COMMISSIONER OF INTERNAL REVENUE v. AICHI FORGING COMPANY OF ASIA, INC.

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY ENBANC COMMISSIONER OF INTERNAL REVENUE, Petitioner, C.T.A. EB N o. 416 (C.T.A. Case No. 7271) -ve rsus- Present: Acosta, P.J. Cas taiieda, Jr. Bautista, Uy, Casanova, and Palanca-Enriquez, JJ. AICHI FORGING COMPANY OF ASIA, INC., Respondent. Prmnul~ated: �.thl ...,,. " � FEB 0-~ 2009 ot.'~:':.:~l-()-' r -~ X-----------------------------------------------------------------------------------------X DECISION BAUTISTA, [.: The Case Before Us is a Petition for Review1 fil ed on A ugust 11, 2008, praying for the reversal of: 'Rollo, CTA EB No. 4�16 (C TA Case No. 72TJ), pp. J - 58 wit h AnnPxes.

DECISION cr A EB No. 416 (CT A Case No. 7271) J. the Decision dated June 10, 2008 of the Second Division of the Court ("Court in Division" ) in C.T.A. Case No. 7271, partially granting herein respondent's claim for refund and/ or tax credit certificate in the reduced amount of Three Million Seven Hundred Ninety Two Thousand Nine Hundred Seventy �Pesos and 77/100 (P3,792,970.77), representing the unutilized input value added taxes ("VAT") attributable to zero-rated sales incurred for the months of April to June 2003; and 2. the Resolution dated July 22, 2008, denying the "Motion for Partial Reconsideration" of herein petitioner. Antecedent Facts As recapitulated by the Ci::ourt in Division, the following facts are J undisputed: "Petitioner2 is duly registered with the Bureau of Internal Revenue as a value-added tax entity, pursuant to Section 107 (now Section 236) of the Tax Code on May 19, 1995. Consequently, it was issued Certificates of Regish�ation, with RDO Control No . 95-570-000481 (BIR Form No. 1556) and OCN IRC 000148499 (BIR Form No. 2303). Petitioner has also registered its products, 'close impression due steel forgings' and ' tool and dies', with the Board of Investments (BOI) as a pioneer status, enjoying the privileges gran ted by the BOI. As such, it was issued Certificates of Registration Nos. 74-336, DP-92-057 & EP 95- 132 by the Board of Inves tments. For the period covering April 1, 2003 to June 30, 2003, petitioner allegedly generated and recorded zero-rated sales in the amount of P171,942,121 .15. Said amount was paid to peti ti oner in acce ptable foreign currency and was inwardly remitted, in accordance with existing ' Herein Respond ent. 88

DECISION CfA El3 No. 416 (CfA Case No. 7271) ,I reg ulations of the Cenh�al Bank of the Philippines, pursuant to Section 106 (A) (2) (a) (U (2) and (3) of the Tax Code. Petitioner purportedly incurred and paid VAT input taxes amounting to P5,307,313.37 from domestic purchases of goods, services, capital goods and from importation of goods and ca pital goods, which were all attributable to its zero rated sales. On June 14, 2005, petitioner filed a claim for refund in the total amount of P5,307,313.37 with respondenV through Revenue District Office 57, San Pedro, Laguna. For failure of the respondent to act on the request and in order to toll the running of the two-year prescriptive period, on June 21, 2005, petitioner filed the instant Petition for Review. ..... t In her Answer, respondent alleged by way of special and affirmative d efenses that: '6. He reiterates and repleads the preceding paragraphs of this answer as part of his Special and Affirmative Defenses; 7. Petitioner's alleged claim for refund is subject to administrative i.nves ti gation/ examination by the Bureau of Internal Revenu e; 8. Be that as it may, it is impera tive for petitioner to prove that it h as complied with the followin g requirements mentioned below, to w it: (a) The registration requirements of a Value Add ed Taxpayer �pursu ant to Sectio n 6 (a) & (b) of Revenue Regulations No. 6-97 in relation to Sec tion 4.107-1 (a) of Revenue Regulations No. 7-95. (b) That the VAT input taxes of Php5,307,313.37 allegedly paid by peti tioner from its impor tation and p urcha ses of capital goods and other taxable goods and services were attributable to its zero-rated sales and s uch tax has n ot been applied agains t any o utput ta x. (c) That petitioner's claim for tax credi t or refund of excess Input Value Added Tax (VAT) was fil ed w ithin two (2) years after the cl ose of the ta xable quarter when the sales were made in accordance w ith Sechon 4.106-1 (Re: Refunds or Tax Credits of Input Tax) and Sec tion 4.106-2 (Re: Proced ures for Clai ming Refunds or Tax I ' Herein Pe titioner. I

DECISION CfA EB No. 416 (CfA Case No. 7271) Credits of Input Tax) of Reven ue Regulations No. 7-95. (d) That p etitioner's domestic purchases of services were mad e in the course of its trade or business, properly suppo rted by invoices or receipts and import entry or other equivalent documents showing that it actually paid VAT in pursu ance to Section 4.104-5 (a) & (b) of Revenue Reg. No. 7-95. (Re: Subs tantiation of Claims for Input ~Ia x Credit). (e) The requirements as enumerated under Section 4.104-2 of the Rev. Reg. 7-95 (Re: Persons who can avail of th e Input Tax Credits) (f) That Petitioner has complied with the governing rules and regulations with reference to recovery of tax erron eous ly or illegally collected as explicitly fow1d in Sections 112 (A) and 229 of the Tax Code as amended. XXX XXX. 9. Furthermore, it is incumbent for petitioner to prove by sufficient evidence that it is en titl ed to the refund consistent witl1 the well settled principl e in ta xa tion, that claims for refund are conshued strictly against the claimant as they partake the nature of an exemption from tax and it is incumbent upon petitioner to prove that it is entitl ed th ere to und er the law. Failure to prove the sam e is fatal to its claim for ta x refund. Exe mptions from taxation are highly disfavored in law and he who claims exemption must be able to jus tify his claim by the cl eares t grant of o rga nic or statutory law. An exemptio n from common burden cannot be permitted to exis t upon vague implications (Asia Petroleum Co. vs. Llamas, 49 Phil. 466)' ' Pe titioner presented Jes us B. Oliveros, Jr. and Ma . Wencita C. Salvador, as witnesses, and docum entary evidence, marked as Exhibits 'A' to 'MM', inclusive of submarkings, which were admitted by the Court, except for Exhibits 'B' and 'P' for failure of petitioner to identify the same during tri al and compare the same with the ir originals. On the other hand, respondent waived her right to present evidence and submitted the case for decision. Thereafter, both parties w e re o rdered to file their simultaneous m emoranda, within thirty (30) da ys from notice. Both parties having complied thereto, the case was deem ed submitted for d ecision on January 18, 2008." 4 (Citations omitted) � Rolin, pp. 29- 32. I

D ECISIO N Cl'l\ Ell No. 416 (Cf A Case No. 7271) PagP 5 of 21 The Ruling of the Court iu Division The following issues were submitted by the parties for resolution by the Court in Division: "I WHETHER OR NOT PETITIONERs HAS GENERATED AND RECORDED ZERO-RATED SALES AS CONTEMPLATED BY LAW IN THE AMOUNT OF PHP171,942,121.15 DURING THE PERIOD APRIL 1, 2003 TO JUNE 30, 2003. II WHETHER OR NOT THE AMOUNT OF PHP171,942,121.15 WAS PAID FOR TO PETITIONER IN ACCEPTABLE f'OREJGN CURRENCY AND WAS INWARDLY REMITTED IN ACCORDANCE WITH EXISTING REGULATIONS OF BSP. III WHETHER OR NOT THE PETITIONER INCURRED AND PAID VAT AMOUNTING TO P5,307,313.37 DURING THE PERIOD APRIL 1, 2003 TO JUNE 30, 2003 FROM DOMESTIC PURCHASES OF GOODS, SERVICES AND CAPITAL GOODS, AND FROM IMPORTATION OF GOODS AND CAPITAL GOODS. I lV WHETHER THE VAT PAYMENTS IN THE AMOUNT OF PHP5,307,313.37 WERE ATTRIBUTABLE TO THE PETITIONER'S ALLEGED ZERO-RATED SALES OF PHP171 ,942,121.15 . v WHETHER OR NOT THE ALLEGED VAT INPUT TAXES WERE PAID IN CONNECTION WITH THE TAXPAYER'S TRADE OR BUSINESS AND WERE DULY SUBSTANTIATED BY VALID RECEIPTS AND/OR INVOICES IN ACCORDANCE WITH SECTIONS 113 AND 237 OF THE TAX CODE, AS AMENDED. VI WHETHER OR NOT THE SAID AMOUNT HAS BEEN APPLIED AGAINST ANY VAT OUTPUT TAX UAl3ILITY OF THE PETITIONER s He rein Respond ent . I 91

DECISION CTA EB No. 416 (C fA Case No. 7271) Page 6 o f 21 COVERING THE SAME PERIOD, OR ANY SUCCEEDING PERIOD OR PERIODS . VII WHETHER OR NOT PETITIONER IS ENTTTLED TO A REFUND IN THE TOTAL AMOUNT OF PHP5,307,313 .37 ALLEGEDLY REPRESENTING VAT INPUT TAXES PAID DURING THE PERIOD APRIL 1, 2003 TO JUNE 30, 2003. VIII WHETHER OR NOT THE ADMINISTRATIVE AND JUDICIAL CLAIMS FOR TAX REFUND OR ISSUANCE OF TAX CREDIT CERTIFICATE OF THE PETITIONER WERE FILED W~HIN THE TWO (2)-YEAR STATUTORY PERIOD."6 The Court in Division summed up the issues as: whether or not herein respondent is entitled to a refund or issuance of a tax credit certificate in the amount of P5,307.313.37, representing VAT input taxes for the period covering Aprill, 2003 to June 30, 2003 .7 It then proceeded to determine whether respondent complied with the four requisites set out in Section 112 (A) of the National Internal Revenue Code of 1997 ("NIRC"), namely: (1) the taxpayer is VAT-registered; (2) the taxpayer is engaged in sales which are zero-rated or effectively zero-rated; (3) the claim must be filed within two years after the close of the taxable quarter when such sales were made; and (4) the creditable input tax due or paid must be ath�ibutable to such sales, except the h�ansitional input tax, to the extent that such input tax has not been applied against the output tax. After a careful examination of the evidence, the Court in Division ruled that respondent complied with th~ first three requirements. However, as to the 6 Rollt>, pp. 32 - 34. 7 /d., p. 34. 92

DECISION CTA ER No. 416 (CTA Case No. 7271) fourth requirement, it found that some documents and claims of respondent have not been satisfactorily substantiated. The Court in Division excluded several invoices from the to tal zero-rated sales/receip ts, as these invoices were n o t imprinted with the words "zero-rated. " As regards the input VAT for refund, several claims were disallowed because I these were outside of the period covered. A number of illegible receipts were also not included. Various sales of services supported by mere invoices were likewise excluded since no official receipts were submitted by respondent. In addition, respondent's claim on its alleged inpu t VAT on capital goods was disallowed as respondent failed to substantiate the sam e. Since respondent's substantia ted input VAT canno t b e directly or entirely ath�ibuted to its zero-ra ted, taxable and exempt sales, the refundable amount of input VAT had to be allocated proportionately to its zero-rated sales on the basis of its volume of sales. In view of the foregoing, the Court in Division disposed of the case in this wise: "WHEREFORE, premises considered, the present Pe tition for Review is PARTIALLY GRANTED. Respo ndent is hereby ORDERED TO REFUND OR ISSUE A TAX CREDIT CERTIFICATE in fa vo r of petitioner the reduced amount of THREE MILLION SEVEN HUNDRED NINETY TWO THOUSAND NINE HUNDRED SEVENTY PESOS AND 77/100 (P3,792,970 .77), representing the unutilized input VAT atb'ibutable to zero-ra ted sa les incurred for the months of April to June 2003. SO ORDERED."s ' Rollo, pp. 52- 53.

DECISION 0'A EB No. 416 (0'A Case No. 7271) PageR of 21 On June 30, 2008, herein p etitioner fil ed a " Motion for Partial Reconsideration" 9 to which herein res pondent filed an Opposition.lO On July 22, 2008, the Court in Division denied the "Motion for Partial Reconsideration" for lack of rnerit.11 The Issue Hence, the instant Petition where petitioner raises the issue of whether or not the Honorable Division erred in holding that respondent is entitled to a refund or issuance of ta x credit certificate in the amount of P3,792,970.77.12 Petitioner's Arguments Petitioner contends that the Court in Division erred in ruling that respondent is entitled to a refund or ta x credit for the following reasons: 1 "A. The Honorable Division fail ed to discuss and address the arguments of pe titioner that res pondent filed a pro forma administrative claim for refund that would justify non-entitleme nt of respondent to the subject claim for refund; B. Likewise, the Honorable Division failed to address pe titioner's arguments that resp ondent fail ed to co mpl y w ith Section 112 (D) [now (C)] of the 1997 Tax Code, as amended, thus, it adds more reason for the dismissal of the instant judicial claim for refund on the ground of presc ription; C. Respond ent failed to prove complia nce with the BOI terms and conditions; D. Respondent failed to prove that it ha d gene ra ted zero-rated sales in th e amount of P171,942,121 .15 during the period 01 April 2003 to 30 Jun e 2003; � Records, CTA Case No. 7271, pp. 389 - 402. I 10 hi., pp. 404- 407. 11 Rollo, pp. 54 - 55. 12 /d., p. 8.

DECISION CfA EB No. 416 (C TA Case No. 7271) E. Respondent also failed to prove th at the amount of P171,942,121 .15 was paid for in acceptab le foreign currency and was in wa rdly remitted in accordance w ith ex is tin g BSP regulati ons; F. Respond ent failed to subs tanti all y prove tha t it paid VAT in the am ount of P3,792,970.77 from d omes ti c p urchases of goods, services and capi tal goods, and from impor ta tion of goods and capital goods, and th a t the same am ount were a ttri butable to respo ndent's alleged zero- rated sales of P171,942,121.15; and G. Respon dent fa iled to discharge its burden of provin g entitlement to a re fund in all m a terial respec t. "J 3 Respondent's Counter-Arguments For its part, resp ondent counters that the allegations and matters raised by p e tition er are m ere rep etition s, if n ot reiterations of previously laid down arguments, which have been thorou ghly consid ered and passed upon by the Court in Division in its Decision d ated June 10, 2008 and Resolution dated July 22, 2008. Resp ondent in sists that its adminis h�a tive and judicial claims were filed w ithin the two (2)-yea r p eriod. It maintains that it has properly and substantially complied w ith all the requirem ents for refund or tax credit and that it has presented d ocumentary and tes timonial evidence to support its claim. Regarding the issue of compliance with the terms and conditions of the Board of Investments (" BOI"), resp onden t points out that it was issued Certificate of Regis h�ation No. 74-336, Certifica te of Registration No. DP 92-057 and Certificate of Registration Np. EP 95-132 by the BOI. For this reason, resp ondent claims that it is entitled to the incentives provided for in the Omnibus Inves hnent Cod e, w hich includes am on g others, income tax holiday, "Rollo, p. 9. I

DEC IS IO N e r A EB No. 41 6 (0 A Case No. 7271) Pa ge 10 of 21 additional deduction for labor expense, ta x and duty free importation of capital equipm ent, tax credit on d om es tic capital equipment, simplified customs p rocedure, employm ent of foreign n ational, unresh�icted use of consigned equipment, access to bonded m anufac turing wa rehouse, exemption from taxes I and duties on imported parts on imported equipment, tax credit for taxes and duties on raw m a terials, exemption fro m VAT for its export sales, exemption from w h arfage dues and any exp ort tax, d u ty, impost and fees, and unrestricted u se of consign ed equipment. The Ruling of tlT e Cou rt En Bane Th e Petition for Review is bereft of n1.erit. After a careful study of the records and the pleadings submitted by the parties, We find the arguments raised by pe titioner w ithout m erit. As aptly pointed out by resp ondent, p etitioner's argu ments m;e m ere reiterations of his p reviou s arguments, which were thorou ghly d iscu ssed and passed upon by the " ' Court in Division. Nevertheless, in order to clear any lingering doubt on the m atter, We shall discu ss them h ereunder. Respondent's administrative and judicial claims w ere timely fil ed The fac t that the judicial claim for refund w as filed by respondent only on June 21, 2005, or barely seven d ays after it filed its adminish�ative claim for refund on June 14, 2005, does n ot make the adminish�ative claim pro forma . I 96

DECISION c rA FB No. 416(C f A Case No. 7271) PagP 11 o f 21 A taxpayer-claimant need not wait for the lapse of the 120-day period, provided in Section 112 (D) [now (C)] of the NIRC, as amended,14 before he could seek judicial relief with the Court by way of Petition for Review. Neither is it required that the Commissioner should first act on the claim of a particular taxpayer before the Court may acquire jurisdiction, particularly if the claim is about to prescribe. Hence, a decision of the Commissioner is not a condition or requisite before the taxpayer can resort to the judicial remedy afforded by law.15 Incidentally, a taxpayer cannot be faulted for taking advantage of the full 2-year period set by law for filing his claim for refund for there is no provision in the NTRC requiring the claim for refund to be filed at the earliest instance in order to give the Commissioner an opportunity to rule on it and the Court to review the ruling of the Conunissioner of Internal Revenue on appeal. 16 Thus, when the 2-year pet~iod is about to prescribe and the claim for refund with the Commissioner of Internal Revenue has not been acted upon, for the protection of the interest of the taxpa yer, he should file a Petition for Review with this Court within ~he said 2-year period; otherwise, if the decision of the " "SEC 11 2. Refund s or Ta x Credits of Input Tax. - (D) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the Commissioner shall gra nt a refund or issue the ta x credit certifica te for creditable input taxes w ithin one hundred tw enty (1 20) days from the dale of submiss ion of complete document s in suppor t of the a pplica tion filect in accord ance with Subsection (A) a nd (B) h e r e o f. In case of full or pa rtial denial of the cl aim for tax refu nd or tax credit, o r the failure on the pa rt of the Commiss ione r to act on the a pplica tion w ithin the pe riod presc ribed a bove, the tax payer affec ted may, w ithin thirty (30) days from the receipt of the decisio n deny in g the claim o r after th e ex pi m ti on of the o ne hundred twenty day-period, appea l the dec ision o r the unacted claim with the Court of Tax Appea ls. 15 Co mmi ss ione r of Inte rnal Revenue v. Mira nt Pagb il au Co rpo ratio n (formerly Southe rn Energy Q uezon, Inc.), CTA. EB No. 251 (CTA Case Nos. 6628 & 6732), May 30, 2007, citing Bm l~ulir~g [DA-489-03] da ted Decembe r 10, 2003, signed by Deputy Commissioner (Legal nmf Enjo rcement Group) jose Mario C 8111/ag. '" Commi ss ioner of Int erna l Revenue v. Mim nt Pagbi lao Corpo 1:at ion, supra. note 15, cit ing Co mmissio11er of lntem nl Re11e nue v. Hitncl 1i Compu ted Products (!\sin) Col]'Ol:ntion, C!\ -C.f< . 51' t\io. 63340, February 7, 2002. 9!

DECISIO N CTA EB No. 41 6 (CTA Case No. 72~1) Commissioner is adverse to the ta xpayer and it w as made after the 2-year period, h e can n o longer appeal the same to this Cou r tY In this cmmection, Sec tion 112 (A) of the NIRC, infra, provides that the prescription of claims for excess input VAT is counted from the close of the taxable quarter w h en the sales were m ade, which in this case is from June 30, 2003. Considering that respondent filed its adminish�ative claim on June 14, 2005 " and its judicial claim on June 21, 2005, we agree with the ruling of the Court in Division tha t these claims w ere filed w ithin the 2-year period. Respondent having been registered in accordance with the provtswns of the Omnibus Investment Code, is entitled to certain benefits and privileges Records show that respondent was issu ed the foll owing Certificates of Regis h�ation by the BOI: Certificate of Regish�a tion No. 74-336 on June 28, 1974 for its closed impression die steel forgings, Certificate of Registration No. DP 92- 057 on April 22, 1992 for its tools and dies, and Certificate of Registration No. EP 95-132 on June 8, 1995 for its closed die impressions and forgings .18 Having been duly registered w ith the BOI, resp ondent is en ti tled to all the incentives provided in the Onmibus Inves hnent Cod e, w ithin a ten (10)-year period from the date of regis h�ation. H ence, for the p eriod of April1, 2003 to June 30, 2003, respondent is entitled to incom e tax h oliday, additional deduction for labor exp ense, ta x credit on d omes tic capital equipment, sifllplified custom s procedure, employm ent of for eign national, unresh�icted u se of consign ed equipment, access to bonded 17 Commiss ioner of Intem al Revenu e v. Mi rant Pagb ilao Corpora tion, supra, note 15, citing Commissioner of lntem al Revemte v. Hitachi Computed Products (Asia) Corpo rntim1, CA-G. R. SP Nn. 63340, February 7, 2002. ,. Records , p. 253, Exhibit "D." 98 I

D ECI S IO N C r A Ef:l No. 41 6 (G A Case No. 7271) P~g<" 13 of 21 manufacturing warehouse, exemption from taxes and duties on imported parts on imported equipment, and tax credit for taxes and duties on raw materials und er Certifica te of Regish�ation No . EP 95 -132.19 I The contention of petitionar that respondent failed to prove compliance with the terms and conditions of the BOI has no leg to stand on, as there is adequate evidentiary basis to establish that respondent indeed complied with the terms and conditions of the BOI. Respondent' s compliance with the terms and conditions of the BOT may be deduced from the Certifica tion dated May 31, 2005 issued by the Department of Trade and Indush�y and the BOI. The Certification states that respondent had regish�ations with the BOI, that it was entitled to several incentives, and that its Certificates of Registration were cancelled on May 5, 2004 in view of its transfer of regish�ation to Philippine Economic Zone Authority ("PEZA"). Had respondent failed to comply with the terms and conditions of the BOI, the Certification would have noted this fact considering that the Certification clearly states that it was issued upon the request of respondent for the purpose of its claim for refund of VAT. 20 Respondent is entitled to a refund or tax credit in the reduced amount of P3, 792,970.77 To validly claim a refund of unutilized input VAT attributable to zero- rated sales, a taxpayer must comply with Section 112 (A) of the NIRC of 1997, as amended, which provides: '" SIIJ>rn, a t note 18. '" Suprn, a t note 18. 99

DECISION CTA EB No. 416 (CT A Case No. 7271) Pa ge 14 of 21 "SEC. 112. Refunds or Tax Credits of Input Tax. - (A) Zero-Ra ted or Effectively Ze ro-Rated Sales. - Any VAT- registered person, whose sales are zero-rated or effec tively zero-rated may, within two (2) years a fter the close of the taxable quarter when the sales were mad e, 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 ex ten t that such inpu t tax has not been applied against output tax: xxx" Considerin g that the timeliness of the filing of respondent's administrative and judicial claims h ave already been resolved in favor of respondent, the only question left for resolution is w hether respondent was able to substantiate its claim for refund or tax credit. Respondent is a VAT-registered entity engaged in zero-rated sales.21 In its Quarterly VAT Return for the second quarter of 2003, respondent declared that it generated and recorded zero-rated export sales m the amount of P171,509,980.39.22 Th ese were mostly export sales to PEZA-registered entities subjected to VAT a t 0 % rate.23 However, as correctly found by the Court in Division, a total amount of P7,942,138.51 should be disallowed and excluded from the total zero-rated� sales/ receipts as the invoices of these sales failed to comply with the requirements of the law for VAT zero-rating, particularly the imprinting of the words "zero-rated." 24 Accordin gly, the total amount of zero- rated sales should be reduced to P163,567,841.88.25 In determining the actual amount of input VAT available for refund or tax credit, We fully subscribe to the findings of the Cour t in Division, to wit: ' ' Rollo, p. 38. 22 /d., p. 42. 21 /d ., p. 45. "Ro/10, pp. 4::\ - 44. 25 /d., p. 51.

DECISION CTA Ell No . 41 6 (CTA Case No. 7271 ) Page IS of 21 "Substantiation of Input VAT other thau Capital Goods After a thorough scrutin y of the evidence on record, the Court finds certain disallowable claims, in additi on to the exceptions found by th e independent CPA, as they were issu ed beyond the period covered by pe titioner's claim , which will restllt to a discrepancy in the input VAT av ailable for refund, to wit: uts idt! o th e nerio d COMPANY .. lnvoicl� No. O.R. No. Datl' of Date of O R Total Invo ice Input overed 1 In voice 3/3/2003 Amount VAT 1100 E,'X HIIliTS 3/3/2003 100 100 Y, Y- 1 K Lme Air Sernce 416 42956 100 Y-3, Y-4 Phils., Inc. 4727. 27 \'-5, Y-6 KLi ne Air Service 448 43102 3/ 12/2003 3/ 12/2003 11 00 \'-96, Y-97 Phil s., Inc. 8 181.8 1 Y-1 58 KL i ne A tr Se rv ice 49 1 43170 3/26/2003 3/26/2003 11 00 Phtl s., Inc. 1463.73 A mmex M<~ c hin c T oo l s 5739 3557 3/3 1/2003 52000 13000 Phil s. Aries Techno logies, Inc. 12 1 7/ 25/2003 88,363. 64 16400.36 83 27. 45 Y-159 3 12 6/25/2003 90000 492.36 Y- 160 An es Techn o logtes, Inc. 122 8/ 1/ 2003 156208.25 1570.25 Y- 16 1 303 li/ 19/2003 1610 1 1434 .55 Y-162 309 6/23/2003 143000 9345.61 23.85 Y-163 Aries Tech no logies, Inc. 123 8/ 1/ 2003 177123.93 12'15 Y- 164 As ia Machine Sh o p 3 15 6/27/2003 8/ 1/ 2003 180404 31 8.18 Y- 167 18592 I 9 1602 20.86 14<1-1 6/30/2003 20.8 5 37.63 Y-233 As tan T ransm iss ion Co rp . 23011i 07 10/ 2003 22688.73 13609 \' -234 '11330 11 / 29/ 2001 541 6 26564 .6 90.63 Y�235 497 12/ (){l/2002 1727 2.73 90.63 65 Y-236 Ass is tco Energy & Ind . Co rp l h972 6/20/2003 15780 1250 11 70 Y- 23 7 18273 3/3 1/2003 15780 3000 80 Y-246 A u trans Ph il. Corp 820 no d a te 93456.05 45.56 32.27 Y-24 7 423 3/30/2003 10280 1. 66 Y-345 BPI/ MS In s urance Co rp 10 178()(,2 6/2�1/2003 7/9/ 2003 262.39 y -352, y -353 Cairhil l tvletro lo gy Inc. 242 135 6/ 10/2003 7( 25/ 2003 13365 Y-354 CAl Inte rna ti o nal Fo nv c~rd ers 10-1 2/25/2003 3500 Y-357, Y-358 C<~ rgoh cws. Inc 385 107 885575 3/1'/ 2(1(\1 1/ 13/2003 229.46 Y-359, Y-360 C n gohau s, Inc 390 11 9 890335 3/27/2003 3/27/2003 229. 35 y -364, y -365 Ca rgolMu s, Inc 385 12 2 88556(, 3/11/2003 3/ 13/ 200.1 413.93 y-382, y -383 9799 250 5/ 19/2003 7/9/ 2003 14%99 Z-33, Z-34 Cit sli/l o, Za mora & 2922 10 .64 Poblador Law O ffices LC N 12 1870 4 2774~ 6/9/ 2003 7/ 4/ 2003 Z-11 7 Di l L Wo rldwide 997 Express 8839 3/ 7/2003 Exe l Ph ilip p ines, Inc Z- 118 Exel Phil ipp ines. Inc 8888 7/ 13/ 2003 997 Z- 11 9, Z-1 20 Fa lll Oli S Prlciic l ~ l f' #0 1 6986 41824 3/5/2003 3/ 6/2003 715 Z- 126, Z-127 Forward ing Ph 1ls. I 1929 13750 Z- 137, Z- 138 Femu r Phi ls. Co rp. 31 6/20/2003 8/ 1/2003 12870 5 1000300 10 6/25/2003 9/5/ 2003 33000 Z- 166 Fil so n�cs ELl u ipm en t & 11 8 Z-204,z-205 Services Inc 54144 3/28/ 2003 5/ 16/2003 880 Ge r man rec h /\s1a 18 Pacifi c, In c. 2/27/200.1 2/28/2003 G R/\Ilnterna tiona l lnc 25933 Z-243 lnt nl Co nta ine r Te rmin a l Serv ices. In c. 10 1786 2/ 28/2003 50 1.11 Z-24 4 ln tnl Co ntainer Te rmina i SPrv ires, Inc. 2/28/ 2003 355.03 1 0 1 0~/i 101

DECISION C r A EB No. 416 (GA Case No. 7271) Page 1o of 21 Z-245 lntnl Co ntc'llnf'r Terminal Services. Inc. 1t153-l1R 2/28/2003 2541 23 1 I 1:<66 7/2/2003 2707.89 246.1 7 Z-293, Z-294 Laguna Internet, Inc. 3ZJ} 6/22/2003 3 1.82 3/ 18/2003 350 13.64 Z-303 Liquid Honey, Inc. 1157:l 150 18. 18 200 27.27 Z-304 Uqu 1d Honey, Inc. 11 597 3/19/2003 300 18. 18 200 22.73 Z-305 Liquid H oney, Inc. 11 62 1 3/20/2003 250 22.73 250 18.18 Z-306 Liquid H oney, Inc. 11 647 3/2 1/2003 200 22.73 250 22.73 Z-307 Liquid H oney, Inc. \1662 3/22/2003 250 13.64 7-309 Liquid Honey, Inc. ~1 (�71\ 150 18. 18 3/2�1/2003 200 890.01 Z-3 10 Liquid Honey, Inc. 1 1690 3/25/2003 9800 212.36 2336 857.27 Z-311 Liqu�d Honey, Inc. 11 709 3/26/2003 9430 1714.55 18860 150.73 Z-312 Liq uid Honey, Inc. 11 732 3/27/2003 1658 4809.09 52900 613.8 Z-3 14 Liquid H oney, In c. 11 757 3/28/2003 6751 .8 4918 3/29/2003 54098 Z-315 Liquid H oney, Inc. 11 770 1/31/2003 4/ 1/2003 Z-3 16 Liquid Honey. Inc. 11 786 AA- 14, AA- Matsushita Electric 1212 139 15227 7/25/2003 IS Phils. Corp 111290 Mesco, I nc. 1/23/2003 AA-38 AA-61 Mesco, Inc. 110904 1/2/2003 1/2/2003 AA-62 Mesco, Inc. 11 0905 1n4;2oo3 AA-63 ~ l esco, In c. 111 357 AA-87, AA- MJD & sons, In c. 4682 I'Y.27 6/20/2003 8/ 1/2003 88 15 19 10 MOF Co mpany, Inc. 326397 2/2 1/2003 2/24/2003 AA-89, AA- 4695 90 P ID 4176 5/20/2003 2/ 19/2003 CO !llrollers&Co nlractors 4696 AA- 160 Co rp 4326 5/20/2003 7/ 11 /2003 6688 608 PID 4696 AA- 16 1 Co ntroll ers&Co ntractors 4181 5/20/2003 3/13/2003 3344 304 Corp 57 AA- 164 PID 216 7/10/2003 3000 272.73 AA-206 Co ntroller~&Contractors 3/3 1/2003 17290 1571.82 AA-376 88-23 Corp_ 351 7/4/2003 6466.59 587.87 7/2/2003 1180 107.27 J~a-Tris General 20:<7 ' 7/ l /20!n Merchandise Slick Encrg)' 3/ 10/2003 D istributors Spe~ re man, Inc BB-39, BB-40 Speed way Elec troni cs & 544 3405.6 309.6 Offi ce Su p pli es 88-73 Steelwo rks Indu strial " 596 6/0/2003 7/4/2002 23 100 2 100 Sales BB-115, BB- Sun Logistics T ech, In c. 2402 3438 5/26/2001 7/25/2003 11 250 1022.72 116 Toyola 2048 RB-165, 88- 166 Toyota 2424 BB-167 97003 7/18/2003 274341 24940.09 83276 3/12/2003 BB- 181, BB- Transonenl Container 129534 3/12/2003 5110.25 464.56 182 Termmdl Services 2997 Tri- Link Marketing Co. 3/3 1/2003 22080 2007.27 88 -1 88 2336361.03 162,066.37 SUBTOTAL On the other hand, the Co urt finds that the following receipts are not legible, such that the Court cann ot verify the amounts being claimed: lltwccectab lc Receie.ts (not t"cadllb/e-uot raven CTC E.X llmrrs CO MPA NY In voice No. O. R. No . 1Jall' of Date of O R To tal Invoice Input VAT 6610� 4/30/2003 In voice Amount 3760.6 1 Z-218 IO Z- Integrated Logistics 4/30/2003 41 366.71 1669.33 241 Ph1ls. Inc. 1669.33 1669.33 6433 2/21/2003 2/21/2003 18362.65 6434 3/2 1/2003 18362.65 6466 3/29/2000 18362.65 10 2 I

DECISION crA Ell No. 416 (CfA Case No. 7271) 6478 3/31/2003 52600 4781.82 6566 4/22/2003 52600 4781.82 65 51 � 4/ 1<1/200:1 18271.89 1661.27 6641 5/5/2003 10939.06 994.46 6667 5/<l/2(Xl1 10939.06 994.46 6749 6/4/2003 9827. 04 893.37 6753 5/30/2003 18422.36 1674.76 24.550.56 SUBTOTAL While the following sales of se rvice are supported by invoices, in violalion of Sec tion113 of the NTRC of 1997, ns nmended: No Offic ial Receipts (Sa le o Services EX IIIIJI TS COM !'ANY Invoke No . O.R. No. Dille of Oat(' of On To ta.l Inv o ice Input VAT 607 In voice Amo unt 100 Y- 2 K Line Air Service 4/24/2003 1100 Y-363 401682 20.68 Phils. lnt:. 11}-A pr 227.56 120.68 Cargo llau s SU 8TQTAL With rega rd to the miss ing documents, as found by the Independent CPA, We adopt he r findings during h er exam ination (Annex H .l of the Independent CPA's Report, Exhibit 'LL') based on the evidence presented a nd th e schedul e of petitioner submitted to her. However, upon verifica tion, th e Co urt finds th a t the computation of the total am ount is n o t correc t, hence, it i~ here by reco mputed as follows: Na.1n e o f V~ndor l nvoi c ~ Date of O.R. No. OaleofO.R. Purcha se PUJ cha.se Pun�hue of (\mo unt Input VAT To lal lnvoicl!! No. In v o i ce 111 5729 of of Services Amount 22, 9-19.50 Cll.!'it<tl S uppli es 5.090 70 fi l ,~C. l 2'\ Good s I RI R2 A !<idn n.no IR -Jun -m flCJSQf 27- Jun- 0~ 29,-UinOO 6 / ,C:W )I )() 2.~ 1 95 5,5997R Tcnnir'~<rl ~. Inc. 32,l-16.1l5 ll-B l 19-Jun -OJ fiiJR21 27 Jun 0 2~,1) -1 1) 50 7,751 :n 2.9-10.(,() 25,24-1_.18 Aulwn.c; Phil!!., 57525 2,29-1. 95 Co r� . IR 19 6,601.82 9552 1 1 82 1,112r..:n Aulr.u1 .c; Phil.c; , 73CL OO 750() Cor'� 1072 l (, M ,I)'-0. ,;,rro ) (,'\ (.4 M<l.OO 7,260.00 Kinf~�s D ev l, ''.4 20 3..1200 3<12(1} Inc 8 609.32 Pn1nc'>'ul lltl D 1tit.,l Sy.c;lcm s, !no.:. Ro-. to n MiHkclillJj Co <p . S1111d vik Philippines, In~.. T OTAL Substantiation of Input VAT on Capital Goods Moreover, with res pec t to the claimed input VA T on capital goods amounting to P329,031.42, a ca reful exa mination of tho2 records reveals tha t pe titioner fail ed to present proofs of its purchases of capital goods and the paid input tax on such transactions. Capital guods or properties, as defin ed in Revenue Regulntions No . 7-95, are' goods Cl nd properties with es tim a ted u seful life greater th an o ne year and w l tich are b�eated as deprecia ble asse ts under Secti.on 29(/), use d directl y or indirectly in the production o r sale of taxable goods or services ." Thus, goods and 103

DECISION CfA EBNo. 416 (CfA Case No. 7271) Pa ge 18 of 21 pro perties used by the taxpayer in its VAT- taxa ble business, s ubjec t to de precia tion or am or tiza ti on in accordance w ith the Tax Code, are consid ered ca pital goods. Input VAT on the purchase of such capital goods is creditable agains t the taxpayer's ou tput VAT. The taxpayer is further g iven the o ption to claim refun d of th e input VAT on its capital good s, but only to the extent tha t the said irtput VAT has not been a pplied to its output VAT. Conversely, the Co urt w ill not allow unsupported claim s. H ence, for failu re to show proof of s ubs tantiation of its claim, We d isa ll ow petitioner's claim on its alleged input VAT paid on capital goods. R efundable In put VAT The a bove disallowed cla im s res ulted to a discrepan cy in the available input VAT available for refu nd, com puted as follow s: In p ut Tax o n capita l goods p 329, 031 .42 4 978 281.95 Ad d: Input tax o ther than ca pita l goods 5,307,313.37 To tal Inpu t Ta x, p er applica tion p 199,116.93 329 031.42 Less: To tal exceptio ns as found by the Co urt ..r..___i,779.165.02 A. Purchases Other th an Ca p ital Goods: 162,066. 37 O utsid e of th e period co vered 24,550.56 Unacceptable receipts (fax co py only) 120.68 N o o fficia l receip ts 8,609.32 Missing ORs/ Invo ices U nl ocated Difference per VAT Return & 3,770.00 Schedule of imp orta ti on B. Purchases of Capital Goods Unsubstantiated Cap ital Goods Substantiated Input Tax lrtas mu ch as pe titi oner's inpu t tax cann o t be d irectly or entirely attributed to its zero-rated , taxa ble and exempt sales; the refundable amo unt of in p ut tax shall be all oca ted proportionately to its ze ro-rated sales on the basis of its vo lume of sa les, to wit: Period Zero-Rated Exempt VAT Sales T otal Sa.Jes � ,,, �-~~bstaritiated, , Covered Sales 1\:;. A B c � ,{;J[ln:'put 'Fi!X'.�. z . 2003 432,140.76 2nd 1 63,567,841. 88 7, 619,710 .16 D E qu ar ter 171,619,692.80 4,779,165.02 4,554,941.77 12,034.00 212,189.25 In additi on, rela ti ve to the re port of the ind ependent CPA, We agree th a t in computing the input VAT ava ila ble for refund, pe titioner 104 I

DEC IS IO N CrA EB No. 416 (erA Case No. 7271) did not deduct the o utput VAT for sales subjec t to VAT in the amount of P761,971 .00 (Independent CPA's Report, Exhibit 'LL'). Based on the foregoin g, the output tax paya ble must be applied against its substantiated claim ed input tax all oca ted to zero-rated sales, resulting to a refundable input ta x of P3,792,970.77 only, computed as follows: ' To tal Inpu t tax a llocable to zero-rated sales p 4,554,941 .77 Less: O utput Tax th at shoul d have been paid 761 971.00 Total Input Tax Available for Refund �_____3,792.970.77 Likewise, it is also wor thy to note that although pe titioner carried- over the claimed input VAT of P5,307,313.37 to the succeeding quarters of 2003, all quarters of 2004 and until the seco nd quarter of 2005, as evid e nced by Q ua rte rl y VAT Re turns for th e said taxa ble p eriods (Exhibits 'I', '1-1', ']', 'J-1', 'K', 'L','M', ' N ','O', nnd 'R'), the same was not applied agains t any output VAT for the said periods. Moreover, the same was deducte d as 'An y VAT Refund /TCC' claimed from the total available input ta x of P18,911,940.14, as of the second quarter of 2005. In o ther words, the subjec t claim n o lon ger formed part of the excess input VAT of P13,122,121.34, as of the month of July 2005, which was to be carried over/ applied to the succeeding third quarter of 2005. In sum, p e titioner has s ufficiently proved tha t it is entitled to a refund or issuance of a tax credit ce rtifica te representin g unutilized excess input VAT payments for the period Aprill, 2003 to June 30, 2003, which are attributabl e to its zero-rated sa les for the sam e period, but in the reduced amow1t of P3,792,970.77."26 We n eed not belabor that the question of whether or not the evidence submitted by a party is sufficient to warrant th e granting of its prayer lies within the sound discretion and judgment of the Court.27 Thus, in the absence of the Court's abuse or improvident exercise of authority, findings of facts made by the Court in Division, esp ecially if supported by the evidence, must be accorded d eference and resp ec t. 28 Such is the situation in the present case. 26 Rollo, pp. 46 - 52. 27 El Greco Shi p Manning and Ma nagement Cor poration v. Commissioner of Custo ms, C.T.A. EB No. 172 (C.T.A. Case No. 6618), [\�!arch 14, 2007. 2' Uni on Refinery Corpora tion v . Com missionf'r of Cus to ms, C.T.i\ EB NO. 149 (CT. A. Case No. 5917), Janu ary 15, 2007. lOS I

DEC ISION CT A EBNo. 416 (CTA Cast' No. 7271) Pn ge 20 of 21 All told, We find respondent entitled to a refund or tax credit in the reduced amount of P3,792,970.77. . WHEREFORE, the instant Petition for Review is hereby DISMISSED. Accordingly, the Decision dated June 10, 2008 and the Resolution dated July 22, 2008 are hereby AFFIRMED . SO ORDERED. WE CONCUR: Q~ Q. o~ ERNESTO D. ACOSTA I Presiding Justice ~~~c. G..rT-a..-:ec6./~ . E~.UY JR. JtlANITO C. CASTANEDA, Associate Justice Associate Justice G-et�- ~ ~� OLGA PALANCA-ENRIQUEZ Associa te Justice CAESAR A. CASANOVA Associate Justice lOG

DECISION .. CTA EB No. 41 6 (CTA C ase No. 7271 ) Pa ge 2�1 o f 21 CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the above Decision has been reached in consultation with the members of the Court En Bnnc before the case was assigned to the writer of the opinion of this Court. Q~-k . D~ ERNESTO D. ACOSTA Presiding Justice 107