PHILEX MINING CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SECOND DIVISION PHILEX MINING CTA CASE NO. 10037 CORPORATION, Petitioner, Members: - versus- Castaneda, Jr., Chairperson, and Bacorro-Villena, 11. COMMISSIONER OF INTERNAL REVENUE, Respondent. Promulgated: JAN 052021 Y ,,,, /'��� x-------------------------------------------------------------------~------x DECISION CASTANEDA, JR., J.: THE CASE The Petition for Review filed on February 28, 2019 prays for the refund and/or issuance of a tax credit certificate (TCC) in the amount of P21,529,612.72, allegedly representing petitioner's excess and unutilized input VAT on purchases of goods and services attributable to its zero-rated sales for the four (4) quarters of calendar year (CY) 2017. 1 THE PARTIES Petitioner Philex Mining Corporation is a domestic corporation duly organized and existing under Philippine laws with principal place of business at 2/F Launchpad, Reliance cor. Sheridan Streets, ~ 1 Summary of the case, Pre-Trial Order dated July 15, 2019, Docket- Vol. I, p. 189.

DECISION CTA Case No. 10037 Mandaluyong City.2 It is registered with the Bureau of Internal Revenue (BIR) under Certificate of Registration No. OCN 8RC0000699737E dated October 7, 2016, with Taxpayer Identification Number (TIN) 000-283-731-00000.3 On the other hand, respondent is the duly appointed Commissioner of Internal Revenue, represented by the Litigation Division of the BIR National Office who may be served with pleadings and court processes at J71:h Floor, Litigation Division, BIR National Office Building, BIR Road, Diliman, Quezon City.4 He is empowered to perform the duties of sad office including, among others, the power to decide, approve and grant claims for refund or tax credit of erroneously paid or overpaid taxes, as provided by law.5 ANTECEDENTS (ADMINISTRATIVE LEVEL) On October 29, 2018, petitioner filed with the BIR VAT Credit Audit Division an administrative claim for refund,6 with attached Application for Tax Credits/Refunds (BIR Form No. 1914Y and supporting documents, for the refund or tax credit of input VAT amounting to P68,882,568.83 for CY 2017. Subsequently, petitioner received the letter (VAT Refund Notice) dated January 16, 2019 on January 31, 2019 from respondent, partially granting its request for refund of excess and unutilized input VAT for the said four (4) quarters of CY 2017 in the amount of P46,729,507.99,8 computed as follows: VAT Refund Claimed P68,882,568.83 Less: Deductions (P22,153,060.84) Net Allowable VAT Refund P46,729,507.99 The administrative claim was partially denied on the basis of the recommendation by certain Revenue Officers as follows: ~ 2 Par. 1, Admitted Facts, Joint Stipulation ofFacts and Issues (JSFI), Docket- Vol. I, p. 165. 3 Exhibit "P-3", Docket- Vol. II, pp. 561 to 562. 4 Par. 2, Admitted Facts, JSFI, Docket- Vol. I, p. 165. 5 Par. 3, Petition for Review vis-a-vis Par. 1, Answer, Docket - Vol. I, pp. 11 and 104, respectively. 6 Exhibit "P-9", Docket- Vol. II, pp. 593 to 596. 7 Exhibit "P-10", Docket- Vol. II, p. 603. 8 Par. 3, Admitted Facts, JSFI, Docket- Vol. I, p. 165; Exhibit "P-11", Docket- Vol. II, pp. 604 to 605; Exhibit "R-2", BIR Records, p. 278.

DECISION erA Case No. 10037 " .. .The Revenue Officers recommended the issuance of VAT refund in the reduced amount of Php62,149,937.30, net of deductions for Php11,454,157.90 as shown below: XXX XXX XXX Final evaluation of the case disclosed that there was substantial compliance with the requirements set forth in processing claims for tax credit/refund including documentary requirements under Revenue Memorandum Order Nos. 16 & 22-2007 and RMC No. 29-2009 & 17- 2018. However, input VAT attributable to export sales of Php15,420,429.31 arising from transactions without valid documentarv proof of inward remittances, was deducted from the herein claim, recomputed and summarized in the attached Annex 'A'. '19 (Emphasis and underscoring added) PROCEEDINGS BEFORE THIS COURT Petitioner filed the instant Petition for Review on February 28, 2019. 10 On April 22, 2019, respondent filed his Answer,11 interposing the certain special and affirmative defenses, to wit: (1) petitioner failed to show proof of compliance with the requirements under Section 112(A) of the National Internal Revenue Code (NIRC) of 1997, as amended, particularly pertaining to zero-rated sales; (2) bereft of the documentary and invoicing requirements for input VAT refund, petitioner' claim must be denied; (3) tax refunds are in the nature of tax exemptions which result to loss of revenue for the government, and these exemptions, therefore, must not rest on vague, uncertain or indefinite inference, but should be granted only in a clear and unequivocal provision of law on the basis of language too plain to be mistaken; and (4) such exemptions must be strictly~ 9 Exhibits "P-14" and "R-1", BIR Records (Exhibit "R-3"), pp. 269 to 273, at p. 272. 1o Docket- Vol. I, pp. 10 to 26. 11 Docket- Vol. I, pp. 104 to 110.

DECISION CfA Case No. 10037 construed against the taxpayer, as taxes are the lifeblood of the government. The Pre-Trial Conference was set and held on May 23, 2019. 12 Respondent filed its Pre-Trial Briefon May 20, 2019.13 In the meantime, respondent transmitted the BIR Records for the instant case on May 16, 2019. 14 On June 19, 2019, the parties submitted their Joint Stipulation of Facts and Issues (JSFI).15 Subsequently, the Pre-Trial Order dated July 15, 2019 was issued,t6 approving and adopting the said JSFI, and thereby deeming termination of the pre-trial. The trial of the case then proceeded. During trial, petitioner presented its documentary and testimonial evidence. It offered the testimonies of the following individuals, namely: (1) Ms. Sylvia D. Delos Santos,t7 Accounting Manager of petitioner; (2) Atty. Maria Myla S. Maralit, 18 the Court- commissioned Independent Certified Public Accountant (ICPA); 19 and (3) Ms. Eileen C. Rodriguez,20 Group Manager of petitioner for Corporate Treasury. Petitioner filed its Formal Offer of Evidence (with Motion to Admit Photocopies as Secondary Evidence) on November 6, 2019.21 Respondent filed his Comment (on Petitioner's Formal Offer of ;c._. 12 Notice ofPre-Trial Conference dated May 10, 2019, Docket- Vol. I, pp. 112 to 113; Minutes of the hearing held on, and Order dated, May 23, 2019, Docket- Vol. I, pp. 130 to 131. 13 Docket- Vol. I, pp. 124 to 127. 14 Docket - Vol. I, pp. 119 to 121. 15 Docket- Vol. I, pp. 165 to 179. 16 Docket- Vol. I, pp 189 to 194. 17 Exhibit "P-16", Docket- Vol. I, pp. 198 to 217; Minutes of the hearing held on, and Order dated, July 17, 2019, Docket- Vol. I, pp. 302 to 303; Exhibit "P-19", Docket -Vol. I, pp. 436 to 440; Minutes of the hearing held, and Order dated, September 23, 2019, Docket - Vol. II, pp. 461 to 462. 18 Exhibit "P-17", Docket- Vol. I, pp. 402 to 412; Minutes of the hearing held on, and Order dated, August 28, 2019, Docket- Vol. I, pp. 413 to 415; Exhibit "P-23", Docket- Vol. I, pp. 447 to 454; Minutes of the hearing held, and Order dated September 23, 2019, Docket- Vol. II, pp. 461 to 462. 19 Oath of Commission dated July 17, 2019, Docket- Vol. I, p. 301; Minutes of the hearing held on, and Order dated, July 17, 2019, Docket- Vol. I, pp. 302 to 303. 20 Exhibit "P-25", Docket - Vol. II, pp. 468 to 472; Minutes of the hearing held, and Order dated October 14, 2019, Docket- Vol. II, pp. 491 to 492. 21 Docket- Vol. II, pp. 497 to 534.

DECISION CTA Case No. 10037 Evidence) on November 15, 2019.22 Thus, in the Resolution dated December 2, 2019,23 the Court admitted petitioner's Exhibits, except for the following: 1) Exhibits "P-13"I "P-15"I and "P-15-A"I for failure to identify�I 2) Exhibits "P-20", "P-1129" to "P-1129-A", and "P-1130" to "P- 1130-A", for failure to present the originals for comparison; and 3) The commercial invoices issued by the suppliers and attached to the BOC SSDT/SAD, marked as Exhibits "P-689" to "P-744", "P-746", "P-747" to "P-805", "P-806" to "P-866", "P-867" to "P- 924", and "P-926" to "P-1063", for being mere photocopies as determined by the ICPA. Petitioner then filed its Motion for Partial Reconsideration (Re: Resolution dated December 2, 2019} on December 16, 2019,24 praying for the partial reconsideration of the Court's Resolution dated December 2, 2019; and for the admission of Exhibit "P-20", as petitioner's evidence for the purposes stated in its Formal Offer of Evidence dated November 6, 2019. Respondent filed his Comment (on Petitioner's Motion for Partial Reconsideration) on January 17, 2020. 25 For his part, respondent likewise presented his testimonial and documentary evidence. He proffered the sole testimony of Mr. Dexter Bustillos/6 a Revenue Officer of the BIR. On December 6, 2019, respondent filed his Formal Offer of EvidenceY Petitioner filed its Comment (Re: Respondent's Formal OfferofEvidence)on December 16, 2019.28 In the Resolution dated February 7, 2020,29 the Court, inter alia, admitted respondent's Exhibits; and denied petitioner's Motion for Partial Reconsideration (Re: Resolution dated December 2, 2019). Jt-- ''Docket- Vol. II, pp. 613 to 614. 23 Docket- Vol. II, pp. 630 to 639. 2� Docket- Vol. II, pp. 650 to 654. 25 Docket- Vol. II, pp. 657 to 659. 26 Exhibit "R-4", Docket - Vol. II, pp. 620 to 623; Minutes of the hearing held, and Order dated December 2, 2019, Docket- Vol. II, pp. 640 to 641. 27 Docket- Vol. II, pp. 642 to 644. 28 Docket- Vol. II, pp. 646 to 649. 29 Docket- Vol. II, 662 to 665.

DECISION CTA Case No. 10037 Petitioner filed its Memorandum on June 30, 2020,30 while respondent filed his Memorandum on July 2, 2020.31 On July 13, 2020, the instant case was submitted for decision.32 THE ISSUE RAISED BY THE PARTIES Due to parties' failure to stipulate a common issue in this case, they submitted separate issues33 to be resolved by this Court, to wit: "For Petitioner: WHETHER OR NOT PETITIONER IS ENTITLED TO THE REFUND OF PHP21,529,612.72, REPRESENTING INPUT VAT ATTRIBUTABLE TO ITS ZERO-RATED SALES FOR CY 2017. For Respondent: WHETHER OR NOT THE DOCUMENTS SUBMITTED BY PETITIONER WITH THE ADMINISTRATIVE LEVEL WERE SUFFICIENT TO JUSTIFY ITS CLAIM FOR REFUND." Petitioner's arguments: Petitioner argues that it is a VAT-registered taxpayer; that it is engaged in zero-rated transactions or effectively zero-rated sales; that the input taxes are due and paid; that the input taxes are not transitional input taxes; that the input taxes subject of the current judicial claim have not been applied against output tax during and in the succeeding quarters; that the input taxes that petitioner is claiming represent the proportionate share of input taxes allocated to zero-rated or effectively zero-rated sales; and that its claim for refund/TCC was filed within the mandatory periods provided under the law.~ 3() Docket- Vol. II, pp. 670 to 706. 31 Docket - Vol. II, pp. 707 to 717. 32 Resolution dated July 13, 2020, Docket- Vol. II, p. 719. 33 Par. 4, Issue/s Stipulated upon by the Parties, JSFI, Docket- Vol. I, p. 166.

DECISION CTA case No. 10037 Moreover, petitioner also claims that respondent erred in denying its administrative claim for refund due to the alleged unremitted export sales; and that it is entitled to its claim for refund of excess and unutilized input VAT for the four (4) quarters of CY 2017 in the amount of P16,699,203.24. Respondent's counter-arguments: Respondent counter-argues that the instant judicial claim should be denied for petitioner's failure to substantiate the claim for refund at the administrative level; and that claims for refund are construed strictly against the taxpayer and in favor of the government. THE COURT'S RULING This Court finds no merit in the instant Petition for Review. Requisites under the law for the refund or issuance of TCC ofinput VAT. Section 112 of the National Internal Revenue Code (NIRC) of 1997, as amended by RA No. 1096334 [otherwise known as the Tax Reform for Acceleration and Inclusion Act (TRAIN law)], provides as follows: "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 ~ 34 AN ACT AMENDING SEffiONS 5, 6, 24, 25, 27, 31, 32, 33, 34, 51, 52, 56, 57, 58, 74, 79, 84, 86, 90, 91, 97, 99, 100, 101, 106, 107, 108, 109, 110, 112, 114, 116, 127, 128, 129, 145, 148, 149, 151, 155, 171, 174, 175, 177, 178, 179, 180, 181, 182, 183, 186, 188, 189, 190, 191, 192, 193, 194, 195, 196, 197, 232, 236, 237, 249, 254, 264, 269, AND 288; CREATING NEW SEffiONS 51-A, 148-A, 150-A, 150-B, 237-A, 264-A, 264-B, AND 265-A; AND REPEAUNG SEffiONS 35, 62, AND 89; ALL UNDER REPUBLIC ACT 8424, OTHERWISE KNOWN AS THE NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED, AND FOR OTHER PURPOSES.

DECISION CTA Case No. 10037 such input tax has not been applied against output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (b) and Section 108(8)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentra/ 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 of properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales: Provided, finally, That for a person making sales that are zero-rated under Section 108(8)(6), the input taxes shall be allocated ratably between his zero-rated and non-zero-rated sales. XXX XXX XXX (C) Period within which Refund of Input Taxes shall be Made. - In proper cases, the Commissioner shall grant a refund for creditable input taxes within ninety (90) days from the date of submission of the official receipts or invoices and other documents in support of the application filed in accordance with Subsections (A) and (B) hereof: Provided, That should the Commissioner find that the grant of refund is not proper, the Commissioner must state in writing the legal and factual basis for the denial. In case of full or partial denial of the claim for tax refund, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim, appeal the decision with the Court of Tax Appeals: Provided, however, That failure on the part of any official, agent, or employee of the BIR to act on the application within the ninety (90)-day period shall be punishable under Section 269 of this Code." Pursuant to the above provision, certain requisites must be complied with by the taxpayer-applicant to successfully obtain a credit/refund of input VAT. Said requisites are classified into certain categories, to wit: ?t--

DEGSION CTA Case No. 10037 As to the timeliness of the filing of the administrative and judicial claims: 1. the claim is filed with the BIR within two (2) years after the close of the taxable quarter when the sales were made;35 2. that in case of full or partial denial of the refund claim rendered within a period of ninety (90) days from the date of submission of the official receipts or invoices and other documents in support of the application, the judicial claim shall be filed with this Court within thirty (30) days from receipt of the decision. With reference to the taxpaver's registration with the BIR: 3. the taxpayer is a VAT-registered person; 36 In relation to the taxpaver's output VAT: 4. the taxpayer is engaged in zero-rated or effectively zero-rated sales; 37 5. for zero-rated sales under Section 106(A)(2)(a)(1), (2) and (b), and Section 108(8)(1) and (2), the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with BSP rules and regulations; 38 As regards the taxpaver's input VAT being refunded: 6. the input taxes are not transitional input taxes;39 7. the input taxes are due or paid;40 8. the input taxes claimed are attributable to zero-rated or effectively zero-rated sales. However, where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on the basis of sales volume;41 and fl.- 35 Intel Technology Philippines, Inc. vs. Commissioner of Internal Revenue, G.R. No. 166732, April 27, 2007; San Roque Power Corporation vs. Commissioner of Internal Revenue, G.R. No. 180345, November 25, 2009; and AT&T Communications Services Philippines, Inc. vs. Commissioner ofInternal Revenue, G.R. No. 182364, August 3, 2010. 36 Intel Technology Philippines, Inc. vs. Commissioner of Internal Revenue, supra; San Roque Power Corporation vs. Commissioner of Internal Revenue, supra; and AT&T Communications Services Philippines, Inc. vs. Commissioner ofInternal Revenue, supra. 37 !d. 38 !d. 39 Id. 40 !d. 41 Intel Technology Philippines, Inc. vs. Commissioner of Internal Revenue, supra; and San Roque Power Corporation vs. Commissioner ofInternal Revenue, supra.

DECISION CfA Case No. 10037 9. the input taxes have not been applied against output taxes during and in the succeeding quarters.42 It must be emphasized that in cases filed before this Court, which are litigated de novo, party-litigants must prove everv minute aspect of their case.43 Thus, it behooves petitioner to show compliance with each of the foregoing requisites. Petitioner's administrative and judicial claims were timely filed. The first requisite pertains to the filing of the refund of input taxes before the BIR, within two (2) years from the close of the taxable quarter when the supposed zero-rated or effectively zero- rated sales were made. The present claim covers the four (4) quarters of taxable year 2017, which closed on March 31, 2017, June 30, 2017, September 30, 2017, and December 31, 2017, respectively. Counting two (2) years from the said dates, petitioner had until March 31, 2019, June 30, 2019, September 30, 2019, and December 31, 2019, respectively, within which to file its administrative claim for refund. Thus, petitioner's administrative claim was timely filed with the BIR on October 29, 2018,44 as shown below: Last Day to File Date of Filing of Close of the Administrative Administrative CY 2017 Taxable Quarter Claim Claim 1"_Quarter 2nd Quarter March 31 2017 March 31, 2019 3'd Quarter June 30, 2017 June 30, 2019 October 29, 2018 4'h Quarter September 30, 2017 September 30L2019 December 31, 2017 December 31, 2019 t- 42 Intel Technology Philippines, Inc. vs. Commissioner of Internal Revenue, supra; San Roque Power Corporation vs. Commissioner of Internal Revenue, supra; and AT&T Communications Services Philippines, Inc. vs. Commissioner ofInternal Revenue, supra. 43 Edison (Bataan) Cogeneration Corporation vs. Commissioner ofInternal Revenue, etseq., G.R. Nos. 201665 and 201668, August 30, 2017; Commissioner of Internal Revenue vs. Philippine National Bank, G.R. No. 180290, September 29, 2014; Commissioner of Internal Revenue vs. United Salvage and Towage (Phi!s.), Inc., G.R. No. 197515, July 2, 2014; Dizon vs. Court of Tax Appeals, et a!., G.R. No. 140944, April 30, 2008; Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue, G.R. No. 145526, March 16, 2007; and Commissioner of Internal Revenue vs. Manila Mining Corporation, G.R. No. 153204, August 31, 2005. 44 Exhibit "P-9", Docket- Vol. II, pp. 593 to 596; Exhibit "P-10", Docket- Vol. II, p. 603.

DECISION CTA Case No. 10037 The second requisite is to the effect that the judicial claim must have been filed within thirty (30) days from the receipt of respondent's decision rendered within ninety (90) days from the date of submission of the official receipts or invoices and other documents in support of the application for refund under Section 112(C) of the NIRC of 1997, as amended by the TRAIN law. As already stated, petitioner's administrative claim was filed on October 29, 2018. Thus, respondent had ninety (90) days therefrom, or until January 27, 2019 to decide on the petitioner's claim for refund. Consequently, the letter (VAT Refund Notice) partially granting petitioner's refund claim was timely issued by the BIR on January 16, 2019. As such, petitioner had 30 days from the receipt of the said letter on January 31, 2019, or until March 2, 2019, to file an appeal before this Court. Therefore, the filing of the instant Petition on Review on February 28, 201945 was likewise timely made. Such being the case, petitioner fulfilled both the above-stated first and second requisites. Petitioner is a VAT-registered person. As for the third requisite, it is undisputed that petitioner is registered with the BIR under Certificate of Registration No. OCN8RC0000699737E dated October 7, 2016 and with TIN No. 000- 283-731-000, indicating that it is liable to VAT.46 Thus, petitioner's compliance with the said requisite is undoubtedly fulfilled. Petitioner was able to prove its zero-rated sales for the four(4) quarters ofCY 2017. The fourth and fifth requisites respectively require that the taxpayer be engaged in zero-rated or effectively zero-rated sales, and for zero-rated sales under Sections 106(A)(2)(a)(1), (2) and (b), and 108(8)(1) and (2) of the NIRC of 1997, as amended, the acceptable foreign currency exchange proceeds have been duly accounted for in 'jc- 45 Docket - Vol. I, pp. 10 to 26. 46 Exhibit "P-3", Docket- Vol. II, pp. 561 to 562.

DECISION CfA Case No. 10037 accordance with the Bangko Sentral ng Pilipinas (BSP) rules and regulations. Records show that petitioner is registered with the Securities and Exchange Commission (SEC) with Company Registration No. 10044, the primary purpose of which is "to carry on the business of engineering consultants and contractors and prepare plans and specification of machinery, mills_ plants, buildings and works and the undertaking and performance of contracts for the construction and erection of the same and the operation thereof'~47 Likewise, petitioner is registered with the Board of Investments (BOI) as an "Expanding Export Producer of Copper Concentrates including Gold and Silver" under BOI Certificate of Registration No. EP 2004-080 dated July 16, 2004.48 Petitioner claims that during the four (4) quarters of CY 2017, it exported and sold mineral products to Pan Pacific Copper Co. Ltd, Louis Dreyfus Company Metals Suisse SA, and Heraus Limited,49 the consideration for which were paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP. Thus, petitioner believes that the said export sales are zero- rated for VAT purposes pursuant to Section 106(A)(2)(a)(1) of the NIRC of 1997, as amended, which states: "SEC. 106. Value-Added Tax on Sale of Goods or Properties. - (A) Rate and Base of Tax - x x x (2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: (a) Export Sales. - The term 'export sales' means: (1) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported and paid for in acceptable foreign currency or its equivalent in goods or services, and ~ 47 Exhibit "P-1", Docket- Vol. II, pp. 536 and 539. 48 Exhibit "P-2", Docket- Vol. II, p. 555. 49 Par. 40, Discussion, Petitioner's Memorandum, Docket- Vol. II, p. 682.

DECISION CTA Case No. 10037 accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas(BSP);" Based on the foregoing provision, in order for an export sale to qualify as zero-rated, the following essential elements must be present: 1.) the sale was made by a VAT registered person; 2.) there was sale and actual shipment of goods from the Philippines to a foreign country; and 3.) the sale was paid for in acceptable foreign currency accounted for in accordance with the rules and regulations of the BSP. As for the first essential element, since it is the same as the above-stated third requisite, the said element has already been complied with by petitioner. In relation to the second essential element, the VAT-registered taxpayer claiming VAT zero-rated direct export sales must still present, among others, the following documents: 1.) the sales invoice as proof of sale of goods; and 2.) the bill of lading or airway bill as proof of actual shipment of goods from the Philippines to a foreign country. Corollary to the first type of document, the sales invoices must comply with the pertinent invoicing requirements, containing all the required information under Section 113(A) and (B) of the NIRC of 1997, as amended, to wit: "SEC. 113. Invoicing and Accounting Requirements for VAT-registered Persons. - (A) Invoicing Requirements. - A VAT-registered person shall issue: (1) A VAT invoice for every sale, barter or exchange of goods or properties; and XXX XXX XXX~

DEQSION CTA case No. 10037 (B) Information Contained in the VAT Invoice or VAT Official Receipt. - The following information shall be indicated in the VAT invoice or VAT official receipt: (1) A statement that the seller is a VAT-registered person, followed by her Taxpayer's Identification Number (TIN); (2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value-added tax: Provided, That: (a) The amount of the tax shall be shown as a separate item in the invoice or receipt; XXX XXX XXX (c) If the sale is subject to zero percent (0%) value- added tax, the term 'zero-rated sale' shall be written or printed prominently on the invoice or receipt; XXX XXX XXX (3) The date of transaction, quantity, unit cost and description of the goods or properties or nature of the service; and (4) In the case of sales in the amount of One thousand pesos (P1,000) or more where the sale or transfer is made to a VAT-registered person, the name, business style, if any, address and Taxpayer Identification Number (TIN) of the purchaser, customer or client." (Emphasis and underscoring added) These provisions are further implemented by Section 4.113- 1(A) and (B) of Revenue Regulations (RR) No. 16-2005, as amended, to wit: "SEC. 4.113-1. Invoicing Requirements.- (A) A VAT-registered person shall issue:- (1) A VAT invoice for every sale, barter or exchange of goods or properties; and ~

DECISION CTA Case No. 10037 XXX XXX XXX Only VAT-registered persons are required to print their TIN followed by the word 'VAT' in their invoice or official receipts. Said documents shall be considered as a 'VAT Invoice' or 'VAT official receipt'. All purchases covered by invoices/receipts other than VAT Invoice/VAT Official Receipt shall not give rise to any input tax. VAT invoice/official receipt shall be prepared at least in duplicate, the original to be given to the buyer and the duplicate to be retained by the seller as part of his accounting records. (B) Information contained in VAT invoice or VAT official receipt. - The following information shall be indicated in VAT invoice or VAT official receipt: (1) A statement that the seller is a VAT-registered person, followed by her TIN; (2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the VAT; Provided, That: (a) The amount of tax shall be shown as a separate item in the invoice or receipt; (b) If the sale is exempt from VAT, the term 'VAT- exempt sale' shall be written or printed prominently on the invoice or receipt; (c) If the sale is subject to zero percent (0%) VAT, the term 'zero-rated sale' shall be written or printed prominently on the invoice or receipt; XXX XXX XXX (3) In the case of sales in the amount of one thousand pesos (Pl,OOO.OO) or more where the sale or transfer is made to a VAT-registered person, the name, business style, if any, address and TIN of the purchaser, customer or client, shall be indicated in addition to the ;c...

DECISION CfA case No. 10037 information required in (1) and (2) of this Section." (Underscoring added) In addition to the above requirements, the sales invoices must also be duly registered with the BIR as prescribed under Sections 237 238, both of the NIRC of 1997, as amended, which respectively provide: "SEC. 237. Issuance of Receipts or Sales or Commercial Invoices.- All persons subject to an internal revenue tax shall, at the point of each sale and transfer of merchandise or for services rendered valued at One hundred pesos (P100.00) or more, issue duly registered receipts or sales or commercial invoices, showing the date of transaction, quantity, unit cost and description of merchandise or nature of service: xxx XXX XXX xxx" "SEC. 238. Printing of Receipts or Sales or Commercial Invoices. - All persons who are engaged in business shall secure from the Bureau of Internal Revenue an authority to print receipts or sales or commercial invoices before a printer can print the same. No authority to print receipts or sales or commercial invoices shall be granted unless the receipts or invoices to be printed are serially numbered and shall show, among other things, the name, business style, Taxpayer Identification Number (TIN) and business address of the person or entity to use the same, and such other information that may be required by rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner." Thus, only the export sales of goods supported by the above stated documents that are compliant with substantiation and invoicing requirements shall qualify for VAT zero-rating under Section 106(A)(2)(a)(1) of the NIRC of 1997, as amended. Needless to state, petitioner's compliance with all the VAT invoicing requirements is required to be able to file a claim for input .9<-

DECISION CTA case No. 10037 taxes attributable to zero-rated sales. 50 The invoicing and substantiation requirements should be followed because it is the only way to determine the veracity of the taxpayer's claims.51 More importantly, it must be emphasized that compliance with all the VAT invoicing requirements provided by tax laws and regulations is mandatory. 52 In its Amended Quarterly VAT Returns for the four quarters of CY 2017, 53 petitioner reported a total sales amounting to P10,753,552,619.26, which includes zero-rated sales in the amount of P10,714,206,566.18, as shown below: Exhibit "P-4" Exhibit "P-5" Exhibit "P-6" Exhibit "P-7" Vatable Sales 1st Quarter 2nd Quarter Jrd Quarter 4th Quarter Total Zero Rated Sales Total Sales p 6 071 999.75 p 5,165,608.17 p 20 498 167.83 p 7 610,277.33 p 39 346 053.08 3 047 832 253.00 2 153 993 353.00 2 272 655 619.72 3 239 725 340.46 10 714 206,566.18 P3 053 904 252.75 P2159158961.17 P3 247 335 617.79 P10 753 55~2.26 P2 293 153 787.55 To substantiate its alleged zero-rated direct export sales, petitioner submitted its Monthly Working File for VAT Zero-Rated Sales for the months of CY 2017,54 Schedule of Total VAT Zero-Rated Sales55 and the corresponding sales invoices,56 Bureau of Customs Single Administrative Documents (BOC SAD),57 and bills of lading,58 which were duly examined by the Court-commissioned ICPA, Maria Myla S. Maralit of R.G. Manabat & Co. A perusal of the above-mentioned documents shows that out of the total reported zero-rated sales of P10,714,206,566.18, the total amount of P1,726,147,760.44, as detailed below, was found as not fully compliant with the invoicing requirements prescribed in the afore-quoted laws and regulations, hence, not qualified for VAT zero- rating, viz. 9z- 50 JRA Philippines, Inc. vs. Commissioner ofInternal Revenue, G.R. No. 171307, August 28, 2013. 51 Nippon Express (Philippines) Corporation vs. Commissioner of Internal Revenue, G.R. No. 191495, July 23, 2018. 52 Eastern Telecommunications Philippines, Inc. vs. Commissioner of Internal Revenue, G.R. No. 183531, March 25, 2015. 53 Exhibits "P-4", "P-5", "P-6", and "P-7", Docket- Vol. II, pp. 563 to 564, 567 to 568, 571 to 572, and 575 to 576, respectively. 54 Exhibits "P-46" to "P-57". 55 Exhibits "P-58" to "P-77". 56 Exhibits "P-78" to "P-116". 57 Exhibits "P-163" to "P-182". 58 Exhibits "P-183" to "P-202".

DECISION erA Case No. 10037 Sales reported in CY 2017 Less: properlv supported by Sales Invoice Unsupported per VAT Returns59 in Philippine Shipment in Philippine Exhibit SI in Philippine Peso Peso No. Nos. in US Dollars Peso60 No. in US Dollars !'61,347,955.98 60,667,033.48 1. Zero-rated sales ofgoods which are not supported by VATzero-rated sales invoice. 60,917,871.66 60,255,733.30 723-PPC "P-85" 90 $12,111,987.47 !'603,055,856.13 56,450,520.78 $15,674,397.22 !'779,694,191.02 57,377,413.05 99 2,329,333.85 115,290,378.91 57,303,736.96 "P-94" 54,272,500.40 53,534,374.46 724-PPC "P-96" 101 12,002,182.03 604,249,854.30 86,517.75 15,071,260.66 760,467,701.55 1,868,051.10 95,550,813.77 "P-104" 109 725-PPC "P-99" 104 11.382,940.03 575,179,959.72 14,944,551.48 757,028,877.58 "P-106" 111 2,359,860.40 120,931,046.20 726-PPC "P-100" 105 11,347,434.15 576,392,917.65 14,617,968.05 742,185,829.38 2,083,656.04 105,537,178.43 "P-109" 114 44-LDM "P-87'' 92 12,227,241.35 614,174,333.01 14_265,102.26 715.733,536.58 ''P-95" 100 911,102.46 45,108,682.79 45-LDM "P-89" 94 12,540,938.65 631,561,670.41 14,882,079.30 749,747,829.31 "P-97" 102 1,202,229.06 60,808,745.85 46-LDM "P-90" 95 12,348,439.09 618,903.767.19 14,951,687.55 750,098,679.50 "P-98" 103 1,460,877.33 73,891,175.35 47-LDM "P-92" 97 12,494,433.60 622,035,376.78 14,761,197.04 736,854,441.16 "P-101" 106 1,179,325.36 60,546,563.98 48-LDM "P-93" 98 11,878,032.54 591,169,679.52 14,002.727.70 698, 191,006.49 "P-103" 108 1,050.721.00 53,486,952.51 PAD- 620,900.06 31,852,172.87 "P-108" 113 619,213.55 31.765,655.12 AU REX 123 2. Zero-rated sales ofgoods which are either not supported by VAT zero-rated sales invoice or supported by sales invoice but dated outside the period ofdaim (dated 2018). 727-PPC 15,449,860.69 786,475,158.57 "P-102" 107 12,654,687.76 644,186,880.42 142_288_278.15 728-PPC 16,501,252.65 847,999,373.85 "P-105" 110 14,668,081.49 753,792,707.77 94.206,666.08 729-PPC 16,155,687.37 827,985,141.69 "P-107" 112 14,836,691.72 760,306.267.19 67,678,874.50 49-LDM 15,158,814.48 760,062,957.85 "P-110" 115 12,414,194.16 622,447,695.18 137,615,262.67 3. Zero-rated sales ofgoods which are supported by VATzero-rated sales invoice but dated outside the period of claim (dated 2018). 50-LDM 15,297,973.13 762,145,021.22 762,145,021.22 Total P1,726,147,760.44 Consequently, only the zero-rated export sales of goods in the amount of P8,988,058,805.74,61 which were properly supported by VAT zero-rated sales invoices in accordance with the above stated Sections 113(A) and (B), 237 and 238 of the NIRC of 1997, as amended, in relation to Section 4.113-1(A) and (B) of RR No. 16- 2005, complied with the second essential element. it-- 59 Exhibit "P-18", Docket- Vol. I, p. 319. 6() PhP value per Exhibit "P-18", Docket- Vol. I, p. 336. 61 Total reported zero-rated sales of !'10,714,206,566.18 less disallowed zero-rated sales of !'1,726,147.760.44.

DEOS!ON CTA Case No. 10037 As for the third essential element, and in relation to the fifth requisite, petitioner presented the Certifications of Inward Remittance62 issued by Union Bank, PNB, BPI and BDO Unibank, Inc., purportedly showing the payments for its export sales in acceptable foreign currency accounted for in accordance with the rules and regulations of the BSP. Notably, the certification of inward remittances attests to the fact of payment ''in acceptable foreign currency .. .and accounted for in accordance with the rules and regulations of the BSP'~63 Records reveal that the amounts shown in the summary of VAT zero-rated sales supported with sales invoices dated 2017 can be traced with certainty to the certificates of inward remittance as found by the ICPA.64 Thus, respondent's basis (i.e., that certain export sales are "without valid documentary proof of inward remittances'') in denying part of petitioner's administrative claim is untenable. Correspondingly, the said certificates satisfied the third essential element and the fifth requisite, i.e., the sales were paid for in acceptable foreign currency and accounted for in accordance with BSP rules and regulations. In fine, and for purposes of compliance with the fourth requisite, petitioner was able to establish that its export sales of goods for CY 2017, in the reduced amount of P8,988,058,805.74, qualify as VAT zero-rated sales under Section 106(A)(2)(a)(1) of the NIRC of 1997, as amended. The input taxes being claimed do not appear to be transitional input taxes. The claimed input taxes do not appear to be transitional input taxes, as understood under Section 111(A) of the NIRC of 1997, as amended, to wit: "SEC.111. Transitional/Presumptive Input Tax Credits. - Je- 62 Exhibits "P-205" to "P-232" and "P-1124" to "P-1128". 63 Intel Technology Philippines, Inc. vs. Commissioner ofInternal Revenue, G.R. No. 166732, April 27, 2007. 64 Exhibit "P-18", Docket- Vol. I, pp. 345 to 346.

DECISION erA Case No. 10037 (A) Transitional Input Tax Credits. -A person who becomes liable to value-added tax or any person who elects to be a VAT-registered person shall, subject to the filing of an inventory according to the rules and regulations prescribed by the Secretary of Finance, upon recommendation of the Commissioner, be allowed input tax on her beginning inventory of goods, materials and supplies equivalent to two percent (2%) of the value of such inventory or the actual value-added tax paid on such goods, materials and supplies, whichever is higher, which shall be creditable against the output tax". Transitional input tax credit operates to benefit newly VAT- registered persons, whether or not they previously paid taxes in the acquisitions of their beginning inventory of goods, materials and supplies. During the period of transition from non-VAT to VAT status, the transitional input tax credit serves to alleviate the impact of the VAT on the taxpayer.6s In this case, there is no showing that petitioner is a newly VAT- registered entity, thus, in the absence of any indication that the claimed input taxes are transitional input taxes, the Court holds that the sixth requisite for the grant of an input VAT refund has been satisfied by petitioner. Not all ofpetitioner's input VAT being claimed for refund were duly substantiated with supporting documents. Anent the seventh requisite, petitioner is required to provide supporting documents that could prove that the subject input taxes were actually due or paid in accordance with Section llO(A) of the NIRC of 1997, as amended, which provides that: "SEC. 110. Tax Credits.- (A) Creditable input Tax.- ):-- 65 Fort Bonifacio Development Corporation vs. Commissioner of Internal Revenue, G.R. Nos. 158885 and 170680, April 2, 2008.

DECISION CTA Case No. 10037 (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: (a) Purchase or importation of goods: (i) For sale; or (ii) For conversion into or intended to form part of a finished product for sale including packaging materials; or (iii) For use as supplies in the course of business; or (iv) For use as materials supplied in the sale of service; or (v) For use in trade or business for which deduction for depreciation or amortization is allowed under this Code. (b) Purchase of services on which a value-added tax has actually been paid. (2) The input tax on domestic purchase or importation of goods or properties by a VAT-registered person shall be creditable: (a) To the purchaser upon consummation of sale and on importation of goods or properties; and (b) To the importer upon payment of the value- added tax prior to the release of the goods from the custody of the Bureau of Customs. Provided, That the input tax on goods purchased or imported in a calendar month for use in trade or business for which deduction for depreciation is allowed under this Code, shall be spread evenly over the month of acquisition and the fifty-nine (59) succeeding months if the aggregate acquisition cost for such goods, excluding the VAT component thereof, exceeds One million pesos (P1,000,000): Provided, however, That if the estimated useful life of the capital good is less than five (5) years, as used for depreciation purposes, then the input VAT}:-

DECISION CTA Case No. 10037 shall be spread over such a shorter period: Provided, finally, That in the case of purchase of services, lease or use of properties, the input tax shall be creditable to the purchaser, lessee or licensee upon payment of the compensation, rental, royalty or fee." The above provisions are implemented by Sections 4.110-1 to 4.110-3 of RR No. 16-2005, which provide as follows: "SECTION 4.110-1. Credits For Input Tax. -'Input tax' means the VAT due on or paid by a VAT-registered person on importation of goods or local purchases of goods, properties, or services, including lease or use of properties, in the course of his trade or business. It shall also include the transitional input tax and the presumptive input tax determined in accordance with Sec. 111 of the Tax Code. It includes input taxes which can be directly attributed to transactions subject to the VAT plus a ratable portion of any input tax which cannot be directly attributed to either the taxable or exempt activity. Any input tax on the following transactions evidenced by a VAT invoice or official receipt issued by a VAT-registered person in accordance with Sees. 113 and 237 of the Tax Code shall be creditable against the output tax: (a) Purchase or importation of goods ( 1) For sale; or (2) For conversion into or intended to form part of a finished product for sale, including packaging materials; or (3) For use as supplies in the course of business; or (4) For use as raw materials supplied in the sale of services; or Pz-

DEOS!ON CTA Case No. 10037 (5) For use in trade or business for which deduction for depreciation or amortization is allowed under the Tax Code, (b) Purchase of real properties for which a VAT has actually been paid; (c) Purchase of services in which a VAT has actually been paid; XXX XXX XXX SECTION 4.110-2. Persons Who Can Avail of the Input Tax Credit. -The input tax credit on importation of goods or local purchases of goods, properties or services by a VAT-registered person shall be creditable: (a) To the importer upon payment of VAT prior to the release of goods from customs custody; (b) To the purchaser of the domestic goods or properties upon consummation of the sale; or (c) To the purchaser of services or the lessee or licensee upon payment of the compensation, rental, royalty or fee. SECTION 4.110-3. Claim for Input Tax on Depreciable Goods. - Where a VAT-registered person purchases or imports capital goods, which are depreciable assets for income tax purposes, the aggregate acquisition cost of which (exclusive of VAT) in a calendar month exceeds One Million pesos (P1,000,000.00), regardless of the acquisition cost of each capital good, shall be claimed as credit against output tax in the following manner: (a) If the estimated useful life of a capital good is five (5) years or more - The input tax shall be spread evenly over a period of sixty (60) months and the claim for input tax credit will commence in the calendar month when the capital good is acquired. The total input taxes on purchases or importations of this type of capital goods shall be divided by 60 and the quotient will be the amount to be claimed monthly. ;t--

DECISION CTA Case No. 10037 (b) If the estimated useful life of a capital good is less than five (5) years - The input tax shall be spread evenly on a monthly basis by dividing the input tax by the actual number of months comprising the estimated useful life of the capital good. The claim for input tax credit shall commence in the calendar month that the capital goods were acquired. Where the aggregate acquisition cost (exclusive of VAT) of the existing or finished depreciable capital goods purchased or imported during any calendar month does not exceed One million pesos (P1,000,000.00), the total input taxes will be allowable as credit against output tax in the month of acquisition; Provided, however, that the total amount of input taxes (input tax on depreciable capital goods plus other allowable input taxes) allowed to be claimed against the output tax in the quarterly VAT Returns shall be subject to the limitation prescribed under Sec. 4.110-7 of these Regulations. The aggregate acquisition cost of a depreciable asset in any calendar month refers to the total price agreed upon for one or more assets acquired and not on the payments actually made during the calendar month. Thus, an asset acquired in installment for an acquisition cost of more than P1,000,000.00 will be subject to the amortization of input tax despite the fact that the monthly payments/installments may not exceed P1,000,000.00. XXX XXX XXX If the depreciable capital good is sold/transferred within a period of five (5) years or prior to the exhaustion of the amortizable input tax thereon, the entire unamortized input tax on the capital goods sold/transferred can be claimed as input tax credit during the month/quarter when the sale or transfer was made but subject to the limitation prescribed under Sec. 4.110- 7 of these Regulations." Furthermore, Section 4.110-8 of RR No. 16-2005 provides for the substantiation requirements of input tax credits on domestic purchases of goods, properties and services, to wit:;z_.-

DECISION CTA Case No. 10037 "SECTION 4.110-8. Substantiation of Input Tax Credits.- (a) Input taxes for the importation of goods or the domestic purchase of goods, properties or services is made in the course of trade or business, whether such input taxes shall be credited against zero-rated sale, non- zero-rated sales, or subjected to the 5% Final Withholding VAT, must be substantiated and supported by the following documents, and must be reported in the information returns required to be submitted to the Bureau: (1) For the importation of goods - import entry or other equivalent document showing actual payment of VAT on the imported goods. (2) For the domestic purchase of goods and properties - invoice showing the information required under Sees. 113 and 237 of the Tax Code. (3) For the purchase of real property - public instrument i.e., deed of absolute sale, deed of conditional sale, contract/agreement to sell, etc., together with VAT invoice issued by the seller. (4) For the purchase of services - official receipt showing the information required under Sees. 113 and 237 of the Tax Code. A cash register machine tape issued to a registered buyer shall constitute valid proof of substantiation of tax credit only if it shows the information required under Sees. 113 and 237 of the Tax Code." Thus, in order for petitioner to prove that its input taxes were actually due or paid, it input VAT must be duly substantiated by supporting documents prescribed under Section 4.110-8 of RR No. 16-2005. Furthermore, said documents must likewise comply with the invoicing requirements under Sections 113(A) and (B), 237 and 238 of the NIRC of 1997, as amended, and implemented by Section 4.113-1(A) and (B) of RR No. 16-2005. ?t-

DECISION CTA case No. 10037 In its amended Quarterly VAT Returns for CY 2017,66 petitioner reported a total input VAT of P73,604,095.37 from its purchase of capital goods exceeding PlMillion, domestic purchases of goods other than capital goods, and importation of goods other than capital goods, out of which the amount of P21,529,612.72 is the subject of the present claim for refund or TCC, as computed below: 1" Quarter z�� Quarter l"'Quarter 4"'Quarter Total Input Tax p 29 680 239.07 p 28 735 380.19 p 48 807 419.49 p 57 406 696.17 p 164 629 734.92 Deferred on capital Goods 1167 924.12 22 788 035.00 12 242 865.00 5 864 411.00 42 063 235.12 exceeding P1Million from 28.735,380.19 48,807,419.49 57,406,696.17 59,413,771.12 194,363,266.97 Previous Quarter Add: Input Tax p 2112783.00 p 2 715.995.70 p 3 643 588.32 p 3 857.336.05 ' due on Purchase p 30,970.08 p 36,332.19 p 20 566.36 p 255,678.74 p 12329703.07 of capital Goods exceeding 13,164.717.00 17,583,290.97 17,047,628.96 13,135,208.00 p 343 547.37 P1Million P13195. 687.08 p 17.619 623.16 p 17.068195.32 p 1.1390 886.74 60,930,844.93 Less: Input Tax on Purchases of P15,308,470.08 P20,335,618.86 P20,711,783.64 P17,248,222.79 p 61 274 392.30 capital Goods P73,604,095.37 exceeding 728 639.97 619 872.98 2 459 780.14 913 233.28 P1Million 4 721 526.37 deferred for the P14,579 830.11 P19 715,745.88 P18,252,003.50 P16,334,989.51 succeeding P68,882,569.00 period Amortization of Jt- 46 729 507.99 Input Taxon Capital Goods exceeding P1Million Add: Current Input Tax on: Domestic Purchases of Goods Other than capital Goods Importation of Goods Other than capital Goods Total Totallnput Taxes for the period Less: Output Tax Due Excess Input VAT Less: Allowable input VAT for TCC/Refund per BIR Letter dated January 16, 201967 66 Exhibits "P-4", "P-5", "P-6", and "P-7", Docket- Vol. II, pp. 563 to 564, 567 to 568, 571 to 572, and 575 to 576, respectively. 67 Exhibit "P-11", Docket, pp. 604 to 605.

DECISION CfA Case No. 10037 Disallowances per ------ 623,448.1268 VCAD verification p 21 529 612.8969 Excess Input VAT claimed for refund However, the following items shall be disallowed by the Court for the corresponding reasons stated: a)Amortization of Input VAT on Capital Goods exceeding P1Million - P12,329,703.07 Based on ICPA's examination, the capital goods exceeding P1Million presented in the amortization schedule were acquired by petitioner through importation.70 In proving the actual payment of VAT thereon, Section 4.110-8(a)(1) of RR No. 16-05, as amended, requires that the same should be supported with import entry or other equivalent documents. Thus, petitioner presented its Amortization Schedule of Imported Capital Goods exceeding P1Million71 and the related Statement of Settlement of Duties and Taxes (SSDTs), BOC SADs and commercial invoices to substantiate the amount of P12,329,703.07, representing its amortization of input VAT on capital goods exceeding P1Million. However, records reveal that the corresponding commercial invoices attached to the aforesaid BOC SSDT/SAD, marked as Exhibits "P-926" to "P-1063", were denied admission by this Court in its Resolution dated December 2, 2019,72 for being mere photocopies as determined by the ICPA. Therefore, the amortization of input VAT on capital goods exceeding P1Million in the amount of P12,329,703.07 shall be disallowed. b) Input VAT from Domestic Purchase of Goods other than Capital Goods- P343,547.37 Moreover, upon verification of the documents supporting petitioner's domestic purchases of goods other than capital goods, ~ 68 Disallowed input taxes of !>622,357.18 add Additional output VAT assessed on other income of P1,090.94, Exhibit "P-11", Docket, p. 605. 69 P0.17 difference per Petition for Review. 70 Exhibit "P-18", Item C.i)(3), Docket- Vol. I, p. 357. 71 Exhibits "P-925" to "P-925-A". 72 Resolution, Docket - Vol. II, p. 638

DECISION CfA Case No. 10037 the ICPA noted that some of the transactions therein actually pertain to domestic purchase of services.73 In support of its input VAT on domestic purchases of goods and services with an aggregate amount of P343,547.37, petitioner submitted invoices and official receipts74 issued by its suppliers. However, the ICPA disallowed the input VAT from domestic purchases of goods other than capital goods and domestic purchases of services in the amount of P286,762.58/5 due to the following reasons: 1" 2"d 3"' 4"' Total Quarter Quarter Quarter Quarter Disallowed input VAT from domestic t urchases ofgoods other than capital goods The address of petitioner p 45,174.71 p 45,174.71 is either not indicated, incorrect or incomplete Disallowed input VAT from domestic J urchases ofservices Computer-generated OR p 4,152.33 p 3,249.12 p 590.39 326.25 8,318.09 with manual alteration Computer-generated OR 694.73 694.73 with manual alteration, the address of petitioner is either not indicated, incorrect or incomplete and the OR is dated in 2016 Computer-generated OR 4,595.94 62.32 4,658.26 with manual alteration and the address of petitioner is either not indicated or incomplete The address of petitioner 6,675.86 5,916.83 6,432.90 14,106.99 33,132.58 is either not indicated, incorrect or incomplete The TIN of petitioner is 37.80 156.00 814.32 1,008.12 either not indicated, incorrect or incomplete The TIN and address of 865.23 1,206.05 3,696.28 5,767.56 petitioner are either not indicated, incorrect or incomplete The address of petitioner 12,100.85 12,100.85 is either not indicated, incorrect or incomplete and the OR is dated in 2016 The address of petitioner 186.97 934.83 1,121.80 is either not indicated, incorrect or incomplete ~ 73 Exhibit "P-18", Docket- Vol. I, p. 352. 74 Exhibits "P-466" to "P-684". 75 Exhibit "P-18", Annexes "R" to "Z", Docket - Vol. I, pp. 353 to 354 and 379 to 387, respectively.

DECISION CTA Case No. 10037 and VAT amount is not separately indicated on the OR. VAT amount is not 62.32 62.32 properly indicated on the OR The name, TIN and 2,919.68 2,919.68 address of petitioner are either not indicated, incorrect or incomplete The address of petitioner 1,653.21 1,653.21 is either not indicated, incorrect or incomplete, the supporting OR is dated in 2016 and VAT amount is not separately indicated on the OR The TIN and address of 137.89 137.89 petitioner are either not indicated, incorrect or incomplete and the OR is dated in 2016 Purchase of service 250.69 62.32 156,813.02 157,126.03 supported with document other than VAT OR Disallowed input VAT from domestic purchases the nature of which cannot be determined solely on the basis of the supporting documents provided by PMC. Nature of transaction not 1,963.11 3,505.01 3,522.70 3,895.93 12,886.75 determinable Total P27,415.78 1"18,538.82 p 14,921.01 1"225,886.97 1"286,762.58 Upon further verification of the records of the instant case, the Court agrees with the foregoing findings in the ICPA Reportto be in order. Thus, the total amount of P286,762.58 shall be disallowed for petitioner's failure to meet the invoicing and substantiation requirements under Sections 110(A) and 113(A) and (B) of the NIRC of 1997, as amended, in relation to Sections 4.110-1, 4.110-2, 4.110- 8 and 4.113-1 of RR No. 16-2005, as amended. c) Input VAT from Importation of Goods other than Capital Goods- f/#60,930,844.93 In support of its claimed input VAT from importation of goods other than capital goods in the amount of P60,930,844.93, petitioner submitted various SSDTs, BOC SADs and commercial invoices. Nevertheless, the said BOC SSDT/SAD, marked as Exhibits "P-689" to "P-744" and "P-746" to "P-924", were among the exhibits that have been denied admission in the Court's Resolution dated December 2, 2019/6 for being mere photocopies as determined by the ICPA.77 fir.-- 76 Resolution, Docket - Vol. II, p. 638. 77 Resolution, Docket - Vol. II, pp. 638.

DECISION erA case No. 10037 Thus, the input VAT of P60,930,844.93 must be disallowed from petitioner's claim. In sum, out of the total input VAT of P73,604,095.37 for the or four quarters of 2017, only the amount of P56,784.62, as computed below, represents petitioner's valid input VAT for the same period: Total Input VAT for the period P73,604,095.37 Less: Disallowances p 286,762.58 286 762.58 Per ICPA Report Domestic purchases of goods and services P12,329,703.07 Per this Court's further verification 60,930.844.93 Capital Goods exceeding P1M Importation of goods other than 0.17 73,260,548.17 Capital Goods Difference in the amount per Petition p 56,784.62 for Review against per VAT Returns78 Valid input VAT Since there are both taxable sales and zero-rated sales, the valid input VAT of P56,784.62 shall be proportionately allocated on the basis of sales volume. To reiterate, the eighth requisite is to the effect that the input taxes claimed are attributable to zero-rated or effectively zero-rated sales. However, where there are both zero-rated or effectively zero- rated sales and taxable or exempt sales, and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on the basis of sales volume. As mentioned earlier, for the subject period of claim, there exist taxable sales subject to 12% VAT and zero-rated sales in the following amounts: Particulars Amount 12% VATable Sales Zero-Rated Sales p 39 346.053.08 Total Sales 10,714,206,566.18 p 10,753,552,61~.26 Jh- 78 Petition for Review of P21,529,612.72 less per VAT Returns as recomputed of P21,529,612.89.

DECISION CTA Case No. 10037 Considering that petitioner's input VAT cannot be directly or entirely attributed to any of the transactions, the valid input VAT of P56,784.62 shall be allocated proportionately on the basis of the volume of its sales, as shown below: Total Taxable Sales subiect to 12% VAT for the oeriod p 39 346 053.08 Divided bv the Total Sales for the oeriod Multiolied bv Total Valid Inout VAT 10 753 552 619.26 Valid inout VAT allocated to sales subiect to 12% VAT 56,784.62 p 207.77 Total Zero-Rated Sales for the oeriod p 10 714 206 566.18 Divided bv the Total Sales for the period Multiplied by Total Valid Input VAT 10 753 552,619.26 Valid inout VATallocated to zero-rated sales 56,784.62 p 56,576.85 Thus, for purposes of, and with regard to petitioner's compliance with, the eighth requisite, only the allocated amount of P56,576.85 represents valid input VAT attributable to total zero-rated sales. Refund of input VAT is only proper when the input VAT attributable to zero-rated sales exceeds output VAT. Having found that petitioner had valid input VAT attributable to its zero-rated sales, this Court shall now determine whether the same was not applied against its output VAT liability during and in the succeeding quarters, relative to the ninth requisite for the successful prosecution of an input VAT refund claim. Records show that after deducting the input VAT attributable to taxable sales subject to 12% VAT amounting to P207.77 from its output VAT liability of 1'4,721,526.3779 on the said sales, petitioner still has a net output VAT payable of P4,721,318.60, as computed below: 79 CY 2017 Taxable Sales Output VAT Exhibit 1" Quarter p 6,071,999.75 p 728,639.97 "P-32-B" 2"d Quarter 5,165,608.17 619,872.98 "P-33-B" 3'd Quarter 20,498,167.83 2,459, 780.14 "P-34-B" 41h Quarter 7,610,277.33 913,233.28 "P-35-B" Total p 39,346,053.08 p 4,721,526.37 ~

DECISION CfA Case No. 10037 Output VAT per Returns p 4,721,526.37 Less: Valid Input VAT allocated to 12% Vatable Sales Net Output VAT Payable 207.77 p 4,721,318.60 Since the input VAT attributable to 12% vatable sales is not enough to cover its output VAT liability, the valid input VAT attributable to zero-rated sales shall be utilized against the remaining output VAT liability of P4,721,318.60. However, it is apparent that the input VAT attributable to zero-rated sales of P56,576.85 is way lower than the net output VAT payable of P4,721,318.60. Consequently, petitioner still has net output VAT due of P4,664,741.75, computed as follows: Net Output VAT Payable p 4,721,318.60 Less: Valid Input VAT allocated to Zero-Rated Sales 56,576.85 Net Output VAT still due P4,664,741.75 Although petitioner's amended Quarterly VAT Returns for the four quarters of CY 2017 reflected the respective amounts of P106,202,493.63, P120,782,323.74, P54,426,664.73 and P72,678,668.2380 as ''Input Tax Carried Over from Previous Period'; still, petitioner failed to substantiate the same. Consequently, the input tax carry over of P106,202,493.63, P120,782,323.74, P54,426,664.73 and P72,678,668.23, cannot be validly applied against petitioner's output tax pursuant to Section 110(A) in relation to Section 110(8) of the NIRC of 1997, as amended, which states: "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 XXX Jz.- 80 Exhibits "P-4", "P-5", "P-6", and "P-7", (Line 20A), Docket - Vol. II, pp. 563, 567, 571, and 575, respectively.

DECISION erA Case No. 10037 (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: xxx." Verily, in claiming excess or unutilized input VAT from zero- rated transactions, it is the excess input tax over the output tax which should be refunded to the taxpayer or credited against other internal revenue taxes. Hence, it is important for the taxpayer to prove that it has enough prior year's excess input tax credits to cover its output tax liability for the current taxable year. Consequently, there being no excess input VAT which may be the subject of a claim for refund or tax credit certificate, the instant claim must be denied. One final note, let it be stressed that it is the taxpayer-claimant that has the burden of proof to establish the factual basis of his or her claim for tax credit or refund.81 Tax refunds are in the nature of tax exemptions. As such, they are regarded as in derogation of sovereign authority and to be construed strictissimi juris against the person or entity claiming the refund. 82 Thus, an applicant for a claim for tax refund or tax credit must not only prove entitlement to the claim but also compliance with all the documentary and evidentiary requirements.83 Strict adherence to the conditions prescribed by law is required of the taxpayer.84 WHEREFORE, in light of the foregoing considerations, the instant Petition for Review is DENIED for lack of merit. SO ORDERED. ~;�C �~;A.!{)... fUANITO C. CASTANEDA, JR. Associate Justice 81 Citibank N.A. vs. Court of Appeals and Commissioner of Internal Revenue, G.R. No. 107434, October 10, 1997. 82 Commissioner ofInternal Revenue v. S.C Johnson and Son, Inc., eta!., G.R. No. 127105, June 25, 1999. 83 Eastern Telecommunications Philippines, Inc. vs. Commissioner ofInternal Revenue, G.R. No. 183531, March 25, 2015, citing J.R.A. Philippines, Inc. vs. aR, G.R. No. 171307, August 28, 2013. 84 Steag State Power, Inc. (Formerly State Power Development Corporation) vs. Commissioner of Internal Revenue, G.R. No. 205282, January 14, 2019.

DECISION CTA Case No. 10037 I CONCUR: ,... .0-VILLENA 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. a-�~ C- a7-a.M:~..4/~ f(JANITO C. CASTANE~A, JR. Associate Justice Chairperson CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairperson's Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court. ROMAt(l Presiding Justice