MARUBENI PHILIPPINES CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC IF THE PHILIPPINES Court of Tax Appeals QUEZON CITY 11/BANC MARUBENI PHILIPPINES C.T.A. E.B. NO. 319 CORPORATION, (C.T.A. CASE NO. 6215) Petitioner, Present: -versus- ACOSTA, P.J. CASTANEDA, JR., BAUTISTA, UY, CASANOVA, and PALANCA-ENRIQUEZ, JJ. COMMISSIONER OF INTERNAL Promulgated: REVENUE, JUN 2 3 2008 41~:2f,r.-A. ~ Respondent. . .-, . ~~"/n�"' ~ _,, ~ X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -X DECISION UY, J.: This is a Petition tor Review filed before the Court of Tax Appeals En Bane on October 31, 2007 seeking a review of the Decision dated February 26, 2007 and Resolution dated September 25, 2007, rendered_ by tile First Division of this Courti (Court in Division) in C, T. A. Case No. 62'15 entitled "Marubeni Philippines Corporation, petitioner, vs. Commissioner of Internal Revenue, respondent" denying petitioner's claim for refund of its alleged unutilized excess input Value Added Taxes (VAT) for the fourth (41h) quarter of 1998, in the total amount of TWO MILLION FIVE HUNDR~ 1 Ponencia of Associate Ju:;Lice Luvdl IC Uautista, and concurred by Associate Justice Caesar A. Casanova, with the Concurring and ub~enting Opinion by Presiding Justice Emesto D. Acu!>ta. 682

DECISION C.T.A. EB NO. 319 NINETY FIVE THOUSAND NINE HUNDRED SEVEN AND 70/100 PESOS (P2,595,907 .90). THE FACTS The undisputed facts are as follows: Petitioner is a corporation duly organized and existing under the laws of the Philippines, wittl oftice a<Jdress at 9th Floor, LV Locsin Building, Ayala Avenue corner Makati Avenue, Makati City. Respondent, on the other hand, is the duly appointed Com1nissioner of Internal Revenue, with authority, among others, to decide, approve and grant tax credits and/or refunds of overpaid or erroneously pa1d internal revenue taxes, with office address at the 5th Floor, SIR National Off1ce Building, Diliman, Quezon City. Petitioner was organized primarily to engage in the business of buying, selling, distributing, marketing at wholesale insofar as may be permitted by law, all kinds of goods, commodities, wares and merchandise of every kind and description, and to enter into all kinds of contracts for the export, import, purchase, acquisition, sale at wholesale and other disposition for its own account as principal or in representative capacity as manufacturer's representative, merchandise broker, indentor, commission merchant, factors or agents, upon consignrnent or all kinds of goods, wares, mercl1andise or products whether natural or artificial. As such, petitioner is duly registered with the Bureau of Internal Revenue (SIR) as a Value-Added Tax (VAT) taxpayer, admittedly evidenced by a copy of its SIR Certificate of Registration. ~ 0

DECISION C.T.A. EB NO. 319 On January 25, hJLJ8, petitioner filed with the BIR its VAT return for the fourth quarter of 1998, declaring an excess input VAT for the said quarter in the amount of P2,991 ,346.23, as shown below: e--�~r -~�-�-�� ... -�---- lnE_ut VAT on . --�--- Zero-Rated Taxabl Output VAT Domestic Importation Excess Input Sales o~;_J_ Sales Purchases of Goods � - VAT P41 ,233,493.65 F-'-I8-9"-2-5-3-4"4~- P3, 159,856.45 P620,743.22 P2,991 ,346.23 P7,892,53 On December 28, 2000, petitioner filed a letter with the BIR requesting for the refund of its excess input VAT for the fourth quarter of 1998 but in the lower amount of P2,595,90l.l0 citing as legal bases Sections 106 (A) (2) (a) (1 ), 110 (B) and 112 (A) and (B) of the National Internal Revenue Code (NIRC) of 1997. On the following day, December 29, 2000, petitioner filed a Petition for Review before the Court in Division, docketed as C.T.A. Case No. 6215, in order to toll the running of t11e two-year prescriptive period within which it may judicially file a claim for refund or tax credit of its subject input VAT, as provided under Section 229 111 relation to Section 112 (D) of the NIRC of 1997. In its Decision promulgated on ~ebruary 26, 2007, the Court in Division found that of the total reported zero-rated sales for the fourth quarter of 1998 amounting to P41,233,493.65, t11e amount of P37,334,946.50 consisted of the following: ------- ------�-- --------- . -- Nature of Reported Zero-Rated Sales Amount p 23,671,573.98 Direct Export Sales 239,898.42- Sales of Services: ----------- --�����-�-- Commissions from PEZ-A---e�-n---t-i�ties 7,733.~.1~,.Q)_ _ Commissions from Petitioner's Non-Resident Affiliates 5,690,259.07 p 37,334,946.50 Commissions from Kli~iruberii :.- r�okvo Total -----�--�-� --�----~-- 681

DECISION C.T.A. EB NO. 319 The Court in Uivb1on found that petitioner's direct export sales amounting to P23,671 ,573.98, as substantiated by export sales invoices, bills of lading, export declarations, and Bank of the Philippine Islands (BPI) Certificate of Inward Remittances, show that these export sales of goods to Marubeni Corporation, Tokyo, Japan were paid for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP), and may fall within those export sales transactions subject to zero percent (0%) VAT referred to under Section �106 (A) (2) (a) (1) of the NIRC of 1997. However, the Court in Division held that while petitioner's export invoices bear its TIN-VAr number and the printer's BIR permit number, nevertheless, the word ��zero-rated" had not been imprinted thereon, in clear violation of the invoicing requirements mentioned under Section 4.1 08-1 of Revenue Regulation 7-95. Thus, it was found that petitioner's direct export sales for the fourth quarter ot 1998 cannot qualify for VAT zero-rating. Moreover, although the Court in Division found that based on the provisions of Section 108 (B) (3) of the NIRC of 1997, and as clarified under Revenue Memorandum Circular (RMC) No. 74-99, sales of services by the petitioner, a VAT-registered person, to PEZA entities are zero-rated for VAT purposes, the amount of P239,898.42 pertaining to sales of services to PEZA registered entities, nevertheless, cannot qualify for zero-rating because the covering official receipts do not have the imprinted words "zero-rated". Similarly, petitionet 's sales of services to its non-residents affiliates and Marubeni - Tokyo for the fourth quarter of 1998 which were paid for in acceptable foreign currency and accounted for in accordance witll tile rules and regulations of the BSP may fall under the category of services subject t~ 685

DECISION C.T.A. EB NO. 319 zero percent (0%) VAT under Section 108 (B) (2) of the NIRC of �1997. Nevertheless, since petitioner's reported sales of services to its non-resident affiliates and Marubeni-T okyo in the respective amounts of P7,733,215.03 and P5,690,259.07 were not duly supported by VAT official receipts in accordance with Section 113 of the. NIRC of 1997, the Court in Division likewise held that the same shall not qualify for VAT zero-rating. Therefore, as there were no sales qualified for VAT zero-rating, petitioner's claim for refund of input VAT -on domestic purchases amounting to P2,331,932.10, the same was correspondingly denied by the Court in Division. Likewise, petitioner's claim for refund pertaining to input VAT on importation and I or domestic purchase of capital goods for the fourt11 quarter of 1998, amounting to P263,975.60, was denied on the ground that petitioner failed to prove that the capital goods purchased were actually treated as depreciable assets in its book of accounts. A Concurring and U1ssenting Opinion2 was rendered by the Honorable Presiding Justice Ernesto D. Acosta, Chairperson of the First Division of this Court, stating that he assents with the denial of petitioner's claim for refund or issuance of a tax credit cert1ticate for its unutilized I excess inp~t VAT paid on purchase of capital goods on the ground that petitioner failed to submit documents and other pieces of evidence to prove that the goods were capitalized in its book of accounts and subjected to depreciation. However, he differs with respect to the portion of the Decision that found the export sales receipts/invoices invalid, incompetent, and irrelevant for failure to imprint the term "zero-rated" and the consequent denial of petitioner's claim for tax refun~J 2 Docket, pp. 52 - 57. rr ' 686

DECISION C.T.A. EB NO. 319 or issuance of tax credit certificate for its zero-rated sales. He maintains his position that: "Contrary to the view of the majority, (1) pertinent provisions of the 1997 Tax Code do not require imprinting of the word "zero-rated"; (2) t11e absence of the term "zero-rated" in the invoice or official receipt does not affect the admissibility and competency of the same as evidence in support of its refund claim; (3) assurning the propriety of imposing the alleged requirement to irnprint the word "zero-rated" in the invoice or official receipt, the Invalidation of the same and the denial of the refund claim are not the legally imposable penalties for failure to meet such alleged requirement; and (4) the presence of other equally valid pieces ot ev1dence presented and formally offered are sufficient proot to justify the grant of the VAT refund claim attributable to its zero-rated transactions. 3 " On March 21, 2007, petitioner filed its Motion for Reconsideration seeking reconsideration of the aforesaid Decision but was denied in the Resolution dated September 25, 2007. 4 Hence, petitioner filed the instant Petition for Review before the Court En Bane assailing the Uecision and Resolution of the Court in Division promulgated on February 26, 2007 and September 25, 2007, respectively. Respondent failed to file Comment thereto as directed in the Resolution dated November 26. 2007 within the given period of ten (1 0) days from receipt thereof. 5 Subsequently, the Court En Bane gave due course to tile instant t petition for review and directed both parties to file their respective Memoranda within a non-extendible period of thirty (30) days from receipt thereof In the 3 Concurring and Dissenting Opi11i1111 111 the Jion. Ernesto D. Acosta to the Decision rendered in CTA Case No. 6215 on Febmary 26, lU()"f, Uod.el pp. 52-57, at 52-53. 4 Docket, pp. 58- 65. ' 5 Docket, pp. 86- 87. 687

DECISION C.T.A. EB NO. 319 Resolution dated January H, 2008. 6 Only petitioner filed its Memorandum on February 20, 2008 wt�lile respondent failed to do so despite notice. Thus, this case was deemed submitted for decision in the Resolution dated March 13, 2008. 7 Hence, this Deci$ion. THE ISSUES Petitioner submits the following issues for the Court En Bane's consideration: " A Whether peulloner's export sales and sales to PEZA-registered entities for t11e fourth quarter of 1998 are zero-rated despite the absence of the word "zero-rated" imprinted on its invoices; and B. Whether petitioner's sales or services to its non-resident affiliates and to Marubeni- Tokyo are zero-rated."8 Petitioner's Arguments. Petitioner puts forward the following grounds in support of its Petition for Review: A The absence of the word "zero-rated" from petitioner's export sales does not cl1ange the fact that they are subject to VAT at zero percent (0%) under the NIRC (of 1997); B. As found by the Court in Division, petitioner was aple to present sufficient ev1lience to prove the existence of its zero-rated sales; C. The requirement that petitioner's invoices must bear the word "zero-rated" is not found in the Nl RC (of 1997) but only in an administrative issuance; a�nd 'i D. Petitioner's export buyers cannot claim input VAT on the zero- rated sales smce they are not residents of the Philippines~ 6 Docket p. 89. 7 Docket, p. 121. 8 Petition for Review, p.p. 6-7; Docket, pp. 12-13 688

DECISION C.T.A. EB NO. 319 It is petitioner's contention that while it is true that Section 113 of the NIRC of 1997 provides for stringent invoicing requirements that cannot be ignored, it submits that there is nothing in the NIRC of 1997, and even in Section 4.100-2 of Revenue Regulation 7-95, that requires export sales to be supported by invoices imprinted with the word "zero-rated" in order to qualify as zero-rated sales. In fact, based on the wordings of Section 106 (A) (2) (a) (1) of the NIRC of 1997 itself, export sales are subject to zero-percent VAT upon the existence of: (a) the sale and actual shipment of goods from the Philippines to a foreign country; (b) the sale must be paid for in acceptable foreign currency or its equivalent in goods or services; and (c) the payment in foreign currency must be accounted for in accordance with the rules and regulations of the BSP. Petitioner thus maintains that the Court in Division cannot add another requirement in order for expot t sales to be considered zero-rated as there is no basis in arriving at the conclusion that export sales, which conforms to Section 106 (A) (2) (a) ('1) of the NIRC of 1997, are disqualified for zero-rating for failure to fully comply witl-1 administrative invoicing requirements. With regards to the requirement that the word "zero-rated" be imprinted in the sales invoice, petitioner posits that neither Section 4.108-1 of Revenue Regulation 7-95 nor Section 237 of the NIRC of 1997 call for the automatic denial of a claim for refund on the ground of non-compliance with invoicing requirements. Moreover, F<evenue Regulation 7-95 adds a new requirement not found in Section 113 and 237 of the NIRC of 1997, namely, that the words "zero-rated" be indicated in VAT official receipts or invoices. It is allegedly ( f clear, at the very least, t11a1 the failure to indicate the word "zero-raled" cannot 689

... DECISION C.T.A. EB NO. 319 P~ge 9 of 19 be used as a basis to deny a claim for refund, since this requirement is not even stated in the NIRC of 1997. And at most, failure to comply tl1erewith makes petitioner accountable only for the statutory penalties provided under Section 264 thereof, whicll tails under Title X9 of the said code. According to petitioner, if Indeed Revenue Regulation 7-95 authorizes the denial of a claim for refund tor violation of the invoicing requirements, such penalty allegedly goes beyond the sc~pe of the NIRC of 1997 by adding a penalty not found in the latter. To this extent, Revenue Regulation 7-95 is void for violating the principle l11at implementing rules and regulations cannot \ amend an act of Congress and may only-carry out, not supplant or modify the law. Moreover, petitioner argues t11at due to the fact that its export sales are made to residents of foreign countries - not covered by the Philippine VAT system - then such sale cannot result to any prejudice to the government, there being no instance where petitioner's export sales clients can, and will be entitled to claim refund or c1 edits of any input tax that was passed on to it. Therefore, this allegedly provides a sufficient basis for the inapplicability of certain invoicing requirements. Thus, petitioner prays that the assailed Decision and Resolution be reversed and set aside, and that a new judgment be rendered ordering respondent to refund or issue to petitioner a tax credit certificate in the aggregate amount of P2,595,907.70 representing unutilized input VAT for the fourth quarter of taxable year "1998. THE COURT EN BANC'S RULING The petition is bereft of merit. 9 Statutory Offenses and Penalties_ J(il 690

DECISION C.T.A. EB NO. 319 Time and again, We have .consistently ruled that the invoicing requirement regarding the imprinting of the word "zero-rated" on the VAT official receipts or invoices is mandatory, 10 pursuant to Section 4.108-1 of Revenue Regulation 7-95. In the absence of the word "zero-rated" imprinted on these VAT invoices and/or receipts, the claim for input VAT will be disallowed. 11 As the word "shall" was used in Section 113 of the NIRC of 1997, and in the corresponding implementmg Revenue Regulation No. 7-95, particularly Section 4.108-1 thereof, pertaining to VAT invoicing and accounting requirements, compliance t11erewith becomes mandatory considering that the word "shall" is imperative, commonly operating to impose an obligation or duty, which may be enforced. It is a word of command that must be given a compulsory meaning. 12 And in determining whether a taxpayer-claimant is entitled to the refund or issuance of a tax credit certificate of input taxes attributable to zero-rated sales, the provisions of Section '106(A)(2)(a)(1) of the NIRC of 1997 should be read in conjunction, and not in isolation, with the other provisions of the said Code enumerating the invoicing requirements, specifically, Sections 113 (A) _tA 10 See Mirant (Navotas II) Corporuli(JII (l'ormcrly: Southern Energy Navotas II Power, lne.) vs. {f. Commissioner of Internal Revenue, CTA L:U No. 226, September I I, 2007; Southern Philippines Power Corporation vs. Commissioner ollntcrnal Revenue, CTA EB No. 214, July 31, 20!l7; Panasonic Communications Imaging Coq�ur<~ti,,;; of tile Philippines, (formerly, MATSUSHITA BUSINt:ss MACHINE CORPORATION OF Till~ PIIILIPPINES) vs. Commissioner of Internal Revenue, erA EB No. 239, May 23, 2007; Kepco l'hilippincs Corporation vs. Commissioner oflnternal J{evenue, CTA EB No. 186, May 17, 2007; Kepeu Philippines Corporation vs. Commissioner of Internal Revenue, CTA EB No. 174, May 9, 2tJ07; Applied Food Ingredients Co., Inc. vs. Commissioner of Internal Revenue, CTA EB No. 220, fvtay 7, 2007; Intel Tedmology Philippines Inc. vs. Cummissioncr of Internal Revenue, CTA EB No. IIi I, March 27, 2007; and J.R.A. Philippines 11 Mirant (Navotas II) Corporation (i'onnerly: Southern Energy Navotas II Power, Inc.) vs. Commissioner oflntemal Revenue, C l'A EU No. 226, September 11, 2007; Kepco Philippines Corporation vs. Commissioner ol lutnnal l<.evcnuc, CTA Ell No. 107, June 29, 2007; and Applied Food Ingredients Co., Inc. vs. Contmtssiouer uf Internal Revenue, CTA EB No. 220, May 7, 2007. 12 Dizon vs. Encarnacion, 9 SCI~A 7 14 ( I'lid). 691

) DECISION C.T.A. EB NO. 319 and 237 of said Code, as well as Section 4.108-1 of Revenue Regulations No. 7-95, the pertinent portions of WI'Jich read as follows: NIRC of 1997: "Sec. 106. Value-added Tax on Sale of Goods and Properties. - (A) Rate and Base of Tax. - x x x (2) The following sales by VAT-registered persons shall be subject to LtJIO 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 arrar1gement that may be agreed upon which may influence or determine the transfer of ownership of goods so expuiled and paid for in acceptable foreign currency or tts equivalent in goods or services, and accounted for in accordance with the rules and regulations of tile Bangko Sentral ng Pilipinas (BSP);" "SEC. 113. Invoicing and Accounting Requirements for VAT Registered Persons. - (A) Invoicing Requirements. - A VAT-registered person shall, for every sale, issue an invoice or receipt. In addition to the inforrnation required under Section 237, the following information shall be indicated in the invoice or receipt: (1) A statement that the seller is a VAT-registered person, followed by his taxpayer's identification number (TIN); and , (2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that sud1 amount includes t11e value-added tax." (Underscoring and emphasis Ours) "SEC. 237. Issuance of Receipts or Sales or Commercial� Invoices. - All persons subject to an internal revenue tax shall, for each sale or transfer of merchandise or for services rendered valued at Twenty-five pesos (P25.00) or more, issue duly registered receipts or sales or commercial invoices, prepared at least in duplicate, showing the date of transaction, quantity, unit cost and description of merchandise ~ 692

DECISION C.T.A. EB NO. 319 Page 12 ofl9 or nature of service: Provided, however, That in the case of sales, receipts or transters in the amount of One hundred pesos (P100.00) or more, or reyardless of amount, where the sale or transfer is made by a person liable to value-added tax to another person abo liable to value-added tax; or where the receipt is issued to cover payment made as rentals, commissions, co1npensations or fees, receipts or invoices shall be issued which sl1all show the name, business style, if any, and address of lhe purchaser, customer or client: Provided, further, That where the purchaser is a VAT-registered person, in addition to the infonnation herein required, the invoice or receipt shall further show the Taxpayer Identification Number (TIN) of the purchaser. The original of each receipt or invoice shall be issued to the purchaser, customer or client at the time the transaction is effected, who, if enyaged in business or in . the exercise of profession, shall keep and preserve the same in his place of business for a penod of three (3) years from the close ot the taxable year in which such invoice or receipt was issued, while the duplicate sttall Lle kept and preserved by the issuer, also in his place of business, for a like period. The Commissioner may, in meritorious cases, exempt any person subJect to an internal revenue tax from compliance with the provisions of this Section." Revenue Regulation No. 7-95 "Section 4.108-1. Invoicing Requirements - All VAT-registered persons shall, for every sale or lease of goods or properties or services, issue duly registered receipts or sales or commercial invoices whicl1 must show: 1. the name, TIN and address of seller; 2. date ot transaction; 3. quantity, unit cost and description of merchandise or nature of service; 4. the name, TIN, business style, if any, and address of the VAT-registered purchaser, customer or client; 5. the word "zero rated" imprinted on the invoice covering zero-rated sales; and 6. the invoice value or consideration. XXX XXX XXX Only VAT-registered persons are required to print their TIN followed by the word "VAT" in their invoice or receipts ant 693

DECISION C.T.A. EB NO. 319 this shall be considered as a "VAT Invoice". All purchases covered by invurces otller than "VAT" Invoice'' shall not grve rise to any input tax." (UndeJscoring and empl1asis supplied) Applying the afore-cited provisions in the case at bench, it is evident that before a re.fund/tax credit of unutilized input VAT on purchases of goods and services attributabl8 lo zero-rated sales or effectively zero-rated sales may be allowed, it is necessary for the taxpayer-claimant to strictly comply with the above-enumerated rnvoicing requirements. We put much en1phasis on the strict compliance with tile mandatory requirements of invoicing in claims for refund or issuance of a tax credit certificate because for the same transactions, the output VAT of the seller becomes the input VAT of the purchaser. And in the case of zero-rated sales transactions, We adhere to the further requirement that tile word "zero-rated" be imprinted on the face of the invoices or official receipts ot the seller to prevent the buyer or purchaser from claiming any input VAT from such purchase. As aptly found by the Court in Division, the invoicing requirements are clear and absolute, and petitioner is obligated to comply therewith, regardless of petitioner's claim that subject sales to its non-resident affiliates and to Marubeni-Tokyo for the Fourll1 quarter of 1998, paid for in acceptable foreign currency, and accounted tor in accordance with the rules and regulations of the BSP, may fall under the category of services subject to zero percent (0%) VAT under Section 108 (B) (2) of the NIRC of 1997. In other words, the need for strict compliance with the mandatory requirement of imprinting the word "zero-rated" on sales invoices or official receipts is without regard as to whether or not the business entity engages only in export sales sine;; 694

) DECISION C.T.A. EB NO. 319 Revenue Regulation No. l-85 did not make any distinction on the different kinds of zero-rated sales. It should be noted til at Revenue Regulations No. 7-95, was promulgated by the Secretary of Finance pursuant to the authority granted by Section 245 of the Nl RC of 19Tl, which provides: "SEC. 245. Authority of�. Secretary of Finance to promulgate Rules and Regulations. - The Secretary of Finance, upon the recornmendation of the Commissioner, shall promulgate all needtul rules and regulations for the effective enforcement of the provisions of this Code." (Emphasis supplied) The foregoing pr.ovision was re-enacted in toto under Section 244 of the NIRC of 1997. Moreover, to enforce the rule-making power of the Secretary of Finance in coordination with the BIR, a new provision (SEC. 245) was incorporated defining lite extent of such rule making power, pertinent part of which provides: "SEC. 245. Specific prov1s1ons to be contained in rules and regulations. - The rules and regulations of t11e Bureau of Internal Revenue sl1all, among others things, contain provisions specifying, prescribing or defining: XXX XXX XXX (g) The manner in which revenue shall be collected and paid, the instrument, document or object to which revenue stamps shall be affixed, the mode of cancellation of the same, the manner in which the proper books, records, invoices and other papers shall be kept and entries therein made by the person subject to the tax, as well as the manner in which licenses and starnps shall be gathered up and returned after serving their purposes;" (Emphasis/italics supplied) Considering the legislative grant of authority to the Secretary of Finance to promulgate all needful rules and regulations for the effective enforcement of the provisions of the NIRC of 1997, Section 4. 108-1 o~ 695

DECISION C.T.A. EB NO. 319 Revenue Regulation 7-95 requiring the imprinting of the words "zero-rated" on safes invoices or official receipts is valid. Moreover, it is both reasonable and necessary for the effective implementation of the provisions of the NIRC of 1997 concerning zero-rated sales. Thus, the requirement that sales invoices shall be imprinted with the word "zero-rated" is deemed to only implement the provisions of the NIRC of 199"1 on sales that are subject to VAT, zero-rated sales (0% VAT) and exempt sales. And it is necessary to distinguish sales subject to VAT, those that are subject to 0% VAT (zero-rated) and exempt , safes, to enable the 131H to properly implement and enforce the other� provisions of the NIRC of �1997 on VAT, namely: 1. Zero-rated sales [Sec. 106 (A) 2 and Sec. 108 (B)]; 2. Exempt transactions [Sec. 109] in relation to Sec. 112 (A); 3. Tax credits [Sec. �1�10]; and 4. Refunds or tax credits of input tax [Sec. 112]13. Likewise, the Suprerne Court has ruled in COMPANIA GENERAL DE TABACOS DE FILIPINAS vs. HONORABLE COURT OF APPEALS AND THE COMMISSIONER OF INTERNAL REVENUE14 that regulations issued by the Department of Finance I Bureau of Internal Revenue that would give effect to the law are valid regulations, thus: "Petitioner's arguments impugning the validity of Revenue Regulations V-39 and 17-67 deserve scant consideration. First, botr1 regulations were issued pursuant to Section 245 (now Section 244) of the Tax Code. The authority of the Secretary of Finance, in conjunction with the ~ 13 Kepco Philippines Corporaliuu vs. Cumrnissiuner of Internal Revenue, C.T.A. EB Case No. J07, June 29, 2007. Also cited in Miranl (Navotas 11) Corporation (formerly: Southern Navolas II Power, Inc.) vs. Commissioner of lnll:mal Rc\cuut:, supra and in Marubeni Philippines Corp. vs. Commissioner oflnternal Revenue, C.I.A. EB Case�No. 231, November 20, 2007. 14 G.R. No. 147361, March 23, 2004 (426 SCRA 203). 696

DECISION C.T.A. EB NO. 319 Commissioner of Internal Revenue, to promulgate needful rules and regulations tor the effective enforcement of internal revenue laws cannot be controverted. Such rules and regulations, a~ well as administrative opinions and rulings, ordinarily deserve to be given weight and respect by the courts. Second, our scrutiny of F<evenue Regulations Nos. V-39 and 17- 67 show that said regulations did not modify or deviate from the text of Sections �t37 and �141 but merely implemented and clarified said two provisions by providing certain conditions under which sternrned leaf tobacco may be exempted from prepayment of spec1t1c �tax." (Emphasis supplied; citations omitted) The issuance of Revenue Regulations No. 7-95 was made pursuant to the respondent's duty ot implementing the provisions of the law. The requirement of imprinting the word "zero-rated" fulfills the intent of the law and it is useful, practical and necessary not only with respect to the proper implementation of the provisions of the law on zero-rated transactions but more importantly, to prevent tt1e granting of refund or tax credit of non-existent input VAT. It is an act of tax administration which is not violative of the rule on non-delegation of delegated powers. 15 To further fortify tl1e siynificance of Revenue Regulation No. 7-95, the Supreme Court in Atlas Consolidated _Mining and Development Corporation vs. Commissioner of Internal Revenue, 16 clearly recognized that applications for refund I credit of input VAT with the BIR must comply with the appropriate revenue regulations. The Supreme Court, in citing the case of Commissioner of Internal Revenue vs. Manila Mining Corporation, 17 emphasized the importance of complying with the substantiation requirements; 15 Taganito Mining Corporation v. Commissioner of Internal Revenue, Supra. 16 G.R. Nos. 141104 & 148763, June ll, .W07, 17 G.R. No. 153204, August 31,2005, �168 SL'RA 571. 697

DECISION C.T.A. EB NO. 319 for claiming refund/credtl ot mput VAT on zero-rated sales in accordance with the appropriate revenue regulations, in this manner: "Although tt�te foregoing decision (Commissioner of Internal Revenue vs. Mantia Mining Corporation) focused only on the proof requued for the applicant for refund/credit to establish the input VAT payments it had made on its purc!}ase~ from suppliers, Revt:nue f~egulations No. 3-88 also required it to present evidence proving actual zero-rated VAT sales to qualified buyers, such as (1) photocopy of the approved application for zero-rate if filing for the first time; (2) sales invoice or receipt showing the name of the person or entity to whom the goods or services were delivered, date of delivery, amount of consideration, and description of goods or services delivered; and (3) the evidence of actual receipt of goods or services." (Emphasis Ours) Hence, by analogy, in order for petitioner to be entitled to its claim for refund I issuance of tax credit certificate representing unutilized input VAT attributable to its sales for the fourth quarter of 1998, it is therefore necessary to first comply with the substantiation requirements set forth under the appropriate revenue regulation, i.e. RR No. 7-95. We cannot overemphasize the fact that taxpayers have the burden of proving compliance with the mandatory provisions of the NIRC of 1997 as well as the corresponding implementing rules and regulations issued thereof. This well-entrenched principle must be applied in all actions involv~ng taxation, more particularly, when claim for refunds or tax credits are involved as in petitioner's case before tllis Court. Moreover, it bears stressing that tax refunds are in the nature of tax exemption and as such, it is regarded as~ 698

DECISION C.T.A. EB NO. 319 derogation of sovereign authority and should be construed strictissimi juris against the person or entity clain1ing the exemption. 18 In claims for refund, the law mandates the court to observe a higher standard of caution in appreciating and evaluating evidence. If indeed a claim for refund is wanting in pertinent and supporting evidence, then the granting thereof could prove to be Improper, if not difficult. 19 Therefore, having failed to discharge the burden in tltls regard, petitioner's claim must therefore fall. In view of the foregoing, the denial by the Court in Division of petitioner's claim for refund I issuance of tax credit certificate of input VAT attributable to zero-rated sales for failure to present the invoices and official receipts to support the alleged zero-rated sales in accordance with the invoicing requirements under Sections 113 and 237 of the NIRC of "1997, and Section 4.108-1 of Revenue Hegulations No. 7-95 is definitely not without any legal basis. WHEREFORE, premises considered, the instant Petition for Review is hereby DENIED for lack of merit. SO ORDERED. . WE CONCUR: AEs~~~tUicYe ~- UJ� c~ (With Concurring and Dissenting Opinion) ERNESTO D. ACOSTA Presiding Justice 18 Commissioner of Internal Revo..:JILIC vs. S.C. Johnson and Son, Inc. and Court of Appeals, ( i.R. No. 127105, June 25, 1999. Commissiuncr of Internal Revenue vs. Procter and Gamble Philirpincs Manufacturing Corporation and 'I he Cuurl uf Tax Appeals, G.R. No. 66838, December 2, 1'JlJ I. 19 . ECW Joint Venture, Inc., vs. l:ollllllissiuner of Internal Revenue, CTA EB No. 14 (CTA Case No. 6509), March 22, 2006. G99

I ~I DECISION C.T.A. EB NO. 319 JfQfANifodec~. GCAS~ TA'N~ EDA, dRQ:' . Associate Justice CAESAR A. CASANOVA ~NcA~UEZ Associate Justice Associate Justice CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, it is t1ereby certified that the conclustons in the above decision were reached in consultation before the cast: was assigned to the writer of the opinion of the Court En Bane. L-... CL-L_ ERNESTO D. ACOSTA Presiding Justice 700