Petrotrade Philippines, Inc. vs. Commissioner of Internal Revenue

DECISION

CUI-DAVID, J.:

Before the Court is a Petition for Reviewl filed by petitioner Petrograd Philippines, Inc. on June 10, 2022, praying that judgment be rendered ordering respondent Commissioner of Internal Revenue to refund the amount of P92,856,719.67, allegedly representing petitioner's unutilized input value-added tax (VAT) attributable to its zero-rated sales for the second (2nd) quarter of taJ<able year (TY) 2020.

THE PARTIES

Petitioner is a domestic corporation duly organized and eJ<isting under Philippine laws, with principal office address at 94 Scout Rallos Street, Barangay Sacred Heart, Quezon City, Philippines. 2 It is registered with the Bureau of Internal Revenue (BIR) - Revenue District Office No. 124 - EJ<cise LT Audit Division II, with TaJ<payer Identification Number 000-658- 115-00000. 3 It is likewise registered with the Bureau of Docket- Vol. I, pp. 6-42.

2 /d. at 175, Joint Stipulation of Facts and Issue (JSFI), Summary of Admitted Facts, par. I.

Petrotrade Philippines, Inc. v. Commissioner of Internal Revenue

Customs as a corporation engaged in "Wholesale of Solid, Liquid, Gaseous Fuels ."4 Respondent is the Chief of the Bureau of Internal Revenue (BIR), the governm ent agency vested with authority to administer and enforce national internal revenue taxes, including, among others, the du ty to act on and approve claims for refund as provided by law.s

THE FACTS AND THE PROCEEDINGS

Petitioner avers that during the 2nd qu arter of TY 2020, it engaged in the following transactions, which were accordingly reported in its VAT returns:

Sales/Receipts for the

Output Tax Due

Quarter (Exclusive of for the Quarter

VAT)

VA Table

Sales/ Receipts

- P216, 103,124.35 P25,932,374.92

Private

Sale to the Government

- -

Zero-rated Sales/ Receipts

877,254,255.58 -

Exempt Sales/ Receipts

- -

TOTAL

P1,093,357,379.93 P25,932,374.92 During the same period, petitioner allegedly incurred the following input taxes:

Purchases

Input Tax

Local Taxable Purchases

P66,853,266.69 P8,022,392.00

Importations

897,572,373.22 107,708,684.79

TOTAL

P964,425,639.91 P115,731,076.79 Petitioner claims that because a substantial portion of its sales/receipts were VAT zero-rated, a substantial portion of its input tax incurred was not fully utilized during the same quarter, nor used against its output taxes in the subsequent periods.

Thus, on January 12, 2022, petitioner filed a letter (Application for VAT Refund) dated December 13, 2021, 6 together with the Application for Tax Credits/ Refunds (BIR Form No.

1914), 7 and the Revised

Checklist of Mandatory

Requirements on Claims for VAT Credit/ Refund, 8 seeking the !d. at 434-435, Exhibits "P-7-1 ··and "P-7-2". !d. at 176, JSFI, Summary of Admitted Facts, par. 3. Docket - Vol. II, pp. 571-572, Exhibit "P-27". /d. at 573, Exhibit ·'P-28".

/d. at 574, Exhibit "P-29".

Petrotrade Philippines, Inc. v. Commissioner of Internal Revenue refund of excess or unutilized input VAT attributable to its zero- rated sales to foreign vessels for the period April 1, 2020 to June 30, 2020, in the amount ofP92,856,719.67. However, on May 12, 2022,9 petitioner received a letter dated May 10, 2022, 10 denying its administrative claim for refund for lack of factual and legal bases. Hence, petitioner elevated its claim to this Court via the instant Petition for Review filed on June 10, 2022. On August 22, 2022, and within the extended period 11 granted by the Court, respondent filed his Answer, 12 asserting that petitioner's judicial claim should be denied for failure to comply with Revenue Memorandum Order (RMO) No. 4 7-2020, which requires the submission of the quarterly VAT returns corresponding to the quarter showing the deduction of the amount sought to be refunded from the available input tax, filed on or before the date of the VAT refund application. For respondent, since a decision has already been rendered at the administrative level, petitioner cannot present before the Court documents that it did not submit at the administrative level. He added that the Court is confined to determining whether there was insufficiency of substantiation to justify the denial of the claim.

On October 27, 2022, respondent transmitted the BIR Records for this case, consisting of seven (7) folders. 13 A Pre-Trial Conference was conducted on November 24, 2022. 14 On January 9, 2023, the parties filed their Joint Stipulation of Facts and Issues, 1s which the Court admitted and approved in its Resolution16 dated January 12, 2023, thereby terminating the Pre-Trial. The corresponding Pre-Trial Order17 was issued on January 25, 2023. "

9 BIR Records (Exhibit "R-3"), pp. 3 10-311 , Exhibits "P-1" and "R-2", 10 /d.

11 Docket - Vol. I, p. 6 1, Order dated July 28, 2022. 12 /d. at 62-69.

13 /d. at 81-83, Compliance dated October 24, 2022. 14 /d. at 79-80, Notice of Pre-Trial Conference dated September 8, 2022; 121, Minutes of the hearing held on November 24, 2022; 123-1 24, Order dated November 24, 2022. 15 /d. at 175-199.

16 /d. at 207.

17 /d. at 209-219.

Petrotrade Philippines, Inc. v. Commissioner of Internal Revenue

During trial, petitioner presented the following: (1) Mr. Alfie I. Herrera, 18 its Finance Manager; and (2) Mr. George V. Villaruz, 19 the Court-commissioned Independent Certified Public Accountant (ICPA).2o On December 4, 2023, petitioner filed its Formal Offer of Evidence, 21 to which respondent filed his Comment {On Petitioner's Formal Offer of Evidence) on December 28, 2023.22 In a Resolution23 promulgated on April16, 2024, the Court admitted petitioner's offered exhibits, except: (1) Exhibits "P-37" and "P-4 73 to P-4 75", for not being found in the records of the case· and (2) Exhibits "P-42 1-2" "P-422-2" "P-423-2" "P-424- , ' ' ' 2" "P-490-1" "P-491" "P-494" "P-498" "P-500" "P-50 1" "P- ' ' ' ' ' ' ' 502" "P-503" "P-504" and "P-505" for failure to present the ' ' ' ' originals for comparison.

On May

9, 2024, petitioner filed a

Motion for

Reconsideration, 24 to which respondent filed a Comment/ Opposition {Re: Motion for Reconsideration dated 9 May 2024)25 on May 27, 2024.

In a Resolution issued July 12, 2024, 26 the Court: ( 1) directed the ICPA to submit within five (5) days from notice, clear and readable PDF scanned copies of Exhibits "P-4 73", "P- 4 73-1" "P-4 73-2" "P-4 73-3" "P-4 73-4" "P-4 73-5" "P-4 7 4" "P- ' ' ' ' ' ' 4 7 4-1" "P-4 7 4-2" "P-4 7 4-3" "P-4 7 4-4" "P-4 7 5" "P-4 7 5-1" "P- ' ' ' ' ' ' 4 75-2" "P-4 75-3" "P-4 75-1" "P-4 75-2" "P-4 75-3" "P-4 75-4" ' ' ' ' ' ' "P-4 7 5-5" "P-4 75-6" "P-490-1" "P-500" and "P-50 1" and a ' ' ' ' ' certification that the same are faithful reproductions of the originals, pursuant to Section 2, Rule 13 of the Revised Rules of the Court of Tax Appeals; and (2) held in abeyance the resolution of petitioner's Motion for Reconsideration. On July 19, 2024, petitioner filed its Compliance {with Attached Copy of Certification and USB Flash drive containing scanned copies ofExhibits).27 v 18 Exhibit "P-85" (on a separate folder); Docket- Vol. I, pp. 236-239, Minutes of the hearing held on September 27, 2023; 241-242, Order dated September 27, 2023. 19 Docket- Vol. I, pp. 322-349, Exhibit " P-99"; 352-353, Order dated November 14, 2023. 2° /d. at 235, Oath of Commission dated September 27, 2023; 236-239, Minutes of the hearing held on September 27, 2023; 24 1-242, Order dated September 27, 2023. 21 /d. at 360-409.

22 Docket - Vol. II, pp. 650-652.

23 /d. at 658-662.

24 /d. at 663-669.

25 /d. at 694-696.

26 /d. at 700-704.

27 !d. at 705-7 12.

Petrotrade Philippines, Inc. v. Commissioner of Internal Revenue

Thus, on September 23, 2024, acting on petitioner's Motion for Reconsideration, the Court resolved to admit Exhibits "P-473" "P-473-1" "P-473-2" "P-473-3" "P-473-4" "P-473-5" ' ' ' ' ' ' "P-4 7 4" "P-4 7 4-1" "P-4 7 4-2" "P-4 7 4-3" "P-4 7 4-4" "P-4 75" ' ' ' ' ' ' "P-4 7 5-1" "P-4 7 5-2" "P-4 7 5-3" "P-4 7 5-4" "P-4 7 5-5" "P-4 7 5- , ' ' ' ' 6", "P-490-1 ", "P-500", and "P-50 1 ". 2s For his part, respondent presented the testimony of Revenue Officer (RO) Kathrina D. Quimosing. 29 After her testimony, respondent's counsel orally offered respondent's evidence, all of which was admitted in open Court.30 On April 24, 2025,3 1 the instant case was submitted for decision, following the filing of petitioner's Memorandum32 on April 3, 2025, and the Records Verification Report33 dated April 8, 2025, stating that respondent failed to file his Memorandum.

IS:

Hence, this Decision.

THE ISSUE

As stipulated by the parties, the sole issue for resolution Whether or not Petitioner is entitled to its claim for refund in the total amount of P92,856,719.67, allegedly representing its unutilized and excess input Value-Added-Tax attributable to its zero-rated sales I receipts for the 2nd Quarter of Taxable Year 2020. 34 Petitioner's arguments:

Petitioner argues that it is entitled to a refund of P92,856,719.67, representing its unutilized and excess input taxes attributable to its zero-rated sales/receipts for the 2nd quarter of taxable year 2020. It contends that respondent's denial of its administrative claim for VAT refund is without legal and factual bases. \'<" 28 /d. at 717-719, Resolution dated September 23, 2024. 29 Docket - Vol. I, pp. 74-77, Exhibit " R-4"; Docket - Vol. II, p. 731-733, Minutes of the hearing held on March 4, 2025; 734-735, Order dated, March 4, 2025. 30 Docket - Vol. II, pp. 731-733, Minutes of the hearing held on March 4, 2025; 734-735, Order dated March 4, 2025. 31 /d. at 773, Notice of Resolution dated April 24, 2025. 32 /d. at 73 7-768.

33 /d. at 772.

Petrotrade Philippines, Inc. v. Commissioner of Internal Revenue

Respondent's counter-arguments:

Respondent, on the other hand, contends that th e instant judicial claim should be denied for petitioner 's failure to comply with RMO No. 4 7-2020. For respondent, the taxpayer-claimant ha s the burden of proving the factual basis of his claim for a tax refund or credit. After all, tax refunds, like tax exemption s, are construed strictly against the taxpayer .

THE COURT'S RULING

Pertinent to the resolution of this case are paragraphs (A) and (C) of Section 112 of the NIRC of 1997, as amended by Republic Act (RA) No. 10963,35 which provide: 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 or 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 1 08(8)(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 35 AN ACT AMENDING SECTIONS 5, 6, 24, 25, 27, 31, 32, 33, 34, 5 1, 52, 56, 57, 58, 74, 79, 84, 86, 90, 9 1, 97, 99, 100, 10 1, 106, 107, 108, 109, 110, 112, 114, 116, 127, 128, 129, 145, 148, 149, 15 1, 155, 17 1, 174, 175, 177, 178, 179, 180, 181, 182, 183, 186, 188, 189, 190, 19 1, 192, 193, 194, 195, 196, 197, 232, 236,237, 249, 254,264, 269, AND 288; CREATING NEW SECTIONS 5 1-A, 148-A, 150-A, 150-B, 237-A, 264-A, 264-8, AND 265-A; AND REPEALING SECTIONS 35, 62, AND 89; ALL UNDER REPUBLIC ACT NO. 8424, OTHERWISE KNOWN AS THE NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED, AND FOR OTHER PURPOSES.

Petrotrade Philippines, Inc. v. Commissioner of Internal Revenue 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 provisions, jurisprudence has established the requisites that a taxpayer-claimant must satisfy to be entitled to a refund or tax credit of input VAT. These requisites may be classified into certain categories, to wit: As to the timeliness of the filing of the administrative and judicial claims:

1. The refund 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 the Commissioner to act on the said claim within a period of ninety (90) days , the judicial claim has been filed with this Court, within thirty (30) days from receipt of the decision or after the expiration of the said ninety (90)-day period;37 With reference to the taxpayer's registration with the BIR:

3. The taxpayer is a VAT-registered person;38 In relation to the taxpayer's output VAT: 36 AT&T Communications Services Philippines, Inc. v. Commissioner of Internal Revenue, G.R. No. 182364, August 3, 2010 [Per J. Carpio-Morales, Third Division]; San Roque Power Corporation v. Commissioner of Internal Revenue, G.R. No. 180345, November 25, 2009 [Per J. Chico-Nazario, Third Division); Intel Technology Philippines, Inc. v. Commissioner of Internal Revenue, G.R. No. 166732, April 27, 2007 [Per J. Callejo, Sr., Third Division].

37 Refer to Commissioner of Internal Revenue v. Vestas Services Philippines, Inc., G.R. No. 255085, March 29, 2023 [Per J. Hernando, First Division]; Commissioner of Internal Revenue v. CE Casecnan Water and Energy Company, Inc., G.R. No. 212727, February I, 2023 [Per J. Hernando, First Division); Energy Development Corporation v. Commissioner of Internal Revenue, G.R. No. 203367, March 17, 2021 [Per J. Hernando, Third Division]. 38 AT & T Communications Services Philippines, Inc. v. Commissioner of Internal Revenue, G.R. No. 182364, August 3, 20 10 [Per J. Carpio-Morales, Third Division); San Roque Power Corporation v. Commissioner of Internal Revenue, G.R. No. 180345, November 25, 2009 [Per J. Chico-Nazario, Third Division); Intel Technology Philippines, Inc. v. Commissioner of Internal Revenue, G.R. No. 166732, April 27, 2007 [Per J. Callejo, Sr., Third Division].

Petrotrade Philippines, Inc. v. Commissioner of Internal Revenue

4. The taxpayer is engaged in zero-rated or effectively zero- rated sales;39

5. For zero-rated sales under Section 106(A)(2)(a)(1), (2) and

(b) and Section 108(8)(1) and (2),40 the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with the Bangko Sentral ng Pilipinas (BSP) rules and regulations;41 As regards the taxpayer's input VAT being refunded: 6 . The input taxes are not transitional;42

7. The input taxes are due or paid;43 8 . The input taxes have not been applied against output taxes during and in the succeeding quarters;44 and

9. 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.45 In addition, for VAT refund/credit claims, applicants must satisfy the substantiation and invoicing requirements under the NIRC and other implementing rules and regulations. 46 The invoicing and substantiation requirements should be followed because they are the only way to determine the veracity of the taxpayer's claims.47 39 40 41 42 43 44 45 46 47 /d.

Under RA No. 10963, Section 106(A)(2)(a)(2) was renumbered to Section 106(A)(2)(a)(3) while Section I 06(A)(2)(b) was deleted. However, there was no corresponding amendment to the subsections cited in Section 112(A) of the NIRC of 1997, as amended. AT&T Communications Services Philippines, Inc. v. Commissioner of Internal Revenue, G.R. No. 182364, August 3, 2010 [Per J. Carpio-Morales, Third Division]; San Roque Power Corporation v. Commissioner of Internal Revenue, G.R. No. 180345, November 25, 2009 [Per J. Chico-Nazario, Third Division]; Intel Technology Philippines, Inc. v. Commissioner of Internal Revenue, G.R. No. 166732, April 27, 2007 [Per J. Callejo, Sr., Third Division].

/d.

!d.

AT & T Communications Services Philippines, Inc. v. Commissioner of Internal Revenue, G.R. No. 182364, August 3, 2010 [Per J. Carpio-Morales, Third Division]; San Roque Power Corporation v. Commissioner of Internal Revenue, G.R. No. 180345, November 25, 2009 [Per J. Chico-Nazario, Third Division]; Intel Technology Philippines, Inc. v. Commissioner of Internal Revenue, G.R. No. 166732, April 27, 2007 [Per J. Callejo, Sr., Third Division].

San Roque Power Corporation v. Commissioner of Internal Revenue, G.R. No. 180345, November 25, 2009 [Per J. Chico-Nazario, Third Division); Intel Technology Philippines, Inc. v. Commissioner of Internal Revenue, G.R. No. 166732, April 27, 2007 [Per J. Callcjo, Sr., Third Division]. Team Energy Corporation v. Commissioner of Internal Revenue, G.R. Nos. 197663 & 197770, March 14,2018 [Per J. Leonen, Third Division].

Nippon Express (Philippines) Corporation v. Commissioner of internal Revenue, G.R. No. 191495, July 23, 2018 [Per J. Martires, Third Division].

Petrotrade Philippines, Inc. v. Commissioner of Internal Revenue

Strict compliance with substantiation and invo1c1ng requirements is necessary considering VAT's nature and VAT system's tax credit method, where tax payments are based on output and input taxes and where the seller's output tax becomes the buyer's input tax that is available as tax credit or refund in the same transaction. It ensures the proper collection of taxes at all stages of distribution, facilitates computation of tax credits, and provides accurate audit trail or evidence for BIR monitoring purposes. 48 Furthermore, 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. 49 Thus, it behooves petitioner to show compliance with each of the requisites and invoicing requirements.

First

and second requisites:

Petitioner's administrative and judicial claims were timely filed.

The first requisite pertains to filing a tax refund or credit for input VAT with the BIR within two (2) years from the close of the taxable quarter in which the zero-rated or effectively zero- rated sales were made.

The present claim covers the 2nd quarter ofTY 2020, which ended on June 30, 2020. Counting two (2) years from the close of the said quarter, the last day to file an administrative claim for refund of excess or unutilized input VAT is June 30, 2022. Thus, the filing of petitioner's

Application

for

Tax

Credits/ Refunds 50 of input tax for the 2 nct quarter ofTY 2020on January 12, 2022, was well within the two (2)-year prescriptive period.

As for the second requisite, the same necessitates that the judicial claim must be filed within thirty (30) days from receipt of respondent's decision or after the expiration of the ninety 48 Team Energy Corporation v. Commissioner of Internal Revenue, G.R. Nos. 197663 & 197770, March 14, 20 18 [Per J. Leonen, Third Division].

49 Edison (Bataan) Cogeneration Corporation v. Commissioner of Internal Revenue, G.R. Nos. 201665 & 201668, August30, 2017 [Per J. Del Castillo, First Division]; Commissioner of Internal Revenue v. Philippine National Bank, G.R. No. 180290, September 29, 2014 [Per J. Leonen, Second Division]; Commissioner of Internal Revenue v. United Salvage and Towage (Phils.), Inc., G.R. No. 1975 15, July 2, 2014 [Per J. Peralta, Third Division]; Dizon v. Court ofT ax Appeals, G.R. No. 140944, April 30, 2008 [Per J. Nachura, Third Division]; Atlas Consolidated Mining and Development Corporation v. Commissioner of Internal Revenue, G.R. No. 145526, March 16, 2007 [Per J. Corona, First Division]; Commissioner of Internal Revenue v. Manila Mining Corporation, G.R. No. 153204, August 31, 2005 [Per J. Carpio-Morales, Third Division]. so Docket- Vol. II, p. 573, Exhibit "P-28". v

Petrotrade Philippines, Inc. v. Commissioner of Internal Revenue

(90)-day period under Section 112(C) of the NIRC of 1997, as amended. Thus, from the filing of petitioner's administrative claim on January 12, 2022, respondent had ninety (90) days or until April12, 2022, to act on the said claim. However, this 90- day period was extended under Revenue Regulations (RR) No. 01-2022,51 as clarified in Revenue Memorandum Circular (RMC) No. 16-2022,52 for 30 days from due date. Thus, respondent's letter dated May 10, 2022, informing petitioner that its application for VAT refund was denied for lack of factual and legal bases, was issued well within the extended 90-day period. The record reveals that the said letter dated May 10, 2022, was received by petitioner on May 12, 2022. Counting 30 days from May 12, 2022, petitioner had until June 13, 2022, 53 to file its judicial claim for refund. With the filing of the Petition for Review on June 10, 2022, the judicial claim was timely instituted.

Accordingly, the first and second requisites were complied with.

Third requisite: Petitioner is a VAT-registered entity.

It is undisputed that petitioner also satisfied the third requisite since it is duly registered with the BIR as a VAT taxpayer with TIN 000-658-115-00000.54

Fourth

and fifth requisites:

Petitioner

had zero-rated or effectively zero-rated sales for the 2nd quarter of TY 2020.

The fourth and fifth requisites respectively require that the taxpayer is engaged in zero-rated or effectively zero-rated sales, and for zero-rated sales under Sections 106(A)(2)(a)(1), (2), and ,;

Sl

SUBJECT : Extension of the Deadlines for the Filing of Returns and Payment of the Corresponding Taxes Due Thereon, Including Submission of Required Documents (Position Papers, Replies, Protests, Documents and Other Similar Letters and Correspondences in Relation to the On-Going BIR Audit Investigation), Application for Tax Refund and Issuance of Assessment Notices and Warrants of Distraint and Levy for Taxpayers within the Jurisdiction of Revenue Regional and District Offices of the Bureau of Internal Revenue Classified under Alert Level 3 or Higher .

s2 SUBJECT: Clarifying the Scope and Coverage of the Extension of Deadlines Granted Pursuant to Revenue Regulations No. 1-2022.

SJ

June II, 2022 fell on a Saturday.

S4

Docket - Vol. I, pp. 43 1-433, Exhibit ·'P-6".

Petrotrade Philippines, Inc. v. Commissioner of Internal Revenue

(b), 55 and 1 08(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 Bangko Sentral ng Pilipinas (BSP) rules and regulations. In its amended Quarterly VAT Return for the 2nd quarter of TY 2020, 56 petitioner declared total sales amounting to P1,093,357,379.93, of which P877,254,255.58 were reported as zero-rated:

Vatable Sales/Receipt

p 216,103,124.35

Zero-Rated Sales/Receipt

877,254,255.58

Total Sales/Receipts

Pl ,093,357 ,379. 93 To recall, petitioner claims that it is engaged in zero-rated sales as it sells bunker fuels to persons engaged in international shipping, where the fuel sold is used for international shipping operations. Such sale offuel is subject to Oo/o VAT under Section 1 06(A)(2)(a)(6) of the NIRC of 1997, as amended, which reads as follows:

SEC. 106.

Value-Added Tax on Sale of Goods or

Properties. -

(A)

Rate and Base of Tax. -There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value-added tax equivalent to twelve percent (12%) of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor. (2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: (a) Export Sales. - The term 'export sales' means:

(6) The sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air transport operations: Provided, That the .. j goods, supplies, equipment and fuel shall ~ -------------------- 55 Under RA No. I 0963, Section I 06(A)(2)(a)(2) was renumbered to Section I 06(A)(2)(a)(3) while Section I 06(A)(2)(b) was deleted. However, there was no corresponding amendment to the subsections cited in Section 112(A) of the NIRC of 1997, as amended.

Petrotrade Philippines, Inc. v. Commissioner of Internal Revenue be used for international shipping or air transport operations. (Emphasis supplied) In relation thereto, RR No. 13-201857 further clarified the scope of zero-rated sales under Section 4 .106-5 of RR No. 16- 2005, as amended, providing that:

SECTION 2.AMENDMENTS.

Sections

4.106-5, 4 .108-3, 4.108-5, 4.109-1 , 4.109-2,4.110-3, 4.112-1,4.114- 1, 4.114-2, and 4.116 of RR No. 16-2005, as amended, are hereby further amended to read as follows: SEC. 4.106-5.

Zero

Rated

Sales

of Goods or Properties. -

x x x

The following sales

by VAT-registered

persons shall be subject to zero percent (0%) rate: (a) Export sales. - 'Export Sales' shall mean:

(5) The sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air transport operations: Provided, That the goods, supplies, equipment, and fuel shall be used exclusively for international shipping or air transport operations.

The sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air transport operations is limited to goods, supplies, equipment and fuel that shall be used in the transport of goods and passengers from a port in the Philippines directly to a foreign port, or vice versa, without docking or stopping at any other port in the Philippines unless the docking or stopping at any other Philippine port is for the purpose of unloading passengers and/ or cargoes that originated from abroad, or to load passengers and/ or cargoes bound for abroad: Provided, further, that if any portion of such fuel, goods, supplies or equipment is used for purposes other than that mentioned in this paragraph, such portion of fuel, goods, supplies, and equipment shall be subject to 12% VAT. (Emphasis supplied) ~ 57

SUBJECT:

Regulations Implementing the Value-Added Tax Provisions under the Republic Act (RA) No. I 0963, or the "Tax Reform for Acceleration and Inclusion (TRAIN)," Further Amending Revenue Regulations (RR) No. 16-2005 (Consolidated Value-Added Tax Regulations of2005), as Amended.

Petrotrade Philippines, Inc. v. Commissioner of Internal Revenue

As can be discerned from the foregoing provisions, certain essential elements must be present for the sale of fuel to persons engaged in international shipping to be subject to a zero percent (0°/o} VAT:

1) That the persons to whom petitioner sold and delivered the fuel are engaged in international shipping; and 2) That the fuel loaded to persons engaged in international shipping must have been used exclusively for international shipping, meaning, after departing from a port in the Philippines, it directly proceeded to a foreign port without docking or stopping at any other port in the Philippines, unless the docking or stopping at any other Philippine port is for the purpose of unloading passengers and/ or cargoes that originated from abroad, or to load passengers and/ or cargoes bound for abroad.

To comply with the foregoing requirements, petitioner presented the following:ss (i) report of the International Maritime Organization (IMO) in its website (with

URL

link:

"https: //gisis.imo.org/ Public/ SHIPS / Default.aspx."), 59 to establish the foreign registration on the international vessel, as the said report contains the Ship IMO reference number, Ship Name, Flag Administration, Call sign and Ship Status;

(ii) Sale Invoices (Sis), 60 Bunker Delivery Receipts (BDR), 61 and Bunkering Permits, 62 to prove that the fuel was indeed loaded to international vessel; and (iii) Certification by Maritime Industry Authority (MIA) dated December 28, 2020 and Certifications by the Bureau of Customs,63 certifying that the foreign vessels where the bunker fuels were loaded for the period covering April 1, 2020 to June 30, 2020 did not appear in the Philippine Registry of Domestic Ships, and at the same time have not been granted any Special Permit to temporarily trade/ operate domestically.

At the outset, the Court cannot give credence to any information obtained by petitioner from the IMO's website at the URL "https: I I gisis.imo.orgiPublicl SHIPS IDefault.aspx," 58 Refer to Docket - Vol. II, pp. 752-753, Memorandum, pars. 45 to 47. v 59 USB (Exhibit "P-1 00-2), Exhibits "P-389" to "P-419"0. 60 USB {Exhibit "P-1 00-2), Exhibits "P-129" to "P-200". 6 1 USB (Exhibit "P-1 00-2), Exhibits "P-202" to "P-289".

Petrotrade Philippines, Inc. v. Commissioner of Internal Revenue because the Court is unable to confirm whether the details stated therein are accurate and exist. As for the MIA Certification dated December 28, 2020,64 and BOC Certifications dated April 12, 2023,65 June 15, 2023,66 and June 19, 2023, 67 the Court finds these documents sufficient to ascertain whether petitioner's clients are indeed engaged in international shipping, do not ply domestic waters, and proceeded to a foreign port after the bunkering operation. Thus, petitioner's clients listed in the MIA Certification and supported by corresponding BOC Certifications, whose details are set forth below, are deemed to have complied with the first and second essential elements for VAT zero-rating:

Next Port as

Listed in per BOC's the MIA's

Vessel

Certifications

Petitioner's Customers for

Certification

Registry as

dated April dated 12, 2023, the period April 1, 2020 to

Name of

December

per June 15, June 30, 2020 as

Receiving Vessel

28,2020

Certification

2023,and summarized by the ICPA dated

(Refer to Annex "C" of the per SI and BDR

(Exh. "P- December 28, June 19, 38", Docket 2023 !CPA Report) - Vol. II, pp.

2020 (Exhs. "P- 580 to 583) 490 toP- 490-2", USB)

Yes/ No

(No

destination stated but did not ply the domestic

NARUWHIRL MARITIME

M/V Ocean

waters - Exh.

S.A.

Mercury

Yes

Malta

P-490-1!

ANIMA SHIPPING CO, LIMITED.

M/V Anima

Yes

Cyprus

Australia

CARNIVAL

CORPORATION/ CARNIVA

M/V Queen

L PLC

Elizabeth

Yes

Bermuda

Singapore

CARNIVAL

CORPORATION/ CARNIVA

United

LPLC

M/ V Pacific Dawn

Yes

Kingdom

Singapore

CARNIVAL

CORPORATION/ CARNIVA

M/V Pacific

United

L PLC

Explorer

Yes

Kingdom

Singapore

SPECTRUM OF THE

M/V Spectrum of

SEAS INC.

the Seas

Yes

Bahama

Singapore

SEIN SHIPPING CO LTD.

M/V Sein Sun

Yes

Korea

Petrotrade Philippines, Inc. v. Commissioner of Internal Revenue

SEIN SHIPPING CO LTD.

M/ V Sein Galaxy

Yes

Korea

EXPLORER DREAM

M/ V Explorer

LIMITED

Dream

Yes

Bahamas

M/ V Costa

COSTA CROCIERE S.P.A

Venezia

Yes

Italy

PRINCESS CRUISE

M/ V Sapphire

United

LINES LIMITED

Princess

Yes

Kingdom

COSTA CROCIERE S.P.A

M/V Costa

Yes

Italy

Serena

PRINCESS CRUISE

M/ V Majestic

United

LINES LIMITED

Princess

Yes

Kingdom

HOLLAND AMERICA

LINE N.V.

M/ V Eurodam

Yes

Netherlands

EXPLORER DREAM

M/V Explorer

LIMITED

Dream

Yes

Bahamas

PRINCESS CRUISE

M/ V Royal

LINES LIMITED

Princess

Yes

Bermuda

HOLLAND AMERICA

LINE N.V.

M/ V Amsterdam

No

CANCELLED- World Fuel

Services

M/ V Costa

COSTA CROCIERE S.P.A

Venezia

Yes

Italy

PRINCESS CRUISE

M/ V Golden

United

LINES LIMITED

Princess

Yes

Kingdom

MIN SHENG FINANCIAL

M/ V Lan Hai He

LEASING CO, LTD.

Xie

Yes

China

M/ V Costa

COSTA CROCIERE S.P.A

Serena

Yes

Italy

HOLLAND AMERICA

LINE N.V.

M/ V Noordam

Yes

Netherlands

CANCELLED- Sein

Shipping Co.

CANCELLED- Sein

Shipping Co.

HOLLAND AMERICA

LINE N.V.

M/V Noordam

Yes

Netherlands

CARNIVAL

CORPORATION/ CARNIVA

United

L PLC

M / V Pacific Dawn

Yes

Kingdom

PRINCESS CRUISE

M/ V Ruby

LINES LIMITED

Princess

Yes

Bermuda

M/V Costa

COSTA CROCIERE S.P.A

Venezia

Yes

Italy

(no destination stated but did not ply the domestic waters- Exh.

P-490-2)_

(no destination stated but did not ply the domestic waters - Exh.

P-490-2)

China

China

Singapore

Singapore

Singapore

Singapore

China

Singapore

Singapore

China

China

Singapore

China

Singapore

Singapore

Singapore

Sing_apore

Singapore

China

Petrotrade Philippines, Inc. v. Commissioner of Internal Revenue

CANCELLED- World Fuel

Services

HOLLAND AMERICA

LINE N.V.

M/ V Eurodam

Yes

Netherlands

CARNIVAL

CORPORA TI 0 N I CARNIV A

United

LPLC

M/ V Pacific Aria

Yes

Kingdom

PRINCESS CRUISE

MIV Majestic

United

LINES LIMITED

Princess

Yes

Kingdom

PRINCESS CRUISE

MIV Royal

LINES LIMITED

Princess

Yes

Bermuda

PRINCESS CRUISE

MIV Sapphire

United

LINES LIMITED

Princess

Yes

Kingdom

CARNIVAL

CORPORATIONI CARNIVA

MI V Queen

LPLC

Elizabeth

Yes

Bermuda

CANCELLED- Holland

America Line

CARNIVAL

CORPORATION I CARNIV A

MIV Carnival

LPLC

Panorama

Yes

Panama

PRINCESS CRUISE

MIV Royal

LINES LIMITED

Princess

Yes

Bermuda

PRINCESS CRUISE

MIV Majestic

United

LINES LIMITED

Princess

Yes

Kin_gdom

PRINCESS CRUISE

MIV Ruby

LINES LIMITED

Princess

Yes

Bermuda

MIV Costa

COSTA CROCIERE S.P.A

Serena

Yes

Italy_

PRINCESS CRUISE

LINES LIMITED

M/V Sea Princess

Yes

Bermuda

SILVER MUSE SHIPPING

CO LTD.

M/V Silver Muse

Yes

Bahamas

CARNIVAL

CORPORATION/ CARNIV A

United

LPLC

M/V Pacific Dawn

Yes

Kingdom

GREAT PAROS LIMITED

MJV Dayang

Yes

Liberia

Century

PRINCESS CRUISE

M/V Crown

LINES LIMITED

Princess

Yes

Bermuda

PRINCESS CRUISE

M/ V Golden

United

LINES LIMITED

Princess

Yes

Kin_gdom

MIV Sein

SEIN SHIPPING CO LTD.

Phoenix

Yes

Korea

SEIN SHIPPING CO LTD.

MIV Sein Venus

Yes

Korea

SEA ROAD LINE INC.

MIV Shin Izu

Yes

Panama

Singapore

Singapore

Singapore

Singapore

Singapore

Singapore

Singapore

Singapore

Singapore

Singapore

Singapore

Singapore

Singapore

Singapore

Singapore

Singapore

(no destination stated but did not ply the domestic waters - Exh.

P-490-2)

Petrotrade Philippines, Inc. v. Commissioner of Internal Revenue

(no destination stated but did not ply the domestic waters- Exh.

P-490-2)

MONJASA PTE LTD

NI A

Indeed, only sales to clients whose foreign vessels are expressly identified in the MIA Certification and corroborated by BOC Certifications qualify as VAT zero-rated transactions under Section 106(A)(2)(a)(6) of the NIRC of 1997, as amended. Conversely, the Court notes that the foreign vessels with Bunkering Permit Nos. listed below were not included in the BOC Certifications submitted to show that they did not ply in domestic waters and that they proceeded directly to a foreign port after their bunkering operations in a port in the Philippines. Consequently, they did not meet the second essential element. Hence, the corresponding sales of fuel to the owners of these foreign vessels, amounting to P46,346,812.04, as shown below, are not entitled to VAT zero-rating, as summarized below:

Exhibit

Name of foreign

Bunkering

No.

Name of Customer

vessel Permit No.

Sales Amount

PRINCESS CRUISE

M/V Sapphire

195

"P-160"

LINES LIMITED

Princess

p 20,425,308.75

GREAT PAROS

M/ V Dayang

315

"P-195"

LIMITED

Century

10,289,796.00

SEIN SHIPPING CO

307

"P-198"

LTD.

M/ V Sein Phoenix

15,631,707.29

Total

P46,346,812.04 Accordingly, out of the declared zero-rated sales/ receipts of P877 ,254,255.58, only the remrun1ng amount of P830,907,443.5468 qualifies for VAT zero-rating under Section 106(A)(2)(a)(6) of the NIRC of 1997, as amended. Moreover, the said amount of P830,907,443.54 was found to be duly substantiated by VAT zero-rated Sis,69 together with the related BDRs7o and Bunkering Permits. 71 Thus, in compliance with the fourth requisite, petitioner was able to establish its valid zero-rated sales to persons engaged in international shipping for the 2nd quarter of taxable year 2020, but only to the extent ofP830,907,443.54. v 68 Declared zero-rated sales/receipts of 1'877,254,255.58 less sales denied of VAT zero-rating in the amount of 1"46,346,8 12.04.

Petrotrade Philippines, Inc. v. Commissioner of Internal Revenue

Meanwhile, since petitioner's claim pertains to zero-rated sales under Section 1 06(A)(2)(a)(6) of the NIRC of 1997, as amended, the fifth requisite concerning foreign currency inward remittance is inapplicable.

Sixth requisite: The input taxes being claimed do not appear to be transitional.

The input VAT being claimed does not appear to be transitional input tax, as understood under Section 111 (A) of the NIRC of 1997, as amended, which provides: 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.

Transitional input tax credits are statutorily intended to benefit newly VAT-registered persons, regardless of whether VAT was previously paid in the acquisitions of their beginning inventory of goods, materials, and supplies. During the period of transition from non-VAT to VAT status, the transitional input tax credits serve to alleviate the impact of the VAT on the taxpayer. 72 Absent any indication that the claimed input VAT is a transitional input tax, the Court finds that petitioner has complied with the sixth requisite for the grant of an input VAT refund.

~

Petrotrade Philippines, Inc. v. Commissioner of Internal Revenue

Seventh requisite: A portion of the input taxes claimed was due or paid.

Anent the seventh requisite, petitioner bears the burden of presenting competent and sufficient documentary evidence to establish that the input VAT claimed for refund for the 2nd quarter ofTY 2020 was actually due or paid, in accordance with Section 110(A) of the NIRC of 1997, as amended, which provides: 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:

(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[.]

The above provisions are implemented by Sections 4.110- 1 to 4.110-2 of RR No. 16-2005,73 as amended, which define input tax and enumerate the transactions for which input VAT may be credited against output VAT, as well as the manner of claiming input VAT on depreciable capital goods: SEC. 4.1 10-1. Credits for Input Tax.- 'Input tax' means the VAT due on or paid by a VAT-registered person on importation of goods or local purchases of goods, properties, or services, including lease or u se of properties, in the course of his trade or business. It shall also include the transitional input tax and the presumptive input tax determined in accordance with Sec. 111 of the Tax Code. It includes input taxes which can be directly attributed to transactions subject to the VAT plus a ratable portion of 73 SUBJECT: Consolidated Value-Added Tax Regulations of2005. tl

Petrotrade Philippines, Inc. v. Commissioner of Internal Revenue any input tax which cannot be directly attributed to either the taxable or exempt activity.

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:

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

(c) Purchase of services in which a VAT has actually been paid;

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:

(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. Relative thereto, Section 4.110-8 of RR No. 16-2005 explicitly prescribes the substantiation requirements for input tax credits, mandating that input VAT be supported by appropriate documents, such as VAT invoices, official receipts, or import documents showing actual payment of VAT, 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:

Petrotrade 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. (Emphasis supplied) From the foregoing, it is clear that, to be entitled to input tax credits or refunds, a taxpayer's claimed input VAT must be supported by: VAT invoices (for domestic purchases of goods) or official receipts [ORs] (for domestic purchases of services) issu ed in accordance with Section 113(A) and (B), 237 and 238 of the NIRC of 1997, as amended, as well as, import documents showing actual payment of VAT (for importation). In its amended Quarterly VAT Return for the 2 nd quarter of TY 2020, 74 petitioner declared input VAT in the aggregate amou nt of P119,745, 145.75 from domestic purchases and importation of goods other than capital goods, and domestic purchases of services, to wit:

Domestic Purchases of Goods Other than

Capital Goods

p 2,751,498.44 Importation of Goods Other than Capital Goods 107,708,684.78

Domestic Purchases of Services

9,284,962.53 Total Input Taxes for the period P119,745,145. 75 However, out of its declared input

VAT

of P1 19,745,145.75, petitioner sought a refund of only P92,856,719.67 (see highlighted portion}, which is based on the total claimed inpu t tax of P1 15,731 ,076. 79, as shown below: 75 74 Docket - Vol. II, p. 539, Exhibit "P-18-3". v

Petrotrade Philippines, Inc. v. Commissioner of Internal Revenue

Input Tax

Local Taxable Purchases

p 8,022,392.00

Importations

107,708,684.79

Total Purchases/Input Tax

P115, 731,076.79 % ofTotal

Sales

Sales

Allocated Input Tax

VATable sales/ receipts -

Private

19.77% p 22,874,357 .12

Zero-rated Sales

80.23% 7692,856,719.67 100.00% P115,731,076.79 In support of its claimed input VAT of P115,731 ,076.79, petitioner submitted BOC Single Administrative Documents (SADs) and Statements of Settlement of Duties and Taxes (SSDTs)77 for its importations, and various invoices, ORs, and other related documents 78 for its domestic purchases, which were all examined by the Court-commissioned Independent Certified Public Accountant (ICPA).

Based on the findings of the ICPA, the input VAT amounting to P200,637.21 79 was disallowed from the claim for lack of supporting documents.

Further verification by the Court revealed that the input VAT amounting to P1 ,400,731.65, broken down below, was disallowed for reasons stated hereunder: Exhibit No.so

Name of Supplier

Input Tax

Input tax on domestic purchases of goods supported by VAT Sis but without the notation "THIS INVOICE SHALL BE VALID FOR FIVE (5} YEARS FROM THE DATE OF ATPfPTU."

"P-427"

CHEVRON PHILIPPINES INC.

p 57, 170.58

"P-428"

CHEVRON PHILIPPINES INC.

4 1,580.03

"P-429"

CHEVRON PHILIPPINES INC.

91,624.4 1

"P-43 1"

CHEVRON PHILIPPINES INC.

2 1,512.2 1

"P-432"

CHEVRON PHILIPPINES INC.

77,448.65

"P-433"

CHEVRON PHILIPPINES INC.

29,994.26

"P-434"

CHEVRON PHILIPPINES INC.

107,130.9 1

"P-435"

CHEVRON PHILIPPINES INC.

55,351.09

"P-436"

CHEVRON PHILIPPINES INC.

56,503.62

"P-437"

CHEVRON PHILIPPINES INC.

11 1,714.16

"P-438"

CHEVRON PHILIPPINES INC.

86,325.14

"P-441"

CHEVRON PHILIPPINES INC.

66,11 1.05

"P-442"

CHEVRON PHILIPPINES INC.

25 627.58

Petrotrade Philippines, Inc. v. Commissioner of Internal Revenue

"P-443"

CHEVRON PHILIPPINES INC.

"P-444"

CHEVRON PHILIPPINES INC.

"P-445"

CHEVRON PHILIPPINES INC.

"P-446"

CHEVRON PHILIPPINES INC.

"P-447"

CHEVRON PHILIPPINES INC.

159,450.54 60,536.68 107,399.38 125,038.69 52,468.61 Input tax on domestic purchase of goods supported by VAT SI but without the TIN of petitioner and the notation "THIS INVOICE SHALL BE VALID FOR FIVE (5) YEARS FROM THE DATE OF ATP/PTU."

"P-440"

CHEVRON PHILIPPINES INC.

3,475.19 Input tax on domestic purchases of services supported by VAT ORs, but the nature of the services was not indicated therein.

"P-451"

DHL EXPRESS (PHILIPPINES) CORP.

1,250.61

"P-471"

INTERTEK TESTING SERVICES PHILIPPINES, INC. 62,923.89 Overclaimed input tax on domestic purchases of services INTERTEK TESTING SERVICES PHILIPPINES, INC.

"P-470"

(P38,388.88 per claim less P38 388.80 per OR) 0.08 PUNONGBAYAN & ARAULLO (P5,280.00 per claim

"P-483"

less P5,185.71 per OR) 94.29

Total

P1,400,731.65 Accordingly, from the total claimed input VAT of P115,731,076.79, the total disallowances amount to P1,601 ,368.86, computed as follows:

Total claimed input VAT p 115,731,076.79

Less: Disallowances

Per !CPA findings p 200,637.21 Per the Court's further verification 1 400,731.65 1 601,368.86

Valid Input VAT

P114,129,707.93 Thus, out of the total claimed input

VAT

of P115,731,076.79, only the amount of P114,129,707.93 represents petitioner's valid input VAT actually due or paid for the 2nd quarter of TY 2020. To this extent, petitioner partially complied with the seventh requisite for the grant of an input VAT refund.

Eighth requisite: Portion of the input taxes claimed is attributable to zero-rated or effectively zero- rated sales.

The eighth requisite requires that the input taxes claimed for refund be attributable to zero-rated or effectively zero-rated sales. Where a taxpayer is engaged in both zero-rated (or effectively zero-rated) sales and taxable or exempt sales, and the input taxes incurred cannot be directly and exclusively

Petrotrade Philippines, Inc. v. Commissioner of Internal Revenue attributed to any particular class of sales, the law mandates that the input taxes be allocated proportionately on the basis of sales volume.

As earlier mentioned, petitioner had both zero-rated sales and VATable sales subject to 12o/o VAT during the 2nd quarter of TY 2020, as follows:

Vatable Sales/ Receipts

p 216,103,124.35

Zero-Rated Sales I Receipts

877,254,255.58

Total Sales/Receipts

P1,093,357,379.93 Since petitioner's input VAT cannot be directly or entirely attributed to either taxable or zero-rated sales, the valid input VAT of P114,129,707.93 must be allocated proportionately based on the volume of total sales/receipts, thus: Total Vatable Sales j Receipts for the period p 216,103,124.35 Divided by the Total Sales j Receipts for the period 1,093,357,379.93 Multiplied by Total Valid Input VAT for the period 114,129,707.93

Valid Input VAT Allocated to Total Vatable

Sales/Receipts

p 22,557,845.15 Total Zero-Rated Sales/ Receipts for the period p 877,254,255.58 Divided by the Total Sales/ Receipts for the period 1,093,357,379.93 Multiplied by Total Valid Input VAT for the period 114,129,707.93

Valid Input VAT Allocated to Total Zero-Rated

Sales /Receipts

p 91,571,862.78 Thus, for purposes of compliance with the eighth requisite, only P91 ,571,862.78 constitutes petitioner's valid input VAT attributable to its total zero-rated sales/receipts for the 2nd quarter of TY 2020.

Ninth requisite: The subject input taxes were not applied against output taxes in the current or succeeding quarters.

Having determined that petitioner had input VAT attributable to its zero-rated sales/receipts, the Court now considers whether such input VAT was not applied against output VAT liabilities during the subject quarter or in the succeeding quarters, in relation to the ninth requisite for a valid refund claim.

Petrotrade Philippines, Inc. v. Commissioner of Internal Revenue

In Chevron Holdings, Inc. (Formerly Caltex Asia Limited) v. Commissioner of Internal Revenue, Bl 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°/o VATable 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. The choice between these remedies rests solely with the taxpayer-claimant, to wit:

Thus, 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 of the issuance of tax credit certificate; or (2) claimed for refund or tax credit in its entirety. It must be stressed that the remedies of charging the input tax against the output tax and applying for a refund or tax credit are alternative and cumulative. Furthermore, the option is vested with the taxpayer-claimant. (Emphasis supplied) In the present case, petitioner clearly elected the second option, as it opted to claim for refund the entire amount of input VAT allegedly attributable to its zero-rated sales/receipts, amounting to P92,856,719.67, without offsetting the same against any output VAT liability.

However, considering that petitioner was able to substantiate only P830,907,443.54 out of its total zero-rated sales of P877 ,254,255.58, only the corresponding input VAT attributable to the substantiated zero-rated sales shall be refundable. Thus, the refundable amount is limited to P86,733,967.85, computed as follows:

Valid Input VAT attributable to Total Zero-Rated

Sales I Receipts

P91 ,571,862.78

Divided by Total Zero-Rated Sales/ Receipts

877,254,255.58

Multiplied by Valid Zero-Rated Sales/Receipts

830,907,443.54

Total Refundable Amount

P86, 733,967.85 Moreover, the claimed input VAT of P92,856,719.67, which includes the refundable input VAT of P86,733,967.85, remained unutilized since it was deducted as "VAT Refund/TCC

Petrotrade Philippines, Inc. v. Commissioner of Internal Revenue claimed"82 in petitioner's amended Quarterly VAT Return for the 2nd quarter of TY 2020, thereby preventing the carry-over or application of such input taxes in the succeeding taxable periods.

Thus, petitioner is deemed to have complied with the ninth requisite for the grant of its claim for refund/tax credit of input VAT.

In fine, petitioner satisfied the ninth requisite, and has sufficiently proven its entitlement to a refund of P86,733,967.85, representing its unutilized and excess input VAT attributable to its zero-rated sales/receipts for the 2nd quarter ofTY 2020.

WHEREFORE, in light of the foregoing considerations, the present Petition for Review is

PARTIALLY

GRANTED.

Accordingly, respondent is ORDERED TO REFUND in favor of petitioner, the amount of P86,733,967.85 representing the latter's unutilized and excess input VAT attributable to its zero- rated sales J receipts for the 2nd quarter of taxable year 2020.

Associate Justice

!CONCUR:

Petrotrade Philippines, Inc. v. Commissioner of Internal Revenue

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.

iate Justice

Acting Chairperson

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution and the Special First 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. ~. -J.,t. • ...., ) - MA. BELEN M. RINGPIS-LIBAN

Presiding Justice