Kelphil Inc. vs. Commissioner of Internal Revenue

DECIS ION

PALANCA-ENRJQUEZ, J.: A VAT registered taxpayer rendering engineering and design work services to non-resident · foreign clients, the consideration of which are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the HSP, may claim for refund or issuance of lax credit cerlificates of ils duly substantiated excess or unutilized input taxes attributable to such zero-rated or effectively zero- rated sales, pursuant to Section 112 of the N I RC of 1997, as amen~

DECISlON l 2 However, failure to show proof of proper documentation is fatal to one's claim f(w refund or credit.

THE CASE

This ts a Petition for Review filed hy Kelphil, Inc. (hereafter "petitioner") praying for the refund oC the amount of P3,514,301.22, representing the excess or unutilizecl input value-added tax (VAT) on domestic purchases of goods and services attTibutable to petitioner's zero- rated sales of services for taxable years 2004 and 2005.

THE PARTIES

Kelphil, Inc. is a domestic corporation duly organized and existing under Philippine laws, with principal orfice and place of business at the 28th floor, Ante! Global Corporate Center, 3 Doila Julia Vargas Ave., ..

Ortigas Center, Pasig City. Petitioner is a VAT-registered taxpayer as evidenced by its Certificate of Regislral inn No. OCN 3RC0000174570 (BlR Form No. 2303), as of January 1, 1907. Respondent, on the other hand, is the public official charged with the administration and enforcement of the national internal revenue laws, including the granting of refund or credit of 1axes erroneously or illegally collected, and other refundable or creditable taxes under the provisions of r . q :·~ .J \ .. ,) w

......

3 the National Internal Revenue Code (NIRC), with office at the Bureau of Internal Revenue (BIR) National Office Building, Diliman, Quezon City.

THE FACTS

In their "Joint Stipulation of Facts and Issues", the patties stipulated as follows: "1.

Petitioner is a domestiG corporation duly organized and existing under Philippines laws, with principal office and place of business at the 28 11' floor, Antel Global Corporate Center 3 Dona Julia Vargas Avenue, Ortigas Center, Pasig City, while Respondent is the public official charged with the administration and en ·J~)rcement of the national internal revenue laws, including the granting of refund or tax credit of taxes erroneously or illegally collected, and other refundable or creditable taxes under the provisions of the Tax Code, with oflice address at the BIR N<1tional Office Building, Dilimnn, ()ue7.nn City, where he may serve with summons. 2.

Petitioner is a V !\ T-registered taxpay~r as evidenced by its Cettificate of Regislration No. OCN 3R0000174570 (BIR rorm No. 2003) as ofOl/01/1997. 3.

for the 1 s\ 2 11d, 3rd' and 4 111 quarters of the year 2004, Petitioner fil ed its quarterly VAT Returns within the periods prescribed by law, namdy, on Apri I 20, 2004, July

2. 1, 2004, October 20, 2004, and Ja nuary 20, 2005, respectively.

4.

On March 28, 2006, Petitioner amended the said quarterly VAT returns for the yem· 2004, and :filed the amended returns on the same dal e with the Revenue District Oflice (RDO) No. 43, Pasig Cily.~ s !J I]

DECfSJON 5 F h 1st 2nd 3rd I 4th f h .

or t e , , , anc quarters o - t e year 2005, Petitioner filed the corresponding quarterly VAT returns within the periods prescribed by law, namely, on April 20, 2005, July 20, 2005, October 20, 2005, and January 20, 2006, respectively. 6.

On March 27, 2006, Petitioner amended the said quarterly VAT returns for the year 2005, and filed the amended returns on the same date with RDO No. 43 , Pasig C ity.

7.

On March 28, 2006, pe1tttoner filed with the respondent, through RDO No. 43, Pasig C ity, separate claims for refund, together with BIR Form No. 1914 (Application for Tax Credits/Ref11nds), covering the excess input taxes for the four quarters of 2.004 and the four quarters of2005.

8.

That based on Petitioner's Article of Incorporation that was du Jy registered and approved by the Philippine Securities and Exchange Comm ission on July 9, 1987, the principal purpose for which P(~ l itioner is formed is: 'To produce drafts, designs . and draw ings, hy Philippine Nationals, of civil structures, offshore structures, bridges, buildings, piping, plants and other works or installation of whatever kind, for companies in .IC~pan <md other countries.' 9.

That as stnted in the amended VAT retums that Petitioner filed for the 1st. 2 11d, 3"d, and 4th quatiers of 2004 (Annexes 'F', 'G', 'TI', and ' T' of the P -~ tition) Petitioner had no taxable sales or receipts and had no output tax due for the four ( 4) taxable quarters of 2004, ns horne out by Lines 19, 1 9A, and 198 of the returns. · 10.

That as stated in Lhe Set me amended VAT Returns for the 1 s\ 2 11d, 3rd, and 4th quarters of 2004, Petitioner had 'Zero-Rated Sales/ !~ eceipts, ' total purchases of goods and services, and input V !\ T paid, as follows: ~ 4 '· ' '

DECISlON 0 1'04 02'04 03'04 04'04 IPTAL Zero-Rated Sales/Receipts 12,136,073.49 20,326,432.24 15,575,973.99 18,752,499.95 66,790 ,9]~.67 Domestic Purchases 3,428,301.92 8,256,022.02 5,043,215.85 3,8!11 ,617.89 . f.!),~1~J~7 .6_§ Input VAT 342,830.19 825,602.21 504,321.57 385,161.78 2,057,915.75 11.

That as stated in the arnencied VAT returns filed for the 1st and 3rd quarters of 200), Pc1 itioner had no taxable sales or receipts, and had no output tax due. (Annexes 'N ' and "P' of the Petition). However, as stated in the amended VAT returns for the 2 11d and 4th quarters of 2005, (Annexes '0" and "Q" of the Petition), Petitioner had taxable sales or receipts of P80,814.63 and P303,840. R9 and corresponding output taxes due of P8,08l .46 and P30,384.09, respectively. 12.

That as stated in the same amended VAT .c 1 1st ,...nd "'rd I Lh 1'"005 p . .

returns 10r t1e · , L , .1 , anc 4 qum1ers o L , ettttoner had 'zero-rated sales/receipts', totRI purchases of goods and services, and input tax paid, as follmvs: Zero-Rated Domestic Input VAT Sales/Receipts Purchases 0 1'05 17,726,984.58 3,60?,140.68 360,214.10 0 2'05 18,383,360.45 5,001 ,471.69 500, 147.14 ..

03'05 17,960,865.79 4,485,464.34 448,546.45 0 4'05 16,389,194.16 1,161l,2H3.37 176,828.29 TOTAL 70,460,404.98 14,8 57J~~!J_,08 1 ,485, 735.98 13.

That as shown or indicated in the amended VAT returns for the 1st, 2 11d, 3rd, and 4th quarters of 2004 the input taxes therein were not credited or applied against output tax in said year, there h:wing been no output tax liabilities during the said year. 14.

That as shown or indicated in Line 25A in the amended VAT returns lor the fnm ( 4) quarters of 2004 (Annexes 'F', 'G', '1-l' and 'l' of the Petition), the excess input taxes per quat1er were deducted as 'VAT Refund/T~ 5 I.

Claimed' from the total available input taxes shown in Line 24 of said quarterly VAT retums of 2004. 15.

That as shown or indicated in the amended VAT returns for the lst and 3rd quarters of 2005 (Annexes 'N' and "P" of the Petition), the input taxes therein were not credited or applied against output tax in said quarters, there being no output tax liabilities in the said tnx<-1 ble quarters. 16.

That as shown or indicated in Line 25A in the amended VAT returns for the 1st and 3rt1 quarters of 2005, (Annexes 'N' and 'P' of the Petition), the excess input taxes per quarter were deducted as 'VAT Re fund/TCC Claimed' :fi·om the total available input taxes shown in Line 24 of said 1st and 3rd quarterly VAT returns. l 7.

That as shown or indicated in the amended VAT ret1.1rn for the 2nd quarter of 200::i (Annex '0' of the Petition), of the total input tax of 1)) 00, 14'/ .14, the amount of P8,081.63 was applied or credited against the output tax due for the quarter. However, the balance or excess input tax of P492,065.51 was deducted as 'V i\T Refund/ f CC Claimed' as shown or indicated in Line 25A of the sa id return. 18.

That as shown or indicated in the amended VAT return for the 4 111 quarter of 2005 (Annex 'Q' of the Petition), of the total input tax ofP176,828.29, the amount of P21 ,268.86 was credited or applied against 70% of the P30,384.09 output tax due for the quarter. However, the balance or excess input tax of Pl 55,559.43 was deducted as 'VAT Refund/TCC Claimed' as shown or indicated in Line 25A of the said return. 19.

The administra.tive clairns for refund that Petitioner :filed on March 28, 2006 wi1h RDO No. 43, Pasig City, covering the excess input taxes for the four quarters of 2004 and the four quarters of 2005, were filed within the two-year period prescribed by law, particularly Sec. 112 of the Tax Code.

[JAf t; q n 'J , -\.J 6 C.T.A. C' ASE No. 7427 DECJSlON I 20.

The Petition for Review covering the said claims for refund, having been fi led on March 31, 2006, was fi led within the two-year period prescribed by law. 21.

The Respondent has not yet granted above mentioned Petitioner's claims for refl.md." 7 In her Answer, respondent al leged by way of special and affirmative defenses that the claim for rcli.md is still under examination by the respondent's Bureau; the burden of proof is upon the petitioner to prove that it is entitled to the claim for refund or issuance of tax credit certificate; and the taxes sought to ·be refunded were paid in accordance with law; the burden of proof to the contrary is upon the petitioner- claimant to show w ith clear and unambiguous provision of law supporting the same.

Petitioner presented A lbert G. Albn, the Court-Commissioned Independent CPA, and Joey Calma, ns witnesses, and documentary evidence, marked as Exhibits "A" In ''R ", inclusive of their submarkings, which were all admitted by the Court in a Reso lution dated May 23, 2007, after petitioner filed a "Motion For h11~tial Reconsideration (of Resolution on Petitioner's Formal Offer of Evidence)". On the other hand, respondent submitted the case for decision, without presenting any evidence. (ML S.to ' I ~I DECISlON 8 Thereafter, both parties were ordered to fil e their simultaneous memoranda, within thirty (30) days from notice. Only petitioner filed its "Memorandum For the Petitioner" on February 20, 2008, and the case was deemed submitted for decision on February 29, 2008.

Hence, this decision.

ISSUES

As stipulated upon by the parties, lhc 1ssues for this Court's consideration are:

I WHETHER THE AMOUNTS TflAT PETTTTONER

REPORTED AS ZERO-RATED SALES/RECEIPTS IN ITS

QUARTERLY VAT RETURNS FOR TAXABLE YEARS

2004 AND 2005 WERE ITS COM PENSATION .FOR

SERVICES IT RENDERED TO ITS NON-RESIDENT

FOREIGN CLIENTS.

J] WHETHER SAID RECEIPTS OR COTv1PENSATION WERE PAID FOR TN ACCEI)TARLE FOREIGN CURRENCY AND ACCOUNTED FOR IN ACCORDANCE WTTIT Tl IE RULES AND REGULATIONS OF

THE BANGKO SENTRAL NG

PILIPTNAS.

~ i nr

WHETHER PETITIONER'S DOMESTIC PURCHASES

Of GOODS AND SERVICES, FOR WHICH IT PAID TNPUT TAX, ARE ATTRH3lJTABLE TO ITS ZERO- RATED RECEIPTS FOR THE PERIOD TN QUESTION. lV

WI-TETHER SAID DOMESTIC PURCHASES OF GOODS

AND SERVICES ARE DULY SUPPORTED BY ACCEPTABLE DOCUMENTARY EVlDENCE. v VlfJETHER THE ACCUMULATED OR EXCESS INPUT TAXES FOR THE PERfOD TN

QUESTION WAS

UTILIZED OR APPLIED AGAINST OUTPUT TAXES

DURING THE SAME PERIOD OR IN THE SUCCEEDING PERIODS.

Vl WI-TETHER

PETITIONER IS

ENTfTLED TO .. TI-IE REFUND OF EXCESS INPUT TAXES TN Tl-IE AMOUNT OF P2,057,915.75 FOR TAXABI .E YEAR 2004 AND IN THE AMOUNT OF Pl ,456,385.49 FOR TAXABLE YEAR 2005.

Principal Issue 9 All of the above issues boil down to the principal issue of whether or not petitioner is entitled to the refund orthe amount ofP3,514,301.22, representing unutilized input VAT paid on domestic purchases of taxab{;.fo 1 .. 1 •) v ... (.

DECISTON t 10 goods and services attributable to its zero-rated sales/receipts for taxable years 2.004 and 2005. THE RULING OF THE COlJRT The petition is partly meritorious. Section 112(A) of the NTRC of :1 'J97, as amended provides: "SEC. 112. Refunds or Tax Credits (~llnput Tax. - (A) Zero-rated or F:fectively 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 qumier when the ~;al e s were made, apply for the issuance of a tax credit certi ficate or refund of creclitnble input tax clue or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against outp11t tax: Providecl, however, That in the case of zero-rated s~1l es under Section 1 Oo(A)(2)(a)(l), (2) and (B) and Section I 08(B)(1) and (2), the acceptable forei gn curTency exchange proceeds thereof hCJd been duly accounted for in accordance with the rules ~nd regulations of the Bangko Sentral ng P ilipinas (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 nr the lrsnsRctions, it shall be allocated proportionately on the basis of the volume of sales."

Pursuant to the afore-quoted provision, in order for a taxpayer to be entitled to a refund or issuance o[ a tax credil certificate of its unutilized inpnt VAT, the following requisites must he sa1 isf1ed:

' '

I 1.) there must be zero-rated or effectively zero-rated sales; 2.) that input taxes were incmTed or paid; 3.) that such input taxes are directly attributable to zero- rated sales or effectively zero-rated sales; 4.) that the input taxes were not applied against any output liability during and in the succeeding quarters; and 5.) that the claim for the refund was filed within the two- year prescriptive period. 11 Anent the first requisite, petitioner maintains that it rendered engmeermg, drawing, and design services to its non-resident foreign client, JrE SEKKEI Ltd. The services performed by petitioner for JFE SEKKEI Ltd. are classified as zero-rated under Section 4.1 02-2(b) of Revenue Regulations No. 7-95, as amended hy Section 3(b)(2) of Revenue Re8ulations No. 6-97, which provides: "SEC. 3. Zero-Rating.- xxx

(h) Transaction Subject to 7ero Percent (0%) Rp.te.- The following services p erf(mm~d in the Philippines by VAT-registered persons sha ll be subject to zero percent (0%) rate:

(1) XXX

(2) Services other than processing, manufacturing or repacking for other persons doing business outside the Phi lippines of goods which are subsequently exported, as well as services by a resident to a non-resident foreign client, such as project studies, information services, engineering and architectural designs and other sim ilar services, the consideration for which is paid for in acceptable foreign currency and accounted for ii1 accordance with the rules an~ AJ regulations of the BSP." (Yv- D ECfSJON 12 In his report, the Court-Commissioned T ndependent CPA, Albert G. Alha, noted that petitioner's zero-mted receipts and con esponding bank remittances for the years ended December 31, 2004 and 2005 consisted of fees for architectural and structural design services rendered to non-resident foreign clients and to .TPMED Asian Pacific, Inc. (JPMED). The zero-rated sales and hank remittances arc summarized as follows:

I?.~r i o.Q Nq[l-r~ic.lsnl..fmte i gn clients: First q11arter Second quarter Third quarter Fourth quarter Third quarter l_QQ:L- Ex hihi UJ l!Lh~ l!LI~-~f?Q $ j1 216,271 .44 12, 136.073.49 362.536.64 . 20,32(>,<112.2 11 27R,57J .SX 15,575,')73.9') _--=.3.c.c.33,39l .Q! _ _ I _~J_5J./ 1_?_?~9 5 __ $ 1, 190,772.67 $ 1,190,772.67 66,790.')79.67 6(,, 7()(), '179.67 2005 - Exhi bit H illJ)Sji !n PesQ $ p 322,492.05 17,726,984.58 332, 180.9 1 I 8,383,360.45 298, 127.75 16,73 6,865. 79 J 03, ltl2.2 1 16,389,194.16 $ I ,255,942.92 69,236,404.98 I ,224,000.00 $ 1,255,942.92 70,460,404.98 Petitioner also presented numero11S documents, such as serv1ce agreements, schedule of zero-rated receipts and bank remittances, VAT official receipts, entries in US$ passbooks, and bank certificates of export remittances, to prove that it actually generated revenues in the aggregate amount of Pl 36,027,384.65 (P66,790,979.67 plus P69,236,404.98) for rendering certain engineering and design work services to non-reside(}ht '• I >

DECJSlON 13 t foreign clients during the subject pe'riods. The foreign proceeds :fi:om the said sales in the aggregate amount oflJS$2,446,715.59 (US$1,190,772.67 plus US$1 ,255,942.92) were inward ly remitted and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP).

Petitioner further claims that its sales of services during the 3rct quarter o f taxable year 2005 to JPMFD, a PEZA-registered entity,' for • which it received a fee of Pl ,224,000.00 are also zero-rated, pursuant to BIR Revenue Memorandum Circular No. 74-99, dated October 15, 1999. Thus, petitioner's sales of services for 1axahle years 2004 and 2005 amounting to Pl37,251,384.65 qualit)' as zero-rated sales under Section 108(B)(l) and (2) of the NJRC of1997, as amended, which reads: "SEC. 108. Vafue-adrfed Tax rm Safe r~f Services and Use or Lease of Properties . - (A) XXX (B) Transactions Subject to Zero Percent (0%) Rate.-The following services performed in the Philippines hy VAT-registered persons shall be sub.iect to zero percent (0%) rate:

(1) Processing, manu1~1ct_urin g or repacking goods for other persons doing business outside lhe Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in~ ~ ' 1 " ...J .. b ' • DEClSTON accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP).

(2) Services other than those mentioned in the preceding paragTaph, the considen)t·ion for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP)." 14 As regards the second requisite, petitioner claims that it paid input VAT in the aggregate amount of P3,514,301.22, which is allegedly attributable to its zero-rated sales for taxable years 2004 and 2005. To prove ils claim, petitioner presented various documentary evi.dence, such sl as its schedules of input taxes claimed li·01n 1 quarter of taxable year 2004 to 4t 11 quarter of taxable year 2005 and the related suppliers' invoices/official receipts. Upon examination and verific8tion of the above .. -mentionecl documentary evidence, in his amended Report dated November 10, 2006, the Court-Commissioned Independent CPA noted the following findings: FOil Tim YEAH I•:NOE D OECEM BEH 31,2004 !.S!mJ;

~!~W\r ;!J;L~ ;lllbllif Eimtlnll.!i l'urchasc of ~crviccs snnQQJicd hy: E.!J~it, i _t_} (J-Ito .1-53) ~!-~I\]_lj! _ ! ~ {Ii- I to K-112) Ex hibit L Exhibit 1\1 TCJtal VAT official receipts in petitioner's name Not in petitioner's name Non VAT receirts No suprorts presented Negative mput VAT Purchases of gontls supportcdjry_; VAT invoices in the petitioner's name Non VAT invoices No supports-presented P 230,786 27 P 7h9,XX3.0X I '1 .g2g 2:1 !d 27 29.939 32 ~.wns (t4 ,2 X07 1) (J-54 to J-79) (K-83 to K- 1!17) 64,72665 67 ,694 .22 286.09 2,26:>63 (I.- I to 1.-88) I' 3'!3,069.35 185.45 9,875.89 I ,596.38 (J.-89 to 1.-124) 99,070.71

545 A5

(111-1 to M-90) p 337,824_43 Pl,731,563. 13 21.82 207.27 12,264.45 37,029 84 9,640.65 43,536.10 (14,280.71) (M-9 I to 11-f-/05) 27,874_31 259,365.89 10.91 842_45 2,263.63 (JJf '•

Negative input VAT TOTAL l ________ __:(11 5.40) p 3-12,830.19 f' 825,6fl2.2 1 15

(2 L66J

(2,474 79) (2,6IL85L I' 504,321.57 P 385,16! .78 1'2,057,915.75 .E.Q.!illiJD.~AR.fJiPE D DECEM13EH 31,2005 l st_W.!

7.nd_<J!r J!.!LWr ~ !l}ndirr~ ~: xhihil N Ex hih!J.Q .Exh i!:!l!..r Exhibit Q Total Purchase of_~rv ic cs SJ!I2J~Qrlcd by: (N- Ito N- 10.1) (0- l to 0 -120) (!'-Ito 1'-117) (Q-1 to Q-113) VAT on·,cial rec.~ q> t s in IX'titioner's name p 3 11 ,50X.53 I' ,156.177.71 I' ,126.9 17.74 p 345,5 16.87 Pl ,540,320.85 Not in petilioncr•s name 26R. IR 3,1>78 95 43.64 3,990.77 Non VAT receipts 20R.18 25 1 9 1 180.93 802.07 I ,443.09 No supports presented 6XUl2 10 1.74 783.56 Purchases of.J:.QQQS SHJ!llOrled hy: (N- / 04 toN- (0-12/to O- (P-1 18 to 1'- (Q-114 to Q- 135) 146) I.J6) 137) VAT invo ices in the petitioner's name 47.547.39 ]9, 114 1<> 20,849 69 28,93 1.32 136,442.79 Non VAT invoices

7H IX

554.45 1,278.63 Negative input VAT ( 198,523 71) (1 98,523.71) TOTAL p .360,2 1-1.10 I' SOU, I •17.14 I' 448,546.45 p 176,828.29 l' l ,485, 735.98 Rnsed on the above-quoted find ings of the Court-Commissioned Independent CPA, the Court finds that out of the total input VAT of P3,543,65 1.73, only the amount of PJA52,276.39 ts duly substantiated, as follows:

Purchase of services supported by VAT OR in the petitioner's name Purchase of goods supported by V 1\ T invoices in the petitioner's name Total Less:

Negative Input VAT on purchase of services Negative ln pnt VAT on purchase of goocls Properly substru1tiatecl Input VAT 10ft!

I' I.'JJ I ,Vi"\ 13 2'-'J...\115.89 __ ?_~ '')21~)~ ')"1)2 I' . 14.280.7 1 _ ____ ; (~I 1.85 I' lli.R9'2.56 p I ,'l'l4.ilJ6.46 2005 Total p I ,540,ii20.85 p 3,27 1,883.98 136,442.79 395,808.68 I' I ,676,763.64 p 3,667,692.66 p 14,280.71 l' 198,523.7 1 20 1,135.56 198,523.7 1 p 215,416.27 p I ,478,239.93 p 3,452,276.39 The remaining amount of P91 ,37::\.34 is hereby disallowed for the following reasons:

E!111lint:s 0-fe!'cto a tta ch£~L.>~~ Aw!ex "A '1 Purchase of service Stippotiecl by Non-VAT Ors 2 Purchase o f' servir.e support ed hy documents other t h~ n VA T O l{s 3 Input VAT o n purchase of services w ith no suppotting documents 4 Purchase o f service supported by documem not in the company's name 5 Purchase of service suppo rted by ORs not duly registered w ith the B IR , .. 1 "'l J .... r.

2!HH i' 36,549.83 480.0 1 43,536. 10 207.27 2llil5 Total p 749.86 p 37,299.69 483.9 1 963.92 1,035.47 44,571.57 3 11.82 519.09 3,636.36 3,636.36 ~ t 16 6 Purchase of goods supported by documents other than VAT Invoices 7 Input VAT on purchase of goods with no supporting documents Total 842.45 I ,278.63 2,121.08 2.263.63 2,263.63 I' 83,879.29 1' 7,496.05 p 91,375.34 However, after further examination of the records, out of the substantiated input VAT of 1'3,452,276.39, . as noted by the Court- Commissioned Independent CPA, the Court finds that Pl,337,520.61 of said input taxes claimed should be disallowed for the following reasons: 1.) The aggregate input taxes of 1>416,709.33 (out of the P259,365.89 and P1,731 ,563. 13 input VAT included in the findings of the ICPA) on purchases of goods and services for taxable year 2004 supported by VAT invoices and official receipts in the name of petitioner, which are not dated within the taxable year (hereto attached as Annex "B'). 2.) The aggregate input taxes of P401 ,3fl7.29 (out of the Pl36,442.79 and Pl,540,320.R:S input VAT included in the findings of the ICPA) on purchases of goods and services for taxable year 2005 supported by .VAT invoices and official receipts in the name of petitioner, which are not dated within the taxable year (hereto nttached as Annex "C''). 3.) Tnput taxes amounting to P55S.R6 supported by official receipts which are not dated (hereto attached as Annex "D'~.

4.) Over-claimed Input VAT for the taxable year 2004 amounting to P179,922.99 due to erroneous computation (Exhibit "F", p. 7) . 5.) Over-claimed Jnput VAT for the taxable year 2005 amounting to P1,827.99 ·due to erroneous computation (Exhibit "F", p. 8) . ~ )

I 6.) The input taxes of P16,335.61 (out of the P 1, 731 ,563.13 input VAT included in the findings of the ICPA) on purchases of services for taxable year 2004 supported by VAT official receipts in the name of the petitioner, which are supported by documents other than VAT ORs (e.g., machine validated receipts) (fi:xhihit "F", p. ?). 7.) The input taxes of P25,248.63 (out of the ?1 ,540,320.85 input VAT included in the findin gs of the ICPA) on purchases of services for taxable yem· 2005 supported by VAT official receipts in the name of the petitioner, which are supported by documents other than VAT ORs (e.g., machine validated receipts) (Exhihit ''!'". pp. 10-11). 8.) The input taxes in the amount of P295,529.91 (out of the Pl ,540,320.85 input VAT included in the flndings of the JCPA) supported by official receip1s w ith BIR permit dated December 2, 2005 issued hy .1 PMED for payments of input taxes prior to December 2, 2005. Petitioner alleged that the said Vi\ T 0 P s were issued as replacements to Non-VAT OH s previously issued erroneously to petitioner. ll owever, the veracity of replacement cannot be ascertained since the alleged cancelled ORs were not presenled before the Court (fi:xhibil "F", pp. 11-12) . 17 Therefore, petitioner was able to suhstnntiate with valid VAT mv01ces or receipts only the input VAT of P2, 114,755.78, computed hereunder:

Reporled Input VAT I .css:

Disallowances Per CI'A Report Per this Court's Findings Substantiated Claim I' 3,543,651.73 p 91 ,:17:i.l4 I ,33 7 ,52(_:_:_) .o ..;...:) 1 ___ 1:.2_,4=2= 8,~89-=.

5 .:.:...

9.::._5 p 2,114,755.78 ·.

DECTSlON t 18 As regards the third requisite, the Court-Commissioned Independent CPA found that petitioner had taxable receipts (which are supported with VAT official receipts); thus, 110 t all of the substantiated input VAT of P2, 11 4,755.78 is attributable lo zero-rated sales. In its Schedule of Taxable Receipts for the Taxable Year 2005 (Exhibit "1"), petitioner had taxable sales of P3R4,655.52 with the corresponding output VAT of P38,465.55. Hence, only the net input VAT of P2,076,290.23 (P2,1 i4,755.78 less P38,465.55) directiy pertams to petitioner's zero- rated sales ofP1 37,25 1,384.65. As to the fourth requisite, petitioner deducted the claimed excess input VAT for each quarter as "any V i\T Rel1md/TCC Claimed" in the corresponding amended quarterly VAT return lor the taxable years 2004 ..

and 2005 (Annexes "F" to "/" and Annexes ''N" to "Q" of Petition). Thus, petitioner has established that no amount of the claimed excess input VAT was carried-over or applied against :my output tax in the succeeding taxable quarters.

Finally, petitioner complied with the l'ifth requisite. It filed its administrative and judicial claims for refund on March 28, 2006 and March 31, 2006, respectively, within the two-year prescriptive period, pursuant to Section 112 of the NJRC of 1997, as amended, reckoned from w

DECTSJON 19 April 20, 2004, the date of filing of the earliest quarter covered by the instant claim.

WHEREFORE, premises considered, the Petition For Review is hereby PARTIALLY GRANTED.

Accordingly, respondent Commissioner of Intemal Revenue is hereby 0 <DERED TO REFUND to the petitioner the reduced amount of TWO MILLION ONE

HUNDRED FOURTEEN THOUSAND SEVEN HUNDRED FIFTY

FIVE AND 78/100 PESOS (P2,114,755. 78), representing excess or unutilized input VAT attributable to zero-rated sales for taxable years 2004 and 2005.

WE CONCUR:

, -~7/o G .etsr'~C;k/ ~ , fuANITO c. CASTANEDA, JR. Associate Justice 1 c.7 /' (/ ~· r ~ .;;>y- {(Z.e-;;w.-, j'L/u Y--~JL>{ii--P-1 ~ ·;;

t7 OLGA l ALANCA-ENRtQUEZ Associate Justice (~ El~L~ UY Assoc1ate Justice

DECTSTON t ATTESTAl-, lOJ~ 20 T 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. !Ju-~'~ c . C1<0<Y--~~~~ . JUANITO C. CASTANEDA, JR. Associate Justice Chairperson, Second Division CERTIFICATION Pursuant to Article VTTI, Section 1] of 1he Constitution, and the Division Chairperson's Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court. 'L--._;_~t- ~ EHNESTO D. ACOSTA r· ') 'J ;.; .. .} Presiding Justice

KELPHIL, INC.

DlSALLOWANCES OF INPUT VAT I FOR THF. TAXABLE YEARS 2004 AND 2005 A. P urchase of service sup ported by Non-VAT Ors Japan- I'NB Leasing Japan-PN B I ,easing ROT Lease & Fi nance Phils. HOT Lease & Finance Phi Is. Wall graphic Advertising .Jl'MEO Asia n Pacific, Inc. JP M~ O Asian Paci!ic, Inc. JPM1m Asian Paci!ic, Inc. JPMJ\f) Asian Pacific, Inc. JPMl ~ D Asian Pacific, Inc. JPMFD As ian Pacific, In•;. JPMFn Asian Pacific, Inc. JPMF D Asian Pacific, Inc. P.O. <lutson Billiards A li ng Tonya's Seafood Snh-total B. Purchase of service suppo1·ted by documents other than VAT O•·s Kodak Express Kodak Exrress Kodak Fxpress Kodak Express Kodak Express Kodnk Fxprcss Kodak l·:xpress Kodak Express Floro [lluc Printing Kodak Express Kodak Express Kodak Exrress Kodak Express Kodak Express Kodak Express P Byte Computers, Inc. Compc-x Sales Corp.

Kodak Express Kodak Express 3N Copy Systems Kodak Express ! "" ') ,~ ..J . .

j {I Invoice/O R No.

10542 11 782 029352 29534 0027 00 103 00695 0694 00 104 00 105 00727 00 106 00750 2293 1378 24481 247 16 25333 ..

25262 25888 27 161 27246 27247 74275 27788 28 101 29080 29037 28695 29738 5526

4250 1

3028 1

30596 183487 30632 21 Annex "A" Jn~ut VAT 2004 2005 1,096.30 1,085.44 6,359.67 6,138.45 1,590.9 1 2,380.00 5,106.27 637.44 2,380.00 2,380.00 3,028.22 2,380.00 1,987.13 42.59 707.27 36,549.83 749.86 32.73 9.82 94.9 1 10.91 6 1.27 2 1.82 27.27 10.9 1 77.27 13.09 10.91 2 1.82 54.55 32.73 10.91 47.73 26.36 2 1.82 27.27 70.45 3.64 ~ ; '

DECTSTON Kodak Express K0dak Express Kodak Express Kodnk Express JN Copy Systems Kodak Exprc::ss Kodak Express Kodak Express Kodak l·:x press Kodak Express Kodak f·:xpress Kodak l·:xpress Kodak Express Koclnk l:xpress Kodnk I ~x.prc ss Kodak l ~ xprcss Sub-total 34905 349 19 35282 35337 102223 35361 35374 35379 35384 35779 35148 35637 35898 35902

3593 1

3619 1

C. Input VAT on purchase of sen'ices with no supporting documents presented Adriano Magcalas AR A lTl\·1 Properties, Inc. 0270 lnnovc Communications 8 fnnove Communications 9 lnnove Comm unications lnnove Commun ications A I-Hv1 Properties, Inc. Globe Telecom *No speci tic source document, claimed as a whole Bdizc llomcs Republic Courier Service !-Merge On line, Inc. Asia Solution Philippines, Inc. Kodak Express Kodak Express Kodak Express Kodak l·:xpress Premiere Oriental Pacific, Inc. Kodak Express Sub-tnlal 10- 11 12 209852 00427• 33711 33563 33565 33668 2734 D. Purchase of service supported by document not in the company's nlunc Floro lllue Printing 74442 Kodak t·:xpress 29 13 7 Kodak Express Kodak Express MTB Exterminator Motorcity Autoshop Corp. Kodak Express Upstart Ventures, Inc. Upstart Ventures, Inc. l .

~ ' • ..

0 (. :)

29537 29826 3052 0414 35063 19868 19869 22 10.9 1 2 1.82 4.36 27.27 34.75 10.91 10.9 1 3.64 7.27 49.09 3.64 13.25 33.82 32.73 9.09 2.27 480.01 483.91 29,089.32 850.00 145.34 173.86 416.02 151.77 850.00 622.76 1,596.38 I ,333.33 125.50 8,181.82 68 1.82 2 1.82 3.64 I 0.9 1 33.45 182.09 I 0 I. 74 43,536.10 1,035.47 185.45 2 1.82 10.9 1 16.36 109.09 13 1.82 10.9 1 10.91 10.9 1 ~ ; .

DEClSlON t 19871 Upstart Ventures, lnc. Suh-total E. Purch:-.sc of ser-vice supported by OR~ not duly registered with th.e RlR Angelo Trading 0669 Suh-total F. Purchase of goods supported by documents other· than VAT Invoices Data Computer Forms, Inc. POD Dcsignfab, Inc.

PC Li ve Enterprise Power Telecom Shop Corp. Laden Table Food Services 5th Avenue Telecom Kohee Corp.

Pilipinfls Macro, Inc. Suh-tot al 029068 001 048846 1391 3896 5972 1876 12230659 G. Input VAT on purchase of goods with no supporting documents presented 3N Copy Systems Canon Marketing Sub-tohll TOTAL 1 .• • ,. ~ ..

/

v. · J 23 10.91 207.27 311.82 3,636.36 3,636.36 286.09 545.45 10.9 1 65.45 595.09 63.64 354.55 199.90 842.45 1,278.63 27.27 2,236.36 2,263.63 83,879.29 7,496.05 w

DECJSJON KELPHIL, INC.

DJSA I .LOW ANCES OF INPUT VAT TNPliT VAT NOT WITHIN THE PERIOD OF CLAIM FOR TJm TAXABLE YEAR 2004 Asia Solution Phils.

City Travel & To11rs Corp. Hooven !'hils., Inc.

City Travel & Tours Corp. Globe Telecom lnnove Commllllic<Jiions Tn nove Communications Asia S0lution Phils.

Asia Solution Phils.

Uy Singson Abella Republic Conrier Service, Inc. Polar Catering & Food Services Globe Telecom DHL Worldwide Express In nove Communications lnnove Communications lnnovc Communications Asia Solution !'hi ls. City Travel 8:. Tours Corp. Findings RCW Construction & Development Uy Singson Abella Timothy School & Office Supply lnnove Com munications Globe Telecom lnnove Communications Republi c Courier Service, Inc. Asia Solution Phils.

City Travel & Tours Corp. Asia Solution Phils.

In nove Communications IML Asin l'acifie, Inc. Foodlink gesource Premiere Oriental Pacific Globe Telecom City Travel &. Tours Corp. lnnovc Communications lnnove Commu nications Innove Communications Republic Courier Service, Inc. Exhibit No.

J-44 J-45 J-46 J-47 J-48 J-49 J-50

J-5 1

J-52 J-53 J-54 K-73 K-74 K-75 K-76 K-77 K-78 K-79 K-80

K-8 1

K-82 K-107

L- 1

L-83 L-84 L-85 L-86 L-87 L-88 M-1 M-2 M-3 M-4 M-83 M-84 M-85 M-86 M-87 M-88 24 Annex "B" Input VAT 44,244.69 8,096.55 8,479.60 13,145.26 307.55 1,052.73 339.77 18,935.11 27,637.09 2,212.50 208.00 7, 181.82 1,195.91 86.29 304.93 34 1.02 1,25 1.77 54, 143.78 11 ,042.98 79,940.91 2,600.00 766.84 293.55 1,161.04 323.84 576.00 27,618.18 1,347.27 29,890.91 462.9 1 27,500.00 13.18 382.30 1,152.10 8,281 .21 1,045.60 395.45 402.60 639.00 ~

DECTSlON Asia Solution Phils.

Asia Solution Phils.

TOTAL t • M-89 M-90 25 25,800.00 5,909.09 416,709.33 )

DECTSlON KELPHTL, TNC.

DISALLOWANCES OF INPUT VAT

l NPUT VAT NOT WJTHlN THE PERIOD OF CLAIM FOR TifF. TAXABLE YEAR 2005 Spice Worx Consultancy Hooven Phils., Inc.

sc;v &. C'o.

Globe '1'\:lecom Republic Couri er, Inc. City Travel & Tours Corp. Discovery Tour, Inc.

N.P. Cianzon, Corp.

In nove Communications 1nnove Communications In nove Communications fnnove Communications City Travel & Tours Corp. Asia Solution Phil s., Inc. Spice Worx Consultancy AI IM Properties, Inc. Asia So li1tion Phils., Inc. Asia So lution !'hils., Inc. JPMED Asian Pacilic, fnc. .J & G 1sono, Inc.

Bi:;iro Auslriliano Corp. Smart Communications Republic Courier, Inc. .JPMED Asian Pacific, Inc. fnnove Communi cntions lnnove Communications Tnnovc Communications ln novc Communications Asia Solution Phils., Inc. Globe Telecom Spice Wnrx Consultancy City Travel & Tours Corp. Republic Courier, Inc. Bright-l.ink Office Specialist Winchap I ~ nte rpri ses Corp. Golden Gorilla Food Corp. Cantinela Food Services Business Options Asia Soli1!ion Phils., Inc. Discovery Tour, Inc.

Ci ty Travel & Tours Corp. lnnove Communications Globe Telecom lnnove Comm unications lnnovc Communications Republic Courier, Inc. Finc!inj!s I ' ' ' ) f.'l ' I r' '· vI ' ' Exhibit No.

N-86 N-87 N-88 N-89 N-90 N-91 N-92 N-93 N-94 N-95 N-96 N-97 N-98 N-99 N-100 N-101 N-102 N-103 0-1 0-2 0-3 0-4 0-109 0-110 0-111 0.112

0-1 I3

0-114 0-115 0 -116 0-117 0-118 0-119 0-121

P- 1

P-2 P-3 P-105

P- 106

P-107 P-108 P-109 P-110 P-Ill P-112 P-113 26 Annex "C" r nput VAT 14,800.00 8,869.92 5,000.00 1,118.21 283.50 9,631.68 3,068.64 8,272.73 417.76 375.89 1,23 1.45 144.81 1,637.36 19,295.60 7,112.82 850.00 4,090.91 26, 147.49 11 , 175.55 474.28 545.45 184.35 5,112.62 22,768.25 440.58 149.40 563.25 1,329. 13 41 ,156. 16 943.82 600.00 13,675.73 148.50 8,001.4 5 72.73 11 9.82 120.59 2,500.00 52,063.81 3,166.10 14,251.14 418.74 785.71 42 1.48 1,123.36 232300-ft

DEClSTON Spice Worx Consultancy Asia Solution Phils., Jnc. Asia Solution Phi ls., Inc. Innove Communications Trinity Marketing, Inc. Asia Solution !'hils., Inc. Carolina's Lace Shoppc \Vinchap Enterprises Corp. Roque S. l'ado lML Asia Pa(;ific Inc. Bcijin p. Trcnsure Foods Corp. S11n Ea ~ t Continental Food Philippine Pi zza Inc. Philippine J>i;rza Inc. Max's Sta. Mesa Inc.

(iold Treat l'oods, Inc. City Travel & Tours Corp. Discovery Tour, Inc.

Cilohe Telecom Republic Courier, Inc. Plalon Martinez Florez TOTAL t Jj() P-114 P-115 P-116

Q- 1

Q-2 Q-3 Q-4 Q-5 Q-6 Q-7 Q-8 Q-9 Q-10 Q-11

Q- 12

Q-13 Q-108

Q- 109

Q-110 Q-111 Q-112 27 600 5,909.09 36,000.00 1,48 1.11 3,409.09 5,909.09 13,117.44 107.27 500.00 30,000.00 318.50 280.13 67.61 43.39 137.73 53 .50 783.10 3,034.38 797.74 9 11.35 3,034.00 401 ,387.29

KE LPlllL, INC.

DISALLOWANCES OF INPUT VAT

l INPUT VAT SUPPORTED BY OFFIC IAL R ECEIPTS WfHCH ARE NOT DATE D

FOR THE TAXABLE YEAR 2005

Burgoo Restaurant Cas Food & lee Cream Corp. lnnove Communications TOTAL Exhibit No.

0-120 P-117

Q- 11 3

28 Annex "D" Input VAT 363.64 33.00 162.22 558.86