MAXIMA MACHINERIES, INC. v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SPECIAL THIRD DIVISION MAXIMA MACHINERIES, CTA CASE NO. 9358 INC., Petitioner, Members: -versus- FASON-VICTORINO, Acting Chairperson and RINGPIS LIBAN, JJ. COMMISSIONER OF Promulgated: INTERNAL REVENUE, Respondent. x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x DECISION Fabon- Victorino, J.: This Petition for Review1 filed by Maxima Machineries, Inc. on May 26, 2016, prays for the issuance of a tax credit certificate (TCC) in the amount of Thirteen Million Four Hundred Forty-Eight Thousand Seven Hundred Twenty-One Pesos and Seventy-Four Centavos (P13,448,721.74), allegedly representing its excess and unutilized input value- added tax (VAT) attributable to its zero-rated sales for the period covering October 1, 2013 to December 31, 2013, or the third (3rd) quarter of fiscal year (FY) ending March 31, 2014. THE FACTS Petitioner Maxima Machineries, Inc. is a domestic corporation, with principal business address at 871 Quezon . I Avenue, Barangay Sta. Cruz, Quezon City. 2 It is a VAT- 1 Docket, val. 1, pp. 10-49. 2 Exhibits "P-1" and "P-2".

Decision CTA CASE NO. 9358 registered taxpayer, with Taxpayer Identification No. (TIN) 006-618-023-000. 3 Per its Amended Articles of Incorporation4, petitioner's primary purpose is to buy, sell, barter, trade, lease out, manufacture, import, export or otherwise acquire, dispose of, and deal with any kind of goods, wares, and merchandise such as spare parts or replacement parts and/or complete assemblies of agricultural, industrial or commercial machineries, automobiles, buses, trucks, tractors or other motor vehicles and/or related machineries and equipment of every kind and description and to carry on such business as manufacturers, wholesaler, importers and exporters, except the manufacture of food, drugs and cosmetics. Respondent, on the other hand, is the Commissioner of the Bureau of Internal Revenue (BIR) who has the power to decide on disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto or other matters arising under the National Internal Revenue Code (NIRC) or other laws or portions thereof administered by the BIR. He holds office at the BIR National Office Building, Agham Road, Diliman, Quezon City. Petitioner claims that for the period covering October 1 to December 31, 2013, it has accumulated unutilized input VAT arising from its zero-rated transactions in the total amount of P13,448,721. 74. 5 The said zero-rated transactions allegedly originated from its sale of goods and services to export-oriented entities registered with the Philippine Economic Zone Authority (PEZA), such as the Subic Bay Metropolitan Authority (SBMA), the Clark Development Authority (CDA), and the Board of Investments (BOI). 6 It also rendered services to Marubeni Corporation of Japan7 , a non- resident foreign corporation from which it received indent commission as payment. 3 Exhibit "P-3". 4 Exhibit "P-2-A". 5 Par. 3, Memorandum for the Petitioner, docket, vol. 3, p. 1208. 6 Exhibits "P-4", "P-5", "P-6", "P-7", "P-8", "P-9", "P-10", and "P-11". 7 Exhibit "P-12".

Decision CTA CASE NO. 9358 On April 23, 2014, petitioner filed with the BIR its Quarterly VAT Return for the 3rd quarter of FY ending March 31, 2014.8 On December 29, 2015, petitioner filed with the BIR Large Taxpayers Regular Audit Division I an Application for Tax Credits/Refunds, together with a transmittal letter of supporting documents dated December 28, 20159 , requesting for issuance of a TCC for its alleged unutilized input VAT for the 3rd quarter of FY ending March 31, 2014 in the total amount of P13,448,721.74. 10 On February 4, 2016, petitioner received Letter of Authority (LOA) No. eLA201200042234 dated January 14, 2016, authorizing Revenue Officers (ROs) Jan Andre Abellera and Ruby Ann Oradia and Group Supervisor Gilquin Tolentino of Revenue District Office (RDO) No. 116-Regular Large Taxpayers Audit Division I, to examine its books of accounts and other accounting records for VAT for the period covering October 1, 2013 to December 31, 2013. 11 On May 26, 2016, petitioner filed the instant Petition for Review12 on the ground of inaction on the part of respondent. In his Answer13 filed on June 24, 2016, respondent avers, among others, that petitioner must show that it has complied with Section 112 of the NIRC of 1997, as amended, particularly on the prescriptive periods and has submitted all the documentary and evidentiary requirements thereof. Further, the burden of proof is on petitioner to establish its right to refund and failure to sustain the burden is fatal to its cause. Respondent also claims that petitioner failed to comply with the invoicing and accounting requirements mandated under Sections 113, 114 and 236 of the NIRC of 1997, as amended, and as implemented by Revenue Regulations (RR) No. 16-2005. Further, petitioner failed to submit all supporting and relevant documents required under Revenue 8 Exhibit "P-17". 9 Exhibits "P-21" and "P-21-a". 10 Exhibits "P-20" and "P-20-A". 11 Exhibit "P-38". 12 Docket, vol. 1, pp. 10-50. 13 Docket, vol. 2, pp. 287-296.

Decision CTA CASE NO. 9358 Memorandum Order (RMO) No. 53-98 and other existing rules and regulations to warrant the grant of its application for refund, rendering its administrative action pro-forma, hence, deemed not filed and thereby depriving the Court of jurisdiction to entertain the present action. Finally, like tax exemptions, claims for refund/TCC are construed strictly against the taxpayer, says respondent. 14 After the pre-trial conference 15, a Pre-Trial Order was issued on March 16, 2017 16 . During the trial, petitioner presented Yusuke Yamada, Jenelyn Palayon-Tagao and Neil U. Sison, as its witnesses. Petitioner's Chief Financial Officer (CFO) Yusuke Yamada testified 17 that he supervises petitioner's compliance with pertinent laws and government rules and regulations and oversees petitioner's payment of taxes, licenses and fees. He has direct control and supervision of petitioner's Finance Department, thus, has access to its corporate and financial documents, tax returns, BIR Certificate of Registration, permits, sales invoices, official receipts and other accounting record. Petitioner's primary business purpose is to buy, sell, barter, trade, lease out, manufacture, import, export or otherwise acquire, dispose of, and deal with any kind of goods, wares, and merchandise such as spare parts or replacement parts and/or complete assemblies of agricultural, industrial or commercial machineries, automobiles, buses, trucks, tractors or other motor vehicles and/or related machineries and equipment of every kind and description and to carry on such business as manufacturers, wholesaler, importers and exporters, except the manufacture of food, drugs and cosmetics. 18 14 Citibank N.A. v. Court of Appeals and Commissioner of Internal Revenue, 280 SCRA 459; Commissioner of Internal Revenue v. Tokyo Shipping Co., Ltd., 244 SCRA 332, both cited in Benguet Corporation v. Commissioner of Internal Revenue, CTA Case No. 5392, Oct. 30, 1998. 15 Minutes of the Hearing, docket, vol. 2, p. 618. 16 Docket, vol. 2, pp. 661-667. / 17 Exhibits "P-44" and "P-44-a". '(/ 18 Exhibit "P-2-A".

Decision CTA CASE NO. 9358 During the period October 1, 2013 to December 31, 2013, petitioner sold machineries and/or spare parts and provided services to various customers/clients, including export-oriented entities registered with the PEZA19, such as SBMA20, CDC21, BOI22 and Cagayan Economic Zone Authority (CEZA) 23 . It likewise rendered services to Marubeni Corporation of Japan, a non-resident foreign corporation 24, as its agent to deal with the latter's local customer. By virtue of its contract with Marubeni, petitioner arranged the placing of the orders of the local customers to Marubeni Corporation. For acting as agent, petitioner received indent commission for all orders placed for Marubeni Corporation's supplier. The witness further testified that petitioner's sales to all its customers/clients during the period October 1, 2013 to December 31, 2013, were all covered with VAT zero-rated invoices, which have been printed in accordance with the SIR- issued Authority to Print (ATP) rules. 25 On April 23, 2014, petitioner filed its Quarterly VAT Return26 for the period October 1, 2013 to December 31, 2013, showing VATable sales of P661,923,963.52, sale to the Government in the amount of P2,994,386.35, and output tax due for the quarter on VATable sales in the total amount of P79,430,875.62 and on sale to the Government in the amount of P359,326.36 which were totally netted out against the allowable input tax carried over from the previous quarter in the amount of P320,781,112.70 and deferred input tax on capital goods exceeding P1 Million from previous quarter in the total amount of P2,926,925.56, or the total amount of P323, 708,038.26. Further, petitioner's VAT zero-rated sales for the same period totaled P323,992,010.42 and its domestic purchases of goods other than capital goods27, importation of goods other that capital goods and domestic purchases of services totaled P1,051,858,077 .51 28, on which it generated input taxes totaling P451,441,918.01. 19 Exhibit "P-4" 20 Exhibits "P-6", "P-7", "P-8: and "P-10". 21 Exhibit "P-11". 22 Exhibit "P-5". 23 Exhibit "P-9". 24 Exhibit "P-12". 25 Exhibits "P-13" to "P-16". 26 Exhibit "P-17". 27 Exhibit "P-18". 28 Exhibit "P-19".

Decision CTA CASE NO. 9358 Allegedly, petitioner's excess input VAT directly attributable to its VAT zero-rated sales for the 3rd quarter of FY ending March 31, 2014 in the total amount of P13,448,721.74, comprised of the excess input tax credits in the amount of P12,152,302.51 that was allocated to VAT zero-rated sales, and the input tax in the amount of P1,296,419.23 that was directly attributable to VAT zero- rated sales during the 3rd quarter of FY ending March 31, 2014. On December 29, 2015, petitioner filed with the BIR Large Taxpayers Service-Regular LT Audit Division an administrative claim 29 for issuance of a TCC in the total amount of P13,448, 721.74, allegedly representing its excess input VAT which were directly attributable to its VAT zero- rated sales for the 3rd quarter of FY ending March 31, 2014, to recover the excess input VAT for the period October 1, 2013 to December 31, 2013. Petitioner attached to the said administrative claim a Transmittal Letter of Supporting Documents dated December 28, 201530, which he signed addressed to Nestor A. Valeroso, ACIR, Large Taxpayers Service and Cesar D. Escalada, Chief Regular LT Audit Division I. 31 Also attached was a Sworn Certification dated December 10, 201532 certifying that the documents submitted were complete for the purposes of processing petitioner's claim for issuance of a TCC. Thereafter, the BIR prepared a checklist of requirements33 for VAT credit/refund indicating that petitioner complied with the requirements relative to the administrative claim for the issuance of a TCC. On January 14, 2016, the BIR issued a LOA34 authorizing ROs Jan Andre Abellera, Ruby Ann Orandia and Group Supervisor Gilquin Tolentino of RDO No. 116-Regular LT Audit Division I, to examine petitioner's books of accounts and other accounting records for VAT for the period October 1, 2013 to December 31, 2013. Series of discussions between the BIR examiners and petitioner's representatives on supporting 29 Exhibit "P-20". 30 Exhibit "P-21". 31 Exhibit "P-21-a". 32 Exhibit "P-22". 33 Exhibit "P-23". 34 Exhibit "P-38".

Decision CTA CASE NO. 9358 documents followed until respondent's 120-day period to process the claim expired without any action taken thereto. On May 26, 2016, petitioner filed the instant Petition for Review. Witness added that the Certifications from PEZA and SBMA came from different sources. Some were requested by petitioner's Sales and Accounting Departments; the others were provided by its customers. He further declared that he supervised the preparation and filing, after his approval, of petition's VAT Returns and all the attached supporting documents. He further declared that petitioner has forty-three (43) local clients which are registered with either PEZA, SBMA, CDC, BOI or CEZA and one (1) foreign entity, Marubeni Corporation. Witness, Jenelyn Palayon-Tagao declared35 that as petitioner's Chief for Government Compliance of Finance Department, she checks petitioner's filing and payment of local and national internal revenue taxes. She also handles the inspection, investigation, examination by various government agencies, and monitors the schedules of all the due dates for submission of government requirements. On April 23, 201436, she filed petitioner's Quarterly VAT Return for the period October 1, 2013 to December 31, 2013 indicating therein petitioner's total allowable input taxes carried over from the previous period in the amount of P320,781,112.70 while its deferred input tax on capital goods exceeding Pl Million from previous quarter amounted to P2,926,925.56. Also indicated in the said Quarterly VAT Return was petitioner's zero-rated sales of P323,992,010.42 and its domestic purchases of goods other than capital goods, importation of goods other than capital goods and domestic purchases of services for the same period in the total amount of P1,051,858,077 .51, on which petitioner generated input taxes in the sum of P451,441,918.01. 35 Exhibits "P-45" and "P-45-a". 36 Exhibit "P-17''.

Decision CTA CASE NO. 9358 The witness further testified that the output taxes due on VATable sales of P79,430,875.62 and on sales to the Government of P359,326.36 were totally netted out against the allowable input tax carried over from previous quarter of P320, 781,112.70 and deferred input tax on capital goods exceeding P1 Million from previous quarter of P2, 926,925.56, or the sum of P323,708,038.26. The amount of P13,448,721.74 pertaining to petitioner's excess input VAT was computed by deducting the amounts of P3,437,452.15, P511,238.50, P251,435.83 and P87,148,126.35, pertaining to the input tax on VATable sales of machineries from current purchases, input tax on zero- rated sale of machineries from current purchases, input tax directly identified and allocable to government taxes and input tax on current purchases of machineries not sold within the quarter, respectively, from the total input taxes of P127,929,095.22. Thus, the balance of P37,092,080.89, representing total input tax was allocated to VATable sales, VAT zero-rated sales and sales to the Government of machineries and spare parts. In addition to the P12,152,302.51 of input taxes allocable to petitioner's zero-rated sales during the 3rd Quarter of FY ending March 31, 2014, input taxes on zero- rated sales of machineries which were imported in the current period and input tax in zero-rated sales of machineries which were imported in prior years but sold only during the said quarter, in the amounts of P511,238.50 and P785,180.73, respectively, were added to arrive at the amount of P13,448, 721.74. The said amount of P13,448,721.74 allocated and directly attributed to petitioner's VAT zero-rated sales for the period October 1, 2013 to December 31, 2013 had not been utilized and applied against any output tax in FY ending March 31, 2014 and subsequent quarters, prompting petitioner to file an Application for Tax Credits/Refunds37 for the issuance of TCC for said amount of excess input VAT on December 29, 2015. 37 Exhibit "P-20".

Decision CTA CASE NO. 9358 She claimed that petitioner is entitled to the issuance of TCC in the amount of P13,448, 721.74 since its sales to SOl- registered clients were zero-rated. The last to take the witness stand for petitioner was the Independent Certified Public Accountant (ICPA) Neil U. Sison. He declared38 that he audited and evaluated petitioner's documents and records in support of its claim for issuance of TCC in the amount of P13,448, 721.74, representing its excess and unutilized input VAT on its domestic purchases of goods and services and importation of capital goods which are directly attributable to its VAT zero- rated sales for the period October 1, 2013 to December 31, 2013. Per his examination and verification of petitioner's pertinent documents and as stated in his Final ICPA Report39 , petitioner is entitled to a tax refund/credit of its excess and unutilized input VAT but in the reduced amount of P7,535,269.85 while the amount of PS,745,957.25 should be disallowed pursuant to Section 106 (A) to (C) of the NIRC of 1997, as amended, governing sales to entities whose sales are zero-rated under special laws and rules. Petitioner made zero-rated sales in the amount of P323,992,010.42, on which the corresponding allocated input tax is P7,535,269.85. After formal offer of exhibits on September 13, 201740 and November 7, 201741, petitioner rested per Resolutions dated October 19, 201742 and January 5, 201843 . Respondent, on the other hand, did not present any evidence in support of its defense. 44 The case was submitted for decision on March 21, 201845, after the parties' submission of their respective memoranda. 38 Exhibits "P-47" and "P-47-a". 39 Exhibit "P-46". 40 Docket, vol. 2, pp. 794-822. 41 Docket, vol. 3, pp. 1158-1179. 42 Docket, vol. 3, pp. 1154-1157. 43 Docket, vol. 3, pp. 1186-1190. 44 Order dated January 23, 2018, docket, vol. 3, p. 1192. 45 Resolution, docket, vol. 3, p. 1268.

Decision CTA CASE NO. 9358 THE ISSUE The following issue46 was raised for the Court's resolution: Whether the petitioner is entitled to the issuance of tax credit certificates of its alleged excess and unutilized input value-added tax (VAT), which are allocable and directly attributable to its VAT zero- rated sales for the period from October 1, 2013 to December 31, 2013 in the amount of P13,448, 721.74." THE RULING OF THE COURT Sections 112(A) and (C) of the NIRC of 1997, as amended, pertinently provides: 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 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 (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 of properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the 46JSFI, docket, vol. 2, p. 625.

Decision CTA CASE NO. 9358 transactions, it shall be allocated proportionately on the basis of the volume of sales: Provided, finally, That for a person making sales that are zero-rated under Section 108 (8)(6), the input taxes shall be allocated ratably between his zero- rated and non-zero-rated sales. XXX XXX XXX (C) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsection (A) hereof. In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day- period, appeal the decision or the unacted claim with the Court of Tax Appeals. Thus, the following requisites must be satisfied to be entitled to refund/TCC of input tax due or paid attributable to zero-rated or effectively zero-rated sales: 1. that the taxpayer is VAT-registered; 2. that the claim for refund was filed within the prescriptive period; 3. that there must be zero-rated or effectively zero-rated sales; 4. that input taxes were incurred or paid; 5. that such input taxes are attributable to zero-rated or effectively zero-rated sales; and 6. that the input taxes were not applied against any output VAT liability.

Decision CTA CASE NO. 9358 Petitioner is a VAT- registered taxpayer. It was established that petitioner is a registered VAT taxpayer, with TIN 006-618-023-000, per its BIR Certificate of Registration No. OCN 8RC0000019980. 47 Petitioner's administrative and judicial claims were seasonably filed. Per Section 112(A) of the NIRC of 1997, as amended, petitioner had two (2) years to file a claim for refund/TCC of input VAT attributable to zero-rated or effectively zero-rated sales reckoned from the close of the taxable quarter when the relevant sales were made. Evidence shows that petitioner likewise met this requisite. The present claim covers the 3rd quarter of FY ending March 31, 2014, which closed on December 31, 2013. Counting two years therefrom, petitioner had until December 31, 2015 within which to file its administrative claim for refund or tax credit. Evidently, petitioner's administrative claim48 was timely filed on December 29, 2015. As to the timeliness of petitioner's judicial claim for refund, Section 112(C) of the NIRC of 1997, as amended speaks of two periods for that purpose, namely: (1) the period of 120 days for respondent to act on the administrative claim for refund/TCC; and (2) the 30-day period from notice of respondent's adverse ruling or the lapse of the 120 period without any action from respondent, within which to file a judicial claim with the Court of Tax Appeals. 49 In the landmark case of Commissioner of Internal Revenue v. San Roque Power Corporation50, the Supreme Court held that the taxpayer can seek judicial review of its claim for refund/TCC in either of the following ways: (1) file 47 Exhibit "P-3". 48 Exhibits "P-20", "P-21", and "P-22". 49 ROHM Apollo Semiconductor Philippines v. Commissioner of Internal Revenue, G.R. / No. 168950, January 14, 2015. 50 G.R. Nos. 187485, 196113, and 197156, February 12, 2013.

Decision CTA CASE NO. 9358 the judicial claim within 30 days after the respondent denies the claim within the 120-day waiting period, or (2) file the judicial claim within 30 days from the expiration of the 120- day period if respondent does not act within that period. 51 Accordingly, from the filing of petitioner's administrative claim together with the supporting documents on December 29, 2015, respondent had 120 days or until April 27, 2016 to act on the said claim. Since respondent failed to act on the claim on or before April 27, 2016, petitioner had 30 days or until May 27, 2016, within which to file its judicial claim before this Court. Evidently, the instant Petition for Review was also seasonably filed on May 26, 2016. Petitioner is engaged in zero-rated or effectively zero-rated sales during the 3rd Quarter of FY ending March 31, 2014 As stated in its Amended Articles of Incorporation, petitioner's primary purpose is to buy, sell, barter, trade, lease out, manufacture, import, export or otherwise acquire, dispose of, and deal with any kind of goods, wares and merchandise such as spare parts or replacement parts and/or complete assemblies of agricultural, industrial or commercial machineries, automobiles, buses, trucks, tractors or other motor vehicles and/or related machineries and equipment of every kind and description and to carry on such business as manufacturers, wholesalers, importers and exporters, except the manufacture of food, drugs and cosmetics. 52 Petitioner maintains that its sales of goods and services to entities registered with the PEZA, SBMA, CDA, CEZA, and BOI during the period covering October 1, 2013 to December 31, 2013 were subject to zero percent (0�/o) VAT, pursuant to Sections 106(A)(2)(a)(S) and (c) and 108(8)(3) of the NIRC of 1997, as amended. Likewise, petitioner claims that the indent commissions earned from its sales of services during the same period to Marubeni Corporation Japan, a non- resident foreign corporation not engaged in business in the 51 Supra, Note 52. 52 Exhibits "P-2" and "P-2-A".

Decision CTA CASE NO. 9358 Philippines, were also subject to VAT at zero percent (0�/o) rate, based on Section 108(8)(2) of the same Code. Sections 106(A)(2)(a)(5) and (c) and 108(B)(2) and (3) of the NIRC of 1997, as amended, read as follows: SEC. 106. Value-Added Tax on Sale of Goods or Properties. - (A) Rate and Base of Tax. - xxx XXX XXX XXX (2) The following sales by VAT-registered persons shall be subject to zero percent (0�/o) rate: (a) Export Sales. - The term 'export sales' means: XXX XXX XXX (5) Those considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987, and other special laws. XXX XXX XXX (c) Sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to zero rate." SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. - (A) Rate and Base of Tax. - XXX XXX XXX (B) Transactions Subject to Zero Percent (0%) Rate. - The following services performed in the

Decision CTA CASE NO. 9358 Philippines by VAT-registered persons shall be subject to zero percent (0�/o) rate: XXX XXX XXX (2) Services other than those mentioned in the preceding paragraph rendered to a person engaged in business conducted outside the Philippines or to a non- resident person not engaged in business who is outside the Philippines when the services are performed, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); (3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0�/o) rate;" Relative thereto, Sections 4.106-5 and 4.108-5 of RR No. 16-2005, as amended, also provide: SEC. 4.106-5. Zero-Rated Sales of Goods or Properties. - xxx The following sales by VAT-registered persons shall be subject to zero percent (0�/o) rate: (a) Export sales. - 'Export Sales' shall mean: XXX XXX XXX (5) Transactions considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987, and other special laws. 'Considered export sales under Executive Order No. 226' shall mean the Philippine port F.O.B. value determined from invoices, bills of lading, inward letters of credit, landing certificates, and other

Decision CTA CASE NO. 9358 commercial documents, of export products exported directly by a registered export producer, or the net selling price of export products sold by a registered export producer to another export producer, or to an export trader that subsequently 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 or similar commercial documents; Provided, further, That pursuant to EO 226 and other special laws, even without actual exportation, the following shall be considered constructively exported: (1) sales to bonded manufacturing warehouses of export-oriented manufacturers; (2)sales �to export processing zones pursuant to Republic Act (RA) Nos. 7916, as amended, 7903, 7922 and other similar export processing zones; (3) sale to enterprises duly registered and accredited with the Subic Bay Metropolitan Authority pursuant to RA 7227; (4) sales to registered export traders operating bonded trading warehouses supplying raw materials in the manufacture of export products under guidelines to be set by the Board in consultation with the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC); (5) sales to diplomatic missions and other agencies and/or instrumentalities granted tax immunities, of locally manufactured, assembled or repacked products whether paid for in foreign currency or not. For purposes of zero-rating, the export sales of registered export traders shall include commission income. The exportation of goods on consignment shall not be deemed export sales until the export products consigned are in fact sold by the consignee: and Provided, finally, that sales of goods, properties or services made by a VAT-registered supplier to a SOl-registered manufacturer/producer whose products are 100�/o exported are considered export sales. A certification to this effect must be issued by the Board of Investment (BOI) which shall be good for one year unless subsequently re-issued by the BOI. XXX XXX XXX

Decision CTA CASE NO. 9358 (c) 'Sales to Persons or Entities Deemed Tax- exempt under Special Law or International Agreement'. - Sales of goods or property to persons or entities who are tax-exempt under special laws, e.g. sales to enterprises duly registered and accredited with the Subic Bay Metropolitan Authority (SBMA) pursuant to R.A. No. 7227, sales to enterprises duly registered and accredited with the Philippine Economic Zone Authority (PEZA) or international agreements to which the Philippines is signatory, such as, Asian Development Bank (ADB), International Rice Research Institute (IRRI), etc., shall be effectively subject to VAT at zero-rate. (Emphasis supplied) SEC. 4.108-5. Zero-Rated Sale of Services. - XXX XXX XXX (b) Transactions Subject to Zero Percent (Oo/o) VAT Rate. - The following services performed in the Philippines by a VAT-registered person shall be subject to zero percent (0�/o) VAT rate: XXX XXX XXX (2) Services other than processing, manufacturing or re-packing rendered to a person engaged in business conducted outside the Philippines or to a non-resident person not engaged in business who is outside the Philippines when the services are performed, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP; (3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0�/o) rate; (Emphasis supplied) Further, R.A. No. 7227, as amended by R.A. No. 9400, / otherwise known as "Bases Conversion and Development Act ../ of 1992", RA No. 7916, as amended, otherwise known as "The

Decision CTA CASE NO. 9358 Special Economic Zone Act of 1995", and R.A. No. 7922, otherwise known as "Cagayan Special Economic Zone Act of 1995", provide as follows: REPUBLIC ACT NO. 9400 AN ACT AMENDING REPUBLIC ACT NO. 7227, AS AMENDED, OTHERWISE KNOWN AS THE BASES CONVERSION AND DEVELOPMENT ACT OF 1992, AND FOR OTHER PURPOSES SECTION 1. Section 12 of Republic Act No. 7227, as amended, otherwise known as the Bases Conversion and Development Act of 1992, is hereby amended to read as follows: SEC. 12. Subic Special Economic Zone. -XXX XXX XXX XXX (b) The Subic Special Economic Zone shall be operated and managed as a separate customs territory ensuring free flow or movement of goods and capital within, into and exported out of the Subic Special Economic Zone, as well as provide incentives such as tax and duty-free importations of raw materials, capital and equipment. However, exportation or removal of goods from the territory of the Subic Special Economic Zone to the other parts of the Philippine territory shall be subject to customs duties and taxes under the Tariff and Customs Code of the Philippines, as amended, the National Internal Revenue Code of 1997, as amended, and other relevant tax laws of the Philippines. (c) The provision of existing laws, rules and regulations to the contrary notwithstanding, no national and local taxes shall be imposed within the Subic Special Economic Zone. xxx

Decision XXX XXX CTA CASE NO. 9358 XXX SEC. 2. Section 15 of the Republic Act No. 7227, as amended, is hereby amended to read as follows: SEC. 15. Clark Special Economic Zone (CSEZ) and Clark Freeport Zone (CFZ). - Subject to the concurrence by resolution of the local government units directly affected, the President is hereby authorized to create by executive proclamation a Special Economic Zone covering the lands occupied by the Clark military reservations and its contiguous extensions as embraced, covered and defined by the 1947 Military Bases Agreement between the Philippines and the United States of America, as amended, xxx. The CFZ shall be operated and managed as a separate customs territory ensuring free flow or movement of goods and capital equipment within, into and exported out of the CFZ, as well as provide incentives such as tax and duty-free importation of raw materials and capital equipment. xxx The provisions of existing laws, rules and regulations to the contrary notwithstanding, no national and local taxes shall be imposed on registered business enterprises within the CFZ. xxx XXX XXX XXX Duly registered business enterprises that will operate in the Special Economic Zones to be created shall be entitled to the same tax and duty incentives as provided for under Republic Act No. 7916, as amended: Provided, That for the purpose of administering these incentives, the PEZA shall register, regulate, and supervise all registered enterprises within the Special Economic Zones."

Decision CTA CASE NO. 9358 REPUBLIC ACT NO. 7916 (as amended by Republic Act No. 8748) AN ACT PROVIDING FOR THE LEGAL FRAMEWORK AND MECHANISMS FOR THE CREATION, OPERATION, ADMINISTRATION, AND COORDINATION OF SPECIAL ECONOMIC ZONES IN THE PHILIPPINES, CREATING FOR THIS PURPOSE, THE PHILIPPINE ECONOMIC ZONE AUTHORITY (PEZA) AND FOR OTHER PURPOSES. XXX XXX XXX SECTION 8. ECOZONE to be Operated and Managed as Separate Customs Territory. - The ECOZONE shall be managed and operated by the PEZA as separate customs territory. The PEZA is hereby vested with the authority to issue certificates of origin for products manufactured or processed in each ECOZONE in accordance with the prevailing rules of origin, and the pertinent regulations of the Department of Trade and Industry and/or the Department of Finance. XXX XXX XXX SECTION 24. Exemption form 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. xxx" REPUBLIC ACT NO. 7922 AN ACT ESTABLISHING A SPECIAL ECONOMIC ZONE AND FREE PORT IN THE MUNICIPALITY OF SANTA ANA AND THE NEIGHBORING ISLANDS IN THE MUNICIPALITY OF APARRI, PROVINCE OF CAGAYAN, PROVIDING FUNDS THEREFOR, AND FOR OTHER PURPOSES SECTION 1. Short Title. - This Act shall be known / as the 'Cagayan Special Economic Zone Act of 1995'.

Decision XXX XXX CTA CASE NO. 9358 XXX SEC. 3. The Cagayan Special Economic Zone and Free Port. - In accordance with the foregoing declared policy, there is hereby established a special economic zone and free port, to be known as the Cagayan Special Economic zone, hereinafter known as the Zone, which shall cover the entire area embraced by the Municipality of Santa Ana and the islands of Fuga, Barit, and Mabbag in the Municipality of Aparri, Province of Cagayan. SEC. 4. Governing Principles. - The Cagayan Special Economic Zone shall be managed and operated under the following principles: XXX XXX XXX (b) Business establishments operating within the Zone shall be entitled to the existing fiscal incentives as provided for under Presidential Decree No. 66, the law creating the Export Processing Zone Authority (EPZA), or those provided under Book VI of Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987; (c) Any prov1s1on of existing law, rules or regulations to the contrary notwithstanding, no taxes, local and national, shall be imposed on business establishments operating within the Zone. xxx" Moreover, in the case of Commissioner of Internal Revenue v. Toshiba Information Equipment (Phils. ), Inc. 53, the Supreme Court elucidated on the VAT exemption of entities within ECOZONES, to wit: This Court agrees, however, that PEZA- registered enterprises, which would necessarily be located within ECOZONES, are VAT-exempt entities, not because of Section 24 of Rep. Act No. 7916, as amended, which imposes the five percent (5�/o) preferential tax rate on gross income of PEZA- registered enterprises, in lieu of all taxes; but, rather, because of Section 8 of the same statute which 53 G.R. No. 150154, August 9, 2005.

Decision CTA CASE NO. 9358 establishes the fiction that ECOZONES are foreign territory. xxx An ECOZONE or a Special Economic Zone has been described as - [S]elected areas with highly developed or which have the potential to be developed into agro-industrial, industrial, tourist, recreational, commercial, banking, investment and financial centers whose metes and bounds are fixed or delimited by Presidential Proclamations. An ECOZONE may contain any or all of the following: industrial estates (IEs), export processing zones (EPZs), free trade zones and tourist/recreational centers. The national territory of the Philippines outside of the proclaimed borders of the ECOZONE shall be referred to as the Customs Territory. Section 8 of Rep. Act No. 7916, as amended, mandates that the PEZA shall manage and operate the ECOZONES as a separate customs territory; thus, creating the fiction that the ECOZONE is a foreign territory. As a result, sales made by a supplier in the Customs Territory to a purchaser in the ECOZONE shall be treated as an exportation from the Customs Territory. Conversely, sales made by a supplier from the ECOZONE to a purchaser in the Customs Territory shall be considered as an importation into the Customs Territory. Given the preceding discussion, what would be the VAT implication of sales made by a supplier from the Customs Territory to an ECOZONE enterprise? The Philippine VAT system adheres to the Cross-Border Doctrine, according to which, 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. Hence, actual export of goods and services from the Philippines to a foreign country must be free of VAT; while, those destined for use or consumption

Decision CTA CASE NO. 9358 within the Philippines shall be imposed with ten percent (10�/o) VAT54 � (Emphasis supplied) Hence, an Ecozone is viewed as a foreign territory by legal fiction, thus, sales of goods and services made by a VAT- registered person in the Philippine customs territory to an entity registered and operating within the Ecozone are considered exports to a foreign country subject to 0�/o VAT. Applying the foregoing laws, regulations and judicial disquisitions to the instant case, it is clear that petitioner's sales of goods and services to its customers, which are entities located inside the Ecozones and/or BOI-registered, whose products are 100�/o exported, are considered "export sales" and therefore, subject to 0�/o VAT rate. To prove that its clients are registered with the PEZA, SBMA, CDA, CEZA, and BOI, petitioner presented various Certifications issued by such agencies, as well the letter of PEZA Director General Charita B. Plaza dated October 6, 2016, 55 addressed to petitioner's CFO, Yusuke Yamada, and the Certification issued on October 18, 2016 by the BOI Director, Incentive Service, Erlinda F. Arcellana, 56 confirming the issuance of VAT zero-rating certifications to certain clients of petitioner. Listed below are petitioner's clients with the corresponding proof of VAT zero-rating: Name of Customer Proof of VAT Zero- Exhibit Registration Validity Period rating No. Date ADNAMA MINING May 20, 2013 to RESOURCES BOI Cert. No. 2013-098; P-46-K-9; Jul 9, 2008 December 31, 2013 BOI Certification Letter P-5 ASIA INTERNATIONAL issued on Oct 18 2016 May 24, 2013 to SBMA Cert. of Tax P-46-K- May 23 2014 AUCTIONEERS INC Exemption 10� P-6 TY 2013 PEZA Cert. No. 2013- P-46-K-1; ATLANTIC GULF AND 0563; Confirmation Letter P-4 Aug 6, 2008 from PEZA PACIFIC COMPANY OF P-46-K- BOI Cert. No. 2013-040; 11; P-5 MANILA, INCORPORATED BOI Certification Letter issued on Oct 18 2016 P-46-K-8 (AG&P) SBMA Cert. of Tax Exemption P-46-K- BERONG NICKEL 13; P-5 May 28, 2007 January 1, 2013 to BOI Cert. No. 2013-037; December 31, 2013 CORPORATION BOI Certification Letter issued on Oct 18, 2016 October 16, 2013 to BIG LIFT PROPERTIES & October 15, 2014 DEVELOPMENT Sep 13, 1999 January 1, 2013 to December 31, 2013 CORPORATION CAGDIANAO MINING CORP. 54 Now at 12% VAT rate. ./ 55 Exhibit "P-4". 56 Exhibit "P-5".

Decision CTA CASE NO. 9358 CARMEN COPPER CORP. BOI Certification; BOI P-46-K- Dec 13, 2006 January 1, 2013 to Certification Letter issued 14; P-5 Feb 8, 1995 December 31, 2013 CEBU TOYO on Oct 18 2016 P-46-K-2; Dec 27, 2002 PEZA Certificate No. P-4 Apr 17, 2008 TY 2013 CORPORATION (CTC) 2013-1630; Confirmation Nov 4, 2010 Letter from PEZA P-46-K- TY 2013 CORAL BAY NICKEL PEZA Cert. No. 2013- 15; P-4 Oct 6, 1980 I CORPORATION (CBNC) 0301; Confirmation Letter P-46-K- January 1, 2013 to from PEZA 16; P-5 May 27, 1991 December 31, 2013 C.T.P. CONSTRUCTION BOI Cert. No. 2013-086; P-46-K- Jan 18, 1993 January 1, 2013 to BOI Certification Letter 17; P-5 Jan 5, 1996 December 31, 2013 AND MINING issued on Oct 18 2016 P-7 BOI Cert. No. 2013-027; Aug 15, 2010 March 5, 2013 to CORPORATION BOI Certification Letter P-5 Nov 11, 1999 March 4, 2014 issued on Oct 18 2016 FCF MINERAL CORP. SBMA Cert. of Tax P-4 July 18, 2002 January 1, 2013 to Exemption December 31, 2013 HHJC-PHIL., INC. BOI Certification Letter P-46-K- I Mar 8, 2012 issued on Oct 18, 2016 18; P-4 TY 2013 HINATUAN MINING P-46-K- Jul 19, 2010 Confirmation Letter 19� P-8 Sep 23, 1982 TY 2013 CORPORATION from PEZA P-46-K- Jun 7, 2006 20~ P-9 Oct 1, 1993 July 15, 2013 to HONDA PARTS PEZA Cert. No. 2013- P-46-K-4; Jan 31, 2011 July 14 2014 0059; Confirmation Letter P-4 Nov 16, 2007 MANUFACTURING from PEZA P-46-K-21 September 9, 2013 SBMA Cert. of Tax Mar 1,19741 to August 15 2014 CORPORATION (HPMC) Exemption P-46-K-23 Aug 16, 2004 CEZA Certification TY 2013 HOUSE TECHNOLOGY P-46-K- PEZA Cert. No. 2013- 22; P-4 Oct 3, 2012 to Oct INDUSTRIES PTE., LTD. 0114; Confirmation Letter P-46-K-3; 2, 2013 from PEZA P-5 (HTIPL) SBMA Cert. of Tax P-46-K-5; Nov 27, 2013 to Exemption P-4 Nov 26, 2014 HYS-YACHT PHILS. LTD. SBMA Cert. of Tax P-4 TY 2013 CO. INC. Exemption September 20 to INTEVALUE SERVICES PEZA Cert. No. 2013- December 31, 0047; Confirmation Letter 2013� TY 2014 INC. from PEZA TY 2013 BOI Cert. No. 2013-106; JAE PHILIPPINES, INC. BOI Certification Letter TY 2013 issued on Oct 18 2016 (JAEPI) PEZA Cert. No. 2013- TY 2013 0334; Confirmation Letter TY 2013 JAMJLE EQUIPMENTS & from PEZA Confirmation Letter January 17, 2013 to GENERAL MERCHANDISE from PEZA December 31, 2013 INC Aug 24, 2012 to Aug 23, 2013 JAMJLE PROPERTIES January 1, 2013 to (SUBIC) AND December 31, 2013 DEVELOPMENT CORPORATION (formerly: JAMJLE EQUIPMENTS & GENERAL MERCHANDISE INC) MAJESTIC LANDSCAPE CORPORATION (MLC) MARCVENTURES MINING AND DEVELOPMENT CORPORATION PHILIPPINE ASSOCIATED SMELTING AND REFINING CORPORATION (PASAR) PHIL. BATTERIES INCORPORATED (PBI) PHILIPPINE MAKOTO Confirmation Letter P-4 from PEZA P-4 CORPORATION (PMC) Confirmation Letter P-46-K- from PEZA 28; P-5 PHILIPPINE SINTER BOI Cert. No. 2013-057; P-46-K-32 BOI Certification Letter CORPORATION (PSC) issued on Oct 18 2016 P-46-K- SBMA Cert. of Tax 12; P-5 PLATINUM GROUP Exemption METALS CORPORATION BOI Cert. No. 2013-043; BOI Certification Letter (PGMC) issued on Oct 18, 2016 REDONDO QUARRY AND DEVELOPMENT CORPORATION RIO TUBA NICKEL MINING CORPORATION

Decision CTA CASE NO. 9358 SCAD SERVICES (S) PTE., PEZA Cert. No. 2013- P-46-K- Oct 4, 1995 TY 2013 LTD. (PHIL. BRANCH) 24; P-4 Sep 1, 2008 (SSPL) 0046; Confirmation until December 31, ST. LUKE'S MEDICAL P-46-K- Jan 7, 2010 2013 CENTER (GLOBAL CITY) Letters from PEZA 25; P-4 Jul 23, 1998 INC. (SLMCGCI) January 4, 2013 to PEZA Cert. No. 2013- P-46-K- Dec 16, 2008 January 3 2014 SUBIC CONSOLIDATED 26� P-10 May 3, 2013 TY 2013 PROJECTS INC 1014; Confirmation Letter P-46-K- Aug 11, 2010 TAGANITO HPAL NICKEL 33; P-4 Feb 17, 1995 January 1, 2013 to CORPORATION (THPAL) from PEZA December 31, 2013 P-46-K- I Nov 9, 2011 TAGANITO MINING SBMA Cert. of Tax 27; P-5 April 1, 2013 to Exemption March 31, 2016 CORPORATION PEZA Cert. No. 2013- P-46-K- 1288; Confirmation Letter 29; P-11 TY 2013 TRANS ASIA from PEZA BOI Cert. No. 2013-011; P-46-K-6; TY 2013 CONSTRUCTION BOI Certification Letter P-4 issued on Oct 18 2016 TY 2013 CDC Cert. of Registration P-46-K-7; and Tax Exemption P-4 TY 2013 DEVELOPMENT CORP. P-46-K- 30; P-4 TRAVELLERS PEZA Cert. No. 2013- 0120/2013-1719; P-46-K- INTERNATIONAL HOTEL Confirmation Letter 31; P-4 from PEZA GROUP, INC (TIHGI) PEZA Cert No. 2013- 1619; Confirmation Letter UNICHAMP MINERAL from PEZA PEZA Cert. No. 2013- PHILIPPINES INC. (UMPI) 0908; Confirmation Letter from PEZA VISAYAS SLAKED LIME PEZA Cert. No. 2013- CORP (VSLC) 0055; Confirmation Letter from PEZA wu KONG SINGAPORE PTE. LTD. (PHIL. BRANCH) (WKSPL) Thus, petitioner's sales to the afore-mentioned entities for the period covering the 3rd quarter of FY ending March 31, 2014 qualify for VAT zero-rating pursuant to Sections 106(A)(2)(a)(S) and (c) and 108(8)(3) of the NIRC of 1997, as amended, provided that the same are properly supported by VAT zero-rated sales invoices and official receipts (ORs), in accordance with Sections 113(A)(1) and (2), (8)(1), (2)(c) and (3) of the NIRC of 1997, as amended, as implemented by Sections 4.113-1(A)(1) and (2), (8)(1) and (2)(c) of RR No. 16-05, which provide as follows: SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons. - (A) Invoicing Requirements. - A VAT-registered person shall issue: (1) A VAT invoice for every sale, barter or exchange of goods or properties; and (2) A VAT official receipt for every lease of goods or properties, and for every sale, barter or exchange of services.

Decision CTA CASE NO. 9358 (B) Information Contained in the VAT Invoice or VAT Official Receipt. - The following information shall be indicated in the VAT invoice or VAT official receipt: (1) A statement that the seller is a VAT- registered person, followed by his Taxpayer's Identification Number (TIN); (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: Provided, That: XXX XXX XXX (c) If the sale is subject to zero percent (0�/o) value-added tax, the term 'zero-rated sale' shall be written or printed prominently on the invoice or receipt; XXX XXX XXX (3) The date of transaction, quantity, unit cost and description of the goods or properties or nature of the service; and" (Emphasis supplied) SEC. 4.113-1. Invoicing Requirements. - (A) A VAT-registered person shall issue: - (1) A VAT invoice for every sale, barter or exchange of goods or properties; and (2) A VAT official receipt for every lease of goods or properties, and for every sale, barter or exchange of services. Only VAT-registered persons are required to print their TIN followed by the word 'VAT' in their invoice or official receipts. Said documents shall be considered as a 'VAT Invoice' or VAT official receipt. All purchases covered by invoices/receipts other than VAT Invoice/VAT Official Receipt shall not give rise to any / input tax.

Decision CTA CASE NO. 9358 VAT invoice/official receipt shall be prepared at least in duplicate, the original to be given to the buyer and the duplicate to be retained by the seller as part of his accounting records. (B) Information contained in VAT invoice or VAT official receipt. - The following information shall be indicated in VAT invoice or VAT official receipt: (1) A statement that the seller is a VAT-registered person, followed by his TIN; (2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the VAT; Provided, That: XXX XXX XXX (c) If the sale is subject to zero percent (0�/o) VAT, the term 'zero-rated sale' shall be written or printed prominently on the invoice or receipt;" (Emphasis supplied) With respect to petitioner's sale of services to Marubeni Corporation, a non-resident foreign corporation, petitioner should prove that its sales of services to the latter for the 3rd quarter of FY ending March 31, 2014 qualify as VAT zero-rated sales under Section 108(8)(2) of the NIRC of 1997, as amended. For the supply of services to be VAT zero-rated under Section 108(8)(2) of the NIRC of 1997, as amended, the following requisites must concur: 1. the services must be other than processing, manufacturing or repacking of goods; 2. the payment for such services must be in acceptable foreign currency accounted for in accordance with the 8SP rules and regulations; and

Decision CTA CASE NO. 9358 3. the recipient of such services is doing business outside the Philippines. 57 To substantiate its claim that the indent commissions it received from its non-resident client, Marubeni Corporation Japan, should be considered as zero-rated sales, petitioner submitted the official receipts58 it issued thereto. However, said sales were not supported by the corresponding foreign currency inward remittances. Further, petitioner failed to establish that such sales were other than processing, manufacturing or repacking of goods and that the recipient of such service was doing business outside the Philippines. Moreover, although petitioner presented the Authenticated Articles of Incorporation of Marubeni Corporation59, the same, standing alone, was not sufficient proof that the latter is a non-resident foreign corporation doing business outside the Philippines. As held by Court En Bane in Deutsche Knowledge Services, Pte Ltd. v. Commissioner of Internal Revenue60, to be considered as a non-resident foreign corporation doing business outside the Philippines, each entity must be supported, at the very least, by both a certificate of non- registration of corporation/partnership issued by the Philippine Securities and Exchange Commission (SEC) and certificate/articles of foreign incorporation/association, and that there is no other indication that the recipient of the services is doing business in the Philippines. While the soft copy61 of the exhibits marked by the ICPA contained a document entitled "Certification of Non- Registration of Company"62, the same cannot be given credence as it was not included in the exhibits formally offered and admitted by the Court63 . Thus, petitioner's sales to Marubeni Corporation Japan failed to qualify for VAT zero- rating under Section 108(8)(2) of the NIRC of 1997, as amended. 57 Commissioner of Internal Revenue v. Burmeister and Wain Scandinavian Contractor Mindanao, Inc., G.R. No. 153205, January 22, 2007. 58 Exhibits "P-Q-1" to "P-Q-4". �59 Exhibit "P-12". 6 CTA EB Nos. 1244 and 1345, March 30, 2017. 61 Exhibit "P-48". 62 "Exhibit P-46-K-34.4". 63 See Dizon v. Court of Tax Appeals, eta/., G.R. No. 140944, April 30, 2008.

Decision CTA CASE NO. 9358 In its Quarterly VAT Return for the 3rd quarter of FY ending March 31, 2014, 64 petitioner reported total sales of P988,910,360.29, which included zero-rated sales in the amount of P323,992,010.42, as detailed below: VAT Sales-Private p 661,923 963.52 Sales to Government 2,994,386.35 Zero-Rated Sales Total 323,992,010.42 P988,910,360.29 In support of its zero-rated sales and to prove compliance with the VAT invoicing requirements as provided by the afore-quoted laws and regulations, petitioner submitted its Schedule of Zero-Rated Sales65 and the related invoices and official receipts66, which were examined by the ICPA. In his report, the ICPA found that petitioner's sales in the amount of P220,205,035.42 qualify for VAT zero-rating, while the remaining amount of P103, 786,975.00 do not qualify as zero-rated sales for petitioner's failure to comply with the invoicing requirements as prescribed under the rules. The !CPA's findings are summarized as follows: 67 Exhibit Description Amount Reference P-46-N Charge sales invoices properly classified as zero- p 167,731,673.25 rated sales with permit on zero-rating expiring on December 31 2013 printed in the invoice P-46-0 Charge sales invoices properly classified as zero- 12,884,051.33 rated sales with permit on zero-rating expiring on September 30, 2013 and prior (as printed on the invoice) but supported with updated Certificate of Zero-rating expiring December 31, 2013 or later P-46-P Zero-rated sales properly supported by invoice 33,440,979.93 with stamp "zero-rated" P-46-Q Zero-rated transaction related to export sales 6,148,330.91 supported by Bank Certificate of inward remittance on the Foreign Currency Denominated Sale 64 Exhibit "P-17". 65 Exhibit "P-46-J-2". 66 Exhibits "P-46-N-1" to "P-46-N-337", "P-46-0-1" to "P-46-0-198", "P-46-0-200" to "P-46-0-256", "P-46-P-1" to "P-46-P-127", "P-46-Q-1" to "P-46-Q-4", "P-46-R-1" to "P-46-R-102", "P-46-5-1" to "P-46-5-8", "P-46-T-1" to "P-46-T-44", "P-46-U-1" to "P-46-U-91", and "P-46-AM". 67 Exhibit "P-46".

Decision CTA CASE NO. 9358 Total Valid Zero-Rated Sales ,, 220,205,035.42 18,983,664.04 P-46-R Zero-rated sales w/o certificates of zero-rating 1,376,578.11 from customers 7,062,857.59 P-46-S Zero-rated sales properly supported by official receipts, but not properly classified as zero-rated 5,071,981.14 sales (w/o stamp "zero-rated sales") 71,291,894.12 P-46-T Zero-rated sales properly supported by charge , 103,786,975.00 sales invoices dated outside the covered fiscal p 323,992,010.42 period P-46-U Zero-rated sales not properly supported by charge sales invoices or ORs (Bills and Debit/credit notes) P-46-AM Zero-rated sales with no supporting documents Total Invalid Zero-Rated Sales Total Zero-Rated Sales The Court sustains the above findings of the ICPA insofar as the denial of VAT zero-rating in the amount of P103,786,975.00 for petitioner's failure to comply with the invoicing requirements as prescribed under the afore-quoted law and regulations. Further, the Court finds that the reported zero-rated sales in the amount of P12,232,970. 77 should also be denied VAT zero-rating for the following reasons: Exhibit No. Customer Name Amount 1. Sale of good supported by VAT invoice dated outside the period , of claim Adnama Mining Resources Inc 4 960.00 P-46-N-2 2. Sale wherein the referenced exhibit is not found in the records of the case (soft copy of ICPA Exhibits) P-46-N-36 Carmen Copper Corp. 11446 264.40 3. Sale wherein the supporting document was denied admission by this Court Biglift Properties and Dev't P-46-0-199 Corporation 20 080.00 4. Sales of goods supported by VAT invoices but with unreadable details (name of client, date or amount) and/or with handwritten insertions on the amount P-46-0-28 Platinum Group Metals Corp 3,944.00 P-46-P-1 CTP Construction and Mining Corp 2 632.00 P-46-P-2 CTP Construction and Mining Corp 2,632.00 P-46-P-3 CTP Construction and Mining Corp 3,320.00 P-46-P-4 CTP Construction and Mininq Corp 8,544.00 P-46-P-5 CTP Construction and Mining Corp 9,720.00 P-46-P-6 CTP Construction and Mining Corp 11,048.00 P-46-P-7 CTP Construction and Mining Corp 11,968.00 P-46-P-8 CTP Construction and Mining Corp 1,424.00 P-46-P-9 CTP Construction and Mining Corp 3L320.00 P-46-P-10 CTP Construction and Mining Corp 3,480.00 P-46-P-11 CTP Construction and Mininq Corp 3 480.00 P-46-P-12 CTP Construction and Mining Corp 3,480.00 P-46-P-13 CTP Construction and Mininq Corp 3,736.00

Decision CTA CASE NO. 9358 P-46-P-14 CTP Construction and Mining Corp 7,816.00 P-46-P-15 CTP Construction and Mining Corp 12 976.00 P-46-P-16 CTP Construction and Mining CorQ 14,772.80 P-46-P-17 CTP Construction and Mining Corp P-46-P-18 CTP Construction and Mining Corp 1 584.00 P-46-P-19 CTP Construction and Mining Corp 1 608.00 P-46-P-20 CTP Construction and Mining Corp 3 168.00 P-46-P-21 CTP Construction and Mining Corp 6 336.00 P-46-P-22 CTP Construction and Mining Corp 11,760.00 P-46-P-23 CTP Construction and Mining Corp 26 080.00 P-46-P-24 CTP Construction and Mining Corp 29,736.00 P-46-P-25 CTP Construction and Mining Corp 37 088.00 P-46-P-26 CTP Construction and Mining Corp 44,225.96 P-46-P-27 CTP Construction and Mining Corp 63 656.00 P-46-P-28 CTP Construction and Mini~g_ Cori> 160 848.00 P-46-P-29 CTP Construction and Mining Corp 166,696.00 P-46-P-30 CTP Construction and Mining Corp 305 712.00 P-46-P-31 CTP Construction and Mining Corp 1,608.00 P-46-P-32 CTP Construction and Mining Corp 15 840.00 P-46-P-33 CTP Construction and Mining Corp 6,571.20 P-46-P-34 CTP Construction and Mining Corp 10 712.00 P-46-P-35 CTP Construction and Mining Corp 13 248.00 P-46-P-36 CTP Construction and Mining Corp 18 544.00 P-46-P-37 CTP Construction and Mining Corp 59 945.60 P-46-P-38 CTP Construction and Mining Corp 66,136.00 P-46-P-39 CTP Construction and Mining Corp 1 424.00 P-46-P-40 CTP Construction and Mining Corp 1 424.00 P-46-P-41 CTP Construction and Mining Corp 1 888.00 P-46-P-42 CTP Construction and Mining Corp 2 552.00 P-46-P-43 CTP Construction and Mining Corp 2 632.00 P-46-P-44 CTP Construction and Mining Corp 2 632.00 P-46-P-45 CTP Construction and Mining Corp 2 632.00 P-46-P-46 CTP Construction and Mining Corp 2,816.00 P-46-P-47 CTP Construction and Mining Corp 3 096.00 P-46-P-48 CTP Construction and Mining Corp 3, 712.00 P-46-P-49 CTP Construction and Mining Corp 4 272.00 P-46-P-50 CTP Construction and Mining Corp 4[272.00 P-46-P-51 CTP Construction and Mining Corp 4,800.00 P-46-P-52 CTP Construction and Mining Corp 153 032.50 P-46-P-53 CTP Construction and Mining Corp 5,904.00 P-46-P-54 CTP Construction and Mining Corp 6 496.00 P-46-P-55 CTP Construction and Mining Corp 8,216.00 P-46-P-56 CTP Construction and Mining Corp 14,016.00 P-46-P-57 CTP Construction and Mining Corp 32,336.00 P-46-P-58 CTP Construction and Mining Corp 34,688.00 P-46-P-60 CTP Construction and Mining Corp 52 888.00 P-46-P-61 CTP Construction and Mining Corp 607,272.00 P-46-P-62 CTP Construction and Mining Corp 3 456.00 P-46-P-63 CTP Construction and Mining Corp 37 592.00 P-46-P-68 CTP Construction and Mining Corp 97 896.00 P-46-P-69 CTP Construction and Mining Corp 21 312.00 P-46-P-70 CTP Construction and Mining Corp P-46-P-71 CTP Construction and Mining Corp 912.00 P-46-P-73 CTP Construction and Mining Corp 4 120.00 P-46-P-77 CTP Construction and Mining Corp 158,261.50 25 330.00 431,200.00

Decision CTA CASE NO. 9358 P-46-P-78 CTP Construction and Mining Corp 642,594.40 P-46-P-79 CTP Construction and Mining Corp 46,624.00 P-46-P-80 CTP Construction and Mining Corp 77,688.00 P-46-P-81 CTP Construction and Mininq Corp 167 512.00 P-46-P-86 CTP Construction and Mining Corp 384.00 P-46-P-87 CTP Construction and Mining Corp 1 344.00 P-46-P-88 CTP Construction and Mining Corp 1_L424.00 P-46-P-89 CTP Construction and Mining Corp 1,520.00 P-46-P-90 CTP Construction and Mining Corp 4 272.00 P-46-P-91 CTP Construction and Mining Corp 5,184.00 P-46-P-92 CTP Construction and Mining Corp 5 200.00 P-46-P-93 CTP Construction and Mining Corp 5,904.00 P-46-P-95 CTP Construction and Mining Corp 9 240.00 P-46-P-96 CTP Construction and Mining Corp 9 376.00 P-46-P-97 CTP Construction and Mining Corp 9,568.00 P-46-P-98 CTP Construction and Mining Corp 10 536.00 P-46-P-99 CTP Construction and Mining Corp 12,848.00 P-46-P-100 CTP Construction and Mining Corp 16_L920.00 P-46-P-112 CTP Construction and Mining Corp 204,896.00 P-46-P-115 CTP Construction and Mining Corp 177,793.50 P-46-P-116 CTP Construction and Mining Corp 2_L632.00 P-46-P-120 CTP Construction and Mining Corp 224,696.00 P-46-P-121 CTP Construction and Mining Corp 71,408.00 P-46-P-123 CTP Construction and Mining Corp 2,256.00 P-46-P-124 CTP Construction and Mininq Corp 2,368.00 P-46-P-126 CTP Construction and Mining Corp 2,592.00 4. Sale of good supported by document other than VAT invoice P-46-P-122 CTP Construction and Mining Corp 1,544.00 5. Sale of good supported by VAT invoice but without the word "zero-rated" stamped/imprinted therein P-46-P-125 CTP Construction and Mining Corp 2,536.00 6. Sales of services to nonresident client not qualified for VAT zero- rating under 108(8)(2) of the NIRC of 1997, as amended P-Q-1 Marubeni Corporation 2,672,215.14 P-Q-2 Marubeni Corporation 616 759.29 P-Q-3 Marubeni Corporation 1 881 383.33 P-Q-4 Marubeni Corporation 977,973.15 Total P12,232,970.77 Based on the foregoing, only the amount of P207,972,064.65 represents petitioner's valid zero-rated sales for the 3rd quarter of FY ending March 31, 2014, computed as follows: Total Reported Zero-Rated Sales p 323,992,010.42 Less: Disallowances P103, 786,975.00 Per !CPA Report Additional disallowances by this Court p 12 232,970.77 116,019,945.77 Valid Zero-Rated Sales P207,972,064.65

Decision CTA CASE NO. 9358 Petitioner incurred input taxes which were attributable to its zero-rated sales For the 3rd quarter of FY ending March 31, 2014, petitioner declared input taxes in the sum of P127,929,095.22, out of which the amount of P13,448, 721.74 is the subject of petitioner's claim, to wit: , lnQ_ut tax as ~er Amended 3rd Quarterly VAT Return68: Input Tax Deferred on Capital Goods exceeding P1M from Previous Quarter (Line 208) 2,926,925.56 Less: Input Tax on Purchases of Capital Goods exceeding P1M deferred for the succeeding , 2,731,710.09 period (Line 23A) 195,215.47 Input tax Amortized for the period Add: Current Input Taxes , 2,143,274.65 On Domestic Purchases of Goods Other than Capital Goods (Line 21F) On Importation of Goods Other than Capital Goods (Line 21H) , 118,931,495.00 On Domestic Purchase of Services (Line 211) 6L659,l10.10 Total Current Input Tax 1271733,879.75 Total Input Taxes for the period P127 ,929,095.22 Input tax as per subject claim69: P323 992,010.42 p 127 929 095.22 Total current input tax for the 3rd quarter of FY 988 910,360.29 3,437 452.15 ENDING MARCH 31, 2014 251 435.83 Less: Input tax directly attributable to VATable sale of 87 148 126.35 machineries from current purchases p 37 092 080.89 Input tax directly attributable to government sales from current purchases 32.76% Input tax directly attributable on current p 12 152 302.51 Q_urchases not sold within the_quarter 511 238.50 Current input tax available for allocation Multiply by percentage of zero-rated sales in relation to 785 180.73 total sales_L computed as follows: P131 448_L721. 74 VAT zero-rated sales/receipts for the 3rd quarter of FY ENDING MARCH 31 2014 Divide by Total sales/receipts for the 3rd quarter of FY ENDING MARCH 31 2014 Total input tax allocable to zero-rated sales Add: Input taxes directly attributable to zero-rated sales of machineries from current purchases Input tax directly attributable to zero-rated sales of machineries and spare parts which were imported in Qrior y_ears but sold during_ theguarter Total input taxes claimed for issuance of TCC 68 Exhibit "P-17". 69 Exhibit "P-46".

Decision CTA CASE NO. 9358 In support of its total reported input taxes of P127,929,095.22, petitioner submitted various sales invoices, ORs and other import-related documents70 and Management Information System and Technology Group (MISTG) Certification issued by the Bureau of Customs (BOC)l1, which were examined by the ICPA. Summarized below are the input VAT for the period October 1, 2013 to December 31, 2013 in the total amount of P127,929,093.84: A. Input tax available for allocation Input VAT Amount Exhibit No. B. Input tax directly attributable to VATable sale of p 36 790 446.86 P-46-V to P-46-AV machineries from current purchases 3,437 452.15 P-46-BS C. Input tax directly attributable on current purchases P-46-BT 87_L148 126.35 P-46-BP to P-46-BR not sold within the quarter D. Input taxes directly attributable to zero-rated sales of 511 238.50 machineries from current purchases 41 829.98 E. Input tax directly attributable to government sales, P127,929,093.84 which were closed to expense Total input taxes for the period accounted by ICPA Out of the input tax available for allocation in the amount of P36, 790,446.86, the Court finds that the amount of P8,563,027 .28, should be disallowed for petitioner's failure to meet the substantiation requirements under Sections 110(A), 113(A) and (B), and 237 of the NIRC of 1997, as amended, in relation to Sections 4.110-1,4.110-2,4.110-8, and 4.113- 1 of RR No. 16-05, as amended, to wit: 72 a. On Domestic Purchase of Goods and Services Exhibit Description Amount Reference p 5 304,967.82 P-46-Z Domestic purchase of goods and services with no 401,224.56 P-46-AA supporting documents 7821_150.26 Domestic purchase of goods supported by documents other than VAT invoices P-46-AB Domestic purchase of services supported by documents other than VAT ORs 70 Exhibits "P-46-V-1" to "P-46-V-34", "P-46-W-1" to "P-46-W-35", "P-46-Y-1" to "P- 46-Y-202", "P-46-AA-1" to "P-46-AA-48", "P-46-AB-1" to "P-46-AB-365", "P-46-AC- 1" to "P-46-AC-213", "P-46-AD-1" to "P-46-AD-46", "P-46-AE-1" to "P-46-AE-27", "P-46-AF-1" to "P-46-AF-26", "P-46-AG-1" to "P-46-AG-51", "P-46-AH-1" to "P-46- AH-241", "P- 46-AI-1" to "P-46-AI-132", "p-46-AJ-1" to "P-46-AJ-199", "P-46-AK- 1", "P-46-AL-1" to "P-46-AL-133", "P-46-AN-1" to "P-46-AN-62", "P-46-AP-1" to "P- 46-AP-32", "P-46-AQ-1" to "P-46-AQ-88", "P-46-AR-1" to "P-46-AR-4", "P-46-AS-1" to "P-46-AS-11", "P-46-AT-1" to "P-46-AT-6", "P-46-AU-1" to "P-46-AU-25", "P-46- BP" to "P-46-BR", "P-46-BS-1" to "P-46-BS-6", and "P-46-BT-1" to "P-46-BT-39". 71 Exhibit "P-46-BN". 72 Exhibit "P-46".

Decision CTA CASE NO. 9358 P-46-AC Domestic purchase of goods or services supported by 56,_745.97 P-46-AD unreadable documents 44 249.41 P-46-AE Domestic purchase of goods supported by VAT invoice/ORs 26 766.38 claimed outside the taxable quarter but within taxable y_ear Domestic purchase of services supported by VAT invoice/ORs claimed outside the taxable quarter but within taxable year Domestic purchase of services supported by tape receipts P-46-AF but without permit number 2 245.04 491 753.68 P-46-AG Domestic purchase of goods or services with missing/outdated ATP Domestic purchase of goods or services supported by VAT official receipts issued in the name of the petitioner P-46-AH wherein VAT amount was not separately disclosed 478 831.50 Domestic purchase of goods supported by VAT P-46-AI invoices/VAT ORs but without/incorrect name, TIN and/or 198,554.41 address of the petitioner Domestic purchase of service supported by VAT P-46-AJ invoices/VAT ORs but without/incorrect name, TIN and/or 648,008.76 address of the R_etitioner ,. 8,435,497.79 Total input tax disallowed on local purchases b. On Importations of Goods Exhibit Description Amount Reference ,p. P-46-AO Importation of goods with no supporting document 2,_501.00 2,501.00 Total disallowed input tax on importations c. On Deferred Input Tax on Domestic Purchase of Capital Goods exceeding One Million Pesos (1*1,000,000.00) Exhibit Description Deferred Input Reference Claimed in 3Q of FY ENDING MARCH 31L 2014 Input tax deferred on purchase of capital goods exceeding P-46-AQ 1 Million supported by sales invoices but did not comply p 77 355.62 with the invoicing requirements Deferred input tax from purchase of capital goods exceeding 1 Million supported by unreadable tape P-46-AR receipt/invoice 110.73 Input tax on purchases of goods other than capital goods classified as input tax on purchase of capital goods P-46-AS exceeding 1 Million 959.40 Input tax on purchases of service classified as input tax on P-46-AT QUrchase of capital_goods exceeding 1 Million 1 682.59 Deferred input tax from purchase of capital goods exceeding 1 Million supported by documents other than P-46-AU sales invoice 12,631.38 Deferred input tax from purchase of capital goods P-46-AV exceeding 1 Million without suJ)porting documents 32 288.77 Total disallowed deferred input tax p 125,028.49 Total disallowances per ICPA p 8,563,027.28 In addition, input VAT in the amount of P33,305,836.80 should also be disallowed for the following reasons: Exhibit No. I I Name of Supplier Input VAT I Reason for disallowance Amount A. Input tax available for allocation On Domestic Purchases of Goods and Services

Decision CTA CASE NO. 9358 P-46-V-11 Indola International p 10,178.57 Supported by VAT invoice Phils Inc dated outside the period of claim P-46-V-15 Ladriano Enterprises 300.00 Over-claimed input VAT (claimed amount of P750.00 less invoice amount of P450.00) P-46-V-23 Nexus Technologies Inc 33,658.93 Input VAT on purchase of good and service supported by VAT invoice dated outside the period of claim P-46-V-30 Roadmax Marketing 3,342.86 Input VAT on purchase of Corporation good and service supported by VAT invoice dated outside the period of claim and with alteration on date P-46-W-34 Whiteknight Security 1,463.61 Supported by VAT OR Agency Corporation without the TIN of petitioner P-46-X-1 Minvets Inc. 472.90 Supported by document which was denied admission by the Court On Importations of Goods P-46-AL-125 Shinjeong Development 2,029.00 Supported by BOC receipt Co with unreadable details P-46-AL-128 Bomag Fayat Group 1,118.00 Supported by BOC receipt with unreadable details P-46, docket, Vol. 91,000.00 Unsupported difference 2, p. 730; P-46-AL between the total amount per summary in the ICPA Report and the total amount per schedule (P18,476,263.00 less P18,385 263.00) P-46-AN (P-46-AN- various 9,305,363.00 Supported by importation 1 to P-46-AN-62) documents (IEIRD, Assessment Notice, Bill of Lading) but without proof of VAT payment On Deferred Input Tax on Purchase of Capital Goods exceeding 1M P-46-AP-7 Supported by invoice with Creativemist Enterprises 122.13 unreadable details subtotal p 9_L449_L049.00 B. Input tax directly attributable to VATable sale of machineries from current purchases 524,091.00 Supported by importation P-46-BS-3 Komatsu Used Equipment Corp p documents (IEIRD, Assessment Notice, Bill of Lading) but without proof of VAT payment P-46-BS-5 Bangkok Komatsu Co Ltd 481,784.00 Supported by importation documents (IEIRD, Assessment Notice, Bill of subtotal Lading) but without proof of VAT payment p 1,005,875.00 C. Input tax directly attributable on current purchases not sold within the quarter P-46-BT-1 Hyundai Corporation p 1,064 754.00 Supported by importation P-46-BT-11 Daewoo International Corp 2,074 256.00 documents (IEIRD, P-46-BT-12 Daewoo International Cor_Q 621 624.00 P-46-BT-14 Komatsu Ltd Assessment Notice, Bill of P-46-BT-15 Komatsu Ltd 5,673 650.00 P-46-BT-16 Komatsu Ltd 656,694.00 Lading) but without proof of 1,412 063.00 VAT payment v

Decision CTA CASE NO. 9358 P-46-BT-17 Komatsu Ltd 1,503 061.00 P-46-BT-19 Bangkok Komatsu Co Ltd 481,784.00 P-46-BT-28 Bangkok Komatsu Co Ltd 1,952 717.00 P-46-BT-29 Bangkok Komatsu Co Ltd 2 752,638.00 P-46-BT-30 Bangkok Komatsu Co Ltd 646,577.00 Bangkok Komatsu Co Ltd 3,803,886.80 No supporting documents subtotal P22,643,704.80 D. Input tax directly attributable to zero-rated sales of machineries from current purchases P-46-BR Daewoo Int'l Corporation p 207,208.00 Supported by importation documents (IEIRD, Assessment Notice, Bill of Lading) but without proof of VAT payment subtotal p 207,208.00 Total p 33,305,836.80 In sum, out of the reported input VAT of P127,929,095.22, petitioner was able to substantiate only the amount of P86,018,399. 78, computed as follows: Disallowances Per Court's Reported Input PeriCPA further Substantiated VAT findin_gs verification In_p_ut VAT p 36,790,446.86 p 18,778,370.58 A. Input tax available 3,437,452.15 p 8,563,027.28 p 9,449,049.00 for allocation 87,148,126.35 1,005,875.00 2,431,577.15 B. Input tax directly attributable to 511,238.50 22,643,704.80 64,504,421.55 VATable sale of machineries from 41,829.98 207,208.00 304,030.50 current purchases 1.38 41,829.98 - C. Input tax directly attributable on P127_L_929_L_095.22 1.38 - current purchases not sold within the P81 5631 027 .28 P33J347L668.16 P86,018,399.78 quarter D. Input taxes directly attributable to zero-rated sales of machineries from current purchases Input VAT directly attributable to sales to government, which was closed to expense Discrepancy between per Returns vs per ICPA P127,929,095.22 less P127 929 093.84) Total Considering that petitioner is engaged in taxable sales subject to 0�/o and 12�/o rates, and its input VAT cannot be directly or entirely attributed to any of the transactions, the

Decision CTA CASE NO. 9358 valid input VAT of P18, 778,370.58 shall be proportionately allocated on the basis of the volume of its sales, thus: VAT Sales Sales to Gov't Zero-Rated Total Sales (a) (b) Sales (c) (d = a+b+~ P661,923,963.52 P2,994,386.35 P323,992,010.42 P988,910,360.29 Substantiated Input VAT attributable to: p 12 569 241.85 VAT Sales (a/d x P18,778,370.58 56,860,.26 Sales to Gov't {b/d x P18,778,370.58) Zero-Rated Sales (c/d x P18,778,370.58) 6 152 268.48 P18,778,370.5973 Total However, in the subject claim for issuance of TCC, petitioner included the input VAT in the amount of P785, 180.73 allegedly pertaining to "input tax directly attributable to zero-rated sales of machineries and spare parts which were imported in prior years but sold during the quarter". However, it failed to substantiate the same as Exhibits "P-BU-1" and "P-BU-2" purportedly supporting the same do not pertain to said input taxes. On the contrary, Exhibit "P-BU-1" actually refers to the schedule of "Input Tax on Zero-rated Sale of Machineries from Current Purchases- 511,238.50", while Exhibit "P-BU-2" refers to the schedule of "Input Tax directly identified and allocable to Government Sales-251,435.83". Hence, the amount of P785,180.73 cannot be refunded. In sum, petitioner had a total input VAT of P6,456,298. 98 directly and indirectly attributable to its zero- rated sales, computed as follows: Input VAT allocable to zero-rated sales p 6,152,268.48 Add: Input VAT directly attributable to zero-rated sales of machineries from current purchases 304,030.50 P6,456,298. 98 Total input VAT attributable to zero-rated sales Petitioner has no excess input VAT available for refund Having determined that petitioner had valid input VAT attributable to its zero-rated sales, the Court must determine 73 With difference of PO.Ol due to rounding off.

Decision CTA CASE NO. 9358 whether the same was not applied against its output VAT liability. After deducting the input tax attributable to VATable sales to private entities in the amount of P15,000,819.00 from its output VAT liability of P79,430,875.62 from the said sales, petitioner still has a net output VAT payable of P64,430,056.62, as computed below: Output VAT Per Return p 79,430,875.62 Less: Input VAT attributable to VATable sales to private entities 15 000 819.00 P64,430,056.62 (P12,569 241.85 + P2 431 577.15) Net Output VAT Payable Since petitioner's input VAT attributable to VATable sales to private entities is not enough to cover its output VAT liability, the valid input VAT attributable to zero-rated sales shall be utilized against the remaining output VAT liability of P64,430,056.62. However, the input VAT attributable to zero- rated sales of P6,456,298. 98 is way lower than the net output VAT payable of P64,430,056.62. Consequently, petitioner still has net output VAT due of P57,973,757.64, computed as follows: Net Output VAT Payable p 64,430,056.62 Less: Input VAT attributable to zero-rated sales 6,456,298. 98 Net Output VAT Still Due PS7,973,757.64 Petitioner claims that there is enough input tax credit to cover any output tax liability for the 3rd quarter of FY ending March 31, 2014 and that the amount being claimed for refund was not utilized or applied to the current VAT liability. However, petitioner failed to fully substantiate the said claim notwithstanding that its Quarterly VAT Return for the 3rdquarter of FY ending March 31, 2014 reflected the amount of P320, 781,112.7074 as Input Tax Carried Over from Previous Period. As ascertained by the ICPA, out of the reported input VAT of P787,884,159.1375, during the 2ndquarter of FY March 31, 2013 up to the 2nd quarter of FY ending March 31, 2014, 74 Exhibit "P-17", Line 20A. 75 Exhibit "P-46", par. b, !CPA Report, docket, vol. 2, p. 734.

Decision CTA CASE NO. 9358 only the input VAT on importations in the amount of P639,560,932.43 76 were verified. Even assuming that the amount of P639,560,932.43 is valid input VAT attributable to VATable sales to private entities and zero-rated sales, the same is still not enough to cover petitioner's reported output VAT on VATable sales to private entities for the same period in the aggregate amount of P667,068,872.2677 � The resulting net output VAT payable is still P27,507,939.8378 � Therefore, the input tax carry-over of P320, 781,112.70 cannot be validly applied against petitioner's output tax pursuant to Section 110(A) in relation to Section 110(B) of the NIRC of 1997, as amended.79 Note that in claiming excess or unutilized input VAT from zero-rated transactions, it is the excess over the output VAT which should be refunded to the taxpayer or credited against other internal revenue taxes. Hence, it is important for the taxpayer to prove that it has enough prior year's excess input VAT credits to cover its output VAT liability for the current taxable year. Consequently, there being no excess input VAT which may be the subject of a claim for refund or issuance of tax credit certificate, the instant claim must be denied. 76 Exhibit "P-46", par. d, ICPA Report, docket, vol. 2, p. 736. p 84 819,335.25 125 260,567.74 77 256 342,295.31 111 853,742.35 2nd Quarter of FY 2013 (Exhibit P-46-AW-1) 88 792,931.61 3rd Quarter of FY 2013 (Exhibit P-46-AW-) 4th Quarter of FY 2013 (Exhibit P-46-AW-3) P667,068,872.26 pt Quarter of FY 2014 (Exhibit P-46-AW-4) 2nd Quarter of FY 2014 (Exhibit P-46-AW-5) Total Output tax on VAT sales to private entities 78 (P667,068,872.26 less P639,560,932.43). 79 SEC. 110. Tax Credits. - (A) Creditable Input Tax. - (1) Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 113 hereof on the following transactions shall be creditable against the output tax: XXX XXX XXX (B) Excess Output or Input Tax. - If at the end of any taxable quarter the output tax exceeds the input tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters: Provided, however, that any input tax attributable to zero-rated sales by a VAT-registered person may at his option be refunded or credited against other internal revenue taxes, subject to the provisions of Section 112.

Decision CTA CASE NO. 9358 Finally, let it be stressed that a claimant has the burden of proof to establish the factual basis of his or her claim for tax credit or refund. 80 Tax refunds are in the nature of tax exemptions. As such, they are regarded as in derogation of sovereign authority and to be construed strictissimi juris against the person or entity claiming the refund. 81 The pieces of evidence presented entitling a taxpayer to an exemption are also strictissimi scrutinized and must be duly proven. 82 Hence, an applicant for a claim for tax refund or tax credit must not only prove entitlement to the claim but also compliance with all the documentary and evidentiary requirements. 83 WHEREFORE, the instant Petition for Review filed by petitioner Maxima Machineries, Inc. on May 26, 2016, is hereby DENIED for lack of merit. SO ORDERED. I Concur: ~. ~ .4 '- MA. BELEN M. RINGPIS-LIBAN Associate Justice �8 Citibank N.A. v. Court of Appeals and Commissioner of Internal Revenue, G.R. No. 107434, October 10, 1997. 81 Commissioner of Internal Revenue v. 5. C. Johnson and Son, Inc., et a/., G. R. No. 127105, June 25, 1999. 82 Kepco Philippines Corporation v. Commissioner of Internal Revenue, G.R. No. 179961, January 31, 2011. 83 Eastern Telecommunications Philippines, Inc. v. Commissioner of Internal Revenue, G.R. No. 183531, March 25, 2015.

Decision CTA CASE NO. 9358 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 . .... R. FABON-VICTORINO A sociate Justice Acting Chairperson CERTIFICATION Pursuant to Section 13 of Article VIII of the Constitution, and the Division Acting Chairperson's Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. Presiding Justice