Philex Mining Corporation vs. Commissioner of Internal Revenue

AMENDED DECISION

UY, ::/_.:

For resolution is petitioner's "MOTION FOR RECONSIDERATION/NEW TRIAL" filed on January 22, 2009, seeking a reconsideration of this Court's Decision promulgated on January 9, 2009, dismissing the instant petition for review of lack of merit, or in the alternative, to order a new trial to afford petitioner an opportunity to adduce in evidence the provisional invoices discussed in the said Motion. The above Motion was set for hearing on February 26, 2009 but had to be reset to March 18, 2009 due to absence of respondent's counsel. On said date, the Court granted petitioner's Motion for New Trial in open court, and allowed petitioner to present its witness in the person of Guadaflor C. Malonzo, who testified on direct .J examination by way of judicial affidavit. .

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' C.T.A. Case No. 7495 Witness Malonzo testified that he is the Marketing Coordinator of petitioner, ar}d that he executed a Judicial Affidavit 1 which states, among others, that he handles/supervises all the copper concentrates shipments thereof to its buyers, including the complete documentation of the shipments, such as the issuance of provisional invoices and final invoices; that for each shipment, petitioner initially issued a provisional invoice, reflecting the estimated value of the shipment and the ninety percent (90%) of such estimated value, which the buyer is required to pay; that for the same shipment, petitioner subsequently issued a final invoice, covering the value thereof, as determined by the parties and a third party or umpire assay, less the ninety percent (90%) provisional payment; and that the final invoice though dated much later covers the same shipment that was covered by the provisional invoice.2 Respondent's counsel did not cross-examine said witness. Thereafter, petitioner filed its "Supplemental Offer of Evidence" on March 26, 2009,3 offering in evidence Exhibits "K" to "S", inclusive of sub-markings4 and were admitted in the Resolution dated May 21 , 2009.5 In the same Resolution , the parties were required to file their simultaneous memoranda within fifteen (15) days from receipt thereof.

On June 4, 2009, petitioner filed its "Memorandum for the Petitioner'B while respondent failed to file the required memorandum . In the Resolution dated July 20, 2009,7 petitioner's "Motion for Reconsideration/New Trial" was deemed submitted for resolution sans memorandum of respondent. 1 Exhibit "S", Docket, pp. 237-242.

2 Transcript of Stenographic Notes, March 18, 2009. 3 Docket, pp. 251-257 4 Docket, pp. 258-27 1 5 Docket, p. 272 6 Docket, pp. 275-282 7 Docket, p. 283 1209

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"GROUNDS FOR THE MOTION I.

THE HONORABLE COURT ERRED IN RULING THAT PETITIONER'S

DIRECT EXPORT SALE OF COPPER CONCENTRATES TO JAPAN

DO NOTQUALIFY FOR VAT ZERO-RATING BECAUSE THE SALES

INVOICES THAT COVERED THE SAME PERTAIN TO THE 4 TH QUARTER OF 2004 AND FALL OUTSIDE THE PERIOD OF THE CLAIM IN THE PETITION. THE FACT IS THAT SAID SALES INVOICES PERTAIN TO THE PERIOD OF THE CLAIM. II.

THE HONORABLE COURT ERRED IN RULING THAT PETITIONER'S

INDIRECT EXPORT SALES TO PASAR ALSO DO NOT QUALIFY

FOR VAT ZERO-RATING BECAUSE THE SALES INVOICES THAT

COVERED THE SALES FALL OUTSIDE THE PERIOD OF THE CLAIM IN THE PETITION . THE FACT IS THAT SAID SALES INVOICES ALSO PERTAIN TO THE PERIOD OF THE CLAIM.8" As regards the first ground , petitioner explains that in its direct exports of copper concentrates, there are two periods when pricing or valuation of a shipment is made. First, a provisional pricing or valuation of the shipment is made by the petitioner upon shipment based on weight (dry and wet weight) and moisture as determined by petitioner and also based on petitioner's provisional assays showing copper, gold and silver content. Second, upon arrival of the concentrates at the port of unloading, the weight and the moisture content are determined. Assays are also made for copper, gold and silver content. After these are done and settled , a final concentrate value is arrived at.

Petitioner points out that the considered date of the sale transaction is at the time of the delivery of the shipment to the carrier. However, the sales contract with its buyer, Pan Pacific Copper Co. , Ltd. of Tokyo, Japan 9 , requires a provisional payment from the latter to petitioner of 90% of the estimated value of a shipment and 8 Motion for Reconsideration/New Trial, p. 3, Docket, p.208 9 Exhibit "8".

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_) i _) a final payment based on final settlement of weights, assays and quotations. This is allegedly the reason why petitioner issues a provisional .invoice for the 90% estimated value of a shipment and a final invoice for the payment of the final balance after final settlement of the weight, assays and quotations are completed. This also allegedly explains why the final invoices carry dates much later than the date when the sale or shipment was made.

Section 1 06(A)(2)(a)(1) of the National Internal Revenue Code (NIRC) of 1997 provides as follows:

"SEC. 106. Value-added Tax on Sale of Goods or Properties.-

(A)

Rate and Base of Tax.- There shall be levied , assessed and collected on every sale, barter or exchange of goods or properties, a value- added tax equivalent to ten percent (10%) of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor.

XXX

XXX

XXX

(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 Pilipinas (BSP);

XXX

XXX

XXX

Based on the foregoing , to be considered an export sale, there must be, not only a sale, but also an actual shipment of goods from the Philippines to a foreign country. Thus, such actual shipment of the goods, to be considered as an "export sale" for purposes of the application of the zero percent (0%) VAT rate, must be made also in the quarter the sale was made. r '

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During the presentation of petitioner's additional evidence, its witness Guadaflor Malonzo identified , among others, Provisional Invoice Nos. PX-2381 , dated June 3, 2004, marked as Exhibit "L" 10 and PX-2386 dated July 7, 2004, marked as Exhib(t "M"11 both issued to Pan Pacific Copper Co., Ltd ., for the 2nd quarter of 2004 . With the presentation of the said Provisional Invoice No. PX-2381 , petitioner was able to prove that the sales covered by Final Invoice No. PX-2402 dated October 4, 200412 amounting to US$4,749,732.00 with peso equivalent of 12 265,054,064.97, as computed below, qualifies for VAT zero-rating under Section 1 06(A)(2)(a)( 1) of the NIRC of 1997.

Declared Zero-Rated Sales in

Phliii!

939,237,698.67

Divided by Declared Zero-Rated Sales in

US$

16,831 ,009.00 Average peso to dollar rate 55.8040043036

Multiplied by Substantiated Zero-rated

x

Sales·in

US$

4,749,732.00

Substantiated Zero-Rated Sales in

Phli

265,054,064.97 However, the amount of US$4,944,801 .00 shall be denied, because the covering provisional invoice thereon, Provisional Invoice No. PX-2386 13 , and the corresponding bill of lading 14, show that the copper concentrates were "shipped on July 6, 2004" or outside the period of the subject claim. As to petitioner's indirect export sales to PASAR for the 2nd quarter of 2004 in the amount of US$7,414,752.00, petitioner likewise presented the corresponding 10 Docket, p. 259.

11 Docket, p. 260.

12 Exhibit " F-1 ".

13 Exhibit "M", Docket, p. 260.

14 Exhibit "F-2-b".

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Provisional Invoices it issued to PASAR 15 These documents prove that petitioner actually made indirect exports to PASAR. Such indirect export sales with peso equivalent of~ 413,772,852.52, as computed below, are subject to zero percent (0%) VAT pursuant to Section 1 06(A)(2)(a)(5) in relation to Articles 23 and 77(2) of the Omnibus Investments Code and as clarified under RMC No. 74-99:

Declared Zero-Rated Sales in

Ph~

939,237,698.67

Divided by Declared Zero-Rated Sales in US$

16,831 ,009.00 Average peso to dollar ,rate 55.8040043036

Multiplied by Substantiated Zero-rated

X

Sales in

US$

7,414,752.00

Substantiated Zero-Rated Sales in

Ph ~

413,772,852.52 To recapitulate, out of the 2nd quarter 2004 reported zero-rated sales of US$16,831 ,009.00, only the following export sales in the total amount of US$12,164,484.00 with peso equivalent of~ 678,826,917.49 qualify for VAT zero- rating, to wit:

In US Dollars

In Phil Peso

Direct Exports of Copper to

Japan

4,749,732.00 265,054,064.97

Indirect Exports of Copper to PASAR

7,414,752.00 413,772,852.52 ~--~----------~--~----

Total

12,164,484.00 678,826,917.49 We now proceed to the determination of whether petitioner's input taxes in connection with its zero-rated sales for the 2nd quarter of 2002 are duly substantiated. 15 Exhibits "N", "0", "?", "Q" and "R", Docket, pp. 261-265 .. 1213 i , I '--'

.• In its VAT return for the 2nd quarter of 2004 16 , petitioner reflected an input VAT of~ 28,237:41 on domestic purchases and an input VAT of ~ 14,451 ,358.00 on importations totaling to ~ 14,479,595.41 , as shown below:

Purchases

Input Tax

Domestic Purchases - Capital Goods

Importations -Goods other than Capital

Goods

~ 282,374.10 ~ 28,237.41 144,513,580.00 14,451 ,358.00

Total

~ 144,795,954.10 ~ 14,479,595.41 With regard to the input taxes on domestic purchases, the Court- commissioned !CPA, Albert G. Alba , in his Report dated January 4, 2007, submitted the following findings 17:

Particulars

Amount

a. Original VAT official receipts that are in the name of Petitioner -Receipts dated in the current quarter ~ 15,519.53 -Out-of-period receipts dated 3rd quarter of 2004 2,284.82

b. No supporting VAT official receipts presented c.

No supporting VAT official invoices presented

TOTAL

8,051.37 2,381 .69 ~ 28,237.41 Based on the above findings, only the input VAT of~ 15,519.53 (item a.1) represents petitioner's valid claim while the remaining amount of ~ 12,717.88 (items a.2, b, and c) should be denied for the above-stated reasons. As regards the input VAT payment of ~ 14,451 ,358.00 on petitioner's importations, the I CPA also presented the following findings 18: 16 Exhibit J-1 0.

17 Exhibit E, page 5.

18 Exhibit E, page 4.

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Particulars

Input taxes paid on importation of:

1 Capital goods 2 Other than capital goods Input tax payments w ith no supporting 3 documents

TOTAL

Amount

F? 10,420,574.00 3,799,362.00 231,422.00 Jil 14,451 ,358.00 After careful scrutiny of the documents presented supporting the input taxes on importations, We find that, out of the said amount of F? 14,451 ,358.00, only the amount of F? 12,918,001 .00 is duly substantiated , while the remaining amount of F? 1,533 ,357 .00 shall be disallowed for the following reasons:

Items Imported

Exhibit No.

Input VAT

1 Input VAT on importation of capital goods supported by documents dated outside the period of claim 200 pes adapter and tooth loader

H-1

H-1-a

F?

110,227.00 5 units axial fan

H-9

H-9-a

171 ,940.00 li 282,167.00 2 Input VAT on importation of goods other than capital goods supported by documents dated outside the period of claim 2 pes parts for boring machine

H-1 0

H-1 0-a

69 ,635.00 3 containers valve control

H-11

H-11 -a

38,677.00 1 container bolthing cloth

H-12

H-12-a

36,897.00 1 container control valve

H-13

H-13-a

37,240.00 1 container parts for raise climber

H-14

H-14-

50,771.00 55 pallets cartons cupels & crucible

H-15

H-15-a

33,877.00 1 crate stc 3 pes socket, cast bronze

H-16

H-16-a

38,469.00 12 pes screen sieve bend

H-17

H-17-a

63 ,789.00 4 rolls tip top repair material

H-18

H-18-a

41 ,225.00 3 pallets litharge

H-19

H-19-a

56 ,508.00 parts for crusher machine

H-20

H-20-a

18,092.00 1 case screen panel

H-21

H-21 -a

44,937.00 5 cases screen woven wire

H-22

H-22-a

98,106.00 1 package parts for crusher

H-23

H-23-a

94,293.00 1 package crusher parts

H-24

H-24-a

89,721.00 1 container spare parts

H-25

H-25-a

61 ,821 .00 5 pallets hookfiber

H-26

H-26-a

33,643.00 parts for rock drill

H-27

H-27-a

24,972.00 1 container parts for machine engine

H-28

H-28-a

87,095.00 1,019,768.00

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AMENDED DECIS ION

3 No supporting documents presented IEIRD No.51656035 IEIRD No.53742873 IEIRD No.52984915 IEIRD No.53742875 IEIRD No.52893224 IEIRD No.51657322 IEIRD No.90165336 IEIRD No.5298503 IEIRD No.6215 IEIRD No.54207754

Total

2,500.00 63,139.00 1,997.00 44,404.00 21 ,524.00 4,355.00 19,789.00 2,082.00 2,340.00 69,292.00 231 ,422.00 p 1 ,533,357.00 However, a portion of the substantiated input VAT of 12 12,918,001 .00 shall be applied against petitioner's reported output VAT liability of 12 23,182.00 19, which was not paid. Hence, only the remaining input VAT of 12 12,894,819.00 can be attributed to the entire zero-rated sales of 12 939,237,698.67 declared by petitioner and only the input VAT of 12 9,319,632.55 is attributable to the substantiated zero-rated sales of 12 678,826,917.49, as computed below:

Substantiated input VAT

Less: Output Tax

Excess input VAT 12 12,918,001 .00 23,182.00 li 12,894,819.00

Substantiated Zero-rated Sales

Divided by Total Reported Zero-Rated Sales

Multiplied by Substantiated Excess Input VAT

Excess

Input

Tax

Attributable

to

Substantiated Zero-Rated Sales

678,826,917.49 +939,237,698.67 X 12,894,819.00 li 9,319,632.55 In sum, out of the claimed input VAT of 12 14,479,595.41 for the second quarter of taxable year 2004, only the input VAT in the total amount of li 9,335,152.08 which are attributable to its zero-rated sales can be a proper subject of a claim for refund or tax credit, determined as follows: 19 Item 198, Exhibit J-1 0.

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Substantiated Input VAT on domestic purchases Substantiated Input VAT claim on importations

Total Substantiated Input VAT

1"1 15,519.53 9,319,632.55

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9,335,152.08 As evidenced by its ?uarterly VAT Returns20 from the 3rd quarter of 2004 to the 2nd quarter of 2005, petitioner was able to prove that the input VAT of 1"1 9,335,152.08 was not applied against any output VAT in the succeeding quarters. Finally, petitioner's claim for refund was timely filed within the two-year prescriptive period both in the administrative and judicial levels. In the recent case entitled Commissioner of Internal Revenue vs. Mirant Pagbilao Corporation (formerly Southern Energy Quezon, Inc.}, 21 the Supreme Court held that the reckoning of the two-year prescriptive period for the filing of a claim for input VAT refund under Section 112(A) of the NIRC of 1997 starts from the close of the taxable quarter when the relevant sales were made pertaining to the input VAT regardless of whether said tax was paid or not.

The present claim pertains to input VAT incurred for the 2nd quarter of 2004. Counting from June 30, 2004, the end of the 2nd qtr of 2004, petitioner had until June 30, 2006 within which to file its claim both in the administrative and judicial levels. Hence, petitioner's administrative claim filed on November 25, 2005 22 and the Petition for Review filed on June 29, 2006 were well within the two-year prescriptive period.

WHEREFORE, in light of the foregoing , petitioner's

Motion

for Reconsideration is hereby PARTIALLY GRANTED and the assailed Decision promulgated on January 9, 2009 is hereby MODIFIED. Accordingly, the Petition for 20 Exhibits J-11 toJ-14.

21 G.R. No. 172129, September 12,2008.

22 Paragraph 7, Summary of Facts Admitted, Stipulation of Facts and Issues, Docket, p. 36. 12 17

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AMENDED DECIS ION

Review filed on June 29, 2006 is PARTIALLY GRANTED and respondent is hereby ORDERED TO REFUND petitioner the amount of NINE MILLION THREE HUNDRED THIRTY FIVE THOUSAND ONE HUNDRED FIFTY TWO PESOS AND 08/100 (Iii 9,335, 152.08), representing its unutilized input VAT for the second quarter taxable year 2004.

WE CONCUR:

a .. ---...~ ·t;; c . a~~~ Q_ c50.ANTfo c. CASTANEo~JR'.r .

Associate Justice

ER~UY

Associate Justice

~A~UEZ

Associate Justice

ATTESTATION

I attest that the conclusions in the above Amended Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division.

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C. CASTANEDA;0R:

Associate Justice

Chairperson

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Pagel2ofl2

CERTIFICATION

I hereby certify that the Amended Decision was reached after due consultation with the members of the division of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. D--<t/. 0_,.___ ERNESTO D. ACOSTA

Presiding Justice

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