CE LUZON GEOTHERMAL POWER COMPANY, INC. v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES Court OfTax Appeals QUEZON CITY SECOND DIVISION CE LUZON GEOTHERMAL POWER C.T.A. CASE NO. 7558 COMPANY, INC ., Petitioner, Members: -versus- CASTANEDA, JR., Chairperson UY, and PALANCA-ENRIQUEZ, JJ. COMMISSIONER OF INTERNAL Promulgated: REVENUE, Respondent. JUN 2 4 2009 / X ---------------------------------------------------------------~------------- X ~: IN ('" � DECISION PALANCA-ENRIQUEZ, J.: THE CASE This is a Petition for Review filed by CE Luzon Geothermal Power Company, Inc. (hereafter "petitioner") praying for the refund or issuance of a tax credit certificate (TCC) for its unutilized input value-added taxes (hereafter "input VAT") in the aggregate amount of P20,546,004.87, representing unutilized input VAT paid on its domestic purchases of non- capital goods and services, services rendered by non-residents, and ~ 84 2

C.T.A. CASE NO. 7558 2 DECISION importation of non-capital goods, which are attributable to zero-rated sales for the four quarters of taxable year 2005. THE PARTIES Petitioner is a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines, with principal office at the 24th Floor, 6750 Bldg., 6750 Ayala Avenue, Makati City. Respondent, on the other hand, is the duly appointed Commissioner of Internal Revenue, vested with authority to act as such, including, among others, the power to decide, approve and grant refunds or tax credits of erroneously or excessively paid taxes. He may be served with summons, pleadings and other legal processes at his office at the BIR National Office Building, BIR Road, Diliman, Quezon City. THE FACTS The antecedent facts of the case are as follows: Petitioner is engaged in the business of power generation for which it was accredited and certified to as such by the Department of Energy, as evidenced by its DOE Certificate of Accreditation (OSAC94- 12) issued on June 15, 1994 (Exhibit "B '') . Petitioner is a registered value added tax (VAT) taxpayer with the Bureau of Internal Revenue @Aa 84 3

C.T.A. CASE NO. 7558 3 DECISION evidenced by its Certificate of Registration with Tax Identification Number 003-924-356-000 (Exhibit "C'). On the following dates, petitioner filed with the BIR its Original Quarterly VAT Returns for the first to fourth quarters of 2005, respectively: Taxable Quarter Date of Filing of Original Return April 25, 2005 1st July 25, 2005 2nd 3rd October 25, 2005 4th January 25, 2006 On the following dates, petitioner filed with the BIR its Amended Quarterly VAT Returns for the first to fourth quarters of 2005, reflecting excess or unutilized VAT credits arising from petitioner's domestic purchases of non-capital goods and services, services rendered by non- residents and importation of non-capital goods: 2005 Date of Excess/Unutilized VAT Credits Total Taxable Filing of (P) Quarter Amended Domestic Domestic Services Importation- Return Purchases- Purchases- Rendered by Goods Other 7' 128,862.84 Goods Other Services than Capital 3,742,826.01 than Capital Non- 5,088,861.28 (P) Residents Goods 4,585,454.74 Goods (P) 20,546,004.87 (P) (P) 176,684.00 1s1 January 534,507.06 5,957,152.09 460,519.69 319,222.00 12,2006 1,213,592.81 1,306,800.00 2nd January 1,091 ,122.97 2,179,539.80 30,471.40 767,477.00 12,2006 965,895.81 2,570,183.00 3rd January 3,805,118.65 2,690,938.31 0 12,2006 41h April 10, 2,514,421 .72 337,660.21 2006 Total 13,342,051 .92 828,651 .30 844

C.T.A. CASE NO. 7558 4 DECISION On November 30, 2006, petitioner filed its administrative claim for refund of unutilized input VAT for the four quarters of taxable year 2005 . In view of respondent' s inaction, on January 3, 2007, petitioner filed its judicial claim for refund with this Court, docketed as C.T.A. Case No. 7558. In his Answer, respondent alleged by way of special and affirmative defenses : "4. Petitioner's claim for refund is subject to administrative investigation/examination by the Bureau; 5. The amount of P20,546,004.87 being claimed by petitioner as alleged unutilized input VAT from its domestic purchases of non-capital goods and services, services rendered by non-residents and importation of non-capital goods for the first to fourth quarters of taxable year 2005 was not properly documented; 6. In an action for refund, the burden of proof is on the taxpayer to establish its right to refund, and failure to sustain the burden is fatal to the claim for refund/credit; 7. To support its claim, it is imperative for petitioner to prove, the following, viz: a. The registration requirements of a value-added taxpayer in compliance with Section 6 (a) and (b) of the Revenue Regulations No. 6-97 in relation to Section 4.107-l(a) of Revenue Regulations No. 7-95, and Section 84 5

C.I.A. CASE NO. 7558 5 DECISION 236 of the National Internal Revenue Code of 1997 (NIRC of 1997); b. The invoicing and accounting requirements for VAT registered persons, as well as the filing and payments of VAT in compliance with the provisions of Sections 113 and 114 of the NIRC of 1997; c. Proof of compliance with the prescribed checklist of requirements to be submitted involving claim for VAT refund in pursuance to Revenue Memorandum Order No. 53-98, otherwise, there would be no sufficient compliance with the filing of administrative claim for refund which is a condition sine qua non prior to the filing of judicial claim in accordance with the provision of Section 229 of the Tax Code, as amended. It is worthy of emphasis that Section 112 (D) of the Tax Code, as amended, requires the submission of complete documents in support of the application filed with the Bureau of Internal Revenue before the 120-day audit period shall apply, and before the taxpayer could avail ofjudicial remedies as provided for in the law. Hence, petitioner's failure to submit proof of compliance with the above-stated requirements warrants immediate dismissal of the petition for review; d. That the input taxes of P20,546,004.87 allegedly paid by the petitioner on its purchases of non-capital goods and services, services rendered by non-residents and importation of non-capital goods for the first to fourth quarters of 2005 were attributable to its zero-rated sales and such have not been applied against any output tax and were not carried over in the succeeding taxable quarter or quarters; e. That petitioner's administrative and judicial claims for tax credit or refund of the unutilized input tax (VAT) was filed within two (2) years after the close of the taxable quarter when the sales were made in accordance with Sections 112 (A) and (D) and 229 of the NIRC of 1997; ~ 84 6

C.T.A. CASE NO. 7558 6 DECISION f. That petitioner's domestic purchases of goods and services were made in the course of its trade or business, properly supported by VAT invoices and/or official receipts and other documents, such as subsidiary purchase journal, showing that it actually paid VAT in accordance with Sections llO(A) (2) and 113 of the NIRC of 1997, and in pursuance to Section 4.104-5 (a) and (b) of Revenue Regulations No. 7-95 (Re: Substantiation of Claims of Input Tax Credit); g. The requirements as enumerated under Section 4.104-2 of the Revenue Regulations 7-95 (Re: Persons who can avail of the Input Tax Credits); 8. The petition for review is premature. Since petitioner did not submit complete documents in support of its administrative claim for refund as indicated under Section 112 (D) of the NIRC of 1997, the 120-day period starts to run on 30 November 2006, the date when it filed its administrative claim for refund. The said period is yet to expire on 10 March 2007. Hence, the 30-day period within which to file the petition for review before this Honorable Court is yet to expire on 9 April 2007. This being so, this Honorable Court has no jurisdiction to act on the instant petition for review. 9. Claims for refund are construed strictly against the claimant for the same partake the nature of exemption from taxation (Commissioner ofInternal Revenue vs. Ledesma, 31 SCRA 95) and such, they were looked upon with disfavor (Western Minolco Corp., vs. Commissioner of Internal Revenue, 124 SCRA 1211)." Petitioner presented Leilah YasminE. Alpad and Jerome Antonio B. Constantino, as witnesses, and documentary evidence, marked as B47

C.T.A. CASE NO. 7558 7 DECISION Exhibits "A " to "AAA ", inclusive of their submarkings, which were all admitted by the Court. On the other hand, respondent's counsel manifested that he will not be presenting evidence and submitted the case for decision. Thereafter, both parties were ordered to file their simultaneous memoranda, within thirty (30) days from notice, afterwhich the case shall be deemed submitted for decision. Both parties having complied thereto, the petition was deemed submitted for decision on July 25, 2008. However, on August 29, 2008, petitioner filed a "Motion to Admit Reply Memorandum" and its "Reply Memorandum (To Respondent' s Memorandum dated July 18, 2008)", which the Court granted in a Resolution dated September 4, 2008. Hence, this decision. ISSUES As stipulated upon by the parties, the following are the issues for this Court's consideration: I WHETHER OR NOT UNUTILIZED INPUT VAT OF THE PETITIONER FOR THE FIRST TO FOURTH QUARTERS OF 2005 AMOUNTING TO P20,546,004.87 IS 84 8

C.T.A. CASE NO. 7558 8 DECISION SUBSTANTIATED BY DOCUMENTARY EVIDENCE IN THE FORM OF INVOICES AND OFFICIAL RECEIPTS. II WHETHER OR NOT THE SAID UNUTILIZED INPUT VAT OF THE PETITIONER FOR THE FIRST TO FOURTH QUARTERS OF 2005 AMOUNTING TO P20,546,004.87 WAS APPLIED AGAINST ANY OUTPUT TAX OF THE PETITIONER IN THE SUBSEQUENT QUARTERS . III WHETHER OR NOT THE PETITIONER IS ENTITLED TO A REFUND AND/OR ISSUANCE OF TAX CREDIT CERTIFICATE IN THE TOTAL AMOUNT OF P20,546,004.87, REPRESENTING ITS UNUTILIZED INPUT VAT FROM PURCHASES OF TAXABLE GOODS AND SERVICES AND IMPORTATION OF GOODS FOR THE FIRST TO FOURTH QUARTERS OF 2005. Principal Issue The foregoing Issues raised by both parties boil down to the principal issue of whether or not petitioner is entitled to a refund or the issuance of a TCC in the amount of P20,546,004.87, representing unutilized input VAT paid on its domestic purchases of non-capital goods and services rendered by non-residents and importation of non-capital goods which are attributable to zero-rated sales for calendar year 2005. THE COURT'S RULING- The petition is partly meritorious. 84 9

C.T.A. CASE NO. 7558 9 DECISION Petitioner anchors its claim on Sections 11 O(B) and 112{A) of the National Internal Revenue Code of 1997 (NIRC of 1997), as amended, which provide, as follows: "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 (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. Any input tax attributable to the purchase of capital goods or 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 ofSection 112." " 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(B)(l) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or properties or services, and the amount of creditable input 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 volume of sales." 850

C.T.A. CASE NO. 7558 10 DECISION Pursuant to the above provisions, in order to be entitled to a refund or the issuance of a TCC of input VAT paid attributable to zero-rated or effectively zero-rated sales, 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 attributable to zero-rated sales or effectively zero-rated sales; 4) that the input taxes were not applied against any output VAT liability; and 5) that the claim for refund was filed within the two-year prescriptive period. First Requisite: There must be zero-rated or effectively zero rated sales As regards the first requisite, petitioner contends that its sales of electricity as a power generation company, qualify for VAT zero-rating, under paragraph 5, Section 6 of RA 9136, also known as the Electric Power Industry Reform Act of2001, which states: "SEC. 6. Generation Sector. xxx XXX XXX

C.T.A. CASE NO. 7558 11 DECISION Pursuant to the objective of lowering electricity rates to end- users, sales of generated power by generation companies shall be value added tax zero-rated. XXX XXX. " Notwithstanding the repeal of RA 9136 under RA 933 7, which took effect on November 1, 2005 , petitioner's sale of generated power continued to be VAT zero-rated under Section 108(B) (7) of the NIRC of 1997, as amended by RA 9337. To qualify for VAT zero-rating, petitioner must be able to establish that: (1) it is a generation company; and (2) it derives sales from power generation. The Court finds that the prescribed requisites were duly established by petitioner. As to the first requisite, records show that petitioner owns and operates a 180-megawatt power plant facility located in Mahanagdong, Province of Leyte, which has been accredited by the Department of Energy, as a Block Power Production Facility (BPPF), since June 15, 1994 (Exhibit "B "). As such, it is engaged in the business of power generation and the subsequent sale of generated power to the Philippine National Oil Company-Energy Development Corporation [PNOC-EDC] (Exhibit "D "). Hence, petitioner was able to establish that it is a generation company. 85 2

C.T.A. CASE NO. 7558 12 DECISION As regards the second requisite, records show that for the four quarters of taxable year 2005, petitioner generated sales of power generation services to PNOC-EDC in the amount of P4,318,484,466.77, which was declared in its Quarterly VAT Returns for the same period, as follows : Exhibit Year 200 5 Z er o - Rated 151 Quarter Sal es / Re c e i p ts X 2"d Quarter p 742,366,072.39 3rd Quarter z 1' 120,564 ,388.92 cc 4th Quarter 1,343 ,514,348 .00 1' 112 ,039,657 .46 FF p 4 ,318,484,466.77 However, We find that there is a marked discrepancy between the total zero-rated receipts of P4,232,115,860.06 reflected in the official receipts (ORs) issued by petitioner to PNOC-EDC {Exhibits "SS-1 " to "SS- 37", as summarized in Exhibit "RR "), and the total zero-rated receipts of P4,318,484,466. 77 declared by petitioner in its 2005 Quarterly VAT Returns. The Court-Commissioned Independent CPA explained the discrepancy and clarified that it was merely brought about by the 2% expanded withholding tax deducted by PNOC-EDC and the foreign exchange rates differential, thus: OR Amount p 4,232,115,860.06 Withholding tax Forex 86,369,689 .34 Total Sales (1,083.84) p 4,318,484,465.56 * *Difference due to rounding. {Exhibit "00 '') 853

C.T.A. CASE NO. 7558 13 DECISION Thus, petitioner's sales of electricity as a power generation company amounting to P4,318,484,466.77 qualify for VAT zero-rating. Second and Third Requisites: Input taxes were incurred or paid and that such input taxes are attributable to zero-rated sales or effectively zero-rated sales Having resolved that petitioner's gross receipts from power generation services rendered to PNOC-EDC for the four quarters of 2005 in the amount of P4,318,484,466.77 qualify for VAT zero-rating, We now proceed to the determination of the amount of input VAT attributable thereto. Petitioner submitted various suppliers' invoices, official receipts, Bureau of Customs (BOC) Import Entries and Internal Revenue Declarations (IEIRDs), BOC and bank official receipts (Exhibit "UU" as summarized in Exhibit "TT'), in support of its claimed unutilized input taxes reflected in its Quarterly VAT Returns for the four quarters of 2005, in the amount ofP20,546,004.87, broken down as follows: Exhibit Year2005 Input VAT 1st Quarter p 7' 128,862.84 X 2nd Quarter 3rd Quarter 3,742,826.01 z 4th Quarter 5,088,861 .28 cc 4,585,454.74 p 20,546,004.87 FF 85 4

.. C.T.A. CASE NO. 7558 14 DECISION Upon perusal of the said documents, the Court-Commissioned Independent CPA, Jerome Antonio B. Constantino of CG & Co. , summarized his findings, as follows {Exhibit "00 '') : Findings Annex Input Tax p 13,836,590.38 A. Properly supported by VAT invoices/receipts/IEIRDs/BIR Form 1600 300,764.55 1. Domestic purchase of goods and services supported by VAT 92,212 .69 invoices and ORs, and importation of goods supported by OK IEIRDs 2. Domestic purchase of goods and services supported by TIN No. VAT No., VAT No. TIN No., VAT Reg. TIN, TIN VAT No. OK-1 invoice or OR 3. Domestic purchase of goods supported by a VAT invoice issued in the Company's name but without the Company's A13 TIN and/or address or with TIN and/or address changed/added on the support but without countersign 4. Domestic purchase of services supported by a VAT OR issued in the Company's name but without the Company's 813 2,795,106.46 TIN and/or address or with TIN and/or address changed/added on the support but without countersign 5. Importation of goods supported by a 80C/L8P OR issued in the Company's name but without the Company's TIN C13 3,440.00 and/or address or with TIN and/or address changed/added on the support but without countersign 6. Domestic purchase of goods supported by a VAT invoice not dated within the VAT-taxable quarter but within the A2 574,689.78 26,533.05 VAT-taxable year 7. Domestic purchase of goods supported by TIN-V invoice A12 8. Domestic purchase of goods supported by non VAT invoice but stamped as "VAT registered as of November 1, 2005" issued within the period November 1, 2005 to December 1, A12-1 8,842.67 2005 14,719 .09 9. Domestic purchase of goods supported only by a certified AlB true copy of the VAT invoice 10. Domestic purchase of service supported by a VAT OR not dated within the VAT-taxable quarter but within the VAT- 82 101,896.41 taxable year 350,944.47 61,500 .00 11. Domestic purchase of services supported by TIN-V OR 812 12. Domestic purchase of services supported by a certified 818 true copy VAT OR 13. Importation of goods supported by an original IEIRD and 80C/L8P OR not dated within the VAT-taxable quarter but C2 1,028,358.01 p 19,195,597.56 within the VAT-taxable year Subtotal B. Other findings 1. Domestic purchase of goods supported by documents other A1 p 84,591.79 than a VAT invoice 2. Domestic purchase of goods supported by a VAT invoice A3 104,218.30 but not an original copy 3. Domestic purchase of goods supported by a VAT invoice A4 336 .03 not issued in the name of the Company 4. Domestic purchase of goods supported by a VAT invoice AS 10,575.87 issued in the name of Calenergy/CE Visayas/CE Cebu 85 5

.. C.T.A. CASE NO. 7558 15 DECISION (whichever is applicable) 5. Domestic purchase of goods supported by TIN# only; TIN- A7 33,833.47 NV/NON-VAT invoice; stamped/handwritten TIN-v/VAT 100.00 6. Domestic purchase of goods supported by a VAT invoice A10 96,987 .29 but without invoice date 5,090.73 23,011.64 7. Domestic purchase of goods supported by a VAT invoice A14 24,499.57 not dated within the VAT-taxable year 3,369 .13 8. Domestic purchase of goods supported by a VAT invoice A15 with changes in the name of the Company 9. Domestic purchases of services supported by documents 81 other than a VAT official receipt 10. Domestic purchase of services supported by a VAT OR but 83 not an original copy 11. Domestic purchase of services supported by a VAT OR not 84 issued in the name of the Company 12. Domestic purchase of services supported by a VAT OR issued in the name of calenergy/CE Visayas/CE Cebu 85 21,471.51 (whichever is applicable) 13. Domestic purchase of services supported by TIN # only; 87 69,594.95 TIN-NV/NON-vAT OR; stamped/handwritten TIN-V/VAT 5,131.07 20,009.57 14. Domestic purchase of services supported by a VAT OR but 810 without OR date 15. Domestic purchase of services supported by a VAT OR not 814 dated within the VAT-taxable year 16. Domestic purchase of services supported by a TIN# only; TAN-V; TAN VAT;TIN-NV/Non VAT stamped/ handwritten 816 2,333 .33 TIN-vjVAT tape receipt 17. Importation of goods supported by an original IEIRD and 817 1,630.90 80C OR not dated within the year 18. Importation of goods supported by documents other than C1 50 .00 an original copy of the IEIRD 19. Importation of goods supported by an original IEIRD and 0 257,620 .00 80C OR not dated within the year 20. Importation of goods with supporting documents not C4 56,446 .00 issued in the name of the Company 21. Importation of goods supported by a photocopy of IEIRD C5 35,796.00 and original 80C OR 22. Importation of goods supported by a photocopy (any other C6 58,498 .00 than original) of IEIRD and an original 80C/L8P OR 23. Importation of goods supported by original 80C OR and/ or C7 51,480.00 LBP OR only 24. Overclaimed input tax on domestic purchases of E1 16,411.24 goods/services due to erroneous computation 25. Effect of forex on foreign currency denominated purchases J1 20,006 .11 of goods and services - overstatement 26. Supporting documents not available F 347,314.81 Subtotal p 1,350,407.31 T OTAL p 20,546,004.87 After a careful examination of the report of the Court- Commissioned Independent CPA, the Court finds the same to be in order. Hence, the items under the heading "A. Properly supported by VAT SSG

C.T.A. CASE NO. 7558 16 . DECISION invoiceslreceipts/IEIRDs/BIR Form 1600", particularly A.3, A.4, A.7, A.9, A.ll, A.12, and all 26 items under the heading "B. Other Findings'~ except B.21, B.22 and B.23, should be denied for the grounds above-stated. To recapitulate, the said disallowances amounting to P4,545,649.07 are, as follows: DISALLOWANCES PER INDEPENDENT CPA'S REPORT FindinQs Inp_utVAT Domesitc purchase of goods supported by a VAT invoice issued in the 92 212.69 petitioner's name but without the petitioner's TIN and/or address or with TIN and/or address changed/added on the support but without countersign Domestic purchase of services supoprted by a VAT OR issued in the 2 795 106.46 petitioner's name but without the petitioner's TIN and/or address or with 26 533.05 TIN and/or address chanqed/added on the support but without countersiqn 14 719.09 Domestic purchase of goods supported by TIN-V invoice 350 944.47 Domestic purchase of goods supported only by a certified true copy of the 61 500.00 VAT invoice 84 591.79 Domestic purchase of services supported by TIN-V OR 104 218.30 Domestic purchase of services supported by a certified true copy VAT OR 336.03 Domestic purchase of goods supported by documents other than a VAT 10 575.87 invoice 33 833.47 Domestic purchase of goods supported by a VAT invoice but not an original 100.00 copy 96 987.29 Domestic purchase of goods supported by a VAT invoice not issued in the 5 090.73 name of the Company 23 011.64 Domestic purchase of goods supported by a VAT invoice issued in the name 24 499.57 of Calenergy/CE Visayas/CE Cebu (whichever is applicable) 3 369.13 21471.51 Domestic purchase of goods supported by TIN# only; TIN-NV/NON-VAT 69 594.95 invoice� stamped/handwritten TIN-v/VAT Domestic purchase of goods supported by a VAT invoice but without invoice date Domestic purchase of goods supported by a VAT invoice not dated within the VAT-taxable year Domestic purchase of goods supported by a VAT invoice with changes in the name of the Company Domestic purchases of services supported by documents other than a VAT official receipt Domestic purchase of services supported by a VAT OR but not an original copy Domestic purchase of services supported by a VAT OR not issued in the name of the Company Domestic purchase of services supported by a VAT OR issued in the name of Calenergy/CE Visayas/CE Cebu (whichever is applicable) Domestic purchase of services supported by TIN# only; TIN-NV/NON-vAT OR� stamped/handwritten TIN-vfVAT 857

C.T.A. CASE NO. 7558 17 DECISION Domestic purchase of services supported by a VAT OR but without OR date 5 131.07 Domestic purchase of services supported by a VAT OR not dated within the 20 009.57 VAT-taxable year 2 333 .33 Domestic purchase of services supported by a TIN# only; TAN-V; TAN 1 630.90 VAT�TIN-NV/Non VAT stamped/handwritten TIN-V/VAT tape receipt Importation of goods supported by an original IEIRD and BOC OR not dated 50.00 within the year 257 620.00 Importation of goods supported by documents other than an original copy of the IEIRD 56 446 .00 Importation of goods supported by an original IEIRD and BOC OR not dated 16 411.24 within the year 20 006.11 Importation of goods with supporting documents not issued in the name of 347 314 .81 the Company 4,545 649.07 OVerclaimed input tax on domestic purchases of goods/services due to erroneous computation Effect of forex on foreign currency denominated purchases of goods and services - overstatement Suppartinq documents not available TOTAL Upon a careful examination of the evidence on record, the Court also finds that the input VAT claim should be further decreased by Pl ,121 ,043.15 for the following reasons: Exh. Inv/OR # Inv/OR Date Suoolier Input VAT 1) Withholding VAT remitted in behalf ofnon-resident supplier ofservices with supporting documents not properly marked Fulkerson & Associates P 65,598.15 ABB Industry pte. Ltd. 394,921.54 John Gilden Ltd . 30,471.40 Kokusai Commerce Co . Ltd . 74,826.01 Parsons Brinckerhoff ?te. Ltd. 262,834.20 Subroml ~P_ _ _ _8~2~~c6.~51~.~30~ 2) Purchase ofgoods/ services supported by documents other than a VAT invoice/ OR UU-L-4Q- 548 Harnwell Chemicals Corp. P 51,271.03 UU-L-4Q- 549 Industrial Inspection (Intrnat'l) Inc. 38,981.25 UU-L-4Q- 135 Nalco Philippines, Inc. 48 727.27 Subwml ~P____=13~~~9~79~. s=.s~ 3) Input VAT claimed twice UU-L-1Q- 338B 31496 2/3/2005 Nalco Philippines, Inc. -p 48,727.27 3/17/2005 p UU-L-2Q- Joaquin Cunanan & Co. 20,500.00 0346A 6001 Subtotal 69,227.27 85 8

C.T.A. CASE NO. 7558 18 DECISION 4) Purchase ofgoods/ services with no supporting documents p 10,037.00 Isla Lipana & Co. Trane Philippines 17,500.00 Trane Philippines Subtotal 21,403.50 p 48, 940.50 5) Purchase ofservices supported by ORs that are not legible UU- L-2Q- 0312 to BM2000000 0313 00057196 6/30/2005 Innove Communications Inc. p 11,168.89 UU - L-4Q- BM2000000 089 to 090 00000071076 11/9/2005 Innove Communications Inc. 10!067.46 Subtotal p 21�236.35 6) Importation ofgoods supported by undated Ors UU-L-1Q- 617 121628963 Bureau of Customs 2,306.00 UU-L- 2Q- 00821 122263504 Bureau of Customs 1,433.00 UU-L-2Q- 00842 122822567 Bureau of Customs 2,573 .00 UU - L-2Q- 00921 123662551 Bureau of Customs 3!678.00 Subtotal p 9�990.00 7) Purchase ofgoods supported by an invoice bearing erasures countersign UU-L-3Q- 01015 12612 7/25/2005 Richworld Electrical and Sales Co. P 4 m 8 . 18 Subtotal p 4�018.18 TOTAL p 1,121,043.15 Based on the foregoing, out of petitioner' s claimed input VAT of P20,546,004.87, only the amount of P14,879,312.65 has been duly substantiated, in accordance with Sections II O(A) and II3(A) of the NIRC of I997, as amended, and as implemented by Sections 4.I 04-5 and 4.I08-I ofRevenue Regulations No. 7-95, broken down as follows: Claimed input VAT P4,545,649.07 p 20,546,004.87 Less: Disallowances 1.121.043 .15 5.666,692.22 Per ICPA Per Court's verification p 14.879.312.65 Val id input VAT 85 9

C.T.A. CASE NO. 7558 19 DECISION Fourth R equisite: Input taxes were not applied against any output VAT liability As regards the fourth requisite, a perusal of petitioner's Quarterly VAT Returns for the four quarters of 2005 {Exhibits "X ", "Z ", "CC " and "FF ') , shows that it has no output tax liability against which the substantiated input VAT of Pl4,879,312.65 may be applied or credited. Although petitioner carried-over the amount of Pl4,879,312.65 to the succeeding four quarters of 2006 {Exhibits "GG " to "KK ') , the same remained unutilized as petitioner had no output VAT liability for the said period. Moreover, the substantiated input VAT of Pl4,879,312.65 formed part of the P20,546,004.87 input VAT deducted as "Any VAT Refund!TCC Claimed" in the Quarterly VAT Return for the fourth quarter of 2006 {Exhibits "JJ" and "KK'). Consequently, the input VAT of P14,879,312.65 was no longer carried over to the succeeding first quarter of 2007 {Exhibit "LL '). Fifth R equisite: The claim for refund was filed within the two-year prescriptive period Finally, as to the two-year prescriptive period, We rule that petitioner's claim was timely filed. In the recent case of Commissioner of Internal Revenue vs. Mirant Pagbilao Corporation (Formerly 86 0

C.T.A. CASE NO. 7558 20 DECISION Southern Energy Quezon, Inc.), G.R. No. 172129, September 12, 2008, the Supreme Court settled the issue on the reckoning of the prescriptive period and the applicable provisions on claims for refund for input VAT, as follows: "Claim for refund or tax credit filed out of time The claim for refund or tax credit for the creditable input VAT payment made by MPC embodied in OR No. 0189 was filed beyond the period provided 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 transitional input tax, to the extent that such input tax has not been applied against output tax: x x x. (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 reckoned 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 erroneously 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 taxpayer only has a year to file a claim for refund or tax credit of the unutilized creditable input 861

C.T.A. CASE NO. 7558 21 DECISION VAT. The reckoning frame would always be the end of the quarter when the pertinent sales or transaction was made, regardless when the input VAT was paid. Be that as it may, and given that the last creditable input VAT due for the period covering the progress billing of September 6, 1996 is the third quarter of 1996 ending on September 30, 1996, any claim for unutilized creditable input VAT refund or tax credit for said quarter prescribed two years after September 30, 1996 or, to be precise, on September 30, 1998. Consequently, MPC's claim for refund or tax credit filed on December 10, 1999 had already prescribed. Reckoning for prescriptive period under Sees. 204(C) and 229 of the NIRC inapplicable To be sure, MPC cannot avail itself of the provisions of either Sec. 204(C) or 229 of the NIRC which, for the purpose of refund, prescribes a different starting point for the two-year prescriptive limit for the filing of a claim therefor. Sees. 204(C) and 229 respectively provide: Sec. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. - The Commissioner may - xxxx (c) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund. xxxx 862

C.T.A. CASE NO. 7558 22 DECISION Sec. 229. Recovery of Tax Erroneously or Illegally Collected.- No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, of any sum alleged to have been excessively or in any manner wrongfully collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid. (Emphasis ours.) Notably, the above provisions also set a two-year prescriptive period, reckoned from date of payment of the tax or penalty, for the filing of a claim of refund or tax credit. Notably too, both provisions apply only to instances of erroneous payment or illegal collection of internal revenue taxes." Section 112 (A) of the NIRC of 1997, as amended, clearly provides in no uncertain terms that unutilized input VAT payments not otherwise used for internal revenue tax due the taxpayer must be claimed within two (2) years reckoned 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. The reckonip.g of the two-year prescriptive period 86 3

C.T.A. CASE NO. 7558 23 DECISION for the filing of a claim for input VAT refund commences from the close of the taxable quarter when the relevant sales or transaction was made regardless when the input VAT was paid. Counting from March 31, 2005, June 30, 2005, September 30, 2005 and December 31, 2005, the close of the first, second, third and fourth quarters of 2005, respectively, petitioner's administrative claim {Exhibit "L '') and Petition for Review {docketed as C.T.A. Case No. 7558) filed on November 30, 2006 and January 3, 2007, respectively, were both filed within the two-year prescriptive period. In sum, the Court finds that petitioner is entitled to a refund or issuance of a TCC, representing unutilized input VAT paid on its domestic purchases of non-capital goods and services rendered by non- residents and importation of non-capital goods attributable to zero-rated sales for all the four quarters of 2005, but in the reduced amount of P14,879,312.65. WHEREFORE, premtses considered, the present Petition for Review is PARTLY GRANTED. Accordingly, respondent is hereby ORDERED TO REFUND OR ISSUE A TAX CREDIT CERTIFICATE in -favor of petitioner in the reduced amount of FOURTEEN MILLION EIGHT HUNDRED SEVENTY NINE 864

C.T.A. CASE NO. 7558 24 DECISION THOUSAND THREE HUNDRED TWELVE and 65/100 (P14,879,312.65), representing unutilized input VAT paid on its domestic purchases of non-capital goods and services rendered by non-residents and importation of non-capital goods which are attributable to zero-rated sales for calendar year 2005. SO ORDERED. ;;, __L~ ~~,~ ~fPALANCA-ENi�QUEZ Associate Justice WE CONCUR: ERL~UY ~G . ~~~ � Associate Justice JUANITO C. CASTANEDA, JR. Associate Justice 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. ~~ C!. ~...~.,~ . f6ANITO C. CASTANEDA, JR. Associate Justice Chairperson, Second Division 86 5

C.T.A. CASE NO. 7558 25 DECISION CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairperson's Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court. l~G. o~ ERNESTO D. ACOSTA Presiding Justice 866