PILIPINAS TOTAL GAS, INC. v. COMMISSIONER OF INTERNAL REVENUE

Republic of the Philippines COURT OF TAX APPEALS Quezon City FIRST DIVISION ************** PILIPINAS TOTAL GAS, INC., Petitioner, C.T.A. CASE NO. 7422 -versus - Members: COMMISSIONER OF INTERNAL ACOSTA, Chairperson REVENUE, BAUTISTA, and CASANOVA, JJ. Promulgated: Respondent JUN 16 2009 :,o :2.20"' ~-- X-- - ---- - - --- -- - -- - -- - - - - -- - -- -- - - --- X DECISION CASANOVA, J. Before Us is the Petition for Review filed by Pilipinas Total Gas, Incorporated (petitioner), seeking that judgment be rendered ordering the Commissioner of Internal Revenue (respondent) to refund or issue to petitioner a tax credit certificate in the total amount of P11,057,502.81 allegedly representing unutilized and unapplied input Value Added Tax (VAT) arising from sales to PEZA-registered entities for taxable year 2004. Petitioner is a domestic corporation duly organized and ~xisting, under the laws of the Philippines with principal place of business located at the Philippine~

Decision erA case No. 7422 Stock Exchange Centre 8/F West Tower, Exchange Road, Ortigas Center, Pasig City. l Respondent, on the other hand, is the Commissioner of Internal Revenue with address at the BIR National Office Building, Agham Road, Quezon City, where he may be served with summons, and who was duly appointed and empowered to perform the duties of his office including among others, the duty to act on and approve claims for refund or issue the tax credit certificate as provided by law. 2 Petitioner is engaged in the sale, transportation and distribution of industrial gases as well as the sale of gas equipment and other related business on wholesale basis.3 It is likewise registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer as per its Certificate of Registration No. 3RC0000031647 showing petitioner's taxpayer identification number (TIN) of 004-609-538-000 .4 In the year 2004, pursuant to its business operations, petitioner allegedly incurred input VAT on its domestic purchases and importations. However, petitioner stipulated that its clientele comprised mainly of companies registered with the Philippine Economic Zone of Authority (PEZA). Pursuant to Sections 106 (A)(2)(c) of the National Internal Revenue Code of 1997 (1997 NIRC), in relation to Section 110 (B) and 112 (A) of the same code and Section 3 of Revenue Memorandum Circular 74-99 (RMC 74-99) petitioner did not charge its PEZA-~ 1 Joint Stipulation ofFacts and Issues (JSFI), par. 1, Rollo, pp. 95-96 . 2 Ibid. Par. 2. 3 Exhibit "T", Rollo, pp, 286-314; JSFI, par. 3, Rollo, pp. 95-96. 4 Exhibit "A", Rollo, p. 231; Ibid., par. 4. G47

Decision CTA case No. 7422 registered clients output VAT. 5 This in effect left a large portion of its input VAT unutilized. Petitioner submitted its amended Quarterly VAT returns with the following details: ZERO- TAXABLE OUTPUT INPUT VAT EXCESS INPUT RATED SALES VAT VAT (a) ON ON SALES 3,428,872.24 (c) + (b)- (a) PERIOD EXHIBIT 299,394.25 DOMESTIC IMPORTATION (b) (c) 1ST QTR. "III" 35,956,796.14 2,592,424.45 p 2,293,030.20 OF 2004 2ND QTR. "LLL" 36,076,214.10 385,277.94 38,527.79 2,514,348.34 7,373.04 2,483,193 .59 OF 2004 3RD QTR. "PPP" 36,943,924.55 226,627.44 22,662.74 2,727,528.53 173,324.70 2,878,190.49 OF 2004 "UUU" 36,396,080.24 70,681.09 7,068.11 2,912,418.87 1,819.15 2.907,169 .91 4TH QTR. OF 2004 EXCESS INPUT VAT FOR 2004 ~lo!s61!sag.1a Although the excess input tax reflected in its Amended Returns is only P10,561,584.18, petitioner filed an administrative claim for refund/ tax credit for taxable year 2004 before the Revenue District Office No. 4 of the BIR6 in the amount of Pll,057,502.81 on September 30, 2005. Respondent failed to act upon petitioner's claim for refund/tax credit, and in order to protect its interests, petitioner filed the instant Petition on March 27, 2006. Respondent filed an Answer alleging the following Special and Affirmative Defenses7: .(4_ 5 Petition for Review, par. 25, Rollo, p. 8. 6 Supra note 1, par. 6. 7 Answer, Rollo, p. 76. tJ43

Decision CfA Case No. 7422 "7. The claim for refund is still under examination by the respondent's Bureau; 8. The burden of proof is upon the petitioner to prove that it is entitled to the claim for refund or issuance of tax credit certificate; 9. The grant of claim for refund tantamounts to an exemption from taxation which is construed strictly against the claimant and in favor of the taxing authority; 10. The taxes sought to be refunded were paid in accordance with law; the burden of proof to the contrary is upon the petitioner-claimant to show with clear and unambiguous provision of law supporting the same. " During the hearing of this case, petitioner presented documentary and testimonial evidence to prove its claim. Respondent failed to present any evidence in her behalf!. Petitioner submitted its Memorandum on July 29, 2008. The instant Petition was submitted for decision, sans respondent's Memorandum, on August The parties jointly agreed on the following issues to be resolved: 10 1. Whether or not petitioner's subject transactions qualify as zero-rated sales; 2. Whether or not petitioner has not utilized the claimed input taxes attributable to its zero-rated sales to the subsequent taxable quarters; 3. Whether or not petitioner's claim of excess input taxes is validly substantiated by evidence; and 4. Whether or not petitioner is entitled to its claim for refund or issuance of TCC on its unutilized input tax attributable to zero-l/P- 8 Resolution, Rollo, p. 472; Transcript of Stenographic Notes (TSN), June 24, 2008, p. 4 . 9 Resolution, Rollo, p. 483 . 10 JSFI, Rollo, p. 96. C49

Decision CTA case No. 7422 rated sales in the amount of Pll,057,502.81 incurred for taxable year 2004. The sole issue to be decided in this case is whether or not petitioner is entitled to a refund or issuance of a tax credit certificate in the amount of P11,057,502.81 representing unutilized input taxes for the taxable year 2004. Petitioner anchors its claim for refund on Section 106(A)(2)(c) of the 1997 NIRC, as amended, which provides that: "SEC.106. Value-Added Tax on Sale of Goods or Properties.- (A) Rate and Base of Tax.-There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value-added tax equivalent to ten percent (10%) of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor. XXX XXX XXX (2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: 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." In relation to Section 106(A)(2)(c), Section 3(3) of Revenue Memorandum Circular ( RMC) No. 74-99, provides: "SECTION 3. Tax Treatment of Sales Made by a VAT Registered Supplier from the Customs Territory, to a PEZA Registered Enterprise.-~ XXX XXX XXX

Decision CTA Case No. 7422 (3) In the final analysis, any sale of goods, property or services made by a VAT registered supplier from the Customs Territory to any registered enterprise operating in the ecozone, regardless of the class or type of the latter's PEZA registration, is actually qualified and thus legally entitled to the zero percent (0%) VAT. Accordingly, all sales of goods or property to such enterprise made by a VAT registered supplier from the Customs Territory shall be treated subject to 0% VAT, pursuant to Sec.106(A)(2)(a)(S), NIRC, in relation to ART.77(2) of the Omnibus Investments Code, while all sales of services to the said enterprises, made by VAT registered suppliers from the Customs Territory, shall be treated effectively subject to the 0% VAT, pursuant to Sec.108(B)(3), NIRC, in relation to the provisions of R.A.7916 and the 'Cross Border Doctrine' of the VAT system. This Circular shall serve as a sufficient basis to entitle such supplier of goods, property or services to the benefit of the zero percent (0%) VAT for sales made to the aforementioned ECOZONE enterprises and shall serve as sufficient compliance to the requirement for prior approval of zero-rating imposed by Revenue Regulations No.7-95 effective as of the date of the issuance of this Circular." Petitioner claims that under the above sections, its sales to entities duly registered with PEZA are deemed zero-rated; that as a result, it is entitled to the refund of its unutilized input taxes. This Court agrees with petitioner that its sales to PEZA-registered entities are deemed zero-rated. Among the measures adopted by the government to implement the policy of promoting preferential use of Filipino labor, domestic materials and locally produced goods and to help make them internationally competitive is the establishment of special economic zones or freeports. In pursuit of these social and economic objectives, enterprises registered and authorized to conduct business operations in designated eco-nomic zones enjoy fiscal incentives, among8-

Decision CTA case No. 7422 which is relief or exemption from payment of national and local taxes, in lieu of which they pay a flat rate on gross income11 . Although an ecozone is undeniably a sovereign geographical territory of the Philippines, treating the zone as a special customs territory is necessary to give meaningful effect to the objectives expressed in the special law creating a particular economic zone. In effect, what is created is a fiction of a foreign territory. The entity that manages this fiction of foreign territory is the Philippine Economic Zone Authority (PEZA)12� In the context of the fiction of foreign territory, the destination principle as a basis for jurisdiction of the Philippines to impose VAT, as well as the situs of the transaction as criteria for determining the place where the transaction occurred as the taxable event will apply. As a result of the destination principle, Revenue Memorandum Circular 74-99 provides that any sale of goods and services made by a VAT-registered supplier in the customs territory to any registered enterprise operating in the economic zone, regardless of the class or type of the latter's PEZA registration, is actually qualified and thus legally entitled to the zero percent (0%) VAT13� This was affirmed by the Supreme Court in the case of Commissioner of Internal Revenue vs. Toshiba Information Equipment (Phils), Inc. 14 when the Supreme Court ruled that the services rendered to a PEZA-registered.s._ - 11 The Value Added Tax in the Philippines, Copyright 2000, First Ed. by Victor A. Deoferio, Jr. and Victorino C. Mamalateo, pp. 198-202. 12 Ibid. 13 Ib id. 0 14 466 SCRA 211 (2005).

Decision CfA case No. 7422 enterprise effectively subjects the supply of such services to VAT at zero percent (0%). Likewise, in BIR Ruling [DA-736-06], the BIR ruled that sale of industrial gases and equipment by petitioner to its PEZA-registered customers pursuant to contracts entered into prior to the effectivity of Republic Act 9337 is subject to zero percent (0%) VAT and requires no prior approval for zero-rating based on RMC 74-99. The case of Coral Bay Nickel Corporation vs. Commissioner of Internal Revenue,15 this Court En Bane explained that the sale to an enterprise within the economic zone is actually a sale outside the territory to impose VAT. The relevant portion of the Decision states that: "The Cross Border Doctrine provides that 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. Since, an ECOZONE is regarded as a foreign territory by RA 7916, the sales of goods and services therefore by VAT registered enterprises to PEZA-registered enterprises are subject to VAT at zero percent rate. Accordingly, no output VAT shall be shifted to or passed on to PEZA-registered enterprises; conversely, no input VAT shall be paid by PEZA-registered enterprises from said purchases. There being no input VAT paid by PEZA-registered enterprises, it necessarily follows that they are not entitled to refund, or issuance of tax credit certificate from their purchases of goods and services." From the foregoing, it appears that petitioner must first prove that its clients are situated in an economic zone or is a PEZA-registered entity to qualify its sales as zero-rated. In support of its claim, petitioner submitted certificates~ 15 CTA Case No. 7022, March 10,2008. 16 Exhibits "N ', "W'' to "EEE". C5J

Decision CfA Case No. 7422 from PEZA certifying that its clients are PEZA-registered. Upon examination of said certificates, this Court finds petitioner to have aptly proven its right to claim for a VAT refund. With said certificates, its sales to the PEZA-registered entities are thus deemed zero-rated. From the 1st to the 4th quarters of taxable year 2004/ 7 petitioner generated zero-rated sales in the amount of P145,373,085.06. Consequently, petitioner is not liable to pay any output VAT thereon and the reported unutilized input VAT attributable thereto may be the proper subject of a claim for refund/tax credit certificate under Section 112(A) of the NIRC of 1997, to wit: "SEC.112. Refunds or Tax Credits ofInput Tax- {A) Zero-rated or Effectively Zero-rated Sales. -Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two(2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108(8)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sales 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 proportionately on the basis of the volume of sales.~ 17 Exhibits "III", "LLL", "PPP" and "UUU".

Decision CTA Case No. 7422 Based on the afore-quoted provisions of Section 112(A), in order to be entitled to a refund/tax credit of unutilized input VAT, the following requisites must be complied with: 1. there must be zero-rated or effectively zero-rated sales 2. that input taxes were incurred or paid 3. that such input taxes are directly attributable to zero-rated sales or effectively zero-rated sales 4. that the input taxes were not applied against any output VAT liability during and in the succeeding quarters; and 5. that the claim for the refund was filed within the two-year prescriptive period. With respect to the first requisite, Section 106(A)(2)(c) and RMC 74-99 qualifies petitioner's sales as zero-rated and is properly a subject for a refund/ claim under Section 112(A) of the 1997 NIRC. However, Section 112(A) must be read together with Section 113 of the same Code as implemented by Section 4.108-1 of Revenue Regulations No. 7-95, which state that: "SEC.113. Invoicing and Accounting Requirements for VAT-Registered Persons.- (A) Invoicing Requirements.- A VAT-registered person shall, for every sale, issue an invoice or receipt. In addition to the information required under Section 237, the following information shall be indicated in the invoice or receipt: (1) A statement that the seller is a VAT-registered person, followed by his taxpayer's identification number (TIN); and (2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value-added tax." "SECTION 4.108-1. Invoicing Requirements- All v_AT registered persons shall, for every sale or lease of goods or properties or services, issue duly registered receipts or sales or commercial invoices which must show:~ C55

Decision CfA Case No. 7422 1. the name, TIN and address of seller; 2. date of transaction; 3. quantity, unit cost and description of merchandise or nature of service; 4. the name, TIN, business style, if any, and address of the VAT-registered purchaser, customer or client; 5. the word "zero-rated" imprinted on the invoice covering zero-rated sales; and 6. the invoice value or consideration . XXX XXX XXX Only VAT-registered persons are required to print their TIN followed by the word 'VAT' in their invoice or receipts and this shall be considered as a 'VAT Invoice'. All purchases covered by invoices other than 'VAT Invoice' shall not give rise to any input tax." If the taxable person is engage in exempt operations, he should issue separate invoices or receipts for the taxable and exempt operations. A 'VAT Invoice' shall be issued only for sales of goods, properties or services subject to VAT imposed in Section 100 and 102 of the Code. xxx" Based on the foregoing law and regulation, petitioner must show that VAT invoices/official receipts duly registered were issued and contain all the necessary information, i.e. petitioner's TIN-VAT number and the imprinted word "zero-rated", in order that its sales to PEZA-registered entities be deemed fully entitled for VAT zero-rating. Petitioner submitted to this Court the Report of the Commissioned ICPA18, Mr. Richard Go of Dy Go Juan and Company, Schedule of Sales and Receipts from January 2004 to December 2004-9, sales invoice~0 issuedc;a.__ 18 Exhibit R. 19 Exhibits R-7-1 to R-7-12. 20 Reference No.1-855 ofExhibits R-7-1 to R-7-12. l' r: ,..., tJv U

Decision CTA Case No. 7422 to various entities and Quarterly VAT ReturnSl-1 from January 2004 to December 2004 of petitioner's buyers/customers. In its Quarterly VAT Returns for the taxable year 2004, petitioner declared the following zero-rated sales: Exh No. Period Zero-Rated Sales III/R-4-3 Covered p 35,956,796.14 LLL/R-4-6 (2004) PPP/R-4-9 36,076,214.10 UUU/R-4-12 1st Qtr 36,943,924.57 2nd Qtr 36,396,150.25 3rd Qtr p 145,373,085.06 4th Qtr TOTAL However, based on the report of the independent CPA, the zero-rated sales as per sales and receipts is actually P143,891,440.6022. A comparison of the total amount of zero-rated sales for the taxable year 2004, as reflected in the amended Quarterly VAT Returns and the zero-rated sales supported by sales invoices will disclose the difference of P1,481,644.46, which should be disallowed for not being supported by petitioner's invoices and official receipts. The disallowance is computed below: Zero-Rated Sales per VAT Returns p 145,373,085.06 Zero-Rated Sales per schedule of sales and receipts 143,891,440.60 p 1,481,644.46 Difference The amount of P143,891,440.60 as zero-rated sales shall be further reduced considering that a perusal of the documents submitted revealed tha:..a_ . 21 Exhibits "III", "LLL", "PPP" and "UUU". 22 Exhibit R-7. t;57

Decision CTA Case No. 7422 P102,449,161.62 was supported by TIN-VAT sales invoices23 without the word "zero-rated" imprinted thereon, in violation of the requirement set forth under Section 4.108-1 of Revenue Regulations No. 7-95, leaving the amount of P41,442,278.9824 as zero-rated sales to PEZA-registered entities duly established as supported by valid documentary evidence. Considering the above findings, we shall allocate the substantiated input VAT against the supported zero-rated sales because the input taxes sought to be refunded in the total amount of P11,057,502.81 is attributable to declared zero- rated sales of P145,373,085.06. In as much as only the sum of P41,442,278.98 was proven as zero-rated sales to PEZA-registered entities, it is but proper to apportion the input taxes equivalent thereto. The rate to be applied will be based on the total volume of declared zero-rated sales, computed as follows: Substantiated Zero-Rated Sales p 41,442,278.98 Divided by Total Declared Zero-Rated P145,373,085.06 Sales Rate of Substantiated Zero-Rated 28.507532163�/o Sales Thus, only 28.507532163% of the allowable input tax may be a proper subject of a claim for refund. Going now to the second requisite, We now determine whether or not petitioner's unutilized input tax for the taxable year 2004 in the total amount o~ 23 Reference Nos.l to 855 ofExhibits R-7-1 to R-7-12. 24 Annex A of this Report. G58

Decision CTA Case No. 7422 Pll,057,502.81 was duly incurred or paid based on documentary evidence submitted. To prove that it actually paid input tax in the total amount of Pll,057,502.81 on its purchases of goods and services during the covered period of claim, petitioner presented its Summary of Input Taxes for the year 200425, as well as its pertinent official receipts and invoices26� Based on its amended Quarterly VAT returns, petitioner incurred an excess input VAT in the amount of P10,561,584.18 computed as follows: ZERO- TAXABLE OUTPUT INPUT VAT EXCESS INPUT RATED SALES VAT VAT ON ON SALES 3,428,872.24 (a) (c) + (b)- (a) PERIOD EXHIBIT DOMESTIC IMPORTATION 299,394.25 (b) (c) 1ST QTR. "III" 35,956,796.14 2,592,424.45 p 2,293,030.20 OF 2004 2ND QTR. "LLL" 36,076)14.10 385,277.94 38,527.79 2,514,348.34 7,373.04 2,483,193.59 OF 2004 3RD QTR. " PPP" 36,943,924.55 226,627.44 22,662.74 2,727,528.53 173,324.70 2,878,190.49 OF 2004 4TH QTR. "UUU" 36,396,080.24 70,681.09 7,068.11 2,912,418.87 1,819.15 2.907,169.91 OF 2004 EXCESS INPUT VAT FOR 2004 ~10~561~58~.18 From its refund claim of Pll,057,502.81, there is a difference of P495,918.81 which cannot be deemed part of petitioner's claim for being unaccounted.~ 25 Exhibits R-5-1 to R-5-12. 26 Reference Nos . I to 51 23 ofExhibits R-5-1 to R-5-12 . ~ 59

Decision CTA Case No. 7422 Upon examination and verification of the documentary evidence, the independent CPA confirmed the disallowance of P495,918.81 together with other items, likewise deducted from the refund claim, to wit27 : Item Nature Reference Amount 1 Exhibit R-10-1 754,340.96 Input VAT on purchases of goods and services 660,686.86 2 where no withholding taxes were recognized. Exhibit R-10-2 495,918.81 Input VAT on purchase of goods without 128,756.72 supporting documents. 49,821.06 3 Disallowed input VAT claims attributable to the Page 2, Exhibit 37,107.41 difference between the amount per Petition for R, Item No.2 Review and per summary list of purchases. 25,638.84 4 Disallowed input VAT claims resulting from Exhibit R-10-11 24,814.30 vatable and zero-rated sales pro-rata allocation. 75,010.11 5 Input VAT on purchases of goods evidenced by Exhibit R-10-3 2,252,095.07 altered supporting documents. Input VAT on purchases of goods and services 6 evidenced by tape receipts and other invalid Exhibit R-10-4 documents Input VAT on purchases of goods and services 7 supported by official receipts and invoices not in Exhibit R-10-5 the name of the Company 8 Disallowed input VAT claims attributable to the Page 2, Exhibit difference between VAT returns and Summary R, Item No.2 List of Purchases. 9 Others Exhibit R-10-6 TOTAL However, this Court finds that of the above stated disallowances, only the amount of P1,497,754.11 (items no. 2 to 9) represents petitioner's disallowed input VAT on purchase of goods and services. The amount of P754,340.96 (item no.J) shall not be disallowed for the non-withholding of expanded withholding tax related to such transaction does not affect the input VAT thereon~ 27 Exhibit R, page 5.

Decision erA case No. 7422 Furthermore, verification and examination of the records disclose that additional amount of P137,722.09 of the input taxes claimed should be disallowed for failure to properly document the same, to wit: Exhibit Reference FINDINGS No. No. lnJ!Ut VAT Total 1 Input VAT on purchase of goods supported by documents other than VAT invoice. Comarc Construction Supply R-5-1 1 p 1,818.18 Comarc Construction Supply R-5-1 2 9,554.00 Comarc Construction Supply R-5-2 397 1,700.00 Comarc Construction Supply R-5-2 417 4,545.45 Balikbayan Handicrafts R-5-3 818 3,181.82 Market Strategic Firm, Inc. R-5-4 1245 72.27 National Bookstore R-5-4 1278 10.23 Ingasco Inc. R-5-9 3466 727 .27 Andison Industrial Sales, Inc. R-5-10 3899 9 .09 Daron Hardware R-5-10 3902 21.82 Pilipinas Makro Inc. R-5-10 3907 53.45 E Plot Enterprises R-5-10 3914 35.73 Emerco Battery & Trading R-5-10 3919 234.91 p 21,964.22 2 Input VAT on purchase of services supported by documents other than VAT OR. BOT Lease and Finance Phil Inc. R-5-1 3 904.72 Republic Courier Service Inc. R-5-1 7 4.00 PLDT R-5-1 21 241.34 PLDT R-5-1 22 1,569.41 PLDT R-5-1 23 196.48 PLDT R-5-1 24 961.71 PLDT R-5-1 25 149.65 PLDT R-5-1 26 598.90 Biofood Corp. R-5-2 384 29.45 BPIIMS Insurance Corp. R-5-2 389 4,350.00 BPI/MS Insurance Corp. R-5-2 390 4,950 .00 BOT Lease and Finance Phil Inc. R-5-2 396 689 .89 PLDT R-5-2 421 180.26 PLDT R-5-2 422 996.20 PLDT R-5-2 423 551.72 PLDT R-5-2 424 233.90 PLDT R-5-2 425 2,035 .62 PLDT R-5-2 426 248.17 PLDT R-5-3 871 140.69 PLDT R-5-3 872 940 .69 PLDT R-5-3 873 525 .81 PLDT R-5-3 874 202 .74 PLDT R-5-3 875 1,345.88 PLDT R-5-4 876 211.1~ t;G l

Decision R-5-4 1269 359.86 CTA case No. 7422 R-5-4 1281 141.54 Page 17 of 21 R-5-4 1282 255.74 R-5-4 1283 1,762.63 Smart Communications R-5-4 1284 250.81 PLDT R-5-4 1285 949.04 PLDT R-5-4 1286 720.16 PLDT R-5-5 1676 163.53 PLDT R-5-5 1677 109.14 PLDT R-5-5 1678 255.14 PLDT R-5-5 1679 313.51 Globe Telecom R-5-5 1681 336.87 Globe Telecom R-5-5 1699 250.84 Globe Telecom R-5-5 1700 1,334.52 Globe Telecom R-5-5 1701 265.99 Smart Communications R-5-5 1702 549.68 PLDT R-5-5 1703 953.36 PLDT R-5-5 1704 140.86 PLDT R-5-5 1715 3,818.18 PLDT R-5-6 2118 128.03 PLDT R-5-6 2119 207.48 PLDT R-5-6 2120 191.94 lngasco, Inc. R-5-6 2121 296.83 Globe Telecom R-5-6 2122 380.06 Globe Telecom R-5-6 2149 139.70 Globe Telecom R-5-6 2150 967 .77 Globe Telecom R-5-6 2151 454 . 12 Smart Communications R-5-6 2152 180.59 PLDT R-5-6 2153 1,288.46 PLDT R-5-6 2154 261.52 PLDT R-5-7 2546 301.79 PLDT R-5-7 2547 272 .63 PLDT R-5-7 2548 336.46 PLDT R-5-7 2549 128.03 Globe Telecom R-5-7 2550 332 .39 Globe Telecom R-5-7 2558 1,064.74 Globe Telecom R-5-7 2559 140.23 Globe Telecom R-5-7 2560 413.99 Smart Communications R-5-7 2561 206 .99 PLDT R-5-7 2562 1,170.37 PLDT R-5-7 2563 222.47 PLDT R-5-8 2978 243.31 PLDT R-5-8 2979 222.04 PLDT R-5-8 2980 110.91 PLDT R-5-8 2981 378.30 Globe Telecom R-5-8 2982 163.02 Globe Telecom R-5-8 2990 973.12 Globe Telecom R-5-8 2991 140.17 Smart Communications R-5-8 2992 421.93 Globe Telecom R-5-8 2993 PLDT 245.5~ PLDT PLDT PLDT CG2

Decision R-5-8 2994 1,370.20 65,503.67 CfA Case No. 7422 R-5-8 2995 235.26 Page 18 of 21 R-5-9 3432 140 . 17 R-5-9 3433 962 .22 PLDT R-5-9 3434 521.96 PLDT R-5-9 3435 246.44 PLDT R-5-9 3436 755 .34 PLDT R-5-9 3437 231 .62 PLDT R-5-9 3438 4.00 PLDT R-5-9 3442 188.49 PLDT R-5-9 3443 187 .06 PLDT R-5-9 3444 380.38 Republic Courier Service Inc. R-5-9 3445 337.99 Globe Telecom R-5-9 3467 Globe Telecom R-5-10 3867 3;000.00 Globe Telecom R-5-10 3868 979.26 Smart Communications R-5-10 3869 140.17 Manila Consulting R-5-10 3870 660.50 PLDT R-5-10 3871 250.52 PLDT R-5-10 3872 902.70 PLDT R-5-10 3882 200.68 PLDT R-5-10 3915 138.91 PLDT R-5-11 4341 8.00 PLDT R-5-11 4342 948.47 Kaya Restaurant R-5-11 4343 140.17 Republic Courier Service Inc. R-5-11 4344 417.94 PLDT R-5-11 4345 185.18 PLDT R-5-11 4346 PLDT R-5-12 4744 1, 145.48 PLDT R-5-12 4750 218.88 PLDT R-5-12 4765 179.97 PLDT R-5-12 4770 325.82 Globe Telecom R-5-12 4771 145.15 Smart Communications R-5-12 4772 945.60 Globe Telecom R-5-12 4773 142.19 PLDT R-5-12 4774 367.77 PLDT R-5-1 2 4775 165.27 PLDT 962.47 PLDT 196 .79 PLDT PLDT 3 Input VAT on purchase of goods/services supported by invoice/OR dated outside the period of claim. Sta. Rosa Bottling Corp. R-5-1 4 29 .55 Sta. Rosa Bottling Corp. R-5-1 5 29 .55 Ingasco Inc. R-5-10 3864 4 ,609 .52 Ingasco Inc. R-5-10 3865 3,636.36 SQ Resources Inc. R-5-12 4742 2,011.36 Motorcity Autoshop R-5-12 4745 68.18 SQ Resources Inc. R-5-12 4776 1,618.18 Airlift Asia - R-5-12. . 4778 139.94 Ingasco Inc. R-5-12 4779 4 ,609 .52 Ingasco Inc. R-5-12 4780 10 ,909 .09 Keihin Everett Forwarding Co. R-5-12 4782 850 . 0~ C6 J

Decision R-5-1 2 4783 1, 100.00 50,254.20 CfA case No. 7422 R-5 -12 4784 1, 100.00 p 137,722.09 Page 19 of 21 R-5-12 4785 3,690.00 R-5-12 4788 Keihin Everett Forwarding Co. R-5-12 4789 470.30 Keihin Everett Forwarding Co. R-5-12 4790 11,537.20 Keihin Everett Forwarding Co. 3,845.45 PCM Industrial Sales Inc. PCM Industrial Sales Inc. Ingasco Inc. TOTAL Thus, petitioner was able to support by proper VAT invoices and/or official receipts input taxes in the amount of P9,422,026.61, computed as follows: Input VAT claimed for Refund P11,057,502.81 Less: Disallowances per CPA Report p 2,252,095.07 Less: Adjustment Additional Disallowances per Court's 754,340.96 1,497,754.11 findings Substantiated Input VAT 137,722.09 1,635,476.20 p 9,422,026.61 Going now to the third requisite, of whether or not petitioner's input VAT is entirely attributable to zero-rated sales, petitioner likewise complied with the same. Petitioner's VAT returns show that the claim is net of remaining output VAT liability, therefore, the entire amount of P9,422,026.61 is attributable to zero-rated sales or effectively zero-rated sales. However, this substantiated input VAT will be apportioned based on the rate of substantiated zero-rated sales which would result to a refundable amount of P2,685,987.27 to be computed as follows: Substantiated Input VAT p 9,422,026.61 Rate of Substantiated Zero-Rated Sales X 28.507532163% Input VAT attributable to zero-rated sales p 2,685,987.27 Petitioner �also �met the fourth requirement: that the input taxes were not applied against any output VAT liability during and in the succeeding quarters~ C64

Decision CTA Case No. 7422 Based on the amended returns submitted, petitioner deducted its VAT claim for the current quarter which in effect prevented the carry-over of the claimed refund to the succeeding quarters. As a result, the input taxes claimed were not utilized. Finally, Section 112(A) of the 1997 NIRC provides that a claim for VAT refund, both in the administrative and judicial levels, must be filed within two (2) years from the time of the close of taxable quarter. Petitioner's claim for refund was timely filed within the two-year prescriptive period. The earliest quarter of petitioner's claim is the 1st quarter of 2004 which ends on March 31, 2004. Counting two years therefrom, petitioner had until March 30, 2006 to file its claim. Records show that petitioner filed its administrative and judicial claims on September 30, 200528 and March 27, 2006, respectively, both within the two- year period reckoned from March 31, 2004, well within the prescriptive period required by law. WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby GRANTED. Respondent is ordered to ISSUE A TAX CREDIT CERTIFICATE in the reduced amount of P2,685,987.27 representing petitioner's unutilized input VAT for the 1st to 4th quarters of taxable year 2004. SO ORDERED. CAESAR A. CASANOVA Associate Justice 28 Exhibits "P" and "P-1 ". ., 6 ,.. t; J

Decision CTA case No. 7422 WE CONCUR: \~1st- o~ With Concurring and Dissenting Opinion ERNESTO D. ACOSTA CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, 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. L~. Q-A- ERNEsTo D. ACOSTA Presiding Justice CGG