Court of Tax Appeals · Special Second Division

New York Bay Philippines, Inc. vs. Commissioner of Internal Revenue

CTA Case No. 10417 October 4, 2023 CUI-DAVID

REPUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS

QUEZON CITY

SPECIAL SECOND DIVISION

NEW YORK BAY

CTA CASE NO. 10417

PHILIPPINES, INC.,

Petitioner,

Members:

-versus-

BACORRO-VILLENA, Acting Chairperson, and

CUI-DAVID, JJ.

COMMISSIONER OF

Promulgated:

INTERNAL REVENUE,

Respondent.

}[- - - - - - - - - - - - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - }[

lf:l\ ,.,.,

DECISION

CUI-DAVID, J.:

Before this Court is a Petition for Review 1 filed by petitioner New York Bay Philippines, Inc. against respondent Commissioner of Internal Revenue (CIR), praying for the refund or issuance of a ta>: credit certificate (TCC) in the amount of P38,046,300.41 ,2 allegedly representing petitioner's e>:cess and unutilized input value-added ta>: (VAT) on domestic purchases of goods and services attributable to zero-rated sales of services for the four quarters of the calendar year (CY) 20 18.

THE PARTIES

Petitioner is a corporation duly organized and e>:isting under the laws of the Philippines, with principal place of business at Units 2-7, Level18 IBPTower, Julia Vargas Avenue, Ortigas Center, Pasig City. It is registered with the Bureau of Internal Revenue (BIR), Revenue District Office (RDO) No. 43A, as a VAT ta>:payer in accordance with Section 236, National Internal Revenue Code (NIRC) of 1997, as amended, with Ta>:payer Identification No. (TIN) 000-217-994-000. 3 1 Docket, pp. 6 to 27.

~ 2 Petitioner prays for an unaccounted PO. tO excess input VAT in its claim for refund but only computed the amount of 1'38,046,300.31 as its alleged total excess input tax. See id.. par. II. p. 10.

3 Par. 1.4, Stipulation of Facts, Joint Stipulation of Facts and Issues (JSFI), Docket, p. 295.

New York Bay Philippines, Inc. v. Commissioner of Internal Revenue

Respondent is the duly appointed CIR vested under the appropriate laws with authority to carry out functions, duties, and responsibilities of his office, including, inter alia, the power to decide, approve, and grant refunds or tax credits of excess and unutilized input VAT under the pertinent provisions of the NIRC of 1997, as amended (Tax Code), and other tax laws, rules, and regulations. He holds office at the BIR Building, Diliman, Quezon City. 4

THE FACTS

Petitioner filed its original Quarterly VAT Returns (BIR Form No. 2550-Q) for the 1st, 2nd, 3rd, and 4th quarters of CY 2018 with the BIR on the following dates through the BIR's Electronic Filing and Payment System (eFPS): 5

CY 2018

Filina: Reference No.

Date of Filinl!:

1•' Quarter

101800024896076 Aoril25, 2018 2nd Quarter 101800026186175 Julv 25, 2018 3rd Quarter 101800027386461 October 25, 2018 4th Quarter 101900028601151 January 17,2019 On May 15, 2019, petitioner filed its amended Quarterly VAT Returns (BIR Form No. 2550-Q) for the 1st, 2nd, 3rd, and 4th quarters of CY 2018 with the BIR through its eFPS: 6

CY 2018

Filina: Reference No.

Date of Filina:

1•' Quarter

101900030498786 Mav 15, 2019 2nd Quarter 101900030499925 Mav 15, 2019 3rd Quarter 101900030501848 Mav 15, 2019 4th Quarter 101900030506355 May 15, 2019 On July 15, 2020, petitioner filed with the BIR, VAT Credit Audit Division, an Application for Tax Credits/ Refunds (BIR Form No. 1914), requesting the refund of or issuance of a TCC for its excess and unutilized input VAT for the four (4) quarters ofCY 2018 in the amount ofP38,046,300.41.7 On November 6, 2020, petitioner received a letter from respondent denying its administrative claim for a refund of excess and unutilized input VAT for the four (4) quarters ofCY 2018 in the amount ofP38,046,300.4l.B

4 Par. 1.5, Stipulation of Facts. JSFI. Docket, p. 295.

5 Par. 1.6, Stipulation of Facts, JSFl, Docket, pp. 295 to 296.

6 Par. 1.7, Stipulation of Facts, JSFJ, Docket, p. 296.

7 Par. 1.8, Stipulation of Facts, JSFl, Docket, p. 296.

8 Par. 1.9, Stipulation of Facts, JSFJ, Docket, p. 296 to 297.

New York Bay Philippines, Inc. v. Commissioner of Internal Revenue

On December 7, 2020, the present Petition of Review was filed.9 Respondent filed a Motion for Extension of Time to File Answer on January 15, 2021, 10 which the Court granted in the Order dated January 20, 2021.11 In his Answer filed on March 5, 2021, 12 respondent interposed the following special and affirmative defenses, to wit: the instant judicial claim should be denied for petitioner's failure to substantiate the claim for refund at the administrative level, i.e., for failure to comply with the mandatory invoicing requirements under Section 112 of the Tax Code, as amended, and Revenue Memorandum Circular (RMC) No. 47-2019. Respondent adds that his decision has already been rendered, and the Supreme Court has held that the duty of the Court is now limited in determining whether the decision is proper. On May 26, 2021, respondent transmitted the BIR Records for this case.13 The Pre-Trial Conference was initially set for April 26, 2021, 14 but was subsequently reset to and held on June 30, 2021.15 Prior thereto, Respondent's Pre-Trial Briefwas filed on June 18, 2021,16 while Petitioner's Pre-Trial Briefwas submitted on June 24, 2021.17 On July 19, 2021, the parties filed their Joint Stipulation of Facts and Issues, 18 which the Court approved and adopted in the Pre-Trial Order dated October 4, 2021, 19 thereby deeming the termination of the Pre-Trial.

The trial then ensued, with the parties presenting their respective documentary and testimonial evidence. 9 Supra, note I.

10 Docket. pp. 225 to 229.

11 Docket, p. 230.

12 Docket, pp. 231 to 240.

u Compliance dated May 24, 2021, Docket, pp. 245 to 246. 14 Notice of Pre-Trial Conference dated March 9, 2021, Docket, p. 242 to 243. 15 Order dated June I, 2021, Docket, p. 244; Minutes of the hearing held on, and Order dated, June 30, 2021, Docket, pp. 283 to 284.

16 Docket, pp. 251 to 253.

17 Docket, pp. 265 to 280.

18 Docket. pp. 294 to 303.

19 Docket, pp. 305 to 309.

New York Bay Philippines, Inc. v. Commissioner of Internal Revenue

Petitioner offered the testimonies of the following individuals, namely: (1) Ms. Ma. Victoria Cruz,20 petitioner's Senior Accounting Manager; and (2) Mr. Walter L. Abela Jr.,21 the

Court-commissioned

independent certified public accountant (ICPA).

The Report of the ICPA was submitted on July 6, 2021.22 Petitioner filed its Formal Offer of Evidence on March 15, 2022,23 to which respondent filed his Comment (Re: Formal Offer of Evidence dated 15 March 2022) on March 18, 2022.24 In the Resolution dated March 30, 2022,25 the Court admitted all petitioner's exhibits.

For his part, respondent offered the testimony of Revenue Officer Junelle Aira C. Salamanca.26 On June 7, 2022, respondent filed his Formal Offer of Evidence, 27 to which petitioner filed its Comment (Re: Respondent's Formal Offer of Evidence) on June 13, 2022.28 In the Resolution dated August 31, 2022,29 the Court admitted all respondent's offered evidence.

Petitioner's Memorandum was filed on October 6, 2022,30 while respondent's Memorandum was submitted on October 7, 2022.31 The case was submitted for decision on October 17, 2022.32 ~

20 Exhibit "P-19", Judicial Affidavit of Ma. Victoria Cruz, Docket, pp. 207 to 222; Order dated December 6, 2021, Docket, pp. 332 to 333.

21 Exhibit "P-20", Judicial Affidavit of Walter L. Abela, Jr., Docket, pp. 343 to 360; Minutes of the hearing held on, and Order dated, February 28,2021, Docket, pp. 365 to 365-a.

22 Exhibit "P-21".

22 Docket, pp. 366 to 384.

24 Docket, pp. 558 to 560.

25 Docket, pp. 563 to 564.

26 Exhibit ''R-4", Judicial Affidavit of Revenue Officer June lie A ira C. Salamanca. Docket, pp. 259 to 264; Minutes of the hearing held on, and Order dated, May 23, 2022. Docket, pp. 565 to 566.

27 Docket, pp. 571 to 573.

28 Docket. pp. 575 to 579.

29 Docket, pp. 582 to 583.

30 Docket, pp. 584 to 617.

31 Docket, pp. 618 to 628.

32 Resolution dated October 7, 2022, Docket, p. 630.

New York Bay Philippines, Inc. v. Commissioner of Internal Revenue

THE ISSUES

The parties stipulated the following issues for this Court's resolution, to wit: 33 A.

WHETHER

OR

NOT

THERE

IS

BASIS

FOR

RESPONDENT

TO

DENY

PETITIONER'S

ADMINISTRATIVE CLAIM FOR REFUND ON THE

GROUND THAT PETITIONER ALLEGEDLY FAILED TO

PROVE ITS ZERO-RATED SALES BECAUSE THE

"OFFICIAL RECEIPT (OR) FOR EXPORT SALES OF

SERVICES WERE NOT PROPERLY SUPPORTED WITH

CORRESPONDING

BILLING

STATEMENTS/

STATEMENTS

OF

ACCOUNT

WITH

SERVICE

CONTRACTS/JOB ORDER OR ANY EQUIVALENT

DOCUMENT TO SUPPORT THE ORs."

WHETHER OR NOT PETITIONER IS ENTITLED TO ITS

CLAIM FOR REFUND OF EXCESS AND UNUTILIZED

INPUT VAT FOR THE FOUR QUARTERS OF CY 2018 IN THE AMOUNT OF PHP38,046,300.41.

Petitioner's arguments:

Petitioner argues that respondent erred in denying its administrative claim for refund for its alleged failure to prove its zero-rated sales of services for CY 2018; that petitioner is entitled to its claim for refund of excess and unutilized input VAT for the four (4) quarters of CY 2018 in the amount of 1"38,046,300.31 because it proved that it is a VAT-registered entity and its sales of services to Trans-Fast Remittance LLC qualified as zero-rated sales of services under Section 108(8)(2), of the Tax Code; that petitioner's excess and unutilized input VAT for CY 2018 amounting to 1"38,046,300.41 [sic] were duly supported by VAT invoices and official receipts, and were attributable to its zero-rated sales; that its input VAT for CY 2018 were not applied against any output VAT liability during the succeeding taxable quarters;

and that petitioner's administrative and judicial claims for refund of excess and unutilized input VAT for the four (4) quarters of CY 2018 were filed within the reglementary periods provided under Section 112(A) & (C) of the Tax Code.

33 Stipulation on Issues, JSFI, Docket, p. 297.

New York Bay Philippines, Inc. v. Commissioner of Internal Revenue

Respondent's counter-arguments:

Respondent contends that the judicial claim should be denied for petitioner's failure to substantiate its refund claim at the administrative level; that if a decision has already been rendered by respondent, as in this case, the Supreme Court held that the duty of the court is limited to determining whether respondent's decision was proper; that the claim for refund should be denied for failure to comply with the mandatory invoicing requirements, under Section 112 of the Tax Code, as amended, and RMC No. 47-2019; and that actions for tax refund or credit are in the nature of a claim for exemption and the law must be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority.

THE COURT'S RULING

The Petition for Review is partly meritorious. Section 112 of the NIRC of 1997, as amended by Republic Act (RA) No. 10963,34 otherwise known as the Tax Reform for Acceleration and Inclusion Act (TRAIN), provides, in part, as follows:

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(8)(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 ~ 34 AN ACT AMENDING SECTIONS 5, 6, 24, 25, 27, 31, 32, 33, 34, 51, 52, 56, 57, 58, 74, 79, 84, 86, 90, 91, 97, 99, 100.101.101i.I07.108.109.110. 112.114. llli.127. 128.129.145.148.149.151.155.171.174.175.177,178. 179, 180, 181, 182, 183. 186, 188. 189, 190, 191, 192, 193. 194. 195. 196, 197,232,236,237,249,254,264,269, AND 288; CREATING NEW SECTIONS 51-A, 148-A, 150-A. 150-8, 237-A, 264-A, 264-8, AND 265-A; AND REPEALING SECTIONS 35, 62, AND 89; ALL UNDER REPUBLIC ACT 8424, OTHERWISE KNOWN AS THE NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED. AND FOR OTHER PURPOSES.

New York Bay Philippines, Inc. v. Commissioner of Internal Revenue 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.

(C) Period within which Refund of Input Taxes shall be Made. - In proper cases, the Commissioner shall grant a refund for creditable input taxes within ninety (90) days from the date of submission of the official receipts or invoices and other documents in support of the application filed in accordance with Subsections (A) and {B) hereof: Provided, That should the Commissioner find that the grant of refund is not proper, the Commissioner must state in writing the legal and factual basis for the denial.

In case of full or partial denial of the claim for tax refund, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim, appeal the decision with the Court of Tax Appeals: Provided, however, That failure on the part of any official, agent, or employee of the BIR to act on the application within the ninety (90)-day period shall be punishable under Section 269 of this Code. Based on the foregoing provision, jurisprudence35 has laid down certain requisites the taxpayer-applicant must comply with to successfully obtain a credit/refund of input VAT. Said requisites are categorized as follows: As to the timeliness of the filing of the administrative and judicial claims:

1. The claim is filed with the BIR within two (2) years after the close of the taxable quarter when the sales were made;36

2. In case of full or partial denial of the refund claim, or the failure on the part of Respondent to act on the said claim within a period of ninety (90) days, the judicial claim must be filed with this Court, within thirty (30) days from receipt of the decision or after the expiration of the said 90-day period; Concerning the taxpayer's registration with the BIR:

3. The taxpayer is a VAT-registered person;37 35 Commissioner of Internal Revenue v. Toledo Power Co .. G.R. Nos. 195175 & 199645, August 10,2015.766 SCRA 20-33.

36 fntel Technology PMUppines. Inc. v. rnmmissinner n.flnrernal Revenue. O.R. N0. 166732. April27. 2007: San Roque Power Corporation v. Commissioner of Internal Revenue. G.R. No. 180345, November 25. 2009; and AT & T Communications Services Philippines, Inc. v. Commissioner of Internal Revenue, G.R. No. 182364, August 3, 20 I 0. 37 Intel Technology Philippines, Inc. v. Commissioner of Internal Revenue, supra; San Roque Power Corporation v. Commissioner of Internal Revenue, supra; and AT&T Communications Services Philippines. Inc .. supra.

CTACaseNo.l0417 New York Bay Philippines, Inc. v. Commissioner of Internal Revenue

In relation to the taxpayer's output VAT:

4. The taxpayer is engaged in zero-rated or effectively zero-rated sales;3s

5. For zero-rated sales under Sections 106(A)(2)(a)(l),(2) and (b); and 108(B)(l) and (2), the acceptable foreign currency exchange proceeds have been duly accounted for m accordance with BSP rules and regulations;39 As regards the taxpayer's input VAT being refunded:

6. The input taxes are not transitional;4o

7. The input taxes are due or paid;41

8. The input taxes claimed are attributable to zero-rated or effectively zero-rated sales. However, where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on the basis of sales volume;42 and

9. The input taxes have not been applied against output taxes during and in the succeeding quarters.43 Relative thereto, it must be emphasized that in cases filed before this Court, which are litigated de novo, party-litigants must prove every minute aspect of their case. 44 Thus, it behooves petitioner to comply with the foregoing requisites. As a result, the absence of any of the said requisites is a valid ground to deny the refund claim.

Also, considering that respondent invoked the ruling in Pilipinas Total Gas, Inc. v. Commissioner of Internal Revenue (Pilipinas Total Gas), 45 its application in this case must be clarified. To quote the pertinent portion: 38 /d.

39 Par. 2, Sec. 4.112-l.(a) of RR No. 16-2005, as further amended by RR No. 13-2018. 40 Intel Technology Philippines, Inc. v. Commissioner of Internal Revenue, supra; San Roque Power Corporation v. Commissioner of Internal Revenue, supra; and AT&T Communications Services Philippines, Inc .• supra. 41 !d.

42 /ntel Technology Philippines, Inc. v. Commissioner of Internal Revenue, supra; and San Roque Power Corporation v. Commissioner of Internal Revenue, supra. 43 Intel Technology Philippines, Inc. v. Commissioner of Internal Revenue, supra; San Roque Power Corporation v. Commissioner of Internal Revenue, supra; and AT&T Communications Services Philippines, Inc., supra. 44 Edison (Bataan) Cogeneration Corporation v. Commissioner of Internal Revenue, et seq .. G.R. Nos. 201665 and 201668, August 30, 2017; Commissioner of Internal Revenue v. Philippine National Bank. G.R. No. 180290, September 29. 2014: lnmmissioner of Internal Revenue v. l !nitedSalvaKe and Towage (Phi/.<;.), Inc .. G.R. No. 197515. July 2, 2014; Dizon v. Court ofTax Appeals. eta/ .. G.R. No. 140944. April30. 2008; Atlas Consolidated Mining and Development Corporation v. Commissioner of Internal Revenue. G.R. No. 145526, March 16, 2007; and Commissioner of Internal Revenue v. Manila Mining Corporation, G.R. No. 153204, August 31, 2005.

45 G.R. No. 207112, December 8, 2015.

New York Bay Philippines, Inc. v. Commissioner of Internal Revenue

At this stage, a review of the nature of a judicial claim before the CTA is in order. In Atlas Consolidated Mining and Development Corporation v. CIR,46 it was ruled- ... First, a judicial claim for refund or tax credit in the CTA is by no means an original action but rather an appeal by way of petition for review of a previous, unsuccessful administrative claim. Therefore, as in every appeal or petition for review, a petitioner has to convince the appellate court that the quasi-judicial agency a quo did not have any reason to deny its claim. In this case, it was necessary for petitioner to show the CTA not only that it was entitled under substantive law to the grant of its claims but also that it satisfied all the documentary and evidentiary requirements for an administrative claim for refund or tax credit.

Second, cases filed in the CTA are litigated de novo. Thus, a petitioner should prove every minute aspect of its case by presenting, formally offering and submitting its evidence to the CTA.

Since it is crucial for a petitioner in a judicial claim for refund or tax credit to show that its administrative claim should have been granted in the first place, part of the evidence to be submitted to the CTA must necessarily include whatever is required for the successful prosecution of an administrative claim.

(Boldfacing supplied;

underscoring on the origina4

A

distinction must, thus, be made between administrative cases appealed due to inaction and those dismissed at the administrative level due to the failure of the taxpayer to submit supporting documents.

If

an administrative claim was dismissed by the CIR due to the taxpayer's failure to submit complete documents despite notice/request, then the judicial claim before the CTA would be dismissible, not for lack of jurisdiction, but of the taxpayer's failure to substantiate the claim at the administrative level. When a judicial claim for refund or tax credit in the CTA is an appeal of an unsuccessful administrative claim, the taxpayer has to convince the CTA that the CIR had no reason to deny its claim. It, thus, becomes imperative for the taxpayer to show the CTA that not only is he entitled under substantive law to his claim for refund or tax credit, but also that he satisfied all the documentary and evidentiary requirement for an administrative claim. It is, thus, crucial for a taxpayer in a judicial claim for refund or tax credit to show that its administrative claim should have been granted in the first place. Consequently, a taxpayer cannot cure its failure to

46 G.R. No. 145526, March 16, 2007.

New York Bay Philippines, Inc. v. Commissioner of Internal Revenue submit a document requested by the BIR at the administrative level by filing the said document before the CTA." (Emphases supplied) Based on the foregoing jurisprudential pronouncements, when a judicial claim for refund or tax credit before this Court is an appeal of an unsuccessful administrative claim, the taxpayer has to convince the Court that respondent had no reason to deny the said taxpayer's claim. Thus, it becomes imperative for the taxpayer to show to this Court that it is entitled under substantive law to its claim for refund or tax credit and satisfied all the documentary and evidentiary requirements for an administrative claim. 47 In other words, there are two (2) matters that must be proved before this Court upon appeal of an unsuccessful administrative claim, to wit: first, all documentary and evidentiary requirements for an administrative claim were satisfied at the BIR level, and second, the taxpayer's entitlement to the claim for refund or tax credit under substantive law. The first matter involves a review of whether respondent has basis in fact and/ or in law for his denial of the administrative claim, and this entails the exercise of the appellate jurisdiction of this Court, while the second matter to be proved entails a determination of petitioner's compliance with the requisites established by law. More significantly, the first matter concerns the proper exercise of this Court's appellate jurisdiction as conferred by law. It must be remembered that appellate jurisdiction is the authority of a higher-ranking court to re-examine the final order or judgment of a lower court that tried the case now elevated for judicial review.48 The second matter to be proved is in accord with the principle that cases filed in this Court are litigated de novo. As such, the taxpayer should prove every minute aspect of its case by presenting, formally offering, and submitting to this Court all evidence required to prosecute its administrative claim successfully. 49 Thus, it behooves petitioner to comply with the foregoing requisites and invoicing requirements. As a 47 Refer to Pilipinas Total Gas, Inc. v. Commissioner of Internal Revenue, G.R. No. 207112, December 8, 2015. 48 rrarcia. eta/. v. {)e Jesus, eta/., et seq .. G. R. Nos. 881 58 and 97108-09, March 4. 1992. 49 Commissioner of Internal Revenue v. Philippine Bank of Communications. G.R. No. 211348, February 23,2022, citing Commissioner of Internal Revenue v. Univation Motor Philippines, Inc. (Formerly Nissan Motor Philippines, Inc.), G.R. No. 231581. April 10, 2019 and Commissioner of Internal Revenue v. Manila Mining Corporation, G.R. No. 153204. August 31. 2005.

New York Bay Philippines, Inc. v. Commissioner of Internal Revenue corollary, the absence of any of the said requisites 1s a valid ground to deny the refund claim.

Correspondingly, respondent's proposition that since he rendered a decision, the jurisdiction of this Court shifts from a trial court to an appellate tribunal is mistaken. The task of this Court is to determine, in the main, whether petitioner has sufficiently shown these aforesaid two (2) matters. The Court has jurisdiction over the instant Petition.

First and second requisites:

Petitioner's

administrative and judicial claims were timely filed.

The first requisite pertains to filing a claim for tax refund or credit of input VAT before the BIR within two (2) years from the close of the taxable quarter when the zero-rated or effectively zero-rated sales were made. The present claim covers the 1st to 4th quarters ofCY 2018. Counting two (2) years from the close of the 1st to 4th quarters of CY 2018, the respective last days for the filing of the administrative claim for the said four (4) quarters are shown below, viz.:

Period

Close of the

Last Day to File

(l•t to 4th quarters of 2018)

Taxable Quarter

Administrative

Claim

January 1, 2018 to March 31, 2018 March 31, 2018 March 30, 2020 April 1, 2018 to June 30, 2018 June 30, 2018 June 29, 2020 September 30, September 29, July 1, 2018 to September 30, 2018 2018 2020 October 1, 2018 to December 31, December 31, 2018 2018 December 30, 2020 However, as can be gleaned from the records, petitioner filed its administrative claims for refund for the four (4) quarters of CY 2018 on July 15, 2020. 50 Said filing date is pursuant to Section 2 of RR No. 16-2020,51 which extended the statutory deadline for the filing of applications for VAT refunds, viz.: ~. / 50 Par. 1.8. Stipulation of Facts. JSFI. Docket, p. 296.

W

51 Regulations Further Suspending the Due Dates in the Application of the Ninety (90)-Day Period to Process Value Added Tax (VAT) Refund/Claim Pursuant to Section 112 of the Tax Code of 1997, as Amended by Republic Act (R.A.) No. 10963 (TRAIN Law) For Taxable Quarters Affected by the Declaration of the National State of Emergency. June 19, 2020.

New York Bay Philippines, Inc. v. Commissioner of Internal Revenue

SEC. 2. Filing Due Dates by Taxpayer-Claimants. - Filing of Claims for VAT refund for the following taxable quarters shall be until the herein specified due dates: Calendar Quarter ending March 31, 2018- July 15, 2020 Fiscal Quarter ending April30, 2018- July 31, 2020 Fiscal Quarter ending May 31, 2018- August 15, 2020 Calendar Quarter ending June 30, 2018- August 31, 2020 This however does not apply to areas not yet declared to be in a general community quarantine state. In which case, the deadline shall be thirty (30) days from the lifting of the ECW or Modified ECG in the affected areas of taxpayer-claimant or the above stated deadlines, whichever comes later. (Emphasis supplied) Accordingly, the administrative claims were filed on July 15, 2020, the last day prescribed to file the claim for the 1st quarter of CY 2018. Hence, the subject claims were timely filed with respondent.

As regards the second requisite, the judicial claim must have been filed within thirty (30) days from receipt of respondent's decision or after the expiration of the 90-day period under Section 112(C) ofthe NIRC of 1997, as amended. Thus, from the filing of petitioner's administrative claim on July 15, 2020, respondent had ninety (90) days, or until October 13, 2020, to act on the claim. Records show that the BIR issued the letter denying petitioner's entire claim for refund on September 18, 2020, which is within 90 days. Said letter, however, was received by petitioner only on November 6, 2020;52 thus, it had 30 days from November 6, 2020, or until December 7, 2020,53 to file a judicial claim.

Petitioner filed its judicial claim via the present Petition for Review54 on December 7, 2020, or within the prescribed 30-day period from receipt of the BIR's decision. Such being the case, the Court finds that petitioner complied with the above-stated first and second requisites. 52 Par. 1.9, Stipulation of Facts. JSFI, Docket. p. 296 to 297. 53 The JQth day, December 6, 2020, fell on a Sunday. Hence, the next working day is December 7, 2020.

54 Docket, p. 6.

CTA Case No. !0417 New York Bay Philippines, Inc. v. Commissioner of Internal Revenue

Having settled that the Petition was timely filed, We likewise rule that the Court has the requisite jurisdiction to take cognizance of this Petition under Section 3(a)(1}, Rule 455 of the RRCTA.

Third requisite: Petitioner is a VAT-registered person/entity.

Anent the third requisite, it is also undisputed that petitioner is a VAT-registered person/entity, with TIN 000-217- 994-000.56 Thus, petitioner has complied with the requisite. Fourth and fi.fth requisites:

Petitioner had zero-rated sales during the four (4) quarters of CY 2018 and its payment is in acceptable foreign currency accounted for in accordance with the BSP rules.

The fourth and fifth requisites, respectively, require that the taxpayer is engaged in zero-rated or effectively zero-rated sales and that for zero-rated sales under

Sections

106(A)(2)(a)(l}, (2) and (b) and 108(B)(1) and (2) of the NIRC of 1997, as amended, the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with the BSP rules and regulations.

In its Amended Quarterly VAT Returns for the four (4) quarters of

CY

20 18, petitioner declared zero-rated sales/receipts in the total amount of 1"630,262,902.85, to wit:

Period

Exhibit

Zero-Rated Sales

1st Quarter "P-7", Line 1757 p 112,317,875.61 2nd Quarter "P-8", Line 1758 173,400,555.87 3rd Quarter "P-9", Line 1759 230,541,824.31 4th Quarter "P-1 0", Line 1760 114,002,647.06

TOTAL

p 630,262,902.85 55 Section 3. Cases Within the Jurisdiction of the Court in Divisions. -The Court in Divisions shall exercise: ' .(

(a) Exclusive original or appellate jurisdiction to review by appeal the following: \'' (I) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto. or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue.

56 Ex hi hit "P·2", Docket. p. 405.

57 Docket, p. 414.

58 Docket, p. 416.

59 Docket, p. 418.

60 Docket, p. 420.

CTACaseNo.l0417 New York Bay Philippines, Inc. v. Commissioner of Internal Revenue

Petitioner claims that for the four (4) quarters of CY 2018, it rendered services to its lone service-recipient, Trans-Fast Remittance LLC, a non-resident foreign corporation not engaged in business in the Philippines and that the services rendered were paid in acceptable foreign currencies and accounted for in accordance with the rules and regulations of the BSP. Pertinent is Section 1 08(B) of the NIRC of 1997, as amended, which shows the parameters of transactions subject to zero percent (0%) VAT, viz.:

SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. - (B) Transactions Subject to Zero Percent (0%) Rate. The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate:

(1) Processing, manufacturing or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);

(2) Services other than those mentioned in the preceding paragraph rendered to a person engaged in business conducted outside the Philippines or to a nonresident person not engaged in business who is outside the Philippines when the services are performed, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); ... (Emphases supplied) In other words, a sale or supply of services will be subject to zero percent (0%) VAT under Section 1 08(B)(2) of the NIRC of 1997, as amended, provided the following essential elements are present, to wit:

1) The recipient of the services is a foreign corporation, and the said corporation is doing business outside the Philippines, or is a nonresident person not engaged in

New York Bay Philippines, Inc. v. Commissioner of Internal Revenue business who is outside the Philippines when the services were performed;61 2) The services fall under any of the categories under Section 108(B)(2), 62 or simply, the services rendered should be other than "processing, manufacturing or repacking goods";63 3) The services must be performed in the Philippines64 by a VAT-registered person; and 4) The payment for such services should be in acceptable foreign currency accounted for in accordance with BSP rules.6 5 Anent the first essential element, the ruling of the Supreme Court in Commissioner of Internal Revenue v. Deutsche Knowledge Services Pte. Ltd.,66 is instructive, to wit:

Proof of NRFC Status

For purposes of zero-rating under Section 1 08(8) (2) of the Tax Code, the claimant must establish the two components of a client's NRFC status viz: (1) that their client was established under the laws of a country not the Philippines or, simply, is not a domestic corporation; and (2) that it is not engaged in trade or business in the Philippines. To be sure, there must be sufficient proof of both of these components: showing not only that the clients are foreign corporations, but also are not doing business in the Philippines . ... To the Court's mind, the SEC Certifications of Non- Registration show that their affiliates are foreign corporations.

On the other hand, the articles of association/ certificates of incorporation stating that these affiliates are registered to operate in their respective home countries, outside the Philippines are prima facie evidence that their clients are not engaged in trade or business in the Philippines. (Emphases supplied) 61 Site! Philippines Corporation (Formerly Clientlogic Phils. Inc.) v. Commissioner of Internal Revenue. G.R. No. 201326, February 8, 2017; Commissioner of Internal Revenue v. Burmeister and Wain Scandinavian Contractor Mindanao. Inc., G.R. No. 153205, January 22, 2007; Accenture, Inc. v. Commissioner of Internal Revenue, G.R. No. 190102, July 11,2012.

62 Commissioner of Internal Revenue v. American Express International. Inc. (Philippine Branch), G.R. No. I 52609, June 29, 2005.

63 Cnmmissinner nflnternal Revenue v. Rurmeisler and Wain Scandinavian (nnlrarlnr Mindanan. Inc .. supra. 04 Commissioner of Internal Revenue v. Burmeister and Wain Scandinavian Contractor Mindanao, Inc .. supra; Commissioner of Internal Revenue v. American Express International, Inc. (Philippine Branch), supra. 65 /d.

66 G.R No. 234445, July 15. 2020.

New York Bay Philippines, Inc. v. Commissioner of Internal Revenue

To satisfy the first essential element, petitioner must submit, at the very least, its foreign service-recipient/ client's: (1)

SEC Certificate of Non-Registration of Corporation/

Partnership and (2) Proof of Certificate/ Articles of Foreign Incorporation, Association or registration showing the state/ province/ country where its foreign service-recipient/ client was organized.

The SEC Certificate of Non-Registration shows that the foreign client is not engaged in trade or business in the Philippines. On the other hand, the Certificate/ Articles of Foreign Incorporation/ Association proves that the client was established under the laws of a foreign country. Together, these two (2) documents prove the two (2) requisites necessary to establish the NRFC status of a client. In this case, petitioner presented Trans-Fast Remittance LLC's Articles of Incorporation67 and SEC Certification of Non- Registration of Company. 68 The documents established that

Trans-Fast

Remittance

LLC

is a non-resident foreign corporation not engaged in business in the Philippines. Thus, petitioner was able to show compliance with the first essential element.

Regarding the second essential element, the Court finds that petitioner entered into a Services Agreement69 with Trans- Fast Remittance LLC. Pursuant thereto, the services to be rendered by petitioner to Trans-Fast Remittance LLC are other than "processing, manufacturing or repacking of goods," to wit:

WHEREAS:

TransFast desires to appoint the Service Provider to assist in the transmission of money remittances (the "Transactions") in favor of beneficiaries in the Location (the "Service"). Service Provider desires to be appointed as TransFast's Service Provider for the execution of Transactions in favor of beneficiaries in the Location.

67 Exhibit "P-16", Docket. pp. 430 to 535.

68 Exhibit "P-I 7", Docket, p. 536.

69 Exhibit "P-18", Docket, pp. 542 to 557.

New York Bay Philippines, Inc. v. Commissioner of Internal Revenue

NOW THEREFORE, in consideration of the representations and covenants contained herein, the Parties agree as follows: I.

SUBJECT MATTER

1.1 TransFast hereby appoints Service Provider, as its non-exclusive Service Provider for the execution of Transactions in the Location. TransFast shall collect funds from remitters (hereinafter referred to as the "Remitter(s)" or the "Customer(s)" in the United States of America and/ or the countries where TransFast conducts Business and shall transmit instructions for payment of said funds to beneficiaries (the "Beneficiaries") in the Location through Service Provider's facilities.

1.2 Specifically, the Service Provider shall handle the following services on behalf of Transfast: 1) Oversee and monitor the payout of remittance Transactions;

2) Ensure compliance with laws of the country where Transfast operates;

3) Perform treasury functions as assigned by TF from time to time, including handling of collections and accounts receivables;

4) Answer customer inquiries, investigates and resolves transaction problems;

5) Handle accounting and recording of transactions; 6) Posting of rates and setting foreign exchange margins for all Transfast agents;

7) Assist payout partners in system integration and provide IT support to Transfast agents from various corridors as assigned.

The services provided by petitioner clearly fall within the scope of "services other than processing, manufacturing or repacking goods;" hence, petitioner satisfactorily complied with the second essential element.

About the third essential element, the same Service AgreemenFO with Trans-Fast Remittance LLC has a provision as to where the services are to be performed (i.e., in the Philippines) by petitioner, to wit:

70 /d.

New York Bay Philippines, Inc. v. Commissioner of Internal Revenue

WHEREAS:

TransFast is a company licensed as a transmitter of money by the relevant authorities of the State of New York and other competent state and federal licensing and regulatory authorities in the United States, and engages in the business of transmission of money on behalf of third parties in the United States and abroad (the "Business"): Service Provider is a domestic company registered with the Securities and Exchange Commission and principally tasked in finding delivery channels or payout partners to service the remittance needs of TF's customers abroad. Service Provider is engaged in the provision of the services by carrying out the instructions provided to it by means of payment orders transmitted to or downloaded by Service Provider, from Transfast, in accordance to which Service Provider shall provide supervision and monitoring in the execution of the payment or delivery of the underlying funds, (the "Transaction(s)") in favor of beneficiaries in Philippines (the "Location").

Petitioner was also able to show compliance with the third essential element.

As regards the fourth essential element and in relation to the fifth requisite for the granting of the input VAT refund, petitioner presented the Monthly Remittance Advice in US Dollars (USD) 71 and Copies of Bank Statements and Passbooks, 72 both issued by BDO Unibank Inc. in favor of petitioner, to show that it received inward remittances. Apropos, the certification of inward remittances attested to the payment "in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP. ''73 Of equal importance is the requirement that the foregoing foreign currency remittances referred to under Section 1 08(B) (2) of the NIRC of 1997, as amended, must not only be duly accounted for in accordance with the rules and regulations of the BSP but are also supported by VAT zero-rated official receipts (ORs) in accordance with the pertinent invoicing requirements, containing all the required information under the earlier Section 113(A) and (B) of the same Code, and Section 4.113-1(A) and (B) ofRR No. 16-2005.74 ¥ 71 Exhibit "P-34", USB.

72 Exhibit .. P-39'' with sub-markings, USB. 73 Intel Technology Philippines, Inc. v. Commissioner of Internal Revenue, G.R. No. 166732, April 27, 2007. 74 Consolidated Value-Added Tax Regulations of2005, September I. 2005.

New York Bay Philippines, Inc. v. Commissioner of Internal Revenue

In addition to the said requirements, the sales invoices (Sis) and ORs must be duly registered with the BIR as prescribed under Section 237, in relation to Section 238 of the Tax Code, to wit:

SEC. 237. Issuance of Receipts or Sales or Commercial Invoices. - All persons subject to an internal revenue tax shall, for each sale or transfer of merchandise or for services rendered valued at Twenty-five pesos (P25.00) or more, issue duly registered receipts or sale or commercial invoices, prepared at least in duplicate, showing the date of transaction, quantity, unit cost and description of merchandise or nature of service: ... 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.

Since petitioner's reported sales are in the nature of sales of services under Section 1 08(B)(2) of the NIRC of 1997, as amended, petitioner is required to issue BIR-registered VAT ORs for the foreign currency proceeds of each sales transaction, the information contained therein must comply with the applicable provisions previously cited, such as the word "zero-rated," and the taxpayer's TIN-VAT number.

Aside from the Monthly Remittance Advice, 75 Bank Statement, 76 and Passbook, 77 petitioner also presented its Schedule of Zero-rated Sales for CY 2018 78 and the corresponding VAT zero-rated ORs 79 in support of its total declared zero-rated sales of P630,262,902.85 for the four (4) quarters of CY 2018.

75 Exhibits '"P-34'" with sub-markings, USB. v

76 Exhibits "P-39.1.15", ""P-39.1.16"". '"P-39.2.3"". "P-39.2.12". ""P-39.2.36"". ""P-39.3.5"". "'P-39.3.8"". "'P-39.3.24"". ""P- 39.3.33"". '"P-39.4.10"" and "'P-39-4.20"". USB.

77 Exhibits ""P-39.5.42", "'P-39.5.48". ""P-39.6.5". ""P-39.6.18". "P-39.6.59". P-39.7.8"'. ""P-39. 7.13"'. ""P-39. 7.38"'. ""P-39- 7.54"', ""P-39.8.16" and '"P-39.8.35"", USB.

78 Exhibit ""P-32"'. USB.

79 Exhibits '"P-32.1" to "P-32.6"". USB.

New York Bay Philippines, Inc. v. Commissioner of Internal Revenue

Upon verification of the submitted documents, the Court finds that petitioner's sales to Trans-Fast Remittance LLC amounting to P630,262,902.85 were duly supported by bank remittance advices and were traced to petitioner's passbook/bank statement, as well as, with the corresponding valid zero-rated ORs duly issued by petitioner to its lone service- recipient, Trans-Fast Remittance LLC, thus, qualifying for VAT zero-rating under Section 108(B)(2), in relation to Section 113(A)(2), (B)(1), (2)(c) and (3) of the NIRC of 1997, as amended. Having found that petitioner complied with the fourth and fifth requisites and had valid VAT zero-rated sales in the total amount of P630,262,902.85 for the subject period of the claim, the Court shall proceed to determine whether petitioner complied with the remaining requisites pertaining to the input VAT being claimed for refund/tax credit certificate, to wit:

a. Sixth requisite: the input taxes are not transitional;

b. Seventh requisite: the input taxes are due or paid;

c. Eighth requisite: the input taxes claimed are attributable to zero-rated or effectively zero-rated sales. However, where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and the input taxes cannot be directly and entirely attributed to any of these sales, the input taxes shall be proportionately allocated on the basis of sales volume; and

d. Ninth requisite: the input taxes have not been applied against output taxes during and in the succeeding quarters.

Sixth reauisite:

The input taxes being claimed are not transitional.

In its Quarterly VAT Returns for the CY 2018, petitioner reported a total input VAT of P38,060,958.30 from its current domestic purchases of goods and services and input VAT on purchases of capital goods from previous quarters, out of which the total amount of P38,046,300.41BD is the subject of the present claim for refund or issuance of TCC, to wit: ~ 80 Petitioner claims a PO.IO difference as against the total excess input VAT as computed below. However, neither evidence nor computation was presented by petitioner showing the PO.IO difference. The ICPA report also stated that petitioner's total excess input VAT is P38.046.300.31.

New York Bay Philippines, Inc. v. Commissioner of Internal Revenue

1" Quarter

2nd Quarter 3rd Quarter 4th Quarter

(Exhibit "P-7"1

(Exhibit "P-8"1

(Exhibit "P-9"1

(Exhibit "P-I 0"1

Input Tax Due on

Capital Goods

exceeding l'IM.

Deferred from previous quarter

I'

189,592.27

I'

170,512.71 p 151,433.16 I' 1,341,181.66

Purchase of Capital

Goods Exceeding

PIM

1,250 570.89 I 915 044.00

Total

189,592.27 170,512.71 1,402,004.05 3,256,225.66

Less: Deferred for

the succeeding period 170,512.71 151,433.16 1,341,181.66 3 111,960.79 Amortized input tax on capital goods exceedinq !'1M 19,079.56 19,079.55 60,822.39 144 264.87

Input Tax Due on

Current Purchases of

Goods other than

Capital Goods

Input tax on purchase of capital goods not exceeding I' I M 80,208.00 1,617.86 17,741.79 57,449.91 Input tax on domestic purchases of goods other than capital goods 177,109.18 143,789.66 52,016.00 34,270.33

Sub-total

257,317.18 145,407.52 69,757.79 91,720.24

Input Tax Paid on:

Domestic

purchases of services 9,893 338.59 9,269,970.86 8,906,922.92 9 183,276.83 Total Input tax durin£ the period 10 169 735.33 9 434 457.93 9 037 503.10 9 419 261.94 Less: Output tax 222.86 222.86 222.84 13,989.43 Excess Input tax 1'10 169 512.47 P9 434 235.07 P9 037 280.26 P9 405 272.51

Total

p 1,852,719.80 3 165 614.89 5,018,334.69 4,775,088.32 243,246.37 - 157,017.56 407,185.17 564,202.73 37,253,509.20 38 060 958.30 14,657.99 1'38 046 300.31 The above input taxes do not appear to be transitional, as understood under Section 111 (A) of the NIRC of 1997, as amended, to wit:

SEC. 111. Transitional/ Presumptive Input Tax Credits. - (A) Transitional Input Tax Credits. - A person who becomes liable to value-added tax or any person who elects to be a VAT-registered person shall, subject to the filing of an inventory according to the rules and regulations prescribed by the Secretary of Finance, upon recommendation of the Commissioner, be allowed input tax on his beginning inventory of goods, materials and supplies equivalent to two percent (2%) of the value of such inventory or the actual value- added tax paid on such goods, materials and supplies, whichever is higher, which shall be creditable against the output tax.

{

New York Bay Philippines, Inc. v. Commissioner of Internal Revenue

Transitional input tax credit operates to benefit newly VAT-registered persons, whether they previously paid taxes in the acquisitions of their beginning inventory of goods, materials, and supplies. During the transition period from non-VAT to VAT status, the transitional input tax credit alleviates the impact of the VAT on the taxpayer.sl Since there is no showing that the above-stated input taxes are transitional, petitioner has complied with the sixth requisite for the grant of an input VAT refund. Seventh requisite: The input taxes being claimed were due or paid.

Anent the seventh requisite in claiming a VAT refund, it is of fatal importance that the input taxes claimed for refund are properly supported by appropriate documents to prove that the same are due or paid in accordance with Section llO(A) of the NIRC of 1997, as amended, which provides that: SEC. 110. Tax Credits. - (A) Creditable Input Tax. -

(1) Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 113 hereof on the following transactions shall be creditable against the output tax:

(a) Purchase or importation of goods:

(i) For sale; or (ii) For conversion into or intended to form part of a finished product for sale including packaging materials; or (iii) For use as supplies m the course of business; or (iv) For use as materials supplied in the sale of service; or

(v) For use in trade or business for which deduction for depreciation or amortization is allowed under this Code.

81 Fort Bonifacio Development Corporation v. Commtssioner of Internal Revenue, G.R. Nos. 158885 and 170680, April 2, 2008.

New York Bay Philippines, Inc. v. Commissioner of Internal Revenue

(b) Purchase of services on which a value-added tax has actually been paid.

(2) The input tax on domestic purchase or importation of goods or properties by a VAT-registered person shall be creditable:

(a) To the purchaser upon consummation of sale and on importation of goods or properties; and

(b) To the importer upon payment of the value-added tax prior to the release of the goods from the custody of the Bureau of Customs.

Provided, That the input tax on goods purchased or imported in a calendar month for use in trade or business for which deduction for depreciation is allowed under this Code, shall be spread evenly over the month of acquisition and the fifty-nine (59) succeeding months if the aggregate acquisition cost for such goods, excluding the VAT component thereof, exceeds One million pesos (P1 ,000,000): Provided, however, That if the estimated useful life of the capital good is less than five (5) years, as used for depreciation purposes, then the input VAT shall be spread over such a shorter period: Provided, further, That the amortization of the input VAT shall only be allowed until December 31, 2021 after which taxpayers with unutilized input VAT on capital goods purchased or imported shall be allowed to apply the same as scheduled until fully utilized: Provided, finally, That in the case of purchase of services, lease or use of properties, the input tax shall be creditable to the purchaser, lessee or licensee upon payment of the compensation, rental, royalty or fee.

The above provisions are implemented by Section 4.110- 1,4.110-2, and 4.110-3 ofRR No. 16-2005, as amended by RR No. 13-2018, which provide as follows: SEC. 4.110-1. Credits for Input Tax. - ... Any input tax on the following transactions evidenced by a VAT invoice or official receipt issued by a VAT-registered person in accordance with Sees. 113 and 237 of the Tax Code shall be creditable against the output tax:

(a) Purchase or importation of goods

(1) For sale; or

(2) For conversion into or intended to form part of a finiAAcd product foe ~lc, including packaging material•; o~

New York Bay Philippines, Inc. v. Commissioner of Internal Revenue

(3) For use as supplies in the course of business; or

(4) For use as raw materials supplied in the sale of services; or

(5) For use in trade or business for which deduction for depreciation or amortization is allowed under the Tax Code,

(b) Purchase of real properties for which a VAT has actually been paid;

(d) Transactions 'deemed sale' under Sec. 106 (B) of the Tax Code;

(e) Transitional input tax allowed under Sec. 4.111 (a) of these Regulations;

(f) Presumptive input tax allowed under Sec. 4.111 (b) of these Regulations;

(g) Transitional input tax credits allowed under the transitory and other provisions of these Regulations. SEC. 4.110-2. Persons Who Can Avail of the Input Tax Credit. -The input tax credit on importation of goods or local purchases of goods, properties or services by a VAT-registered person shall be creditable:

(a) To the importer upon payment of VAT prior to the release of goods from customs custody; (b) To the purchaser of the domestic goods or properties upon consummation of the sale or (c) To the purchaser of services or the lessee or licensee upon payment of the compensation, rental, royalty or fee.

SEC. 4.110-3. Claim for Input Tax on Depreciable Goods. Where a VAT-registered person purchases or imports capital goods, which are depreciable assets for income tax purposes, the aggregate acquisition cost of which (exclusive of VAT) in a calendar month exceeds One Million pesos (Pl ,000,000.00), regardless of the acquisition cost of each capital good, shall be claimed as credit against output tax in the following manner:

(a) If the estimated useful life of a capital good is five (5) years or more - The input tax shall be spread evenly over a p<riod of ,;xcy (60) month• and lh< daim foe input tax credit~

New York Bay Philippines, Inc. v. Commissioner of Internal Revenue will commence in the calendar month when the capital good is acquired. The total input taxes on purchases or importations of this type of capital goods shall be divided by 60 and the quotient will be the amount to be claimed monthly.

(b) If the estimated useful life of a capital good is less than five (5) years- The input tax shall be spread evenly on a monthly basis by dividing the input tax by the actual number of months comprising the estimated useful life of the capital good. The claim for input tax credit shall commence in the calendar month that the capital goods were acquired. Where the aggregate acquisition cost (exclusive of VAT) of the existing or finished depreciable capital goods purchased or imported during any calendar month does not exceed One million pesos (P1,000,000.00), the total input taxes will be allowable as credit against output tax in the month of acquisition.

Capital goods or properties refers to goods or properties with estimated useful life greater than one (1) year and which are treated as depreciable assets under Sec. 34(F) of the Tax Code, used directly or indirectly in the production or sale of taxable goods or services.

The aggregate acquisition cost of depreciable assets in any calendar month refers to the total price, excluding the VAT, agreed upon for one or more assets acquired and not on the payments actually made during the calendar month. Thus, an asset acquired on installment for an acquisition cost of more than P1,000,000.00, excluding the VAT, will be subject to the amortization of input tax despite the fact that the monthly payments/installments may not exceed P1,000,000.00 ....

Furthermore, Section 4.110-8 of RR No. 16-2005, as amended, provides for the substantiation requirements of input tax credits on purchases of goods, properties, and services, as follows:

SEC. 4.110-8. 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 to the 5% 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:

New York Bay Philippines, Inc. v. Commissioner of Internal Revenue

(1) For the importation of goods- import entry or other equivalent document showing actual payment of VAT on the imported goods.

(2) For the domestic purchase of goods and properties - invoice showing the information required under Sees. 113 and 237 of the Tax Code.

(3) For the purchase of real property- public instrument i.e., deed of absolute sale, deed of conditional sale, contract/ agreement to sell, etc., together with VAT invoice issued by the seller.

(4) For the purchase of services- official receipt showing the information required under Sees. 113 and 237 of the Tax Code.

A cash register machine tape issued to a registered buyer shall constitute valid proof of substantiation of tax credit only if it shows the information required under Sees. 113 and 237 of the Tax Code.

Based on the foregoing provisions, to be entitled to input tax credits, the same must be duly substantiated by supporting documents prescribed under Section 4.110-8 of RR No. 16- 2005. Further, said documents must likewise comply with the invoicing requirements under Sections 113(A) and (B), 237 and 238 of the NIRC of 1997, as amended, and as implemented by Section 4.113-1(A) and (B) ofRR No. 16-2005, as amended. The invoicing requirements for a VAT-registered taxpayer, as provided in the NIRC and revenue regulations, are clear. A VAT-registered taxpayer must comply with all the VAT invoicing requirements to file a claim for input taxes on domestic purchases for goods or services attributable to zero-rated sales.82 The invoicing requirement is reasonable and must be strictly complied with, as it is the only way to determine the veracity of the claim. 83 In support of its input taxes, petitioner submitted its Summary of Valid Unutilized Input VAT on Purchases Other Than Capital Goods,84 Summary of Unutilized Input VAT on Purchases of Capital Goods Not Exceeding One Million, 85 Summary of Valid Unutilized Input VAT on Purchases of Capital Goods Exceeding One Million from Prior Year (2015), 86 82 Micmsnfi Ph;t;ppines. Inc. v. rnmmissinner of Internal Revenue. G.R. No. 180173. April 6, 2011. 83 Kepco Philippines Corporation v. Commissioner of Internal Revenue. G.R. No. 179961. January 31. 2011. 84 Exhibits '"P-26'" to '"P-26.6'", USB. 85 Exhibits "P-27" to '"P-27.3", USB. 86 Exhibits "P-28'". USB.

v 1

New York Bay Philippines, Inc. v. Commissioner of Internal Revenue

Summary of Unutilized Input VAT on Purchases of Capital Goods Exceeding One Million from Current Year (2018),87 and various sales invoices and ORs,ss which were subjected to the examination of the ICPA, Mr. Walter L. Abela Jr. of Navarro Amper & Co.

Based on the review of the !CPA, the input VAT for P458,072.92, as summarized below, shall be disallowed for petitioner's failure to meet the substantiation and invoicing requirements prescribed under the VAT law and regulations:

FINDINGS

EXHIBIT

INPUT VAT

AMOUNT

Input VAT on Purchases of Capital

Goods Not Exceeding '!'1M without or "P-27.2" p 1,092.76 missing Sis

2 Input VAT on Purchases of Capital

Goods Not Exceeding 1M supported by "P-27.3" 6,208.93 Sis with no or Incorrect TIN of the petitioner

3 Input VAT on Purchases of Capital

Goods Exceeding 1M from CY2018 "P-29.2.2" 1,323.71 supported by ORs and Sis with no TIN of the petitioner 4 Input VAT on Purchases other than Capital Goods without or missing "P-30.1" 219,460.02 official receipts 5 Input VAT on Purchases other than "P-30.2.1" to "P- Capital Goods supported by ORs with 30.2.11" 68,537.81 no or incorrect VAT breakdown 6 Input VAT on Purchases other than Capital Goods supported by ORs with "P-30.3.1" to "P- 26,329.09 incorrect or incomplete business name 30.3.109" of the petitioner 7 Input VAT on Purchases other than Capital Goods supported by ORs with "P-30 .4 .1" to "P- 106,114.29 no or incorrect company TIN of the 30.4.7" petitioner 8 Input VAT on Purchases other than "P-30.5.1" to "P- Capital Goods supported by Sis with 30.5.884" 28,950.06 no BIR Authority to Print 9 Input VAT on Purchases other than Capital Goods supported by Sis with "P-30.6.1" 56.25 no or incorrect TIN of the petitioner

Grand Total

p 458,07~.9~ 87 Exhihit "P-29" to "P-29.2". l JSR. 88 Exhihits "P-26.1.1" to "P-26.1.100''. ''P-26.2.1" to "P-26.2.134", "P-26.3.1" to "P-26.3.162", "P-26.4.1" to "P- 26.4.185", "P-26.5.1" to "P-26.5.68", "P-26.6.1" to "P-26.6.21". "P-27.1.1" to "P-27.1.9'', "P-27.2". "P-27.3.1" to "P27.3.2", "P-28.1" to "P-28.6", "P-29.1.1" to "P-29.1.5", "P-29.2.1" to "P-29.2.3", "P-30.2." to "P-30.2.11". "P- 30.3.1" to "P-30.3.1 09", "P-30.4.1" to "P-30.4.7". "P-30.5.1" to "P-30.5.884", "P-30.6.1".

New York Bay Philippines, Inc. v. Commissioner of Internal Revenue

Upon further verification, the Court finds that the additional input VAT in the aggregate amount off'5,729,566.11 shall also be disallowed for the grounds stated herein:

Registered Name of Supplier

Input Tax

Exhibit

Findings

Nature of service not

PRONTO EXPRESS DISTRIBUTION

indicated; Supported by

49,352.14 "P-26.3.6" OR amount breakdown

CORP

unreadable

New York Bay Philippines, Inc. v. Commissioner of Internal Revenue

Registered Name of Supplier

Input Tax

CORP

CEBUANA LHUILLIER SERVICES

79,158.21 "P-26.4.4" OR unreadable

CORP

CEBUANA LHUILLIER SERVICES

55,224.64 "P-26.4.4" OR unreadable

CORP

CEBUANA LHUILLIER SERVICES

58,435.71 "P-26.4.5" OR unreadable

CORP

CEBUANA LHUILLIER SERVICES

52,235.36 "P-26.4.5" OR unreadable

CORP

CEBUANA LHUILLIER SERVICES

146,205.00 "P-26.4.6" OR unreadable

CEBUANA LHUILLIER SERVICES

41,097.86 "P-26.4.14" OR unreadable

CORP

The nature of service

FERIA TANTOCO ROBENIOL LAW

3,360.00 "P-26.4.18" cannot be ascertained

OFFICES

The nature of service

PRONTO EXPRESS DISTRIBUTION

447.84 "P-26.4.25" cannot be ascertained

INC

CORP

CEBUANA LHUILLIER SERVICES

37,472.14 "P-26.4.46" OR unreadable

CORP

New York Bay Philippines, Inc. v. Commissioner of Internal Revenue

Registered Name of Supplier

Input Tax

Exhibit

CORP

CEBUANA LHUILLIER SERVICES

49,978.93 "P-26.4.51" OR unreadable

CORP

Nature of service not

MARTINA PAULAS CATERING

2,410.71 "P-26.4.55" indicated

SERVICES CO

The nature of service

PRONTO EXPRESS DISTRIBUTION

555.84 "P-26.4. 75" cannot be ascertained

INC

New York Bay Philippines, Inc. v. Commissioner of Internal Revenue

Registered Name of Supplier

Input Tax

Exhibit

Findings

PRONTO EXPRESS DISTRIBUTION

555.84 "P-26.4.167" The nature of service

INC

cannot be ascertained

VANGUARD SCREENING

684.00 "P-26.4.185" The nature of service

SOLUTIONS INC

cannot be ascertained

ACCENT MICRO TECHNOLOGIES

Supported by invoice 22,500.00 "P-27.1.2" dated outside the period

INC

of claim

COLLIERS INTERNATIONAL

104,000.00 "P-29.1.1" Nature of service not PHILIPPINES, INC.

indicated

COLLIERS INTERNATIONAL

62,400.00 "P-29 .1.1" to "P- The nature of service PHILIPPINES, INC.

29.1.4" cannot be ascertained

TOTAL DISALLOWANCES

P5,729,566.11 In addition, the letter dated November 6, 2020 issued by the BIR 89 denying petitioner's administrative claim for P38,046,300.41 partly states as follows:

1. Deductions from the claim: Unallowable input tax due to violation of invoicing requirements pursuant to Sec. r (151,226.99) 113 of the NIRC of 1997, as amended Overclaimed input tax fOVRs v. Schedule) (217 ,428.05) Unallowable ripened deferred input tax (DIT) from prior years pursuant to Section 11 r4Hb.3) of RMC No. 4 7-2019 (74,098.00) Unsupported current purchase of CG >1M (62,400.00) Additional DIT on current CG >1M (40,264.43) Compromise penalty for failure to issue sales invoices for disposal of Company (10,000.00) vehicles pursuant to Section 264(A) of the NIRC of 1997, as amended.

Total Deductions

p 1555,417.47)

2. Official Receipt (OR) for export sales of services were not properly supported with corresponding

Billing

Statements/Statements of Account of Service Contracts/

Job Order or any equivalent document to support the ORs prescribed under item 3.2 of Annex "A.l" (Revised

Checklist of Mandatory Requirements for Claims for VAT

Refund) of RMC No. 47-2019. Thus, you failed to prove your zero-rated sales in the amount ofP630,262,902.85. In view hereof, we regret to inform you that your application for VAT refund for the period January 1 to December 31, 2018 has been DENIED for lack of legal and factual basis.

89 BIR Records, pp. 374-375.

New York Bay Philippines, Inc. v. Commissioner of Internal Revenue

Records show that petitioner failed to substantially refute the findings of the BIR as to the foregoing disallowances. Petitioner did not offer any evidence, i.e., the documents it submitted to the BIR in support of its administrative claim, to specifically dispute the same. Thus, the Court cannot determine whether the documents supporting its claimed input taxes, submitted at the administrative level, complied with the laws and regulations.

Thus, the said amount of P555,417.47 should be outrightly deducted from the present input VAT refund claim. However, the BIR's denial of the rest of petitioner's claim for its failure to submit the Billing Statements/Statements of Account of Service Contracts/Job Order or any equivalent document in support of its Official Receipts, concluding that petitioner failed to prove its zero-rated sales is without any legal basis.

As laid down earlier, neither the NIRC nor RR No. 16-2005 requires that the taxpayer submit billing statements, statements of account with service contracts, job orders, or any equivalent document to support the presented VAT ORs. Consequently, respondent should have partially granted petitioner's claim for refund, excluding the disallowances amounting to P555,417.47. Respondent has no basis in fact and/ or law to deny the whole refund amount. Nevertheless, notwithstanding the foregoing conclusion, the result of petitioner's judicial claim for refund is still subject to petitioner's compliance with the requisites under substantive law for the grant of its refund claim, pursuant to Pilipinas Total Gas.

Hence, for purposes of compliance with the seventh requisite, out of the total declared input taxes of P38,060,958.30, only the amount off>31,317,901.80 represents petitioner's valid input VAT for the four quarters of CY 2018, as computed below:

New York Bay Philippines, lnc. v. Commissioner of lnternal Revenue

Input VAT per VAT Returns

Less: Disallowances

Per !CPA Findings p Per this Court's Findings

Unrefuted BIR Observations and Findings

Valid Input VAT

Eighth requisite: A portion of petitioner's substantiated input taxes due or paid are attributable to its zero-rated sales.

p 38,060,958.30 458,072.92 5,729,566.11 555,417.47 6, 743,056.50 p 31,317,901.80 The eighth requisite requires that the input taxes claimed are attributable to zero-rated or effectively zero-rated sales. However, where there are both zero-rated or effectively zero- rated sales and taxable or exempt sales and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated based on sales volume.

For the subject period of the claim, petitioner reported zero-rated sales and vatable sales in its Quarterly VAT Returns for the 1st to 4th quarters of CY 2018 in the following amounts:

Period

VATable Sales

Zero-Rated Sales

Total Sales

(CY 2018)

1•' Quarter

p 1,857.16 p 112,317,875.61 p 112,319,732.77 2nd Quarter 1,857.16 173,400,555.87 173,402,413.03 3rct Quarter 1,857.04 230,541,824.31 230,543,681.35 4th Quarter 116,578.58 114,002,647.06 114,119,225.64

Total

p 122,149.94 p 630,262,902.85 p 630,385,052.79 Since petitioner's valid input VAT for the same quarters in the total amount of P31 ,317, 90 1.80 cannot be directly and entirely attributed to any of these sales, this Court shall proportionately allocate the said input VAT based on the volume of petitioner's sales, thus:

New York Bay Philippines, Inc. v. Commissioner of Internal Revenue

Total Valid Input VAT

p 31,317,901.80

Divided by the Total Reported Sales per VAT

p 630,385,052.79

Returns

Multiplied by Total Zero-Rated Sales per VAT

p 630,262,902.85

Returns

Valid input VAT allocated to total zero-rated p 31,311,833.32 sales

Total Valid Input VAT

p 31,317,901.80

Divided by the Total Reported Sales per VAT

p 630,385,052.79

Returns

Multiplied by Total VA Table sales per VAT Returns p 122,149.94 Valid input VAT allocated to VATable sales p 6,068.48 Correspondingly, regarding petitioner's compliance with the eighth requisite, the amount of P31 ,311,833.32 represents its valid input VAT attributable and allocable to its total zero- rated sales for the four quarters ofCY 2018.

Ninth

reauisite:

The input taxes have not been applied against output taxes during and in the succeeding quarters.

Having determined that petitioner had valid input VAT attributable to its zero-rated sales/receipts, We shall now determine whether the same was not applied against its output VAT liability during and in the succeeding quarters, relative to the ninth requisite for the successful prosecution of an input VAT refund claim.

Although petitioner carried over the claimed input VAT amount of P38,046,300.41 in the succeeding quarter/period, the same remained unutilized until it was deducted as "VAT Refund/TCC claimed"90 in its Quarterly VAT Return for the 1st quarter of CY 2019. Accordingly, the subject claim no longer forms part of the excess input VAT ofP7,332,025.7491 as of the end of the 181 quarter of CY 2019. Such being the case, the claimed input VAT could not have been carried over or utilized in the succeeding quarters of CY 2019. Verily, petitioner complied with the ninth requisite for the grant of the input VAT claimed for refund or issuance of TCC.

90 Exhibit "P-12", Line 23D, Docket, p. 425.

91 Exhibit "P-12", Line 29, Docket, p. 425.

New York Bay Philippines, Inc. v. Commissioner of Internal Revenue

Computation of refundable unutilized or excess input taxes.

We now determine the refundable amount ofunutilized or excess input taxes attributable to petitioner's zero-rated sales. In the recent case of Chevron Holdings, Inc. (Formerly Caltex Asia Limited) v. Commissioner of Internal Revenue,92 the Supreme Court held that the input tax attributable to zero-rated sales may, at the option of the VAT-registered taxpayer, be: (1) charged against output tax from regular 12% VAT-able sales, and any unutilized or "excess" input tax may be claimed for refund or the issuance of tax credit certificate; or (2) claimed for refund or tax credit in its entirety, and such option is vested with the taxpayer-claimant, to wit:

Goods not exceeding !'1M 80,208.00 1,617.86 17,741.79 57,449.91 157,017.56

Purchase of Capital

Goods Exceeding

!'1M.

1,250,570.89 1 '915,044.00 3,165,614.89

Domestic Purchases

of Goods Other than

Capital Goods

177,109.18 143,789.66 52 016.00 34 270.33 407 185.17

Domestic Purchases of Services

9,893,338.59 9,269,970.86 8,906,922.92 9,183,276.83 37,253,509.20

92 G.R. No. 215159. July 5, 2022.

New York Bay Philippines, Inc. v. Commissioner of Internal Revenue

CY 2018

1" Quarter

2nd Quarter

3•• Quarter

4•• Quarter

Total

(Exhibit "P-7"}

(Exhibit "P-8"}

(Exhibit "P-9")

(Exhibit "P-I 0"1

Total Available

Input Tax

10,340,248.04 9,585,891.09 10,378 684.76 12 531 222.73 42 836 046.62

Less: Deduction

from Input Tax

Input Tax on

Purchases of

Capital Goods

exceeding I' I M deferred to the succeeding oeriod 170,512.71 151,433.16 I 341,181.66 3,11J,960.79 4, 775 088.32

OutoutVAT

222.86 222.86 222.84 13 989.43 14 657.99

Total

170,735.57 151,656.02 1 341,404.50 3,125 950.22 4 789,746.31

Total Unutillzed

Input

Tax/ Available for

Refund

1'10,169 512.47 1'9,434,235.07 1'9,037,280.26 1'9,405,272.51 1'38,046,300.31 It is clear then that petitioner opted to claim a refund of its unutilized or "excess" input tax, which is the net amount after charging the input tax against its output tax liabilities. Thus, since petitioner's valid input VAT allocated to sales subject to the 12% VAT in the amount of P6,068.48, as earlier determined, is not enough to cover its output VAT liability amounting to P14,657.99, the output VAT still due amounting to P8,589.51 shall then be charged against its valid input VAT attributable to total zero-rated sales of P31 ,311,833.32 leaving an excess input VAT attributable to total zero-rated sales of P31,303,243.81, as herein computed:

Output VAT

p 14,657.99 Less: Valid Input VAT allocated to sales subject to 6,068.48

12% VAT

Output VAT Still Due

p 8,589.51 Valid input VAT allocated to zero-rated sales p 31,311,833.32

Less: Output VAT Still Due

8,589.51 Excess Input VAT attributable to zero-rated sales p 31,303,243.81

WHEREFORE, premises considered, the instant Petition for Review is PARTIALLY GRANTED. Accordingly, respondent Commissioner of Internal Revenue is ORDERED to REFUND or ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner New York Bay Philippines, Inc., the amount of THIRTY-ONE

MILLION THREE HUNDRED THREE THOUSAND TWO

HUNDRED

FORTY-THREE

PESOS

AND

81/100 (P31,303,243.81), representing its excess and unutilized input

New York Bay Philippines, Inc. v. Commissioner of Internal Revenue

SO ORDERED.

!CONCUR:

hffM{dMIJ..

LANEE s. CUI-OA VID

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. ,_ ~'!::!~"''"'''-' Justice Special 2nd Division Acting Chairperson

New York Bay Philippines, Inc. v. Commissioner of Internal Revenue

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, and the Special 2nd Division Acting 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.