COLT COMMERCIAL v. THE COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SPECIAL THIRD DIVISION COLT COMMERCIAL, INC., CTA CASE NO. 9356 Petitioner, Members: -versus- FABON-VICTORINO, Acting Chairperson and RINGPIS LIBAN, JJ. THE COMMISSIONER OF I NTERNAL REVENUE, Promulgated: Respondent. 18 DEr X- - - - - - - - - - - - - - - - - - - - - - - ~ - _/!_; :p f> fl._~ �- - - - - - - X DECISION Fabon - Victorino, J.: In the instant Petition for Review filed on May 23, 2016 1, petitioner Colt Commercial, Inc., prays for the refund of its alleged unutilized input Value-Added Tax (VAT) in the amounts ofP2,000,256.32 and P1,445,784.19, attributable to its zero-rated sa les for the first (1st) and second (2nd) quarters of taxable year (TY) 2014. Petitioner is a domestic corporation, with office address at Suite 508 Padilla Delos Reyes Bldg., 232 Juan Luna St., Brgy. 289, Zone 027, Binondo, Manila. 2 It is principally engaged in the business of selling cutting tools and hardware. 3 It is a VAT-registered taxpayer with Taxpayer Identification No. (TI N) 008-327 - 264-000. 4 1 Docket, vol. 1, pp. 10- 21. 2 Exhibit "P- 1". I 3 Exhibit " P-2" . 4 Exhibit "P-5".

Decision CTA CASE NO. 9356 Respondent, on the other hand, is the Commissioner of Internal Revenue (CIR), authorized to act on claims for refund or issuance of tax credit certificate in accordance with the law. He holds office at the BIR National Office Building, Agham Road, Diliman, Quezon City. Petitioner states that it incurred unutilized input tax payments attributable to its zero-rated sales for the 1st and 2nd quarters of TY 2014 in the amounts of P2,000,256.32 and P1,445,784.19, respectively. On March 30, 2016, petitioner filed with BIR Revenue District Office (RDO) No. 30, an administrative claim for refund of the cited excess input VAT for the 1st and 2nd quarters of TY 2014 in the sum of P3,446,040.51. 5 The said claim for refund was however denied through the Letter dated April 21, 2016 of Revenue District Officer Leonora R. Ruizo16 , hence, this Petition for Review filed on May 23, 2016. On July 12, 2016, respondent filed his Answer7 arguing that the present claim for refund is premature since its case is still pending investigation with Revenue Region No. 6, BIR Manila. Besides, per record, petitioner has already applied the entire amount of input tax, subject of the claim for refund, against its output tax by carrying over the same to succeeding taxable quarters, specifically from taxable quarters ending March 31, 2013 up to March 31, 2015. Verification of petitioner's VAT Returns revealed that the input taxes amounting to P2,000,256.32 and P1,445,784.19 were not deducted from available input tax corresponding to the period of claim. Respondent also argues that pursuant to Section 112 of the NIRC of 1997, as amended, the remedies of tax refund and input tax carry-over are alternative in nature and the choice of one precludes the other. Finally, respondent invokes the principle that claims for refund are construed strictly 5 Exhibit "P-13". 6 Exhibit "P-23". / 7 Docket, vol. 1, pp. 196-201.

Decision CTA CASE NO. 9356 against the claimant since they are in the nature of tax exemptions. After the Pre-trial Conference on October 11, 20168, the parties filed their Joint Stipulation of Facts and Issues on October 26, 20169, on the basis of which a Pre-Trial Order was issued on November 23, 201610 � To substantiate its case, petitioner presented as its witnesses, Cyrus S. Chung Jr., Cherilyn R. Chung, Jennifer S. Mafiago and the Court-commissioned Independent Certified Public Accountant (!CPA) Sonny 5. Bonilla. Petitioner's President, Cyrus S. Chung testified 11 that petitioner was established on July 17, 2012. It is engaged in the business of selling cutting tools and hardware. It supplies business enterprises in need of cutting tools and other hardware, most of which are within the ecozone and are PEZA12 and SBMA-registered entities. Petitioner is a VAT- registered entity registered with BIR-RDO No. 30 in Binondo, Manila, as evidenced by its BIR Certificate of Registration dated August 31, 2012 13 � Petitioner filed an administrative claim for refund 14 of its unutilized input tax payments attributable to zero-rated sales to its clients for the 1st and 2nd quarters of TY 2014 in the respective amounts of P2,000,256.32 and P1,445,784.19. It was however denied in a Decision dated April 21, 2016 issued by BIR ROO No. 30 and received by petitioner on April 22, 2016 15� Upon consultation with its legal counsel, petitioner authorized 16 him to file the instant Petition for Review. Petitioner's Corporate Secretary and Treasurer, Cherilyn R. Chung corroborated 17 the foregoing testimony and added that their counsel advised them to file an 8 Docket, vol. 2, p. 646. 9 Docket, vol. 2, pp. 662-669. 10 Docket, vol. 2, pp. 674-679. 11 See Cyrus S. Chung Jr.'s Judicial Affidavit, Exhibits "P-24" and "P-24-a". 12 Exhibit "P-6". 13 Exhibit "P-5". 14 Exhibits "P-13" and "P-14". 15 Exhibit "P-23". J 16 Exhibit "P-4". 17 See Cherilyn R. Chung's Judicial Affidavit, Exhibits "P-25" and "P-25-a".

Decision CTA CASE NO. 9356 administrative claim for refund so that they can utilize their excess input VAT. Hence, they prepared the documents necessary and filed an administrative claim for refund on March 30, 2016 with ROO No. 30. On April 22, 2016, petitioner received a Letter from BIR ROO No. 30 signed by Revenue District Officer, Ms. Leonora Ruizol, denying petitioner's administrative claim for refund 18 prompting them to file the instant case with the Court on May 23, 2016. Witness Jennifer S. Maiiago testified 19 that as petitioner's accounting head, she was responsible for the preparation, timely filing, payment and submission of tax returns and other reports to the BIR, Securities and Exchange Commission (SEC) and other government agencies. She also corroborated the testimonies of the previous two witnesses and further declared that for the 1st Quarter of TY 2014, petitioner's sales allocation consisted of P10,362,386.09 vatable sales and P23,532,943.34 zero-rated sales with corresponding output tax of P1,243,486.33 and input tax of P3,243,742.65. For the 2nd Quarter of TY 2014, petitioner had P10,190,257 .41 vatable sales and P22,615,049.31 zero-rated sales, with an output tax of P1,222,830.89 and input tax of P2,668,615.0820� Thus, petitioner incurred an excess input VAT in the an1ounts of P2,000,256.32 for the 1st Quarter of TY 201421 and P1,445, 784.19 for the 2nd Quarter of TY 201422 � To avoid double recovery, petitioner deducted the amount corresponding to the unutilized and excess input VAT from the total available input VAT item in the Quarterly VAT Return for the 3rd Quarter of TY 201423 . Petitioner likewise incurred unutilized input VAT in TY 2013 as evidenced by petitioner's VAT Returns for the 1st to 4th Quarters of TY 201324 � The witness admitted that while she prepared most of the documents she identified and is familiar with their contents, she did not have personal knowledge about the 18 Exhibit "P-23". 19 See Jennifer S. Manage's Judicial Affidavit, Exhibits "P-26" and "P-26-a". 20 Exhibits "P-8", "P-9", "P-10", "P-11", "P-19", "P-20", "P-21" and "P-22", inclusive of sub-markings. 21 Exhibit "P-17-a". 22 Exhibit "P-17-b". 23 Exhibit "P-17-c". 24 Exhibits "P-16-a" to "P-16-d". /

Decision CTA CASE NO. 9356 transactions involving the said documents as some were either issued by the BIR or prepared by petitioner's counsel or other employees. On petitioner's application to use pre-numbered loose- leaf forms, she explained that she had no participation in the said application but aware that it was granted. Further, the use of pre-numbered loose-leaf invoices was necessary as petitioner printed sales invoices through the computer. However, for collection purposes, petitioner still used hard bound collection receipts. The Court-commissioned !CPA, Sonny S. Bonilla testified 25 that based on his findings as stated in his !CPA Report dated March 9, 201726, petitioner is entitled to input VAT refund for the 1st and 2nd quarters of TY 2014 but in the reduced amount of P3,427,018.36. He further testified that for the Quarterly VAT Returns for the 1st and 2nd quarter of TY 2014, petitioner did not indicate the amount subject for VAT refund. In any event, in its Amended 3rd Quarter VAT Return, petitioner indicated its intention to claim for VAT refund. He also learned from his audit that in its 4th Quarter VAT Return, petitioner carried over the excess input VAT from the 3rd quarter of TY 2014. After its last witness, petitioner rested its case per Resolution dated July 5, 2017. 27 On October 2, 201728, respondent manifested that he would no longer present any evidence. After respondent filed his Memorandum on November 17, 201729, the case was submitted for decision on December 27, 201730 sans any from petitioner31 � 25 See Sonny S. Bonilla's Judicial Affidavit, Exhibits "P-27" and "P-27-a". 26 Exhibits "P-28" and "P-28-a". 27 Docket, vol. 2, p. 852. 28 Docket, vol. 2, p. 854. 29 Docket, vol. 2, pp. 862-866. 30 Docket, vol. 2, p. 870. 31 Records Verification Report dated December 12, 2017, docket, vol. 2, p. 868.

Decision CTA CASE NO. 9356 THE ISSUE The parties submitted the following issue32 for the Court's resolution: Whether petitioner is entitled to a tax refund in the amount of Two Million Two Hundred Fifty-Six Pesos and Thirty Centavos (Php2,000,256.32) for the first quarter of TY 2014 and One Million Four Hundred Forty-Five Thousand Seven Hundred Eighty-Four Pesos and Nineteen Centavos (Php1,445,784.19) for the second quarter of TY 2014, despite its failure to allege in the petition its total sales for the covered period and the total unutilized input tax directly attributable to zero-rated sales. THE COURT'S RULING Sections 112(A) and (C) of the NIRC of 1997, as amended, pertinently provides: 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: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)( 1), (2) and (b) and Section 108(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules J 32 Joint Stipulation of Facts and Issues, docket, val. 2, p. 662.

Decision CTA CASE NO. 9356 and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods of properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales: Provided, finally, That for a person making sales that are zero-rated under Section 108(B)(6), the input taxes shall be allocated ratably between his zero- rated and non-zero-rated sales. XXX XXX XXX (C) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsection (A) hereof. In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day- period, appeal the decision or the unacted claim with the Court of Tax Appeals. Thus, to be entitled to refund/TCC of input tax due or paid attributable to zero-rated or effectively zero-rated sales, the following requisites must be satisfied: 1. the taxpayer is VAT-registered; 2. both the administrative and judicial claims were filed within the prescriptive periods; 3. the taxpayer is engaged in zero-rated or effectively zero-rated sales; 4. the input taxes were incurred or paid;

Decision CTA CASE NO. 9356 5. the input taxes claimed are attributable to zero- rated or effectively zero-rated sales; and 6. the input taxes have not been applied against any output VAT liability. Petitioner is a VAT- registered taxpayer. It is undisputed that petitioner is a VAT-registered entity as evidenced by its BIR Certificate of Registration No. OCNC0000579258 and Taxpayer's Identification No. 008- 327-264-000.33 Petitioner's administrative and judicial claims were seasonably filed. The second requisite was likewise satisfied. Pursuant to Section 112(A) of the NIRC of 1997, as amended, petitioner had two (2) years to file a claim for refund/TCC of input VAT attributable to zero-rated or effectively zero-rated sales reckoned from the close of the taxable quarter when the relevant sales were made. Shown below are the relevant dates showing that petitioner's administrative claim for refund was timely filed on March 30, 201634, thus: Period Covered End of Taxable End of the Two-year (TV 2014) Quarter Prescriptive Period 1st Quarter March 31, 2014 March 31, 2016 2nd Quarter June 30, 2014 June 30, 2016 As to the timeliness of petitioner's judicial claim for refund, Section 112(C) of the NIRC of 1997, as amended speaks of two periods for filing judicial claim for refund, to wit: (1) the period of 120 days for respondent to act on the administrative claim for refund/TCC; and (2) the 30-day period from notice of respondent's adverse ruling or the lapse of the 120 period without any action from respondent, within which to file a judicial claim with this Court. 35 33 Exhibit "P-5". / 34 Exhibits "P-13" and "P-14". 35 ROHM Apollo Semiconductor Philippines v. Commissioner of Internal Revenue, G.R. w./ No. 168950, January 14, 2015.

Decision CTA CASE NO. 9356 In the landmark case of Commissioner of Internal Revenue vs. San Roque Power Corporation36, the Supreme Court held that the taxpayer can seek judicial review of its claim for refund/TCC in either of the following ways: (1) file the judicial claim within 30 days after the respondent denies the claim within the 120-day waiting period, or (2) file the judicial claim within 30 days from the expiration of the 120- day period, if respondent does not act within that period. 37 Accordingly, from the filing of petitioner's administrative claim, together with the supporting documents, on March 30, 2016, respondent had one hundred twenty (120) days or until July 28, 2016 to act on the said claim. Considering that respondent issued a letter denying the claim on April 21, 201638, petitioner had thirty (30) days or until May 23, 201639, within which to file a judicial claim before this Court. Clearly, the instant Petition for Review was also timely filed on May 23, 2016. Petitioner is engaged in zero-rated or effectively zero-rated sales Petitioner's Articles of Incorporation expressly states that it is primarily incorporated for the following purposes: 1. To engage in the business of merchandising, distributing and marketing, whether as principal, agent, indenter or manufacturer's representative, wholesale or retail, such as but not limited to industrial, agricultural, manufacturing tools and equipment, engineering products, hardware items, construction materials and electrical supplies, and or any all kinds of goods, wares and merchandise. 36 G.R. Nos. 187485, 196113, and 197156, February 12, 2013. 37 Supra, Note 37. 38 Exhibit "P-23". 39 May 21, 2016 fell on a Saturday, See Section 1, Rule 22 of Rules of Court.

Decision CTA CASE NO. 9356 2. To engage in the business of import and export as principals, factors, representatives, agents or commissioned merchants with respect to buying, selling, trading or dealing in any and all kind of goods, wares, products of all classes and description, distribution, import and export business. 40 Evidence shows that the majority of petitioner's clients were entities doing business within the economic zone and registered with PEZA and SBMA, whose transactions were classified as zero-rated transactions pursuant to Section 106(A)(2)(c) of the NIRC of 1997, as amended, to wit: SEC. 106. Value-Added Tax on Sale of Goods or Properties. - (A) Rate and Base of Tax. - xxxx XXX XXX XXX (2) The following sales by VAT-registered persons shall be subject to zero percent (0�/o) rate: XXX XXX XXX (c) Sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to zero rate. Corollarily, Regulations (RR) No. 16-2005, as amended, states: SECTION 4.106-5. Zero-Rated Sales of Goods or Properties. - xxxx J 40 Exhibit "P-2".

Decision CTA CASE NO. 9356 The following sales by VAT-registered persons shall be subject to zero percent (0�/o) rate: XXX XXX XXX (c) 'Sales to Persons or Entities Deemed Tax-exempt under Special Law or International Agreement'. - Sales of goods or property to persons or entities who are tax-exempt under special laws, e.g. sales to enterprises duly registered and accredited with the Subic Bay Metropolitan Authority (SBMA) pursuant to R.A. No. 7227, sales to enterprises duly registered and accredited with the Philippine Economic Zone Authority (PEZA) or international agreements to which the Philippines is signatory, such as, Asian Development Bank (ADB), International Rice Research Institute (IRRI), etc., shall be effectively subject to VAT at zero-rate. Based on the cited provisions, sales of goods to entities registered with PEZA and SBMA are subject to VAT at zero percent (0�/o) rate. To prove that its clients are duly-registered with the PEZA and SBMA, petitioner submitted various PEZA Certificates of Registration, BIR Certificates of Registration, and PEZA-ERD Forms No. 97-01 41 � Petitioner likewise submitted the letter dated July 5, 201642 of PEZA Deputy Director General for Operations, Mary Harriet 0. Abordo, to petitioner's President, Cyrus S. Chung, Jr., confirming the issuance of VAT zero-rating certifications to the following entities: Name of Enterprise Zone Location VAT Cert. No. VAT Cert. Date 1 ALPHA TECHNO PRECISION Cavite Economic Zone 2014-1122 24 January 2014 TOOLINGS INC. 2 APPLIED MACHINING Laguna Technopark- 2014-0172 10 December 2013 CORPORATION SEZ 3 ASIAN TRANSMISSION Carmel ray Industrial 2014-1661 01 April 2014 CORPORATION Park 1-SEZ CITIZEN MACHINERY PHILIPPINES, 4 INC. First Philippine 2014-0023 09 December 2013 FORMERLY: MIYANO PHILIPPINES, Industrial Park-SEZ INC 41 Exhibit "P-7". 42 Exhibits "P-6"; "!CPA PEZA-1" to "ICPA PEZA-1.4".

Decision CTA CASE NO. 9356 5 CLAYMOUNT ASSEMBLIES Calamba Premiere 2014-0668 09 January 2014 PHILIPPINES, INC. 23 January 2014 International Park-SEZ 02 January 2014 6 DAITOH PRECISIONS INC Mactan Economic Zone 2014-1079 02 April 2014 7 DAIWA SEIKO PHILIPPINES Laguna International 2014-0552 16 January 2014 Industrial Park-SEZ 13 January 2014 CORPORATION 13 May 2014 02 January 2014 DELFINGEN PH-FILIPINAS, INC Mactan Economic Zone 29 January 2014 II-SEZ 03 January 2014 8 FORMERLY: SOFANOU 2014-1665 27 December 2013 17 December 2013 (PHILIPPINES), INC 09 January 2014 9 DELTA DESIGN PHILIPPINES LLC Carmel ray Industrial 2014-0854 Park II-SEZ 10 EN CORPORATION Cavite Economic Zone 2014-0708 11 EXAS PHILIPPINES, INC Mactan Economic Zone 2014-1752 12 FAMOUS SECRET PRECISION Daiichi Industrial Park- 2014-0536 MACHINING INC SEZ 13 FATEC CORPORATION First Cavite Industrial 2014-1251 Estate-SEZ 14 FERUSCHE STAINLESS, INC. Filinvest Technology 2014-0573 Park Calamba-SEZ 15 FIRSTEC METALLICS, INC. Light Industry & 2014-0534 Science Park I-SEZ 16 FUJITSU DIE-TECH CORPORATION Laguna Technopark 2014-0334 OF THE PHILIPPINES Inc.-SEZ 17 GUNMA GOHKIN PHILIPPINES Light Industry & 2014-0679 CORPORATION Science Park I -SEZ HARADA AUTOMOTIVE ANTENNA 18 (PHILIPPINES), INC. ANTENNA First Cavite Industrial 2014-0146 10 December 2013 FORMERLY: NIPPON Estate-SEZ (PHILIPPINES) INC 19 HISTOTECH PRECISION (PH) INC Light Industry & 2014-2017 08 October 2014 Science Park I-SEZ 11 December 2013 17 December 2013 20 HITACHI INDUSTRIAL MACHINERY First Cavite Industrial 2014-0185 17 December 2013 PHILIPPINES CORP. Estate-SEZ 24 February 2014 21 HONDA PARTS MANUFACTURING Laguna Technopark 2014-0331 CORPORATION Inc.-SEZ 22 I MAS EN PHILIPPINE Laguna Technopark 2014-0346 MANUFACTURING CORPORATION Inc.-SEZ 23 INA MICRO OPTO CORPORATION Mactan Economic Zone 2014-1476 II-SEZ 24 JFS PRECISION TECHNOLOGY Golden Mile Business 2014-1023 22 January 2014 CORP. Park-SEZ Baguio City Economic Zone 25 KNOWLES ELECTRONICS Cebu Light Industrial 2014-0747 13 January 2014 Park-SEZ 10 February 2014 (PHILIPPINES) CORPORATION 09 December 2013 07 January 2014 26 KODACHI SEIKI PHILIPPINES INC Cavite Economic Zone 2014-1376 08 January 2014 26 December 2013 27 LAGUNA AUTO-PARTS Laguna Technopark 2014-0028 29 January 2014 MANUFACTURING CORPORATION Inc.-SEZ 28 LAGUNA METIS CORPORATION Laguna Technopark 2014-0607 Inc.-SEZ 29 MAKOTO METAL TECHNOLOGY, INC Mactan Economic Zone 2014-0638 II-SEZ 30 MANUFACTURING AUTOMATION Calamba Premiere 2014-0460 SOLUTIONS INTERNATIONAL INC International Park-SEZ 31 MEINAN PHILIPPINES, INC Laguna Technopark 2014-1252 Inc.-SEZ 32 MENIMA CASTING PRODUCTS INC First Cavite Industrial 2014-1007 21 January 2014 Estate-SEZ 33 MICRO-MECHANICS TECHNOLOGY Carmel ray Industrial 2014-0751 13 January 2014 INTERNATIONAL INC Park II-SEZ 13 February 2014 34 MICRON PRECISION PHILIPPINES, Calamba Premiere 2014-1419 17 January 2014 INC 13 December 2013 International Park-SEZ 35 MKP INC Cavite Economic Zone 2014-0905 36 MTE TECHNOLOGY, INC Carmel ray Industrial 2014-0256 Park II-SEZ NAKASHIMA PHILIPPINES 37 CORPORATION (NPC) Cavite Economic Zone 2014-0614 07 January 2014 / FORMERLY: MIKADO PHILIPPINES CORPORATION

Decision CTA CASE NO. 9356 38 NEW ELECTRONICS SYSTEM CO., Cavite Economic Zone 2014-0141 10 December 2013 INC 11 December 2013 09 January 2014 39 NIDEC PHILIPPINES CORPORATION Laguna Technopark 2014-0226 16 May 2014 Inc.-SEZ 28 February 2014 20 January 2014 40 NIDEC PRECISION PHILIPPINES Laguna Technopark 2014-0680 15 January 2014 CORPORATION Inc.-SEZ 26 December 2013 13 May 2014 41 NIDEC SAN KYO PHILIPPINES Laguna Technopark 2014-1756 02 January 2014 CORPORATION Inc.-SEZ 02 April 2014 42 NUVALI STEEL PROCESSING Laguna Technopark 2014-1505 13 May 2014 CENTER INC Annex-SEZ 24 February 2014 43 ORBIS PRECISION TECH. INC. Laguna International 2014-0946 11 April 2014 Industrial Park-SEZ 13 January 2014 17 March 2014 44 PARTS PHILIPPINES INC. Cavite Economic Zone 2014-0787 03 February 2014 23 June 2014 45 PENTA TECHNOLOGICAL PRODUCTS Laguna Technopark 2014-0444 18 December 2013 27 December 2013 INC. Inc.-SEZ 09 December 2013 24 January 2014 46 PHILIPPINE KENKO CORPORATION Mactan Economic Zone 2014-1744 20 December 2013 21 January 2014 47 PHILIPPINE NAGANO SEIKO, INC People's Technology 2014-0541 22 January 2014 Complex-SEZ 09 December 2013 28 October 2014 48 PHILIPPINE PRECISION Carmel ray Industrial 2014-1663 09 January 2014 TECHNOLOGY INC Park I-SEZ 09 January 2014 Light Industry & 09 D~cember 2013 49 PHILIPPINE SANITARY FITIINGS, Science Park III-SEZ 2014-1750 INC First Cavite Industrial Estate-SEZ 50 PHILIPPINES TRC, INC Lima Technology 2014-1480 Center-SEZ 51 PRECISE TECHNO INCORPORATED Cavite Economic Zone 2014-1694 52 PROPHILE SOUND INDUSTRIES INC Cavite Economic Zone 2014-0725 53 RAMCAR TECHNOLOGY, INC Sta. Maria Industrial 2014-1604 Park 54 SEO JIN TRONICS, INC First Cavite Industrial 2014-1296 Estate-SEZ 55 SINAG PRECISION Laguna Technopark 2014-1831 MANUFACTURING LAGUNA INC Inc.-SEZ 56 SHIMANO (PHILIPPINES) INC First Philippine 2014-0389 Industrial Park-SEZ 57 SONION PHILIPPINES INC First Philippine 2014-0519 Industrial Park-SEZ 58 SUMINAC PHILIPPINES INC First Cavite Industrial 2014-0073 Estate-SEZ - SUNNELIT PHILIPPINES Laguna Technopark 2014-1124 59 CORPORATION Inc.-SEZ 60 T&S LASER SOLUTIONS, INC. First Philippine 2014-0433 Industrial Park-SEZ 61 TAMIYA (PHILIPPINES), INC. Mactan Economic Zone 2014-0980 II-SEZ 62 TMX PHILIPPINES INC. Mactan Economic Zone 2014-1035 63 TSUKUBA PHILIPPINE DIECASTING Cavite Economic Zone 2014-0050 CORPORATION 64 URE-SHII TECHNOLOGIES INC. Golden Mile Business 2014-2039 Park-SEZ 65 VITALO PACKAGING Laguna Technopark- 2014-0671 SEZ INTERNATIONAL INC. WACKER NEUSON MANILA, INC. 66 FORMERLY: WACKER MACHINERY First Cavite Industrial 2014-0678 PHILIPPINES, INC Estate-SEZ 67 YUTAKA MANUFACTURING (PHILS.) Laguna Technopark 2014-0082 INC. Inc.-SEZ Accordingly, only the sales made to the above- enumerated entities, as well as to the SBMA-registered entities, i.e., Hitachi Terminals Mechatronics Philippines Corporation and Polarmarine, Inc., during the 1st and 2nd ,./ quarters of TY 2014 shall qualify for VAT zero-rating.

Decision CTA CASE NO. 9356 In addition, Sections 113(A)(2), (B)(1), (2)(c) and (3) of the NIRC of 1997, as amended, and as implemented by Sections 4.113-1(A)(2), (B)(1) and (2)(c) of Revenue Regulations (RR) No. 16-05, in relation to Sections 237 and 238 of the same Code, provide that a VAT taxpayer, like petitioner, shall for every lease of goods or properties and for every sale, barter or exchange of services, issue a VAT official receipt which must contain the following information: SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons. - (A) Invoicing Requirements. - A VAT- registered person shall issue: (1) A VAT invoice for every sale, barter or exchange of goods or properties; and XXX XXX XXX (B) Information Contained in the VAT Invoice or VAT Official Receipt. - The following information shall be indicated in the VAT invoice or VAT official receipt: (1) A statement that the seller is a VAT- registered person, followed by his Taxpayer's Identification Number (TIN); (2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value- added tax: Provided, That: XXX XXX XXX (c) If the sale is subject to zero percent (0�/o) value-added tax, the term 'zero-rated sale' shall be written or printed prominently on the invoice or receipt; XXX XXX XXX /

Decision CTA CASE NO. 9356 (3) The date of transaction, quantity, unit cost and description of the goods or properties or nature of the service;xxxx (Emphasis supplied) SEC. 4.113-1. Invoicing Requirements. - (A) A VAT-registered person shall issue: (1) A VAT invoice for every sale, barter or exchange of goods or properties; and XXX XXX XXX Only VAT-registered persons are required to print their TIN followed by the word 'VAT' in their invoice or official receipts. Said documents shall be considered as a 'VAT Invoice' or VAT official receipt. All purchases covered by invoices/receipts other than VAT Invoice/VAT Official Receipt shall not give rise to any input tax. VAT invoice/official receipt shall be prepared at least in duplicate, the original to be given to the buyer and the duplicate to be retained by the seller as part of his accounting records. (B) Information contained in VAT invoice or VAT official receipt. -The following information shall be indicated in VAT invoice or VAT official receipt: (1) A statement that the seller is a VAT- registered person, followed by his TIN; (2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the VAT; Provided, That: XXX XXX XXX ,/

Decision CTA CASE NO. 9356 (c) If the sale is subject to zero percent (0�/o) VAT, the term 'zero-rated sale' shall be written or printed prominently on the invoice or receipt;" (Emphases supplied) SEC. 237. Issuance of Receipts or Sales or Commercial Invoices. - All persons subject to an internal revenue tax shall, for each sale and transfer of merchandise or for services rendered valued at Twenty-five pesos (P25.00) or more, issue duly registered receipts or sales or commercial invoices, prepared at least in duplicate, showing the date of transaction, quantity, unit cost and description of merchandise or nature of service. xxxx" (Emphases supplied) SEC. 238. Printing of Receipts or Sales or Commercial Invoices. - All persons who are engaged in business shall secure from the Bureau of Internal Revenue an authority to print receipts or sales or commercial invoices before a printer can print the same. No authority to print receipts or sales or commercial invoices shall be granted unless the receipts or invoices to be printed are serially numbered and shall show, among other things, the name, business style, Taxpayer Identification Number (TIN) and business address of the person or entity to use the same, and such other information that may be required by rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner. In its Quarterly VAT Returns43 for the 1st and 2nd quarters of TY 2014, petitioner reported a total sale of P66, 700,636.15, as computed below: VATable Sales Zero-rated Sales Total Sales 1st Quarter p 10,362 386.09 p 23,532,943.34 p 33 895 329.43 2nd Quarter 10,190,257.41 22,615,049.31 32,805,306.72 Total P20,552,643.50 P46,147,992.65 P66,700,636.15 43 Exhibits "P-17-A" and "P-17-B". /

Decision CTA CASE NO. 9356 In support of its zero-rated sales and to prove compliance with the VAT invoicing requirements as provided by the afore-quoted laws and regulations, petitioner submitted various certified true copies of its sales invoices44 issued to its customers, all were examined by the ICPA. Per the ICPA Report, petitioner's zero-rated sales were supported by sales invoices with a total amount of P46,626,058. 73, which is greater than the amount reported per VAT Returns by P478,066.08, as shown below: 45 pt Quarter Zero-Rated Zero-Rated Difference 2nd Quarter Sales per VAT Sales per ICPA p (115,817.73) Total Returns p 23 648,761.07 p 23,532,943.34 22,615 049.31 22,977,297.66 (362,248.35) P46,147,992.65 P46,626,058.73 P1478,066.08) The above noted difference of P478,066.08 is attributable to the following: Out of period sale p __(_13_1_110.00) Sold to PEZA but treated as VATable sale 10,050.00 Unsupported difference between the actual schedule vis-a-vis VAT return-tst Quarter 118,877.73 Unsupported difference between the actual schedule vis-a-vis VAT return-2nd Quarter 362,248.35 Total p 478,066.08 Out of the P478,066.08 difference accounted by the ICPA, the amounts of P13,110.0046 and P10,050.0047 shall be considered for the purpose of determining the amount of zero- rated sales to which the valid input VAT may be attributed. However, the unsupported differences of P118,877. 73 and P362,248.35, which apparently pertain to amounts not actually reported in petitioner's VAT Returns for the subject period, shall be disregarded. Moreover, the following reported zero-rated sales in the amount of P2,559,249.20, shall be disallowed as they were made to entities without proof of 44 Exhibit "P-9" (labeled as Exhibits "ICPA ZSQ1-1" to "ICPA ZSQ1-762" and "ICPA .I ZSQ2-1" to "ICPA ZSQ2-773" in the ICPA Report [Exhibit "P-28"]). 45 Exhibit "P-28" (ICPA Report). 46 Annex D of ICPA Report (Exhibit "P-28"); Exhibit "P-8". 47 Exhibit "ICPA ZSQ1-490" of ICPA Report; Exhibit "P-8".

Decision CTA CASE NO. 9356 PEZA/SBMA registration, thus, cannot qualify for VAT zero- rating, to wit: Invoice Invoice Client Amount Exhibit No. No. Date SILAN TECHNOLOGIES First Quarter CORPORATION TURU SANTECHNO CORPORATION 5728 1/6/2014 PREMTOOL E.K. p 7,200.00 ICPA ZSQ1-9 PREMTOOL E.K. 5800 1/8/2014 PREMTOOL E.K. 20,140.00 ICPA ZSQ1-41 5803 1/8/2014 DELFINGEN WEST INC 108,521.91 ICPA ZSQ1-42 5804 1/8/2014 TURU SANTECHNO CORPORATION 333,151.28 ICPA ZSQ1-43 5805 1/8/2014 TURU SANTECHNO CORPORATION 304,273.31 ICPA ZSQ1-44 5920 1/15/2014 TURU SANTECHNO CORPORATION 129,000.00 ICPA ZSQ1-102 5941 1/16/2014 TURU SANTECHNO CORPORATION ICPA ZSQ1-115 5942 1/16/2014 HILLMEC ENGINEERING SDN BHD 18,540.00 ICPA ZSQ1-116 6143 1/28/2014 SILAN TECHNOLOGIES 16,390.00 ICPA ZSQ1-194 6270 2/5/2014 CORPORATION ICPA ZSQ1-265 6271 2/5/2014 SILAN TECHNOLOGIES 940 ICPA ZSQ1-266 CORPORATION 3,900.00 TURU SANTECHNO CORPORATION 225,270.52 PREMTOOL E. K. 6356 2/11/2014 CEBU AOI DEVELOPMENT 4,490.00 ICPA ZSQ1-306 TECHNOLOGIES CORP 6357 2/11/2014 DELFINGEN WEST INC 2,090.00 ICPA ZSQ1-307 SILAN TECHNOLOGIES 6572 2/22/2014 CORPORATION 12,900.00 ICPA ZSQ1-418 6574 2/22/2014 TURU SANTECHNO CORPORATION 152,081.46 ICPA ZSQ1-420 EUROASIA TECHNICS SON BHD 6632 2/26/2014 PREMTOOL E.K. 7,875.00 ICPA ZSQ1-453 TURU SANTECHNO CORPORATION 6664 2/26/2014 TURU SANTECHNO CORPORATION 43,000.00 ICPA ZSQ1-469 PREMTOOL E.K. 6687 2/27/2014 3,600.00 ICPA ZSQ1-485 subtotal 6781 3/6/2014 6,500.00 ICPA ZSQ1-540 6901 3/12/2014 SILAN TECHNOLOGIES 58,718.88 ICPA ZSQ1-611 7033 3/19/2014 CORPORATION 109,834.08 ICPA ZSQ1-679 7034 3/19/2014 TURU SANTECHNO CORPORATION ICPA ZSQ1-680 7085 3/24/2014 PREMTOOL E.K. 6,500.00 ICPA ZSQ1-701 7201 3/28/2014 DELFINGEN WEST INC 5,300.00 ICPA ZSQ1-753 TURU SANTECHNO CORPORATION 252,568.41 TURU SANTECHNO CORPORATION p 1.,832,784.85 TURU SANTECHNO CORPORATION Second Quarter TURU SANTECHNO CORPORATION SILAN TECHNOLOGIES 7376 4/8/2014 CORPORATION p 2,400.00 ICPA ZSQ2-75 SILAN TECHNOLOGIES 7378 4/10/2014 CORPORATION 3,900.00 ICPA ZSQ2-77 7541 4/22/2014 SILAN TECHNOLOGIES 109,236.30 ICPA ZSQ2-162 7543 4/22/2014 CORPORATION ICPA ZSQ2-164 7699 4/29/2014 SILAN TECHNOLOGIES 13,200.00 ICPA ZSQ2-244 7880 5/9/2014 CORPORATION 1,000.00 ICPA ZSQ2-345 8030 5/7/2014 3,900.00 ICPA ZSQ2-411 8103 5/22/2014 5,000.00 ICPA ZSQ2-445 5,000.00 8125 5/24/2014 5,840.00 ICPA ZSQ2-454 8126 5/24/2014 4,800.00 ICPA ZSQ2-455 8127 5/24/2014 4,800.00 ICPA ZSQ2-456 8128 5/24/2014 7,220.00 ICPA ZSQ2-457

Decision CTA CASE NO. 9356 8147 5/26/2014 PREMTOOL E.K. 90,642.36 ICPA ZSQ2-468 8285 6/2/2014 205,396.75 ICPA ZSQ2-530 8671 6/25/2014 PREMTOOL E.K. SILAN TECHNOLOGIES 5,230.00 ICPA ZSQ2-735 8672 6/25/2014 CORPORATION SILAN TECHNOLOGIES 5,550.00 ICPA ZSQ2-736 8673 6/25/2014 CORPORATION SILAN TECHNOLOGIES 2,400.00 ICPA ZSQ2-737 8674 6/25/2014 CORPORATION SILAN TECHNOLOGIES 6,140.00 ICPA ZSQ2-738 8677 6/25/2014 CORPORATION 8680 6/25/2014 SILAN TECHNOLOGIES 3,000.00 ICPA ZSQ2-739 8750 6/30/2014 CORPORATION EUROASIA TECHNICS SDN BHD 238,148.94 ICPA ZSQ2-740 3,660.00 ICPA ZSQ2-773 PRECISE PARTS COOPERATION INC p 726,464.35 subtotal p 2,559,249.20 Total Based on the foregoing, only the amount of P43,585,683.45 represents petitioner's valid zero-rated sales, computed as follows: 1st Quarter 2nd Quarter Total Total Reported Zero-Rated Sales p 23 532 943.34 p 22,615,049.31 p 46 147 992.65 Add(Less): Adjustments .C- Out of period sale (13,110.00) (13 110.00) Sale to PEZA but treated as vatable sale 10L050.00 (726,464.35) 10 050.00 Disallowed by this Court ( 1 832,784. 85) P21,888,584.96 (2,559 249.20) Total Valid Zero-Rated Sales P21,697,098.49 P43,585_,683.45 Petitioner incurred and paid input taxes which are attributable to its zero- rated sales and the same were not applied against anv output VAT liability For the 1st and 2nd quarters of TY 2014, petitioner incurred input taxes on its local purchases and importations of goods other than capital goods in the total amount of P5,912,357. 73, of which the amount of P3,446,040.51, net of output tax due, is the subject of petitioner's claim for refund, to wit: 1st Quarter 2"d Quarter Total Exh. "P-17-A" Exh. "P-17-B"

Decision p 407 105.65 p 386L548.08 p 793 653.73 CTA CASE NO. 9356 Page 20 of 24 2,836 637.00 2 282,067.00 5,118 704.00 p 3,243,742.65 p 2,668,615.08 p 5,912,357.73 Input Tax on Purchases of Goods Other than Caj>ital Goods(Line 21FJ 1,243 486.33 1 222 830.89 2 466,317.22 Input Tax on Importation of Goods p 2,000,256.32 p 1,445,784.19 p 3,446,040.51 Other than Capital Goods (Line 21H) Total Input Taxes Less: Output Tax (Line 158) Excess input tax claimed In support of its total input taxes of P5,912,357.73, petitioner submitted the certified true copies of sales invoices48 for its local purchases of goods, and Import Entry and Internal Revenue Declarations (IEIRDs), and Bureau of Customs (BOC) receipts/Confirmation receipts49 evidencing payment of VAT for imported goods. Upon examination of the said documents, the ICPA noted exceptions on local purchases in the total amount of P28,172.39, summarized as follows: 50 Description 1st Quarter 2nd Quarter Total 1. Incorrect TIN of petitioner p 9 016.39 p 3 040.07 p 12_L056.46 2. VAT not indicated separately in the invoice 227.14 3. Supported by Point of Sale (POS) receipts only 86.06 25.18 313.20 4. Not validated due to unavailability of the 69.11 43.93 supporting documents 5. VAT erroneously written on VAT exempt sale - 6 120.00 6,120.00 invoice - 28.06 28.06 6. Unsupported difference between the actual 9 702.28 (116.72) 9 585.56 schedule vis-a-vis VAT return P18,848.66 Total P9,323.73 P28,172.39 From the above findings, Item Nos. 1 to 5, in the aggregate amount of P18,586.83 shall be disallowed for petitioner's failure to meet the substantiation requirements under Sections 110(A) and 113(A) and (B) of the NIRC of 1997, as amended, in relation to Sections 4.110-1, 4.110-8, and 4.113-1 of RR No. 16-05. As to the unsupported difference of P9,585.56 (Item No. 6), further review reveals that the difference actually amounts to only P9,295. 24 for the 1st quarter, which shall be disallowed for being unsupported, and P116. 7351 for the 2nd quarter, which shall be disregarded as it does not form part of the 48 Exhibit "P-11". 49 Exhibit "P-20". 50 ICPA Report (Exhibit "P-28"); Annexes G to G.3 of ICPA Report (Exhibit "P-28"). 51 With a difference of 0.01 due to rounding off.

Decision CTA CASE NO. 9356 instant claim. The details of the said amounts are presented below: pt Quarter Input Tax per Input Tax Per Difference 2nd Quarter Return Schedule52 p 9,295.24 p 397,810.41 Total p 407,105.65 _(116.731 386,548.08 386,664.81 P9,178.51 P793,653.73 P784,475.22 In addition, the input VAT on local purchases in the amount of P66,515.66 shall likewise be disallowed for the following reasons: Supplier's Name Invoice Amount Exhibit No. Reason for disallowance First Quarter No. Avenue Hardware Coo:>_. 92014 p 806.79 ICPA P-91 Supported by VAT invoice with 11149 15 642.86 ICPA P-99 unreadable date Limhuaco Metal industrial Inc. 656684 210.00 ICPA P-123 Handyman Do It Best home Ctr 130.50 ICPA P-127 Supported by VAT invoice without True Value 694 petitioner's TIN 315.00 ICPA P-208 Grindtech Abrasives Corp. 2955 15 857.14 ICPA P-275 Supported by tape receipt only 143253 ICPA P-389 Sanyoseiki Stainless Steel Corp. 128394 5 614.29 Supported by_ tape receipt only P38,576.58 Kimika Industrial Corporation Supported by VAT invoice with subtotal Second Quarter alteration on date but without Em-o Industrial Manufacturing Corporation countersignature -- Union Hardware Supported by VAT invoice without Union Hardware petitioner's TIN Union Hardware Supported by VAT invoice without petitioner's TIN Union Hardware Em-o Industrial Manufacturing 9634 p 1 923.75 ICPA P-675 Supported by VAT invoice without Corporation 30376 210.00 ICPA P-764 petitioner's TIN 30375 182.90 ICPA P-765 Supported by VAT invoice without Kimika Industrial Corporation 30435 208.80 ICPA P-797 petitioner's TIN Em-o Industrial Manufacturing 30469 ICPA P-798 Supported by VAT invoice without Corporation 9931 1,456.38 ICPA P-893 _petitioner's TIN subtotal 129929 15 321.80 ICPA P-973 Supported by VAT invoice without Total 10222 ICPA P-1006 petitioner's TIN 1,301.79 Supported by VAT invoice without 7 333.66 petitioner's TIN P27,939.08 Supported by VAT invoice without p 66,515.66 petitioner's TIN Supported by VAT invoice without petitioner's TIN Supported by VAT invoice without petitioner's TIN Further, upon examination of the documents supporting the input VAT on importation of P5,118,704.00, 53 the Court 52 Exhibit "P-10". 53 Annex H to H.1 of ICPA Report (Exhibit "P-28").

Decision CTA CASE NO. 9356 finds the same compliant with the invoicing and substantiation requirements prescribed under the law and regulations. In sum, petitioner's valid input VAT for the 1st and 2nd quarters ofTY 2014 amounts to P5,817,960.00, as follows: 1st Qtr 2nd Qtr Total p 5 912 357.73 Input VAT per Returns p 3 243,742.65 p 2 668 615.08 Less: Disallowances p 9,146.38 p 9 440.45 p 18 586.83 Per !CPA findinqs Unsupported difference 9,295.24 - 9 295.24 Additional disallowances by this Court 38 576.58 27 939.08 66 515.66 Total Disallowances p 94 397.73 Total Valid Input VAT p 57 018.20 p 37 379.53 P5,817,960.00 P3,186,724.45 P2,631,235.55 Proceeding therefrom, a portion of petitioner's valid input VAT shall be applied against the output VAT liability for the 1st and 2nd quarters of TY 2014 in the aggregate amount of P2,465,240.43. Consequently, only the remaining input VAT of P3,352,719.57 can be attributed to the declared zero- rated sales of P46,158,042.65 and only the input VAT of P3,155,032. 77 is attributable to the valid zero-rated sales of P43,585,683.45, computed as follows: Valid Input VAT First Quarter Second Total Less: Output VAT liability p 3, 186,724.45 Quarter p 5,817,960.00 p 2,631,235.55 Output VAT per returns 1 243 486.33 1,222,830.89 2 466 317.22 Less: Output tax on Sale to PEZA but treated as vatable sale 1,076. 79 1,222,830.89 1,076. 79 1,242,409.54 P1,408,404.66 2,465,240.43 (P10 050.00 + 1.12% X 12%) P1,944,314.91 P3,352,719.57 22,615 049.31 46,158,042.65 Total 23 542,993.34 Excess Input VAT 21,888,584.96 43,585,683.45 21 697 098.49 P1,363, 162.41 Divide by Declared Zero-Rated Sales P1,791,870.37 P3,155,032.77 Multiply by Valid Zero-Rated Sales Excess Input VAT attributable to Valid Zero-Rated Sales Further, although the claimed input VAT, which includes the refundable amount of P3,155,032. 77, was carried over to the succeeding 3rd quarter of TY 2014, the same remained /

Decision CTA CASE NO. 9356 unutilized as it was deducted as "VAT Refund/TCC claimed"54 in its Amended Quarterly VAT Return for the 3rd quarter of TY 2014. 55 Therefore, the subject claim no longer formed part of the excess input VAT of P7,298,577.2456 as of the end of the 3rd quarter of TY 2014 that was to be carried over or applied to the succeeding quarters. As such, it eliminates the possibility that the present claim would be applied to future output VAT liability. WHEREFORE, the instant Petition for Review filed by petitioner Colt Commercial, Inc., on May 23, 2016, is PARTIALLY GRANTED. Accordingly, respondent is DIRECTED TO REFUND OR TO ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner the amount of P3,155,032.77, representing its unutilized and excess input VAT attributable to its zero-rated sales for the 1st and 2nd quarters of TY 2014. SO ORDERED. I Concur: ~. ~ ~'- MA. BELEN M. RINGPIS-LIBAN Associate Justice 54 Line 23D of Exhibit "P-17-C". 55 Exhibit "P-17-C". 56 Line 29 of Exhibit "P-17-C".

Decision CTA CASE NO. 9356 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. s ociate Justice c ing Chairperson CERTIFICATION Pursuant to Section 13 of Article VIII of the Constitution and the Acting Division Chairperson's Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. ROMAN G. DEL OSARIO Presiding Justice