Maxima Machineries, Inc. vs. Commissioner of Internal Revenue

DECISION

CASTANEDA, JR.,}..:

THE CASE

This Petition for Review filed by Maxima Machineries, Inc. on May 24, 2017, prays for the issuance of a tax credit certificate in the amount of P104,580,305.56, allegedly representing its unutilized input value-added tax (VAT) allocable and directly attributable to its VAT zero-rated sales for the period covering October 1, 2014 to March 31, 2015.¹

THE PARTIES

Petitioner is a domestic corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines, with principal business address at 871 Quezon Avenue, ?<--

Maxima Machineries, Inc. vs. Commissioner of Internal Revenue

Quezon City. 2 It is registered with the Bureau of Internal Revenue (BIR) under Tax Identification Number (TIN) 006-618-023-00000.3 On the other hand, respondent Commissioner of Internal Revenue is empowered to perform the duties of his office, including acting upon on protests cases and approval of claims for refund or tax credit as provided by law and implementing regulations. He can be served with pleadings, notices, and other processes at BIR National Office Bldg., BIR Road, Diliman, Quezon City.4

ANTECEDENTS (ADMINISTRATIVE LEVEL)

For the period covering the subject claim, petitioner filed with the BIR its Quarterly VAT Returns (BIR Form No. 2550-Q) on the following dates:

PERIOD

VAT RETURN

DATE OF

FILING

3rd Quarter- Fiscal Year (FY)

Quarterly VAT Return

January 23, 2015 2015

(Original)5

(October 1, 2014 to December

Quarterly VAT Return

June 19, 2015 31, 2014)

(Amended)6

4th Quarter- FY 2015

Quarterly VAT Return

April 21, 2015 (January 1, 2015 to March 31,

(Oriqinalf

2015)

Quarterly VAT Return

July 6, 2015

(Amended)8

On December 28, 2016, petitioner filed with the BIR an Application for Tax Credits/Refunds (BIR Form No. 1914) of its unutilized input VAT, covering the 3rd and 4th Quarters of FY 2015, amounting to 1'>36,551,575.64 and !'>68,028,729.92, respectively. 9 JJz-

Maxima Machineries, Inc. vs. Commissioner of Internal Revenue

Documents showing the basis for the VAT on importation was not included rendering the documents insufficient to support the VAT amount claimed. Attached as Annex 'A' hereof are the discrepancies noted in the supporting documents submitted by petitioner. 3.4 Hence, the following analysis of input tax available for refund:

3rd Quarter Fiscal Year 31 March 2015

1 October 2014 to 31 December 2014

ANALYSIS ON INPUT TAX

PER VAT RETURN

DOMESTIC PURCHASE OF GOODS

IMPORTATION OF GOODS OTHER

THAN CAPITAL GOODS

DOMESTIC PURCHASE OF SERVICES

TOTAL CURRENT INPUT TAX

LESS: OUTPUT TAX FOR THE QTR

INPUT TAX AVAILABLE FOR REFUND

LESS: INPUT TAX DISALLOWANCE

PER REFUND AUDIT

VT-1 IMPROPER INVOICING ON

LOCAL PURCHASES

VT-2 NO IMPORT ENTRY

DOCUMENTS, NO BANK CERTIFICATION ON VAT PAYMENT;

INSUFFICIENT SUPPORT (NO BACK

PORTION OF IED)

EXCESS OF DISALLOWANCE OVER

AVAILABLE INPUT TAX FOR REFUND

4TH QUARTER FISCAL YEAR 31

MARCH 2015

1 JANUARY 2015 TO 31 MARCH 2015

ANALYSIS ON INPUT TAX:

VAT PER RETURN

DOMESTIC PURCHASE OF GOODS

IMPORTATION GOODS OTHER THAN

CAPITAL GOODS

DOMESTIC PURCHASES OF SERVICES

TOTAL CURRENT INPUT TAX

LESS: OUTPUT TAX FOR THE QTR

INPUT TAX AVAILABLE FOR REFUND

LESS: INPUT TAX DISALLOWANCE

PER REFUND AUDIT

VT-1 IMPROPER INVOICING ON

LOCAL PURCHASES

VT-2 NO IMPORT ENTRY

DOCUMENTS, NO BANK CERTIFICATION ON VAT PAYMENT;

INSUFFICIENT SUPPORT (NO BACK

PORTION OF IED)

EXCESS DISALLOWANCE OVER

AVAILABLE INPUT TAX FOR REFUND

PURCHASES

19,991,186.17 880,395,559.19 43,880,934.00

PURCHASES

25,973,292.08 1,503, 735,800.76 39, 546,209.17

INPUT TAX

2,398,942.34 115,594,865.00 5,267,712.08 123,259,519.42 76,163.284.36 47,096,235.06 7,124,210.55 48,244,182.00 (8.272.157 .49)

INPUT TAX

3,116,795.05 183,321,012.00 4,745,545.10 191,183,352.15 140,097,923.47 51.085.428.68 7,751,415.86 1 185.866.048.00 (142.532.035.18) tz...-

Maxima Machineries, Inc. vs. Commissioner of Internal Revenue

4.

In the case of Commissioner of Internal Revenue vs. CE Luzon Geothermal Power Company, Inc., CTA EB No. 1397 (CTA Case No. 7393}, 7 June 2017, the Honorable Court En Bane ruled: 'A distinction must, thus, be made between administrative cases appealed due to inaction and those dismissed at the administrative level due to the failure of the taxpayer to submit supporting documents. If an administrative claim was dismissed by the CIR due to the taxpayer's failure to submit complete documents despite notice/request, then the judicial claim before the CTA would be dismissible, not for lack of jurisdiction, but for the taxpayer's failure to substantiate the claim at the administrative level. When a judicial claim for refund or tax credit in the CTA is an appeal of an unsuccessful administrative claim, the taxpayer has to convince the CTA that the CIR had no reason to deny its claim. It, thus, becomes imperative for the taxpayer to show the CTA that not only is he entitled under the substantive law to his claim for refund or tax credit, but also that he satisfied all the documentary and evidentiary requirements for an administrative claim. It is, thus, crucial for a taxpayer in a judicial claim for refund or tax credit to show that its administrative claim should have been granted in the first place. Consequently, a taxpayer cannot cure its failure to submit a document requested by the BIR at the administrative level by filing the said document before the CTA.

X X X"

The pre-trial conference case was set and held on July 20, 2017.13 The Respondent's Pre-Trial Briefwas filed on July 5, 2017;14 while the Pre-Trial Brief for the Petitioner was submitted on July 17, 2017.15 Respondent transmitted the SIR Records for the instant case on August 1, 2017. 16 r

Maxima Machineries, Inc. vs. Commissioner of Internal Revenue

The parties submitted their Joint Stipulation of Facts and Issues (JSFI) on August 4, 2017Y Thereafter, the Pre-Trial Order dated August 15, 2017 was issued,18 approving and adopting the said JSFI, and deeming the pre-trial terminated. The trial of the case then ensued.

During trial, petitioner presented documentary and testimonial evidence. As for its testimonial evidence, petitioner offered the testimonies of the following individuals: (1) Mr. Yusuke Yamada/9 petitioner's Chief Financial Officer; (²) Atty. Conrado M. Briones/0

Court-commissioned

Independent

Certified

Public

Accountant

(ICPA)21 ; and (³) Jenelyn Palayon-Tagao/2 petitioner's Chief for Government Compliance.

The ICPA Report was submitted on November 28, 2017. 23 On December 20, 2017, petitioner filed its Formal Offer of Evidence. 24 Respondent filed his Comment (Re: Petitioner's Formal OfferofEvidence)on December 22, 2017.25 On January 3, 2018, petitioner filed a Manifestation and Omnibus Motion, 26 praying for the Court to: (1) admit the Amended ICPA Report and USB submitted by ICPA Conrado M. Briones; (2) set a hearing date for the presentation of ICPA to identify the Amended !CPA Report, (3) defer the resolution of petitioner's Formal Offer of Evidence; (⁴) allow the petitioner to submit an Amended Formal Offer of Evidence to include the ICPA Report; and (⁵) cancel the ~

Maxima Machineries, Inc. vs. Commissioner of Internal Revenue presentation of respondent's evidence set on February 26, 2018. Respondent failed to file his comment thereon.27 In the Resolution dated February 22, 2018,28 the Court noted petitioner's Manifestation; granted petitioner's motion to set the case for the identification of the Amended ICPA Report; set the presentation of the ICPA on April 2, 2018; directed petitioner to submit the !CPA's Judicial Affidavit at least five (5) days before the said date; granted petitioner's motion to allow the submission of an Amended Formal Offer of Evidence to include the Amended ICPA Report; gave petitioner a period of five (5) days to submit the Amended Formal Offer of Evidence; gave respondent the same period from the above hearing date to file his comment thereon; held in abeyance the resolution on petitioner's Formal Offer of Evidence and motion to admit the Amended ICPA Report and USB; and cancelled the initial presentation of respondent's evidence on February 26, 2018.

On April 10, 2018, petitioner filed its Supplemental Formal Offer of Evidence. 29 Respondent failed to file his comment thereon.30 In the Resolution dated May 18, 2018,31 the Court admitted petitioner's Exhibits, exceptfor the following: 1) Exhibits "P-13" "P-15" "P-40" "P-46" and "P-48" for

I

I

I

I

I

failure to submit originals for comparison; and 2) Exhibits "P-19", "P-45", "P-174-sc", and "P-183-z", for not being found in the records of the case. At the hearing held on May 30, 2018,32 which was set for respondent's presentation of evidence, petitioner's counsel manifested that he will file a Motion for Partial Reconsideration to the Court's Resolution on petitioner's Formal Offer of Evidence. Thus, petitioner was granted a period of ten (10) days to file the said ~ 27 Records Verification dated February 12, 2018, issued by the Judicial Records Division of this Court, Docket, Vol. V, p. 2242.

2a Docket, Vol. v, pp. 2258 to 2260.

Maxima Machineries, Inc. vs. Commissioner of Internal Revenue

Motion.

Furthermore, petitioner made a Tender of Excluded Evidence of Exhibits "P-13", "P-15", "P-40", "P-46" and "P-48". In the same hearing, respondent presented his lone witness, Ms. Gracielle Cecilia S. Anaban, a Revenue Officer of the BIR, and orally offered Exhibits "R-1", "R-2" and "R-3". There being no objection interposed by the petitioner, the Court admitted the foregoing exhibits.

On May 30, 2018, petitioner filed a Motion for Partial Reconsideration, 33 praying for the Court to admit Exhibits "P-174-sc" and "P-183-z", as its evidence. Respondent failed to file his comment thereon.34 In the Resolution dated September 5, 2018,35 the Court granted petitioner's Motion for Partial Reconsideration, and admitted Exhibits "P-174-sc" and "P-183-z", and gave the parties thirty (30) days within which to file their respective memorandum. Subsequently, petitioner filed its Memorandum on November 16, 2018;36 while respondent failed to file his memorandumY Thus, in the Resolution dated December 4, 2019,38 the case was considered submitted for decision. However, on December 11, 2018, respondent filed a Motion to Admit Attached Memorandum,39 stating the he failed to file his memorandum due to inadvertence and heavy volume of work. In the Resolution dated February 4, 2019,40 the Court granted petitioner's Motion to Admit Attached Memorandum, and admitted the attached Memorandum.

In the same Resolution, the Court '}<-- 33 Docket, Vol. VI, pp. 2287 to 2290. 34 Records Verification dated July 2, 2018 issued by the Judicial Records Division of this Court, Docket, Vol. VI, p. 2298.

35 Docket, Vol. VI, pp. 2300 to 2301. 36 Docket, Vol. VI, pp. 2307 to 2349. 37 Records Verification dated November 19, 2018 issued by the Judicial Records Division of this Court, Docket, Vol. VI, p. 2351.

38 Resolution dated December 4, 2018, Docket, Vol. VI, p. 2352. 39 Docket, Vol. VI, pp.

40 Docket, Vol. VI, pp.

erA Case No. 9598 Maxima Machineries, Inc. vs. Commissioner of Internal Revenue

Page 9 of 48

recalled and set aside the Resolution dated December 4, 2018, and deemed submitted anew for decision the instant case.

THE ISSUE RAISED

The parties submitted this sole issue for this Court's resolution,41 to wit:

"WHETHER PETITIONER IS ENTITLED FOR TAX REFUND

FOR THE EXCESS UNUTILIZED INPUT VALUE ADDED TAX

(VAT) ALLOCABLE AND DIRECTLY ATTRIBUTABLE TO ITS

VAT ZERO RATED SALES FOR THE PERIOD FROM 01

OCTOBER 2014 TO 31 MARCH 2015 AMOUNTING TO

PHP104 ,580,305. 56."

Petitioner's argument:

Petitioner argues that its claim for tax refund should be granted because all the elements necessary are present. Respondent's counter-arguments:

Respondent claims that he denied petitioner's administrative claim for refund on the ground that the latter submitted supporting documents that were mere photocopies, thus, the authenticity of the entries/information therein cannot be ascertained outright. Respondent also claims that since a Decision has been rendered in this case denying petitioner's administrative claim for refund for failure to substantiate the same, petitioner cannot submit documents that it did not submit at the administrative level. Likewise, respondent insists that this Court should only settle the issue on whether the denial was proper given the evidence submitted at the administrative level. c;z__

Maxima Machineries, Inc. vs. Commissioner of Internal Revenue

THE COURT'S RULING

The Court finds no merit in the instant Petition for Review. Petitioner failed to show that respondent should not have denied its administrative claim in the first place.

Respondent invokes the ruling of the Supreme Court in the case of Pilipinas Total Gas, Inc. vs. Commissioner of Internal Revenue ("Pilipinas Total Gas case'')42 • Relative thereto, respondent avers that since he rendered a decision in the administrative level, this Court's jurisdiction becomes strictly appellate in nature. Respondent further argues that since he rendered a decision, the jurisdiction of this Court shifts from a trial court to an appellate tribunal, and thus, this Court should confine itself to the determination of whether the findings of respondent are consistent with law.

We agree with respondent.

In the Pilipinas Total Gas case, the Supreme Court said: "At this stage, a review of the nature of a judicial claim before the erA is in order.

In Atlas Consolidated Mining and

Development Corporation v. CIR,43 it was ruled- x x x First, a judicial claim for refund or tax credit in the CTA is by no means an original action but rather an appeal by way of petition for review of a previous, unsuccessful administrative claim.

Therefore, as in everv appeal or petition for review. a petitioner has to convince the appellate court that the quasi- judicial agency a quo did not have any reason to deny its claim. In this case, it was necessary for petitioner to show the CIA not only that it was entitled under substantive law to the grant of its claims but also that it satisfied all the documentary and evidentiary requirements for 'fL- 42 G.R. No. 207112, December 8, 2015. 43 G.R. No. 145525, March 15, 2007.

CfA Case No. 9598 Maxima Machineries, Inc. vs. Commissioner of Internal Revenue

Page 11 of 48

an administrative claim for refund or tax credit. Second, cases filed in the erA are litigated de novo. Thus, a petitioner should prove every minute aspect of its case by presenting, formally offering and submitting its evidence to the erA. Since it is crucial for a petitioner in a judicial claim for refund or tax credit to show that its administrative claim should have been granted in the first place, part of the evidence to be submitted to the erA must necessarily include whatever is required for the successful prosecution of an administrative claim.

A

distinction must, thus, be made between administrative cases appealed due to inaction and those dismissed at the administrative level due to the failure of the taxpayer to submit supporting documents.

If an

administrative claim was dismissed by the CIR due to the taxpayer's failure to submit complete documents despite notice/request, then the judicial claim before the erA would be dismissible, not for lack of jurisdiction, but of the taxpayer's failure to substantiate the claim at the administrative level.

When a

judicial claim for refund or tax credit in the CTA is an appeal of an unsuccessful administrative claim. the taxpayer has to convince the CTA that the CIR had no reason to deny its claim. It, thus, becomes imperative for the taxpayer to show the CTA that not only is he entitled under substantive law to his claim for refund or tax credit, but also that he satisfied all the documentary and evidentiary requirement for an administrative claim. It is. thus. crucial for a taxpayer in a judicial claim for refund or tax credit to show that its administrative claim should have been granted in the first place.

Consequently, a taxpayer cannot cure its failure to submit a document requested by the BIR at the administrative level by filing the said document before the erA." (Emphases and underscoring ours) Based on the foregoing doctrinal declarations by the High Court, it is now settled that as in every appeal or petition for review, a petitioner has to convince the appellate court that the quasi-judicial agency a quo did not have any reason to deny its claim; and it is necessary for a petitioner to show this Court not only that it was entitled under substantive law to the grant of its claims but also that it satisfied all the documentary and evidentiary requirements for an administrative claim for refund or tax credit. It is crucial for a taxpayer in a judicial claim for refund or tax credit to show that its administrative claim should have been granted in the first place, and should not have been denied. r;z, CfA Case No. 9598 Maxima Machineries, Inc. vs. Commissioner of Internal Revenue

Page 12 of 48

A careful observation of what transpired in the proceedings before this Court would reveal that petitioner presented its case as if its administrative claim was never acted upon or that there was no decision for this Court to review on appeal per se. In other words, petitioner presented its case before this Court as if it was an original action, despite that respondent had denied its administrative claim. Petitioner did not specifically assail the reasons or bases why its administrative claim was denied in the first place by respondent. It did not argue that the said reasons or bases of respondent were never justified in law.

For easy reference, the denial letter dated April 24, 201744 of respondent reads:

"CLAIM FOR VAT TCC/ REFUND MR. YUSUKE YAMADA

CHIEF FINANCE OFFICER

MAXIMA MACHINERIES, INC.

871 Quezon Avenue, Brgy. Sta. Cruz

Quezon City

Sir:

APR 24 2017

Please be informed that your Application for VAT Tax Credit Certificate (TCC) amounting to P36,551,575.64 and P68,028,729,92 for period October 1, 2014 to December 31, 2014 (3'd Quarter Fiscal Year 2015) and January 1, 2015 to March 31, 2015 (41h Quarter Fiscal Year 2015) as filed with the Regular Large Taxpayer Audit Division I was reviewed, evaluated and appropriately acted upon.

In reviewing the basis for such claim, we took into consideration the provisions and requisites provided under the National Internal Revenue Code (NIRC) of 1997, as amended, Executive Order (EO) No. 226 as amended by Republic Act (RA) No. 8756, Revenue Memorandum Circular (RMC) No. 54-2014, the guidelines set forth by the Board of Investments (BOI) and Securities and Exchange Commissioner (SEC), relevant decisions laid down by the

Court of Tax

Appeals

(CTA), and documents/records submitted by your Office in support of its claim for tax refund.

AUDIT FINDINGS )"V

Maxima Machineries, Inc. vs. Commissioner of Internal Revenue

Claims for refund are construed strictly against the claimant In evaluating the subject application for VAT Refund of Maxima Machineries, Inc., MMI for brevity, the undersigned revenue officers were guided by the rule that claims for refunds partake of the nature of tax exemptions, and as such, are regarded as in derogation of sovereign authority. (Commissioner of Internal

Revenue

vs.

Ledesma, 31 SCRA 95) Thus, claim for tax credit/refund are construed strictissimi juris against the taxpayer, which consequently requires that the evidence in support of the claim must likewise be strictly scrutinized and duly proven. (Commissioner of Internal Revenue vs. Procter and Gamble Philippines Mfg. Corp., 204 SCRA 377; Commissioner of Internal Revenue vs. Tokyo Shipping Co., Ltd., 244 SCRA 332).

Invoicing and Documentary Requirements

The examination of the supporting certified photocopies of the invoices and official receipts for local purchases as well as Import Entry Documents together with Bank Confirmations of VAT payment for importation were made in accordance with the requisites under Sec. 113(A), (B) and Sec. 237 of the NIRC of 1997, as amended, and Sec. 4.113-1 (A) and (B) of Revenue Regulation No. 16-2005.

As these were photocopies, the authenticity of the entries/information cannot be ascertained outright. We likewise cannot merely rely upon the affidavit of the certifying representative/officer of MMI as to the general validity of the invoices/official receipts even if the representative/officer affixed his signature upon each and every photocopy of the invoices/official receipts.

In addition. there appears to be additional entries made in the photocopied as to the name indicated as customer. address, business style and/or TIN of MMI after the issuance of the invoice/official receipt to comply with the invoicing requirements. However. as these are mere photocopies. there was no means to definitely determine or conclude whether the entries were authentic or regularized. Moreover, evaluation of MMI's Import Entry Documents and Bank Confirmations on VAT payment was based on the provisions of Sec. 107 of the NIRC and Sec. 4.110-8 of Revenue Regulation No. 16-2005.

It was noted that the supporting documents submitted were mere photocopies and the back portion of the Import Entry Documents showing the basis for the VAT on importation was not included rendering the documents insufficient to support the VAT amount claimed.

Attached to this report is the summary of findings or discrepancies noted per scrutiny of the photocopies of the 'f1- CfA Case No. 9598 Maxima Machineries, Inc. vs. Commissioner of Internal Revenue

Page 14 of 48

invoices/official receipts/Import Entry Documents as contained in various folders as submitted by MMI. Please refer to Annex A for the discrepancies noted in the supporting documents covering the October 1, 2014 to December 31, 2014 refund application and to Annex B for the discrepancies noted in the supporting documents covering the January 1, 2015 to March 31, 2015 refund application. The analysis of input tax available for refund is presented in the table below:

ANALYSIS ON INPUT TAX

PER VAT RETURN

DOMESTIC PURCHASE OF GOODS

IMPORTATION OF GOODS OTHER

THAN CAPITAL GOODS

DOMESTIC PURCHASE OF SERVICES

TOTAL CURRENT INPUT TAX

LESS: OUTPUT TAX FOR THE QTR

INPUT TAX AVAILABLE FOR REFUND

LESS: INPUT TAX DISALLOWANCE

PER REFUND AUDIT

VT-1 IMPROPER INVOICING ON

LOCAL PURCHASES

VT-2 NO IMPORT ENTRY

DOCUMENTS, NO BANK CERTIFICATION ON VAT PAYMENT;

INSUFFICIENT SUPPORT (NO BACK

PORTION OF lED)

EXCESS OF DISALLOWANCE OVER

AVAILABLE INPUT TAX FOR REFUND

ANALYSIS ON INPUT TAX

VAT PER RETURN

DOMESTIC PURCHASE OF GOODS

IMPORTATION GOODS OTHER THAN

CAPITAL GOODS

DOMESTIC PURCHASES OF

SERVICES

TOTAL CURRENT INPUT TAX

LESS: OUTPUT TAX FOR THE QTR

INPUT TAX AVAILABLE FOR REFUND

LESS: INPUT TAX DISALLOWANCE

PER REFUND AUDIT

VT-1 IMPROPER INVOICING ON

LOCAL PURCHASES

VT-2 NO IMPORT ENTRY

DOCUMENTS, NO BANK CERTIFICATION ON VAT PAYMENT;

INSUFFICIENT SUPPORT (NO BACK

PORTION OF lED) 3'd QUARTER FY MARCH 31, 2015 10.01.14 TO 12.31.14

PURCHASES

19,991,186.17 880,395,559.19 43,880,934.00

INPUT TAX

2,398, 942.34 115,594,865.00 5,267,712.08 123,259,519.42 76.163,284.36 47,096,235.06 7,124,210.55 48.244,182.00 (8.272.157.49) 4th QUARTER FY MARCH 31, 2015 01.01.15 TO 03.31.15

PURCHASES

25' 973,292.08 1,503, 735,800.76 39, 546,209.17

INPUT TAX

3,116,795.05 183,321,012.00 4,745,545.10 191,183,352.15 140,097,923.47 51.085.428.68 7,751,415.86 185.866.048.00 ;-..

Maxima Machineries, Inc. vs. Commissioner of Internal Revenue

EXCESS DISALLOWANCE OVER AVAILABLE INPUT TAX FOR

REFUND

(142.532.035.18) In view of the evaluation and review dutifully performed based on the afore-mentioned provisions and documents presented, please be advised that the Application for VAT TCC of MAXIMA MACHINERIES, INC. the periods October 1, 2014 to December 31, 2014 amounting to P36,551,575.64 and January 1, 2015 to March 31, 2015 amounting to P68,028,729,92 are hereby DENIED.

(Underscoring ours) Very truly yours, CAESAR R. DULAY

Commissioner of Internal Revenue

By:

(Signed)

TERESITA M. ANGELES

OIC-Assistant Commissioner

Large Taxpayers Service"

With the foregoing discussions, petitioner should have argued and proved before this Court that the above-stated findings do not stand, pursuant to the pertinent provisions of law and jurisprudence, especially in relation to the submitted documents by it at the administrative level, for being mere photocopies, and with regard to the BIR's analysis of input VAT, noting certain discrepancies. To stress, petitioner failed to show that respondent should not have denied its administrative claim in the first place, since it has submitted sufficient documents and the noted discrepancies are not meritorious.

As regards respondent's non-reliance to "photocopies" submitted by petitioner, the same may be justified under existing jurisprudence.

In Commission of Internal Revenue vs. Hantex Trading Co., Inc.,45 the Supreme Court ruled:

"xxx ... the general rule is that administrative agencies such as the BIR are not bound by the technical rules of '7r-

Maxima Machineries, Inc. vs. Commissioner of Internal Revenue evidence.

It can accept documents which cannot be admitted in a judicial proceeding where the Rules of Court are strictly observed.

It can choose to give weight or disregard such evidence, depending on its trustworthiness. xxx. Mere photocopies of the Consumption Entries have no probative weight if offered as proof of the contents thereof. The reason for this is that such copies are mere scraps of paper and are of no probative value as basis for any deficiency income or business taxes against a taxpayer.

Indeed, in United States v.

Davey,46 the U.S. Court of Appeals (2"d District) ruled that where the accuracy of a taxpayer's return is being checked, the government is entitled to use the original records rather than be forced to accept purported copies which present the risk of error or tampering.

XXX

XXX

XXX

The original copies of the Consumption Entries were of prime importance to the BIR. This is so because such entries are under oath and are presumed to be true and correct under penalty of falsification or perjury.

Admissions in the said entries of the importers' documents are admissions against interest and presumptively correct.

In fine, petitioner acted arbitrarily and capriciously in relying on and giving weight to the machine copies of the

Consumption

Entries

in fixing the tax deficiency assessments against the respondent."

(Emphases and

underscoring ours) On the basis of the foregoing jurisprudential pronouncements, while administrative agencies, such as the BIR, are not bound by technical rules of evidence, it may, nevertheless, choose to give weight or ignore evidence submitted to it, depending on its trustworthiness. Such being the case, the BIR, as an administrative agency, is given leeway to decide whether to give weight or ignore any evidence submitted to it, depending on its trustworthiness. Respondent was thus justified in not relying on the photocopies submitted by petitioner at the administrative level, and in denying, on the basis thereof, petitioner's administrative claim. In fine, having failed to show that respondent should not have denied its administrative claim in the first place, the instant Petition for Review must already be denied. Nevertheless, even when We are to ignore the ruling in the Pilipinas Total Gas case, the instant judicial claim is still not meritorious. ')t.- 46 543 F.2d 996 (1976).

Maxima Machineries, Inc. vs. Commissioner of Internal Revenue

In order that petitioner may validly claim for refund of its supposed unutilized input VAT allegedly attributable to its zero-rated sales for the period covering October 1, 2014 to March 31, 2015, it is imperative that it proves compliance with certain legal requirements. Requisites for the grant of the refund or issuance of TCC under the law.

Section 112 of the NIRC of 1997, as amended by Republic Act (RA) No. 9337,47 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(8)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the 8angko Sentral ng Pilipinas (8SP): 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(8)(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. ~ 47 AN ACT AMENDING SECTIONS 27, 28, 34, 106, 107, 108, 109, 110, 111, 112, 113, 114, 116, 117, 119, 121, 148, 1S1, 236, 237 AND 288 OF THE NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED, AND FOR OTHER PURPOSES.

Maxima Machineries, Inc. vs. Commissioner of Internal Revenue

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." Pursuant to the above-quoted provision, jurisprudence has laid down certain requisites which must be complied with by the taxpayer-applicant to successfully obtain a credit/refund of input VAT. Said requisites are classified into certain categories, to wit: Timeliness of the filing of the administrative and judicial claims:

1. the claim is filed with the BIR within two (2) years after the close of the taxable quarter when the sales were made;48

2. in case of full or partial denial of the refund claim, or the failure on the part of the Commissioner to act on the said claim within a period of 120 days from the date of submission of complete documents in support of the application, the judicial claim must be filed with this Court, within 30 days from receipt of the decision or after the expiration of the said 120-day period;49 Taxpaver's registration with the BIR:

3. the taxpayer is a VAT registered; 50 Taxpaver's output VAT:

4. the taxpayer is engaged in zero-rated or effectively zero- rated sales; 51 Jt.- 48 Intel Technology Philippines, Inc. vs. Commissioner of Internal Revenue, G.R. No. 166732, April 27, 2007; San Roque Power Corporation vs. Commissioner of Internal Revenue, G.R. No. 180345, November 25, 2009; and AT&T Communications Services Philippines, Inc. vs. Commissioner of Internal Revenue, G.R. No. 182364, August 3, 2010. 49 Steag State Power, Inc. (Formerly State Power Development Corporation) vs. Commissioner of Internal Revenue, G.R. No. 205282, January 14, 2019; Rohm Apollo Semiconductor Philippines vs. Commissioner of Internal Revenue, G.R. No. 168950, January 14, 2015. 50 Intel Technology Philippines, Inc. vs. Commissioner of Internal Revenue, supra; San Roque Power Corporation vs. Commissioner of Internal Revenue, supra; and AT&T Communications Services Philippines, Inc. vs. Commissioner of Internal Revenue, supra.

Maxima Machineries, Inc. vs. Commissioner of Internal Revenue

5. for zero-rated sales under Section 106(A)(2)(1) and (2); 106(8); and 108(8)(1) and (2), the acceptable foreign currency exchange proceeds have been duly accounted with 8SP rules and regulations; 52 Taxpaver's refund claim for input VAT:

6. the input taxes are due or paid; 53

7. the input taxes are not transitional input taxes; 54

8. the input taxes claimed are attributable to zero-rated or effectively zero-rated sales. However, where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on the basis of sales volumes; 55 and

9. the input taxes have not been applied against output taxes during and in the succeeding quarters. 56 Timeliness of the filing of petitioner's administrative and judicial claims.

The first requisite pertains to the filing of the refund for tax credit or refund of input VAT before the 8IR, within two (2) years from the close of the quarter when the sales were made. The instant claim covers the periods of October 1, 2014 to December 31, 2014 (Third Quarter of FY 2015) and January 1, 2015 to March 31, 2015 (Fourth Quarter of FY 2015). Counting two (2) years from the respective close of the said quarters, the following table indicates the pertinent last days for the filing of an administrative claim for the said two (2) quarters, to wit: ?z- 52 Id.

53 Id.

54 Id.

55 Intel Technology Philippines, Inc. vs. Commissioner of Internal Revenue, supra; San Roque Power Corporation vs. Commissioner of Internal Revenue, supra. 56 Intel Technology Philippines, Inc. vs. Commissioner of Internal Revenue, supra; San Roque Power Corporation vs. Commissioner of Internal Revenue, supra; and AT & T Communications Services Philippines, Inc. vs. Commissioner of Internal Revenue, supra.

erA case No. 9598 Maxima Machineries, Inc. vs. Commissioner of Internal Revenue

Page 20 of 48

Period (FY 2015)

Close of the Taxable

Quarter

October 1 to December

December 31, 2014 31,2014 January 1 to March 31, March 31, 2015 2015 - - - - - - - - - - - -- - -

Last Day to File

Administrative Claim

December 31, 2016 March 31, 2017 - - - - - Considering that petitioner's administrative claim [Application for Tax Credits/Refunds (BIR Form No. 1914)] covering the said 2 quarters, was filed with the BIRon December 28, 2016,57 the same was timely made within the 2-year prescriptive period. The second requisite is to the effect that the judicial claim must have been filed within (30) days from receipt of respondent's decision or after the expiration of the 120-day period under Section 112(C).

In this case, petitioner received a copy of the Audit Findings dated April 24, 2007, issued by Ms. Teresita M. Angeles, Ole- Assistant Commissioner of Large Taxpayers Service, on April 25, 2017, denying its claim for refund. 58 Thus, petitioner had until May 25, 2017, the last day of the 30-day period, within which to file its judicial claim. Such being the case, petitioner seasonably filed the instant Petition for Review on May 24, 2017.59

Petitioner's Registration

with the SIR.

- As for its compliance with the third requisite, petitioner has fulfilled the same by presenting its BIR Certificate of Registration No. 8RC0000422546 dated March 8, 2016, which was superseded by new Certificate of Registration with OCN8RC0000556816 dated June 20, 2016, issued by BIR with TIN/VAT Registration No. 006-618-023-000, indicating that it is liable to VAT. 60 Petitioner's output VAT; and refund claim for input VAT ?- 57 Exhibit "P-93", Docket, Vol. V, pp. 2177 to 2215. 58 Exhibit "P-97", Docket, Vol. V, pp. 2216 to 2218. 59 Docket, Vol. I, p. 10.

60 Exhibit "P-3", Docket, Vol. V, p. 2027.

CfA Case No. 9598 Maxima Machineries, Inc. vs. Commissioner of Internal Revenue

Page 21 of 48

As for its compliance with the other requisites, petitioner's Amended Articles of Incorporation shows that its primary purpose is to buy, sell, barter, trade, lease out, manufacture, import, export or otherwise acquire, dispose of, and deal with any kind of goods, wares and merchandise such as spare parts or replacement parts and/or complete assemblies of agricultural, industrial or commercial machineries, automobiles, buses, trucks, tractors or other motor vehicles and/or related machineries and equipment of every kind and description and to carry on such business as manufacturers, wholesalers, importers and exporters, except the manufacture of food, drugs and cosmetics.61 In this case, petitioner maintains that its sales of goods and services to entities registered with PEZA, S8MA, CDA, and 80! during the period October 1, 2014 to March 31, 2015 are subject to zero percent (0%) VAT, pursuant to Sections 106(A)(2)(a)(3),(5) and (c) and 108(8)(3) of the NIRC of 1997, as amended. Petitioner also claims that the indent commissions earned from its sale of services to non-resident foreign corporations doing business outside the Philippines like Marubeni Corporation-Japan and 8omag Fayat Group for the same period are also subject to VAT at zero percent (0%) rate, pursuant to Section 108(8)(2) of the same Code. The pertinent provisions of Sections 106(A)(2)(a)(3), (5) and

(c) and 108(8)(2) and (3) of the NIRC of 1997, as amended, state: "SEC. 106. Value-Added Tax on Sale of Goods or Properties. (A) Rate and Base of Tax. - x x x

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:

XXX

XXX

XXX~

61 Exhibits "P-2" and "P-2-A", Docket, Vol. V, p. 2015.

CfA Case No. 9598 Maxima Machineries, Inc. vs. Commissioner of Internal Revenue

Page 22 of 48

(3) Sale of raw materials or packaging materials to export- oriented enterprise whose export sales exceed seventy percent (70%) of total annual production;

XXX

XXX

XXX

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

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."

XXX

XXX

XXX

"SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties.-

XXX

XXX

XXX

(B) Transactions Subject to Zero Percent (0%) Rate. -The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate:

XXX

XXX

XXX

(2) Services other than those mentioned in the preceding paragraph rendered to a person engaged in business conducted outside the Philippines or to a non-resident person not engaged in business who is outside the Philippines when the services are performed, the consideration 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);

(3) Services rendered to persons or entities whose exception under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate;" Relative thereto, Sections 4.106-5 and 4.108.5 of Revenue Regulations No. (RR) 16-2005, as amended by RR No. 04-07, which implement the foregoing provisions, state: "SEC. 4.106-5. Zero-Rated Sales of Goods or Properties. -

XXX

j.?-

Maxima Machineries, Inc. vs. Commissioner of Internal Revenue

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

(a) Export sales.- 'Export Sales' shall mean:

XXX

XXX

XXX

(3) The sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed seventy percent (70%) of total annual production;

XXX

XXX

XXX

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

'Considered export sales under Executive Order No. 226' shall mean the Philippine port F.O.B. value determined from invoices, bills of lading, inward letters of credit, landing certificates, and other commercial documents, of export products exported directly by a registered export producer, or the net selling price of export products sold by a registered export producer to another export producer, or to an export trader that subsequently exports the same; Provided, That sales of export products to another producer or to an export trader shall only be deemed export sales when actually exported by the latter, as evidenced by landing certificates or similar commercial documents; Provided, further, That pursuant to EO 226 and other special laws, even without actual exportation, the following shall be considered constructively exported: (1) sales to bonded manufacturing warehouses of export-oriented manufacturers; (2) sales to export processing zones pursuant to Republic Act (RA) Nos. 7916, as amended, 7903, 7922 and other similar export processing zones;

(3) sale to enterprises duly registered and accredited with the Subic Bay Metropolitan Authority pursuant to RA 7227, (4) sales to registered export traders operating bonded trading warehouses supplying raw materials in the manufacture of export products under guidelines to be set by the Board in consultation with the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC); (5) sales to diplomatic missions and other agencies and/or instrumentalities granted tax immunities, of locally manufactured, assembled or repacked products whether paid for in foreign currency or not. For purposes of zero-rating, the export sales of registered export traders shall include commission income. The exportation of goods on consignment shall not be deemed export sales until the export products consigned are in fact sold by the consignee: and Provided, finally, that sales of goods, properties or services made by a VAT-registered supplier to a BOI-registered manufacturer/producer whose products are 100% 'j£-

Maxima Machineries, Inc. vs. Commissioner of Internal Revenue exported are considered export sales. A certification to this effect must be issued by the Board of Investment (BOI) which shall be good for one year unless subsequently re- issued by the BOI.

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 or international agreements to which the Philippines is a signatory, such as Asian Development Bank (ADB), International Rice Research Institute (IRRI), etc., shall be effectively subject to VAT at zero-rate." (Emphasis supplied)

XXX

XXX

XXX

'SEC. 4.108-5. Zero-Rated Sale of Services. -

XXX

XXX

XXX

(b) Transactions Subject to Zero Percent (0%) VAT Rate.- The following services performed in the Philippines by a VAT- registered person shall be subject to zero percent (0%) VAT rate:

XXX

XXX

XXX

(2) Services other than processing, manufacturing or re-packing rendered to a person engaged in business conducted outside the Philippines or to a non-resident person not engaged in business who is outside the Philippines when the services are performed, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP;

(3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate;" (Emphases supplied) Further, the special laws specific to this case are Republic Act (RA) No. 7227, as amended by RA No. 9400, otherwise known as "Bases Conversion and Development Act of 1992'; and RA No. 7916, as amended, otherwise known as "The Special Economic Zone Act of 1995': The relevant portions of said laws are quoted hereunder, to wit:

"REPUBLIC ACT NO. 9400 ;n.-- Maxima Machineries, Inc. vs. Commissioner of Internal Revenue AN ACT AMENDING REPUBLIC ACT NO. 7227, AS AMENDED,

OTHERWISE KNOWN AS THE BASES CONVERSION AND

DEVELOPMENT ACT OF 1992, AND FOR OTHER PURPOSES

XXX

XXX

XXX

SECTION 1. Section 12 of Republic Act No. 7227, as amended, otherwise known as the

Bases Conversion

and Development Act of 1992, is hereby amended to read as follows: SEC. 12. Subic Special Economic Zone. - xxx

(b) The Subic Special Economic Zone shall be operated and managed as a separate customs territory ensuring free flow or movement of goods and capital within, into and exported out of the Subic Special Economic Zone, as well as provide incentives such as tax and duty-free importations of raw materials, capital and equipment.

However, exportation or removal of goods from the territory of the Subic Special Economic Zone to the other parts of the Philippine territory shall be subject to customs duties and taxes under the Tariff and Customs Code of the Philippines, as amended, the National Internal Revenue Code of 1997, as amended, and other relevant tax laws of the Philippines.

(c) The provision of existing laws, rules and regulations to the contrary notwithstanding, no national and local taxes shall be imposed within the Subic Special Economic Zone. xxx.

SEC. 2. Section 15 of the Republic Act No. 7227, as amended, is hereby amended to read as follows: SEC. 15. Clark Special Economic Zone (CSEZ) and Clark Freeport Zone (CFZ). -

Subject to the

concurrence by resolution of the local government units directly affected, the President is hereby authorized to create by executive proclamation a Special Economic Zone covering the lands occupied by the Clark military reservations and its contiguous extensions as embraced, covered and defined by the 1947

Military

Bases

Agreement

between the Philippines and the United States of America, as amended, xxx.

The CFZ shall be operated and managed as a separate customs territory ensuring free flow or movement of goods and capital equipment within, into and exported out of the CFZ, as well as provide ~

Maxima Machineries, Inc. vs. Commissioner of Internal Revenue incentives such as tax and duty-free importation of raw materials and capital equipment. xxx The provisions of existing laws, rules and regulations to the contrary notwithstanding, no national and local taxes shall be imposed on registered business enterprises within the CFZ. Xxx Duly registered business enterprises that will operate in the Special Economic Zones to be created shall be entitled to the same tax and duty incentives as provided for under Republic Act No. 7916, as amended:

Provided,

That for

the purpose of administering these incentives, the

PEZA

shall register, regulate, and supervise all registered enterprises within the Special Economic Zones." "REPUBLIC ACT NO. 7916 (as amended by Republic Act No. 8748)

AN ACT PROVIDING FOR THE LEGAL FRAMEWORK AND

MECHANISMS FOR THE CREATION, OPERATION, ADMINISTRATION, AND COORDINATION OF SPECIAL ECONOMIC ZONES IN THE PHILIPPINES, CREATING FOR THIS PURPOSE, THE

PHILIPPINE ECONOMIC ZONE AUTHORilY (PEZA) AND FOR

OTHER PURPOSES.

XXX

XXX

XXX

SECTION 8. ECOZONE to be Operated and Managed as Separate Customs Territory.- The ECOZONE shall be managed and operated by the PEZA as separate customs territory. The PEZA is hereby vested with the authority to issue certificates of origin for products manufactured or processed in each ECOZONE in accordance with the prevailing rules of origin, and the pertinent regulations of the Department of Trade and Industry and/or the Department of Finance.

XXX

XXX

XXX

SECTION 24. Exemption form National and Local Taxes. - Except for real property taxes on land owned by developers, no taxes, local and national, shall be imposed on business establishments operating within the ECOZONE. xxx" Since the Ecozone is viewed as a foreign territory by legal fiction, sales of goods and services made by a VAT-registered person in the Philippine customs territory to an entity registered and operating within the ecozone are considered exports to a foreign ~ Maxima Machineries, Inc. vs. Commissioner of Internal Revenue country subject to zero percent (0%) VAT. The case of Commissioner of Internal Revenue vs. Toshiba Information Equipment (Phils.}, Inc.,62 is instructive, to wit:

"This Court agrees, however, that PEZA-registered enterprises, which would necessarily be located within ECOZONES, are VAT-exempt entities, not because of Section 24 of Rep. Act No. 7916, as amended, which imposes the five percent (5%) preferential tax rate on gross income of PEZA- registered enterprises, in lieu of all taxes; but, rather, because of Section 8 of the same statute which establishes the fiction that ECOZONES are foreign territory. xxx An ECOZONE or a Special Economic Zone has been described as - xxx [S]elected areas with highly developed or which have the potential to be developed into agro-industrial, industrial, tourist, recreational, commercial, banking, investment and financial centers whose metes and bounds are fixed or delimited by Presidential Proclamations. An ECOZONE may contain any or all of the following: industrial estates (IEs), export processing zones (EPZs), free trade zones and tourist/recreational centers. The national territory of the Philippines outside of the proclaimed borders of the ECOZONE shall be referred to as the Customs Territory.

Section 8 of Rep. Act No. 7916, as amended, mandates that the PEZA shall manage and operate the ECOZONES as a separate customs territory; thus, creating the fiction that the ECOZONE is a foreign territory.

As a result, sales made by a supplier in the Customs Territory to a purchaser in the ECOZONE shall be treated as an exportation from the Customs Territory. Conversely, sales made by a supplier from the ECOZONE to a purchaser in the Customs Territory shall be considered as an importation into the Customs Territory.

Given the preceding discussion, what would be the VAT implication of sales made by a supplier from the Customs Territory to an ECOZONE enterprise?

The Philippine VAT system adheres to the Cross Border Doctrine, according to which, no VAT shall be imposed to form part of the cost of goods destined for consumption outside of the territorial border of the taxing authority. Hence, actual export of goods and services from the Philippines to a foreign country must be free of VAT; while, those destined for use or consumption within the Philippines ~

Maxima Machineries, Inc. vs. Commissioner of Internal Revenue shall be imposed with ten percent (10%) VAT.63

(Emphases

supplied) Based on the foregoing, sales of goods and services by a VAT- registered taxpayer, such as herein petitioner, to entities located in Ecozones, as well as to SOl-registered entities whose products are 100% exported, are considered ''export sales" subject to zero percent (0%) VAT rate pursuant to Sections 106(A)(2)(a)(3),(5) and (c) and 108(B)(3)of the NIRC of 1997, as amended and as implemented by Sections 4.106-5 and 4.108.5 of RR No. 16-05, as amended. To prove that its clients are duly registered with the PEZA, SBMA, CDC, and BOI, petitioner submitted various Certifications issued by such agencies. Likewise, petitioner presented the letters of the PEZA Director General, Charita B. Plaza dated July 5, 201764 and the Certifications issued by the BOI- Director, Incentive Service, Ms. Erlinda F. Arcellana, on October 18, 201665 and the BOI ore- Executive Director, Atty. Bobby G. Fondevilla, dated June 22, 201766, confirming the issuance of VAT zero-rating certifications to certain clients of petitioner. Listed below are petitioner's clients with the corresponding proof of VAT zero-rating:

Name of Customer

Proof of VAT zero-rating

ADNAMA MINING RESOURCES

BOI Certification issued Oct. 16, 2016; Confirmation letter from BOI

ASIA PACIFIC ENERGY

Confirmation Letter from PEZA

CORPORATION

BERONG NICKEL CORPORATION

BOI Certification issued Oct. 16, 2016; BOI Certificate No. 2015-083

BIGLIFT PROPERTIES &

SBMA Certificates of Tax Exemption

DEVELOPMENT CORPORATION

CAGDIANAO MINING

BOI Certification issued Oct. 16,

CORPORATION

2016· BOI Certificate No. 2015-014

CARMEN COPPER CORPORATION

BOI Certification issued Oct. 16, 2016· BOI Certificate No. 2015-049

CORAL BAY NICKEL

Confirmation Letter from PEZA

CORPORATION

C.T.P. CONSTRUCTION AND BOI Certification issued Oct. 16,

MINING CORPORATION

2016· BOI Certificate No. 2015-103 FLUOR DANIEL,INC-PHILIPPINES Confirmation Letter from PEZA FCF MINERALS CORP.

BOI Certification issued Oct. 16, 2016; BOI Certificate No. 2015-016 63 Now at 12% VAT rate.

64 Exhibit "P-4", Docket, Vol. V, pp. 2029 to 2032. 65 Exhibit "P-5", Docket, Vol. v, p. 2033. 66 Exhibit "P-190-a".

Exhibit

Validity Period

No.

P-5; P-

TYs 2014 & 2015

190-a

P-4

TY 2014

P-5; P-6;

TYs 2014 & 2015

P-190-a

October 16, 2013 to P-39; P- October 15, 2014;

190-f March 31, 2015 to

March 30 2016

P-5; P-7;

TYs 2014 & 2015

P-190-a

P-5; P-8;

TYs 2014 & 2015

P-190-a

P-4

TYs 2014 & 2015

P-5; P-9;

TYs 2014 & 2015

P-190-a

P-4

TY 2014

P-5; P-

TYs 2014 & 2015

10; P- ?z.

Maxima Machineries, Inc. vs. Commissioner of Internal Revenue

HINATUAN MINING

BOI Certificate No. 2015-039;

CORPORATION

Confirmation letter from BOI

HOUSE TECHNOLOGY

Confirmation Letter from PEZA INDUSTRIES PTE. LTD. (HTIPL)

JAMJLE PROPERTIES (SUBIC) AND

DEVELOPMENT CORPORATION

(FORMERLY: JAMJLE

SBMA Certificates of Tax Exemption

EQUIPMENT$ & GENERAL

MERCHANDISE INC)

JGC PHILIPPINES, INC.

Confirmation Letter from PEZA K & A METAL INDUSTRIE~ INC.

Confirmation Letter from PEZA BOI Certification issued Oct. 16, KROMINCO, INC.

2016; BOI Certificate No. 2015-009

LAPANDAY DIVERSIFIED

Confirmation letter from BOI PRODUCTS CORP.

MAJESTIC LANDSCAPE

Confirmation Letter from PEZA

CORPORATION (MLC)

MURAMI SUBIC TRADING

SBMA Certificate of Tax Exemption

CORPORATION

MARCVENTURES MINING AND

BOI Certification issued Oct. 16,

DEVELOPMENT CORPORATION

2016; BOI Certificate No. 2015-057

NORTHEAST GROUP OF

COMPANIES, INC. (FORMERLY:

SBMA Certificates of Tax Exemption

NORTHEAST FREIGHT

FORWARDERS INc.)

PHILIPPINE ASSOCIATED

SMELTING AND REFINING

Confirmation Letter from PEZA

CORPORATION

PHIL. BATTERIES INCORPORATED Confirmation Letter from PEZA (PB!)

PHILIPPINE GOLD PROCESSING &

BOI Certificate No. 2015-034 REFINING CORP.

PLATINUM GROUP METALS

BOI Certification issued Oct. 16,

CORPORATION

2016; BOI Certificate No. 2015-085 R-TECH PHILIPPINES, INC. (RTPI) Confirmation Letter from PEZA

RIO TUBA NICKEL MINING

BOI Certification issued Oct. 16,

CORPORATION

2016; BOI Certificate No. 2015-035 SCAD SERVICES (5) PTE., LTD.

Confirmation Letter from PEZA (PHIL. BRANCH) (SSPL)

SHIN-ETSU MAGNETIC

Confirmation Letter from PEZA PHILIPPINES, INC. (SMPI)

SMART ELECTRONICS

MANUFACTURING SERVICE

PHILIPPINES, INC.

Confirmation Letter from PEZA

FORMERLY: 5AMSUNG

ELECTRONICS PHILIPPINES

MANUFACTURING CORPORATION

ST. LUKE'S MEDICAL CENTER Confirmation Letter from PEZA (GLOBAL CITY) INC. (SLMCGC!l

SUBIC BAY MOTORS

SBMA Certificate of Tax Exemption

CORPORATION

SUBIC CONSOLIDATED

SBMA Certificates of Tax Exemption

PROJECTS, INC.

SUNWEST WATER AND ELECTRIC

BOI Cert. of Registration No. 2010- 190-a P-11; P-

TYs 2014 & 2015

190-a

P-4

TYs 2014 & 2015

November 27, 2013 P-41; P- to November 26, 190-e 2014; November 27,

2014 to November

26, 2015

P-4

TY 2014

P-4

TY 2014

P-5; P- 12; P-

TYs 2014 & 2015

190-a

P-190-a

TY 2015

P-4

TYs 2014 & 2015

P-42; P- July 30, 2014 to July 190-h 29 2015 P-5; P- 14; P-

TY 2014 & 2015

190-a P-43; P- March 4, 2014 to 44; P- March 3, 2015; March 9, 2015 to March 8, 190-c 2016

P-4

TYs 2014 & 2015

P-4

TYs 2014 & 2015

P-16; P-

TY 2015

190-a P-5; P- 17; P-

TYs 2014 & 2015

190-a

P-4

TYs 2014 & 2015

P-5; P- 18; P-

TYs 2014 & 2015

190-a

P-4

TYs 2014 & 2015

P-4

TYs 2014 & 2015

P-4

TY 2015

P-4

TY 2014 & 2015

P-190-i October 22, 2014 to October 21, 2015 January 4, 2014 to P-47; P- January 3, 2015;

190-g January 4, 2015 to

January 3 2016

P-20

~

Maxima Machineries, Inc. vs. Commissioner of Internal Revenue

CO. ISUWECO) INC.

206 (as RE Develooer)

TAGANITO HPAL NICKEL

Confirmation Letter from PEZA

CORPORATION (THPAL)

TAGANITO MINING

BOI Certification issued Oct. 16,

CORPORATION

2016; BOI Certificate No. 2015-009-A

TAILIN ABRASIVES

SBMA Certificate of Tax Exemption

CORPORATION

TOYO-INK COMPOUNDS

CORPORATION

Confirmation Letter from PEZA

TRANSCOM WORLDWIDE

(PHILIPPINES), INC. (TWPI) Confirmation Letter from PEZA

TRANS ASIA CONSTRUCTION

CDC Certificate of Registration and

DEVELOPMENT CORP.

Tax Exemotion

TRAVELLERS INTERNATIONAL

Confirmation Letter from PEZA

HOTEL GROUP INC (TIHGI)

UNICHAMP MINERAL PHILIPPINES

Confirmation Letter from PEZA INC. lUMP])

VISAYAS SLAKED LIME

Confirmation Letter from PEZA

CORPORATION (VSLC)

WU KONG SINGAPORE PTE. L TO.

Confirmation Letter from PEZA (PHIL. BRANCH) (WKSPL)

P-4

TYs 2014 & 2015

P-5; P- 21; P-

TYs 2014 & 2015

190-a April 25, 2014 to April P-190-d 24, 2015

P-4

TY 2014

P-4

TYs 2014 & 2015

P-49; P- April 1, 2013 to 190-i

March 31 2016

P-4

TY 2014

P-4

TYs 2014 & 2015

P-4

TYs 2014 & 2015

P-4

TYs 2014 & 2015

Thus, petitioner's sales to the aforementioned entities for the period covering the third and fourth quarters of FY ending March 31, 2015 qualify for VAT zero-rating.

Relative thereto, Sections 113(A)(1) and (2), (8)(1), (2)(c) and

(3) of the NIRC of 1997, as amended, and as implemented by Sections 4.113-1(A)(1) and (2), (8)(1) and (2)(c) of RR No. 16-05 provide that a VAT taxpayer, like herein petitioner, shall for every lease of goods or properties, and for every sale, barter or exchange of services, issue a VAT invoice or 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

(2) A VAT official receipt for every lease of goods or properties, and for every sale, barter or exchange of services. ~

Maxima Machineries, Inc. vs. Commissioner of Internal Revenue

(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: Provide~ That:

XXX

XXX

XXX

(c) If the sale is subject to zero percent (0%) value-added tax, the term 'zero-rated sale' shall be written or printed prominently on the invoice or receipt; xxx (3) The date of transaction, quantity, unit cost and description of the goods or properties or nature of the service; and xxx" (underlining supplied) "Sec. 4.113-1. Invoicing Requirements. -

(A)

A Vat-registered person shall issue: -xxx

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

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

VAT invoice/official receipt shall be prepared at least in duplicate, the original to be given to the buyer and the duplicate to be retained by the seller as part of his accounting records.

(B)

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

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

Maxima Machineries, Inc. vs. Commissioner of Internal Revenue

(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; Provide~ That: xxx (c) If the sale is subject to zero percent (0%) VAT, the term 'zero-rated sale' shall be written or printed prominently on the invoice or receipt; xxx" (emphasis supplied) Anent petitioner's alleged indent commissions from its sale of services to non-resident foreign corporations like

Marubeni

Corporation-Japan and Bomag Fayat Group, the Supreme Court, in the case of Commissioner of Internal Revenue vs. Burmeister and Wain Scandinavian Contractor Mindanao, Inc.67, laid down the following requisites in order for the sale of services to the said entities be considered as VAT zero-rated under Section 108(8)(2) of the NIRC of 1997, as amended:

1) the services must be other than processing, manufacturing or repacking of goods; 2) payment for such services must be in acceptable foreign currency accounted for in accordance with the BSP rules and regulations; and 3) the recipient of such services is doing business outside the Philippines.

In compliance with the third requisite, petitioner submitted the Certificates of Non-Registration of Marubeni Corporation-Japan68 and Bomag Fayat Group69 issued by the Philippine Securities and Exchange Commission (SEC), as well as the Consularized Articles of

Incorporation/Association of Marubeni

Corporation-Japan70

and Bomag Fayat Group71 to prove that the said clients are non-resident foreign corporations doing business outside the Philippines. With regard to the remaining requisites, petitioner submitted its VAT zero-rated Official Receipts (0Rsf2 and the Certificates of Inward Remittances of Foreign Currency Payments issued by BDO ~

Maxima Machineries, Inc. vs. Commissioner of Internal Revenue

Unibank, Inc.73 However, a perusal of the said documents reveals that the ORs were issued to Marubeni Corporation, and not to Marubeni Corporation-Japan. Further, petitioner failed to adduce evidence that could prove that the services rendered by petitioner to Marubeni Corporation-Japan and Bomag Fayat Group were services other than processing, manufacturing or repacking of goods. Moreover, petitioner failed to adduce evidence showing that Marubeni Corporation is a non-resident foreign corporation, not doing business in the Philippines and that the services rendered by petitioner to the said entity were services other than processing, manufacturing or repacking of goods. Thus, petitioner's alleged indent commissions from its sale of services to the purported non-resident foreign corporations- Marubeni Corporation-Japan and Bomag Fayat Group failed to qualify for VAT zero-rating under Section 108(8)(2) of the NIRC of 1997, as amended.

On the other hand, in its Amended Quarterly VAT Returns for the third74 and fourth 75 quarters of FY 2015, petitioner reported a total sale of P2,944,828,068.33. This, accordingly, includes the zero- rated sales in the amount of P1,138,925,192.54, details of which are as follows:

In support of its zero-rated sales, petitioner presented its Schedule of Zero-Rated Sales76 and various invoices, ORs and other related documents77, which were all scrutinized by the !CPA. As per Amended !CPA Report dated January 3, 2018/8 the zero-rated sales in the amount of P143,491,482.28 shall be denied ~ 7' Exhibits "P-191-a" to "P-191-b".

74 Exhibit No. "P-77", Docket, Vol. V, p. 2156. 75 Exhibit "P-79", Docket, Vol. V, p. 2160. 76 Exhibit "P-154", Amended !CPA Report Binder, Part 2 of 4. 77 Exhibits "P-181-a" to "P-187-rt". 78 Exhibit "P-207", Amended !CPA Report Binder, Part 1 of 4, p. 11.

Exhibit

No.

P-184

toP- 184-d

P-185

to P-

185-an

P-186

to P-

186-c

P-187

toP- 187-rt

P-188

toP- 188-z

P-189

-

Maxima Machineries, Inc. vs. Commissioner of Internal Revenue

VAT zero-rating for failure to comply with the above-stated invoicing requirements:

Findings

3.-.t Quarter

4'" ~Quarter

Total

Export sale of services which are properly supported by VAT zero-rated OR issued to companies with foreign address79 p 14 009 655.26 p 37,588 107.54 p 51,597 762.80 Zero-rated sale of goods which are properly supported by VAT zero-rated invoice/zero-rated sale of services which are properly supported by VAT zero-rated OR but not dated within the quarter (out of coveredperiod} 3 927,836.59 2'h_857 472.34 28 785,308.93 Zero-rated sale of goods which are properly supported by VAT zero-rated invoice/zero-rated sale of services which are properly supported by VAT zero-rated OR but without date 3 214,285.71 736 360.00 3 950,645.71 Zero-rated sale of goods supported by documents other than VAT zero-rated invoice/zero-rated sale of services supported by documents other than VAT zero-rated OR 22 653,283.03 6,305 700.82 28 968 983.85 Zero-rated sale of goods to entities without VAT zero-rating incentive certificate provided 19 880 044.80 5 774 191.65 25 654 236.45 Without supporting documents presented 2 441,020.38 2,093 524.16 4 534,544.54 - -

Total

-~ -~ - - P66,13_{;,125,77 _ P77,355,356.51 P143,491,482.28 In addition, the reported zero-rated sales in the amount of P4,310,664.43 shall also be denied VAT zero-rating for the following reasons:

Exhibit No.

Customer Name

Amount

1. Sales to entities with oroof of VAT zero-rating but outside the validity period 4th ntr.

P-182-hz K & A Metal Industries Inc.

p 2 806.63 P-182-hz K & A Metal Industries Inc.

44 904.45

Subtotal

, 47.711.08-

2. Sales of goods supported by VAT zero-rated sales invoices with unreadable details 3rdntr.

P-181-h Carmen CoPPer Coro.

p 1 691 610.80 P-181-af

FCF Minerals Corooration

1,970.78 P-181-aq

FCF Minerals Corporation

218,553.23 P-181-ah

FCF Minerals Corporation

27 724.34 P-181-ai

FCF Minerals Corooration

42 349.23 P-181-ai

FCF Minerals Corooration

27,724.34 P-181-ak

FCF Minerals Corporation

27,724.34 P-181-al

FCF Minerals Corporation

4,774.10 79 This pertains to the alleged indent commissions from Marubeni Corporation which failed to qualify for VAT zero-rating under Section 108(8)(2) of the NIRC of 1997, as amended, as previously discussed.

'P-- Maxima Machineries, Inc. vs. Commissioner of Internal Revenue P-181-am

FCF Minerals Corporation

P-181-an

FCF Minerals Corporation

P-181-ao

FCF Minerals Corporation

P-181-ap

FCF Minerals Corporation

P-181-aq

FCF Minerals Corporation

P-181-ar

FCF Minerals Corporation

P-181-as

FCF Minerals Corporation

P-181-at

FCF Minerals Corporation

P-181-au

FCF Minerals Corporation

P-181-av

FCF Minerals Corporation

P-181-bi

FCF Minerals Corporation

P-181-bk

FCF Minerals Corporation

P-181-bl

FCF Minerals Corporation

P-181-bm

FCF Minerals Corporation

P-181-di

FCF Minerals Corporation

P-181-ed

FCF Minerals Corporation

P-181-ee

FCF Minerals Corporation

P-181-ef

FCF Minerals Corporation

P-181-eq

FCF Minerals Corporation

Marcventures Mining and Development

P-181-fl

Corporation

Marcventures Mining and Development

P-181-fn

Corporation

P-181-fo Taganito Mining Corp.

P-181-fp Taganito Mining Corp.

P-181-io

FCF Minerals Corporation

P-181-ip

FCF Minerals Corporation

P-18l:Qr Carmen CoQPer Corp.

P-182-aq

Coral Bay Nickel Corporation

P-182-dv House Technoloqy Industries Pte. Ltd.

Subtotal

4thotr.

P-181-pw Carmen Co~ Col]).

P-182-fa House Technologyindustries Pte. Ltd. P-182-fb

Majestic Landscape Corporation

P-182-fc

Scad Services (S) Pte Ltd

P-182-fe Scad Services (S) pte Ltd

Subtotal

Total

Grand Total

27 724.34 36,946.69 867.00 9,692.78 1 239.40 7 998.61 1,239.40 27,724.34 161 568.38 22 894.74 53 241.15 50,850.88 13 238.18 22 981.70 79.26 102,121.99 1104.12 32 645.88 so 061.73 3 696.00 13 904.00 3 424.00 35 088.00 2 640.00 ' 1100.00 504,319.82 1 4 688.00 2 325.80 p 3,237. 837.35 I " 84h_312.00 121,058.00 50,832.00 10 767.00 h_147.00 , 1,025,116.00 , 4,262,953.35 p 4,310,664.43 Thus, out of the reported zero-rated sales of Pl,l38,925,192.54, only the amount of P991,123,045.83 represents petitioner's valid zero-rated sales for the third and fourth quarters of FY 2015, computed as follows:

3rd Quarter 4th Quarter

Total

Total Reported Zero-Rated Sales

p 416,011,427.35 p 722,913,765.19 p 1,138,925,192.54

Less: Disallowances

-- - · - - - ?<--

Maxima Machineries, Inc. vs. Commissioner of Internal Revenue

Per !CPA Report 66,136,125.77 Additional disallowances by 3,237,837.35 this Court 77,355,356.51 1,072,827.08

Valid Zero-Rated Sales

P346,637,464.23 p 644,485,581.60 Petitioner incurred input taxes during the third & fourth quarters of FY 2015 which are attributable to its zero-rated or effectively zero-rated sales for the same period 143,491,482.28 4,310,664.43 P991,123,045.83 For the third and fourth quarters of FY 2015, petitioner declared input taxes in the total amount of P314,833,302.61, out of which the amount of P104,580,305.56 is the subject of petitioner's claim for refund, to wit:

.1.11 1.11. &.UA'-'.⁷ U~ '-''- .... 1'-'1'-V .... ,

O'r11

I ... LUIII.J• 3rd Quarter""

Input Tax Deferred on Capital Goods

exceeding 1M from Previous Quarter

(Line 20/3)

p 2 146 063.69

Less: Input Tax on Purchases of

Capital Goods exceeding PlM deferred for the succeeding period (Line 23AJ 1 950 848.16 Input tax Amortized for the period p 195 215.53

Add: Current Input Taxes

On Domestic Purchases of

Goods Other than Capital

Goods (Line 21 F)

p 2 398 942.34

On Importation of Goods Other

than Capital Goods (Line 21HJ 115 594 865.00

On Domestic Purchase of

Services (Line 21JJ

5 265 712.08

Total Current Input Tax

P123,259,519.42 Total Input Taxes for the period P123 454 734.95 .1.11 YL U..l/\'-.;> U.;> '-'' .71.11./ ._,_L .._1<-11111 , 3rd Quarter Total input taxes for the period p 123,454,734.95 Less: Input tax on VA Table sale of machineries from current purchases 7 821 548.34 Input tax on zero-rated sale of machineries from current purchases 21 381,098.78 Input tax directly identified and allocable to Government Sales 2 395,849.56 80 Exhibit "P-77", Docket, Vol. V, p. 2156. 81 Exhibit "P-79", Docket, Vol. V, p. 2160. 82 Petition for Review, Docket, Vol. I, pp. 44 to 48. 4th Quarter81

Total

p 1 950 848.23 p 4 096 911.92 1 755 632.72 3 706 480.88 p 195 215.51 p 390 431.04 p 3 116 795.05 p 5 515 737.39 183 321 012.00 298 915 877.00 4 745 545.10 10 011 257.18 p 191183 352.15 P314 442 871.57 p 191.378.567.66 P314 833.302.61 4th Quarter

Total

p 191,378,567.66 p 314 833,302.61 34 053 683.39 41 875 231.73 43,555,100.63 64 936,199.41 523,678.01 2 919,527.57 ;.-

Maxima Machineries, Inc. vs. Commissioner of Internal Revenue

Input tax on current purchase of machineries not sold within the quarter 59,609 821.87 62 980,989.89 Total Common Input tax allocable to VA Table and VAT zero-rated sales ,.

32,246 416.40 ,.

50 265,115.74

Multiply by Zero-Rated Sales

399,931 585.75 722 913 765.19

Divide by Total Sales

1 038 351 765.94 1 890 396 460.79 Common Input tax allocable VAT

Zero-Rated Sales

,.

12 420 030.35 p 19 222 075.77 Add: Input tax directly related to zero-rated sale of machineries which were imported and sold in current period 21 381 098.78 43 555,100.63 Input tax directly related to zero-rated sale of machineries which were imported in prior years but sold only this quarter 2 750 446.51 5 251,553.52 Total Input Taxes claimed for refund p 36,551,575.64 p 68,028,729.92 122,590 811.76 ,.

82,511 532.14 1 122 845 350.94 2 928 748 226.73 ,.

31 642 106.12 64 936 199.41 8 002,000.03 P104,580,305.56 In support of its reported input taxes of P314,442,871.57, petitioner submitted various sales invoices, ORs, Import Entry and Internal Revenue Declarations (IEIRDs), Statements of Settlement of Duties and Taxes (SSDTs), Bureau of Customs (BOC) ORs and other related documents83, which were examined by the ICPA. Summarized below are the current input taxes for the third and fourth quarters of FY 2015 in the total amount of P314,442,871.57, as accounted for by the !CPA:

Exhibit No.

(Amended !CPA Report Binder,

Parts 2 and 3 of

3"' Quarter

4'" Quarter

Total

4) A. Input tax on current quarter's importations directly related to VA Table sale of machineries in the same quarter p 7 821 548.34 ,.

30 560 806.25 p 38 382 354.59

P-155 to P-156

B. Input tax on current quarter's importations directly related to zero-rated sale of machineries in the same quarter 21,381,098.78 43,556,801.68 64,937,900.46

P-157 to P-158

83 Exhibits "P-155-a" to "P-155-al", "P-156-a" to "P-156-t", "P-157-a" to "P-157-n", "P-158-a", "P- 159-a" to "P-159-dl", "P-160-a" to "P-160-ab", "P-161-a" to "P-161-In", "P-162-a" to "P-162- fm", "P-163-a", "P-164-a" to "P-164-c", "P-167-a" to "P-167-ag", "P-168-a" to "P-168-ea", "P- 169-a" to "P-169-z", "P-170-a" to "P-170-pw", "P-171-a" to "P-171-ci", "P-172-a" to "P-172-ao", "P-173-a" to "P-173-abf", "P-174-a" to "P-174-sz", "P-175-a" to "P-175-se", "P-176-a" to "P- 176-bm", "P-177-a" to "P-177-bc" and "P-179-a" to "P-179-x". ~

Maxima Machineries, Inc. vs. Commissioner of Internal Revenue

C. Input tax on current purchase of machineries not sold within the quarter 59 609 819.88 66 472 166.07 D. Common input tax allocable to VA Table and zero-rated sales

a. Input tax on current quarter's importations p 26 782,398.00 p 42 731,238.00

b. Input tax on current quarter's domestic _Q_urchases 7 664L654.42 7 862 340.15 subtotal p 34 447 052.42 p so 593 578.15

Total

1"123,259,519.42 1"191,183,352.15 '

I

126 081 985.95

P-159 to P-160

I

I

I

p 69,513,636.00

P-161 to P-166

I

I

15 526 994.57

P-167 to P-178

p 85 040 360.57 1"314,442,871.57 As per ICPA Report, the input VAT in the amount of P130,575,993.1384 was disallowed for failure to meet the substantiation requirements under Sections llO(A), 113(A) and (B), and 237 of the NIRC of 1997, as amended, in relation to Sections 4.110-1, 4.110-2, 4.110-8 and 4.113-1 of RR No. 16-2005, as amended:

Exhibit

Reference

Description

3rd Qtr.

4th Qtr.

Total

A. Input tax on current quarter's importations directly related to VA Table sale of machineries in the same quarter

P-156

Supported by *IEIRDs and

p 23,801,253.85 p 23,801,253.85 traced to E2M schedule B. Input tax on current quarter's importations directly related to zero-rated sale of machineries in the same quarter

P-158

Supported by *IEIRDs and

19,333,886.00 19,333,886.00 traced to E2M schedule C. Input tax on current purchase of machineries not sold within the _g_uarter

P-160

Supported by *IEIRDs and

p 726,945.76 35,383,163.31 36,110,109.07 traced to E2M schedule D. Common input tax allocable to VA Table and zero-rated sales

a. Input tax on current quarter's importations

P-162

Supported by *IEIRDs and

p 24,784,189.00 p 10,571,326.00 p 35,355,515.00 traced to E2M schedule

P-163

Supported by IEIRDs**

2 663.00 2 663.00

P-165

Traced to E2M schedule only 857,003.00 857,003.00

P-166

Without supporting documents 9,122.00 10,958.00 20,080.00 presented

b. Input tax on current quarter's domestic _p_urchases 84 Exhibit "P-211", Amended !CPA Report Binder, Part 1 of 4, pp. 4 to 7.

Jh-

Maxima Machineries, Inc. vs. Commissioner of Internal Revenue

Domestic purchase of goods properly supported by VAT invoice/purchase of services properly supported by VAT OR, that are issued in the name of

P-169

the Petitioner with the

52,628.26 petitioner's complete TIN, address, business style, and with valid ATP and signature but the VAT amount is not shown separately in the invoice/OR Domestic purchase of goods not

P-170

properly supported by VAT 304,900.48 invoice/purchase of services not properly supported by VAT OR Domestic purchase of goods supported by VAT

P-171

invoice/purchase of services 118,366.85 supported by VAT OR not dated within the same taxable year or dated in the subsequent quarter Domestic purchase of goods supported by VAT

P-172

invoice/purchase of services 9,891.93 supported by VAT OR without date Domestic purchase of goods supported by VAT

P-173

invoice/purchase of services 391,511.51 supported by VAT OR without valid Authority to Print (ATP) Domestic purchase of goods supported by VAT

P-174

invoice/purchase of services 259,431.88 supported by VAT OR with missing and/or incorrect Company name Domestic purchase of goods supported by VAT

P-175

invoice/purchase of services 1,172,878.70 supported by VAT OR with missinq and/or incorrect TIN Domestic purchase of goods supported by VAT

P-176

invoice/purchase of services 209,289.21 supported by VAT OR with missing and/or incorrect registered address Domestic purchase of goods supported by VAT

P-177

invoice/purchase of services 82,004.76 supported by VAT OR with missing and/or incorrect business style Domestic purchases without

P-178

supporting invoices/ORs 4,920,651.70 presented

Total

P33,898,815.04 * IEIRDs are without machine validation. 39,198.00 295,751.29 185,419.17 5,056.83 97,541.10 154,471.67 724,869.06 47,913.59 93,436.85 5,930,270.37 P96,677,178.09 **Actual document pertains to Informal Import Declaration and Entry only. 91,826.26 600,651.77 303,786.02 14,948.76 489,052.61 413,903.55 1,897,747.76 257,202.80 175,441.61 10,850,922.07 P130,575,993.13 Jt-

Exhibit

No.

Maxima Machineries, Inc. vs. Commissioner of Internal Revenue

In addition to the above disallowances, the input VAT in the amount of P520,793.62 shall, likewise, be disallowed for the reasons stated hereunder:

Name of

Supplier

3rd Qtr.

4th Qtr.

Total

Reason for disallowance o.b. Common input tax on current quarter's domestic purchases allocable to VA Table and zero-rated sale

I Nav Philippines

Supported by VAT invoice but

P-167-a

Corp

p 1 607.14 p 1,607.14 without the TIN of petitioner

Matatag Cargo

Supported by VAT OR wherein

Logistics

the input VAT amount was not P-167-d

Corporation

3 199.21 3 199.21 separately shown

Toyota

Commonwealth

Supported by VAT OR but without P-167-f

Inc

1 578.92 1 578.92

the BIR's ATP

Toyota

Commonwealth

Supported by VAT OR but without P-167-g

Inc

1 418.40 1 418.40

the BIR's ATP

Toyota

Commonwealth

Supported by VAT OR but without P-167-h

Inc

1,204.86 1,204.86

the BIR's ATP

Charter Ping An

Insurance

Supported by VAT OR but without P-167-n

Corporation

890.43 890.43 the TIN of petitioner

Mendez System

Maintenance and

Supported by VAT OR wherein

Manpower

the input VAT amount was not P-167-p

Services

599.10 599.10 separately shown

Whiteknight

Security Agency

Supported by VAT OR but without P-167-u

Corporation

p 975.74 975.74 the TIN of petitioner Supported by VAT OR wherein

Rhotech Pest

the input VAT amount was not P-167-w

Management

7,200.00 7 200.00 separately shown

Whiteknight

Security Agency

Supported by VAT OR but without P-167-ad

Corporation

1 951.48 1 951.48 the TIN of petitioner Over-claimed input VAT (claimed

Briceup and

amount of P3,068.68 less OR P-167-ag

Matchmytrip

2 982.97 2 982.97 amount of P 85.71)

Jemtech IT

Supported by VAT invoice dated P-168-c Solutions Inc.

814.29 814.29 outside the period of claim

Karigalan Inti

Supported by VAT OR wherein

Travel and Tours

the input VAT amount was not P-168-e

Corp

96.06 96.06 separately shown

Solid Business

Machines Center, Supported by VAT invoice dated P-168-f Inc.

383.57 383.57 outside the period of claim

Darosan

Supported by VAT invoice dated P-168-g

Enterprises

273.21 273.21 outside the period of claim Supported by VAT OR wherein

Junction Inn

the input VAT amount was not P-168-h

Mansion

540.00 540.00

SeQaratelyshown

Philippine Ports

Supported by OR dated outside P-168-i

Authority

1.93 1.93 the period of claim

World Best

Industrial Sales

Supported by VAT invoice dated P-168-i

Inc

1 409.51 1 409.51 outside the period of claim P-168-k

Adam Gas and

1,157.25 1,157.25 Supported by VAT invoice without ,}L P-168-k

P-168-1

P-168-1

P-168-n P-168-p P-168-r P-168-t P-168-u

P-168-v

P-168-ac P-168-ai P-168-ar P-168-aw P-168-bf P-168-bi P-168-bp P-168-bx P-168-cr P-168-cz P-168-db P-168-dh P-168-di P-168-di

Maxima Machineries, Inc. vs. Commissioner of Internal Revenue

Trading Corp.

Adam Gas and

Trading Corp.

366.56 366.56

SK Techno-Lube

Corporation

4 942.50 4 942.50

SK Techno-Lube

Corporation

2 748.21 2,748.21 A.L. Gantuangco

Construction

19,500.00 19,SOO.OO

Solid Business

Machines Center

Inc

1 624.29 1 624.29

OTR Type Mart

Inc

10 613.57 10,613.S7

Jemtech IT

Solutions Inc.

1,875.00 1 875.00

Makati Microshop

12,857.14 12 857.14

Meridian IT

Corporation

6,750.00 6 750.00

CRC Enterprises

728.57 728.57

Crest Sun

Industrial

Products Inc

321.43 321.43

Jemtech IT

Solutions Inc.

209.83 209.83

Denmark Paints

Specialist and

Hardware Corp

8 824.29 8 824.29

Roqson Industrial

Sales Inc

10 472.14 10 472.14

Caloocan

Standard Inc.

1 532.14 1 532.14

Dinlys Industrial

Sales

419.46 419.46

Philippine Long

Distance

Telephone

(PLDT) Company

5 135.98 5 135.98

International

Container

Terminal

Services Inc.

1 019.80 1 019.80

PLDT Company

224.52 224.52

Zambales Electric

Cooperative Inc

429.94 429.94

International

Container

Terminal

Services, Inc.

1 313.54 1 313.54

PLDT Company

3 036.34 3 036.34

PLDT Company

2,218.76 2,218.76 the TIN of petitioner (total of P250.70, P173.60, P173.60, P212.15 and P347.20) Over-claimed input VAT (claimed amount of P2,073.21 less invoice amount of P1 706.65) Supported by VAT invoice but without the TIN of petitioner Over-claimed input VAT (claimed amount of P7,690.7lless invoice amount of P4 942.50) Supported by VAT invoice but without the TIN of petitioner and input VAT amount was not separately shown Supported by document with unreadable details Supported by VAT invoice but without the TIN and address of petitioner Supported by VAT invoice but without the address of petitioner Supported by VAT invoice but without the TIN of petitioner Supported by VAT invoice but without the TIN of petitioner Supported by VAT invoice but without the TIN of petitioner Supported by VAT invoice but without the TIN of petitioner Supported by VAT invoice but without the TIN of petitioner Supported by VAT invoice wherein the input VAT amount was not separately shown Supported by VAT invoice but without the TIN of petitioner Supported by document with unreadable details Supported by VAT invoice but without the TIN of petitioner Supported by VAT OR but without the TIN of petitioner Supported by document with notation "NOT VALID AS PROOF

TO CLAIM INPUT VAT"

Supported by VAT OR but without the TIN of petitioner Supported by VAT OR issued not in the name of petitioner Supported by document with notation "NOT VALID AS PROOF

TO CLAIM INPUT VAT"

Supported by VAT OR but without the TIN of jletitioner Over-claimed input VAT (claimed J;c.-

Maxima Machineries, Inc. vs. Commissioner of Internal Revenue amount of P5,255.10 less OR amount of P3 036.34) Over-claimed input VAT (claimed amount of P21,117.86 less OR P-168-dm Conn us Food Inc 1 919.81 1 919.81 amount of P19 198.05) Supported by VAT OR but without P-168-dw

PLDT Company

960.00 960.00 the TIN of petitioner

Marilag Business and Industrial

Supported by VAT OR dated P-168-dy

Service Inc

2 034.69 2 034.69 outside the period of claim subtotal P12607.12 P117,755.46 P130362.58 Input tax on purchases of capital goods exceeding_ 1Mil/ion amortized for the period p 195 21S.S3 fO 195,215.51 p 390 431.04 Without supporting documents subtotal P195,215.53 P195,215.51 P390,431.04

Total

P207,822.65 P312,970.97 P520,793.62 In sum, out of the reported input VAT of P314,833,302.61 for the third and fourth quarters of FY 2015, petitioner was able to substantiate only the amount of P183,736,515.86, computed as follows:

Reported Input

VAT

PeriCPA

Per Court's

further

Substantiated

InDutVAT

A. Input tax on current quarter's importations directly related to VATable sale of machineries in the same auarter

I P

B. Input tax on current quarter's importations directly related to zero-rated sale of machineries in the same C. Input tax on current purchase of machineries not A. Input tax on current quarter's importations directly related to VATable sale of machineries in the B. Input tax on current quarter's importations directly related to zero-rated - ' p .40

Maxima Machineries, Inc. vs. Commissioner of Internal Revenue

C. Input tax on current purchase of machineries not sold within the Considering that petitioner is engaged in taxable sales subject to zero percent (0%) and twelve percent (12%) rates, and its input VAT of P1,262,576.02 and P32,316,947.76 (item D. above) for the third and fourth quarters, respectively, cannot be directly or entirely attributed to any of the transactions, the same shall be allocated proportionately on the basis of the volume of its sales for the respective quarters in this wise:

VAT Sales

Sales to Gov't

Zero-Rated Sales

Total Sales

Period

(a) (b) (c) {d = a+b+c) 3rd Quarter I' 632 503 415.67 1'5,916,?64.52 1'416,011 427.35 p 1,054 431,607.54 4th Quarter 1 161 218 472.33 6 264 223.27 722 913 765.19 1 890 396 460.79 Third Quarter Substantiated input VAT attributable to: VAT Sales (1'632 50~415.6liP1,054 43h_607.54 x 1'1,262,576.02)

I'

757,359.96 Sales to Gov't (1'5 916 764.52 /1'1 054 431 607.54 x 1'1 262 576.02) 7 084.73 Zero-Rated Sales (1'416 011 427.35/1'1 054 431,607.54 x 1'1 262 576.02) 498 131.93

Total

p 1,262,576.02 Fourth Quarter Substantiated input VAT attributable to: VAT Sales (1'1,161 218,472.33/1'1 890 396 460.79 x 1'32 316,947.76) p 19,851 410.79 Sales to Gov't (1'6 264,223.27/1'1,890 396,460.79 x 1'32 316,947.76) 107,088.95 Zero-Rated Sales (1'722 913 765.19/Pl 890,396 460.79 x 1'32,_316,947.76)_ U,_358 448.01

Total

p 32 316 947.76 Petitioner also included in its claim the input VAT amounting to P⁸,002,000.03 which, accordingly, pertains to ''input tax related to zero-rated sale of machineries which were imported in prior years but sold only this quarter'~ Petitioner also submitted documents to substantiate its claim.

However, as accounted for by the ICPA85, out of the input VAT of P8,002,000.02, only the amounts of P2,438,029.33 and P5,251,553.51 pertaining to the third and fourth quarters, respectively, or a total of P7,689,582.84, were duly supported by 'F-

Maxima Machineries, Inc. vs. Commissioner of Internal Revenue

IEIRDs and SSDTs that could likewise be traced to E2M schedule. Thus, may be refunded.

On the other hand, the amount of P312,417.18, which was only traced to E2M schedule cannot be refunded by the Court on the ground that petitioner failed to offer any proof of VAT payment. In view thereof, petitioner's input VAT directly and indirectly attributable to its zero-rated sales amounted to P66,132,369.21, as computed below:

3rd Otr.

4th Otr.

Total

Input Vat allocable to zero-rated sales

I'

498 131.93 " 12 358 448.01

I'

12 856 579.94 Add: Input VAT on current quarter's importations directly related to zero-rated sale of machineries in the same quarter 21,381 098.78 24 222,915.68 45 604,014.46 Input VAT directly related to zero- rated sale of machineries which were imported in prior years but sold only this quarter 2,438,029.33 5 251,553.51 7 689,582.84 Total Input VAT attributable to zero-rated sales p 24,317,260.04 p 41,832,917.20 p 66,150,177.24 ;

Petitioner has no excess input VAT available for refund Having determined that petitioner had valid input VAT which may be attributable to its zero-rated sales, the Court shall now determine whether petitioner has excess input VAT attributable to zero-rated sales which was not applied against its output VAT liability.

After deducting the input tax attributable to VATable sales to private entities amounting to P35,189,870.89 from its output VAT liability of P215,246,616.56 on the said sales, petitioner still has a net output VAT payable of P180,056,745.67, as computed below: 3rd Qtr.

4th Qtr.

Total

Output VAT per Returns86

" 75,900,399.88

I'

139,346,216.68 p 215,246,616.56 Less: Input VAT attributable to VATable sales to private entities (1'757,359.36 + 1'7,821,548.34) 8,578,907.70 8,578,907.70 (1'19,851,410.79 + 26,610,963.19 26,610,963.19 86 Line 15B of Exhibits "P-77" and "P-79, Docket, Vol. V, pp. 2156 and 2160.

Jl::-

Maxima Machineries, Inc. vs. Commissioner of Internal Revenue

1'6,759,552.40)

Total

8,578,907.70 26,610,963.19 Net output VAT Payable p 67,321,492.18 P112,735,253.49 35,189,870.89 P180,056,745.67 Since the input VAT attributable to VATable sales to private entities is not enough to cover its output VAT liability, the input VAT attributable to zero-rated sales shall be utilized against the remaining output VAT liability.

However, the input VAT attributable to zero- rated sales of P66,150,177.24 is way lower than the net output VAT payable of P180,056,745.67. Consequently, petitioner still has net output VAT due of Pll3,906,568.43, computed as follows: 3rd Qtr.

4th Qtr.

Total

Net output VAT Payable

I'

67,321,492.18 I' 112,735,253.49

I'

180,056,745.67

Less: Input VAT

attributable to zero-rated 24,317,260.04 41,832,917.20 66,150,177.24 sales

Net Output VAT Still

p 43,004,232.14 p 70,902,336.29 p 113,906,568.43

Due

Although petitioner's Amended Quarterly VAT returns for the third and fourth quarters of FY 2015 reflected the respective amounts of P359,624,263.9987 and P420,477,797.6588 as "Input Tax Carried Over from Previous Period'; still, petitioner failed to substantiate the same.

Consequently, the input tax carry-over of P359,624,263.99 and P420,477,797.65, cannot be validly applied against petitioner's output tax pursuant to Section llO(A) in relation to Section llO(B) of the NIRC of 1997, as amended, which states: "SEC. 110. Tax Credits.- (A) Creditable Input Tax. -

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

XXX

XXX

XXX

(B) Excess Output or Input Tax. - If at the end of any taxable quarter the output tax exceeds the input tax, the excess shall be paid by the Vat-registered person. If the input tax exceeds ~

Maxima Machineries, Inc. vs. Commissioner of Internal Revenue the output tax, the excess shall be carried over to the succeeding quarter or quarters: xxx."

It is worthy to stress that in claiming excess or unutilized input VAT from zero-rated transactions, it is the excess input tax over the output tax which should be refunded to the taxpayer or credited against other internal revenue taxes. Hence, it is important for the taxpayer to prove that it has enough prior year's excess input tax credits to cover its output tax liability for the current taxable year. In cases filed before this Court, which are litigated de novo, party- litigants must prove everv minute aspect of their case.89 Consequently, there being no excess input VAT which may be the subject of a claim for refund or tax credit certificate, the instant claim must be denied.

On the final note, the Court reiterates that it is the taxpayer- claimant that has the burden of proof to establish the factual basis of his or her claim for tax credit or refund.90 Tax refunds are in the nature of tax exemptions. As such, they are regarded as in derogation of sovereign authority and to be construed strictissimi juris against the person or entity claiming the refund.91 Thus, an applicant for a claim for tax refund or tax credit must not only prove entitlement to the claim but also compliance with all the documentary and evidentiary requirements.92 Strict adherence to the conditions prescribed by law is required of the taxpayer.93 All told, petitioner failed to sufficiently prove its entitlement to a refund or tax credit of its unutilized input VAT from its zero-rated sales/receipts for the period covering October 1, 2014 to March 31, o::;-.-- 89 Edison (Bataan) Cogeneration Corporation vs. Commissioner of Internal Revenue, etseq., G.R. Nos. 201665 and 201668, August 30, 2017; Commissioner of Internal Revenue vs. Philippine National Bank, G.R. No. 180290, September 29, 2014; Commissioner of Internal Revenue vs. United Salvage and Towage (Phils.}, Inc., G.R. No. 197515, July 2, 2014; Dizon vs. Court of Tax Appeals, et a!., G.R. No. 140944, April 30, 2008; Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue, G.R. No. 145526, March 16, 2007; and Commissioner of Internal Revenue vs. Manila Mining Corporation, G.R. No. 153204, August 31, 2005.

90 Citibank N.A. vs. Court of Appeals and Commissioner of Internal Revenue, G.R. No. 107434, October 10, 1997.

91 Commissioner of Internal Revenue v. S.C Johnson and Son, Inc., eta!., G.R. No. 127105, June 25, 1999.

92 Eastern Telecommunications Philippines, Inc. vs. Commissioner of Internal Revenue, G.R. No. 183531, March 25, 2015, citing J.R.A. Philippines, Inc. vs. CIR, G.R. No. 171307, August 28, 2013.

Maxima Machineries, Inc. vs. Commissioner of Internal Revenue

2015. Its failure to substantiate that it has sufficient input taxes to offset its output taxes due for the period covered merits the denial of its claim for refund.

WHEREFORE, in light of the foregoing considerations, the instant Petition for Review is DENIED for lack of merit.

WE CONCUR:

.Q.~-c c..Q.d-~~ "~ J"UANITO C. CASTANEDA, JR.

Associate Justice

W1.t; N. M~- C~ CIELITO N. MINDARO-GRULLA

Associate Justice

'-..

tA\..uRRO-VILLENA

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. ~-~ c. a..:t-~"0(., " ~ .

fuANITO C. CASTANEDA, JR.

Associate Justice

Chairperson

Maxima Machineries, Inc. vs. Commissioner of Internal Revenue

CERTIFICATION

Pursuant to Article VIII, Section 13 of the 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.

Presiding Justice