Franklin Baker Company of the Philippines vs. Commissioner of Internal Revenue

DECISION

BACORRO-VILLENA, L:

At bar is a Petition for Review 1 filed by petitioner Franklin Baker Company of the Philippines (petitioner) on 28 July 2022, pursuant to~ Section 3(a)/ Rule 8 , in relation to Section 3(a)(1),3 Rule 4 of the Revised U Division Docket, pp. 6-1 9.

SEC. 3. Who may appeal; period to file petition. -

(a) A party adversely affected by a decision, ruling or the inaction of the Commissioner of Internal Revenue on disputed assessments or claims for refund of internal revenue taxes, or by a decision or ruling of the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry, the Secretary of Agriculture, or a Regional Trial Court in the exercise of its original jurisdiction may appeal to the Court by petition for review filed within thirty days after receipt of a copy of such decision or ruling, or expiration of the period fixed by law for the Commissioner of Internal Revenue to act on the disputed assessments. In case of inaction of the Commissioner of Internal Revenue on claims for refund of intemal revenue taxes erroneously or illegally collected, the taxpayer must file a petition for review within the two-year period prescribed by law from payment or collection of the taxes.

SEC. 3. Cases within 1he jurisdiction of the Corm in Division. - The Court in Division shall exercise:

(a) Exclusive original over or appellate jurisdiction to review by appeal the following: ( I) Decisions of the Commissioner of lntemal 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[.]

CT A Case No. 1 0941 Franklin Baker Company of the Philippines v. Commissioner of Internal Revenue

Rules of the Court of Tax Appeals (RRCTA), seeking to appeal respondent Commissioner of Internal Revenue's (respondent's/CIR's) partial denial of its administrative claim for refund or issuance of tax credit certificate (TCC) in the amount of P86,392,554·34· The amount claimed represents excess and unutilized input value-added tax (VAT) on purchases of goods and services attributable to zero-rated sales for the first (1st), second (2°d), third (3rd) and fourth (4th) quarters of calendar year (CY) 2020.

PARTIES OF THE CASE

Petitioner is a corporation duly organized and existing under the laws of the Republic of the Philippines, with principal office at 4th Floor, Phinma Plaza, 39 Plaza Drive, Rockwell Center, Makati City.4 It is a VAT- registered taxpayer bearing Tax Identification Number (TIN) ooo-421- 318-ooo, engaged primarily in the manufacture and export of coconut products, including desiccated coconut and coconut oiLS Respondent, on the other hand, is the duly appointed CIR empowered to perform the duties of his or her office, including, among others, the duty to act upon and approve claims for refund or tax credit as provided by law, with office address at the Litigation Division, Room 703, Bureau of Internal Revenue (BIR) National Office Building, BIR Road, Diliman, Quezon City, where he or she may be served summons and other legal processes of the Court. 6

FACTS OF THE CASE

For the 1st to 4th quarters of CY 2020, petitioner filed its Amended Quarterly VAT Returns (BIR Form No. 2550-Q) through the BIR's Electronic Filing and Payment System ( eFPS) facility on the following dates:7 6

Quarter

Period Covered

1st january to March 2020 2 nd

April to June 2020

Exhib it " P-6", Division Docket. p. 304.

Exhibit "P-5", id., p. 30 I.

Par. I, Facts Admitted, JSFI, id., p. 117.

Exhibits "P- I" to "P-4", id., pp. 292-299.

Date Filed

0 4 May 2021

os May 2021

Franklin Baker Company of the Philippines v. Commissioner of Internal Revenue

July to September 2020

October to December 2020

There it declared total sales of ?3,840,312,807.83, broken down as follows:

P299,222,512.24 P3,402,413,840.44 | P138,676,455.15 | P3,840,312,807.83 For CY 2020, petitioner claimed to have accumulated excess input VAT in the total amount of P132,721,695.44 from its current domestic purchases of goods and services, importations and amortized input VAT on purchases of capital goods from previous quarters, as shown in the following tabulation:

Source of Input VAT__| 1 Quarter’ _| 2"!Quarter? | 3"! Quarter’ | 4‘ Quarter" Current input VAT

Domestic Purchases of

Goods P7,252,464.9 P6,029,832.27 | P11,008,645.51 | P16,169,270.9 P40,460,213.68

[= A I

Other than Capital Goods 960.00 468,782.00 430,898.77 900,640.77 Services 20,819,477-13 16,283,453.56 23,653,198.70 23,248,153.61 84,004,283.00 Subtotal 22,782, 067.8 4,661,84.4.21 Deferred input VAT amortized for the period

Input Tax Deferred on

Capital Goods Exceeding

PiMillion from Previous 6,759,146.99

Less: Input Tax on

Purchases of Capital

Goods exceeding PiMillion deferred for the succeeding period . 4,402,589.00 __ 548,058.19 | __2,356,557.99 | P.45,396,381.52 é Exhibit “P-1”, id., pp. 292-293.

9 Exhibit “P-2”, id., pp. 294-295.

to Exhibit “P-3”, id., pp. 296-297.

N Exhibit “P-4”, id., pp. 298-299.

CT A Case No. 1 0941 Franklin Baker Company of the Philippines v. Commissioner of Internal Revenue

On 31 March 2022, petitioner filed with respondent an Application for Tax Credits/Refunds (BIR Form No. 1914).12 In its application, petitioner sought the refund or issuance of a tax credit certificate (TCC) for its excess and unutilized creditable input VAT for the 1st to 4th quarters of CY 2020, allegedly attributable to zero-rated sales, in the aggregate amount ofP94A58,435·98.

On 28 June 2022, petitioner received the VAT Refund Notice dated

07 June 2022

13 (Refund Notice) issued by Deputy Commissioner for

Operations

Group

(DepCom) Arnel

SD.

Guballa

(Guballa).

Respondent approved the refund only in the reduced amount of P8,o6s,881.64 and correspondingly denied the remaining balance of P86,392,554·34 based on the following grounds:14 Claim per Application (BIR Form No. 1914) P94,458,435·98 Deductions from Claim:

Disallowed input VAT due to non-compliance with invoicing requirements pursuant to Sec. 113 of the [National Internal Revenue Code (NIRC) of 1997, as amended] (Annex A.1) ~(21,253 .895·03) Disallowed input VAT on importation (Annex A.2) (961,603.66) Disallowed input VAT on Big-ticket purchases (Annex A3) (8,883.413.16) Deferred input tax (Annex A.4) (346,746·32) Overclaimed/Unsupported input tax (Annex A.5) (32>356,145-47) Discrepancy in vatable sales (subject to 12% VAT) (Annex As) (12,117·94) Output tax on disposal of an asset (Annex A.s) (245.918.88) Output tax on unsupported adjustments in taxable sales (Annex A.6) (113,278.62) Adjustment on input tax attributable to exempt sales

(Annex A7)

811,449·84 Input tax attributable to sales not qualified as VAT zero- rated (Annex A.7) (23,o3o,88s.w) ~(86,392,554 · 34)

Net Allowable for VAT Refund

P8,o6s,881.64 Aggrieved by the partial denial of its administrative claim, . petitioner elevated the matter to this Court by filing its Petition fo~ 12 13 14 Exhibit "P-7", id., p. 3 14.

Exhibits "P-9" I "R-4", id., pp. 3 16-3 17. I d.

CT A Case No. 1 0941 Franklin Baker Company of the Philippines v. Commissioner of Internal Revenue

Review on 28 July 2022.

1s Initially, the case was raffled to the Court's Second Division.16

PROCEEDINGS BEFORE THE COURT

In its petition before Us, petitioner asserted its entitlement to the remaining P86,392,554·34, representing its excess and/or unutilized input VAT attributable to its alleged zero-rated sales for the 1st to 4th quarters of CY 2020, claiming that all the requisites for a successful claim for VAT refund have been duly satisfied, and alleging that: (1) it is a VAT- registered taxpayer; (2) its sales ofP3,402,413,84o-44 are valid zero-rated sales; (3) the excess and/or unutilized input VAT are attributable to its valid zero-rated sales; (4) it has excess input VAT that was not applied against any output VAT liability; (s) it timely filed its administrative and judicial claims for VAT refund; and (6) the excess and/or unutilized input VAT were properly supported by suppliers' invoices, official receipts (ORs) and other related supporting documents. On 03 August 2022, the Court issued Summons17 to respondent. However, on 07 Septe1nber 2022, respondent filed a "Motion for Extension of Time to File Answer"18 via registered mail. In its Order dated 12 September 2022, 19 the Court granted the said motion and thereby extended respondent's deadline to file an Answer until o8 October 2022. In con1pliance therewith, respondent filed his or her Answer20 through registered mail on 16 September 2022. In his or her Answer, respondent merely reiterated the grounds upon which the administrative denial was predicated and urged the Court to confine the resolution of the case to a more limited issue of whether the denial was proper given the evidence submitted at the administrative level. t

IS

16 17

IS

19 20 Supra at note I.

Composed of Associate Justice Erlinda P. Uy (Ret.), as Chairperson, Associate Justice Jean Marie A. Bacorro-Villena and Associate Justice Lanee S. Cui-David as Members. Division Docket, p. 63.

ld., p. 65.

ld., p. 69.

ld., pp. 70-78.

CT A Case No. 1 0941 Franklin Baker Company of the Philippines v. Commissioner of Internal Revenue

The case was thereafter set for pre-trial conference on 26 January 2023.

2 1 Prior thereto, respondent filed his or her Pre-Trial Brief on 17 October 2o22.22 On the other hand, petitioner submitted its Pre-Trial Brief on 20 January 2023.

23 In the meantime, respondent filed his or her "Compliance" and transmitted the BIR records, consisting of 653 pages, on 03 October 2022.24 On 27 February 2023, the parties filed their Joint Stipulation of Facts and Issues (JSFI), 2s which the Court admitted and approved in its Resolution dated 02 March 2023,26 thereby terminating the pre-trial proceedings. A Pre-Trial Order was issued on 14 March 2023.27 In the interim, on 27 February 2023, petitioner filed a "Motion to Commission an Independent Certified Public Accountant [ICPA]"28 (Motion to Commission ICPA).

Pursuant to Administrative Circular No. 01-2023 (Reorganizing the Divisions of the Court) dated 23 May 2023, the case was transferred to this Court's First Division on 29 May 2023. 29 During the 27 September 2023 hearing, the Court granted petitioner's Motion to Commission ICPA and consequently, ICPA Enrico T. Pizarro (Pizarro) took his oath and was given forty-five (45) days, or until 13 Novetnber 2023 ,3° to submit his ICPA Report.31 Thereafter, petitioner presented its second witness, ]annette N. Pel (Pel), who testified using her Judicial Affidavit (JA) dated 27 July 2022 and Supplemental JA dated 2 1 September 2023 .3' t 21 22 ,.

_, 24 25 26 27 28 29 30 31 32 See Notice of Pre-Trial Conference dated 20 September 2022, id., pp. 95-96. I d., pp. I 02-106 ld., pp. 107- 11 2.

ld., pp. 97-99.

ld., pp. 117- 124.

!d., p. !32.

ld., pp. !43-!47.

ld., pp. !25-! 27.

ld., p. 154.

The 45'h day, i.e., I I November 2023, being a Saturday, See Order dated 27 September 2023, Division Docket, pp. l 69- 17 1. !d.

CT A Case No. 1 0941 Franklin Baker Company of the Philippines v. Commissioner of Internal Revenue

On the witness stand, Pel, petitioner's Finance Manager for Statutory Tax Planning and Compliance, testified that: (1) in the ordinary course of petitioner's business as a manufacturer of coconut food products, petitioner sold the bulk of its manufactured output through export, transactions qualifying as zero-rated sales; (2) on 31 March 2022 , petitioner lodged with respondent an administrative claim for the refund or issuance of a TCC for its excess and unutilized creditable input VAT attributable to zero-rated sales for all four (4) quarters of CY 2020, in the total amount ofP94.458.435·98; (3) following that submission, the BIR issued Tax Verification Notice (TVN) No. TVN2oi8oo190825,33 likewise dated 31 March 2022, initiating the formal verification of petitioner; and (4) on 28 June 2022, petitioner received a Refund Notice, awarding petitioner a refund of only f-l8,o6s,881.64.34 In her cross-exa1nination, Pel clarified that the original copy of the Secretary's Certificate authorizing Atty. Al Bonghanoy (Atty. Bonghanoy) to represent petitioner before the BIR in the filing of the administrative claim for refund is in the BIR Records.35 No redirect exan1ination followed.36 On 13 November 2023, ICPA Pizarro filed his ICPA Report,37 which the Court noted on 23 Nove1nber 2023.38 During the hearing on 29 November 2023, petitioner presented ICPA Pizarro, who testified by way of his JA dated 22 November 2023.J9 On the witness stand, ICPA Pizarro testified that he examined petitioner's sales and receipt transactions as well as the input VAT paid or incurred during the period covered. With respect to the former, he confirn1ed petitioner's VAT -registered status, verified that its sales invoices bore the term "zero-rated" printed prominently thereon, . reconciled sales invoices against collection receipts and proof oft 33 34 35 36 37 38 39 Exhibit "P-8", id., p. 3 15.

See Judicial Affidavit (JA) dated 27 July 2022. Exhibit "P-1 6", id., pp. 45-54; See Supplemental JA dated 2 1 September 2023, Exhibit "P-24", id., pp. 160-1 63. TSN dated 27 September 2023, p. 36.

ld., p. 37.

Exhibit "P-76", Division Docket, pp. 186-2 17. See Notice of Resolution dated 23 November 2023, id., p. 224. See Order dated 29 November 2023, id., pp. 253-253-A.

CT A Case No. 1 0941 Franklin Baker Company of the Philippines v. Commissioner of Internal Revenue remittances, and found that petitioner's zero-rated sales constituted 88.6o% of its total sales of P3,840,312,537·83. As to the said zero-rated sales, he examined available original copies of suppliers' VAT invoices and official receipts relating to input VAT paid or incurred amounting to P88,913,935·22. He excluded therefrom all purchase transactions that failed to satisfy the substantiation requirements on account of incorrect amounts, incorrect VA Table classification, supplier non-VAT- registration, or missing supporting documents, and apportioned the remaining allowable input VAT among zero-rated, exempt and VA Table sales in accordance with the applicable ratio - ultimately concluding that the total unutilized excess input VAT on zero-rated sales transactions refundable to petitioner amounts to P78,6s3,5I0.61, representing 83% of petitioner's total claim ofP94AS8A35·98.40 During his cross-examination, ICPA Pizarro confirmed that based on the procedures he followed, he found that out of petitioner's total claim of P94AS8A35·98, the amount that passed substantiation requirements, i.e., the input VAT supported by proper and compliant documentation, stood at approximately PBs million. However, he explained that this figure was not yet the final refundable amount, as it still required further allocation to account for petitioner's exempt sales transactions. Because petitioner's sales for CY 2020 included both zero- rated and exempt transactions, the allowable input VAT had to be apportioned in accordance with the ratio of zero-rated to VATable and exempt sales. Further, that it was only after applying this apportionment - isolating the portion of allowable input VAT attributable exclusively to zero-rated sales - that the net refundable amount of P78,6s3,51o.6I was derived, representing the share of substantiated input VAT properly allocable to zero-rated sales transactions. 41 No redirect examination followed. 42 As there were no other witnesses to be presented, petitioner was given ten (10) days, or untilu December 2023, to file its Formal Offer of Evidence (FOE). Respondent was given five (s) days from receipt thereof~ to file comment, after which petitioner's FOE would be submitted for U 40 41 42 See JA of !CPA Enrico T. Pizarro dated 22 November 2023, Exhibit " P-75", id., pp. 227-25 1. TSN dated 29 November 2023, pp. 7-9.

ld., p. 9.

CT A Case No. 1 0941 Franklin Baker Company of the Philippines v. Commissioner of Internal Revenue resolution.43 Respondent's presentation of evidence was set on 15 February 202444 and later reset to 21 January 202545 for the testimony of Revenue Officer (RO) Jan Kevin S. Bautista (Bautista). On 01 December 2023, petitiOner filed an "Urgent Motion to Remark Evidence and Defer Submission of [FOE]"46 (Urgent Motion), without respondent's comment despite notice.47 Acting thereon, the Court granted the same and gave petitioner until15 March 2024 to file its FOE.48 In compliance therewith, on 14 March 2024, petitioner filed its FOE.49 In a Resolution dated 26 June 2024,so the Court, acting on petitioner's FOE, adn1itted petitioner's exhibits, except for Exhibits "P-n ",s• for failure to present the original for comparison; "P-31.489" for b .

bl d ''P " "P " d "P 6 8 " "P 6 " s2 e1ng urre ;

-34-1.1 to -34-1.524 an - 7-11 7 to - 7-1214 , for not being found in the case records; and "P-73",s3 for failure of the exhibit formally offered and identified to correspond with the document actually marked.

On 17 July 2024, petitioner filed a "Motion for Reconsideration"s4 (MR).t' 43 44 45 46 47 48 49 50 51 52 53 54 See Order dated 29 November 2023, Division Docket, pp. 253-253-A. I d.

See Notice of Resetting dated 18 November 2024, id., p. 427. !d., pp. 254-257.

See Records Verification dated 22 January 2024, id., p. 260. See Notice of Resolution dated 15 February 2024, id., p. 263. ld., pp. 265-29 1.

Id., pp. 405-408.

Exhibit No.

Description

"P- 11"

Cancelled Check No. 000 I 046970 drawn in favor of the Petitioner by the S IR for the amount of PhP8,065,881 .64.

Exhibit No.

Description

"P-34- 1.1" to Source documents used as basis for the Summary of Petitioner's Collection "P-34- 1.524" Receipts (Ex h. P-34) - VAT zero-rated sales.

" P-67-1 187" to

Official Receipts used as basis for Summary of Petitioner's Domestic

"P-67-12 14"

Purchases of Goods with Proper Supporting Documents. Exhibit No.

Description

"P-73"

Summary of Petitioner's Domestic Purchases of Services where the Suppliers are not VAT-registered.

Division Docket, pp. 409-4 12.

Franklin Baker Company of the Philippines v. Commissioner of Internal Revenue

On o6 November 2024, the Court denied the prayer for the admission of the excluded Exhibits "P-n" and "P-34-1.51" to "P-34-1.100" and "P-67-n87" to "P-67-1214", but granted the admission of Exhibits "P

8 " "P

" up

" "P

" "P " d -31.4 9 , -34-1.1 to -34-1.50 , -34-1.101 to -34-1.524 an "P -73". 55 During the 21 January 2025 hearing, respondent thereafter presented his or her witness, RO Bautista, who testified by way of his JA dated 16 September 2o22.56 On the witness stand, RO Bautista testified to the results of his examination as embodied in his Memorandum dated 07 June 202257 (Memorandum): first, the disallowance of input VAT amounting to P4,978,716.oo on purchases from big-ticket suppliers for non- compliance with the invoicing requirements under Annex ES8 of RMO No. 47-202059 in relation to Section 113 of the National Internal Revenue Code (NIRC) of 1997, as amended; and second, the deferment of input VAT an1ounting to P346,746.32 on imported capital goods exceeding the P1,ooo,ooo.oo monthly threshold under Section 4.110-3 of Revenue Regulations (RR) No. 13-2018 in relation to Section 11o(A)(2) of the NIRC of1997, as amended. According to him, these findings reduced the VAT Credit Audit Division (VCAD)-recomn1ended refund of P8,425,067·59 by P3s9,185·95, leaving the allowable amount of P8,o6s,881.64, computed from the original claim of P94AS8A35·98 after total deductions ofP86,033,368.39 on account of, inter alia, disallowed input VAT under Section 113 of the NIRC of1997, as amended (P21,253,895·03), unsupported input tax (f>32,356,145-47), input tax attributable to exempt sales (f>3,939,s8o.84), and input tax attributable to sales not qualified for zero-rating (P23,246,130.79). He attested that petitioner was formally notified of these results through the Refund Notice.60 Upon cross-examination, RO Bautista further clarified that:

(1) the names appearing in the TVN6• belonged to the ROs assigned to~

the VCAD -

the processing division - and not to the Tax Audit Review U 55 56 57 58 59 60 61 See Resolution dated 06 November 2024, id., pp. 422-426. See Order dated 2 1 January 2025, id., pp. 429-430. Exhibit " R-3", BIR Records. pp. 642-644.

Verification of Purchases and Input Tax.

Consolidated and Updated Guidelines and Procedures on the Processing of Claims for Value-Added Tax Credit/Refund Except Those under the Authority and Jurisdiction of the Legal Group. Exhibit " R-4", supra at note 13; JA of Jan Kevin S. Bautista dated 16 September 2022, Exhibit " R- 6··, Division Docket, pp. 82-86.

Exhibit " P-8", supra at note 33.

CT A Case No. 1 0941 Franklin Baker Company of the Philippines v. Commissioner of Internal Revenue

Division (TARD), to which he belongs; and (2) his name, therefore, could not and would not appear on the TVN's face, as his participation in the proceedings arose not at the stage of initial processing but at the subsequent stage of review. He further explained that the TARD's institutional function is precisely to review the cases already processed by VCAD and that it was in the discharge of this reviewing function that he came to prepare the Memorandum. Additionally, he expounded that the deductions he mentioned were made not against the total input VAT petitioner declared in its quarterly VAT returns for CY 2020- which he acknowledged was a figure higher than the amount actually claimed- but exclusively against the input VAT petitioner claimed and filed in its VAT Refund Application.62 No redirect examination was conducted.63 Respondent was then given five (5) days, or until 27 January 2025, to file his or her FOE.64 In c01npliance, on 22 January 2025, respondent filed his or her FOE.6S On 24 January 2025, petitioner filed a"[ Comment] On Respondent's [FOE]."66 In a Resolution dated 25 April 2025,67 the Court, acting on respondent's FOE, admitted respondent's exhibits. Accordingly, the parties were granted thirty (3o) days from notice to file their respective memoranda, after which the case would be submitted for decision.68 On 02 May 2025, respondent filed his or her Memorandum.69 Following that, petitioner filed its Memorandum on 29 May 2025.1° In a Resolution dated 0 9 July 20257 the Court submitted the case for decision. t 62 63 6~ 65 66 67 68 69 70 7 1 TSN dated 2 1 January 2025, pp. 8- 1 I.

ld., p. II.

See Order dated 2 1 January 2025. supra at note 56. Division Docket, pp. 432-435.

ld., pp. 439-442.

ld., pp. 448-449.

I d.

ld., pp. 450-459.

ld., pp. 463-499.

ld., p.50 1.

CT A Case No. 1 0941 Franklin Baker Company of the Philippines v. Commissioner of Internal Revenue

ISSUE

As can be gleaned from the parties' JSFI/ 2 the sole issue for this Court's resolution is -

WHETHER PETITIONER FRANKLIN BAKER COMPANY OF THE

PHILIPPINES IS ENTITLED TO ITS CLAIM FOR REFUND OF ITS

ALLEGED

UNUTI LIZED

INPUT VALUE-ADDED

TAX

(VAT)

INCURRED DURING THE FIRST (1sr), SECOND (2N°), THIRD (3R0) AND FOURTH (4TH) QUARTERS OF CALENDAR YEAR 2020 IN THE AMOUNT OF P86.392,554·34·

ARGUMENTS

Petitioner anchors its claim upon four (4) cardinal propositions, each of which it subn1its has been established by competent and unrebutted evidence of record that: (1) its administrative and judicial claims for refund were timely filed within the period prescribed by law;

(2) it is a duly VAT -registered entity possessed of the legal capacity to claim a refund ofunutilized input VAT; (3) it engaged in zero-rated sales during the four (4) quarters of CY 2020, generating creditable input VAT that remains unutilized; and (4) the amount properly refundable to it is P78,653,510.6L On the substantive merits of its claim, petitioner invokes Section w6(A)(2)(a)73 of the NIRC of 1997, as amended. Under the said provision, the sale and actual shipment of goods from the Philippines to a foreign country - paid for in acceptable foreign currency duly accounted for in accordance with BSP rules and regulations - constitutes an export sale subject to o% VAT. According to petitioner, it declared total zero-rated sales amounting to P 4,061,2oo,813.55 in its VAT returns for the four (4) quarters ofCY 2020, constituting 88.6o% of its total sales for the period covered, against which it incurred input VAT from current transactions totaling P132,775,695-44, of which - after~ deducting utilized input VAT and input VAT allocated to exempt sales U 72 73 See supra at note 25.

SEC. I 06. Value-Added Tax on Sale of Goods or Properties. (rl) Rate and Base ofTax. - ...

(2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate:

(a) Export Sales. - ...

CT A Case No. 1 0941 Franklin Baker Company of the Philippines v. Commissioner of Internal Revenue

- and sought a refund of P94AS8A35·98 through its VAT Refund Application. Further, no portion thereof was applied against any output VAT liability in the succeeding taxable quarters. In support of the proper refundable amount, petitioner relies upon the findings of ICPA Pizarro, who upon his independent examination of its voluminous documentary evidence, determined that after allocating the allowable input VAT properly substantiated in accordance with the ratio of zero-rated sales to total sales per quarter, the total unutilized excess input VAT on zero-rated sales transactions properly allocable and refundable to petitioner amounts to P78,6s3,510.61 (out of total allowable input VAT of P88,913,795·34, representing 83% of petitioner's total claim ofP94,458A35·98). Respondent, for his or her part, opposes the present Petition for Review upon the foundational proposition that petitioner has failed to discharge its burden of substantiating its administrative claim for refund and that, since a decision has already been rendered at the administrative level partially denying said claim (i.e., Refund Notice), the jurisdiction of this Court is strictly appellate in nature - confined not to the conduct of an original trial de novo but to the narrower inquiry of whether respondent's findings and denial are consistent with law.

Invoking the ruling of the Supreme Court in Pilipinas Total Gas, Inc. v. Commissioner of Internal Revenue,74 respondent submits that a distinction must be drawn between administrative claims appealed on account of inaction and those denied for the taxpayer's failure to submit complete supporting documents despite notice and request. For where, as here, respondent has rendered a decision on the administrative claim, petitioner bears the burden not merely of proving its entitlement to a refund before this Court, but of demonstrating that its administrative claim should have been granted in the first instance - a burden it cannot discharge by tendering before this Court documents it failed to submit at the administrative level. Quoting the Supreme Court, respondent asserts that "a taxpayer cannot cure its failure to submit a document requested by the BIR at the administrative level by filing the said document before the CTA."t 74 G .R. No. 207112, 08 December 2015.

CT A Case No. 1 0941 Franklin Baker Company of the Philippines v. Commissioner of Internal Revenue

Respondent further urges this Court to accord great weight and even finality to his or her administrative findings under the doctrine of conclusiveness of administrative findings of fact. Owing to the administrative bodies' special knowledge and expertise they are entitled to great respect and are binding upon the courts absent any clear showing of abuse, arbitrariness, or capriciousness. Respondent likewise invokes the settled principle that claims for tax refund, partaking of the nature of tax exemptions, are construed strictissimi juris against the claimant and liberally in favor of the taxing authority, regarded as in derogation of sovereign authority, and cannot be allowed unless granted in the most explicit and categorical language - a standard petitioner has manifestly failed to satisfy with respect to the disallowed portions of its claim.

RULING OF THE COURT

After a careful and thorough evaluation of the parties' respective evidence and the applicable laws, rules and regulations, the Court finds the instant petition bereft of 1nerit.

Petitioner anchors its claim on Sections no(B)7S, n2(A) and (C) of the NIRC of 1997, as amended by Republic Act (RA) No. 10963 or Tax Reform for Acceleration and Inclusion (TRAIN), which are quoted hereunder:

75 SEC. no. Tax Credits. - (B) Excess Output or Input Tax. -If at the end of any taxable quarter the output tax exceeds the input tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters: Provided, however, That any input tax attributable to zero-rated sales by a VAT-registered person may at his option be refunded or credited against othe; internal revenue taxes, subject to the provisions of ~ection 1121) As amended by Republic Act No. 936 1, '·AN ACT AMENDING SECTIO

110(8) OF THE NATIONAL

INTERNA L REVENUE CODE Of- 1997. AS AME OED. AND FOR OTHER PURPOSES'".

CT A Case No. 1 0941 Franklin Baker Company of the Philippines v. Commissioner of Internal Revenue

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 w6(A)(2)(a)(1), (2) and (b) and Section w8(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero- rated sale and also in taxable or exempt sale of goods 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, fina lly, That for a person making sales that are zero-rated under Section w8(B)(6), the input taxes shall be allocated ratably between his zero-rated and non-zero-rated sales. (C) Period within which Refund oflnput Taxes shall be Made.- In proper cases, the Commissioner shall grant a refund for creditable input taxes within ninety (go) 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 pa rtia l denial of the claim fo r 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 ofTax 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 (go)-day period shall be punishable under Section 269 of this Code.76 In Commissioner of Internal Revenue v. Deutsche Knowledge Services Pte. Ltd.77 (Deutsche Knowledge Services), the Supreme Court laid down the requisites for the entitlement to tax refund or credit of excess input VAT attributable to zero-rated sales, to wit:t 76 77 Emphasis supplied and italics in the original text. G.R. No. 234445, 15 July 2020; Citations omitted.

CT A Case No. 1 0941 Franklin Baker Company of the Philippines v. Commissioner of Internal Revenue

Under Section 4.112-1(a)

of Revenue

Regulations

No.

(RR)

16-os, otherwise known as the Consolidated VAT Regulations of 2005, in relation to Section 112 of the Tax Code, a claimant's entitlement to a tax refund or credit of excess input VAT attributable to zero-rated sales hinges upon the following requisites: "(1) the taxpayer must be VAT-registered; (2) the taxpayer must be engaged in sales which are zero-rated or effectively zero-rated; (3) the claim must be filed within two years after the close of the taxable quarter when such sales were made; and (4) the creditable input tax due or paid must be attributable to such sales, except the transitional input tax, to the extent that such input tax has not been applied against the output tax." Applying the foregoing legal framework, the Court proceeds to determine whether petitioner complied with each of the aforementioned requisites. For an orderly discussion, the Court shall begin with the fd requisite and followed by the 1st and 2 nd requisites.

THIRD (3RD) REQUISITE:

THE CLAIM MUST BE FILED WITHIN

TWO (2) YEARS AFTER THE CLOSE OF

THE TAXABLE QUARTER WHEN SUCH

SALES ARE MADE.

Under Section u2(A) and (C)78 of the NIRC of 1997, as amended by TRAIN, the administrative claim for refund of unutilized input VAT must be filed with the BIR within two (2) years after the close of the taxable quarter when the zero-rated or effectively zero-rated sales are made. Following the expiration of respondent's ninety (9o)-day period to act on the administrative claim, the taxpayer has 30 days within which to elevate the matter to this Court.

Petitioner's present claim covers the 1st to 4th quarters of CY 2020. Counting two (2) years frmn the close of the respective taxable quarters, petitioner had until the following dates to file its administrative claim:

Period Covered

Close of the Taxable

Last Day to File

Quarter

Administrative Claim

15r quarter ( 01 January to

31 March 2020

31 March 2022

31 March 2020)

78 Supra atp. l 5.

CT A Case No. 1 0941 Franklin Baker Company of the Philippines v. Commissioner of Internal Revenue

2nd quarter (01 April to

3 0 June 2020

30 June 2022

30 June 2020)

3rd quarter ( 01 July to 30

30 September 2020

30 September 2022

September 2020)

4th quarter (01 October

31 December 2020

3 1 December 2022 to 31 December 2020)

The records show that petitioner filed its ad1ninistrative claim for VAT refund on 31 March 202279 - well within the two (2)-year prescriptive period for all four (4) quarters of CY 2020. The administrative claim was, accordingly, timely filed. As to petitioner's judicial claim, respondent had 90 days from the sub1nission of the administrative claim- or until29 June 2022- within which to act. Petitioner received the Refund Notice on 28 June 202280 and had 30 days from that date to file the instant Petition for Review. On 28 July 2022,81 petitioner filed the present petition thus falls squarely within the 30-day period. Accordingly, the judicial claim was therefore timely filed.

The Court accordingly finds that petitioner satisfied the fd requisite.

FIRST (IST) REQUISITE:

PETITIONER MUST BE VALUE-ADDED

TAX (VAT)-REGISTERED.

The records leave no room for dispute on this point. Petitioner is a VAT -registered taxpayer with TIN ooo-421-318-ooo, as evidenced by its BIR Certificate of Registration (COR) No. xRCoooo995351E.82 Petitioner thus complied with the 1st requisite.

SECOND (2ND) REQUISITE:

PETITIONER MUST BE ENGAGED IN

SALES WHICH ARE ZERO-RATED OR

EFFECT! VELY ZERO-RATED. t 79 80 81 82 Supra at note I 2.

Supra atnote 13.

Supra at note I.

Exhibit " P-5", supra at note 5.

CT A Case No. 1 0941 Franklin Baker Company of the Philippines v. Commissioner of Internal Revenue

The 2 nd requisite demands that the taxpayer be engaged in zero- rated or effectively zero-rated sales. Petitioner reports total zero-rated sales for CY 2020 in the amount of P3,402,413,840-44, consisting of two

(2) broad categories: (1) sales to entities registered with the Philippine Economic Zone Authority (PEZA) or the Board of Investments (BOI) - Renewable Energy (RE), in the amount ofP1os,622,368.31; and (2) direct export sales to nonresident foreign corporations (NRFCs), in the amount ofP3,296,791,472.13, as shown in the following tabulation:83 I. Sales registered with PEZA, and BOI-RE

Customer

Country of

Registration

Amount

Destination

Type

I

BIOENERGY 8 CORPORATION

BOI-RE

P70,251,832.40

2 ECONERGY CORPORATION

BOI-RE

3.445.470.00 3 FRANKLIN BAKER,

Philippines

PEZA

INCORPORATED

31,093.116.28 4

PUREBEV INTERNATIONAL

-

CORPORATION

831,949·63

Total Sales

Pws,622,368.31 II. Sales to NRFCs {Direct export sales)

Customer

Country of Destination

Amount

1

AB BODEN & LINDEBERG

Sweden

f>4.459,267.12 2 AGROIMPEX LTD.

Georgia

13,278.407.10 3

AIC INGREDIENTS SDN BHD

Malaysia

31,621,639·23 4 AIN FOODS CO. LTD.

Japan

7.674.821.90

ALL MARKET SINGAPORE PTE

5 LTD.

Singapore

72.490,045-20 6

ALMOND LABORATORIOS

Spain

5.897.435.52 7

ALVAS IR KO

Lithuania

7o8,596.o5 8 ARASCO FOOD B.V.

Romania

74,280,233-81

ASIAN SEA CORPORATION PUBLIC

Thailand

6,455,197-20 9

COMPANY LIMITED

10 ATKINSON CANDY CO.

United States

2,')2'),142-40 11 AUGUsr TOPFER & CO.

Germany

6,667.}32.15 12 BA SPORTS NUTRITION, LLC

United States

196,920-49 13 BAGLEY ARGENTINA S.A.

Argentina

3,184,056.15 14 BAGLEY CHILE S.A.

Chile

1,675.723-41 BAKERS CHOICE PREMIUMS SON.

Malaysia

13,142,596.80 15 BHD.

16

BARISTIRAN BAHARAT VE

Turkey

86,359,048.11 KIMYEVI MADDELER TIC A.S.

BASE AND MIX GENERAL

United Arab Emirates

1,412,344·56

17 TRADING LLC

18

BATORY FOODS

United States

7,855,516.76 19 BAVOSI S.A.

Argentina

20,195.911.25 20

BLASCO SRL

Paraguay

567.951.00 21

BOUNTIFUL VENTURESSDN BHD

Malaysia

133.544·64 22 BROOKE HOLDINGS LTD.

New Zealand

568,883.67 23

BROOKLYN BANANA

United States

21,350,151.921:.': ~ v

Franklin Baker Company of the Philippines v. Commissioner of Internal Revenue

CAD BURY CONFECTIONERY

Malaysia

24

MALAYSIA SON BHD

25 CALDIC CANADA INC.

Canada

26 CAMBRIDGE COMMODITIES, INC.

United States

27

CARRINGTON FARMS

United States

28 CATZ INTERNATIONAL B.V.

Netherlands

29

CHOCOLATES GAROTO LTDA

Brazil

CNS CONFECTIONERY PRODUCTS,

United States

30

LLC

COPRA INDUSTRIA ALIMENT! CIA

Brazil

31

LTDA

32 DIM ERCO COMERCIAL S.A.

Chile

33

DO-IT BV

Netherlands

14

DONG AM CORPORATION

Korea, ReQublic of 35

DUCOCO ALIMENTOS SA

Brazil

36 ED & COMPANY LTD.

Korea, R~ub lic of 37

EKOPIRK

Lithuania

38

ELEVEN & SUN GMBH

Iran (Islamic Republic of)

39 EMPRESAS CAROZZI S.A.

Chile

40 ETG S.A.

Par~gucty 41

EURO CHEMO-PHARMA SON BHD

Malaysia

EXCLUSIVE FOODS

United States

42 INTERNATIONAL L.P.

43 FAIRTECK HOLDING PTE LTD.

United Kingdom

FOOD COATINGS

Thailand

44

INTERNATIONAL LIMITED

45

FRUTOS Y ESPECIAS SAC

Peru

46 FXM INTERNATIONAL, LLC

Mexico

47

GIUSTO FARAVELLI

Italy_

48 GOOD-FOOD POSTAVKA, LLC

Russian Federation

GRUPO INDUSTRIAL

Guatemala

49 ALIMENTICIO S.A.

50

GUVI FOODS SA DE CV

Mexico

51 HANCOLE INDUSTRI ES LIMITED

Hong Kong

52 HELlOS INGREDIENTS LTD.

United Kingdom

53

HENDAMI TRADING EST

Saudi Arabia

54

HERSHEYTRADING GmbH

Switzerland

55 Hj LANGDON & CO. (NZ) LTD.

New Zealand

56 INABATA KORYO CO. LTD.

japan 57 INES GLOBAL CO. LTD.

Korea, Democratic People's

Republic

58

INTERNATIONAL CENTER GROUP

Kuwait

FOR FOOD STUFF CO.

59

INTERNATIONAL COCONUT CRP

United States

6o

IPRODESA SAS

Colombia

61 ISH IHARA CO. LTD.

Japan

62

ITI TROPICALS

Singapore

63 jENALI TRADING PTY LTD.

Australia

64 KAURI ANZ LTD.

Australia

65

KAURI NEW ZEALAND LIMITED

New Zealand

66

LA TOURANGELLE ARTISAN OILS

United States

67

LANGDON INGREDIENTS

Australia

68

LODISERSA

Argentina

69 LOIRET & HAENTJENS S.A.

France

70 MARX BROTHERS, INC.

United States

439.412.23 20,792,770.23 2,345.579·25 4.499.550-72 30,270,263.30 '54,16"Vi'59·14 11,776,081.82 11,399.892-40 6,908,663.84 32,036.907.04 4.441.947-11 11,046,188.16 672,803.10 2,4')0,412.64 3,507,050.62 1,481,000.')') 4,8g6,398.oo 214.449-21 15,797.444·79 235.984.744-4'5 668,481.95 1,')86,676.00 10,7'51.5'57-7'5 9,825,616.18 2,13'),112.00 8,J68,901.04 '),921,J41-80 921,668-44 81,363,166.58 14,091.378-42 200,379.749·01 2,168,o88.12 288,480.00 519.438.18 1,395,662-40 37.309.317.88 8,812,878.16 4.030,538·52 53.852.442.63 1,682,322-41 6,827,200.93 2,988,524-49 18,899,162.20 1,045.485·55 6,276.458.24 98,326,627·39 ~ 99.453.982.97 ~ Franklin Baker Company of the Philippines v. Commissioner of Internal Revenue 71

MATIAS ARIEL OTERO

Argentina

72 MELAR S.A.

Argentina

73 MOLITALIA S.A. (CAROZZI)

Peru

MONDELEZ KINH DO VIETNAM

Vietnam

74

JOINT STOCK COMPANY

75 MULTITARGET S.A.

Uruguay

76

NATIONAL BISCUIT INDUSTRIES

Oman

LTD SAOG

77 NATURAL RAW C PTY LTD.

Australia

78

NESTLE BRASIL LTDA

Brazil

79

NESTLE CHILE SA

Chile

8o NESTLE DE COLOMBIA S.A.

Colombia

81

NESTLE DUBAI MANUFACTURING

United Arab Emirates

LLC

82 NESTLE VENEZUELA S.A.

Venezuela

83

NEWLY WEDS FOODS

Thailand

(THAILAND) LIMITED

84 NEWLYWEDS FOODS INDIA PVT.

India

LTD.

85 NHONG SHIM KELLOGG CO., LTD.

Korea, Republic of 86

NUTIVA

United States

87 NUTRAKEM SDN. BHD.

Malaysia

88 NUTRICION Y ALIMENTOS S.A.

Chile

8g

OMAR BURGOS ESTEBAN

Colombia

go

ONE TIME CUSTOMER

japan 91 ORGANIC PARTNERS INT'L, LLC

United States

92

PALETERIA LA MICHOACANA

United States

93 PATEN INGREDIENTS PTE LTD.

South Africa

94 PHOON HUAT PTE LTD.

Singapore

95

PT BUMI MENARA INTERNUSA

Indonesia

g6 PT. HON CHUAN INDONESIA

Indonesia

97 PURE SALES INC.

United States

g8 PURITY ORGANIC, LLC

United States

99 R & B FOOD SUPPLY CO. LTD.

Thailand

R & B FOOD SUPPLY PUBLIC CO

Thailand

100

LIM ITED

101 RUKA PAJNE S.R.L.3

Argentina

102 SANFRUT LTD.

Switzerland

103

SCALZO FOOD INDUSTRIES

New Zealand

SEAGULL TRADING COMPANY

China

104 LTD.

105 SEVILLE PRODUCTS LIMITED

United Arab Emirates

106 SHINN CHERNG CO.

Taiwan

107 SILCOM S.A.

Uruguay

108 SMIRKS LTD.

United States

109 SOCOCO S.A. IND. ALIMENTICIAS

Brazil

110 SOLDO HNOS. SA

Uruguay

111 SORPOL LTD.

Israel

112 SUNCO FOODS, INC.

Canada

113 SUPER DE ALIMENTOS S.A.S

Colombia

114 TABATA INC.

Japan

115

TAII<A SEAFOOD CORPORATION

Vietnam

116

TECHNO CHEM TRADING

Bahrain

117 TECNISPICE, S.A.

El Salvador

1,28o,885.86 3,043,211.22 1,218,561.18 2,192,099·24 20,612,945·06 3,100,880-46 4.737,013·33 1,764,904.28 8,268,208.10 7.740,387.00 59.741.10 2,671,058·73 14,608,412.11 8,503·58 1,290.379-18 3.341,670.00 81,019.10 5.418,122.58 13,763.498·93 2,820.98 1,586,64o.oo 3,386,944-00 212,149,187-92 5_98,658.25 8,957,802.27 66,176-98 5,183,123.60 10,677,832.23 ng,893.8o 734.953·93 3,088,688.91 6,498.435-71 89.913,655·31 77,388,470.27 1,918,030.08 1,983,826.04 2.)90,099-40 33.457.313.76 20,140,220.00 2,483,215-15_ 23 .. 741,61').22 14,486,215-70 8, 754,218-5.5_ 1,700,638.64 268,031.84 1,408,264.14 ~ 1,152,8o8.56 .;:

D

Franklin Baker Company of the Philippines v. Commissioner of Internal Revenue n8

THAI COCONUT PUBLIC

Thailand

COMPANY LIMITED

THAI ROYAL FROZEN FOOD CO.

Thailand

119 LTD.

120

THE HONEST KITCHEN

United States

121 TRAILBLAZER FOODS

United States

122 UFM FOOD CENTRE CO. LTD.

Thailand

UNIPEX DAIRY PRODUCTS CO

United Arab Emirates

123

LTD (FOODSTUFFS BRANCH

124 URC (THAILAND) CO. LTD.

Thailand

125

Varistor AG

Switzerland

126

VERDE INTERNATIONAL TRADING

Hong Kong

LTD.

127

VOICEVALE GMBH

Germany

128 VOORTMAN COOKIES LTD.

Canada

129

YME KUIPER BY

Netherlands

130

YOURHARVEST AG

Switzerland

131 RED V FOODS CORP.

Philippines84

Total Direct Export Sales

TOTAL ZERO-RATED SALES

An examination of each category will be in order. I.

SALES

TO

PHILIPPINE

ECONOMIC ZONE AUTHORITY

(PEZA)/

BOARD

OF

INVESTMENTS

(BOI)-

REGISTERED ENTITIES.

A.

Sales to Franklin Baker, Incorporated 34.680,913·99 4.783.534·76 7.741,624-35 10,969.782.72 2,902,242.00 3·374,205.88 2,117,968.28 6,146.555·76 1,011,020,277 ·46 29,042.)15·58 2,687.924.25 3.830,616 .17 1,491,773-40 26,842,108.00 /3,296,791,472.08 P3,402,413,84o. 3985 Petitioner avers that its sales to Franklin Baker, Incorporated (FBI), a purportedly PEZA-registered enterprise, in the amount of P3I,093,n6.28, qualify for VAT zero-rating pursuant to Sections w6(A)(2)(a)(5) and 1o8(B)(3) of the NIRC of 1997, as amended by TRAIN, which read:

84 85 SEC. 106. Value-added Tax on Sale ofGoods or Properties. - (A) Rate and Base ofTax. - 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 sellingt Country of destination per sales invoice is USA but indicated as Philippines in the summary of zero- raled sales schedule of the !CPA.

With a P0.05 difference against the total zero-rated sales per VAT Returns.

CT A Case No. 1 0941 Franklin Baker Company of the Philippines v. Commissioner of Internal Revenue 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 (o%) rate:

(a) Export Sales. - The term 'export sales' means:

(s) Those considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987, and other special laws[.]

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

(3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (o%) rate[.]86 The special law applicable to this case is RA 7916,87 as amended by RA 8748,88 otherwise known as "The Special Economic Zone Act of 1995". Sections 8 and 24 thereof read:

86 87 88 SEC. 8. ECOZONE to be Operated and Managed as Separate Customs Territory. - The ECOZONES shall be managed and operated by the PEZA as separate customs territory. The PEZA is hereby vested with the authority to issue certificates of origin for products manufactured or processed in each~ ECOZONE in accordance with the prevailing rules of origin, and the U Emphasis supplied and iralics in rhe original rext.

A

ACT PROVIDING FOR THE LEGAL FRAMEWORK AND MECI-IA ISMS FOR THE CREATION. OPERATION, ADMINISTRATION, AND COORDINATION OF SPECIAL ECONOMIC ZONES IN THE PIIILI PPINES, CREATING FOR TH IS PURPOSE, THE PHILIPPINE ECONOM IC ZONE AUTHORITY (PEZA), AND FOR OTHER PURPOSES.

A

ACT AMENDING REPUBLIC ACT NO. 7916. OTHERWISE KNOWN AS THE ·'SPECIAL ECONOMIC ZONE ACT 01' 1995".

CT A Case No. 1 0941 Franklin Baker Company of the Philippines v. Commissioner of Internal Revenue pertinent regulations of the Department of Trade and Industry and/or the Department of Finance.

SEC. 24. Exemption from National and Local Taxes. - Except for real property taxes on land owned by developers, no taxes, local and national, shall be imposed on business establishments operating within the ECOZONE. In lieu thereof, five percent (s%) of the gross income earned by all business enterprises within the ECOZONE shall be paid and remitted as follows:

(a) Three percent (3%) to the National Government;

(b) Two percent (2%) which shall be directly remitted by the business establishments to the treasurer's office of the municipality or city where the enterprise is located.89 Since the ECOZONE is viewed as a foreign territory by legal fiction, sales of goods and services made by a VAT -registered person in the Philippine custmns territory to an entity registered and operating within the ECOZONE are considered exports to a foreign country subject too% VAT. In the case of Commissioner of Internal Revenue v. Toshiba Information Equipment (Phils.), Inc.,9° the Supreme Court elucidated thusly- 89 90 This Court agrees, however, that PEZA-registered enterprises, which would necessarily be located within ECOZONES, are VAT- exempt entities, not because of Section 24 of Rep. Act No. 7916, as amended, which imposes the five percent (s%) preferential tax rate on gross income of PEZA-registered enterprises, in lieu of all taxes; but, rather, because of Section 8 of the same statute which establishes the fiction that ECOZONES are foreign territory . ... An ECOZONE or a Special Economic Zone has been described as- ... [S]elected areas with highly developed or which have the potential to be developed into agro-industrial, industrial, tourist, recreational, commercial, banking, investment and financial centers whose metes and bounds are fixed or delimited by

Presidential

Proclamations. An ECOZONE may contain any or all of~ the following: industrial estates (IEs), export processing U Emphasis supplied and italics in the original text. G .R. No. 150154, 09 August 2005; Citations omitted and emphasis supplied.

CT A Case No. 1 0941 Franklin Baker Company of the Philippines v. Commissioner of Internal Revenue zones (EPZs), free trade zones and tourist/recreational centers.

The national territory of the Philippines outside of the proclaimed borders of the ECOZONE shall be referred to as the Customs Territory.

Section 8 of Rep. Act No. 7916, as amended, mandates that the PEZA shall manage and operate the ECOZONES as a separate customs territory; thus, creating the fiction that the ECOZONE is a foreign territory. As a result, sales made by a supplier in the Customs Territory to a purchaser in the ECOZONE shall be treated as an exportation from the Customs Territory. Conversely, sales made by a supplier from the ECOZONE to a purchaser in the Customs Territory shall be considered as an importation into the Customs Territory. Given the preceding discussion, what would be the VAT implication of sales made by a supplier from the Customs Territory to an ECOZONE enterprise?

The Philippine VAT system adheres to the Cross[-]Border Doctrine, according to which, no VAT shall be imposed to form part of the cost of goods destined for consumption outside of the territorial border of the taxing authority. Hence, actual export of goods and services from the Philippines to a foreign country must be free of VAT; while, those destined for use or consumption within the Philippines shall be imposed with ten percent (w%) VAT.9' The Cross-Border Doctrine mandates "that no VAT shall be imposed to form part of the cost of goods destined for consumption outside the territorial border of the taxing authority".92 On the other hand, the Destination Principle requires that "goods and services are taxed only in the country where these are consun1ed".93 Together, they compel the conclusion that a sale is zero-rated only when the goods are consumed, or the services rendered, within the ECOZONE - that fictional foreign territory carved out by law. Based on the foregoing, in order for a sale of goods and services to . PEZA-registered entities to qualify for VAT zero-rating under Sectionst 91 92 93 Now at 12% Value-Added Tax (VAT) rate.

Commissioner of Internal Revenue v. Filminera Resources Corporation, G.R. No. 236325, 16 September 2020.

I d.

CT A Case No. 1 0941 Franklin Baker Company of the Philippines v. Commissioner of Internal Revenue lo6(A)(2)(a)(s) and 1o8(B)(3) of the NIRC of 1997, as amended, the following essential elements must be present -

1. The sale was made by a VAT -registered person;

2. The sale of goods must be to a PEZA-registered entity; and 3· It must be shown that the goods were consumed, or the services were rendered in the ECOZONE.

As determined earlier, petitioner is a VAT -registered entity. Hence, the first essential element was already fulfilled. Relative to the second essential element, petitioner did not formally offer in evidence FBI's PEZA registration or certification for CY 2020. While a thorough and meticulous examination of the BIR Records discloses that photocopies of FBI's PEZA Certifications, dated 20 March 202094 and 22 December 202o,9s were incorporated therein, the Court cannot accord them evidentiary weight. The governing rule is categorical - Section 34, Rule 132 of the Revised Rules on Evidence (RRE), as amended, which provides that "[t]he court shall consider no evidence which has not been formally offered .. . [t]he purpose for which the evidence is offered Inust be specified." It is settled that the formal offer is not a procedural nicety to be dispensed with at the Court's convenience. It is intertwined with the constitutional guarantee of due process since the parties must be given the opportunity to review the evidence submitted against them and take the necessary actions to secure their case.96 Likewise, it is the mechanism by which parties apprise the Court the purpose for which evidence is submitted.97 Even if the Court were to relax the formal offer requirement, the exception is narrow and demands the concurrent satisfaction of two stringent conditions: (1) the evidence must have been duly identified by testimony duly recorded in the proceedings; and (2) the same must have been incorporated in the records of the case. 98 While the photocopies may have found their way into the record, no witness specifically. identified them during the proceedings. The first condition is, thusi[f' 94 95 96 97 98 BIR Records (Exhibit "R-5"), p. 154.

ld., p. 153.

Joenar Vargas Agravante v. Commission on Elections, et a/., G.R. No. 264029, 08 August 2023. See Republic of the Philippines v. Fe Roa Gimenez and Ignacio B. Gimenez, G.R. No. 174673, I I January 20 16.

Commissioner of Internal Revenue v. Jeny Geier, G.R. No. 192023, 2 1 November 2018.

CT A Case No. 1 0941 Franklin Baker Company of the Philippines v. Commissioner of Internal Revenue unmet and the relaxation of the formal offer rule IS unavailable to petitioner.

Additionally, even on the assumption that We were to admit these certifications, petitioner's claim would still fail on the third essential element- which petitioner made no effort whatsoever to establish. On the third element, the Court draws indispensable guidance from the Supreme Court's pronouncements in Coral Bay Nickel Corporation v. Commissioner of Internal Revenue99 (2016 Coral Bay), where the High Court denied Coral Bay's appeal upon finding that the locus of the subject purchases of goods and services was within the ECOZONE and that such purchases were destined for consumption therein. Consequently, the transactions should have been zero-rated, and Coral Bay was not entitled to claim a refund for purchases already falling within the ambit of o% VAT, to wit: The petitioner's principal office was located in Barangay Rio Tuba, Bataraza, Palawan. Its plant site was specifically located inside the Rio Tuba Export Processing Zone- a special economic zone (ECOZONE) created by Proclamation No. 304, Series of 2002, in relation to Republic Act No. 7916. As such, the purchases of goods and services by the petitioner that were destined for consumption within the ECOZONE should be free of VAT; hence, no input VAT should then be paid on such purchases, rendering the petitioner not entitled to claim a tax refund or credit. Verily, if the petitioner had paid the input VAT, the CTA was correct in holding that the petitioner's proper recourse was not against the Government but against the seller who had shifted to it the output VAT following RMC No. 42-03, which provides[.]

Apropos is the recent case of Coral Bay Nickel Corporation v.

Commissioner of Internal Revenue

100 (2025 Coral Bay), the Supreme Court sustained Coral Bay's appeal, holding this time that Coral Bay had sufficiently established that the goods in question were consumed, and the services rendered, outside the ECOZONE, viz: t 99 100 G.R. No. 190506, 13 June 20 16; Citations omitted. G.R. Nos. 25 1333-34, 05 March 2025; Citations omitted and emphasis supplied.

CT A Case No. 1 0941 Franklin Baker Company of the Philippines v. Commissioner of Internal Revenue

VAT is a tax on consumption. As such, the cross-border doctrine and the destination principle apply. Indeed, the situs of VAT is determined by where goods are consumed or where services are rendered.

Applied to the present case, the CTA En Bane erred in treating Coral Bay as an absolutely VAT-exempt entity and declaring that its purchase of services outside of the ecozone should likewise be subject to zero-rating.

Having been consumed outside ofthe ecozone, the cross-border doctrine finds no application. The same could not have been deemed "exported" to Coral Bay. Having been rendered within the Philippines' customs territory, it is naturally subject to national internal revenue laws such as VAT.

What emerges unmistakably from both Coral Bay rulings is that the status of the buyer as a PEZA-registered entity does not, by itself and without more, ipso facto render the sale zero-rated. The VAT treatment turns decisively on the locus of consumption - where the goods were ultimately consumed or the services ultimately rendered. This is not a technicality; it is the very animating principle of the Cross-Border Doctrine and the Destination Principle.

In the present case, petitioner never specifically alleged, much less proved, that its sales to FBI were consumed within the ECOZONE. A careful and perspicacious review of petitioner's pleadings, judicial affidavits and pieces of evidence yields no averment to this effect - not so much as a passing assertion that the desiccated coconut products it sold to FBI were received, processed, or consumed within the confines of the relevant ECOZONE. The mnission is not a n1ere oversight. It is a fatal gap in petitioner's evidentiary record. Petitioner's invoiceS 101 themselves are of no help - they describe the nature of the subject transactions simply as "desiccated coconut," without any indication of~ destination, delivery point, or place of consumption. Petitioner likewise U 101 Exhibits "P-3 1.45", "P-3 1.57", "P-3 1.6 1 ", "P-31 .63", "P-3 1.75", "P-3 1.80", "P-3 1.9 1 ", "P-3 1.92", "P-3 1.93", "P-3 1.94", "P-3 1.95", "P-3 1.134", "P-31.402", "P-3 1.403", "P-31.40 1 ", "P-3 1.442", "P-3 1.443", "P-3 1.459", "P-3 1.460", "P-3 1.472", "P-31.473", "P-3 1.480", "P-31.48 1 ", "P-3 1.482", "P-3 1.509", "P-3 1.5 1 0", "P-3 I .5 1 I", "P-3 1.5 12", "P-3 I .5 13 ", "P-3 1.527", "P-3 1.526", "P-3 1.529", "P-3 1.536", "P-3 1.765", "P-3 1.895", "P-3 1.903", "P-3 1.923", "P-3 1.924", "P-3 1.972", "P-3 1.973", "P-3 1.981 ", "P-3 1.988", "P-3 1.1003 ", "P-3 1.1 0 19", "P-3 1.1 037", "P-3 1.1 186", "P-3 1.1187", "P-3 1. 1207", "P-3 1.1344", "P-3 1. 1345", "P-3 1.1464" and "P-3 1 .1650", USB (Exhibit "P-77").

CT A Case No. 1 0941 Franklin Baker Company of the Philippines v. Commissioner of Internal Revenue failed to present the relevant purchase orders, sales contracts, or delivery records that might have shed light on where the goods were ultimately consumed. In the absence of such foundational evidence, the Court is left without any reliable basis upon which to conclude that the third element has been satisfied.

Claims for tax refund or TCC occupy a unique and demanding position in our jurisprudence. They are scrutinized with exacting rigor -strictissimi juris - precisely because they partake of the nature of a claim for tax exemption and run counter to the State's inherent right to tax.

102 Petitioner's failure to discharge its burden of proof on all essential elements - and particularly on the element of locus - is fatal.

The sales to FBI, in the total amount of P3I,093,n6.28, therefore do not qualify for VAT zero-rating.

B.

Sales to Bioenergy 8 Corporation, Econergy Corporation and

Purebev International Corporation

Petitioner further contends that its sales to Bioenergy 8 Corporation (Bioenergy) and Econergy Corporation (Econergy), characterized as RE Developers, likewise qualify for VAT zero-rating pursuant to Section 15(g) of RA 9513, which reads: 102

CHAPTER VII

GENERAL INCENTIVES

Section 15. Incentives for Renewable Energy Projects and Activities. - RE developers of renewable energy facilities, including hybrid systems, in proportion to and to the extent of the RE component, for both power and non-power applications, as duly certified by the DOE, in consultation with the BOI, shall be entitled to the following incentives:

(g) Zero Percent Value-Added Tax Rate. - The sale of fuel or power generated from renewable sources of energy such as, but not - limited to, biomass, solar, wind, hydropower, geothermal, oceant See Coca-Cola Bolllers Philippines, Inc. v. Commissioner of Internal Revenue, G.R. No. 222428, 19 February 20 18, citing Atlas Consolidated Mining and Development Corporation v. Commissioner of Internal Revenue, G.R. No. 159490, 18 February 2008.

Franklin Baker Company of the Philippines v. Commissioner of Internal Revenue energy and other emerging energy sources using technologies such as fuel cells and hydrogen fuels, shall be subject to zero percent (o%) value-added tax (VAT), pursuant to the National Internal Revenue Code (NIRC) ofl997, as amended by Republic Act No. 9337· All RE Developers shall be entitled to zero-rated value added tax on [their] purchases of local supply of goods, properties and services needed for the development, construction and installation of its plant facilities.

This provision shall also apply to the whole process of exploring and developing renewable energy sources up to its conversion into power, including but not limited to the services performed by subcontractors and/or contractors!0 3 Moreover, Section 13(G)(b)(c), Rule 5 of Department Circular No. DC2oo9-05-ooo8 dated 25 May 2009, or the Implementing Rules and Regulations (IRR) of RA 9513, provides:

103 I ().I SEC. 13. Fiscal Incentives for Renewable Energy Projects and

Activities

DOE-certified existing and new RE Developers of RE facilities, including Hybrid Systems, in proportion to and to the extent of the RE component, for both Power and Non-Power Applications, shall be entitled to the following incentives:

G. Zero Percent Value-Added Tax Rate The following transactions/activities shall be subject to zero percent (o%) value-added tax (VAT), pursuant to the National Internal Revenue Code (NIRC) of 1997, as amended by Republic Act No. 933T

(b) Purchase of local goods, properties and services needed for the development, construction, and installation of the plant facilities of REDevelopers; and

(c) Whole process of exploration and development of RE sources up to its conversion into power, including, but not limit~, the services performed by subcontractors and/or contractorS. 10 4 f) Italics in the original text and emphasis supplied. Italics in the original text and emphasis supplied.

CT A Case No. 1 0941 Franklin Baker Company of the Philippines v . Commissioner of Internal Revenue

Based on the foregoing provisions, all RE Developers are entitled to zero-rated VAT on its purchases of local supply of goods, properties and services needed for the development, construction and installation of plant facilities. Furthermore, the law declares that the VAT zero-rating applies to the whole process of exploring and developing renewable energy sources up to its conversion into power, including but not limited to the services performed by subcontractors and/or contractors. Relative thereto, the same IRR of RA 9513 further states the conditions in availing the incentives and other privileges under the said law. Section 18(A) and (B) thereof reads:

SEC. 18. Conditions for Avai/ment of Incentives and Other

Privileges-

A. Registration/ A ccreditation with the DOE For purposes of entitlement to the incentives and privileges under the Act, existing and new RE Developers, and manufacturers, fabricators, and suppliers of locally-produced RE equipment shall register with the DOE, through the Renewable Energy Management Bureau (REMB). The following certifications shall be issued:

(1) DOE Certificate of Registration - issued to an RE Developer holding a valid RE Service/Operating Contract. For existing RE projects, the new RE Service/Operating Contract shall pre-terminate and replace the existing Service Contract that theRE Developer has executed with the DOE subject to the Transitory Provision in Rule 13, Section 39· The DOE Certificate of Registration shall be issued immediately upon award of an RE Service/Operating Contract covering an existing or new RE project or upon approval of additional investment.

Any investment added to extstmg RE projects shall be subject to prior approval by the DOE.

B. Registration with the Board of Investments (801) t CTA Case No. 1 0941 Franklin Baker Company of the Philippines v. Commissioner of Internal Revenue

The RE sector is hereby declared a priority investment sector that will regularly form part of the country's Investment Priority Plan (IPP), unless declared otherwise by law. To qualify for the availment of the incentives under

Sections

13 and 15 of this IRR, RE Developers a nd manu factu rers, fabricators, and suppliers of locally-produ ced RE equipment, shall register with the BOI.

The registration with the BOI shall be carried out through an agreement and an administrative arrangement between the BOI and the DOE, with the end-view of facilitating the registration of qualified RE facilities. The applications for registration shall be favorably acted upon immediately by the BOI, on the basis of the certification issued by the DOE.•os As a corollary, Department Circular No. DC2021-12-0042,106 amending Section 18( C) of the IRR of RA 9513, confirms that RE Developers are automatically qualified to avail of the incentives provided for in RA 9513 after securing a DOE COR, viz: 105 106 107 SEC. 18. Conditions for Availment of Incentives and Other Privileges. - C. DOE ENDORSEMENT FOR AVAILMENT OF INCENTIVES AND DUTY-FREE IMPORTATIONS OF MACHINERY, EQUIPMENT,

AND MATERIALS

RE Developers and manufacturers, fabricators, and suppliers of locally-produced RE equipment shall be AUTOMATICALLY qualified to avail of the incentives provided for in the Act, OTHER THAN THE

INCENTIVE OF DUTY-FREE IMPORTATION OF QUALIFIED

MACHINERY, EQUIPMENT, MATERIALS,

PARTS

AND

COMPONENTS, after securing a Certificate of Registration from the ~OE"'t Italics in the original text, emphasis and underscoring supplied. PRESCRIBING AMENDMENTS TO SECTIONS 13(E) AND 18(C) OF DEPARTMENT CIRCULAR NO. DC2009-05-0008, ENTITLED RULES AND REGULATIONS IMPLEME TING REPUBLIC ACT NO. 95 13. OTHERWISE KNOWN AS 'TI-lE RENEWABLE ENERGY ACT OF 2008''. Emphasis in the original text and underscoring supplied.

Franklin Baker Company of the Philippines v. Commissioner of Internal Revenue

From these provisions, in order for the sales to an RE Developer to qualify for VAT zero-rating as contemplated under RA 9513 and its IRR, the following conditions must be present: 1) TheRE developer must be registered with the DOE and the BOI; and 2) The local sales of goods, properties and services to the RE Developer are needed for the development, construction, and installation of theRE Developer's plant facilities and the whole process of exploration and development of RE sources up to its conversion into power.

As to the first condition, the Court observes a conspicuous absence of evidence. Petitioner did not formally offer any documentary evidence to prove that either Bioenergy or Econergy holds valid and subsisting DOE and BOI registrations during the claim period of CY 2020. Giving petitioner every reasonable benefit of the doubt, and even relaxing the formal offer requirement under Section 34, Rule 132 of the RRE, as amended, an exhaustive examination of the BIR Records yields only the following: (a) a BOI Certificate referencing an Income Tax Holiday (ITH) incentive for Bioenergy for CY 2019108 - a period expressly outside the CY 2020 claim period at bar - together with a blurry and largely illegible DOE Accreditation10 9 for the same entity; and

(b) for Econergy, a BOI Certificate of Registration No. 2014-216 dated

09 December 2014

110 and a DOE Certificate ofRegistration.m While these records, if properly admitted, might notionally satisfy the first condition for Econergy, the analysis cannot end there. Even crediting Econergy with valid DOE and BOI registration, petitioner's claim fails at the second condition- and it fails completely. The second condition is not a formality; it is a substantive restriction that confines the zero-rating benefit to a defined category of purchases - those tied to the development, construction, and installation of plant facilities, or to the exploration-to-conversion process. The law does not extend zero-rating to all purchases made by an REDeveloper; it extends it only to those purchases that serve these specifically enumerated purposes.t 108 109 110

Ill

SIR Records (Exhibit " R-5"), p. 149.

ld., p. 150.

ld., p.l5 1.

ld., p. 152.

Franklin Baker Company of the Philippines v. Commissioner of Internal Revenue

In the present case, petitioner's transactions with Econergy consist of sales of "coconut paring oi/."

112 Petitioner offered no evidence -no technical description, no contract, no purchase order, no affidavit from Econergy, no DOE or BOI endorsement- to establish the nexus between the supply of coconut paring oil and the development, construction, or installation of Econergy's plant facilities, or to demonstrate that this commodity forms part of the exploration-to- conversion process for any RE source. The identity of the goods, standing alone, does not carry this burden. It is incumbent upon petitioner to establish, by competent and credible proof, how the specific goods sold fit within the purposes contemplated by RA 9513. That burden has not been discharged.

The Court further observes that petitioner's omissions are not confined to Bioenergy and Econergy. As to Purebev International Corporation (Purebev), the record is equally barren: no documentary evidence - whether formally offered before the Court or otherwise retrievable from the BIR Records - has been presented to establish Purebev's registration, DOE or BOI or otherwise, during the claim period.

Accordingly, petitioner's sales to Bioenergy, Econergy and Purebev likewise fail to qualify for VAT zero-rating. The total amount of P1os,622,J68.31 attributed to PEZA/BOI-RE Developers is disallowed. II.

DIRECT EXPORT SALES

Petitioner maintains that it generated direct export sales to foreign customers during the 1st through 4 th quarters of CY 2020, paid for in acceptable foreign currency and accounted for in accordance with Bangko Sentral ng Pilipinas (BSP) rules and regulations, in the total amount of P3,296,791,472.13. Petitioner anchors this claim on Section 1o6(A)(2)(a)(1) of the NIRC of 1997, as amended, which defines export sales to include:

SEc. 106. Value-Added Tax on Sale of Goods or Properties.-t 112 Exhibits "P-3 I .90", "P-3 I .299", "P-3 I .300", and "P-3 I .3 I 5", USB (Exhibit " P-77").

CT A Case No. 1 0941 Franklin Baker Company of the Philippines v. Commissioner of Internal Revenue

(A)

Rate and Base ofTax. -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 (o%) rate:

(a) Export Sales. - The term 'export sales' means:

(1) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported and paid for in acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); From the foregoing, three (3) essential elements must be proven to the Court's satisfaction:

1.

The sale was made by a VAT-registered person; 2.

There was a sale and actual shipment of goods from the Philippines to a foreign country; and, 3· The sale was paid for in acceptable foreign currency accounted for in accordance with the rules and regulations of the BSP.

The first essential element is undisputed.

As to the second essential element, the Court notes that petitioner presented sales invoices covering its claimed direct export sales amounting to P3,296,791,472.o8, which were examined by ICPA Pizarro and offered in evidence before the Court. However, petitioner failed entirely to submit the corresponding export documents, such as bills of lading (BLs), airway bills or equivalent shipping instruments - for the~ vast majority of these claimed sales. The law does not allow invoices U CT A Case No. 1 0941 Franklin Baker Company of the Philippines v. Commissioner of Internal Revenue alone to stand as proof of actual shipment. They evidence the sale; 113 they do not evidence the actual export.

114 The sole exception pertains to two (2) sales invoices issued in favor of Verde International Trading Ltd., for which the corresponding BLs were duly presented and admitted, as follows:

Sales Invoice

Bill of Lading

Exhibit No."5 "P-Jt.337·t" "P-3t.758.t" Cus tomer Name

Amount

Amount

Invoice

Invoice

(in USD)

(in PHP)

No.

Date

Exhibit No."6 BLNo.

VERDE

29205

J/16/2020

INTERNATIONAL

"P-Jt.337·2" DVO/ LAX/oo782 S117,860.)4 1>5,952, n2.2o

TRADING LTD

VERDE

)0))6

6/J0/2020

INTERNATIONAL

"P-Jt.337·2" MFIIND-2o-•8•N 56,928.n 2,840,97).34

TRADING LTD

TOTAL

S174o7B9.n f'8,793o745·54 For the remainder of the claimed export sales - amounting to P3,287,997,726.54- no export documents were offered. This amount is accordingly disallowed, as petitioner has failed to carry its burden of proving the actual shipment of goods from the Philippines to a foreign country.

Having disallowed the bulk of petitioner's direct export sales for failure to prove actual shipment, the Court turns to the two (2) remaining invoices supported by BLs, totaling P8,793,745-54· Even as to these, the claim stumbles on the third essential element. To establish that the subject sales were paid for in acceptable foreign currency in accordance with BSP rules, petitioner submitted certificates of inward remittance117 and collection receipts, 118 which were likewise examined by I CPA Pizarro and formally offered in evidence, as shown in the following tabulation: t 113 114 115 116 117 11 8 See Commissioner of Internal Revenue v. Manila Mining Corporation, G.R. No. l53204, 31 August 2005.

See Aniceto G. Saluda, Jr., el a/. v. Hon. Court of Appeals, et a/ .. G.R. No. 95536, 23 March 1992. USB (Exhibit P-77).

I d.

Exhibits "P-34.1" to "P-34. 1238", id.

Exhibits "P-35.1 " to "P-35.273", id.

CT A Case No. 1 0941 Franklin Baker Company of the Philippines v. Commissioner of Internal Revenue

Collection Receipt

Inward Remittance

Customer Name

Invoice

No.

Reference No.

Date of

Exhibit No. "9

Date

Exhibit No. ,..

Remitter Name

Remittance

VERDE

VERDE

INTERNATIONAL

INTERNATIONAL

29205 "P-34.187" 03/10/2020 "P-35·273·3''

TRADING

OOOI-2000655FXTT

3/ to/2o2o

TRADING LTD

LIMITED

VERDE

FRANKLIN

INTERNATIONAL

30336 "P-34.625" o6/t9/2o2o "P-35.273·4"

BAKER CO OF

6o7GSRTCBDot46 5128/2o2o

TRADING LTD

THE

Remittance

Reference No.

The Court has carefully reviewed these documents and finds them insufficient.

First, the Court takes note of a material discrepancy in the identity of the remitter. With respect to Invoice No. 30336, the certificate of inward remittance identifies the remitter as "Franldin Baker Co. of the [Philippines]," notwithstanding that the customer named in the invoice is Verde International Trading Ltd. These are plainly distinct entities. I CPA Pizarro sought to reconcile this discrepancy by reference to an organizational chart of the Franklin Baker Group of Companies, 121 explaining that re1nittances from principals were at times initially received by related group entities before being passed on to petitioner. 122 This explanation, however, while plausible, is uncorroborated. The organizational chart is not a substitute for a remittance instruction, an intercompany agreement, or any other instrument that would establish, with legal certainty, the chain of payment from the foreign buyer to petitioner.

Second, and of equal concern, are material discrepancies in the amounts. A comparison of the relevant documents reveals that the total invoiced amounts covered by the two (2) remittance references are as follows:

119 120 121 122 Regis tered Name of

Buyer

VERDE

INTERNATIONAL

TRADING LTD

I d.

I d.

Exhibit "P-36", id.

Invoice

No.

Date

OJ/t0/2020 Exhibit "P-76", supra at note 37, pp. 202-203.

Amount of

Invoice

S35,88o.oo To tal Amount

of Invoice

[A]

Amount

Remitted

[B]

S505.958.84 S85o,ooo.oo

Difference

[A-B)

CT A Case No. 1 0941 Franklin Baker Company of the Philippines v. Commissioner of Internal Revenue

VERDE

INTERNATIONAL

29121 03/ 10/2020 35,113.00

T RADING LTD

VERDE

INTERNATIONAL

29165 03/ 10/2020 71,240.00

T RADING LTD

VERDE

ooo1-2ooo655FXTT

INT ERNATIONAL

29166 03/ 10/2020 86,144-50

TRADING LTD

VERDE

INTERNATIONAL

29167 03/ 10/2020 38,522.50

TRADING LT D

VERDE

INTERNATIONAL

29168 03/10/ 2020 36,958.5o

TRADING LTD

VERDE

INT ERNATIONAL

29205 03/10/2020 117,860.34

TRADING LTD

VERDE

INTERNATIONAL

29204 03/10/2020 84,240.00

TRADING LT D

VERDE

INTERNATIONAL

30312 o6/o1/202o 34.720.00

TRADING LT D

VERDE

INTERNATIONAL

30399 o6/ ot/2o2o 34.866.00

TRADING LT D

VERDE

6o7GSRTCBDot46

INT ERNAT IONAL

30337 o6/o1/2020 58,930.17 217,308.94 250,000.00

TRADING LT D

VERDE

INTERNATIONAL

30336 o6/o1/2020 s6,928.77

TRADING LTD

VERDE

INTERNATIONAL

30366 o6/o1/2o20 31,864.00

TRADING LTD

s(32,69t.o6) These discrepancies were neither explained nor reconciled by petitioner. Without a reconciliation establishing that the specific export sales in question were precisely and fully accounted for within these remittances, and that no portion of the remittances corresponds to other, unrelated transactions, the Court cannot determine with adequate certainty that the proceeds of the subject sales were in fact received and accounted for in accordance with BSP rules and regulations.

The law requires more than approximate proof. The BSP- accounted-for requirement is a specific condition that demands specific compliance. Where, as here, the evidentiary record leaves the Court with unresolved discrepancies in identities and amounts, the third essential element must be treated as unproven. Accordingly, the two (2) sales invoices to Verde International . Trading Ltd., amounting to 1'8,793,745·54, are likewise disallowed.t

Franklin Baker Company of the Philippines v. Commissioner of Internal Revenue

Petitioner's direct export sales, in their entirety, fail to qualify for VAT zero-rating.

Accordingly, petitiOner has failed to establish, by competent, credible, and sufficient evidence, that any of its claimed sales for CY 2020 - whether to PEZA/BOI-registered entities or to foreign customers - qualify for zero-rating under the applicable provisions of the NIRC of 1997, as amended, or under special laws such as RA 7916 and RA 9513.

The Court pauses to restate a foundational principle that should, by this point, need no further elaboration: claims for tax refund or TCC are actions in the nature of a clain1 for exemption. 123 They are resolved strictissimi juris against the taxpayer-claimant. 124 The law withholds the benefit unless the claimant proves every condition for its grant. 125 The Court neither presumes in favor of the claim nor permits the silence of the record to be treated as satisfactory proof. Leniency in this regard would not be equity - it would be a betrayal of the law's clear and deliberate command.

Petitioner, for all the effort reflected in the voluminous record before the Court, has not cleared this bar. Its evidence is marred by formal deficiencies, critical evidentiary gaps and unexplained discrepancies that the Court is not at liberty to overlook. Having determined that petitioner has no valid zero-rated sales for CY 2020, the 2 nd requisite for a VAT refund claim under Section 112(A) of the NIRC of 1997, as amended, remains unsatisfied. The failure to satisfy any one of the requisites is fatal to the entire claim. Accordingly, the Court finds it unnecessary to examine petitioner's compliance with the remaining requisites, as any such inquiry would neither cure the deficiency already established nor alter the ultimate disposition of this case.

WHEREFORE, premises considered, the instant Petition for Review filed on 28 July 2022 by petitioner Franklin J3aker Company of the Philippines is hereby DENIED for lack ofmerit.t 123 Coca-Cola Bolllers Philippines, Inc. v. Commissioner of Internal Revenue, supra at note I 02. 124 ld.

12s Id.

CT A Case No. 1 0941 Franklin Baker Company of the Philippines v. Commissioner of Internal Revenue

JEANMA

I CONCUR:

LAN~f:~w

Associate Justice

ATTE STATION

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.

JEANMA

As ciate Justice Special 1st Division Acting Chairperson

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, and the Special 1st 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.

ing Justice