CTA Case No. 5752 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY BENGUET CORPORATION, C.T.A. CASE NO. 5752 P et iti o ne r, -versus - THE COMMISSIONER OF Promulgated: INTERNAL REVENUE, SEP 18 2001 R esp o nde nt. ~ 4f�ll/;7d�l rCf,/I'V14J . X - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -X DECISION T hi s case invo lves a claim for refund or issuance of a tax credit certificate in the amount of P40,980,909.67, representing unu tilized input value-added tax (VAT, for brevity) on importati on of goods and domestic purchases of goods and serv ices fo r the taxable calendar quarters ended March 3 1, 1997 and June 30, 1997. The following facts are undi sputed. Petiti oner is a domesti c corporati on dul y orga nized and ex isting under the laws of th e Republi c of the Philippines with principal offi ce located at One Corporate Plaza. 845 Arnaiz Avenue, 1223 Makati City. It is prim aril y engaged in the mining business. wh ich includes the explorati on, development and operati on of mining p roperties fo r purposes of commercia l producti on and in marketing mine products. As an exporter and sell er of goods, Petitioner is registered with the Bureau of Internal Revenue under Certifi cate of Regi stration No. 94-4 10-002700, dated June 30, 1994 and was originall y issued a VAT 1 . ,.� .l. _L i� w U

DECISION- CTA CASE NO. 5752 PAGE2 Registration Certificate No . 31-9-00027, dated January 1, 1988 (Annex A, CTA records, p. 6). On May 4, 1988, Petitioner was able to secure an approved Application for Zero Rate on its sale of mine products pursuant to Section 100(2)(A) of the Tax Code, as amended (Annex B, CTA records, pp. 7 and 8). On April 21, 1997, Petitioner filed its 1997 first Quarterly Value-Added Tax Return with the Bmeau of Internal Revenue reflecting, among others, a total net creditable input tax in the amount ofP23,58I,103.82 (Annex C, CTA records, p. 9). On July 21, 1997, Petitioner filed its 1997 second Quarterly Value-Added Tax Return with the Bureau of Internal Revenue reflecting, among others, a total net creditable input tax in the amount ofP17,451 ,727.39 (Annex D, CTA records, p. 10). On December 28, 1998 and March 5, 1999, Petitioner filed with the Central Records Management Division of the One-Stop-Shop Inter-Agency Tax Credit and Duty Drawback Center of the Department of Finance applications for Tax Credit/Refund of Value-Added Tax Paid for the periods January 1, 1997 to March 31, 1997 and April 1, 1997 to June 30, 1997, in the amounts of P23,581,061.76 and P17,399,847.91 respectively (Annexes E and F, CTA records, pp. 1I to 16). On March 26, I999, Petitioner lodged its appeal with this Court in order to toll the running of the two-year prescriptive period under Section 230 of the Tax Code, as amended. In his Answer, Respondent raised the following Special and Affirmative defenses: 5. The petition states no cause of action as it does not alleged (sic) the dates when the taxes sought to be refunded were actually paid 11.~ )

DECISION- CTA CASE NO. 5752 PAGE3 (Manufacturer 's Bank & Trust Co., etc. vs. Commissioner of Internal Revenue, CTA Case No . 1953, November 29, 1965); 6. Pursuant to Section 112(D) of the NIRC, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within 120 days from the date of submission of complete documents in support of the application filed and not 60 days as alleged by the petitioner; 7. It 1s incumbent upon herein petlt10ner to show that it has complied with the provision of Section 229 of the National Internal Revenue Code; 8. Claims for tax refund are construed strictly against the claimant, the same being in the nature of exemption from taxes (Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95; Manila Electric Co. vs. Commissioner ofInternal Revenue, 67 SCRA 35); 9. One who claims to be exempt from the payment of a particular tax must do so under clear and unmistakable terms found in the statute. (Asiatic Petroleum vs. Llanes, 49 Phil. 466, Union Garment Co., Inc. vs. Court o.fTax Appeals, 4 SCRA 304) ; and 10. In an action for tax refund, the burden is upon the taxpayer to prove that he is entitled thereto and failure to sustain the same is fatal to the action for tax refund. During the pre-trial conference held on June 23 , 1999, counsels for both parties agreed that there was no legal issue involved in this case hence they submitted the following factual issues for resolution of the Court: 1. Whether or not Petitioner has unutilized creditable input VAT for the period January 1, 1997 to June 30, 1997 in the total amount ofP40,980,909.87, arising from its domestic purchases of goods and services, and importation of capital goods, which is a proper subject of a claim for refund pursuant to Section 112 of the National [nternal Revenue Code, as amended; 1 J...1 ~-��' } t " .J (

DECISION - CTA CASE NO. 5752 PAGE 4 2. Whether or not the said creditab le input VAT of the Petitioner for the period January 1, 1997 to June 30, 1997 are substantiated by documentary evidence in the form of invoices and official receipts; and 3. Whether or not said unutilized input VAT of the Petitioner for the period January 1, 1997 to June 30, 1997 was carried forward tv the succeedi ng taxable quarter and app li ed against the output VAT of the Petitioner for the said period. Due to the voluminous nature of the evidence to be presented, Petitioner engaged the services of the auditing firm, SGV & Co. In accordance with CTA Circular 1-95 as amended , Mr. Ruben R. Rubio, a Partner of SGV & Co, was commissioned by the Court on Jul y 27, 1999 to conduct a special audit and examination of the various receipts, invoices and other long accounts which were the subject of the present claim (TSN, July 27, 1999, pp. 5 to 7). A final report, dated February 28, 2000, was submitted detailing the audit procedures performed and the findings and observations that ensued after the examination, to wit: (Exb. B) Findings and Observations Based on the procedures we performed, we present below our findings and observations I I Findings Input Taxes Claimed Total 48, 158.04 First Quarter Second Quarter 1 I I. Purchase of Goods Supported by Document Other Than Qua lifi ed VAT invoices a. Supp01ted by Qualified 43 ,004.04 5, 154.00 VAT Official Receipts (ORs) [Exhibit A. l-1 st qtr.) [Exhibit A. l-2"ct qtr.]

DECISION - CTA CASE NO. 5752 PAGE 5 b. Supported by Other 19,877 .22 19, 877.22 Documents (e.g. [Exhibit A.2-2'"1 qtr.] statement o f accounts, provi sional rece ipts) 2. Purchase of Services 527,473. 99 43 1,839 .94 959,3 13 .93 Supported by Document 19,877 .22 O ther Th an Q ualified VAT [Exhibi t 8 . 1- 1'' qtr.] [Exhibit 8 . 1-2"" qtr.] ORs 2,740 .64 162, 770.51 a. Supported by Q ualifi ed VAT invoices [Exhibit 8 .2-1 " qtr.] [Exhibit 8 .2-2"" qtr.] b. Supported by Other Documents (e .g. statement of acco unts, prov is ional rece ipts) 3. Purchase of Goods Supported by In vo ices Without qu alified 237 , 18 1. 72 41 4.403.63 65 1.585 .35 " TIN -V" ;"TIN - VAT" (Note a) [Ex hibit C- 1- 1" qtr.] [Ex hibit C-2-2"" qtr.] 4 . Purchase of Servi ces 654 , 198.44 46 1,7 15. 04 1, 11 5,9 13 .48 Supported by Invo ices Witho ut qua lifi ed " TIN-V" [Ex hibit D-1-1 " qtr.] [Exhibit D-2-2"" qtr.] "TIN-VAT" (Note b) 5. Purchase of Goods Suppotied 182,805. 87 66, 803. 13 2 4 9 , 6 0 9 .0 0 by Invo ices Not in the Company's Name [Ex hibit E- 1-1 " qtr.] [Ex hibit E-2 -2"" qtr.] 6. Purchase of Services Supported by VAT ORs Not in the 484 .40 111.90 596 .30 Company's Name [Ex hibit F- 1- 1" qtr.] [Ex hibit F-2-2"'1 qtr.] 7. Purchase o f Goods Supported 3,479 .72 2,240 .26 5,7 19 .98 by In voi ces With out 81R Pe rmit [Ex hibit G- 1- 1" qtr.] [Ex hibit G-2-2"" qtr.] 8. Purchase o f Services Supported by O Rs Without 81R 18 1. 82 18 1.82 Perm it [Exhibit H-1-1 " qtr.] 9. Purchase of G oods and 63 .64 308.62 372 .26 Services whi ch are Exempt fro m VAT [Exhibit 1- 1- 151 qtr.] [Exhibit 1-2-2"" qtr.] I0. Purchase of Goods and 2,440 .60 24 1, 192.2 1 243,632.8 1 Servi ces, Input Taxes of which are Erroneously Computed [Exhibit J-1-1 " qtr.] [Exhibit J-2-2"" qtr. ] I I. Purchases w itho ut supporting 321 ,495.37 890,853.40 I,2 12,348.77 d oc um e nts [Ex hibi t K-1-1 '1 qtr.] [Exhibit K-2-2"" qtr.]

DEC ISION - CTA CASE NO. 5752 PAGE 6 Total I ,975,550.25 2,697,269.86 4,672,820.11 XXX XXX XXX In additi on, we wo uld like to menti on the fo llowing for the informati on of the Honorable Court: 1. W e noted that input taxes amounting to P2,532,195.75 (broken dow n below) arising from importation of goods and local purchases of goods and services are supported onl y by photocopies of Import E ntry Decla rations/BOC ORs and VAT invoi ces/ORs, respecti vely : First Q uarter Second Q uarter Tota l 2 ,470,322. 00 Importati on 869,89 1.00 I,600 .43 1.00 Purchase of Goods [Exhibit L- 1'1 qtr.] [Exhi b it L-2"d qtr.] 32,782 .84 Purchase of Serv ices 29,090 .9 1 6 ,3 2 0 .2 8 26,462.56 Total [Exhi bit M- 1'1 qtr. ] [Ex hibit M-2"d qtr.] 2,532,195.75 29,090.9 1 [Ex hibit N-2"d gtr) 876,2 11.28 I ,(>_55 ,984.4 7 2 . W e further noted that input taxes amounting to P4,747,803.56 (broken down below) ari sing from local purchases of goods and services a re supported by invo ices and ORs, respecti vely, bearin g dates not w ithin the respective quarter. First Q uarter Seco nd Q uarter Total 373,95 7.00 Importat ion 373 ,957.00 I,0 13,404 .29 2,320 ,777. 14 Purc hase of Goods [Ex hibit 0- 151 qtr.] [Ex hi bit P-2"d qtr.) 2,053,069.42 Purchase of Services 1,307,372 .85 65 1,24 1.46 4 ,74 7, 803.5 6 Total [Exhibi t P-1 ' 1 qtr.] [Exhi bit Q-2"d gtr] I,40 I,827 .96 [Exhibit Q- 151 qtr.] 3,083, 157.8 1 I ,664,645. 75 3. Our review likewise disclosed that w ith respect to certain purchases of services, there is a difference between the input taxes claimed by the Co mpany and the input taxes that we computed based on the amount 11 ~ ..1. v U

DECISION- CTA CASE NO. 5752 PAGE 7 indicated in the VAT official receipts issued by the supplier. We understand that this is due to the offsetting arrangement between the Company and the suppliers. That is, the amount which the suppliers owed from the Company was being deducted from the amount to be paid by the latter. As such, the VAT official receipts issued by the suppliers were only for the net amount paid by the Company. First Quarter Second Quarter Total Input taxes claimed by the Company 6,288 ,378 . 18 5,294 ,513.50 II ,583 ,391 .68 3,027 ,694.21 7,507,266 .98 Input taxes based on 4,479 ,572 .77 documents verified Net Amount (due to 1,809 ,305.4I 2,266,819.29 4,076,124.70 offsetting) [Exhibit R-1 '1 qtr.] [Exhibit R-2"d qtr.] Respondent did not introduce any controverting evidence nor dispute the findings of the commissioned independent CPA. Petitioner, on the other hand, questioned the additional three informations disclosed by the auditor. First, with respect to the photocopies of invoices, official receipts, and import entry declarations, Petitioner made an exception with respect to the auditor's disallowance of input taxes on importation of goods which were supported by photocopies of import entry declarations/BOC official receipts in the amount of P2 ,470,322.00. Petitioner narrated that in October 1995, Commissioner Parayno issued Customs Administrative Order No. 2-95 which requires the importer (or its Customs Broker) to surrender its blue copy of the import entry declaration at the gate of the PPA in order for its imported cargo to be released (TSN, March 22, 2000). Therefore, Petition er claimed that it was impossible to present its own copy of the '"lriginal import entry declarati on because this was already surrendered to the Port ushers as a gate pass. 1 ' ")_!._ 0 .<l.

DECISION- CTA CASE NO. 5752 PAGE 8 We do not subscribe to the asseverations of Petitioner. In the hearing held last March 22, 2000, the Court asked the Petitioner's witness, Ms. Valera, if a cetiified true copy could be secured from the Bureau of Customs and the said witness answered in the affirmative, thus: JUDGE ACOSTA (N)ow, when you want to get a certified true copy of the Import Entry, where can you get that? MS. VALERA Yes, from the Bureau of Customs, your Honors. JUDGE ACOSTA What department? MS. VALERA If the entry is with the Liquidation , we can get it from the Liquidation but if it is not there, from the Commission on Audit or COA. JUDGE ACOSTA So, you can get if you want? MS. VALERA Yes, if yo u want. Mere photocopies of documents are inadmissible pursuant to the best ev idence rule under Section 2, Rule 130 of the Rules of Court (Gobonseng, Jr. vs. Hon. Court of Appeals 246 SCRA 472). Since certified true copies of the import entry declarations can be had , this Court cannot consider mere photocopies thereof, in the computation of input taxes paid on importation.

I I I DECISION- CTA CASE NO. 5752 PAGE9 Petitioner also disputes the report of the independent CPA as regards the disallowed input taxes on local purchases of goods and services which are supported by invoices and ORs, respectively, bearing dates not within the respective quarters of the claim amow1ting to P4,747,803.56. Petitioner explained that the mismatch between the period of the claim for refund and the dates appearing in the invoices and official receipts were due to timing difference of recognition (recording) of input taxes. Petitioner clarified that it usually takes two to three weeks for a delivery transaction from its Valenzuela warehouse to its mme sites m Itogen Province and Zambales area to be recorded back in Manila (TSN, March 22, 2000). The input taxes are only recorded in its books of accounts once the material receiving report from the mine sites together with the corresponding sales invoice are received in Manila. This is the reason why the input taxes disallowed by the independent CPA pertain mostly to the goods and services purchased during the last two weeks of the quarter which invoices or official receipts were dated outside the quarter they represent. After taking into account the aforementioned explanation by the Petitioner as well as the evidence at hand, this Court reconsiders the input taxes that fall within the period of the claim (January to June 1997) which We had verified not to have been claimed (twice) in the succeeding quarter. However. We still maintain the exception of input taxes with dates that 1all beyond the period January I, 1997 to June 1, 1997. Below is a table for the recomputation of the net disallowed input t<. xes: 1997 First Quarter Disallowed Input Taxes Disallowance Per Reconsidered Per Court's Verification Account Code CPA Report Input Taxes DCO 0648 210,946 .00 210,946.00.... 1 1J~

DECISION- 163,011 .00 10,638 .64 163,011 .00 CTA CASE NO. 5752 89,116.41 89,116.41 PAGE 10 3,471 .82 973,496 .51 119,248 .67 962,857 .87 MCO 1703 190 .91 999 ,730 .85 190 .91 BGO 0645 DCO 0452 3,949 .64 14,476.92 3,949.64 BGO CHQ 0632 104 ,360 .39 54,731 .70 104,360.39 BGO-CHQ 0642 MCO 1702 10,656.18 8,292 .92 10,656.18 MCO 1705 54 ,893 .63 102,356.03 54,893 .63 BAGO 0252 62,635 .01 62,635 .01 BAGO 0262 9,210 .63 BGO CHQ 0615 8,074.17 1,322,158 . 18 8,074 . 17 MCO 1705 3,481.64 9.82 BGO 0633 165,583.04 DCO 0451 999 ,730.85 46,334 .37 BGO CHQ 0615 14,476.92 BGO 0644 54,731.70 6,421 .71 DCO 0450 14,714.63 7,112.80 MCO 1701 109,468.83 1,441.43 BAGO 0251 1,441.43 28,988 .29 BAGO 0261 38,198.92 1,760,999.63 TOTAL 3,083,157 .81 1997 Second Quarter 2,590 .91 2,590 .91 40,961.26 BGO-CHQ 064 91,249 .70 91,249.70 1,186.18 BAGO 0252 183,848.31 183,848.31 BAGO 0262 106,893.97 106,893.97 56,504 .20 BGO 0645 535 ,275.05 494,313 .79 21 ,332 .98 DCO 0452 37,042 .15 35,855 .97 16,093 .94 MCO 1702 56 ,504.20 48 ,304.32 IRISAN 21 ,332 .98 1,911 .94 117,160.76 BGO CHQ 063 16,093.94 289,783 .92 BGO CHQ 061 48 ,304.32 822 .62 14,288.35 BGO 0644 119,072.70 34,662 .30 40,689 .95 DCO 0450 289,783 .92 66 ,190.38 DCO 0451 15,"11 0.97 952 ,149.51 712 ,496 .24 MCO 01701 75,352 .y:i BAGO 0251 66,190.38 BAGO 0261 1,664,645.75 TOTAL 4,747,803.56 2,274,307 .69 2,473,495.87 GRAND TOTAL Lastly, We agree with the auditor in excluding the input taxes which were not covered by proper VAT official receipts. Section I02(c) of the Tax Code ex pressly provides the formula in computing for the input tax on sale of services whi ch is 1 ' ., . .J..� '-I t. 0

DECISION- CTA CASE NO. 5752 PAGE II determined by multiplying the total amount indicated in the official receipt by 1/11. To base the computation of input tax on other documents (i.g., the contract or statement of accounts) is erroneous because it is explicit that the input tax on sale of services shall be computed based only on the total amount indicated in the official receipt. It bears stressing that the amounts ofP23 ,581 ,103 .82 and P17,399,847.91 sought to be refunded herein were not carried over nor applied to the succeeding quarters ' output tax liabilities as evidenced by the 1997 first quarterly Value-Added Tax Return and the 1998 fourth quarterly Value-Added Tax Return (Annex A and Exh. C-6). In sum , Petitioner is entitled to the refund of unutilized input VAT in a reduced amount of P27,226,273.24 , computed as follows : NET INPUT VAT CLAIMED: l st Quarter 1997 P23,581 ,061.76 P40,980,909.67 2nd Quarter 1997 17,399,847.91 p 4,672 ,820.11 LESS: EXCEPTIONS 2,532, 195.75 a. General disallowance made P I ,975 ,550.25 by the commissioned 2,697,269.86 independent CPA 1st Quarter 1997 2nd Quarter 1997 b. Additional findings of the commissioned independent CPA 1. Photocopies of Impoti Entry Declarations/BOC ORs and VAT invoices/ORs Ist Quarter 1997 p 876,211.28 2nd Quarter 1997 1,655,984.47 2. Invoices and ORs bearing dates not within the period

DECISION- CTA CASE NO. 5752 PACE 12 of the claim (recomputed by the Court) Ist Quarter 1997 p 1,760,999.63 211d Quarter 1997 712,496.24 2,473 ,495 .87 3. Over-claimed input tax p 1,809,305.41 4,076,124.70 based on contracts/ 2,266,819.29 P13,754,636.43 statement of accounts P27 .226.273.24 Ist Quarter 1997 2nd Quarter 1997 Total exceptions NET AMOUNT REFUNDABLE WHEREFORE, in view of the foregoing, the Petition for Review is hereby PARTIALLY GRANTED. Respondent is ORDERED to REFUND or ISSUE a TAX CREDIT CERTIFICATE in favor of Petitioner in the amount ofP27 ,226,273.24. SO ORDERED. ~- ~.0~ ERNESTO D. ACOSTA Presiding Judge I CONCUR: JOQ.SA~ Associate Judge 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 VII r of the Constitution. L-LQ. ~ ERNESTO D. ACOSTA Presiding Judge 1 1_38