Colt Commercial vs. The Commissioner of Internal Revenue

DECISION

Fabon- Victorino, J.:

In the instant Petition for Review filed on May 23, 2016 1, petitioner Colt Commercial, Inc., prays for the refund of its alleged unutilized input Value-Added Tax (VAT) in the amounts ofP2,000,256.32 and P1,445,784.19, attributable to its zero-rated sales for the first (1st) and second (2nd) quarters of taxable year (TY) 2014. Petitioner is a domestic corporation, with office address at Suite 508 Padilla Delos Reyes Bldg., 232 Juan Luna St., Brgy. 289, Zone 027, Binondo, Manila. 2 It is principally engaged in the business of selling cutting tools and hardware. 3 It is a VAT -registered taxpayer with Taxpayer Identification No. (TIN) 008-327-264-000. 4 1 Docket, vol. 1, pp. 10-21. 2 Exhibit "P- 1".

3 Exhibit " P-2".

4 Exhibit "P-5".

I

Respondent, on the other hand, is the Commissioner of Internal Revenue (CIR), authorized to act on claims for refund or issuance of tax credit certificate in accordance with the law. He holds office at the BIR National Office Building, Agham Road, Diliman, Quezon City. Petitioner states that it incurred unutilized input tax payments attributable to its zero-rated sales for the 1st and 2nd quarters of TY 2014 in the amounts of P2,000,256.32 and P1,445,784.19, respectively. On March 30, 2016, petitioner filed with BIR Revenue District Office (RDO) No. 30, an administrative claim for refund of the cited excess input VAT for the 1st and 2nd quarters of TY 2014 in the sum of P3,446,040.51. 5 The said claim for refund was however denied through the Letter dated April 21, 2016 of Revenue District Officer Leonora R. Ruizo16 , hence, this Petition for Review filed on May 23, 2016.

On July 12, 2016, respondent filed his Answer7 arguing that the present claim for refund is premature since its case is still pending investigation with Revenue Region No. 6, BIR Manila. Besides, per record, petitioner has already applied the entire amount of input tax, subject of the claim for refund, against its output tax by carrying over the same to succeeding taxable quarters, specifically from taxable quarters ending March 31, 2013 up to March 31, 2015. Verification of petitioner's VAT Returns revealed that the input taxes amounting to P2,000,256.32 and P1,445,784.19 were not deducted from available input tax corresponding to the period of claim.

Respondent also argues that pursuant to Section 112 of the NIRC of 1997, as amended, the remedies of tax refund and input tax carry-over are alternative in nature and the choice of one precludes the other. Finally, respondent invokes the principle that claims for refund are construed strictly 5 Exhibit "P-13".

6 Exhibit "P-23".

7 Docket, vol. 1, pp. 196-201. / against the claimant since they are in the nature of tax exemptions.

After the Pre-trial Conference on October 11, 20168, the parties filed their Joint Stipulation of Facts and Issues on October 26, 20169, on the basis of which a Pre-Trial Order was issued on November 23, 201610 • To substantiate its case, petitioner presented as its witnesses, Cyrus S. Chung Jr., Cherilyn R. Chung, Jennifer S. Mafiago and the Court-commissioned Independent Certified Public Accountant (!CPA) Sonny 5. Bonilla. Petitioner's President, Cyrus S. Chung testified 11 that petitioner was established on July 17, 2012. It is engaged in the business of selling cutting tools and hardware. It supplies business enterprises in need of cutting tools and other hardware, most of which are within the ecozone and are PEZA12 and SBMA-registered entities. Petitioner is a VAT- registered entity registered with BIR-RDO No. 30 in Binondo, Manila, as evidenced by its BIR Certificate of Registration dated August 31, 2012 13 • Petitioner filed an administrative claim for refund 14 of its unutilized input tax payments attributable to zero-rated sales to its clients for the 1st and 2nd quarters of TY 2014 in the respective amounts of P2,000,256.32 and P1,445,784.19. It was however denied in a Decision dated April 21, 2016 issued by BIR ROO No. 30 and received by petitioner on April 22, 2016 15• Upon consultation with its legal counsel, petitioner authorized 16 him to file the instant Petition for Review. Petitioner's Corporate Secretary and Treasurer, Cherilyn R. Chung corroborated 17 the foregoing testimony and added that their counsel advised them to file an 8 Docket, vol. 2, p. 646. 9 Docket, vol. 2, pp. 662-669. 10 Docket, vol. 2, pp. 674-679. 11 See Cyrus S. Chung Jr.'s Judicial Affidavit, Exhibits "P-24" and "P-24-a". 12 Exhibit "P-6".

13 Exhibit "P-5".

14 Exhibits "P-13" and "P-14". 15 Exhibit "P-23".

16 Exhibit "P-4".

17 See Cherilyn R. Chung's Judicial Affidavit, Exhibits "P-25" and "P-25-a". J administrative claim for refund so that they can utilize their excess input VAT. Hence, they prepared the documents necessary and filed an administrative claim for refund on March 30, 2016 with ROO No. 30. On April 22, 2016, petitioner received a Letter from BIR ROO No. 30 signed by Revenue District Officer, Ms.

Leonora Ruizol, denying petitioner's administrative claim for refund 18 prompting them to file the instant case with the Court on May 23, 2016. Witness Jennifer S.

Maiiago testified 19 that as petitioner's accounting head, she was responsible for the preparation, timely filing, payment and submission of tax returns and other reports to the BIR, Securities and Exchange Commission (SEC) and other government agencies. She also corroborated the testimonies of the previous two witnesses and further declared that for the 1st Quarter of TY 2014, petitioner's sales allocation consisted of P10,362,386.09 vatable sales and P23,532,943.34 zero-rated sales with corresponding output tax of P1,243,486.33 and input tax of P3,243,742.65. For the 2nd Quarter of TY 2014, petitioner had P10,190,257 .41 vatable sales and P22,615,049.31 zero-rated sales, with an output tax of P1,222,830.89 and input tax of P2,668,615.0820 • Thus, petitioner incurred an excess input VAT in the an1ounts of P2,000,256.32 for the 1st Quarter of TY 201421 and P1,445, 784.19 for the 2nd Quarter of TY 201422 • To avoid double recovery, petitioner deducted the amount corresponding to the unutilized and excess input VAT from the total available input VAT item in the Quarterly VAT Return for the 3rd Quarter of TY 201423 . Petitioner likewise incurred unutilized input VAT in TY 2013 as evidenced by petitioner's VAT Returns for the 1st to 4th Quarters of TY 2013 24 • The witness admitted that while she prepared most of the documents she identified and is familiar with their contents, she did not have personal knowledge about the 18 Exhibit "P-23".

19 See Jennifer S. Manage's Judicial Affidavit, Exhibits "P-26" and "P-26-a". 20 Exhibits "P-8", "P-9", "P-10", "P-11", "P-19", "P-20", "P-21" and "P-22", inclusive of sub-markings.

21 Exhibit "P-17-a".

22 Exhibit "P-17-b".

23 Exhibit "P-17-c".

24 Exhibits "P-16-a" to "P-16-d". / transactions involving the said documents as some were either issued by the BIR or prepared by petitioner's counsel or other employees.

On petitioner's application to use pre-numbered loose- leaf forms, she explained that she had no participation in the said application but aware that it was granted. Further, the use of pre-numbered loose-leaf invoices was necessary as petitioner printed sales invoices through the computer. However, for collection purposes, petitioner still used hard bound collection receipts. The Court-commissioned !CPA, Sonny S. Bonilla testified 25 that based on his findings as stated in his !CPA Report dated March 9, 201726, petitioner is entitled to input VAT refund for the 1st and 2nd quarters of TY 2014 but in the reduced amount of P3,427,018.36. He further testified that for the Quarterly VAT Returns for the 1st and 2nd quarter of TY 2014, petitioner did not indicate the amount subject for VAT refund. In any event, in its Amended 3rd Quarter VAT Return, petitioner indicated its intention to claim for VAT refund. He also learned from his audit that in its 4th Quarter VAT Return, petitioner carried over the excess input VAT from the 3rd quarter of TY 2014. After its last witness, petitioner rested its case per Resolution dated July 5, 2017. 27 On October 2, 2017 28, respondent manifested that he would no longer present any evidence. After respondent filed his Memorandum on November 17, 201729, the case was submitted for decision on December 27, 201730 sans any from petitioner31 •

THE ISSUE

The parties submitted the following issue32 for the Court's resolution:

Whether petitioner is entitled to a tax refund in the amount of Two Million Two Hundred Fifty-Six Pesos and Thirty Centavos (Php2,000,256.32) for the first quarter of TY 2014 and One Million Four Hundred Forty-Five Thousand Seven Hundred Eighty-Four Pesos and Nineteen Centavos (Php1,445,784.19) for the second quarter of TY 2014, despite its failure to allege in the petition its total sales for the covered period and the total unutilized input tax directly attributable to zero-rated sales.

THE COURT'S RULING

Sections 112(A) and (C) of the NIRC of 1997, as amended, pertinently provides: SEC. 112. Refunds or Tax Credits of Input Tax.- (A) Zero-Rated or Effectively Zero-Rated Sales.- Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)( a)( 1), (2) and (b) and Section 108(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules 32 Joint Stipulation of Facts and Issues, docket, val. 2, p. 662. J 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 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: 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. XXX XXX XXX (C) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsection (A) hereof. In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day- period, appeal the decision or the unacted claim with the Court of Tax Appeals. Thus, to be entitled to refund/TCC of input tax due or paid attributable to zero-rated or effectively zero-rated sales, the following requisites must be satisfied:

1. the taxpayer is VAT-registered;

2. both the administrative and judicial claims were filed within the prescriptive periods;

3. the taxpayer is engaged in zero-rated or effectively zero-rated sales;

4. the input taxes were incurred or paid;

5. the input taxes claimed are attributable to zero- rated or effectively zero-rated sales; and

6. the input taxes have not been applied against any output VAT liability. Petitioner is a VAT- registered taxpayer.

It is undisputed that petitioner is a VAT -registered entity as evidenced by its BIR Certificate of Registration No. OCNC0000579258 and Taxpayer's Identification No. 008- 327-264-000.33 Petitioner's administrative and judicial claims were seasonably filed.

The second requisite was likewise satisfied. Pursuant to Section 112(A) of the NIRC of 1997, as a mended, petitioner had two (2) years to file a claim for refund/TCC of input VAT attributable to zero-rated or effectively zero-rated sales reckoned from the close of the taxable quarter when the relevant sales were made. Shown below are the relevant dates showing that petitioner's administrative claim for refund was timely filed on March 30, 201634, thus: Period Covered End of Taxable End of the Two-year

(TV 2014)

Quarter Prescriptive Period 1st Quarter March 31, 2014 March 31, 2016 2nd Quarter June 30, 2014 June 30, 2016 As to the timeliness of petitioner's judicial claim for refund, Section 112(C) of the NIRC of 1997, as amended speaks of two periods for filing judicial claim for refund, to wit: (1) the period of 120 days for respondent to act on the administrative claim for refund/TCC; and (2) the 30-day period from notice of respondent's adverse ruling or the lapse of the 120 period without any action from respondent, within which to file a judicial claim with this Court. 35 33 Exhibit "P-5".

34 Exhibits "P-13" and "P-14". /

In the landmark case of Commissioner of Internal Revenue vs. San Roque Power Corporation36, the Supreme Court held that the taxpayer can seek judicial review of its claim for refund/TCC in either of the following ways: (1) file the judicial claim within 30 days after the respondent denies the claim within the 120-day waiting period, or (2) file the judicial claim within 30 days from the expiration of the 120- day period, if respondent does not act within that period. 37 Accordingly, from the filing of petitioner's administrative claim, together with the supporting documents, on March 30, 2016, respondent had one hundred twenty (120) days or until July 28, 2016 to act on the said claim. Considering that respondent issued a letter denying the claim on April 21, 201638, petitioner had thirty (30) days or until May 23, 201639, within which to file a judicial claim before this Court. Clearly, the instant Petition for Review was also timely filed on May 23, 2016.

Petitioner is engaged in zero-rated or effectively zero-rated sales Petitioner's Articles of Incorporation expressly states that it is primarily incorporated for the following purposes: 1.

To engage in the business of merchandising, distributing and marketing, whether as principal, agent, indenter or manufacturer's representative, wholesale or retail, such as but not limited to industrial, agricultural, manufacturing tools and equipment, engineering products, hardware items, construction materials and electrical supplies, and or any all kinds of goods, wares and merchandise. 36 G.R. Nos. 187485, 196113, and 197156, February 12, 2013. 37 Supra, Note 37.

38 Exhibit "P-23".

39 May 21, 2016 fell on a Saturday, See Section 1, Rule 22 of Rules of Court.

2.

To engage in the business of import and export as principals, factors, representatives, agents or commissioned merchants with respect to buying, selling, trading or dealing in any and all kind of goods, wares, products of all classes and description, distribution, import and export business. 40 Evidence shows that the majority of petitioner's clients were entities doing business within the economic zone and registered with PEZA and SBMA, whose transactions were classified as zero-rated transactions pursuant to Section 106(A)(2)(c) of the NIRC of 1997, as amended, to wit: SEC. 106. Value-Added Tax on Sale of Goods or Properties. - (A) Rate and Base of Tax. - xxxx XXX XXX XXX (2) The following sales by VAT-registered persons shall be subject to zero percent (0°/o) rate:

XXX XXX XXX (c) Sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to zero rate. Corollarily, Regulations (RR) No. 16-2005, as amended, states:

SECTION 4.106-5. Zero-Rated Sales of Goods or Properties. - xxxx 40 Exhibit "P-2".

J 1 2 3 4

The following sales by VAT-registered persons shall be subject to zero percent (0°/o) rate:

XXX XXX XXX

(c) 'Sales to Persons or Entities Deemed Tax-exempt under Special Law or International Agreement'. - Sales of goods or property to persons or entities who are tax-exempt under special laws, e.g.

sales to enterprises duly registered and accredited with the Subic Bay Metropolitan Authority (SBMA) pursuant to R.A. No. 7227, sales to enterprises duly registered and accredited with the Philippine Economic Zone Authority (PEZA) or international agreements to which the Philippines is signatory, such as, Asian Development Bank (ADB), International Rice Research Institute (IRRI), etc., shall be effectively subject to VAT at zero-rate. Based on the cited provisions, sales of goods to entities registered with PEZA and SBMA are subject to VAT at zero percent (0°/o) rate.

To prove that its clients are duly-registered with the PEZA and SBMA, petitioner submitted various PEZA Certificates of Registration, BIR Certificates of Registration, and PEZA-ERD Forms No.

97-0141 • Petitioner likewise submitted the letter dated July 5, 201642 of PEZA Deputy Director General for Operations, Mary Harriet 0. Abordo, to petitioner's President, Cyrus S. Chung, Jr., confirming the issuance of VAT zero-rating certifications to the following entities:

Name of Enterprise Zone Location VAT Cert. No.

VAT Cert. Date ALPHA TECHNO PRECISION Cavite Economic Zone 2014-1122 24 January 2014 TOOLINGS INC.

APPLIED MACHINING Laguna Technopark- 2014-0172 10 December 2013 CORPORATION SEZ ASIAN TRANSMISSION Carmel ray Industrial 2014-1661 01 April 2014 CORPORATION Park 1-SEZ CITIZEN MACHINERY PHILIPPINES, INC.

First Philippine 2014-0023 09 December 2013 FORMERLY: MIYANO PHILIPPINES, Industrial Park-SEZ INC 41 Exhibit "P-7".

42 Exhibits "P-6"; "!CPA PEZA-1" to "ICPA PEZA-1.4".

5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37

CLAYMOUNT ASSEMBLIES PHILIPPINES, INC.

DAITOH PRECISIONS INC

DAIWA SEIKO PHILIPPINES CORPORATION DELFINGEN PH-FILIPINAS, INC FORMERLY:

SOFANOU (PHILIPPINES), INC

DELTA DESIGN PHILIPPINES LLC

EN CORPORATION

EXAS PHILIPPINES, INC FAMOUS SECRET PRECISION

MACHINING INC

FATEC CORPORATION

FERUSCHE STAINLESS, INC. FIRSTEC METALLICS, INC.

FUJITSU DIE-TECH CORPORATION

OF THE PHILIPPINES

GUNMA GOHKIN PHILIPPINES CORPORATION HARADA AUTOMOTIVE ANTENNA (PHILIPPINES), INC.

FORMERLY:

NIPPON ANTENNA

(PHILIPPINES) INC

HISTOTECH PRECISION (PH) INC

HITACHI INDUSTRIAL MACHINERY

PHILIPPINES CORP.

HONDA PARTS MANUFACTURING CORPORATION

I MAS EN

PHILIPPINE

MANUFACTURING CORPORATION

INA MICRO OPTO CORPORATION

JFS PRECISION TECHNOLOGY CORP.

KNOWLES ELECTRONICS

(PHILIPPINES) CORPORATION

KODACHI SEIKI PHILIPPINES INC

LAGUNA AUTO-PARTS

MANUFACTURING CORPORATION

LAGUNA METIS CORPORATION

MAKOTO METAL TECHNOLOGY, INC MANUFACTURING AUTOMATION

SOLUTIONS INTERNATIONAL INC

MEINAN PHILIPPINES, INC

MENIMA CASTING PRODUCTS INC

MICRO-MECHANICS TECHNOLOGY

INTERNATIONAL INC

MICRON PRECISION PHILIPPINES, INC

MKP INC

MTE TECHNOLOGY, INC NAKASHIMA PHILIPPINES

CORPORATION (NPC)

FORMERLY:

MIKADO PHILIPPINES

CORPORATION Calamba Premiere 2014-0668 09 January 2014 International Park-SEZ Mactan Economic Zone 2014-1079 23 January 2014 Laguna International 2014-0552 02 January 2014 Industrial Park-SEZ Mactan Economic Zone II-SEZ 2014-1665 02 April 2014 Carmel ray Industrial 2014-0854 16 January 2014 Park II-SEZ Cavite Economic Zone 2014-0708 13 January 2014 Mactan Economic Zone 2014-1752 13 May 2014 Daiichi Industrial Park- 2014-0536 02 January 2014 SEZ First Cavite Industrial 2014-1251 29 January 2014 Estate-SEZ Filinvest Technology 2014-0573 03 January 2014 Park Calamba-SEZ Light Industry & 2014-0534 27 December 2013 Science Park I-SEZ Laguna Technopark 2014-0334 17 December 2013 Inc.-SEZ Light Industry & 2014-0679 09 January 2014 Science Park I -SEZ First Cavite Industrial 2014-0146 10 December 2013 Estate-SEZ Light Industry & 2014-2017 08 October 2014 Science Park I-SEZ First Cavite Industrial 2014-0185 11 December 2013 Estate-SEZ Laguna Technopark 2014-0331 17 December 2013 Inc.-SEZ Laguna Technopark 2014-0346 17 December 2013 Inc.-SEZ Mactan Economic Zone 2014-1476 24 February 2014 II-SEZ Golden Mile Business Park-SEZ Baguio City 2014-1023 22 January 2014 Economic Zone Cebu Light Industrial 2014-0747 13 January 2014 Park-SEZ Cavite Economic Zone 2014-1376 10 February 2014 Laguna Technopark 2014-0028 09 December 2013 Inc.-SEZ Laguna Technopark 2014-0607 07 January 2014 Inc.-SEZ Mactan Economic Zone 2014-0638 08 January 2014 II-SEZ Calamba Premiere 2014-0460 26 December 2013 International Park-SEZ Laguna Technopark 2014-1252 29 January 2014 Inc.-SEZ First Cavite Industrial 2014-1007 21 January 2014 Estate-SEZ Carmel ray Industrial 2014-0751 13 January 2014 Park II-SEZ Calamba Premiere 2014-1419 13 February 2014 International Park-SEZ Cavite Economic Zone 2014-0905 17 January 2014 Carmel ray Industrial 2014-0256 13 December 2013 Park II-SEZ Cavite Economic Zone 2014-0614 07 January 2014 / 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 - 59 60 61 62 63 64 65 66 67

NEW ELECTRONICS SYSTEM CO., INC

NIDEC PHILIPPINES CORPORATION

NIDEC PRECISION PHILIPPINES CORPORATION NIDEC

SAN KYO

PHILIPPINES CORPORATION NUVALI STEEL PROCESSING

CENTER INC

ORBIS PRECISION TECH. INC. PARTS PHILIPPINES INC.

PENTA TECHNOLOGICAL PRODUCTS

INC.

PHILIPPINE KENKO CORPORATION

PHILIPPINE NAGANO SEIKO, INC PHILIPPINE PRECISION

TECHNOLOGY INC

PHILIPPINE SANITARY FITIINGS, INC PHILIPPINES TRC, INC

PRECISE TECHNO INCORPORATED

PROPHILE SOUND INDUSTRIES INC

RAMCAR TECHNOLOGY, INC SEO JIN TRONICS, INC SINAG PRECISION

MANUFACTURING LAGUNA INC

SHIMANO (PHILIPPINES) INC

SONION PHILIPPINES INC

SUMINAC PHILIPPINES INC

SUNNELIT PHILIPPINES CORPORATION T&S LASER SOLUTIONS, INC. TAMIYA (PHILIPPINES), INC. TMX PHILIPPINES INC.

TSUKUBA PHILIPPINE DIECASTING

CORPORATION URE-SHII TECHNOLOGIES INC. VITALO PACKAGING INTERNATIONAL INC.

WACKER NEUSON MANILA, INC. FORMERLY:

WACKER MACHINERY

PHILIPPINES, INC YUTAKA MANUFACTURING (PHILS.) INC.

Cavite Economic Zone 2014-0141 10 December 2013 Laguna Technopark 2014-0226 11 December 2013 Inc.-SEZ Laguna Technopark 2014-0680 09 January 2014 Inc.-SEZ Laguna Technopark 2014-1756 16 May 2014 Inc.-SEZ Laguna Technopark 2014-1505 28 February 2014 Annex-SEZ Laguna International 2014-0946 20 January 2014 Industrial Park-SEZ Cavite Economic Zone 2014-0787 15 January 2014 Laguna Technopark 2014-0444 26 December 2013 Inc.-SEZ Mactan Economic Zone 2014-1744 13 May 2014 People's Technology 2014-0541 02 January 2014 Complex-SEZ Carmel ray Industrial 2014-1663 02 April 2014 Park I-SEZ Light Industry & Science Park III-SEZ 2014-1750 13 May 2014 First Cavite Industrial Estate-SEZ Lima Technology 2014-1480 24 February 2014 Center-SEZ Cavite Economic Zone 2014-1694 11 April 2014 Cavite Economic Zone 2014-0725 13 January 2014 Sta.

Maria Industrial 2014-1604 17 March 2014 Park First Cavite Industrial 2014-1296 03 February 2014 Estate-SEZ Laguna Technopark 2014-1831 23 June 2014 Inc.-SEZ First Philippine 2014-0389 18 December 2013 Industrial Park-SEZ First Philippine 2014-0519 27 December 2013 Industrial Park-SEZ First Cavite Industrial 2014-0073 09 December 2013 Estate-SEZ Laguna Technopark 2014-1124 24 January 2014 Inc.-SEZ First Philippine 2014-0433 20 December 2013 Industrial Park-SEZ Mactan Economic Zone 2014-0980 21 January 2014 II-SEZ Mactan Economic Zone 2014-1035 22 January 2014 Cavite Economic Zone 2014-0050 09 December 2013 Golden Mile Business 2014-2039 28 October 2014 Park-SEZ Laguna Technopark- 2014-0671 09 January 2014 SEZ First Cavite Industrial 2014-0678 09 January 2014 Estate-SEZ Laguna Technopark 2014-0082 09 D~cember 2013 Inc.-SEZ Accordingly, only the sales made to the above- enumerated entities, as well as to the SBMA-registered entities, i.e., Hitachi Terminals Mechatronics Philippines Corporation and Polarmarine, Inc., during the 1st and 2nd ,./ quarters of TY 2014 shall qualify for VAT zero-rating.

In addition, Sections 113(A)(2), (B)(1), (2)(c) and (3) of the NIRC of 1997, as amended, and as implemented by Sections 4.113-1(A)(2), (B)(1) and (2)(c) of Revenue Regulations (RR) No. 16-05, in relation to Sections 237 and 238 of the same Code, provide that a VAT taxpayer, like petitioner, shall for every lease of goods or properties and for every sale, barter or exchange of services, issue a VAT official receipt which must contain the following information: SEC.

113.

Invoicing and Accounting Requirements for VAT-Registered Persons. - (A) Invoicing Requirements. -

A VAT-

registered person shall issue:

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

(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: XXX XXX XXX

(c) If the sale is subject to zero percent (0°/o) value-added tax, the term 'zero-rated sale' shall be written or printed prominently on the invoice or receipt; XXX XXX XXX /

(3) The date of transaction, quantity, unit cost and description of the goods or properties or nature of the service;xxxx (Emphasis supplied) 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 XXX XXX XXX 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 invoices/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:

XXX XXX XXX ,/

(c) If the sale is subject to zero percent (0°/o) VAT, the term 'zero-rated sale' shall be written or printed prominently on the invoice or receipt;" (Emphases supplied) SEC. 237. Issuance of Receipts or Sales or Commercial Invoices. - All persons subject to an internal revenue tax shall, for each sale and 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. xxxx" (Emphases supplied) 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 of the Commissioner.

In its Quarterly VAT Returns43 for the 1st and 2nd quarters of TY 2014, petitioner reported a total sale of P66, 700,636.15, as computed below:

VATable Sales Zero-rated Sales Total Sales 1st Quarter p 10,362 386.09 p 23,532,943.34 p 33 895 329.43 2nd Quarter 10,190,257.41 22,615,049.31 32,805,306.72 Total P20,552,643.50 P46,147,992.65 P66,700,636.15 43 Exhibits "P-17-A" and "P-17-B". /

In support of its zero-rated sales and to prove compliance with the VAT invoicing requirements as provided by the afore-quoted laws and regulations, petitioner submitted various certified true copies of its sales invoices44 issued to its customers, all were examined by the ICPA. Per the ICPA Report, petitioner's zero-rated sales were supported by sales invoices with a total amount of P46,626,058. 73, which is greater than the amount reported per VAT Returns by P478,066.08, as shown below: 45 Zero-Rated Zero-Rated Sales per VAT Sales per ICPA Difference Returns pt Quarter p 23,532,943.34 p 23 648,761.07 p (115,817.73) 2nd Quarter 22,615 049.31 22,977,297.66 (362,248.35) Total P46,147,992.65 P46,626,058. 73 P1478,066.08) The above noted difference of P478,066.08 is attributable to the following: Out of period sale p __(_13_1_ 110.00) Sold to PEZA but treated as VATable sale 10,050.00 Unsupported difference between the actual schedule vis-a-vis VAT return-tst Quarter 118,877.73 Unsupported difference between the actual schedule vis-a-vis VAT return-2nd Quarter 362,248.35 Total p 478,066.08 Out of the P478,066.08 difference accounted by the ICPA, the amounts of P13,110.0046 and P10,050.0047 shall be considered for the purpose of determining the amount of zero- rated sales to which the valid input VAT may be attributed. However, the unsupported differences of P118,877. 73 and P362,248.35, which apparently pertain to amounts not actually reported in petitioner's VAT Returns for the subject period, shall be disregarded. Moreover, the following reported zero-rated sales in the amount of P2,559,249.20, shall be disallowed as they were made to entities without proof of 44 Exhibit "P-9" (labeled as Exhibits "ICPA ZSQ1-1" to "ICPA ZSQ1-762" and "ICPA ZSQ2-1" to "ICPA ZSQ2-773" in the ICPA Report [Exhibit "P-28"]). 45 Exhibit "P-28" (ICPA Report). .I

PEZA/SBMA registration, thus, cannot qualify for VAT zero- rating, to wit:

Invoice Invoice Client Amount Exhibit No.

No.

Date First Quarter 5728 1/6/2014

SILAN TECHNOLOGIES

p 7,200.00

ICPA ZSQ1-9

CORPORATION 5800 1/8/2014

TURU SANTECHNO CORPORATION

20,140.00

ICPA ZSQ1-41

5803 1/8/2014 PREMTOOL E.K.

108,521.91

ICPA ZSQ1-42

5804 1/8/2014 PREMTOOL E.K.

333,151.28

ICPA ZSQ1-43

5805 1/8/2014 PREMTOOL E.K.

304,273.31

ICPA ZSQ1-44

5920

1/15/2014 DELFINGEN WEST INC

129,000.00

ICPA ZSQ1-102

5941

1/16/2014 TURU SANTECHNO CORPORATION

18,540.00

ICPA ZSQ1-115

5942

1/16/2014 TURU SANTECHNO CORPORATION

16,390.00

ICPA ZSQ1-116

6143

1/28/2014 TURU SANTECHNO CORPORATION

940

ICPA ZSQ1-194

6270 2/5/2014

TURU SANTECHNO CORPORATION

3,900.00

ICPA ZSQ1-265

6271 2/5/2014

HILLMEC ENGINEERING SDN BHD

225,270.52

ICPA ZSQ1-266

6356 2/11/2014

SILAN TECHNOLOGIES

4,490.00

ICPA ZSQ1-306

CORPORATION 6357 2/11/2014

SILAN TECHNOLOGIES

2,090.00

ICPA ZSQ1-307

CORPORATION 6572

2/22/2014 TURU SANTECHNO CORPORATION

12,900.00

ICPA ZSQ1-418

6574 2/22/2014 PREMTOOL E. K. 152,081.46

ICPA ZSQ1-420

6632

2/26/2014 CEBU AOI DEVELOPMENT

7,875.00

ICPA ZSQ1-453

TECHNOLOGIES CORP

6664

2/26/2014 DELFINGEN WEST INC

43,000.00

ICPA ZSQ1-469

6687

2/27/2014 SILAN TECHNOLOGIES

3,600.00

ICPA ZSQ1-485

CORPORATION 6781 3/6/2014

TURU SANTECHNO CORPORATION

6,500.00

ICPA ZSQ1-540

6901 3/12/2014

EUROASIA TECHNICS SON BHD

58,718.88

ICPA ZSQ1-611

7033 3/19/2014 PREMTOOL E.K. 109,834.08

ICPA ZSQ1-679

7034

3/19/2014 TURU SANTECHNO CORPORATION

6,500.00

ICPA ZSQ1-680

7085

3/24/2014 TURU SANTECHNO CORPORATION

5,300.00

ICPA ZSQ1-701

7201 3/28/2014 PREMTOOL E.K.

252,568.41

ICPA ZSQ1-753

subtotal p 1.,832,784.85 Second Quarter 7376 4/8/2014

SILAN TECHNOLOGIES

p 2,400.00

ICPA ZSQ2-75

CORPORATION 7378

4/10/2014 TURU SANTECHNO CORPORATION

3,900.00

ICPA ZSQ2-77

7541 4/22/2014 PREMTOOL E.K.

109,236.30

ICPA ZSQ2-162

7543 4/22/2014

DELFINGEN WEST INC

13,200.00

ICPA ZSQ2-164

7699

4/29/2014 TURU SANTECHNO CORPORATION

1,000.00

ICPA ZSQ2-244

7880 5/9/2014

TURU SANTECHNO CORPORATION

3,900.00

ICPA ZSQ2-345

8030 5/7/2014

TURU SANTECHNO CORPORATION

5,000.00

ICPA ZSQ2-411

8103

5/22/2014 TURU SANTECHNO CORPORATION

5,000.00

ICPA ZSQ2-445

8125

5/24/2014 SILAN TECHNOLOGIES

5,840.00

ICPA ZSQ2-454

CORPORATION 8126 5/24/2014

SILAN TECHNOLOGIES

4,800.00

ICPA ZSQ2-455

CORPORATION 8127 5/24/2014

SILAN TECHNOLOGIES

4,800.00

ICPA ZSQ2-456

CORPORATION 8128

5/24/2014 SILAN TECHNOLOGIES

7,220.00

ICPA ZSQ2-457

CORPORATION

8147 5/26/2014 PREMTOOL E.K.

8285 6/2/2014 PREMTOOL E.K.

8671 6/25/2014

SILAN TECHNOLOGIES

CORPORATION 8672 6/25/2014

SILAN TECHNOLOGIES

CORPORATION 8673 6/25/2014

SILAN TECHNOLOGIES

CORPORATION 8674

6/25/2014 SILAN TECHNOLOGIES

CORPORATION 8677

6/25/2014 SILAN TECHNOLOGIES

CORPORATION 8680 6/25/2014

EUROASIA TECHNICS SDN BHD

8750 6/30/2014

PRECISE PARTS COOPERATION INC

subtotal Total 90,642.36

ICPA ZSQ2-468

205,396.75

ICPA ZSQ2-530

5,230.00

ICPA ZSQ2-735

5,550.00

ICPA ZSQ2-736

2,400.00

ICPA ZSQ2-737

6,140.00

ICPA ZSQ2-738

3,000.00

ICPA ZSQ2-739

238,148.94

ICPA ZSQ2-740

3,660.00

ICPA ZSQ2-773

p 726,464.35 p 2,559,249.20 Based on the foregoing, only the amount of P43,585,683.45 represents petitioner's valid zero-rated sales, computed as follows:

1st Quarter 2nd Quarter Total Total Reported Zero-Rated Sales p 23 532 943.34 p 22,615,049.31 p 46 147 992.65 .C- Add(Less): Adjustments Out of period sale (13,110.00) (13 110.00) Sale to PEZA but treated as vatable sale 10L050.00 10 050.00 Disallowed by this Court ( 1 832,784. 85) (726,464.35) (2,559 249.20) Total Valid Zero-Rated Sales P21,697 ,098.49 P21,888,584.96 P43,585_,683.45 Petitioner incurred and paid input taxes which are attributable to its zero- rated sales and the same were not applied against anv output VAT liability For the 1st and 2nd quarters of TY 2014, petitioner incurred input taxes on its local purchases and importations of goods other than capital goods in the total amount of P5,912,357. 73, of which the amount of P3,446,040.51, net of output tax due, is the subject of petitioner's claim for refund, to wit:

1st Quarter Exh. "P-17-A" 2"d Quarter Exh. "P-17-B" Total 1.

2.

3.

4.

5.

6.

Input Tax on Purchases of Goods Other than Caj>ital Goods(Line 21FJ p 407 105.65 p 386L548.08 p 793 653.73 Input Tax on Importation of Goods Other than Capital Goods (Line 21H) 2,836 637.00 2 282,067.00 5,118 704.00 Total Input Taxes p 3,243,742.65 p 2,668,615.08 p 5,912,357.73 Less: Output Tax (Line 158) 1,243 486.33 1 222 830.89 2 466,317.22 Excess input tax claimed p 2,000,256.32 p 1,445,784.19 p 3,446,040.51 In support of its total input taxes of P5,912,357.73, petitioner submitted the certified true copies of sales invoices48 for its local purchases of goods, and Import Entry and Internal Revenue Declarations (IEIRDs), and Bureau of Customs (BOC) receipts/Confirmation receipts49 evidencing payment of VAT for imported goods. Upon examination of the said documents, the ICPA noted exceptions on local purchases in the total amount of P28,172.39, summarized as follows: 50 Description 1st Quarter 2nd Quarter Total Incorrect TIN of petitioner p 9 016.39 p 3 040.07 p 12_L056.46 VAT not indicated separately in the invoice 86.06 227.14 313.20 Supported by Point of Sale (POS) receipts only 43.93 25.18 69.11 Not validated due to unavailability of the supporting documents - 6 120.00 6,120.00 VAT erroneously written on VAT exempt sale invoice - 28.06 28.06 Unsupported difference between the actual schedule vis-a-vis VAT return 9 702.28 (116.72) 9 585.56 Total P18,848.66 P9,323.73 P28,172.39 From the above findings, Item Nos. 1 to 5, in the aggregate amount of P18,586.83 shall be disallowed for petitioner's failure to meet the substantiation requirements under Sections 110(A) and 113(A) and (B) of the NIRC of 1997, as amended, in relation to Sections 4.110-1, 4.110-8, and 4.113-1 of RR No. 16-05. As to the unsupported difference of P9,585.56 (Item No. 6), further review reveals that the difference actually amounts to only P9,295. 24 for the 1st quarter, which shall be disallowed for being unsupported, and P116. 7351 for the 2nd quarter, which shall be disregarded as it does not form part of the 48 Exhibit "P-11".

49 Exhibit "P-20".

50 ICPA Report (Exhibit "P-28"); Annexes G to G.3 of ICPA Report (Exhibit "P-28"). 51 With a difference of 0.01 due to rounding off.

instant claim. The details of the said amounts are presented below:

Input Tax per Input Tax Per Return Schedule52 Difference pt Quarter p 407,105.65 p 397,810.41 p 9,295.24 2nd Quarter 386,548.08 386,664.81 _(116.731 Total P793,653.73 P784,475.22 P9,178.51 In addition, the input VAT on local purchases in the amount of P66,515.66 shall likewise be disallowed for the following reasons:

Invoice Supplier's Name No.

Amount Exhibit No.

Reason for disallowance First Quarter Supported by VAT invoice with Avenue Hardware Coo:>_. 92014 p 806.79

ICPA P-91

unreadable date Supported by VAT invoice without Limhuaco Metal industrial Inc. 11149 15 642.86

ICPA P-99

petitioner's TIN Handyman Do It Best home Ctr 656684 210.00

ICPA P-123

Supported by tape receipt only True Value 694 130.50

ICPA P-127

Supported by_ tape receipt only Supported by VAT invoice with alteration on date but without Grindtech Abrasives Corp. 2955 315.00

ICPA P-208

countersignature Supported by VAT invoice without Sanyoseiki Stainless Steel Corp. 143253 15 857.14

ICPA P-275

petitioner's TIN Supported by VAT invoice without Kimika Industrial Corporation 128394 5 614.29

ICPA P-389

petitioner's TIN subtotal P38,576.58 Second Quarter Em-o Industrial Manufacturing Supported by VAT invoice without Corporation 9634 p 1 923.75

ICPA P-675

petitioner's TIN Supported by VAT invoice without Union Hardware 30376 210.00

ICPA P-764

petitioner's TIN Supported by VAT invoice without Union Hardware 30375 182.90

ICPA P-765

_petitioner's TIN Supported by VAT invoice without Union Hardware 30435 208.80

ICPA P-797

petitioner's TIN Supported by VAT invoice without Union Hardware 30469 1,456.38

ICPA P-798

petitioner's TIN Em-o Industrial Manufacturing Supported by VAT invoice without Corporation 9931 15 321.80

ICPA P-893

petitioner's TIN Supported by VAT invoice without Kimika Industrial Corporation 129929 1,301.79

ICPA P-973

petitioner's TIN Em-o Industrial Manufacturing Supported by VAT invoice without Corporation 10222 7 333.66

ICPA P-1006

petitioner's TIN subtotal P27,939.08 Total p 66,515.66 Further, upon examination of the documents supporting the input VAT on importation of P5,118,704.00, 53 the Court 52 Exhibit "P-10".

53 Annex H to H.1 of ICPA Report (Exhibit "P-28"). -- finds the same compliant with the invoicing and substantiation requirements prescribed under the law and regulations. In sum, petitioner's valid input VAT for the 1st and 2nd quarters ofTY 2014 amounts to P5,817,960.00, as follows: 1st Qtr 2nd Qtr Total Input VAT per Returns p 3 243,742.65 p 2 668 615.08 p 5 912 357.73 Less: Disallowances Per !CPA findinqs p 9,146.38 p 9 440.45 p 18 586.83 Unsupported difference 9,295.24 - 9 295.24 Additional disallowances by this Court 38 576.58 27 939.08 66 515.66 Total Disallowances p 57 018.20 p 37 379.53 p 94 397.73 Total Valid Input VAT P3,186,724.45 P2,631,235.55 P5,817,960.00 Proceeding therefrom, a portion of petitioner's valid input VAT shall be applied against the output VAT liability for the 1st and 2nd quarters of TY 2014 in the aggregate amount of P2,465,240.43. Consequently, only the remaining input VAT of P3,352,719.57 can be attributed to the declared zero- rated sales of P46,158,042.65 and only the input VAT of P3,155,032. 77 is attributable to the valid zero-rated sales of P43,585,683.45, computed as follows: Second First Quarter Quarter Total Valid Input VAT p 3, 186,724.45 p 2,631,235.55 p 5,817,960.00 Less: Output VAT liability Output VAT per returns 1 243 486.33 1,222,830.89 2 466 317.22 Less: Output tax on Sale to PEZA but treated as vatable sale 1,076. 79 1,076. 79 (P10 050.00 + 1.12% X 12%) Total 1,242,409.54 1,222,830.89 2,465,240.43 Excess Input VAT P1,944,314.91 P1,408,404.66 P3,352,719.57 Divide by Declared Zero-Rated Sales 23 542,993.34 22,615 049.31 46,158,042.65 Multiply by Valid Zero-Rated Sales 21 697 098.49 21,888,584.96 43,585,683.45 Excess Input VAT attributable to Valid P1,791,870.37 P1,363, 162.41 P3,155,032.77 Zero-Rated Sales Further, although the claimed input VAT, which includes the refundable amount of P3,155,032. 77, was carried over to the succeeding 3rd quarter of TY 2014, the same remained / unutilized as it was deducted as "VAT Refund/TCC claimed"54 in its Amended Quarterly VAT Return for the 3rd quarter of TY 2014. 55 Therefore, the subject claim no longer formed part of the excess input VAT of P7,298,577.2456 as of the end of the 3rd quarter of TY 2014 that was to be carried over or applied to the succeeding quarters. As such, it eliminates the possibility that the present claim would be applied to future output VAT liability.

WHEREFORE, the instant Petition for Review filed by petitioner Colt Commercial, Inc., on May 23, 2016, is PARTIALLY GRANTED.

Accordingly, respondent is DIRECTED TO REFUND OR TO ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner the amount of P3,155,032.77, representing its unutilized and excess input VAT attributable to its zero-rated sales for the 1st and 2nd quarters of TY 2014.

ATTESTATION I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. s ociate Justice c ing Chairperson CERTIFICATION Pursuant to Section 13 of Article VIII of the Constitution and the Acting 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's Division. ROMAN G. DEL OSARIO Presiding Justice