CTA Case No. 5983 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX A PPEALS QUEZON CITY TAGANITO MINING CORPORATION P e ti t i o n e r , -versus- C.T.A. CASE NO. 5983 COMMISSIONER OF INTERNAL Promulgated: REV ENU E, OCT 11 20;0q1y;�?J~-;~,h'o.~--\ Respondent. X---------------------------------------------------------X DECISION This case involves a claim for refund in the amount of twelve million seventy six thousand three hundred fifteen pesos and sixty centavos (P12,076,315.60) allegedly representing unutilized input VAT paid by Petitioner on its domestic purchases of goods/services and importation of capital goods for the period of January 1, 1998 to December 31, 1998. The facts are as follows : Petitioner is a corporation duly organized and existing under the laws of the Philippines with address at the 4th Floor, Solid Mills Brilding, De La Rosa St., Legaspi Village, Makati City. It is primarily engaged in the business of exploring, producing and exporting beneficiated nickel silicate ores and chromite ores. It is duly registered with 121 7 )

( DECISION- CTA CASE NO. 5983 PAGE2 the BIR as a VAT entity with Certificate of Registration No. 94-470-000373 dated June 15, 1994 (Joint Stipulation of Facts & Issues, CTA records, pages 50-51). Petitioner alleges that for the period January 1, 1998 to December 31, 1998, it generated export sales amounting to P339,403 ,664.87 w!:lich were paid for in acceptable foreign currency inwardly remitted and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas. Petitioner believes that as a VAT registered entity, it is subject to zero-percent VAT on the aforementioned export sales pursuant to Section 106(A)(2)(a)(1) of the Tax Code. For the same period of January 1, 1998 to December 31 , 1998, Petitioner allegedly paid input VAT of P4,954,394.44 on its domestic purchases of goods/services and input VAT of P7, 121 ,921.16 on its importation of capital goods or in the sum of P12 ,076,315.60. The alleged zero-rated export sales of P339,403 ,664.87 and input VAT payments of P12,076,315.60 were reported by Petitioner in its 1998 quarterly VAT returns (Exhibits I, M, Q & U) as follows: NPUTVAT Domestic Zero-rated Purchases of Importation T ota I Sales Goods/Services of Goods 1st qtr p 123,444,228.78 p 1' 132,456.57 p 1'132,456 .57 7,860 ,296 .24 M (amended) 2nd qtr 38,629,828 .95 738,375.08 p 7,121,921 .16 1,606,654 .71 1,476,908.08 Q (amended) 3rd qtr 90,259,093 .72 1,606,654. 71 U (amended) 4th qtr 87,070,513.42 1,476,908.08 - �- - - - Total : P 339.403 664,87 P 4 954.394.44 P 7 121 921 16 p 12.076 315.60 Pursuant to Section 112(A) and (B) in relation to Section I 06(A)(2)(a)(l) of the Tax Code, Petitioner, on December 27, 1999, filed an administrative claim for refund 121 5

DECISION- CTA CASE NO. 5983 PAGE3 (Exhibits HH & II) corresponding to its reported 1998 unutilized input VAT payments of Pl2,076,315.60 which are allegedly directly attributable to its 1998 zero rated sales of P339,403,664.87. The instant Petition for Review was filed on December 28, 1999, well within the two-year prescriptive period (Joint Stipulation of Facts & Issues, CTA records, pages 50- 51). In his Answer filed through registered mail on February 4, 2000, Respondent interposed the following Special and Affirmative Defenses: "5. Petitioner failed to show compliance with the substantiation requirements w1der the provision of Section 16(c)(3) of Revenue Regulations No. 5-87, as amended by Revenue Regulations No. 3-88; 6. Petitioner has not shown proof that the alleged VAT input taxes are attributable to its export sales and that the same have not been applied to the output tax for the period covered in its claim or any succeeding period and that the alleged total foreign exchange proceeds have been accounted for by the Central Bank; 7. The petition states no cause of action as it does not allege the date/s when the taxies sought to be refunded was/were actually paid; 8. In an action for tax refund/credit, the burden of proof is on the taxpayer to establish its right to the refund and failure to sustain the burden is fatal to the action for tax refund; 9. Taxes paid and collected are presumed to have been made in accordance with law and regulations, hence, not refundable; 10. Well-settled is the rule that claims for refund are construed against the claimants' since it partakes of the nature of an exemption from taxation." To support its claim, Petitioner submitted voluminous documents and witnesses to identify the same. Respondent, on the other hand, did not present any controverting evidence but merely submitted the case based on the pleadings. 121 9

DECISION - CTA CASE NO. 5983 PAGE4 On June 20, 2001, this case was submitted for decision sans the memorandum of Respondent. The issues We are tasked to resolve have been jointly stipulated by the parties as follows: a.) Whether or not Petitioner's export sales qualify as zero-rated sales or revenue; and b.) Whether or not Petitioner is entitled to a refund of VAT input taxes it paid . from January 1, 1998 to December 31, 1998 amounting to P12,076,315.60. (Joint Stipulation of Facts & Issues, CTA records, page 50-51) After a careful review of the documentary evidence presented as well as the laws, regulations and jurisprudence applicable in this case, We patiially rule in favor of Petitioner. With reference to the issue of whether or not Petitioner's export sales qualify as zero-rated sales, We answer in the affirmative. Section 106(A)(2)(a)(l) ofthe Tax Code states, thus: "SEC. 106. Value-Added Tax on Sale ofGoods or Properties. - "(A) Rate and Base of Tax. -There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, value- added tax equivalent to ten percent (1 0%) of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor. X X X X X "(2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: "(a) Export Sales.- The term 'export sales" means : " (1) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported and paid for in acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP)." 12 20 0 )

DECISION- CTA CASE NO. 5983 PAGES Based on the aforequoted provisions of the Tax Code, in order for an export sale to qualify as zero-rated, the following conditions must be present: 1.) there was sale and actual shipment of goods from the Philippines to a foreign country; 2.) the sale was made by a VAT registered person; 3.) the sale was paid for in acceptable foreign currency or its equivalent in goods or services; and 4.) the payment was accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas. Petitioner proved that it complied with all of the. above requisites. The fact that Petitioner is a VAT registered entity is not disputed (Joint Stipulation of Facts & Issues, CTA records, pp. 50-51; Exhibit F). For the period of January l, 1998 to December 31 , 1998, Petitioner actually shipped its products abroad to foreign buyers and generated export sales in the amount of US$8,261 ,028.54 (Exhibit A-9) with the peso equivalent of P339,403,664.88 (Exhibit A-8) as shown in Petitioner's "Summary List of Export Sales" (Exhibit A-7) and vanous export documents such as export invoices, export declarations/permits, bills of lading (pre-marked Exhibits D to D-126, inclusive). Likewise, the foreign currency proceeds of US$8,261 ,C28.54 derived from said export sales were inwardly remitted and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas as evidenced by the Security Bank Credit Advices (pre-marked Exhibits D to D-126, inclusive). Considering therefore, that Petitioner's export sales qualify as zero-rated sales, it IS not liable to pay output VAT thereon. Accordingly, Petitioner can claim tax 1221

DECISION- CTA CASE NO. 5983 PAGE6 credit/refund of the input VAT paid on its domestic purchases of goods/services and importation of capital goods, which are directly attributable to such zero-rated sales as set forth under Section 112(A) & (B) of the Tax Code, to wit: "SEC. 112. Refunds or Tax Credits ofInput 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)(l ), (2) and (B) and Section 108(B)(l) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributable to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales. "(B) Capital Goods. - A VAT-registered person may apply for the issuance of a tax credit certificate or refund of input taxes paid on capital goods imported or locally purchased, to the extent that such input taxes have not been applied against output taxes. The application may be made only within two (2) years after the close of the ,taxable quatier when the importation or purchase was made." However, in order to be entitled to a refund/tax credit of the alleged input VAT payments of P 12,076,315.60, Petitioner must prove that: 1.) both the administrative and judicial claims for refund were filed within two years upon filing of the quarterly VAT return(s) covered by the claim as provided under Section 4-106.2(c) of Revenue Regulations No. 7-95 in relation to Section 112(D) of the Tax Code; 2.) the claimed input VAT payments are directly attributable to zero-rated sales; 3.) the claimed input VAT payments were not applied against any output tax nor carried over to the succeeding month(s)/quari,.r(s); and 12 22

DECISION- CTA CASE NO. 5983 PAGE 7 4.) the claimed input VAT payments are duly supported by VAT invoices or official receipts in accordance with Section 4.104-5 of Revenue Regulations No. 7-95 in relation to Sections 113 and 237 ofthe Tax Code. It is an admitted fact that both the administrative and judicial claims for refund were filed within the two-year prescriptive period (Joint Stipulation of Facts & Issues, CTA records pages 50-51). Petitioner's first quarterly VAT return and amended second, third & fourth quarterly VAT returns for the year 1998 (Exhibits I, M, Q & U) showed that it had no VAT taxable or exempt sales but only zero-rated export sales in the amount of P339,403,664.88. This being the case, all of the 1998 claimed input taxes of P12,076,315.60 are directly attributable to its 1998 zero-rated export sales of P339,403,664.88. In the case of Babcock-Hitachi (Phils.), Inc. vs. Commissioner of Internal Revenue and the Court ofTax Appeals, CA-G.R. SP No. 40703, dated November 21, I996, it was ruled that where Petitioner expmis 100% of its products, thus, engaged in purely zero-rated sales, all input taxes incurred on its purchases of goods/services and on capital goods imported or locally purchased are considered directly attributable to its zero-rated sales. Petitioner established that despite the carry-over of the 1998 claimed input taxes of P 12,076,315.60 in its 1999 amended quarterly VAT returns (Exhibits X, AA, DD & GG), the same were not utilized since Petitioner had no output VAT liability for the said year. Moreover, Petitioner deducted the claimed input taxes of P12,076,315.60 as "Any VAT Refund/TCC Claimed " (Line item #28 of Exhibit GG) from the "Total Available Input Tax" of P23,807,276.88 (Line item #27 of Exhibit GG). Thus, the resulting 122u

DEC ISION- CTA CASE NO. 5983 PAG E S "Excess Input Tax" of P 11 ,730,961.28 (Line item #30 of Exhibit GG) to be carried over to the succeeding first quarter of 2000 pertains only to Petitioner' s declared input VAT payments for 1999 and does not include the 1998 claimed input taxes of P 12,076,3 15.60. As reported by the commissioned auditing firm , Punongbayan and Araullo, (Exhibit A), out of the 1998 total input VAT payments of P12,075 ,216.36 (Exhibit A-3) indicated in Petitioner's "Summary of Monthly Purchases" (Exhibit A-2), the input taxes of P416,339.94 (Exhibit A-6) were not properly substantiated by VAT invoices or official receipts. However, a further verification by this Court of the detailed "Summary of Monthly Purchases" (Exhibit A-4) and the various suppliers' invoices/official receipts (pre-marked Exhibits B to B-963 & C to C-1485 , inclusive) revealed that aside from the exceptions noted by Punongbayan & Araullo ofP416,339.94, the amount of P204,288.07 detailed below also failed to meet the invoicing requirements under Section 4.104-5 of Revenue Regulations No. 7-95 in rel ation to Sections 11 3 and 237 of the Tax Code: 1998 Supplier Exhibit Invoice# O.R.# Invoice Disallowed Amount Input VAT 1.) Invoices without BIR permit and without VNAT after TIN ; Non-VAT Official Receipts Jan H.O. NAVSHIP Enter. B-55 ; B-56 0020 0016 p 17,268.00 p 1,569.82 Jan H.O. NAVSHIP Enter. B-57 ; B-56 0019 0016 8 ,000 .00 727 .27 Jan H .0 . NAVSHIP Enter. B-58 ; B-59 0017 0014 2 ,832 .00 257.45 Jan H. O. NAVSHIP Enter. B-60; B-61 0022 0017 9 ,048 .00 822 .55 May H. 0 . NAVSHIP Enter. B-360; B-361 0025 0023 24 ,000 .00 2,181 .82 May H. 0 . NAVSHIP Enter. B-362 ; B-363 0023 0021 28 ,000.00 2,545.45 July H. 0 . NAVSHIP Enter. B-524 ; B-525 0030 0026 90 ,000 .00 8,181 .82 July H. 0 . NAVSHIP Enter. B-526 ; B-527 0027 0025 90 ,000 .00 8,181 .82 Aug H. O. NAVSHIP Enter. B-645; B-646 0031 0028 May Minesite Pilipinas Shell Corp. C-511 ; C-513 90497940 49229 9 ,000 .00 818 .18 May Minesite Pilipinas Shell Corp. C-512 ; C-513 90503457 49229 97 ,527.76 8 ,866 .16 June Minesite Pilipinas Shell Corp. C-634; C-637 90530367 60269 142 ,350 .01 12 ,940 .91 June Minesite Pilipinas Shell Corp. C-635; C-637 90537959 62269 97, 527.76 8 ,86 6 .16 June Minesite Pilipinas Shell Corp. C-636; C-638 90559210 60268 143 ,719 . 18 13, 065.38 July Minesite Pilipinas Shell Corp. C-787 ; C-788 90580752 60508 97, 527.76 8,866.16 July Minesite Pilipinas Shell Corp. C-786; C-788 90580864 60508 97,527 .76 8,866 .16 July Minesite Pilipinas Shell Corp. C-789 ; C-791 90605118 60527 171 ,218 .74 15,56 5 .34 July Minesite Pilipinas Shell Corp. C-790 ; C-791 90605119 60527 97,549 .76 8 ,868 . 16 Aug Minesite Pilipinas Shell Corp. C-930; C-933 90627337 60650 3 ,232.26 293.84 97 ,527 .76 8 ,866 .16 12 2 4

DECISION- CTA CASE NO. 5983 PAG E9 Aug Minesite Pil ipinas Shell Corp . C-931 ; C-934 90642181 67223 84 ,936.17 7,721.47 Aug Minesite 67223 97,527 .76 8,866.16 Sept Minesite Pilipinas Shell Corp . C-932; C-934 90642644 60737 74,762.17 6 ,796 .56 Sept Minesite 60737 97,408 .08 8,855.28 Sept Minesite Pilipinas Shell Corp. C-1083; C-1084 90667490 60737 97,527 .76 8,866.16 Sept Minesite 60737 10,801 .67 Oct Minesite Pilipinas Shell Corp. C-1082; C-1084 90668419 69431 44,053 .13 981.97 Oct Minesite 69431 63,784 .1 6 4 ,004 .83 Oct Minesite Pilipinas Shell Corp. C-1081 ; C-1084 90690462 69431 99 ,727.76 5 ,79 8.56 Oct Minesite 69431 9,066.16 Nov Minesite Pilipinas Shell Corp. C-1080; C-1084 90692101 75466 9 ,290 .66 Nov Minesite 75466 60,162.96 844.61 Apr Minesite Pilipinas Shell Corp. C-1222; C-1226 90700504 0106 99,727.76 5,469.36 9,066.16 Pilipinas Shell Corp. C-1223; C-1226 90703221 5,610.20 510 .02 Pilipinas Shell Corp. C-1225; C-1226 90722358 Pilipinas Shell Corp. C-1224; C-1226 90722359 Pilipinas Shell Corp. C-1338; C-1340 90774137 Pilipinas Shell Corp. C-1339; C-1340 90774666 Recon Trading C-409 0004 subtotal : p 197 197.91 2.) Non-VAT Invoice with stamped VAT# and Official Receipt without VNAT after TIN Jan Minesite Vocom Enter. C-126; C-127 046 473 p 33,900.00 p 3.081.82 subtotal: P 3.081.82 3.) Non-VAT Invoices/Official Receipts Oct H. 0 . Joy Eng' g. Enter. B-792 ; B-794 6489 1641 p 16,000.00 p 1,454.55 Oct H. 0 . Joy Eng'g . Enter. B-793; B-794 6490 1641 16,000.00 1 454.55 subtotal : P 2.909.10 4.) Discrepancy between the total input taxes p 12,076,315.60 as reflected in the summary and the total 12 .075.216 .36 claimed input taxes p 1,099.24 Total Claimed Input Taxes Tot a 1: P 204 288 07 Less: Total Input Taxes per Summary (Exhibit A-3) Discrepancy In sum, except for its failure to substantiate by proper VAT invoices or official receipts the amounts of P416,339.94 and P204,288.07 or in the aggregate amount of P620,628.0 1, this Court finds Petitioner to have sufficiently proven its entitlement to the VAT refund sought for. 12 25

DECISION- CTA CASE NO . 5983 PAGE 10 WHEREFORE, Petitioner's claim for refund of unutilized input VAT payments for 1998 is hereby GRANTED but in a reduced amount of P11 ,455,687.59 computed as follows: Claimed Excess Input Taxes p 12,076,315.60 Less: Disallowances p 416,339 .94 1.) Per Report of Punongbayan & Araullo (Exh . A-6) 204,288.07 2.) Per this Court's Further Verification 620.628 .01 Refundable Excess Input Taxes p 11,455 687 .59 Accordingly, Respondent Commissioner of Internal Revenue is ORDERED to REFUND to Petitioner the amount of ELEVEN MILLION FOUR HUNDRED FIFTY FIVE THOUSAND SIX HUNDRED EIGHTY SEVEN & 59/100 PESOS (P11,455,687.59) representing unutilized input VAT paid by Petitioner on its domestic purchases of taxable goods/services and importation of capital goods for the period January 1, 1998 to December 31, 1998 . SO ORDERED. WE CONCUR: ~ts. C -v0--- ERNEsTo D. ACOSTA Presiding Judge JRv� c:Q/fAu~AA:~NA'iX:r:o:c.cCAS. TAN~ EDA~ ,. 0. Associate Judge ' - 12 26

DECISION- CTA CASE NO. 5983 PAGE II CERTIFICATION I hereby certify that the above decision was reacheJ after due consultation with the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. ~\5?- C?~ ERNESTO D. ACOSTA Presiding Judge 12 27