CE CASECNAN WATER AND ENERGY COMPANY, INC. v. COMMISSIONER OF INTERNAL REVENUE (Consolidated with Case No. 8111)

REPUBLIC OF THE PHILIPPINES Court at Tax Appeals QUEZON CITY SECOND DIVISION CE CASECNAN WATER AND CTA CASE NO. 8041 ENERGY COMPANY, INC., Petitioner, -versus- COMMISSIONER OF INTERNAL CTA CASE NO. 8111 REVENUE , Members : Respondent. CASTANEDA, JR., Chairperson X---------------------------------------------X CASANOVA, and MINDARO-GRULLA, JJ. CE CASECNAN WATER AND ENERGY COMPANY, INC., Petitioner, -versus- COMMISSIONER OF INTERNAL Promulgated: REVENUE , SEP 11 Z01Z/ Respondent. v ;:.6 ,.,.. X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X DECISION CASTANEDA, JR., J..: This is a consolidation of two Petitions for Review filed by CE Casecnan Water and Energy Company Inc. (petitioner) to seek the refund or ~

DECISION CTA CASE NOS . 8041 & 811 1 Page 2 of22 issuance of tax credit certificate in the aggregate amount of P20,063 ,676.24 , allegedly representing unutilized input value-added tax (VAT) attributable to its zero-rated sales as a generation company to the National Irrigation Administration (NIA) for taxable year 2008 , broken down as follows : CTA Case No. Period Covered Amount of Claim 8041 1st Quarter 2008 8111 2nd to 4th Quarter 2008 p 6,264,758.82 TOTAL 13 ,798 ,917.42 p 20,063,676.24 Petitioner is a domestic corporation duly organized and existing under Philippine laws, with principal office at Pantabangan , Nueva Ecija. It was incorporated on September 21 , 1994, the primary purpose of which is "to design , develop, construct, erect, assemble, commission , finance , own and operate a combined irrigation and hydro-electric power project and related facilities in Central Luzon , Philippines for the conversion into electricity of water provided by and under contract with the National Irrigation Administration (the 'Project') ; provided that, in no event shall the corporation itself engage in the general supply or distribution of electricity, in retail trade or in the business of a public utility, or furnish electricity to end-users or consumers , or provide a public service or engage in industries or activities reserved by the Constitution or by law to corporations wholly or partially owned by Filipino citizens". 1 Petitioner's multi-purpose irrigation and power project with the power plant component, consisting of a hydro-electric powerhouse with an installed ft:.- capacity of 140 MW, has been duly accred ited and certified as a Private Sector 1 Par. 2, Admitted Facts, Joint Stipulation of Facts and Issues (JSFI), docket (CTA Case No. 8041 ), p. 224.

DECISION CTA CASE NOS. 8041 & 8 11 1 Page 3 of22 Generation Facility by the Department of Energy (DOE) as evidenced by its DOE Certificate of Accreditation No. 95-07-12 issued on July 20 , 1995.2 On July 27, 2005 , petitioner was granted by the Energy Regulation Commission (ERC) a Certificate of Compliance (COC) No. 05-07-GN8-10701 .3 It is likewise a registered VAT taxpayer with the Bureau of Internal Revenue (BIR) as evidenced by its Certificate of Registration No. 0000017028 dated July 1, 1998, with Tax Identification Number 004-500-931-000.4 Respondent, on the other hand , is the duly appointed Commissioner of the Bureau of Internal Revenue, vested with authority to act as such , including , among others , the power to decide, approve and grant refunds or tax credits of erroneously or excessively paid taxes . She holds office at the BIR National Office Building , BIR Road , Diliman , Quezon City. Petitioner filed its Quarterly VAT Returns for taxable period January 2008 to December 2008 , as well as their amendments through the SIR's Electronic Filing and Payment System (EFPS) on the following dates: EXHIBIT PERIOD COVERED DATE OF FILING H January to March April 25, 2008 I J January to March (Amended Return) February 23, 2009 April to June July 25, 2008 K April to June (Amended Return) February 11 , 2010 L July to September October 24, 2008 M February 11 , 2010 N July to September (Amended Return) January 26, 2009 0 October to December February 11 , 2010 October to December (Amended Return) On November 11 , 2009 , petitioner filed an administrative claim with the :Jz- Large Taxpayers Audit and Investigation Division I of the BIR (BIR LTAID I) 2 Exhibit " B"; Par. 5, Admitted Facts, JSFI, docket (CTA Case No. 8041 ), p. 225. 3 Exhibit "C"; Par. 7, Admitted Facts, JSFI, docket (CTA Case No. 8041 ), p. 225. 4 Par. 8, Admitted Facts, JSFI , docket (CTA Case No. 8041), p. 225.

DECISION CTA CASE NOS. 804 1 & 8 111 Page 4 of22 for the refund or issuance of tax credit certificate for its alleged unutilized input VAT payments in the amount of P6 ,264 ,758 .82 attributable to its zero-rated sales covering the First (1 5t) Quarter of taxable year 2008.5 On February 16, 2010 , petitioner filed before BIR LTAID I its claim for refund or issuance of tax cred it certificate in the aggregate amount of P13 ,917 ,771 .50 , covering the Second (2nd) Quarter to the Fourth (4th) Quarter of taxable year 2008.6 Subsequently, on March 5, 2010 petitioner filed before the BIR LTAID I a letter amending the amount stated in its previous claim for refund or issuance of tax credit certificate from the aggregate amount of P13 ,917 ,771 .50 to P13,798 ,917.42 , covering the 2nd Quarter to 4th Quarter of taxable year 2008.7 However, due to the inaction of respondent on petitioner's administrative claims, petitioner filed the two separate Petitions for Review docketed as CTA Case Nos. 8041 and 8111 on March 26 , 2010 and June 24, 2010 , respectively. At the instance of petitioner, the two separate cases were consolidated by the CTA Third Division on November 12, 20108; which was confirmed by the CTA Second Division in a Resolution9 dated November 22 , 2010. In her separate Answers to the Petitions for Review docketed as CTA Case Nos. 8041 10 and 8111 11 , respondent interposed the following defenses:}�- 5 Exhibit "P"; Par. 4, Admitted Facts, JSF I, docket (CTA Case No. 8041), pp. 224-225. 6 Exhibit "Q"; Par. 6, Admitted Facts, JSFJ, docket (CTA Case No. 8041 ), p. 225. 7 Exhibit " R". 8 Docket ofCTA Case No. 8041, p. 205 and Docket ofCTA Case No. 8111, p. 220. 9 Docket (CTA Case No. 804 1), pp. 207-208. 10 Docket (CTA Case No . 804 1), pp. 67-73 . 11 Docket (CTA Case No . 8111), pp. 141-147.

DEC ISION CTA CASE NOS. 8041 & 8111 Page 5 of22 CTA Case No. 8041 "6. Petitioner's alleged claim for refund is subject to administrative routinary investigation/examination by the Bureau of Internal Revenue. 7. The amount of P6 ,264,758.82 being claimed by petitioner as alleged erroneously paid VAT input taxes for the 1st quarter of calendar year 2008 is not properly documented . 8. Petitioner must prove that it has complied with the provisions of Section 112(A) and (C) of the National Internal Revenue Code of 1997 (1997 Tax Code) , as amended , on the prescriptive period for claims for VAT refund/credit. 9. Proof of compliance with the prescribed checklist of requirements to be submitted involving claims for VAT refund pursuant to Revenue Memorandum Order No. 53-98 , otherwise there would be no sufficient compliance with the filing of administrative claim for refund , the administrative claim thereof being mere pro-forma . Further, Section 112(C) of the 1997 Tax Code , as amended , requires the submission of complete documents in support of the application filed with the BIR before the 20-day audit period shall apply, and before the taxpayer could avail of judicial remedies as provided for in the law. Hence, petitioner's failure to submit proof of compliance with the above-stated requirements warrants immediate dismissal of the Petition for Review. 10. Petitioner must likewise prove that it has complied with the invoicing requirements mentioned in Sections 110 and 113 of the 1997 Tax Code, as amended , in relation to the provisions of Revenue Regulations No. 7-95 . 11. In an action for refund/tax credit, the onus probandi is on the taxpayer to establish its right to refund/tax credit, and fa ilure to sustain the burden is fatal to its claim for refund/tax credit (ASIATIC PETROLEUM CO. VS. LLANES, 49 PHIL., 466 cited in COLLECTOR OF INTERNAL REVENUE VS. MANILA JOCKEY CLUB, INC., 98 PHIL. 670) . In the same vein , the Supreme Court in the case of Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue, G.R. No. 159490, February 18, 2009, ruled in this wise : 'In fine , we reiterate our consistent ruling that actions for tax refund , as in the instant case, are in Jt- the nature of a claim for exemption and the law is not only construed in strictissimi juris against the

DECISION CTA CASE NOS . 8041 & 8 111 Page 6 of22 taxpayer, but also the pieces of evidence presented entitling a taxpayer to an exemption is strictissimi scrutinized and must be duly proven .' 12. In an action for refund , the burden of proof is on the taxpayer to establish its right to refund and failure to sustain the burden is fatal to the claim fort refund or credit. Exemptions from taxation are highly disfavored in law and he who claims exemption must be able to justify his claim by the clearest grant of organic or statutory law. An exemption from common burden cannot be permitted to exist upon vague implications (AS/A TIC PETROLEUM CO. (P.I.) vs. LLANES, 49 Phil. 466 cited in Collector of Internal Revenue vs. Manila Jockey Club, Inc., 98 Phil. 670. C Ei incumbit probatio qui dicit, non qui negat. ('He who asserts must prove , not he who denies.) 13. Claims for refund are construed in strictissimi juris against the claimant for the same partake the nature of exemption from taxation (COMMISSIONER OF INTERNAL REVENUE VS. LEDESMA, 31 SCRA 95) and as such , they are looked upon with disfavor (WESTERN MINOLCO COPR. VS. COMMISSIONER OF INTERNAL REVENUE, 124 SCRA 1211) ." CTA Case No. 8111 "SPECIAL AND AFFIRMATIVE DEFENSES 4. Respondent hereby reiterates and repleads the preceding paragraphs of this answer as part of her Special and Affirmative Defenses. 5. Taxes collected are presumed to be in accordance with laws and regulations . 6. Petitioner's alleged claim for refund is subject to administrative routinary investigation/examination by the Bureau of Internal Revenue. A claim for refund is not ipso facto granted because respondent CIR still has to investigate and ascertain the validity of the claim . 7. Taxes are essential to government's very existence; (CIR v. Solidbank Corporation, G.R. No. 148191, November 25, 2003) hence, the dictum that 'taxes are the lifeblood of the government.' For this reason , the right of taxation cannot be easily surrendered ; statutes granting tax exemptions are considered as a derogation of the sovereign authority. (CIR ~

DEC ISION CTA CASE NOS. 8041 & 81 11 Page 7 of22 v. Fortune Tobacco Corporation, G.R. Nos. 167274-75, July 21, 2008) Since tax refunds are regarded as tax exemptions and these are to be construed strictissimi juris against the person or entity claiming the exemption . (Philippine Phosphate Fertilizer Corporation vs. Commissioner of Internal Revenue G.R. 141973, June 28, 2005) . 8. In an action for refund , the burden of proof is on the taxpayer who claims exemption and he must justify his claim by the clearest grant under the Constitutional or statutory law and cannot be permitted by vague implications (BPI Leasing Corporation vs. Honorable Court of Appeals, G.R. 127624, November 18, 2003) . The taxpayer is charged with the heavy burden of proving that he has complied with and satisfied all the statutory and administrative requirements to be entitled to the tax refund . (Commissioner of Internal Revenue vs. Eastern Telecommunications Philippines, Inc. G.R. 163835 July 7, 2010) . 9. To support its claim , it is imperative for petitioner to prove the following , viz: a. The registration requirements of a value-added taxpayer in compliance with section 6 (a) and (b) of Revenue Regulations No. 6-97 in relation to Section 4.107-1 (a) of Revenue Regulations No. 7-95 , and Section 236 of the Tax Code, as amended ; b. The invoicing and accounting requirements for VAT- reg istered persons , as well as the filing and payment of VAT in compliance with the provisions of Section 113 and 114 of the Tax Code , as amended ; c. Proof of compliance with the prescribed checklist of requirements to be submitted involving claim for VAT refund pursuant to Revenue Memorandum Order No. 53- 98 , otherwise there would be no sufficient compliance with the filing of an administrative application for refund which is a condition sine qua non prior to the filing of a judicial claim in accordance with Section 112 of the Tax Code, as amended. This requires the submission of complete documents in support of the application filed with the Bureau of Internal Revenue before the 120-day audit period shall apply, and before the taxpayer could avail of the judicial remedies as provided for in the law. Hence, petitioner's failure to submit proof of compliance with the /--

DECISION CTA CASE NOS. 804 1 & 8 111 Page 8 of22 above-stated requirements warrants immediate dismissal of the petition for review; d. That the input taxes of P13 ,798 ,917.42 allegedly incurred by petitioner for the second to fourth quarter of taxable year 2008 were attributable to its zero-rated sales and such have not been applied against any output tax and were not carried over to the succeeding taxable quarter or quarters; e. That petitioner's administrative and judicial claims for tax credit or refund of the unutilized input tax (VAT) was filed within the two (2) years after the close of the taxable quarter when the sales were made in accordance with Sections 112 (A) and (D) and 229 of the Tax Code, as amended ; f. That petitioner's domestic purchases of goods and services were made in the course of its trade or business, properly supported by VAT invoices and/or official receipts and other documents, such as subsidiary purchase Journal showing that it actually paid VAT in accordance with Sections 110 (A) (2) and 113 of the Tax Code , as amended , and pursuant to Section 4.104-5 (a) and (b) of Revenue Regulations No. 7-95 (Re: Substantiation of Claims for Input Tax Credits) ; g. The requirements as enumerated under Section 4.104-5 of Revenue Regulations No. 7-95 . (Re : Substantiation of Claims for Input Tax Credits) 10. The amount of Thirteen Million Seven Hundred Ninety Eight Thousand Nine Hundred Seventeen and forty two Pesos (Php13 ,798 ,917.42) being claimed by petitioner arising from unutilized input value-added tax ('VAT') paid and incurred for the taxable year 2008 is not properly documented ; 11 . Following the premise above-mentioned , petitioner has the burden of proving that the right to such tax refund indubitably exists and well-founded doubt is fatal to the claim ." On June 22 , 2010 , petitioner filed its Reply (Re: Respondent's Answer dated 30 April 201 0) 12 to respondent's Answer filed in CTA Case No. 8041 .Jk- 12 Docket (CTA Case No. 8041 ), pp. 92-97.

DECISION CTA CASE NOS . 8041 & 8111 Page 9 of22 On February 23 , 2011 , upon motion of petitioner,13 this Court commissioned Annalyn B. Artuz of Constantino Guadalquiver & Co. as Independent Certified Public Accountant (ICPA) .14 During trial , petitioner presented Leilah Yasmin E. Alpad , its Head of the Tax Services and Annalyn B. Artuz, the Independent Certified Public Accountant, as witnesses . Thereafter, petitioner filed on October 3, 2011 its Formal Offer of Evidence15 submitting Exhibits "B" "C" "E" "F" and "H" to "AA" inclusive ofIIIII I their sub-markings; which was admitted by this Court in the Resolutions dated November 21 , 2011 16 and January 24 , 201217. On the other hand , counsel for respondent manifested during the hearing held on March 12, 2012 that respondent will no longer be presenting evidence considering that petitioner's administrative claim with the BIR's Large Taxpayers Division is still pending . Counsels for both parties were given thirty (30) days from said date to file their respective memorandum.18 On May 17, 2012 , this case was submitted for decision , considering petitioner's Memorandum filed on May 11 , 2012 and the Report dated May 15, 2012 of the Records Division that respondent failed to file a Memorandum . ~ 19 13 Docket (CTA Case No . 8041), pp. 247-249. 14 Min utes of Hearing dated February 23 , 20 II , docket (CTA Case No . 804 1), p. 276. 15 Docket (CTA Case No. 804 1), pp. 317-342 . 16 Docket (CTA Case No. 804 1), pp. 535-538. 17 Docket (CTA Case No. 804 1), pp. 53 1-533 . 18 Mi nutes of Hearing dated March 12, 20 12, docket (CTA Case No. 804 1), p. 544. 19 Docket (CTA Case No. 8041), p. 579.

DECISION CTA CASE NOS. 804 1 & 8111 Page 10 of22 The following are the parties' jointly stipulated issues20 submitted for this Court's resolution : "9. Whether or not the instant petition is prematurely filed . 10. Whether or not Petitioner's excess and unutilized input VAT for the period from the 1st quarter to the 4th quarter of CY 2008 in the total amount of Php20 ,063 ,676.24 is duly substantiated by documentary evidence such as invoices and official receipts. 11 . Whether or not Petitioner's excess and unutilized input VAT for the period from the 1st quarter to the 4th quarter of CY 2008 in the total amount of Php20 ,063 ,676 .24 was applied or credited against any output VAT in the succeeding quarter or quarters. 12. Whether or not Petitioner is entitled to a refund of and/or issuance of a tax credit certificate ('TCC') for its excess and unutilized input VAT in the total amount of Php20 ,063 ,676 .24 , which input VAT: (i) arose from Petitioner's domestic purchases of non-capital goods and services , services rendered by non-residents , and importation of non-capital goods; and (ii) are all directly attributable to Petitioner's zero-rated sales of generated power to the NlA. 13. Whether or not Petitioner generated zero-rated sales of power to the NIA for the period from the 1st quarter to the 4th quarter of CY 2008 amounting to Php3 ,717,728 ,475.85 . 14. Whether or not Petitioner filed its administrative and judicial claims for a refund or tax credit of its unutilized input VAT for the period from the 1st quarter to the 4th quarter of CY 2008 within the prescriptive period ." The foregoing issues can be summarized as follows : "Whether or not petitioner is entitled to a refund or issuance of tax credit certificate in the amount of P20 ,063 ,676.24 , representing its unutilized input VAT incurred from its purchases of goods and services attributable to its zero-rated sales to NIA for taxable year 2008."fr-- 20 Docket (CTA Case No. 8041), pp. 226-227.

DECISION CTA CASE NOS. 8041 & 81 I I Page 11 of22 As correctly pointed out by petitioner, the law explicitly states that sales of generated power by generation companies are VAT zero-rated beginning June 26 , 2001 , the date of effectivity of Republic Act (R.A.) No. 913621 . The significant parts of Section 6 of R.A. No. 9136 read as follows : "SECTION 6. Generation Sector. - Generation of electric power, a bu siness affected with public interest, shall be competitive and open . XXX XXX XXX Pursuant to the objective of lowering electricity rates to end-users , sales of generated power by generation companies shall be value added tax zero-rated." (Emphasis supplied) Likewise, the Rules and Regulations to Implement Republic Act No. 9136 , specifically, Section 6 of Rule 5 thereof states that: "SECTION 6. Generation Charges and VAT. XXX XXX XXX (b) Pursuant to the policy of reducing electricity rates to End-users, sales of generated power by a Generation Company shall, from the effectivity of the Act, be zero-rated for the purpose of imposition of value-added tax. Towards this end , the im position of zero percent (0%) VAT shall apply to the sale of generated power by a Generation Company through all stages of sa le until it reaches the End-user. The DOF , through the BI R, shall issue the necessary revenue regulation with in sixty (60) calendar days from effectivity of these Rules. " (Emphasis supplied) In order for a power generation company to qualify for VAT zero-rating in accordance with R. A. No. 9136 , two (2) requirements must concur, namely, ?k- (1) it is a generation com pany; and (2) it derived sales from power generation. 2 1An Act Ordaining Reforms In The E lectric Power Industry, Amending For The Purpose Certain Laws And For Other Purposes otherwise known as "Electric Power Industry Reform Act of200I".

DECISION CTA CASE NOS. 8041 & 8111 Page 12 of22 However, the foregoing provision was expressly repealed by R.A. No. 933722. The repealing clause of R.A. No. 9337 provides: "SECTION 24 . Repealing Clause. - The following laws or provisions of laws are hereby repealed and the persons and/or transactions affected herein are made subject to the value- added tax subj ect to the provisions of Title IV of the National Internal Revenu e Code of 1997, as amended : XXX XXX XXX (B) Section 6, fifth paragraph of R.A. No. 9136 on the zero VAT rate imposed on the sales of generated power by generation com panies ; and " Notwithstanding the said repeal , the sale of power or fuel generated through renewable source of energy continued to be VAT zero-rated under Section 108(B)(7) of the National Internal Revenue Code (NIRC) of 1997, as amended by R.A. No. 9337 , which states : "SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. - XXX XXX XXX (B) Tra nsactions Subject to Zero Percent (0%) Rate. - The following services performed in the Philippines by VAT- registered persons shall be subject to zero percent (0%) rate : XXX XXX XXX (7) Sa le of power or fuel generated through renewable so urces of energy such as , but not limited to, biomass , sola r, wind , hydropower, geothermal, ocean energy, and other em erg ing energy sources using technologies such as fuel cells and hydrogen fu els ." (Emphasis supplied) In this case , records show that petitioner's 140-megawatt hydro-electric power plant project has been accredited by the Department of Energy as a Pt.-- Private Sector Generation Facility under the Implementing Rules and 22 An Act Amend ing Secti ons 27, 28, 34, 106, 107 , 108 , 109, 110, I ll , 112, 113, 114, 11 6, 117, 119, 121 , 148, 151 , 236, 23 7 and 288 ofthe National Interna l Revenue Code of 1997, as amended, and for other purposes.

DECIS ION CTA CASE NOS. 804 1 & 8111 Page 13 of22 Regulations of Executive Order No. 215 , as amended .23 Likewise, the Energy Regulatory Commissi on issued Certificate of Compliance No. 05-07GN8- 10701 for its generation facility.24 Further, under the Amended and Restated Casecnan Project Agreement between petitioner and NIA, petitioner generates power and subsequently sells it only to NIA.25 Thus , petitioner has sufficiently established that it is in the business of power generation and as such sold correspon di ng generated power to NIA. Accordingly, it can treat its sale of generated powe r to NIA as VAT zero-rated sales . This Court wi ll now resolve the issue of whether or not petitioner is entitled to a refund or issuance of tax credit certificate in the amount of P20,063 ,676 .24 , representing its unutilized input VAT incurred from its purchases of goods and services attributable to its zero-rated sales to NIA for taxable year 2008. Section 11 2(A) of the National Internal Revenue Code of 1997 lays down the requisites for refunds or tax credits of input tax due or paid attributable to zero-rated or effectively zero-rated sales , which read as follows : "SEC . 11 2. 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 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 Bangko Sentral ~ 23 Exhibit "B" . 24 Exhibit " C" . 25 Exhib it " E".

DECISION CTA CASE NOS. 8041 & 8111 Page 14 of22 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 tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated prop ortionately on the basis of the volume of sales ." Based on the foregoing , petitioner must comply with the following requisites to be entitled to a refund or issuance of tax credit certificate of input tax due or paid attributable to zero-rated or effectively zero-rated sales: 1. that th ere must be zero-rated or effectively zero-rated sales; 2. that input taxes were incurred or paid ; 3. that such inp ut VAT paym ents are directly attributable to zero-rated sales or effectively zero-rated sales; 4. that the in put VAT payments were not applied against any output VAT liability; and 5. that th e cl aim for refund was filed within the two-year prescriptive period . In its Quarterly VAT Returns for 2008 , petitioner reported a total zero- rated sales of P3,7 17,728,475 .85 , detai led as follows : EXH IBIT YEAR 2008 ZERO-RATED "I" 1st Quarter SALES/RECEIPTS "K" 2no Quarter p 891 ,776 ,085.71 "M" 3ro Quarter 601 ,563,171.26 11 0 " 41n Quarter 1,127,498,520.53 TOTAL 1,096 ,890 ,698.35 p 3, 717,728,475.85 An exami natio n of the official receipts issued by petitioner for its zero- rated sales for the year 200826 revealed that its declared zero-rated sales per Quarterly VAT Retu rn s are fully substa ntiated . This Cou rt shall now determ ine the amount of input VAT attributable thereto . Petitioner al so reported a total of P34 ,770 ,623.42 input taxes incurred for taxable year 2008 , detailed as fol lows :~ 26 Exhibits "Z-4-1. 1" to "Z-4- 1.24".

DECISION CTA CASE NOS. 8041 & 8 1I I Page 15 of22 Qtr Purchases - Goods Importation - Goods Purchases - Services Services- Non Residents Amount of Input Purchases Input VAT llllportation Input VAT Purchases Input VAT Services Input VAT Total Total 1st 4,045,143.67 485,417 .24 854 ,575.00 102,549.00 81 ,797 ,735.83 9 ,815, 728.30 754,600. 83 90 ,552 .10 exceeding Purchases Input VAT 1Million 87,452 ,055 .33 10,531,141 .27 2nd 5,860,316.42 703 ,237.97 1,293,230.83 155,187.70 50 ,606,451 .05 6 ,072,774.13 1' 126,569 .58 135,188.35 36,894 .63 58,886,567 .86 7 ,1 0 3,282 .7 8 3rd 5,051 ,649.58 606 ,197.95 352,433.00 42 ,291 .96 40 ,211 ,510.00 4 ,825,381 .20 525,829 .17 63 ,099.50 36,894.63 46,141,421 .75 5,573,865 .24 4th 4 ,836,972 .17 580,436.66 4 ,475,026.58 537 ,003.19 86 ,733,330.42 10,407,999 .65 36 ,894.63 96,045 ,329.17 11 ,562,334.13 36,894 .63 288 525 374.13 34 770 623.42 Its claim of P20 ,063,676.24 is computed as follows :27 Exhibit Year2008 Input Tax Ratio of Zero-rated Input VAT Sales over Total Sales Attributable to Zero-rated Sales "I" 15 Quarter p 10,531,141 .27 59.48 7938 % 48.354861 % p 6,264,758.82 "K" 2nu Quarter 7' 103,282 .78 62 .661695% 3,434 ,782 .55 5,573 ,865 .24 60.457607% 3,492 ,678.44 "Mll 3'0 Quarter 6 ,990 ,310 .51 "Oil 4" Quarter 11 ,562 ,334. 13 p 20,182,530.32 118 ,854 .08 Total P34, 770,62 3.42 p 20 063 676.24 Less: Input VAT applied to Miscellaneous Sales TOTAL INPUT VAT CLAIMED FOR REFUND/ISSUANCE OF TCC Petitioner subm itted in evidence various suppliers' invoices, official receipts, Burea u of Customs (BOC) Import Entries and Internal Revenue Declarations (IE IRDs), BOC and ban k official receipts28 in support of the P20 ,063 ,676.24 un util ized input taxes reflected in its Quarterly VAT Returns for the four quarters of 2008 . The Court-com missioned Independent CPA29 examined and verified the above-mentioned su pporting documents and reported her findings as follows :30 Total Input VAT Prop erly Substantiated (See Section I of Annex 3 Total Amount of Input VAT Annex Input VAT Allocated to Zero- rated Sales 1 Domestic purchases of goods and services properly 3-10-1; supported by VAT invoices and VAT ORs 3-20-1; 3-30 -1; 3-4 0-1 p 32,659,593.45 p 18,976,433.29 27 Exhibit "Z", page 1. 28 Exhibits "Z-6-C-lQ-0000 1" to "Z-6-C- IQ-00383", "Z-6-C-2Q-OOOO I" to "Z-6-C-2Q-00630", "Z-6- C-3Q-OOOO I" to "Z-6-C-3Q-00453", and "Z-6-C-4Q-OOOO I" to "Z-6-C-3Q-00587" 29 Ms. Annalyn B. Artu z of Con stantino Guadalquiver & Co. 30 Exhibit "Z", pp. 12 to 17

DECISION CTA CASE NOS. 804I & 8111 Page 16 of22 2 Importation of goods and services properly 3-1 0-2 ; 617 ,111.46 357 ,233.41 supported by IEIRDs/BOC ORs/BIR Form 1600 and 3-20-2 ; 168,551 .63 82 ,976 .22 BIR EFPS filing acknowledgement and payment 3-30-2; confirmations acknowledgement and payment 3-40-2 confirmations 3-1 0-3; 3. Domestic purchases of goods properly supported by 3-20-3; VAT invoices not dated within the VAT taxable 3-30-3; quarter but within the taxable year. We ascertained 3-40-3 that the input VAT on the purchases of goods were not claimed twice during the taxable year 4 Domestic purchases of services properly supported 3-1 0-4; 4,458 .38 2 ,540 .05 by VAT ORs not dated within the VAT taxable 3-20-4; quarter but within the taxable year. We ascertained 3-30-4; that the input VAT on purchases of services were 3-40-4 not claimed twice during the taxable year 5 Domestic purchases of capital goods exceeding 3-10-5; 94 ,650.00 54 ,651.40 Pts1 Million properly supported by VAT invoices 3-20-5; (Amortization Only) 3-30-5; p 33,544,364.92 p 19,473,834.37 3-40-5 Total Input VAT properly substantiated The Honorable Court may also accept the following amounts as properly substantiated in which case the amount that is property substantiated will be P19,521 ,919.84: I For Consideration of the Honorable CTA (See Section II of Annex 3): Annex Total Amount of Input VAT Input VAT Allocated to Zero- Rated Sales 1 Domestic purchases of goods/services supported by 3-1 0-6; p 8,652 .21 p 5,270.76 VAT invoicesNAT ORs with countersigned 3-20-6; changes. We have ascertained from additional 3-30-6; 4,425 .51 2,647.40 supporting documentation (i.e. VAT ORs for goods/ 3-40-6 VAT invoices for services) that input VAT was passed on to the petitioner. 3-10-7; 3-40-7 2 Domestic purchases of goods/services supported by VAT invoicesNAT ORs with countersigned changes in the company's name and/or TIN 3 Domestic purchases of goods supported by tape 3-1 0-8 ; 15,258 .79 8,900.00 receipts with handwritten/stamped company's name, 3-20-7; 1,203 .79 706 .10 TIN and/or address 3-30-7; 3-40-8 52,928 .52 30,561 .21 4 Domestic purchases of services supported by tape receipts with handwritten/stamped company's name , 3-20-8; p 82 ,468.82 p 48,085.47 TIN and/or address 3-3 0 - 8 ; 3-40-9 5 Domestic purchase of capital goods exceeding P1 Million supported by TIN #Vehicle Sales Invoice 3-1 0-9; which shows that VAT was passed on to the 3-20-9; petitioner(amortization only) 3-30-9; 3-40-10 Total For Consideration of the Honorable CTA

DECISION Annex Total Amount of Input VAT CTA CASE NOS. 8041 & 8111 Input VAT Allocated to Zero- Page 17 of22 3-10-10; 3-20-10; p 30,159.73 Rated Sales Other Findings (see Section Ill of Annex 3) 3-30-10; 3-40-11 p 18 ,060.99 1 Domestic purchases of goods supported by documents other that VAT invoices 3-10-11 ; 120 ,539.23 71 ,995.93 3-20-11 ; 2 Domestic purchases of services supported by 3-30-11 ; documents other that VAT ORs 3-40-12 3 Domestic purchases of goods supported by VAT 3-10-12; 1,691.12 958.87 invoices not issued in the name of the company 3-20-12; 3-30-12; 4 Domestic purchases of services supported by VAT 3-40-13 ORs not issued in the name of the company 3-10-13; 53 ,116 .71 32 ,342.40 5 Domestic purchases of goods supported by TIN-V 3-20-13; 22,418 .51 11 ,555.95 invoice 3-30-13; 91 ,671 .99 50,951 .26 3-4 0 -14 6 Domestic purchases of services supported by TIN-V ORs 3-1 0-14; 3-20-14 7 Domestic purchases of goods supported by VAT invoices not dated within the VAT taxable year 3-10-15; 3-20-15; 8 Domestic purchases of services supported by VAT 3-30-14; ORs not dated within the VAT taxable year 3-40-15 9 Domestic purchases of goods supported by TIN #or 3-10-16; 28 ,077.19 16,524 .70 TIN-V tape receipts only 3-20-16; 474 .54 286.45 3-4 0 -16 10 Domestic purchases of services supported by TIN # 4 ,635.82 2,606 .07 or TIN-V tape receipts only 3-10-17; 139 .5 3 84 .36 3-40-17 11 Domestic purchases of goods supported by TIN# 36,732 .05 22 ,593.86 only; TAN-V; TAN-VAT; TIN-NV/NON VAT invoices; 3-1 0 -18; stamped/handwritten TIN-VNAT invoices 3-20-17; 3-30-15; 12 Domestic purchases of services supported by TIN# 3-40-18 only ; TAN-V; TAN-VAT; TIN-NV/NON VAT ORs stamped/handwritten TIN-VNAT Ors 3-40-19 3-10-19; 3-20-18; 3-30-16; 3-40-20 3-10-20; 45 ,809.22 27 ,254.97 3-20-19; 3-40-21

DECISION CTA CASE NOS . 8041 & 8111 Page 18 of22 13 Domestic purchases of goods supported VAT 3-10-21 ; 1 ,919 .90 1,072.20 invoices issued in the company's name but without 3-20-20; 3 ,718.48 2 ,093 .54 or with wrong Company's TIN and/or address 3-30-17 ; 1,571.50 3-40-22 2,524 .30 846 .88 14 Domestic purchases of services supported but VAT 1,479 .18 ORs issued in the company's name but without or 3-10-22; 128.67 with wrong company's TIN and/or address 3-20-21; 168 .9 4 80 .6 3 3-30-18; 6,268.10 105.86 15 Domestic purchases of goods supported by VAT 3-40-23 39 ,204 .30 3,370.27 invoices issued in the Company's name with TIN 30 ,873.00 and/or address changed/added on the VAT invoices 3 - 1 0 -23 ; 6 ,536 .34 24 ,137.81 but without countersignature 3-20-22; 11 ,366.38 18 ,390.64 3-40-24 16 Domestic purchases of goods supported by tape 3,7 17.83 receipts without or not in the Company's name 3-20-23; 6,856 .70 and/or TIN 3-30-19; 3-40-25 17 Domestic purchases of services supported by tape receipts without Company's name and/or TIN 3-30-20 18 Domestic purchases of services supported by VAT 3-30-21 ORs but without OR date 3-10-24; 19 Domestic purchases of goods/services supported by 3-20-24; VAT invoiceNAT ORs wherein VAT was not shown 3-30-22; separately 3-40-26 20 Purchases of services supported by TIN VAT 3-10-25; invoices with stamp "Not allowed for claiming input 3-20-25; VAT" 3-30-23; 3-40-27 21 Domestic purchases of services supported by VAT ORs with vatable amount placed under NON 3-10-26; VATABLE portion 3-20-26; 3 - 3 0-24 ; 22 Overclaimed input VAT on domestic purchases/ 3-40-28 importation of goods/services due to erroneous computation (i.e. arithmetical error) 3-1 0-27; 3-20-27; 23 Effects of forex on foreign currency denominated 3-30-25; purchases of goods and services - overstatement 3-40-29 3-10-28; 3-30-26; 3-40-30

D EC IS ION CTA CASE NO S. 804 1 & 811 I 24 Supporting documents not available for verification 3-10-29; 604 ,054 .02 343 ,249.15 3-20-28 ; TOTAL OTHER FINDINGS 3-30-27; p 1,143,799.57 p 660 ,616 .51 ROUNDING OFF DIFFERENCE 3-40-31 (9 .89) (6 .03) GRAND TOTAL P34, 770,623.42 P20, 182,530.32 This Court finds the Independent CPA Report to be in order. All 24 items under "Other Findings" amounting to P660 ,616.51 should be disallowed for the reasons stated. In addition , this Court cannot consider all the items under "For consideration of the Honorable CTA", in the total amount of P48,085.47 because in items 1 and 2, this Court cannot determine whether the one who countersigned the changes is the authorized representative of the supplier and the rest of the items are in violation of the invoicing requirements as provided in Section 113 of the NIRC of 1997. Thus , disallowances per ICPA findings amounted to P708 ,701.98 . Likewise , the input VAT claim should be further decreased by P135,808.95 , broken down as follows: SUPPLIER OR No. 10695 INPUT VAT EXHIBIT REASON FOR DISALLOWANCE Isla Lipana & Co. p 111 ,000 .00 Z-6-1 0-00170 PLDT Z-6-4 0 - 0 0 3 8 7 The amount reflected in the summary TOTAL 24 ,808 .95 was P222 ,000 instead of P111 ,000 p 135,808.95 No Document. Submitted document was not the one reflected in the summary. Accordingly, out of petitioner's claimed input tax of P20 ,063 ,676 .24 , only the amount of P19 ,219 ,165.31 , as computed below, is duly substantiated in accordance with Sections 11 O(A) and 113(A) of the NIRC of 1997, as amended by R.A. No. 9337, in relation to Sections 4.110-1 , 4.110-8, and 9t-- 4.113-1 of Revenue Regulations No. 16-2005:

DECl Sl ON CTA CASE NOS. 8041 & 8 111 Page 20 of22 Claimed input VAT p 20,063,676.24 Less: Disallowances P708 ,701.98 Per ICPA Per Court's 135 ,808 .95 844 ,510 .93 verification Valid input VAT p 9,219,165.31 As evidenced by its Quarterly VAT Returns for the four quarters of 2009 and first quarter of 201031 , petitioner carried over the amount of P19 ,219,165.31 to the succeeding quarters but the same remained unutilized as the substantiated input VAT of P19 ,219 ,165.31 formed part of the P6 ,264 ,758.82 and P13 ,798 ,917.42 input VAT deducted as "VAT Refund!TCC Claimed" in the Quarterly VAT Returns for the fourth quarter of 200932 and first quarter of 2010 ,33 respectively. Hence, the input VAT of P19 ,219 ,165.31 was no longer carried over to the succeeding quarters of 2010 . Finally, this Court finds that petitioner's administrative and judicial claims for refund or issuance of tax credit certificate were filed well within the prescriptive period under Section 112 of the NIRC of 1997, as amended , as shown below: CTA Case No. 8041 8111 1st Quarter 2008 2nd to 4th Quarters 2008 Period Covered March 31 , 2010 June 30 , 2010, September 30, 2 years after close of taxable November 11 , 200934 2010 and December 31 , 2010 quarter March 11 , 2010 Date of filing of Administrative March 26 , 2010 February 16, 201035 Cla im 120 days from Administrative April10 , 2010 June 16, 2010 Claim Date of filing of Petition for June 24, 2010 Review Last Day to file Petition for July 16, 2010 Review 3 1 Exhibits "T" "U" "V" " W" and "X" . 32 Exhibit "W".' , , , 33 Exhib it "X". 34 Exhibit "P" . 35 Exhib it "Q".

DEC ISION CTA CASE NOS. 804 1 & 8 11 1 Page 21 of22 Based on the foregoing, the Court finds that petitioner is entitled to a refund or issuance of tax credit certificate for its unutilized input VAT, but in the reduced amountofP19 ,219,165 .31 . WHEREFORE , the instant consolidated case is hereby PARTIALLY GRANTED. Accordingly, respondent Commissioner of Internal Revenue is hereby ORDERED to REFUND or to ISSUE A TAX CREDIT CERTIFICATE in the amount of P19 ,219 ,165.31 to petitioner, representing unutilized input VAT attributable to its zero-rated sales to NIA for taxable year 2008 . SO ORDERED . ~~ c .CQAS.TYA-N~E~D.~g._JR. alJANITO C. Associate Justice WE CONCUR: ~ N_ M~~ . C~ $- CIELITO N. MINDARO-GRULLA Associate Justice CAESAR A. CASANOVA Associate Justice ATTESTATION 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 . ~I;C.~~ . 0UANITO c. CASTANEDA, JR. Associate Justice Chairperson

DECISION CTA CASE NOS. 8041 & 811 1 Page 22 of22 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. Q_;\v. Q~ ERNESTO D. ACOSTA Presiding Justice