership vs. Commissioner of Internal Revenue2, thus: " ... it is undisputed that Republic Act No. 9136 otherwise known as the 'Electric Power Industry Reform Act of 2001' provided for VAT zero-rating of sales of generated power by generation companies beginning June 26, 2001. Thus, the pertinent provisions of the National Internal Revenue Code of 1997 are deemed amended by the provisions of RA No. 9136 by modifying the VAT rate applicable to sales of generated power by generation companies from ten (10%) percent to zero (0%) percent. To qualify for VAT zero-rating under R.A. No. 9136, petitioner must prove that: 1) it is a generation company and 2) it derived sales from power generation." It is a stipulated fact that petitioner is engaged in the business of power generation and the subsequent sale thereof to the National Power Corporation (NPC) under a Build, Operate, and Transfer (BOT) scheme. 3 Thus, petitioner's declared zero-rated sales of P 13,385,579,184.65 was fully substantiated. All valid input VAT were attributable to the substantiated zero-rated sales. To recapitulate, petitioner's valid creditable input tax is P96,747,998.87, computed as follows:;:a 2 CTA Case No. 6788 3 Paragraph 1, Joint Stipulation of Facts and Issues, Docket, p. 291

Amended Decision CTA Case No. 6958 Claimed Input VAT P132,834 ,793.47 Less: Disallowances (See Annex A) 18.293 .376 .17 Net Creditable Input VAT Less: Output VAT P114,541 ,417.30 Refundable Excess Input VAT 17,793,418.43 p 96.747.998.87 In the light of the foregoing considerations, the Court finds legal basis to render this Amended Decision pursuant to Section 3, Rule 14 of the Revised Rules of Court of Tax Appeals partially granting petitioner's "Motion for Partial Reconsideration" of the questioned Decision dated August 29, 2007. WHEREFORE, respondent's "Motion for Partial Reconsideration" is hereby DENIED for lack of merit and petitioner's "Motion for Partial Reconsideration" is hereby PARTIALLY GRANTED. The Court's Decision promulgated on August 29, 2007 in the instant case is hereby MODIFIED. Accordingly, respondent is hereby ORDERED to REFUND or in the alternative, to ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner in the increased amount of P96,747,998.87 representing unutilized input VAT paid on its domestic purchases of goods and services attributable to effectively zero-rated sale of services for the four quarters of 2002. SO ORDERED. J2 CAESAR A. CASANOVA Associate Justice WE CONCUR: ~\p. Q_;- ERNE TO D. ACOSTA

Amended Decision CTA Case No. 6958 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's Division. L~- CL-A_ ERNESTO D. ACOSTA Presiding Justice Chairman, First Division

CTA CASE NO. 6958 ANNEXA AMEN DED DEC IS ION Page 1 of2 SUMMARY OF INPUT VAT DISALLOWANCES Reference Amount Annex 2-1 , Exhibit V Input taxes on purchases of goods Annex 2-2 , Exhibit V p 31 .00 Erroneously computed 320 ,782 .74 Supported by VAT invoices without BIR permit number Supported by photocopied VAT invoices Annex 2-3 , Exhibit V 18 ,338 .29 Annex 2-4 , Exhibit V Supported by documents other than Annex 2-5 , Exhibit V 32 ,313.21 VAT invoices Annex 2-6, Exhibit V Annex 2-7 , Exhibit V 143 ,026 .64 Supported by VAT invoices with pre- 10,101 .65 printed TIN only Annex 2-8 , Exhibit V 16 ,030 .54 Supported by non-VAT invoices Annex 3-1, Exhibit V 5,190.92 Annex 3-2, Exhibit V Supported by invoices not in the name Annex 3-3, Exhibit V 68 ,013 .75 of the company Annex 3-4, Exhibit V 26 ,946.38 Annex 3-5, Exhibit V Supported by single invoices Annex 3-6, Exhibit V 863 ,520.12 erroneously presented twice in the Annex 3-7 , Exhibit V 2 ,155 .00 summary Input taxes on purchases of services 280 ,485 .82 Erroneously computed 105 ,800 .77 Supported by VAT ORs without BIR 15,807 .78 permit number 2,318 . 18 Supported by documents other than VATORs 751 ,976.37 Supported by photocopied VAT ORs 165 ,994 .55 Supported by ORs with pre-printed TIN 142,745 .00 only p 2,971 ,578. 71 Supported by non-VAT ORs Supported by Ors issued not in the name of the company Supported by single ORs erroneously Annex 3-8, Exhibit V presented twice in the summarY' Input taxes on local purchases ofg_oods and services Without suJJporting documents Annex 4, Exhibit V Input taxes claimed on importations Erroneously computed Annex 5-1, Exhibit V Without supporting documents Annex 5-2, Exhibit V SUBTOTAL Input taxes on purchases of goods Annex 6, Exhibit V p 169,726 .88 Annex 8, Exhibit V 136 ,031.51 Invoices issued in the former name of Annex 10, Exhibit V the company Annex 28, Exhibit V 3,450 ,664 .98 Supported by undated VAT invoices 89 ,720.10 Invoices dated outside the period of Annex 7, Exhibit V claim 3 ,589 .24 Supported by VAT invoices with preprinted "TIN-V" Input taxes on purchases of services ORs issued in the former name of the company

CTA CASE NO. 6958 ANNEXA AMEN DED DEC ISION Page 2 of2 � Supported by undated VAT ORs Annex 9, Exhibit V 22 ,817.55 Invoices dated outside the period of Annex 11 , Exhibit V 1,160,993 .39 claim Annex 29 , Exhibit V 202,996 .93 Supported by VAT ORs with preprinted Annex 12, Exhibit V "TIN-V" 2 ,144 ,317 .00 Input taxes claimed on importations Annex 13, Exhibit V 658 ,315.66 Supported by photocopied lEOs and Annex 15, Exhibit V bank or BOC ORs dated outside the Annex 16, Exhibit DD-193 2 ,173 .00 period of claim 3,980.00 Annex 17, Exhibit V Supported by original bank or BOC ORs 21 ,522.00 only that are dated outside the period of Annex 18, Exhibit V claim Annex 19, Exhibit V 21 ,292 .00 Supported by informal lED certified by 323 .00 the BOC dated outside the period of Annex 20 , Exhibit V claim Annex 21 , Exhibit V 257 ,872 .22 Annex 22 , Exhibit V Supported by informal lEOs certified by Annex 23, Exhibit V 3,217 .00 the BOC and bank or BOC ORs Annex 24, Exhibit V 9,175.00 Annex 25 , Exhibit V 233 ,251 .00 Supported by photocopied IEDs dated Annex 26 , Exhibit V 99 ,643.00 outside the period of claim and bank or Annex 27 , Exhibit V 17 ,566 .00 BOC ORs issued in the former name of 6,568 ,261 .00 the company 44,349 .00 p 15,321,797.46 Supported by bank or BOC ORs issued p 18,293,376.17 in the former name of the company Supported by BOC OR issued in the former name of the company & dated outside the period of claim Supported by informal lED certified by the BOC dated outside the period of claim and bank or BOC Ors issued in the former name of the company Supported by a photocopied bank OR only Supported by undated lED and bank OR Supported by undated lED and original bank or BOC Ors Supported by lED certified by the BOC and photocopied bank OR dated outside the period of claim Supported by lEOs certified by BOC only Supported by lEOs certified by BOC , photocopied BOC ORs and original bank debit advices Different VAT amounts reflected on the lEOs SUBTOTAL TOTAL