KELPHIL INC. v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC QF THE PIHLIPPINES Court QfTax Appeals QUEZON CITY SECOND DfJ/fSIOJV KELPHIL, JNC ., C.T.A. CASE NO. 7427 l'vfembers: Petitioner, -versus- CA STANEDA, JR., Chairperson UY, and PALAN CA-ENRJQUEZ, JJ. Promulgated: COMMISSIONER OF INTERNAL REVENUE, JI.J N 1 1 2008 / Respondent. \\ 7 X --------------------------------------------------- -- --- -�---~----II--:O-'V--<-�-"-1--. ---- X DECIS ION PALANCA-ENRJQUEZ, J.: A VA T registered taxpayer renderin g engineering and design work services to non-resident �foreign clients, the cons id eration of which are paid for in acceptable foreign currency and accou nted for in accordance with the rules and regulations of th e HSP, may claim for refund or issu ance of lax credit cerlificates of il s duly substantiated excess or unutilized input taxes attributable to such zero-rated or effectively zero- rated sales, pursuant to Section 112 of the NIRC of 1997, as amen~

C.T.A. CASE No. 7427 2 DECISlON l However, failure to show proof of proper documentation is fatal to one's claim f(w refund or credit. THE CASE This ts a Petition for Review filed hy Kelphil, Inc. (hereafter "petiti oner") praying for the refund oC th e amo unt of P3,514,301.22, representing the excess or unutilizecl input val ue-added tax (VAT) on domestic purchases of goods and services attTibutable to petitioner's zero- rated sales of services for taxable years 2004 and 200 5. THE PARTIES Kelphil, Inc. is a domestic corporation dul y organized and existing under Philippine laws, with principal orfice and p lace of business at the 28th floor, Ante! Global Corporate Center, 3 Doila Julia Vargas Ave., .. Ortigas Center, Pasig City. Petitioner is a VAT-registered taxpayer as evidenced by its Certificate of Regislral inn No . OCN 3RC0000174570 (BlR Form No. 2303), as of January 1, 1907. Respondent, on the other hand, is the publi c official charged with the administration and enforcem ent of th e national internal revenue laws, including the granting of refund or credit of 1axes erroneously or illegally w collected, and other refundable or creditable ta xes under the provisions of q r . :�~ .J \.. ,)

C.T.A. CASE No. 7427 ...... 3 DECISION the National Internal Revenue Code (NIRC), with office at the Bureau of Internal Revenue (BIR) National Office Building, Diliman, Quezon City. THE FACTS In their "Joint Stipulation of Facts and Issues", the patties stipulated as follows: "1. Petitioner is a domesti G corporation duly organized and existing under Philippines laws, with principal office and place of business at th e 2811 ' floor, Antel Global Corporate Center 3 Dona Julia Vargas Avenue, Ortigas Center, Pasig City, while Respondent is th e public official charged with the administration and en �J~)rcement of the national internal revenue laws, including the granting of refund or tax credit of taxes erroneous ly or illegally collected, and other refundable or creditab le taxes under the provisions of the Tax Code, with oflice address at the BIR N<1tional Office Building, Dilimnn, ()u e7.nn City, where he may serve with summons. 2. Petitioner is a V!\ T-reg istered taxpay~r as evidenced by its Cettificate of Reg islration No. OCN 3R0000174570 (BIR rorm No. 2003) as ofOl/01/1997. 3. for the 1s\ 211d, 3rd' and 4111 quarters of the year 2004, Petitioner fil ed its quart erl y VAT Return s within the periods prescribed by law, namd y, on Apri I 20, 2004, July 2. 1, 2004, October 20, 2004, and Ja nuary 20, 2005, respectively. 4. On March 28, 2006, Petition er amended the said quarterly VAT returns for th e yem� 2004, and :filed the amended returns on th e same dal e w ith the Revenue District Oflice (RDO) No. 43, Pasig Cily.~ s!J I]

C.T.A. CASE No. 7427 4 DECfSJON 5. F or the 1st, 2nd, 3rd, ancI 4th quarters of- the year 2005, Petitioner filed the corresponding quarterly VAT returns within the periods prescribed by law, namely, on April 20, 2005, July 20, 2005, October 20, 2005, and January 20, 2006, respectively. 6. On March 27, 2006, Pet ition er amended the said quarterly VAT returns for th e year 2005, and filed the amended returns on the same date with RDO No. 43 , Pasig C ity. 7. On March 28, 2006, pe1tttoner filed with the respondent, through RDO No. 43, Pasi g C ity, separate claims for refund, together with BIR Form No. 1914 (Application for Tax Credits/Ref11nds), coverin g the excess input taxes for the four quarters of 2.004 and th e four quarters of2005. 8. That based on Petiti o ner' s Article of Incorporation that was du Jy registered and approved by the Philippine Securities and Exchan ge Co mm iss ion on July 9, 1987, the principal purpose for w hi ch P(~ l itioner is formed is: ' To produce drafts, designs .and dra w in gs, hy Philippine Nationals, of civil structures, offshore stru ctures, bridges, buildings, piping, plants and other works or installation of whatever kind, for companies in .IC~pan <md oth e r countries.' 9. That as stnted in the amended VA T retums that Petitioner filed for the 1st. 211d, 3"d, and 4 th quatiers of 2004 (Ann exes 'F', 'G', 'TI', and ' T' of th e P -~ tition) Petitioner had no taxable sales or receipts and h ad no output tax due for the four (4) taxable quarters of 2004, ns horne out by Lines 19, 19A, and 198 of the returns. � 10. That as stated in Lh e Setme am ended VAT s\ Returns for the 1 211d, 3rd, and 4th quarters of 2004, Petitioner had 'Zero- Rated Sales/ !~ eceip ts, ' total purchases of goods and services, and input V!\T paid, as follows: ~

'� '' C.T.A. CASE No. 7427 5 DECISl ON 0 1'04 Zero-Rated Domestic Input VAT 02'04 Sales/Receipts Pu rchases 03'04 342,830.19 04'04 12,136, 073.4 9 3,4 28,301.92 825,602 .21 IPTAL 20,326,432 .24 8,256,022. 02 504,32 1.57 15,575,973. 99 5,04 3,2 15.85 385 ,161.78 18,7 52, 499 .95 3,8!11 ,617.89 2,057 ,915.75 66,790 , 9]~.67 . f.!),~1~J~7 .6_� 11. That as stated in the arn encied VAT returns fil ed for th e 1 st and 3rd quarters of 200 ), Pc1itioner had no taxabl e sales or receipts, and had no output tax du e. (Annexes 'N ' and "P ' of the Petiti on). However, as stated in the amended VAT returns for the 211d and 4th qu arters o f 2005, (Annexes '0" and "Q" of th e Petition), Petitioner had taxabl e sales or recei pts of P80,8 14.63 and P303,840. R9 and corresponding output ta xes due of P8,08 l .46 and P30,3 84.09, respectively. 12. That as stated in the same amended VAT returns 1.c0r t11e 1�st, ,L...nd, ".1'rd, ancI 4Lh qum1ers o1'"L 005 , p ett.tt.oner ha d 'zero-rated sales/receipts', tot RI purchases o f goods and services, and input tax pa id, as foll mvs: 0 1'05 Zero-Rated Domestic Input VAT 0 2'05 Sales/Receipts Purchases 03'05 360,2 14 .10 0 4'05 17,726,984.58 3,60?, 140.68 TOTAL 18,383,3 60.45 5,001 ,471.69 .. 500, 147.14 17 ,960,865.79 4,485, 464.34 16,389, 194.16 1,161l ,2H3 .37 448 ,546.45 70,460,404. 98 176,828.29 14,8 5 7J~~!J_,08 1,485 ,735 .98 13. That as shown or indicated in the amended VAT returns for the 1st, 211d, 3rd, and 4th quarters of 2004 the input taxes therein were not credited or app lied against output tax in said year, th ere h:w in g been no output tax liabiliti es during th e said year. 14. That as shown or indi ca ted in Li ne 25 A in the amended VAT return s lo r th e fn m (4 ) quarters of 2004 (Annexes 'F', 'G', ' 1-l' and ' l ' of th e Petition), the excess input taxes per quat1er were deducted as 'VAT Refund/T~

I. C.T.A. CASE No. 7427 6 DECISION C laimed' from the total available input taxes shown in Line 24 of said quarterly VAT retums of 2004. 15. That as shown or indi cated in the amended VAT returns for the l st and 3rd quarters of 2005 (Annexes 'N' and "P" of the Petition), the input taxes therein were not credited or applied against output tax in said quarters, there being no output tax liabilities in th e said tnx<-1 ble quarters. 16. That as shown or ind icated in Line 25A in the amended VAT return s for th e 1st and 3rt1 quarters of 2005, (Annexes 'N' and 'P' of the Petition), the excess input taxes per quarter were deducted as 'VAT Re fund /TCC Claimed' :fi�om the total available input tax es shown in Lin e 24 of said 1st and 3rd quarterly VAT returns . l 7. That as shown or indicated in the amended VAT ret1.1rn for the 2nd quarter of 200::i (A nn ex '0' of the Petition), of the total input tax of 1) ) 00, 14'/ .14, the amount of P8, 08 1.63 was appli ed or credited against the o utput tax due fo r the quarter. However, the balance or excess input tax of P492,065.51 was deducted as 'Vi\T Re fund/ f CC Claimed' as shown or indicated in Lin e 25A of th e sa id return. 18. That as shown or indicated in the amended VAT return for the 4111 quarter of 2005 (Annex 'Q' of the Petition), of the total input tax ofP 176,828 .29, the amount of P2 1,268.86 was credited or appli ed aga in st 70% of the P30,384.09 output tax due for th e q ua rter. However, the balance or excess input tax of Pl 55,559.43 w as deducted as ' VAT Refund/TCC Claimed' as shown or indicated in Line 25 A of the said return. 19. The administra.tive c lai rn s for refund that Petitioner :filed on March 28, 2006 wi1h RDO No . 43 , Pasig C ity, covering the excess input ta xes for the four quarters of 2004 and the four quarters of 2005, were filed within the [JAf two-year period prescribed by law, particularly Sec. 112 of the Tax Code. t;q n 'J , -\.J

C.T.A. C'ASE No. 7427 7 DECJSlON I 20. The Petition for Review covering th e said claims for refund, havin g been fi led on March 31, 2006, was fi led within the two-year p eriod prescribed by law. 21. The Respondent has not yet granted above ment ioned Petitioner' s c laims for refl.md. " In her Answer, respondent al leged by way of special and affirmative defenses that the claim for rc li.md is still under examination by th e respon dent' s Bureau ; the burden of proof is upon the petitioner to prove that it is entitled to the claim for re fund or iss uance of tax credit certifica te; and the taxes sought to �be refund ed were paid in accordance with law; the burden of proof to th e contrary is upon th e petitioner- claimant to show w ith clear and un ambi guous provision of law supporting the same. Petitioner presented A lbert G. Albn , the Co urt-Commiss ioned Independent C PA, and Joey Ca lma, ns witnesses, and documentary evidence, marked as Exhibits "A" In ''R ", in clus ive of the ir submarkings, whi ch were all admitted by the Court in a Reso luti on dated May 23, 2007, after petitioner filed a "Motion For h11~tial Recons ideration (of Resolution on Petitioner's Forma l Offer of Evidence)". On the other hand , respondent submitted the case for decision, without presenting any ev idence. (ML S.to

'I ~I C.T.A. CASE No. 7427 8 DECISlON Thereafter, both parties were ordered to fil e their si multaneous memoranda, within thirty (30) days from notice. On ly petitioner filed its "Memorandum For th e Petition er" on February 20, 2008, and th e case was deemed submitted for decision on February 29, 2008. Hence, this decision. ISSUES As stipulated upon by the parti es, lhc 1ssues for this Court's consideration are: I WHETHER THE AMOUNTS TflAT PETTTTONER REPORTED AS ZERO-RATED SALES/RECEIPTS IN ITS QUARTERLY VAT RETURNS FOR TAXABLE YEARS 2004 AND 2005 WERE ITS COM PENS ATION .FOR SE RVICES IT REND ERED TO ITS NON-RESIDENT FOREIGN CLIENTS. J] WHETHER SAID R ECE IPTS OR COTv1PENSATION WERE PAID FOR TN ACCE I)TAR LE FOREIGN CURRENCY AND ACCOUNTED FOR IN ACCORDANCE WTTIT Tl IE RULES AND REGULATIONS OF THE BANGKO SENTRAL NG PILIPTNAS. ~

C.T.A. CASE No. 7427 9 DECISION i nr WHETHER PETITIONER'S DOMESTIC PURCHASES Of GOODS AND SERVICES, FOR WHICH IT PAID TNPUT TAX, ARE ATTRH3lJTABLE TO ITS ZERO- RATED RECEIPTS FOR THE PERIOD TN QUESTION. lV WI-TETHER SAID DOMESTIC PURCHASES OF GOODS AND SERVICES ARE DULY SUPPORTED BY ACCEPTABLE DOCUMENTARY EVlDEN CE. v VlfJETHER THE ACCUMULATED OR EXCESS INPUT TAX ES FOR THE PERfOD TN QUESTION WAS UTILIZED OR APPLIED AGAINST OUTPUT TAXES DURING THE SAME PE RIOD OR IN THE SUCCEEDING PERIODS. Vl WI-TETHER PETITIONER IS ENTfTLE D TO ..TI-IE REFUND OF EXCESS INPUT TA XES TN Tl-IE AMOUNT OF P2,057,915.75 FOR TAXABI .E YEA R 2004 AND IN THE AMOUNT OF Pl ,456,385.49 FOR TAXABLE YEAR 2005. Principal Issue All of the above issues boil down to the principal issue of whether or not petitioner is entitled to the refund orthe amount ofP3,514,301.22, representing unutilized input VAT paid on domestic purchases of taxab{;.fo v1.. .1.. (�).

C.T.A. CASE No. 7427 10 DECISTON t goods and services attributable to its zero-rated sales/receipts for taxable years 2.004 and 2005 . THE RULING OF THE COlJRT The petition is partly meritorious . Section 112(A) of the NTRC of :1'J97, as amend ed provides: "SEC. 112. Refunds or Tax Credits (~llnput Tax. - (A) Zero-rated or F:f e ctively Zero- rated Sales. -Any VAT-registered person, whose sal es are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable qumier when the ~;al es we re made, apply for the issuance of a tax credit certi ficate or refund of creclitnble input tax clue or paid attribut abl e to such sales, except transitional input tax, to the exten t that such input tax has not been applied against outp11t ta x: Providecl, however, That in the case of zero-rated s~1l es under Section 1Oo(A)(2)(a)(l), (2) and (B) and Secti on I08(B)(1) and (2), th e acceptable forei gn curTency exchange proceeds thereof hCJd been duly accounted for in accordan ce with the rules ~nd regulations of the Bangko Sentral ng P ilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sal e and al so in taxable or exempt sale of goods or properti es or serv ices, and the am ount of creditable input tax due or paid cann ot be directly and entirely attributed to any one nr th e lrs nsRctions, it shall be allocated proportionately on th e bas is of the volume of sal es ." Pursuant to the afore-quoted provision, in order for a taxpayer to be entitled to a refund or issuance o[ a tax credil certifi cate of its unutilized inpnt VAT, the following requisites must he sa1 is f1ed:

'' C.T.A. CASE No. 7427 11 DECISION I 1.) there must be zero-rated or effectively zero-rated sales; 2.) that input taxes were incmTed or paid ; 3.) that such input taxes are directl y attributab le to zero- rated sales or effectively zero-rated sales; 4.) that the input taxes were not appli ed against any output liability during and in the succeed ing quarters; and 5.) that the claim for the refund was filed within the two- year prescriptive period. Anent the first requisite, petitioner maintains that it rendered engmeermg, drawing, and desi gn services to its non-resident foreign client, JrE SEKKEI Ltd. The services performed by petitioner for JFE SEKKEI Ltd. are classified as zero-rated under Section 4.1 02-2(b) of Revenue Regulations No. 7- 95, as amended hy Section 3(b)(2) ofRevenue Re8ulations No. 6-9 7, which provides: "SEC. 3. Zero-Rating.- xxx (h) Transaction Subject to 7ero Percent (0 %) Rp.te.- The following serv ices p erf(mm~d in the Ph ilippines by VAT-registered persons sha ll be subject to zero percent (0%) rate: (1) XXX (2) Services other than processing, manufacturing or repacking for other persons doi ng business outside the Phi lippines of goods which are subsequently exported, as we ll as services by a resid ent to a non-res ident foreign client, such as project stud ies, information services, engineering and architectural des igns and other sim il ar services, the AJ consideration for which is paid for in acceptable foreign currency and accounted for ii1 accordance w ith th e rules an~ (Yv- regulations of the BSP."

C.T.A. CASE No. 7427 12 D EC fSJON In his report, the Court-Commiss ioned Tndependent CPA, Albert G. A lha, noted that petitioner's zero-mted receipts and con esponding bank remitta nces fo r the years ended December 3 1, 2004 and 200 5 consisted of fees for architectural and structura l design services rendered to non-res ident foreign clients and to .TPMED As ian Pacific, Inc. (JPM ED). The zero-rated sales and hank re mittances arc summarized as follows: l_QQ:L- Ex hihi UJ 2005 - Exhi bit H I?.~r i o.Q l!Lh~ l!LI~-~f?Q illJ)Sji !n PesQ Nq[l-r~ic.lsnl..fmtei gn c li ents: $ j1 $ p 216,271 .44 322, 4 92. 05 17,726,984.58 First q11 arter 12, 136.073.49 Second quarter 362. 536.64 . 20,32(>,<11 2.211 332, 180.9 1 I 8,383 ,360.45 Thi rd qua rter 27R ,57J .SX 15,57 5,')7 3.9 ') 298, 127.75 16,73 6,865 .79 Fourth quarter _--=3..c.c.33 ,39 l .Q!_ _ I _~J_5J./1_?_?~9 5__ J 03, ltl2.2 1 16,389, 194. 16 $ 66 ,79 0 .')79.6 7 $ 69,236,404 .98 1, 190,772.67 I,2 55 ,942.92 Third quart er I ,22 4,0 00 .00 70 ,46 0 ,404 .98 $ 6 (, , 7()() ,'179. 6 7 $ 1, 190,772 .67 1,2 55, 94 2.92 Pet itioner also presented num ero11 S docum ents, such as serv1ce agreements, schedule of zero-rated receipts and bank remittances, VAT offic ial receipts, entri es in US$ passbooks, and bank certifi cates o f export remittances, to prove that it actuall y generated revenu es in the aggregate amount of Pl 36, 027,384.65 (P66,790,979.67 plus P69,236,404. 98) for rendering certain engineering and des ign work services to non-reside(}ht

'� >I C.T.A. CASE No. 7427 13 DECJSlON t foreign clients during the subject pe'riods. The foreign proceeds :fi:om the said sales in the aggregate amount oflJS$2,446,715.59 (US$1,190,772.67 plus US $ 1,255,942 .92) were inward ly remitted and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). Petitioner further claims that its sales of services during the 3rct quarter o f taxable year 2005 to JPMFD, a PEZA-registered entity,' for � w hi ch it received a fee of Pl ,224,000.00 are a lso zero-rated, pursuant to BIR Revenue Memorandum Circular No. 74-99, dated October 15, 1999. T hus, petitioner's sales of services for 1a xahl e yea rs 2004 and 2005 amounting to Pl37,251,384.65 qualit)' as zero-rated sales under Section 108(B)(l) and (2) ofthe NJR C of199 7, as amended, which reads: "SEC. 108. Vafue-adrfed Tax rm Safe r~f Services and Use or Lease ofProperties . - (A) XXX (B) Transactions Subject to Zero Percent (0%) Rate.-The following services perform ed in the Philippines hy VAT-registered persons shall be sub.iect to zero percent (0%) rate: (1) Process in g, manu1~1ct_urin g or repackin g goods for other persons doin g business out s ide lhe Ph ilippines whi ch goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in~ '.~..J .1. b"

'� C.T.A. CASE No. 7427 14 DEClSTON accordance with the rules and regu lations of the Bangko Sentral ng Pilipinas (BSP). (2) Services other than those mentioned in the preceding paragTaph, the considen)t�ion for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulati ons of the Bangko Sentral ng Pilipinas (BSP)." As regards the second requisite, petiti oner claims that it paid input VAT in the aggregate amount of P3,514,30 1.22, which is allegedly attributable to its zero-rated sales for taxabl e years 2004 and 2005. To prove ils claim, petitioner presented various documentary ev i.dence, such as its schedules of input taxes claimed li�01n 1sl quarter of taxable year 2004 to 4t11 quarter of taxable year 2005 and the related suppliers' invoices/official receipts. Upon examination and verific8tion of the above..-mentionecl docum entary evidence, in his amended Report dated November 10, 2006, the Court-Commissioned Independent CPA noted the following findings: FOil Tim YEAH I�:NOE D OE CEM BEH 31,2004 Eimtlnll.!i !.S!mJ; ~!~W\r ;!J;L~ ;lllbllif TCJtal ~!-~I\]_lj! _ ! ~ Ex hibit L Exhibit 1\1 l'urchasc of ~crviccs snnQQJicd hy: E.!J~it, i _t_} Pl,731,563 .13 VAT official rece ipt s in petitioner's name {Ii- I to K-112) (I. - I to 1.-88) (111-1 to M-90) 207 .27 Not in petit ioner's name (J-Ito .1-53) P 7h9 ,XX3 .0X I' 3'!3,069 .35 p 337,824_43 Non VAT receirts P 230,786 27 37,029 84 No suprorts present ed 185.45 21.82 43,536 .10 Negative mput VAT I'1.g2g 2:1 (14 ,280.71) 29.939 32 !d 27 9,875 .89 12 ,264.45 Purchases of gontls supportcdjry_; 259 ,365 .89 (J-54 to J-79) ~.wns I ,596.38 9,640 .65 842_45 VAT invoices in the pet itioner's name 64,72665 Non VAT invo ices 286.09 (t4 ,2 X07 1) 2,263 .63 No supports-presented 2,26:>63 (K-83 to K- 1!1 7) (J.-89 to 1.- 124) (M-9 I to 11-f-/05) (JJf 67 ,694 .22 99,070 .71 27 ,874_31 545 A5 10.9 1

'� C.T.A. CASE No. 7427 15 DECISION l Negative input VAT _ _ _ _ _ _ _ ___:(11 5.40) (2 L66J (2,474 79) (2,6IL 85L TOTAL p 3-12,830.19 f' 825,6fl2.2 1 I' 504,321.57 P 385, 16! .78 1'2,057,915.75 .E.Q.!illiJD.~AR.fJiPE D DECE M13 EH 31,2005 !l}ndirr~ l st_W.! 7.nd_<J!r J!.!LWr ~ Total Exhibit Q Purc hase of_~rv ic cs SJ!I2J~Qrlcd by: ~: xhihil N Ex hi h!J.Q .Exh i!:!l!..r Pl ,540 ,320.85 VAT on�,c ial rec.~ q> t s in IX' titioner's name (N- Ito N- 10.1) 3,990.77 Not in peti li oncr�s name (0- l to 0 - 120) (!'-Ito 1'- 117) (Q- 1 to Q- 113) I ,44 3 .09 Non VAT rece ipts p 3 11 ,50X .53 I' ,156.177.71 78 3 .56 No supports presented 26R . IR I' ,126.9 17.74 p 345,5 16 .87 20R . 18 136,4 4 2.79 Pu rc hases of.J:.QQQS SHJ!llOrled hy: 6XUl2 3 ,1>78 95 43.64 1,2 78 .63 VAT in vo ices in th e petiti one r's name (N- / 04 toN- 25 1 9 1 180 .93 802 .07 (1 98,523 .7 1) Non V AT invo ices 135) l ' l ,485,735.98 Negative input VA T 47 .547.39 (0- 12 /t o O- (P-1 18 to 1'- 10 1.74 146) I.J6) (Q- 114 to Q- TOTAL p .360,2 1-1. 10 137) ]9, 114 1<> 20 ,849 69 28 ,93 1.32 7H IX 55 4 .45 ( 198 ,523 71) I' SOU , I�17. 14 I' 448,546.45 p 176,828.29 Rn sed on the above-quoted find ings of the Cou rt-Commi ss ioned Independ ent CPA, th e Court fin ds th at out of the tota l inpu t VAT of P3,543,65 1.73, only the am ount of PJA52,276.39 ts du ly substantiated, as follo ws: Purchase of serv ices support ed by VAT O R in the petitione r's name 10ft! 2005 Total Pu rchase of goods supported by V1\ T invoices in the pe titi oner's name I' I.'JJ I,Vi"\ 13 p 3,27 1,883 .98 p I ,540 ,ii20.85 To tal Negative Input V A T on purc hase of serv ices 2'-'J...\11 5. 89 136,442.79 395 ,808 .68 Less : Negat ive ln pnt V AT on purchase of goocls p 3,667,692.66 __?_~ '')21~)~ ')"1)2 I' I,676,763 .64 p 14,280.71 Properl y substru1tiatecl Input VAT I' . 14 .280.7 1 l' 198,5 23.7 1 20 1, 135.56 _ ____ ;(~I 1.85 198,523.7 1 p 2 15,4 16.27 p 3,452,276.39 I' lli.R9'2 .56 p I ,478,239 .93 p I,'l'l4.ilJ6.46 T he rema in ing amount of P91 ,37::\.34 is hereby disall owed for the fo ll owi ng reasons: E !111lint:s 0-fe!'cto a tta ch�~L.>~~ A w! ex "A '1 2!HH 2llil5 Tota l i' 36,549 .83 p 749.86 p 37,299.69 Purc hase o f ser vice Stippoti ecl b y N on-V AT O rs 2 Pu rc hase o f' ser vir.e suppo rt ed h y d ocume nts o th er t h~ n VA T O l{s 480.0 1 483 .9 1 963 .92 3 Input VAT o n purchase of services w ith no s uppotting documents 43,53 6. 10 1,035 .47 44 ,571.57 4 Purchase o f servi ce s upported b y d ocume m n o t in the compan y's na me 5 Purc hase of service suppo rted by ORs no t dul y regis te red w ith the B IR 207.27 3 11.82 5 19.09 3, 6 36 .3 6 3,636.36 ~ J,.. .1... r"'.l

C.T.A. CASE No. 7427 16 DECISION 84 2 .45 I,278 .63 2, 121.08 t 2.263. 63 1' 7,496.05 2,263 .63 I' 83 ,879.29 p 91,375.34 6 Purchase of goods supported by documents other than VAT Invoi ces 7 Input VAT on purchase of goods wi th no supporting documents T otal However, after further examination of the records, out of the substantiated input VAT of 1'3 ,452,276.39, . as noted by the Court- Commissioned Independent CPA, the Court finds that Pl ,33 7,520.61 of said input taxes claimed should be disallowed for the following reasons: 1.) The aggregate input taxes of 1>416,709.33 (out of the P259,365 .89 and P1,731 ,563. 13 input VAT included in the findin gs of the ICPA) on purchases of goods and services for taxable year 2004 supported by VAT invoices and official receipts in th e name of petitioner, which are not dated within th e taxable year (hereto attached as Annex "B'). 2.) The aggregate input taxes of P401 ,3fl7.29 (out of the Pl36,442 .79 and Pl,540,320.R:S input VAT included in th e findin gs of th e ICPA) on purchases of goods and serv ices for taxable year 2005 s upported by .VAT invoices and official receipts in th e name of petitioner, which are not dated w ithin th e taxable year (hereto nttached as Annex "C''). 3.) Tnput taxes amounting to P55S.R6 supported by official rece ipts which are not dated (hereto attached as Annex "D'~. 4.) Over-claimed Input VAT for th e taxab le year 2004 amounting to P179,922.99 due to erron eous computation (Exh ibit "F", p. 7) . 5.) Over-claimed Jnput VAT for the taxable year 2005 amounting to P1,827.99 �due to erroneous computation (Exhibit "F", p. 8) . ~

) C.T.A. CASE No. 7427 17 DECISION I 6.) The input taxes of P16,335.61 (out of th e P 1,731 ,563.13 input VAT included in the findin gs of the ICPA) on purchases of serv ices for taxab le year 2004 supported by VAT official receipts in the name of the petitioner, w hich are supported by documents other than VAT ORs (e.g., machine validated receipts) (fi:xhihit "F", p. ?). 7.) The input taxes of P25,248.63 (out of the ?1 ,540,320 .85 input VAT in cluded in the findin gs of the IC PA) on purchases of serv ices for taxab le y em� 2005 supported by VAT official receipts in the nam e of th e petitioner, which are supported by docum ents other than VAT ORs (e.g., machine validated rece ipts) (Exhihit ''!'". pp. 10-11). 8.) The input taxes in the amount of P 295,529.91 (out of the Pl ,5 40,320 .85 input VAT includ ed in the flndings of the JCPA) supported by official rece ip1s w ith BIR permit dat ed December 2, 2005 iss ued hy .1 PMED for payments of input taxes prior to December 2, 2005. Petitioner alleged that the said Vi\ T 0 Ps were issued as replacements to No n-VAT OH s prev ious ly issued erroneous ly to petitioner. ll owever, th e veracity of replacement cannot be ascertained sin ce the alleged cancelled ORs were not presenled be fore the Court (fi:xhib il "F", pp. 11-1 2) . T here fo re, petitioner was ab le to s uhs tnnti ate w ith valid VAT mv01 ces or receipts only the input VAT of P2, 114,755.78, computed hereund er: Reporled Input VAT I' 3,543 ,651.73 I .css: Disallowances p 91 ,:17:i.l 4 Per CI'A Report I,33 7,52 (_:)_:._.o.;...:1)_ __ :1.2,_4=2=8,~89-=5..:.9:...::._5 Per this Court's Findings p 2,114,755.78 Substantiated Claim

�. C.T.A. CASE No. 7427 18 D E CTSlON t As regards the third requi site, the Court-Commissioned Independ ent CPA found that petiti oner had taxab le receipts (which are supported w ith VAT offic ial rece ipts) ; thus, 110 t a ll o f the substantiated in put VAT of P2, 11 4,755.78 is attribu table lo zero- rated sales. In its Schedu le of Taxable Receipts for the Taxab le Year 2005 (Exhibit "1"), petitioner had taxab le sa les of P3R4,655. 52 w ith th e corresponding output VAT of P38,465.55 . Hence, only the net input VAT of P2,076,290.23 (P2,1 i4,75 5.7 8 less P38,465 .55) directiy per ta ms to petitioner's zero- rated sales ofP1 37,25 1,384.65 . As to the fourth requisite, petiti oner dedu cted th e claimed excess input VAT fo r each quarter as "any Vi\T Re l1md/TCC Claimed" in the correspond ing amended quarterly VAT return lor the taxa ble years 2004 .. and 200 5 (Annexes "F" to "/" and Annexes ''N" to "Q" of Petition). Thus, petitioner has established that no amount of the claimed excess input VAT was ca rri ed-over or appli ed against :my outp ut tax in the succeeding taxab le quarters . F inall y, petiti oner compli ed w ith th e l'ifth requi s ite. It fil ed its admini strative and judicial claims fo r re fund on March 28, 2006 and March 31, 2006, respectively, w ithi n th e two-year prescriptive period, w pursuant to Section 112 of the NJR C of 199 7, as amended, reckoned from

C.T.A. CASE No. 7427 19 DECTSJON April 20, 2004, the date of filing of the earliest quarter covered by the instant claim. WHEREFORE, premises considered, the Petition For Review is hereby PARTIALLY GRANTED. Accord ingly, respondent Commissioner of Intemal Revenue is hereby 0 <DERED TO REFUND to the petitioner the reduced amount of TWO MILLION ONE HUNDRED FOURTEEN THOUSAND SEVEN HUNDRED FIFTY FIVE AND 78/100 PESOS (P2,114,755. 78), representing excess or unutilized input VAT attributable to zero-rated sales for taxable years 2004 and 2005. SO ORDERED. c.7 /' {(Z.e-;;w.- , j '(L//1u Y--~JL>{ii-P--1 ~~ � r~ t.;7;>y- �;; OLGA l ALANCA-ENRtQUEZ Associate Justice WE CONCUR: (~ , -~7/o G .etsr'~C;k/ ~ , El~L~ UY Assoc1ate Justice fuANITO c. CASTANEDA, JR. Associate Justice

C.T.A. CASE No. 7427 20 DEC TSTON t ATTESTAl-, lOJ~ T attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. !Ju-~'~ c . C1<0<Y--~~~~ . JUANITO C. CASTANEDA, JR. Assoc iate Justice Chairperson, Second Division CERTIFICATION Pursuant to Article VTTI, Section 1] of 1he Constitution, and the Division Chairperson 's Attestation, it is hereby certified that the conclusions in the above Decision were reached in co nsultation before the case was ass igned to the writer of the opinion of the Court. 'L--._;_~t- ~ EHNESTO D. ACOSTA Pres iding Justice ;r.�; '.) . 'J .}

{I C.T.A. CASE No. 7427 21 DEC ISIO N I Annex "A" KELPHIL, INC. DlSALLOWANCES OF INPUT VAT FOR THF. T AXA BLE YEARS 2004 AN D 2005 Invoice/O R Jn~ut VAT No . 2004 200 5 A. P urchase of service su p ported by Non-VAT Ors 10542 1,096.30 42.59 Japan- I'N B Leasing 11 782 1,085 .44 707 .27 Japan-PN B I,eas ing 029352 6,359.67 749.86 ROT Lease & Fi na nce Phils. 29534 6 , 138.45 HOT Lease & Finance Phi Is. 0027 1,590.9 1 Wa ll graphi c Ad vertising 00 103 2,380.00 .Jl'ME O Asia n Pacific, Inc. 00 69 5 5, 106.27 JP M~ O As ia n Paci!i c, Inc. 0694 JPM1m As ia n Pac i!i c, Inc. 00 104 637.44 JPMJ\f) Asian Pacific, Inc. 00 105 2,380.00 JPMl ~ D As ian Pacific, Inc. 00 72 7 2,38 0.0 0 JPM F D As ia n Pacifi c, In�;. 00 106 3 ,028 .22 JP MFn As ian Pacifi c, Inc. 00750 2,380 .00 JPMF D Asian Pacific, Inc. 2293 1,98 7.13 P.O . <l utson Bil liards 1378 Ali ng Tonya's Seafood 36,54 9.8 3 Snh-t ot a l 24481 247 16 32.73 B. Purchase of service suppo1�ted by documents other th an VAT O ��s 9.82 Koda k Ex press .. 25333 Kodak Exrress 94.9 1 Kod a k Fxpress 25262 10.9 1 Kodak Express 258 88 6 1.27 Kod ak Express 27 16 1 2 1.82 Kodnk F xprcss 27246 27 .27 Kodak l�:x press 27247 10.9 1 Kodak Express 74 275 77.27 Fl oro [lluc Printing 27788 13.09 Kodak Express 28 101 10.9 1 Kodak Ex press 29080 2 1.82 Kod ak Ex rress 29 0 3 7 54.55 Kod ak E xpress 28695 32 .73 Kodak Express 29738 Kodak Ex press 55 2 6 10.9 1 P Byte Compute rs, Inc. 4250 1 47 .73 Compc-x Sa les Corp. 3028 1 26 .36 Kodak Express 305 96 2 1. 82 Kodak Ex press 183487 27.27 3N Co py Sys tems 30632 70 .45 Kodak Ex press 3.64 ~ .!.J"" .'). ,~ j

;' C.T.A. CASE No. 7427 22 DECTSTON Kodak Express 34905 10.9 1 K0dak Express 349 19 2 1.82 Kodak Express 35282 Kodnk Express 3533 7 4 .36 JN Copy Sys tems 102223 27.27 Kodak Exprc::ss 35361 34 .75 Kodak Express 35374 10.91 Kodak Express 35379 10.9 1 Kodak l�:x press 35384 Kodak Express 35779 3.64 Kodak f�:xpress 35148 7 .2 7 Kodak l�:xpress 35637 49.09 Kodak Express 35898 3.64 Koclnk l:x press 35902 13.25 Kodnk I~x. prc ss 3593 1 33.82 Kodak l ~ xprcss 3619 1 32.73 9.09 Sub-total 480.01 2.27 483.91 C. Inp ut VA T on purchase of sen'ices with no supportin g do cuments presented Adriano Magcalas AR 29,089.3 2 850.00 AlTl\�1 Properties, Inc. 0270 145.34 173.86 lnnovc Co mmuni cati ons 8 416.02 151.77 fnnove Communications 9 850.00 lnnove Comm unications 10- 11 622.76 lnnove Commun ica tion s 12 1,596.38 I ,333.33 A I-Hv1 Properties, Inc. 125 .50 G lobe Telecom 8, 181.82 *No speci ti c source document, claimed as a who le 43,536.10 Bdizc llomcs 209852 Repub lic Co urier Service 00427� !-Merge On lin e, In c. Asia Solution Philippines, Inc. 337 11 68 1. 82 Kodak Express 33563 2 1.82 Kodak Express 33565 3 .64 Kodak Express 33668 I0.9 1 Kodak l�:xpress 2734 33.45 Premiere Oriental Pacific, Inc. 182.09 I0 I.74 Kodak Express 1,035.4 7 Sub-tnlal D. Purchase of service supported by docum ent not in the company's nlunc Floro lllue Printing 74442 185.45 2 1.82 Kodak t�:xpress 29 137 Kodak Express 29537 10.9 1 Kodak Express 29826 16.36 MTB Exterm inator 3052 109.09 Motorcity A ut oshop Corp . 0414 13 1. 82 Kodak Express 35063 10.9 1 Upstart Ventures, Inc. 19868 10.9 1 Upstart Ventures, Inc. 19869 10.9 1 ~ l . ~ ' � .. 0 (. :)

;. C.T.A. CASE No. 7427 23 DEClSlON t Upstart Ventures, ln c. 1987 1 10 .9 1 311.82 Suh-total 207.27 E. Purch:-.sc of ser-vice supported by OR~ not duly registered with th.e RlR 3,636 .36 3,636.36 Angelo Trading 0669 Suh-total 029068 286.09 65.45 F. Purchase of goods supported by documents other� than VAT Invo ices 001 545.45 595.09 Data Computer Forms, Inc. 048846 10.9 1 63.64 POD Dcsi gnfab, Inc. 139 1 354 .55 PC Li ve Enterprise 3896 842.45 199.90 Power Telecom Shop Corp. 5972 1,278.63 Laden Table Food Services 1876 5th A venue Telecom Kohee Corp. 12230659 Pilipinfls Macro, Inc. Suh-tot al 27.27 G. Input VAT on purchase of goods with no supporting documents presented 2,236.36 2,263.63 3N Copy Systems 83,879.29 7,496.05 Canon Marketing Sub-tohll w TOTAL ..1 .� � ,. ~ v ./ � J

C.T.A. CASE No. 7427 24 D E C JSJON Annex "B" KELPHIL, INC. DJSA I .LOW ANCES OF INPUT VAT Exhibit No. Input VAT TNPliT VAT NOT WITHIN THE PERIOD OF CLA IM J-44 44,244 .69 J-45 8,096 .55 FOR TJm TAXABLE YEAR 2004 J-46 8,479.60 J-47 13 ,145.26 Findings J-48 307.55 Asia Solution Phils. J-49 1,052.73 C ity Travel & To 11rs Corp. J-50 339.77 Hooven !'hils., Inc. J-5 1 18,935.11 City Travel & Tours Corp. J-52 27 ,637.09 Globe Telecom J-53 2,2 12.50 lnno ve Comm lllli c<Jiions J-54 208.00 Tn nov e Communication s K-73 7, 181.82 Asia S0lution Phils. K-74 1, 195 .91 Asia Solution Phils. K-75 86 .29 Uy Singson Abella K-76 304.93 Republi c Conrier Service, Inc. K-77 34 1.02 Polar Catering & Food Services K-78 1,25 1.77 G lobe Telecom K-79 54, 143.78 DHL Worldwide Express K-80 11 ,042.98 In nove Commun ications K-8 1 79,940.91 lnnove Communication s K-82 2,600.00 lnnovc Commun ications K-107 766.84 Asia Solution !'hi ls. L- 1 293 .55 C ity Trave l 8:. Tours Corp. L-83 1, 161.04 RCW Construction & Development L-84 323.84 Uy Singson Abe ll a L-85 576.00 Timothy Schoo l & Office Supply L-86 27,6 18. 18 lnnove Com mun ications L-87 1,347.27 Globe Te lecom L-88 29,890.9 1 lnnove Communications M-1 462.9 1 Republi c Courier Service, Inc. M-2 27,500.00 Asia Solution Phils. M-3 13. 18 C ity Travel & Tours Corp. M-4 382.30 Asia So luti on Phil s. M-83 1, 152. 10 In nov e Communications M-84 8,281 .21 IML Asin l'acifie, Inc. M-85 1,045 .6 0 Foodlink gesource M-86 395.45 Premiere Oriental Pacific M-87 402.60 Globe Telecom M-88 639.00 City Travel &. Tours Corp. lnnovc Communications ~ lnnove Commu nications Innove Commun ications Republic Courier Service, Inc.

C.T.A. CASE No. 7427 25 D ECTS l O N M-89 25 ,800.00 t M-90 5,909.09 As ia So luti on Phils. 416,709.33 Asia Solution Phils. TOTAL �

) 26 C.T.A. CASE No. 7427 DECTSlON Annex "C" KELPHTL, TNC. Exhibit No. rnput VAT DISALLOWANCES OF INPUT VAT N-86 l NPUT VAT NOT WJTHlN THE PERIOD OF CLAIM N- 87 14 ,800 .00 FOR TifF. TAXABLE YEAR 2005 N-88 8,869.92 N-89 5,000.00 Finc!inj!s N-90 1, 118.21 Spice Worx Consultancy N -91 Hooven Phils., Inc. N-92 283.50 N-93 9,631.68 sc;v &. C'o. N-94 3,068.64 N-95 8,272.73 G lobe '1'\:lecom N-96 Republic Couri er, Inc. N-97 417.76 City Travel & Tours Corp. N-98 375.89 Discovery Tour, Inc. N-99 1,23 1.4 5 N.P. Cianzon, Corp. N- 100 144 .81 In nov e Commun ica tions N-101 1,637.36 1n nove Commu ni cations N-102 19,295.60 In nove Co mmuni cations N-103 7,112 .82 fnnove Communications 0-1 850 .00 City Travel & Tours Corp. 0-2 4,090 .91 Asia So lution Phil s., Inc. 0-3 26, 147.49 Spice Worx Co nsultan cy 0-4 11 , 175.55 AI IM Properti es, Inc. 0-109 474 .28 Asia So li1tion Phil s., In c. 0-110 545.45 As ia So luti o n !'hils., In c . 0-111 184 .35 JPMED As ian Pac ilic, fnc. 0.112 5,112.62 .J & G 1sono, Inc. 0-1 I3 22 ,768.25 Bi:;iro Auslriliano Corp. 0-114 440 .58 Smart Commu ni cation s 0-115 149.40 Republic Courier, Inc. 0 - 11 6 563. 25 .JP MED Asian Pacific, Inc. 0-117 1,329. 13 fnno ve Comm uni cn tion s 0-118 41 , 156. 16 lnnove Communications 0-119 943 .82 Tnnovc Comm uni cations 0-121 600.00 ln novc Communications P- 1 13 ,675.73 As ia So lution Phil s., Inc. P-2 148. 50 Globe Telecom P-3 8,001.4 5 Spice Wnrx Co nsultan cy P-105 72.73 C ity Travel & To urs Corp. P- 106 11 9.82 Republic Courier, Inc. P-107 120.59 Bri ght - l .ink Offi ce Specialist P- 108 2,500. 00 Winchap I~nte rpri ses Corp. P- 109 52,063.81 Golden Gorilla Food Corp. P-110 3,166 . 10 Cantine la Food Services P-Ill 14,251.14 Bu siness Options P-112 418 .74 As ia So li1!ion Phil s., In c. P-113 785.71 Di scove ry Tour, In c. 42 1.48 Ci ty Trave l & To urs Corp. 1, 123.36 lnnove Communications G lobe Teleco m 232300-ft lnnove Comm uni cation s ln novc Co mmunications Repub li c Courier, Inc. 'f.'l v'I ' I' ) '' � Ir ''

C.T.A. CASE No. 7427 27 DEClSTON P-114 600 t P-115 5,909 .0 9 P-116 36,000.00 Spice Worx Consultancy Q- 1 1,48 1.11 Asia So luti on Phil s., Jn c . Q-2 3,409 .09 Asia So lut ion Phi ls., Inc. Q-3 5,909 .09 Innove Co mmun icati o ns Q-4 13, 117.44 T rini ty Marketing, Inc. A sia So lu tion !'hils., Inc. Q-5 107 .2 7 Carolina's Lace S hoppc Q-6 500 .00 \Vin chap Enterprises Corp. Q-7 30,000 .00 Roque S. l' ad o Q-8 318.50 Q-9 280 . 13 lML As ia Pa(;ific Inc. Q-10 Q-11 67 .61 Bc ijin p. Trcn sure Foods Corp. Q- 12 4 3. 39 S11n Ea~ t Continenta l Food Q-13 137 .73 Philip pine Pi zza Inc. Q- 108 53 .50 Philippine J>i ;rza Inc. Q- 109 783 .10 Ma x's Sta. Mesa Inc. Q-110 3,034.38 (iold Treat l' oods, Inc. Q-111 797 .74 City Travel & Tours Corp. Q-112 9 11.3 5 Di scovery Tour, Inc. 3,034.00 Cilohe Te lecom 401 ,387.29 Republi c Courier, Inc. Plalon Martinez Florez TOT A L Jj()

C.T.A. CASE No. 7427 28 DEC ISION l KE LPlllL, INC. Annex "D" DISALLOWANCES OF INPUT VAT INPUT VAT S UPPORTED BY OFFIC IAL R ECEIPTS WfHCH ARE NOT DATE D Input VAT 363.64 FOR THE TAXABLE YEAR 2005 Exhibit No. 33.00 0- 120 162 .22 Burgoo Resta urant P-117 558.86 Cas Food & lee Cream Corp. Q- 11 3 ln nove Communi cati ons TOTAL