NEXT MOBILE INC. v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY THIRD DIVISION NEXT MOBILE, INC., CTA CASE NO. 7970 Petition e r, Members: -versus- BAUTISTA, Chairperson PALANCA-ENRIQUEZ, and COTANGCO -MANALASTAS ,JJ. COMMISSIONER OF Promulgated: INTERNAL REVENUE, MAR 2 5 2013 Respondent. X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X DECISION COTANGCO - MANALASTAS,~ : The Petition for Review filed by Next Mobile , Inc. (petitioner) on September 10, 2009 is seeking the nullification of the Final Decision of the Bureau of Internal Revenue (SIR) that found petitioner liable for deficiency value-added tax (VAT) for taxable year 2005 in the aggregate amount of P2,785 ,754.67. STATEMENT OF FACTS Petitioner Next Mobile, Inc. is a domestic corporation organized under Republic Act Nos. 7301 and 7940, with /-

DECISION Page 2 of 17 CTA Case No. 79 70 Next Mobile, Inc. , us CIN principal office address at Next Mobile Building, 2244 Espana Avenue, Sampaloc, Manila.l On the other hand, respondent is the head of the Bureau of Internal Revenue, holding office at the BIR National Office Building, BIR Road, Diliman, Quezon City. On January 14, 2009, respondent issued a Formal Letter of Demand with Final Assessment Notices (FAN) for deficiency VAT and expanded withholding tax against petitioner for taxable year 2005.2 In a letter dated March 5, 2009, petitioner formally protested the assessment.3 After the BIR's review of the report of re-investigation covering all internal revenue taxes for taxable year 2005, on August 11 , 2009, petitioner received the decision of the BIR on its protest which reduced the deficiency VAT payable to P2,785,754.67.4 Thus, on September 10, 2009, petitioner filed this Petition for Review. In her Answer5 filed on October 19, 2009, respondent interposed the following special and affirmative defenses: "6. The subject asscssmen ts are valid and correct and the petitioner has the burden of proof to impugn their validity (Bchn Meyer &, Co. vs. Collector of Internal Revenue, 27 Phil 647). Thus, similarly held, tax assessments by examiners are presumed correct and made in good faith and the taxpayer h as the duty to prove otherwise (Commissioner of Internal r~cvenuc vs. Construction Resources of Asia, In c., 145 SCRA 671); and assessments duly made by a SIR exam iner and approved by her superior officers will not be disturbed (Cuticrrez vs. Villegas, 8 SCRA 547). 7. The burden of proof is on the taxpayer contesting the validity or correctness of an assessment to prove not on ly that the Commissioner of Intern a l Revenue is [ 1 Par. 1, Relevant Stipulated Facts, Joint Stipulation of Facts and Issues (JSFI), docket, p. 289 2 Par. 5, Relevant Stipulated Facts, JSFI, docket, p. 290; Exhibits "A", "A-1", and "A-2" 1 Par. 6, Relevant Stipulated Facts, JSFI, docket, p. 290; Exhibit "B" 1 Par. 7, Relevant Stipulated Facts, JSFI, docket, p. 290; Exh ibit "C" ~, Docket, pp. 263-266

DECISION Page 3 of 17 CT/\ Case No. 79 70 Nex1 Mobile, Inc., us CJN wrong but. also t.hallhc taxpayer is right. (Tan Guan vs. Court. of Appeals, cl. al., 19 SCRA 903 j1967J; Collcclor of Internal Revenue vs. Bohol Land Transportation, Co., 107 Phil. 967 j1960J). 8. All presumptions arc in favor of lhe correctn e ss of lh e assessment. made by the Commissioner of Internal Revenue; the taxpayer must. prove lhe contrary (Commissioner of Internal Revenue v. Antonio Tuason, Inc., 773 SCRA 397; Commissioner of Internal Revenue v. Construction Resources of Asia, Inc., 74-5 SCRA 671). 9. Petitioner filed false VAT returns, hence, respondent's right. lo assess is within ten (10) years from the date of lhc discovery of falsity pursuant. lo Section 222 (a) of the 1997 Tax Code, thus; 'Section 22 2. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. - In the case of a false xxx xxx return with intent to e vade tax xxx, the tax may be assesses (sic) or a proceeding in court for the collection of such tax may be filed without assessment, at any time within ten (1 OJ years after the discovery of falsity xxx xxx' 10. The assessments were issued in the regular course and within Lhc reglemenlary period lo assess provided by law."6 On October 21, 2009, the Court issued a Notice of Pre- Trial Conference setting the case for pre-trial conference on November 19, 2009 .7 Meanwhile, petitioner filed its Reply on November 3, 2009, alleging that it did not file false VAT returns, contrary to respondent's allegation and that this Court has jurisdiction p over the case pursuant to Republic Act No. 1125, as amended. s 6 Docket, pp. 264 -265 7 Docket, p. 267 8 Docket, pp . 268-271

DECISION Page 4 of 17 CTA Case No. 79 70 Next Mobile, Inc., us CIR Petitioner's Pre-Trial BriefJ and respondent's Pre-Trial Briefl0 were both filed on November 16, 2009. On December 9, 2009, the parties filed their Joint Stipulation of Facts and Issues 11 , which was later approved in a Resolution 12 dated December 29, 2009. In the same Resolution, the pre-trial conference was considered terminated. Thereafter, trial proceeded, g1v1ng both parties the opportunity to present their respective documentary and testimonial evidence. Petitioner presented Exhibits "A" to "UU-1", which were later admitted as part of the evidence for petitioner as per Resolutions dated April 13, 20111 3 and June 3, 201 114 . On the other hand, respondent presented Exhibits "1" to "48-a", which were later admitted via Resolution dated June 21, 2011, with the exception of Exhibits "37" and "37-a" which were denied admission for respondent's failure to present the original document for comparison and Exhibit "10" which was denied admission for respondent's failure to identify the same in Court. 1S The case was submitted for decision on August 16, 2012, after petitioner submitted its Memorandum 16 on July 30, 2012 and respondent filed her Memorandum17 on August 10, 2012. STATEMENT OF ISSUES The parties submitted the following issues 18 for this Court's disposition: "1. Whether the FAN was issued within the 3-year prescriptive period.fr- 9 Docket, pp . 273 -279 10 Docket, pp. 281 -284 11 Docket, pp . 289-292 12 Docket, p. 301 13 Docket, pp. 539-540 11 Docket, p. 567 1'' Docket, pp . 664-665 16 Docket, pp . 674 -690 11 Docket, pp . 69 2-700 18 Stipulated I ssues, JSFI , docket, p. 291

DECISION Page 5 of 17 CT/\ Case No. 7970 Next Mobile, Inc. , us CIN 2. Whether Next Mobile is liable for deficiency VAT in the total amount of P2,785,754.67 for taxable year 2005. 3. Whether Next Mobile is liable for 20c% interest on the alleged deficiency VAT. 4. Whether Next Mobile 1s liable for comprom1se penalty. 5. Whether Next Mobile filed false VAT returns for taxable year 2005 that will warrant the application of the 10 -year prescriptive period." RULING OF THE COURT Understatement of VATable sales/ collections; False return; Prescription of period to assess tax. On the issue of prescription, as raised in the first and fifth stipulated issues, petitioner contends that the right of respondent to assess it of deficiency VAT for the first, second, and third quarters of the year 2005 had already lapsed pursuant to Section 203 of the NIRC of 1997, as amended, which states: "SEC. 2 03 . Pe riod of Limitation Upon Assessment and Collection. - Except as provid ed in Section 222, interna l reve nu e taxe s shall be assessed within three (3 ) years a fte r the las t d ay prescribed by la w for the filing of th e return, a nd no proceeding in court. wilhoul a ssessment. for Lhe collection of such Laxes sh a ll be begun a fter Lhe ex pira Lion of such period : Provided , Thal in a case where a re lurn is filed beyond Lhe period prescribed by law, the Lhrce (3 )-year period shall be counted from Lhe day Lh e return was filed. For purposes of !.his Sec tion , a rclurn fil ed before the lasl d ay prescribed by law fo r Lh e filin g th ereo f shall be co nsid e red as filed on such lasl day." Corollary thereto, Section 114(A) of the NIRC of 1997 provides: Tax.-/--- "SEC. 11 4. Re turn and Payment of Value-added

DECISION Page 6 of 17 CT/\ Case No. 7970 Nexl Mobile, Inc., us CJN (A) In Ge n e ral. - Every person li a bl e lo pay th e value -added lax imposed under this Tille shall file a qu a rterly return of the amount or his gross sales or receipts within twe nty - rive (25) d ay s rollowing the close or eac h taxab le quarte r prescribed ror each taxpayer: Provide d , howeve r, That VAT- registered persons shall pay t.hc value -a dd ed tax on a monthly basis ." Based on the foregoing, the three-year period to assess commences from the date of actual filing of the return or from the last day prescribed by law for the filing of such return, whichever comes later. In the case of VAT , the filing of the Quarterly VAT Return must be made within twenty-five (25) days after the close of the taxable quarter. Hence, if the return was filed earlier than the last day allowed by law, the period to assess shall still be counted from the last day prescribed by law for filing of the return. However, if the return was filed beyond the period prescribed by law, the three -year period shall b e counted from the day the return was filed. Applying Section 1 l4(A) of the NIRC of 1997, respondent had until the following dates within which to assess petitioner for deficiency VAT: Return -- Last Day to Filed Exhibit 1st. Date Filed Last Day to A s s e-s -s -- April 25, 2005 File Retu-rn "() " Quarte r - - 2 nd April 25, 1!Q" 2 005 April 25, 2008 II RU Qua rter "S" 3 rd ---- - Qua rte r cJuly 27_1_ 2 005 July 25, ~ 0_9 5 J l_:!jy_~7' 200�. 4t. h Oc tober 25, 2 0-0 5 October 25, October 25, Qw::ti lcr September 27, 2 00 5 2 008 2 006 January 25, -� September 27, 2 006 2009 --- ----- However, respondent alleged in her Answer to the Petition for Review that petitioner filed false VAT returns and thus invoked the 10 -year p eriod of limitation within which to assess as provided in Section 222(a) of the NIRC of 1997, as amended, which states: "SEC. 222 . Exceptions as to Period of Limitation of Assessme nt and Collection of Taxes. - (a ) In the case or a ra ise or rraudulenl return wit.h intent. Lo evade Lax or or railure Lo ril e a return, Lhe Lax m ay be assessed, or a proceedin g in co urt. ror Lhe eolleet.ion or su c h Lax may be ril ed without. assess m e nt., at. any Lim e~

DECISION Page 7 of 17 CT/\ Ca se No . 797 0 Next. Mobile, i nc., us C!H within len (1 0) ye ars a rte r th e discove ry or the ra lsily , rra ud or omission : Provided , Th a t in a rra ud a sse ssme nt whic h h a s becom e rin a l and exec utory, th e rac l or rra ud sha ll be judi c ia lly ta ken cog ni za n ce or in th e c ivil or c rimina l ac tion ror the coll ec tion th c reoL " From the foregoing, there are three exceptions to the period of limitation of assessment, namely; (1) filing of false r eturn , (2) filing of fraudulent return with intent to evade tax, and (3) failure to file a r e turn. The tax may b e assessed or a proceeding in court for the collection of such tax may be begun without assessment at any time within ten years after the discovery of the falsity , fraud or omission. In this case, respondent claims that there were portions of petitioner's sales which were not subjected to VAT. In other words , there is deviation from the truth , which is too substantial to be ignored to the prejudice of the government and which renders the VAT r e turn false within the purview of Section 222(a) of the NIRC of 1997, as amended. 19 Thus, in resolving whether there was indeed falsity in the return, the Court shall examine the findings made by r e spondent in the asse ssment in comparison with the VAT re turns fil e d by petition e r for taxable year 2005. Re spondent computed the d eficiency VAT assessment for taxable year 2005 in the amount of P2 ,785 ,754 .672� as follows: Coll~c lion Subj cc llo VAT ~ 328 ,593,864.00 Le ss: Re ve nu e no t subj ec t lo VAT P 22 35~1, 9 9 0.Q_O 13 ,8 4 2_1_2 16.8 1 1_1, 18 8 ,547. 00 p 314,751,647.19 Sha re on inte rconnec tion in come 3 00 ,~79 . 8 1 Roa min g Reve nu e Zc ro-ra led Vatable Revenue OulJ2 ul Tax p ~1 ,475, 1 64.72 Le ss: Un_9 ispule d Lnpul lax 28 ,708,038.44 VAT___Eayabl c Le ss : VAT pa id - -~, 767_,_1 26.28 Deficiency VAT 1, 176,735.3 1 p 1,590,390.97 /-- 19 Respondent's Memorandum fil ed on Au gust 10, 201 2, docket, p. 697 20 Exhibit "C"

DECISION p 1 ' 1 70 ,~ 63 . 70 Page 8 of 17 CT/\ Case No. 79 7 0 25,000.0() Next Mobile, Inc., us CIN ___h 195 ,363 .70 p 2 ,785,754.67 Add: Penalties ----- Interest (1-26-06 to 9 -30-_99 l Compromise Tot~l_VAT Payable_ The basic deficiency VAT of Pl,590 ,390.97 arose from respondent's finding that petitioner's VATable revenues amounted to P314,7 51 ,647. 19 instead of the amount of P298,847,736.50 reflected per petitioner's VAT returns; hence, an under-declaration in the amount ofP15,903,910.6921. In arriving at the VATable revenues of P314,751,647.19, respondent computed petitioner's sales collections, net of VAT, for the year 2005 in the amount of P328,593,864.00 based on the sales and accounts receivable balances reflected 1n petitioner 's audited financial state m ents, as shown below22 : - - - ---- Accounts Sales Net of Inclusive of VAT Collections Rcce iva ble, VAT Net ofVAT Beginning 4 72,436,546. 00 23 Sales 3 1 8 , 1 5 8 , 5 3 4 . 0 0 211 349,974,387.40 Total 822,410,933.40 Collection 36 1,453,250.40 328,593,864.00 Accounts Receivable, _460 ,957,683:90 ~ - - - - - - - E-nd - After deducting the amount of Pl3 ,842,216.81 , represe nting petitioner's revenues not subject to VAT from the total collections of P328,593,864.00, respondent came up with petitioner's alleged VATable revenues in the amount of P314,751,647.19. The latter figure was then compared with the amount of P298 ,847,736.50 r eported per VAT returns r e sulting in an undeclared VATable sales collections of Pl5 ,903,910.69 upon which a ten percent (10%)) deficiency VAT in the amount of Pl,590,390.97 was imposed.i- 7 1 Erroneou sly indicated in Exhibit "C" as P62,605,513.90 n Exhibit "(" 23 BIR Records, p. 20, Notes to Financial Statements, no. 4 71 BIR Records, p. 16, Notes to Financial Statements, no. 12 7'' BIR Records, p. 20, Notes to Financial Statements, no. 4

DECISION Page 9 of 17 CTA Case No. 797 0 Nex t Mo bile, I nc., us CJN Notably, petitioner was not able to present documentary evidence to explain the discrepancy of Pl5 ,903,910.69. This fact was admitted by petitioner in its Memorandum26 and in the Supplemental Judicial Affidavit27 of petitioner's Director for Finance, Mr. Patricio S. Carlos, thus: "Q. 5: How ca n yo u ex pl a in t h e n th e rc m a mm g diffe re n ce in re ve nu e in t h e a m o unt o f Php 15 ,9 0 3,9 10 .69'? A: As m e nti o n ed m th e Affid a vit, t h e Fin a l Asse ssm e nt Noti ce ('FAN ') wa s rece ive d by Ne x t Mobile only o n 6 Fe bru a ry 2 00 9 . At th a t Lim e, s in ce m o re tha n three (3 ) yea rs h ave la psed from th e filin g o f th e qu a rte rly VAT re turn s of Next Mobi le for 200 5, Nex t Mo b il e did n o t a ny more re ta in records pe rtin e nt to VAT. Thu s, Ne xt Mo bil e cannot now substa nti a te with suffi c ie nt doc um e nts t h e reason w hy the re m a ining Php1 5,903,9 10.69 s h ould not be in c lud e d in th e g ross rece ipts subj ec t to VAT. Furth e rmore , w h e n Nex t Mo b il e was pre pa ring its Protes t aga in s t th e FAN , Nex t Mob il e ca nnot a ny m ore access a segm e nt of its info rm a ti o n tec hn o logy ('IT') sy ste m a nd re tri eve th e re from th e re levant doc ume nts th at could h ave s uffi c ie ntly ex pl a in ed t h e forego in g di sc re pa n cy . In a ny case, eve n if th e a m o unt o f the a ll eged und ec la red re ve nu e is correc t , Nex t Mobil e is s till not li a bl e fo r a n y defi c ie n cy VAT fo r th e year 2 00 5." In view of the above-stated computation of respondent which resulted in undeclared gross receipts in the amount of Pl5,903 ,910.69, and considering further petitioner's failure to present evidence to refute the existence of the said undeclared gross r eceipts , the Court the refore a grees with re sponde nt 's findings that the re wa s a n und e rstatem ent of p e titioner's VAT s a les collections in 2005. In the case of Aznar us. Court of Tax Appeals and Collector of Internal Re ue nue28 , a fa lse re turn has b een d efin ed p a s a deviation from the truth or fac t , whe ther inte ntional or not, to wit: 76' Docket, p. 684, pa r. 19.3 71 Exhibit "U U" 78 G.R. No. L-20569, Au gust 23 , 1974

DECISION Page 10 of 17 CT/\ Case No. 7970 Next. Mobile, Inc., us CJH "(W)c believe that the proper and reasonable intcrprclalion of said provision should be that in the three different cases of (1) false return, (2) fraudulent return with intent lo evade lax, (3) failure to file a return, the lax may be assessed, or a proceeding in court for the collection of such lax may be begun without assessment, al any lime within len years after the discovery of the (1) falsity, (2) fraud, (3) omission. Our stand that the law should be interpreted lo mean a separation of the three different situations of false return, fraudu lent return with intent lo evade lax, and failure lo file a return is strengthened immeasurably by the last portion of the provision which segregates the situations into three different classes, namely, 'falsity', 'fraud', and 'omission'. That there is a difference between 'false return' and 'fraudulent return' cannot be denied. While the first merely implies deviation from the truth, whether intentional or not, Lhc second implies intentional or deceitful entry with intent Lo evade Lhc taxes due." Furthermore, in the case of Commissioner of Internal Revenue us. The Estate of Benigno P. Toda, Jr., et al. 29, the High Court ruled that even assuming that the return merely failed to reflect the true or actual amount without fraud on the part of the taxpayer, in other words, there is merely falsity in the return, the prescriptive period to assess the correct taxes is ten years from the discovery of the falsity. The pertinent portion of the said Decision reads: "lL is !.rue that. in a query dated 24 August 1989, Alt.onaga, through his counsel, asked t.hc Opinion of t.he BIR on Lhe Lax consequence of Lhe two sale transactions. Thus, Lhc BIR was amp ly informed of Lhc transactions even prior Lo Lhc execution of Lhc necessary documents to effect Lhe transfer. Subscqucnt.ly, Lhc Lwo sales were openly made with Lhc execution of public documents and the declaration of taxes for 1989. However, these circumstances do not negate the existence of fraud. As earlier discussed those t.wo transactions were tainted with fraud. And even assuming arguendo that !.here was no fraud, we find that the income tax return filed by CIC for the year 1989 was false. It did not reflect the true or actual amount gained from the sale of the Cibeles property xxx. As sla Led a bovc, the prescriptive period to assess the correct taxes in case of false returns is ten years from the discovery of the falsity . xxx" (Emphases supplied)/ 79 G.R. No. 147188, September 14, 2004

DECISION Page 11 of 17 CT/\ Case No. 7970 Next Mobile, Inc., vs CIN In the present case, the understatement in petitioner's VATable sales collections in 2005 makes petitioner's VAT returns for the said year false. Accordingly, the ten -year prescriptive period applies and not the three-year prescriptive period as alleged by petitioner. A record of sufficient input VAT in the books of a taxpayer is not a bar to having the said taxpayer assessed for deficiency output VAT. The Court does not agree with petitioner's line of reasoning that even assuming it was liable for deficiency VAT it had more than enough input VAT to which the deficiency VAT may b e credited against and respondent should have simply credited the sam e amount of unutilized input VAT against the subject deficiency VAT assessment; and since petitioner had sufficient input VAT which was not credited/ applied against any output VAT (for 2005 and the succeeding years), it should not be held liable for deficiency output VAT. 30 First, respondent is not authorized to automatically credit or offset unutilized input VAT, or any claims a taxpayer may have from the government, against a deficiency VAT assessment or any existing tax liability. Such practice is not sanctioned by any law or rules in this _jurisdiction. Section 228 of the Tax Code clearly requires that the taxpayer must first be informe d that h e is liable for defici ency taxes through the sending of an assessment. He must be informed of the facts and the law upon which the assessment is made. To proceed h eedlessly with tax collection without first establishing a valid assessment is evidently violative of the cardinal principle in 1administrative investigations - that taxpayers should be able to present their case and adduce supporting evidence .31 Second, a record of excess and unutilized input VAT in p e titione r 's books, sufficie nt to cover its tax liabilities, does notj_.. ~o Docket, pp.686-688. 3 1 Commissione r of Internal Nevenue vs. Metro Star Su.perama, Inc., G.R. No. 185371, Decem bcr 8, 2010.

DECISION Page 12 of 17 CT/\ Ca se No . 7 9 7 0 Next. Mobile, Inc., us CJN bar respondent from issuing deficiency VAT assessment/ s against pet1t1oner. In this case, the subject deficiency VAT assessment against petitioner arose from "underdeclaration of sales subject to Value Added Tax pursuant to Sec. 108 of the NIRC"32 . The presence of unutilized input VAT sufficient to cover the subject deficiency VAT assessment, does not change that fact that petitioner had undeclared VATable sales/collections in 2005 in the amount of P15 ,903,910.69 upon which a 10<% deficiency VAT may be imposed, and that this understatement in VATable sales/ collections makes petitioner's VAT returns for 2005 false. The existence of sufficient unutilized input VAT and the matter having the same credited against or subtracted from the subject deficiency VAT assessment, can only be viewed by this Court, at most, as a probable mode by which the subject deficiency VAT assessment can be paid/ settled; but it is not a valid ground that would warrant the nullification or cancellation of the subject FAN and Final Decision. Propriety of crediting the claimed 2005 input VAT against the subject deficiency VAT assessment to pay for/ settle tax liability. As earlier mentioned, petitioner's assertion as to the sufficiency of its unutilized input VAT can only be viewed by this Court, at most, as a probable mode by which the subject deficiency VAT assessment can be paid/ settled; but not as valid ground to nullify or cancel the subject FAN and Final Decision. Accordingly, the Court deems it prudent address this looming question, viz: May petitioner credit or offset its claimed 2005 excess and unutilized input VAT against the subject deficiency VAT assessment of P1,590,390.97 , 1n order to pay for j settle said tax liability? Petitioner's Quarterly VAT Return for the fourth quarter of 2005 shows that petitioner had excess and unutilized input{ :>J l�:xhibit. " /\ "

DECISION Page 13 of 17 CTJ\ Case No. 7970 Next Mobile, Inc., us CJN VAT in the amount of P255 ,847,304.7333_ Respondent, as reflected in the Formal Letter of Demand34 , acknowledged that petitioner had excess and unutilized input VAT in the same amount "to be carried over next year". To prove that the input VAT of P255,847,304.73 reflected in the PAN and FAN has substantially remained unutilized since 2005, petitioner presented its Quarterly VAT Returns for the first quarter of 2006 up to the second quarter of 2010. Based on the said Quarterly VAT Returns, petitioner's VAT transactions for the said period may be summarized as follows: Output Tax Due ~2,686,364 .90 200635 200736 .2_6_, 323,939.32 200837 12, 154,0_�6 .0! 200938 823 1_~09 . 0_8 201039 - 3362._067.53 Total 52 ,393,966.84 The table illustrates that even if the 2005 input VAT of P255,847 ,304. 73 were utilized, credited or offset against the output tax due of petitioner from 2006 to 2010 amounting to P52,393,966.84, there still remains a substantial unutilized input VAT sufficient to pay for I settle petitioner's deficiency output VAT of P1,590 ,390.97 assessed on undeclared VATable salesI collections. After a conscientious study of the relevant laws, rules, and jurisprudence applicable in this instance, the Court is contrained to rule that petitioner may not credit or offset the 2005 input VAT of P255,847,304.73 reflected in the PAN and{- 33 Exhibit "S" 34 l<.:x hibit "!\" 3'' Exhibits " AA", "BB", "CC", and "DD" 36 Ex hibits "EE", "FF", "GG", and " HH" 31 Exhibits "II", "JJ", "KK", an d "LL" 38 Ex hibits " MM ", " NN ", "00 ", and "PP" 39 Ex hibits "QQ" and "RR"

DECISION Page 14 of 17 CTA Case No. 7970 Next Mobile, Inc., us C!H FAN against the subject deficiency VAT assessment of P1,590,390.97 to pay for/settle its tax liability? Under the NI RC of 1997, specifically Section 110, the rule is that any input tax shall be creditable against the output tax only if it is evidenced by a VAT invoice or official receipt. Quoted below is the relevant portion of the said provision: "SEC. 1 10. Tax Credits.- "(A) Creditable Input Tax. - "(1) Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 1 13 hereof on the following transactions shall be creditable against the output tax: xxx" (Emphasis supplied) Consistent with the foregoing is Section 4.110-8 of Revenue Regulations No. 16 -2005, otherwise known as the "Consolidated Value -Added Tax Regulations of 2005", viz: "SEC. 4.1 10 -8 Substantiation of Input Tax Credits. (a ) Input taxes for the importation of goods or the domestic purchase of goods, properties or services is made in the course of trade or business, whether such input taxes shall be credited against zero-rated sale, non -zero- rated sales, or subjected lo the Final Withholding VAT, must be substantiated and supported by the following documents, and must be reported in the information returns required to be submitted to the Bureau: ( 1) XXX (2) For domestic purchase of goods a nd properties - invoice showing the information required under Sees. 113 and 237 of the Tax Code (3) For the � purchase of real properly - public instrument i.e ., deed of absolute sale, deed of conditional sale, conlracl/agrccmcnl lo sell, elc., together with VAT invoice issued by lhc seller. (4) For the purch a se of services - official receipt showing the information required under Sees. 113 and 237 of the Tax Code.(;

DECISION Page 15 of 17 CTA Case No. 797 0 Next Mobile, Inc., us CJH xxx" In this case, pet1t1oner failed to present and offer in evidence any VAT invoice or official receipt to support the claimed excess and unutilized input VAT which petitioner seeks to be credited or charged against its deficiency VAT liability. A cardinal rule in statutory construction is that when the law is clear and free from any doubt or ambiguity, there is no room for construction or interpretation. There is only room for application. 40 Furthermore, it bears to stress that this Court is a court of record41 and as such it is "required to conduct a formal trial (trial de novo) where the parties must present their evidence accordingly if they desire the Court to take such evidence into consideration."42 As cases filed before this Court are litigated de novo, party-litigants are mandated to prove every minute aspect of their cases.43 Hence, petitioner's input VAT, not being supported by any VAT invoice or official receipt, cannot be credited or charged against its deficiency VAT liability. Deficiency Interest The imposition of deficiency interest is in order pursuant to Sec. 249 (B) of the .1997 NIRC. Section 249 (B) is clear on the imposition of deficiency interest in the event that the taxpayer is held liable for deficiency taxes, vzz: "SEC. 249. lnlcrcsl. - (A) In Genera l. - Th e re shall be assessed and co llcc lcd on a ny unpa id amounl of lax, inlcrcsl a l lhc ra le of lwcnly pcrccnl (20% ) per annum, or such higher ra lc as may / - 40 Milagros E . 11mores us. HON l~lecloral Tribunal, G.R. No. 189600, June 29, 2010. 41 Section 8, Republic Act No. 11 25 (AN ACT CREATING TilE COURT OF TJ\X APPEALS). 42 Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue , G.R. No. 145526, March 16, 2007; and Commissioner of Interna l l<cvcnuc vs. Man ila Mining Corporation, G .l< . No. 153204, Au gust 31,2 005 . 4 3 Dizon vs. Court. of Tax Appea ls , c t. a !. , G.R . No. 140944 , April 3 0, 2 008.

DECISION Page 16 of 17 CTA Case No. 79 70 Next Mobile, Tn c., u.s CJH be prescribed by rules and regulalions, from lhe date prescribed for paymenl unlillhe amounl is fully paid. (B) Deficien cy lnleresl. - Any d e ficiency in the lax due, as lhe lerm is defined in lhis Code, shall be subject to lhe inleresl prescribed in Subseclion (A) hereof, which in lcresl shall be assessed and colleclcd from lhe dale prescribed for its paymenl unlil lhe full payme nt lhcreof." WHEREFORE, premises considered, the Petition for Review filed by Next Mobile Inc. is hereby DENIED. Accordingly, the assessment for deficiency VAT issued by respondent Commissioner of Internal Revenue against petitioner for taxable year 2005 is hereby AFFIRMED. Petitioner is ORDERED to PAY respondent the amount of ONE MILLION FIVE HUNDRED NINETY THOUSAND THREE HUNDRED NINETY AND 97/100 PESOS (Pl,590,390.97) representing deficiency value-added tax for taxable year 2005. In addition, petitioner is liable to pay deficiency interest at the rate of twenty percent (20�/o) per annum on the basic deficiency VAT in the amount of Pl,590,390.97 computed from January 26, 2006, unlil full payment thereof pursuant to Section 249 (B) of the NIRC of 1997. The comprom1se penalty of P25,000.00, originally imposed by respondent is hereby excluded there being no compromise agreement between the parties. SO ORDERED. ~~4_/4- AMELIA R. COTANGCO- MANALASTAS Associate Justice (Retired) OLGA PALANCA-ENRIQUEZ Associate Justice

DECISION Page 17 of 17 CTA Case No. 7970 Next Mobile, Inc. , us CIN 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. CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court.