TEAM SUAL CORPORATION (Formerly: Mirant Sual Corporation) v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SPECIAL FIRST DIVISION ***************** * TEAM SUAL CORPORATION (Formerly: C.T.A. CASE NO. 7470 MIRANT SUAL CORPORATION, Petitioner, Members: - versus - ACOSTA, Chairperson BAUTISTA, and CASANOVA, JJ. COMMISSIONER OF INTERNAL Promulgated: REVENUE, MAR 0 ~ 2010 . 2 , () 2 X- - - - - - - - - - - - - - ~:S:~~~~n:·_ ----------~ ---~-~ DECISION BAUTISTA, J.: This is a Petition for Review filed by petitioner on April 24, 2006, to seek the refund or issuance of tax credit certificate in the total amount of P103,302,627.88, al legedly representing unutilized input value-added tax (VAT) paid on its domestic purchases of capital goods, domestic purchases of goods other than capital goods, domestic purchases of services, services rendered by non-residents, importation of capital goods, and importation of goods other than capital goods, attributable to petitioner's zero-rated sales to National Power Corporation (NPC) for the four quarters of ta xable year 2004. f 38G

DECISION C.T.A. CASE NO. 7470 Petitioner Team Sua! Corporation is a corporation duly organized and existing under and by virtue of Philippine laws, with principal office at Barangay Pangascasan, Sua!, Pangasinan. 1 It is principally engaged in the business of power generation and subsequent sale thereof to NPC under a Build-Operate-Transfer (BOT) Scheme. 2 It is registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer, as evidenced by BIR Certificate of Registration bearing RDO Control No. 05-0181, with Taxpayer Identification No. 003-841-103. 3 Petitioner was originally registered with the Securities and Exchange Commission (SEC) under the name " Pangasinan Electric Corporation". Over the years, petitioner changed its name to "Southern Energy Pangasinan, Inc." on August 17, 1999; "Mirant Sua! Corporation" on June 28, 2001; and Team Sua! Corporation on July 23, 2007. 4 Respondent is the Commissioner of the Bureau of Internal Revenue, who is duly appointed and empowered to perform the duties of his office, including, among others, the duty to act on and approve claims for refund or issuance of tax credit certificate as provided by law. He holds office at the BIR National Office Building, Agham Road, Diliman, Quezon City. On December 19, 2003, petitioner filed with the BIR Revenue District Office No. 5-Aiaminos, Pangasinan an Application for VAT Zero-Rate of its supply of electricity to the National Power Corporation for the period covering January 1, 2004 to December 31, 2004, which was subsequently approved. 5 1 Annex "A", Petition for Review, rolla, p. 13 2 Par. 1, Jointly Stipulated Facts, Joint Stipulation of Facts and Issues (JSFI), rolla, p. 383 3 Annex "A", Petition for Review, rolla, p. 13 4 Par. 3, Jointly Stipulated Facts, JSFI, rolla, p. 383; Petitioner's "Certificate of Filing of Amended Articles of Incorporation", rolla, p. 894 ( 5 Exhibits "A" and "A-1 " 38 7

DECISION C.T.A. CASE NO. 7470 On April 26, 2004 6, July 26, 2004 7, October 25, 20048, and January 25, 2005, 9 petitioner filed its Quarterly VAT Returns for the four quarters of 2004 with the BIR, through the Electronic Filing and Payment System (EFPS), pursuant to Revenue Regulations No. 9-2001, as amended. On July 26, 2004 10 and on August 3, 2005 11 , petitioner filed its amended Quarterly VAT Returns for the first and fourth quarters of taxable year 2004, respectively, through the EFPS. In the said Returns, petitioner declared zero-rated sales amounting to P14,915,836,460.42, taxable sales amounting to P1,712,409.36, output VAT of P171,240.93, and excess input VAT of P103,131,386.94; detailed as follows: Zero -Rated Exh. Sales/Receipts Taxable Sales Output VAT Input VAT Excess Input VAT D p 3,698,654,169.48 p 0.00 p 0.00 p 13. 134.435.00 p 13, 134.435.00 E 3,653, 185,7 15.68 202,558. 14 20,255.81 3 1,973,996.35 31.953.740.54 F 3.7 44,693.428. 11 465.7 44 .07 46,574.4 1 19,967,007. 14 19,920,432.73 H 3,8 19,303, 147. 15 1,044, 107.15 104.4 10.7 1 38,227, 189.38 38. 122.778.67 p 14,915,836,460.42 P1,712,409.36 P171 ,240. 93 P1 03,302,627.87 P103,131,386.94 Pursuant to the procedure prescribed in Revenue Regulations No. 7-95, petitioner filed an administrative claim for refund of the unutilized input VAT with the BIR Revenue District Office No. 5 at Alaminos City on December 21, 2005, in the total amount of P103,302,627.88, incurred during the four quarters of taxable year 2004Y Due to respondent's inaction on the said administrative claim for refund, petitioner filed this instant Petition for Review on April 24, 2006, praying for the refund or issuance of tax credit certificate in the amount of P103,302,627.88, for its alleged unutilized input VAT for taxable year 2004. 6 7 8 9 10 Par. 5, Jointly Stipulated Facts, JSFI, rollo, p. 384 Par. 6, Jointly Stipulated Facts, JSFI, rollo, p. 384 Par. 7, Jointly Stipulated Facts, JSFI, ro!!o, p. 384 Par. 8, Jointly Stipulated Facts, JSFI, ro!!o, p. 384 I Par. 5, Jointly Stipulated Facts, JSFI, ro!!o, p. 384 11 Par. 8, Jointly Stipulated Facts, JSFI, ro/lo, p. 384 12 Exhibits "B" to "B-3" J8 8

DECISION C.T.A. CASE NO. 7470 In his Answer 13 , respondent interposed the following defenses: "6. Petitioner's alleged claim for refund is subject to administrative investigation by the Bureau; 7. Petitioner must prove that it paid the alleged VAT input taxes for the periods stated; 8. Petitioner must prove that its sales of electricity is subject to VAT at zero percent (0%) rate; 9. Petitioner must prove that the alleged input VAT is directly attributable to such alleged zero-rated sales; 10. Petitioner must prove that its alleged unutilized input VAT has not been applied against any output tax liabilities; 11. Petitioner must prove that the alleged claim was filed within the two (2) year period prescribed in Section 112 of the NIRC of 1997; 12. In an action for refund, the burden of proof is on the taxpayer to establish its right to refund, and failure to sustain the burden is fatal to the claim for refund; 13. Claims for refund are construed strictly against the claimant for the same partake of the nature of exemption from taxation." During trial, petitioner presented both testimonial and documentary evidence to support its claim. On April 21, 2008, petitioner filed its Formal Offer of Evidence, offering Exhibits "A" to "HH-1" and "JJ-1" to "UU-1", inclusive of submarkings. On the other hand, during the September 9, 2008 hearing and upon motion of petitioner's counsel, respondent was considered to have waived his right to present evidence, for failure to appear during the scheduled hearings for presentation of its evidence. 14 On March 10, 2009, a Resolution 15 was issued by this Court upon motion of petitioner, changing the caption of this case from "Mirant Sual Corporation (formerly Southern Energy Pangasinan, Inc.) vs. Commissioner of Internal Revenue" to "Team Sual Corporation (Formerly: Mirant Sual Corporation) vs. Commissioner of Internal I 13 Rollo, pp. 349-352 14 Resolution dated October 9, 2008, rolla, p. 828 15 Rollo, pp. 907-908 ' 38 9

DECISION C.T.A. CASE NO. 7470 Revenue". Likewise, in said Resolution, this case was submitted for decision, taking into consideration respondent's Memorandum filed on February 9, 2009 and petitioner's Memorandum filed on January 27, 2009. The following are parties' jointly stipulated issues 16 submitted for this Court's resolution: "1. Whether or not the power generation services rendered by Petitioner to NPC are subject to zero percent (0%) VAT pursuant to Section 108(B)(3) of the National Internal Revenue Code of 1997 ('Tax Code'); 2. Whether or not Petitioner had unutilized creditable input VAT for the four quarters of CY 2004 arising from its domestic purchases of goods and services and importations of goods amounting to P103,302,627.88 that can be a proper object of a claim for refund pursuant to Section 108 (B)(3) and Section 112 (A) of the Tax Code; 3. Whether or not the alleged unutilized creditable input taxes for the first, second, third and fourth quarters of CY 2004 are substantiated by proper invoices and official receipts; 4. Whether or not the alleged unutilized creditable input VAT for the four quarters of CY 2004 was carried over to the succeeding taxable quarter(s) and applied against any of the output VAT liability of the Petitioner; and, 5. Whether or not Petitioner is entitled to a refund and/or issuance of tax credit certificate for the unutilized input VAT payments for the four quarters of CY 2004 in the amount of P103,302,627.88. 6. Whether or not petitioner paid the alleged VAT input taxes for the period stated. 7. Whether or not petitioner's alleged input VAT is directly attributable to such alleged zero-rated sales. 8. Whether or not petitioner's claim was filed within the two (2) year period prescribed in Section 112 of the NIRC of 1997." 16 Stipulation of the Issues, JSFI, rollo, pp. 384-385 390

DECISION C.T.A. CASE NO. 7470 The issues boil down into one major issue, viz., "whether or not petitioner is entitled to a refund or issuance of tax credit certificate for its alleged unutilized input VAT payments amounting to P103,302,627.88, arising from its domestic purchases of goods and services and importations of goods attributable to its effectively zero-rated sales to NPC for the four quarters of taxable year 2004. " Section 112(A) of the National Internal Revenue Code (NIRC) of 1997 lays down the requisites for refunds or issuance of tax credit certificate of input tax due or paid attributable to zero-rated or effectively zero-rated sales, which reads as follows: "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 that such input tax has not been applied against output tax : Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108(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 Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales. " From the foregoing, petitioner must comply with the following requisites to be entitled to a refund: 1. that there must be zero-rated or effectively zero-rated sales; 2. that input taxes were incurred or paid; 3. that such input taxes are attributable to zero-rated sales or effectively zero- rated sales; 4. that the input taxes were not applied against any output VAT liability; and 5. that the claim for refund was filed within the two-year prescriptive period. 391

DECISION C.T.A. CASE NO. 7470 Petitioner posits that its sale of electricity to NPC is effectively zero-rated for VAT purposes, pursuant to Section 108(6)(3) of the NIRC of 1997, in relation to Section 13 of Republic Act No. 6395, as amended, otherwise known as the NPC Charter, which are all quoted hereunder for easy reference: "SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. - XXX XXX XXX (B) Transactions Subject to Zero Percent {0°/o) Rate. -The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate: XXX XXX XXX (3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate." "SECTION 13. Non-profit Character of the Corporation, Exemption from All Taxes, Duties, Fees, Imposts and Other Charges by the Government and Government Instrumentalities. - The Corporation shall be non-profit and shall devote all its returns from its capital investments, as well as excess revenues from its operation, for expansion. To enable the Corporation to pay its indebtedness and obligations and in furtherance of effective implementation of the policy enunciated in Section one of this Act, the Corporation, including its subsidiaries, is hereby declared exempt from the payment of all forms of taxes, duties, fees, imposts as well as costs and service fees including filing fees, appeal bonds, supersedeas bonds in any court or administrative proceedings." The Court agrees with petitioner. This Court, in a number of cases 17 involving the same parties and issues, although involving different taxable periods, consistently held that NPC is an entity with a special charter which categorically exempts it from payment of all taxes, direct or 17 Team Sual Corporation (Formerly : Mirant Sual Corporation), vs. Commissioner of Internal Revenue, C.T.A. Case Nos. 6630 and 6733, June 9, 2009; Mirant Pagbilao Corporation (formerly Southern Energy Quezon, Inc.) vs. Commissioner of Internal Revenue, C.T.A. Case No. 6133, March 18, 2003 I

DECISION C.T.A. CASE NO. 7470 indirect, including VAT. By virtue of the said charter, services rendered by a VAT- registered entity, like herein petitioner, to NPC are effectively subject to zero percent (0%) VAT, in accordance with Section 108(6)(3) of the NIRC of 1997. Moreover, NPC's tax-exempt status was confirmed by the Supreme Court in the case of Ernesto M. Maceda vs. Catalina Macaraig, Jr., et a/. 18 , in the following manner: "The NPC is a non-profit public corporation created for the general good and welfare, wholly owned by the government of the Republic of the Philippines. From the very beginning of its corporate existence, the NPC enjoyed preferential tax treatment, to enable the Corporation to pay the indebtedness and obligation and in furtherance and effective implementation of the policy enunciated in Section one of Republic Act No. 6395 ... XXX XXX XXX It is noted that in the earlier law, R.A. No. 358 the exemption was worded in general terms, as to cover 'all taxes, duties, fees, imposts, charges, etc. ..'. However, the amendment under Republic Act No. 6395 enumerated the details covered by the exemptions. Subsequently, P.D. No. 380, made even more specific the details of the exemption of NPC to cover, among others, both direct and indirect taxes on all petroleum products used in its operation. Presidential Decree No. 938 amended the tax exemption by simplifying the same law in general terms. It succinctly exempts NPC from 'all forms of taxes, duties, fees, imposts, as well as costs and service fees including filing fees, appeal bonds, supersedeas bonds, in any court or adm inistrative proceedings. ' The use of the phrase 'all forms' of taxes demonstrate the intention of the law to give NPC all the tax exemptions it has been enjoying before. The rationale for this exemption is that being non- profit the NPC 'shall devote all its returns from its capital investment as well as excess revenues from its operation, for expansion .. . XXX XXX XXX It is evident from the provisions of P.D. No. 938 that its purpose is to maintain the tax exemption of NPC from all forms of taxes including indirect ta xes as provided for under R.A. No. 6395 and P.D. No. 380 if it is to attain its goals." 18 197 SCRA 771 ! 393

DECISION C.T.A. CASE NO. 7470 It is undisputed that herein petitioner is principally engaged in the business of power generation and the subsequent sale thereof to NPC under a Build-Operate- Tra nsfer Scheme. 19 In addition, respondent himself approved petitioner's Application for VAT Zero-Rate of its supply of electricity to NPC for the period covering January 1, 2004 to December 31, 2004. 2 ° Consequently, such sale by petitioner of electricity to NPC is a VAT zero-rated transaction, pursuant to Section 108(8)(3) of the NIRC of 1997, as amended, in relation to Section 13 of Republic Act No. 6395, as amended by Presidential Decree Nos. 380 and 938. Petitioner's Quarterly VAT Returns for the four quarters of 2004, showed zero- rated sales/receipts amounting to P14,915,836,460.42, broken down as follows: Quarter Ex hib it Zero-rated sa les 1st D p 3,698,654, 169.48 2nd E 3,653,185,715.68 3rd F 3.7 44,693.428.11 4th H 3,8 19,303,147.15 Total p 14,915,836.460.42 A scrutiny of petitioner's Schedule of Gross Receipts/Summary of Zero-Rated Sales21 and supporting VAT invoices and official receipts 22 shows that out of the P14,915,836,460.42, treated by petitioner as zero-rated sales/receipts, the amount of P568,628,238.98 pertained to petitioner's sales of electricity to Mirant Philippines Energy Corporation, Mirant Philippines Industrial Power Corporation, and Mirant Philippines Industrial Power II Corporation, detailed as follows: Per Su m mary Exhibit No. Customer Gross Recei pts Annexed to (OR/ Invoice) Exhi b it S C- 1 Mirant Philippines Industrial Power Corp . QQ-3. QQ-3a p 1,027,866.01 C-1 Mirant Philippines Industrial Power Corp. QQ-4 1.196,27 6.63 19 Par. 1, Jointly Stipulated Facts, JSFI, rolla, p. 383 . 20 Exhibits "A" and "A-1"; par. 4, Jointly Stipulated Facts, JSFI, rolla, p. 383 21 Exhibits "MM-1 " " NN-1" "00 -1" "PP-1" and "S" Annexes "C- 1" "C-2" "C-3" and "C-4" 22 Exhibits "QQ-1",to "QQ-2 1d", "RR-1" to ,:RR- 17", :'SS-1" to "SS-19", and' "TT- l ;, to "TT-18" 394

DECISION C.T.A. CASE NO. 7470 C-1 Mirant Philippines Industrial Power Corp. QQ-4 1' 196,27 6.63 Mirant Philippines Industrial Power II C-1 Corp. QQ-5, QQ-5a 11,353,585.65 Mirant Philippines Industrial Power II C-1 Corp. QQ-6, QQ-6a 11.436,611.20 C-1 Mirant Philippines Energy Corp. QQ-10a 26,047.4 98.86 C-1 Mirant Philippines Industrial Power Corp. QQ-11, QQ- 11a 1,0 18,451.28 C-1 Mirant Philippines Industrial Power Corp. QQ-12a 796.716.36 Mirant Philippines Industrial Power II C-1 Corp. QQ- 13, QQ-13a 11 ,430,506.38 Mirant Philippines Industrial Power II C-1 Corp. QQ-19a 11.398,964.81 C-1 Mirant Philippines Energy Corporation QQ-20a 29.440,993.39 Mirant PHilippiens Industrial Power II C-2 Corp . RR-3, RR-3a 7,384,842.7 1 Mirant Philippines Industrial Power II C-2 Corp. RR-4a 7,388,916.68 C-2 Mirant Philippines Industrial Power Corp. RR-5, RR-5a 162,290.56 C-2 Mirant Philippines Industrial Power Corp. RR-9, RR-9a 545,810.99 C-2 Mirant Philippines Energy Corporation RR-10, RR-lOa 29,165,037.43 C-2 Mirant Philippines Energy Corporation RR-14, RR-14a 28.433,612.25 C-2 Mirant Philippines Industrial Power Corp. RR-15, RR-15a 1,081 ,058.48 Mirant Philippines Industrial Power II C-2 Corp . RR-16, RR-16a 11.474.476.93 C-3 Mirant Philippines Energy Corporati on SS- 1. SS-1 a 22,857,026.47 C-3 Mirant Philippines Energy Corp oration SS-2, SS-2a 15,119,128.64 C-3 Mirant Philippines Energy Corp ora tion SS-3, SS-3a 43,304.447.70 C-3 Mlrant Philippines Industrial Power Corp. SS-4, SS-4a 899.446.76 Mirant Philippines Industrial Power II C-3 Corp. SS-5, SS-5a 11.490.756.46 C-3 Mirant Philippines Energy Corpora ti on SS- 1l. SS- 11a 43,617,836.78 C-3 Mirant Philippines Industrial Power Corp. SS-12, SS- 12a 1,064,537.16 Mirant Philippines Industrial Power II C-3 Corp. SS-13, SS-13a 11,52 1,687.60 C-3 Mirant Philippines Energy Corporation SS-15, SS- 15a 45,377,259.93 C-3 Mirant Philippines Industrial Power Corp . SS-16, SS-16a 1.205.781.25 Mirant Philippines Industrial Power II C-3 Corp. SS- 17, SS- 17a 11,511,919.88 C-4 Mlrant Philippines Industrial Power Corp . TT-3, TT-3a 1,290,80 1.92 Mirant Philippines Industrial Power II C-4 Corp. TT-4, TT-4a 11 ,493,808.88 C-4 Mirant Philippines Industrial Power Corp. TT-8, TT-8a 1,009.778.21 Mirant Philippines Industrial Power II C-4 Corp. TT-9, TT-9a 11 ,582.735.88 C-4 Mirant Philippines Energy Corpo ration TT-13. TT-13a 43,522,109.56 C-4 Mirant Philippines Energy Corporation TT-1 4, TT- 14a 43, 126,679.34 C-4 Mirant Philippines Energy Corporation TT-15, TT-15a 44,9 11 .797.61 C-4 Mirant Philippines Industrial Power Corp. TT- 16, TT- 16a 1,363,603.71 Mirant Philippines Industrial Power II C-4 Corp . TT- 17, TT-17a 11 ,573,578.64 TOTAL P568,628,238. 98 f 395

DECISION C.T.A. CASE NO. 7470 However, a reading of petitioner's letter-claim for refund dated December 19, 2005, which was filed before the BIR on December 21, 2005, discloses that it included zero-rated sales to NPC alone, and did not cover zero-rated sales to Mirant Philippines Energy Corporation, Mirant Philippines Industrial Power Corporation, and Mirant Philippines Industrial Power II Corporation. It must be noted that the parties in this case did not submit the issue of whether or not sales to entities, other than NPC, is considered zero-rated. Necessarily, the appeal to this Court will be limited to claim for refund related to zero-rated transactions to NPC only. The long settled rule in this jurisdiction is that a party is not allowed to change his theory of the case or his cause of action on appeal. The Court had previously held that "courts of justice have no jurisdiction or power to decide question not in issue" and that a judgment going outside the issues and purporting to adjudicate something upon which the parties were not heard is not merely irregular, but extrajudicial and invalid. 23 Even if this court will consider the sales to Mirant Philippines Energy Corporation, Mirant Philippines Industrial Power Corporation, and Mirant Philippines Industrial Power II Corporation as part of the issues for adjudication, the same claim for refund in the amount of P568,628,238.98, as determined above, are not subject to zero percent (0%) VAT; considering that petitioner failed to substantiate and provide legal basis that said transactions are subject to zero percent. Settled is the rule that a claim for refund is in the nature of a claim for exemption; hence, it should be construed in strictissimi juris against the taxpayer. 24 A careful review of the remaining declared zero-rated sales/receipts of P14,347,208,221.44, pertaining to petitioner's alleged sales of electricity to NPC, reveals 23 Graciano Bernas vs. The Honorable Court of Appeals, eta/., G.R. No . 85041, August 5, 1993 24 Commissioner of Internal Revenue vs. Tokyo Shipping Co., Ltd ., eta/., G.R. No. L-68252 May 26, 1995 39 G

DECISION C.T.A. CASE NO. 7470 that the portion representing the amount of P2,430,229,567.30 are not properly supported by VAT official receipts and should, therefore, be denied VAT zero-rating, to wit: Per Summary Annexed to ExhibitS Exhibit No. (OR/Invoice) Gross Receipts 1.) Supporting ORs were doted outside the period o f claim and pertained to soles transactions different from the subject claim C-2 RR-6, RR-6a to RR-6d p 1,201,716,784.13 C-1 QQ-15, QQ- 15a 4,623,969.67 C-1 QQ- 15, QQ- 15b 2,489 ,087.85 C- 1 QQ- 18, QQ-18a 4,623,969.67 C-1 QQ- 18, QQ- 18b 2,000,836.43 C-1 QQ-21, QQ-21 a 586,981,927 .69 C-1 QQ-2 1, QQ-2 1b 586,981,927 .69 C-1 QQ-21, QQ-21 c 18,438,045.70 C- 1 QQ-21' QQ-2 1d 15,960,094.60 Subtotal p 2,423,816,643.43 2.) Supported by cancelled official receipt C-1 QQ- 17, QQ-17a p 4,623,969 .67 C-1 QQ- 17, QQ-17b 1,788,954.20 Subtotal p 6,412,923.87 Total p 2,430,229,567.30 Thus, petitioner's total valid zero-rated sales/receipts amounted only to P11,916,978,654.14, computed as follows: Declared Zero-Rated Sales/Receipts p 14,915,836,460.42 Less : Disallowed Zero-Rated Sales/Receigts Sales to entities other than NPC p 568,628,238 .98 Sales to NPC without proper VAT ORs 2,430,229,567 .30 2,998,857,806.28 Valid Zero-Rated Sales/Receipts Pll ,916,978,654.14 The Court will now determine the amount of input taxes attributable to petitioner's effectively zero-rated sales of electricity to NPC for taxable year 2004 in the amount of P11,916,978,654.14. In its VAT Returns for the four quarters of taxable year 2004, petitioner reported input taxes amounting to P103,302,627.87, broken down as follows: '=' V 9 '7 I

DECISION C.T.A. CASE NO. 7470 Quarter Exhibit Input VAT 1st D p 13, 134,435 .00 2nd E 31,973,996 .35 3rd F 19,967,007. 14 4th H 38,227 ' 189.38 Total p 103,302,627.87 This Court notes that there is a discrepancy of PO.Ol in petitioner's input VAT Returns for the four quarters of taxable year 2004 vis-a-vis the input VAT claimed by petitioner. In support of the alleged input VAT of P103,302,627.87, petitioner presented various suppliers' invoices and official receipts, Bureau of Customs (BOC) Import Entry and Internal Revenue Declarations (IEIRDs), and BOC official receipts.25 Upon examination of these documents, the Court-commissioned Independent Certified Public Accountant (CPA) 26 in his Report 27 dated October 26, 2007, noted that out of the total claim of P103,302,627.88, only the amount of P102,210,310.26 was ascertained to be properly substantiated. The Independent CPA's findings on the remaining claim of P1,092,317.62 are as follows: Finding/Observation Amount Unreconciled difference be tween the input VAT claim per p 1. 441.76 sche dule and the input VAT per Q uarterly VAT Returns Inpu t VAT on domestic purchases o f services supported by 2. 8,329.37 d ocum e nts o ther than ORs Inpu t VAT on domestic purchases o f goods supported by 3. 70,399.42 documents o ther than in voices Input VAT on domestic purchases of services supported by ORs 4. 994.23 with no BIR au thority to print Input VAT on domestic purchases of goods supported by 5. 25,642. 16 invoices with no BIR au thority to print Inpu t VAT on domestic purchases of services supported by ORs 6. 128,643.32 with p reprinted 'TIN" and "Non VAT/NV Inpu t VAT on domestic purchases of goods supported by 7. 5,454 .54 invoices with preprinted "TIN" and "Non VAT /NV" Inpu t VAT on domestic purchases o f services supported by ORs 8. 81,609 .16 w ith preprinted 'TIN" only 9. Inpu t VAT on domestic purchases o f goods supported by 27,783.68 tJ 25 Exhibits " BB- 1" to " BB-11 68", "CC- 1" to " CC- 1575", " DD-1" to " DD-1965", and " EE- l " to " EE-2470" 26 Mr. Emmanuel Y. Mendoza, Partner of Mendoza Querido & Co. " Exh;b;t "5", P'9" 4-9 39 8

DECISION C.T.A. CASE NO. 7470 invoices with preprinted "TIN" only Input VAT on domestic purchases of goods supported by 10. 2,090.91 invoices with no 'TIN" Input VAT on domestic purchases of services supported by ORs ll. 79,788.40 with stamped "TIN VAT" Input VAT on domestic purchases of services supported by 12. 10.00 photocopied ORs Input VAT on domestic purchases of services supported by ORs 13. 296,113.72 dated before the taxable year of claim Input VAT on domestic purchases of goods supported by 14. 139,587.92 invoices dated before th e taxable year of claim Input VAT on domestic purchases of services supported by ORs 15. 41,489.29 dated after the taxable year of claim Input VAT on domestic purchases of services supported by ORs 16. 7,794.03 with zero-rated "TIN" Input VAT on domestic purchases of services supported by ORs of 17. which the amount in the supporting document is in excess as 14,368.14 compared to the schedule Input VAT on domestic purchases of goods supported by 18. invoices of which the amount in the supporting document is in 2,947.27 excess as compared to the schedule Input VAT on domestic purchases of services and goods with no 19. 143,2 18.30 available supporting documents Input VAT on importation of goods with no available supporting 20. 15,6 12.00 documents Total p 1,092,317.62 Further examination of the records proves that the claimed input VAT in the amount of P4,398,315.03 must be denied for failure to meet the substantiation requirements under Sections llO(A) and 113(A) of the NIRC of 1997, as implemented by Sections 4.104-1, 4.104-5, and 4.108-1 of Revenue Regulations No. 7-95: 1. Input VAT claim on domestic purchases of services wherein amount does not tally with OR Input VAT Per Supporting Annex Exhibit Per Claim Documents Difference A-18 CC-59 & 59o 291,980.95 255,483.33 p 36,497.62 A-18 CC-60 & 60o 440,940.95 385,823.33 55,117.62 A-18 CC-122 28, 103.41 24,271. 13 3,832.28 A-18 CC - 182 27,300.24 23,391.34 3,908.90 A-18 CC-3 12 160,350.47 140,306.66 20,043.81 A-34 00-5 126.724. 14 114,051.67 12,672.47 A-34 00-6 60,526.31 54.473.68 6,052.63 A-34 00-46 234,350.83 205,056.98 29,293.85 A-34 00-2 18 & 218o 135,202.45 121,682.20 13,520.25 A-34 00-220 & 220o 97,092 .84 87,383.56 9.709.28 A-34 00-221 & 22 la 51,341.09 46,206.97 5,134.12 A-34 00-222 & 222o 27.454.55 24.709.09 2.7 45.46 A-34 00-223 & 223o 56,181.82 50,563.64 5,618.18 399

DECISION C.T.A. CASE NO. 7470 A-34 DD-1852 & 1852a 37,090.91 32.454.55 4,636.36 A-34 DD- 1853 & 1853a 42.777.96 37.430.71 5,347.25 A-3 4 DD-236 & 236a 58.722.98 51,382.61 7,340.37 A-34 DD-238 & 238a 40,850.78 35.744.43 5, 106.35 A-34 DD-240 & 240a 150,637 .23 131.807.58 18,829.65 A-34 DD-324 & 324a 142,533.75 124.717.03 17,8 16.72 A-34 DD-325 & 325a 181,890.91 159, 154.55 22.736.36 A-34 DD-327 & 327a 137,527.28 120,336.36 17, 190.92 A-34 DD-328 & 328a 102,036.36 89,281.82 12.754.54 A-3 4 DD-336 & 336a 60,94 1.50 53,323 .83 7,6 17.67 A-34 DD-337 & 337a 53,807 .92 47.421 .27 6,386.65 A-34 DD-37 4 & 37 4b 29,508.68 11,770.6 1 17.738.07 A-50 EE-2 10 & 2 10a 68,257.89 58,506.76 9.75 1.1 3 A-50 EE-3 16 & 3 16a 120,262.85 105,229.99 15,032.86 A-50 EE-3 17 & 3 17a 39,600.00 35,640.00 3,960.00 A-50 EE-3 19 & 3 19a,b 44.452.72 38,896 .13 5,556.59 A-50 EE-322 & 322a 6,039.44 5,284.51 754.93 A-50 EE-422 & 422a,b 143,18 1.82 122.727.27 20.454.55 Subtotal p 403, 157.45 2. Input VAT claim on domestic purchases of goods wherein amount does not tally with Invoice Input VAT Per Supporting Annex Exhibit Per Claim Doc uments Difference A- 19 CC-965 7, 190.00 7,183.64 p 6.36 A-35 DD-878 2,628.50 1,818.50 810.00 A-35 DD- 12 15 64,800 .00 32, 400.00 32.400.00 A-35 DD-1640 1,527.28 763.64 763.6 4 A-5 1 EE-799 3,906.55 1,792.91 2, 11 3.6 4 A-51 EE-837 1.43 1.82 572.73 859.09 Subtotal p 36,952.74 3. Importation of goods supported by BOC IEIRD & OR's issued by BOC but amount does not tally Input VAT Per Supporting Annex Exhibit Per Claim Documents Difference A-29 CC-15 19a 282,260.00 101.952.00 p 180,308.00 Subtotal p 180,308.00 4. Input VAT on purchase s supported by documents not in the name of the company Annex Exhibit Input VAT A-35 DD-949 p 1,288.64 Subtotal p 1.288.64 5. Input VAT on domestic purchases of goods/ services supported by TIN -V invoices/ OR's Annex Exhibit Input VAT A- 19 CC-952 p 11 ,363.64 A- 19 CC-953 11 ,363.64 A- 19 CC-954 11,363.64 A-19 CC-955 11,363.64 400

DECISION C.T.A. CASE NO. 7470 A- 19 CC-956 11 ,363.64 A-1 9 CC-957 11 ,363.64 A- 19 CC-958 11 ,363.64 A-19 CC-959 11,363.64 A- 19 CC-960 11 ,363.64 A- 19 CC-961 11 ,363.64 A-19 CC-962 11 ,363.64 A- 19 CC-963 11 ,363.64 A-34 DD-24 1 & 241 b 73,000.00 A-35 DD-1705 2.730.00 A-35 DD-1706 1,750.00 A-35 DD-1707 2,084.50 A-35 DD-1708 1,554.00 A-35 DD-1709 4.700.00 A-50 EE-141 4,000.00 A-50 EE-142 4,727.27 A-50 EE-142 4,253.00 A-50 EE-2 11 1,560.00 A-50 EE-2 12 780.00 A-50 EE-375 11 ,770.6 1 A-50 EE-376 35,698.77 A-50 EE-377 20,596.14 A-50 EE-378 7,847.08 A-51 EE-2153 11 ,645.00 A-51 EE-2 154 7,878.00 A-5 1 EE-2155 9 10.00 Subtotal p 333,848.05 6. Input VAT on domestic purchases of goods/ services dated outside the period of claim Annex Exhibit Date Input VAT A-18 CC-1575 11!10/05 p 200,000.00 A-19 CC-1405 03/21/02 1,341.27 A-19 CC- 1406 03/21/02 1.136.18 A-51 EE-1950 01/07/05 106.36 Subtotal p 202,583.81 7. Input VAT on domestic purc hases of services not supported by OR Annex Exhibit Input VAT A-18 CC-209 p 19.34 A-18 CC-210 36.22 A-18 CC-211 19.44 A-18 CC-2 12 19.54 A-18 CC-2 13 23.63 A-18 CC-2 14 19.37 A-18 CC-215 19.27 A- 18 CC-216 203.85 A-18 CC-217 20.23 A-18 CC-217 21.29 A-18 CC-218 49.37 A-18 CC-219 100.75 A-18 CC-220 19.31 I 401

DECISION C.T.A. CASE NO. 7470 A- 18 CC-22 1 151.28 A- 18 CC-222 19.3 1 A- 18 CC-220 23.36 A- 18 CC-22 4 24.98 A- 18 CC-225 50.72 A- 18 CC-226 63.28 A- 18 CC-227 20.08 A- 18 CC-228 21.56 A- 18 CC-229 24.87 A- 18 CC-230 33.02 A- 18 CC-23 1 383.55 A- 18 CC-232 19.34 A- 18 CC-233 134.5 1 A- 18 CC-234 280.66 A- 18 CC-235 61.10 A- 18 CC-236 19. 71 A- 18 CC-237 297.72 A- 18 CC-238 66.65 A- 18 CC-239 19.58 A- 18 CC-240 19.3 1 A- 18 CC-241 22.22 A- 18 CC-242 19.75 A-3 4 DD-241 a 73,000.00 A-50 EE-2255 69, 634.55 Subtotal p 144,982.72 8. Input VAT on servic es rendered by non -resident supported by BIR Form 1600 but no proof of payment Annex Exhibit Input VAT A- 16 BB-1 166 to 1 168 p 1,793, 64 2.33 A-32 CC- 1572 to 1574 684, 145.29 A-48 DD- 1964 to 1965 23,423. 10 A-64 EE-2467 to 2469 593,982.90 Subtotal p 3,095, 193.62 Total p 4,398,315.03 To recapitulate, out of th e total input VAT cl aim of P103,302,627. 88, only the amount of P97,8 11,995.23 is duly substanti ated by valid supporting documents, broken down as follows: Total Input VAT Claim p 103,302,627 .88 Less: Disall owan ces Per ICPA p 1,092,31 7.62 Per this Court's further verific ation 4,398,3 15.03 5,490,632.65 Valid Input VAT p 97,811 ,995.23

DECISION C.T.A. CASE NO. 7470 However, a portion of the valid input VAT of P97,811,995.23 shall be applied against petitioner's reported output VAT liability of P171,240.93, broken down as follows: Quarter Exhibit Taxable Sales Output VAT 1st D p - p - 2nd E 202,558.14 20,255.81 3rd F 465.744.07 46,574.41 4th H 1.044, 107.15 104.410.71 Total p 1,712,409.36 p 171,240.93 Consequently, only the remaining input VAT of P97,640,754.30 can be attributed to the entire zero-rated sales/receipts declared by petitioner in the amount of P14,915,836,460.42; and only the input VAT of P78,009,891.56 is attributable to the valid zero-rated sales/receipts of P11,916,978,654.14, as computed below: Valid Input VAT p 97,811,995 .23 Less : Output VAT 171,240.93 Valid Excess Input VAT p 97,640,754.30 Valid Zero-Rated Sa les/Receipts p 11 ,916,978,654.14 Divided b y Total Reported Zero-Rated Sales/Receipts -;- p 14,915,836.460.42 Multiplied b y Valid Excess Input VAT X p 97,640.754.30 Excess Input VAT attributable to the Valid Zero-Rated Sales/Receipts p 78,009,891.56 Although petitioner carried over the claimed unutilized input VAT for taxable year 2004 to the succeeding taxable quarters until the fourth quarter of taxable year 2005 28, petitioner deducted the amount of P206,891,158.45 29 , of which the valid input VAT of P78,009,891.56 forms part, as "VAT Refund/TCC Claimed". Therefore, petitioner could not have possibly utilized the input VAT of P78,009,891.56 in the succeeding quarters. 28 Exhibit "0 " 29 Exhibit "0 ", line 23D 403

DECISION C.T.A. CASE NO. 7470 Finally, it has been held in the case of Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue 30 that the reckoning of the two-year prescriptive period for the filing of a claim for refund/credit of input VAT on zero-rated sales is counted from the date of filing of the corresponding Quarterly VAT Return and payment of the tax due. The present claim pertains to input VAT on zero-rated sales incurred for the first to fourth quarters of taxable year 2004. Records indicate that petitioner originally filed on April 26, 2004 31 , July 26, 2004 32 , October 25, 200433 , and January 25, 2005 34 its Quarterly VAT Returns for the first, second, third, and fourth quarters of 2004, respectively. It filed the administrative and judicial claims for refund on December 21, 2005 and April 24, 2006, respectively. Applying the afore-mentioned jurisprudence, both the administrative and the judicial claims of petitioner were filed well within the two-year prescriptive period. In sum, the Court finds petitioner entitled to a refund or issuance of tax credit certificate in the reduced amount of P78,009,891.56, representing unutilized excess input VAT incurred in relation to its effectively zero-rated sales to NPC for the four quarters of taxable year 2004. WHEREFORE, the instant Petition for Review is hereby PARTIALLY GRANTED. Accordingly, respondent is hereby ORDERED to REFUND or to ISSUE A TAX CREDIT CERTIFICATE in the amount of SEVENTY EIGHT MILLION NINE THOUSAND EIGHT HUNDRED NINETY ONE PESOS AND 56/100 30 G.R. Nos. 141104 and 148763, June 8, 2007 31 Exhibit " C-1" 32 Exhibit " E-1 " 33 Exhibit " F-1 " 3 q Exhibit " G- 1" ,1 .... 0 '·t,

DECISION C.T.A. CASE NO. 7470 (P78,009,891.56) to petitioner, representing unutilized excess input VAT attributable to its effectively zero-rated sales to NPC for the four quarters of taxable year 2004. SO ORDERED. WE CONCUR: lL _.::::. l..- • ~~ ERNESTO D. ACOSTA Presiding Justice CAESAR A. CASANOVA Associate Justice CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. (L_- \'(" - Q.~ ERNESTO D. ACOSTA Presiding Justice Chairperson, First Division 405