CORAL BAY NICKEL CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY THIRD DIVISION CORAL BAY NICKEL CTA Case No. 7895 CORPORATION, Members : Petitioner, - versus - BAUTISTA, Chairperson FABON -VICTORINO, and RINGPIS-LIBAN, JJ. Promulgated: COMMISSIONER OF SEP 1 2n1~ INTERNAL REVENUE, Respondent. $"o:o~-~ X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X DECISION Fabon-Victorino, J.: In this Petition for Review, 1 petitioner Coral Bay Nickel Corporation prays for refund or issuance of tax credit certificate in the amount of TWENTY-TWO MILLION FIVE HUNDRED TWENTY-TWO THOUSAND EIGHT HUNDRED SEVENTY-EIGHT PESOS AND EIGHTY- SIX CENTAVOS (P22,522,878.86), allegedly representing unutilized input value-added tax (VAT) incurred from its purchases of goods and services attributable to its VAT zero-rated sale for the period covering January 1, 2007 up to December 31, 2007 . The facts as appearing on the record are as follows : Petitioner Coral Bay Nickel Corporation is a Philippine corporation registered with and licensed by the Securities I and Exchange Commission (SEC) to engage in the 1 Docket, pp . 1- 11.

DECISION CTA Case No. 7895 manufacture and exportation of nickel/cobalt mixed sulfide, with principal office address at Barangay Rio Tuba, Municipality of Bataraza, Palawan. It is a VAT-registered entity with Bureau of Internal Revenue (BIR) Certificate of Registration No. OCN 8RC0000019300 VAT and Taxpayer's Identification Number (TIN) 005-961-540-000. 2 It is also registered with the Philippine Economic Zone Authority (PEZA) as indicated in its PEZA Registration Certificate No. 02-072 dated December 27, 2002.3 Respondent, on the other hand is the Commissioner of Internal Revenue (CIR) empowered to perform the duties of her office, including, among others, the duty to act on and approve claims for refund or tax credit as provided by law. She holds office at the BIR National Office Building, Diliman, Quezon City. Petitioner claims that, as a PEZA registered entity, it is entitled to tax incentives such as Income Tax Holiday; tax and duty-free importation of merchandise which include raw materials, capital equipment, machineries and spare parts; exemption from wharfage dues and export tax; VAT zero- rating of local purchases subject to compliance with BIR and PEZA requirements; and exemption from payment of any and all local government imposts, fees, licenses or taxes except real estate tax. On September 1, 2004, petitioner entered into an Off- Take Agreement4 with Sumitomo Metal Mining Co., Ltd. (SMMC), a Japanese corporation, for the export of nickel cobalt mixed sulfide. Pursuant to the said agreement, petitioner exported nickel cobalt mixed sulfide to SMMC during the 1st, 2nd, 3rd and 4th quarters of taxable year 2007 in the amounts of P4,284,213,687 .40, P3,669,203,503. 70, P3,336,098,698.16 / and P2,254,998,860.43, respectively. 5 2 Exhibits "F" and "G", docket, pp . 422 and 423. 3 Exhibits "B" and "C", docket, pp. 424 and 425-426. 4 Exhibits "XXX" and "XXX-1", docket, pp. 648-660. 5 Par. 7, Petition for Review, docket, p. 4.

DECISION CTA Case No. 7895 During the same period, petitioner purchased goods and services which were consumed and rendered outside the PEZA Zone, to which it incurred input VAT in the amount of P22,522,878.86. As a qualified Large Taxpayer, petitioner filed all its Quarterly VAT Returns for the taxable year 2007, as well as amendments thereto, through the Electronic Filing and Payment System (EFPS) of the BIRon the following dates: PERIOD COVERED (2007) DATE FILED EXHIBIT First Quarter Original return April 23 2007 "H4-1" First amendment April 25, 2007 "14- 1" Second amendment April 30 2007 "J4- 1" Third amendment May 2 2007 "~- 1 " Fourth amendment January 15, 2009 "L4-1" Fifth amendment January 28, 2009 "M 4- 1" Sixth amendment March 30, 2009 " K" Second Quarter Original return July 23 2007 First amendment July 24, 2007 " L" Second amendment March 30, 2009 "M" Third Quarter Original return October 22 2007 "N" Amended return March 30, 2009 "0" Fourth Quarter Original return January 23, 2008 Amended return March 30 2009 "P" "Q" "R" On March 31, 2009, petitioner filed its administrative claim6 for tax credit certificate/refund for the unutilized input VAT for taxable year 2007 in the amount of P22,522,878.86 along with the attached Application for Tax Credits/Refunds (BIR Form No. 1914) and all supporting documents with the Large Taxpayers Service - Large Taxpayer Audit and Investigation Division II (Revenue District Office No. 121) .7 Petitioner also filed on the same day, March 31, 2009, the instant Petition for Review before this Court. j In her Answer8 filed on May 22, 2009, respondent interposed the following special and affirmative defenses, thus: 6 Exhibit "D ", docket, pp . 427 -457 . 7 Par. 4, Adm itted Facts, JSFI, docket, p. 133. 8 Docket, pp. 104- 110.

DECISION CTA Case No. 7895 5. Petitioner's alleged claim for refund is subject to administrative routinary investigation/examination by the Bureau of Internal Revenue (BIR). 5. The amount of P22,522,878.86 being claimed by petitioner as alleged unutilized input VAT for the period January 1, 2007 to December 31, 2007 was not properly documented. 6. Petitioner must prove that it has complied with the provisions of Section 112 (A) and (D) of the National Internal Revenue Code of 1997 (1997 Tax Code) on the prescriptive period for claims for VAT refund/credit. 7. Petitioner must prove compliance with the prescribed checklist of requirements to be submitted involving claims for VAT refund pursuant to Revenue Memorandum Order No. 53-98, otherwise there would be no sufficient compliance with the filing of an administrative claim for refund, the administrative claim thereof being mere pro-forma. Further, Section 112 (D) of the 1997 Tax Code, as amended, requires the submission of complete documents in support of the application filed with the BIR before the 120-day audit period shall apply, and before the taxpayer could avail of judicial remedies as provided for in the law. Hence, petitioner's failure to submit proof of compliance with the above-stated requirements warrants immediate dismissal of the petition for review. 8. Petitioner must prove that it has complied with the invoicing requirements mentioned in Sections 110 and 113 of the / 1997 Tax Code, as amended, in relation to the provisions of Revenue Regulations 7- 95.

DECISION CTA Case No. 7895 9. In an action for refund/credit, 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 (Asiatic Petroleum Co. vs Llanes, 49 Phil. 466 cited in Collector of Internal revenue v. Manila Jockey Club, Inc., 98 Phil. 670); 10. Claims for refund are construed strictly against the claimant for the same partake the nature of exemption from taxation (Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95) and as such; they are looked upon with disfavor (Western Minolco Corp. vs. Commissioner of Internal Revenue, 124 SCRA 1211). 11. The Court of Tax Appeals has no jurisdiction to entertain the instant petition for review for failure on the part of petitioner to comply with the provisions of Section 112 (D) of the 1997 Tax Code which provides, thus: Section 112. Refunds or Tax credits of Input Tax - XXX XXX XXX (D) Period within which refund or Tax Credit of Input Taxes shall be Made - In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsections (A) and (B) hereof. J In case of full or partial denial for tax refund or tax credit, or the failure on the part of the

DECISION CTA Case No. 7895 Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals. (Emphasis supplied). 12. As stated in the petition, petitioner filed the administrative and judicial claim for refund with respondent on the same day, March 31, 2009. Obviously the 120 days given to respondent to decide on the claim had not yet lapsed when the petition was filed. The petition was prematurely filed, hence, it must be dismissed for lack of jurisdiction. After the issues were joined and the pre-trial was terminated, petitioner presented four (4) witnesses, namely: (1) Ivan V. Hilario, its General Accountant; (2) Enrico T. Pizarro, the Court-commissioned Independent Certified Public Accountant; (3) John S. Barrientos, QS/CSR Manager of SMCC Philippines, Inc.; and (4) Julio D. Lichauco, Municipal Engineer of the Municipality of Bataraza, Palawan, all of whom executed a judicial affidavit as their direct testimony. Ivan V. Hilario testified that he is petitioner's general accountant and as such he is responsible in the payment of petitioner's tax liabilities with the BIR, as well as in the submission of reportorial requirements to other government entities like PEZA, where petitioner is also registered. Petitioner is principally engaged in the business of owning, holding, selling, exchanging, leasing, mortgaging or otherwise disposing of, dealing in, and operating plants for j processing, reducing, concentrating, smelting, converting, refining, preparing for market, or otherwise treating metals, minerals and mined products to be used in the production of

DECISION CTA Case No. 7895 mixed sulfide of nickel and cobalt, and any small ingredients, products and by-products of any thereof, and to produce, manufacture, process, refine, treat, sell, use, deal in, distribute, market, and otherwise turn to account or dispose of mixed sulfide of nickel and cobalt, and any and all ingredients, products and by-products of any thereof. This case is for the refund of petitioner's excess and unutilized input VAT for the four quarters of taxable year 2007 in the amount of P22,522,878.86 incurred on its domestic purchases of taxable goods and services which were consumed and rendered outside the ecozone. The unutilized input VAT is attributable to petitioner's export sales of nickel cobalt mixed sulfide to SMMC which qualify as zero-rated in accordance with Section 106(A)(2)(a) of the NIRC of 1997. On March 31, 2009, petitioner filed with the Large Taxpayers Service Excise Group of the BIR its administrative claim for refund of cited unutilized input VAT for the four quarters of taxable year 2007. To prove that petitioner had excess unutilized input VAT for the four quarters of taxable year 2007, witness Hilario presented the petitioner's original and the amended quarterly VAT Returns for the four quarters of taxable year 2007. Commissioned Independent Certified Public Accountant (ICPA) Enrico T. Pizarro declared that based on his examination and validation of petitioner's pertinent documents, the allowable input tax refund attributable to zero-rated sales is P20,062,585. 75. John S. Barrientos testified that he is the QS/CSR Manager of SMCC Philippines, Inc. (SMCC) whose services was secured by petitioner for the construction of: (1) JTA dormitory; (2) Clubhouse Renovation; (3) Gymnasium; (4) Nickel Nook; (5) Vendor's House; (6) Concreting of New Access Road; (7) Macadam Road & PUV Terminal Concrete; (8) Road Humps; and (9) V-Ditch for RTN Heavy Equipment / Parking.

DECISION CTA Case No. 7895 He further stated that petitioner paid VAT on its purchases of goods and services from SMCC as appearing in the receipts/invoices since the goods and services were consumed and performed outside the ecozone. Lastly, Julio D. Lichauco declared that as the Municipal Engineer of the Municipality of Bataraza, Palawan, he issued the Certificates of Occupancy for the buildings that SMCC constructed for petitioner outside the ecozone. To prove her defense, respondent presented her lone witness Revenue Officer III Jesus DS. Reyes, who stated that he examined and verified petitioner's supporting documents and in the process discovered that the original documents, including receipts and invoices, failed to comply with the invoicing requirements to qualify for the grant of refund. Precisely in Memorandum9 dated October 15, 2012, which his group prepared, they recommended to disallow the input tax and refund of petitioner. Consequently, in the letter10 dated November 9, 2012, petitioner's claim for refund of unutilized input VAT was denied. Respondent rested her case after filing her Formal Offer of Documentary Evidence on March 1, 2013. 11 On October 14, 2013/2 respondent tendered the "e4x-cdlu",ded"4-eev"i,den"4c-ef'",sp"e4c-igfi"c,allayndExh"i4b-iths","4w-ah"ic' h"4-thbe"' "C4o-cu"r't deemed as part of the record of the case. 13 THE ISSUES The parties submitted the following issues for the resolution of the Court: / 9 Exhibit "35", pp. 829-831. 10 Exhibit "36", p. 828. 11 Docket, pp. 796-812 . 12 Tender of Excluded Evidence, docket, p. 907. 13 Resolution dated November 28, 2013, docket, pp . 1006-1007.

DECISION CTA Case No. 7895 1. Whether or not the Honorable Court has jurisdiction over the case. 2. Whether or not Petitioner is entitled to refund or issue tax credit certificate in the amount of TWENTY THREE MILLION SIXTY THOUSAND SEVEN HUNDRED THIRTY SIX PESOS (Php23,060, 736.00). RULING OF THE COURT The instant petition is partly meritorious. In its amended Quarterly VAT Returns for the period covering January 1, 2007 to December 31, 2007 filed with the BIR, petitioner indicated the following: 1st Quarter 2nd Quarter (Exhibit ''!<'') (Exhibit ''N'') Zero-Rated Sales/Receipts p 4 284,213 687.40 p 3,669,203 503.70 Output tax due p - p - Less: Allowable input tax 8 593 416.43 Input Tax Carried Over from Previous Quarter p 5,823 983.35 p 139 955.36 8,733 371.79 Input Tax Deferred on Capital Goods Exceeding - - P1 Million from Previous Quarter 5,823 983.35 p - Total p 169 951.65 5,278 806.86 Current Transactions 8,733,37 1. 79 14,182,130.30 Purchase of Capital Goods not exceeding P1M p 104 839.28 p Purchase of Capital Goods exceeding P1M 147 321.43 Domestic Purchase of Goods Other than Capital Goods 236 477.31 4,734 893.21 Domestic Purchase of Services 5,223 531.23 p Total p 11 047 514.58 p Total Available Input Tax p Less: Deductions from Input Tax Input Tax on Purchases of Capital Goods exceeding P1 Million deferred for the succeeding period p 139,955.36 p 132,589. 29 VAT Refund/TCC claimed 2,314 142.79 - Total p 2,454 098.15 p 132,589.29 8,593,416.43 p 14 049,541.01 Total Allowable Input Tax p 8,593,416.43 p I 14,049,541.01 Net VAT Overpayment p

DECISION CTA Case No. 7895 3rd Quarter 4th Quarter Total (Exhibit "P'') (Exhibit ''R '') Zero-Rated Sales/Receipts p 3 336 098/698.16 p 2 254,998 860.43 p 13,544,514 749.69 Output tax due - - - Less: Allowable input tax 5 823 983.35 Input Tax Carried Over from - Previous Quarter p 14,049 541.01 p 23,289 614.76 p 5 823 983.35 Input Tax Deferred on Capital 104 839.29 597 321.43 Goods Exceeding P1 Million 868 733.19 21 489 842.09 from PreviousQuarter 132 589.29 567 723.21 23 060 736.00 14,182 130.30 p 23,857 337.97 p 28 884 719.35 Total p 537 857.14 Current Transactions 2 314 142.79 2 851999.93 Purchase of Capital Goods not 26 032 719.42 26,032,719.42 exceeding P1M p - p - p Purchase of Capital Goods exceeding P1M 450 000.00 - Domestic Purchase of Goods Other than Capital Goods 297 010.34 165 293.90 Domestic Purchase of Services 8 928 197.33 2 547 944.69 9 675 207.67 p 2 713 238.59 p Total p 23 857 337.97 p 26 570 576.56 p Total Available Input Tax p Less: Deductions from Input Tax Input Tax on Purchases of Capital Goods exceeding P1 Million deferred for the succeeding period p 567 723.21 p 537 857.14 p VAT Refund/TCC claimed - p - Total p 567 723.21 p 537 857.14 p 26 032 719.42 p Total Allowable Input Tax p 23 289 614.76 p 26,032,719.42 p Net VAT Overpayment p 23,289,614.76 p As shown in the returns, petitioner's unutilized input VAT arising from the amortization of input VAT on purchases of capital goods exceeding Pl,OOO,OOO.OO, purchase of capital goods not exceeding Pl,OOO,OOO.OO, domestic purchases of goods other than capital goods, and domestic purchase of services for the four quarters of 2007 amounted to P22,522,878.86, broken down as follows: 1st Quarter 2nd Quarter Input Tax Deferred on Capital Goods exceeding P1 Million from - Previous Quarter p 139 955.36 Add: Input Tax on Capital Goods exceeding P1 Million Purchased this Quarter p 147 321.43 - Total Unamortized Input Tax on Capital Goods exceeding P1 Million 147,321.43 139 955.36 Less: Input Tax on Purchases of Capital Goods exceeding P1 Million deferred for the succeeding period 139,955.36 132 589.29 Amortization of Input Tax on Capital Goods exceeding P1 7,366.07 Million I 7 366.07

DECISION CTA Case No. 7895 Add: Input Tax on 104 839.28 - Purchase of capital Goods not exceeding P1 Million 236 477.31 Domestic Purchases of Goods Other than capital Goods 4 734 893.21 169 951.65 Domestic Purchase of Services 5 083 575.87 5 278 806.86 5 456 124.58 Total Allowable Input Tax Due - Less: Output Tax Due - Unutilized Input Tax PS, 083,575.8 7 PS,4 56,124.58 Input Tax Deferred on capital Goods exceeding P1 3rd Quarter 4th Quarter Total Million from Previous Quarter p 132 589.29 p 567 723.21 Add: Input Tax on capital Goods exceeding P1 - 450 000.00 - Million Purchased this Quarter 582 589.29 p 597 321.43 Total Unamortized Input Tax on capital Goods 567 723.21 597 321.43 exceeding P1 Million 567 723.21 Less: Input Tax on Purchases of capital Goods 14 866.08 537 857.14 537 857.14 29 866.07 59 464.29 exceeding P1 Million deferred for the - succeeding period - 104,839.29 Amortization of Input Tax on capital Goods 297 010.34 868,733.19 exceeding P1 Million 8 928 197.33 165 293.90 21 489 842.09 9 240 073.75 2 547 944.69 22 522 878.86 Add: Input Tax on: 2 743 104.66 Purchase of capital Goods not exceeding P1 - - Million - Domestic Purchases of Goods Other than P9,24 0, 0 73.75 P22,522,878.86 capital Goods P2,743,104.66 Domestic Purchase of Services Total Allowable Input Tax Due Less: Output Tax Due Unutilized I nput Tax The unutilized input tax of P22,522,878.86 is the subject of the present claim for refund/tax credit certificate. Section 112(A) and (C) of the NIRC of 1997, as amended, relevantly provides that: 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

DECISION CTA Case No. 7895 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 or effectively zero-rated sale and also in taxable or exempt sale of goods of 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 (8)(6), the input taxes shall be allocated ratably between his zero-rated and non-zero-rated sales. XXX XXX XXX (C) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsection (A) hereof. In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred / twenty day-period, appeal the decision or

DECISION CTA Case No. 7895 the unacted claim with the Court of Tax Appeals. Thus, a taxpayer engaged in zero-rated or effectively zero-rated sales is entitled to a refund or tax credit of input taxes attributable to such sales upon compliance with the following requisites: 1. that there must be zero-rated sales or effectively zero-rated sales; 2. that input taxes were incurred or paid; 3. that such input taxes are 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. The timeliness of the filing of both the administrative and judicial claims for refund/tax credit must first be determined. Section 112(A) of the NIRC of 1997, as amended, states that the application for tax credit /refund of unutilized excess input VAT must be filed within two years after the close of the taxable quarter when the zero-rated or effectively zero-rated sales were made. The present claim covers the four taxable quarters of 2007 which closed on March 31, 2007; June 30, 2007; September 30, 2007 and December 31, 2007. Counting two years from the said dates, petitioner had until March 31, / 2009; June 30, 2009; September 30, 2009 and December

DECISION CTA Case No. 7895 31, 2009, respective ly, within which to file its administrative claim for tax credit/refund. Evidently, the administrative claim for refund 14 fi led on March 31, 2009 with the BIR's Large Taxpayers Audit and Investigation Division II, Excise Tax Group, in the amount of P22,522,878.86 was well within the two-year prescriptive period. As to the timeliness of petitioner's judicial appeal, Section 112(C) of the NIRC of 1997, as amended, provides that the CIR has 120 days from the date of submission of complete documents in support of the application for refund/tax credit within which to grant or deny the claim. In case of full or partial denial by the CIR or the inability of the CIR to act on the claim within the 120-day period, the taxpayer may appeal with this Court within 30 days from receipt of the adverse decision or the expiration of the 120- day period without any action on the part of the CIR. Applying Section 112(C) of the NIRC of 1997, as amended, the following are the relevant dates to petitioner's claim for refund/tax credit: YEAR 2 0 07 DATE OF FI LI NG END OF 120 DAYS END OF 30 DATE OF 1st Quarter ADMI NISTRATIVE W ITHI N WHICH DAYS FROM FILI NG OF 2nd Quarter TO DECIDE THE EXPI RATIO N JUDICIAL 3rd Quarter CLAI M OF 120 DAYS 4th Quarter CLAIM CLAIM 8/28/2009 3/31/2009 7/29/2009 3/31/2009 Evident from the table that petitioner's judicial claim for the four quarters of 2007 was prematurely filed in violation of the mandatory and jurisdictional nature of the "120-30" day period under Section 112(C) of the NIRC of 1997, as amended. However, in the consolidated case of Commissioner of Internal Revenue vs. San Roque Power Corporation, Taganito Mining Corporation vs. Commissioner of Internal / 14 Exhibit "D".

DECISION CTA Case No. 7895 Revenue, and Phi/ex Mining Corporation vs. Commissioner of Internal Revenue 15, the Supreme Court En Bane ruled that the mandatory and jurisdictional nature of the 120-30-day period does not apply on claims for refund that were filed from December 10, 2003 to October 6, 2010. The Supreme Court En Bane held that BIR Ruling No. DA-489-03, expressly stating that the "taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition for Review", is a general interpretative rule which can be relied upon by all taxpayers from the time of its issuance on December 10, 2003 up to its reversal by the Supreme Court in the case of Commissioner of Internal Revenue vs. Aiehi Forging Company of Asia, Ine. 16 on October 6, 2010. By virtue of the said ruling, petitioner's judicial claim for the four quarters of 2007 is deemed seasonably filed. Anent the first requisite, petitioner's primary purpose per its Articles of Incorporation 17 is to "own, hold, sell, exchange, lease, mortgage or otherwise dispose of, deal in, and operate plants for processing, reducing, concentrating, smelting, converting, refining, preparing for market, or otherwise treating metals, minerals and mined products to be used in the production of mixed sulfide of nickel and cobalt, and any and all ingredients, products and by- products of any thereof, and to produce, manufacture, process, refine, treat, sell, use, deal in, distribute, market and otherwise turn to account or dispose of mixed sulfide of nickel and cobalt, and any and all ingredients, products and by-products of any thereof." For the four quarters of 2007, petitioner exported nickel cobalt mixed sulfide to SMMC, a Japanese corporation which exportations were allegedly subject to zero percent (0�/o) VAT rate pursuant to with Section 106(A)(2)(a) of the NIRC of 1997, as amended, which reads: SEC. 106. Value-added Tax on Sale of I Goods or Properties. - 15 G.R. Nos. 187485, 196113, and 197156, February 12, 2013. 16 G.R. No. 184823, October 6, 2010. 17 Exhibit "A-2"

DECISION CTA Case No. 7895 (A) Rate and Base of Tax. - XXX XXX XXX (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: (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 ownership 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); (2) Sale of raw materials or packaging materials to a nonresident buyer for delivery to a resident local export- oriented enterprise to be used in manufacturing, processing, packing or repacking in the Philippines of the said buyer's goods and paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); (3) Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed seventy percent (70�/o) of total annual production; (4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); (5) Those considered export sales / under Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987, and other special laws; and

DECISION CTA Case No. 7895 (6) The sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air transport operations. Thus, for an export sale to qualify as zero-rated, the following conditions must concur: 1. that there was sale and actual shipment of goods from the Philippines to a foreign country; 2. that the sale was made by a VAT- registered person; 3. that the sale was paid for in acceptable foreign currency or its equivalent in goods or services; and 4. that the payment was accounted for in accordance with the rules and regulations of the BSP. Corollary to the first requisite, Section 113(A)(1), (8)(1), (2)(c) and (3) of the NIRC of 1997, as amended, as implemented by Section 4.113-1(A)(1), 8(1) and (2)(c) of RR No. 16-2005, as amended, provides that a VAT taxpayer, such as petitioner, shall for every sale, barter or exchange of goods or properties, issue a VAT invoice which must contain the following information: / SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons. (A) Invoicing Requirements. - A VAT- registered person shall issue:

DECISION CTA Case No. 7895 (1) A VAT invoice for every sale, barter or exchange of goods or properties; and XXX XXX XXX (B) Information Contained in the VAT Invoice or VAT Official Receipt. - The following information shall be indicated in the VAT invoice or VAT official receipt: (1) A statement that the seller is a VAT- registered person, followed by his Taxpayer's Identification Number (TIN); (2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value-added tax: Provided, That: XXX XXX XXX (c) If the sale is subject to zero percent (0�/o) value-added tax, the term 'zero-rated sale' shall be written or printed prominently on the invoice or receipt; XXX XXX XXX (3) The date of transaction, quantity, unit cost and description of the goods or properties or nature of the service; and xxx (Emphasis supplied) SEC. 4.113 - 1. Invoicing Requirements. - (A) A VAT-registered person shall issue: - (1) A VAT invoice for every sale, barter or exchange of goods or properties; and XXX XXX XXX j

DECISION CTA Case No. 7895 Only VAT-registered persons are required to print their TIN followed by the word 'VAT' in their invoice or official receipts. Said documents shall be considered as a 'VAT Invoice' or VAT official receipt. All purchases covered by invoices/receipts other than VAT Invoice/VAT Official Receipt shall not give rise to any input tax. VAT invoice/official receipt shall be prepared at least in duplicate, the original to be given to the buyer and the duplicate to be retained by the seller as part of his accounting records. (B) Information contained in VAT invoice or VAT official receipt. - The following information shall be indicated in VAT invoice or VAT official receipt: (1) A statement that the seller is a VAT-registered person, followed by his TIN; (2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the VAT; Provided, That: XXX XXX XXX (c) If the sale is subject to zero percent (0�/o) VAT, the term 'zero-rated sale' shall be written or printed prominently on the invoice or receipt; (Emphasis supplied) In addition, the invoice or receipt must be duly registered with the BIR as prescribed under Section 237 in relation to Section 238 of the NIRC of 1997, as amended, to / wit: SEC. 237. Issuance of Receipts or Sales or Commercial Invoices. - All persons subject to an internal revenue tax shall, for each sale and transfer of merchandise or

DECISION CTA Case No. 7895 for services rendered valued at Twenty-five pesos (P25.00) or more, issue duly registered receipts or sale or commercial invoices, prepared at least in duplicate, showing the date of transaction, quantity, unit cost and description of merchandise or nature of service. xxx (Emphasis supplied) SEC. 238. Printing of Receipts or Sales or Commercial Invoices. - All persons who are engaged in business shall secure from the Bureau of Internal Revenue an authority to print receipts or sales or commercial invoices before a printer can print the same. No authority to print receipts or sales or commercial invoices shall be granted unless the receipts or invoices to be printed are serially numbered and shall show, among other things, the name, business style, Taxpayer Identification Number (TIN) and business address of the person or entity to use the same, and such other information that may be required by rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner. Pursuant to the foregoing provision of Section 106(A)(2)(a)(1) of the NIRC of 1997, as amended, in relation to Sections 113(A)(1), (8)(1), (2)(c) and (3), 237 and 238 of the same Code, and Section 4.113-1(A)(1), 8(1) and (2)(c) of RR No. 16-2005, any VAT-registered person claiming VAT zero-rated direct export sales must present at least three (3) types of documents, to wit: (1) sales invoice as proof of sale of goods; (2) export declaration and bill of lading or airway bill as proof of actual shipment of goods from the Philippines to a foreign country; and (3) bank credit advice, certificate of bank remittance or any other J 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

DECISION CTA Case No. 7895 documents shall qualify for VAT zero-rating under Section 106(A)(2)(a)(1) of the NIRC of 1997, as amended. Further, the sales invoices supporting the export sales must be registered with the BIR and must contain all the required information under the law and regulations, such as the imprinted word "zero-rated" and the taxpayer's TIN-VAT number. Admittedly, petitioner is registered with the BIR as a VAT taxpayer. 18 For the four quarters of 2007, it actually shipped its products of nickel cobalt mixed sulfide to its foreign buyer, Sumitomo Metal Mining Co., Ltd of Japan and generated export sales as shown in its provisional and final zero-rated VAT invoices and bills of lading, summarized as follows: PROVISIONAL INVOICE BILL OF LADING FINAL INVOICE Exhibit Date Amount Exhibit Date Exhibit Date Amount $ 25 192 262.08 Y.3.1 25-Jan-07 $ 35,811 341.43 Y.l.2 10-Jan-07 Y.3.2 28-Feb-07 Y.l.1 01-Jun-07 31 511 460.75 Y.3.3 29-Mar-07 41 085 821.57 Y.l.4 21-Feb-07 30 270 304.74 Y.3.4 25-Apr-07 Y.l.3 01-Jul-07 31 529 992.72 35 140 227.19 Y.3.5 21-Jun-07 27,001 901.74 Y.l.6 22-Mar-07 37 611 493.05 Y.3.6 20-Jul-07 Y.l.5 01-Auq-07 23 200 726.00 31 826 141.98 Y.3.7 30-Aug-07 23 441 576.41 Y.l.8 21-Apr-07 25 943 805.30 Y.3.8 20-Sep-07 Y.l.7 01-Sep-07 23,860 928.15 15 377 439.48 Y.3.9 21-0ct-07 16 867 536.06 Y.l.lO 16-Jun-07 20 944 241.19 Y.3.10 23-Nov-07 Y.l.9 01-0ct-07 21 065 156.92 18 618 980.69 Y.3.11 24-Dec-07 19,113 200.97 Y.1.12 16-Jul-07 24 744 518.61 Y.l.11 01-Nov-07 25 772 318.70 $297,180,875.06 $288,750,500.67 Y.1.14 23-Aug-07 Y.l.13 01-Jan-08 Y.1.16 13-Sep-07 Y.l.15 01-Jan-08 Y.1.18 16-0ct-07 Y.l.17 01-Feb-08 Y.l.20 19-Nov-07 Y.l.19 01-Apr-08 Y.l.22 19-Dec-07 Y.l.21 01-Apr-08 Total Total On the other hand, petitioner's amended Quarterly VAT Returns for the four quarters of 2007 reflected zero-rated sales in the total amount of P13,544,514,749.69. These export sales, as noted by the ICPA, have US dollar value of $291,094,389.05, broken down as follows: 19 / 18 Exhibit "F". 19 Exhibit "DDDD".

DECISION CTA Case No. 7895 Zero-rated Sales Year 2007 in US Dollars in Philippine Peso 1st Quarter 2nd Quarter $ 88,603 540.45 p 4,284,213,687.40 3rd Quarter 77,952 644.51 3,669,203 503.70 4th Quarter 72,481,491.41 3,336,098 698.16 Total 52 056 712.68 2,254,998 860.43 $ 291,094,389.05 P13,544,514,749.69 A comparison of the reported zero-rated sales of US$291,094,389.05 with the amount of US$288,750,500.67 covered by final invoices shows a discrepancy of US$2,343,888.38 which amount should be denied VAT zero- rating for being unsupported with final invoices. To prove that the foreign currency proceeds of its reported zero-rated sales for 2007 were inwardly remitted and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP), petitioner presented the Statements20 of Account issued by the Bank of Tokyo-Mitsubishi UFJ, Manila branch, which the !CPA examined. However, out of the $288,750,500.67 export sales covered with final invoices, the amount of $11,768,972.96, as computed below, shall be denied VAT zero-rating for petitioner's failure to prove remittance of the foreign currency proceeds thereof: Shipments Provisional Should be Final Invoice Foreign Exhibit Difference made on: Invoice Adjustment (b) Currency (Representing C =(a- b) Remittance (Representing Zero-rated 90% Initial (d) Sales without Amount Due) corresponding (a) Foreign Currency Remittance) (b- c) Jan. 2007 $ 22 673 035.87 $ 13 138 305.56 $ 35 811 341.43 $ 22 673,035.87 Y.2.1.1 $ 83 120.52 13 055 185.04 Y.2.2.1 28 360 314.68 Y.2.3.1 Feb. 2007 28,360 314.68 12 725 506.90 41 085 821.57 12 656 737.85 Y.2.4.1 68 769.04 27 243 274.27 Y.2 .5.1 Mar. 2007 27 243 274.27 4 286 718.45 31 529 992.72 4 282,689.11 Y.2.6.1 4 029.34 ,/ 20 Exhibits "Y.2.1.1"," Y.2.2.1", "Y.2.3.1", "Y.2.4 . 1", "Y.2.5.1", "Y.2.6.1", "Y.2.7 . 1", "Y.2 .8.1", "Y.2.9.1", "Y.2.10.1", "Y.2 . 11.1", "Y.2.12.1", "Y.2.13.1", and "Y.2.14.1".

DECISION CTA Case No. 7895 Apr. 2007 31 626 204.47 (4 624 302.73) 27 001 901.74 31 626 204.47 Y.2 .7.1 - Jun. 2007 33,850 343.75 (10 649,617.75) 23 200 726.00 33 850 343 .75 Y.2.8.1 - Jul. 2007 28,643 527.78 23 441 576.41 28 643 527.78 Y.2.9.1 - Aug . 2007 23 349 424.77 (5 201,951.37) 23 860 928.15 23 349,424.77 Y.2.10.1 Sep. 2007 13 839 695.53 511 503.38 16 867 536.06 13 839 695.53 Y.2.11.1 511 503.38 Oct. 2007 18,849 817.07 21 065 156.92 18 849 817.07 Y.2. 12.1 3 027 840.53 Nov. 2007 16 757 082.62 3 027 840.53 19 113 200.97 16 757 082.62 Y.2 .13. 1 2 215 339.85 Dec. 2007 22 270 066.75 2 215 339.85 25 772 318.70 22 270 066.75 Y.2 .14 . 1 2 356 118.35 $267,462,787.55 2 356 118.35 $288,750,500.67 $297,457,399.55 3 502 251.95 3 502 251.95 $11,768,972.96 $21,287,713.12 Therefore, out of the P13,544,514, 749.69 zero-rated sales reported by petitioner in its 2007 Quarterly VAT Returns, only the amount of P12,887,848,507.31 qualifies for VAT zero-rating under Section 106(A)(2)(a)(l) of the NIRC of 1997, as amended, computed as follows: Declared Zero-Rated Sales in US$ US$291 094 389.05 Less: Disallowances US$ 2,343 888.38 14,112 861.34 Export sales not covered by Final Invoices 11 768 972.96 US$276,981 527.71 Export sales without foreign currency P13,544 514 749.69 remittances 291 094 389.05 Valid Zero-Rated Sales in US$ p 46.5296318276 Multiplied by Average peso to dollar rate: P12,887,848,507.31 Declared Zero-Rated Sales in PhP Declared Zero-Rated Sales in US$ Average peso to dollar rate Valid Zero-Rated Sales in PhP Next to determine is whether input taxes were incurred or paid in connection with such export sales and if said input taxes were not applied against any output VAT liability of petitioner. As stated earlier, petitioner reflected a total amount of P22,522,878.86 input VAT in its amended Quarterly VAT Returns for the year 2007, to wit: YEAR 2007 INPUT VAT 1st Quarter p 5,083 575.87 2nd Quarter 3rd Quarter 5,456,124.58 4th Quarter 9,240,073 .75 2,743,104.66 TOTAL p 22,522,878.86

DECISION CTA Case No. 7895 To substantiate the amount of P22,522,878.86 input taxes, petitioner submitted its Extracts from the Portion of General Ledger of Input VAT21 , Summary List of Purchase Transactions (Datafile from Electronic Filing and Payment System) 22 and the related invoices and official receipts23, all of which formed part of the audit conducted by the ICPA. The !CPA's Report, together with petitioner's supporting documents, shows that input taxes in the amount of P2,257,648. 76 should be disallowed from petitioner's claim for refund/credit as they were not properly supported by VAT invoices or receipts as prescribed under Sections 110(A), 113(A) and (B), 237 and 238 of the NIRC of 1997, as amended, in relation to Sections 4.110-1, 4.110-8 and 4.113-1 of RR No. 16-05, as amended. Below is the breakdown of the input taxes of P2,257,648. 76: EXH. INPUT VAT 1. Summary of documents with non-VAT supporting documents of suppliers Z.3 p 8 359.50 2. Summary of documents where input VAT are not dated within the quarter but within the taxable year with incomplete documentation Z.4 32 116.90 3. Summary of documents where input VAT on local purchases of goods and services with supporting documents not dated within the quarter of claim and not within the taxable year Z.5 244 567.77 4. Summary of documents where input VAT on local purchases of goods and services with supporting documents not named after the petitioner or incomplete name of the petitioner Z.6 86 743.12 5. Summary of documents where input VAT on local purchases where VAT in the supporting documents are not separately shown Z.7 348 857.20 6. Summary of invoices where input VAT on local purchases with supporting documents not containing customer's address and TIN Z.8 111 294.47 7. Summary of invoices where input VAT on local purchases of goods and services with supporting documents not containing customer's TIN Z.9 204 839.29 8. Summary of invoices where input VAT on local purchases of goods and services with supporting documents not containing customer's address Z.10 33 741.11 9. Summary of invoices where input VAT supporting documents have not been provided Z.11 1075 654.44 10. Summary of documents where input VAT is disallowed due to noted alterations in the supporting documents Z.12 / 104 839.28 21 Exhibit "U". 22 Exhibits "V-1", "V-2", "V-3", "V-4", "V-5", "V-6", "V-7", "V-8", "V-9", and "V-10". 23 Exhibits "Z.1.1" to "Z.1.351", "Z.2.1" to "Z.2.351", "Z.3.1" to "Z.3.2", "Z.4.1 " to "Z.4.9", "Z.5.1" to "Z.5.15", "Z. 6.1" to "Z.6.46", "Z.7.1" to "Z.7.95", "Z.8.1" to "Z.8.52", "Z.9.1" to "Z.9.37", "Z.10.1" to "Z. 10.19", "Z.11.1" to "Z.11.5", "Z.12.1" and "Z.13.1" to "Z.13.4".

DECISION CTA Case No. 7895 I I 11. Excess of over-claimed input VAT as the amount per Z.13 6 635.68 summary list is lower than the supporting documents P2,257,648.76 TOTAL In addition, petitioner's input VAT claim in the amount of P14,267,753.47 related to its purchases of goods or services which are supported by VAT invoices or official receipts with alterations or additions without counter- signature or with counter-signature but cannot be ascertained whether the person who counter-signed the alterations or additions was an authorized representative of the supplier should also be disallowed, to wit: EXHIBIT SUPPLIE R INPUT VAT Z.2.1 Mandarin Oriental Manila p 499.52 Z.2.2 3,630.60 Z.2.3 Discovery Tour, Inc. 1,676.79 Z.2.5 Johnco Commercial Inc. 1,737.24 Z.2.6 12,702.48 Z.2.7 Discovery Tour, Inc. 350.76 Z.2.8 Century Properties Management 826.92 Z.2.9 3,784.80 Z.2.10 Discovery Tour, Inc. 4,236.60 Z.2.11 Discovery Tour Inc. 13,611.60 Z.2.12 Discovery Tour, Inc. 20,396.76 Z.2.13 Discovery Tour, Inc. 8,897.88 Z.2.15 Discovery Tour, Inc. 1,740.00 Z.2.16 Somerset Salcedo Makati Services Residences 3,360.00 Z.2.17 Somerset Salcedo Makati Services Residences 720.00 Z.2.18 1,800.00 Z.2.19 City Garden Hotel 360.00 Z.2.20 Richworld Hotel & Resort Corp. 3,539.64 Z.2.21 735.72 Z.2.23 City Garden Hotel 1,982.14 Z.2.24 City Garden Hotel 5,146.07 Z.2.25 City Garden Hotel 3,306.43 Z.2.26 Discovery Tour, Inc. 9,429.29 Z.2.27 Discovery Tour, Inc. 4,811.79 Z.2.28 Johnco Commercial Inc. 4,162.80 Z.2.29 Johnco Commercial Inc. 2,442.86 Z.2.30 Johnco Commercial Inc. 1,192.50 Z.2.31 Johnco Commercial Inc. 3,214.29 Z.2.32 Johnco Commercial Inc. 1,099.29 Z.2.33 Johnco Commercial Inc. Johnco Commercial Inc. I 2,626.07 Johnco Commercial Inc. Johnco Commercial Inc. Johnco Commercial Inc. Johnco Commercial Inc.

DECISION CTA Case No. 7895 Z.2.34 Johnco Commercial Inc. 3,903.21 Z.2.35 Johnco Commercial Inc. 271.07 Z.2.36 Johnco Commercial Inc. Z.2.37 Johnco Commercial Inc. 2,060.36 Z.2.38 Johnco Commercial Inc. 1,446.43 Z.2.39 Johnco Commercial Inc. 1,941.43 Z.2.40 5,418.21 Z.2.41 KDDI Phil Corp 5,852.40 Z.2.42 Richworld Hotel & Resort Corp. 3,360.00 Z.2.43 4,791.48 Z.2.44 Discovery Tour, Inc. 1,291.44 Z.2.45 Discovery Tour, Inc. 3,570.60 Z.2.46 Discovery Tour, Inc. 2,794.92 Z.2.47 Discovery Tour, Inc. Z.2.48 Discovery Tour, Inc. 687.72 Z.2.50 Discovery Tour, Inc. 12,651.48 Z.2.51 Discovery Tour, Inc. 10,899.11 Z.2.52 Century Properties Management Z.2.53 Century Properties Management 288.00 Z.2.54 Century Properties Management 12,702.48 Z.2.55 Century Properties Management Z.2.56 Century Properties Management 1,980.00 Z.2.58 Century Properties Management 300.00 Z.2.59 Somerset Salcedo Makati Services Residences Z.2.60 Mandarin Oriental Manila 12,702.48 Z.2.61 Mandarin Oriental Manila 1,980.00 Z.2.63 Richworld Hotel & Resort Corp. Z.2.66 Ian Jason Construction & Supply 14,796.00 Z.2.67 Discovery Tour, Inc. 1,234.46 Z.2.68 Johnco Commercial Inc. 2,177.04 Z.2.69 Somerset Salcedo Makati Services Residences 3,360.00 Z.2.70 Somerset Salcedo Makati Services Residences Z.2.71 Johnco Commercial Inc. 102,364.75 Z.2.74 Johnco Commercial Inc. 778.92 Z.2.75 Johnco Commercial Inc. Z.2.76 Discovery Tour, Inc. 1,260.00 Z.2.78 Discovery Tour Inc. 11,560.20 Z.2.79 Discovery Tour, Inc. Z.2.80 Century Properties Management 2,823.60 Z.2.81 Somerset Salcedo Makati Services Residences 936.43 Z.2.82 Somerset Salcedo Makati Services Residences Z.2.83 Somerset Salcedo Makati Services Residences 1,872.86 Z.2.84 Somerset Salcedo Makati Services Residences 836.79 Z.2.85 Somerset Salcedo Makati Services Residences Z.2.86 Somerset Salcedo Makati Services Residences 10,239.24 Z.2.88 Somerset Salcedo Makati Services Residences 4,034.04 Z.2.89 Somerset Salcedo Makati Services Residences 27,197 .64 Z.2.90 Johnco Commercial Inc. Discovery Tour, Inc. 651.00 Johnco Commercial Inc. 3,673.46 795.60 9,060.00 397.80 3,978.00 6,466.80 34,039.22 803.40 3,225.00 / 3,125.28 2,627.14

DECISION CTA Case No. 7895 Z.2.91 Johnco Commercial Inc. 3,475.71 Z.2.92 2,050.71 Z.2.93 Johnco Commercial Inc. 1,189.29 Z.2.94 1,029.11 Z.2.95 Johnco Commercial Inc. 3,154.71 Z.2.96 4,923.21 Z.2.97 Johnco Commercial Inc. 2,847.86 Z.2.98 1,494.04 Z.2.99 Johnco Commercial Inc. 12,702.48 Z.2.100 3,105.54 Z.2.102 Johnco Commercial Inc. Z.2.104 694.92 Z.2.105 Johnco Commercial Inc. 10,626.72 Z.2.106 Z.2.107 Johnco Commercial Inc. 316.80 Z.2.108 711.72 Z.2.109 Century Properties Management 6,971.88 Z.2.110 2,381.16 Z.2.111 Mandarin Oriental Manila 730.92 Z.2.112 639.72 Z.2.113 Discovery Tour, Inc. 1,334.64 Z.2.114 13,300.08 Z.2.115 Discovery Tour, Inc. 898.92 Z.2.116 808.68 Z.2.117-118 Discovery Tour, Inc. 300.00 Z.2.119 1,591.20 Z.2.121 Discovery Tour, Inc. 390.00 Z.2.122 1,102.20 Z.2.123 Discovery Tour, Inc. 1,033.32 Z.2.124 2,768.57 Z.2.125 Discovery Tour, Inc. 2,206.07 Z.2.126 2,108.57 Z.2.127 Discovery Tour, Inc. 1,151.79 Z.2.128 122.14 Z.2.129 Discovery Tour, Inc. 589.82 Z.2.130 101.79 Z.2.132 Discovery Tour, Inc. 12,702.48 Z.2.133 300.00 Z.2.134 Discovery Tour, Inc. 1 226.10 Z.2.137 2,772.00 Z.2.138 Discovery Tour, Inc. 3,960.00 Z.2.139 1,044.24 Z.2.140 Discovery Tour, Inc. 2,323.68 Z.2.141 4,203.84 Z.2.142 Century Properties Management 6,720.00 Z.2.143 2,293.20 Z.2.144 Somerset Salcedo Makati Services Residences 3,822.00 Z.2.145 1,193.40 Somerset Salcedo Makati Services Residences 4,264.29 Somerset Salcedo Makati Services Residences / 394.29 Discovery Tour, Inc. Johnco Commercial Inc. Johnco Commercial Inc. Johnco Commercial Inc. Johnco Commercial Inc. Johnco Commercial Inc. Johnco Commercial Inc. Johnco Commercial Inc. Century Properties Management - Century Properties Management Mandarin Oriental Manila City Garden Hotel City Garden Hotel Discovery Tour, Inc. Discovery Tour, Inc. Discovery Tour, Inc. Richworld Hotel & Resort Corp. Somerset Salcedo Makati Services Residences Somerset Salcedo Makati Services Residences Somerset Salcedo Makati Services Residences Johnco Commercial Inc. Century Properties Management

DECISION CTA Case No. 7895 Z.2.146 Century Properties Management 300.00 Z.2.147 Century Properties Management 12,702.48 Z.2.148 Century Properties Management Z.2.149 300.00 Z.2.150 Johnco Commercial Inc. 4,097.14 Z.2.151 Johnco Commercial Inc. 3,285.00 Z.2.152 Johnco Commercial Inc. 4,622.14 Z.2.153 Johnco Commercial Inc. 5,749.29 Z.2.154 Johnco Commercial Inc. 1,173.21 Z.2.155 Johnco Commercial Inc. 8,314.29 Z.2.156 Johnco Commercial Inc. 3,053.57 Z.2.157 Z.2.158 City Garden Hotel 720.00 Z.2.159 Mandarin Oriental Manila 1 247.60 Z.2.160 Z.2.161 City Garden Hotel 384.00 Z.2.162 City Garden Hotel 360.00 Z.2.163 Richworld Hotel & Resort Corp. 6,720.00 Z.2.164 Discovery Tour, Inc. 606.12 Z.2.165 Discovery Tour, Inc. 414.12 Z.2.166 Discovery Tour, Inc. 4,560.96 Z.2.167 Discovery Tour, Inc. 2,532.48 Z.2.168 Discovery Tour, Inc. 1,404.24 Z.2.170 Discovery Tour, Inc. 1,032.24 Z.2.171 Discovery Tour, Inc. 6 169.80 Z.2.172 Somerset Salcedo Makati Services Residences 1,146.60 Z.2.173 Somerset Salcedo Makati Services Residences 382.20 Z.2.174 Johnco Commercial Inc. 5,072.14 Z.2.175 Johnco Commercial Inc. 2,199.64 Z.2.176 Johnco Commercial Inc. 332.14 Z.2.177 Johnco Commercial Inc. 1,387.50 Z.2.178 Johnco Commercial Inc. 5 198.57 Z.2.179 Johnco Commercial Inc. 1,831.71 Z.2.182 Johnco Commercial Inc. 5,742.86 Z.2.183 Johnco Commercial Inc. 4,117.82 Z.2.184 Century Properties Management 39 014.76 Z.2.185 Mandarin Oriental Manila 2,483.88 Z.2.188 City Garden Hotel 792.00 Z.2.189 Richworld Hotel & Resort Corp. 3,360.00 Z.2.190 Century Properties Management 300.00 Z.2.191 Discovery Tour, Inc. 6,267.00 Z.2.192 Discovery Tour, Inc. 510.12 Z.2.193 Discovery Tour, Inc. 618.12 Z.2.194 Discovery Tour, Inc. 7,856.52 Z.2.195 Discovery Tour, Inc. 968.28 Z.2.196 Discovery Tour, Inc. 218.16 Z.2.197 Discovery Tour, Inc. 2,178.24 Z.2.198 Discovery Tour, Inc. 2,935.08 Discovery Tour, Inc. 2,136.48 Discovery Tour, Inc. Century Properties Management I 2,589.00 879.00

'\ DECISION CTA Case No. 7895 Z.2.201 Somerset Salcedo Makati Services Residences 390.00 Z.2.203 Somerset Salcedo Makati Services Residences 1,764.00 Z.2.204 Somerset Salcedo Makati Services Residences 2,301.00 Z.2.205 Z.2.206 Discovery Tour, Inc. 762.12 Z.2.207 Johnco Commercial Inc. 292.50 Z.2.208 Johnco Commercial Inc. 1,676.79 Z.2.212 Johnco Commercial Inc. 1,546.39 Z.2.213 Johnco Commercial Inc. 835.71 Z.2.209 Johnco Commercial Inc. 504.64 Z.2.210 Century Properties Management 506.25 Z.2.211 Century Properties Management 25,858.62 Z.2.214 Century Properties Management Z.2.216 Century Properties Management 33.75 Z.2.217 Johnco Commercial Inc. 31.61 Z.2.218 Johnco Commercial Inc. 3,230.36 Z.2.219 Johnco Commercial Inc. 2,228.57 Z.2.220 Johnco Commercial Inc. 1,205.36 Z.2.221 Johnco Commercial Inc. 3,088.93 Z.2.222 Johnco Commercial Inc. 10,973.57 Z.2.223 Johnco Commercial Inc. 182.36 Z.2.224 Johnco Commercial Inc. 3,300.00 Z.2.225 Johnco Commercial Inc. 910.71 Z.2.226 Richworld Hotel & Resort Corp. 2,277.32 Z.2.227 3,360.00 Z.2.228 Discovery Tour, Inc. 4,095.12 Z.2.229 Discovery Tour, Inc. 426.12 Z.2.230 Discovery Tour, Inc. 1,170.36 Z.2.231 Discovery Tour, Inc. 426.12 Z.2.232 Discovery Tour, Inc. 378.12 Z.2.233 Discovery Tour Inc. 2,018.64 Z.2.234 Discovery Tour, Inc. 1,874.64 Z.2.235 Somerset Salcedo Makati Services Residences 780.00 Z.2.236 Somerset Salcedo Makati Services Residences 930.00 Z.2.237 Somerset Salcedo Makati Services Residences 3,990.00 Z.2.238 Somerset Salcedo Makati Services Residences 390.00 Z.2.239 Somerset Salcedo Makati Services Residences 4,926.60 Z.2.245 Somerset Salcedo Makati Services Residences 2,175.60 Z.2.246 Johnco Commercial Inc. 2,282.14 Z.2.247 Century Properties Management 300.00 Z.2.248 Discovery Tour, Inc. 546.12 Z.2.249 Discovery Tour, Inc. 2,040.48 Z.2.250 Discovery Tour, Inc. 3,648.96 Z.2.251 Discovery Tour, Inc. 1,869.84 Z.2.252 Discovery Tour, Inc. 1,524.24 Z.2.253 Discovery Tour, Inc. 532.32 Z.2.254 Discovery Tour Inc. 1,470.36 Z.2.255 Discovery Tour, Inc. 6,269.40 Century Properties Management 25,858.62 Century Properties Management 4,383.60

DECISION CTA Case No. 7895 Z.2.256 Century Properties Management 2,880.00 Z.2.258 Somerset Salcedo Makati Services Residences 382.20 Z.2.259 Somerset Salcedo Makati Services Residences Z.2.260 Somerset Salcedo Makati Services Residences 2,381.40 Z.2.261 Somerset Salcedo Makati Services Residences 382.20 Z.2.262 852.60 Z.2.263 Mandarin Oriental Manila Z.2.264 Richworld Hotel & Resort Corp. 2,774.88 Z.2.265 Richworld Hotel & Resort Corp. 3,360.00 Z.2.266 3,360.00 Z.2.267 Discovery Tour, Inc. 16 780.92 Z.2.268 Discovery Tour, Inc. 4,474.80 Z.2.269 Discovery Tour, Inc. Z.2.270 Discovery Tour, Inc. 844.08 Z.2.271 Discovery Tour, Inc. 642.12 Z.2.272 Discovery Tour, Inc. 3 223.56 Z.2.273 Discovery Tour, Inc. 2,778.60 Z.2.274 Discovery Tour, Inc. 144.00 Z.2.275 Discovery Tour, Inc. 738.12 Z.2.278 Century Properties Management 750.12 Z.2.279 Century Properties Management 25,858.62 Z.2.280 Somerset Salcedo Makati Services Residences 337.50 Z.2.281 Somerset Salcedo Makati Services Residences 4,197.60 Z.2.282 Somerset Salcedo Makati Services Residences 5,420.40 Z.2.283 Somerset Salcedo Makati Services Residences 733.20 Z.2.285 Somerset Salcedo Makati Services Residences 733.20 Z.2.286 Somerset Salcedo Makati Services Residences 498.60 Z.2.289 Discovery Tour, Inc. 756.60 Z.2.57 Discovery Tour, Inc. 783.72 Z.2.64 Discovery Tour, Inc. 1,243.44 Z.2.65 1,562.64 Z.2.87 SMCC Philippines 3,218,566.02 Z.2.120 SMCC Philippines 1,092,184.56 Z.2.169 SMCC Philippines 1,570,884.21 Z.2.242 SMCC Philippines 1,228,271.05 Z.2.276 SMCC Philippines 145,608.69 Z.2.277 SMCC Philippines 1,123,865.01 Z.2.305 SMCC Philippines 1,313,079.85 Z.2.342 SMCC Philippines 6,851.79 Z.2.291 SMCC Philippines 21,605.72 Z.2.294 SMCC Philippines 1,025,023.34 Z.2.297 SMCC Philippines 2,432,975.40 Z.2.302 SQ Resources, Inc. 2,356.20 Z.2.303 Discovery Tour, Inc. 1,398.36 Z.2.304 Somerset Salcedo Makati Services Residences 382.20 Z.2.329 Johnco Commercial Inc. 4,942.50 Z.2.330 Johnco Commercial Inc. 10,973.57 Z.2.331 Johnco Commercial Inc. 105.00 Somerset Salcedo Makati Services Residences 397.80 Somerset Salcedo Makati Services Residences 4,399.80 Somerset Salcedo Makati Services Residences / 4,615.80

DECISION CTA Case No. 7895 Z.2.332 Somerset Salcedo Makati Services Residences 1146.60 Z.2.333 Somerset Salcedo Makati Services Residences 1,411.20 Z.2.334 Somerset Salcedo Makati Services Residences 6,262.20 Z.2.335 Somerset Salcedo Makati Services Residences 1,528.00 Z.2.336 Somerset Salcedo Makati Services Residences 6,174.00 Z.2.337 Somerset Salcedo Makati Services Residences Z.2.338 Somerset Salcedo Makati Services Residences 582.00 Z.2.340 Somerset Salcedo Makati Services Residences 1,170.00 Z.2.341 Somerset Salcedo Makati Services Residences Z.2.344 382.20 Z.2.347 Discovery Tour, Inc. 1,138.80 Z.2.348 Discovery Tour, Inc. 19,177.36 Z.2.349 Discovery Tour, Inc. 1,733.04 Z.2.350 Discovery Tour, Inc. 6,240.96 Z.2.351 Discovery Tour, Inc. 1,856.88 TOTAL Discovery Tour, Inc. 3,550.32 901.32 P14,267,753.47 In sum, out of the P22,522,878.86 input VAT reported by petitioner for the year 2007, only the amount of P5,997,476.63 represents its valid input VAT, computed as follows: Input VAT Claim p 22,522,878.86 Less: Disallowances p 2,257,648.76 Per Independent CPA's Report 14,267,753.47 Per this Court's further verification Total Disallowances p 16,525,402.23 VALID INPUT VAT PS,997,476.63 Since petitioner's sales for the four quarters of 2007 were all direct export sales, the substantiated input VAT of P5,997,476.63 is entirely attributable thereto. However, the input VAT related to the export sales of US$2,343,888.38 not covered by final invoices and export sales of US$11,768,972.96 without corresponding foreign currency remittances shall be disallowed. Consequently, petitioner's duly substantiated input VAT attributable to the declared valid zero-rated sales of P12,887,848,507.31 amounts only toPS, 706,706.49, computed as follows: Valid Zero-Rated Sales p 12,887,848,507.31 Divided by Total Declared Zero-Rated Sales 7 13,544,514,749.69

DECISION X 5,997,476.63 CTA Case No. 7895 Page 32 of 33 p 5,706,706.49 Multiplied by Valid Input VAT Input VAT Attributable to Valid Zero-Rated Sales Finally, as to whether the said input VAT was applied against any output VAT and/or carried over to the succeeding taxable quarter(s), petitioner's Quarterly VAT Returns for the subject period of claim24 show that petitioner had no output tax liability against which the claimed input VAT may be applied or credited. Although the claimed amount of P22,522,878.86 was carried over to the succeeding first quarter of 200825, the same remained unutilized as petitioner still had no output tax liability for the said period. Moreover, the total claim of P22,522,878.86 was deducted as "VAT Refund/TCC claimed"26 in petitioner's Quarterly VAT Return for the first quarter of 2008, preventing the carry-over or application of such input VAT in the next taxable quarter(s). In fine, petitioner has established its entitlement to a refund or issuance of tax credit certificate but only in the reduced amount of PS, 706,706.49. WHEREFORE, the instant Petition for Review is PARTIALLY GRANTED. Accordingly, respondent is hereby DIRECTED TO REFUND or TO ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner in the amount of P5,706,706.49, representing its unutilized excess input VAT for the four taxable quarters of 2007 attributable to its zero- rated sales for the same period. SO ORDERED. ociate Justice 24 Exhibits "K", " N", "P", and "R". 25 Exhibit "5". 26 Exhibit "5", line 230.

DECISION CIN.. ~ A4 ., t-J_ CTA Case No. 7895 Page 33 of 33 MA. BELEN M. RINGPIS-LIBAN Associate Justice We Concur: LOVELL ~~TA Assocr te 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. LOVEL~STA ~ hairperson CERTIFICATION Pursuant to Section 13 of Article VIII of the Constitution, and the Division's 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's Divisi Presiding Justice