FILMINERA RESOURCES CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SECOND DIVISION FILMINERA RESOURCES CTA Case No. 8610 CORPORATION, Members: Petitioner) -versus- Castaneda, Chairperson Casanova, and Cotangco-ManalastasJ JJ. COMMISSIONER OF INTERNAL Promulgated: REVENUE, AUG Z7 2015 / ' Respondent. ){- - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - 1~- - - - - ){ to : <~� -:.� . AMENDED DECISION COTANGCO-MANALASTAS, J. : This resolves petitioner's Motionfor Reconsideration ofthe Decision dated 6 March 20151 , filed on March 24, 2015, with respon dent's Comment/ Opposition (Re: Motion for Reconsideration of the Decision promulgated 6 March 2015)2, filed on April 17, 2015. Petitioner seeks reconsideration of the assailed Decision3 dated March 6, 2015 which denied its claim for refund or issuance of ta){ credit certificate (TCC) in the amount of P51 ,639, 178.25, allegedly representing its unutilized input value-added ta){ (VAT) for the period covering July 1, 2010 to September 30, 2010 or the first quarter of the fiscal year (FY) ending June 30, 2011, the dispositive portion of which reads as follows: "WHEREFORE, premises considered, the instant Petition for Review is DENIED due to insufficiency of evidence." r In its motion, petitioner prays that the attached Certification issued by the Board of Investment (BOI) dated 1 Docket, pp. 760-774. 2 Docket, pp. 781-789. 3 Docket, pp. 743-759.

AMENDED DECISION CTA Case No. 8610 Page 2 of II January 27, 2010, and TCC issued by the Bureau of Intemal Revenue (BIR) on September 23, 2013 covering the period October 1, 2010 to December 31, 2010, be admitted in evidence. Petitioner essentially seeks the liberal application of the technical rules in admitting as evidence the BOI Certification issued to its client, Philippine Gold Processing and Refining Corporation (PGPRC), which was not formally offered, but was initially attached as Annex D to the Petition for Review. Moreover, petitioner alleges that it was in no position to determine and prove that PGPRC's products were 100% exported at the time of the instant claim for refund was filed considering that the pre-production ore and ROM then sold have yet to become processed products, either gold or silver ore. There is apparently the time difference from actual production to the actual exportation of the processed products. On the other hand, respondent opposes the motion on the ground that petitioner failed to prove that its sales are zero-rated as contemplated under the law. Respondent insists that aside from the Articles of Incorporation of PGPRC presented by petitioner, there was no sufficient evidence to show that indeed PGPRC exported 100% of its processed gold and silver ore. In a Resolution4 dated May 7, 2015, the Court set this case for hearing for the presentation of the documents cited and attached to the motion. On June 1, 2015, petitioner's witness Ms. Joy P. Dompor was recalled to the witness stand. 5 Thereafter, petitioner made an oral formal offer of evidence of Exhibit "BB" - Certified True Copy of the BOI Certification dated January 27, 2010, and Exhibit "CC" - TCC dated September 23, 2013. On even date, the Court admitted the said exhibits, subject to its final evaluation and/ or appreciation of their purposes, materiality, relevancy, and probative value to the issues involved in this case.6 r Petitioner's motion has merit. 4 Docket, pp. 792-795. 'Minutes of the hearing held on June I, 2015, docket, pp. 806-807. 6 Ibid.; Resolution dated June I, 2015, docket, pp. 808-809.

AMENDED DECISION CTA Case No. 8610 Page3 of!! In view of the admission in evidence of petitioner's Certified True Copy of the BOI Certification7 and TCC dated September 23, 2013, covering the period October 1, 2010 to December 31, 20108, We shall now discuss the validity of petitioner's claim for refund/issuance of TCC for the alleged excess and/or unutilized input VAT attributable to zero-rated sales taking into account the other requisites under Section 112(A) of the National Internal Revenue Code (NIRC) of 1997, as amended, which provides: "SEC. 112. Refunds or Tax Credits of Input Tax.- (A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (b) and Section 108(B)(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 or effectively zero-rated sale and also in taxable or exempt sale of goods or properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales: Provided, finally, That for a person making sales that are zero-rated under Section 108(B)(6), the input taxes shall be allocated ratably between his zero-rated and nonzero-rated sales." Based on the aforequoted prov1s10n, in order to be entitled to a refund/tax credit of excess input VAT attributable to zero-rated or effectively zero-rated sales, the following requisites must be complied with: 1. that the claim for refund was filed within the two-year prescriptive period; r 2. that there must be zero-rated or effectively zero-rated sales; 3. that input taxes were incurred or paid; 7 Exhibit "BB", docket, pp. 802�803. 8 Exhibit "CC", docket, p. 805.

AMENDED DECISION CTA Case No. 8610 Page 4 ofll 4. that such input taxes are attributable to zero-rated or effectively zero-rated sales; and 5. that the input taxes were not applied against any output VAT liability. As regards the first requisite, it has already been established in the assailed Decision9 that petitioner seasonably filed both the administrative and judicial claims for refund/ issuance of TCC. With respect to the second requisite, petitioner anchors its claim on Section 106(A)(2)(a)(5) of the NIRC of 1997, as amended, and Section 4.106-5(a)(5) of Revenue Regulations (RR) No. 16-2005 which state as follows: SEC. 106. Value-added Tax on Sale of Goods or Properties. - (A) Rate and Base of Tax.- xxx XXX XXX XXX 2) The following sales by VAT-registered persons shall be subject to zero percent (0%) 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. XXX XXX XXX SECTION. 4.106-5. Zero-Rated Sales of Goods or Properties. - xxx The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: V (a) Export Sales. - "Export Sales" shall mean: 9 Docket, pp. 751-755.

AMENDED DECISION CTA Case No. 8610 Page5ofll XXX XXX XXX (5) Transactions considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987, and other special laws. XXX XXX XXX For purposes of zero-rating, the export sales of registered export traders shall include commission income. The exportation of goods on consignment shall not be deemed export sales until the export products consigned are in fact sold by the consignee; and Provided, finally, that sales of goods, properties or services made by a VAT- registered supplier to a HOI-registered manufacturer/producer whose products are 100% exported are considered export sales. A certification to this effect must be issued by the Board of Investment (BOI) which shall be good for one year unless subsequently re-issued by the BOI. (Emphasis supplied) Considering the foregoing prov1s10ns of law and regulations, petitioner must comply with the following requisites in order for its sales to be considered zero-rated: 1. the taxpayer seller must be VAT-registered; 2. the buyer must be a BOI-registered manufacturer/ producer; and 3. the buyer's products must be 100% exported as shown by a certification issued by the BOI. As found in the assailed Decision, petitioner is a VAT- registered entityJO Meanwhile, BOI Certificationtt dated January 27, 2010 certifies that PGPRC exported 100% of its total sales volume for the period January 1 to December 31, 2009, and the same has been issued pursuant to the Guidelines on the issuance of BOI Certification per Revenue Memorandum Order No. 9-2000 entitled "Tax Treatment of Sales of Goods, Properties and Services made by VAT- registered Suppliers to BOI-registered Manufacturers- Exporters with 100% Export Sales". The BOI Certification stated that it shall be valid from January 1 to December 31, V 2010 unless sooner revoked by the BOI. Thus, petitioner's sales qualify for VAT zero-rating under the law. 10 Docket, p. 757. 11 Exhibit "BB", docket, pp. 802-803.

AMENDED DECISION CTA Case No. 8610 Page 6 of II In petitioner's Quarterly VAT Return for the first quarter of FY ending June 30, 2011, its zero-rated sales/receipts amounted to P678,879, 105.84. 12 Based on petitioner's supporting invoices and summaries of sales transactions, the amount of P678,879, 105.84 consisted of petitioner's ore sales to PGPRC in the amount of P678,444,105.84, and revenues from lease of land to PGPRC in the amount of P435,000.00, details of which are as follows: Exh.�� Invoice Date Ore Sales to PGPRC Land Lease Total No. to PGPRC In PhP In US$ In PhP Exh. InPhP 145,000.00 145,000.00 251,432,726.52 "J" 00073 7/31/2010 "P"t4 145,000.00 "J-1" 00074 7/31/2010 145,000.00 212,375,866.84 "J-2" 00075 8/31/2010 5,507'771.04 251,432,726.52 145,000.00 "J-3" 00076 8/31/2010 145,000.00 214,635,512.48 "J-4" 00077 9/30/2010 "Q"15 678,879,105.84 "J-5" 00078 9/30/2010 435,000.00 4,687,528.32 212,375,866.84 Total 4,878,721.80 "R"l6 15,074,021.16 214,635,512.48 678,444,105.84 Pursuant to Section 106(A)(2)(a)(5) of the NIRC of 1997, as amended, the amount of P435,000.00 revenues derived by petitioner from its lease of land to PGPRC cannot be considered as zero-rated export sale of goods, thus, it is disallowed. Therefore, out of the total amount of P678,879, 105.84 zero-rated sales/receipts declared by petitioner in its Quarterly VAT Return for the first quarter of FY ending June 30, 2011, only the amount of P678,444, 105.84, representing petitioner's ore sales to PGPRC for the same period, is subject to zero percent (0%) VAT. The Court shall now determine whether petitioner incurred input taxes in connection with its zero-rated sales of P678,444,105.84 and if said input taxes were not applied against any of its output VAT liability. ~ 12 Exhibit "'F", line 17. 13 Docket, pp. 487 to 492. 14 Docket, p. 663. " Docket, p. 664. 16 Docket, p. 665.

AMENDED DECISION CTA Case No. 8610 Page 7 of II As reflected in its Quarterly VAT Return for the first quarter of FY ending June 30, 2011, petitioner incurred input VAT in the amount of'P51,639,178.25, as follows: Input VAT on Total Domestic Purchases of Goods other than Capital Goods l' 1,234,980.6017 Domestic Purchase of Services Total 50,404,197.6518 P51,639,178.25 In support of the input VAT, petitioner submitted various suppliers' invoices and official receipts19 and the Report20 of the Court-commissioned Independent Certified Public Accountant (ICPA), Mr. Clifford E. Chua. Upon careful scrutiny and evaluation of the ICPA's Report and petitioner's supporting documents, input taxes in the amount of P1,123,477.49 should be disallowed for failure to meet the substantiation requirements under Sections 110(A) and 113(A) and (B) of the NIRC of 1997, as amended, and as implemented by Sections 4. 110-8 and 4.113-1 of RR No. 16-2005. Below is the detailed breakdown of the disallowed input VAT off'1,123,477.49: OR/Invoice Date Number Exhibit Supplier Input VAT 1) Input VAT claim, the supporting documents of which were denied admission by the Court in the Resolution21 dated December 10, 2013 for failure of the formally offered exhibits to correspond with the documents actually marked or for not being found in the records 7/7/2010 F7001824 1-108 Toyota Makati, Inc. I' 5,891.79 8/11/2010 F7003233 1-186 Toyota Makati, Inc. 7,048.90 1-322 Sycip Salazar Hernandez and Gatmaitan 17,364.65 Law Office Subtotal p 30,305.34 2) Input VAT claim on domestic purchases of services supported by documents other than VAT official receipts in violation of Section 113(A)(2) of the NIRC of 1997, as amended 7/1/2010 3441 1-17 QA Causeway Printers, Inc. I' 600.00 4,041.96 7/27/2010 3503 1-18 QA Causeway Printers, Inc. 750.00 7/16/2010 1061 1-83 !print Inc. 4,017.86 7/16/2010 1060 1-84 !print Inc. 17 Exhibit "F", line 21 F. 18 Exhibit "F", line 21J. 19 Exhibits "1-1" to "1-338". 20 Exhibit "Y". 21 Docket, p. 682.

AMENDED DECISION CTA Case No. 8610 Page8ofll 7/16/2010 1058 1-85 Iorint Inc. 4,821.43 7/16/2010 1059 1-86 Iorint Inc. 3,991.07 7/1/2010 02774 1-107 Textron Corporation 7,800.00 8/2/2010 3537 1-115 OA Causeway Printers, Inc. 1,210.71 8/23/2010 858503 1-187 U-Bix Corporation 9/8/2010 1175 1-290 Iorint Inc. 972.00 9/8/2010 1176 1-291 Iorint Inc. 6,792.86 9/8/2010 1172 1-292 Iorint Inc. 3,991.07 9/8/2010 1173 1-293 Iorint Inc. 9/8/2010 1177 1-294 Iorint Inc. 857.14 9/27/2010 083325 1-323 TNT Express Worldwide (Philsl Inc. 9,572.85 4,017.86 Subtotal p 104.31 3) Input VAT claim on domestic purchase of goods supported by VAT 53,541.12 invoice but the VAT was not seoaratelv indicated thereon 6,888.43 8/12/2010 3158 1-182 Straightforward Enterprises I' 2,464.29 8,052.43 8/13/2010 3518 1-123 Firetron Safety System 17,405.15 9/15/2010 3214 1-316 Straightforward Enterprises Subtotal p 4) Input VAT claim on domestic purchases of services supported by ORs with manuallv stamped TIN and without the word VAT after the TIN 7/7/2010 1203 1-11 Astron Communication Systems I' 5,732.14 354.00 7/20/2010 3740 1-13 Astron Communication Systems 6,086.14 Subtotal p 5) Input VAT claim on domestic purchases of goods supported by invoices with manuallv stamped TIN and without the word VAT after the TIN i/12/2010 1206 1-12 Astron Communication Systems !' 5,126.79 21,018.21 8/19/2010 1223 1-114 Astron Communication Systems 14,012.14 9/7/2010 1232 1-194 Astron Communication Systems 40,157.14 Subtotal p 5,419.20 131,791.62 6) Input VAT claim on domestic purchases of services with alterations in the supporting VAT ORs but without counter-signature from the 22,989.25 authorized representative of the supplier 49,200.00 7/23/2010 1944 1-324 Imaginet International Inc. I' 9,737.43 2,430.00 7119/2010 35358 1-325 Mcphar Geoservices (Philippines) Inc. 272,604.66 11,638.05 7/9/2010 82515 1-326 Quantum Hotels & Resorts Inc. 6,428.57 75,895.60 7/2/2010 51043 1-327 Southeast Asian Airlines ISEA!Rl Inc. 834.05 7/23/2010 12212 1-328 Sunvar Incoroorated 588,968.43 8/4/2010 5155 1-329 Maoecon Philiooines Inc. 8/19/2010 35444 1-330 Mcohar Geoservices IPhiliooinesl Inc. 8/18/2010 77294 1-331 Quantum Hotels & Resorts Inc. 9/17/2010 9633 1-332 AGATEP Associates Inc. 9/21/2010 3227 1-333 NC Lanting Security Specialist Agency 9/27/2010 626130 1-334 TNT Express Worldwide (Philsl Inc. Subtotal p

AMENDED DECISION CTA Case No. 8610 71 Discrepancy between the input VAT claim of 1'51,639,178.25 and the I' 387,014.17 input VAT of 1'51,252,164.0822 as accounted for by the ICPA Subtotal p 387,014.17 Total p 1,123,477.49 Therefore, out of petitioner's input VAT claim for the first quarter of FY ending June 30, 2011 in the amount of 1"51,639,178.25, only the amount of 1"50,515,700.76 represents petitioner's valid input tax, computed as follows: Input VAT Claim Amount Less: Disallowed Input VAT Valid Input VAT I' 51,639,178.25 1,123,477.49 p 50,515,700.76 Since petitioner's sales for the first quarter were all made to PGPRC, the substantiated input VAT of 1"50,515,700.76 is entirely attributable thereto. However, as previously stated, petitioner had receipts from lease of land for the same period in the amount of 1"435,000.00; thus, only the input VAT of 1"50,483,332.22 can be attributed to petitioner's zero-rated sales. It is computed as follows: Valid Input VAT p 50,515,700.76 Allocated to 678,444,105.84 435,000.00 Zero-Rated Sales I' 678,879,105.84 Lease of Land 99.9359238% Total I' 0.0640762% Allocation Factor 50,483,332.22 Zero-Rated Sales Lease of Land Refundable Input VAT Attributable to Zero-Rated Sales p Upon verification of petitioner's Quarterly VAT Retum23 for the first quarter of FY 2011 and Notes24 to Audited Financial Statements for the FY 2011, it had no output tax liability against which the subject input VAT claim may be applied or credited since all of its reported sales/gross receipts for the same FY were zero-rated. Consequently, while the V claimed input taxes were carried over to the succeeding quarters, the same remained unutilized until they were 22 Exhibit "Y", Annex "B". 23 Exhibit "F", line 198. 24 Exhibit "G", Note 24(a).

AMENDED DECISION CTA Case No. 8610 Page IOofll deducted as "VAT Refund/TCC Claimed"25 from petitioner's total available input taxes in its Quarterly VAT Return for the first quarter of FY 2012. WHEREFORE, in view of the foregoing, petitioner's Motion for Reconsideration of the Decision dated 6 March 2015 is PARTIALLY GRANTED, and the assailed Decision promulgated on March 6, 2015 is MODIFIED. Accordingly, respondent is ORDERED TO REFUND OR ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner in the amount of P50,483,332.22, representing petitioner's unutilized input VAT attributable to its zero-rated sales for the first quarter of FY ending June 30, 2011. SO ORDERED. pL~/. ~)-~#- WE CONCUR: AMELIA R. COTANGCO-MANALASTAS Associate Justice a~ c.a....r-~at...-~. (On Official Business) 5tiANITO C. CASTANE~A, JR. CAESAR A. CASANOVA Associate Justice Associate Justice ATTESTATION I attest that the conclusions in the above Amended Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. Y...~~ c.~~,Q .fUANITO C. CASTANEJ:i.(; JR. Associate Justice Chairperson 25 Exhibit "H", line 23D (included in the amount of1'360,739,406.51).

AMENDED DECISION CTA Case No. 86IO Page II of II CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, it is hereby certified that the conclusions in the above Amended Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court_./""""---..._ Presiding Justice