Court of Tax Appeals · Special Second Division

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

CTA Case No. 11237 March 18, 2026 MODESTO-SAN PEDRO

REPUBLIC OF THE PHILIPPINES

Court of Tax Appeals

QUEZON CITY

Special Second Division

FRANKLIN BAKER COMPANY

OF THE PHILIPPINES,

CTA CASE NO. 11237

-versus-

Petitioner, Members:

RINGPIS-LIBAN, PJ, Chairperson,

MODESTO-SAN PEDRO, and

FERRER-FLORES, JJ

COMMISSIONER OF INTERNAL Promulgated:

REVENUE,

Respondent.

>1 ~ ... "\

1,.,

X ---------------------------------------------------------------------1'-----~-cr--~-;~--- X

DECISION

\ \. l MODESTO-SAN PEDRO, J.:

The Case

This is a Petition for Review, 1 filed on July 31, 2023, pursuant to Section 112(A) in relation to Section JJO(B) of the National Internal Revenue Code of 1997, as amended ("Tax Code"), to claim a tax refund or secure a tax credit certificate for its alleged unutilized creditable input value added tax ("VAT") attributable to zero-rated sales of goods in the amount of Php86,684,678.36, for the first to fourth quarters ("Q 1" to "Q4") of taxable year 2021 ("TY2021 ").2

The Parties

Petitioner Franklin Baker Company of the Philippines ("petitioner") is a corporation duly organized and existing under the laws of the Philippines, with principal office address at 4th Floor, Phinma Plaza, 39 Plaza Drive, Rockwell Center, Makati City.3 It has its branches in San Pablo Laguna4 and Davao Del Sur.5 Petitioner is primarily engaged in manufacturing, refining, owning, holding, buying, selling, importing and exporting, dealing in, and in r Docket, pp. 6-55, with annexes.

Prayer, Petition for Review, id. at II.

Articles of Incorporation, Exhibit "P-6", BIR Records, id. at 275. Exhibit "P-30", USB attached to !CPA Report. Exhibit "P-31 ", USB attached to !CPA Report.

any manner acquiring, and disposing of, food products of all kinds, and in furtherance thereof. 6 Petitioner is registered with the Bureau of Internal Revenue ("BIR") as a VAT -registered large taxpayer with identification number ("TIN") 000-421- 318-00000.7 As stated in petitioner's BIR Certificate of Registration, it is engaged in various lines of business, namely: (i) manufacture of desiccated coconut; (ii) manufacture of virgin coconut oil; (iii) technical testing and analysis; and (iv) other wholesale of food, beverage and tobacco.8 On the other hand, respondent Commissioner of Internal Revenue ("CIR" or "respondent") is the public officer duly vested with the authority to carry out the functions, duties, and responsibilities of his office, including the power to decide disputed assessments, grant tax refunds and issue tax credit certificates, pursuant to the provisions of the Tax Code and other laws, rules and regulations. He may be served with summons and other Court processes at Litigation Division, Room 703, BIR National Office Building, BIR Road, Diliman, Quezon City.9

The Facts

On March 31, 2023, petitioner filed with the BIR VAT Credit Audit Division a claim for refund of its unutilized excess input VAT for the Q 1 to Q4 of TY202l, for the amount of Php 104,646,203.46. 10 Upon review of the application, respondent issued a letter dated June 7, 2023, 11 received by petitioner on June 30, 2023, partially granting petitioner's claim for refund for the amount of Php 17,961 ,525.50 but denying the claim amounting to Php86,684,678.36. 12 The details of the deductions from the claim are as follows:

Amount of claim Php 104,646,203.86 Deductions from claim:

Violation of invoicing requirements under Sec. 113 ofthe Tax Php(37,365,480.02) Code, as amended, incomplete documentation and out-of- period purchases Unsupported input tax (5,210,183.66) Deferred input tax from purchases of CG exceeding (1,890,643.83) Php 1 Million threshold ____!_mportation with insufficient documentation (281 ,208.88) 9 10

II

12 Articles of Incorporation, Exhibit "P-6", BIR Records, id. at 274. SIR Certificate of Registration, Exhibit "P-6", id. at 27 I. !d. at 272.

See Pre-trial Order, id. at I 85.

See Application for Tax Credits/Refunds (SIR Fonn No. I 9I4), Exhibit "P-7", id. at 285. VAT Refund Notice, Exhibit "P-9"/ "R-4", id. at 62. Annex "A", VAT Refund Notice, id. at 63.

Output VAT on the following:

Proceeds from sale of PPE (735,615.72) Other taxable income not subjected to final tax (2,805,485.64) VA Table sale originally declared as VAT exempt (3,130.82) Unsupported VAT exempt sale declared per QVRs (131 ,332.98) Input VAT allocation to exempt sales as declared per (6,584,973.13)

QVRs

Input VAT allocation to sales not qualified for VAT (31 ,676,623 .68) zero-rating

Total Deductions

Php (86,684,678.36) Amount approved for VAT Refund Php 17,961,525.50 - Aggrieved, petitioner filed the instant Petition for Review on July 31, 2023. 13 Respondent, on the other hand, filed his Answer14 dated October 25, 2023, on November 9, 2023, after being granted an extension of time to file the same. 15 Respondent16 and petitioner17 thereafter filed their pre-trial briefs on December 1, 2023 and March 5, 2024, respectively. The pre-trial conference then ensued on March 12, 2024. 18 Thereafter, the parties submitted their Joint Stipulation ofF acts and Issues (" JSFI") 19 on April 11, 2024.

On April 15, 2024, petitioner moved for the commissioning of an Independent Certified Public Accountant ("ICPA"), Enrico T. Pizarro to undertake the actual audit, examination and verification of petitioner's documents in order to expedite the proceedings in the instant case. 20 The same was granted during the hearing held on May 22, 2024.21 13 14 15 16 17 18 19 20 21 22 On even date, the Court issued its pre-trial order.22/ Supra note I.

Answer, Docket, pp. 72-82.

See Motion for Extension ofTime to file Answer, id. at 67-69; see also Minute Resolution dated October 12,2023, id. at 701 Respondent's Pre-Trial Brief, id. at 86-89. Petitioner's Pre-Trial Brief, id. at 120-125. See Minutes of hearing dated March 12,2024, id. at 127. JSFI, id. at 130-139.

Motion to Commission an Independent Certified Public Accountant, id. at I 46-156. See Minutes of hearing dated May 22, 2024, id. at 191. Pre-Trial Order, id. at 185-190.

During trial, petitioner presented its witnesses Janette N. Pel who testified through judicial affidavit23 dated July 31, 2023. Witness Pel appeared before the Court on July 2, 2024.24 Petitioner also offered the testimony of ICP A Pizarro who submitted his report to the Court on July 22, 2024.25 ICPA Pizarro testified through judicial affidavit26 dated July 29, 2024, submitted to the Court on even date. He was called as witness before the Court on September 12, 2024.27 On October 2, 2024, petitioner submitted its Formal Offer of Evidence,28 to which respondent filed its Comment29 on the same date. In the resolution30 on the offer of evidence, the Court admitted all of petitioner's exhibits.

Meanwhile, for respondent's side, Revenue Officer Jelly Anne T. Mateo testified through judicial affidavit31 dated November 10, 2023. She was presented before the Court on November 28, 2024.32 On the same date, respondent submitted his Formal Offer ofEvidence. 33 Petitioner filed its Comment34 on respondent's FOE on December 3, 2024. The offered documents were admitted by the Court on February 3, 2024.35 Petitioner36 and respondent37 submitted their respective Memoranda on March 7 and March 10,2025.

After noting the foregoing submissions, the instant Petition was submitted for decision on March 18, 2025. f 23 Judicial Affidavit (Ms. Janette N. Pel answering questions propounded by Atty. Paulo T. Villareal at the 7th Floor, Electra House Building, Esteban St., Legaspi Village, Makati City), Exhibit "P-16", id. at 29- 39.

24 See Minutes of hearing dated July 2, 2024, id. at 197 .. 25 ICPA Report, Exhibit "P-25".

26 Judicial Affidavit (Mr. Enrico T. Pizarro answering questions propounded by Atty. Paulo T. Villareal at the 7th Floor, Electra House Building, Esteban St., Legaspi Village, Makati City), id. at 203-220.

27 See Minutes of hearing dated September 12, 2024, id. at 225.

28 Formal Offer of Evidence, id. at 231-262.

29 Comment (Re: Formal Offer of Evidence), id. at 299-301.

30 Resolution dated November 28,2024, id. at 306-307.

31 Judicial Affidavit (of Jelly Anne T. Mateo), Exhibit "R-6", id. at 95-100.

32 See Minutes of hearing dated November 28,2024, id. at 308.

33 Formal Offer of Evidence, id. at 311-316.

34 Comment on Respondent's Formal Offer of Evidence, id. at 318-321.

35 Resolution dated February 3, 2024, id. at 324.

36 Memorandum dated March 6, 2025, id. at 326-366.

37 Memorandum dated February 11, 2025, id. at 368-3 78.

PageS o£49

The Issues

The issues, as stipulated by the parties, are as follows:

WHETHER PETITIONER IS ENTITLED TO THE

REFUND OF ALLEGED UNUTILIZED INPUT VALUE

ADDED TAX FOR THE PERIOD BEGINNING JANUARY 1, 2021 TO DECEMBER 31, 2021 IN THE AMOUNT OF PHP86,3 92,5 54.34;

WHETHER

THE

DECISION

OF

THE

COMMISSIONER OF INTERNAL REVENUE IS CORRECT

BASED

ON

THE

DOCUMENTS

SUBMITTED

BY

PETITIONER TO RESPONDENT.38

Arguments of the Parties

Petitioner insists that it is entitled to a VAT refund for Q 1 to Q4 of TY2021 greater than the amount awarded by the BIR of Php17,961,525.50. Specifically, it raises that: (i) the administrative and judicial claims for refund were timely filed; (ii) petitioner is a VAT-registered entity; (iii) it had zero- rated sales/receipts for 2021; (iv) it paid/incurred input VAT for the four quarters of TY2021; and (v) its unutilized input VAT accumulated during covered period of refund was not applied against any output VAT liability in the succeeding quarters.39 Respondent, on the other hand, counters that the instant Petition for Review must be denied due to petitioner's failure to substantiate the claim for refund at the administrative level. He insists that since a decision has been rendered at the administrative level, petitioner cannot submit documents it did not submit at the administrative level. Consequently, according to petitioner, the Court must be confined to a more limited issue of whether the denial was proper given the evidence submitted at the administrative level.40 Further, respondent highlights that decisions rendered by administrative bodies are given weight by the Court and, as such, must not be disturbed. He argues that the CT A should be cautious about overturning the BIR' s decision unless the taxpayer provides clear, incontrovertible evidence of entitlement to a refund. He also emphasized that tax laws should be interpreted strictly against taxpayers when it comes to refunds, exemptions, or deductions because they involve a release of funds from the government treasury.41 r 38 39 40 41 See JSFI, id. at 131; See also Pre-Trial Order, id. 186. See Memorandum dated March 6, 2025, id. at 359-365. See Memorandum dated February 11, 2025, id. at 369-371. !d. at 371-374.

DECISIOi\

The Ruling of the Court

Requisites for the grant of claims for VAT refund or issuance of a tax credit certificate Claims for refund or issuance of a tax credit certificate of excess or unutilized creditable input VAT attributable to zero-rated sales, like the present petition, are governed by Sections 112(A) and (C) of the Tax Code, as amended by RA No. 10963, or the Tax Reform for Acceleration and Inclusion ("TRAIN"), 42 and as implemented by Section 4.112.1 of the Revenue Regulations (RR) No. 16-2005,43 as amended by RR No. 13-18,44 which respectively provide:

42 43 44 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)(l), (2) and (b) and Section 108(B)(l) 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 108(B)(6), the input taxes shall be allocated ratably between his zero-rated and non-zero-rated sales. (C) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the Commissioner shall grant a refund for creditable input taxes within ninety (90) days from the date of submission of the official receipts or invoices and other documents in support of the application filed in accordance with Subsections (A) and (B) hereof: Provided, That should the Commissioner find that the grant of refund is not proper, the Commissioner must state in writing the legal and factual basis for the denial.

In case of full or partial denial of the claim for tax refund, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim, appeal the decision with the Court of Tax r Effective January I, 2018.

Consolidated Value-Added Tax Regulations of2005, September I, 2005. 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, March 15,2018.

DECISION

CTA CASE N0.11237 Page 7 o£49 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. SEC. 4.112-1. Claims for Refund/Credit of Input Tax. -

(a) Zero-rated and Effectively Zero-rated Sales of Goods, Properties

or Services

A VAT -registered person whose sales of goods, properties or services are zero-rated or effectively zero-rated may apply for the issuance of a tax refund of input tax attributable to such sales. The input tax that may be subject of the claim shall exclude the portion of input tax that has been applied against the output tax. The application should be filed within two (2) years after the close of the taxable quarter when such sales were made. In case of zero-rated sales under Sees. 106(A)(2)(a)(l) and (3), Sees. 1 08(B)(l) and (2) of the Tax Code, the payments for the sales must have been made in acceptable foreign currency duly accounted for in accordance with the BSP rules and regulations.

Where the taxpayer is engaged in both zero-rated or effectively zero- rated sales and in taxable (including sales subject to final withholding VAT) or exempt sales of goods, 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, only the proportionate share of input taxes allocated to zero- rated or effectively zero-rated sales can be claimed for refund or issuance of a tax credit certificate.

In the case of a person engaged in the transport of passenger and cargo by air or sea vessels from the Philippines to a foreign country, the input taxes shall be allocated ratably between his zero-rated sales and non-zero-rated sales (sales subject to regular rate, subject to final VAT withholding and VAT -exempt sales).

(Emphasis and italics supplied) Gleaning from the foregoing, jurisprudence has laid down certain requirements which a taxpayer-applicant must satisfy to successfully obtain a credit/refund of input VAT. These requisites are categorized as follows: 45 As to the timeliness of the filing of the administrative and judicial claims:

1. the administrative claim with the BIR should be filed within two years after the close of the taxable quarter when the pertinent zero-rated sales were made;45

2. that in case of full or partial denial of the refund claim, the r Nippon Express (Philippines) Corporation v. Commissioner oflntemal Revenue, G.R. No. 191495, July 23,2018.

46 47 48 49 50 51 52 53 !d.

judicial claim should be filed with this Court, within 30, days from receipt of the decision;46 As to the taxpayer's registration with the BIR:

3. the taxpayer is a VAT-registered person;47 In relation to the taxpayer's output VAT:

4. the taxpayer is engaged in zero-rated or effectively zero-rated sales.48 '

5. for zero-rated sales under Sections 106(A)(2)(a)(l), (2), and

(b) and 108(B)(l) and (2), the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with BSP rules and regulations;49 As regards the taxpayer's input VAT being refunded:

6. the input taxes are not transitional input taxes;50

7. the input taxes are due or paid;51

8. the input taxes claimed are attributable to zero-rated or effectively zero-rated sales. However, where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on the basis of sales volume;52 and

9. the input taxes have not been applied against output taxes during and in the succeeding quarters53 j Intel Technology Philippines, Inc. v. Commissioner of Internal Revenue, G.R. No. 166732, April 27, 2007; Southern Philippines Power Corporation v. Commissioner oflnternal Revenue, G .R. No. 179632, October 19, 2011; San Roque Power Corporation v. Commissioner of Internal Revenue, G.R. No. 180345, November 25, 2009.

!d.

Page 9 o£49 Relative to the above requirements, it bears emphasis that contrary to respondent's claim, the Court is not limited to the evidence presented by a taxpayer in the administrative claim for refund. Cases filed before the Court are litigated de novo wherein taxpayer-claimants must prove every minute aspect of their case. 54 Thus, petitioner must rightfully show compliance with the abovementioned requisites. The absence of any of the requirements constitutes a valid ground for the denial of the claim. This has been clearly enunciated by the Supreme Court in the case of Commissioner of Internal Revenue vs. CE Casecnan Water and Energy Company, Inc. 55 citing Commissioner of Internal Revenue vs. Univation Motor Philippines, Inc. (formerly Nissan Motor Philippines, lnc.), 56 where it was held that:

The law creating the CT A specifically provides that proceedings before it shall not be governed strictly by the technical rules of evidence. The paramount consideration remains the ascertainment oftruth. Thus, the CTA is not limited by the evidence presented in the administrative claim in the Bureau of Internal Revenue. The claimant may present new and additional evidence to the CTA to support its case for tax refund. Cases filed in the CTA are litigated de novo as such, respondent "should prove every minute aspect of its case by presenting, formally offering and submitting ... to the Court of Tax Appeals all evidence ... required for the successful prosecution of its administrative claim." Consequently, the CTA may give credence to all evidence presented by respondent, including those that may not have been submitted to the CIR as the case is being essentially decided in the first instance. (Emphasis and italics supplied) The Court thus disagrees with the respondent's myopic view that since an unfavorable decision has already been rendered at the administrative level, petitioner cannot present before the Court documents not submitted at the administrative level and that the Court must be confined to a limited issue of whether the BIR's denial of the refund claim is warranted. We reiterate that as a court of record, the CT A has the authority to determine issues raised by the parties even if these were not raised in the administrative level. Similarly, it has the authority to accept evidence offered by the taxpayer-claimant to the Court, regardless of whether these were submitted at the administrative level.

54 55 56 ' Commissioner of Internal Revenue vs. CE Casecnan Water and Energy Company, Inc, G.R. No. 212727, February I, 2023; Commissioner of Internal Revenue vs. Univation Motor Philippines, Inc. (formerly Nissan Motor Philippines, Inc.), G.R. No. 231581, April I 0, 2019. G.R. No. 212727, February 1, 2023.

G.R. No. 231581, ApriliO, 2019.

Page 10 o£49

Petitioner's

administrative and judicial claims for refund were timely filed.

As regards the first and second requisites in refund applications in relation to the timeliness of the administrative and judicial claims, the respective applicable periods are expressly provided in Section 112 (A) and (C) of the Tax Code, as quoted above.

For this purpose, the Court finds guidance from the ruling of the Supreme Court in case of Nippon Express (Philippines) Corporation v. Commissioner of Internal Revenue, 57 which states: 57 ... a VAT-registered taxpayer who has excess and unutilized creditable input VAT attributable to zero-rated sales may file an application for cash refund or issuance of TCC (administrative claim) before the CIR who has primary jurisdiction to decide such application. The period within which to file the administrative claim is two (2) years reckoned from the close of the taxable quarter when the pertinent zero-rated sales were made. From the submission of complete documents to support the administrative claim, the CIR is given a 120-day period to decide. In case of whole or partial denial of or inaction on the administrative claim, the taxpayer may bring his judicial claim, through a petition for review, before the CTA who has exclusive and appellate jurisdiction. The period to appeal is thirty (30) days counted from the receipt of the decision or inaction by the CIR.

In the seminal cases of Commissioner of Internal Revenue (Commissioner) v. Aichi Forging Company of Asia, Inc. and Commissioner

v. San Roque Power Corporation/Taganito Mining Corporation v. Commissioner/Phi/ex Mining Corporation v. Commissioner (San Roque), the Court interpreted the 30-day period of appeal as mandatory and jurisdictional. Thus, noncompliance with the mandatory 30-day period renders the petition before the CT A void. The ruling in said cases as to the mandatory and jurisdictional character of the 30-day period of appeal was reiterated in a litany of cases thereafter. Pertinently, the CTA law expressly provides that when the CIR fails to take action on the administrative claim, the "inaction shall be deemed a denial" of the application for tax refund or credit. The taxpayer-claimant must strictly comply with the mandatory period by filing an appeal with the CT A within thirty days from such inaction, otherwise, the court cannot validly acquire jurisdiction over it.

(Italics supplied) r G.R. No. 191495, July 23,2018.

Pagell of49

On the basis of the foregoing, there are three relevant periods governing claims for refund of input VAT attributable to zero-rated or effectively zero- rated sales:

1. The administrative claim for refund or issuance of tax credit certificate must be filed by the VAT -registered taxpayer within two years from the close of the taxable quarter when the sales were made;

2. The CIR has 90 days58 to grant or deny the claim for refund from the date of submission of complete documents in support of the administrative application; and

3. The judicial appeal must be filed by the claimant within 30 days from the receipt ofthe decision denying the claim. 59 In relation to the period granted to the CIR to review the application, the running of the same shall be triggered by the simultaneous submission by the taxpayer-applicant of the tax refund claim together with the complete supporting documents, as prescribed in Revenue Memorandum Circular (RMC) No. 54-2014,60 in accordance with the pronouncement ofthe Supreme Court in Pilipinas Total Gas, Inc., v. Commissioner of Internal Revenue, 61 to wit:

58 59 60 61 To summarize, for the just disposition of the subject controversy, the rule is that from the date an administrative claim for excess unutilized VAT is filed, a taxpayer has thirty (30) days within which to submit the documentary requirements sufficient to support his claim, unless given further extension by the CIR. Then, upon filing by the taxpayer of his complete documents to support his application, or expiration of the period given, the CIR has 120 days within which to decide the claim for tax credit or refund. Should the taxpayer, on the date of his filing, manifest that he no longer wishes to submit any other addition documents to complete his administrative claim, the 120 day period allowed to the CIR begins to run from the date of filing.

In all cases, whatever documents a taxpayer intends to file to support his claim must be completed within the two-year period under Section 112(A) of the NIRC. The 30-day period from denial of the claim or from the expiration of the 120-day period within which to appeal the denial or inaction of the CIR to the CT A must also be respected. It bears mentioning at this point that the foregoing summation of the rules should only be made applicable to those claims for tax credit or refund filed prior to June 11, 2014, such as the claim at bench. As it now stands, RMC 54-2014 dated June 11, 2014 mandates that: r As amended by Section 36 of the Tax Reform for Acceleration and Inclusion (TRAIN) Law. Commissioner of Internal Revenue vs. CE Casecnan Water and Energy Company, Inc., G.R. No. 2I2727, February I, 2023.

Clarifies the issues relative to the application for Value-Added Tax (VAT) refund/credit under Section 112 ofthe Tax Code, as amended, dated June 17,2014. G.R. No. 207112, December 8, 2015.

Page 12 o£49 The application for VAT refund/tax credit must be accompanied by complete supporting documents as enumerated in Annex ''A " hereof In addition, the taxpayer shall attach a statement under oath attesting to the completeness of the submitted documents (Annex B). The affidavit shall further state that the said documents are the only documents which the taxpayer will present to support the claim. lf the taxpayer is a juridical person, there should be a sworn statement that the officer signing the affidavit (i.e., at the very least, the Chief Financial Officer) has been authorized by the Board of Directors of the company. Upon submission of the administrative claim and its supporting documents, the claim shall be processed and no other documents shall be accepted/required from the taxpayer in the course of its evaluation. A decision shall be rendered by the Commissioner based only on the documents submitted by the taxpayer. The application for tax refund/tax credit shall be denied where the taxpayer/claimant failed to submit the complete supporting documents. For this purpose, the concerned processing/investigating office shall prepare and issue the corresponding

Denial

Letter

to the taxpayer/claimant.

Thus, under the current rule, the reckoning of the 120-day period has been withdrawn from the taxpayer by RMC 54-2014, since it requires him at the time he files his claim to complete his supporting documents and attest that he will no longer submit any other document to prove his claim. Further, the taxpayer is barred from submitting additional documents after he has filed his administrative claim.

(Italics supplied) Further, in the case of Commissioner of Internal Revenue v. Dahle Shipmanagement Philippines Corp. ,62 the Supreme Court had the occasion of applying amendments introduced by RA No. 10963, or the Tax Reform for Acceleration and Inclusion (TRAIN) Law, adjusting the previously prescribed 120-day to 90-day period, to wit:

For administrative claims for VAT refund filed beginning January 1, 2018:

1. The filing ofthe administrative claim with supporting documents must be done within two years from the close of the taxable quarter pursuant to Section 112 (A) of the 1997 Tax Code or issuance of tax clearance by the BIR in case of cancellation of registration or cessation of business under Section 106 (C) of the Tax Code.

2. The 90-day processing period is reckoned from the submission of the official receipts or invoices and other documents in support of the application for VAT refund.

3. Pursuant to RM C 4 7-2 0 19, once an administrative claim for VAT refund is filed and duly received by the BIR, no additional document/s shall be subsequently requested/required from the taxpayer. Failure on the part of 62 G.R. No. 246379, August 19, 2024.

Page 13 o£49 the taxpayer-claimant to submit the complete documents in support of the claim shall result in non-acceptance of the applications. Any unsupported claim shall be outrightly disallowed, resulting in full/partial denial of the claim.

In the case at hand, petitioner's claim covers all the taxable quarters of TY2021 -ending March 31, 2021 (Q1), ending June 30, 2021 (Q2), ending September 30, 2021 (Q3), and December 31, 2021 (Q4). Applying the two-year prescriptive period in VAT refund applications, the administrative claims for Q 1 to Q4 of TY2021 were all thus timely filed on March 31,2023.63 The VAT Refund Notice, stating the BIR's decision on the refund application, was thereafter received by petitioner on June 30, 2023.64 Counting 30 days therefrom, petitioner had until July 30, 2023 within which to file a judicial appeal. However, as such date falls on a Sunday, the deadline extends to the next working day, July 31, 2023. As such, the instant Petition for Review was likewise timely filed. 65 Petitioner is a VAT-registered entity.

Petitioner submitted its BIR Certificate ofRegistration ("COR")66 OCN No. xRC0000995351E with TIN 000-421-318-00000 duly stating VAT as one of its registered tax types. It likewise submitted CORs for its branches in San Pablo Laguna67 and Davao Del Sur.68 Accordingly, petitioner is compliant with the third requisite.

Petitioner has partially established that it performed zero-rated sales The fourth requisite mandates that the taxpayer-applicant must be engaged in zero-rated or effectively zero-rated sales. The importance of such requisite is highlighted in the case of Coca-Cola Bottlers Philippines, Inc. v. Commissioner of Internal Revenue,69 to wit: 63 64 65 66 67 68 69 A plain and simple reading of the aforequoted provisions reveals that if and when the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters. It is only when the sales of a VAT-registered person are zero-rated or effectively zero-rated that he r Supra note 10.

Supra note 11.

Supra note 1.

Supra note 9.

Exhibit "P-30", USB attached to !CPA Report. Exhibit "P-31 ",USB attached to !CPA Report. G.R. No. 222428, February 19, 2018.

may have the option of applying for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales. Such is the clear import of the Court's ruling in San Roque, to wit: Under Section 11 O(B), a taxpayer can apply his input VAT only against his output VAT The only exception is when the taxpayer is expressly "zero-rated or effectively zero- rated" under the law, like companies generating power through renewable sources of energy ....

(Emphasis and italics supplied) Moreover, as for the fifth requirement, the Tax Code requires that those zero-rated sales falling under Sections 106 (A)(2)(a)(J) and (2), and 108 (B) (I) and (2) thereof must be paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP. In petitioner's VAT returns for Q 1 to Q4 of TY2021, it reported total sales of Php4,518,931,835.94, including zero-rated sales amounting to Php4,061 ,200,813 .55, broken down as follows:

Taxable Exhibit

Vatable

Zero Rated

Vat Exempt

Total Sales

Output Vat

Ref

(converted in

Quarter

No.

(in PHP)

P-33

Total

246,606,468.05 4,061,200,813.55 211,124,554.34 4,518,931,835.94 29,592,776.17 Meanwhile, as lifted from the summary of VAT zero-rated sales prepared by ICPA Pizarro, We noted that while majority of the sales were destined for export abroad, a portion was delivered within the Philippines. IPCA Pizarro clarified in his report that the sales amounting to Php61,940,059.94 actually pertain to sales to Philippine Economic Zone Authority (PEZA)-registered companies. Thus, petitioner's zero-rated sales can be further accounted as follows:

Sales

Actual Export Sale of Goods under Section 106(A)(2)(a)(J) ofthe Tax Code, as amended;

PHP

3,678,3 68,5 65.72 r

Page 15 o£49

11. Sale to PEZA-registered Entities I 61,940,059.94 under Section 106(A)(2)(a)(5) of the Tax Code, as amended.

Total Zero-Rated Sales reviewed by I 3,740,308,625.66

ICPA

At the outset, the Court notes a discrepancy of Php320,892,187.89 between zero-rated sales per return (Php4,061,200,813.55) versus the zero- rated sales reviewed by ICPA (Php3,740,308,625.66). Accordingly, such amount shall be considered invalid zero-rated sales. Now, the Court shall determine the propriety of the petitioner's treatment of the zero-rated sales specified above, based on the allegations and supporting documents submitted.

(i) Actual export sale of goods under

Section 106(A)(2)(a)(J) of the Tax

Code, as amended As regards VAT zero-rating on export sale of goods, Section 106(A)(2)(a)(l), as amended, provides that: SEC. 106. Value-Added Tax on Sale ofGoods or Properties.- (A) Rate and Base of Tax.- ...

(2) The following sales by VAT-registered persons shall be subject to zero percent (0%) 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 Pilip in as (BSP)." (Emphasis and italics supplied.)

Thus, in order for the exportation of goods to be considered subject to 0% VAT, the following elements must be complied with:

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. Anent the first element, it has already been established that petitioner is a VAT-registered person based on its BIR COR. 70 As for the second element, Section 113(A)(l), (B)(l), and (2)(c) of the Tax Code, as amended, and Section 4.113.1 (A) (I), (B) (I), and (2)(c) of RR No. 16-2005 respectively provide as follows: 70 Section 113(A)(l),(B)(l) and (2)(c) of the Tax Code: SEC. 113. Invoicing and Accounting Requirements for VAT- Registered Persons. - (A) Invoicing Requirements. -AVA T -registered person shall issue:

(1) A VAT invoice for every sale, barter or exchange of goods or properties; and

(2) A VAT official receipt for every lease of goods or properties, and for every sale, barter or exchange of services. (B) Information Contained in the VAT Invoice or VAT Official Receipt. - The following information shall be indicated in the VAT invoice or VAT official receipt:

(1) A statement that the seller is a VAT-registered person,followed by his Taxpayer's Identification Number (TIN); and

(2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value- added tax. Provided, That:

(c) Ifthe sale is subject to zero percent (0%) value-added tax, the term "zero-rated sale" shall be written or printed prominently on the invoice or receipt.

(d) Ifthe sale involved goods, properties or services some ofwhich are subject to and some of which are VAT zero-rated or VAT exempt, the invoice or receipt shall clearly indicate the break-down of the sale price between its taxable, exempt and zero-rated components, and the calculation of the value-added tax on each portion of the sale shall be known on the invoice or receipt: Provided, That the seller may issue separate invoices or receipts for the taxable, exempt, and zero-rated components of the sale.

(3) The date oftransaction, quantity, unit cost and description ofthe goods or properties or nature of the service; and r Supra note 66.

Page 17 o£49 ( 4) In the case of sales in the amount of One thousand pesos (P 1 ,000) or more where the sale or transfer is made to a VAT -registered person, the name, business style, if any, address and Taxpayer Identification Number (TIN) of the purchaser, customer or client. (Emphasis supplied.)

Section 4.113.1(A)(l), (B)(l) and (2)(c) of RR No. 16-2005 SEC. 4.113-1. Invoicing Requirements.- (A) A Vat-registered person shall issue:-

(1) A VAT invoice for every sale, barter, or exchange of goods or properties; and

(2) A VAT official receipt for every lease of goods or properties, and for every sale. barter or exchange of services. Only VAT-registered persons are required to print their TIN followed by the word 'VAT' in their invoice or official receipts. Said documents shall be considered as a "VAT Invoice" or VAT official receipt. All purchases covered by invoice/receipts other than VAT Invoice/VAT Official Receipt shall not give rise to any input tax. VAT invoice/official receipt shall be prepared at least in duplicate, the original to be given to the buyer and the duplicate to be retained by the seller as part of his accounting records.

(B) Information contained in VAT invoice or VAT official receipt. -The following information shall be indicated in VAT invoice or VAT official receipt:

(1) A statement that the seller is a VAT-registered person,followed by his TIN;

(2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the VAT; Provided, That:

(c) If the sale is subject to zero percent (0%) VAT, the term 'zero- rated sale' shall be written or printed prominently on the invoice or receipt; ...

(Emphasis and italics supplied.)

Based on the foregoing, any VAT registered person claiming VAT zero-rating on its direct export sale of goods must present the following documents:

1. The sales invoice as proof of sale of goods; and r

Page 18 o£49

2. The bill of lading or airway bill as proof of actual shipment of good from the Philippines to a foreign country.

Furthermore, the sales invoice supporting the export sales must be duly registered with the BIR as prescribed under Sections 237 and 238 of the Tax Code, to wit:

SEC. 237. Issuance of Receipts or Sales or Commercial Invoices.- All persons subject to an internal revenue tax shall, for each sale or transfer of merchandise or for services rendered valued at Twenty-five pesos (P25.00) or more, issue duly registered receipts or sales or commercial invoices, prepared at least in duplicate, showing the date of transaction, quantity, unit cost and description of merchandise or nature of service: Provided, however, That where the receipt is issued to cover payment made as rentals, commissions, compensations, fees, receipts or invoices shall be issued which shall show the name, business style, if any, and address of the purchaser, customer or client: Provided, further, That where the purchaser is a VAT-registered person, in addition to the information herein required, the invoice or receipt shall further show the Taxpayer Identification Number (TIN) of the purchaser. xxx SEC. 238. Printing of Receipts or Sales or Commercial Invoices. - All persons who are engaged in business shall secure from the Bureau of Internal Revenue an authority to print receipts or sales or commercial invoices before a printer can print the same. No authority to print receipts or sales or commercial invoices shall be granted unless the receipts or invoices to be printed are serially numbered and shall show, among other things, the name, business style, Taxpayer Identification Number (TIN) and business address of the person or entity to use the same, and such other information that may be required by rules and regulations to be promulgated by the Secretary of Finance, upon recommendation ofthe Commissioner ....

(Emphasis supplied.)

In this case, it is crucial to highlight that no proof of actual export of goods were submitted by petitioner to the Court. The records are devoid of any documents like bills oflading or airway bills showing the actual shipment of the goods from the Philippines to a foreign country. The invoices,71 certificate of inward remittance,72 and collection receipts 73 presented by petitioner as evidence merely established the fact of sale of goods and the alleged receipt of payment in foreign currency. However, the said pieces of evidence do not reveal the actual shipment of the goods abroad. Section 106 (A) (2) (a) (1) ofthe Tax Code, as amended, mandates that the goods be physically shipped out of the Philippines to a foreign country which can be proven through the presentation of corresponding export declarations, and bills of lading or airway bills. r 71 72 73 Exhibits "P-33", "P-33.1" to "P-33.1340", USB attached to ICPA Report. Exhibits "P-37'', "P-37.1" to "P-37.949", USB attached to ICPA Report. Exhibits "P-36", "P-36.1" to "P-36.1078", USB attached to !CPA Report.

Inevitably, the foregoing warrants the denial of VAT zero-rating on petitioner's direct export sales.

(ii)

Sale

to P EZA -registered entities under Section 106(A)(2)(a)(5) of the Tax Code, as amended The VAT zero-rating on sale to PEZA-registered entities is governed by Section 106(A)(2)(a)(5) of the Tax Code, as amended, which provides: SEC. 106. Value-Added Tax on Sale of Goods or Properties.- (A) Rate and Base of Tax. - ...

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

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

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

In relation thereto, Section 4.106-5(a)(5) of RR No. 16-2005, as amended by RR No. 04-2007,74 states:

74 SEC. 4.106-5. Zero-Rated Sales of Goods or Properties.- ... The following sales by VAT-registered persons shall be subject to zero percent (0%) rate:

(a) Export Sales.-

(5) Transactions considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987, and other special laws.

'Considered export sales under Executive Order No. 226' shall mean the Philippine port F.O.B. value determined from invoices, bills of lading, inward letters of credit, landing certificates, and other commercial documents, of export products exported directly by a registered export producer, or the net selling price of export products sold by a registered export producer to another export producer, or to an export trader that r Subject: Amending Certain Provisions of Revenue Regulations No. 16-2005, As Amended, Otherwise Known as the Consolidated Value-Added Tax Regulations of2005; 7 February 2007.

Page20 o£49 subsequently exports the same; Provided, That sales of export products to another producer or to an export trader shall only be deemed export sales when actually exported by the latter, as evidenced by landing certificates or similar commercial documents; Provided, further, That pursuant to EO 226 and other special laws, even_ without actual exportation, the following shall be considered constructively exported: (1) sales to bonded manufacturing warehouses of export-oriented manufacturers; QJ_sales to export processing zones pursuant to Republic Act (RAJ Nos. 7916, as amended, 7903, 7922 and other similar export processing zones; (3) sale to enterprises duly registered and accredited with the Subic Bay Metropolitan Authority pursuant to RA 7227; (4) sales to registered export traders operating bonded trading warehouses supplying raw materials in the manufacture of export products under guidelines to be set by the Board in consultation with the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC); (5) sales to diplomatic missions and other agencies and/or instrumentalities granted tax immunities, of locally manufactured, assembled or repacked products whether paid for in foreign currency or not. (Emphasis and italics supplied.)

In this case, the applicable special law is Republic Act No. 7916, 75 as amended by RA No. 8748/6 otherwise known as "The Special Economic Zone Act of 1995." Sections 8 and 24 thereof read: SECTION 8. ECOZONE to be Operated and Managed as Separate Customs Territory. - The ECOZONE shall be managed and operated by the PEZA as separate customs territory .

The PEZA is hereby vested with the authority to issue certificates of ongm for products manufactured or processed in each ECOZONE in accordance with the prevailing rules of origin, and the pertinent regulations of the Department of Trade and Industry and/or the Department of Finance. SECTION 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 . ...

(Emphasis and italics supplied) By viewing the ecozone as a foreign territory, sales of goods, and services made by VAT -registered person in the Philippine customs territory to an entity registered and operating within the ecozone are then considered exportations subject to 0% VAT. This was explained by the Supreme Court in the case of Toshiba Information Equipment (Phils.), Inc. vs. Commissioner of Internal Revenue77 citing the earlier case of Commissioner of Internal Revenue vs. Toshiba Information Equipment (Phils.) Inc., 78 to wit: r 75 76 77 78 An Act Providing for the Legal Framework and Mechanisms for the Creation. Operation, Administration, and Coordination of Special Economic Zones in the Philippines. Creating for this Purpose, the Philippine Economic Zone Authority (PEZA), and for Other Purposes. February 24, 1995. An Act Amending Republic Act No. 7916, Otherwise Known as The "Special Economic Zone Act Of 1995", June 1, 1999.

G.R. No. 157594, March 9, 2010.

G.R. No. 150154, August 9, 2005.

Page 21 o£49 It is now a settled rule that based on the Cross Border Doctrine, PEZA-registered enterprises, such as Toshiba, are VAT -exempt and no VAT can be passed on to them. The Court explained in the Toshiba case that-

PEZA-registered

enterprise, 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 (5%) 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.

XXX XXX XXX

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 (1 0%) VAT." (Emphasis and italics supplied.)

Accordingly, the following elements must be present in order for an export sale to be qualified for VAT zero-rating under Section 106(A)(2)(a)(5) of the Tax Code, as amended:

1. the sale was made by a VAT registered person; and

2. the sale of goods must be to an entity entitled to incentives under Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987 ("OIC"), and other special laws. As for the first element, it was earlier established that petitioner is a VAT -registered person.

Anent the second element, it must be emphasized first that the records and ICPA report show that petitioner only had two PEZA-registered clients in TY2021. The sales to these entities are broken down as follows:

Client

PHP

i. Franklin Baker Incorporated 24,250,922.54 ii. Archemicals Corporation 37,689,137.40 Total Sales to PEZA-reg!stered ~ntities _ - 61,940~59.94 r

Petitioner presented Franklin Baker Incorporated's (FBI) Certificate of Registration with PEZA79 and PEZA VAT Zero-rating Certificate80 valid for the year 2021.

However, for Archemicals Corporation, no similar documents were presented to the Court. Instead, petitioner submitted an approved application for VAT zero-rating of the sales to Archemicals Corporation, valid from January 12, 2021 to December 31, 2021. Nevertheless, We still find such document sufficient to be considered valid zero-rated sales. Pursuant to Revenue Memorandum Order No. 7-2006, 81 the submission of complete supporting documents is required for the approval of VAT zero- rating application. A review of the Annex B of the same RMO shows that the checklist of requirements includes certified true copy of Certificate of Registration and VAT Zero-rating Certificate of the PEZA entity. Thus, by submitting the BIR-approved application form, petitioner has proved, with sufficient evidence, that its sales to Archemicals Corporation qualified for VAT zero-rating under the Tax Code for TY2021. Moreover, We reviewed the invoices82 issued by petitioner, including those related to sales to these PEZA-registered entities, and noted petitioner's compliance with the invoicing requirements under Section 113(A)(l),(B)(l), and (2)(c) ofthe Tax Code, as amended, and Section 4.113.l(A)(l), (B)(l), and (2)(c) ofRR No. 16-2005.

In sum, petitioner's valid zero-rated sales amount to Php61,940,059.94, which includes sales to PEZA-registered entities, FBI, and Archemicals Corporation.

Petitioner's

input VAT are not transitional input taxes.

As for the sixth requisite, jurisprudence83 provides that the input taxes claimed for refund should not be transitional input taxes. Transitional input tax is an input tax on a taxpayer's beginning inventory of goods, materials, and supplies equivalent to 2% of the value of such inventory or the actual VAT paid on such goods, materials, and supplies, whichever is higher, which shall be creditable against the output tax. 84 The 79 80 81 82 83 84 Exhibit "P-38.2", USB attached to !CPA Report. Exhibit "P-38.1", USB attached to ICPA Report Prescribing Guidelines and Procedures in the Processing of Applications for Zero-Rating of Effectively Zero-Rated Transactions for Value-Added Tax Purposes, December 15,2005. Exhibits "P-33.1" to "P-33.1340", USB attached to ICPA Report. Supra note 55.

Section 11 I of the Tax Code.

"SEC. 111. Transitional/Presumptive Input Tax Credits. - r transitional input tax operates as a benefit to newly VAT -registered persons on their transition from non-VAT to VAT status, to alleviate the impact ofthe VAT on the taxpayer. 85 In this case, there is no showing that the input VAT claimed by the petitioner are transitional input taxes. Hence, the Court finds that the petitioner has complied with the sixth requisite.

Petitioner's input VAT were partially due or paid.

As for the seventh requisite, petitioner must prove that the input VAT it is claiming should either be due or paid, pursuant to Section 11 O(A) of the Tax Code, as amended, and implemented by Section 4.110-1 to 4.110-3 ofRR 16-2005, as amended by RR 4-2007, which respectively state: 85 Section 11 O(A) of the Tax Code, as amended SEC. 110. Tax Credits.- (A) Creditable Input Tax. -

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

(a) Purchase or importation of goods:

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

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

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

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

(a) To the purchaser upon consummation of sale and on importation of goods or properties; and r (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 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." Fort Bonifacio Development Corporation v. Commissioner of Internal Revenue, G.R. No. 158885 and 170680, October 2, 2009.

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

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

Section 4.110-1 to 4.110-3 ofRR 16-2005 SEC. 4.110-1. 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 use 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. Ill of the Tax Code.

It includes input taxes which can be directly attributed to transactions subject to the VAT plus a ratable portion of 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 23 7 of the Tax Code shall be creditable against the output tax: paid· '

(a) Purchase or importation of goods:

(1) For sale; or

(2) For conversion into or intended to form part of a finished product for sale, including packaging materials; or

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

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

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

(d) Transactions "deemed sale" under Sec. 106 (B) ofthe Tax Code; (e)Transitional input tax allowed under Sec. 4.111 (a) of these Regulations;

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

(g) Transitional input tax credits allowed under the transitory and other provisions of these Regulations. r

CIA CASE N0.11237

SEC. 4.110-2. Persons Who Can Avail of the Input Tax Credit.- The input tax credit on importation of goods or local purchases of goods, properties or services by a VAT-registered person shall be creditable:

(a) To the importer upon payment of VAT prior to the release of goods from customs custody;

(b) To the purchaser of the domestic goods or properties upon consummation of the sale; or

(c) To the purchaser of services or the lessee or licensee upon payment of the compensation, rental, royalty or fee. SEC. 4.110-3. Claim for Input Tax on Depreciable Goods Where a VAT -registered person purchases or imports capital goods, which are depreciable assets for income tax purposes, the aggregate acquisition cost of which (exclusive of VAT) in a calendar month exceeds One Million pesos (Pl,OOO,OOO.OO), regardless of the acquisition cost of each capital good, shall be claimed as credit against output tax in the following manner:

(a) If the estimated useful life of a capital good is five (5) years or more - The input tax shall be spread evenly over a period of sixty (60) months and the claim for input tax credit will commence in the calendar month when the capital good is acquired. The total input taxes on purchases or importations of this type of capital goods shall be divided by 60 and the quotient will be the amount to be claimed monthly.

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

Capital goods or properties refers to goods or properties with estimated useful life greater than one (1) year and which are treated as depreciable assets under Sec. 34(F) of the Tax Code, used directly or indirectly in the production or sale oftaxable goods or services. The aggregate acquisition cost of depreciable assets in any calendar month refers to the total price, excluding the VAT, agreed upon for one or more assets acquired and not on the payments actually made during the calendar month. Thus, an asset acquired on installment for an acquisition cost of more than Pl,OOO,OOO.OO, excluding the VAT, will be subject to the amortization of input tax despite the fact that the monthly payments/installments may not exceed Pl,OOO,OOO.OO .... Further, Section 4.110-8 of RR No. 16-2005 provides for the substantiation requirements of input tax credits 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:

(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 23 7 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 23 7 of the Tax Code. (b )Transitional input tax shall be supported by an inventory of goods as shown in a detailed list to be submitted to the BIR.

(c) Input tax on "deemed sale" transactions shall be substantiated with the invoice required under Sec. 4.113-2 of these Regulations.

(d) Input tax from payments made to non-residents (such as for services, rentals and royalties) shall be supported by a copy of the Monthly Remittance Return ofValue Added Tax Withheld (BIR Form 1600) filed by the resident payor in behalf of the non-resident evidencing remittance of VAT due which was withheld by the payor.

(e) Advance VAT on sugar shall be supported by the Payment Order showing payment of the advance VAT.

Based on the foregoing provisions of the Tax Code and the corresponding implementing rules, input tax must be evidenced by VAT invoice or official receipts ("OR") issued in accordance thereto in order to be creditable.

In the case at hand, petitioner claims for the refund of the input tax amounting to Phpl04,646,203.86 as shown in its administrative refund claim.86 As per ICPA Report,87 such amount is computed using the formula below:

86 87 r See Application for Tax Credits/Refunds (BIR Form No. 1914), supra note 8. See ICPA Report, p. 20.

DECISIOl\'

Page27 o£49

Particular

Total input VAT per VAT returns declaration Less: Utilized input VAT per VAT returns

Amount

(in PHP)

134,895,345.90 applied to VA Table sales transactions 29,592,776.17 Input VAT allocated to VAT exempt sales per VAT Return 6,584,973.13

Subtotal

36,177,749.30 Total excess unutilized input VAT For the

Taxable Year 2021 (per BIR Form 1914)

(see Exhibit P-55) p 104,646,203.86 For purposes of proving compliance with the substantiation requirements, petitioner submitted its VAT invoices and ORs on its current purchases. ICPA Pizarro's findings on these supporting documents are summarized as follows:

Exhibit Reference

Amount of Input

Particular

VAT

No.

(in PHP)

Total input VAT per VAT return 134,895,345.90 With proper supporting documents

1. Input VAT on the domestic purchase of services with proper

Exhibit P-69

60,164,398.6988 supporting documents

2. Input VAT on the domestic purchase of goods with proper

Exhibit P-70

44,462,717.7289 supporting documents

3. Input VAT on importations with

Exhibit P-71

6,163,217.67 proper supporting documents

4. Summary of Amortized Input

Exhibit P-72

909,859.74 VAT based on VAT Returns Total input VAT with proper 111,700,193.8290 supporting documents With improper supporting documents

1. Input VAT on the domestic purchase of goods and services where original official receipts or

Exhibit P-74

607,169.09 sales invoice are not within taxable year 2021.

2. Input VAT on the domestic purchase of goods and services

Exhibit P-75

12,304.93 without VAT computation.

88 Amount per Exhibit "P-69", but the summary in the ICPA Report shows the amount Php60,428,808.46, see ICPA Report p. 23.

89 90 Amount per Exhibit "P-70", but the summary in the ICPA Report shows the amount Php44,414,633.65, see ICPA Report p. 23.

Amount as recalculated by the Court, but the summary in the ICPA Report shows total amount of Phpiii,006,659.78, see ICPA Report, p. 23.

3. Input VAT on the domestic purchase of goods and services where the address of the petitioner is incorrect.

4. Input VAT on the domestic purchase of goods and services where the date is not indicated.

5. Input VAT on the domestic purchase of goods and services where the TIN of the petitioner is incorrect.

6. Input VAT on the domestic purchase of goods and services where the TIN of the petitioner is not indicated.

7. Input VAT on the domestic purchase of goods and services where the amount is not converted into peso.

8. Input VAT on the domestic purchase of goods and services not in the name of the petitioner.

9. Input VAT on the domestic purchase of goods and services with no countersign upon insertion

10. Input VAT on the domestic purchase of goods or services supporting document not found.

Total Unallowable Unutilized Input

VAT with improper supporting documents Total input VAT on documents verified by ICPA

Discrepancy

I

Exhibit P-76

415.05 i

Exhibit P-77

7,833.21

Exhibit P-78

3,923.31

Exhibit P-79

40,838.50

Exhibit P-80

6,386.47

Exhibit P-81

409,647.31

Exhibit P-82

388,087.83

Exhibit P-83

28,340,687.68 29,817,293.38 141,517,487.20 (6,622,141.30) Both petitioner and ICPA Pizarro failed to explain the noted discrepancy ofPhp6,622, 141.30 between the reported input VAT for TY2021 and the input VAT per documents provided.

Nevertheless, Our discussions below shall focus on ICPA Pizarro's reported properly substantiated input VAT amounting to Php111,700,193.82 which were subjected to the Court's further verification, taking into consideration the invoicing requirements pursuant to

Section

113(A)(J), (B)(l), and (2)(c) of the Tax Code, as amended, and Section 4.113.1 (A)(J), (B)(J), and (2)(c) of RR No. 16-2005. r

Page 29 o£49 Meanwhile, We adopt ICPA Pizarro's findings regarding the lack of proper substantiation for the input VAT amounting to Php29,817,293.38. (i) Input VAT on domestic purchase of services As per Exhibit "P-69", ICP A Pizarro reported that petitioner has properly substantiated its domestic purchase of services with corresponding input VAT ofPhp60,164,398.69. However, upon further verification of the 0Rs91 submitted, we noted the following exceptions:

VATable

VAT Amount I

Supplier

Exhibit

OR No.

Sales

(in PHP)

I

_(in PHP)

VAT Amount not separately indicated

DAMES

I

INTERNATIONA

P-69.12 0711 375,059.26 45,007.11 L CORP.

I

NISSAN SAN

P-

NSP-100001038

16,387.00

PABLO

69.1162 1,966.44

I

VA Table sales and VAT amount not properly indicated

ICI SYSTEMS

P-

11555 1,524,205.00 INC.

69.1331 182,904.60

LUZVIMINDA

BONDED

P-

3189 128,771.00

WAREHOUSE

69.1348 15,452.52 SERVICES INC.

MAKATI

553.00 VAT Exe111J!! sale

I

KUEHNE+NAGE

P-69.750 42118 26,529.46 L,INC.

3,183.54

I

Notjjmnd in records r

91 Exhibits "P-69.1" to "P-69.2369", USB attached to ICPA Report.

FSTA TRUCKING | _P- 9»

INC. 69.1234 18880 112,900.86 | 3 ogy.49 a

FSTA TRUCKING | P- 93

INC. 69.1237 18366 491,600.00 | 58 999 00 - —. —- ASIAN BRIDGE p- 04 EXPRESS. INC. | 69.1585 0010399 2,497.53 | n99 79 ASIAN BRIDGE p- 95 EXPRESS, INC. | 69.1656 0010358 38,998.01 | 4 679.76 SEAHAWK >. , TRANSPORT, 50.4660 0108975 3.81750] ye 4 INC.

[— [— —F

SEAHAWK >

7 97 TRANSPORT, 50.1661 0108976 127218) sy ge INC.

Incorrect VAT in OR |

DAMES

INTERNATIONA | P-69.58 0811 2,241,039.48 CORD 268,924.74 — ——

DAMES

INTERNATIONA. | P-69.158 1021 771,172.88 CORP 92,540.75

DHL EXPRESS

(PHILIPPINES) | P-69.268 4367355 3,335.00] yon ng CORP.

{

PHILIPPINES

BRITISH ORHOF0006859

ASSURANCE P-69.336 4 65,561.97 | 7 967 44 COMPANY INC.

ST.GILES SAAT P-69.405 173719 64,706.70 | 7764 g9

T

ST.GILES MARAT P-69.407 171106 ] 12,608.68} 4 513 94

ASIAN BRIDGE

EXPRESS INC. | P:69.806 10344 19,581.78} 4 349 g1 °2 Attached OR is No. 18887 which also tagged as P-69.1235. 3 Attached OR is No. 18370 which also tagged as P-69.1238. °4 Attached OR is tagged as P-69.2366 in schedule. °° Attached OR is tagged as P-69.2367 in schedule. °° Attached OR is tagged as P-69.2368 in schedule. °7 Attached OR is tagged as P-69.2369 in schedule.

Page31 o£49

SULYAP

COCO LAND

CMPD

OMNIWORX INC.

SULYAP

COCO LAND

CMPD

SULYAP

COCO LAND

CMPD

OMNIWORX INC.

FSTA TRUCKING

INC.

E-CIRCUIT

INDUSTRIAL

SERVICES

LUZVIMINDA

BONDED

WAREHOUSE

SERVICES INC.

GOOD CARGO

SOLUTIONS

(GCS), INC.

DAOS

FERIA TANTOCO

P-69.829 5115 6,413.28

DAOS

FERIA TANTOCO

P-69.830 5301 2,358.00

DAOS

ENTECH

P-69.864 4384 1,080.00 PHILIPPINES INC.

IRS EASTERN

P-69.899 20345 23,375.87 INC.

L___--

Input VAT

I

per OR

Adjustment

I

557.49 (2,118.66) I

I

1,800.00 420.00 3,671.03 (66.75) 34,496.78 32,117.06 1,504.33 (27.35) 2,925.97 476.16 266.55 (4.85) 4,391.01 (79.84) 1,066.19 (19.39) 1,800.00 (724.29) 4,800.00 (1,613.28) 1,972.39 (385.61) 1,503.44 423.44 23,303.87 (72.00) r

DECISIOI\"

THE FIRST

ANALYTICAL

SERVICES AND

TECHNICAL

COOPERATIVE

WHEELHOUSE

TRANSPORT

MAP GENERAL

SERVICES CORP.

OMNIWORX INC.

NATCORP

CAREER

GROWTH AND

ABOITIZ ENERGY

SOLUTIONS INC.

200011016 344,091.61 338,407.59 (5,684.02) I r

ABOITIZ ENERGY P-69.1146 200010761 284,900.14 279,299.79 (5,600.35) SOLUTIONS INC.

FSTA TRUCKING

P-69.1229 18895 107.12 19,872.00 19,764.88 INC.

FSTA TRUCKING

P-69.1280 19130 30,017.43 29,646.48 (370.95) INC.

DAVAO

METRO KEN

INDUSTRIAL

P-69.1318 3029 1,540.17 10,017.86 8,477.69

SALES &

SERVICES

DAVAO

METRO KEN

INDUSTRIAL

P-69.1319 3015 4,419.64 4,017.86 (401.79)

SALES &

SERVICES

REIN LAB

P-69.1442 1231 23,271.66 21,156.00 (2,115.66)

CORPORATION

REIN LAB

P-69.1443 1233 39,960.88 36,327.96 (3,632.92)

CORPORATION

Total Adjustment

119,398.53 We therefore recompute the total valid input VAT on domestic purchase of services as follows:

Input VAT on the domestic purchase of services with proper supporting documents per ICPA recommendation 60,164,398.69 Less: Disallowed input VAT per Court's verification ( 1 ,891,869 .57) Add: Adjustments to correct ICPA schedule of input VAT on domestic purchase of services (Exhibit P-69) 119,398.53 Input VAT on domestic purchase of services (after Court's further verification) 58,391,927.65 r

DECISIOI\

(ii) Input VAT on domestic purchase of goods As per Exhibit "P-70", ICPA Pizarro reported that petitioner has properly substantiated its domestic purchase of goods with corresponding input VAT ofPhp44,462,717.72. However, upon checking of compliance on the invoicing requirements, we noted the following exceptions on the invoices98 submitted:

VATable

VAT

I

Supplier

Exhibit

Invoice No.

sale amount

I

(in PHP)

KIMSOY TRADING

P-

2147 70.4727 17,428.57 2,091.43

KIMSOY TRADING

P-

2149 70.4728 4,821.43 578.57

RAYMUND INDUSTRIAL

P-

000010

SUPPLY

70.4729 20,000.00 2,400.00

SN WIDEREACH

P-

2696 MARKETING INC.

70.4730 128,571.43 15,428.57

STARBRIGHT OFFICE

P-

114605 DEPOT INC.

70.4731 1,339.29 160.71 ---- 98 Exhibits "P-70.1" to "P-70.4840", USB attached to ICPA Report. r

Page36 o£49

STARBRIGHT OFFICE

DEPOT INC.

STARBRIGHT OFFICE

DEPOT INC.

STARBRIGHT OFFICE

DEPOT INC.

STARBRIGHT OFFICE

DEPOT INC.

TRADEMAX CORPORATION

UP-TOWN INDUSTRIAL

SALES INCORPORATED

INCORPORATION 70.4747 5,357.14 642.86 + fo —t DAVAO CATHAY PARTS & p

HARDWARE 72490

INCORPORATION 70.4748 2,232.14 267.86 _ ft L DAVAO CATHAY PARTS & p

HARDWARE 72111

INCORPORATION 70.4749 1,250.00 150.00 { a TYRECHAMP AUTO p- 33905 CENTER, UNLIMITED 70.4750 34,285.71 | 4,114.29 es ee tL i iz Not supported by invoice

Tt

DABAWENYO INDUSTRIAL P- 7179

SALES 70.4320 3,285.00 394.20 _t { DABAWENYO INDUSTRIAL p- N71 SALES 70.4321 1,348.00 161.76 Redundant invoice _ _ - p- RJ2M ENTERPRISES 70.3566 | 91% | ssn 4B | 6,428.57 | Incorrect VAT amount in invoice _ SINOFIL PHILIPPINES, INC. P-70.590 44726 69,000.00 8280.00 on +

SAN PABLO CITI

ENTERPRISES COMPANY P-70.950 105975 38,080.00 4,569.60 i —L

SPC HARDWARE &

CONSTRUCTION SUPPLY P-70.984 115802 10,000.00 1,200.00 —| DELTARAY ELECTRICAL p

AND MECHANICAL 7 654

ENTERPRISES 70.4590 9,750.00 1,170.00

ECV OFFICE SUPPLIES P- 37142

WAREHOUSE, INC. 70.4706 1,400.00 168.00 TOTAL DISALLOWED INPUT VAT i | (per Court’s verification) 244,218.90

We likewise noted that a number of invoices which can properly serve as substantiation for input VAT on petitioner's domestic purchase of goods were reflected incorrectly in ICPA Pizarro's schedules. The details of these invoices and the calculated necessary adjustments are shown in the table below:

Details in Exhiit "P-70" prepared by ICPA

Input VAT

Adjustment

Supplier

Exhibit

Invoice No.

Input VAT

per invoice

FRANKLIN

BAKER

COMPANY OF

P-70.253

DVD00002269

46,216.07 43,816.07 (2,400.00)

THE

PHILIPPINES

ELITEPRIME

P-70.348 33849 437.08 1,037.14 600.06

TRADING

BIOTRIUNE, P-70.369 4103 5,598.75 5,838.75 240.00 INC.

PIDAB

MARKETING

P-70.506 53030 148.93 208.93 60.00

CORPORATION

PRODEON

METAL

P-70.530 0039 45.00 45,000.00 44,955.00

FABRICATION

WORKS

SPC

HARDWARE&

P-70.627 115115 2,410.72 2,236.80 (173.92)

CONSTRUCTION

SUPPLY

MERCK INC

P-70.905 127704 1,937.02 9,180.00 7,242.98

PIDAM

MARKETING

P-70.922 56358 120.00 180.00 60.00

CORPORATION

SAN PABLO

CITI

P-70.959 105868 8,906.58 18,720.00 9,813.42

ENTERPRISES

COMPANY

SAN PABLO

CITI

P-70.964 105569

ENTERPRISES

1,064.15 966.00 (98.15)

COMPANY

SPC

HARDWARE&

P-70.993 115125 685.71 8,880.00 8,194.29

CONSTRUCTION

SUPPLY

- -

I

DIVERSEY

PHILIPPINES

P-70.1094 INC.

SCHARLAB

PHILIPPINES

P-70.1334 INC.

SCHARLAB

PHILIPPINES

P-70.1335 INC.

BIG JOE GAS

P-70.1579

STATION

FH

COMMERCIAL

P-70.2690 INC.

MY GAS

PETROLEUM

P-70.2883

CORPORATION

NEXUS

INDUSTRIAL

PRIME

P-70.2904

SOLUTION

CORP

RJSJS

P-70.2927

MARKETING

MINDANAO

SOLID FUEL

P-70.3025

CORP

MINDANAO

SOLID FUEL

P-70.3026

CORP

MINDANAO

SOLID FUEL

P-70.3029

CORP

J.H. HARWARE P-70.3434 CO.

MY GAS

PETROLEUM

P-70.3517

CORPORATION

SPC Hardware &

Construction

P-70.4777

Supply

Total Adjustment

I

5156234536 27,000.00 3,448.44

I

(23,551.56) I

I

15995 4,677.60 4,435.20 (242.40) 16694 1,540.17 4,435.20 2,895.03 172327 1,037.67 233.75 (803.92) 67565 9,219.60 9,195.60 (24.00) 25926 52,020.00 52,500.00 480.00 62683 4,695.72 4,575.72 (120.00) 5544 1,118.57 1,178.57 60.00 25222 198.99 27.96 (171.02) 25207 64.11 198.99 134.88 25150 64.11 29.25 (34.86) 107348 681.60 703.20 21.60 026482 49.04 49,050.00 49,000.96 120562 111,399.60 11,139.60 (1 00,260.00) (4,121.62) r

Accordingly, the adjusted total valid input VAT on domestic purchase of goods is as follows:

Input VAT on the domestic purchase of goods with ro er su ortin documents er ICP A recommendation 44,462,717.72 er Court's verification (244,218.90) Less: Adjustments to correct ICPA schedule of input VAT on domestic urchase of oods Exhibit P-70 Input VAT on domestic purchase of goods (after Court's further verification) 44,214,377.20 (iii) Input VAT on importations ICP A Pizarro reported that petitioner has properly substantiated its importations with total input VAT amounting to Php6,163,217.67, as shown in Exhibit "P-71". Upon review of the invoices,99 Import Entry and Internal Revenue Declarations - Single Administrative Documents, 100 and Statement of Settlement of Duties and Taxes, 101 we adopt such finding by the ICPA. (iv) Amortized input VAT ICPA Pizarro submitted a summary of petitioner's amortized input VAT based on its VAT returns and claims that these should be considered properly substantiated for purposes of determining valid input VAT for TY2021. We disagree.

Section 110 (A) (2) of the Tax Code allows a taxpayer to spread input VAT over 60 months or the estimated useful life of the capital goods, whichever is shorter, if the aggregate acquisition cost exceeds Php 1 million. However, without proper substantiation, the corresponding input tax amortized for the period cannot be allowed to be included in the refund claim. The Supreme Court, in the case of Taganito Mining Corporation v. Commissioner of Internal Revenue, 102 explained that supporting documents must be presented to allow the Court to verify whether the purchases are in the nature of capital goods and whether the corresponding input VAT has been properly amortized over 60 months or the estimated useful life of the of the capital goods, whichever is shorter, thus:

It has not escaped our attention that the issue of amortization has been discussed in Taganito Mining Corporation v. Commissioner of Internal Revenue involving the same parties regarding a similar controversy for petitioner's tax credit of its input VAT from January 1 to

99 Exhibits "P-71-A.1" to "P-71-A.52", USB attached to ICPA Report.

100 Exhibits "P-71-B.1" to "P-71-B.52", USB attached to ICPA Report.

101 Exhibits "P-71-C.1" to "P-71-C.52", USB attached to ICPA Report.

102 G.R. No. 216656, April26, 2021 '

CIA CASE NO. 11237

December 31, 2006. There, this Court held that petitioner failed to substantiate its payment of input tax on its imported goods as it did not submit the necessary documents showing the importation. In an obiter, We held that petitioner must prove that the items are in the nature of capital goods and the amount of input tax should be amortized over its estimated useful life:

First, Taganito failed to prove that the importations pertaining to the input VAT are in the nature of capital goods and properties as defined in the abovequoted [sic] section. It points to the report of the independent CPA which allegedly reviewed the IERIDs and subsidiary ledger containing the description of the dump trucks. Nonetheless, the petitioner failed to present the actual IERIDs and subsidiary ledger, which would constitute the best evidence rather than a report merely citing them. It did not give any reason either to explain its failure to present these documents. The testimony of its Vice-President for Finance would be insufficient to prove the nature of the importation without these supporting documents. Second, even assuming that the importations were duly proven to be capital goods, Taganito's claim still would not prosper because it failed to present evidence to show that it properly amortized the related input VAT over the estimated useful life of the capital goods in its subsidiary ledger, as required by the abovequoted [sic] sections. This is made apparent by the fact that Taganito's claim for refund is for the full amount of the input VAT on the importation, rather than for an amortized amount, and by its failure to present its subsidiary ledger In this case, there is no dispute that the P7,572,550.29 is the total input VAT from domestic and imported purchases of capital goods that petitioner paid from January 1 to December 31, 2007. The amount was disallowed because out of petitioner's P8,850,141.45 input taxes, only P1,277,591.16 accrued from January 1 to December 31, 2007. The remaining P7,572,550.29 is to be amortized over the estimated useful life of the capital goods. There being no issue as to whether petitioner substantiated the requirements for its input tax credit, We agree that it has properly substantiated its claim for input tax. Here, other than the summary of amortized input VAT, no supporting documents were presented to the Court to verify the existence of the said purchases of capital goods and the veracity of the computation of the said amortized input VAT. Moreover, even ICP A Pizarro failed to discuss whether other documents were provided to him by petitioner in the course of his review.

Consequently, the Court finds the disallowance of the unsupported amortized input VAT Php909,859.74 in order. In sum, petitioner's total valid input VAT for TY2021

Is

Phpl08,769,522.52, computed as follows: r

Page45 o£49 Input VAT on domestic purchase of services (after Court's further verification) Input VAT on domestic purchase of services (after Court's further verification) Php 58,391,927.65 44,214,377.20 Input VAT on importations with proper supporting documents 6,163,217.67

TOTAL VALID INPUT VAT FOR TY2021

Petitioner's valid input VAT shall be proportionately allocated to zero- rated, VA Table and VAT-exempt sales on the basis of sales volume Php108,769,522.52 In relation to the eighth requisite, Section 112(A) of the Tax Code provides that where the taxpayer is engaged in zero-rated or effectively zero- rated sale and also in taxable or exempt sale of goods of properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales. As discussed earlier, petitioner declared in its Quarterly VAT return for TY2021 total sales of Php4,518,931 ,835 .94, consisting of zero-rated, VAT- exempt and VA Table transactions.

Taxable Exhibit

Vatable

Zero Rated

Vat Exempt

Total Sales

Ref

(converted in

Quarter

No.

(in PHP)

PHPJ

P-33

Total

~4~6Q_6,468.05 - - 4,061,200,813.55 211,124,554.34 4,518,931,835.94 However, since petitioner's valid input VAT for TY2021 in the total amount ofPhpl08,769,522.52 cannot be identified to specific sales, the Court shall proportionately allocate the said input VAT based on the volume of petitioner's sales, thus:

Total Zero-rated Sales per VAT Returns

Php4,061 ,200,813.55 Divided by the Reported Total Sales per VAT Returns 4,518,931,835.94

Multiplied by Total Valid Input VAT

108,769,522.52 i

Page 46 o£49 I Valid Input VAT allocated to total zero-rated sales

Total VA Table Sales per VAT Returns

Divided by the Reported Total Sales per VAT Returns

Multiplied by Total Valid Input VAT

Valid Input VAT allocated to total VA Table sales Total VAT -exemgt Sales per VAT Returns Divided by the Reported Total Sales per VAT Returns

Multiplied by Total Valid Input VAT

Php 97,752,055.00 I Php246,606,468.05 4,518,931,835.94 108,769,522.52 Php 5,935,754.01 Php211,124,554.34 4,518,931,835.94 108,769,522.52 Valid Input VAT allocated to total VAT-exempt sales Php 5,081,713.51 As such, regarding petitioner's compliance with the eighth requisite, only the amount of Php97,752,055.00 represents its valid input VAT attributable to total declared zero-rated sales for TY2021. Petitioner's input VAT was not fully applied against output taxes during the period of claim and in the succeeding quarters.

As to the ninth requisite, petitioner reported output VAT from its taxable sales for Q 1 to Q4 of TY2021 in the aggregate amount of Php29,592,776.17.

Taxable

Exhibit Ref No.

Output Vat

Quarter

(in PHP)

Q1

Exhibit P-45; P-33 12,147,936.67

Q2

Exhibit P-46; P-33 6,712,380.15

Q3

Exhibit P-47; P-33 6,080,924.86

Q4

Exhibit P-48; P-33 4,651,534.49

Total

29,592,776.17 In the case of Chevron Holdings, Inc. (Formerly Caltex Asia, Limited) vs. Commissioner of Internal Revenue ("Chevron" case), 103 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% VA Table sales, and any utilized 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. Such option is vested 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) r

103 G.R. No. 215259, July 5, 2022.

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 and italics supplied) In this case, the records show that petitioner chose the first option, i.e., it computed its claim for refund in the aggregate amount of Php104,646,203.86 by offsetting its output VAT from the regular VATable sales against its available input taxes for Q 1 to Q4 of TY2021, as shown below:

Particular

Amount

(in PHP)

Total input VAT per VAT returns Php134,895,345.90 declaration Less: Utilized input VAT per VAT returns applied to VA Table sales 29,592,776.17 transactions (amount of output VAT liability in TY2021) Input VAT allocated to VAT exempt sales per VAT Return 6,584,973.13

Subtotal

36,177,749.30 Total excess unutilized input VAT For

the Taxable Year 2021 (per BIR Form

1914) (see Exhibit P-55) Php1 04,646,203.86 It is clear from the foregoing that petitioner opted to claim a refund of its unutilized or "excess" input tax, which is the amount after charging the input tax allocated to zero-rated sales against its output tax liabilities. If the intent was otherwise, petitioner should have first computed for the allocated input tax on VA Table and zero-rate sales then claimed for the refund of the full amount of input tax calculated as attributable to the latter. Since petitioner's valid input VAT allocated to taxable sales in the amount of Php5,935,754.01 is insufficient to cover its output VAT liability for TY2021 in the amount of Php29,592,776.17, the valid input VAT allocated to total zero-rated sales in the amount ofPhp97,752,055.00 shall be utilized against the remaining output VAT due of Php23,657,022.16. Thus, only the balance ofPhp74,095,032.84 can be attributed to the entire zero-rated sales declared by petitioner.

Output VAT

Php29,592,776.17 Less: Valid input VAT allocated to VA Table 5,935,754.01

Sales

Output VAT still due Php23,657,022.16 I Valid inPut VAT allocated to zero-rated sales I Php97,752,055.00 I r

Less: Output VAT still due Excess input VAT attributable to zero- rated sales -··- 23,657,022.16 Ph p7 4,095,032.84 However, as determined earlier, out of the total zero-rated sales declared by petitioner only Php61,940,059.94 qualifies as valid zero-rated sales. Hence, out of the unutilized input VAT attributable to total zero-rated sales, only Php 1,130,072.36 is attributable to the valid zero-rated sales of Php61,940,059.94, as computed below:

Excess input VAT attributable to zero-rated Php74,095,032.84 sales Divided by declared zero-rated sales 4,061,200,813.55 Multiplied by valid zero-rated sales 61,940,059.94 Input VAT attributable to valid zero-rated Php1,130,072.36 sales Finally, to ensure that the present input VAT claim for refund will no longer be available for application to future output VAT liabilities, while petitioner carried over the input VAT subject of this claim amounting to Php 104,646,203.86 in the succeeding quarters, the same was ultimately deducted as VAT Refund/TCC Claimed (Line 23D) in its 4th quarterly VAT Return for TY2022. 104 However, while we find that petitioner is deemed to have satisfied the ninth requisite for refund or tax credit of input VAT, and that it is entitled for refund of Phpl,130,072.36, it must be recalled that the BIR has already granted petitioner's claim up to the amount ofPhp17,961,525.50. As such, no further refund can be granted pursuant to the instant judicial appeal. ACCORDINGLY, premises considered, the instant Petition for Review is hereby DENIED for lack of merit.

SO ORDERED.

-SAN PEDRO

104 Exhibit "P-15", Docket, p. 297.

Page49 o£49

WE CONCUR:

~. ~ 7 '-- MA. BELEN M. RINGPIS-LIBAN

Presiding Justice

co~t.&JTh~Es

Associate Justice

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, 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.

!&. ~ )'-- MA. BELEN M. RINGPIS-LIBAN