PHILEX MINING CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES Coon ol Tax Appeals QUEZON CITY SECOND DIVISION PHILEX MINING CORPO RATION, C.T.A. CASE NO. 7495 Petitioner, Members: - versus - . CASTAN EDA , J R., .Chairperson UY , and PA LAN CA -ENRIQUEZ, JJ. COMMISSIONER OF INTERNAL Promulgated : REVENUE , JAN 0 9 2009 Respondent. r" . l_f :o) X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X DE C ISI O N UY , ~ .: This is a Petition for _Revi ew fileq by petitioner Phi lex Mining Corporation seeking refund of the amou nt of FO URTEEN MILLION FOUR HUNDRED SEVENTY-NIN E THOUS A ND FIVE HUNDRED NINETY-FIVE PESOS AND 41 /1 00 (PHP14,479,595.41 ), representi ng excess input va lue- added tax (VAT) on petitioner's alleged purchases of goods and services attributable to zero-rated sa les of mine pro du cts for the second quarter of taxable year 2004 . TH E FAC TS Philex Mining Corporation (Petition er) is a corporation organized under Philippine laws , with principa l office at 27 Bri xton St. , Pasig City, engaged in ~ ~ 69

DEC ISION C.T.A. CASE N O . 7495 Page 2 of I8 the mining business , in cluding the exploration and operation of mine properties and the commercial produ ction �and marketing of mine products .1 It is VAT-registered , with VAT Registration Ce rtificate No . 35-6-000731 effective October 29 , 1997 and under Bureau of Internal Revenue (BIR) Form No. 2303 as of January 31 , 1997. Likewise , it has an approved Application for Zero- rate , pursuant to Section 4.100-3 of Revenue Regulations No . 7-95, effective April12 , 1998.2 Respondent, on the other hand , .is th.e government official .charged with the administration and enforcement of the national internal revenue laws, including the granting of refund or ta x cred it of ta xes erroneously or illegally collected , and other refundable or creditable taxes under the National Internal Revenue Code (NIRC) of 1997. He lrolds offi ce at BIR National Office, Diliman , Quezon City. I Admittedly , �petitioner sold pcart of its copper concentrates production to Philippine Associated Smelting and Refini ng Corporation (PASAR) , which is a Philippine Economic Zone Authority (PEZA)-r.egistered enterprise 3 It also exported gold and copper con ce ntrates to fo reign buyers during the subject period 4 On April 23 , 2004, petitioner fil ed its Second Quarterly VAT Return for the taxable year 2004 , which was am ended �on February 21 , 2005 , reflecting the following details: total zero-rated sales of Php939,237 ,698 .67 , domestic purchases of goods of Ph p282, 374.10 with input tax of 1 Par. I, Summa ry of Facts Adm ilted, Stipu lat ion of Facts and Iss ues, Docke t, p. 35. 2 Par. 2, Summary of racts Ad mitted, Stipu lation of Fac ts and issues, Docke t, p. 35 . Date of App lication for Ze ro-Rated sho ul d be I988 as ind icated in A nnex "A-2" of Petiti on fo r Rev iew, p. 8. 1 Par. 10, Summ ary of Facts Ad m itted, Stipulati on of Fac ts a nd Iss ues. Docket, p. 37 . I" "'"� ' P". 12, Summ"y uf F"" Admi tted, Stipu:'tioo of F"" ' :�d Docket, p. 37.~

DEC ISION C.T.A. CASE NO. 7495 Php28,237.41 , importation of goods of Php144,513.580.00 with input tax of Php14,451 ,358 .00.5 ClaiiT)ing to be entitled to the refund of the alleged excess input tax of P14,479,595.41 for the second quarter of 2004, petitioner filed on October 19, 2005 an Application for Tax Credit I Refund of VAT Paid (BIR Form 2552) for the second quarter period from April 1 to June 30, 2004. It also filed a claim for refund/tax credit certificate with the One Stop Shop Center of the Department of Finance on November 25 , 2005, pursuant to Section 4.106-2 and Revenue Regulations No. 7-95 , in relation to Section 112 of the NlRC of 1997.6 As respondent has not acted on petiti oner's claim, the latter filed the instant Petition for Review on June 29, 2006, pursuant to Sections 112(D) and 229 of the NIRC of 1997. On July 31, 2006, respondent filed responsive pleading by way of an Answer interposing the following Special and Affirmative Defenses: "6. The claim for refund is still under examination by the respondent's Bureau ; 7. The burden of proof is upon the petitioner to prove that it is entitled to the claim for refund or issuance of tax credit certificate; 8. The grant of claim for refund tantamount to an exemption from taxation which is co nstrued strictly against the claimant and in favor of the ta xing authority; 9. The taxes sought to be refunded were paid in accordance with law; the burden of proof to the contrary is upon the petitioner-claimant to show with clear and unambiguous provision of law supporting the same ''7 5 Par. 4, Summ ary of Facts Admi tted, Stipul at ion of Fact s and Issues, Docket, p. 36. 0 6 Pars. 6 and 7, Summary of Facts Admitted , Stipu lat ion of Facts and lssLies, Docket, p. 36. . . M 7 Answer, Docket, p. 22 - 24. 70

DEC IS ION CTA. CASE NO. 7495 During trial, petitioner presented documentary and testimonial evidence in support of its claim , while respondent's counsel manifested during the hearing held on December 10, 2007 that he is not presenting evidence relative to the instant case8 Thus , the Court directed the parties to file their I I respective Memorandum . Petitioner submitted its Memorandum on January 31 , 2008 while respondent failed to do so. Thereafter, the instant case was deemed submitted for decision in the Res olution dated February 18, 20089. Hence, this Decision. THE ISSUES The issues jointly stipulated by the parti es are as follows : "1. Whether or not petitioner's domestic purchases and importations of goods which are attributable to its export sales for the second quarter of 2004 are duly supported by documentary evidence; 2. Whether or not the accumulated or excess input VAT was not unutilized or applied by petiti oner against output VAT in the second quarter of 2004 or in the succeeding quarters or taxable years ; 3. Whether or not the exRort sales w~re paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas ; 4. Whether or not petitioner is entitled to refund of the excess input ta xes in the total amount of P14,479 ,595.41 for the second quarter of 2004 paid for the purchase of capital goods and/or non -capital good s and services due to petitioner being a producer and exporter of mineral products ." 10 8 Minutes, Hearing he ld on December I0, 2007, Docket, p. 158. 9 Doc ket, p. 186. 10 Statemen t of the Issues, Stipul at ion of Facts and Issues, Docket, pp. 37-38. 71

DEC IS ION ''I ,> C.T.A . CASE NO. 7495 Page 5 of I8 The foregoing stipulated issues are inter-related and boil down to one � central issue: whether or not petitioner is entitled to its refund claim in the amount of P14,479,595.41, representing its alleged excess input taxes for the second quarter of 2004. Thus, We shall. discuss all the foregoing stipulated issues jointly. THE COURT'S RULING In claims for refund of input ta xes attributable to zero-rated or effectively zero-rated sales , tre general legal provision thereon is Section ; � f � � �� 112(A) of the NIRC of 1997,as amended , which provides as follows: "SEC. 112. Refunds or Tax Credits of Input 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 attributabl~ to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: Provided, howe ver, That in the case of zero- rated sales under Section 106(A)(2)(a)(1 ), (2) and (B) and Section 108(B)(1) and (2) , the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP) : 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 or properties or services, and the amount of creditable input ta x 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 ." Based on the afore-quoted provi~ion , to be entitled to a refund or issuance of a tax credit certificate of its unutilized input VAT , the following requisites must be satisfied by the claimant-ta xpayer: 1. there must be zero-rated or effectively zero-rated sales; 2. that input taxes were incurred or paid; 72

DECISION C.T.A. CASE NO. 7495 3. that such input taxes are directly attributable to zero- rated sales or effectively zero-rated sales; 4. that the input taxes were not applied against any output VAT liability during and in the succeeding quarters; and 5. that the claim for the refund was filed within the two-year prescriptive period . With respect to the first requisite, petitioner claims that: its direct export of copper concentrates to..Pan Pacific ,Copper Co. of Tokyo , Japan are VAT zero-rated , pursuant to Section 106(A)(2)(a)(1) of the NIRC of 1997; its sales of copper concentrates to PASAR , a PEZA-registered enterprise , are subject to zero percent (0%) VAT , citing as legal bases Section 106(A)(2)(a)(5) of the NIRC of 1997, Section 23 of Republic Act (RA) No. 7916 11 , Article 77(2) of the Omnibus Investments Code, Revenue Memorandum Circular (RMC) No. 74-99 12 , and VAT Review Committee Ruling No . 026-2001 . As correctly pointed out by petiti oner, its direct exports of copper concentrates to Japan , may fall within those transactions referred to as subject to zero percent (0%) VAT specified under Section 106(A)(2)(a)(1) of the NIRC of 1997, as amended , which states: "SEC 106. Value-Added Tax on Sale of Goods or Properties.- (A) Rate and Base of Tax. - xxx XXX XXX XXX 11 The Special Eco nomic Zone Act of 1995. . 12 "Tax Treatment of Sa les of Goods, Property and Services J\tlade by a Suppli er from the Customs 0 Territory to a PEZA Registered Enterprise; and Sale Transactions J\tlade by PEZA Registere~ � ['r Eot"�pd<" Withio 'Od Withoot tho ECOZONE". 73

DEC ISION C.T. A. CASE NO . 7495 (2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate : (a) Export Sales. - The term 'export sales' means : (1) The sale and actual shipment of goods from the Philippines to a foreign country , irrespective of any shi.pI pi.ng arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported and paid for in acceptable foreign currency or its eqwival ent in goods or services, and accounted for in accordance with the rul es and regulations of the Bangko Sentral ng Pilipinas (BSP) ." It must be remembered however, that Section 106(A)(2)(a)(1) of the NIRC of 1997 should be read in conjun ction with Section 113 of the same Code , as implemented by Section 4.108-1 of Revenue Regulations No. 7-95, which requires a VAT-registered person like petitioner, to issue an invoice or receipt for every sale transaction containing the following information : "SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons.- (A) Invoicing Requirements. - ' A VAT-registered person shall , for every sale, issue an invoice or receipt. In addition to the information required under Section 237, the following information shall be indicated in the invoice or receipt: (1) A statement that the seller is a VAT-registered person, foll"owed by his ta xpayer's identification number (TIN) ; and (2) The total amount which the purchaser pays or is .obligated to pay to the seller with the indication that such amount includes the value-added tax." "SECTION 4.108-1 . Invoicing Requirements- All VAT registered persons shall , for every sale or lease of goods or properties or services , issue duly registered receipts or sales o~ (U commercial invoices which must sh ow: 74

'II 'I .> DEC ISION .J' C.T.A . CASE NO . 7495 1. the name , TIN and address of seller; 2. date of transaction ; 3. quantity, unit cost and description of merchandise or nature of servi ce; 4. the name , TIN , business style , if any, and address of the VAT-registered purchaser, customer or client; .' 5. the word 'zero-rated ' im printed on the invoice covering zero-rated sales; and 6. the invoice value or considerati on. XXX XXX XXX Only VAT-registered perso ns are required to print their TIN followed by the word 'VAT in their invoice or receipts and this shall be considered as a 'VAT Invoice'. All purchases covered by invoices other than 'VAT Invoice ' shall not give rise to any input tax. j If the taxable person is eng ag ed in exempt operations , he should issue separate invoi ces or receipts for the taxable and exempt operations . A 'VAT Invoi ce' shall be issued on ly for sales of goods , properties or servi ce s subject to VAT imposed in Section 100 and 102 of the Code." Additionally , sue~ invoi ce or recei pt must be duly registered with the Bureau of Internal Revenue as prescribed under Section 237 , in relation to Section 238 of the NIRC of 1997, to wit: "S EC. 237 . Issuan ce of Receip ts o r Sales or Com m ercial Invo ices. - All perso ns subject to an internal revenue ta x shall , for each sale or transfer of merchandise or for services rendered valued at Twenty-five pesos (P25.00) or more, issue duly registered re cei pts or sales or commercial invoices, prepared at least in du pli cate , showing the date of transaction , quantity, unit cost an d de scription of merchandise or nature of service. xxx" 75

D ECJS JO N C.T.A. CAS E NO. 7495 "SEC. 238. Printing of Receipts or Sales or Commercial Invoices. - All persons who are engaged in business shall secure from the Bureau of Internal Revenue an authority to print receipts or sales or commercial invoices before a printer can print the same . No authority to print receipts or sales or commercial invoices shall be granted unless the receipts or invoices to be printed are serially numbered and shall show, among other things, the name , business style , Taxpayer Identification Number (TIN) and business address of the person or entity to use the same, and such other information that may be required by rules and regulations to be promulgated by the Secretary of Finance , upon recommen~ation of the,Commissioner. XXX XXX xxx" In the light of the foregoing provisions , .it is clear that any person claiming VAT zero-rated direct export sales must present at least three documents, to wit: a) the sales invoice as proof of sale of goods ; b) the export declaration and bill of lading or airway bill as proof of actual shipment of goods from the Philippines to a foreign country, and c) bank credit advice, certificate of bank remittance or any other i \ document proving payment for the goods in acceptable foreign currency or its equivalent in goods and services . In other words, only export sales supported by these documents shall qualify for VAT zero-rating under Section 106(A)(2)(a)(1) of the NIRC of 1997. Furthermore , the sales invoices supporting the export sales must comply with the invoicing requirements provided under Section 112 (A) of the NIRC of 1997 and Section 4.108-1 of Revenue Regulation No. 7-95. Thus , only export sales supported by these documents may qualify for VAT zero- rating under Sec. 106 (A)(2)(a)(1) df the NIRC of 1997. r\ (\t}

(I DECIS ION �' C.T.A. CASE NO. 7495 Page 10 of I S During the presentation of petitioner's evidence, the Court- commissioned Independent Certified Public Accountant (ICPA) , Albert G. Alba , testified that in his Report dated January 4, 2007 ,13 he stated that petitioner declared in its Amended VAT Re t~rn 14 for the Second (2nd) Quarter of 2004 that it had zero-rated export sales amounting to US$16,831 ,009.00 with peso value equivalent of' Php9 39,237,698.67 , with the following particulars : Particulars Amount Current Quarter's Shipments: US$ 9,694 ,533.00 Direct export of copper to Japan 7,414,752 .00 Indirect Exports of copper to PASAR US$17 , 109 ,2 85.00 Previous Quarters' Shipments Adjustment to correct previous billings (278 ,276.00) US$16,831 ,009.00 Total Zero-Rated Sales Further, he identified all examined documents pertinent to petitioner's claim , to wit: sales invoi ce 15, export declarations 16 , bills of lading/airway bills17, bank certifications 18, and entries in petitioner's passbooks 19 in local banks relative to the payments received for purposes of substantiating petitioner's export sales for the second quarter of ta xable year 2004 , and the ,,, ! fact that foreign currency proceeds thereof were duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas. 13 Exhib it "E". 14 Exh ibit "J-1 0". 15 Exh ibits " F- 1", Final In voice No. PX 2<102 dated October 4, 2004 1, Ex hibit" F-2" - f.'inal Invoi ce No. PX 2406 dated Nove mber 2, 2004 both iss ued by Phi lex Minin g Co rporati on to Pan Pacific Coppe r ; � Co., Ltd. lit 1t 16 Exhibits "F-1 -a" to "F-2-a". 17 Exhibits " F- 1-b" to " F-7-b" . 11 18 Exhibits " G-l " to "G-4". 19 Exhi bits "G-1-a'' to " G-4-e" . 77

DECISION C.T.A. CASE NO. 749 5 Page II of 18 Per petitioner's Summary of Sales and Remittances 20 , it is indicated that the invoices corresponding to the export sales in the amount of US$9,694 ,533 .00 are reflected in t~o sal es invoices bearing Invoice No. 2402 and 2406, with gross sales in. the amount of US$4, 749,732.00 and US$4,944,801 .00, respecti vely. A scrutiny of these 2 sales invoices marked as Exhibits "F-1" and "F- 2"21 supporting petitioner's direct �export sales of copper to Japan actually reflects the gross sales in the amount of US$4,697,220.15 and US$4,725,473.62, respectively. More importantly, Invoice No. 240222 and Invoice No . 240623 are accordingly dated October 4, 2004 and November 2, 2004 thus, pertain to the fourth quarter of 2004 and evidently fall outside the period being claimed in the instant Petition , and therefore , cannot be considered to facilitate the subject refund . Anent petitioner's indirect export sales to PASAR in the amount of US$7,414,752.00, the provisions of Section 106(A)(2)(a)(5) of the NIRC of I 1997, in relation to Articles 23 and 77(2 ) of the Omnibus Investments Code, and as clarified under RMC No. 74-99, are applicable. Section 106(A)(2)(a)(5) is quoted hereunder for ready reference, to wit: "SEC. 106. Value-added Tax on Sale of Goods or Properties. - (A) Rate and Base of Ta x. - There shall be levied, assessed and collected on every sale , barter or exchange of goods or properties , a value added ta x equivalent to ten percent 20 Exhibit "G". 21 Exh ibits " F-1 " to " F-2" . 22 Exhibit "F- I". 23 Exhibit "F-2". 78

DECISIO N i' C.T.A. CAS E NO . 74 95 Page 12 o f 18 (1 0%) of the gross selling price or-gross value in money of the goods or properties sold , bartered or exchanged, such tax to be paid by the seller or transferor. xxxx xxxx xxxx (2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate : (a) Export Sales. - The term 'export sales' means: (5) Those consid ered export sales under Executive Order No. 226 , otherwise known as the Omnibus Investment .Code of 1987, and other< special � laws. " (Emphasis supplied) � Executive Order No. 226 , oth erwise known as the Omnibus Investments Code of 1987 provides in part, thus : "ARTICLE 23. 'Export Sales ' shall mean the Philippine port F.O.B. value , determined from invoices , bills of iading , inward letters of credit, . landing certifica tes , and other commercial documents , of export products exported directly by a registered export producer or the net selling price of export product sold by a registered export producer to another export producer, or to an export trader that ~ubsequently exports the same: Provided, That sales of export products to another producer or to an export trader shall only be deemed export sales when actually exported by the latter, as evidenced by landing certificates of similar commercial documents : Provided, further, That without actual exportation the following shall be considered 'co nstructively exported' for purposes of this provision: (1) sales to bonded manufacturing warehouses of export-oriented manufacturers; (2) sales to export processing zones ; .. ." (Emphasis supplied) "ARTICLE 77 . Tax Tre atment of Merchandise in the Zone. - (1) Except as otherwise provided in this Code, 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 whether directly o~ ~ndirectly related in such;(

DEC ISION C.T.A. CASE NO. 7495 Page I3 of I 8 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 notwith standi ng . (2) Merchandise purchased by a registered zone enterprise from the customs territory and subsequently brought into the zone, shall be considered as export sales and the exporter thereof shall be entitled to the benefits allowed by law for such transaction. " (Emphasis supplied) ' Lastly, RMC 74-99 provides that: "SECTION 3. Tax Trea tm ent of-Sales Made By A VAT Registered Supplier from th e Customs Territory, To A PEZA Registered Enterprise - XXX XXX XXX 3. In the final analysis , any sale of goods , property or services made by a VAT registered supplier from the Customs Territory to any registered enterprise ope ra ting in the ecozone , regardless of the class or type of the latter's PEZA registration , is actu ally qualified and thus legally entitl ed to the zero percent (0%) VAT. Accordingly, all sales of goods or property to such . enterprise made by a VAT registered supplier from the Customs Territory shall be treated subject to 0% VAT, pursuant to Sec. 106(A)(2)(a)(5) , NIRC, in relation to A'rt. 77(2) of the Omnibus Investments Code , whil e all sales of services to the said enterprises, made by VAT registered suppliers from the Custorns Territory , shall be treated effectively subj ect to 0% VAT, pursuant to Section 108(8)( 3) , NI RC, in relation to the provisions of R.A. 79 16 at;Jd the 'C ross Border Doctrine' of the VAT system . This Circular shall serve as a suffi cient basis to entitle such supplier of. goods , property or se rvices to the benefit of the zero percent (0%) VAT for sales rn ade to the aforementioned ECOZONE enterprises and shall se rve as sufficient compliance to the requirement for prior approval of zero-rating imposed ~y Revenue Regulations No . .7-95 effective as of the date of issuance of this Circular. " (Emphasis supplied) 80

\~ DEC ISION C.T.A. CASE NO. 7495 Page 14 o f 18 Based on the foregoing provision s. indirect exports made by a VAT taxpayer, like herein petitioner, to a PEZA-registered entity, are legally entitled to zero percent (0 %) VAT. Neverth eless however, petitioner must substantiate its indirect exports to PASAR by proper VAT sales invoices . A careful look at the Sales Invoice s marked as Exhibits "F3 to F7"24 presented by petitioner, show that these are dated within the month of July and August of 2004 , and covers petitioner's supposed indirect exports to PASAR in the amount of US$7,414,752.00, likewise fall outside the subject period of claim , the second quarter of ta xa bl e year 2004. Thus , petitioner's reported indirect export sal es to PASAR in the amount of US$7,414 ,752.00 cannot qualify for VAT zero-rating . In sum , petitioner's claimed input VAT in the total amount of Php14,479,595.41 attributable to zero-rated sales can not be refunded considering that petitioner's reported direct and indirect export sales in the j amount of Php939,237 ,698.67 with US doll ar equivalent of US$16 ,831 ,009.00 failed to qualify for VAT zero-rating having been transacted outside the period of subject claim . We now resolve �petitioner's as sertion that should it not be entitled to the amount of Php14,479 ,595.41 , represe nting input VAT attributable to zero- rated sales, it is still entitled to the redu ced amount of Php10,420,574.0025 attributable to importation of capital goods , pursuant to Section 112(8) of the 24 Ex hibits "F-3" - Final Invo ice No. PX-2392 dated J ul y 29, 2004 ; Ex hibit " f'-4 " - Fina l In vo ice No. 2394 dated August 5,2004; Ex hib it "F-5"- r ina l Invo ice No. 2395 dated A ugu st 5, 2005; Ex hi bit " F- 6"- Final In vo ice No . 2395 dated A ug ust 5, 2004 ; E-.; hib it " F-7 " - F ina l Invo ice No. 2396 dated August 5, 2004, all issued by Ph ilcx M inin g Corporation to PhiliJ?pin e Assoc iated Sme lti ng and Refining Corpor:a ti on or PASA R. 25 Docket p. 167 . 81

DECISION C.T.A. CASE NO . 74 95 Page 15 o f 18 NIRC of 1997, and as implemented by Section 4.106-1 of Revenue Regulations No . 7-95. We again find petitioner's contention bereft of merit. The legal provisions pertaining to claims for refund of input taxes paid on capital goods , imported or locally purchased , are : Section 112(8) of the NIRC of 1997, in relation to Section 4.106-1(b) ofRevenue Regulation No. 7- 95 , which are hereunder quoted for easy reference , thus: "SEC. 112. Refunds or Tax Crepits of Input Tax. - XXX XXX XXX (B) Capital Goods. - A VAT-registered person may apply for the issuan ce of a tax credit ce rtificate or refund of input taxes paid on capital goods imported or locally purchased , to the extent that such input ta xes have not been applied against output taxes. The application may be made only within two (2) years after the close of the ta xab le quarter when the importation or purchase was made ." "SECTION 4.106 -1. Refunds or tax credits of input tax. (b) Capital Goods- Only a VAT-registered per$on may apply for issuance of a ta x credi t certificate or refund of input taxes paid on capital goods imported or locally purchased . The refund shall be allowed to the extent that such input taxes have not been applied against output ta xes . The application should be made within two (2) years after the close of the taxable quarter when the importation or purchase was made . Refund of input ta xes on capita l goods shall be allowed only to the extent that such capital goods are used in VAT taxable business. If it is also used in exe mpt operations , the input tax refundable shall only be the ratable portion corresponding to the ta xable operations . "Capital goods or properties " refer to goods or properties with an estimated useful life of greater than one year and which are treated as depre ciable : assets under Section 29(f), used rty\ 82

) DE CISION C.T.A. CASE NO. 7495 directly or indirectly in the production or sale of taxable goods or services." Applying the aforesaid prov1s1ons in the case at bench, in order that subject purchases may be classified as "capital goods or properties", the following conditions must be present : a) that the goods or properti es must have estimated useful life ' of more than one year; ~ b) they are treated as depreciable assets under Section 29(f) ; and c) they are used directly or in directly in the production or sale of taxable goods or services . During trial , petitioner presented and offered in evidence various Bureau of Customs Official Receipts and Ba~k Debit Advices 26 and Import Entry and Internal Revenue Declara tion.s27 , as well as the Report of the ICPA28 to support its subject claim for refund. A thorough examination of these documents however reveals that petitioner failed to show that indeed , its subject importations and purchases perta in to capital goods . Although other items included in the Summary of Input Taxes on lmportations29 may be classified as depreciable assets..with estimated useful life of more than one year; however, petitioner was not able to present pertinent documents , such as detailed general ledgers and audited fin ancia l statements, to prove that the said items were capitalized in the books of accounts and subjected to depreciation . 26 Exhibits " H-I " to "H-9". 21 Exhibits "H- 1-a" to "H-9-a". 28 Exhibit "E". 29 Exhibit " H". 83

D EC IS ION C.T.A. CASE NO. 7495 In other words , petitioner fai led to establish that the subject importations related to the input VAT pa yments of P10,420,574.00 fa ll within the prescribed definition of capital good s Co nsequently, the alleged input VAT payments of P10,420,574 .00 for the second quarter of 2004 cannot be refunded because petitioner failed to sh ow, by way of competent evidence, that its importations fall within the definition of capital goods under Section 4.106-1(b) of Revenue Regulations No. 7-95. All the foregoing co nsidered , th ~ . Court finds and so holds, that petitioner failed to properly substantiate its alleged zero-rated and effectively zero-rated sales to entitle it to its subject claim for refund or issuance of tax credit certificate. Likewis e, petitioner failed to properly establish that the goods that it imported and purchased were capitalized in its books of accounts and subjected to depreciation . Thus , its re fund claim cannot be granted . WHEREFO RE, the instant petition for review is hereby DI SMI SSE D for lack of merit. SO ORD ERED. EA:~~us.tiUcYe WE CONCUR: Q~�;.c.~ Q.. ~~C~UEZ ,0 R. Associate Justice <fUANITO c. CASTANEDA 84 Associate Justice

'f. ;. DECIS ION f C.T.A. CASE NO. 7495 ATTESTATION attest that the conclusions in th e above Decision were reached in consultation before the case was assign ed to the writer of the opinion of the Court's Division . qCUAt NrrOhCe . CA.ST~ AN~ EDA., 1~ ff . . 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 reach ed in co nsultati on before the case was assigned to the writer of the opinion of the Court. ~~~- a~ ERNESTO D. ACOSTA Presiding Justice 85