PHILEX MINING CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

REPUBliC OF THE PHiliPPINES Coon of Tax Appeals QUEZON CITY SECOND DIVISION PHILEX MINING CORPORATION , C.T.A. CASE NO. 7495 Petitioner, Members: -versus- CASTANEDA, JR.,. Chairperson UY, and COMMISSIONER OF INTERNAL PALANCA-ENRIQUEZ, JJ. REVENUE , Promulgated: Respondent. ocr 2o2oos/ 7 ~ :o~ r~ . X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X AMENDED DECISION UY, ::/_. : For resolution is petitioner's "MOTION FOR RECONSIDERATION/NEW TRIAL" filed on January 22 , 2009, seeking a reconsideration of this Court's Decision promulgated on January 9, 2009 , dismissing the instant petition for review of lack of merit, or in the alternative , to order a new trial to afford petitioner an opportunity to adduce in evidence the provisional invoices discussed in the said Motion . The above Motion was set for hearing on February 26 , 2009 but had to be reset to March 18, 2009 due to absence of respondent's counsel. On said date , the Court granted petitioner's Motion for Ne w Trial in open court, and allowed petitioner .J to present its witness in the person of Guadaflor C. Malonzo , who testified on direct examination by way of judicial affidavit. . rr~ l I --' I J .-1f.r~"\08 J

AMENDED DECISION ' C.T.A . Case No. 7495 Witness Malonzo testified that he is the Marketing Coordinator of petitioner, ar}d that he executed a Judicial Affidavit 1 which states , among others , that he handles/supervises all the copper concentrates shipments thereof to its buyers, including the complete documentation of the shipments , such as the issuance of provisional invoices and final invoices ; that for each shipment, petitioner initially issued a provisional invoice, reflecting the estimated value of the shipment and the ninety percent (90%) of such estimated value , which the buyer is required to pay; that for the same shipment, petitioner subsequently issued a final invoice, covering the value thereof, as determined by the parties and a third party or umpire assay, less the ninety percent (90%) provisional payment; and that the final invoice though dated much later covers the same shipment that was covered by the provisional invoice.2 Respondent's counse l did not cross-examine said witness. Thereafter, petitioner filed its "Supplemental Offer of Evidence" on March 26 , 2009,3 offering in evidence Exhibits "K" to "S", inclusive of sub-markings4 and were admitted in the Resolution dated May 21 , 2009.5 In the same Resolution , the parties were required to file their simultaneous memoranda within fifteen (15) days from receipt thereof. On June 4, 2009 , petitioner filed its "Memorandum for the Petitioner'B while respondent failed to file the required memorandum . In the Resolution dated July 20 , 2009 ,7 petitioner's "Motion for Reconsideration/ New Trial" was deemed submitted for resolution sans memorandum of respondent. 1 Exhibit "S", Docket, pp. 237-242. 2 Tran script of Stenographic Notes, March 18, 2009. 3 Docket, pp. 251-257 4 Docket, pp. 258-27 1 5 Docket, p. 272 6 Docket, pp. 275-282 7 Docket, p. 283 I J 1209 :I l..J

AMENDED DECISION C.T.A. Case No. 7495 "GROUNDS FOR THE MOTION I. THE HONORABLE COURT ERRED IN RULING THAT PETITIONER 'S DIRECT EXPORT SALE OF COPPER CONCENTRATES TO JAPAN DO NOTQUALIFY FOR VAT ZERO-RATING BECAUSE THE SALES INVOICES THAT COVERED THE SAME PERTAIN TO THE 4 TH QUARTER OF 2004 AND FALL OUTSIDE THE PERIOD OF THE CLAIM IN THE PETITION . THE FACT IS THAT SAID SALES INVOICES PERTAIN TO THE PERIOD OF THE CLAIM . II. THE HONORABLE COURT ERRED IN RULING THAT PETITIONER 'S INDIRECT EXPORT SALES TO PASAR ALSO DO NOT QUALIFY FOR VAT ZERO-RATING BECAUSE THE SALES INVOICES THAT COVERED THE SALES FALL OUTSIDE THE PERIOD OF THE CLAIM IN THE PETITION . THE FACT IS THAT SAID SALES INVOICES ALSO PERTAIN TO THE PERIOD OF THE CLAIM .8" As regards the first ground , petitioner explains that in its direct exports of copper concentrates , there are two periods when pricing or valuation of a shipment is made. First, a provisional pricing or valuation of the shipment is made by the petitioner upon shipm ent based on weight (dry and wet weight) and moisture as determined by petitioner and also based on petitioner' s provisional assays showing copper, gold and silver content. Second , upon arrival of the concentrates at the port of unloading , the weight and the moisture content are determined . Assays are also made fo r copper, gold and silver content. After these are done and settled , a final concentrate value is arrived at. Petitioner points out that the considered date of the sale transaction is at the time of the delivery of the sh ipment to the carrier. However, the sales contract with its buyer, Pan Pacific Copper Co. , Ltd . of Tokyo , Japan 9 , requires a provisional payment from the latter to petitioner of 90% of the estimated value of a shipment and 8 Motion for Reconsideration/New Trial, p. 3, Docket, p.208 I 9 Exhibit "8". 1210 J

AMENDED DECISION C.T.A. Case No. 7495 a final payment based on final settlement of we ights , assays and quotations . This is allegedly the reason why petitioner issues a provisional .invoice for the 90% estimated value of a shipment and a final invoice for the payment of the final balance after final settlement of the weight, assays and quotations are completed . This also allegedly explains why the final invoices carry dates much later than the date when the sale or shipment was made . Section 106(A)(2) (a)(1) of the National Internal Revenue Code (NIRC) of 1997 provides as follows : "SEC . 106. Value-added Tax on Sale of Goods or Properties.- (A) Rate and Base of Tax. - There shall be levied , assessed and collected on every sale , barter or exchange of goods or properties , a value- added tax equivalent to ten percent (10%) of the gross selling price or gross value in money of the goods or properties sold , bartered or exchanged , such tax to be paid by the seller or transferor. XXX XXX XXX (2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate : (a) Export Sales.- The term 'export sales ' means : (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 ownersh ip of the goods so exported and paid for in acceptable foreign currency or its equivalent in goods or services , and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); XXX XXX XXX Based on the foregoing , to be considered an export sale , there must be , not only a sale , but also an actual shipment of goods from the Philippines to a foreign country . Thus , such actual sh ipment of the goods , to be considered as an "export r sale" for purposes of the appl ication of the zero percent (0%) VAT rate , must be made also in the quarter the sale was made. _) i _)

AMENDED DEC I SI ON C.T.A. Case No. 7495 During the presentation of petitioner's additional evidence , its witness Guadaflor Malonzo identified , among others , Provi sional Invoice Nos . PX-2381 , dated June 3, 2004, marked as Exhibit "L" 10 and PX-2386 dated July 7, 2004 , marked as Exhib(t "M"11 both issued to Pan Pacific Copper Co ., Ltd ., for the 2nd quarter of 2004 . With the presentation of the said Provisional Invoice No. PX-2381 , petitioner was able to prove that the sales covered by Final Invoice No. PX-2402 dated October 4, 200412 amounting to US$4,749 ,732 .00 with peso equivalent of 12 265 ,054,064.97, as computed below, qualifies for VAT zero-rating under Section 106 (A)(2)(a)( 1) of the NIRC of 1997. Declared Zero-Rated Sales in Phliii! 939,237 ,698 .67 Divided by Declared Zero-Rated Sales in US$ 16,831 ,009 .00 Average peso to dollar rate 55 .8040043036 Multiplied by Substantiated Zero-rated Sales� in x US$ 4,749 ,732.00 Substantiated Zero-Rated Sales in Phli 265 ,054 ,064.97 However, the amount of US$4 ,944,801 .00 shall be denied , because the covering provis ional invoice thereon , Provisional Invo ice No . PX -2386 13 and the , correspond ing bill of lading 14, show that the copper concentrates were "shipped on July 6, 2004 " or outside the period of the subject claim . As to petitioner's indirect export sa les to PASAR for the 2nd quarter of 2004 in the amount of US$7,414 ,752.00 , petitioner likewise presented the correspond ing I Ii' 10 Docket, p. 259. 11 Docket, p. 260. 12 Ex hibit " F-1". 13 Ex hibit " M", Docket, p. 260 . 14 Exhibit "F-2-b". -' 1212 II I ,_.J

AMENDED DECISION C.T.A. Case No. 7495 Provisional Invoices it issued to PASAR 15 These documents prove that petitioner actually made indirect exports to PASAR. Such indirect export sales with peso equivalent of~ 413 ,772 ,852 .52 , as computed below, are subject to zero percent (0%) VAT pursuant to Section 106 (A)(2)(a)( 5) in relation to Articles 23 and 77 (2) of the Omnibus Investments Code and as clarified under RMC No . 74-99 : Declared Zero-Rated Sales in Ph~ 939 ,237 ,698.67 Divided by Declared Zero-Rated Sales in US$ 16,831 ,009 .00 Average peso to dol lar ,rate 55 .8040043036 Multiplied by Substanti ated Zero-rated X Sales in US$ 7,414,752 .00 Substantiated Zero-Rated Sales in Ph ~ 413 ,772 ,852 .52 To recapitulate , out of the 2nd quarter 2004 reported zero-rated sales of US$16 ,831 ,009.00 , only the following export sales in the total amount of US$12,164,484.00 with peso equivalent of~ 678 ,826 ,917.49 qualify for VAT zero- rating , to wit: In US Dollars In Ph il Peso Direct Exports of Copper to 4,749 ,732 .00 265 ,054,064.97 Japan Indirect Exports of Copper 7,414,752 .00 413 ,772,852 .52 to PASAR ~--~----------~--~---- Total 12,164,484.00 678 ,826 ,917.49 We now proceed to the determination of whether petitioner's input taxes in connection with its zero-rated sales for the 2nd quarter of 2002 are duly substantiated. 15 Exhibits "N", "0", "?", " Q" and "R", Docket, pp. 261-265 .. 1213

.� AMENDED DECISION C.T.A. Case No. 7495 In its VAT return for the 2nd quarter of 2004 16 , petitioner reflected an input VAT of~ 28 ,237:41 on domestic purchases and an input VAT of ~ 14,451 ,358 .00 on importations totaling to ~ 14,479,595.41 , as shown below: Purchases Input Tax ~ 28 ,237.41 Domestic Purchases - Capital Goods ~ 282 ,374.10 Importations -Goods other than Capital Goods 144,513 ,580.00 14,451 ,358 .00 Total ~ 144,795 ,954.10 ~ 14,479,595.41 With regard to the input taxes on domestic purchases , the Court- commissioned !CPA, Albert G. Alba , in his Report dated January 4 , 2007, submitted the following findings 17: Particulars Amount a. Original VAT official receipts that are in the name of Petitioner -Receipts dated in the current quarter ~ 15,519 .53 -Out-of-period receipts dated 3rd quarter of 2,284 .82 2004 b. No supporting VAT official receipts presented 8,051.37 c. No supporting VAT official invoices presented 2,381 .69 TOTAL ~ 28 ,237.41 Based on the above findings , only the input VAT of~ 15,519.53 (item a. 1) represents petitioner's valid claim while the remaining amount of ~ 12,717.88 (items a.2, b, and c) should be denied for the above-stated reasons . As regards the input VAT payment of ~ 14,451 ,358 .00 on petitioner's importations , the ICPA also presented the following findings 18: 16 Ex hibit J-1 0. 17 Exhibit E, page 5. 18 Ex hibi t E, page 4. 1214 i ,I '--'

AMEN DED DECIS IO N C.T.A. Case No. 7495 Particulars Amount Input taxes paid on importation of: F? 10,420,574 .00 1 Capital goods 3,799 ,362 .00 2 Other than capital goods 231,422 .00 In pu t tax payments w ith no s upporting 3 documents Jil 14,451 ,358.00 TOTAL After careful scrutiny of the documents presented supporting the input taxes on importations, We find that, ou t of the said amount of F? 14,451 ,358.00 , only the amount of F? 12,918 ,001 .00 is duly substantiated , while the remaining amount of F? 1,533 ,357 .00 shall be disallowed for the following re asons : Items Imported Exhibit No. Input VAT 1 Input VAT on importation of capital goods supported by documents dated outside the period of claim 200 pes adapter and tooth loader H-1 H-1-a F? 110,227 .00 5 units axial fan H-9 H-9-a 171 ,940 .00 li 282 ,167.00 2 Input VAT on importation of goods other than capital goods supported by documents dated outside the period of claim 2 pes parts for boring machine H- 10 H-1 0-a 69 ,63 5.00 3 containers valve control H-11 H-11 -a 38 ,677.00 1 container bolthing cloth H-12 H- 12-a 36 ,897 .00 1 container control valve H-13 H-13-a 37,240 .00 1 container parts for raise climber H-14 H-14- 50 ,771.00 55 pallets cartons cupels & crucible H-15 H-15-a 33 ,877 .00 1 crate stc 3 pes socket, cast bronze H-16 H-16-a 38,469 .00 12 pes screen sieve bend H-17 H-17-a 63 ,789 .00 4 rolls tip top repair material H-18 H-18-a 41 ,225 .00 3 pallets litharge H-19 H-19-a 56 ,508.00 parts for crusher machine H-20 H-20-a 18 ,092.00 1 case screen panel H-21 H-21 -a 44 ,937.00 5 cases screen woven wire H-22 H-22-a 98,106 .00 1 package parts for crusher H-23 H-23-a 94,293 .00 1 package crusher parts H-24 H-24-a 89,721.00 1 container spare parts H-25 H-25-a 61 ,821 .00 5 pallets hookfiber H-26 H-26-a 33,643.00 parts for rock drill H-27 H-27-a 24 ,972 .00 I 1 container parts for machine engine H-28 H-28-a 87 ,095 .00 1,019 ,768. 00 I' � ,~.,.l~ 5 i I_J1

AMENDED DECIS ION C.T.A . Case No . 7495 3 No supporting documents presented 2,500 .00 IEIRD No.51656035 63 ,139.00 IEIRD No.53742873 IEIRD No.52984915 1,997 .00 IEIRD No.53742875 44,404 .00 IEIRD No.52893224 21 ,524 .00 IEIRD No.51657322 IEIRD No.90165336 4 ,355 .00 IEIRD No.5298503 19 ,789.00 IEIRD No.6215 IEIRD No.54207754 2,082 .00 2,340 .00 Total 69 ,292 .00 231 ,422.00 p 1,533 ,357 .00 However, a portion of the substantiated input VAT of 12 12,918 ,001 .00 shall be applied against petitioner's reported output VAT liability of 12 23 ,182.00 19, which was not paid. Hence , only the remaining input VAT of 12 12,894,819.00 can be attributed to the entire zero-rated sales of 12 939,237 ,698.67 declared by petitioner and only the input VAT of 12 9,319 ,632.55 is attributable to the substantiated zero-rated sales of 12 678 ,826 ,917.49 , as computed below: Substantiated input VAT 12 12,918 ,001 .00 Less : Output Tax 23 ,182.00 Excess input VAT li 12,894 ,819.00 Substantiated Zero-rated Sales 678 ,826 ,917.49 Divided by Total Reported Zero-Rated Sales +939 ,237 ,698 .67 Multiplied by Substantiated Excess Input VAT X 12,894 ,819.00 Excess Input Tax Attributable to Substantiated Zero-Rated Sales li 9,319 ,632 .55 In sum , out of the claimed input VAT of 12 14,479,595.41 for the second quarter of taxable year 2004 , only the input VAT in the total amount of li 9,335 ,152.08 which are attributable to its zero-rated sales can be a proper subject of a claim for refund or tax credit, determined as follows : 19 Item 198 , Exhibit J-1 0. -1 ,j 1216

AMENDED DECISION C.T.A. Case No. 7495 Substantiated Input VAT on domestic purchases 1"1 15,519.53 Substantiated Input VAT claim on importations Total Substantiated Input VAT 9,319 ,632.55 Ji 9,335 ,152.08 As evidenced by its ?uarterly VAT Returns 20 from the 3rd quarter of 2004 to the 2nd quarter of 2005 , petitioner was able to prove that the input VAT of 1"1 9,335 ,152.08 was not applied against any output VAT in the succeeding quarters . Finally, petitioner's claim for refund was timely filed within the two-year prescriptive period both in the administrative and judicial levels. In the recent case entitled Commissioner of Internal Revenue vs. Mirant Pagbilao Corporation (formerly Southern Energy Quezon, Inc.} ,21 the Supreme Court held that the reckoning of the two-year prescriptive period for the filing of a cla im for input VAT refund under Section 112(A) of the NIRC of 1997 starts from the close of the taxable quarter when the relevant sales were made pertaining to the input VAT regardless of whether said tax was paid or not. The present claim pertains to input VAT incurred for the 2nd quarter of 2004. Counting from June 30 , 2004, the end of the 2nd qtr of 2004, petitioner had until June 30, 2006 within which to file its claim both in the administrative and judicial levels . Hence , petitioner's administrative claim filed on November 25 , 2005 22 and the Petition for Review filed on June 29, 2006 were well within the two-year prescriptive period . WHEREFORE , in light of the foregoing , petitioner's Motion for Reconsideration is hereby PARTIALLY GRANTED and the assailed Decision promulgated on January 9, 2009 is hereby MODIFIED. Accordingly , the Petition for 20 Ex hibits J-11 toJ-14 . 21 G.R. No. 172129, September 12,2008. 22 Paragraph 7, Summary of Facts Admitted, Stipulation of Facts and Iss ues, Docket, p. 36. 12 17 I ,_j

AMEN D ED DECIS ION C.T.A. Case No . 7495 Review filed on June 29, 2006 is PARTIALLY GRANTED and respondent is hereby ORDERED TO REFUND petitioner the amount of NINE MILLION THREE HUNDRED THIRTY FIVE THOUSAND ONE HUNDRED FIFTY TWO PESOS AND 08/100 (Iii 9,335 ,152.08), representing its unutilized input VAT for the second quarter taxable year 2004 . SO ORDERED. ER~UY Associate Justice WE CONCUR : a .. c . ---...~ �t;; a~~~ Q_ ~A~UEZ Associate Justice c50.ANTfo c. CASTANEo~JR'.r . Associate Justice ATTESTATION I attest that the conclusions in the above Amended Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division . ~ 0 -T - -O --c;C-G. C.~ ASTAN~ EDA;0QR: Associate Justice Chairperson . I....) I ._j

AMENDED DECISION C.T.A. Case No. 7495 Pagel2ofl2 CERTIFICATION I hereby certify that the Amended Decision was reached after due consultation with the members of the division of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. D--<t/. 0_,.___ ERNESTO D. ACOSTA Presiding Justice 1t;l9 .I