TAGANITO MINING CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SECOND DIVISION TAGANITO MINING CTA Case No. 8822 CORPORATION, Members: Petitioner, CASTANEDA, JR., Chairperson, -versus- CASANOVA, and COTANGCO-MANALASTAS,J~ COMMISSIONER OF Promulgated: INTERNAL REVENUE, MAY Z0 2016 ~ Respondent . L__ I /7 '-/: :z_rt� ... x----------------------------------------------------------------------------------x AMENDED DECISION CASTANEDA, JR., J.: On September 30, 2015, petitioner filed its Motion for Partial Reconsideration and/or New Trial to seek partial reconsideration and reversal of this Court's Decision promulgated on September 14, 2015,1 the dispositive portion of which reads: "WHEREFORE, premises considered, the instant Petition for Review is hereby PARTIALLY GRANTED. Respondent is hereby ORDERED TO REFUND OR ISSUE TAX CREDIT CERTIFICATE to petitioner in the reduced amount of P10,343,265.07 representing its unutilized amortized input taxes on importation and domestic purchases of capital goods with aggregate acquisition cost exceeding P1 Million incurred during the ,9t- 1 Docket, Vol. I, pp. 316-347.

AMENDED DECISION CTA Case No. 8822 taxable years 2010, 2011 and 2012 and are attributable to zero-rated sales in the taxable years 2012 and 2013. SO ORDERED." In the assailed Decision, the Court disallowed zero-rated sales for the year 2012 amounting to P186,044,021.18 for not being properly substantiated with export documents such as bank client advices for the foreign currency proceeds. For the year 2013, zero- rated sales in the total amount of P626,948,002.23 were disallowed for not being properly supported by bills of lading and bank client advices for the foreign currency proceeds and PEZA Certification of customers.2 Further, input taxes for the taxable years 2010, 2011 and 2012 in the aggregate amount of P9,335,682.00 were likewise disallowed for failure to comply with the invoicing requirements prescribed by law.3 In compliance with this Court's Resolution dated October 7, 2015,4 respondent seasonably filed on October 21, 2015, her Comment/Opposition (Re: Motion for Partial Reconsideration and/or New Trial). In a Resolution dated December 4, 2015/ this Court granted petitioner's motion to reopen the case for the presentation of additional evidence and held in abeyance the resolution of its Motion for Partial Reconsideration. Petitioner's presentation of additional evidence ensued. On March 3, 2016, petitioner filed its Supplemental Formal Offer of Evidence (FOE).6 Respondent filed her Comment thereto on March 7, 2016. 7 In a Resolution dated April 4, 2016,8 this Court admitted Exhibits "P-1920", "P-1920-A", "P-1920-B", "P-1920-1", "P-1920-2", "P-1920-3", "P-1920-4", "P-1920-6", "P-1920-6.1", "P-1920-6.2", "P- 1920-6.3", "P-1920-6.4", "P-1920-7", "P-1920-8", "P-1920-9", "P- /c- 1920-10", "P-1920-11", "P-1920-12", "P-1920-13", "P-1920-14", "P- 2 Ibid. 3 !d., pp. 338-339. 4 !d., pp. 399-400. 5 Docket Vol. II, pp. 419-427. 6 Docket Vol. II, pp. 474-479. 7 Ibid., pp. 515-518. 8 !d., pp. 519-525.

AMENDED DECISION CTA Case No. 8822 1920-15", "P-1920-16", "P-1920-17", "P-1920-18", and "P-1920-19" of petitioner's Supplemental FOE but denied admission as to Exhibits "P-1920-5.1" and "P-1920-5.2" for not being "electronic documents" under Section 1(h) of the Rules on Electronic Evidence (REE) and for petitioner's failure to lay the basis for the introduction of secondary evidence. Likewise in the same Resolution, this Court considered the case submitted anew for decision. Hence, this Amended Decision. THE COURT'S RULING A careful examination of the additional evidence submitted shows that zero-rated sales in the amounts of P159,444,703.78 and P462,266,844.51 for the taxable years 2012 and 2013, respectively, are properly substantiated: P-458 to P-461, P-1920-2 42.955 & P-1920-3 433 .00 42.955 .75 P-1920-4 507 P-1920-7 503 .00 41.180 .80 TOTAL 41.735 .73 78 527 965,260.80 40.705 5,197,214.40 127,680.00 43.200 656.00 P-901 P-1920-10 552 44.150 945.00 080.00 P-1225 P-1920-11 685 300.00 41.070 16,164,492.01 393,583.93 P-1245, P-1247, P-1920- 545 635.00 40.690 1,1 563.84 12 40.690 (8,283.38) 113,535.70 41.155 170,708.26 P-1232 to P-1235, P- 522 41.155 42.270 ?z- 4,911,554.38 1920-13 526 42.260 43.200 P-1297 to P-1300, P- 660 43.260 1920-14 535 P-1301 to P-1303-A, P- 550 1920-14 661 P-1304 to P-1307, P- 662 1920-14 564

AMENDED DECISION 663 25,589.13 43.420 1,111,080.02 CTA Case No. 8822 606 320,869.11 43.420 13,932,136.76 Page 4 of 11 624 378,477.94 43.610 16,505,422.96 664 44.610 P-1308 to P-1311, P- 665 50,942.80 43.540 2,272,558.31 1920-14 644 62,987.18 43.540 2, 742,461.82 666 728,137.18 43.540 31,703,092.82 P-1312 to P-1315, P- 682 768,504.47 43.540 33,460,684.62 1920-14 684 85,389.39 43.760 3,717,854.04 802 1,000,995.01 43.760 43,803,541.64 P-1316 to P-1318-A, P- 803 111,221.67 44.395 4,867,060.28 1920-14 1,676,350. 72 74,421,590.21 TOTAL P-1319 to P-1322, P- 10,775,267.95 462,266,844.51 1920-14 P-1323 to P-1325, P- 1920-14 P-1326 P-1920-14 Petitioner did not submit additional supporting documents for the following disallowed zero-rated sales for the taxable year 2012 in the amount of P26,599,317.40, which are not supported by bank credit advices: P-451 501 P-468 499 P-530 500 Subtotal Regarding the unsupported difference between the zero-rated sales per VAT Returns9 and Schedule of Zero-Rated Sales for the taxable year 201310 amounting to P164,681,157.71, petitioner avers that the same represents zero-rated sales other than the sale of nickel ore. Further, it submits that its zero-rated sales per VAT returns include all types of sales, including other zero-rated sales, i.e. not pertaining to its sales of ores from its mining activity, to which its capital goods purchases are not attributable. Hence, the substantiated zero-rated sales pertain only to its sale of ores from mining activities. 11 In the assailed Decision, the Court computed the ratio of petitioner's substantiated zero-rated sales by dividing the same by fo-- the zero-rated sales declared per Quarterly VAT Returns. On the other hand, the Independent CPA reported the following: 12 9 Exhibits "P-1523", "P-1540", "P-1555" and "P-1570". 10 Schedule V of Exhibit "P-9", Docket Vol. I, pp. 229-231. 11 Paragraph 18 of Motion for Partial Reconsideration and/or New Trial, Docket Vol. I, p. 360. 12 Exhibit "P-9", p. 13, Docket Vol. I, p. 214.

AMENDED DECISION CTA Case No. 8822 Table I Summary of Petitioner's Revenue under Zero Rated Activities For Taxable Years 2010, 2011, 2012 and 2013 It should be noted that for the year 2012, petitioner declared P3,093,865,540.54 zero-rated sales in its VAT returns, 13 which, based on the preceding table in the ICPA report, pertains only to petitioner's zero-rated sales from sale of ores. For the year 2013, petitioner declared a total of P3,273,782,021.06/4 which includes its zero-rated sales from sale of ore, service (despatch) income, and rental income. It can be inferred that petitioner's zero-rated sales for the year 2012 is underdeclared. Petitioner asserts that its input taxes were directly attributable to its sales from mining activities, thus: 15 Petition for Review "The above input taxes were directly attributable to its zero-rated sales, were paid in the course of its trade and business, are duly supported by invoices and/or receipts, are not carried forward to the succeeding quarter or quarters subsequent to the filing of the claim, and have not been applied against any VAT output tax liability of the petitioner during the same period." (Emphasis supplied.)jh- 13 Exhibits "P-1477", "P-1490", "P-150"1 and "P-1513" and Schedule XIII of Exhibit "P-9", Docket Vol. I, p. 241. 14 Exhibits "P-1523", "P-1540", "P-1555" and "P-1570" and Schedule XIV of Exhibit "P-9", Docket Vol. I, p. 243. 15 Paragraph 18 of Petition for Review, Docket Vol. I, p. 11 and Paragraphs 14 and 15 of Memorandum for the Petitioner, Docket Vol. I, p. 295.

AMENDED DECISION CTA Case No. 8822 Memorandum for the Petitioner "Said VAT input taxes were paid by petitioner in the course of its trade and business and are all directly attributable to petitioner's zero-rated export sales." "Petitioner is engaged solely in zero-rated export sales, except for isolated transactions for which the corresponding output taxes were set-off against its excess input taxes. xxx" (Emphasis supplied.) As it turned out, petitioner had other zero-rated sales for the years 2012 and 2013 other than from mining activities. The ICPA reported how he proceeded to substantiate petitioner's zero-rated sales: 16 "We examined the documents supporting the export sales of mineral ore such as invoices, bank debit advice, bills of lading and export declaration for selling of ore. We referred to the audited financial statement of the Petitioner to determine the amount of the service income from despatch and rental. These revenues are rendered to PEZA registered entities and their mining customers (see exhibits P-1921 to P-1930 for sample documentation)." (Emphasis supplied.) However, Exhibits P-1921 to P-1930 are nowhere to be found in petitioner's formal offer of evidence. In fact, petitioner's submitted evidence were marked as Exhibits "P-1" to "P-1919-A" only. 17 Thus, petitioner failed to substantiate and prove the nature of its other zero-rated sales and that the capital goods purchased from where input taxes arose and are herein claimed for refund were not used in the generation of such sales. Consequently, the substantiated input taxes cannot be directly and entirely attributed to any of its jt- 16 Exhibit "P-9", p. 13, Docket Vol. I, p. 214. 17 Formal Offer of Evidence for the Petitioner, Docket Vol. I, pp. 161-176.

AMENDED DECISION CTA Case No. 8822 zero-rated sales and shall be allocated proportionately on the basis of the volume of sales. Petitioner's substantiated zero-rated sales for the taxable years 2012 and 2013 are P3,067,266,223.60 and P3,109,100,863.35, respectively, computed thus: Less: Unsupported zero-rated sales from service and I income P .71 Unsupported zero-rated sales per find of the Court Total disallowances bstantiated zero-rated sales Accordingly, the rate to be used to attribute the substantiated input taxes to the substantiated zero-rated sales shall be adjusted as follows: We proceed to determine the amount of unutilized input taxes attributable to petitioner's zero-rated export sales. By submitting additional documents, petitioner was able to prove that out of the total disallowed input taxes of P9,335,682.00, the following in the amount of P7,837,932.00 are already properly substantiated: P-1327 toP- 2011 P-1337 to P-1343, P-1920-17, 114789647 2012 119387633 P-1920-18 P-1350 toP- P-1920-19 2/10/2012 TOTAL INPUT TAXES FROM IMPORTATIONS P7,837,932.00 Petitioner disagrees with the Court's disallowance of input taxes from domestic purchases of capital goods in the aggregate amount of~

AMENDED DECISION CTA Case No. 8822 P1,497,750.00, averring that the same was not put at issue since these were reserved for utilization.18 However, the Court found that the claimed input taxes for refund amounting to P22,011,331.91 includes input taxes from domestic purchases of capital goods as reported by the Court-commissioned Independent CPA. 19 The subject disallowance, broken down as follows, should be maintained: 2010 P-1358 C1013008 p 678.57 2012 P-1374 A111974 170,464.29 P-1375 A111975 170,464.29 P-1377 C1013008 146,678.57 P-1378-A A112921 678.57 P-1378-B A112922 P-1370 96032 Subtotal p invoice without the TIN of the purchaser p 11 321.43 183,107.14 P-1366 4007 2011 10/26/2011 p 294,428.57 P-1378 C1013126 p 145,500.00 by invoice with a different TIN ofthe purchaser 00 P-1359 C1009837 7/9/2011 service and Subtotal TOTAL DISALLOWED INPUT TAX FROM DOMESTIC PURCHASES In fine, out of the total P61,377,657.86 input taxes declared by petitioner in its Quarterly VAT Returns for the taxable years 2010, 2011 and 2012, only the amount of P59,579,639.90 is duly substantiated for VAT purposes, to wit: Input taxes from capital goods with acquisition cost exceeding P1M per VAT Returns: Taxable year 2010 p 4 628,363.58 Taxable year 2011 17 691 452.70 Taxable year 2012 39 057 841.58 p 61,377 657.86 Less: Disallowances 1. Unsupported input taxes Input taxesQ_er VAT Returns P61 377,657.86 Less: Total input taxes per submitted supporting documents (Schedule I of Exhibit ''P-9") 61,077,389.90 p 300 267.96 18 Paragraph 19 of Motion for Partial Reconsideration and/or New Trial, Docket Vol. I, p. 360. 19 Schedules I and X of Exhibit "P-9", Docket Vol. I, pp. 224-225 and 236.

AMENDED DECISION I 1,497 750.00 1 798 017.96 CTA Case No. 8822 Page 9 of 11 PS9,579,639.90 2. Not properly supported input taxes as found by the Court Substantiated input taxes Consequently, petitioner can only claim the amortized portion of its adjusted properly substantiated input taxes for the taxable years 2012 and 2013 in the total amount of P21,638,603.22, computed hereafter: 4/28/2011 5/11/2011 3/29/2011 2/10/2012 4/10/2012 12 577 718.00 12 1 980, 4/16/2012 12 152.14 50 12 228 767.00 777.92 5/21/2012 12 567 932.50 150.50 7/3/2012 .04 8/14/2012 48 11/12/2012 48 11/22/2012 60 12/26/2012 Total- 2012 TOTAL *rounding difference Applying the rate of substantiated zero-rated sales previously computed and petitioner's output taxes due for the taxable years fc- 2012 and 2013, petitioner's adjusted valid input taxes on importation

AMENDED DECISION CTA Case No. 8822 and domestic purchases of capital goods with cost exceeding P1Million which are available for refund amounted to P14,263,324.04, as shown below: Multiplied by the rate of substantiated zero-rated sales Valid input taxes attributable to zero- rated sales taxes WHEREFORE, premises considered, petitioner's Motion for Partial Reconsideration is PARTIALLY GRANTED. Accordingly, the dispositive portion of the assailed Decision dated September 14, 2015 is amended to read as follows: "WHEREFORE, premises considered, the instant Petition for Review is hereby PARTIALLY GRANTED. Respondent is hereby ORDERED TO REFUND OR ISSUE A TAX CREDIT CERTIFICATE to petitioner in the reduced amount of FOURTEEN MILLION TWO HUNDRED SIXTY THREE THOUSAND THREE HUNDRED TWENTY FOUR PESOS AND 4/100 (1114,263,324.04) representing its unutilized amortized input taxes on importation and domestic purchases of capital goods with aggregate acquisition cost exceeding P1 Million incurred during the taxable years 2010, 2011 and 2012 and are attributable to zero-rated sales in the taxable years 2012 and 2013." SO ORDERED. ~~ C-.~o.-ul~ Q.. ruANITO c. CASTANEDA; lR. Associate Justice

AMENDED DECISION CTA Case No. 8822 WE CONCUR: Associate Justice ~~-~~- ------AMELIA R. COTANGCO-MANALASTAS Associate Justice ATTESTATION I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. ~ C- Q.'f"-~~ Q., . .fiJANITO C. CASTANEb~; JR. Associate Justice Chairperson CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairperson's Attestation, 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. Presiding Justice