NIPPON EXPRESS (PHIL.) CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY FIRST DIVISION NIPPON EXPRESS (PHILS.) CTA CASE NO. 6688 CORPORATION Members: Petitioner, Acosta, PJ, Bautista, and, ~ versus ~ Casanova, JJ COMMISSIONER OF INTERNAL Promulgated: REVENUE, Respondent. X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - DECISION ACOSTA, PJ: The Case Before Us is a Petition for Review requesting for the issuance of a tax credit . certificate in the amount of P20,345 ,824.29 representing excess input tax attributable to effectively zero-rated sales for taxable year 2001. The Facts Petitioner is a corporation duly organized and existing under the Republic of t}1e Philippines. It is registered with the Securities and Exchange Commission under Certificate of Registration No. AS095-005669 with principal office address at U- 2701 Yuchengco Tower, RCBC Plaza, 6819 Ayala Avenue, Salcedo Vi llage, Makati 88

., DECISION C.T.A. Case No. 6688 Page 2 of7 City. ' It is registered w ith the Large Taxpayer District Offi ce of the Bureau of Internal Revenue, Revenue Region No. 8 as a Va lue Added Tax (VAT) taxpaye r. 2 Respondent is the duly appointed gove rnment offi cer vested with the power to decide, approve, and grant refund s or tax cred its of overpaid internal revenue taxes as provided by law.3 For the four quarters of 2001 , petitioner fil ed its a mended quarterl y VAT Returns4 refl ecting, among others, the fo llowing: Taxable sa les I " Quarter 2"d Quarter 3'd Quarter 4'h Quarter I Zero Rated Sa les 14,349,644 .90 14,4 78 ,588.90 14,623,673.80 14,8 18,314.40 179,8 ~.6,786.50� 185 ,678-,222.63 185 , 192,495.32 243,475,30 1.43 Exempt Sa les 6 1,720,628.4? 105,263,099.90 3, 190,636.94 19,852,036 .77 Total Sales 255.887.059Ji2 305.4'1 2.9 11.43 203 006 806 06 2.7.�.112 652 60 Out put Tax I 43 4 964.42 1.4-17 858.82 1,462,367 .38 1.48 1.83 1.44 Less: Input Tax 38,250,534.87 44 ,266 ,453.28 36,075 ,229.92 18,027,438.4 1 Inpu t Tax Carried Over 8, 150,883.60 7,533,798.74 6,757,946.83 9,564,73 0.63 Input Tax fo r the quarter 27,662, 169.04 Avail able Input Tax 46,40 1,41 8.47 52,500,252.72 42,833, 176.7 5 Deduction: VAT Refund 14,977, 163.9 1 23,273,370.26 27,662, 169.04 Net Credi table Input Tax 4640 1.4 18.47 37,523.088.8 1 26, 18.Q_JlL6.Q Tax Overpayment 44,966,4~3 .28 36,075,222.22 1 2,552, ~0!5. 7 9 18,Q97 ,4 J l L 4 l (Underlines supplied) Petitioner filed an administrative claim for refund representing the alleged excess input tax of P20,3 45 ,824.29 att ributable to its effectively zero-rated sales with the Large Taxpayers District Offi ce, Revenue R.egion N o. 8 on April 24, 2003 ,5 computed as foll ows: Outpu t VAT from Taxabl e Sa les ( I0%) p 5,827,022.20 Less: Input VAT A ttributed to Taxa bl e Sa les 1,789, 111.3 2 Input VAT A ttributed to O-rated Sa les 24,383 ,735. 17 R.efundabl e Excess Input VAT (P20345 .824.29) 1 Paragraph I, Joint Sti pulati on of Facts and Issues. 2 Paragraph 3, Joint Sti pulation of Facts and Issues . 3 Paragraph 2, Joint Stipul atio n of Facts and Issues. 4 Exhibits B, BB, BBB, and BBBB . 5 Paragraph 4, Joint Sti pulation of Facts and Issues; Ex hibit 12.

I' �f DECISION C.T.A. Case No. 6688 Page 3 of7 Since respondent has not yet resolved the administrative claim,6 petitioner filed with this Court a Petition for, Review on April 25, 2003 requesting for the issuance of a tax credit certificate in the amount of P20,345,824.29 representing excess input tax attributable to effectively zero-rated sales for taxable year 2001. In her Answer fi led on June 25, 2003, respondent prayed for the dismissal of I the petition for lack of merit. She also alleged therein the following Special and Affirmative Defenses: "3. He reiterates and repleads th e preced in g paragraphs of this answer as part of his Special and Affirmative Defenses; 4. Petitioner's a l.l eged claim for issuance of tax credit certificate is still subject to administrative routinary investigation/examination by the respondent' s Bureau; 5. Taxes paid and collected are presumed to have been made in accordance with law, hence, not refundable . ' 6. Petitioner's claim for issuance of tax credit certificate in the amou nt of P20,345, 824 .29 as alleged excess input tax attributable to petitioner 's effectively zero-rated sales for taxable year 2001 were no~ ful ly substantiated. 7. Petitioner's right to claim for refund/tax credit has already prescribed pursuant to Section 4.106-1 of Rev. Reg. No. 7-95. 8. Petitioner's sa les of services to Philippine Economic Zone Authority (PEZA) registered enterprises do not quali fy as zero-rate VAT; 9. It is incumbent upon the latter to show that it has comp lied with the In provisions under Section 204(c) relatio n to Section 229 of the Tax Code. Otherwise, its failure to prove the same is fatal to its claim for refund . I0. Claims for refund are construed strictly aga in st the claimant for the same partake the nature of exemption from taxation (Comm issioner of Internal Revenue vs. Ledesma, 31 SCRA 95) and as such, they are looked upon w ith disfavor (Western Minolco Corp. vs. Commissioner ofInternal Revenue, 124 SCRA 1211)." After trial ensued, this case was submitted for decision on July 31, 2008 taking into consideration petitioner's Memorandum fi led on July 18, 2008, sans the respondent's Memorandum. 6 Paragraph 5, Joint Stipulation of Facts a nd Issues . 90

DECISION C.T.A. Case No. 6688 Page 4 of7 The Issues The parties jointly stipulated the following issues to be resolved by this Court, to wit: 1. Whether or not petitioner's sales of services to various Philippine Economic Zone Authority (PEZA) registered companies is zero-rated for VAT purposes under Section I08(B)(3) of the 1997 Tax Code. 2. Whether or not petitioner's claim for refund/tax credit in the amount of P20,345,824.29 as alleged excess input VAT paid is attributable to its zero-rated sales for taxable year 200 I. 3. Whether or not petitioner carried over to the succeeding taxable quarter/year the alleged input VAT paid attributable to its zero-rated sales for taxable year 200 I and applied the same in full to its output VAT li ability for the said period . 4. Whether or not petttJOner has complied with the requirements under Section 204(C) in relation to Section 229 of the Tax Code. The above issues boil down into a single point of whether or not petitioner is entitled to the issuance of a tax credit certificate in the amount of P20,345,824.29 allegedly representing excess input tax attributable to effectively zero-rated sa les for taxable year 2001 . The Court's Ruling Refunds or tax credits of input tax attributable to zero-rated sales is governed by Section 112 (A) of the 1997 Tax Code which provides: "Section 112. Refunds or tax credits of i1iput 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 ofthe taxable quarter when the sa les were made, apply for the issuance of �a tax credit cet1ificate or refund of creditab le 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 l08(B)(I) 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 Pilipirias (BSP): Provided, fw1her, that where the taxpayer is engaged in zero-rated or effectively zero-rated sa le 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 attributabl e to any one of the transactions, it sha ll be allocated proportionately on the basis of the vo lume of sales." � 91

DECIS ION C.T.A . Case No. 6688 Page 5 of7 Pursuant to the above provision, in order to be entitled to the issuance of tax credit certificate/refund of unutilized input VAT, petitioner must prove compliance with the following requisites7: 1. There must be zero-rated or effectively zero -rated sa les; 2. That input taxes were incurred or paid ; 3. That such input taxes are directly attributable to zero-rated sales or effectively zero-rated sales; 4. That the input taxes were not applied again st any output VAT liability during and in the succeeding quarters; and 5. � That the claiin for refund was tiled .within the .~wo-year prescriptive period . Petitioner has established compliance wiih the first three requisites 1 Petitioner rendered services to PEZA-registered enterprises and non-resident foreign corporation, as proved by its sales invo ices, transfer slips, credit memos, ce1iificate of PEZA registration ,8 Certifications of Non-Registration of Corporation with the Philippine Securities and Exchange Co mmission,9 2001 Quarterly VAT Returns,10 and the reports of the commissioned independent CPA. 11 The sales derived therefrom amounting to P729,657,30 1.66 12 which are validly supported by documents, out of the total zero-rated sales declared in pe.titioners VAT returns of P794,162,805 .88,13 qualify for VAT zero-rating pursuant to Sec. 108(B)(2) and (3) of the 1997 Tax Code, viz: "Sec. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. - xxx (B) Transactions Subject to Zero Percent (0%) Rate.- xxx 7 Nippon Exp res s (Philippines) Corporation vs. Co mmi ssioner oflnterna l Revenue, CTA Case No. 6464, Jun e 15, 2007. 8 E;mibits AC-01 to AC-106164. 9 Exhibits GO to FFFF. 10 Exhibits B to BBBB. 11 Exhibits CC, DD and FF-l. 12 Declared zero-rated sales of P794, 162,805.88 less adjus tm ents: (a) exceptions amounting to P63 ,702, 191.38 per CPA report (Exhibit CC) and the sum of ?803 ,31 2. 84 ze ro rated sa les pertaining to documents not admitted by this Court as su mm ar ized in Ex hibits GGGG-1 . 13 Consisting of sales to PEZA registered entities of P267 ,289,34 1.13 and sa les to rion-res ident foreign corporation of ?526,873,464 .75. The co nsiderati on of its sa les to non-resident foreign corporat ion in acceptable foreign currency was accounted for by the Commissioned Independ ent CPA (Exhibit FF-1 ). 92

DECISION C.T.A. Case No. 6688 Page 6 of7 �II (2) Services other than those mentioned in the preceding paragraph, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and re gulations of the Bangko Sentral ng Pilipinas (ESP); (3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effective ly subjects the supply of such serv ices to zero percent (0%) rate." As evidenced by its sales invoices, official rece ipts, transfer slips and credit memo, debit memos, billing statements, requi s ition slips, acknowledgment receipts and statements of accounts, 14 the 20.01 Quarterly' VAT R e tu ms 15 and the reports of , the commissioned �independent CPA, 16 petitioner incurred or paid input taxes ~of P32,007,359. 80 during the taxable quarters of 2001, portion thereof is attributable to� its zero-rated sales generated during the same period pursuant to Section 112 (A) of the 1997 Tax Code. However, out of the. said amount of input taxes, only P25 ,626,620.82 has been validly supported by proper input VAT documents, 17 which may be the subject of refund in propmiion to the dul y substantiated zero-rated sales. Unfortunately, the same could not be granted since petitioner has failed to prove compliance with the last two requisites. It could not be asce1iained whether the .claimed input taxes of P20,3 45 ,824.29 were not applied against its output tax in the succeed in g quarters of 2002 absent, as evidence, the VAT returns for the taxab le quarters of 2002. Although, petitioner presented as evidence its VAT return for the second quarter of 2003 18 showing as dedu.ction from total available input tax its overpaid VAT �of P26, 180,33 7.69 for the 4111 quarter of 2001, the same cannot give assurance that the claimed input tax of P20,345,824.29 has not been utilized in taxaWe year 2002 . Absence of such relevant . evidence (the 2002 quarterly VAT returns), is fatal to petitioner 's claim. It could not be ascertained whether the adh1inistrative claim on April 24, 2003 and the Petition for Review on April 25, 2003 were both fil ed within the two (2) year I 14 Exhibits H-Ollo H- 11038; K, L, M , N, 0 , P, Q, R, S, T, U, V, W, X, Y, and Z. 15 Exhibits B, BB , BBB and BBBB. . 16 Exhibits CC and DD. 17 Exhibit CC; and p. 180, CTA Rollo. 18 Exhibits C and D. 93

.. ' DECISION C.T.A. Case No. 6688 I > Page 7 of7 prescriptive period in the absence of the original 2001 quarterly VAT returns. Said documents are important since the actual date of filing thereof is the reckoning point of the two year prescriptive period for filing a claim for refund or credit. It is settled that tax refunds, like tax exemptions, are construed strictly against the taxpayer and that the claimant has the burden of proof to estab lish the factual basis of its claim for tax credit or refund. 19 Failure in this regard, petitioner's claim must fail. WHEREFORE, the instant Petition for Review IS hereby DENIED for insufficiency of evidence. SO ORDERED. L ~ . o'--'-- ERNEsTo D. ACOSTA Presiding Justice L R. BAUTISTA ~ CAESAR A. CASANOVA Associate Justice CERTIFICATION I hereby certify that the above decision was reached after due consultation with the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. L .. . Q._...__ ERNESTO D. AC OSTA Presiding Justice 19 Silicon Philippines, Inc. vs. Commi ssioner of Internal Revenue, CTA EB Case No. 29 8, January 18, 2008 .. citing Citibank, N.A . vs. Court of Appeals and the Commissiuner of Internal Revenue, 280 SCRA 459. 94

.. Republic of the Philippines COURT OF TAX APPEALS Quezon City FIRST DIVISION ************** GST PHILIPPINES, INC. Petitioner, � C.T.A. CASE NO. 7419 - versus- Members: COMMISSIONER OF INTERNAL ACOSTA, Chairperson REVENUE, ... BAUTISTA, and CASANOVA, JJ. Promulgated: CASANOVA, J.: This is a Petition for Review filed by GST Philippines, Inc. (petitioner) seeking the issuance of a tax credit certificate or a tax refund in the amount of Thirty Two Million Seven Hundred Twenty Two Thousand One Hundred Nine � Pesos and Sixty Eight Centavos (P32,722,109.68) allegedly representing unapplied input Value Added Tax (VAT) payments attributable to its zero rated revenues for the period from January 1, 2004 to September 30, 2005~ 95

Decision CTA Case No. 7419 STATEMENT OF FACTS Petitioner is a corporation duly organized and existing under Philippine laws with principal office at 2nd Floor AL.PAP I Building, 140 Leviste Street, Salcedo Village, Makati City.1 It is a duly registered VAT enterprise pursuant to Section 107 of the 1997 National Internal Revenue Code (NIRC) with Tax Identification Number 000-155-645-000 .2 .Respondent is a public offJ,cer duly appointed by the President of the Philippines and is the head: of the ' Bureau of . Internal Revenue (BIR) - the government agency officially responsible for the assessment and collection of all national a.nd internal revenue taxes.3 Petitioner filed its 1st to 4th quarterly VAT returns for the year 20Q4 and reflected the following :4 Period 2004 Date of Filing Zero-rated Sales 1st quarter April 16, 2004 P77,687,420.54 2nd quarter July 15, 2004 53,737,063.05 3rd quarter October 15, 2004 74,280,682.00 4th quarter January 11, 2005 104,633,604.23 Petitioner also filed its VAT returns for the l 5t to 3rd quarters of the year 2005 which reported the following: $ - 1 Paragraph 1, Peti tion fo r Review in re lation to Paragraph 1, Jo int Sti pu lation of Facs and Issues forTrial, Rollo,pp.l ,2 14. ; 2 Paragraph 2, Jo int Stipulation offCicts and Issues for Tria l, Ro llo, p. 2 14. 3 Paragraph 2, Petition for Review in re latio n to Paragraph I, Joint Sti pulation of Facts and Issues for Trial, Rollo, p. I, 2 14. 4 Exhibit "G, G- 1, G-2, G-3 ." 5 Exhibit "G-4, G-5, G-6."

Decision Date of Filing Zero-rated Sales CfA Case No . 7419 Page 3 of 19 April 25, 2005 P37,742,969.02 July 19, 2005 56,133,761.00 Period 2005 October 26, 2005 51,147,677.80 1st quarter 2nd quarter 3rd quarter On June 9 arid August 12, 2004, and on February 18, May 11, and November 18, 2005, petitioner resp~ctively filed claims of its 2004 and 2005 unapplied input VAT payments with the BIR.6 However, the claims for refund remain unresolved by the BIR/ hence, the instant Petition for Review was filed on March 17, 2006. During trial, both parties agreed to the following: that under Revenue Memorandum Order No. 9-00 (RMO 9-00), in relation to Section 106(2)(a) of the National Internal Revenue Code of 1997 (N IRC of 1997), the sale of goods, properties or services made by a VAT-registered supplier to a Bureau of Investment (BOI)-registered exporter with 100% export sales shall be accorded automatic zero-rating. Likewise, under Revenue Memorandum Circular No. 74- 99 (RMC 74-99), the sale of goQ_ds, propertY or services made by a VAT registered supplier to any registered enterprise operating in the ecozone is entitled to the zero percent (0%) VAT.8 On April 21, 2006, respondent fil ed ~is Answer interposing the following as Special and Affirmative Defenses :J8i-~ 6 Paragraph 6, Joint Stipulation of Facts and Issues for Trial , Rollo, p. 2 15. 1 Paragraph 7, lbid . . 1 Paragraph 3, 4, 5, Joint Stipulation of Facts and Iss ues for Trial, Rollo, pp. 2 14-2 15. 97

Decision CTA Case No. 7419 "4. Petitioner's alleged claim for refund is subject to administrative investigation/examination by the Bureau; 5. The amount of P32,722,109.68 being claimed by petitioner as alleged unapplied input VAT payments attributable to its zero rated revenues for the period January 1, 2004 to September 30, 2005 was not properly documented; 6. 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; 7. 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; 8. Claims for refund are construed strictly against the claimant for the same partake the nature of exemption from taxation (Commissioner ofInternal Revenue vs. Ledesma/ 31 SCRA 95) and such, they are looked upon with disfavor (Western Minolco Corp. vs. Commissioner of Internal Revenue/ 124 SCRA 1211)." . On August 16, 2007, petitioner filed its Formal Offer of Evidence, while I respondent waived her right to present any. On April 8, 2008, petitioner filed its Memorandum while respondent filed her Memorandum on June 17, 2008. On August 1, 2008, the instant case was submitted for decision. STATEMENT OF ISSUES The parties have jointly stipulated that the following are the issues for this . Court to resolve: 1. Whether or not petitioner has excess input VAT in the amount of P32,722,109.68 for the period from January 1, 2004 to September 30, 2005;,aa

Decision CfA Case No. 7419 2. Whether or not petitioner's excess input VAT are attributable to its purchases that are directly related to its zero-rated revenue for the same period; 3. Whether or not petitioner's excess input VAT were not applied to any of petitioner's output VAT liability during the same period or the succeeding quarters of 2005; 4. Whether or not petitioner's claim for refund was filed within the period prescribed by law; 5. Whether or not petitioner, based on the facts and applicable laws, is entitled to a refund of its excess and unapplied input VAT payments for the period from Januaryl, 20.04 to September 30, 2005. THE COURT'S RULING The foregoing issues boil down to the sole issue of whether or not petitioner is entitled to a refund of its alleged excess and unapplied input VAT payments for the period covering January 1, 2004 to September 30, 2005 in the amount of P32,722,109.68. Section 112(A) of the NIRC of 1997, as amended, provides for the following: "SEC.112. Refunds or Tax Credits ofInput Tax- (A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-registccred person, whose sales are. zero-rated or effectively zero-rated may, within two(2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108(8)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in' accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, .further, That where the taxpayer is engaged in zero-rated ~ 99

/.' Decision CfA Case No. 7419 effectively zero-rated sales 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. Based on the aforementioned provisions, to be entitled to a refund of its unutilized input VAT, petitioner has to comply with the following requisites: I 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 directly attributable to zero-rated or effectively zero-rated sales; 4. that the input taxes were not applied against any output VAT liability; and 5. that the claim for refund was filed within the two-year prescriptive period In the instant case, petitioner's VAT returns for the quarters covering the instant claim reported the following zero-rated sales: Exhibit Period Zero-rated Sales 2004 G 1st Qtr p 77,687,420.54 G-1 2nd Qtr 53,737,063.05 G-2 3rd Qtr 74,280,682.00 G-3 4th Qtr 101116331604.23 Subtotal p 310l338J69.82 2005 G-4 1st Qtr p 37,742,969 .02 G-5 2nd Qtr 56, 133,761.00 G-6 3rd Qtr 5111471677.80 Subtotal p 145l 024l407.82 TOTAL p 45513631177.64 The reported zero-rated sales consisted of domestic sales in the amount of P331,305,960.00 and export sales in the amount of P121,267,303.84, as can be seen in petitioner's "Summary of Zero Rated Sales", detailed as follow~ 100

Decision CfA Case No. 7419 Period ZERO-RATED SALES Covered Exh. Domestic Exh. Export Total 2004 15t Qtr w p 27,188,225.00 v p 49,052,166.24 p 76,240,391.24 2nd Qtr 31,226,020.55 75,224,360.55 3'd Qtr X 43,998,340.00 v 51,758,850 .00 4th Qtr y 51,758,850.00 v 38,708,104.23 104,301,804.23 Subtotal p 118�98~291.02 p z 65,593,700.00 v 30~52~406.02 2005 15t Qtr AA p 188e,539e,115.00 2nd Qtr 3'd Qtr BB p 36,374,728.00 v p 1,372,091.02 p 37,746,819.02 Subtotal 56,153,361.00 cc 56,153,361.00 v 51,147,677.80 Total 50,238,756.00 . v 908,921.80 14~04~857.82 p 142�76~845.00 p 2�281{.012.82 p p 121�267�303.84 p 452�573�263.84 p 331,305�960.00 Nev.ertheless, a comparison of the amount of zero-rated sales declared in the quarterly VAT returns as against the amount declared in the "Summary of Zero-Rated Sales" prepared by petitioner, disclosed a discrepancy of P2,789,913.80, detailed as follows : Period Zero-rated Sales Zero-rated Sales Difference 2004 per VAT Returns per SummarY: 1st Qtr 2nd Qtr p 77,687,420.54 76,240,391.24 p 1,447,029 .30 3rd Qtr 53,737,063 .05 75 ,2 24,360 .55 4th Qtr 74,280,682.00 51,758,850.00 (21,487,297.50) 104,633,604.23 104;301,804.23 Subtotal 22,521,832.00 p 310�338J69.82 30~52~406.02 331,800.00 p 2�813l363.80 2005 p 37,742,969.02 37,746,819.02 p (3,850.00) 1st Qtr 56,133,761.00 56,153,36 1.00 2nd Qtr 51147 677.80 51147 677.80 (19,600.00) 3rd Qtr Subtotal p 14~024l 407.82 14~04~857.82 Ji (23{.450.001 TOTAL p 455�363�177.64 45215731263.84 p 2�789�913.80 A perusal of the documents submitted would show that the difference in the amount of P2,789,913.80 was not supported by any document. Thus, such cannot be considered for VAT zero-ratin~ 101

Decision CfA Case No . 7419 To prove its export sales of P121,267,303 .84 and the foreign currency proceeds therefrom, petitioner presented various sales invoices, bills of lading, packing lists and bank credit advices/memos9 and the judicial affidavit of Ms. Maria Lina P. Grecia, petitioner's Budget and Accounting Officer10. A perusal of these documents proved that petitioner shipped and sold its products abroad to the following entities: 1. Malex Industrial Products . ~DN BH D il) Malaysia, 2. CSR Building MaterJals SDN BHD in Malaysia, 3. Hume Cemboard Berhad in Malaysia, 4. UAC Berhad in Malaysia, and 5. Boroo Gold Mining Company in Mongolia. As payment thereof, petitioner received foreign currency payments, which were inwardly remitted in accordance with the BSP rules and regulations. These (export sales) then may fall within the export sales transactions subject to zero percent (0%) VAT referred to under Section 106(A)(2)(a)(1) of the NIRC of 1997, as amended, which states: "SEC. 106. Value-Added Tax on Sale of Goods or Properties. -:- (A) Rate and Base of Tax. -There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, value-added tax equivalent to ten percent (10%) of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor. ~ XXX XXX XXX 9 Exhibits "MM to MM-66". 1o Exhibit "DO". ' 102

Decision CTA Case No. 7419 (2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: (a) Export Sales. -The term 'export sales" means: (1) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of own~rship of the goods so exported and paid for in acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP)." HoWever~ the aforementione9 . provis~~ns must be read in relation to Section 113(A) of the sam~ Code and Section 4.108-1 of Revenue Regulations No. 7-95 (RR 7-95), which provide that any person claiming VAT zero-rated direct export sales must present at least three (3) types of documents, to wit: a) the sales invoice as proof of sale of goods; b) the export declaration and bill of lading or airway bill as proof of actual shipment of goods from the Philippines to a foreign country; and c) bank credit advice, certificate of bank remittance or any other document proving payment for the goods in acceptable foreign currency or its equivalent in goods and services. In other words, only export sales supported .. . . ~ by these documents shall qualify for VAT zero-rating. Furthermore, the sales invoices supporting the export sales must be registered with the BIR and contain all the required information under the law and regulations, such as the imprinted word " zero-rated" and the taxpayer's TIN- VAT number~ 103 .

Decision CTA Case No. 7419 Evidence shows, however, that petitioner did not submit airway bills or bills of lading for the following three (3 ) sllipments to Boroo Gold Mining Company: Ex h. Customer Invoice Number Amount MM -43 Boroo Gold Mining Company 402,000.00 MM -48 Boroo Gold Mining Company 4748 p 330,000.00 MM -52 Boroo Gold Mining Company 3371500.00 TOTAL 4816 483.1 1l069l500.00 p Thus, the foregoing amount shall not be credited for VAT zero-rating for petitioner's failure to substantiate its claim. � From the claimed amount of P121 ,267,303. 84 zero-rated export sales, petitioner's claim is reduced to the amount of P120,197,803.84 (P121,267,303.84 less Pl,069,500.00). As to the domestic sales of P331 ,305,960.00, records show that sales I were made by petitioner to Philex Mining Corporation, Lepanto Consolidated Mining Co., Philippine Associated Smelting and Refining Corp. (PASAR), and Rapu-rapu Processing, Inc. The first two corporations are VAT taxpayers and BOI registered entities whose products are 100% exported11, while the last two corporations are PEZA registered entities12� The sales made to the first two corporations were properly covered by VAT invoices and official receipts duly stamped with the word "zero-rated", the name of the BOI company/buyer and the corresponding BOI registry number and registration date. While the sale~ 11 Exhibits "C to C-3" , and "D to D-3". 104 12 Exhibit "E", "E-2" and "E-4" and "F to F-2". ,.

fI Decision CTA Case No. 7419 made to the last two corporations were supported by proper VAT invoices and official receipts13. Petitioner's domestic sales to the aforementioned BOI companies and PEZA entity qualify for VAT zero-rating pursuant to Section 106(A)(2)(a)(5) of the NIRC of 1997, as amended, which provides : "SEC. 106. Value-lidded Ta� on Sale of Goods or Properties. - (A) Rate and Base of Tax: - x x x (2) The following sales by VAT-registered persons shall be subject to zero percent (0�(o) rate: (a) Export Sales. -The term 'export sales' means: XXX XXX XXX (5) Those considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987, and other special laws." The VAT zero-rating of sales made by a VAT taxpayer like herein petitioner to a PEZA entity was further clarified in RMC No. 74-99, the pertinent provisions of which read as follows: "SECTION 3. Tax Treatment of Sales Made By A VAT Registered Supplier from the Customs Territory, To A PEZA Registered Enterprise.- (1) If the Buyer is a PEZA registered enterprise which is subject to the 5�/ol special tax regime, in lieu of all taxes, except real property tax, pursuant to R.A. No. 7916, as amended: 412- 13 Exhibits "NN-1 to TT-58". 105

Decision CTA Case No. 7419 (a) Sale of goods (i.e., merchandise). - This shall be treated as indirect export hence, considered subject to zero percent (0%) VAT, pursuant to Sec. 106(A)(2)(a)(5), NIRC and Sec. 23 of R.A. No. 7916, in relation to ART. 77(2) of the Omnibus Investments Code. (2) If Buyer is a PEZ,!\ registered enterprise which is not embraced by the 5% special tax regime, hence, subject to �taxes under the NIRC, e.g., Service Establishments which are subject to taxes under the NIRC rather than the 5% special tax regime: (a) Sale of-goods (i.e., merchandise). - This shall be treated' as indirect expo'ft hence, considered subject to zero percent (0%) -VAT, pursuant to Sec. 106(A)(2)(a)(5), NIRC and Sec. 23 of R.A. No. 7916, in relation to ART. 77(2) of the Omnibus Investments Code. 3. In the final analysis, any sale of goods, property or services made by a VAT registered supplier from the Customs Territory to any registered enterprise operating in the ecozone, regardless of the class or type of the latter's PEZA registration, is actually qualified and thus legally entitled to the zero percent (0%) VAT. Accordingly, all sales of goods or property to such enterprise made by a VAT registered supplier from the Customs Territory shall be treated subject to 0% VAT, pursuant to Sec. 106(A)(2)(a)(5), NIRC , in relation to Art. 77(2) of the Omnibus Investments Code, while all sales of services to the said enterprises, made by VAT registered supplies from the Customs Territory, shall be treated effectively subject to 0% . VAT, pursuant to Section 108(B)(3), NIRC, in relation to the provisions of R.A. 7916 and the 'Cross Border Doctrine' of the VAT system. This Circular shall serve as a sufficient basis to entitle such supplier of goods, property or services to the benefit of the zero percent (0%) VAT for sales made to the aforerl)entioned � ECOZONE enterprises and shall serve as sufficient compliance to the requirement for prior approval of zero-rating imposed by Revenu~ lOG

Decision CfA Case No. 7419 Regulations No. 7-95 effective as of the date of issuance of this Circular." Likewise, in RMO 9-00 dated February 2, 2000, the SIR enumerated the requirements for the zero-rating of sales by a VAT taxpayer to a SOl entity, thus : "SECTION 3. Sales of goods, properties or services made by a VAT-registered supplier to a BOI registered exporter shall be accorded automatic zero- rating, i.e., without necessity of applying for and securing approval of the application for �:zer~-rating as provided in Revenue Regulations No. 7 -95, subject to the following conditions: (1) The supplier must be VAT-registered, (2) The SOl-registered buyer must likewise be VAT- registered; (3) The buyer must be a SOl-registered manufacturer/produ ~er whose products are 100% exported. For this purpose a Certification to this effect must be issued by the Board of Investments (BOI) and which certification shall be good for one year unless subsequently re-issued by the BOI; (4) The SOl-registered buyer shall furnish each of its suppliers with a copy of the aforementioned BOI Certification which shall serve as authority for the supplier to avail of the benefits of zero-rating for its sales to said SOl-registered buyers; and; (5) The VAT-registered suppli er shall issue for each sale to SOl-registered manufactur~ r/exporters a duly-registered VAT invoice with the word s 'zero-rated' stamped thereon in compliance with Sec. 4. 108-1(5) of RR 7-95. The supplier must likewise indicate in the VAT invoice the ]lame and SOl-registry nu mber of the buyer.~ 107

Decision CfA Case No. 7419 However, a scrutiny of the invoices submitted revealed that there is a discrepancy of P47,600.00 between the sales amount per summary and amount per invoices, detailed as follows: Customer Invoice Amount Ex h. Amount Per Difference PASAR No. p 720,300 .00 NN - 62 Summa!Y p 4,500.00 PASAR 4674 00-26 PASAR 4698 142,660.00 00-68 p 724,800.00 4,000.00 PASAR 4726 856,250.00 PP-63 146,660.00 9,000.00 PASAR 4791 833,420 .00 RR- 15 6,650.00 Rapu-rapu Processing 4854 484,550 .00 SS-22 . 865,250.00 3,850.00 PASAR 4896 2,Q48;330.00 SS-44 840,070 .00 16,450.00 TOTAL 4911 390!735.00 488,400.00 3�150.00 P5,476,245.00 P47,600.00 2,064,780.00 393�885.00 PS,S23,845.00 Thus, petitioner's total substantiated zero-rated sales amounted only to P451,456,163.84, as computed below: Declared zero-rated sales p 455,363,177.64 Less: Unsubstantiated zero-rated sales 2,789,913.80 Disallowed zero-rated sales: p 1,069,500.00 Export sales 47 600.00 Domestic sales Total 1�117�100.00 p 451,456,163.84 Substantiated zero-rated sales In view of this, only the portion of the input VAT claim attributable to the 'Substantiated zero-rated sales of P451 ,456,163.84 will be considered for refund. The rate then to be applied is based ori the volume of sales and is computed as follows: Substantiated zero-rated sales p 451,456,163.84 Divided by total declared zero-rated sales 455�363�177.64 I 99.14% Rate of substantiated zero- ra~ed sales 108 .

Decision ITA Case No. 7419 We then proceed to the determination of the amount of unutilized input VAT attributable thereto. Petitioner's declared excess unutilized input VAT from domestic purchases of goods and services for the first quarter of 2004 to the third quarter of 2005 amounted to P32,722,109.68, broken down as follows: Exh. Period Excess In~ut Tax 2004 G 1st Qtr p 5,413,683.58 G-1 2nd Qtr 5, 512,615.30 �� G-2 . 3rd Qt.r . 121,386.78 G-3 4th Qtr � 613711889.36 Subtotal p 17,_419�575.02 2005 G-4 1st Qtr p 4,315,797 . 10 G-5 2nd Qtr 4, 364 ,408.65 G-6 3rd Qtr 61 622 1328.91 Subtotal p 1~302�534.66 TOTAL p 32�722�109.68 Based on the review and validation of the commissioned CPA, out of the total input VAT of P32,722,109.68, only the amount of P32,651,524.03 represents petitioner's valid claim 14 . The exceptions found are shown below15 : Descriotion Reference Amount a. Purchases not supported by (Annexed to Exh. W) document vouchers, suppliers' official p 39,342.95 receipts and/or sales invoices Annex A.1 766.05 b. Purchases of goods not within the Annex A.2 7,292.35 covered period Annex A.3 7,238.54 Ann ex A.4 c. Purchases of services with no date in official receipts d. Suppliers' official receipts/sales invoices not in the name of GST 14 Exhibit "VV", p. 9. IS Ibid, p. 7. 109

Decision CfA Case No. 7419 e. Suppliers' TIN not indicated in their Annex A.5 1,069.09 official receipts and/or sales invoices Annex A.6 14,876.68 f . Non-vatable payments made to banks p 70,585.65 TOTAL Nevertheless, upon further examination of the invoices submitted by petitioner, the amount of P32,651,524.03 recommended by the commissioned CPA should be further reduced by P139,282.46 for failure to meet the invoicing requirements mandated under Sections 113, 237 and 238 of the 1997 National Internal Revenue Code of 1997, as amended, as well as Section 4.108-1 of RR 7- 95 (see Annex 1 for details): Additional Disallowances Amount p 81,076.88 1. Purchase of services not supported by official receipts 40,144.06 2. Purchase of services supported by undated OR/Petitioner's name not indicated in the OR 17,608.57 452.95 3. Purchase of goods supported by invoices that are not duly registered p 139,282.46 ~� Purchases of goods/services without supporting d6cuments TOTAL Therefore, only the claimed input VAT of P32,512,241.57 was properly substantiated by VAT invoices or official receipts and only the input VAT of I P32,232,636.29 can be attributed to petitioner's substantiated zero-rated sales of P451,456,163.84, computed below: Input VAT Claim p 32,722,109.68 Less: Disallowances 70,585.65 . Per Independent CPA 139 282.46 Per this Court's further verification p 32,512,241.57 Validly supported input VAT Multiply by rate of substantiated zero-rated sales 99 .14% Valid Input VAT attributable to substantiated zero-rated sales P32,232,636.29 110

Decision erA Case No . 7419 Also, these input VAT in the amount of P32,232,636.29 is found not to be applied against any output" VAT and/or carri ed over to the succeeding taxable quarter(s). In petitioner's quarterly VAT returns of the subject period of claim showed that the amount of P32,232,636.29 is already net of its total output tax liability of P98,151.60 fol' the same period 16 . Thus, petitioner has complied with the fourth requisite pursuant to Section . 112 (A) of the NIRC of 1997, as amended. Finally, records show that petition er1s� administrative claims filed on June 9, 2004, August 12, 2004, February 18, 2005, ' May 11, 2005 and November 18, 2005 17 and the Petition for Review filed with this Court on March 17, 2006 are well within the two-year prescriptive period. In view thereof, petitioner sufficiently proved that it is entitled to a tax credit certificate in the amount of P32,232,636 .29 representing unutilized input VAT for the period covering the first quarter of 2004 to the third quarter of 2005. However, it is noted that respondent has issued a Tax Credit Certificate (TCC) Number 116-07-00079 to petitioner in the amount of P4,863,521.93 for �the first quarter of 200418 . Thus, petitioner's refundable amount is reduced to P27,369,114.36 after deducting the value of its TCC, which is computed below~ 16 Exhibits"G- I","G-2", " G-4 ","G-5 ", " H" , a nd " H- 1 to H-7". 11 Exhibits" !", " J", "K", "L" and "Tvl". , 18 Annex A ofP etiti one r's M e mo ra nd um . CTA Reco rds p. 388. ill

J p 32,232,636.29 4,863,521.93 Decision CfA Case No. 7419 p 27,369,114.36 Pag e 18 of 19 Va lid Input VAT attributable to substa ntiated zero-rated sa les Less : Ta x credit certifica te issued Refu ndabl e input VAT WHEREFORE , premi ses considered, petitioner's claim is hereby GRANTED in the reduced amount of P27,369,114 .3 6. Accordingly, respondent is ORDERED TO REFUND TO PETITION ER IN THE FORM OF A TAX CREDIT CERTIFICATE the amount of P27,369,11 4.3 6 representing unutilized excess input VAT attributable to zero-rated s~les fo r the first quarter of 2004 to the th ird quarter of 2005. SO ORDERED. CAESA~ANOVA Associate Justice WE CONCUR: \.. _,_:=: ..... Q~ ERNESTO D. ACOSTA 11 2

Decision CTA Case No. 7419 C E R T fF I C AT I 0 N Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. (L_~. 0~~ � ERNESTO D. ACOSTA Presiding Justice Chairperson, First Division 113