KEPCO ILIJAN CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

t.~ REPi:UBLIC OF THE PHILIPPINES �:oun of Tax Appeals QUEZON CITY SECOND DIVISION KEPCO lUJAN C ORPO I.RATION, C.T.A. CASE NO. 7473 Petitioner, Members: -versus- CASTANE DA, JR., Chairperson UY, and PALANCA-E NRIQUEZ, JJ. COMMISSIONER OF IN T ERNAL Promu lgate d : REVENUE , JAN 0 5 2009/ Respon dent. ; z !:_ X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -3-'_f- �_"'_ �_ - - X � DEC ISION CASTANEDA , JR ., j_.: The instant "Petition for Review" seeks that judgment be rendered ordering respondent Commissioner of Intern al Revenue to refund or to issue a tax credit certificate to petitioner in the amount of P45,357 ,998 .44, representing the input VAT incurred for c'alendar year 2004 from its importations and domestic purchases of goods .and services for the sale of electricity to the National Power Corporation (NPC) . Petitioner is a domestic corporation duly organized and existing under by virtue of the laws of the Republic of the Philippines , with principal place of ~ 20

t I l. DECISION C.T.A. CASE NO. 7473 business at the 181h Floor, Citibank Tower, 18741 Paseo de Roxas , Salcedo Village, Makati City.1 On the other hand, re~>pondent is the duly appointed Commissioner of the Bureau of Internal Reve11ue (BIR), vested under the appropriate laws with the authority to carry out 2dl the functio�ns, duties and :responsibilities of the said office , including , inter alia , the power ' to decide , approve, and grant refunds and tax credits of erroneously paid or illegally collected internal revenue taxes. He holds office at 51h Floor, BIR National Office Building , Agham Road, Quezon City. 2 Petitioner alleges th at it is likewise a value-added tax (VAT)-registered taxpayer engaged in the production and sale of electricity (as an independent power producer) solely to NPC as its only customer.3 In the course of its operation , petitioner made domestic purchases of goods and services and accumulates therefrom creditable input ta xes. In its VAT Returns for the four quarters of calendar year 2004 , petitioner declared the following zero-rated sales/receipts : Exhibit Year2004 Zero-rated Sa Ies/Rece ipts D 1st quarter E 2nd quarter p 1,637,748 ,690.3 1 F 3'd quarter 1,820,980 ,585 .76 G 41" quarter 1,706,051 ' 141 .96 �1 698 793 509 .30 Total : p 6,863,573,927.33 For the four quarters of calendar year 2004, petitioner allegedly incurred � expenses representing domestic purcha~es and importations of goods and ~ 1 Annex '"A", Petiti on for Rev iew, Docket, p. 13. 2 Par. I, Joint Stipu lati on of Facts and Iss ues, Docket, pp. 55-56 . 3 Annex " F", P etition for Rev iew, Docket. p. 18. 21

DECISION . C.T.A. CASE NO. 7473 services for which it incurred an input VAT in the aggregate 1 amount of P45,357,998.44. The aforementioned amount represents the costs incurred by petitioner for the production and sale of electricity to NPC from January 1, 2004 to December 31 , 2004 .4 On December 22, 2003, petitioner filed an Application for VAT Zero-rate with respondent for its sales of electricity to NPC from January 1, 2004 to December 31, 2004, which was subsequ ently approved 5. On October 28, 2005 , petitioner fil es a claim for refund of the input VAT incurred from its importations and domestic purchases of goods and services from its actual production and sale of electricity to NPC for calendar year 2004, which remains unacted up to this date 6 Hence, this Petition for Review filed on April 25, 2006 . Respondent, in his Answer interposed the following Special and Affirmative Defenses: "7. Assuming but without admitting that Petitioner filed a claim for refund , the same is still subject to investigation by the Bureau of Internal Revenue ; 8. Petitioner failed to demonstrate that the tax, which is the subject of this case , was erro neously or illegally collected; 9. Taxes paid and collected are presumed to be made in accordance witll the laws and regulations, hence, not creditable or refundable ; 10. It is incumbent upon the Petitioner to show that it has complied with . the provisions of Sections 112, 204(C) and 229 of the Tax Code, as am ended; 11 . In an action for ta x credit or refund , the burden is upon the taxpayer to prove that he is entitled thereto , and failure to ~ 4 Annexes "B", "C", " D", and "'E", Petiti on fo r Rev iew, Docket, pp. I4, I5, I6, and I7, respecti ve ly. 5 Annex "F", Petition for Rev iew, Docket, p. 20. 6 Annex "G", Petiti on fo r Review, Docket, p. 19.

DECISION C.T.A. CASE NO. 7473 Page 4 of20 discharge sai d. burden is fatal to the claim (Emmanuel & Zenaida Agw/ar v. Commissioner, CA-GR No. Sp. 16432, March 30, 1990 cited in Aban, Law of Basic Taxa tion in the Philippines, 151 Edition, p. 206) ; 12. Claims for refund are construed strictly against the claimant the same partake the nature of. exemption from taxation (Commissioner of Internal revenue vs. Ledesma, 31 SCRA 95) and as such, they are lo9ked upon' with disfavor. (Western Min olco Corp. vs. Commissioner of Internal Revenue, 124 SCRA 121) ."7 After trial on the me ri ts , this case was submitted for decision on March 19, 2008 considering the Memoranda filed by the parties . The parties submitted the following issues for this Court's resolution : "1. Whether Petitioner, as a VAT-registered entity and during the calendar (taxable) year of 2004, actually incurred expenses from importation and domestic purchases of goods and services which represents costs attributable to Petitioner's production and sale of electricity solely to the NPC. 2. Whether Petitioner's sale of electricity to NPC for taxable year 2004 is subject to VAT at zero percent. 3. Whether Petitioner's claim for tax credit certificate of the alleged input VAT for ta xable ye ar 2004 is duly substantiated by documentary evidence. 4 . Whether Petitioner is entitled to the refund of the amount of P45 ,357,998.44 representing the input VAT incurred for the four (4) taxable quarters of the calendar (taxable) year of 2004 from its sale of electricity solely to the NPC ."8 These issues boil down into one major issue: ' "Whether or not petitioner is entitled to a refund or issuance of tax credit yt- certificate in the amount of P45 ,357,998.44, representing unutilized input VAT �, 7 Answer, Docket, pp. 30-31. 8 Joint Sti pulation of Facts a nd Iss ues, pp. 56-57. 23

DECISION C.T.A. CASE NO . 7473 Page 5 of20 on importations and domestic r)Urchases of goods and services attributable to zero-rated sales for calendar yE ~ ar 2004." The petition is partly merit . 1rious. Section 112(A). of the NI'1~ C of 1997 lays down the requisites for refunds or issuance of a tax credit certtficate �of input tax ,due or paid attributable to zero-rated or effectively zer�o-rated sales , which reads as follows : "SEC . 112. R�;funds or Tax Credits of Input Tax.- (A) Zero-rat�~ d or Effectively Zero-rated Sales. - Any VAT-registered perE;on, whose sales are zero-rated or effectively zero-rated may, with in two (2) years after the close of the taxable quarter when the sales were made, apply'for the issuance of a tax credit certificate c.r refund of creditable input tax due or paid attributable to suc h sales, except transitional input tax, to the extent that such in put tax has not been applied against output tax. xxx ." From the foregoing , petitioner must comply with the following requisites to be entitled to a refund : 1. there must be zero-rated or effectively zero-rated sales ; 2. that input taxes were incurred or paid ; 3. that such input VAT payments are directly attributable to zero-rated sales or effectivel y zero-rated sales ; 4. that the input VAT payments were not applied against any output VAT liability; and 5. that the claim for refund was filed� within the two-year prescriptive period . Anent the first requisite , this Co urt and the Honorable Supreme Court have consistently held in a long line of cases, that NPC is an entity with a I special charter9 , which categorically makes1 it exempt from payment of all fk-- taxes , whether direct or indirect, including VAT.10 Hence, by virtue of the 9 Section 13 , R.A. No. 6395, other wise kn own as th e NPC Revised Charte r, as a mended by P.O. Nos. 380 and 938 . . 10 ErnestaM Maceda vs. Hon. Catalin a A!acaraig, CJ .I,Z. No. 882 9 1, Ma y 3 1, 199 1, 197 SCRA 795 . 24

t. DEC ISION C.'r.A. CASE NO. 7473 Page 6 of20 said charter, services rendered by a VAT-registered entity to NPC are effectively subject to zero percent (0%) VAT, in accordance with Section 108(8)(3) of the NIRC of 1997. Moreover, Republic Act (R.A.) No. 9136, otherwise known as the "Electric Power Industry Reform Act cif 2001 ", which took effect on June 26, 2001 , as well as its Implementing Rules and Regulations , which took effect on March 22, 2002, confirm the zero-rated nature 'of the sale of generated power by generation companies to NPC. Petitioner is an Independent Power Producer (IPP) engaged in the business of generatin g . electricity for sale solely to National Power Corporation, pursuant to the Amended and Restated Energy Conversion Agreement (ECA) 11 for the 1200 MW llijan Natural Gas Power Project it �executed with NPC . Thus. the power generation services rendered by petitioner to NPC are subject to zero percent (0%) VAT . Respondent even recognized this when he approved petitioner's Application for VAT Zero-rate for petitioner's sale of electricity from January 1, 2004 to December 31, 2004 .12 In its VAT Returns for the fou r quarters of calendar year 2004, I I petitioner declared the following zero-rated sales/receipts with the aggregate amount of P6,863,573 ,927.33: Exhibit Year 2004 Zero-rated D 1sl quarter Sales/Receipts E 2nd quarter p 1,637,748,690.31 F � 3'd quarter 1,820,980,585 .76 11 Exhibit " C"; Exhibi t " K", page 4. 1,706,051,141 .96 12 Exh ibit " B" 25

t t. DECISION C.T.A. CASE NO. 7473 Page 7 of20 As per verification , the abovementioned zero-rated sales/receipts were derived from petitioner's sale of electricity to NPC, as seen in the official re~eipts issued by petitioner to NPC for calendar year 2004.13 However, this Court noted that the total amount of zero-rated sales as reflected in the official receipts is higher by P484,973,811.49 when compared with the total amount of zero-rated sales declared in the Quarterly VAT Returns . Such discrepan cy was explained by the Court-commissioned Independent CPA in his Report14 , in the following manner: "3. We have determined based on the Company's OR's that it has no receipts that are subject to the 10% VAT or exempt from VAT. Our comparison of the amount of zero-rated sales supported with OR's and the amount of zero-rated sales reported in the VAT returns showed a discrepancy of P484,973,811.49, as follows : Zero-rated sales per ORs p 7 ,348 ,547,738 .82 Zero-rated sales per VAT return s 6 ,863,573 ,927 .33 Difference P 484 973 811 A9 I Our examination of the Company's documents showed that the above difference pertains to accruals of revenue made by the Company duririg the year, adjustments of energy fees by the NPC and revenues earned for the period November 25 - December 25, 2003 in the amount of P562,969,796.74 which was received in the year 2004. The Company and the NPC has a 30-day credit term for collection . We have verified that the amount of P562 ,969,796.74 was reported by the Company in its 2003 VAT returns . The accrued revenue reported in the VAT returns amounted to P52 ,968 ,91 3.56 which pertain to a 6.5 days accrual to make up for the 36~ calendar year in 2004, while the adjustment of energy fe es by the NPC amounted to P25,027,071.56. " ~ 13 Exh ibits "J- 1" to "J-14 ", "J-19" to" J-24 ", ..J-26", ..J-27",�"J-3 1" to �'J-34" as summarized in Exhib it " BBB ". 14 Exh ibit " M". 2S

r. DECISION C.T.A . CASE NO. 7473 From the foregoing, the rE!porting of the amount of P484 ,973 ,811.49 was made earlier, i.e., in calendar year 2003 when it was earned , rather than in calendar year 2004 when it w 3S collected . However, such early reporting does not affect the present clair11. What is important is that the gross receipts in the amount of P484,973,81.1:49 was act~ally reported by p~titioner in its VAT Returns , and was duly supported by zero-rated VAT official receipts . Respondent, in oppos.ition to petiti oner's claim, argues that the official � receipts submitted by petitioner in support of its zero-rated sales/receipts failed to comply with the invoicing requirements under Section 4.108-1 of Revenue Regulations No. 7-95, because the word "zero-rated " was merely stamped and not imprinted thereon . Section 4.108-1 states as follows : {, "SEC. 4.108-1. Invoicing Requirements . - All VAT- registered persons shall for every sale or lease of goods or properties or services, issue duly registered receipts or sales or commercial invoices which must show~ I 1. the name, TIN and address of tlie 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." This Court finds that the official receipts presented substantially complied with the VAT invoicing requirements . In Revenue Memorandum Order No . 9-00, it is stated that: "SECTION 3. Sales of goods, properties or services made by a VAT-registered suppli er to a BOI registered exporter ft--- shall be accorded automatic zero-rating, i.e., without necessity of applying for and securing approval of the application for zero- 27

t DEC IS ION C.T.A . CASE NO. 7473 Page 9 of20 rating as provided in Revenue Regulations No. 7-95, subject to the following conditio ns. XXX XXX XXX (5) The VAT� re:gistered supplier shall issue for each sale to SOl-registered rT ton ufacturer/exporters a duly-registered VAT invoice with the wo rds 'zero-rated' stamped thereon in compliance with Se c. 4108-1 (5) of RR 7-95 . The supplier must likewise indicate in the VAT invoi ce the name and 801-registry number of the buyer." (Emphasis supplied) Although the sai d order refers to sales of goods made by a VAT- registered supplier to a Board of Investments-registered exporter, the same shows that the Bureau of Internal Revenue prescribes the practice of stamping the word "zero-rated" on invoices. , I Moreover, Reven ue Memorandum Order No. 22-04 states that duly- registered non-VAT receipts/sales or co mmercial invoices must bear the following information: "the word 'ZERO-RATED' (to be promin~ntly written or rubber stamped on the face of the invoice/receipt) 15." Accordingly, the mere stamping by petitioner of the word "zero-rated " should be treated as substantial compliance with the provisions of the law. And the records show that the offici al receipts presented substantially complied with the said VAT invoicing requirement. Anent the second requisite , pethioner presented its schedules of input VAT on domestic purchases and importation 16 , Import Entry and f-' Internal Revenue Declarations17, and SL!PPiiers' invoices and official 15 Revenue Regulations No . 2-88. 16 Exh ibits "N"' "Q"' "V"' " W"' "X"' "Y"' ��z" '"AA '.' ��BIJ" ' '�CC"' ��DD"' " E E " '� I~ F"' ��G"G" ' '�HH " ' "11", " JJ ", "KK", "LL ", "MM", ~~NN", ~-OO ", ��PP", ��QQ ~', "�RR", and �~SS". --' ' ) 17 Exhibits " HH - 1" to "HH-5", " Il - l " to ��11 -5 ", '"JJ-1 " to '�JJ-8", "KK-1 " to "KK- 16", "LL-1 " to "LL- 12", " MM-1 " to "MM-4", "NN- 1" to "NNc.J ", ��00- 1" to "00- 10", " PP-1 " to '�PP-6", " QQ-1 " to "QQ-7 ", " RR-1 " to "RR-11 ",and "SS- 1". 28

DECISION C.T.A. CASE NO. 7473 Page 10 of20 receipts 18 in support of the reported unutilized input taxes for the four .. quarters of calendar year 2004 in the amount of P45,357 ,998.44, broken down as follows : Exhibit Year 2004 Input VAT. 1st quarter p 11 ,822 ,153.20 [l 2 nd �quarter f-----.= 3rd quarter 11 ,683,307 .06 4th quarter 10,475,297.2 5 E: 11 377 240 .93 F Total E..A.5. .J..51. Cl Cl R 44 f------'- Gi '------ � In his Report, the Independent CPA r~commended the disallowance of . petitioner's input VAT claim of P2 ,332,067 .1519 , to wit: "1. The company provided us with the summary of its unutilized input taxes wh1ich showed the details of the import-entry declarations, official receipts and sales invoices issued by various suppliers for the taxabl e year 2004. We were able to account for the existence and compliance of the original copies of the import-entry declarations, sales invoices1and official receipts issued by thes~ suppliers with existing regulations except for the items which we propose to be disallowed due to certain exceptions as detailed below: Details of the above disallowed input taxes (Exhibits P and S) are as follows : Desc ription Amount Domestic Purchases p 76,149.28 29 ,876.08 Supported by non-VAT Offi cial Receipts and Invoices 7 1,818.25 Invoices and ORs are not issued in the name of KEILCO Invoices and ORs do not bear BIR auth ority to print 606,786.44 Discrepancy with the amounts per Invoice anp 998,111 .71 per Summary list Invoices and ORs that do not fall within the period covered 382 ,018 .50 Missing Official Receipts for services rendered or invoices for goods sold Miscellaneous Income due to penalty charqes for late deliveries which should be deducted from the total 18 ExJ1 ibils "V-1 " to " V-53 ", '�W- 1" to ��W-62" , ��X- I " to ��X-82", " Y-1 " to '"Y-93", "Z-1 " to �'Z-60", "AA-1 " to "AA-77" , " 138-1 " to " 813-82", ��CC- I '. to �'CC-77", " DD- 1" to ''DD- 103 ", �'EE-l " to "EE- 124", " FF- 1" to " FF-89", and "GG- 1" to '�GG -84". 19 Exh ibit " M ", pages 6 to 7. 29

l I' f t II I 'l il: � DECI SION C.T.A. CASE NO. 7473 Page II of20 �~� Input taxes claimed �- 50,711 .29 :: -�- - - 1: Importations :.: 'i Invoices and ORs that do not fall within the period covered 18,188.00 Missinq Official Rece ipts for services rendered or invoices for qoods s�~)d 98,407 .00 Discrepancv betwee _n amount claimed and import .. VAT schedule �. ' 0.60 TOTAL P2 ,3 32,067.15 I� ~: This Court, however, finds it proper to tabulate the disallowances by I [\ the Independent CPA per quarter, the details of which are as follows : !\ 1.' Reason for Disallowance 1st 2nd 3rd 4th Total H Quarter Quarter Quarter Quarter Supported by non-VAT ..:,� Official Receipts and Invoices p 66,733 .84 p 508 .62 p 7,379.55 p 1,527 .27 p 76,149 .28 Invoices and ORs are not ! issued in the name of 12 ,978 .60 3,568 .18 5 ,82 0 .00 7 ,509 .30 29,876 .08 KEILCO ., Invoices and ORs do not bear BIR authority to print - 44,814 .14 10,175.70 16,828.41 71,818.25 Discrepancy with the amounts per Invoice and per I�' Summary list 38,226.52 298,876.35' 306,648 .31 (36,964 74) 606 ,786 .44 i,� Invoices and ORs that do not fall within the period - lr:, covered 998,111 .71 - - 998, 11 1.71 :r. Missing Official Receipts for services rendered or �~� invoices for goods sold 107, 387.59 58,241 .23.. 135,941.49 80,4 48 . 19 382,018 .50 invoices for goods sold .. Miscellaneous Income due to penalty charges for late deliveries which should be deducted from the total Input 9 taxes claimed 18,74 4 .50 3,942 .32 18,463.95 9,560 .52 50,7 11 .29 Jli Importations ~-: Invoices and ORs that do not fall within the period covered 18, 188 .00 ,, 18,188. 00 "' Input taxes, the original ' official receipts of which were missing 19 ,66 1.00 26,091 00 35,2 11 .00 17,444.00 98,407 .00 '\l Discrepancy between ':'� amount claimed and import VAT schedule 0.60 0 .6 0 !! P1 ,280 ,031. 76 P436,041 .84 P519,640.00 P96,353.55 P2,332, 067.15 r TOTAL f' f.i - 30 ll: k' ' L:....

t DEC IS IO N C.T.A. CASE NO. 7473 Page 12 of20 In addition to the ~xceptions amounting to P2 ,332,067.15 noted by the Independent CPA, this Court finds li 1at the /allowing input taxes in the total I . amount of P412 ,640.85 supported by invoices/official receipts with pre-printed "TIN-V" instead of "TIN-VAT" must be disallowed : SUPPLIER'S NAME Exhibit 1st 2nd 3rd 4th Total Quarter Quarter Quarter Quarter Balisong Intelligence & Security Aqency , Inc. \1-005 p 68 ,380.4 1 p 68,380.41 Balisong Intelligence & Security Agency , Inc. \/ -022 68 ,265 .74 68,265 .74 Balisong Intelligence & Security Aqency , Inc. X -048 68,265.74 68 ,265 .74 Balisong Intelligence & Security Agency , Inc. Z -004 p 6 7, 978~ 88 67 ,978 .88 GAD Bt.1ilders & Enterprises BB -01 4 54 ,773 .89 54,773 .89 SHUR~WAY Industries . BEl -043 P22, 01 2.16 22,012.16 STANDPHIL Corporation GG-016 P52,699 .50 52,699.50 SHUR-WAY Industries GG-043 10,264 .55 10,264.55 TOTAL P204,911.88 P12 2,752 .76 P22,012.16 P62,964.05 P412,640.85 Petitioner in its Memorandum , obj ects to the disallowance made by the Independent CPA involving (1) invoices and official receipts which do not bear the BIR authority to print in the amount of P71 ,818 .25 and �(2) invoices and official receipts that do not fall within the period covered for domestic purchases in the amount of P998 ,111 .7 1 and for importations in the amount of P18,188.00.20 Petitioner argues that the issue on the disallowed input VAT of � P7.1,818.25 supported by invoices and officia�l receipts which do not bear the BIR authority to print has already been squarely ruled upon by the Supreme ' Court in the case of Intel Technology Philippines, Inc. vs. Commissioner of r Internal Revenue 21 , where the High Court held that there is no law requiring 20 Docket, pp. 206- 208 . 31 21 G.R. N o. 166732, Apri l 27,2007.

DECISION C.T.A. CASE NO. 7473 Page l3of20 I� petitioner's BIR authority to print to be reflected or indicated in the sales invoices . However, notwithstanding the said ruling , the High Tribunal also held that entities engage d in business are required to secure from the BIR an authority to print receipts -or invoices and to issue duly registered receipts or invoices, to wit: "It is clear from the foregoing that while entities engaged in business are required to secure from the BIR an authority to print receipts or invoices and to issue .duly register~d receipts or invoices, it is not required that the BIR authority to print be reflected or indicated therein . XXX XXX XXX It bears reiterating that while the pertinent provisions of the Tax Code and the rules and regulations implementing them require entities engaged in business to secure a BIR authority to print invoices or receipts and to issue duly registered invoices or receipts , it is not specifically requ~red that the BIR authority to print be reflected or indicated therein . Indeed , what is important with respect to the SIR authority to print is that it has been secured or obtained by the taxpayer, and that invoices or receipts are duly registered. "(Emphasis supplied) In the present case , petitioner fail ed to show that (1) the BIR authority to print has been secured by petitioner's suppliers as to the invoices and official receipts covering the input ta xes of P71 ,818 .25 ; or (2) that the said invoices and official receipts were duly re gistered with the BIR. Thus , the disallowance of.the input VAT claim of P71,818.25 in order. With respect to the disallowan ce for invoices and official receipts , in the amounts of P998,111 .7 1 and P18, 188.0022 which do not fall within the � period covered , petitioner contends th at said invoice.s and official receipts~ 32 22 aggregate amo unt of P I,0 16,299.70,

DECISION C.T.A. CASE NO . 7473 . Page 14 of20 should be admitted to sL Jpport petitioner's claim for refund since the Independent CPA categoric: 311y stated that although said invoices and official receipts fall outside the pe ~ riod of claim, he was able to verify that these values were nonetheless m~ver claimed by petitioner in calendar year 2003; ' and that there was no doub'i e-claiming in �relation to these invoices and official receipts . Since there wa :; no double-claiming , said values should not be disallowed and must form part of the present claim . This Court disagrees. The input taxes C>f P1 ,016,299.70 should have been declared in the corresponding taxable quarters when the purchases of goods were consummated as evide nced by VAT invoices and for purchase of services, upon payment of comp.ensation or fee as evidenced by VAT official receipts, as held by this Court in th'e case of Lepanto Consolidated Mining Co. vs. Commissioner of Internal Revenue23 , to wit: "The alleged unutilized input VAT of P5 ,820,863 .87 should be denied since the supporting invoices and official receipts thereof bore dates which were earlier than the period of petitioner's claim . Section 11 O(A)(2) of . the 1997 Tax Code provides : 'Sec. 110. Tax Credits . - A. Creditable Input Tax.- 2. The input tax on domestic purchase of goods or properties shall be creditable : (a) To the purchaser upon consummation of saie and on importation of goods or properties; and However, in the case of purchase of services , lease or use of properties, the input tax shall be creditable to tre purchaser, lessee~ - - - - - - - - -- - - - - - - - - - - . 23 CTA Case Nos . 6368 and 6480, dated December 15, 2004I.

l D ECISION C.T.A. CASE NO. 7473 or licensee upon payment of the cornpensation , rental , royalty or fee .' It is clea1 � from the above-quote.d provisions of law that for purchases of goods , the corresponding input value added taxes of which is creditable to the purchaser upon consummation of sale, that is, upon the issuance of the corresponding invoice. On the other hand, for purchases of services, the corresponding input value add e d taxes of which � is .creditable to the purchaser upon payment of compensatio'n, rental, royalty, or fee, that is, upon the date of official receipt. Section 11 O(A) is expli~it. It states 'upon consummation ', in the case of domestic purchases of goods, and 'upon payment', in the case of purchases of services. It does not provide any qualification, such as 'upon delivery of invoice or official receipt' which is the main thesis of petitioner's contention. In a resolution of the case entitled Telecommunications Technologies Philippines1 Inc. vs. Commissioner of Internal Revenue, CTA Case No. 6168, promulgated on July 28, 2004, this Court elucidated that 'the input VAT on domestic purchases of goods or properties shall be allowed as tax credit to the purchaser upon consummation of sale, which means upon issuance by the seller of the VAT sales invoices evidencing the sale of goods/properties . On the other hand, the input VAT on purchases of services shall be available as tax credit to the purchaser only upon payment of t11e compensation or fee, i.e., upon issuance by the seller of the VAT official receipt evidencing re ceipts of the payment for services performed or yet to be performed .' Thus, it is indubitable on the part of the petitioner to declare the input value added taxes on domestic purchases of goods and services at the end of the corresponding taxable quarter where purchases of goods were consummated, as evidenced by VAT invoice and for payment of services, as evidenced by VAT official receipt. Therefore, the amount of input VAT of P5,820,863.87 which is supported by VAT invoices and official receipts dated earlier than the period of petitioner's claims can no longer be claimed for refund pursuant to Section 11 O(A) in relation with Section 112(A) of the 1997 National frlternal Revenue Code." r Thus, out of the total claimed input taxes of P45,357 ,998.44, only the .amount of P42,613,290.44 is duly subst~ntiated by the required documentary 34

fl I ! l DECISION C.T.A . CASE NO. 7473 Page 16 of20 evidence under Sections 110(A) and 113(1\-) of the NIRC of 1997, as implemented by Sections 4.104-1, 4.104-5, and 4.108-1 of Revenue Regulations No. 7-95, which is computed as follows : Input VAT Claim 1st 2nd 3rd 4th Total Less: Disallowances Quarter Quarter Qu arter Quarter P4 5,357,998.44 Per CPA report P11 ,822, 153 .20 P11 ,683 ,307.06 P10,4 7 ~ . 29 7 25 P11 ,377,240.93 Per this Court's further verification p 1,280,031 .76 p 436 ,041 .84 p 519,640.00 p 96,353 .55 p 2,332 ,067.15 Substantiated Input VAT 204,911.88 122, 752 .76 22,0 12. 16 62 ,964 .05 412,640 . 85 p 1,484, 943 64 p 558,794 .60 p ,, 541,652.16 p 159,317.60 p 2,744 ,708 .00 P10,337,209 .56 P11, 124,512 .46 p 9,933 ,645 .09 P11 ,217,923.33 P42,613,290.44 As to the third requisite, petitioner's 2004 Quarterly VAT Returns showed that it had no taxable or exempt sales/receipts but only zero-rated sa les/receipts. Accordingly , the substantiated input VAT of P42,613,290.44 is entirely attributable to the reported zero-rated sales/receipts of P6,863,573,927 .33 . Anent the fourth requisite , the in put tax of P42 ,613,290.44 was not applied against any output VAT since petitioner had no taxable sales/receipts for the four quarters of calendar year 2004. Although the claimed input ta x was carried-over to the succeeding quarters of calendar year 2005, the same was deducted as any "Any VAT Refund/TCC Claimed"24 from the Total Available Input Tax as of the fourth quarte'r of calendar year 2005. Ergo, petitioner could not have possibly utilized the input VAT of P42 ,6 13,290.44 in fjt- the succeeding quarters. 24 Exh ibit " I-I " in relation to Exhibits �'L-1 " and " L-2 "; Exhibit " K", pages 14 and 15.

DECIS ION C.T.A. CASE NO . 7473 Page 17 of20 Regarding the fifth req u.irement, the Supreme Court in the recent case 25 of Commissioner of Internal Re venue vs. Mirant Pagbilao Corporation held that the reckoning of the two-yc.;ar prescriptive period for the filing of a claim for input VAT refund under Section 112(A) of the NIRC of 1997 starts from the close of the taxable quarter when the re levant sales were made pertaining to the input VAT regardless of whet her said tax was paid or not. The pertinent portion of the said Decision is qu oted hereunder for easy reference , thus : "The claim for refun d or tax credit for the creditable input VAT payment made by MPC embodied in OR No. 0189 was filed beyond the period pmvided by law for such claim . Sec. 112(A) of the NIRC pertinently reads : (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 tran sitional input tax, to the extent that such input tax has not been applied against output tax: xxx. (Emphasis ours) The above proviso clearly provides in no uncertain terms that unutilized input VAT payments not otherwise used for any internal revenue tax due the taxpayer must be claimed within two years reckon ed from the close of the taxable quarter when the relevant sales were made pertaining to the input VAT regardless of whether said tax was paid or not. As the CA aptly puts it, albeit it erroneQusly applied the aforequoted Sec. 112(A), '[P]rescriptive period commences from the close of the taxable quarter when the sales were made and not from the time the input VAT was paid nor from the time the official receipt was issued. ' Thus , when a zero-rated VAT taxpayer pays its input VAT a year after the pertinent transaction , said ta xpayer only has a year to file a claim for refund or tax credit of the unutilized creditab le input ft- VAT. The reckoning frame would always be the end of the quarter when the pertinent sales or transaction was made, zs G.R. No. 172129, September 12,2008. 36

1 DEC ISION C.T.A . CASE NO. 7473 regardless \Nhen the input VAT was paid." (Emphasis supplied) Hence, based 1on the aforecited jurisprudence, the reckoning of the prescriptive period sl1all commence from the close of the taxable quarter when the relevant ~ak:: s were .made :pertaining to the input VAT, regardless of whether said tax was paid or not. The present daim involves petitioner's input VAT incurred for the four quarters of calendar year 2004 . Counting from the close of each of the said taxable quarters, petitioner had until the following dates within which to file its claim both in the administrative and judicial levels : Taxable Quarter Last Day to File Claim for Refund 2004 End Date March 31 , 2006 1st quarter March 31 , 20 04 June 30, 2006 September 30, 2006 2nd quarter June 30, 2004 December 31, 2006 3rd quarter Sef!tember 30, 2004" 4th quarter December 31 , 2004 Perusal of the records of the case reveals that the administrative claim was filed on October 28 , 200526 and the Petition for Review filed ~m April 25 , 2006. While the administrative claim falls within the two-year prescriptive period, the Petition for Review falls outside of the two-year prescriptive period insofar as the input VAT claim for the first quarter of calendar year 2004 is concerned . Thus , this Court denies petitioner's substantiated input VAT claim in the amount of P1 0,337,209.56, covering the first quarter of calendar year 2004 due to prescription . ~ 26 Exhibit " H-I " . 37

DECISION C.T.A . CASE NO. 7473 However, tho remaining substantiated input VAT claim covering the second , third , and tourth quarters of calendar year 2004 in the amount of P32,276,080.88 fall within the two-year prescriptive period . Considering all the foregoing , this Court finds petitioner to have a sufficiently proven that it is entitled to refund or issuance of ta x credit certificate represen ti ng unutilized input VAT attributable to zero-rated sales for the four quarters of calendar year 2004 , but in the reduced amount of P32,276,080.88 . WHEREFORE , the Petition for Review is hereby PARTIALLY GRANTED . ACCORDINGLY, respondent Commissioner of Internal Revenue I I is hereby ORDERED TO REFUND or ISSUE A TAX CREDIT CERTIFICATE amounting to THIRTY TWO MILLION TWO HUNDRED SEVENTY SIX THOUSAND EIGHTY AND 88/100 PESOS (P32,276,080.88) tp petitioner Kepco llijan Corporation, representing its unutilized input VAT for the second , third , and fourth quarters of calendar year 2004. SO ORDERED. ~~;to c.Q.Y--~~ Q :ru.ANITO c. CASTANEDA, SR. � � . Associate Justice WE CONCUR: ~~-- ]~ OLGA PALAN~tilUEZ \ Associate Justice ~E~s~~~UstiYce 38

DECISION C.T.A. CASE NO . 7473 Page 20 of20 ATTESTATION attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. ~~c~~~~~. � Associate Justice Chairperson CERTIFICATION Pursuant to Article VIII , Section 13 of the Constitution , and the Division ' Chairperson's Attestation , it is hereby certified that the conclusions in the above Decision were react1ed in consultation before the case was assigned to the writer of the opinion of the Court. L~. c~ ERNESTO D. ACOSTA Presiding Justice 39