COLT COMMERCIAL INC. v. THE COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SECOND DIVISION COLT COMMERCIAL, INC., CTA Case No. 9270 Petitioner, Members: -versus- CASTANEDA, JR., Chairperson CASANOVA, and MANAHAN, JJ. Promulgated: COMMISSIONER OF INTERNAL REVENUE, APR 0 3 2018 rA ---- Respondent. X- - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - DECISION / X 'f:1.(A.,.. MANAHAN,J.: This Petition for Review filed by Colt Commercial, Inc. on February 24, 201 6 prays for the refund of the amount of P2,194,58 3.72, a llegedly representing its unutilized input value-added tax (VAT) p ayments attributable to its zero-rated sales for the third 1 qu arter of taxable year (TY) 20 13.2 THE PARTIES Petitioner Colt Commercial, Inc. is a corporation duly organized and existing under the laws of the Republic of the Philippines, with bu siness address at Suite 508 Padilla Delos Reyes Bldg., 232 J uan Luna St., Brgy. 289 Zone 027, Binondo, Manila. 3 It is a VAT-registered taxpayer with Taxpayer~ ) 1 Indicated as "Second Quarter" of taxable year 2013 in the Pre-Trial Order. 2 Docket, CTA Case No. 9270, Vol. II, Par. I, Summary of the Case, Pre-Trial Order, p. 612. 3 Docket, Vol. II, Par. 1(a), Joint Stipulation of Facts and Issues (JSFI), p . 593; Exhibit "P-1", docket , val. I, p. 223.

DECISION CTA Case No. 9270 Identification No. (TIN) 008-327-264-000, as evidenced by its Certificate of Registration No. OCN 1RC0000579258.4 As stated in its Articles of Incorporation, it is primarily incorporated 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 and all kinds of goods, wares and merchandise."5 On the other hand, respondent is the duly appointed Commissioner of the Bureau of Internal Revenue (BIR) who has the power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto or other matters arising under the National Internal Revenue Code (NIRC) as amended or other laws or portions thereof administered by the BIR. He holds office at the 5th Floor, BIR National Office Building, Agham Road, Diliman, Quezon City. THE FACTS Petitioner filed its Quarterly VAT Returns for the first, second, and third quarters of TY 2013 on April 24, 20136 , on July 25, 20137, and on October 25, 20138, respectively, and amended all of the said returns on April 30, 20149. Likewise, petitioner filed its Amended Quarterly VAT Returns for the fourth quarter ofTY 2013 on January 25, 2014 and on April30, 2014. 10 On September 29, 2015, petitioner filed its administrative claim for refund covering the third quarter of TY 20 13 in the amount of'P2,194,583.72.11~ 4 Docket, Vol. II, Par. 1(c), JSFI, p. 594; Exhibit "P-5", docket, vol. I, p. 254. 5 Docket, Vol. II, Par. 1(b), JSFI, pp. 593 to 594; Exhibit "P-2", docket, vol. I, p. 225. 6 Docket, Vol. I, Exhibit "P-17", p. 456. 7 Docket, Vol. I, Exhibit "P-17'', p. 458. s Docket, Vol. I, Exhibit "P-17", p. 460. 9 Docket, Vol. I, Exhibit "P-17", pp. 455, 457, and 459. 10 Docket, Vol. I, Exhibit "P-17'', pp. 461 and 462. ll Docket, Vol. I, Par. 1(e), JSFI, p. 594; Exhibit "P-13", docket, vol. I, p. 449.

DECISION CTA Case No. 9270 Respondent denied petitioner's claim for refund on January 25, 2016.12 Hence, petitioner filed this Petition for Review13 on February 24, 2016. Respondent raised the following special and affirmative defenses in the Answer 14 filed on April 1, 2016: 16. The petition is premature considering that petitioner's claim for tax refund/ credit of unutilized input tax payments attributable to zero-rated sales for the third quarter of taxable year 20 13 in the amount of P2,194,583.72 is still pending investigation with Revenue Region No.6, Manila. 17. 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. Records showed that petitioner consistently carried forward its Input Tax credits from taxable quarter ending March 31, 2013 up to March 31, 2015. 18. Section 112 of the NIRC of 1997, as amended, provides that any VAT-registered person whose sales are zero-rated or effectively zero-rated may apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to zero-rated sales or effectively zero- rated sales, except transitional input tax, within two (2) years after the close of the taxable quarter when the sales were made, to the extent that such input tax has not been applied against output tax. 18. The remedies of tax refund and input tax carry-over are alternative and the choice of one precludes the other. 19. Claim for refund is construed strictly against the claimant and should not be allowed unless proven explicitly and categorically.~ 12 Docket, Vol. I, Exhibit "P-23", p. 510. 13 Docket, Vol. I, pp. 10 to 22. 14 Docket, Vol. I, pp. 167 to 171.

DECISION CTA Case No. 9270 20. Tax refunds are in the nature of tax exemptions. Accordingly, the claimants of those refunds bear the burden of proving the factual basis of their claims, and of showing, by words too plain to be mistaken, that the legislature intended to exempt them. The pre-trial conference was scheduled on May 12, 2016. Thus, the Respondent's Pre-Trial Brief15 and petitioner's Pre- Trial Briefl6 were respectively filed on May 6, 2016 and on May 10, 2016. On June 24, 2016, the parties submitted their Joint Stipulation of Facts and lssues17� Subsequently, the Court issued a Pre-Trial OrderIs on July 11, 20 16, approving and adopting the parties' joint stipulations and terminating the pre- trial. Upon motion of petitioner, 19 the Court commissioned Mr. Garry S. Pagaspas as the Independent Certified Public Accountant (ICPA) for the case on July 18, 2016.20 As trial ensued, petitioner presented Mr. Cyrus S. Chung, Ms. Cherilyn R. Chung, Ms. Jennifer S. Maiiago, and Mr. Garry S. Pagaspas as its witnesses. Then, petitioner formally offered its testimonial and documentary evidence, consisting of Exhibits "P-1" to "P-29-A", inclusive of sub-markings; which the Court all admitted, except for Exhibits "P-7", "P-18-A", and "P- 22".21 On the other hand, respondent, through counsel, manifested during the hearing on August 31, 2016 that he has no witness to present.22 ~ 1s Docket, Vol. I, pp. 174 to 177. 16 Docket, Vol. I, pp. 210 to 222. 17 Docket, Vol. II, pp. 593 to 595. 1s Docket, Vol. II, pp. 612 to 616. 19 Docket, Vol. II, Motion to Commission Independent Certified Public Accountant, pp. 596-600. 20 Docket, Vol. II, Order dated July 18, 2016 and Oath of Commission, pp. 619 and 617, respectively. 21 Docket, Vol. III, Resolutions dated November 11, 2016 and March 17, 2017, pp. 1038- 1039 and 1055-1058, respectively. 22 Docket, Vol. II, Order, p. 721.

DECISION CTA Case No. 9270 The Court declared the instant case deemed submitted for decision on May 2, 20 17,23 after the filing of petitioner's Memorandum24 on April 20, 2017 and of respondent's Memorandum25 on April 24, 2017. Hence, this decision. ISSUE The parties submitted the following issue for the Court's determination: Whether petitioner is entitled to a tax refund in the amount of Two Million One Hundred Ninety-Four Thousand Five Hundred Eighty-Three Pesos and Seventy-Two Centavos (P2,194,583.72) for the third quarter ofTY 2013.26 Petitioner's Arguments27 Petitioner argued that the instant petition 1s not prematurely filed even if the decision of the BIR's Regional Director is not yet final since respondent did not act on its application for refund within 120-day period or until January 27, 2016. Thus, the absence of the final decision from the respondent upon expiration of the 120-day period may be considered as inaction on its part. Petitioner also argued that it is entitled to a refund in the amount of Php2,194,583.72 for the 3rd quarter of taxable year 2013 as it complied with all the requisites pertaining to a valid claim for refund under Section 112(A) of the NIRC. Respondent's Counter-Arguments28 Respondent, on the other hand, argued that petitioner is not entitled to a tax refund or issuance of Tax Credit Certificate (TCC) because the entire ~aunt subject of claim for refund was applied "against its output tax by carrying over the same to succeeding taxable quarters"29 and that it failed to prove that it has zero-rated sales to PEZA and SBMA registered entities.~ 23 Docket, Vol. III, Resolution, p. 1094. 24 Docket, Vol. Ill, pp. 1059 to 1087. 2s Docket, Vol. Ill, pp. 1089 to 1093. 26 Docket, Vol. II, Par. 2, JSFI, p. 594. 27 Supra., Note 24. 28 Supra., Note 25. 29 Docket, Vol. Ill, Respondent's Memorandum, p. 1091.

DECISION CTA Case No. 9270 RULING OF THE COURT Petitioner posits that it is entitled to a refund of its unutilized input taxes attributable to its zero-rated sales pursuant to Section 112(A) and (C) of the NIRC of 1997, as amended, 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)(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 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~

DECISION CTA Case No. 9270 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. Based on the foregoing provision, in order to be entitled to refund or tax credit of input tax due or paid attributable to zero- rated or effectively zero-rated sales, the following requisites must be satisfied: 1) That the claimant must be VAT-registered; 2) That there must be zero-rated or effectively zero- rated sales; 3) That the creditable input tax due or paid must be attributable to such zero-rated sales; 4) That the input taxes were not applied against any output VAT liability; and 5) That the administrative and judicial claims for refund were timely filed. Petitioner's administrative and judicial claims were seasonably filed Before proceeding with the determination of petitioner's compliance with the other requisites, the Court deems it appropriate to resolve first the question of timeliness of filing of the administrative and judicial claims for refund. As explicitly stated in the afore-quoted provision, the application for tax credit or refund of unutilized excess input VAT must be filed within two years after the close of the taxable quarter when the zero-rated or effectively zero-rated sales were made. Likewise, respondent has 120 days from the date of submission of the complete documents in support of the~

DECISION CTA Case No. 9270 application for refund or tax credit within which to grant or deny the claim. In case of a full or partial denial or inaction within the 120-day period by respondent, the taxpayer's recourse is to file an appeal before this Court within 30 days from receipt of the decision of respondent or from the expiration of the 120-day period. The present claim covers the third quarter of TY 2013. Counting two years from the end of said quarter on September 30, 2013, petitioner had until September 30, 2015 within which to file its administrative claim for refund or issuance of tax credit certificate. Evidently, the filing of the administrative claim for refund of unutilized input taxes on September 29, 201530 was well within the two-year prescriptive period. Then, the 120- day period given to respondent to act on petitioner's administrative claim started from September 29, 2015, when all supporting documents have been attached, and ended on January 27, 2016. Respondent denied the said claim through a Letter dated January 25, 2016,31 which was allegedly received by petitioner on January 26, 2016. There is no proof that the said letter was indeed received by petitioner on January 26, 2016. However, the Court will consider the date that respondent issued the letter of denial as the date of receipt of petitioner. Accordingly, petitioner had 30 days from January 25, 2016 within which to appeal its claim to this Court, or until February 24, 2016. Since, this Petition for Review was filed on February 24, 201632, the same was timely filed. The Court will now determine petitioner's compliance with the remaining requisites.~ 30 Docket, Vol. I, Exhibit "P-13", p. 449. 31 Docket, Vol. I, Exhibit "P-23", p. 510. 32 Docket, Vol. I, p. 10

DECISION CTA Case No. 9270 Petitioner is a VAT- registered entity Petitioner is a registered VAT taxpayer with TIN No. 008- 327-264-000, as evidenced by its Certificate of Registration No. OCN 1RC0000579258 dated August 31, 2012.33 Petitioner had zero- rated sales In its Articles of Incorporation34, it is expressly stated that petitioner 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 and all kinds of goods, wares and merchandise. 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 kinds of goods, wares, products of all classes and description, distribution, import and export business. For the third quarter of TY 20 13, petitioner reflected total sales ofP36,268,918.91 with the following sales in its Amended Quarterly VAT Return:3s SALES TYPE AMOUNT VATable p 8,785,165.54 Zero-Rated 27,483,753.37 TOTAL p 36,268,918.91 .....- 33 Docket, Vol. I, Exhibit "P-5", p. 254. 34 Docket, Vol. I, Exhibit "P-2", p. 225. 35 Docket, Vol. I, Exhibit "P-1 7'', p. 459.

DECISION CTA Case No. 9270 A perusal of the records shows that petitioner's zero-rated sales are of three types: (1) direct export sales of goods to foreign clients; (2) sales to entities registered with the Board of Investment (BOI); and (3) sales to entities doing business within the economic zone and registered with the Philippine Economic Zone Authority (PEZA) and Subic Bay Metropolitan Authority (SBMA). These sales are entitled to the benefit of VAT zero- rating pursuant to Section 106(A)(2)(a)(1) and (5) of the NIRC of 1997, as amended, quoted hereunder for ready reference: SEC. 106. Value-added Tax on Sale of Goods or Properties. - (A) Rate and Base of Tax.- XXX XXX XXX (2) The following sales by VAT-registered persons shall be subject to zero percent (0�/o} 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); XXX XXX XXX (5) Those considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987, and other special laws xxx This is implemented by Section 4.106-5(a)(1) and (a)(5) and (c) of Revenue Regulations (RR) No. 16-05, which provides that direct export sales of goods, transactions considered as export sales under Executive Order (EO) No. 226, and sales of goods or properties to enterprises duly registered with and accredited by the PEZA and SBMA are classified as zero-rated sales, the pertinent provisions state:~

DECISION CTA Case No. 9270 REVENUE REGULATIONS NO. 16-05 SUBJECT: Consolidated Value-Added Tax Regulations of2005 XXX XXX XXX SECTION 4.106-5. Zero-Rated Sales ofGoods or Properties. - A zero-rated sale of goods or properties (by a VAT-registered person) is a taxable transaction for VAT purposes, but shall not result in any output tax. However, the input tax on purchases of goods, properties or services, related to such zero-rated sale, shall be available as tax credit or refund in accordance with these Regulations. The following sales by VAT-registered persons shall be subject to zero percent (0�/o) rate: (a) Export sales.- "Export Sales" shall mean: (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, 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); XXX XXX XXX (5) Transactions considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987, and other special laws. 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~

DECISION CTA Case No. 9270 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 foregoing, in order to qualify for VAT zero- rated direct export sales under Section 106(A)(2)(a)( 1) of the NIRC of 1997, as amended, in relation to Section 113 (A)( 1), (B)(1), (2)(c) and (3) ofthe same Code; and Section 4.113-1(A)(1), (B)( 1) and (2)(c) of RR No. 16-05, petitioner must present at least three (3) types of documents, namely: 1. Sales Invoice as proof of sale of goods; 2. Export Declaration and Bill of Lading or Airway Bill as proof of actual shipment of goods from the Philippines to a foreign country; and 3. Bank Credit Advice, Certificate of Bank Remittance or any other document proving payment for the goods in acceptable foreign currency or its equivalent in goods and services. As regards the "considered export sales" under Section 106(A)(2)(a)(5) of the NIRC of 1997, as amended, in relation to Section 113(A)(1), (B)(1), (2)(c) and (3) of the same Code; and Section 4.113-1 (A)(1), (B)(1) and (2)(c) of RR No. 16-05, petitioner must present at least two (2) types of documents, namely: 1. Sales invoice as proof of sale of goods; and 2. Any proof of the buyer's entitlement to tax incentives under EO No. 226 or special laws (i.e., Certificates of Registration with the BOI pursuant to EO No. 226 or Certificates of Registration with the PEZA or SBMA pursuant to Republic Act (RA) No. 7916 and RA No. 7227, respectively, for the corresponding taxable year). In the Summary of Zero-Rated Sales36, petitioner was able to account for the amount of P27,167,598.86 out of the P27,483,753.37 zero-rated sales reported in the Quarterly VAT Return for the third quarter ofTY 2013. However, the balance~ 36 Table 4 attached to the !CPA Report, Exhibit "P-28".

DECISION CTA Case No. 9270 of P316, 154.21 remained unaccounted for. The said Summary grouped petitioner's zero-rated sales as follows: TYPE OF AMOUNT ZERO-RATED SALES p 24,378,748.22 Considered export sales Actual export sales 1,788,850.64 TOTAL p 26,167,598.86 As for its zero-rated sales to PEZA or SBMA-registered entities, petitioner only presented a Certification37 dated February 16, 2016, which was issued by PEZA, confirming that the latter issued VAT zero-rating certifications to the PEZA- registered enterprises enumerated therein forTY 2013. The list includes the following entities with which petitioner had sales during the third quarter ofTY 2013: CUSTOMER NAME ZONE LOCATION VATCERT. VATCERT. NO. DATE 1. Applied Machining Corporation Laguna Technopark-SEZ 939 2. Daitoh Precisions, Inc. 1578 28-Jan-13 3. Daiwa Seiko Philippines Mactan Economic Zone 448 22-Apr-13 782 07-Jan-13 Corporation Laguna International 18-Jan-13 4. Delta Design Philippines, LLC. Industrial Park-SEZ 1358 Carmelray Industrial 362 27-Feb-13 5. Exas Philippines, Inc. Park II-SEZ; Baguio City 1073 03-Jan-13 6. Famous Secret Precision 1658 01-Feb-13 Economic Zone 450 Machining, Inc. Mactan Economic Zone 313 05-Jun-13 7. Fatec Corp. 229 07 -Jan-13 Daiichi Industrial Park- 121 8. Ferusche Stainless, Inc. SEZ 1367 28-Dec-12 1459 9. Fujitsu Die-Tech Corporation of First Cavite Industrial 79 21-Dec-12 the Phils. Estate-SEZ 286 167 13-Dec-12 10. Gunma Gohkin Philippines Filinvest Technology 1694 Corporation Park Calamba-SEZ 01-Mar-13 Laguna Technopark Inc.- 13-Mar-13 11. Hitachi Industrial Machinery 10-Dec-12 Phils. Corp. SEZ Light Industry & Science 28-Dec-12 12. Imasen Philippine Manufacturing Corp. Park I-SEZ 17-Dec-12 First Cavite Industrial 13. Ina Micro Opto Corporation .. 27-Jun-13 Estate-SEZ -. 14. Kodachi Seiki Philippines, Inc. Laguna Technopark Inc.- 15. Laguna Auto-Parts Manufacturing SEZ Corp. Mactan Economic Zone 16. Laguna Metts Corporation II-SEZ 17. Makoto Metal Technology Cavite Economic Zone Incorporated Laguna Technopark Inc.- 18. Manufacturing Automation SEZ Solutions International Inc. Laguna Technopark Inc.- SEZ Mactan Economic Zone II-SEZ Calamba Premier International Park-SEZ 37 Docket, Vol. I, Exhibit "P-6", pp. 255 to 261.

DECISION CTA Case No. 9270 19. Meinan Philippines Inc. Laguna Technopark Inc.- 734 17-Jan-13 SEZ 264 26-Dec-12 20. Menima Casting Products, Inc. 1413 08-Mar-13 First Cavite Industrial 839 21-Jan-13 21. Micro- Mechanics Technology Estate-SEZ 887 23-Jan-13 International, Inc. 428 07-Jan-13 Carmelray Industrial 443 07-Jan-13 22. Micron Precision Phils., Inc. Park 11-SEZ 1263 18-Feb-13 747 07-Jan-13 23. MKP, Inc. Calamba Premier 861 22-Jan-13 24. Nidec Philippines Corporation International Park-SEZ 1720 08-Jul-13 Cavite Economic Zone 879 22-Jan-13 25. Nidec Precision Philippines 1313 20-Feb-13 Corporation Laguna Technopark Inc.- 165 17-Dec-13 SEZ 355 02-Jan-13 26. Parts Philippines Inc. 30 05-Dec-12 27. Penta Technological Products, Inc. Laguna Technopark Inc.- 1939 11-Nov-13 SEZ 1001 29-Jan-13 28. Philippine Nagano Seiko, Inc. 718 17-Jan-13 Cavite Economic Zone 395 04-Jan-13 29. Philippine Precision Technology 383 04-Jan-13 Inc. Laguna Technopark Inc.- 769 18-Jan-13 SEZ 30. Philippine TRC, Inc. People's Technology 31. Precise Techno Inc. Complex-SEZ 32. Prophile Sound Industries, Inc. 33. Suminac Philippines, Inc. Carmelray Industrial Park 1-SEZ 34. T&S Laser Solutions, Inc. Lima Technology Center- 35. Tamiya Philippines, Inc. SEZ 36. TMX Philippines, Cavite Economic Zone Inc. Cavite Economic Zone 37. Tsukuba Philippine Diecasting Corporation First Cavite Industrial Estate-SEZ 38. Vitalo Packaging International, Inc. First Philippine Industrial Park-SEZ 39. Wacker Neuson Manila Inc. Mactan Economic Zone 40. Yutaka Manufacturing (Phils.) Inc. 11-SEZ Mactan Economic Zone Cavite Economic Zone Laguna Technopark-SEZ First Cavite Industrial Estate-SEZ Laguna Technopark Inc.- SEZ Accordingly, only those sales made to the above-listed entities during the third quarter ofTY 2013 shall be entitled to VAT zero-rating for purposes of the present claim. Consequently, all sales made to other alleged PEZA-registered entities during the third quarter of TY 2013 are not entitled to VAT zero-rating. However, as for the direct export sales and sales made to BOI-registered entities, petitioner failed to provide proofs of actual exportation and BOI registration certificates. Thus, all those direct export sales and sales made to BOI-registered entities are not entitled to VAT zero-rating for purposes of the present claim.~

DECISION CTA Case No. 9270 To prove compliance with the VAT invoicing requirements under Section 113(A) and (B) of the NIRC of 1997, as amended, and as implemented by Section 4.113-1(A) and (B) ofRR No. 16- 05, petitioner submitted sales invoices38 of goods supporting the Summary of Zero-Rated Sales39 for the third quarter of TY 20 13. The said sales invoices were verified by the Court-commissioned ICPA, Mr. Garry S. Pagaspas. Based on this summary and the findings above, the following zero-rated sales during the third quarter of TY 20 13, totaling P2,329,095.94, shall be disallowed: Invoice Invoice Date Client/ Customer Amount No.4o 25,600.00 Sales to clients without proof ofPEZA registration 15,865.00 2568 7/3/2013 Polarmarine Incorporated p 7,250.00 6,800.00 2569 7/3/2013 Polarmarine Incorporated 2,821.00 9,870.00 2575 7/3/2013 Polarmarine Incorporated 7,780.00 26,000.00 2603 7/2/2013 Turu Santechno Corp. 26,000.00 111,840.00 2681 7/5/2013 Turu Santechno Corp. 12,112.50 19,855.00 2794 7/12/2013 Polarmarine Incorporated 47,900.00 52,000.00 3102 7/27/2013 Polarmarine Incorporated 49,500.00 11,780.00 3123 7/27/2013 Polarmarine Incorporated 3,400.00 33,650.00 3124 7/27/2013 Polarmarine Incorporated 3,085.00 11,200.00 3198 7/31/2013 Polarmarine Incorporated 20,670.00 9 900.00 3246 8/2/2013 Polarmarine Incorporated 600.00 3247 8/2/2013 Polarmarine Incorporated 515,478.50 3309 8L712013 Polarmarine Incorporated 19,500.00 3464 8}1412013 Polarmarine Incorporated 183,676.80 315,153.00 3469 8/14/2013 Polarmarine Incorporated 315,153.00 106,545.54 3470 8/14/2013 Polarmarine Incorporated 48,366.82 3471 8/14/2013 Polarmarine Incorporated 11,073.89 3705 9/2/2013 Polarmarine Incorporated 127,756.24 ..... 4029 9/18/2013 Turu Santechno Corp. 4060 9/18/2013 Turu Santechno Corp. 4061 9/19/2013 Polarmarine Incorporated 4062 9/19/2013 Polarmarine Incorporated 4065 9/19/2013 Polarmarine Incorporated Subtotal p Sales to clients without proof ofBOI registration 3952 9/12/2013 Ebara Benguet p Foreign sales without proof of actual export 2897 7/17/2013 Waytech (M) Sdn Bhd p 2931 7/18/2013 Premtool E.K. 2932 7/18/2013 Premtool E.K. 2933 7/18/2013 Premtool E.K. 2979 7/22}2013 Hillmec Engineering_ Sdn Bhd 2980 7/22/2013 Tkm Industries (M) Sdn Bhd 3303 8/6/2013 Hillmec Engineering Sdn Bhd 38 Exhibit "P-9". 39 Table 4 attached to the ICPA Report, Exhibit "P-28". 40 Exhibit "P-9".

DECISION CTA Case No. 9270 3215 8/1/2013 Premtool E.K. 310,711.38 257,620.64 3216 8/ 1}2013 Premtool E.K. 90 819.98 3217 8012013 Premtool E.K. 21,973.35 1,788,850.64 4093 9/20}2013 Euroasia Technics Sdn Bhd 5,266.80 Subtotal p 2,329,095.94 Documents not found in the records 2522 Meinan Philippines, Inc. p Total p Based on the foregoing, only the amount of P24,838,502.93 shall be considered as valid zero-rated sales, computed as follows: Total Reported Zero-Rated Sales p 27,483,753.38 Less: p 316,154.51 2,645,250.45 Unaccounted for by petitioner 2,329,095.94 p 24,838,502.93 Disallowed by this Court Total Valid Zero-Rated Sales The creditable input taxes due or paid were attributable to zero-rated sales and were not applied against any output VAT liability Petitioner's Amended Quarterly VAT Return for the third quarter of TY 2013 reflected excess input taxes amounting to P2,194,583.72, which is the subject of the present claim, computed as follows: Input Taxes on Local Purchases of Goods Other Than Capital Goods p 586,650.58 Input Taxes on Importations of Goods Other Than Capital Goods 2,662,153.00 Total Input Taxes Less: Output Taxes on VATable Sales p 3,248,803.58 Excess Input Taxes for the 3rd Quarter of TY 2013 1,054,219.86 p 2,194,583.72 To support its total input taxes of P3,248,803.58, petitioner submitted several documents, such as suppliers' invoices, official receipts, Airway Bills, Assessment Notices, Import Entries and Internal Revenue Declarations (IEIRD), and Bureau of Customs (BOC) Statements of Settlement of Duties and Taxes41 , which were examined by the ICPA. These documents disclosed an aggregate input VAT of only P2,782,931.38 based on the Summary of Domestic Purchases~ 41 Exhibit "P-11 ".

DECISION CTA Case No. 9270 and Importation.42 Therefore, the unsupported input VAT in the amount of P465,872.2043 shall be disallowed for refund. Further examination of the supporting documents for the Summary of Domestic Purchases and Importation44 leads to the disallowance of the amount of P1,082,667.59 for non- compliance with the substantiation requirements under Sections 11 O(A) and 113(A) and (B) of the NIRC of 1997, as amended, in relation to Sections 4.110-2, 4.110-3, 4.110-8, and 4.113-1 of RR No. 16-05, as amended. Below is the detailed breakdown of the disallowed input VAT ofP1,082,667.59: Purchase Invoice Date Registered Name Input VAT Nos. 45 No proof of VAT payment and dated outside the period of claim EY9B1300005 6/28/2013 Taegutec Ltd. p 181,941.00 No proof of VAT payment EY9B1300006 7/16/2013 Taegutec Ltd. 247 785.00 5497325573 7/16/2013 Champ Dia Co. Ltd 5,095.00 3463749166 7/16/2013 Whizcut of Sweden AB 51,487.00 EY9B1300007 7}_29{2013 Tae_gutec Ltd. 136,112.00 EY9B1300008 8/13/2013 Acrow Machinery Mfg. Co. Ltd 26,641.00 EY9B1300011 8/28/2013 Taegutec Ltd. 142,636.00 8956594500 8/27/2013 Whizcut of Sweden AB 123,258.00 Importation documents do not pertain to petitioner but to Colt Commercial 1839729234 9/5/2013 Yg-1 Tools Asia Pte Ltd 119,361.36 1839932522 9/20/2013 Yg-1 Tools Asia Pte Ltd 11 '770.2346 ProoLof_VAT remittance was not validated by bank 82489 7/18/2013 Acrow Machinery Mfg. Co. Ltd 36,581.00 Total p 1,082,667.59 Based on the foregoing, petitioner's input VAT allowable as tax credits for the third quarter of TY 20 13 only amounts to P1,700,263.79, as computed below: Total Input VAT reported in 3Q ofTY 2013 p 3,248,803.58 Less: p 465,872.20 1,548,539.79 Unsupported Input VAT 1,082,667.59 Disallowances by the Court -- p 1,700,263.79 Allowable Input VAT for the 3Q ofTY 2013 42 Table 5 attached to the ICPA Report, Exhibit "P-28". 43 P3,248,803.58- P2,782,931.38. 44 Table 5 attached to the ICPA Report, Exhibit "P-28". 45 Exhibits "P-11". 46 Amount claimed by petitioner; however, it did not correspond with the amount indicated in the purchase invoice.

DECISION CTA Case No. 9270 Nevertheless, a portion of the P1,700,263.79 shall be applied against the reported output VAT liability of P1,054,219.86. Consequently, only the remaining input VAT of P646,043.93 can be attributed to the entire zero-rated sales amounting to P27,483,753.38 and only the input VAT of P583,863.63 is attributable to the valid zero-rated sales of P24,838,502.93, computed as follows: Allowable Input VAT p 24,838,502.93 p 1~700L263, 79 Less: Output VAT 27,483,753.38 1,054,219.86 Excess Input VAT Available for Refund Multiply by Percentage of Valid Zero-Rated Sales over p 646,043.93 Total Zero-Rated Sales: 90.3752213% Valid Zero-Rated Sales p 583,863.63 Divided by Total Reported Zero-Rated Sales Excess Input VAT Attributable to the Valid Zero-Rated Sales Moreover, as noted by the ICPA, although the claimed input VAT was carried over by petitioner in its succeeding Quarterly VAT Returns,47 the same remained unutilized until it was deducted as "VAT Refund/TCC Claimed" in its Quarterly VAT Return for the second quarter ofTY 2015.48 Therefore, the subject claim no longer formed part of the excess input VAT of P2 ,361,181.094 9 as of the end of the second quarter of TY 2015 that was to be carried overI applied to the succeeding quarters. As such, it eliminates the possibility that the present claim would be applied to future output VAT liability. WHEREFORE, premises considered, this Petition for Review is PARTIALLY GRANTED. Accordingly, respondent is ORDERED TO REFUND the amount of P583,863.63 in favor of petitioner, representing the latter's unutilized input VAT attributable to its zero-rated sales covering the third quarter of taxable year 2013. SO ORDERED. ~~� )'. ./)1~aA--- CATHERINE T. MANAHAN Associate Justice 47 Docket, Vol. I, Exhibits "P-17" and "P-18", pp. 461 and 481 to 485, respectively. 48 Docket, Vol. I, Exhibit "P-17", line 23D, p. 467. 49 Docket, Vol. I, Exhibit "P-17'', line 29, p. 468.

DECISION ~ CTA Case No. 9270 Page 19 of 19 CAESAR A. CASANOVA Associate Justice WE CONCUR: 2ANf/o [:c~6A, JR. Associate Justice 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. ~~ ANI~ TO c.G:if-~.1 JR. c. CASTANEIY'A; Associate Justice Chairperson CERTIFICATION Pursuant to Article VIII, Section 13 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. Presiding Justice