AGC FLAT GLASS PHILIPPINES, INC. v. BUREAU OF CUSTOMS

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SECOND DIVISION AGC FLAT GLASS PHILIPPINES, CTA Case No. 8752 INC., Members: Petitioner, -versus- CASTANEDA, JR., Chairperson CASANOVA, and MANAHAN, JJ. Promulgated: BUREAU OF CUSTOMS, MAY 09 2018 / )(- - - - - - - - - - - - - - - Respondent. - - -- - - - -~ - - - - - )( j: 3:t\ ,., . --- ------ DECISION MANAHAN,J.: This involves a Petition for Review1 filed on December 27, 2013 by petitioner AGC Flat Glass Philippines, Inc. (AGC FGPI) on the supposed inaction of respondent Bureau of Customs, praying for the refund of TWENTY EIGHT MILLION FIVE HUNDRED SEVENTY THREE THOUSAND TWO HUNDRED FIFTY and 15/100 PESOS (Php28,573,250.15) representing the total customs duties paid covering the period January 1, 2008 to December 31, 2009. THE PARTIES Petitioner is a domestic corporation duly organized and e)(isting under and by virtue of the laws of the Republic of the Philippines, with principal office located at Asahi Special Economic Zone (ASEZ) 730 MH Del Pilar St., Pinagbuhatan, Pasig City. 2 rfir\... \ 1 Docket, CTA Case No. 8752, Vol. I, pp. 6-49. 2 Docket, Vol. I, Petition for Review, p. 7.

DECISION CTA Case No. 8752 Page 2 of26 Respondent Bureau of Customs (BOC) is headed by a Commissioner who is vested by the Tariff and Customs Code (TCC) in relation to Republic Act No. 1125, as amended, with the authority to decide, approve and grant refunds for custom duties located at the Office of the Commissioner, Bureau of Customs, G/F OCOM Building, Port Area, Manila, Metro Manila.3 THE FACTS Petitioner is primarily engaged in the export production of various industrial glass products such as float glass, figure glass, and glass mirrors.4 It is a duly registered Ecozone Export Enterprise pursuant to Republic Act (RA) No. 7916 otherwise known as "The Special Economic Zone Act of 1995" (PEZA Law) by the Philippine Economic Zone Authority (PEZA) under Certificate of Registration No. 07-33. 5 According to petitioner, one of its production requirements is petroleum fuel. 6 Thus, to secure a steady supply of petroleum fuel, petitioner entered into a Supply Agreement7 with Pilipinas Shell Petroleum Corporation (PSPC). Pursuant to the Supply Agreement, the purchase price of petroleum fuel sold by PSPC to petitioner included "import duty imposed by the government".B Petitioner claims that the customs duties for petroleum fuel purchases passed on by PSPC to petitioner amounted to P11,284,069.24 for the year 2008 and P17,289,180.91 for the year 2009, or a total of P28,573,250.15.9 Believing that it should have been exempted from paying the customs duties which were included in the cost of said procured fuel, petitioner filed a letter dated October 19, 2010 to~ 3 Jd. 4 Jd. s Docket, vol. I, Par. 3, Petition for Review, p. 7; Par. 3 of respondent's Answer, Docket, val. I, p. 206. 6 Docket, Vol. I, Petition for Review, p. 8. 7 Docket, Vol. II, Exhibit "P-15", pp. 819-835. 8 Docket, Vol. II, Par. 4.0, Exhibit "P-15", p. 821. 9 Docket, Vol. I, Par. 10, Petition for Review, pp. 10-11.

DECISION CTA Case No. 8752 Page 3 of26 the respondent's District Collector of Batangas International Port requesting for the refund of the customs duties imposed on the procured petroleum fuel covering the year 2008 in the amount of Php11,284,069.24.10 On February 16, 2011, petitioner filed another claim for refund for the customs duties imposed on its 2009 procured petroleum fuel amounting to Php17,289,180.91. 11 Respondent, through the District Collector of Batangas International Port, in a letter dated October 28, 2011, informed petitioner that its request for refund of customs duties paid for the period covering January 1, 2008 to December 31, 2009 amounting to Php28,573,250.15 is denied citing that under the Registration Agreement between PEZA and the petitioner dated March 13, 2007, the latter was not entitled to PEZA incentives because "the area is ready fully developed."l2 Thus, on November 14, 2011, petitioner filed a letter request to the respondent for the reversal of said denial where it prays and argues for the approval of said claim for refund considering that it had fulfilled and submitted all the requirements for such claim. 13 Petitioner filed the appeal fee amounting to Php3,000.00.14 On December 25, 2012, petitioner through its representative KPMG, sent a letter dated December 20, 2012 to the respondent where it reiterated its prayer for the approval of said refund claim. 1s However, petitioner did not receive any decision from the respondent. Thus, to avoid having its claim for refund prescribed, petitioner filed the instant petition on December 27, 2013. Respondent was then required by this Court to file its Answer~ 10 Par. 14 of Petition for Review which was admitted in respondent's Answer, Docket, Vol. 1, p. 207. 11 Par. 17 of Petition for Review which was admitted in respondent's Answer, Docket, Vol. 1, p. 207. 12 Par. 18 of Petition for Review which was admitted in respondent's Answer, Docket, Vol. 1, p. 207. 13 Par. 19 of Petition for Review which was admitted in respondent's Answer, Docket, Vol. 1, p. 207. 14 Par. 20 of Petition for Review which was admitted in respondent's Answer, Docket, Vol. 1, p. 207. 15 Par. 21 of Petition for Review which was admitted in respondent's Answer, Docket, Vol. 1, p. 207.

DECISION CTA Case No. 8752 Page 4 of26 on the said petition. 16 However, respondent filed several motions to extend the filing of its answer. On May 23, 2014, respondent through registered mail, filed its Answerl7 which was received by this Court on May 30, 2014. Respondent argued in the said Answer that the instant petition was already filed out of time because there was already a decision dated May 21, 20 12 which was supposed to be final and executory. 18 On June 3, 2014, petitioner asked this Court to declare respondent in default for filing its Answer beyond the period granted by this Court. 19 However, this Court ruled that at the time the Answer was filed by the respondent, it was not yet in default or declared in default, hence, the Answer was admitted.2o On August 4, 2014, pre-trial conference was set and both parties were directed to submit their respective pre-trial brief. 21 Petitioner, through registered mail, filed its pre-trial brief22 on October 20, 2014 which was received by this Court on October 29, 2014. However, on January 13, 2015, petitioner filed an amended pre-trial brief.23 On the other hand, respondent filed its pre-trial brief24 on January 14, 2015. On March 27, 2015, pre-trial was terminated and petitioner was directed to present first its evidence. 25 On May 25, 2015, petitioner moved for the appointment of an independent certified public accountant (ICPA) which was granted by this Court.26 After presenting its evidence, petitioner, through registered mail, filed its formal offer of evidence27 on November 3, 2015 which was received by this Court on November 12, ~ 16 Docket, Vol. I, Summons, p. 114. 17 Id., Vol. I, pp. 206-214. 18 Docket, Vol. I, Answer, Annex "1", pp. 215-219. 19 Id., Motion to Declare in Default, pp. 227-235. 20 Id., Resolution dated August 4, 2014, pp. 292-300. 21 Id., Notice of Pre-Trial Conference, p. 301. 22 Jd., pp. 340-350. 23 Docket, Vol. II, pp. 352-367. 24 Id., pp. 368-374. 2s Id., Pre-Trial Order, pp. 747-752. 26 Id., Resolution dated June 1, 2015, pp. 1293-1294. 27 Docket, Vol. IV, pp. 1475-1517.

DECISION CTA Case No. 8752 Page 5 of26 2015. However, substantial amount of its evidence was not admitted.2s Thus, petitioner moved for the reconsideration of said disallowed evidence.29 Petitioner, through registered mail, filed its amended formal offer of evidence3o on September 2, 2016 which was received by this Court on September 15, 2016. The motion was partially granted by the Court.31 Respondent, instead of presenting its own evidence merely adopted several exhibits of the petitioner.32 The Court then ordered both parties to submit their respective Memoranda.33 Respondent submitted its Memorandum34 on March 31, 2017 through registered mail and was received by this Court on April 17, 2017. Petitioner having filed its Memorandum35 beyond the period allowed, moved36 for its admission on April6, 2017 which the Court eventually admitted on May 16, 2017, hence, the case was submitted for decision. 37 ISSUE The sole issue to be resolved by this Court is whether the petitioner is entitled to the amount of customs duties claimed.38 Petitioner's Arguments39 Petitioner argues that the instant petition is filed pursuant to the principle of solutio indebiti as contained in Article 2154 of the Civil Code, which provides as follows: Art. 2154. If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises. ~ 28 Id., Resolution dated January 18, 2016, pp. 1530-1534. 29 Id., Omnibus Motion dated February 1, 2016, pp. 1542-1560. 3o Id., pp. 1658-1704. 31 Docket, Vol. V, Resolution dated November 23,2016, pp. 1711-1715. 32 !d., Manifestation and Motion, pp. 1717-1721. 33 !d., Resolution dated January 31, 20 17, p. 1723. 34 Jd., pp. 1795-1811. 35 Jd., pp. 1758-1792. 36 Id., Motion to Admit Attached Memorandum, pp. 1750-1757. 37 Id., Resolution dated May 16,2017, pp. 1821-1822. 38 Supra., Note 24. 39 Supra., Note 35.

DECISION CTA Case No. 8752 Page 6 of26 Such legal basis of petitioner's claim is further amplified in the case of Commissioner of Customs v. Philippine Phosphate Fertilizer Corporation. 40 Petitioner also argues that it is entitled to a duty and tax- free importation incentive under the PEZA Law and its Registration Agreement with PEZA. Respondent's Counter-Arguments41 Respondent, on the other hand, argues that this Court has no jurisdiction over the inaction of the Commissioner of Customs pursuant to Section 7(2) of RA No. 1125 as amended by Section 7(a)(4) of RA 9282 and that petitioner is not entitled to PEZA incentives, hence, the claim was properly denied by the District Collector. RULING OF THE COURT CTA has jurisdiction on claims of PEZA-registered enterprise not acted upon by the Commissioner of Customs We shall resolve the question on jurisdiction raised by the respondent before we delve into the substantial issue of this case. Respondent predicates its defense on two conflicting theories: first, in its Answer42, it argues that the petition was already filed out of time because the Commissioner of Customs issued a decision on the claim dated May 21, 20 12 which was already final and executory at the time that the instant case was filed; and second, in its Memorandum,43 respondent contends that the inaction of the Commissioner of Customs (COC) is not appealable to the Court of Tax Appeals citing Section 7(a)(4)44 of RA No.1125 as amended by RA No. 9282, hence, the case is~ 40 G.R. No. 144440, September 01, 2004. 41 Supra., Note 34. 42 Supra., Note 19. 43 !d. 44 "Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other money charges, seizure, detention or release of property affected, fines, forfeitures or other penalties in relation thereto, or other matters arising under the Customs Law or other laws administered by the Bureau of Customs"

DECISION CTA Case No. 8752 Page 7 of26 prematurely filed and does not fall under the exclusive appellate jurisdiction of this court. On the first theory that the petition is filed out of time, this court finds it difficult to lend credence to the existence of said decision considering that this piece of evidence, although included in respondent's Pre-Trial Brief45 as a document to be presented and confirmed by this Court in the Pre-Trial Order, was not offered in respondent's formal offer of evidence as there was no such pleading filed. Instead, respondent in a Manifestation46 merely adopted the evidence submitted by petitioner, which included PEZA Certification of Board Resolution No. 08-673,47 Registration Agreement between PEZA and AGC Philippine Ecozone Management Corporation,48 Letter dated October 28, 2011 from the District Collector, Port of Batangas,49 and Registration Agreement dated March 13, 2007 between PEZA and Asahi Glass Philippines, Inc.so Furthermore, proof of its issuance to and receipt by the petitioner was never established by respondent, and the consistent assertion of the petitioner that it has not received any COC decision yet on its appeal from the denial of its claim for refund from the respondent's District Collector of Batangas was never controverted by respondent. In fact, if such decision was indeed in existence already as of May 21, 2012, then, respondent should have disclosed that during the personal visit of petitioner's counsel at the office of the COC on December 18, 2012. The purpose of said visit was to follow up the status of the pending appeal of petitioner, as confirmed by the letter of petitioner's counsel to respondent's COC on December 20, 2012.51 However, respondent failed to advise petitioner of such decision during the said visit. Thus, this court cannot countenance this proposition of respondent. On the second theory that the filing of this case was premature as inaction by respondent's COC is not within the exclusive appellate jurisdiction of this court, the disquisition of the Supreme Court in the case of Commissioner of Customs us. ~ 45 Docket, Vol. II, pp. 368-374. 46 Id., Vol. V, Manifestation with Motion, pp. 1717-1721. 47 Id., Vol. II, Exhibit "P-12," p. 815. 48 Id., Vol. II, Exhibit "P-13," pp. 816-817. 49 Id., Vol. II, Exhibit "P-22," p. 872. 5o Id., Vol. II, Exhibit "P-23," pp. 874-881. 51 Id., Vol. II, Exhibit "P-26," pp. 885-886.

DECISION CTA Case No. 8752 Page 8 of26 Philippine Phosphate Fertilizer Corporation52 (Philphos case) 1s illuminating, portions of which are quoted hereinbelow: This leads to another question well-worth resolving- what is the prescriptive period which a duly registered enterprise should observe in applying for a refund to which it is entitled under the EPZA Law? The EPZA Law itself is silent on the matter, and the prescriptive periods under the Tariff and Customs Code and other revenue laws are inapplicable, by specific mandate of Section 17(1) of the EPZA Law. This does not mean though that prescription will not lie, as the Civil Code provisiOns on solutio indebiti may find application. The Civil Code is not a customs and internal revenue law. The Court has in the past sanctioned the application of the provisions on solutio indebiti in cases when taxes were collected thru error or mistake. Solutio indebiti is a quasi-contract, thus the claim for refund must be commenced within six (6) years from date of payment pursuant to Article 1145(2) of the New Civil Code. Clearly then, Philphos's right to refund has not yet prescribed. (underscoring supplied) The factual milieu of the above-quoted case falls squarely with the instant case considering that the petitioner is a PEZA- registered enterprise and the legal basis of its claim for refund is found in the provisions of the PEZA law and its implementing rules and regulations (IRR) that were adopted from the EPZA law or Presidential Decree (PD) No. 66. The relevant provisions of the foregoing laws and IRR are quoted below, viz.: Section 17 (1), P.D. No. 66 (EPZA Law) Section 17. Tax Treatment of Merchandise in the Zone. (1) Except as otherwise provided in this Decree, foreign and domestic merchandise, raw materials, supplies, articles, equipment, machineries, spare parts and wares of every description, except those prohibited by law, brought into the Zone to be sold, stored, broken up, repacked, assembled, installed, sorted, cleaned, graded, or otherwise processed, manipulated, manufactured, mixed with foreign or domestic merchandise or used whether directly or indirectly in such activity, shall not be subject to Customs and internal revenue laws and regulations nor to local tax ordinances, the provisiOns of law to the contrary notwithstanding. (underscoring supplied) Section 23, RA No. 7916 as amended by RA No. 8748 SEC. 23. Fiscal Incentives. - Business establishments operating within the ECOZONES shall be entitled to the fiscal am._, s2 G.R. No. 144440, September 1, 2004.

DECISION CTA Case No. 8752 Page 9 of26 incentives as provided for under Presidential Decree No. 66, the law creating the Export Processing Zone Authority, or those provided under Book VI of Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987. (underscoring supplied) Section 1, Rule VIII, Rules and Regulations Implementing RA No. 7916 as amended by RA No. 8748 Rule VIII. Tax Treatment of Merchandise in the Restricted Areas of the Ecozones SECTION 1. Exemptions- Merchandise brought to the restricted areas in the ECOZONES by registered Export or Free Trade Enterprises, except prohibited merchandise, shall not be subject to all customs and internal revenue laws and regulations of the Philippines nor to local tax ordinances: Provided, That they are to be sold, stored, broken-up, replaced, assembled, manipulated, manufactured and/ or mixed with foreign or domestic merchandise within the restricted areas in the ECOZONES. (underscoring supplied) Similarly, in the CTA En Bane case of Commissioner of Customs and the Bureau ofCustoms vs. DOLE Philippines, Inc.s3, this court has laboriously quoted the ruling in the Philphos case, highlights of which are hereinafter reproduced: It is erroneous for respondents to insist on the application of the TCCP to claims for refund that involve passed-on customs duties arising from purchases of supplies brought into the ECOZONE and used, directly or indirectly, by a duly-registered PEZA enterprise. In Philphos, the Supreme Court categorically ruled that the prescriptive periods under the TCCP and other revenue laws are inapplicable on claims for refund of passed-on customs duties arising from purchases of supplies brought into the ECOZONE and used, directly or indirectly, by a duly- registered PEZA enterprise, and that the prescriptive periods or procedural requirements under the TCCP should not serve as a bar for the claim for refund. It further held that said claims for refund of passed-on customs duties must be commenced within six (6) years from the date of payment pursuant to Section 1145 (2) of the New Civil Code. (underscoring supplied) Besides, this Court finds it anomalous, if not highly iniquitous, if the petitioner will be totally at the mercy of the respondent and be left without recourse but to await the decision of the respondent COC which may or may not be ~ sJ CTA EB Case No. 1142, January 5, 2015.

DECISION CTA Case No. 8752 Page 10 of26 forthcoming. Such possible inaction can deprive lawful tax refund claimants of positive and expedient relief from the courts of justice. Thus, the provisions of the law on solutio indebiti are applicable to the claims for refund of PEZA-registered enterprise. On this issue of inaction, the case of Nestle Philippines, Inc. (Formerly Filipro, Inc.) vs. Honorable Court of Appeals, Court of Tax Appeals and Commissioner ofCustoms,54 succinctly unveils the harm and injustice that failure to act can bring to the taxpayers, to wit: Accordingly, once a written protest is seasonably filed with the Collector of Customs the failure or inaction of the latter to promptly perform his mandated duty under the Tariff and Customs Code should not be allowed to prejudice the right of the party adversely affected thereby. Technicalities and legalisms, however exalted, should not be misused by the government to keep money not belonging to it, if any is proven, and thereby enrich itself at the expense of the taxpayers. If the State expects its taxpayers to observe fairness and honesty in paying their taxes, so must it apply the same standard against itself in refunding excess payments, if any, of such taxes. Indeed, the State must lead by its own example of honor, dignity and uprightness. (Emphasis supplied) In fine, this Court has jurisdiction and can take cognizance of this case. Petitioner is entitled to the claim for refund Petitioner maintains that being a PEZA-registered entity, it enjoys a duty and tax-free importation privilege under the PEZA law and its implementing rules and regulations (IRR). Relevant provisions of RA No. 7916, as amended, otherwise and its IRR are quoted below: Section 23, RA No. 7916 as amended by RA No. 8748 SEC. 23. Fiscal Incentives. - Business establishments operating within the ECOZONES shall be entitled to the fiscal incentives as provided for under Presidential Decree No. 66, the law creating the Export Processing Zone Authority, or ~ 54 G.R. No. 134114, July 6, 2001.

DECISION CTA Case No. 8752 Page 11 of26 those provided under Book VI of Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987. (underscoring supplied) XXX XXX Rule XV - Incentives to Ecozone Export and Free Trade Enterprises SECTION 1. Exemption from Duties and Taxes on Merchandise Merchandise, raw materials, supplies, articles, equipment, machineries, spare parts and wares of every description brought into the ECOZONE Restricted Area by an ECOZONE Export or Free Trade Enterprise to be sold, stored, broken up, repacked, assembled, installed, sorted, cleaned, grade or otherwise processed, manipulated, manufacture, mixed with foreign or domestic merchandise whether directly or indirectly related in such activity, shall not be subject to customs and internal revenue laws and regulations of the Philippines nor to local tax ordinances... (Emphasis supplied) Likewise, the PEZA Registration Agreement of the petitioner provides such incentive, as quoted below:ss ARTICLE XIII SPECIAL CONDITIONS 13. The REGISTRANT's project shall be entitled to the remaining incentives under its Board of Investments (BOI) registration and other incentives under R.A. 7916, as amended, subject to the following terms and conditions; xxx XXX Section 24 of RA No. 7916 also provides the exemption of PEZA-registered entities from local and national taxes, to wit: SEC. 24. Exemption from National and Local Taxes.- Except for real property taxes on land owned by developers, no taxes, local and national, shall be imposed on business establishments operating within the ECOZONE. In lieu thereof, five percent (5%) of the gross income earned by all business enterprises within the ECOZONE shall be paid and remitted as follows: a. Three percent (3%) to the National Government; b. Two percent (2%) which shall be directly remitted by the ~ 55 Docket, Vol. II, Exhibit "P-4," p. 800.

DECISION CTA Case No. 8752 Page 12 of26 business establishments to the treasurer's office of the municipality or city where the enterprise is located. Meanwhile, respondent argues that petitioner is not entitled to such claim because the provision in the Original Registration Agreement dated March 13, 2007, particularly in paragraph a of Article XIII pertaining to Special Conditions provides that registrant shall not be entitled to PEZA incentives under RA No. 7916. However, evidence will show that what respondent was alluding to is petitioner's registration agreement56 as an ECOZONE Developer/Operator and not its registration as a PEZA-registered Ecozone Export Enterprise (EEE). The evidence adduced by petitioner in support of its claim for refund, as admitted by this Court, pertains to its registration as an EEE under PEZA Certificate of Registration No. 07-33 issued on June 29, 2007.57 At the time of the procurement of petroleum fuel in 2008 and 2009, petitioner is a PEZA- registered EEE which qualifies it to the incentives provided under RA No. 7916 and its IRR. Among the incentives granted to a PEZA-registered EEE under Section 23 of RA No. 7916 as amended and Section 1, Rule XV of its IRR, are the following: SEC. 23. Fiscal Incentives. - Business establishments operating within the ECOZONES shall be entitled to the fiscal incentives as provided for under Presidential Decree No. 66, the law creating the Export Processing Zone Authority, or those provided under Book VI of Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987. XXX XXX Rule XV - Incentives to Ecozone Export and Free Trade Enterprises SECTION 1. Exemptionfrom Duties and Taxes on Merchandise Merchandise, raw materials, supplies, articles, equipment, machineries, spare parts and wares of every description brought into the ECOZONE Restricted Area by an ECOZONE Export or Free Trade Enterprise to be sold,~ 56 Supra., Note 51. 57 Supra., Note 5.

DECISION CTA Case No. 8752 Page 13 of26 stored, broken up, repacked, assembled, installed, sorted, cleaned, grade or otherwise processed, manipulated, manufacture, mixed with foreign or domestic merchandise whether directly or indirectly related in such activity, shall not be subject to customs and internal revenue laws and regulations of the Philippines nor to local tax ordinances... (Emphasis supplied) The afore-quoted legal provisions allow a PEZA-registered EEE to acquire the necessary materials and supplies to be used for its operation without being subjected to any customs duties or internal revenue taxes. And this is what the petitioner has done when it purchased petroleum fuel from PSPC under the Supply Agreement to be used in the manufacture of its glass products for export. The rationale for extending such tax-and-duty-free incentive to an otherwise local purchase by petitioner is found in the case of Commissioner of Internal Revenue v. Seagate Technology (Philippines), ss where the Supreme Court ruled that an ECOZONE is treated as a foreign territory, to wit: Since the purchases of respondent are not exempt from the VAT, the rate to be applied is zero. Its exemption under both PD 66 and RA 7916 effectively subjects such transactions to a zero rate, because the ecozone within which it is registered is managed and operated by the PEZA is a separate customs territory. This means that in such zone is created the legal fiction of foreign territory. Under the cross-border principle of the VAT system being enforced by the Bureau of Internal Revenue (BIR), no VAT shall be imposed to form part of the cost of goods destined for consumption outside of the territorial border of the taxing authority. If exports of goods and services from the Philippines to a foreign country are free of the VAT, then the same rule holds for such exports from the national territory -- except specifically declared areas -- to an ecozone. (Emphasis supplied) Thus, any purchases made by a PEZA-registered EEE from a local supplier based outside the ECOZONE are considered importations which should not be subjected to any customs duties or internal revenue taxes. The Philphos case which involved a local supplier of petroleum to an EPZA (former name of PEZA)-based buyer is on ~ ss G.R. No. 153866, February 11, 2005.

DECISION CTA Case No. 8752 Page 14 of26 all fours with the present case. Relevant portions of the ruling of the case are reproduced hereinbelow: Section 17 of the EPZA Law particularizes the tax benefits accorded to duly registered enterprises. It states: SEC. 17. Tax Treatment of Merchandize in the Zone.- (1) Except as otherwise provided in this Decree, foreign and domestic merchandise, raw materials, supplies, articles, equipment, machineries, spare parts and wares of every description, except those prohibited by law, brought into the Zone to be sold, stored, broken up, repacked, assembled, installed, sorted, cleaned, graded, or otherwise processed, manipulated, manufactured, mixed with foreign or domestic merchandise or used whether directly or indirectly in such activity, shall not be subject to customs and internal revenue laws and regulations nor to local tax ordinances, the following prov1s1ons of law to the contrary notwithstanding. (emphasis supplied) The cited provision certainly covers petroleum supplies used, directly or indirectly, by Philphos to facilitate its production of fertilizers, subject to the minimal requirement that these supplies are brought into the zone. The supplies are not subject to customs and internal revenue laws and regulations, nor to local tax ordinances. It is clear that Section 17(1) considers such supplies exempt even if they are used indirectly, as they had been in this case. Since Section 17(1) treats these supplies for tax purposes as beyond the ambit of customs laws and regulations, the arguments of the Commissioner invoking the provisions of the Tariff and Customs Code must fail. Particularly, his point that the importation of the petroleum products by Petron was deemed terminated under Section 1202 of the Tariff and Customs Code, and that the termination consequently barred any future claim for refund under Section 1603 of the same law is misplaced and inconsequential. Moreover, the cited provisions of the Tariff and Customs Code if related to Section 17(1) of the EPZA Law would significantly render the argument strained and, if upheld, obviate many of the benefits granted by Section 17(1), for the provision does not limit the tax exemption only to direct taxes. Following the Commissioner's interpretation, any duly registered enterprise sought to be held liable for the controverted custom's duty because the importer had shifted the duty to the buyer would forever be precluded from challenging the duty, which it is not in the first place obliged to pay under the law. Hand in hand with its patent noxiousness to the spirit of the EPZA Law, the approach calls for the unwarranted application of the Tariff and Customs ~

DECISION CTA Case No. 8752 Page 15 of26 Code to investors and players in the zones, which under the EPZA Law are beyond the reach of domestic customs and tax laws, as well as regulations. Similarly, in Commissioner of Customs et al. v. DOLE Philippines, Inc., 59 this Court reiterated the ruling in the Philphos case, to wit: Applying the foregoing doctrine, the Court in Division, therefore, aptly ruled: "Apparently, respondent Commissioner's denial of the claim on mere technicalities is erroneous as neither the prescriptive periods nor procedural requirements provided under the Customs laws serve as a bar for claim for refund of duties passed-on to a duly-registered PEZA enterprise pursuant to the pronouncement in Philphos. Considering that the present claim involves customs duties passed-on by its supplier Petron Corporation for petitioner's purchases of petroleum products, which is a form of an indirect tax, and consistent with existing jurisprudence, the party to which the economic burden of the tax is shifted is entitled to claim for refund of tax where the law clearly grants the said party an exemption from both direct and indirect taxes. More importantly, since the PEZA law clearly provides for tax exemption anent the supplies brought into the zone, i.e., the merchandise, raw materials, supplies, articles, equipment, machineries, spare parts and wares of every description brought into the zone to be sold, stored, broken up, repacked, assembled, installed, sorted, cleaned, graded, or otherwise processed, manipulated, manufactured, mixed with foreign or domestic merchandise or used whether directly or indirectly in such activity, shall not be subject to Customs and internal revenue laws and regulations, the claim for refund of petitioner deserves consideration by respondent Commissioner." (Emphasis supplied) In the case of Commissioner of Internal Revenue v. Philippine Associated Smelting and Refining Corporation,60 the~ 59 CTA EB Case No. 1142 (CTA Case No. 8409, January 5, 2015. 60 G.R. No. 186223 dated October 1, 2014.

DECISION CTA Case No. 8752 Page 16 of26 abovementioned doctrine was also applied by the Supreme Court, to wit: The rule that it is the statutory taxpayer which has the legal personality to file a claim for refund finds no applicability in this case. In Philippine Airlines, Inc. v. Commissioner of Internal Revenue, the Court distinguished between the kinds of exemption enjoyed by a claimant in order to determine the propriety of a tax refund claim. "If the law confers an exemption from both direct or indirect taxes, a claimant is entitled to a tax refund even if it only bears the economic burden of the applicable tax. On the other hand, if the exemption conferred only applies to direct taxes, then the statutory taxpayer is regarded as the proper party to file the refund claim."[2SJ In PASAR's case, Section 17 of P.O. No. 66, as affirmed in Commissioner of Customs, specifically declared that supplies, including petroleum products, whether used directly or indirectly, shall not be subject to internal revenue laws and regulations. Such exemption includes the payment of excise taxes, which was passed on to PASAR by Petron. PASAR, therefore, is the proper party to file a claim for refund. (underscoring supplied) Thus, having established the legal bases of the claim for refund, let us now consider the factual support to such claim. Petitioner presented its Supply Agreements with Pilipinas Shell Petroleum Corporation (PSPC) dated February 22, 200761, November 15, 200762 and April 8, 200963 which show that for the subject period of claim, PSPC agreed to sell, supply and deliver to petitioner its regular fuel oil requirements for its glass plant located in Bo. Pinagbuhatan, Pasig City (Asahi Special Economic Zone). The Supply Agreements state that sales prices shall include the duty, and duty shall mean the prevailing import duty for fuels currently set by the Philippine Government at 3o/o for regular fuel oil. Further, any additional taxes and/or duties that will be imposed by the government will also be applied to the prices quoted. Per the Certifications64 of Manufacture and Delivery Payments of Taxes and Duties issued by PSPC, the details of the quantity in liters of fuel oil purchased and the corresponding~ 6 1 Docket, Vol. II, Exhibit "P-81", Annex C, pp. 11-14 to 11-30. 62 Id., Vol. II, Exhibit "P-81", Annex C, pp. 11-31 to 11-33. 63 Id., Vol. II, Exhibit "P-81", Annex C, pp. 11-34 to 11-55. 64 Id., Vol. XI, Exhibit "P-81", Annex G, pp. XI-28 to XI 48.

DECISION CTA Case No. 8752 Page 17 of26 customs duties paid by petitioner for the years 2008 and 2009 are as follows: Delivery Quantity Duty Portion Exhibit Invoice Number Date (In Liters) (In PHP) Number Various Invoices Jan-08 3,180,900 2,130,344.21 P-1254 Various Invoices-Other Jan-08 284,000 190,203.32 P-1255 Products Various Invoices-Other Feb-08 86,000 61,611.45 P-1256 Products Various Invoices Feb-08 54,000 38,686.26 P-1257 Various Invoices Feb-08 3,732,188 2,673,785.26 P-1258 Various Invoices Mar-08 70 49.42 P-1259 Various Invoices Mar-08 1,672 1,180.45 P-1260 Various Invoices Mar-08 96,000 67,777.26 P-1261 Various Invoices Mar-08 3,405,409 2,404,263.47 P-1262 Various Invoices-Other Apr-08 82,000 19,217.47 P-1263 Products Various Invoices Apr-08 14,454 3,387.43 P-1264 Various Invoices Apr-08 2,755,003 645,660.87 P-1265 Various Invoices May-08 288 71.4 P-1266 Various Invoices-Other May-08 150,000 37,189.23 P-1267 Products Various Invoices May-08 3,030,032 752,230.32 P-1268 Various Invoices-Other Jun-08 120,000 32,836.69 P-1269 Products Various Invoices Jun-08 108 29.55 P-1270 Various Invoices Jun-08 5,110,575 1,398,453.16 P-1271 Various Invoices Dec-08 254 76 P-1272 RFO products Dec-08 207 61.94 P-1273 RFO products Dec-08 2,767,016 827,953.58 P-1274 Sub-Total 24,870,176 11,285,068.74 Various Invoices-RFO Jan-09 3,528,939 1,942,336.52 P-1275 and Other Products Various Invoices-RFO Feb-09 3,152,531 1'167,489.34 P-1276 and Other Products Various Invoices-RFO Mar-09 1,916,555 579,851.45 P-1277 and Other Products Various Invoices-RFO Apr-09 4,746,160 1,265,293.11 P-1278 and Other Products Various Invoices May-09 4,056,138 1'184,528.63 P-1279 Various Invoices Jun-09 3,141,367 1,469,336.72 P-1280 Various Invoices Jul-09 1,084,682 601,673.12 P-1281 Various Invoices Aug-09 4,929,655 3,240,209.84 P-1282 Various Invoices Sep-09 1,790,349 1,157,122.11 P-1283 Various Invoices Oct-09 2,232,000 1,370,547.27 P-1284 Various Invoices Nov-09 3,086,325 1,993,426.94 P-1285 Various Invoices Dec-09 1,983,867 1,317,345.86 P-1286 Sub-Total 35,648,568 17,289,160.91 Total 60,518,744.00 28,574,229.65 �--

DECISION CTA Case No. 8752 Page 18 of26 However, upon examination of the documents65 supporting the above-stated amounts, the Court-commissioned Independent Certified Public Accountant (ICPA), Mr. Leandro M. Lontok of CLTA Accounting, Law and Taxation Services, presented in his supplemental report66 dated August 24, 2015, a re-computation of the total quantity in liters of fuel oil purchased and the corresponding customs duties paid by petitioner for the years 2008 and 2009, which is reproduced hereunder: 2009 Quantity Total 2009 Customs Duty Total (In Liters) (In PHP) 35,598,568 2008 25,889,447.1 2008 - 8,609,901.00 2,491,809.1 Based on 21,137,988 56,736,556 17,279,546.00 28,381,256.( Documents 35,598,568 2,491,809.00 Based on 3 478,237 3 478,237 - 11,101,710.00 Estimate Total 24,616,225 60,214,793 17,279,546.00 The total amounts of customs duties paid as recomputed above were based on two factors, namely: 1) quantity in liters of fuel oil purchased, and 2) customs duty per liter paid. Quantity in Liters o(Fuel Oil Purchased The ICPA classified the recomputed customs duties based on the quantity in liters of fuel oil purchased by petitioner as they are supported with documents, to wit67: � Based on documents are those supported with sales invoices, delivery notes, official receipts and/or other supplementary evidence. � Based on estimate pertains to purchases supported with official receipt(s) but unsupported with evidence of the actual quantity of liters purchased. The estimated quantity is based on the average quantity in liter per invoice amount. ~ 65 sales invoices (Exhibit "P-81 ", Vols. II to VII, Annex D); delivery notes, refinery bulk product shipment (RBPS}, certificates of quantity delivered (CQD) issued by PSPC and petitioner's receiving and issue slips (RIS) and BFO delivery inspection reports together with the certificates ofquantity by Intertek Caleb Brett, an independent appraiser expert in measuring fuel oil (Exhibit "P-81 ",Vol. VIII to X); and official receipts issued by PSPC (Exhibit "P-81 ",Vol. XI, Annex F). 66 Exhibit "P-82", p. 2. 67 Docket, Vol. I, Exhibit "P-81 ", p. I-5.

DECISION CTA Case No. 8752 Page 19 of26 The ICPA stated that the estimated customs duties of P2,491,809.00 pertain to the following purchases in February 2008 supported with official receipt dated March 31, 2008 and Certification from PSPC but unsupported with evidence of the actual quantity of liters purchased such as sales 1nvo1ces, delivery notes and other supplementary evidence:68 Invoice Invoice Official Official Amount No. Date Receipt No. Receipt Date :P 5,774,944 913646021 February 300869 3/31/2008 68,546,355 913646022 2008 p 74,321,299 Total The ICPA computed the estimated quantity in liters of fuel oil purchases in February 2008 related to the aforesaid payment based on the prior month's (January 2008) average quantity in liter per invoice amount and compared the same with that reflected in the Certification issued by PSPC, as shown below: Total quantity in liters in January 2008 3,464,900 Divided by: Total in invoice amounts in liters in January 2008 74,030,506.00 Quantity in liter per invoice amount 0.0468 Multiply by: Total of Sales Invoices Nos. 913646021 and 913646022 74,321,299.00 Estimated Quantity in liters 3,478,237 3,732,188 Quantity in liters per Certification Using the lower or estimated quantity of 3,478,237 liters, the ICPA computed the estimated customs duties of P2,491 ,809.00 as follows: Estimated Quantity in liters 3,478,237 Customs duty per Liter7o :P 0.7164 Estimated Customs Duties p 2,491,808.98 The Court finds that the amount ofP2,491,809.00 should be disallowed from petitioner's claim since it was based merely on an estimated quantity. While petitioner provided a Certification from PSPC attesting that it has delivered and sold 3,732,188 liters of fuel oil, the same must be corroborated by~ 68 !d., Vol.I, Exhibit "P-81 ", p. 1-13. 69 !d., Exhibit "P-1234". 1o Exhibit "P-81", Vol. I, p. I-16.

DECISION CTA Case No. 8752 Page 20 of26 sales invoices, delivery notes and other documents proving the actual quantity sold and delivered. It bears stressing that tax refunds, being in the nature of tax exemptions, are construed strictissimi juris against the taxpayer and liberally in favor of the Government.71 Accordingly, it is a claimant's burden to prove the factual basis of a claim for refund or tax credit. In this case, petitioner failed to discharge this burden with regard to the claimed amount of P2,491 ,809.00. Customs Duty Per Liter Paid The ICPA used the customs duty per liter per month reflected in the PSPC's Certifications which were based on the related Import Entry and Internal Revenue Declarations (IEIRDs)12 filed by PSPC with the Bureau of Customs (BOC) and computed by dividing the total customs duty paid to BOC by the total quantity in liters of imported fuel oil per month, as shown below: OMonth Quantity Quantity Total Customs Customs Janua_!Y 2008 in Barrels in Liters Duty Amount Duty February 2008 3,147,655 (A) (B) per Liter March 2008 Not p 211,449,984 (B+A) April2008 315,724,216 May 2008 Determinable 0.6697 June 2008 2,088,382 December 2,045,522 296,303,012 212,275,112 0.7164 2008 800,915 331,858,000 234,296,106 0.706 January 2009 1,538,158 325,047,216 0.2344 February 2009 1,578,326 127,270,696 76,177,873 0.2479 March 2009 244,423,587 31,553,992 0.2736 April2009 1,975,876 250,806,622 66,883,851 0.2992 May 2009 1,742,773 75,046,997 June 2009 1,740,817 July 2009 1,520,853 373,995,917 208,011,113 0.5562 August2009 373,348,807 138,263,748 0.3703 674,466 375,446,829 113,590,994 0.3025 1,920,042 465,534,765 124,108,317 0.2666 1,843,031 161,807,594 0.292 1,007,145 305, 107,360 47,253,256 0.4677 292,563,916 142,710,307 0.5553 160,053,485 162,457,017 0.6574 105,220,409 71 Atlas Consolidated Mining and Development Corporation v. Commissioner ofInternal Revenue, G.R. No. 159490, February 18, 2008; Commissioner of Internal Revenue v. A. D. Guerrero, Special Administrator, in substitution of Nathaniel I. Gunn, as Administrator of the Estate of the late Paul I. Gunn, G.R. No. L-20942, September 22, 1967. 72 Exhibit "P-81", Vol. XI, Annex H, pp. XI-70 to 242.

DECISION CTA Case No. 8752 Page 21 of26 September 435,042 69,132,771 44,681,265 0.6463 2009 October 2009 1,833,527 290,883,070 178,615,142 0.614 November Not 0.6459 2009 287,697,245 185,820,819 0.664 December Determinable 2009 Not 159,936,628 106,205,611 Total 5,206,941, 736 p 2,464,621,913 Determinable However, a scrutiny of the related IEIRDs shows that the following do not have machine validation or BOC official receipt or Statement of Settlement of Duties and Taxes {SSDT) or any other document to prove payment to the BOC of the total amount of customs duties and VAT indicated in thereon: Exhibit Entry No. P-1308 364-08 P-1314 609-08 P-1315 610-08 P-1344 784-09 P-1345 786-09 P-1346 91758791 P-1347 91758825 P-1348 91758843 P-1349 95807363 P-1350 99166803 P-1351 99166812 P-1352 99166821 P-1353 99166837 P-1354 99166846 P-1355 99169016 P-1357 99169043 P-1358 99169052 P-1359 99166776 P-1360 99166785 P-1361 99457084 P-1362 173209 P-1363 173309 P-1364 173409 P-1365 173509 P-1366 173609 P-1367 173709 P-1368 173809

DECISION 101649475 CTA Case No. 8752 101649493 Page 22 of26 101649511 101649536 P-1369 P-1370 2327-09 P-1371 2328-09 P-1372 2329-09 P-1373 P-1374 P-1375 Likewise, it was noted that the second page of IEIRD marked as Exhibit P-1321 was not submitted and the machine validation thereon does not match with the indicated total amount of customs duties and VAT. Also, the IEIRD marked as Exhibit P-1343 has machine validation but is unreadable and IEIRD marked as Exhibit P-1356 has no machine validation and the second page thereof was not submitted. While, as stated earlier, the Supply Agreements prove that the fuel prices charged by PSPC against petitioner included the customs duties imposed on the imported fuel oil, petitioner must also establish that PSPC actually paid the said customs duties to the BOC. Thus, for petitioner's failure to prove that the customs duties covered by the aforementioned IEIRDs were remitted to the BOC, petitioner's claim must be reduced by an amount of P13,668,20 1.66, as computed below: Per PSPC's Certification I PSPC's Crude Oil Importation Per ICPA Report (Exh. "P-81 ", Vol. I} IEIRD Quantity In Liters %to Disallowed ' Total Total lmpor- Total Duty/ Customs I Importa-tion Tation Deliveries to Liter Duties c=(a/b) Petitioner In (In PHP) I Period (b) of Claim Per IEIRD Page Liters (d) lei (In PHP) i (a) No. April Exh Entry No. Exhibit f=lcl x ldl x lei i 2008 1-26 P-1308 364-08 P-1263 to 81,045,238 325,047,216 25% to 1- 2,851,457 0.2344 I P-1265 31 I 166,650.06 . I May P-1314 609-08 P-1266 to 47 803 748 I 2008 P-1315 610-08 P-1268 79 466 948 I May 2008 127 270 696 127 270 696 100% June 733-08 P-1269 to 14 665 339 244 423 587 6% 1-31 3 180 320 0.2479 i 2008 P-1321 P-1271 to 1- 5 230 683 0.2736 4,746 160 0.2666 788 401.33 : 36 r 1-36 to 1- : 85 866.45 I 42 ! 1-52 April P-1343 95806961 P-1278 142 089 704 465 534 765 31% to 1- 386 200.661 2009 55 ~....

DECISION CTA Case No. 8752 Page 23 of26 May P-1344 784-09 79 173 690 I 2009 P-1345 786-09 82 633 904 P-1279 May 161 807 594 161 807 594 100% 2009 1-55 4 056 138 0.2920 I to 1- I 58 1 184 392.30 i June P-1346 91758791 66 125 831 I 2009 P-1347 91758825 79 483,191 June P-1348 91758843 P-1280 2009 P-1349 95807363 159 498 338 305 107 360 305 107 360 100% I June 2009 June 2009 1-58 3 141 367 0.4677 i to 1- 61 1 469 217.351 I July P-1350 99166803 169,945,281 I 2009 P-1351 99166812 July P-1352 99166821 P-1281 I 2009 P-1353 99166837 July P-1354 99166846 83 534 092 I 2009 39 384 543 I July 292 863 916 292 863 916 100% 2009 I July I 2009 602 323.91 i 1-61 1 084,682 0.5553 to 1- i 62 Aug. P-1356 99169025 150 530 664 2009 137,462,503 Aug. P-1355 99169016 287 993 167 287 993 167 100% 2009 P-1357 99169043 P-1282 il Aug. P-1358 99169052 2009 ! Aug. 2009 4 929 655 0.6574 3 240 755.20 1-62 to 1- 66 Sept. P-1359 99166776 P-1283 16 587 398 I 2009 P-1360 99166785 41 432,412 I Sept. P-1361 11112961 2009 99457084 Sept. 69 132 771 69 132 771 100% 2009 1-66 1 790 349 0.6463 1 157 102.56 I to 1- 67 j Oct. P-1362 173209 I 2009 P-1363 173309 Oct. P-1364 173409 150,551,464 2009 P-1365 173509 Oct. P-1366 173609 P-1284 I 2009 P-1367 173709 Oct. P-1368 173809 i 2009 Oct. I 2009 Oct. 75 455 691 2009 64 875 915 Oct. 2009 290 883 070 290 883 070 100% 1-67 2 914 325 0.6140 1,789 395.55 to 1- 75

DECISION CTA Case No. 8752 Page 24 of26 Nov. P-1369 101649475 ! 2009 101649527 P-1370 101649493 P-1285 75,847,132 Nov. P-1371 101649511 2009 P-1372 101649536 61 661 625 Nov. 2009 150,188,488 I Nov. ! 2009 287,697,245 287,697,245 100% i 33 666 548 49 795 136 I-75 2,354,000 0.6459 1,520,448.60 � 76 474 945 to I- i 159 936 629 159 936 628 100% 86 Dec. P-1373 2327-09 P-1286 2009 P-1374 2328-09 Dec. P-1375 2009 2329-09 I Dec. 2325-09 2009 ! I-86 1 923 867 0.6640 i to I- 38 203,003 1 211 447.7o I 89 I 13,668 201.66! In sum, petitioner has sufficiently proven its entitlement to a refund in the amount of P12,413,239.49 representing customs duties paid on its purchases of fuel oil from PSPC covering the period of January 1, 2008 to December 31, 2009, computed as follows: Amount of claimed customs duties p 28,573,250.15 2,491,809.00 Less: Disallowances a) Customs duties based on 13,668,201.66 estimated quantity of fuel liters purchased p b) Customs duties pertaining to IEIRDs without machine validation or any other proof of payment to the BOC of the total customs duties and excise taxes indicated in the IEIRDs Total Disallowances p 16,160,010.66 Refundable customs duties p 12,413,239.49 WHEREFORE, premises considered, the Petition for Review is hereby PARTIALLY GRANTED, and accordingly, respondent is ORDERED to REFUND OR ISSUE TAX CREDIT CERTIFICATE in the amount of TWELVE MILLION FOUR~

DECISION CTA Case No. 8752 Page 25 of26 HUNDRED THIRTEEN THOUSAND TWO HUNDRED THIRTY NINE & 49/100 PESOS (Php 12,413,239.49). SO ORDERED. ~-~.~ CATHERINE T. MANAHAN Associate Justice WE CONCUR: CAESAR~OVA Associate Justice ;?;'(~~ c. ~a.J-'~ -Q. JUANITO C. CASTANE~; 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. ~~l'0 c. as-~~/ !), JUANITO c. CASTANEDA, JR. Associate Justice Chairperson

DECISION CTA Case No. 8752 Page 26 of26 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. Presiding Justice