AICHI FORGING COMPANY OF ASIA INC. v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PIDLIPPINES Court Of Tax Appeals QUEZON CITY SECOND DIVISION AICID FORGING COMPANY OF C.T.A. CASE NO. 6540 ASIA, INC., Members: Petitioner, -versus- CASTA-r'JEDA, JR., Chairperson UY,f!nd PALANCA-ENRIQUEZ, JJ. COMMISSIONER OF INTERNAL Promulgated: REVENUE, MAR 2 0 2009 / Respondent. Z _/ /u:d"V >;-tn. X -------------------------------------------------------------------------------------- X DECISION PALANCA-ENRIQUEZ, J.: Pursuant to Section 112 (A) of the National Internal Revenue Code of 1997 (hereafter "NIRC of 1997"), as amended, petitioner �filed a claim for refund of its creditable input VAT attributable to its zero-rated sales. To do so, however, petitioner must be able to show that its input VAT paid and ' output VAT transactions are properly substantiated. Failure to show proof of proper documentation is fatal to one's claim for refund or creditJP Jl9

C.T.A. CASE NO. 6540 2 DECISION THE CASE This is a Petition for Review filed on September 30, 2002 by Aichi forging Company of Asia, Inc. (hereafter ''petitioner") praying for the refund or issuance of a tax credit certificate in the amount of P18,030,547.77, representing unutilized input value-added tax (VAT) on purchases of capital goods directly and actually used in its trade or business and unutilized input VAT allocated to zero-rated sales for the period covering July 1, 2000 to December 31, 2001. On February 8, 2005 , petitioner filed an Amended Petition for Review increasing the claim for refund or issuance of a tax credit certificate from P18,030,547.77 to P18,203,933.60, which the Court admitted in its Resolution ofMay 18, 2005. THE PARTIES Aichi Forging Company of Asia, Inc. is a domestic corporation duly organized and existing under the laws of the Philippines, with office address at Bo. Pulong, Sta. Cruz, Sta. Rosa, Laguna. It is principally engaged in the manufacture, production and processing of all 1kinds of steel and steel by '." products, such as close impression die steel forgings and all automotive steel parts. It is duly registered with the Bureau of Internal Revenue (BIR) as a (jP

C.T.A. CASE NO. 6540 3 DECISION VAT Taxpayer, with Tax Identification Number 004-146-511 (Exhibit "A"). It is likewise registered with the Bom~d of Investments (BOI) as an expanding producer of closed die impressions forgings for which it was issued Certificate ofRegistration No. EP95- 132 on June 8, 1995. On t~e other hand, respondent is the duly appointed Commissioner of Internal Revenue, with authority, among others, to decide, approve and grant tax credits/and or refunds of overpaid or erroneously paid internal revenue taxes, with office at 5/F BIR National Office Building, Diliman, Quezon City. THE FACTS In their "Joint Stipulation of Facts and Issues", the parties stipulated, as follows: "1. Petitioner is a domestic corporation duly organized and existing under the laws of the Philippines, with office address at the Bo. Pulong, Sta. Cruz, Sta. Rosa, Laguna; 2. Petitioner is principally engaged in the manufacture, production and processing of all kinds of steel and steel by products, more particularly but not limited to closed impression die steel forgings and all automotive steel parts; 3. Respondent is the duly appointed Commissioner of internal Revenue, with authority, among others, to decide, ") 1)1 JC..

C.T.A. CASE NO. 6540 ) DECISION 4 approve and grant tax credits/and or refunds of overpaid or erroneously paid internal revenue taxes, with office at 5/F BIR National Office Building, Diliman, Quezon City, where he may be served with summons and other legal processes; 4. As a seller of goods, Petitioner is duly registered with the Bureau of Internal Revenue (BIR) as a Value-Added taxpayer, with Taxpayer Identification Number 004-146-511; � 5. Petitioner is likewise registered with the Board of Investments (BOI) as an expanding producer of closed die impressions forgings for which it wa;s issued Certificate of Registration No. EP 95-132 on June 8, 1995; 6. Fact of filing on October 25, 2000 of the Quarterly VAT Return of the Petitioner for the period covering July 1, 2000 to September 30, 2000; 7. Fact of filing on January 25 , 2001 of the Quarterly VAT Return of the Petitioner for the period covering October 1, 2000 to December 31 , 2000 and also the fact of filing on February 20, 2001 of the amended VAT Return for the same period; 8. Fact of filing on April 25, 2001 of the Quarterly VAT Return of the Petitioner for the period covering January 1, 2001 to March 31, 2001; 9. Fact of filing on July 25, 2001 of the Quarterly VAT Return of the Petitioner for the period covering April 1, 2000 to June 30, 2001; 10. Fact of filing on Octobc;r 25, 2001 ofthe Quarterly {JAP VAT Return of the Petitioner for the period covering July 1, 2001 to September 30, 2001; .

C.T.A. CASE NO. 6540 5 DECISION 11. Fact of filing on January 25, 2002 of the Quarterly VAT Return of the Petitioner for the period covering October 1, 200 1 to December 31, 200 1; 12. On September 26, 2002, Petitioner filed with the Bureau of Internal Revenue District Office in San Pedro, Laguna a written claim for refund and/or tax credit of its unutilized input VAT credits for the 3rd and 4th quarters of 2000 and the whole taxable year of 2001 amounting to P18,030,547.77, representing the unutilized/excess input VAT payments; 13. The administrative claim for refund and/or tax credit has not been acted upon with finality by the Respondent; and 14. Petition for Review is being filed in order to toll the running of the prescriptive period provided under Section 229 and 112(D) of the Tax Code, ~s amended, in relation to Section 4.112-2(c) of Revenue Regulations No. 7-95, as amended." On , September 30, 2002, petitioner filed the instant Petition for Review in order to toll the running of the prescriptive period provided under Sections 229.and 112(D) ofthe NIRC of 1997, as amended, in relation to Section 4.112-2(c) ofRevenue Regulations No. 7-95, as amended. On February 8, 2005, petitioner filed a "Motion for Leave to File its Amended Petition For Review", which the Court granted in a Resolution dated May 18, 2005, and the Amended Petition For Review was admitted.

'' J C.T.A. CASE NO. 6540 6 DECISION In his Answer to the Amended Petition for Review, respondent alleged the following special and affirmative defenses: "4. He reiterates and pleads the preceding paragraphs of this answer as part of his Special and Affirmative Defenses; 5. Petitioner's alleged claim for refund is subject to administrative investigation/examination by the respondent; 6. 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- 1 (a) of Revenue Regulations No. 7-95, and Section 236 of the Tax Code, as amended; b. The invoicing and accounting requirements for VAT-registered persons, as well as the filing and payment of VAT in compliance with the provisions of Sections 113 and 114 of the Tax Code, as amended; c. 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 clai'm for refund which is a condition sine qua non prior to the filing ofjudicial 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 (JJP 3 2.1

C.T.A. CASE NO. 6540 7 DECISION before the 120-day audit period shall apply, and before the taxpayer could avail of judicial remedies as provided for in the law; d. That the input taxes of P18,203,933.60 allegedly paid by the petitioner on its purchases of capital goods were attributable to its zero-rated sales and such have not been applied against any output tax; e. That petitioner's claim 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 purchase was made in accordance with Section 112 (B) of the Tax Code, as amended; f. That petitioner's domestic purchases of goods, services and capital goods 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 110 (A) (2) and 113 of the Tax Code, as amended, and in pursuance to Section 4.104-5 (a) & (b) of Revenue Regulations No. 7-95 (Re: Substantiation of Claims for Input Tax Credit); g. The requirements as enumerated under Section 4.104-2 ofthe Revenue Regulations 7-95. (Re: Persons who can avail of the Input Tax Credits); h. That petitioner has complied with the governing rules and regulations with reference to recovery of tax erroneously or illegally collected as explicitly found m Sections 112 (B) and 229 of the Tax Code, as amended. (JJJl ., 2 .., tJ':

C.T.A. CASE NO. 6540 ... ;a. ....... ~ DECISION � 8 7. Furthermore, in an actio!). 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. This is so because exemptions from taxation are highly disfavored in law and he who claims exemption must be able to justify his claim by the clearest grant of organic or statutory law. An exemption from common burden cannot be permitted to exist upon vague implications. (Asiatic Petroleum Co. [P.I.] v. Llanes, 49 Phil. 466 cited in Collector of internal Revenue v. Manila Jockey Club, Inc. , 98 Phil. 670). 8. Claims for refund are construed strictly against the claimant for the same partake the nature of exemption from taxation." Petitioner presented Editha Descartin, Richard Querido, the Court Commissioned Independent CPA and documentary evidence, marked as Exhibits "E" to "LLL-6" together with their submarkings, which were admitted by the Court in a Resolution dated November 6, 2006, and supplemental exhibits, marked as Exhibits "PP" and "PPP-1", which were admitted by the Court in a Resolution dated April 29, 2008. Upon manifestation of counsel for respondent that he will not present any evidence with the admission by petitioner's counsel of the genuineness, existence, and due execution of petitioner's Certificate of BOI Registration (No. EP95-132) dated June 8, 1995, including its General and Specific ,(JP :l2C

' - -�~ -- - --- - - - - - - --� C.T.A. CASE NO. 6540 9 DECISION Terms and Conditions, both parties were granted thirty (30) days from May 26, 2008 or until June 25, 2008 to file their simultaneous memoranda, afterwhich the case shall be deemed submitted for decision. On June 23, 2008, respondent filed his Memorandum, while petitioner filed its Memorandum on July 25, 2008. On July 31, 2008, the case was deemed submitted for decision Hence, this decision. ISSUES As stipulated by the parties, the following are the issues for the consideration of the Court: I WHETHER OR NOT THE ADMINISTRATIVE AND JUDICIAL CLAIM FOR REFUND WERE FILED WITHIN THE STATUTORY PERIOD. II WHETHER OR NOT PETITIONER HAS UNAPPLIED OR UNUTILIZED CREDITABLE INPUT VAT FOR THE PERIOD FROM JULY 1, 2000 TO. DECEMBER 31, 2001 ARISING FROM ITS DOMESTIC PURCHASES OF GOODS AND SERVICES AS WELL AS IMPORTATION OF CAPITAL GOODS WHICH CAN BE A PROPER SUBJECT . {jtl1-- OF A CLAIM FOR REFUND PURSUANT TO SECTION

- . -- -~ ----------- --~-~....... C.T.A. CASE NO. 6540 ' 10 DECISION 106(A)(2), 110(B) AND SECTION 112(A) AND (B) OF THE TAX CODE OF 1997. III WHETHER OR NOT THE UNAPPLIED OR UNUTILIZED CREDITABLE INPUT VAT TAXES OF PETITIONER FOR THE PERIOD COVERING JULY 1, 2000 TO DECEMBER 31, 2001 ARE SUBSTANTIATED BY DOCUMENTARY EVIDENCE IN THE FORM OF INVOICES AND OFFICIAL RECEIPTS THAT COMPLY WITH THE INVOICING AND ACCOUNTING REQUIREMENTS FOR VAT-REGISTERED PERSONS. IV WHETHER OR NOT THE AMOUNT P18,203,933.60 REPRESENTING PETITIONER'S ALLEGED UNUTILIZED INPUT VAT FOR THE PERIOD ' JULY 1, 2000 TO DECEMBER 31, 2001 PERTAINS TO INPUT VAT ON PURCHASES OF CAPITAL GOODS DIRECTLY AND ACTUALLY USED IN PETITIONER'S TRADE OR BUSINESS AND/OR INPUT VAT ON PURCHASES ATTRIBUTABLE TO ITS ZERO-RATED SALE TRANSACTIONS. v WHETHER THE UNUTILIZED AND UNAPPLIED CREDITABLE INPUT VAT FOR THE PERIOD COVERING JULY 1, 2000 TO DECEMBER 31, 2001 WERE NOT APPLIED AGAINST ANY OF THE OUTPUT VAT LIABILITY OF THE PETITIONER FOR THE SAID PERIOD OR CARRIED-OVER TO THE NEXT SUCCEEDING TAXABLE QUARTER/S. @))!

---..- �- .... -----~- C.T.A. CASE NO. 6540 11 DECISION VI WHETHER OR NOT PETITIONER HAS ZERO-RATED SALES FOR THE COVERED PERIOD PURSUANT TO SECTION 106(A)(2) OF THE TAX CODE, AS AMENDED, AND UNDER EXISTING REVENUE RULES AND REGULATIONS, WHICH WOULD ENTITLE THE PETITIONER THE RIGHT TO CLAIM FOR REFUND OF INPUT VAT ATTRIBUTABLE THERETO AND WHETHER THE SAID ZERO-RATED SALES CAN BE SUBSTANTIATED BY EVIDENCE. VII WHETHER OR NOT PETITIONER HAS SECURED FROM THE BIR THE NECESSARY APPROVAL FOR ZERO- RATING WITH RESPECT TO ITS TRANSACTIONS WITH BOI-REGISTERED MANUFACTURERS OR PRODUCERS BUT WHOSE PRODUCTS ARE NOT 100% EXPORTED. Principal Issue The foregoing issues raised by both parties boil down to the principal issue of whether or not petitioner is entitl ~d to a refund or issuance of a tax credit certificate in the amount of P18,203,933.60, representing input taxes attributable to its zero-rated sales and input taxes on its purchases of capital goods during the third and fourth quarters of 2000 and the whole of taxable year 2001 .

-- - -- - . --- . ---------~- ---- C.T.A. CASE NO. 6540 12 DECISION THE COURT'S RULING The Petition is partly meritorious. Petitioner's Quarterly VAT Returns for the third quarter of 2000 to the fourth quarter of 2001 reflect the following: Ex h. .Taxable Zero-rated Sales Taxable Sales Total Sales Out utVAT G LLL-1 Total p 129 541928.36 p 7 733 998.16 p 137 275 926.52 p 773 399.82 K LLL-2 N LLL-3 116 332 545.18 5 159 033.33 121 491 578.51 515 903.33 103 720 326.85 6 475 328.52 110 195 655.37 647 532.85 LLL-4 94 130 266.88 10 892 646.56 105 022 913.44 1 089 264.66 LLL-5 121 128 590.04 10 935 126.53 132 063 716.57 1 093 512.65 W LLL-6 113 944 874.59 9 209 550.48 123 154 425.07 920 955.05 p 678 798 531.90 p 50 405 683.58 P729 204 215.48 p 5 040 568.36 Taxable Input VAT on Input Tax on Total In ut VAT Total other impo1tation of p 3 137 790.33 Goods Services Goods 2 541 871.29 p 1 565 063.33 5 389 630.42 p 1 572 727.00 2 375 621.85 1465 436.29 2 083 106.13 1 617 454.42 1 076 435.00 3 705 096.52 p 19 233 116.54 1469 675.85 3 772 176.00 1 463 825.13 1 925 032.52 905 946.00 p 9 506 487.54 619 281.00 1 780 064.00 p 9 726 629.00 Out of P19,233,11 6.54 reported input VAT, only the amount of P18,203,933.60 is subject of the instant Petition, which allegedly consisted of the following: p 4 344 866.00 13 859 067.60 P18 203 933.60

- - - - - -- - - - -----~-�----- C.T.A. CASE NO. 6540 13 DECISION Petitioner anchors its claim on Sections 11 O(B) and 112(A) and (B) of the NIRC of 1997, which provide as follows: "SEC. 110. Tax Credits. - (A) Creditable Input Tax. - (1) Any input tax evidenced by a VAT invoice or officiai 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 ~e refunded or credited against other internal revenue taxes, subject to the provision& of Section 112." "SEC. 112. Refunds or Tax Credits of Input Tax. - (A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent ~hat 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) an~ 331

C.T.A. CASE NO. 6540 14 DECISION Section 108(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided furth er, 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. (B) Capital Goods. - A VAT-registered person may apply for the issuance of a tax credit certificate or refund of input taxes paid on capital goods imported or locally purchased to the extent that such input taxes have not been applied against output taxes. The application may be made only within two (2) years after the close of the taxable qumter when the importation or purchase was made." Petitioner's claim In the amount o(P4,344,866.00, Representing Input VAT paid On Capital Goods Purchased For the Period Covering Julv 1, 2000 to December 31, 2001 The Court shall first discuss petitioner's claim in the amount of P4,344,866.00, representing input VAT paid on capital goods purchased for the period covering July 1, 2000 to December 31, 2001. Pursuant to the afore-quoted provision of Section 112(B) of the NIRC of 1997, as amended, in order to be entitl ed to a refund or issuance of a tax (fl/JJL

'� C.T.A. CASE NO. 6540 15 DECISION credit certificate for input VAT paid on capital goods purchased, petitioner must prove: 1) that it is a VAT registered entity; 2) that input taxes were paid on capital goods 3) that such input taxes were not applied against any output VAT liability; and 4) that the claim for refund was filed within the two-year prescriptive period. Petitioner has complied with the first requisite, there being no dispute that it is duly registered with the BIR as a VAT taxpayer. As to the second requisite, petitioner submitted Bureau of Customs' (BOC) certifications, bank settlement advices/debit memos, Import Entry and Internal Revenue Declarations (IEIRDs), and official receipts from the BOC or the bank (Exhibits "XX-31" to "XX-34", "XX-106", "ZZ-80" to "ZZ-85", "ZZ-134", "AAA-40" to "AAA-41 ", and "CCC-1 77 " to CCC-1 78"). Upon examination thereof, the Court-commissioned Independent Certified Public Accountant (ICPA) submitted the following findings (Exhibit "DDD "): a. Supported by Certification from BOC and settlement advice p 3 544 935.00 Supported by photocopied Import Entry Declaration but with 668 415.00 b. debit memo and traced to bank settlement 95 086.00 c. Supported by settlement advice but no Certification from BOC 36 430.00 d. Suppprted by ORs only P4,344 866.00 Total Input VAT Claim on Capital Goods Purchases JJJ

- - -- ., ��---�..__�-~-- C.T.A. CASE NO. 6540 16 DECISION While the foregoing shows that petitioner incuned input taxes in the amount ofP4,344,866.00, however, petitioner failed to prove that the related purchases fall within the definition of capital goods under Section 4.106- 1(b) ofRevenue Regulations No. 7-95, which provides: ."Capital goods or properties" refer to goods or properties with estimated useful. life .greater than one year and which are treated as depreciable assets under Section 29(f), used directly or indirectly in the production or sale . of taxable goods or services." Petitioner failed to submit its financial statements and books of accounts to show that the goods purchased formed part of its Property, Plant and Equipment Account and that they were subjected to depreciation. Thus, petitioner failed to substantiate the second requisite. Accordingly, We find it unnecessary to discuss petitioner's compliance with the other remaining requisites. Petitioner's Remaining Claim In the Amount of Pl3,859,067.60, Representing Input VAT Attributable To Zero-Rated Sales As regards the remammg claim in the amount of Pl3,859,067.60, allegedly representing input VAT attributable to zero-rated sales, the &JfZ

C.T.A. CASE NO. 6540 17 DECISION aforecited Section 112(A) of the NIRC of 1997, as amended, allows the refund/tax credit of input VAT attributable to zero-rated or effectively_zero- .�~ rated sales subject to the taxpayer's compliance with the following requisites: 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 effectively 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, the ICPA noted that the amount of P678,798,531.90 treated by petitioner as zero-rated sales consisted of sales of goods to BOI-registered and PEZA-registered enterprises, broken down as follows (Exhibit "DDD "): p 396/315 182.69 282,483 349.21 Sales to PEZA-registered enterprises Sales to BOI-reqistered enterprises p 678,798,53 1.90 TOTAL Petitioner claims that its sales to PEZA-registered entities are zero- rated for VAT purposes, pursuant to Revenue Memorandum Circular (RMC) No. 74-99, which states: J35

C.T.A. CASE NO. 6540 18 DECISION "(3) In the final analysis, any sale of goods, property or services made by a VAT registered supplier from the Customs Territory to any registered enterprise operating in the ecozone, regardless of the class or type of the latter's PEZA registration, is actually qualified and thus legally entitled to the zero percent (0%) VAT. Accordingly, all sales of goods or property to such enterprise made by a VAT registered supplier from the Customs Territory shall be treated subject to 0% VAT, pursuant to Sec. I 06(A)(2)(a)(S), NIRC, in relation to ART.77(2) of the Omnibus Investments Code, while all sales of services �to the said enterprises, made by VAT registered suppliers from the Customs Territory, shall be treated effectively subject to the 0% VAT, pursuant to Sec.l 08(B)(3), NIRC, in relation to the provisions of R.A.7916 and the 'Cross Border Doctrine' of the VAT system. This Circular shall serve as a sufficient basis to entitle such supplier of goods, property or services to the benefit of the zero percent (0%) VAT for sales made to the aforementioned ECOZONE enterprises and shall serve as sufficient compliance to the requirement for prior approval of zero-rating imposed by Revenue Regulations No. 7-95 effective as of the date of issuance of this Circular." We find merit in petitioner's contention. The aforequoted RMC is in accordance with Section 106(A)(2)(a)(5) . ofthe NIRC of1997, as amended, which provides, as follows: . W "SEC. 106. Value-added Tax on Sale of Goods or Properties. -

C.T.A. CASE NO. 6540 19 DECISION (A) Rate and Base of Tax.- xxx XXX XXX (2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: (a) Export Sales.- The term 'export sales' means: XXX XXX (5) Those considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987, and other special laws." Sales by a VAT taxpayer from the Customs Territory to a PEZA- registered entity are considered export sales under Executive Order (E. 0.) No. 226, otherwise known as "The Omnibus Investments Code of 1987", pertinent portions of which read, as follows: "ARTICLE 23. 'Export Sales' shall mean the Philippine port F.O.B. value, determined from invoices, bills .of lading, inward letters of credit, landing certificates, and other commercial documents, of export products exported directly by a registered export producer or the net selling price of export product sold by a registered export producer to another export :producer, or to an export trader that subsequently exports the same: Provided, That sales of export products to another producer or to an export trader shall only be deemed export sales when actually exported by the latter, as evidenced by . (j(t� landing certificates of similar commercial documents: Provided, J37

. . . . -- ---- ------ ~-- ----- .~. C.T.A. CASE NO. 6540 20 DECISION further, That without actual exportation the following shall be considered ' constructively exported' for purposes of this provision: (1) sales to bonded manufacturing warehouses of export-oriented manufacturers; (2) sales to export processing zones; xxx" (Emphasis supplied) "ARTICLE 77. Tax Treatment of Merchandise in the Zone. (1) Except as otherwise provided in this Code, foreign and domestic merchandise, raw materials, supplies, articles, equipment, machineries, spare parts and wares of every description, except those prohibited by law, brought into the zone to be sold, stored, broken up,, repacked, assembled, installed, sorted, cleaned, graded, or otherwise processed, manipulated, manufactured, mixed with foreign or domestic merchandise whether directly or indirectly related in such activity, shall not be subject to customs and internal revenue laws and regulations nor to local tax ordinances, the provisions of law to the contrary notwithstanding. (2) Merchandise purchased by a registered zone enterprise from the customs territory and subsequently brought into the zone, shall be considered as export sales and the exported thereof shall be entitled to the benefits allowed by law for such transaction." (Emphasis supplied) In support of its zero-rated sales to PEZA-registered entities, petitioner presented various sales invoices, official receipts, delivery : receipts, Applications for Permit to Carry Goods from Customs Territory into the Zone (APCGCTZ), Boat Notes (BN) (Exhibits "XX-31 " to "XX-34", @fl-

.~ ~' _ - - - - - � -----�--~-~~.Ill ) C.T.A. CASE NO. 6540 21 DECISION "XX-106", "ZZ-80 " to "ZZ-85 ", "ZZ-134 ", "AAA-40 " to "AAA-41 ", and "CCC-1 77" to CCC-1 78 "), and PEZA certifications. These documents proved that for the subject period of claim, petitioner generated indirect export sales to PEZA- registered entities which qualify for VAT zero-rating under Section .J06(A)(2)(a)(5) of the NIRC of 1997, as amended. However, out of the P396,315, 182.69 reported sales to PEZA-registered entities, the amount of P5,667,201.83 (Exhibit "DDD "), which has no supporting documents shall be denied VAT zero-rating. As to the alleged zero-rating of its domestic sales to BOI-registered entities in the amount of P282,483,349.21, petitioner invokes as legal basis Section 2 of Revenue Memorandum 0 1:der (RMO) No. 9-2000, which provides: "SEC. 2. Rationale. - In Revenue Memorandum Circular No. 74-99, promulgated on October 15, 1999, it has been clarified that sales of goods, property and services made by VAT-registered suppliers to PEZA-registered enterprises shall qualify for zero-rating pursuant to the provisions of Section 106(A)(2)(a)(5) of the National Internal Revenue Code of 1997, in relation to Section 23 of R A. No. 7916 (the PEZA Law) and Article 77(2) of Executive Order No. 226 (the Omnibus Investments Code of 1987). This treatment is anchored on the 'Cross Border Doctrine' of the VAT System, . ()j1 which in essence means that no value-added tax shall form part

' -- -- ----------.---� --- -- C.T.A. CASE NO. 6540 22 DECISION of the cost component of products which are destined for consumption outside of the territorial border of the Philippines. This principle is achieved through the application of VAT zero- rating products exported from the Philippines to foreign countries. Furthermore, Article 25 of the Omnibus Investments Code provides. among others, that products sold 'to bonded manufacturing warehouses of export-oriented manufacturers shall be considered 'constructively exported' while Section 106(A)(2)(a)(5) NIRC of 1997, provides for the application of zero rating to 'those considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investment Code of1987, and other special laws. ' The rationale ofRMC 74-99 may also find application to sales made by VAT registered suppliers to SOl-registered enterprises whose manufactured products are 100% exported to foreign countries and therefore said sales can likewise be accorded automatic zero-rating treatment." Clearly, sales to SOl-registered enterprises whose products are 100% ' exported qualify for VAT zero-rating, pursuant to Section 106(A)(2)(a)(5) of the NIRC of 1997, as amended, subject to compliance with the prescribed requirements under Section 3 ofRMO 9-2000, to wit: "SEC. 3. Sales ofgoods, 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. 7-95, subject to the following conditions: (!) The supplier must be VAT-registered~

J C.T.A. CASE NO. 6540 23 DECISION (2) The HOI-registered buyer must likewise be VAT- registered; (3) The buyer must be a BOI-registered manufacturer/producer whose products are 100% exported. For this purpose, a Certification to this effect must be issued by the Board of Investments (BOI) and which certification shall be good for one year unless subsequently re-issued by the BOI; (4) The BOI-registered buyer shall furnish each of its suppliers with a copy of the aforementioned BOI Certification which shall serve as authority for the supplier to avail of the benefits of zero-rating for its sales to said BOI-registered buyers; and (5) The VAT-registered supplier shall issue for each sale to BOI-registered manufacturer/exporters a duly registered VAT invoice with the words 'zero-rated' stamped thereon in compliartce with Sec. 4.108-1(5) of Revenue Regulations No. 7-95. The supplier must likewise indicate in the VAT-invoice the name and BOI-registry number of the buyer." In compliance with the third and fourth requisites under Section 3 of RMO 9-2000, petitioner presented a master list of VAT zero-rating indorsements containing the entries of Asian Transmission -Corporation and Honda Philippines (Exhibits "KKK- 7" and "KKK-8 "). A perusal, however, of these documents shows that they are mere listings of companies, which cannot be considered as certifications duly issued by the BOI. Since these certifications were not certified, it necessarily follows that petitioner's sales fMX- :J Ll O

C.T.A. CASE NO. 6540 24 DECISION to Asian Transmission Corporation and Honda Philippines in the amount of P282,483,349.21 cannot be considered for VAT zero-rating. Consequently, We find no need to examine and discuss whether the said sales are duly supported by the required sales invoices. IIi sum, out of the P678,798,531.90 zero-rated sales reported by petitioner in its VAT Returns for the subject period of claim, only the sales to PEZA-registered entities in the amount of P390,647,980.86 shall be considered as valid zero-rated sales, computed as follows: Total declared zero-rated sales p 678 798 531.90 Less: disallowances p 282 483 349.21 Sales to SOl-registered enterprises Sales to PEZA-registered enterprises with 5 667 201.83 288 150 551.04 no supporting documents p 390 647 980.86 Substantiated zero-rated sales The claimed input VAT shall be allocated to the substantiated zero- rated sales using the following ratio: Substantiated zero-rated sales p 390 647 980.86 Divided by total declared zero-rated sales p 678 798 531.90 Ratio of substantiated zero-rated sales 57.55% Petitioner's declared excess unutilized input VAT from domestic purchases of goods and services for the third quarter of 2000 to the fourth quarter of2001 amounted to P19,233~116.54, broken down, as follows: {)Itt 341

---- - - - - -- ..__ �-- J C.T.A. CASE NO. 6540 25 DECISION Input VAT on Input Tax on other Taxable importation of Total Goods Services p 1 565 063.33 Goods Total In ut VAT p 3 137 790.33 1465 436.29 p 1 572 727.00 1 617 454.42 2 541 871.29 1 469 675.85 1 076 435.00 5 389 630.42 1463 825.13 2 375 621.85 1 925 032.52 3 772 176.00 2 083 106.13 p 9 506 487.54 3 705 096.52 905 946.00 p 19 233 116.54 619 281.00 1 780 064.00 p 9 726 629.00 In its computation, petitioner allocated the input VAT on domestic purchases and importation of goods and servi9es, other than capital goods, in the following manner: Period Zero-rated Sales Total Sales Total In ut VAT Input Tax Allocated to Zero-rated Sales p 129 541 928.36 p 137 275 926.52 p 3 137 790.33 p 888 745 .00 p 2 122 336.21 116 332 545.18 121 491 578.51 2 541 871.29 2 433 932.95 TOTAL 103 720 326.85 110 195 655.37 5 389 630.42 2 875 974.00 2 365 948 .68 94 130 266.88 105 022 913.44 2 375 621.85 198 185.00 1 951 599.94 121 128 590.04 132 063 716.57 2 083 106.13 1910 620.99 113 944 874.59 123 154 425.07 3 705 096.52 381 962.00 3 074 628.83 P678 798 531.90 P729 204 215.48 p 19 233 116.54 p 4 344 866.00 P13 859 067.60 Based on the above computations, the input VAT of P14,888,250.54 (P19,233,116.54 less P4,344,866.00) was proportionately allocated between petitioner's taxable sales and zero-rated sales on the basis of the total sales, . {t(J1 in the respective amounts ofP1,029,182.94 and P13,859,067.60, as follows:

C.T.A. CASE NO. 6540 26 DECISION Period Total Input VAT Input VAT on Input VAT Input VAT Input VAT (a) capital goods Balance Allocated to Allocated to 2000 Zero-rated Taxable Sales 3nl Qtr (b) (a)- (b) 4th Qtr Sales 2001 151 Qtr p 3 137 790.33 p 888 745.00 p 2 249 045.33 p 2 122 336.21 p 126 709.12 2nd Qtr 2 541 871.29 - 2 541 871.29 2 433 932.95 107 938.34 3nl Qtr 4th Qtr 5 389 63D.42 2 875 974.00 2 513' 656.42 2 365 948.68 147 707.74 TOTAL 2 375 621.85 198 185.00 2 177 436.85 1951 599.94 225 836.91 2 083 106.13 - 2 083 106.13 1910 620.99 172 485)i.._ 3 705 096.52 381 962.00 .. 3 074 628.83 248 505 ,~ P19 233 116.54 3 323 134.52 P13 8591067.60 Pl 0291182.94 P4 344 866.00 P14 888 250.54 Upon examination and validation of petitioner's voluminous documents supporting the input VAT of P14,888,250.54, the ICPA made and reported the following findings (Exhibit "DDD ''): A. Domestic purchases of: p 5 324 344.42 1. Services supported by VAT Ors 3 154 901.13 2. Goods supported by VAT invoices 25 362.72 3. Services supported by documents other than Ors 4 335.36 4. Goods supported bydocuments other than invoices 3 614.31 5. Goods supported by cash reqister tapes 5 657.00 6. Services supported by ORs with no BIR authority to print indicated 28 753.18 7. Goods supported by invoices with no BIR authority to print indicated 2 133.34 8. Services supported by ORs with no date indicated 132.55 9. Goods SUQQorted by invoices with no date indicated 1 462.68 10. Services supported by ORs with printed "Non-VAT" or "NV" 3 534.55 11. Goods supported by invoices with printed "Non-VAT" or "NV" 310.45 12. Goods supported by invoices not in the name of the Company 2 031.86 13. Services supported by ORs with manually stamped "TIN VAT" 818.18 14. Goods supported by invoices with manually stamped "TIN VAT" 368 488.95 15. Services supported by ORs with printed "TAN" only 432.27 16. Services supported by ORs with manually stamj)ed "VAT" 46 959.34 17. Goods supported by invoices with manually stamped "VAT" 9 223.20 18. Services supported by ORs with no "VAT" indicated 6 096.02 19. Goods supported by invoices with no "VAT" indicated 163 282.28 20. Services supported by ORs with stamp "TAN" instead of "TIN" 13 573.64 21. Services supported by ORs with ''TIN" but no "VAT"

_, C.T.A. CASE NO. 6540 27 DECISION 22. Without supporting documents 308 652.73 B. Importations - Others 437 798.46 27. Supported by OR from BOC and withdrawal permit 26 268.54 28. Supported by withdrawal permit but no OR 1 582 960.10 29. Supported by Certification from BOC and settlement advice 30. Supported by stamp "Certified true xerox copy" of Import Entry 1 778 555.00 Declaration and settlement advice 799 225.00 31. Supported by original Import Entry Declaration and settlement advice 703 219.17 32. Supported by settlement advice and photocopied Import Entry Declaration 86 124.00 33. Supported by photocopied Import Entry Declaration and no settlement advice P 14 RRR ~50.43 TOTAL Based on the foregoing, input VAT amounts under numbers 3 to 22 and 28, amounting to Pl,021,123.15, should be disallowed, for not being supported by the required evidence under Sections 11 O(A) and 113(A) ofthe NIRC of 1997, as implemented by Sections 4.104-1, 4.104-5, and 4.108-1 of Revenue Regulations No. 7-95. The same holds true as regards the input VAT ofP812,937.59, broken down, as follows: A. Domestic purchases of goods and services: p 199 547.46 1. Invoice or OR with TIN-V instead of TIN-VAT 2. Invoice or OR not duly registered with the BIR 58 316.97 3. Purchases not supported with valid VAT invoices or ORs 44 491.77 4. Invoice or OR dated outside the period of claim or undated or with 35 211.02 14)85.21 incomplete date 11 803.63 5. Supported with invoices or ORs that are not legible or with stamped 224 998.00 TIN-VAT 6. Supported with non-VAT invoice or OR B. Importation of goods other than capital qoods: 7. No supporting documents 8. NO BOC or bank OR or settlement advice 109 284.00 9. Amount of VAT paid not clear/leqible or not indicated in OR or IERD 76 734.00 10. Supported by undated BOC OR 1 421.00 34 3

_, __ --- - �- - ----- ~--- J C.T.A. CASE NO. 6540 28 DECISION 11. Discrepancy between amount of input VAT claimed and supporting documents TOTAL (Details ofthe disallowed input VAT per classification above is made part and parcel ofthis Decision as Annexes "A " to "A-5 ". ) Thus, petitioner's valid input VAT is P13,054,189.80, computed as follows: . Disallowances Valid Input Period Total Input VAT PeriCPA Per Court VAT 3rd tr-2000 p 2 249 045.33 p 1 963 684.03 4th r-2000 p 211129.00 p 74 232.30 1st tr-2001 2 541 871.29 2nd 2 513 656.42 300 228.48 154 657.08 2 086 985.73 3'd r-2001 2 177 436.85 4th tr-2001 2 083 106.13 138 527.94 112 469.39 2 262 659.09 3 323 134.52 TOTAL P14 888 250.54 92 533 .92 201 774.12 1 883 128.81 109 050.08 87 985.09 1886 070.96 169 653.73 181 819.61 2 971 661.18 p 1 021123.15 p 812 937.59 P13 054 189.80 Consequently, the input VAT allocated to petitioner's zero-rated sales amounted to P12,148,272.25, detailed as follows: tr-2001 Zero-rated Sales Total Sales Total Valid Input VAT Valid Input Tax tr-2001 p 129 541 928.36 p 137 275 926 .52 In utVAT Allocated to Allocated to tr-2001 p 1 963 684 .03 Taxable Sales Zero-rated TOTAL 116 332 545.18 121 491 578.51 p 110 632.13 Sales 103 720 326.85 110 195 655 .37 2 086 985.73 p 1 853 051.90 94 130 266.88 105 022 913.44 2 262 659.09 88 622.02 121 128 590.04 132 063 716.57 1 883 128.81 132 958.61 1 998 363.71 113 944 874.59 123 154 425 .07 1 886 070.96 195 312.20 P678 798 531.90 P729 204 215.48 2 971661.18 156 170.26 2 129 700.48 P13 054 :189.80 222 222.33 1 687 816.61 p 905 917.55 1 729 900.70 2 749 438 .85 P12 148 272.25

- - --------- - '\ -~ C.T.A. CASE NO. 6540 29 DECISION However, petitioner's substantiated zero-rated sales are only 57.55% of the declared zero-rated sales, hence the input VAT attributable to zero- rated sales is only P6,991,320.40, as shown below: Valid input VAT allocated to zero-rated sales p 12 148 272.25 57.55% Multiply by ratio of substantiated zero-rated sales to ,declared zero-rated sales p 6 991 320.40 Input VAT attributable to iero-rated sales available for refund � �� As regards the fourth requisite, the Court finds that for the third and fourth quarters of 2000 and the four quarters of 2001, petitioner has taxable sales amounting to P50,405,683.58, with corresponding output tax due of P5,040,568.36. In its Memorandum, petitioner claims that it has an existing unutilized input tax which was carried over to the third quarter of 2000 from the immediately preceding taxable period (i. ~�, the second quarter of 2000) in the amount ofP5,784,347.54, which may be continually forwarded to the succeeding quarters until the same is fully credited against output taxes. This amount plus the input tax allocated to taxable sales are more than sufficient to cover the output tax due on sales for the period covering July 1, 2000 to December 31, 200 1. (MIL 345

, �' C.T.A. CASE NO. 6540 30 DECISION A careful scrutiny of petitioner's Quarterly VAT Return for the third quarter of 2000 shows that it indeed reported P5,784,347.54, as "Input Tax Carried Over from Previous Quarter" (Exhibit "G"). Nevertheless, this cannot be used to cover the output tax due for the subject period of claim because petitioner failed to submit the VAT invoices or official receipts proving the existence thereof. Hence, the � output tax due shall be offset against the input VAT allocated to �taxable sales in the amount of P905,917.55. Since there still remains an output tax due of P4,134,650.81 (P5,040,568.36 - P905,917.55), the same shall be applied against the valid input VAT paid on importations in the amount of P4,344,866.00, leaving an unutilized input VAT of P21 0,215.19. Also, inasmuch as petitioner has sufficient tax credits to cover the output tax liability of P5,040,568.36, the entire input VAT allocated to zero-rated sales in the amount of P6,991,320.40 remained unutilized as of the fourth quarter of 2001. Moreover, petitioner did not carry-over the subject claim to the succeeding first quarter of 2002 (Exhibit "FF"). As regards the requisite of whether the subject claim was filed within cw the two-year prescriptive period, We rule in the affirmative. Petitioner filed 34C

C.T.A. CASE NO. 6540 31 DECISION its claim for refund with the BIR on September 26, 2002, and the original Petition for Review on September 30, 2002. Both dates of filing are well within the two-year prescriptive period reckoned from September 30, 2000, December 31, 2000, March 31, 2001, June 30, 2001, Septe111ber 30, 2001, �and December 31, 2001, the close of each taxable quarter covering the period July 1, 2000 to December 31, 2001 (Exhibit " GG "). WHEREFORE, premises considered, the Petition For Review is hereby PARTIALLY GRANTED. Accordingly, respondent Commissioner of Internal Revenue is hereby ORDERED TO REFUND or TO ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner the reduced amount of SIX MILLION NINE HUNDRED NINETY ONE THOUSAND THREE HUNDRED TWENTY and 40/100 PESOS (P6,991,320.40), representing unutilized input VAT attributable to zero-rated sales for the period covering July 1, 2000 to December 31, 2001. SO ORDERED. ~~~r~.:N.. OLGi PALANCA-E Associate Justice

j 32 C.T.A. CASE NO. 6540 ,. E~.UY DECISION Assocmte Justice WE CONCUR: QA~~C -~~~Q. iUANITO C. CASTANEDX,%. Associate Justice AT T�E.STAT I 0 N 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. Q~~ 0. ~~-t6 <QJR, . ' c. CASTANEDA, WANITO Associate Justice Chairperson, Second Division 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-----'"" . o~ ERNESTO D. ACOSTA Presiding Justice

C.T.A. CASE NO. 6540 33 DECISION DISALLOWANCES PER COURT'S VERIFICATION ANNEX A DOMESTIC PURCHASES OF GOODS AND SERVICES 16,531 .39 47 ,62 0.41 Supplier Input VAT 1.) Invoice or OR with TIN-Vinstead of TIN-VAT 405.45 4,032 .00 3rd Qtr, 2000 8/8/2000 W.A. Raflores Trading & Construction UU-163 295.45 2,123 .84 UU-164 8/25/2000 W.A. Raflores Trading & Construction 2,370 .27 1' 158.38 UU-439 7/11/2000 RC Engineering Industrial Services & Supply 4,740 .55 1 ,405.45 UU-440 7/28/2000 RC Engineering Industrial Services & Supply 540 .91 UU-441 8/21/2000 RC Engineering Industrial Services & Supply 630.68 540.91 UU-442 9/1/2000 RC Engineering Industrial Services & Supply 1,187.27 540.91 UU-443 9/13/2000 RC Engineering Industrial Services & Supply 504 .55 540 .91 UU-444 9/20/2000 RC Engineering Industrial Services & Supply 646 .36 504 .55 4th Qtr, 2000 41 ,983.36 UU-905 11/23/2000 Mega Protrade Phils. 4,088 .00 4,312 .00 UU-906 12/9/2000 Mega Protrade Phils. 4 ,564 .00 UU-907 12/21/2000 Mega Protrade Phils. 504 .55 504 .55 YY-16 10/2/2000 Mega Protrade Phils. 540 .91 504 .55 YY-17 10/18/2000 Mega Protrade Phils. 540 .91 540 .91 YY-18 11/8/2000 Mega Protrade Phils. 504 .55 540 .91 YY-19 11/14/2000 Mega Protrade Phils . 646 .36 540 .91 YY-20 11/23/2000 Mega Protrade Phils . 1,028.40 5 ,990 .00 YY-21 10/18/2000 Mega Protrade Phils . YY-24 3/14/2001 RC Engineering Industrial Services & Supply 1st Qtr, 2001 UU - 1272 1/16/2001 W.A. Raflores Trading & Construction UU - 1273 2/9/2001 W.A. Raflores Trading & Construction UU-1274 3/9/2001 W.A. Raflores Trading & Con stru ction UU-1434 1/11/2001 Mega Protrade Ph ils. UU-1435 1/24/2001 Mega Protrade Phils. UU-1436 1/24/2001 Mega Protrade Phils. UU-1437 2/12/2001 Mega Protrade Phils. UU - 1438 2/12/2001 Mega Protrade Phils . UU-1439 2/14/2001 Mega Protrade Phils . UU - 1440 2/27/2001 Mega Protrade Phils. UU - 1441 2/27/2001 Mega Protrade Phils . UU-1442 3/15/2001 Mega Protrade Phils. UU-1443 3/15/2001 Mega Protrade Phils. UU-1494 2/19/2001 Phil-Process� Lubrication Tech., Inc. UU-1495 2/21/2001 Phil-Process Lubrication Tech., Inc. ..,4 h JJ

, 34 v C.T.A. CASE NO. 6540 DECISION UU-1496 2/21/2001 Phil-Process Lubrication Tech., Inc. 1,337.60 ANNEX A-1 UU-1497 2/21/2001 Phil-Process Lubrication Tech. , Inc. 1,836.00 UU-1509 3/2/2001 RC Engineering Industrial Services & Supply ~6 . 405.47 UU-1510 3/6/2001 RC Engineering Industrial Services & Supply 237 .03 UU - 1597 2/12/2001 Speedway Elect. & Office Supply 4,503.52 UU-1598 2/14/2001 Speedway Elect. & Office Supply 8,345.45 UU-1602 3/13/2001 Speedway Elect. & Office Supply 4,436 .36 2nd Qtr, 2001 UU-1847 358.00 UU-1848 UU-1849 4/27/2001 W .A. Raflores Trading & Construction 4,732.00 28,511 .74 UU-2056 6/15/2001 W.A. Raflores Trading & Construction 4 ,186 .00 UU-2057 6/29/2001 W .A. Raflores Trading & Construction 3,360.00 UU -2 058 4/2/2001 Mega Protrade Phils. UU-2059 4/26/2001 Mega Protrade Phils. 504 .55 UU -2060 5/17/2001 Mega Protrade Phils . 1,045.45 UU-2061 5/17/2001 Mega Protrade Phils . UU-2062 6/3/2001 Mega Protrade Phils. 504 .55 UU-2114 6/3/200 1 Mega Protrade Phils. 540 .91 UU-2115 6/19/2001 Mega Protrade Phils. 504.55 UU -2 196 4/20/2001 RC Engineering Industrial Services & Supply 540 .91 UU -2 197 4/20/2001 RC Engineering Industrial Services & Supply 504 .55 3rd Qtr, 2001 5/4/2001 Speedway Elect. & Office Supply 2,370.27 UU-2455 5/4/2001 Speedway Elect. & Office Supply 4 ,079.45 UU-2456 5,454 .55 UU-2709 184.00 UU-2710 UU -27 11 8/10/2001 W .A. Raflores Trading & Construction 4 ,928 .00 36,550 .09 UU -27 12 9/28/2001 W .A. Raflores Trad ing & Construction 4 ,648 .00 UU-2713 7/8/2001 Mega Protrade Phils. 1'187 .27 UU-2714 7/25/2001 Mega Protrade Phils . UU-2715 7/25/2001 Mega Protrade Phils. 540.91 UU-2716 8/14/2001 Mega Protrade Phils . 504 .55 UU-2769 8/23/2001 Mega Protrade Phils. 504 .55 UU-2770 8/23/2001 Mega Protrade Phils. 540.91 UU-2771 9/12/2001 Mega Protrade Phils. 504.55 UU-2772 9/12/2001 Mega Protrade Phils. 540 .91 UU-2773 7/3/2001 RC Engineering Industrial Services & Supply 504 .55 UU-2774 7/3/2001 RC Engineering Industrial Services & Supply 643 .75 UU-2775 7/6/2001 RC Engineering Industrial Services & Supply 1,945 .64 4th Qtr, 2001 7/6/2001 RC Engineering Industrial Services & Supply 2,847.27 UU-3110 8/21/2001 RC Engineering Industrial Services & Supply 4 ,992 .22 UU-3111 8/21/2001 RC Engineering Industrial Services & Supply 3,111.76 8/28/2001 RC Engineering Industrial Services & Supply 2,381.73 6 ,223 .52 11/23/2001 W.A. Raflores Trading & Construction 5,376 .00 12/14/2001 W.A. Raflores Trading & Construction 5,320.00 (tP 3'50

C.T.A. CASE NO. 6540 35 DECISION UU-3301 10/3/2001 Mega Protrade Phils. 1,045.45 ANNEX A-2 UU-3302 10/24/2001 Mega Protrade Phils. 1,187.27 UU-3303 11/14/2001 Mega Protrade Phils . 1,045.45 23,928 .36 UU-3335 11/17/2001 RC Engineering Industrial SeNices & Supply 4,740 .55 199,547.46 CCC-63 12/1/2001 Don Bosco Seminary College 3,122 .73 CCC-82 12/1/2001 Mega Protrade Phils . CCC-83 12/1/2001 Mega Protrade Phils. 504.55 CCC-84 12/18/2001 Mega Protrade Phils. 540 .91 Sub-total 1,045.45 2.) Invoice or OR not duly registered with the BIR 3rd Qtr, 2000 UU-390 7/7/2000 Mobil Philippines , Inc. 7,327 .84 9,159.80 UU-391 8/1/2000 Mobil Philippines, Inc. 16,487 .64 3,074.40 3,074.40 4th Qtr, 2000 8,036 .36 11,025 .93 YY-5 1/8/2001 Pacific Union Insurance Co . 1,459 .11 21 ,329 .00 2nd Qtr, 2001 763 .64 6 ,400 .00 440 .91 UU-1927 4/7/2001 Constant Power Industrial Sales 325 .91 58,316.97 UU-1928 4/7/2001 Constant Power Industrial Sales 8,950 .00 4,312 .00 UU-1929 4/10/2001 Con!!tant Power Industrial Sales 8,067 .00 UU-1930 5/31/2001 Constant Power Industrial Sales 6,400 .00 UU-1931 6/14/2001 Constant Power Industrial Sales 3rd Qtr, 2001 UU-2895 7/6/2001 Velca Equipment & Eng Red Prods., Inc. UU-2896 8/7/2001 Velca Equipment & Eng Red Prods., Inc. UU -2897 8/20/2001 Velca Equipment & Eng Red Prods ., Inc. 4th Qtr, 2001 UU-3398 11/6/2001 Velca Equipment & Eng Red Prods., Inc. Sub-total 3.) Purchases not supported by valid VAT invoice or OR 4th Qtr, 2001 CCC-23 Unimachine Metal Fabrication, Inc. 19,003 .09 10,910.24 UU-3386 Tamaraw Security SeNice, Inc. 10 ,228 .35 UU-3387 Tamaraw Security SeNice, .lnc. 4,350 .09 Best Electrical Inc. 44,491 .77 44,491 .77 Sub-total 4.) Invoice or OR dated outside the period of claim or undated or with incomplete date 3rd Qtr, 2000 UU-120 Puerto Azul Golf & Country Club 3,164.55 7,272 .73 XX-24 6/28/2000 Tiger Machinery 3,636 .36 XX-25 6/9/2000 Ultimate Energy Systems Trading J5l

�' 36 C.T.A. CASE NO. 6540 DECISION XX-26 6/9/2000 Ultimate Energy Systems Trading 4,545.45 ANNEX A-3 XX-27 5/25/2000 Unioil Petroleum Phils. , Inc. 2 ,570 .18 2nd Qtr, 2001 21 '189.27 UU -2222 AAA-4 Unimachine Metal Fabrication, Inc. 3,615 .91 5,906 .82 AAA-5 Primetown Property Group , Inc. 1,636 .36 4th Qtr, 2001 Primetown Property Group , Inc. CCC-2 654 .55 CCC-4 CCC-10 1/11/2002 Aztek Systems International Corp . 2,727 .27 8,114 .93 CCC - 14 1/7/2002 DHL Worldwide Express 339.69 35,211.02 CCC-19 lppon Yari House 178.45 1/9/2002 Laguna Internet 287 .70 1/10/2002 Primetown Property Group , Inc. Sub-total 4,581 .82 5.) Supported with invoices or ORs that are not legible or with stBmped TIN-VAT 4th Qtr, 2000 UU-911 10/24/2000 MESCO, Inc. 145.45 429 .09 UU-912 10/27/2000 MESCO, Inc. 932 .73 2 ,590 .00 UU-915 11/18/2000 MESCO, Inc. 5 ,133.3 9 YY-22 11/7/2000 MESCO, Inc. 4,097. 27 5,054 .55 1st Qtr, 2001 5,133.39 UU-1137 3/5/2001 FGU Insurance Corporation 5,054 .55 14,285.2 1 4th Qtr, 2001 UU-3237 11/22/2001 Linden Technologies Phils., Inc. Sub-total 6.) Supported with non-VAT invoice or OR 2nd Qtr, 2001 AAA-12 6/14/2001 A.L. De Leon Constru ction & Trading 6,636.36 1,940 .00 AAA- 13 5/30/2001 A.L. De Leon Constru ction & Trading 3,2 27 .27 AAA-14 5/11/2001 A.L. De Leon Construction & Trading 11 ,803.63 11 ,803.63 Sub-total 363,656.06 TOTAL

-- .. --- - - - - - - - - - - - - -- -- C.T.A. CASE NO. 6540 37 DECISION ANNEX A-4 IMPORTATION OF GOODS OTHER THAN CAPITAL GOODS Total Exh. Date BOC Serial No./Bank Input VAT 86 ,124 .00 Ref . No./OR No. 86 ,124.00 48,746 .00 7.) No supporting documents 28972632 10,260 .00 4th Qtr, 2000 21 ,518.00 79 ,868.00 1,257.00 224,998.00 Dec-00 441 .00 94,461 .00 1,217 .00 14 ,823 .00 2nd Qtr, 2001 May-01 31400153 864 .00 109,284.00 Jul-01 88375183 845 .00 3rd Qtr, 2001 Jul-01 88503301 3 ,135 .00 ()j 4th Qtr, 2001 Jul-01 89311591 3,344.00 Jul-01 8931 1591 1,987 .00 Jul-01 89311591 127.00 Jul-01 89311591 1,655 .00 Jul-01 89311591 3,278.00 Jul-01 893 11591 4,579 .00 Jul-01 893 11591 164 .00 Jul-01 89311582 58.00 Jul-01 89311582 2 ,438 .00 J ul-01 88445472 22 .00 Jul-01 88445472 1,817 .00 Jul-01 884 45472 Jul-01 88 445472 1,946.00 A pr-01 29493807 8,314 .00 Jun-01 16063 79 ,868 .00 Sep-01 Jul-01 31588444 94 ,461 .00 3 1517876 Oct-01 14,823 .00 33750857 S u b - tota l 8.) No BOG or bank OR or settlement advice 2nd Qtr, 2001 AAA-89 Apr-01 30273677 3rd Qtr, 2001 BB B-115 Jul-01 32500045 Sub-total ,'J�lJ�: }�]

C.T.A. CASE NO. 6540 38 DECISION ANNEX A-5 9.) Amount of VAT paid not clear/legible or not indicated in OR or IERD 4th Qtr, 2000 Dec-00 28885096 13 ,74 1.00 13,741 .00 YY-83 Jan-01 46 ,751.00 Jan-01 29865595 56,651 .00 1st Qtr, 2001 Apr-01 20031084 9,900 .00 1,319 .00 ZZ-120, ZZ-121 A ug-01 1,319 .00 5,023 .00 ZZ-124, ZZ-125 30407562 5,023 .00 2nd Qtr, 2001 76,734.00 32873741 AAA-47 Sub-total 3rd Qtr, 2001 BBB-117 10.) Supported by undated BOG OR 1st Qtr, 2001 ZZ-86 Jan-01 84883757 1,421 .00 1,421 .00 1,421.00 Sub -total 11.) Discrepancy between amount of input VAT claimed and supoorting documents Amount Claimed Input VAT Difference Total 27 .00 3rd Qtr, 2000 Oct-00 5,985.00 5,958 .00 20,024 .00 XX-90, XX-87 Ju l-00 33 ,930 .00 13 ,933 .00 19,997. 00 2,858 .53 2,858 .53 13,962. 00 XX-1 13, XX-114 13, 962 .00 36, 844 .53 1st Qtr, 2001 Feb-01 34 ,712 .00 31 ,85347 449,281 .53 ZZ-1 45, ZZ-1 46 812 ,93 7.59 4th Qtr, 2001 Oct-01 4 1,261.00 27, 299.00 CCC- 184 Sub-total TOTAL TOTAL DISALLOWANCES PER COURT'S VERIFICATION