NOVARTIS HEALTHCARE PHILIPPINES, INC. v. COMMISSIONER OF INTERNAL REVENUE

.-. REPUBLIC ()F THE PHILII>PJNES C()URT OF TAX APJ>EALS QUEZON CITY SEC()ND DIVISION NOVARTIS HEALTHCARE CTA CASE NO. 10773 PHILIPPINES, INC., Petitioner, Members: -versus - RINGPIS-LIBAN, Chairperson, MODESTO-SAN PEDRO, and FERRER-FLORES, JJ COMMISSIONER OF Promulgated: INTERNAL REVENUE, J:<jq f'>?!J/ Respondent. �. � T' -~ X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - DECISION MODESTO-SAN PEDRO, J.: The Case This Petition for Review is a claim for the refund or issuance of a Tax Credit Certificate ("TCC") in the total amount of Twenty-Six Million Nine Hundred Sixty Thousand Five Hundred Seven and 621100 Philippine Pesos (P26,960,507 .62), representing the alleged erroneous payment of Value- Added Tax ("VAT") during the period from February 19, 2020 to June 30, 2020 on its importations of prescription drugs and medicines for diabetes and hype1iension, pursuant to Sections 204(C) and 229 of the National Internal Revenue Code ("NIRC '') of 1997, as amended, in relation to Section 109(AA) of the same Code, as amended by Republic Act ("RA '')No. 11467. 1 I 1 Par. 3, Summary of Admitted Facts, Joint Stipulation of Facts and Issues ("JSFI"), Docket- Vol. 3, p. 1428.

DECISION CTA CASE NO. 10773 Page 2 of20 The Parties Petitioner Novartis Healthcare Philippines, Inc. is a domestic corporation duly registered under the laws of the Republic of the Philippines with address at 5th- 6th Floor, Ayala North Exchange Tower 1, Ayala Avenue, cor. Salcedo and Amorsolo Streets, Makati City.2 1t is also registered with the Bureau of Internal Revenue ("BIR") as a VAT taxpayer, with Taxpayer's Identification No. ("TIN") 000-111-008-000.3 Respondent is the duly appointed Commissioner of the Bureau of Internal Revenue who is tasked to assess and collect all national internal revenue taxes, fees and charges, and enforce all forfeitures, penalties, and fines connected therewith. Respondent holds office at the BIR National Office Building, BIR Road, Diliman, Quezon City .11 The Facts On January 10, 2022, petitioner filed with the BIR an Application for Tax Credits/Refunds (BIR Form No. 1914) and a Letter dated January 4, 2022,5 based on Sections 204(C) and 229, in relation to Section 109, of the NIRC, as amended by RA No. 11467,6 for the period from January 1, 2020 to June 30, 2020 amounting to P38,647,755.33. In said Letter, petitioner alleged that it paid VAT on importation of medicines that arc supposedly VAT-exempt under Revenue Memorandum Circular ("RMC") No. 62-2020 and thus filed its application for refund of such erroneously paid VAT in compliance with Revenue Mem.orandum Order ("RMO") No. 36-2020. Due to respondent's inaction on petitioner's claim for refund, petitioner filed a Petition for Review ("Petition") before this Court on February 18, 2022/ praying for the refund, of its erroneously paid VAT on importation of diabetes and hypertension medicines, albeit in the reduced amount of P26,960,507.62. / Par. 2, Summary of Admitted Facts, JSFI, Docket- Vol. 3, p. I428. Exhibit "P-4", Docket- Vol. IV, p. 1749. 4 Par. I, Summary of Admitted Facts. JSFI, Docket- Vol. 3, p. 1427. 5 Exhibits "P-125" to "P-126", with sub-markings, Docket- Vol IV, pp. 1894 to 1904. 6 An Act Amending Sections 109,141, 142, 143,144, 147, 152, 263, 263-A, 265, And 288-A, and Adding a New Section 290-A to Republic Act No. 8424, as amended, Otherwise Known as the National Internal Revenue Code Of 1997, and for Other Purposes. 7 Docket- Vol. I, pp. 6 to 46.

DECISIOI\ CTA CASE NO. 10773 Page 3 ol'20 On May 17, 2022, within the extended time granted by the Court,8 respondent filed his Answer.9 Respondent filed his Pre-Trial Brief on August 4, 2022, while petitioner filed its Pre-Trial Brief on August 5, 2022. 10 Thereafter, Pre-Trial Conference was set and held on August 11, 2022. 11 On September 12, 2022, the parties submitted their Joint Stipulation of Facts and Issues, 12 which was approved and adopted in the Pre-Trial Order issued on and dated October 5, 2022. 13 Meanwhile, on October 25, 2022, respondent transmitted to this Court the BIR Records of the case, consisting of 8 pages. 14 Trial then ensued, with the parties presenting and offering their respective documentary and testimonial evidence. Petitioner offered the testimonies of the following individuals: (1) Ms. Sheena Marie G. Jurilla, 15 petitioner's Tax Manager; (2) Dr. Giovell Barangan, 16 petitioner's Chief Scientific Officer; (3) Mr. Enrico T. Pizzaro, 17 the Court-commissioned Independent Certified Public Accountant ("ICPA"); 18 and (4) Dr. Sheila T. Lim, 19 petitioner's Manager, Medical, Cardiovascular 2 Department. The Report of the ICPA was submitted on March 3, 2023. 20( 8 Motion for Extension of Time to File Answer filed by respondent on April 12, 2022 and Resolution dated April 22, 2022, Docket- Vol. 3, pp. 1347 to 1350 and 1353, respectively. 9 Docket- Vol. 3, pp. 1354 to 1363. 10 Docket- Vol. 3, pp. 1367 to 1370 and 1373 to 1398, respectively. 11 Notice of Pre-Trial Conference dated May 25, 2022, Minutes of the hearing held on, and Order dated, August II, 2022, Docket- Vol. 3, pp. 1365 to 1366 and 1400 to 1402, respectively. 12 Docket- Vol. 3, pp. 1427 to 1436. 13 Docket- Vol. 3, pp. 1419 to 1426. 14 Compliance dated October 14, 2022, Docket- Vol. 3, p. 1451 to 1464. 15 Docket- Vol. I, pp. 215 to 232; Minutes ofthe hearing held on, and Order dated November 10,2022, Docket- Vol. 3, pp. 1469 and 1471 to 1472, respectively; Exhibit "P-I 050", Docket- Vol. IV, pp. 2132 to 2140; Minutes of the hearing held on, and Order dated February 15, 2024, Docket- Vol. V, pp. 2342 to 2343. 16 Exhibit "P-I 00 I", Docket- Vol. I, pp. 457 to 470; Minutes of the hearings held on, and Order dated, Apriii1,2023,Docket-Voi.IV,pp.l618to 1620. 17 Exhibit "P-1023", Docket- Vol. 3, pp. 1569 to 1613; Minutes of the hearings held on, and Order dated. April II, 2023, Docket-- Vol. IV, pp. 1618 to 1620. 18 Oath of Commission dated January 19, 2023. Docket- Vol. 3, p. 1524; Minutes of the hearing held on, and Order dated January 19, 2023, Docket- Vol. 3, pp. 1521 and 1525 to 1526, respectively. 19 Exhibit "P-11 00", Docket- Vol. V, pp. 2182 to 2197; Minutes of the hearings held on, and Order dated, April 2, 2024, Docket- Vol. V, pp. 2344 to 2346. 20 Exhibit "P-I 002", Docket- Vol. 3, pp. 1529 to 1551.

DECISION CTJ\ CASE NO. 10773 Page 4 of20 Petitioner filed its Formal Offer of Evidence and Supplemental Formal Offer of Evidence on May 2, 2023 21 and April 29, 2024,22 respectively. Respondent then posted his Comment and Manifestation Re: Petitioner's Formal Offer of Evidence and Comment Re: Petitioner's Fonnal Offer of Evidence on May 18, 2023 23 and May 14, 2024,2/1 respectively. The Court resolved thereon in Resolutions dated July 17, 2023 25 and July 31, 2024.26 On the other hand, respondent manifested that he would not present any evidence. Respondent filed his Memorandum on September 13, 2024,27 while petitioner's Memorandum was submitted on September 30, 2024.28 Thus, in a Minute Resolution dated October 21, 2024, the case was deemed submitted for decision. Hence, this Decision. The Issues The parties submitted the following issues in this case: A. Whether or not the CTA has jurisdiction over the case. B. Whether or not the petitioner is entitled to a refund or a tax credit in the total amount of Twenty-Six Million Nine Hundred Sixty Thousand Five Hundred Seven and 62/100 Philippine Pesos (P26,960,507.62) representing VAT for the period February 19,2020 to June 30,2020 on its importations of prescription drugs and medicines for diabetes, and r hypertension. 29 11 Docket- Vol. IV, pp. 164I to 1673. 22 Docket- Vol. V, pp. I64I to I673. 13 Docket- Vol. IV, pp. 1677 to 1679. 24 Docket- Vol. V, pp. 2378 to 2380. 25 Docket- Vol. IV, pp. 1684 to 1688. 26 Docket- Vol. V, pp. 2384 to 2388. 27 Docket- Vol. V, pp. 2390 to 2399. 28 Docket- Vol. V, pp. 2403 to 2444. 29 Summary Statement of Issues, JSFI, Docket- Vol. 3, pp. 1428 to 1429.

DECISION CTA CASE NO. 10773 Page 5 of20 Arguments of the Parties Petitioner's Arguments: Petitioner argues that its claim for the refund of erroneously paid VAT on importations of diabetes and hypertension medicines for the period from February 19, 2020 to June 30, 2020 should be granted as these goods arc exempted from VAT under Section 109(AA) ofthe NIRC, as amended, and is filed in accordance with Sections 204(C) and 229 ofthe same Code. Respondent's Counter-arguments: Respondent counter-argues that ( 1) the petition must be dismissed for lack of jurisdiction as petitioner failed to exhaust administrative remedies before elevating the case to this Court; (2) assuming there is jurisdiction, petitioner is not entitled to the refund as the supporting documents it attached to the instant Petition does not state or even mention that its VAT payments actually pertain to its importation of drugs qualified for VAT exemption; and (3) refunds are in the nature of exemptions and should be construed against the taxpayer claiming such refund. The Ruling of the Court The Petition must be denied. The provisions that govern the present claim for refund of erroneously paid taxes are Sections 204(C) and 229 ofthe NIRC, as amended, which read as follows: SEC. 204. Authority of the Commissioner to Compromise, Abate and Refimd or Credit Taxes. -The Commissioner may- (C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refimd of taxes or penalties shall be allowed unless the taxpayer .files in writing with the Commissioner a claim for credit or refimd within two (2) years qfter the payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written claim r for credit or refund.

DECISIOi\ CTA CASE NO. 10773 Page 6 of20 SEC. 229. Recovery (~/Tax Erroneously or Illegally Collected.- No suit or proceeding shall be maintained in any court for the recovery ofany national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, of any sum alleged to have been excessively or in any manner wrongfully collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for re.fimd or credit has been duly.filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be .filed qfter the expiration q{two (2) years .fi'om the date q{payment q{ the tax or penalty regardless qf any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor. refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid. (Italics, Ours.) Based on the foregoing provisions, an erroneously paid or illegally collected tax may be refunded if: 1) the taxpayer files in writing with the CIR a claim for credit or refund within two years after the payment of the tax or penalty; 2) the claim for refund must first be filed before the CIR before maintaining a suit or proceeding in any comi; and 3) such suit or proceeding shall be filed also within two years from the date of payment of the tax or penalty, regardless of any supervening cause that may arise after payment. As explained in Cmnmissioner of Internal Revenue vs. Carrier Air Condl.tz.onz.ng J:.>hz�zz� ppz.nes, Inc. �10 ("Carn�er") : Section 204 refers to the Commissioner of Internal Revenue's administrative authority to credit or refund erroneously paid or illegally collected taxes. Under this provision, an administrative claim for refund or credit must be filed within two years from payment of the tax. Section 229, on the other hand, requires two conditions for the filing ofjudicial claims: (1) an administrative claim must be filed first; and (2) the judicial claim must be filed within two years after payment of the tax sought to be refunded. Reading the two provisions together, both administrative and judicial claims must be filed within the two-year period. Furthermore, the administrative claim must be.filed before thejudicial claim. This Court has ( 30 G.R. No. 226592, July 27, 2021.

DECISION CTACASENO. 10773 Page 7 or20 previously declared that "[t]imeliness ofthe filing ofthe claim is mandatory andjurisdictional. The [Court ofTax Appeals] cannot take cognizance of a judicial claim for refund tiled either prematurely or out of time." Thus, while both administrative and judicial claims must be filed within two years after the payment of the alleged erroneously paid or illegally collected tax, the filing ofthe administrative claim must still precede the filing ofjudicial claim. Moreover, the tax subject of the refund under Sections 204(C) and 229 ofthe NIRC, as amended, must be erroneously paid or illegally collected, that is it has been collected without authority, or that of any sum alleged to have been excessively or in any manner wrongfully collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected. An "erroneous or illegal tax" is defined as one levied without statutory authority, or upon property not subject to taxation or by some officer having no authority to levy the tax, or one which is some other similar respect is illegal _31 In summary, in order for the present claim for refund to prosper, petitioner must show that: 1) the administrative and judicial claims were filed within two years from the payment of tax; and 2) that the tax was erroneously or illegally paid or collected. Petitioner's administrative and judicial claims were timely filed, thus, the Court acquired jurisdiction in this case. Petitioner alleges that it paid VAT on the importations of diabetes and hypertension medicines from February 19, 2020 to June 30, 2020, which were supposedly exempt from VAT pursuant to Section 109(AA) of the NIRC, as amended by RA No. 11467. Counting two years from the earliest payment made, or from February 19, 2020, petitioner had until February 19, 2022 to file both its administrative and judicial claims for refund. Petitioner filed its Application for Tax Credits/Refunds with the BIRon January 10, 202232 and later filed its Petition before the Comi on February 18, 2020.33 Clearly, petitioner timely filed both claims before the two-year prescriptive period lapsed.( 31 Commissioner of lntemal Revenue v. Pi/ipinas Shell Petroleum Corp., G.R. No. 188497, April 25, 20 12. 3" Exhibits "P-125" to "P-126", with sub-markings, Docket- Vol IV, pp. 1894 to 1904. 33 Docket- Vol. I, pp. 6 to 46.

DECISION CTA CASE NO. 10773 Page 8 of20 However, respondent argues that the Court cannot acquire jurisdiction herein as petitioner failed to exhaust the available administrative remedies before filing its Petition. In particular, respondent laments that petitioner filed its administrative claim for refund on January 10, 2022, which is only a little over a month before filing its Petition. Respondent asse1is that the doctrine of exhaustion of administrative remedies rests upon the presumption that the administrative body, board, or officer, if given the chance to correct its mistake error, may amend its decision on a given matter and decide it properly. Thus, non-compliance with a condition precedent renders the petition for review filed by petitioner dismissible. W c find this argument untenable. This issue on the doctrine of exhaustion of administrative remedies vis- a-vis Sections 204(C) and 229 ofthe NJRC, as amended, is no longer novel. In Carrier, citing CBK Power Company Limited v. Commissioner ofInternal Revenue,3(1 the High Court explained that Sections 204 and 229 ofthe 1997 National Internal Revenue Code require only that the administrative claim be filed before the judicial claim and that both claims be filed within two years from the payment of the tax. Hence, the taxpayer properly filed its judicial claim without awaiting the Commissioner's action on its administrative claim, as long as the judicial claim was filed within the two-year prescriptive period. Fmiher, Section 229 docs not require that the Commissioner first act on the taxpayer's claim, and that the taxpayer cannot go to comi without the Commissioner's action. The administrative claim filed before the Commissioner was intended "primarily as a notice of warning that unless the tax or penalty alleged to have been collected erroneously or illegally is refunded, court action will follow[. I" Thus, applying Carrier and its precedent in this case, petitiOner rightfully filed its judicial claim before the Comi even without respondent's ruling on its administrative claim. Given that the administrative claim, followed by the judicial claim, were both filed by petitioner within two years from the payment ofthe alleged erroneously or illegally collected VAT, the Court has well-acquired jurisdiction over this case.r 34 G.R. Nos. 193383-84 & 193407-08, January 14, 2015.

DECISION CTA CASE NO. 10773 Page 9 of20 Petitioner's importation of diabetes and hypertension medicines fi~om February 19, 2020 to June 30, 2020 are exemptfrom VAT; hence, the VAT paid thereon were erroneous. Petitioner alleges that it imported the following prescription drugs and medicines for diabetes and hypertension from February 19, 2020 to June 30, 2020 and paid VAT thereon in the total amount ofP26,960,507.62: --------- --- r. ---------- Dosage Strength Disease Brand Name Generic Name and Form Treated CO-DIOVAN -- ----- ---------------- --------- ----------------- DIOVAN EXFORGE 160112.5MG Film- Coated Tablet - --- ------ 160/25MG Film- Valsar an+ Coated Tablet Hydro :hlorothiazide 320112.5MG Film- Hypertension Coated Tablet ---- 80/12.5MG Film- Coated Tablet ---- - - - - - - - - - ------- 160MG Film-Coated Valsar an Tablet --- Hypertension 80MG Film-Coated Tablet 101160MG Film- Amlod ipine + Coated Tablet Valsar an ---� ----- Hypertension 5/160MG Film- C-o- ated Tablet ----- 10/160112.5MG Amlodipine + Film-Coated Tablet Valsar an+ --- --- --- - Hydro :hlorothiazide EXFORGE 5/160/12.5MG Film- Hypertension HCT Coated Tablet 51160/25MG Film- - - - 1 - - -- ---------� Coated Tablet -- ---- -------- 5011 OOOMG Film- Vildagliptin + Coated Tablet GALVUSMET I Metfo min+ - - - - -------~ Hyrdo ~hl01�ide 50/500MG Film- Diabetes Coated Tablet 1------ -- 50/850MG Film- 1-----------�---- ----- Coated Tablet - - ~--- - GAL VUS I Vildagli.Qtin 50MG 2Xl4 Tablet Diabetes PROGLIN ~-~ildagli_Qtin __ 50MG Tablet Diabetes 5011 OOOMG Film- Vildagliptin 1 Coated Tablet PROGLINMET I Metfo min+ ---------------- �--------------- Hyrdo ~hloride 50/500MG Film- Diabetes --- Coated Tablet 50/850MG Film- Coated Tablet !

DECISION CTA CASE NO. I 0773 Page I0 of20 The foregoing products, with brand name, generic name, dosage, and form as specified, are duly registered with Food and Drug Administration ("FDA") and are each issued with a Certificate of Product Registration, naming petitioner as the products' importer and distributor in the Philippines. 35 Meanwhile, Section 109(AA) of the NIRC, as amended by RA No. 11467, provides that: SEC. 109. Exempt Transactions. - (1) Subject to the provisions of Subsection 2 hereof~ the following transactions shall be exempt from the value-added tax: (AA) Sale or importation ofprescription drugs and medicines for: (i) Diabetes, high cholesterol, and hypertension beginning January I, 2020; and (ii) Cancer, mental illness, tuberculosis, and kidney diseases beginning January 1, 2023. Provided, That the DOH shall issue a list ofapproved drugs and medicines for this pwpose within sixty (60) days from the effectivity ofthis Act; Eventually, Revenue Regulations ("RR '') No. 18-20, dated June 26, 2020, was issued to implement the amendment to Section 109 introduced by RA No. 11467, as follows: SEC. 4.109-1. VAT-Exempt Transactions.- (B) Exempt transactions. - (1) Subject to the prov1s10ns of Section 4.1 09-2 hereof, the following transactions shall be exempt from VAT: (aa) Sale or importation of prescription drugs and medicines for: (i) Diabetes, high cholesterol, and hypertension beginning January 1, 2020; and (ii) Cancer, mental illness, tuberculosis, and kidney diseases r beginning January 1, 2023. 35 Exhibits"P-127"to"P-145".

DECISION CTA CASE NO. 10773 Page II of20 The exemption from VAT under this subsection shall only apply to the sale or importation by the manufacturers, distributors, wholesalers and retailer of drugs and medicines included in the "list of approved drugs and medicines" issued by the Department of Health (DOH) for this purpose. SECTION 3. TRANSITORY PROVISIONS.- VAT on importation ol prescription drugs and medicines for diabetes, high cholesterol and hypertension included in the Department of Health-Food and Drug Administration (DOH-FDA) approved list fi-om the e.flectivity of R.A. No. 11467 on Januwy 27,2020 until the effectivity of these Regulations, shall be refimded pursuant to Section 204(C) of the Tax Code of 1997, as amended, in accordance with the existing procedures for refimd (?l VAT on importation, provided that the input tax on the imported items have not been reported and claimed as input tax credit in the monthly and/or quarterly VAT returns. The same shall not be allowed as input tax credit pursuant to Section 11 0 of the Tax Code of 1997, as amended, for purposes of computing the VAT payable of the concerned taxpayer/s for the said period. (Italics, Ours.) Based on the foregoing, a VAT' can be considered enoneously paid under Section 109(AA) ofthe NIRC, as amended, and shall thus be refunded if the following elements concur: 1) the products sold or imported are prescription drugs and medicines for treatment of diabetes, high cholesterol, hype1iension, cancer, mental illness, tuberculosis, and kidney diseases; 2) the sale or impmiation was made on January 1, 2020 onwards for prescription drugs and medicines for treatment of diabetes, high cholesterol, and hypertension and on January 1, 2023 onwards for prescription drugs and medicines for treatment of cancer, mental illness, tuberculosis, and kidney diseases; 3) the prescription drugs and medicines sold or imported must be included in the "list of approved drugs and medicines" issued by the DOl-I-FDA; and 4) The VAT paid on importations of prescription drugs and medicines for treatment of diabetes, high cholesterol, and hype1iension until the effectivity of RR No. 18-20 must not have been reported and claimed as input tax credit in the monthly and/or quarterly VAT r returns.

DECISION CTA CASE NO. I0773 Page 12 of20 To support its claim, petitioner submitted the commercial invoiccs,36 Single Administrative Documents ("SADs"),37 and Statements of Settlement of Duties and Taxes ("SSDTs"),38 which were all examined by the Court- commissioned ICPA,39 and is summarized as follows: _] ___ ---�---- --�-�-�-- - 1 - - - - - - - - - - - - - - - - , - - - - - - , - - - - - - Exhibit Supplier IEIRD/ Commercial SSDT/ SSDT/BOC Reference SAD Invoice No. OR Date P-1010-1 I NOVARTIS Item Description VAT Payment BOCOR 1 I 19-Feb-2020 1 -P-!61 0-2 PHARMA -2296-9n-12001522029. No. !\G ] 20-feb-2020 EXFORGE FCT ~-- �rl.718.S84.00 I R 101656 I NOVARTIS 2001522030. I0/160MG ALU & IX7 PH: 2001522031 EXFORGE f'CT 5/ 160MG ALU IX7 PH: DIOVAN FCT 80MG 2XI4: 701.358.00 /-RI03829 22984 --i()o 15-2-33_5_1-t--=-P=R--=-OGl:-i'N-MET SAGLIK 50/1000 MG GIDA VE TAB 30 130X SS TARIM P8 P-1010-3 I NOVARTIS I 23609 I 2001523088 I GALVUMET 2.050.844.00 I R I04648 I 20-Feb-2020 SAGLIK FCT 50/500MC1 l.490.856.00-�j -R I 12710 24-feb-2020 GIDA VE 3XIO PH TARIM ---�-----� -1--- 24890 I 2001523334 GALVUSTAB --� f---p=j(J]Q..4 ____, NOVARTIS PI-IARMA 50MG 2X 111 Pll !\G P-1010-5 I NOVARTIS 26146 2001525373 I PROGLINMET 647.482.00 I R 119897 I 27-Feb-2020 SAGLIK 50/I OOOMG TAB GIDA VE 30 BOX SS P8 TARIM 26159 2001525343 I GALVUMET ��--�---- I27--F~b~l020- P-1010-6 I NOV/\RTIS 660.282.00 I. R 120025 SAGLII<. FCT 50/IOOOMG GIDA VE 3XIO PH TARIM P-1010-7 I NOVARTIS 31572 200152720 I I PROGLIN 589.070.00 I R 146693 I 09-Mar-2020 PHARMA 50MG TAB ~olo~s-1 AG 28BOX SS PH - ------�--------------f--- N o v / \ R : l - l s -3� -5-3-2 -8 - - - � -2-0-0-1-5 -2 9- 2-6 0 --~--- EXfORGE FCT 479.897.00 I R 156100 12-Mar-2020 PHARMA 5/160MG ALU AG IX7 PH P-1010-9 NOVARTIS I 35337 2001529245 CO-DIOVAN 82.083.68 I R 159090 13-Mar-2020 PH/\RMA FCT 160/25MG AG j I 36542 !200I530ci5-2iXlIc4oP-l-1DIOV-~I 377.12I.ill Rl63767 116-Mar-2020- FCT 80/12.5 P-1010-10 I NOV/\RTIS 1 -- 42.693~o4IRI6T767 I I6-Mar-2o2o 2XI4PH ALU PHARMA 36542- 26o153oo53 - Ex. FolzGE 11cr 1-'~IoiO-IClliA\GiovARrls-- PHARMA FCT AG 5/160/25MG 1X7 ---- !-------- __ _______ PH ----- --�- ��---1 1-----------� - I 2001529262 I EXfORGE FCT P-1010-11 NOVARTIS 36554 473.906.00 R 163759 16-Mar-2020 PHARMA I0/160MG /\LU P-IOIO~!:iiANGoVARTIS I X7 Pll � - - - � - - - - . -�--~--- - SAGLIK ------�---~~-----����-�-�--� 381.681.00 I R 166509 I 17-Mar-2020 GIDA VE 37168 2001532153 GALVUS MET TARIM FCT 50/850MG P-IOTo=-IJINovARTISn- 3XIO PH 37549--26til53215o-r'Ro<5Di\i~lcT-In- 37o.i:SJ.OOIR'I665of-l 17-M,;.2(i2-(i SAGLIK 50/850 MG TAB GIDA VE 30 BOX SS PH ' f L_______ TARIM L__ _ ___l__'_ _ _ _ _ _ .~L___-�--�-�-�� - - - - - - - � - - � � � � � - - - - - - - - - � - - - - � � � - - - - - - � � � - - - 36 Exhibits "P-20" to ''P-56". 37 Exhibits "P-57'" to "P-90". os Exhibits "P-91" to "P-124"". 39 Collectively marked and offered as Exhibits ''P-1 010-1" to "P-1 01 0-33"'.

DECISION CTA CASE NO. 10773 Page l3of20 I P-IOI0-1tl NOVARTIS 37550 2001532151 I PROGLINMET 3711.443.00 I R 168335 I 18-Mar-2020 SAGLIK 50/850 MGTAB GIDA VE 30 BOX SS PH TARIM 2001SJ215S~- GALVUMET--,--1-:-:i86.9SO.OO ~- R 169625-!19-Mar-2020- f-P-1010-JSi-NOVARTIS------::1s(i!4- SAGLIK FCT 50/500MG GIDAVE 3XIOPI-I TARIM I 3911612001533292 ~)ROGLINMET I I 721.412.00 R 172685 20-Mar-2020 I P-1010-16 NOVARTIS 50/I OOOMG rAB SAGLI K GIDA VE 30 BOX SS P8 ~~roro-i7~I"TNAoRvIAMRTrs -397-,8- 20015321113 GAt~VLJMc:r- l---t.409.978.oo IRI78024 T 2s-M~;r-202o SAGLIK FCT 50/500MG GIDA VE 3X10 PH TARIM 39724 2001533290 GALVUMET I 720.382.00 I R 178027 I 25-Mar-2020 P-1010-18 I NOYARTIS FCT 50/IOOOMG SAGLll<. GIDA VE 3XIO PI-I r r TARIM ~io::J9/ NOV ARTIS- - - - - - ------~--- PROGLINME-T -~4.2!6.ooTRI78865 25-M;I::.2(l20 39747 2001532154 SAGLIK 5011 OOOMG TAB GID/\ VE 30 BOX SS P8 I TARIM 39752 ------- I EXFORGE HCT I I 278.469.00 R 178866 25-Mar-2020 - P-1010-20 NOVARTIS 2001532039 FCT PI-IARMA & AG 2001532046 I0/160/12.5MG IX7 Pi!: EXFORGE HCT reT I0/160/25MG I P-1010-21 NOVARTIS 39769 2001532063 IX7 PI!: 803.269.00 I R 178023 I 25-Mar-2020 DIOYAN FCT PHARMA 80MG2XI4 AG --- - - - - - --~~--- P-1010-22 I NOVARTIS 41637 2001535399 PROGLIN 602.0I9_ooiRJ83472 I 30-Mar-2ci2cJ- PI-IARMA 50MG TAB 1----r=roro-23-1 NAoGvA.i~Trs ------ --------- 28BOX SS PH -~- 660.45-5~iJOIR:I85387 -, 31-M<lr~2020- DIOY-AN FCT 1[!640 2001535400 PJ-IARMA 160MG 2X14 I P-IOI0-24 I ~gvARTis~-41681-2oois35394 EXFORGEHCT~j I 322.82s.oo R I83466T3o-Mar-2o2c) PHARMA FCT AG 5/160/12.5MG P-1010-25 NOV ARTIS 53864 IX7 PH 2001540723 PROGLINMET --�--, _s>67.649~ooTR2-o841oT r6=A pr-:Zcnci- SAGLIK 50/500 MGTAB CJIDA VE 30 BOX SS PH TARIM - - - - - - 1 - - - - - - - - - ! - - - ----~t----------1� - - - - - - - - - - � - - - � - --------- ----�-- - - - - - - - - � - - ------- P-1010-26 I NOVARTIS 5/1861 2001537348 I GALVUS TAB 1.5112.717.00 I R 208950 I 16-Apr-2020 PIIARMA 50MG 2X 14 PI! I I jJ:-IOI0-27 r-ANG-OVART-IS--tl012r38-12001S5~;i744tGA-LVLJS TAB�-r---rj)9T534.63l'R!CJ88640 ,~22=Jun-2020 PI-IARMA 50MG 2XI4 PH AG P-1010-28 I NOVARTIS 11014917120015619451 GALVLJSMET 1.302.551.65 I R I090381 I 23-.lun-2020 SAGLIK FCT 50/500MG GIDA VE 3X 10 PI! TARIM 2-clOJ 562552-1 PROGLINMET - - - - ---::-+--:-:------ -~-- - - - - --- 1-----1-,=iOI 0-29 h.JovARTIS 1015398 50/500 MG TAB 974.906.98 I R I095052 25-.lun-2020 30 BOX SS PH 471.072.32 R 1090848 23-.1 un-2020 SAGLIK 560.356.931 R-I0950,I8 ��2-5--.1-u-n--:2-0-20-- GIDA VE 2001561237 I EXfORGE FCT TARIM 5/160MG ALU P-1010-30 I NOVARTIS 1015400 -2cJOI56I23-,-1-XI7coP-HDiovA'N-~I-- PHARMA FCT 1 P-1~0-10--~31---+iA-NGoV_A_I_ZT_IS~, ~-1 0 I51 OZ PHARMA AG 160/1:2_5iv!G P-1010-32 NovAR.Trs ~ -~o-r5!J95 2ool'.)~.-6255 ?XR1.4-oAGuLNL-! ~PTHc:r_j____ 973..356_87 IR:! o9347T-h4-.J~:;=-2oiiJ SAGLIK GIDA VE /500 MG TAB r1 TARIM BOX SS PH ___ __ _ _ _ _ _ _ _ _ j

DECISION CTA CASE NO. I 0773 Page 14 of20 ~;1100-]33 NOVARTI1,�1014071-20015599091 CO-DIOVANPHARMAFCT 25.002.71 R 1090795f21-Jm,�20211 AG 320/12.5MG IX7 --~-- --- - - --~ PHS - - - ----~---------- --~-- 1 Er..-oneously Paid VAT P26,960,507.62 ---- -- -- - - - - - - - - - - -~ -- --- - Testing petitioner's compliance with the first element, while it is notable that only the brand names were stated in the foregoing documents, the corresponding generic names of each can, however, be cross-referred and verified in the FDA Ce1iificate of Product Registration40 of each brand and specification. And as testified by petitioner's witness Dr. Giovell Barangan, the foregoing product brand, with their corresponding generic names, are used for treatment of diabetes and hypertension.111 With respect to the second element, the documents clearly show that the impmiations were made beyond January 1, 2020, with February 19, 2020 as the earliest importation completed. As for the third element, We take reference from RMC No. 62-2020 which circularized the List of Prescription Drugs and Medicines for Diabetes, High-Cholesterol and Hypetiension Exempt from VAT Beginning January 27,2020 issued by the FDA of the DOl-l. Included in said List are the following prescription drugs and medicines classified by the FDA as antihype1iensives and drugs used in diabetes: -------------- �--- Classification Generic Name Dosage Strength and Form t--- ---------- ------f-- ------------------------- Antihypertensives (E. Agents Acting on Valsartan + 160/12.5MG Film-Coated Tablet the Renin-Angiotensin Hydrochlorothiazide 160/25MG Film-Coated Tablet System) -------------� --- ------------- 320/12.5MG Film-Coated Tablet 80112.5MG Film-Coated Tablet -��------ - - - - - - - - - ----------------------------------- Valsartan 160MG Film-Coated Tablet - ---- -- - - - ---- 80MG Film-Coated Tablet Amlodipine + 10/160MG Film-Coated Tablet -- Valsartan --------- 5/160MG Film-Coated Tablet Amlodipine + 101160112.5MG Film-Coated Valsartan + Tablet Hydrochlorothiazide -5-1-1-6-01-1-2-.5-M--G--F-il-m---C-o-a-te-d--T-ab-l-e-t 1� 51160/25MG Film-Coated Tablet . 1----------- - Vildagliptin + Drugs Used in Diabetes Metformin + 50/1 OOOMG Film-Coated Tablet [(Blood Glucose I Lowering Drugs, Hyrdochloride excluding Insulins ------------------------- -------� 50/500MG Film-Coated Tablet I 50/850MG Film-Coated Tablet ----� ----------------1 - - - - - - - - - - -- ___ (A10f3)- <;:._ 5011 OOOMG Film-Coated Tablet --� �--------- - - - -------------------------- ! - - 40 Exhibits "P-127" to "P-145". 41 Exhibit "P-I 00 I" (Q&A No. 18, Judicial Affidavit of Dr. Giovell Barangan).

DECISJOi'\ CTA CASE NO. 10773 Page 15 of20 Combinations of oral Vildagliptin + 50/SOOMG Film-Coated Tablet blood glucose lowering Metformin + 50/850MG Film-Coated Tablet 1-----=d=-n=tgs (A 1OBDll____j___l:lyrdochlorid~--1------------------ Drugs Used in Diabetes I Vildagliptin 50MG Tablet [(Blood Glucose Lowering Drugs, excluding Insulins (AlOB)- F. Dipeptidyl peptidase (DPP-4) inhibitorsjb.l_QBtlll_1____________ t __________ Indeed, petitioner paid VAT in the total amount ofP26,960,507.62 on the foregoing importations from February 19, 2020 to June 23, 2020 pertaining to prescription drugs and medicines for diabetes and hypertension which should be exempt from VAT based on the List of Prescription Drugs and Medicines for Diabetes, Iligh-Cholestcrol and IIypertension Exempt from VAT Beginning January 27, 2020 issued by the FDA of the DOH. Petitioner failed to prove compliance with the fourth element. However, with respect to the fourth element, Section 3 ofRR No. 18-20 clarified that the VAT claimed for refund must not have been reported and claimed as input tax credit in the monthly and/or quat1erly VAT returns. The following shows petitioner's Amended Quarterly VAT Returns for the 1st and 2nd quarters of taxable year ("TY") 2020: 1st Quarter 2nd Quarter Total VAT Sales/Rec-eipt ______ P844- ,568,439)5 ~ P80�5--,002,06;r41P7I ,649.,570,503.4-2 Exempt Sales/Receip!__ __________l23,895,8'Q.6t!_ ____4�6,784,3Q2.0 I _ 790,680,177.65 _Q~~t Tax_ Due______ __ _ __!_01,34!!,21_2._I_l ____96L@0,247.70_J2'?,948,460.4!_ ---- - --1- -- - - ---1----------- Input tax carried over from previous period 346,985,674.38 337,792,422.16 1 346,985,674.38 Input tax deferred on capital goods exceeding PI million from previous quarter ______________\_ ____:!_O,l3~:Lll. ______ jf,052.J_�_[______ 40, I~~.:iS_' ~~!tax f!�om currei1_!_!!:<msacsions: _ 1_____________ 1 ____________ ----~--- ____________ _ Domestic purchase of capital goods exceeding P lm ill ion 1---------f---------1----------1 Domestic purchase of goods other than capital goods 53! ,960.6_f_j I,822,621.08 ) 2,354,581.74 Importation o.fgoods other than __c!!P!_ta/ g_oods _____ ________ ) IJ.,_Q38,763_J](J_ _ _ _8},077,503.03 __?OO,fl6,266.0_L' I_I)_S>mestic_l)_LI_rchase_()fservic~~ _ _ _10,222,476.98 _ _ _1~],462.58~ ___1_2_,094,939,5_�_ Services rendered by non-residents 92,339.71 89,963.37 182,303.08 571 '773,897.24 Total available in_Q':I.!._tax =J= _: :_ I 474,911,347.18 434,671,025.20 I ~x Deducthtm jmm ;uput -=-~ ::-!-=-=--=_:__~

DECISION CTA CASE NO. I0773 Page 16 of20 Input tax on purchases of capital goods exceeding PI million f - -d-ef-er-re-d-fo-r -th-e -su-c-ce-e-di-ng period .+------~-16,052.9~-- t-------�-----� ____::___ -----��-~-- -- ��- Input tax allocable to Exempt Sales 35, 754,659)j_i---- 13,943,677.17 49,698,336.51 Total - � - - - �----------�-� 35_,]70,7Jl}2 �----- ___!_3__, 943'677 :..!..1_ 49,698,336:11._ . - � - - - - � - � � - - - - - - � � � - � - - - - - - - - - - - - �- - - - - - - ----- �- -----~--- r--TotaGI!lowa~inQ!lt~x_ - - � __ __4~C)_J40,634.86 -� __420,72] ,348.03_~---~2,07~,560. 73_ Net VAT Pa)'able/(Over~ment) P(337, 792,422.I6) P(324,I27,I00.32) P(324,127,I00.32) Based on the foregoing, the input tax allocable to Exempt Sales amounting to P46,698,336.51 was deducted from the total available input tax as it was not qualified as credits against output taxes pursuant to Section 4.109-1 ofRRNo. 16-2005.42 On the other hand, the ICPA summarized the results of his examination of petitioner's documents, as follows: 43 Pat1icu Iars Exhibit Landed Cost Amount of Input Reference No. VAT . - - - - - - - � � - � � - --------�----� - � - - - - - - - - . --~----- -~ - - - - -�-��- -�-------�------ -- Summary of VATable and Exempt Importation Transactions: - - - - - - t - - � ------~---- �-- I. Summary of VAT Exempt Importation Transactions: �-------- a. Summaty of VAT Exempt Importation Transactions where VAT Payments were required by the BOC. a.!. Summary of VAT Exempt importation transactions where VAT payments were Exhibit P--1 009 p 122,471,797.75 p 14,696,615.73 required by the BOC but were not included in the claim for refund. a.2. Summary of VAT Exempt importation transactions where VAT payments were Exhibit P-I OI 0 224,670,896.84 26.960,507.62 required by the BOC and were included in the claim for refund. - - - - - - - - - � - - � ---- - - - � � � - - � � � - - - - - - - - - - - - - - - - - - - - - - - - - - - - Total Swnmwy of" VAT Exempt �---- �--- � � - - - ---- Transact ions where VAT payments 347.670,896.84 I 41,657,123.35 1 - - - � - - � - - -w-e-r-e r.e...q. z1_.ir-e-d--b--y-th-e-B-O�C.- - - � --~ - - - - - - - - - - - - --~--- - - � - - � � - - - - - - - - - - - - - ---- 2. Summary of VATable importation transactions --- - - Ex-h-ib-it -P- -I- 0 I-I -r---- I,329, I06,532.88 159,492,783.47__ Total VAT Payments for both Exempt Where Payments were required by the I ,676,249,227.47 20I,I49,906.82 BOC and VATable importation transactions 3. Summary of VAT Exempt Importation Exhibit P-IOI2 169,989,208.61 - Transactions where payments were not r 42 SEC. 4-109.1. VAT-Exempt Transactions.- (A) In general- "VAT-exempt'" transactions refer to the sale of goods or properties and/or services and the use or lease of properties that is not subject to VAT (output tax) and the seller is not allowed ay tax credit of VAT (input tax) on purchases. (!tal ics. Ours.) 43 Exhibit "P-I 002" (!CPA Repot1, p. 19).

DECISION CTA CASE NO. I 0773 Page 17 of20 required b-y-tl-le_B_O_C_and_w_e-,:e ~~-ot-p;�,~tqo�------ the claim for refund. ----------1 Total oftile Sununm:l' (?(VA Table and Exempt JmpOI:~{{_Iion Trai!!iactiom~ ___ _ _ _ __ P/,846,238,436.08 p 201,149,906.82 It is readily notable that there is a discrepancy between the Importation of goods other than capital goods and Input tax allocable to Exempt Sales per VAT returns and Total of the Summary ofVATable and Exempt Impmiation Transactions and Total Summary of VAT Exempt Transactions where VAT payments were required by the BOC per !CPA's verification, as follows: -~~~--~~~~~---c~~~~~~~~.--~~~~~~---- per ICPA's __ ___ _ Pt!! VAT ~~turns_I__Verificatioll_l __ Diffe_t�ence _ ~-2~0-0-., -116-,-2-66-.-03 201 1 9 9 8 Importation of goods other than capital -~~~!tsofth~-Summ.~�y ofV.-ATab1e ~~1d____ --- -~-; , ~ , ;~~ ;-j 1"( 1'033 '640"79) J_______ ____ Exempt ~mportatiqr] Trans9:ctions __ ____ �----- ______ --!-------------- --------+- �----- ----1 --1 Input tax allocable to Exempt Sales r49,698,336.51 Total Summary of VAT Exempt ~8,041,213.16 Transactions where VAT payments were N1,657,123.35 1 required bv the BOC ________L _________L _ _ _ _[ _ __ _ _ _ __ Neither the ICPA nor petitioner accounted or reconciled for the differences. As verified by the ICPA, the VAT paid on importations amounting to P26,960,507 .62 were repmied in the Amended 1st and 2nd Qumierly VAT Returns for the TY 2020,44 and summarized below: -------------1 - ----��---r---------- ----T----------1 �-------��-- Amount of Input VAT on Amount of Input Amount of Input Importation VAT on I Taxable Quarter I Exhibit Ref. VAT on Directly Importation No. Importation per Attributable to Claimed as Input VAT Return VAT Exempt VAT Credit in the Sales (Sec. 23C, VAT Return Schedule 5) Ist Quarter of Exhibit P-1 013 p 117,038,763.00 p 32,747,955.24 p 84,290,807.76 2020 Exhibit P-1014 -~-----�- 2nd Qumier of 2020 83,077,503.03 8,884,145.38 I 74,193,357.65 Total p 200,116,266.03 P 41~632,Ioo.6i_I_ _P Is8,4s4, I65.4Ti Again, it is apparent that there exists a discrepancy between the amounts of input tax allocable to Exempt sales per VAT returns, Total Summary ofVAT Exempt Transactions where VAT payments were required ! 44 Exhibit "P-1002" (!CPA Report, p. 20).

DECISION CTA CASE NO. 10773 Page 18 of20 by the BOC per !CPA's summary, and Amount oflnput VAT on Importation Directly Attributable to VAT Exempt Sales (Sec. 23C, Schedule 5) per !CPA's further verification. The discrepancies are demonstrated as follows: Amount Differences l Input tax allocable to Exempt Sales per VAT_t:eturns_ _ _ f'49,698,336.5 I __J Total Summary of VAT Exempt Transactions where VAT P(8,041 ,213.16) payments were required sumt~~-- f'4l ,657' 123.35 by the SOC p~r !CPA's �-------- 1----------- Amount of Input VAT on Importation Directly Attributable to VAT Exempt Sales (Sec. 23C, Schedule 5) per !CPA's further f'41 ,632, I00.62 f'(25,022. 73) verification .. Again, petitioner and ICPA failed to account or reconcile the noted differences. Meanwhile, the amount of P 1S8,484, 165.41 pertaining to the Amount oflnput VAT on Importation Claimed as Input VAT Credit in the VAT Return is the amount of VAT from importations allowable as input tax credits after deducting/removing the input taxes allocable to exempt sales. This amount was accordingly traced by the ICPA to the generalledger.45 However, this too has a discrepancy, with the !CPA's summary which reflects the amount of P 159,492,783.4746 pertaining to the Summary of VATable impmiation transactions. The difference amounting to Pl,008,618.06 is left unaccounted. While it can be admitted that the input tax allocable to Exempt Sales per VAT returns amounting to P49,698,336.51 is higher than the amounts verified by the ICPA, the Comi cannot just simply assume that the amount of P26,960,507 .62 claimed for refund herein is already included in the input tax allocable to Exempt Sales per VAT returns which was deducted/removed from the total allowable input tax. Considering that the discrepancies noted are too significant to escape Our perusal, petitioner should have accounted for or reconciled all of these discrepancies in order to shed light on the matter and eliminate any doubt that the amount claimed for refund was already removed from petitioner's allowable input tax credits. We find compliance with the fourth element to be crucial. As the taxpayer seeks to recover an erroneously paid tax, it is burdened upon it to prove that it docs not recover said tax in another way. In this case, since petitioner repmied the amount of claim ofP26,960,507 .62 in its VAT Returns, it is incumbent upon it to prove with clear and convincing evidence that such amount was already deducted from its input tax credits to eliminate any r possibility of future application against output VAT. And, unfortunately, petitioner failed to prove this. 45 Exhibit"P-1002'' (!CPA Report, p. 21); Exhibit"P-1015'' .. 46 Exhibit"P-1011".

DECISION CTA CASE NO. I 0773 Page 19 of20 Time and again, We stress that the taxpayer-claimant has the burden of proving the legal and factual bases of its claim for tax credit or refund. After all, tax refunds partake the nature of exemption from taxation and, as such, must be looked upon with disfavor. They are regarded as in derogation of the sovereign authority and should be construed in strictissimi juris against the person or entity claiming the exemption. The taxpayer who claims for exemption must justifY its claim by the clearest grant of organic or statute law and should not be permitted to stand on vague implications. The burden of proof thus rests upon the taxpayer to establish by sufficient and competent evidence its entitlement to a claim for refund. 47 Since petitioner failed to prove its compliance with the fourth element, the present claim for refund must thus fail. ACCORDINGLY, in light of the foregoing considerations, the Petition for Review is DENIED for lack of merit. SO ORDERED. MARIA WE CONCUR: QM. ~ , '- MA. BELEN M. RINGPIS-LIBAN Associate Justice c�~:~~ Associate Justic~"'"~' LVK/ 47 Commissioner ofInternal Revenue v. Filminera Resources Corp., G.R. No. 236325, September 16,2020.

DECISION CTA CASE NO. I 0773 Page 20 of20 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. ~-~I'--. MA. BELEN M. RINGPIS-LIBAN Associate Justice Chairperson CERTIFICATION Pursuant to Article VIII, Section 13 ofthe 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 Comi. ~- 4d.,_ I - MA. BELEN M. RINGPIS-LIBAN Acting Presiding Justice