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. 8905 Petitioner, CORPORATION, Members: -versus- BAUTISTA, Chairperson; FASON-VICTORINO, and RINGPIS LIBAN, JL_ COMMISSIONER OF Promulgated: INTERNAL REVENUE, Respondent. 0�!_]_ 2~J(s- ._. x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - �- - 7 _ - - - - - - -x RESOLUTION Fabon-Victorino, J.: On June 2, 2017, the Court rendered a Decision, dispositive portion of which reads: "WHEREFORE, the instant Petition for Review is hereby PARTIALLY GRANTED. Accordingly, respondent Commissioner of Internal Revenue is hereby DIRECTED TO REFUND in favor of petitioner Coral Bay Nickel Corporation the reduced amount of P122,250.00, representing its unutilized input value-added tax related to its zero-rated sales for the pt quarter of 2013. SO ORDERED. " Both unconvinced, petitioner and respondent filed their own Motions for Partial Reconsideration on June 27, 2017 and June 28, 2017 respectively.

RESOLUTION CTA CASE NO. 8905 Respondent's Motion for Partial Reconsideration Respondent asserts that the Court erred in granting petitioner's claim for refund, albeit partially, in the amount of P122,250.00, ruling that the said amount is entirely attributable to it zero-rated sales. Respondent asserts that to be entitled to the subject input VAT claim, petitioner must prove, among others, that the input VAT are directly attributable to zero-rated or effectively zero-rated sales. Unfortunately, petitioner failed to satisfy such requirement, says respondent. Respondent points out that while he agrees that petitioner incurred input VAT on its purchase of goods for the construction of its Laborers Row House, Bus Terminal, JTA Dormitory and Foreman's Duplex, he however believes that the cited structures were not directly essential for the manufacture of its export products per its PEZA-sanctioned activity. On account thereof, the claim refund must be disallowed. In rejecting respondent's stance, petitioner points out that since it was ascertained that its sales for the 1st Quarter of 2013 are entirely zero-rated, the burden of proving otherwise rests upan respondent. Given that respondent failed to substantiate his assertion, the partial grant of refund must be upheld. In addition, the fact that its Articles of Incorporation (AOI) shows that petitioner's activities are purely subject to zero-rating only proves that it incurred input taxes that were wholly attributable to such sales. Petitioner's Motion for Partial Reconsideration In its Motion, petitioner seeks for an additional input tax refund in the total amount of P793,524.07, explaining its justifications as follows: As for the input tax of P60,311.90, the amount allegedly corresponds to its purchase of goods/services that /

RESOLUTION CTA CASE NO. 8905 were consumed or rendered in its Office at 24/F Pacific Star Building, Gil Puyat Avenue, Makati City, thus: 1 Supplier Petitioner's explanation Exhibit Input VAT Adways Philippines Refers to rental of personal computer for P-101-22 p 5,772.34 petitioner's Makati office. P-101-150 P-101-253 5,772.34 FFMiravite, Inc. Refers to professional actuarial service in P-101-157 5,772.34 Fuji Xerox Philippines, Inc. connection with petitioner's Employee Benefits Plan in Makati office. P-101-29 3,480.00 Refers to payments for full service P-101-30 maintenance or lease rental of printers P-101-31 6,323.74 located in Makati office of CBNC. P-101-158 1,934.25 P-101-267 3,297.86 GA Printing Refers to payments for the printing of P-101-32 1,934.25 desk calendars and letterheads of P-101-159 5 064.38 Lengeric Manpower and petitioner for Makati office. P-101-39 12,144.64 General Services, Inc. Refers to payments for messengerial P-101-278 True Colors Photo Express services working and assigned in P-101-149 642.21 petitioner's Makati office. P-101-252 4,386.42 Refers to payments for photo finishing 3,669.27 conducted in Makati City. 37.50 Total 80.36 p 60,311.90 Further, that it paid hotel accommodations, 2 travel agency services, 3 demurrage and storage services4 and rental fees, association dues and expenses on its leased properties, 5 all expended or done outside the ECOZONE, hence, resulted in a total input tax of P407,916.95, to wit: Supplier Exhibit Input VAT Hotel Accommodations in Metro Manila New World Makati City Manila Hotel P-101-61 p 1 830.35 New World Makati City Manila Hotel P-101-62 1 830.35 New World Makati City Manila Hotel P-101-63 499.19 B Hotel P-101-148 924.00 Dusit Thani Manila P-101-155 9 983.76 Dusit Thani Manila P-101-156 3 278.97 Jupiter Arms Properties Incorporated P-101-160 2 142.45 1 Exhibits P-101-22, P-101-150, P-101-253, P-101-57, P-101-29, P-101-30, P-101- 31, P-1011-58, P-101-267, P-101-32, P-101-159, P-101-39, P-101-278, P-101-149 and P-101-252. 2 Exhibits P-101-61, P-101-62, P-101-63, P-101-148, P-101-155, P-101-156, P-101- 160, P-101-164, P-101-165, P-101-264, P-101-265, P-101-266, P-101-272, P-101- 273 and P-101-274. 3 Exhibits P-101-25, P-101-26, P-101-27, P-101-154, P-101-262 and P-101-263. 4 Exhibit P-101-153. 5 Exhibits P-101-23, P-101-24, P-101-151, P-101-152, P-101-174, P-101-175, P- / 101-258, P-101-259, P-101-260, P-101-261, P-101-281 and P-101-282.

RESOLUTION CTA CASE NO. 8905 Mandarin Oriental Manila P-101-164 1 080.00 Mandarin Oriental Manila P-101-165 690.00 Dusit Thani Manila P-101-264 Dusit Thani Manila P-101-265 2 153.36 Dusit Thani Manila P-101-266 499.19 Jupiter Arms Properties Incorporated P-101-272 Jupiter Arms Properties Incorporated P-101-273 1 996.76 Jupiter Arms Properties Incorporated P-101-274 979.20 Travel Agency Services rendered within the 691.20 premises of the travel agency situated in P-101-25 Makati City P-101-26 1 657.81 Discovery Tour Inc. P-101-27 Discovery Tour Inc. P-101-154 6,897.00 Discovery_ Tour Inc. P-101-262 8,115.24 Discovery Tour Inc. P-101-263 4,011.60 Discovery Tour Inc. 3,890.52 Discovery Tour Inc. P-101-153 6,960.60 Demurrage and Storage services rendered in 14,131.92 Manila Port P-101-23 Casco Container Lines P-101-24 23 626.50 Rental Fees, Association Dues and related P-101-151 expenses on the leased properties situated in P-101-152 78 551.35 Metro Manila P-101-174 769.20 Century Properties Management Inc. P-101-175 Century Properties Management, Inc. P-101-258 78 551.35 Century Properties Management, Inc. P-101-259 6 480.00 Century Properties Management Inc. P-101-260 Pacific Star Building Condominium Corporation P-101-261 20 887.57 Pacific Star Building Condominium Corporation P-101-281 7 131.11 Century Properties Management Inc. P-101-282 300.00 Century Properties Management Inc. Century Properties Management Inc. 79 084.75 Century Properties Management Inc. 3 600.00 Pacific Star Building Condominium Corporation 6 480.00 Pacific Star Building Condominium Corporation 20 887.52 TOTAL 7 324.13 p 407,916.95 Moreover, the input tax of P243,976.446 was incurred for the lighting of the airport located outside the ECOZONE. To add, the amount of P81,318. 78 relates to a portion of input tax on its purchases of amortized automobiles. Petitioner opines that the cited official receipts together with its explanation are sufficient to prove that it is indeed entitled to the additional refund sought. 6 Exhibit P-101-28. /

RESOLUTION CTA CASE NO. 8905 Despite notice, respondent failed to file his comment/opposition on petitioner's Motion for Partial Reconsideration. THE RULING OF THE COURT Respondent's Motion for Partial Reconsideration Respondent theorizes that petitioner failed to prove that the input tax of P122,250.00 granted in the assailed Decision is directly attributable to its export sales allowed by PEZA Regulations. Such theory is flawed. Section 112(A) of the National Internal Revenue Code (NIRC), as amended, mandates, among others that the input tax paid or incurred is attributable to a taxpayer's zero-rated sales, thus: 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 xxx. (underscoring supplied) Contrary to his insistence, the Section 112(A) of the Tax Code does not decree that the input tax be directly attributable to petitioner's zero-rated sales. Input taxes that bears a direct or indirect connection with a taxpayer's zero- rated sales satisfies the requirement of the law. Ubi lex non distinguit nee nos distinguire debemus. When the law does not distinguish, we must not distinguish.l 7 Philippines Free Press, Inc. vs. Court of Appeals, G.R. No. 132864, October 24, / 2006.

RESOLUTION CTA CASE NO. 8905 To this end, the explanation of petitioner's witness Allen Roy T. Catacutan testified that the constructed facilities were necessary for the production of its export products under its PEZA registered activities, viz: 8 35. Q. Why are you saying that the excess and unutilized input VAT was incurred from petitioner's domestic purchases of taxable goods and services and were later consumed and rendered outside the Rio Tube Export Processing Zone? A: The domestic purchases of taxable goods and services by petitioner were consumed by it outside the Rio Tube Export Processing Zone. For example, the goods and services used to construct housing facilities that are located outside the PEZA zone provide shelter to employee of petitioner whose plant is located in a far flung area, where public transport is scarce. These constructions and facilities are necessary in the production of export products under its PEZA registered activities. Evidently, the structures were for the use of petitioner's manpower, which undeniably are essential in the production of its exports under its PEZA-sanctioned enterprise. In sum, petitioner was able to prove that the input tax in the amount of P122,250.00 is attributable to its zero-rated sales. Consequently, the refund granted is sustained. Petitioner's Motion for Partial Reconsideration Petitioner asserts that its presentation of various official receipts side by side with its rationalization that the input tax of P793,524.07 arose from the purchase of goods and services which were consumed or rendered outside the ECOZONE demonstrate its entitlement to the refund sought. The assertion is illusory. 8 Exhibit "P-57". /

RESOLUTION CTA CASE NO. 8905 Section 112(A) of the NIRC, as amended is unequivocal and requires no interpretation. It mandates inter alia that the input taxes paid or incurred by a taxpayer is attributable to its zero-rated or effectively zero-rated sales. Therefore, it is incumbent upon petitioner to establish first, the existence of input VAT; and second, the said input VAT is attributable to its zero-rated sales. Petitioner satisfied the first requisite. There is no denying that the various official receipts presented by petitioner complied with the invoicing requirements under Section 113(A) of the NIRC, as amended. As such, the foregoing receipts are a valid source of input taxes. Upon thorough verification, petitioner clearly incurred input taxes on its purchase of goods and services in the aggregate amount of P793,524.07, broken down as follows: Exhibit No. Official Receipt No. Input Tax P-101-22 9179 P-101-23 83533 p 5,772.34 P-101-24 83604 P-101-25 78,551.35 P-101-26 111265 P-101-27 111385 769.20 P-101-28 111605 P-101-29 6,897.00 P-101-30 0030 P-101-31 174728 8 115.24 P-101-32 176967 P-101-39 177512 4,011.60 P-101-61 82959 P-101-62 243,976.44 P-101-63 1311 P-101-148 40416 6,323.74 P-101-149 40565 P-101-150 40566 1,934.25 P-101-151 5521 P-101-152 1701 3,297.86 P-101-153 09267 P-101-154 83654 12 144.64 P-101-155 83688 P-101-156 045003 4 386.42 P-101-157 111766 P-101-158 A364935 1,830.35 P-101-159 A366368 P-101-160 10282 1,830.35 P-101-164 177054 83446 499.19 30089 43158 924.00 37.50 5,772.34 78,551.35 6,480.00 23,626.50 3,890.52 9,983.76 3,278.97 3,480.00 1,934.25 642.21 / 2,142.45 1,080.00

RESOLUTION CTA CASE NO. 8905 P-101-165 43159 690.00 P-101-174 48121 20,887.57 P-101-175 48191 P-101-252 1770 7,131.11 P-101-253 9376 80.36 P-101-258 83765 P-101-259 83778 5,772.34 P-101-260 83856 300.00 P-101-261 83886 P-101-262 112102 79,084.75 P-101-263 112244 3,600.00 P-101-264 A365939 6,480.00 P-101-265 A366940 6,960.60 P-101-266 A367442 P-101-267 169650 14,131.92 P-101-272 30372 2 153.36 P-101-273 30426 499.19 P-101-274 30503 1 996.76 P-101-278 1401 5 064.38 P-101-281 0166 979.20 P-101-282 0264 691.20 Amortization of Capital Goods 1 657.81 P-101 (Automobiles) 3 669.27 Total 20 887.52 7 324.13 81,318.78 p 793,524.07 Having settled that it has existing input taxes, the next question is - did petitioner adequately establish that the same is attributable to its zero-rated sales? The answer is in the negative. On this point, attention is drawn to the fact that what petitioner opted to explain in detail solely delve on the source of its incurred input taxes, i.e., its purchases of goods/services which were consumed or rendered outside the ECOZONE. Nowhere in the instant motion that even suggests that said input taxes bear a relation to petitioner's zero-rated activity. Besides, even if petitioner bothered to explain that the incurred input taxes were attributable to its zero-rated sales, no sufficient proof was presented to establish such fact. Mere allegation and speculation is not evidence, and is not equivalent to proof.9 / 9 Navarro vs. Clerk of Court Cerezo, 492 Phil. 19, 22 (2002).

RESOLUTION CTA CASE NO. 8905 In fine, petitioner's justification coupled with the above receipts only demonstrated the existence of subject input taxes, no more, no less. Thus, a denial of its claim for additional input taxes is in order. To repeat, tax refunds partake of the nature of tax exemptions, which are construed strictissimi juris against the taxpayer, evidence in support of a claim must likewise be strictissimi scrutinized and duly proven. 10 WHEREFORE, finding no compelling reason to modify, much more depart from the Decision of June 2, 2017, petitioner's Motion for Partial Reconsideration and respondent's Motion for Partial Reconsideration, both dated June 27, 2017 are DENIED, for lack of merit. SO ORDERED. ' R. FASON-VICTORINO We Concur: Q&r.. ~ ~ '- LOVEL~. BAUTISTA MA. BELEN M. RINGPIS-LIBAN Associate Justice Associate Justice �1 Commissioner of Internal Revenue vs. Far East Bank & Trust Company (now Bank of the Philippine Islands), G.R. No. 173854, March 15, 2010.