HEDCOR SIBULAN, INC. v. COMMISSIONER OF INTERNAL REVENUE

Republic of the Philippines COURT OF TAX APPEALS Quezon City SPECIAL SECOND DIVISION HEDCOR SIBULAN, INC., CTA Case No. 8166 Petitioner, For: Refund -versus- Members: CASTANEDA, JR., Chairperson CASANOVA, and COMMISSIONER OF MINDARO-GRULLA, JJ. INTERNAL REVENUE, Respondent. Promulgated: ��. DEC 212016 / x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - j../;'~ DECISION f. I MINDARO- GRULLA, !_.: This is a Petition for Review1 filed by Hedcor Sibulan, Inc. as petitioner, against Commissioner of Internal Revenue as respondent, before the Court in Division, pursuant to Section 7(a)(2) of Republic Act (RA) No. 1125, An Act Creating the Court of Tax Appeals, as amended2, as well as Rule 4, Section 3(a)(2), in relation to Rule 8, Section 4(a) of the Revised Rules of the Court of Tax Appeals (RRCTA)3, as amended. 1 Docket, vol. I, pp. 5-16. 2 Sec. 7. Jurisdiction.- The CTA shall exercise: (a) Exclusive appellate jurisdiction to review by appeal, as herein provided : XXX XXX (2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds or internal revenue taxes, fees of other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period for action, in which case the inaction shall be deemed a denial; XXX XXX 3 Rule 4, Sec. 3. Cases within the jurisdiction of the Court in Division. -The Court in Division shall exercise: (a) Exclusive original over or appellate jurisdiction to review by appeal the following: XXX XXX

CTA Case No. 8166 Page 2 of 29 Hedcor Sibulan, Inc. vs. CIR DECISION Petitioner seeks the refund or issuance of a tax credit certificate in the amount of P39,514,045.36, allegedly representing its unutilized input value-added tax (VAT) on purchases of goods and services for the third (3rd) quarter of calendar year (CY) 2008 attributable to its zero-rated sales of generated power. Petitioner Hedcor Sibulan, Inc. is a domestic corporation duly organized and existing under Philippine laws, with principal office at Sta. Cruz, Davao del Sur.4 It is registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer with Taxpayer's Identification No. 005-633-984-000.5 Petitioner was incorporated on December 2, 2005, the primary purpose of which is to "engage in the business of owning, developing, constructing, operating, repairing, and maintaining of hydroelectric power plant systems, renewable and indigenous power generation plants and other types of power generation and/or converting stations, and to act as holding company or joint venture partners or investors in the business of developing, operating, and/or owning power generation plants and/or converting stations".6 (2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code or other applicable law provides a specific period for action: Provided, that in case of disputed assessments, the inaction of the Commissioner of Internal Revenue within the one hundred eighty day-period under Section 228 of the National Internal Revenue Code shall be deemed a denial for purposes of allowing the taxpayer to appeal his case to the Court and does not necessarily constitute a formal decision of the Commissioner of Internal Revenue on the tax case; Provided, furthe~ that should the taxpayer opt to await the final decision of the Commissioner of Internal Revenue on the disputed assessments beyond the one hundred eighty day-period abovementioned, the taxpayer may appeal such final decision to the Court under Section 3(a), Rule 8 of these Rules; XXX XXX Rule 8. Sec. 4. Where to appeal,� mode ofappeal.- (a) An appeal from a decision or ruling or the inaction of the Commissioner of Internal Revenue on disputed assessments or claim for refund of internal revenue taxes erroneously or illegally collected, the decision or ruling of the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade & Industry, the Secretary of Agriculture, and the Regional Trial Court in the exercise of their original jurisdiction, shall be taken to the Court by filing before it a petition for review as provided in Rule 42 of the Rules of Court. The Court in Division shall act on the appeal. XXX XXX 4 Par. 2, Admitted Facts, Amended Joint Stipulation of Facts and Issues (Amended JSFI), Docket, vol. II, p. 1063. 5 Par. 9, Admitted Facts, Amended JSFI, Docket, vol. II, p. 1064. 6 Par. 7, Admitted Facts, Amended JSFI, Docket, vol. II, p. 1064. .<

CTA Case No. 8166 Page 3 of 29 Hedcor Sibulan, Inc. vs. CIR DECISION Respondent, on the other hand, is the duly appointed Commissioner of the Bureau of Internal Revenue, empowered to perform the duties of said office including, among others, the power to decide, approve, and grant refunds or tax credits of erroneously or excessively paid taxes, as provided by law. He holds office at the BIR National Office Building, BIR Road, Diliman, Quezon City. Petitioner owns a hydroelectric power plant (42 MW Sibulan Hydro Electric Power Plant). It consists of two (2) independent hydroelectric projects namely, Upstream Plant A with installed capacity of about 16.5 MW and Downstream Plant B with installed capacity of about 26 MW; which has been duly certified by the Department of Energy (DOE) as consistent with the Power Development Plan (PDP) of the government.7 On March 7, 2007, petitioner entered into a Power Supply Agreement (PSA)8 with Davao Light and Power Company, Inc. (DLPCI). Under the said Agreement, petitioner will sell its generated power through its hydroelectric power plants to DLPCI. On October 20, 2008, petitioner filed with the Revenue District Office (RDO) No. 115 of the BIR its Original Quarterly VAT Return9 for the 3rd quarter of CY 2008. Subsequently, petitioner filed its Amended Quarterly VAT Return10 for the same quarter on June 23, 2010, reflecting the following relevant details: VATable Sales p - Zero-Rated Sales Total - p - Output tax due p - Less: Allowable input tax p 75,195,300.69 Input tax carried over from previous period p 4,414,111.47 39,514,045.36 Domestic purchase of goods other than capital goods P35,099,933.89 Domestic purchase of services 7 Par. 11, Admitted Facts, Amended JSFI, Docket, vol. II, p. 1065; Exhibits "P-2-1" to "P-2-2", Docket, vol. III, pp. 1118-1119. 8 Exhibit "P-1", Docket, vol. II, pp. 828-934. 9 Par. 12, Admitted Facts, Amended JSFI, Docket, vol. II, p. 1065; Exhibit "P-7", Docket, vol. II, p. 948. 10Par. 13, Admitted Facts, Amended JSFI, Docket, vol. II, p. 1065; Exhibit "P-8", Docket, vol. II, p. 954. <

CTA Case No. 8166 Page 4 of 29 Hedcor Sibulan, Inc. vs. CIR DECISION p 114,709,346.05 P(114,709,346.05) Total allowable input tax VAT payable (overpayment) On June 25, 2010, petitioner filed with BIR ROO No. 115 a written application for the refund or issuance of tax credit certificate (TCC) and an Application for Tax Credits/Refund (BIR Form No. 1914) for its unutilized input VAT for the second to fourth quarters of CY 2008 in the total amount of P107,888,643.12. The said application includes the unutilized input VAT paid and incurred by petitioner during the 3rd quarter of CY 2008 in the total amount of P39,514,045.36.11 However, respondent failed to decide on petitioner's administrative claim for refund of its excess and unutilized input VAT for the third quarter of CY 2008.12 Hence, petitioner filed the instant Petition for Review on September 30, 2010. On October 21, 2010, respondent filed an Answer13 and interposed the following special and affirmative defenses: "5. Taxes paid and collected by the Bureau of Internal Revenue (BIR) are presumed to have been made in accordance with law, rules and regulations and the burden to prove otherwise is upon petitioner. 6. Petitioner's alleged claim for refund is subject to administrative routinary investigation/examination by the Bureau. 7. Petitioner must prove it is entitled to a claim for refund under the strictest terms. 8. Petitioner must prove that it paid the alleged VAT input taxes for the period in question. 9. Petitioner must prove that the same alleged VAT input taxes was not utilized against any output tax liability. 11 Par. 14, Admitted Facts, Amended JSFI, Docket, vol. II, p. 1065. 12 Par. 15, Admitted Facts, Amended JSFI, Docket, vol. II, p. 1065. 13 Docket, vol. I, pp. 175-183. (

CTA Case No. 8166 Page 5 of 29 Hedcor Sibulan, Inc. vs. CIR DECISION 10. Petitioner must prove that the alleged VAT input taxes for the period in question are attributable to its alleged VAT zero-rated sales. 11. Petitioner must prove that the administrative and judicial claims were filed within the period prescribed by law. 12. Petitioner must prove that its sales are VAT zero- rated as contemplated under Section 112 (A) of the NIRC of 1997. 13. The claim for refund in the amount of Thirty Nine Million Five Hundred Fourteen Thousand Forty Five and 36/100 Pesos (P39,514,045.36) allegedly representing accumulated and unutilized VAT input taxes it paid for the 3rd quarter of CY 2008 is not properly documented. To support its claim, it is indispensable for petitioner to prove the following: a) Registration requirements of a value-added taxpayer in compliance with Section 9.236.1 (a) of Revenue Regulations No. 16-2005 and Section 236 of the NIRC of 1997, as amended; b) Invoicing and accounting requirements for VAT- registered persons as well as the filing and payment of VAT pursuant to the provisions of Section 113 and 114 of the NIRC of 1997, as amended. Failure to comply with the invoicing requirements on the documents supporting the sale of goods and services will result in the disallowance of claim for input tax of the taxpayer claimant. (Revenue Memorandum Circular No. 42-2003); c) Petitioner must prove that it has fully complied with the requirements of Section 9.236.1.a of RR No. 16-2005 and Revenue Memorandum Order No. 53-98, otherwise, there would be no sufficient compliance with regard to the filing of administrative claim for tax credit/refund which is a condition sine qua non prior to the filing of judicial claim; <

CTA Case No. 8166 Page 6 of 29 Hedcor Sibulan, Inc. vs. CIR DECISION d) In relation thereto, Section 112 (C) of the NIRC of 1997, as amended, requires submission of complete documents in support of the application for tax refund filed with respondent before the one hundred twenty (120) day period shall apply and before petitioner could avail of the judicial remedies provided by law. Ergo, petitioner's failure to submit proof of compliance with the aforesaid requirements warrants the dismissal of the instant Petition for Review. 14. In the case entitled 'San Roque Power Corp. vs. Commissioner ofInternal Revenue; the Supreme Court had the occasion to say: 'In order to claim a refund or tax credit under Section 112 (A), petitioner must comply with the following criteria: 1. The taxpayer is VAT-registered; 2. The tax-payer is engaged in zero-rated or effectively zero-rated sales; 3. The input taxes are due or paid; 4. The input taxes are not transitional input taxes; 5. The input taxes have not applied against output taxes during and in the succeeding quarters; 6. The input taxes claimed are attributable to zero-rated or effectively zero-rated sales; 7. For zero-rated sales under Section 106 (A) (2) (1) and (2); 106 (B), and 108 (B) (1) and (2), the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with BSP rules and regulations; <

erA Case No. 8166 Page 7 of 29 Hedcor Sibulan, Inc. vs. CIR DECISION 8. Where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and that the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on the basis of sales volume; and 9. The claim is filed within 2 years after the close of the taxable quarter when such sales were made.' 15. For a judicial claim for refund of input VAT to prosper, the petitioner must prove that there must be (a) zero-rated or effectively zero-rated sales; (b) that input taxes were incurred or paid; (c) that the input taxes are attributable to zero-rated or effectively zero-rated sales; (d) that the input taxes were not applied against any output VAT liability; and (e) the claim for refund/tax credit must be filed within the two year prescriptive period. (EG & G Omni, Inc. v. CIR, CTA Case No. 5987, March 26, 2004) 16. Corollary thereto, Sec. 4.110.8 of RR 16-2005 explicitly provides: 'Input Taxes for tie importation of goods or the domestic purchases of goods, properties or services is made in the course of trade or business, whether such input taxes shall be credited against zero-rated sales, or subject to the 5�/o Final Withholding VAT must be substantiated and supported by the following documents and must be reported in the information returns required to be submitted to the Bureau: (1) For the importation of goods - import entry or other equivalent document showing actual payment of VAT on imported goods; (2) For domestic purchases of goods and properties - invoice showing the information required under Sections 113 and 237 of the Tax Code.' 17. Likewise, for a judicial claim to prosper, the party must not only prove that it is a VAT-registered entity, it must substantiate the input VAT paid by purchase invoices or official receipts (Commissioner of Internal Revenue vs. Manila Mining <

CfA Case No. 8166 Page 8 of 29 Hedcor Sibulan, Inc. vs. CIR DECISION Corporation, 468 SCRA 571). Such that failure to comply with the requirements for a valid request for refund including the requirement for a valid sales invoice is fatal to the claim for refund. (EG & G Omni, Inc. v. CIR, CTA Case No. 5987, March 26, 2004) 18. In its Petition for Review, petitioner stated that it filed an Amended Quarterly VAT Return for the 3rd quarter of CY 2008 on June 23, 2010. Moreover, petitioner alleged that it filed an administrative claim for tax credit/refund on its unutilized input VAT covering the same period on June 25, 2010. 19. The filing of the Petition for Review on September 30, 2010 was premature based on the pertinent provision of Section 112 (C) of the NIRC of 1997, as amended, to wit: (C) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsection (A) hereof. In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals. (Underscoring supplied) 20. Suffice it to say respondent was not given an opportunity to act on the matter. As clearly provided for in the abovementioned provision, respondent should have been given a period of one hundred twenty (120) days from the filing of petitioner's application for refund or issuance of TCC and Application for Tax Credits/Refunds within which to resolve the administrative application for refund. Manifestly, it is only after the expiration of the aforesaid period that petitioner is given 30 days within which to elevate the same before the Honorable Court of Tax Appeals. Ergo, since petitioner prematurely filed ('

CTA Case No. 8166 Page 9 of 29 Hedcor Sibulan, Inc. vs. CIR DECISION its judicial claim prior to the lapse of the period provided for in Section 112 (C) of the NIRC of 1997, as amended the Honorable Court cannot acquire jurisdiction over the instant case. 21. To recapitulate, since petitioner prematurely filed the Petition for Review on September 30, 2010, the Honorable Court has no jurisdiction to hear and decide the instant case. 22. The provision of law regarding prescriptive periods is jurisdictional, compliance with which is essential for this Honorable Court to exercise authority over the instant case. Such statutes or rules are construed as mandatory as they have been absolutely indispensable to the prevention of needless delays and to the orderly and speedy discharger of business and are necessary incident to the proper, efficient and orderly discharge of official functions. 23. Furthermore, it is well-established in this jurisdiction that claims for refund are construed strictly against the claimant for the same partake of the nature of exemption from taxation and are therefore held against the claimant. Petitioner must present clear and convincing evidence to merit a tax refund. The taxpayer bears the burden of establishing the factual basis of its claim for refund. 24. Basic is the rule that tax refunds are regarded as tax exemptions that are in derogation of the sovereign authority and are to be construed strictissimijuris against the person or entity claiming the exemption (Philippine Phosphate Fertilizer Corporation v. Commissioner of Internal Revenue, G.R. No. 141973, June 28, 2005). The burden of proof is upon him who claims the exemption and he must be able to justify his claim by the clearest grant under Constitutional or statutory law and he cannot be permitted to rely upon vague implications. (BPI Leasing Corporation v. the Honorable Court ofAppeals, eta!., G.R. No. 127624, November 18, 2003). The law does not look with favor on tax exemptions and that he who would seek to be thus privileged must justify it by words too plain to be mistaken and too categorical to be misinterpreted (Sea-Land Service vs. Court ofAppeals, 357 SCRA 444). 25. All told, petitioner's claim for refund filed before the Honorable Court should be denied for lack of jurisdiction and/or lack of merit." c

CTA Case No. 8166 Page 10 of 29 Hedcor Sibulan, Inc. vs. CIR DECISION A Notice of Pre-Trial Conference was issued by the Court on October 22, 2010, setting the case for pre-trial conference on November 11, 2010. 14 Accordingly, respondent's Pre-Trial Brief15 was filed on November 8, 2010; while petitioner's Pre-Trial Brief16 was filed on November 25, 2010. On November 25, 2010, the parties submitted their Joint Stipulation of Facts and Issues17� The Court, in a Resolution18 dated January 17, 2011, approved the parties' joint stipulations and terminated the pre-trial. On March 9, 2011, respondent filed a Motion to Dismiss19 on the ground of lack of jurisdiction for failure of petitioner to file a judicial claim for refund within the period prescribed by law, in violation of Section 112(C) of the National Internal Revenue Code (NIRC) of 1997, as amended. Respondent alleges that petitioner filed its judicial claim prematurely; hence, the Court has no jurisdiction to take cognizance of the case and should dismiss the petition. On April 5, 2011, petitioner filed its Comment/Opposition (Re: Respondent's Motion to Dismiss dated 4 March 2011)20, in compliance with the Court's Resolution21 dated March 11, 2011. The former Second Division22, in a Resolution23 dated April 12, 2011, dismissed petitioner's judicial claim for being prematurely filed. On April 29, 2011, petitioner filed a Motion for Reconsideration24 and on May 27, 2011, respondent filed his Comment Petitioner's Motion for Reconsideration (Re: Resolution dated 12 April2011)25 � On 14 Docket, vol. I, p. 185. 15 Docket, vol. I, pp. 186-189. 16 Docket, vol. I, pp. 203-217. 17 Docket, vol. I, pp. 226-232. 18 Docket, vol. I, p. 234. 19 Docket, vol. I, pp. 265-271. 2o Docket, vol. I, pp. 300-319. 21 Docket, vol. I, p. 274. 22 Composed of Associate Justice Juanito C. Castaneda, Jr., Associate Justice Caesar A. Casanova, and Associate Justice Cielito N. Mindaro-Grulla. 23 Docket, vol. I, pp. 321-326. 24 Docket, vol. I, pp. 330-366. 25 Docket, vol. I, pp. 376-400. ~

CTA Case No. 8166 Page 11 of 29 Hedcor Sibulan, Inc. vs. CIR DECISION June 14, 2011, the former Second Division issued a Resolution26 denying petitioner's Motion for Reconsideration for lack of merit. On July 18, 2011, petitioner filed a Petition for Review27 with the Court of Tax Appeals (CTA) En Bane to assail the above Resolutions, docketed as CTA EB No. 798. On the other hand, respondent filed his Comment (Re: Petition for Review Resolution dated August 9, 2011)28 on September 5, 2011. In compliance with the CTA En Bane Resolution29 dated October 3, 2011, respondent filed his Memorandum30 on November 15, 2011; while the Memorandum for Petitioner31 was filed on November 16, 2011. Hence, the case was submitted for decision. On December 6, 2012, the CTA En Bane rendered a Decision32 dismissing the Petition for Review for lack of merit and affirming the Resolutions dated April 12, 2011 and June 14, 2011 of the former Second Division. Petitioner filed a Motion for Reconsideration33 on January 24, 2013. Respondent filed his Comment (Re: Petitioner's Motion for Reconsideration)34 on March 11, 2013. Meanwhile, on February 12, 2013, the Supreme Court promulgated the consolidated case of Commissioner of Internal Revenue vs. San Roque Power Corporation, Taganito Mining Corporation vs. Commissioner ofInternal Revenue, and Phi/ex Mining Corporation vs. Commissioner ofInternal Revenue (San Roque case)35, which reinforced the doctrine in Commissioner ofInternal Revenue vs. Aiehi Forging Company of Asia, Inc. (AiehiJ6 that the 120+30-day period is mandatory and jurisdictional, but recognized a period of exception to its applicability, i.e., the period from the issuance of BIR 26 Docket, vol. I, pp. 403-408. 27 Docket, vol. I, pp. 413-469. 2a Docket, vol. I, pp. 497-514. 29 Docket, vol. I, pp. 518-519. 30 Docket, vol. I, pp. 530-550. 31 Docket, vol. I, pp. 552-612. 32 Docket, vol. II, pp. 615-630. 33 Docket, vol. II, pp. 652-665. 34 Docket, vol. II, pp. 669-680. 35 G.R. Nos. 187485, 196113, and 197156, February 12, 2013. 36 G.R. No. 184823, October 6, 2010. ("

CTA Case No. 8166 Page 12 of 29 Hedcor Sibulan, Inc. vs. CIR DECISION Ruling No. DA-489-03 on December 10, 2003 to October 6, 2010 when the Aiehidoctrine was adopted. On May 30, 2013, the CTA En Bane issued an Amended Decision37 in light of the San Roque case. The CTA En Bane ruled that even though petitioner filed its judicial claim for refund or tax credit of excess and unutilized input VAT before the lapse of the 120-day waiting period, still, petitioner's judicial claim was filed on September 30, 2010, or within the period of exception established by the San Roque case, thereby granting petitioner's Motion for Reconsideration, reversing and setting aside the CTA En Bane's Decision dated December 6, 2012, and remanding CTA Case No. 8166 to the Court in Division for further proceedings. Respondent filed a Motion for Reconsideration (Re: Decision Promulgated May 30, 2013)38 on June 20, 2013, praying that the CTA En Bane's Amended Decision dated May 30, 2013 be set aside and the Decision dated December 6, 2012 be reinstated; which was denied in the Resolution39 dated November 20, 2013. As a result, respondent filed a Petition40 with the Supreme Court, docketed as G.R. No. 210271. On February 17, 2014, the Supreme Court issued a Resolution41 denying the petition for failure to sufficiently show any reversible error in the assailed judgment. Respondent then filed a Motion for Reconsideration (Resolution dated February 17, 2014)42, which the Supreme Court likewise denied with finality via Resolution43 dated June 11, 2014. Consequently, an Entry of Judgmenf:44 was issued by the Second Division of the Supreme Court proclaiming that the Resolution dated 37 Docket, vol. II, pp. 683-694. 3B Docket, vol. II, pp. 700-716. 39 Docket, vol. II, pp. 741-754. 40 Docket, vol. II, pp. 760-772. 41 Docket, vol. II, p. 777. 42 Docket, vol. II, pp. 778-791. 43 Docket, vol. II, p. 793. 44 Docket, vol. II, pp. 796 and 798. tC

CTA case No. 8166 Page 13 of 29 Hedcor Sibulan, Inc. vs. CIR DECISION February 17, 2014 became final and executory and recorded in the Book of Entries of Judgments on August 14, 2014. In view of the foregoing, the case was remanded to the Court in Division for further proceedings. On February 4, 2015, the Court issued a Resolution45 setting the presentation of petitioner's evidence on February 23, 2015. On February 18, 2015, petitioner filed an Omnibus Motion (i. To Cancel the Hearing on February 23, 2015; ii. For Leave to Re-open the Pre-Trial; and iii. To Defer the Presentation of Petitioner's Evidence)46, which was granted by the Court in a Resolution47 dated February 23, 2015. The case was set for pre-trial on April 6, 2015.48 On April 27, 2015, the parties submitted their Amended Joint Stipulation of Facts and Issues49 � Then on May 5, 2015, the Court approved the same and terminated the pre-trial.so On May 6, 2015, upon motion of petitioner, this Court commissioned Emmanuel Y. Mendoza, partner of Mendoza Querido & Co., as Independent Certified Public Accountant {CPA) for the case.51 During trial, petitioner presented Ms. Arlene Galace- petitioner's former General Accountant52 and Emmanuel Y. Mendoza- the Court- commissioned Independent CPA53� On July 15, 2015, petitioner filed its Formal Offer of Evidence (With Motion for Leave to Correct Marking of Exhibits)54, submitting Exhibits "P-1"I "P-2-1"I "P-2-2"I "P-3"I "P-5"I "P-6"I "P-7"I "P-8"I "P-9"I '"P-10" "P-11" "P-12" "P-13" "P-14" "P-15" "P-15-a" "P-18" to "P-IIIIII 45 Docket, val. II, pp. 801-803. 46 Docket, val. II, pp. 804-808. 47 Minutes of Hearing dated February 23, 2015, Docket, val. II, p. 809. 48 Ibid. 49 Docket, val. II, pp. 1063-1076. 50 Pre-Trial Order, Docket, val. II, pp. 1078-1081. 51 Minutes of Hearing dated May 6, 2015, Docket, val. II, p. 1083. 52 Minutes of Hearing dated May 6, 2015, Docket, val. II, p. 1083; Exhibit "P-15", Docket, val. II, pp. 1013-1026. 53 Minutes of Hearing dated June 15, 2015, Docket, val. III, p. 1098; Exhibit "262", Docket, val. Ill, pp. 1088-1097. 54 Docket, val. III, pp. 1105-1117. <

CfA Case No. 8166 Page 14 of 29 Hedcor Sibulan, Inc. vs. CIR DECISION 206", "P-207", "P-208" and "P-209", "P-210" to "P-213", "P-214" to "P- 217", "P-218" to "P-221", "P-222" to "P-225", "P-226" to "P-229", "P- 230" to "P-233", "P-234", "P-235", "P-236" and "P-237", "P-238", "P- 239", "P-240" to "P-259", "P-260", "P-261", "P-262", and "P-262-a"; which were admitted by this Court in the Resolutions55 dated August 27, 2015 and November 26, 2015. Petitioner's documentary exhibits are as follows: Exhibit Description: P-1 Power Supply Agreement (PSA) executed between Petitioner and Davao Light and Power P-2-1 Company, Inc. (DLPCI) dated March 7, 2007 Certificate of Compliance No. 10-05-GN-16816 P-2-2 issued by the Energy Regulatory Commission (ERC) for Petitioner's Hydroelectric Power P-3 Plant Bon May 24 2010 Certificate of Compliance No. 10-08-GN-56- P-5 16881 issued by the ERC for Petitioner's P-6 Hydroelectric Power Plant A on August 9, 2010 2nd Indorsement issued by the Chief of the P-7 Contracts Division - Legal Services of the P-8 Department of Energy (DOE) addressed to the P-9 Assistant Director for Corporate and P-10 Partnership Registration of the SEC P-11 Memorandum of Agreement between P-12 Petitioner and DOE dated July 14, 2008 P-13 Petitioner's letter filed with the ERC on P-14 December 10, 2007 requesting the issuance of Certificate of Compliance Petitioner's Original Quarterly VAT Return for the 3rd quarter of calendar year (CY) 2008 Petitioner's Amended Quarterly VAT Return for the 3rd quarter of CY 2008 Petitioner's Original Quarterly VAT Return for the 4th Quarter of CY 2008 Petitioner's Original Quarterly VAT Return for the 1st quarter of CY 2009 Petitioner's Original Quarterly VAT Return for the 2nd quarter of CY 2009 Petitioner's Original Quarterly VAT Return for the 3rd quarter of CY 2009 Petitioner's Original Quarterly VAT Return for the 4th quarter of CY 2009 Petitioner's Original Quarterly VAT Return for the 1st quarter of CY 2010 55 Docket, vol. III, pp. 1138-1139 and 1158-1159. 4'

CTA case No. 8166 Page 15 of 29 Hedcor Sibulan, Inc. vs. CIR DECISION P-15 Sworn Statement of Ms. Arlene Galace to Questions Propounded by Atty. Mary Grace P-15-a Aileen V. Estoy dated March 30, 2015 P-18 to P-206 Signature of Ms. Arlene Galace in her Sworn Statement dated March 30, 2015 P-207 Supporting documents for input VAT for the 3rd P-208 and quarter of CY 2008 Company's schedule of input VAT for the 3rd P-209 quarter of CY 2008 P-210 to P-213 Original quarterly VAT returns for the 3rd and P-214 to P-217 4th quarters of CY 2008 P-218 to P-221 Original Quarterly VAT Returns for the pt to P-222 to P-225 4th quarters of CY 2009 P-226 to P-229 Amended Quarterly VAT Returns for the 1st to P-230 to P-233 4th quarters of CY 2010 Amended Quarterly VAT Returns for the 1st to P-234 4th quarters of CY 2011 P-235 Amended Quarterly VAT Returns for the 1st to P-236 and 4th quarters of CY 2012 P-237 Original Quarterly VAT Returns for the pt to P-238 4th quarters of CY 2013 P-239 Original Quarterly VAT Returns for the 1st and P-240 to P-259 2nd quarters of CY 2014 and Amended Quarterly VAT Returns for the 3rd and 4th P-260 quarters of CY 2014 P-261 Original Quarterly VAT Return for the 1st Quarter of CY 2015 P-262 Certificate of Endorsement issued by the DOE Certificates of Compliance of Plants A and B P-262-a issued by the ERC PSA between Petitioner and DLPCI dated March 7, 2007 Schedule of Petitioner's zero-rated sales for the 15tto 4th quarters of CY 2010 Supporting documents for Petitioner's zero- rated sales for the 1st to 4th quarters of CY 2010 Petitioner's Audited Financial Statements for CY 2010 Report of the Independent Certified Public Accountant (ICPA) on the results of the procedure performed relative to Petitioner's claim for refund of its unutilized input tax covering the 3rd quarter of CY 2008 Sworn Statement of Mr. Emmanuel Y. Mendoza to Questions Propounded by Atty. Mary Grace Aileen V. Estoy dated June 10, 2015 Signature of Mr. Mendoza in his Sworn Statement dated June 10, 2015 <

CTA Case No. 8166 Page 16 of 29 Hedcor Sibulan, Inc. vs. CIR DECISION On the other hand, during the hearing held on June 15, 2015, counsel for respondent manifested that he has no witness to present. Upon motion of the parties, the Court granted both parties thirty (30) days from receipt of the Court's resolution on petitioner's formal offer of evidence to file their respective memoranda.56 On February 12, 2016, this case was submitted for decision, considering petitioner's Memorandum57 filed through registered mail on January 27, 2016 and received by the Court on February 5, 2016 and respondent's Manifestation58 filed on October 9, 2015, adopting the arguments raised in his Answer filed on October 21, 2010 as his Memorandum. 59 The parties submitted the following issues60 for this Court's resolution: "17.1. Whether or not Petitioner's unutilized input VAT for the 3rd quarter of CY 2008 amounting to Php39,514,045.36 is duly substantiated by documentary evidence in the form of invoices and official receipts; 17.2. Whether or not Petitioner's unutilized input VAT for the 3rd quarter of CY 2008 amounting to Php39,514,045.36 was applied or credited against any output VAT of the Petitioner in the same quarter and subsequent taxable quarter or quarters; and 17.3. Whether or not the input VAT on Petitioner's domestic purchases of goods and services for the 3rd quarter of CY 2008 is attributable to its zero-rated sales of generated power." The foregoing issues can be summarized into one main issue, to wit: 56 Minutes of Hearing dated June 15, 2015, Docket, vol. III, p. 1098. 57 Docket, vol. III, pp. 1174-1207. 58 Docket, vol. III, p. 1152. 59 Docket, vol. III, p. 1210. 60 Issues, Amended JSFI, Docket, vol. II, pp. 1065-1066. <

erA case No. 8166 Page 17 of 29 Hedcor Sibulan, Inc. vs. CIR DECISION "Whether or not petitioner is entitled to a refund or issuance of tax credit certificate in the amount of P39,514,045.36 as alleged excess and unutilized input VAT on domestic purchases of goods and services attributable to its zero-rated sales of generated power for the 3rd quarter of CY 2008." Petitioner argues that it is entitled to a refund of its unutilized input taxes attributable to its zero-rated sales of generated power pursuant to Sections 108(8)(7), 110(8), and 112(A) and (C) of the NIRC of 1997, as amended. Section 112(A) and (C) of the NIRC of 1997, as amended, states: "SEC. 112. Refunds or Tax Credits ofInput 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, 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 106(A)(2)(a)(1), (2) and (b) and Section 108(8)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the 8angko Sentral ng Pilipinas (8SP): 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(8)(6), the input taxes shall be allocated ratably between his zero-rated and non-zero-rated sales. XXX XXX XXX (C) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the Commissioner shall ~

CTA Case No. 8166 Page 18 of 29 Hedcor Sibulan, Inc. vs. CIR DECISION grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsection (A) hereof. In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals." Based on Section 112(A) and (C) of the NIRC of 1997, as amended, in order to be entitled to a refund or tax credit of unutilized input VAT attributable to zero-rated or effectively zero-rated sales, the following requisites must be complied with: 1. the claimant must be a VAT-registered person; 2. there must be zero-rated or effectively zero-rated sales; 3. input taxes were incurred or paid; 4. such input taxes are attributable to zero-rated or effectively zero-rated sales; 5. said input taxes were not applied against any output VAT liability; and 6. the administrative and judicial claims for refund were filed within the prescribed period. Sixth Requisite: Petitioner's administrative and judicial claims were seasonably filed The Court shall first determine petitioner's compliance with the sixth requisite which pertains to the timeliness of the filing of petitioner's claim. Section 112(A) is clear that for VAT-registered persons whose sales are zero-rated or effectively zero-rated, a claim for refund or credit of creditable input tax that is due or paid, and that is attributable to zero-rated or effectively zero-rated sales, must be filed within two years after the close of the taxable quarter when such sales were ~

erA Case No. 8166 Page 19 of 29 Hedcor Sibulan, Inc. vs. CIR DECISION made. The reckoning period would always be the end of the quarter when the pertinent sales or transactions were made, regardless of when the input VAT was paid.61 Note that the reckoning point for counting the two-year period to file an administrative claim for refund or credit of unutilized input VAT is the close of the taxable quarter when the zero-rated sales were made. Hence, what is important is not the quarter when the purchases of goods or services were made and the corresponding input taxes were incurred or paid, but rather, the quarter when the zero-rated sales were made. For indeed, it is at the time the zero-rated sales were made that petitioner can establish with definiteness that the input taxes incurred or paid were in fact attributable to its zero-rated sales. As found by the Court-commissioned Independent CPA, Mr. Emmanuel Y. Mendoza, petitioner did not have sales from its generated power for the 3rd quarter of CY 2008 since during this period, construction of its two hydroelectric power plants was still ongoing. It was only in the year 2010 when these power plants became operational and generated power which was sold to DLPCI.62 Thus, petitioner declared zero-rated sales in its 2010 Quarterly VAT Returns63 � Since the claimed input VAT incurred/paid for the 3rd quarter of 2008 may be attributable to the zero-rated sales in 2010, the following shall be the timeline from which the administrative claim may be filed: Quarter Ending 2-Year Prescriptive Period March 31, 2010 Start End June 30, 2010 September 30, 2010 April 1 2010 March 31, 2012 December 31, 2010 July 1 2010 June 30 2012 October 1, 2010 September 30, 2012 January 1, 2011 December 31, 2012 As can be seen from the above table, only the reported unutilized input taxes as of the end of the first (1st) quarter of 2010 are ripe for refund/issuance of TCC when the administrative claim64 was filed on June 25, 2010. 61 CBK Power Company Limited vs. Commissioner of Internal Revenue, G.R. No. 198729-30, January 15, 2014. 62 Exhibit "P-261", p. 16. 63 Exhibits "P-214" to "P-217". 64 Par. 14, Admitted Facts, Amended JSFI, Docket, vol. II, p. 1065. <

CTA case No. 8166 Page 20 of 29 Hedcor Sibulan, Inc. vs. CIR DECISION In relation thereto, Section 110(8) of the NIRC of 1997, as amended, states in part that "If the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters: xxx Provided, however, That any input tax attributable to zero-rated sales by a VAT-registered person may at his option be refunded or credited against other internal revenue taxes, subject to the provisions of Section 112." In applying the afore-mentioned provisions, the Court finds that as of the date of filing of petitioner's administrative claim on June 25, 2010, the entire unutilized input VAT for the 3rd quarter of 2008 amounting to P39,514,045.36 may be the subject of a claim for refund or issuance of TCC as it is in the nature of an excess "Input Tax Carried Over from Previous Period", which may be attributed to the reported zero-rated sales for the first quarter of 2010. Therefore, counting from March 31, 2010, the close of the first quarter of 2010, petitioner's administrative claim filed on June 25, 2010, was well within the two-year prescriptive period. As discussed earlier, the timeliness of petitioner's judicial appeal was already settled by the Court of Tax Appeals En Bane in its Amended Decision in CTA EB No. 798 dated May 30, 2013, which was effectively affirmed by the Supreme Court through its Minute Resolution dated February 17, 2014. Hence, petitioner timely filed both its administrative and judicial claims. The Court shall now proceed to determine petitioner's compliance with the other requisites. First Requisite: Petitioner is a VAT- registered entity Petitioner complied with the first requisite considering that it is registered with the BIR as a VAT taxpayer in accordance with Section <

CTA Case No. 8166 Page 21 of 29 Hedcor Sibulan, Inc. vs. CIR DECISION 236 of the NIRC of 1997, as amended, with Taxpayer Identification No. 005-633-948-VAT.65 Second Requisite: Petitioner had zero- rated sales On the second requisite, Section 108(8)(7) of the NIRC of 1997, as amended, provides that sale of power generated through renewable sources of energy is among the transactions subject to zero percent (0�/o) VAT, to wit: "SEC. 108. Value-added Tax on Sale ofServices and Use or Lease ofProperties. - XXX XXX XXX (B) Transactions Subject to Zero Percent (0%) Rate. -The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0�/o) rate: XXX XXX XXX (7) Sale of power or fuel generated through renewable sources of energy such as, but not limited to, biomass, solar, wind, hydropower, geothermal, ocean energy, and other emerging energy sources using technologies such as fuel cells and hydrogen fuels." Further, Section 4.108-5(b)(7) of Revenue Regulations (RR) No. 16-2005, implementing the foregoing provision, qualified the applicability of such zero-rating as follows: "SECTION 4.108-5. Zero-Rated Sale ofServices. - XXX XXX XXX 65 Par. 9, Admitted Facts, Amended JSFI, Docket, vol. II, p. 1064. <

CTA Case No. 8166 Page 22 of 29 Hedcor Sibulan, Inc. vs. CIR DECISION (b) Transactions Subject to Zero Percent (0%) VAT Rate. -The following services performed in the Philippines by a VAT- registered person shall be subject to zero percent (0�/o) VAT rate: XXX XXX XXX (7) Sale of power or fuel generated through renewable sources of energy such as, but not limited to, biomass, solar, wind, hydropower, geothermal and steam, ocean energy, and other emerging sources using technologies such as fuel cells and hydrogen fuels; Provided, however, that zero-rating shall apply strictly to the sale of power or fuel generated through renewable sources of energy, and shall not extend to the sale of services related to the maintenance or operation of plants generating said power." Corollary to the above provisions, Section 4.108-3(f) of Revenue Regulations No. 16-2005 states: "SECTION 4.108-3. Definitions and Specific Rules on Selected Services. - XXX XXX XXX (f) Sale of electricity by generation, transmission, and distribution companies shall be subject to 10�/o VAT on their gross receipts: Provided, That sale of power or fuel generated through renewable sources of energy such as, but not limited to, biomass, solar, wind, hydropower, geothermal, ocean energy, and other emerging sources using technologies such as fuel cells and hydrogen fuels shall be subject to 0�/o VAT. 'Generation companies' refers to persons or entities authorized by the Energy Regulatory Commission (ERC) to operate facilities used in the generation of electricity. For this purpose, generation of electricity refers to the production of electricity by a generation company or a co-generation facility pursuant to the provisions of the R.A. No. 9136 (EPIRA). They shall include all Independent Power Producers (IPPs) and NPC/Power Sector Assets and Liabilities Management Corporation (PSALM)-owned generation facilities." ~ .~.,.,.. <

CTA Case No. 8166 Page 23 of 29 Hedcor Sibulan, Inc. vs. CIR DECISION Clearly, from the foregoing, to qualify for VAT zero-rating, petitioner must prove by sufficient evidence that it is engaged in the sale of power or fuel generated through renewable sources of energy. Petitioner was incorporated on December 2, 2005, the primary purpose of which is "to engage in the business of owning, developing, constructing, operating, repairing, and maintaining of hydroelectric power plant systems, renewable and indigenous power generation plants and other types of power generation and/or converting stations, and to act as holding company or joint venture partners or investors in the business of developing, operating, and/or owning power generation plants and/or converting stations".66 Petitioner's 42 MW Sibulan Hydro Electric Power Plant consisting of two (2) independent hydroelectric projects namely, Upstream Plant A with installed capacity of about 16.5 MW and Downstream Plant B with installed capacity of about 26 MW have been duly certified by the DOE as consistent with the Power Development Plan of the government.67 Both Plants A and B were duly issued with Certificates of Compliance by the Energy Regulatory Commission.68 Pursuant to the Power Supply Agreement69 executed between petitioner and DLPCI on March 7, 2007, the former undertook to supply the latter with its electricity requirements in its Franchise Area. Accordingly, the agreement shall expire on the twelfth (12th) year from Phase I Supply or early commencement thereof. In its Amended Quarterly VAT Return70 for the first quarter of 2010, petitioner reflected zero-rated sales/receipts in the amount of P20,316,218.41, pertaining to its gross receipts from sales of electricity to DLPCI as evidenced by the VAT zero-rated sales invoice71 and official receipt (0Rf2 issued by petitioner to DLPCI for the same period. 66 Par. 7, Admitted Facts, Amended JSFI, Docket, vol. II, p. 1064. 67 Par. 11, Admitted Facts, Amended JSFI, Docket, vol. II, p. 1065. 68 Exhibits "P-2-1" to "P-2-2", Docket, vol. III, pp. 1118-1119. 69 Exhibit "P-1", Docket, vol. II, pp. 828-934. 70 Exhibit "P-214". 71 Exhibit "P-240". 72 Exhibit "P-241". ~

CTA Case No. 8166 Page 24 of 29 Hedcor Sibulan, Inc. vs. CIR DECISION Such sales of electricity generated through a renewable source of energy, particularly, hydropower, qualify for VAT zero-rating under Section 108(B)(7) of the NIRC of 1997, as amended. Third Requisite: Petitioner incurred or paid input taxes To prove that petitioner incurred/paid the excess input VAT amounting to P39,514,045.36 for the 3rd quarter of 2008, it submitted various suppliers' invoices, official receipts, Bureau of Customs (BOC) Import Entries and Internal Revenue Declarations (IEIRDs), and bank official receipts for the remittance of BOC duties and taxes73; which were all examined by the Independent CPA. Upon scrutiny of the Independent CPA Report and the related supporting documents, the Court agrees with the Independent CPA's findings that the input taxes in the amount of P516,138.17 should be disallowed for non-compliance with the substantiation requirements under Sections 110(A) and 113(A) and (B) of the NIRC of 1997, as amended, in relation to Sections 4.110-2, 4.110-3, 4.110-8, and 4.113- 1 of RR No. 16-05, as amended. Below is the detailed breakdown of the disallowed input VAT amounting to P516,138.17: 74 Findings ICPA Report Exhibit No. Amount Domestic Purchase of Services (Exh. "P-261 ") Not properly substantiated: P-88 p 7 152.32 Input VAT on domestic purchase of services Annex P-89 to P-92 56,305.56 supported by VAT ORs wherein the amount of input P-93 to P-94 VAT in the OR does not tie up with the amount of A-2 P-95 to P-96 306,847.02 input VAT in the Company's Schedule A-3 1 516.15 A-4 P-97 Input VAT on domestic purchase of services A-5 P-98 53 678.00 supported by documents other than VAT ORs A-6 2,359.07 Input VAT on domestic purchase of services A-7 supported by ORs with no BIR Authority to Print Input VAT on domestic purchase of services supported by VAT ORs dated outside period of claim Input VAT on domestic purchase of services supported by ORs printed with "NON-VAT/NV" Input VAT on domestic purchase of services supported by ORs printed with "NOT A VAUD SOURCE OF INPUT VAT" 73 Exhibits "P-18" to "P-206". 74 Exhibit "P-261", Annex A. ~

CfA Case No. 8166 Page 25 of 29 Hedcor Sibulan, Inc. vs. CIR DECISION A-8 405.50 A-9 Input VAT on domestic purchase of services posted 1 215.97 twice in the Company's schedule A-11 P429479.59 Input VAT on domestic purchase of services with no A-12 available supporting documents A-13 P-177 p 198.95 A-14 Domestic Purchase of Goods A-15 P-178 to P-188 974.41 Not properly substantiated: A-16 Input VAT on domestic purchase of goods supported P-189 35.36 by VAT invoices wherein the amount of input VAT in the invoice does not tie up with the amount of input P-190 to P-200 83 560.65 VAT in the Company's Schedule Input VAT on domestic purchase of goods supported P-201 58.93 by documents other than VAT invoices Input VAT on domestic purchase of goods supported 1,830.28 by invoices with no BIR Authority to Print p 86,658.58 Input VAT on domestic purchase of goods supported by VAT invoices dated outside period of claim P516,138.17 Input VAT on domestic purchase of goods supported by invoices printed with "NON-vAT/NV" Input VAT on domestic purchase of goods with no available supportinq documents TOTAL In addition, petitioner's claimed input VAT in the amount of P6,218,334.86, as detailed below, should also be disallowed for non- compliance with the substantiation requirements under the afore- mentioned VAT law and regulations: ICPA Report (Exh. "P-261"} Exhibit OR/Invoice OR/Invoice Input VAT No. Date Amount Annex No. Supplier 8/21/2008 p 7,519.00 Domestic Purchase of Services: 9/19/2008 7 519.00 8/5/2008 Supported with VAT OR but no separate amount indicated for the VAT 9/23/2008 42,000.00 8/4/2008 42 000.00 A-1 P-20 ABOmZ & COMPANY INC. 102449 9/2/2008 9/26/2008 192.60 A-1 P-21 ABOmZ & COMPANY, INC. 102878 9/26/2008 128.40 9/8/2008 363.00 A-1 P-22 ABOmz & ENERGY SOLUTIONS 1858 7/3/2008 7/5/2008 80.40 A-1 P-23 ABOmZ & ENERGY SOLUTIONS 1933 7/28/2008 235.71 8/29/2008 301,830.00 A-1 P-24 ABOmz EQUITY VENTURES 02515 8/29/2008 30 816.00 8/29/2008 35 880.00 A-1 P-25 ABOmz EQUITY VENTURES 02618 8/4/2008 31 200.00 9/5/2008 33 240.00 A-1 P-26 ABOmZ EQUITY VENTURES 02688 9/20/2008 33,420.00 317,046.00 A-1 P-27 ABOmZ EQUITY VENTURES 02692 872,269.09 31,200.00 A-1 P-37 CEBU PRAEDIA DEV. CORP 2960 A-1 P-41 EDCOP 16012 A-1 P-42 ED COP 16013 A-1 P-43 EDCOP 16014 A-1 P-44 EDCOP 16019 A-1 P-45 EDCOP 16020 A-1 P-46 EDCOP 16021 A-1 P-47 ED COP 16015 A-1 P-48 EDCOP 16022 A-l L _ __ _ P-49 EDCOP 16025 ~

CTA Case No. 8166 Page 26 of 29 Hedcor Sibulan, Inc. vs. CIR DECISION A-1 P-53 GENSAN STAR SECURITY & ALLIED 2467 9/22/2008 1 339.29 SERVICES INC A-1 P-55 GREAT STREET CONSTRUCTION 1273 7/5/2008 80 475.27 EQUIPT RENTALS 22135 7/31/2008 4 500.00 A-1 P-57 HOUSE OF TRAVEL INC 22460 9/19/2008 2,458.00 HOUSE OF TRAVEL INC 1213 8/11/2008 A-1 P-58 JJ DRILLTEK CO 2615 7/10/2008 129 160.20 KARL'S KOFFEE KORNER 2534 7/3/2008 34.29 A-1 P-59 KARL'S KOFFEE KORNER 2763 7/18/2008 37.50 MANTIS SECURITY SERVICES INC 2813 8/29/2008 A-1 P-66 MANTIS SECURITY SERVICES INC 2788 8/5/2008 405.50 MANTIS SECURITY SERVICES INC 405.50 A-1 P-67 NDT-PHILS INSPECTION SERVICES 0376 9/18/2008 5,288.57 CORP A-1 P-68 QUIKWAY CAROMOVERS 1038 8/14/2008 89 820.00 INTERNATIONAL INC A-1 P-69 QUIKWAY CAROMOVERS 1039 8/14/2008 6 354.98 INTERNATIONAL INC A-1 P-70 QUIKWAY CAROMOVERS 1043 8/21/2008 6 354.98 INTERNATIONAL INC A-1 P-71 QUIKWAY CAROMOVERS 1044 8/21/2008 13 045.94 INTERNATIONAL INC A-1 P-72 QUIKWAY CAROMOVERS 1049 8/27/200/ 6 522.97 INTERNATIONAL INC A-1 P-73 QUIKWAY CAROMOVERS 1055 9/3/2008 26,091.88 INTERNATIONAL INC A-1 P-74 QUIKWAY CAROMOVERS 1054 9/3/2008 13 045.94 INTERNATIONAL INC A-1 P-75 SAFEWAY PROTECTIVE & 6777 7/3/2008 19,568.91 INVESTIGATION AGENCY A-1 P-76 SAFEWAY PROTECTIVE & 6781 7/21/2008 1 339.29 INVESTIGATION AGENCY A-1 P-77 SAFEWAY PROTECTIVE & 6785 8/6/2008 1339.29 INVESTIGATION AGENCY 0005 9/16/2008 A-1 P-78 T&T PHILIPPINES 176531 7/8/2008 1 339.29 TOYOTA DAVAO CITY INC 176810 8/8/2008 982 592.40 A-1 P-79 TOYOTA DAVAO CITY INC 176959 8/29/2008 TOYOTA DAVAO CITY INC 177111 9/19/2008 672.53 A-1 P-80 TOYOTA DAVAO CITY INC 00947 & 50 10/7/2008 629.77 PONTMAIN RESOURCES INC 1 004.34 A-1 P-81 7/4/2008 431.58 53 533.39 A-1 P-83 2.45 A-1 P-84 A-1 P-85 A-1 P-86 A-1 P-87 A-2 P-88 Overclaimed input VAT A-1 P-82 SOLID SHIPPING LINES INC 186126 Input VAT Per Claim Less: Input VAT Per OR P176.04 Overclaimed Input VAT 173.59 p 2.45 Subtotal P3 234 733.25 Domestic Purchase of Goods: Supported with VAT invoice but no separate amount indicated for the VAT A-10 P-103 BANKEROHAN FLYING V GAS STATION 13954 9/9/2008 p 368.17 81.43 A-10 P-104 BLUEGRE COFFEE CORP 19282 7/3/2008 93.75 A-10 P-105 BLUEGRE COFFEE CORP 19896 8/21/2008 102.86 139.30 A-10 P-106 BLUEGRE COFFEE CORP 19530 8/5/2008 565.18 347.68 A-10 P-113 DC TECH MICRO SERVICES 76017 7/25/2008 318.75 696.41 A-10 P-114 DC TECH MICRO SERVICES 76257 8/7/2008 A-10 P-115 EXOR LPG CENTER 36445 7/22/2005 A-10 P-116 EXOR LPG CENTER 36885 9/13/2008 A-10 P-164 PINLAC PRINTING PRESS 2482 8/21/2008 ~

CTA Case No. 8166 Page 27 of 29 Hedcor Sibulan, Inc. vs. CIR DECISION A-10 I I P-173 ULAS HARDWARE 806833 7/16/2008 8.04 0836 9/1/2008 16.07 A-10 P-176 WHOLESOME FOODS INC 298177 7/24/2008 237.54 Supporting VAT invoice issued not in petitioner's name 298305 7/26/2008 79.18 298306 7/26/2008 87.40 A-10 P-117 GH OFFICE DEPOT 299123 8/2/2008 69.43 7/5/2008 91.81 A-10 P-118 GH OFFICE DEPOT 8287 8/5/2008 145559 471.44 A-10 P-119 GH OFFICE DEPOT 7/10/2008 28031 7/31/2008 184 653.43 A-10 P-120 GH OFFICE DEPOT 28754 8/2/2008 174 615.05 28890 8/2/2008 177 256.73 A-10 P-121 JH HARDWARE CO 28889 8/4/2008 176 464.22 28876 8/4/2008 177 520.90 A-10 P-141 MIT & COMPANY 28885 8/6/2008 177 256.73 29121 8/6/2008 172 501.70 Supportinq VAT invoice without BIR authority to print 29042 8/7/2008 162 991.66 29171 8/7/2008 182 540.09 A-10 P-146 PHELP'S DODGE PHIL. ENERGY PROD. 29170 8/9/2008 165,105.00 29173 8/9/2008 174,350.88 A-10 P-147 PHELP'S DODGE PHIL. ENERGY PROD. 29172 8/12/2008 183,596.76 29210 8/12/2008 184,917.60 A-10 P-148 PHELP'S DODGE PHIL. ENERGY PROD. 29209 8/19/2008 184,917.60 29328 8/19/2008 184 917.60 A-10 P-149 PHELP'S DODGE PHIL. ENERGY PROD. 29329 8/19/2008 184,917.60 29327 8/26/2008 105 667.20 A-10 P-150 PHELP'S DODGE PHIL. ENERGY PROD. 29656 9/1/2008 25,624.30 A-10 P-151 PHELP'S DODGE PHIL. ENERGY PROD. 66251 12.12 A-10 P-152 PHELP'S DODGE PHIL. ENERGY PROD. A-10 P-153 PHELP'S DODGE PHIL. ENERGY PROD. A-10 P-154 PHELP'S DODGE PHIL. ENERGY PROD. A-10 P-155 PHELP'S DODGE PHIL. ENERGY PROD. A-10 P-156 PHELP'S DODGE PHIL. ENERGY PROD. A-10 P-157 PHELP'S DODGE PHIL. ENERGY PROD. A-10 P-158 PHELP'S DODGE PHIL. ENERGY PROD. A-10 P-159 PHELP'S DODGE PHIL. ENERGY PROD. A-10 P-160 PHELP'S DODGE PHIL. ENERGY PROD. A-10 P-161 PHELP'S DODGE PHIL. ENERGY PROD. A-10 P-162 PHELP'S DODGE PHIL. ENERGY PROD. A-10 P-163 PHELP'S DODGE PHIL. ENERGY PROD. Overclaimed input VAT A-10 P-169 SACRED HEART GAS STATION Input VAT per Claim p 59.47 Less: Input VAT per Invoice 47.35 Overclaimed Input VAT p 12.12 - L_______ Subtotal 1'2,983,601.61 TOTAL P6,218,334.86 In sum, out of petitioner's input VAT claim of P39,514,045.36, only the amount of P32,779,572.33 as computed below, is duly substantiated: Input VAT claim p 39,514 045.36 Less: Disallowances p 516/138.17 6,734,473.03 Per Independent CPA Findings P6,218,334.86 P32,779,572.33 Per this Court's Further Verification Refundable Input VAT Fourth and Fifth Requisites: Petitioner's input taxes were A

CTA Case No. 8166 Page 28 of 29 Hedcor Sibulan, Inc. vs. CIR DECISION unutilized and attributable to its zero-rated sales Since petitioner's sales for the first quarter of 2010 were all zero- rated, the substantiated input VAT of P32,779,572.33 is entirely attributable thereto. Further, although the claimed input VAT was carried over in petitioner's succeeding Quarterly VAT Returns, the same was deducted as "VAT Refund/TCC Claimed" in the Amended Quarterly VAT Return for the fourth quarter of 201075 and was no longer carried forward to the subsequent Quarterly VAT Returns76� It was noted, however, that the total amount deducted as "VAT Refund/TCC Claimed" in the 4th Quarterly VAT Return for 2010 was P385,134,836.20.77 And as correctly noted by the Independent CPA, such amount included the subject claim of P39,514,045.36.78 Prior to and until such time that it was deducted as a VAT Refund/TCC Claimed in the VAT Returns, petitioner did not incur any output VAT liability. And since the claimed input VAT was deducted in petitioner's 4th Quarterly VAT Return for 2010, it can be ascertained that it will no longer be utilized as credit for any future output VAT liability. WHEREFORE, premises considered, the instant Petition for Review is PARTIALLY GRANTED. Accordingly, respondent is ORDERED TO REFUND or TO ISSUE A TAX CREDIT CERTIFICATE to petitioner in the reduced amount of P32,779,572.33 representing petitioner's unutilized input taxes for the 3rd quarter of 2008 attributable to its zero-rated sales. SO ORDERED. ~ r~~o0 +- N. M~ . G~ 75 Exhibit "P-217". N. MINDARO-GRULLA 76 Exhibits "P-218" to "P-234". 77 Exhibit "P-217", Line 230. Associate Justice 78 Exhibit "P-261", p. 9.

CTA case No. 8166 Page 29 of 29 Hedcor Sibulan, Inc. vs. CIR DECISION Associate Justice WE CONCUR: ~~c. a:r~ '~ l~NITO C. CASTAN EDit,' JR. Associate Justice ATTESTATION I attest 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. ~.,~ C.~ots.. -~ ft:iA-NITO c. CASTANED,\fJ'R.. Associate Justice Chairperson CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairperson's Attestation, 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. Presiding Justice