PHILEX MINING CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY FIRST DIVISION *********** PHILEX MINING CORPORATION, CTA Case No. 7391 Members: Petitioner, - versus- ACOSTA, Chairperson BAUTISTA, and CASAN OVA, JJ. COMMISSIONER OF INTERNAL Promulgated: REVENUE, t4~,-�.., Respond e n t . x---------------------------------------------------------------------- --------- ------ -------x AMENDED DECISION CASANOVA, J.: On June 3, 2008, petitioner filed a "Motion for Reconsideration/New Trial", of Our Decision promulgated on May 21, 2008. In its Motion for Reconsideration/New Trial, petitioner presented the following arguments: "I THE HONORABLE COURT ERRED IN RULING THAT PETITIONER'S DIRECT EXPORT SALE OF GOLD TO ENGLAND IS NOT ZERO- RATED BECAUSE THE SALES INVOICE THAT COVERED THE SAME WAS NOT REGISTERED WITH THE BIR, AND THE WORD 'VAT' WAS NOT PRINTED AFTER PETITIONER'S TIN NUMBER, SUPPOSEDLY IN VIOLATION OF SECTIONS 113, 237 AND 238 OF THE TAX CODE, AND SECTION 4.108 -1 OF REVENUE REGULATIONS (RR) NO. 7-95.~

Amended Decision CTA Case No. 7391 II THE HONORABLE COURT ERRED IN RULING THAT PETITIONER'S DIRECT EXPORT SALE OF COPPER CONCENTRATE TO JAPAN DOES NOT QUALIFY FOR VAT ZERO-RATING BECAUSE THE SALES INVOICE THAT COVERED THE SAME PERTAINS TO THE FIRST QUARTER OF 2004 AND FALLS OUTSIDE THE PERIOD OF THE CLAIM IN THE PETITION. THE FACT IS THAT SAID SALES INVOICE PERTAINS TO THE PERIOD OF THE CLAIM. III THE HONORABLE COURT ERRED IN RULING THAT PETITIONER'S INDIRECT EXPORT SALES TO PASAR ALSO DO NOT QUALIFY FOR VAT ZERO-RATING BECAUSE THE SALES INVOICES THAT COVERED THE SALES FALL OUTSIDE THE PERIOD OF THE CLAIM IN THE PETITION. THE FACT IS THAT SAID SALE INVOICES ALSO PERTAIN TO THE PERIOD OF THE CLAIM." On September 3, 2008, We issued a Resolution with the following dispositive portion: "WHEREFORE, petitioner's 'Motion for Reconsideration/ New Trial' is PARTIALLY GRANTED. This Court DENIES petitioner's prayer for the reconsideration of its sales to Johnson Matthey as zero-rated but otherwise GRANTS the prayer for the presentation of additional documents with respect to its sales to Nippon Mining and Metals Co., Ltd. and Philippine Associated Smelting and Refining Corporation. Let this case be set for hearing on September 18, 2008 at 9:00AM for the presentation of the originals or certified true copies of the provisional invoices for consideration and evaluation without prejudice to the final determination of petitioner's right to the additional tax refund. SO ORDERED." The case was reset for hearing on October 16, 2008 and on such date, petitioner presented an additional witness plus documentary exhibits and reste~

Amended Decision CTA Case No. 7391 its case1. Petitioner filed its Supplemental Formal Offer of Evidence2 on October 27, 2008 which this Court resolved3 on January 15, 2009 by admitting all its additional documentary evidence. In the same Resolution, this Court issued the following dispositive portion: "ACCORDINGLY, petitioner's 'Motion for Reconsideration/New Trial' as regards its sales to Nippon Mining and Metals Co., Ltd., and Philippine Associated Smelting and Refining Corporation is hereby submitted [for] resolution. SO ORDERED." In the assailed Decision4, We ruled that under Section 112(A) of the National Internal Revenue Code (1997 NIRC) to be entitled to a refund/tax credit of unutilized input VAT, the following requisites must be complied with 5 : 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 refund was filed within the two-year prescriptive period. With respect to the first requirement, We ruled that petitioner's sales to Pan-Pacific Copper Co., Ltd. of Tokyo, Japan (JAPAN), as the assignee of Nippon Mining and Metals Co. Ltd., is entitled to VAT zero-rating under Section 106(A)(2)(a)(1) of the 1997 NIRC, while the sales to Philippine Associated Smelting and Refining Corporation (PASAR) is zero-rated under Sectio.a 1 Rollo. p. 338. 2 Rollo. pp. 346-348. 3 Rollo, pp. 392-393. 1 Rollo, pp. 225 -241. ' 5 Rollo, pp . 23 1-232.

Amended Decision CTA Case No. 7391 106(A)(2)(a)(1) of the 1997 NIRC in relation to Articles 23 and 77(2) of the Omnibus Investments Code and as clarified under RMC No. 74-99. However, We further said that petitioner must first substantiate its sales by proper VAT sales invoices, among others, to be qualified for a refund. Evidence then forwarded to this Court showed that the sales invoices covering petitioner's indirect export sales to PASAR, in the amount of US$16,656,503.00, and to JAPAN, in the amount of US$4,941,848.00, fell outside the subject period of claim, thus, petitioner's reported sales cannot qualify for VAT zero-rating. Upon review of the additional documents presented, this Court resolves to partially grant petitioner's claim for refund of unutilized input Value Added Tax (VAT) arising from its indirect export sales to PASAR and direct export sales to JAPAN. In its Motion for Reconsideration/New Trial, petitioner explained that the sales invoices presented for consideration are not actually out of period of claim considering that the same invoices pertained to transactions occurring within the 4th quarter of 2003. In support of its motion, petitioner presented and formally offered in evidence the provisional invoices it issued to JAPAN and PASAR for the first quarter of 2003. The details of the invoices are as follows: Provisional Date Exhibit Estimated 900fo Provisional Ex h. Invoice No. No. Value Payment No. 10/13/03 JAPAN "M" $3,910,154.10 $3,519,138.69 "M-1" 2318 10/17/03 10/28/03 "N" $1 028 217.15 $925,395.44 "N-1 " PASAR 11/07/03 $1,057,485.80 $951,737.22 "0-1" 2319 11/10/03 "0" $1,105,104.62 $994,594.16 "P-1" 2321 " P" $1,085,891.13 $977,302.02 "Q-1 " 2324 "Q" 2325

Amended Decision erA Case No. 7391 2329 11/19/03 "R" $1,093,559.85 $984,203.86 "R-1 11 2330 $1,116,792.07 $1,005,112.86 "S-1 II 2333 11/21/03 "5" $1,132 172.06 $1,018 954.85 2334 $1,117,161.34 $1,005,445.21 "T-1 11 2335 12/02/03 "Til $1,109,595.74 "U-1 II 2339 $1,192,763.17 $998 636.17 2340 12/02/03 "U" $1,147,355.51 $1,073,486.85 "V-1 11 2341 $1,130,698.28 $1,032,619.96 "W-1 11 2342 12/08/03 "V" $1,147 254.63 $1,017,628.45 "X-1 11 $1,147,254.63 "Y-1 11 12/18/03 "W" "Z-1 11 12/19/03 "X" 12/29/03 "Y" 01/05/04 "Z" With the provisional invoices, petitioner proved that the final sales invoices supporting its export sales of copper concentrates to Japan and PASAR are valid and within the period of the claim. The sales to JAPAN has a peso equivalent of P273,150,645.87 computed as follows: Declared Zero-Rated Sales in Php6 1,209,176,550. 97 Divided by Declared Zero-Rated Sales in USf 21,876,451.00 Average peso to dollar rate 55.2729759946 Multiplied by Substantiated Zero-rated Sales in US$ Substantiated Zero-Rated Sales in Php X 4,941,848.00 273,150,645.87 The sales to PASAR, on the other hand, has a peso equivalent of P920,654,490.47, as computed below: Declared Zero-Rated Sales in Php 1,209,176,550.97 Divided by Declared Zero-Rated Sales in US$ 21,876,451.00 Average peso to dollar rate 55.27297 59946 Multiplied by Substantiated Zero-rated Sales in US$ Substantiated Zero-Rated Sales in Php X 16,656,503.00 920,654,490.47 ~ 6 Exh ibit J-8 . 7 Exh ibit "K", p. 2.

Amended Decision CTA Case No. 7391 As reported in petitioner's amended VAT return for the 4th quarter of 2003,8 pet itioner's zero-rated sales amount to US$21,876,451.00 which is broken down below: Particula rs Amount Current Quarter's Shipments: US$ 4, 941,848.00 Direct export of Copper to Japan 33,296.00 Indirect exports of copper to England Direct export of gold to PASAR 16,656,503. 00 US$ 21,631,647.00 Previous Quarters' Shipments Adjustment to correct previous billings 244,804. 00 US$ 21,876,451.00 Total Zero-Rated Sales Petitioner's computation of catch-up adjustments amounting to US$244,804.00 cannot be considered for VAT zero-rating for petitioner's failure to present supporting documents. Likewise, the sales to Eng land shall be excluded. In sum, out of the reported zero-rated sales of US$21,876,451. 00 for the 4th quarter of 2003, only the following export sales in the total amount of US$21,598,351.00, with peso equivalent of P1,193,805,136.34, qualify for VAT zero-rating: Direct Exports of Copper to Japan In US Dollars In Phil Peso Indirect Exports of Copper to 4,941 ,848 .00 273,150,645.87 PASAR 16,656,503.00 920,654,49 0 .47 Total 21,598,351.00 1, 193,805,136.34 Going now to the second requirement, We proceed to the determination of whether petitioner's input taxes in connection with its zero-rated sa les for the 4th quarter of 2003 were duly incurred or duly substantiated.~ R Exhib it " K'' ; Deci sion, Rollo. p. 232.

Amended Decision CTA Case No. 7391 In its VAT return for the 4th quarter of 2003 9 petitioner reflected an input , VAT of P66,949 .61 on domestic purchases and an input VAT of P7,527,708.00 on importations totaling to P7,594,657.61, as shown below: Purchases Ingut Tax Domestic Purchases - Capital Goods p 669,496.10 p 66,949.61 Importations - Goods other than Capital Goods 7512771080.00 71527J08.00 Total p 75,946,576.10 p 7,594,657.61 The Court commissioned an independent CPA to examine the voluminous documents of petitioner in support of its claim for refund. The ICPA noted that, with regard to the input taxes on domestic purchases, records reveal that petitioner was not able to present sales invoices/official receipts to support its claim of input VAT on domestic purchases. Consequently, the input VAT on the said purchases from its claim for the petitioner's failure to substantiate its claim by clear and convincing proof should be disallowed. Particulars Amount a. Original VAT official receipts that are in the name of Petitioner p 21,564.17 b. No supporting VAT official receipts presented c No supporting VAT invoices presented 1,415.65 d. Negative input VAT 838,026.79 (794,057.00) TOTAL p 66,949.61 Based on the above findings, only the input VAT of P21,564.17 (item a) represents petitioner's valid claim while the remaining amount of P45,385.44 should be denied for the above-stated reasons (items b/ ~ and d~ 9 Ex hibit J-8.

Amended Decision CTA Case No. 7391 However, pursuant to Revenue Memorandum Order No.9-00, sales of goods, properties or services made by a VAT-registered supplier to a BOl registered entity whose products are 100% exported shall be accorded automatic VAT zero-rating, subject to the following reportorial and documentary requirements, prescribed under Section 3 of Revenue Memorandum Order No.9- 00: "SECTION.3. Sales of goods/ properties or services made by a VAT registered supplier to a BOI registered exporter shall be accorded automatic zero-rating/ i.e./ without necessity of applying for and securing approval of the application for zero-rating as provided in Revenue Regulations No. 7-9~ subject to the following conditions: (1) The supplier must be VAT-registered; (2) The SOl-registered buyer must likewise be VAT- registered; (3) The buyer must be a SOl-registered manufacturer/producer whose products are 100% exported. For this purpose, a Certification to this effect must be issued by the Board of Investments (BOl) and which certification shall be good for one year unless subsequently re-issued by the BOl; (4)The SOl-registered buyer shall furnish each of its suppliers with a copy of the aforementioned BOl Certification which shall serve as authority for the supplier to avail of the benefits of zero-rating for its sales to said SOl-registered buyers; and (5) The VAT-registered supplier shall issue for each sale to SOl-registered manufacturer/exporters a duly registered VAT invoice with the words "zero-rated" stamped thereon in compliance with Sec.4.108-1(5) of Revenue Regulations No. 7-95. The supplier must likewise indicate in the VAT-invoice the name and SOl-registry number of the buyer.~

Amended Decision CTA Case No. 7391 In the case GST Philippines, Inc. vs. Commissioner of Internal Revenue, 10 GST Philippines, Inc. sold its products partly to herein petitioner and claimed that sales to petitioner are zero-rated because petitioner is a BOI- registered enterprise whose products are 100% exported. A BOI certification was submitted to prove the said claim. Under Section 3.4 of RMO 9-00, said Certification shall serve as authority for the local suppliers of petitioner to avail of the benefits of zero-rating on their sales to petitioner covering the period January 1, 2003 to December 31, 2003. On the basis of said Certification, no output tax should, therefore, be shifted by the local suppliers to petitioner. Hence, on the absence of clear and convincing proof that petitioner's local suppliers passed on or shifted the VAT on such domestic purchases to petitioner, it cannot claim the amount of P21,564.17 as input tax credits on its domestic purchases for the 4th quarter of taxable year 2003. As regards the input VAT payment of P7,527,708.00 on petitioner's importations, the ICPA noted the following findings11 : Particulars Amount Input taxes paid on importation of: a. Capital goods p 4,610,941.00 b. Other than capital goods c. No supporting documents 1,636,850.00 TOTAL 1,279,917.00 p 7,527,708.00 ~ �1 CTA Case No. 70 16, September 7, 2007. 11 Exhib it " K'', p. 4.

Amended Decision CTA Case No. 7391 Upon verification, this Court finds that only the amount of P3,461,525.00 is duly substantiated by the required evidence under Sections 110(A) and 113(A) of the NIRC of 1997, as implemented by Sections 4.104-1, 4.104-5 & 4.108-1 of Revenue Regulations No. 7-95 and can be a proper subject of a claim for refund or tax credit, while the remaining amount of P4,066,183.00, detailed below, should be denied due to the following reasons: Items lmQorted Exhibit No. lnQut VAT Total a. Supported by Bureau of Customs OR dated outside the period of claim. Atlas copco spare parts H-1 p 18,012.00 Heating element U-shaped H-2 22,793.00 parts for motor H-3 21,421.00 spare parts for boomer H-4 12,140.00 Spare parts for screen machinery H-5 16,219.00 tile herth for furnace H-6 H-6-a 7,731.00 1 ctn parts for crusher H-7 H-7 -a 7,718.00 1 ctn switch temperature H-8 H-8-a 10,414.00 3M tape and fluorocarbon H-9 19,848.00 part for furukawa rock drill H-10 10,061.00 Bulbs H-11 H-11-a 17,963.00 1 ctn parts for rock drill H-12 H-12-a 15,321.00 parts for electrical apparatus H-13 15,798.00 parts for loader H-14 140,927.00 parts for spiral classifier H- 15 14,513 .00 pressure switch H-16 8,226.00 element coupling H-17 H-18-a 19,795.00 1 cse stc part for furukawa rock H-18 27,438.00 drill parts for dewatering screen H-19 11,059.00 1 crt parts for drill machine H-60 H-60-a 121,363.00 1 crt anti-vibration rubb er H-61 H-61-a 9,820.00 1 crt parts for drill machine H-62 H-62-a 169,751.00 1 ctn heating element H-63 H-63-a 21,628.00 6 ctns parts for radiator H-64 H-64-a 9,820.00 9 units positioner H-65 H-65-a 76,309.00 Entry No. & Series 46541616 H-66 263,763.00 Entry No. & Series 45395296 H-67 18,394.0~

Amended Decision CTA Case No. 7391 Entry No. & Series 45395305 H-68 84,503.00 Entry No. & Series 45395314 H-69 H-69-a 7,668.00 Entry No. & Series 45395323 H-70 215,024.00 Entry No. & Series 48091355 H-71 10,119.00 Entry No. & Series 48091337 H-72 45,787.00 Entry No. & Series 48091346 H-73 66,856.00 Entry No. & Series 48139734 H-74 25,296.00 Entry No. & Series 48139716 H-75 27,512.00 Entry No. & Series 48139725 H-76 64,829.00 Entry No. & Series 48139752 H-77 93,912.00 Entry No. & Series 48139743 H-78 177,830.00 P 1,927,581.00 b. Supported by Bank Debit Advice, but IERD not admitted by the Court 1 ctn hydraulic pump H-20 H-20-a 39,443.00 1 pkg cylinder head H-22 H-22-a 82,102.00 1 pit parts for crusher H-30 H-30-a 67,515.00 2 pes stc lead compounds H-36 H-36-a 29,043.00 2 crates rubber sheet H-52 H-52-a 40,857.00 parts for krebs cyclone H-53 H-53-a 224,235.00 steel pipes H-54 H-54-a 31,403.00 cap lamp bulb H-55 H-55-a 88,018.00 lamp battery H-56 H-56-a 89,300.00 rock crushing machinery cover H-57 H-57-a 41,802 .00 Rubber sheet H-58 H-58-a 44,935.00 1 package cloth filter H-79 H-79-a 42,343.00 1 pallet cupels H-88 H-88-a 8,991.00 2 bundles screen woven wire H-89 H-89-a 28,698.00 858,685.00 c No supporting documents presented IEIRD No. 47712576 7,400.00 IEIRD No. 47713197 37,825.00 IEIRD No. 47713346 10,301.00 IEIRD No. 47713373 18,822.00 IEIRD No. 1.07E+08 2,173.00 IEIRD No. 24027735 4,652.00 IEIRD No. 46179892 1,941.00 IEIRD No. 48047404 7,836.00 IEIRD No. 46179935 1,177,265.00 IEIRD No. 45205860 1,834.00 IEIRD No. 50112921 8,250.00 IEIRD No. 47158255 552 .00 IEIRD No . 50112921 1,066.00 1,279,917.00 TOTAL p 4,066,183.00 .e;..-

Amended Decision CTA Case No. 7391 The input VAT amounting to P1,927,581.00 on importation supported by Bureau of Customs official receipts which are dated outside the period of claim should be disallowed, consistent with the ruling of this Court that input VAT supported by VAT invoices and official receipts dated earlier than the period of claims can no longer be cla imed for refund. The amount of P858,685.00 shall likewise be disallowed considering that the Import Entry and Internal Revenue Declarations (IEIRDs) 12 supporting such importations were not admitted by the Honorable Court for failure of the petitioner to present the originals13 . Likewise, the Bank Debit Advices14 are inadmissible since these do not indicate the actual input VAT payments. Furthermore, no official receipts or other documents proving actual payment of VAT on the imported goods were presented to support such claim. To reiterate, as a general rule, input tax on importations should be supported with IEIRDs duly validated for actual payment of the input tax. Petitioner must prove the actual payment of VAT on the imported goods by submitting the documents specified in Section 4.104-S(b) of Revenue Regulations No. 7-95. The required evidence is the import entry or other equivalent document. Thus, without these documents, petitioner's claimed input VAT payment in the amount of P858,685.00 cannot be granted. The input taxes of P1,279,917 .00 shall also be disallowed for petitioner's failure to present before this Court any supporting documents proving the same.~ 12 Exh ib its " 1-1 -6-a" to " 1-1 -9 1-a". 13 Reso lution da ted Jul y 30. 2007, Rollo. p. 182- 183. 14 Exhi bit s " H-6" Lo "'H -91 ''.

Amended Decision CTA Case No. 7391 In sum, out of the total input tax on importations of P7,527,708.00, on ly the amount of P3,461,525.00 is duly substantiated by valid supporting documents. With respect to the third requisite, petitioner has likewise complied with the same considering that its export sales and sales to PEZA-registered entities are zero-rated under Sections 106 (A)(2)(a)(1) and 106 (A)(2)(a)(5). However, a portion of the substantiated input VAT of P3,461,525.00 shall be applied against petitioner's reported output VAT liability of P35,228.90. 15 Hence, only the remaining input VAT of P3,426,296.10 can be attributed to the entire zero-rated sales declared by petitioner in the amount of P1,209,176,550.97 and only the input VAT of P3,382,740.00 is attributable to the substantiated zero-rated sales of P1,193,805,136.34, as computed below: Substantiated input VAT p 3,461,525.00 Less: Output Tax 35,228.90 Excess input VAT p 3,426,296.10 Substantiated Zero-rated Sales P1,193,805,136.34 Divided by Total Reported Zero-Rated Sales Subtotal -:-1,209,176,550.97 Multiplied by Excess Input VAT Excess Input VAT attributable to Substantiated Zero- p 0.99 Rated Sales X 3,426,296.10 p 3,382,740.00 As evidenced by its Quarterly VAT Returns16 from the 1st quarter of 2004 to 2nd quarter of 2005, petitioner was able to prove that the input VAT of P3,382,740.00 was not applied against any output VAT in the succeeding 8- 15 ExJ1ibi t J-8 . 16 Exhib its J-9 to .J-14 .

Amended Decision CTA Case No. 7391 quarters. Although petitioner carried over the claimed unutilized input VAT for the 4thquarter of taxable year of 2003 to the succeeding 1st quarter of 2004 until the 2nd quarter of 2005, the same was deducted as "Any VAT Refund/TCC Claimed"17 from the total available input tax of P69,903,758.37 in the 2nd quarter of 2005. In other words, the subject claim no longer formed part of the excess input VAT of P18,495,294.3718 as of the 2nd quarter of 2005 which was to be carried over/applied to the succeeding 3rd quarter of 2005. Finally, petitioner's claim for refund was time ly filed within the two-year prescriptive period both in the administrative and judicial levels. In the recent case entitled COMMISSIONER OF I NTERNAL REVENUE vs. MIRANT PAGBILAO CORPORATION (Formerly SOUTHERN ENERGY QUEZO~ INC.), G.R. No. 172129, September 12, 2 008, the Supreme Court held that the reckoning of the two-year 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 relevant sales were made pertaining to the input VAT regardless of whether said tax was paid or not. The present claim pertains to input VAT incurred for the fourth quarter of 2003. Counting from December 31, 2003, the end of the fourth quarter of 2003, petitioner had until December 31, 2005 within which to file its claim both in the administrative and judicial levels . Hence, the original administrative claim file~ 17 Exhibit J-14, Line 25A. 18 ExJ1ibit J-14, Line J I .

Amended Decision CfA Case No. 7391 on June 22, 200519 as well as the Petition for Review filed on December 28, 2005 fall within the two-year prescriptive period. WHEREFORE, in view of the foregoing, petitioner's claim for refund of its unutilized input VAT for the 4 th quarter of taxable year 2003 is PARTIALLY GRANTED. Respondent is hereby ordered TO REFUND or ISSUE A TAX CREDIT CERTIFICATE in the reduced amount of P3,382,740.00 . SO ORDERED. ~ WE CONCUR: CAESAR A. CASANOVA Associate Justice Q._;c \'- ~ Q ~ 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. t ~ vc. Q'""-"- ERNESTO D. ACOSTA Presiding Justice 19 Petition for Review, Annex "C" and Annex " D".