COMMISSIONER OF INTERNAL REVENUE v. TEAM ENERGY CORPORATION

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY ENBANC COMMISSIONER OF INTERNAL CTA EB No. 603 REVENUE, (erA Case Nos. 7229 & 7298) Petitioner, Present: -versus- Acosta, P.1., Castaneda, Jr., Bautista, Uy, Casanova, Palanca-Enriquez, Fabon-Victorino, Mindaro-Grulla, and Cotangco-Manalastas, 11. TEAM ENERGY CORPORATION, Respondent. PROMULGATED: X-------------------------------------------------~~- ~-~-!-~~ DECISION - CASTANEDA, JR., J.: This is a Petition for Review filed by petitioner Commissioner of Internal Revenue (CIR) before the Court of Tax Appeals (CTA) En Bane assailing the Decision1 dated October 5, 2009 and the Resolution2 dated February 23, 2010 ~ 1 Rollo, pp. 28-54. Penned by Associate Justice Caesar A. Casanova, with Presiding Justice Ernesto D. Acosta, concurring and dissenting, and Associate Justice Lovell R. Bautista, concurring. 2 Rollo, pp. 55-66.

DECISION CTA EB No. 603 (CTA Case No. 7229 & 7298) Page 2 of27 promulgated by the CTA First Division in the case entitled "TeaM Energy Corporation (Formerly Mirant Pagbilao Corporation and Southern Energy Quezon, Inc.) vs. Commissioner of Internal Revenue," docketed as CTA Case Nos. 7229 & 7298. The assailed decision PARTIALLY GRANTED the petition seeking the refund or issuance of a tax credit certificate in favor of herein respondent in the total amount of P70,700,533.01 allegedly representing unutilized input value-added tax (VAT) paid on its domestic purchases of goods and services and importation of goods attributable to zero-rated sales for all the four quarters of the calendar year 2003. THE FACTS The facts of the case as found by the CTA First Division are as follows: Petitioner is a domestic corporation organized and existing under and by virtue of Philippine laws, with principal office at Pagbilao Grande Island, Pagbilao, Quezon. It is engaged in the business of power generation and the subsequent sale to the National Power Corporation (NPC) under a Build, Operate, Transfer (BOT) agreement. Petitioner is registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer in accordance with Section 236 of the National Internal Revenue Code (1997 NIRC) as evidenced by BIR Certificate of Registration bearing RDO Control No. 96-600-002498 with Taxpayer Identification No. 001-726-870. Respondent,4 on the other hand, is the Commissioner of Internal Revenue who is duly appointed and empowered to perform the duties of his office, including, among others, the duty to act and approve claim[s] for refund or issuance of tax credit certificate of overpaid internal revenue taxes as provided by law, with office address at the BIR National Office Building, Agham Road, Diliman, Quezon City, where he may be served with summons and other court processes. Petitioner was originally registered with the Securities and Exchange Commission (SEC) under the name "Hopewell Power~ 3 Herein respondent. 4 Herein petitioner.

DECISION CTA EB No. 603 (CTA Case No. 7229 & 7298) Page3of27 (Philippines) Corporation" which was subsequently changed to "Southern Energy Quezon, Inc.," on September 22, 1999. On June 28, 2001, petitioner's name was again changed to " Mirant Pagbilao Corporation ." On November 13, 2002, petitioner filed with the BIR Audit Information, Tax Exemption and Incentives Division, an Application for Effective Zero-Rate of its supply of electricity to the NPC, which was subsequently approved. For the calendar year 2003, petitioner filed its original and amended VAT returns on the following dates: QUARTER ORIGINAL RETURN AMENDED RETURN 1ST April 25, 2003 July 25, 2003 2ND July 25, 2003 October 27, 2003 3RD October 27, 2003 January 24, 2004 July 26, 2004 On December 17, 2004, petitioner filed an administrative claim for refund of unutilized input VAT with the Revenue District Office No . 60 at Lucena City on December 17, 2004 in the total amount of P83,465,353.50. On April 22, 2005, receiving no favorable response from respondent, petitioner filed a Petition for Review before this Court, docketed as CTA Case No. 7229, claiming for the refund of the amount of P15,085,320.31 corresponding to the 1st quarter VAT claim for the calendar year 2003. On July 22, 2005 petitioner filed CTA Case No. 7298 for its corresponding judicial VAT refund claims for the 2nd to 4th quarters of 2003 summing up to P63,380,033.19. In CTA Case No. 7229, respondent alleged the following Special and Affirmative Defenses: "4. Petitioner's alleged claim for refund is subject to administrative routinary investigation/examination by the Bureau of Internal Revenue; 5. The amount of P15,085,320.31 being claimed by petitioner as alleged unutilized input VAT on domestic purchases of goods and services and importation of goods for the first quarter of 2003 is not properly documented; ~

DECISION CTA EB No. 603 (CTA Case No. 7229 & 7298) Page 4 of27 6. The decision of the Supreme Court in the case of Maceda vs. Macaraig 223 SCRA 217 (1993) which states that the NPC is exempt from all taxes, duties, fees, imposts, charges and restrictions of the Republic of the Philippines and its provinces, cities and municipalities, is not applicable to the instant petition. What is being exempted in said decision is NPC per se and such exemption does not extend to the supplier such as the petitioner in the instant case; 7. In an action for refund/credit, the burden of proof is on the taxpayer to establish its right to refund, and failure to sustain the burden is fatal to the claim for refund/credit; 8. Petitioner must show that it has complied with the provisions of Sections 204 (C) and 229 of the 1997 Tax Code on the prescriptive period for claiming tax refund/credit; 9. Claims for refund are construed strictly against the claimant for the same partake the nature of exemption from taxation (Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95) and as such, they are looked upon with disfavor (Western Minolco Corp. vs. Commissioner of Internal Revenue, 124 SCRA 1211)." In CTA Case No. 7298, respondent alleged the following Special and Affirmative Defenses: "3. He reiterates and repleads the preceding paragraphs of the Answer as part of his Special and Affirmative Defenses; 4. Petitioner's claim for refund is subject to administrative investigation/examination by the respondent; 5. To support its claim, it is imperative for petitioner to prove the following, viz. a. The registration requirements of a value- added taxpayer in compliance with Section 6(a) and (b) of Revenue Regulations No. 6-97 in relation to Section 4.107-1(a) of Revenue Regulations No. 7-95, and Section 236 of the Tax Code, as amended; ~

DECISION CTA EB No. 603 (CTA Case No. 7229 & 7298) Page5of27 b. The invoicing and accounting requirements for VAT-registered persons, as well as the filing and payment of VAT in compliance with the provisions of Sections 113 and 114 of the Tax Code as amended; c. Proof of compliance with the prescribed checklist of requirements to be submitted involving claim[s] for VAT refund in pursuance to Revenue Memorandum Order No. 53-98, otherwise there would be no sufficient compliance with the filing of administrative claim for refund which is a condition sine qua non prior to the filing of judicial claim in accordance with the provision of Section 229 of the Tax Code, as amended. It is worthy of emphasis that Section 112 (D) of the Tax Code, as amended, requires the submission of complete documents in support of the application filed with the Bureau of Internal Revenue before the 120-day audit period shall apply, and before the taxpayer could avail of judicial remedies as provided for in the law. Hence, petitioner's failure to submit proof of compliance with the above-stated requirements warrants immediate dismissal of the petition for review; d. That the input taxes of P68,380,033.19 allegedly paid by the petitioner on its purchases of goods and services for the second, third and fourth quarters of the year 2003 were attributable to its zero-rated sales and such have not been applied against any output tax and were not carried over in the succeeding taxable quarter or quarters; e. That petitioner's administrative and judicial claims for tax credit or refund of the unutilized input tax (VAT) was filed within two (2) years after the close of the taxable quarter when the sales were made in accordance with Sections 112 (A) and (D) and 229 of the Tax Code, as amended; f. That petitioner's domestic purchases of goods and services were made in the course of its trade or business, properly supported by VAT invoices and/or official receipts and other ~

DECISION CTA EB No. 603 {CTA Case No. 7229 & 7298) Page6of27 documents, such as subsidiary purchase Journal, showing that it actually paid VAT in accordance with Sections 110 (A) (2) and 113 of the Tax Code as amended, and in pursuance to Section 4.104-5 (a) & (b) of Revenue Regulations No. 7-95 (Re: Substantiation of Claims for Input Tax Credit); g. The requirements as enumerated under Section 4.104-2 of the Revenue Regulations 7-95. (Re: Persons who can avail of the Input Tax Credits); 6. Furthermore, 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/credit. This is so because exemptions from taxation are highly disfavored in law and he who claims exemption must be able to justify his claim by the clearest grant of organic or statutory law. An exemption from common burden cannot be permitted to exist upon vague implications (Asiatic Petroleum Co. {P.I} v. Llanes, 49 Phil. 466 cited in Collector of Internal Revenue v. Manila Jockey Club, Inc., 98 Phil 670); 7. Claims for refund are construed strictly against the claimant for the same partake the nature of exemption from taxation (Commissioner of Internal Revenue vs. Ledesma, 31 SCRA and 95) [sic] and as such, they are looked upon with disfavor (Western Minolco Corp. vs. Commissioner of Internal Revenue, 124 SCRA 1211)." On August 24, 2005, petitioner filed a Motion for Consolidation seeking to merge CTA Case Nos. 7229 and 7298. This Court granted said motion on October 12, 2005. The parties submitted their Joint Stipulation of Facts and Issues on December 22, 2005 which this Court approved on January 3, 2006. After trial, petitioner submitted its Formal Offer of Evidence on November 23, 2007. This Court admitted all of petitioner's exhibits on January 10, 2008. Respondent, for his part, failed to present any evidence so that on June 17, 2008 he was declared by the Court to have waived his right to present evidence. After considering the respective memorandum of the parties, filed on July 16, 2008 by the petitioner and on September 4, 2008 ~

DECISION CTA EB No. 603 (CTA Case No. 7229 & 7298) Page 7of27 by the respondent, the case was submitted for decision on October 9, 2008. On February 24, 2009, petitioner filed a Motion to Change Caption praying that the caption of the instant case be changed to "TeaM Energy Corporation (formerly Mirant Pagbi/ao Corporation and Southern Energy Quezon. Inc.), Petitioner, vs. Commissioner ofInternal revenue 2009 [sic]. On March 24, 2009, this Court granted said prayer via a Resolution. 5 On October 5, 2009, the Court in Division rendered the assailed Decision partially granting the Petition for Review filed by herein respondent Team Energy Corporation (TEC). The dispositive portion of the assailed Decision reads as follows: WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby PARTIALLY GRANTED. Respondent is hereby ORDERED to REFUND or ISSUE a tax credit certificate to the petitioner in the amount of P70,700,533.01. SO ORDERED. Aggrieved, the CIR filed a Motion for Partial Reconsideration on October 29, 2009. The same was denied for lack of merit by the Court in Division in its Resolution promulgated on February 23, 2010.6 The dispositive portion of the assailed Resolution reads as follows: WHEREFORE, there having no new matters or issues advanced by the respondent in his Motion which may compel this Court to reverse, modify or amend the October 5, 2009 Decision of the CTA Special First Division, respondent-CIR's "Motion for Partial Reconsideration" is hereby DENIED for lack of merit. p SO ORDERED. 5 Rollo, pp. 28-34. 6 Supra, note 2.

DECISION CTA EB No. 603 (CTA Case No. 7229 & 7298) Page 8 of27 Hence, this Petition for Review En Bane filed on March 31, 2010. THE ISSUE In the present Petition for Review, petitioner raises a lone assignment of error: THE HONORABLE FIRST DIVISION ERRED IN PARTIALLY GRANTING RESPONDENT'S JUDICIAL CLAIM FOR REFUND REPRESENTING ITS ALLEGED UNUTILIZED INPUT VALUE-ADDED [sic] (VAT) ON DOMESTIC PURCHASES AND IMPORTATIONS OF GOODS AND SERVICES ATTRIBUTABLE TO ZERO-RATED SALES IN THE TOTAL AMOUNT OF P70,700,533.01 FOR ALL QUARTERS OF CALENDAR YEAR 2003.7 The CIR's arguments The CIR argues that TEC failed to comply with the jurisdictional period within which to file its judicial claim for refund of its unutilized input VAT as provided under Section 112 of the 1997 NIRC. First, the CIR maintains that the thirty (30) day-period under Section 112 is jurisdictional, thus, TEC's judicial claim for second, third and fourth quarters of 2003 must be dismissed for lack of jurisdiction. Based on the records of the case, TEC filed its administrative claim for refund on December 17, 2004, while the judicial claims before this Court for the second, third and fourth quarters of the same taxable year was filed on July 22, 2005.8 Pursuant to the aforementioned provision, the CIR claims that she had until April 16, 2005, from the filing of TEC's administrative claim on December 17, 2004, within which to act on the said claim for refund/tax credit. And in case of full or partial denial, or failure to act ~ 7 Rollo, page 14. 8 Docketed as CTA Case No. 7298.

DECISION CTA EB No. 603 (CTA Case No. 7229 & 7298) Page9of27 thereto, TEC must elevate its claim before this Court within thirty (30) days from April 16, 2005, or until May 17, 2005; otherwise, it will forever lose its right to appeal its case. Apparently, the filing by TEC of its judicial claim with this Court on July 22, 2005 was made after the jurisdictional period provided by law. Second, the CIR avers that TEC's claim for refund of its unutilized input VAT for the first and second quarters of the taxable year 2003 were filed beyond the two (2)-year period prescribed under Section 112(A) of the 1997 NIRC as interpreted by the Supreme Court in the case of Commissioner of Internal Revenue vs. Mirant Pagbilao Corporation (Mirant). 9 She asserts that from the close of the taxable quarter when the relevant sales were made, i.e., from March 31, 2003 for the first quarter, and June 30, 2003 for the second quarter, TEC's claim for refund in the administrative and judicial levels should have been filed on March 31, 2005 and June 30, 2005, respectively NOT on April 22, 2005, 10 for the first quarter and on July 22, 2005 11 as what happened in this case. The TEC's counter-arguments Meanwhile, in its Comment/Opposition, TEC counters that the thirty 30- day period prescribed under Section 112(C)12 of the 1997 NIRC, as amended, is not mandatory but rather directory for the use of the word "may" operates to confer discretion. It claims that so long as the taxpayer institutes the actions jt:- 9 G.R. No. 172129, September 17, 2008, 565 SCRA 154. 10 Docketed as CTA Case No. 7229. 11 Supra, note 7. 12 As amended by Republic Act No. 9337 .

DECISION CTA EB No. 603 {CTA Case No. 7229 & 7298) Page 10 of27 in the administrative and judicial levels within the 2-year prescriptive period, this Court has jurisdiction to hear and decide the claim for refund/tax credit. It also opposes the CIR's assertion on the application of the Mirant ruling as it will result to injustice considering that it had relied in good faith on the prevailing jurisprudence, the case of Atlas Consolidated Mining and Development Corporation v. Commissioner of Internal Revenue (''Atlas case), 13 wherein the 2-year prescriptive period is reckoned not from the close of the taxable quarter but from the filing of the pertinent return, when it filed its claim for refund/tax credit. THIS COURT'S RULING The Court En Bane finds the petition partly meritorious. Prescriptive period for filing administrative and judicial claims on VAT refund cases. On prescription, the Court shall address the two relevant issues present in this case. The first is the reckoning point of the prescriptive period on administrative claim for VAT refund and second is the period within which to file judicial cla im for VAT refund. As early as the case of Intel Technology Philippines/ Inc. vs. Commissioner of Internal Revenue 14 (Intel case) promulgated on April 27, 2007, the Supreme Court listed down all requisites in the application for refund ~ 13 G.R. Nos. 141104 & 148763, June 8, 2007, 524 SCRA 73. 14 G.R. No. 166732, April 27, 2007, 522 SCRA 657.

DECISION CTA EB No. 603 {CTA Case No. 7229 & 7298) Page 11 of27 or issuance of tax credit certificate for unutilized input VAT attributable to zero- rated or effectively zero-rated transactions. One of the requisites listed therein is the period within which the claim must be filed, i.e, within two (2) years after the close of the taxable quarter when such sales were made. The pertinent portion of the Intel case provides: Under Sections 106 (A)(2)(a)(1) in relation to 112(A) of the Tax Code, a taxpayer engaged in zero-rated or effectively zero-rated transactions may apply for a refund or issuance of a tax credit certificate for input taxes paid attributable to such sales upon complying with the following requisites: (1) the taxpayer is engaged in sales which are zero-rated (like export sales) or effectively zero- rated; (2) the taxpayer is VAT-registered; (3) the claim must be filed within two years after the close of the taxable quarter when such sales were made; xxx (emphasis ours) The said ruling was affirmed and applied in the case of Mirant 15 where the Supreme Court literally applied the letter of the law and reckoned the two- year prescriptive period from the close of the taxable quarter when the relevant sales were made. This was upheld in the most recent case of Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc. 16 (Aich1). The pertinent portion of the Supreme Court's ruling in Aichi states: Unutilized input VAT must be claimed within two years after the close of the taxable quarter when the sales were made~ 15 Supra, note 9. 16 G.R. No. 184823, October 6, 2010.

DECISION CTA EB No. 603 {CTA Case No. 7229 & 7298) Page 12 of27 In computing the two-year prescriptive period for claiming a refund/credit of unutilized input VAT, the Second Division of the CTA applied Section 112(A) of the NIRC, which states: 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)(l), (2) and (B) and Section 108 (B)(l) 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. (Emphasis supplied.) The CTA En Bane, on the other hand, took into consideration Sections 114 and 229 of the NIRC, which read: SEC. 114. Return and Payment of Value-Added Tax. (A) In General. - Every person liable to pay the value-added tax imposed under this 1itle shall file a quarterly return of the amount of his gross sales or receipts within twenty-five {25) days following the close of each taxable quarter prescribed for each taxpayer: Provided, however, That VAT-registered persons shall pay the value-added tax on a monthly basis. Any person, whose registration has been cancelled in accordance with Section 236, shall file a return fC--

DECISION CTA EB No. 603 (CTA Case No. 7229 & 7298) Page 13 of27 and pay the tax due thereon within twenty-five (25) days from the date of cancellation of registration: Provided, That only one consolidated return shall be filed by the taxpayer for his principal place of business or head office and all branches. xxxx SEC. 229. Recovery of tax erroneously or illegally collected.- No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid. (Emphasis supplied.) Hence, the erA En Bane ruled that the reckoning of the two-year period for filing a claim for refund/credit of unutilized input VAT should start from the date of payment of tax and not from the close of the taxable quarter when the sales were made. The pivotal question of when to reckon the running of the two-year prescriptive period, however, has already been resolved in Commissioner of Internal Revenue v. Mirant Paqbilao Corporation, where we ruled that Section 112(A) of the NIRC is the applicable provision in determining the start of the two-year period for claiming a refund/credit of unutilized input VAT, and that Sections ?<-

DECISION CTA EB No. 603 {CTA Case No. 7229 & 7298) Page 14 of27 204(C) and 229 of the NIRC are inapplicable as "both provisions apply only to instances of erroneous payment or illegal collection of internal revenue taxes." xxx (emphasis ours) XXX XXX XXX In view of the foregoing, we find that the CTA En Bane erroneously applied Sections 114(A) and 229 of the NIRC in computing the two-year prescriptive period for claiming refund/credit of unutilized input VAT. To be clear, Section 112 of the NIRC is the pertinent provision for the refund/credit of input VAT. Thus, the two-year period should be reckoned from the close of the taxable quarter when the sales were made. (emphasis ours) XXX XXX XXX Thus, the applicable provision for administrative claim for VAT refund is Section 112 (A) of the 1997 NIRC and the two (2)-year period should be reckoned from the close of the taxable quarter when the sales were made. "The phrase "within two (2) years xxx apply for the issuance of a tax credit certificate or refund" refers to applications for refund/credit filed with the CIR and not to appeals made to the CTA."17 Considering that the two (2)-year period pertains to administrative claim and not to judicial claims, respondent's administrative claim for the four quarters of 2003 filed on December 17, 2004 is very well within the period prescribed by law. With the above cited ruling, the argument that the Mirant decision should only be applied prospectively and should not be made to apply to judicial claims for refund of excess input VAT pending with the courts at the time of issuance of the Mirant decision has been put to rest. It bears stressing that the Mirant ruling was affirmed and applied outright in Aichi case ?c- 17 Supra, note 16.

DECISION CTA EB No. 603 {CTA Case No. 7229 & 7298) Page 15 of27 notwithstanding the fact that the claim for refund involved the third quarter of the taxable year 2002 (July 1, 2002 to September 30, 2002) and both its administrative and judicial claims were still pending prior to the promulgation of Mirant Hence, We see no reason why We should depart from the Aichi ruling considering the periods involved in the said case were earlier than the periods in the present case, yet, the Supreme Court applied the Mirant ruling without any qualifications. As regards the period within which to file judicial claims, Section 112 (C) of the 1997 NIRC, as amended, finds application. The pertinent portion of which is quoted hereunder: Sec. 112- Refunds or Tax Credits ofInput Tax. - XXX XXX XXX C) Period within which Refund or Tax Credit of Input Taxes Shall be Made. - In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsections (A) and (B) hereof. In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals. XXX XXX XXX XXX Accordingly, judicial claim for refund should be filed within thirty (30) r- days from receipt of the decision of the CIR or upon the expiration of the one

DECISION CTA EB No. 603 (CTA Case No. 7229 & 7298) Page 16 of27 hundred twenty (120) days in case of inaction of the CIR. The observance of these periods is mandatory and non-compliance therewith would result in the denial of the claim. The two (2)-year prescriptive period under Section 112 (A) applies only to administrative claim, "in fact, applying the two-year period to judicial claims would render nugatory Section 112(D)18 of the NIRC, which already provides for a specific period within which a taxpayer should appeal the decision or inaction of the CIR. The second paragraph of Section 112(D)19 of the NIRC envisions two scenarios: (1) when a decision is issued by the CIR before the lapse of the 120-day period; and (2) when no decision is made after the 120-day period. In both instances, the taxpayer has 30 days within which to file an appeal with the erA. As we see it then, the 120-day period is crucial in filing an appeal with the CfA." 20 Applying the foregoing considerations, the judicial claim relating to the first quarter was timely filed while for the second, third and fourth quarters of taxable year 2003, it was filed beyond the thirty (30)-day period prescribed by law. The administrative claim was filed on December 17, 2004 which is also presumably the date petitioner submitted supporting documents in the absence of any evidence to the contrary. From December 17, 2004, the CIR has one hundred twenty (120) days or until April 16, 2005 within which to render a decision. No decision was rendered. As a result of the inaction, petitioner has thirty (30) days from April 17, 2005 until May 16, 2005 within which to elevate the case before the CTA. The judicial claim for the first quarter was timely filedcft=-- 18 Now Section 112 (C) under RA 9337. 19 Ibid. 20 Supra, note 16.

DECISION CTA EB No. 603 {CTA Case No. 7229 & 7298) Page 17 of27 on April 22, 2005; whereas for the second, third and fourth quarters, judicial claim was filed on July 22, 2005, way beyond the 30-day period to file an appeal. Thus, We are constrained to deny respondent's claim for the second, third and fourth quarters of 2003. We reiterate the ruling that "a taxpayer must prove not only his entitlement to a refund but also his compliance with the procedural due process as non- observance of the prescriptive periods within which to file the administrative and the judicial claims would result in the denial of his claim."21 All requisites must be complied with in order that claim for input VAT refund attributable to zero-rated sales maybe granted Having resolved the timeliness of the administrative and judicial claims for the first quarter of 2003, We shall now proceed with the other requisites that must be complied with in order that respondent will be entitled to a refund of its first quarter input VAT attributable to its zero-rated sales, to wit: 1. there must be zero-rated or effectively zero-rated sales; 2. that input taxes were incurred or paid; 3. that such input taxes are attributable to zero-rated or effectively zero-rated sales; and 4. that the input taxes were not applied against any output VAT liability. Upon examination of the records of the case and as correctly found by the ?c Court in Division, the respondent's zero-rated sales for the first quarter amounting to 21 Supra, note 16.

DECISION CTA EB No. 603 (CTA Case No. 7229 & 7298) Page 18 of27 P3,170,914,604.24 were fully substantiated and that no output VAT liability for the first quarter of 2003 was declared in its First Quarter VAT Return.22 Moreover, the subject claim was neither applied against any output tax nor carried over to the succeeding quarter.23 After having complied with the first and fourth requisites, We shall now determine the second and third requirements. In the First Quarter VAT Return, respondent declared an input VAT of P15,085,320.31. However, not all the input VAT declared for the first quarter will be refunded since there were disallowances due to non-observance of substantiation requirements under Sections 110 and 113 of the 1997 NIRC, as implemented by Sections 4.104-1, 4.104-5 and 4.108-1 of Revenue Regulations No. 7-95. The breakdown of disallowances for the first quarter is as follows: Findings Ex h. 1st Quarter 31 ,864.00 1 Input taxes claimed on importation of goods supported by W-10 photocopied lEOs certified by the BOC 2 Input taxes claimed on importation of goods supported by W - 11 32,702 .00 photocopied lEOs certified by the BOC and photocopied BOC /Bank ORs 3 Input taxes claimed on local purchases of goods supported W - 17 78 ,134.65 by documents other than VAT invoices (e.g. ORs, statements of accounts , delivery receipts , etc.) 4 Input taxes claimed on local purchases of goods supported W - 18 19 ,063 .63 by invoices without BIR Permit 5 Input taxes claimed on local purchases of goods supported W - 19 19,110.00 22 Exhibit " C". 23 Assailed Decision, rolla, p. 44.

DECISION UA EB No. 603 {CTA Case No. 7229 & 7298) Page 19 of27 by NON VAT invoices 6 Input taxes claimed on local purchases of goods supported W-20 6,763 .65 by a single invoice erroneously presented twice in the summary lists 7 Input taxes claimed on local purchases of goods W -21 14,200.00 supported by invoices with pre-printed "TIN" only 8 Input taxes claimed on local purchases of goods supported W-23 4 ,909 .09 by invoices without pre-printed "TIN-VAT" 9 Input taxes claimed on local purchases of goods supported W -24 9,475.46 by VAT invoices issued not in the name of the Company 10 Input taxes claimed on local purchases of goods supported W-25 12 ,136 .36 by invoices with pre-printed "TAN-VAT" 11 Input taxes claimed on local purchases of services W -26 180 ,739 .90 supported by documents other than VAT ORs (e .g. invoices) 12 Erroneously computed input taxes claimed on local W-27 2 ,473 .85 purchases of services 13 Input taxes claimed on local purchases of services W -28 23,721 .17 supported by ORs without BIR Permit 14 Input taxes claimed on local purchases of services W-29 12 ,822 .26 supported by ORs with pre-printed "TIN" only 15 Input taxes claimed on local purchases of services W-30 15,813 .85 supported by ORs stamped "TIN VAT" 16 Input taxes claimed on purchases of services supported by W -32 283 .03 sing le OR erroneously presented twice in the summary lists 17 Input taxes claimed on local purchases of services W-33 5 ,785 .34 supported by VAT ORs issued not in the name of the Company 18 Input taxes claimed on importation of goods supported by W-37 21 ,294.00 single BOC OR erroneously presented twice in the summary lists 19 Input taxes claimed on importation of goods supported ~ W-38 1,713 .00

DECISION CTA EB No. 603 {CTA Case No. 7229 & 7298) Page20of27 an undated SOC OR issued to "Mirant" only 20 Input taxes claimed on importation of goods supported by W-39 741 .00 photocopied SOC OR only 21 Input taxes claimed on importation of goods not issued in W-41 57 ,000 .00 the name of the Company 22 Input taxes claimed on importation of goods without W-42 108,061 .10 supporting documents 23 Input taxes claimed on W-43 1,676,462 .36 local purchases of goods which are supported by invoices dated outside the period of claim (i .e. dated within the fourth quarter of 2002 and first quarter of 2004) . 24 Input taxes claimed on W-44 22,675 .24 local purchases of goods which are supported by invoices with pre-printed TIN-V instead of TIN-VAT 25 Input taxes claimed on W-47 125 ,089 .23 local purchases of services which are supported by ORs with pre-printed TIN-V instead ofTIN-VAT 26 Input taxes claimed on W-48 93 ,315 .73 local purchases of services which are supported by ORs dated outside the period of claim (i .e. within the fourth quarter of 2002 and first quarter of 2004) . 27 Input taxes claimed on W-49 248 ,090.00 local purchases of services which are supported by ORs with different OR number as reported in the summary lists. 28 Input taxes claimed on W-50 378 .00 local purchases of services supported by undated ORs. 29 Input taxes claimed on importation of goods W-52 203 ,403 .00 supported by photocopied lEOs certified by the SOC and original SOC/Bank ORs dated outside period of claim 30 Input taxes claimed on importation of goods W-53 47,311 .00 supported by photocopied informal lEOs and original SOC/ Bank ORs dated outside period of claim 31 Input taxes claimed on importation of goods W-54 11 ,301 .00 supported by photocopied lEOs certified by the SOC and photocopied SOC/Bank ORs dated outside period of claim

DECISION CTA EB No. 603 (CTA Case No. 7229 & 7298) Page 21 of27 32 Input taxes claimed on importation of goods W -55 3,297 .00 supported by original Bank OR dated outside period of claim 33 Input taxes claimed on importation of goods W -56 10,142.00 supported by photocopoed IEDs and original BOC/Bank ORs dated outside period of claim 34 Input taxes claimed on importation of goods W -57 2,067.00 supported by photocopied informal IEDs and undated BOC/Bank ORs 35 Input taxes claimed on local purchases of goods/ Annex A. , 253 ,853 .15 item no.1 services supported by VAT invoices/official receipts which are dated outside period of claim 36 Without supporting documents Annex A, 567 ,735.59 item no. 2 Total 3,923,927.64 Although it is true that the CTA is not strictly governed by technical rules of evidence, the invoicing and substantiation requirements must, nevertheless, be followed because it is the only way to determine the veracity of ones claims. 24 Thus, from the foregoing disallowances, the total refundable input VAT for the first quarter amounts to P 11,161,392.67, computed as follows: Input VAT claim for the first Php quarter Less: Disallowances 15,085 ,320 .31 Substantiated input VAT 3,923 ,927 .64 11 '161 ,392.67 WHEREFORE, on the basis of the foregoing considerations, the Petition for Review En Bane is PARTIALLY GRANTED. The assailed Decision and Resolution of the First Division dated October 5, 2009 and February 23, 2010, 24 Kepco Philippines Corporation vs. Commissioner of Internal Revenue, G.R. No. 181858, November 24, ~ 2010.

DECISION LTA EB No. 603 (LTA Case No. 7229 & 7298) Page22of27 respectively, are hereby MODIFIED. Accordingly, petitioner is ORDERED to refund in favor of respondent the reduced amount of Eleven Million One Hundred Sixty One Thousand Three Hundred Ninety Two and Sixty Seven Centavos (P11,161,392.67) representing unutilized input value-added tax (VAT) paid on its domestic purchases of goods and services and importation of goods attributable to its zero-rated sales for the first quarter of taxable year 2003. SO ORDERED. ~c. a;r-~ _g_ 9t.JANITO C. CASTANEDW,lR. Associate Justice WE CONCUR: 'L--c- Lr. Q~ (With Concurring and Dissenting Opinion) ERNESTO D. ACOSTA Presiding Justice CAESAR A. CASANOVA AE~ ~stic.UeY Associate Justice O~P~-~ Associate Justice ~ N.M ~.C~ CIELITO N. MINDARO-GRULLA Associate Justice

DECISION CTA EB No. 603 (CTA Case No. 7229 & 7298) Page23of27 ~~~~~ AMELIA R. COTANGCO-MANALASTAS Associate Justice CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the above Decision has been reached in consultation with the members of the Court En Bane before the case was assigned to the writer of the opinion of the Court. Lc-~~ (;__~ ERNESTO D. ACOSTA Presiding Justice

DECISION CTA EB No. 603 (CTA Case No. 7229 & 7298) Page24 of27 ANNEX A TEAM ENERGY CORPORATION (formerly Mirant Pagbilao Corporation and Southern Energy Quezon, Inc.) -vs - COMMISSIONER OF INTERNAL REVENUE CTA EB 603 (CTA CASE NOS. 7229 & 7298) OTHER INPUT VAT DISALLOWANCES FOR THE FIRST TO FOURTH QUARTERS OF 2003 Exhibit Vendor Ref No. Date 1st Qtr 1. Input tax es claimed on local purchases of goods/services supported by VAT invoices/ official receipts da ted outside period of claim a. Per Listing under Exhibit W-3 JJ-586,587 ALSTOM PHILIPPINES , INC . 5174 11/18/02 9,480.00 JJ-591 ANGEL ARTS CO. INC. 0350 12/20/02 600.00 JJ-621 ,622 BGM GARDEN AND LANDSCAPING 0951 12/20/02 581 .82 JJ-646,647 CATHAY INDUSTRIAL & MILL SUPPLY, INC . 55274 10/03/02 (874.00) JJ-646 ,647 CATHAY INDUSTRIAL & MILL SUPPLY, INC . 55274 10/03/02 2,254.00 JJ-715,716 D' SEALING ENTERPRISES 0756 12/10/02 12,500.00 JJ-175,176 FH CO MMERCIAL, INC. 16120 12/26/02 1,500.00 JJ-192,193 ILAYA SUPERSTORE 2744 10/09/02 447.27 JJ-215,216 JM BRENTON INDUSTRIES CORP . 1692 12/04/02 10,500.00 KK-217 ,218 JUN EAU INDUSTRIAL CORP . 60483 12/03/02 939.50 JJ-229,230 JUNNA INDUSTR IAL CORPORATION 53534 12/11/02 304.00 JJ- KARNANI , INC. LE DREAV MANUFATUR ING & TRADING 10555 07/30/02 1,590.91 1980,1981 LE DREAV MANUFATUR ING & TRADING JJ- LE DREAV MANUFATURING & TRADING 0232 12/05/02 340.91 1080,1081 0236 12/05/02 1,050.00 JJ- 0238 12/09/02 12,272 .73 1080,1082 JJ- 1084,1085 JJ-246 ,247 LEELENG CO MMERCIAL, INC . 011849 10/08/02 590.91 JJ- MACH INE-AID TECH . PHILIPP INES , INC. MEGATECH RESO URCES CORP . 7106A 12/27/02 14,565.46 2155 ,2156 JJ- 4105 09/03/02 1,818 .19 1118 ,1119 JJ-284 ,285 METROWIDE COMMODITIES CORPORATION 0424 12/27/02 39,716.37 JJ- MICHELENE'S MART 054 11/08/02 672 .73 1172 ,1173 JJ- MONARK EQ UI PMENT CORPORATION W0000017820 12/26/02 67 ,622.2/v PHILCOPY CORPORATION 1232 ,1232 196216 12/12/02 JJ-324,325

DECISION CTA EB No. 603 (CTA Case No. 7229 & 7298) Page25of27 JJ -342,343 PINNACLE PARTS CO. 9203 5,610.00 JJ- RS COMPONENTS LIMITED (PHILS.) P24165 12/13/02 4,080.00 114722 12/10/02 3,126.41 1357,1358 12/09/02 263.64 7376 11/15/02 5,454.55 JJ-444,445 THE TRADERS HOTEL MANILA 11979 11/28/02 5,836 .37 001345A 12/15/02 50,309 .10 KK-476 ,477 THRIVE ZEAL INDUSTRIES , INC . PH4932 11/28/02 700.00 JJ-456,457 TRACKSTAR ENTERPRISES CORP . Total 253,853.15 JJ-1466- UNIDYNAMICS PHILIPPINES CORPORATION 1' 1466-2 WEBFORGE PHILIPPINES , INC . JJ- 1566,1567 2. Without s upporting documents BVA-0556 04/10/03 1,054 .55 18305 05/16/03 1,151 .65 a. Per Listing under Exhibit W-3 71416 05/15/03 1' 178 .69 CCMS FOOD PRODUCTS 039030 1,297 .64 CHRIS JANN MARKETING INC 039031 1,297 .64 CHRIS JANN MARKETING INC 26575 700 .00 DATA COMPUTER FORMS, INC . 3,792 .73 DATA COMPUTER FORMS, INC . LN-17453 3,792.73 EAGLE STAR INDUSTRIAL SALES CORP . MN-17451 MONTE VISTA HOTSPRINGS & CONFERENCE 86 .18 RESORT 13884 173.09 MONTE VISTA HOTSPRINGS & CONFERENCE 14974 177.00 RESORT 13878 211 .36 SHOPRITE CTR & GEN MDSE 14435 254 .55 SHOPRITE CTR & GEN MDSE 14434 286 .55 SHOPRITE CTR & GEN MDSE 13871 336 .36 SHOPRITE CTR & GEN MDSE 14972 400 .73 SHOPRITE CTR & GEN MDSE 14961 408 .27 SHOPRITE CTR & GEN MDSE 13880 418.18 SHOPRITE CTR & GEN MDSE 13881 528 .14 SHOPRITE CTR & GEN MDSE 13877 594 .18 SHOPRITE CTR & GEN MDSE 13870 597 .36 SHOPRITE CTR & GEN MDSE 14968 932 .73 ~ SHOPRITE CTR & GEN MDSE 14853 SHOPRITE CTR & GEN MDSE SHOPRITE CTR & GEN MDSE SHOPRITE CTR & GEN MDSE

DECISION 14438 941.42 13889 1,012 .36 CTA EB No. 603 (CTA Case No. 7229 & 7298) 14960 1,110.18 14856 1,204.14 Page26 of27 14959 1,246 .09 14973 1,377 .27 SHOPRITE CTR & GEN MDSE 13879 1,456.82 SHOPRITE CTR & GEN MDSE 13882 1,629.55 SHOPRITE CTR & GEN MDSE 13883 1,709 .55 SHOPRITE CTR & GEN MDSE 14971 2 ,004 .68 SHOPRITE CTR & GEN MDSE 14437 2,035 .27 SHOPRITE CTR & GEN MDSE 13876 2,667 .60 SHOPRITE CTR & GEN MDSE 14857 2 ,718.82 SHOPRITE CTR & GEN MDSE 1048 539 .55 SHOPRITE CTR & GEN MDSE PAG-0368 4 ,332 .50 SHOPRITE CTR & GEN MDSE 19666 SHOPRITE CTR & GEN MDSE 159.09 SHOPRITE CTR & GEN MDSE Subtotal 45,815.20 SHOPRITE CTR & GEN MDSE ST. PANCRATIUS CONCRETE PRODUCTS 1583 20,596 .91 ST. PANCRATIUS CONCRETE PRODUCTS 55879 90 .91 SUNLIFE BOOKSTORE 55879 6159 1,311.61 c. Per Listing under Exhibit W-5 6159 19.31 ASIA CORROSION SERVICES , INC. 51696645 75 .00 ASIA OVERSEAS TRANSPORT CO ., INC . 1985 ASIA OVERSEAS TRANSPORT CO ., INC . 836340 47 ,190.00 BERMONT EXPRESS INTERNATIONAL INC . 854476 134.55 BERMONT EXPRESS INTERNATIONAL INC . 32629 20 .66 BEST HOTEL MANAGEMENT, INC . 257313 82 .91 BETHRO TRAD ING 5628 695.46 CARGOHAUS , INC . 10035 849 .77 CARGOHAUS , INC . 11428 511 .64 DELSAN OFF ICE SYSTEMS CORPORATION 619/0002 912 .27 DUSIT HOTEL NIKKO 1,038 .91 FUJI XEROX PH ILIPPINES , INC. FUJI XEROX PHILIPPINES, INC . ~ FUJI XEROX PHILIPPINES, INC . HORSEPOWER BUILDER & INDUSTRIAL

DECISION CTA EB No. 603 {CTA Case No. 7229 & 7298) Page27of27 SUPPLY 4 ,545.46 HORSEPOWER BUILDER & INDUSTRIAL SUPPLY 0630 22 ,727.28 4531 11 ,596 .82 KPI ELEVATORS, INC . 4353 11 ,596 .82 KPI ELEVATORS, INC . 4355 11 ,596 .82 KPI ELEVATORS, INC . 56153 339.94 NEW WORLD INTERNATIONAL DEVELOPMENT 55603 339 .94 PHILS . INC NEW WORLD INTERNATIONAL DEVELOPMENT 55647 439 .95 PHILS . INC NEW WORLD INTERNATIONAL DEVELOPMENT 0109046 418 .19 PHILS . INC 2533 3,407.09 PAC-ATLANTIC LINES (PHILS) , INC. 153113/1466 854 .94 PENN REFRIGERATION & AIRCONDITION PEOPLE'S AIR CARGO & WAREHOUSING CO. , 1230 19.34 INC PEOPLE'S AIR CARGO & WAREHOUSING CO. , 0044 12/17/02 4,418 .76 INC 1244 03/12/03 531 .90 PHILIPPINE LONG DISTANCE TELEPHONE CO 1244 03/12/03 542 .86 PHIL-NIPPON CARGO EXPRESS CORP. PHIL-NIPPON CARGO EXPRESS CORP. Subtotal 146,906.02 e. Per Listing under Exhibit W-12 97954543 167 .00 BUREAU OF CUSTOMS LBP 12004257 32,448 .00 BUREAU OF CUSTOMS BUREAU OF CUSTOMS 1.03E+08 6,466 .00 Subtotal 39,081.00 f. Per Listing under Exhibit W-13 1230 997 .00 BUREAU OF CUSTOMS 997.00 Subtotal i. Per Listing under Exhibit W-35 435 ,632 .97 Less: Input VAT per Additional Documents Submitted (90 ,078.40) first set of documents {10 ,618.20) Subtotal 334,936.37 second set of documents !t- Total 567,735.59