APPLIED FOOD INGREDIENTS, CO. v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SECOND DIVISION APPLIED FOOD INGREDIENTS, CO., INC., Petitioner, - versus- C.T.A. CASE NO. 6171 COMMISSION ER OF INTERNAL Promulgated: REVENUE, NOV 09 200~ Respondent. ){ --------------------------------------- -~~~~ DECISION Before us is a Petition for Review ftled by Applied Food Ingredien ts (''Petitioner") on September 29, 2000 seeking for the allowance of tax: credit in the amount of TI IREE MILLION NINE HUNDRED NINE THOUSAND FIVE HUNDRED ONE PESOS AND EIGHTY THREE CENTAVOS (P3,909,501.83) representing the excess or unused value-added tax input and, correspondingly, for the issuance of a tax credit certificate in its favo r covering the period from September 1, 1998 up to March 31, 2000.

DECISION- C.T.A. CASE NO. 6171 PAGE20F17 The uncontested facts are as foUows: 1 "1. Petitioner is a corporation duly organized and existing under the laws of the Republic of the Philippines. It is registered with the Securities and Exchange Commission (SEC) under Certificate of Registration No. AS091-198357 dated November 25, 1991 (Annex 'A-1' of the Petition), with the primary purpose of manufacturing, importing, exporting, buying, selling or othetwise dealing in, at wholesale and retail, such goods as food ingredients, and other goods of similar nature. (Annex 'A-2' of the Petition). 2. Petitioner was registered on February 26, 1997 with Regional District Office (RDO) No. 43 of the Bureau of Internal Revenue in Pasig City (BIR-Pasig), as a withholding agent and Value-Added Tax (VA1) taxpayer under the category of import and export business/industry, VAT Registration No. 001-006- 962-V, and RDO Control No. 97-043-005590/001920 (Annex 'B' of the Petition). 3. Petitioner duly ftled its monthly VAT declaration and quarterly returns for the period from July 1998 to March 2000, the second quarter of year 2000, and July 2000, as shown in Petitioner's Monthly VAT Declarations and Quarterly VAT Returns for such periods (Annexes 'F-1' to 'F-21' and 'K-1' to 'K- 2' of the Petition). 4. Petitioner's first subject VAT return was ftled on October 23, 1998, as indicated on its Quarterly VAT Return for the Third Quarter of 1998 (Annex 'F-3' of the Petition). 5. The two (2)-year prescriptive period within which to file a claim for a Tax Credit Certificate (fCC) for said input VAT credits ended two (2) years after the date o f ftling of the Quarterly VAT Return for the taxable quarter when the export sales were made. 1 J oint Stipulation of Facts and Issues filed on September 27, 2001 by the parties which was approved by the court through a Resolution promulgated on October 2, 2001.

DECISION- C.T.A. CASE NO. 6171 PAGE3 OF 17 6. Petitioner ft.led its claim for the issuance of a TCC for said input VAT credits, as evidenced by Petitioner's letter-request and Application for Tax Credit/Refund of Value-Added Tax Paid, both duly received by RDO 43 of BIR-Pasig on July OS, 2000 (Annexes 'I' and ']' of the Petition, respectively), and by the Petition duly received by this Honorable Court on September 29, 2000. 7. To date, Respondent has neither acted upon nor decided the above claim for TCC." The documents attached to the petition show that petitioner purchased food ingredients and other goods of similar nature from its local and foreign suppliers from the third quarter of taxable year 1997 up to the first quarter of taxable year 2000 and paid the input VAT due on said purchased items. 2 Petitioner also ft.led before the Bureau of Internal Revenue (BIR) its Quarterly VAT Returns covering the same the same period. The said returns are summed up in the following manner:3 2 Which are: (1)Summary of Purchases/Input VAT Refund for its Export Shipments from September 1998 to March 2000 (Annexes C-1 to C-4); (2) Export Sales Summary by Item/Product for the period September 1998 to March 2000 (Annexes D-1 to D-6); (3) Summary of Export Remittances from N .P. Foods Singapore, Ltd. From September 1998 to March 2000 (Annex E); (4) Monthly VAT Declarations, Amended Monthly VAT D eclarations, Quarterly VAT Returns and Amended Quarterly VAT Returns from July 1998 to March 2000 (Annexes F-1 to F-21, K-1 and K-2); (5) Summary of Input VAT used for Export Sales as of March 31, 2000 (Annex G); (6) Financial Statements for the period December 31, 1999 and 1998 with Balance Sheets, Statements of Income and Retained Earnings and Statement of Cash Flows (Annex H); (1) Claim for the Issuance of Tax Credit Certificate on Excess Input Taxes (Annex I); and (8) Application for Ta.x Credit/Refund of VAT Paid (Annex J).

DECISION- C.T.A. CASE NO. 6171 PURCHASES QUARTE R DATE T AXABLE SALES ZE RO-RATE D IMPORTATION LOCAL FILED EX1:illll :r INVOLVED INVOICE AMOUNT OUTPUI TAX SALES INPUT TAX INPUT TAX FI 3rd Qtr'97 p 8,636,86250 p 785,169.34 p 877,659.57 p 87,581.11 708, 167.00 10-1.0-18.82 F-2 1st Q tr '98 20-Apr-98 6,627,213.50 602,473.95 175,156. 13 2,020.1 75.71 382,806.9- F-3 2ncl Q tr '98 17-Jul-98 19,543,933.40 1'776,721.18 2,722,54200 2 14,638.20 2,205,9 57.00 257,2 19.66 F-4 3rd Qtr '98 23-0ct-98 21,354,426.90 1,941,311.52 p 761,360.00 3,898,259.25 976,000.00 F-5 4th Qtr '98 25-Jan-99 28,460,860.30 2,587,350.98 1,673,9 14.09 F-6 1st Q tr '99 26-Ap r-99 19,719 ,082.40 1,792,6 43.90 10,912,327.22 33,776,925.00 F7 2nd Qtr'99 45,484,958.22 4,134,996.11 P47,339,166.3 1 3,650,746.57 3 10,70 -1 .86 38,842,121.11 3,884,21205 3,844,436.84 294,922.08 F8 3rd Qtr '99 23-Jun-00 72,398,674.87 7,239,867.5 1 6,052,495.92 470 ,048.40 36,995,493.90 3,699,549.39 7,051,433.00 562,693.06 F-9 4Lh Q tr '99 23-Jun -00 P298,063,627.10 P28,444,295. 93 P32,323,705.86 P2,755,770.47 F-10 1st Qtr '00 23-Jun-00 Total During the same period, petitioner also made sales and exported portions of the purchased food ingredients and other goods to its foreign buyers. As the export sales were subject to zero percent (0%), petitioner failed to apply the input taxes paid against its output taxes. The total input taxes paid in the amount of P3,909,501.83 which petitioner seeks to apply as tax credit is computed as follows: 4 VAT RETURN TOTAL INVENTORY USED FOR USED FOR QUARTER INP[JfiAX AS OF 3 / 31/ 00 YEM LOCAL SALES EXPORT SALES ON IMPORTATION p 877,659.57 p 64,837.47 p 812,537.84 p 284.26 l 9973<d 708,167.00 628,708.1 3 79,458.87 1998 1" 40,730.48 6,970.00 2nd 2,020,175.7 1 101,007.27 1,972,475.23 12 1,703.00 2,722,54200 278,105.75 2, 499,831.73 33,59 1.27 1999 1" 2,205 ,957.00 145,071.33 1,894,259 .98 290,275 .00 2nd 3,898,259.25 169,890.59 3,462,912.92 487,674.62 3,650,746.57 692,756.21 2,993, 18 1. 36 324,166.3 4 3,844,436.84 2,827,514.29 3 E xhibits "F-1" to "F-10". 4 c\nn ex "G" attached to the P etition.

DECISION- 6,052,495.92 1,673,3 17.27 2,809,156.84 1,570,021.81 C.T.A. CASE NO. 6171 7,05 1,433.00 4,386,738.57 1,699,577.77 965,11 6.66 PAGES OF17 P33,031,87286 P7,552,454.94 P21 ,600,156.09 P3,879 ,261.83 4'h 20001" p 382,806.97 p 357,606.97 p 25,200.00 294,92208 289,882.08 5,040.00 LOCAL 19983 rd p 677,729.05 p 647,489.05 p 30,240.00 19993rd p 33,709,601.91 P7,552,454.94 P22,247,645.14 P3,909,501.83 GRAND TOTAL As its claim for the issuance of a TCC was not acted upon by respondent, petitioner ftled the present action. On the other hand, respondent ftled his Answer on August 9, 2001 and prayed for the dismissal of the above-entided case as the petitioner has no cause of action to claim for a tax credit. During trial, petitioner presented the following documents as its evidence to establish its right to claim for a tax credit: EXHIBIT DESCRIPTION A Auditor's Report A-1 Auditor's findings in Page 2 A-2 Auditor's findings in Page 3 A-3 The signature above the name lrenea R. Vallestero on page 3 of the Report B Summary of Excess Unutilized Input VAT (Exhibit I of Report) B-1 The amount of P3,909,501.83 indicated as "Grand Total" (page 3 of Exhibit I of Report) c Summary of Export Sales (Exhibit II of Report) The amount of P47,681,221.95 indicated as " Grand Total" C-1 Schedule of Excess Unutilized Input VAT on Importations D Report of Procedures Conducted in Verifying the Correctness of the E Amounts Claimed for the Issuance of TCC for Unutilized Input VAT Credits (Exhibit V of the Report) F-1 to F-10 Petitioner's Quarterly VAT Returns G-1 toG- Petitioner's Export Invoices 13 Petitioner's Export Bills of Lading H-1 to H- 13

DECISION- C.TA. CASE NO. 6171 PAGE60F 17 I-1to l-13 Petitioner's Export Declarations Petitioner's Supplier's Invoices J-1 toJ-55 Peitioner's Import Bills of Lading K-1 to K- Petitioner's Import Entry documents 53 Petitioner's Official Receipts L-1 to L-53 M-1 toM- Petitioner's Delivery Receipts 55 Petitioner's "SUMMARY OF PURCHASES/INPUT VAT REFUND" N-1 to N- The amount of the P3,909,501.83 on Page 4 of the R~port The amount of [PJ626,329.86 on Page 4 of the Rej>ort 21 The amount ofP88,961,991.35 on Page 4 of the Report 0 The amount of P8,896,202.20 on Page 4 of the Report 0-1 Petitioner's "SUMMARY OF EXPORT REMITTANCES" 0-2 Certification and credit advice issued by ANZ Bank 0 -3 Quarterly Value Added Tax Return- 2nd Q for the year 2000 0-4 Line 24 A- any VAT-Refund/TCC claimed- P3,909,501.83 p Signature of Mr. Alex G. Lau Stamp received by the BIR- dated July 24, 2000 Q-1 to Q-9 R R-1 R-2 R-3 Further, upon motion of petitioner, an independent auditor Ms. Irene R. Vallestero from the ftrm Joaquin Cunartart artd Compa'!Y was comm.issioned to conduct an independent special audit and examination of the petitioner's various receipts, invoices and other long accounts and to make written report and certification of its fmdings and conclusions.5 On March 19, 2002, she testified that: "A. The petitioner is engaged in the manufacture, import and export, buy and sell or trading of food ingredients and other similar goods at wholesale and retail. The input taxes were accumulated from the petitioner's importation and local purchases of food ingredients that could not be recovered because they were exported or sold abroad in 5 Motion to Commission An Independent Auditor filed on October 31, 2001.

DECISION- C.TA. CASE NO. 6171 PAGE 7 OF17 transactions that do not give rise to corresponding output VAT."6 She likewise afftrmed the validity of petitioner's claim for tax credit. We quote: "Q. What are your ftndings in the audit that you conducted? MS. VALLESTERO A. The audit ftndings conftrm the correctness of the petitioner's claim for excess unutilized input VAT."7 She presented her Report and a summary of her audit to the court which formed part of petitioner's evidence. 8 Reproduced hereunder are pertinent portions of the Report. Thus: "Our examination of the Company's accounting and related records that support the Company's claim for TCC for excess unutilized input VAT disclosed the following: � The dates of the invoices and/or offtcial receipts are within the period covered in the claim; � The suppliers' VAT registration number and the Bureau of Internal Revenue permit number of the printer of the invoices and/ or offtcial receipts are indicated on the invoices and/ or offtcial receipts; � The suppliers' invoices, sales invoices and/or offtcial receipts on ftle are original copies; � The input taxes paid are correctly and properly declared in the VAT declaration/return; 6 TSN, p. 9, March 19, 2002. 7 TSN, p. 5, April 29, 2002. 8 Exhibits "A", "B", "C", "D" and "E", inclusive of submarkings.

DECISION- C.T.A. CASE NO. 6171 PAGE 8 OF17 � The input taxes are correctly and properly declared in the VAT declaration/ return; � The input taxes being claimed for TCC had not been used/applied in payment of output VAT; � The purchased goods, where input taxes were paid, formed part of the products that were eventually exported; � The export sales summarized on Exhibit II were paid for in acceptable foreign currency; and � The foreign exchange proceeds were reported as zero-rated sales in the quarterly VAT returns and were inwardly remitted to the Philippine Banking System. XXX XXX XXX II. CONCLUSION Based on the results of our examination x x x, we verified that: a) the Company purchased goods from domestic and foreign sources reported in the quarterly VAT returns for the period from July 1, 1997 to March 31, 2000; b) the Company paid the corresponding input VAT thereon worth P3,909,501.83; c) such input VAT credits were not applied against any of the Company's output VAT and hence, represent excess unutilized input VAT credits; d) such purchased goods formed part of the Company's zero-rated export sales amounting to P47,681,221.95 for the period from September 1, 1998 to March 20, 2000; e) such export sales were paid for by the buyers in United States Dollars; and f) such foreign exchange proceeds were inwardly remitted into the Company's account in the Philippine branch of the Australia and New Zealand Banking Group Ltd. from February 2, 1999 to March 22, 2000. No matters had come to our attention that caused us to believe that the amount of the Company's claim for refund of VAT input taxes require adjustments except for error in calculation aggregating to P1,336.59, details of which are shown in Exhibit IV.

DECISION- C.T.A. CASE NO. 6171 PAGE90F17 After effecting the above adjustments, claim for TCC for excess unutilized input VAT would be P3,908,165.24. xxx" Petitioner also presented its Chief Accountant Myrna Dela Fuente9 who testified that the petitioner is applying for a TCC in the amount of P3,909,501.83 representing the input taxes for the purchased goods which were not utilized. The trial was terminated without respondent presenting any evidence. Upon petitioner's motion, the court declared respondent to have waived his right to present evidence after his repeated failure to appear on scheduled hearing dates despite notices of hearing sent to him. 10 The case was deemed submitted for decision after petitioner ftled its memorandum and after the expiration of the period given to respondent to ftle his memorandum. 11 The court is now asked to rule on the following issuesY "a) Whether or not Petitioner purchased goods. b) Whether or not Petitioner paid the corresponding input VAT worth Three Million Nine Hundred Nine Thousand Five Hundred One Pesos and Eighty Three Centavos (P3,909,501.83) on such purchased goods. c) Whether or not such input VAT credits were applied against any of Petitioner's output VAT. 9 During July 3, 2002 and October 29, 2003 hearing. 10 June 24, 2003 Resolution. 11 July 16, 2004 Resolution. 12 Joint Stipulation of Facts and Issues.

DECISION- C.T.A. CASE NO. 6171 d) Whether or not the above goods formed part of Petitioner's export sales. e) Whether or not such export sales were paid for by the buyer in acceptable foreign currency. f) Whether or not such foreign exchange proceeds were inwardly remitted into the Philippine banking system." Simply put, the issue is whether or not petitioner may claim for the issuance of a tax credit certificate for its creditable input taxes paid attributable to its zero-rated export sales. Petitioner, as a VAT registered entity, is legally entitled to file a claim for refund or issuance of a tax credit certificate of unutilized input VAT on importation of and domestic purchases of goods attributable to zero-rated export sales. Section 112 (A) of the 1997 National Internal Revenue Code ("Tax Code") specifically states that: "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: xxx" The zero-rated sales referred to in the above-quoted section pertain to export sales which the Tax Code defmed, among others, as: "The sale and actual shipment of goods from the Philippines to a foreign country, irrespective

DECISION- C.T.A. CASE NO. 6171 PAGE llOF 17 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[.]"13 However, petitioner must prove compliance with the substantiation requirements provided by the Tax Code and its implementing rules and regulations. Thus, to be entitled to a refund of input VAT on importation and local purchases of goods attributable to zero-rated export sales, petitioner must prove that: 1. Both the administrative and the judicial claim for a tax credit or refund was ftled within the two (2) years from the ftling of the quarterly VAT retum(s) covered by the claim as provided under Section 4.106-2(c) of Revenue Regulations No. 7-95 in relation to Section 112(D) of the Tax Code; 2. The claimed input VAT payments were not applied against any output tax during the period covered by the claim and in the succeeding periods; 3. The claimed input VAT payments are directly attributable to zero-rated sales; and 4. The claimed input VAT payments are duly supported by VAT invoice or offtcial receipts in accordance with Section 4.104- 13 Section 106 (A) (2) (a) (1).

DECISION- C.T .A. CASE N O . 6171 PAGE 12 OF17 5 of Revenue Regulations N o. 7-95 in relation to Section 113 and 237 of the Tax Code. 14 Petitioner was able to comply with the first requirement. Both the administrative and judicial claims for refund @ed on July 5, 2000 and September 29, 2000, respectively, were within the two (2)-year prescriptive period reckoned from October 23, 1998 when the Quarterly VAT Return for the third quarter o f taxable year 1998 was ftled.15 Petitioner also established that the amount sought to be refunded was not applied against the output tax. As shown in its Quarterly VAT Return for the second (2nd) quarter of taxable year 2000,16 the amount claimed o f P3,909,501.83 was deducted from the T otal Available Input Tax in the amount of P15,869,254.24.17 However, petitioner was not able to establish that the input VAT payments being claimed for tax credit are directly attributable to it zero-rated sales. Sections 113,237 & 238 of the 1997 Tax Code as well as Section 4.108-1 o f Revenue Regulation No. 7-95, as amended, laid down the invoicing requirements for zero-rates sales. We quote: 14 Intel Philippines Mamifacturing, Inc. v. Commissioner ifInternal Revenue, CTA Case N os. 5760 and 5902, February 5, 2002 cited in Rio Tuba Nickel Mining Corporation vs. Commissioner if Internal Revenue, CTA Case No. 6293, February 3, 2004. 15 Exhibit F-4. 16 Exhibit R. 17 Exhibit R-1.

DECISION- C.T.A. CASE NO. 6171 PAGE 13 OF17 "SEC. 113. Invoicing and Accounting Requirements for VAT Registered Persons.- (A) Invoicing Requirements. - A VAT-registered person shall, for every sale, issue an invoice or receipt. In addition to the information required under Section 237, the following information shall be indicated in the invoice or receipt: (1) A statement that the seller is a VAT-registered person, followed by his taxpayer's identification number (TIN); and (2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value-added tax. (B) Accounting Requirements. - Notwithstanding the provisions of Section 233, all persons subject to the value-added tax under Sections 106 and 108 shall, in addition to the regular accounting records required, maintain a subsidiary sales journal and subsidiary purchase journal on which the daily sales and purchases are recorded. The subsidiary journals shall contain such information as may be required by the Secretary of Finance. "SEC 237. Issuance of Receipts or Sales or Commercial Invoices. - All persons subject to an internal revenue tax shall, for each sale or transfer of merchandise or for services rendered valued at Twenty-five pesos (P25.00) or more, issue duly registered receipts or sales or commercial invoices, prepared at least in duplicate, showing the date of transaction, quantity, unit cost and description of merchandise or nature of service: Provided, however, That in the case of sales, receipts or transfers in the amount of One hundred pesos (P100.00) or more, or regardless of amount, where the sale or transfer is made by a person liable to value-added tax to another person also liable to value-added tax; or where the receipt is issued to cover payment made as rentals, commissions, compensations or fees, receipts or invoices shall be issued which shall show the name, business style, if any, and address of the purchaser, customer or client: Provided, further, That where the purchaser is a VAT-registered person, in addition to the information herein required, the invoice or receipt shall further

DECISION- C.T.A. CASE NO. 6171 show the Taxpayer Identification Number (TIN) of the purchaser. "SEC. 238. Printing of Receipts or Sales or Commercial Invoices. - All persons who are engaged m business shall secure from the Bureau of Internal Revenue an authority to print receipts or sales or commercial invoices before a printer can print the same. No authority to print receipts or sales or commercial invoices shall be granted unless the receipts or invoices to be printed are serially numbered and shall show, among other things, the name, business style, Taxpayer Identification Number (TIN) and business address of the person or entity to use the same, and such other information that may be required by rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner. "SEC. 4.108-1. Invoicing Requirements. - All VAT- registered persons shall, for every sale or lease of goods or properties or services, issue duly registered receipts or sales or commercial invoices which must show: 1. the name, TIN, and address of seller; 2. date of transaction; 3. quantity, unit cost, and description of merchandise or nature of service; 4. the name, TIN, business style, if any, and address of the VAT-registered purchaser, customer or client; 5. the word "zero-rated" imprinted on the invoice covering zero-rated sales; and 6. the invoice value or consideration." (Emphases supplied) Petitioner's export sales invoices18 lack the necessary information required by the Tax Code and regulation quoted above. The said invoices do 18 Exhibits G-1 to G-13.

DECISION- C.T.A. CASE NO. 6171 not show the (1) imprinted words "zero-rated"; (2) petitioner's "TIN-V" o r "TIN-VAT " ; and (3) the Bureau o f Internal Revenue (BIR) Permit Number. It is a hornbook doctrine that failure to present the required valid VAT export invoices is fatal to a claim for refund or tax credit.19 While petitioner was able to present other documents, such as the Bills of Lading20 and E xport Declarations21 to prove actual exportation of its products, the court ftnds these documents insufftcient. It has been settled that these documents are not enough evidence to claim for a refund/ tax credit. These documents, together with the valid sales invoices, should be taken collectively as the best means to prove the exportation of goods. T o elucidate: 22 ''By and large, export sales invoices alone are inadequate proofs that the subject goods were actually exported. Such invoices are merely written accounts of the particulars of merchandise shipped or sent to a purchaser or consignee with the value or prices and charges annexed (Philippine Law Dictionary, 3rd Ed., p. 495). By no means are they accurate confirmations that goods were actually shipped out of the country. Yet, that is what the law requires. Section 100 (a)(2) of the National Internal Revenue Code (then in effect at the time of the alleged exportation) deftnes "Export Sales" as the sale and shipment of goods from the Philippines to a foreign country, irrespective of 19 Intel Philippines M anzgacturing, Inc. vs. Commissioner ifInternal Revenue, CTA Case No. 6040, October 24, 2003. 20 Exhibits H-1 to H-12. 21 Exhibits I-1 to I -13, inclusive o f submarkings. 22 Commissioner ifInternal Revenue vs. Philippine Bobbin Corporation, CA-G .R. SP No . 59452, February 19, 2001.

DECISION- C.T.A. CASE NO. 6171 any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported. In that case, it is imperative for any claimant of a tax refund or credit in relation to the Input VAT paid to prove not only the existence of the sale but also the actual shipment of the goods from the Philippines to a foreign country. "Rather than limiting the documentary requirements to just the export invoices, the law specifically enjoined the production of "export documents" to affirm the authenticity of the export sales. In commercial practice, export documents include commercial invoices or receipts bills of lading, airway bills, and export declarations or permits. These documents, taken collectively, are the best means to prove the exportation of goods." (Emphasis supplied.) Proceeding from the foregoing, the court is constrained to deny petitioner's claim for a tax credit. Petitioner failed to discharge its duty of presenting evidence in support of its claim. As aptly explained by the Court of Appeals in Benguet Corporation vs. Commissioner rf Internal Revenue:23 "Under Sections 108 and 238 of the NIRC, aforequoted, a VAT-registered entity is required to issue invoices or receipts for the transactions therein mentioned. These provisions of the NIRC are mandatory because the law consistently uses the word 'shall'. Even in the regulations issued to implement the VAT provisions on invoicing in the NIRC, the word 'shall' is repeatedly used. As a general rule, the word 'may' when used in a statute is permissive and operates to confer discretion; while the word 'shall' is imperative, operating to impose a duty which may be enforced x x x. "Moreover, the nature of the VAT system necessitates that invoices or receipts be issued. Since the VAT system is a multi- 23 CA-GR SP Nos . 37205,38958 & 39435,July 10, 1998.

DECISION- C.T.A. CASE NO. 6171 stage, multi-point tax where the tax is levied at all stages x x x, it is necessary and convenient that the seller issues an invoice or receipt in order to facilitate computation of the tax credits. "Thus, a claim for tax credit which is not accompanied by the required invoices or receipts cannot be granted. x x x" WHEREFORE, premises considered, the Petition for Review is hereby DENIED. SO ORDERED. ~~C?.~04-~ . 1UANITO C. CASTANEii.tf, JR. Associate Justice I CONCUR: E~.UY AssoCiate Justice C E R T IF I CAT I 0 N 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. '~ }uA~ NIe To C.. C~ AST~ AN- ED~~ JR, Associate Justice (Chairman)