Unisys Public Sector Services Corp. v. Commissioner of Internal Revenue

THIRD DIVISION [C.T.A. CASE NO. 8293. September 22, 2015.] UNISYS PUBLIC SECTOR SERVICES CORPORATION , petitioner , vs. COMMISSIONER OF INTERNAL REVENUE , respondent . DECISION FABON-VICTORINO , J p : This is a claim for refund or issuance of a tax credit certificate (TCC) in the amount of Seventy-Six Million Ninety-One Thousand Eighty-Seven Pesos and 98/100 (P76,091,087.98), allegedly representing erroneously paid or illegally collected value-added tax (VAT) for calendar year (CY) 2009 and for the three (3) quarters of CY 2010 filed by petitioner Unisys Public Sector Services Corporation. THE FACTS Petitioner Unisys Public Sector Services Corporation is a domestic corporation with address at Level 9 One Cyberpod, Eton Centris Station, EDSA corner Quezon Avenue, Quezon City. It was incorporated on July 14, 1994 with the primary purpose as follows: 1 "To create, manufacture, process, assemble, fabricate, develop, supply, license, lease (without engaging in financial leasing), sell at wholesale (for cash or on credit), barter, exchange, trade, make advances upon, import or otherwise acquire, distribute, integrate, market, upgrade or modify computer hardware, computer systems software programs, applications, components, devices and supplies, as well as to provide support, training and consultancy services in the use and application of these products; to do any and all acts and things in relation to, arising out of and incidental to the creation, manufacturing, processing, assembly, fabrication, development, supply, licensing, leasing, sale, barter, exchange, trade, importation, acquisition, distribution, marketing, upgrading or modification of the aforementioned products, including but not limited to the sale, installation and maintenance of computer hardware, computer systems software programs, applications, components, devices and supplies, as well as to supply, install, maintain and provide management, operational, and technical expertise and other advisory and consultation services." Petitioner is a registered VAT taxpayer with Tax Identification Number (TIN) 003-933-453-000 issued by the Bureau of Internal Revenue (BIR). 2 Respondent, on the other hand, is the Commissioner of Internal Revenue (CIR), with the authority to act on claims for refund or tax credit of erroneously or excessively paid taxes. She holds office at the BIR National Office Building, BIR Road, Diliman, Quezon City. On December 23, 1999, Unisys Australia Limited (UAL), (Philippine Branch) entered into a contract for an estimated period of twelve (12) years with the National Statistics Office (NSO), a government agency responsible for the collection, compilation, classification, production, publication and dissemination of general-purpose statistics and civil registry data. The Civil Registry System Information Technology Project (CRS-ITP) Contract 3 provides, among others, that UAL would be responsible for the design, development, construction, installation, testing and commissioning of NSO's Civil Registry System-Information Technology (CRS-IT). On July 1, 2001, UAL and petitioner, with the consent of NSO, executed an Assignment and Assumption Agreement 4 (Agreement) by virtue of which UAL unconditionally and irrevocably assigned and transferred to petitioner all its rights, title, benefits, privileges and interests and obligations, undertakings, covenants, liabilities and indebtedness, including any obligation, undertaking, covenant, liability or indebtedness that may have accrued and have not been fully performed or paid as of the date of the Assignment. ETHIDa For the four quarters of CY 2009 and the succeeding three quarters of CY 2010, petitioner generated gross sales in the amount of P1,382,319,932.81. 5 Petitioner subjected to and withheld five percent (5%) final VAT on its gross sales to NSO pursuant to Section 114 (C) of the National Internal Revenue Code (NIRC) of 1997, as amended. Petitioner filed its VAT Returns for the four quarters of CY 2009 and for the succeeding three quarters of CY 2010 and paid the total amount of P148,031,890.38 on the following dates. Quarter Date of Filing of VAT Return Exhibit (CY 2009) and payment of VAT First April 24, 2009 "S" and "S-1" First (amended) January 19, 2011 "F" and "F-1" Second July 23, 2009 "T" and "T-1" Second (amended) January 20, 2011 "G" and "G-1" Third October 23, 2009 "U" and "U-1" Third (amended) January 20, 2011 "H" and "H-1" Fourth January 25, 2009 "V" and "V-1" Fourth (amended) January 20, 2011 "I" and "I-1" Quarter Date of Filing of VAT Return Exhibit (CY 2010) and payment of VAT First 6 April 26, 2010 "W" and "W-1" First (amended) 7 January 20, 2011 "J" and "J-1" Second 8 July 26, 2010 "X" and "X-1" Second (amended) 9 January 20, 2011 "K" and "K-1" Third 10 October 20, 2010 "Y" and "Y-1" Third (amended) 11 January 20, 2011 "L" and "L-1" Subsequently, petitioner discovered that it erroneously paid VAT to the BIR when it used its actual accumulated input VAT for the four quarters of the CY 2009 and the succeeding three quarters of CY 2010, instead of the seven percent (7%) standard input VAT in computing the net VAT payable. As a consequence, it overpaid VAT for the cited period in the total amount of P76,091,087.98. On February 11, 2011, petitioner filed with the BIR Large Taxpayers Regular Audit Division III a claim for refund or issuance of a TCC for the alleged erroneously overpaid VAT of P76,091,087.98. 12 On May 30, 2011, petitioner filed the instant Petition for Review claiming inaction on the part of respondent on its application for refund and to suspend the running of the two-year prescriptive period under the law. 13 On July 12, 2011, respondent filed her Answer 14 stating that petitioner's claim is subject to routinary examination. In any event, there is no showing that petitioner submitted complete documents pursuant to Revenue Memorandum Order (RMO) No. 53-98 justifying denial of the application by inaction. Finally, a claim for refund is construed strictly against the claimant for it partakes of the nature of an exemption from taxation 15 and as such, it is looked upon with disfavor. 16 After the pre-trial conference, the Pre-Trial Order 17 dated September 15, 2011 was issued based on the parties' Joint Stipulation of Facts and Issues. 18 During the trial, petitioner presented witnesses Jennifer G. Glinoga, Veronica Joy R. Catajoy, and Annalyn B. Artuz. Petitioner's Finance Manager since January 2007, Jennifer G. Glinoga , by way of Judicial Affidavit, 19 testified that she oversees all matters relating to petitioner's tax reporting and regulatory compliance. Petitioner is engaged in the business of licensing and modifying computer hardware, computer system software programs, application, components, devices and supplies, as well as providing support, training and consultancy services in the use and application of said products. 20 It is registered with the BIR with Certificate of Registration No. 8RC0000019693. 21 On December 23, 1999, NSO and UAL executed the CRS-ITP Contract, 22 which petitioner assumed on July 1, 2001, via the Assignment and Assumption Agreement. 23 Based on the two (2) agreements, petitioner shall be responsible for the design, development, construction, installation, testing and commissioning of NSO's CRS-IT. NSO shall pay petitioner a percentage of the revenues generated by NSO for the use of the Project's technology in rendering services to the public, which includes, authentication, certification, and issuance of Certificate of Live Birth, Certificate of Marriage, Certificate of No-marriage, and other civil registry data. For the four quarters of CY 2009 and the succeeding three quarters of CY 2010, petitioner generated a total gross sales of P1,327,843,870.03, 24 which were subjected to the 5% final VAT of P66,392,193.50, 25 deducted and withheld by NSO pursuant to Section 114 (C) of the NIRC of 1997, as amended. However, in computing for its output VAT liability, petitioner erroneously credited the actual amount of its input VAT accumulated for the period, instead of the 7% standard input VAT prescribed for payments received from the Government through the NSO, although the actual accumulated input VAT was lower than the 7% standard input VAT on that period. Consequently, petitioner erroneously paid P76,091,087.98 VAT. Petitioner filed its VAT returns 26 with the BIR through the Electronic Filing and Payment System (EFPS) 27 and paid the corresponding VAT of P148,031,890.38, inclusive of the erroneously paid VAT, for the four quarters of CY 2009 and the succeeding three quarters of CY 2010. On February 11, 2011, petitioner filed an administrative claim for refund/TCC 28 which remains pending with respondent. Hence, the filing of the instant petition on May 30, 2011. In her Judicial Affidavit, 29 witness Veronica Joy R. Catajoy declared that she worked with Isla Lipana & Co., which services as External Tax Consultant was secured by petitioner. In connection thereto, she handled petitioner's tax concerns under the supervision of Mary Assumption S. Bautista-Villareal. She and her team reviewed and amended petitioner's VAT filings for the four quarters of CY 2009 and the succeeding three quarters of CY 2010, and assisted petitioner in the filing of its administrative claim for refund with the BIR. cSEDTC Per their review, petitioner has an existing build, operate and transfer (BOT) contract with the NSO for the design, development, construction, installation, testing and commissioning of NSO's CRS-IT for which petitioner receives a percentage of the revenues generated from it. For the four quarters of CY 2009 and the succeeding three quarters of CY 2010, petitioner collected a total of P1,327,843,870.03 for its sale of services to NSO pursuant to the BOT contract, which was subjected to 12% VAT. The total output VAT liabilities incurred by petitioner from its sales to NSO were categorically segregated from its total sales. As a government entity, NSO withheld a 5% final VAT of P66,392,193.48 from its payments to petitioner which represents the net VAT payable by petitioner, while the remaining 7% effectively accounts for the standard input VAT, in lieu of the actual input VAT directly attributable or ratably apportioned to such sales. In computing its VAT liability for the covered period, petitioner erroneously deducted its actual input VAT of P17,846,501.25, instead of the 7% standard input tax as provided under Section 114 (C) of the NIRC of 1997, as amended, and as implemented by Section 4.114-2 of Revenue Regulations No. 16-2005, from its total output VAT liabilities of P165,878,391.96. Thus, petitioner erroneously paid a total VAT of P148,031,890.38. In connection with the VAT overpayment, her team revalidated the accuracy and correctness of petitioner's original computations and discovered that petitioner erroneously credited the actual amount of its input VAT accumulated for the period, instead of the 7% standard input VAT which is prescribed for payments received from the government. Hence, petitioner overpaid its VAT liabilities in the total amount of P76,091,087.98. To arrive at the net VAT payable, the amount of P92,949,070.91, representing petitioner's 7% standard input VAT, was deducted since the majority of petitioner's services were rendered to NSO, hence, the 7% standard input VAT shall be in lieu of petitioner's actual input VAT directly attributable or ratably apportioned to its total sales for the covered period. The 7% standard input VAT was higher than the actual input VAT attributable to its sales to NSO for the covered period. The difference was reported by petitioner as part of its "Non-operating & Taxable Other Income" in its Amended Annual Income Tax Return for CY 2009 and Annual Income Tax Return for CY 2010. 30 The difference in the input VAT used by petitioner and the input tax in the amended VAT Returns pertains to the withholding VAT remitted by petitioner from its royalty payments to Unisys Corporation, 31 a non-resident corporation. Petitioner paid VAT in the total amount of P148,031,890.38 for the four quarters of CY 2009 and the succeeding three quarters of CY 2010. On February 11, 2011, petitioner, with their assistance, filed its administrative claim for refund/TCC for its erroneous overpayments. Independent Certified Public Accountant (ICPA) Annalyn B. Artuz also executed a Judicial Affidavit 32 declaring that petitioner's overpayment of VAT was due to its use of actual input VAT as deduction against output VAT in computing for the net VAT payable in its originally filed VAT Returns instead of the 7% standard input VAT. Petitioner's total actual VAT payments consists of actual VAT payments upon filing of the original VAT Returns amounting to P81,639,696.87 and 5% final VAT withheld by NSO amounting to P66,392,193.50 for the four quarters of CY 2009 and the succeeding three quarters of CY 2010. Based on her examination of pertinent documents, petitioner is entitled to its claim for refund pertaining to its erroneous overpayment of VAT in the total amount of P76,091,087.98 for the four quarters of CY 2009 and the succeeding three quarters of CY 2010. The ICPA clarified that petitioner's claim for refund pertains to its VAT payments in excess of the 5% final VAT withheld by NSO for its sales to the government. After petitioner rested, 33 respondent presented Revenue Officers (ROs) Melinda Lim and Maria Nimfa P. Saga. RO Melinda G. Lim , stated in her Judicial Affidavit, 34 that she is currently with the Large Taxpayers Regular Audit Division III of the BIR. She learned about the case through petitioner's request for refund filed on February 11, 2011 pertaining to its alleged VAT overpayment amounting to P40,606,843.59 for CY 2009. SDAaTC On July 1, 2011, Letter of Authority No. LOA-126-2011-00000016 was issued against petitioner. Thereafter, three notices were sent to it, namely; 1) The First Notice/Initial Data Request with attachment; 35 2) the Second Notice/Data Request with attachment; 36 and 3) the Third and Final Notice with attachment, 37 which she and her Division Chief Lindagrace B. Sagum signed. 38 Despite receipt of all the Notices, 39 petitioner only partially complied. In her Memorandum dated February 26, 2012 approved by OIC-Assistant Commissioner of the Large Taxpayers Service, Alfredo V. Misajon, 40 she recommended the denial of petitioner's entire claim for refund on the following grounds: 1) the claim lacks legal basis; 2) petitioner has no personality to claim refund; and 3) submission of incomplete records. In a Letter dated February 26, 2012, 41 petitioner was informed of the denial of its claim. 42 RO Lim affirmed that petitioner's claim for refund was due to its erroneous computation of its net VAT payable. However, VAT refunds are only allowed in three instances, i.e. , in relation to zero-rated sales, purchases or dissolution of business. In her Judicial Affidavit, 43 RO Nimfa P. Saga , assigned at the BIR's Large Taxpayers Excise Audit Division 2, corroborated the foregoing declaration and added that she denied petitioner's claim for refund because based on her review of the documents submitted, it has no legal basis. Further, petitioner only submitted the Assignment and Assumption Agreement and the Civil Registry and Information Technology Project. Moreover, VAT refund is allowed only in three instances, namely, zero-rated, fixation and dissolution of business and she does not know whether overpayment of tax is one of the basis for refund. After submission of the parties' respective memoranda, the case was submitted for decision on September 24, 2014. 44 THE ISSUES The following issues are for the resolution of the Court: 45 1. Whether petitioner erroneously computed VAT liability for the four quarters of CY 2009 and the succeeding three quarters of CY 2010; 2. Whether petitioner overpaid its VAT liabilities for the four quarters of CY 2009 and the first three quarters of CY 2010; 3. Whether petitioner is entitled to a tax refund/TCC in the amount of P76,091,087.98, representing erroneous VAT payments for CY 2009 and for the succeeding three quarters of CY 2010; and 4. Whether petitioner complied with all the evidentiary requirements in its administrative claim for refund/TCC. DISCUSSION/RULING The foregoing issues may be simplified as follows: Whether petitioner is entitled to a refund/TCC in the amount of P76,091,087.98, allegedly representing erroneous VAT payments for CY 2009 and for the succeeding three quarters of CY 2010. The Court must first determine the timeliness of the filing of the claim. Under Sections 204 (C) and 229 of the NIRC of 1997, as amended, both the administrative claim for refund/TCC filed with the BIR and the subsequent appeal to the CTA must be filed within two years from the date of payment of tax. 46 Applying the cited provisions, the prescriptive date for filing both the administrative and the judicial claims shall be as follows: Date of Last Day to File Exhibit Payment its Claim CY 2009 1st Quarter Z April 27, 2009 April 27, 2011 2nd Quarter AA July 24, 2009 July 25, 2011 47 3rd Quarter BB October 26, 2009 October 26, 2011 4th Quarter CC January 25, 2010 January 25, 2012 CY 2010 1st Quarter DD April 26, 2010 April 26, 2012 2nd Quarter EE July 26, 2010 July 26, 2012 3rd Quarter FF October 22, 2010 October 22, 2012 The record shows that petitioner filed its Letter Request 48 for refund/TCC before the BIR on February 11, 2011 and sought judicial intervention through its Petition for Review with the Court of Tax Appeals on May 30, 2011. Clearly, petitioner seasonably filed its claim for VAT refund in the administrative level. The same is however untrue insofar as its judicial claim for VAT refund for the first quarter of CY 2009 is concerned on the ground that it has already prescribed. Thus, the Court shall determine petitioner's entitlement to tax refund or issuance of tax credit certificate only for the claims pertaining to the last three quarters of CY 2009 and the succeeding three quarters of CY 2010. Petitioner's original Quarterly VAT Returns for CY 2009 and the first three quarters of CY 2010 disclosed the following information: CY 2009 1st Qtr 49 2nd Qtr 50 3rd Qtr 51 4th Qtr 52 Total Vatable Sales/Receipt- Private P169,207,521.99 P230,575,686.69 P176,524,836.42 P169,982,774.60 P746,290,819.70 Total Sales/Receipts P169,207,521.99 P230,575,686.69 P176,524,836.42 P169,982,774.60 P746,290,819.70 Output Tax Due P20,304,902.87 P27,669,081.88 P21,182,980.45 P20,397,929.36 P89,554,894.56 Less: Available Input Tax Domestic Purchase of Goods Other than Capital Goods P1,149,078.25 P1,306,057.79 P993,689.85 P888,850.39 P4,337,676.28 Domestic Purchase of Services 1,306,570.14 1,751,079.17 1,635,463.20 1,038,833.47 5,731,945.98 Total Available Input Tax P2,455,648.39 P3,057,136.96 P2,629,153.05 P1,927,683.86 P10,069,622.26 Net VAT Payable P17,849,254.48 P24,611,944.92 P18,553,827.40 P18,470,245.50 P79,485,272.30 Less: Tax Credits/Payments Monthly VAT Payments -previous 2 months P5,816,824.99 P8,212,575.45 P6,889,418.41 P6,859,269.73 P27,778,088.58 Creditable VAT Withheld 8,041,761.12 11,101,798.81 8,466,591.90 8,156,538.70 35,766,690.53 Total Tax Credits P13,858,586.11 P19,314,374.26 P15,356,010.31 P5,015,808.43 P63,544,779.11 Tax Still Payable Overpayment P3,990,668.37 P5,297,570.66 P3,197,817.09 P3,454,437.07 P15,940,493.19 ============= ============= ============= ============= ============= CY 2010 1st Qtr 53 2nd Qtr 54 3rd qtr 55 Total Vatable Sales/Receipt- Private P187,070,899.88 P245,346,806.60 P203,611,436.63 P636,029,143.11 Total Sales/Receipts P187,070,899.88 P245,346,806.60 P203,611,436.63 P636,029,143.11 Output Tax Due P22,448,507.92 P29,441,616.64 P24,433,372.47 P6,323,497.03 Less: Available Input Tax Domestic Purchase of Goods Other than Capital Goods P721,159.51 P2,368,260.18 P901,333.92 P3,990,753.61 Domestic Purchase of Services 1,302,859.74 1,071,899.80 1,411,365.84 3,786,125.38 Total Available Input Tax P2,024,019.25 P3,440,159.98 P2,312,699.76 P7,776,878.99 Net VAT Payable P20,424,488.67 P26,001,456.66 P22,120,672.71 P68,546,618.04 Less: Tax Credits/Payments Monthly VAT Payments- previous 2 months P6,834,913.55 P8,591,739.57 P8,535,937.11 P23,962,590.23 Creditable VAT Withheld 8,982,999.98 11,841,523.27 9,800,979.69 30,625,502.94 Total Tax Credits P15,817,913.53 P20,433,262.84 P18,336,916.80 P54,588,093.17 Tax Still Payable (Overpayment) P4,606,575.14 P5,568,193.82 P3,783,755.91 P13,958,524.87 ============== =============== =============== =============== In computing its output VAT liability, petitioner initially utilized its actual input VAT arising from domestic purchases of services and goods other than capital goods, with no reported input VAT on services rendered by non-residents. Furthermore, no amount was reported for sales to government and for input tax on sales to government closed to expense (excess of standard input over actual input VAT). acEHCD Realizing that it erroneously computed its output VAT liability when it failed to recognize and report its sales to government and the corresponding seven percent (7%) standard input VAT, petitioner subsequently filed its Amended Quarterly VAT Returns for CY 2009 and the succeeding three quarters of CY 2010, reflecting a total overpayment of P76,091,087.99, 56 as presented below: CY 2009 1st Qtr 57 2nd Qtr 58 3rd Qtr 59 4th Qtr 60 Total Vatable Sales/Receipt- Private P8,372,299.47 P8,539,710.51 P7,192,998.36 P6,851,970.50 P30,956,978.84 Sale to Government 160,835,222.52 222,035,976.18 169,331,838.06 163,130,774.10 715,333,810.86 Total Sales P169,207,521.99 P230,575,686.69 P176,524,836.42 P169,982,744.60 P746,290,789.70 Output Tax Due Vatable Sales/ Receipt-Private P1,004,675.94 P1,024,765.26 P863,159.80 P822,236.46 P3,714,837.46 Sale to Government 19,300,226.70 26,644,317.14 20,319,820.57 19,575,692.89 85,840,057.30 Total Output Tax P20,304,902.64 P27,669,082.40 P21,182,980.37 P20,397,929.35 P89,554,894.76 Less: Available Input Tax Domestic Purchases of Goods Other than Capital Goods P1,149,078.25 P1,306,057.79 P993,689.85 P888,850.39 P4,337,676.28 Domestic Purchase of Services 1,306,570.14 1,751,079.17 1,635,463.20 1,038,833.47 5,731,945.98 Services Rendered by Non-residents - - 2,453,885.36 2,072,506.87 4,526,392.23 Total Input Tax for the Current period P2,455,648.39 P3,057,136.96 P5,083,038.41 P4,000,190.73 P14,596,014.49 Add: Input Tax on Sale to Gov't closed to expense 8,924,321.38 12,598,606.95 6,977,312.87 7,580,210.35 36,080,451.55 Total Available Input VAT P11,379,969.77 P15,655,743.91 P12,060,351.28 P11,580,401.08 P50,676,466.04 Net VAT Payable P8,924,932.87 P12,013,338.49 P9,122,629.09 P8,817,528.27 P38,878,428.72 Less: Tax Credits/Payments Monthly VAT payments-previous 2 months P5,816,824.99 P8,212,575.45 P6,889,418.41 P6,859,269.73 P27,778,088.58 VAT withheld on Sales to Government 8,041,761.13 11,101,798.81 8,466,591.90 8,156,538.71 35,766,690.55 VAT paid in return previously filed, if this is an amended return 3,990,668.37 5,297,570.66 3,197,817.09 3,454,437.07 15,940,493.19 Total Tax Credits P17,849,254.49 P24,611,944.92 P18,553,827.40 P18,470,245.51 P79,485,272.32 Total Amount Payable (Overpayment) P(8,924,321.62) P(12,598,606.43) P(9,431,198.31) P(9,652,717.24) P(40,606,843.60) ============== ============== ============== ============= ============= CY 2010 1st Qtr 61 2nd Qtr 62 3rd Qtr 63 Total Vatable Sales/Receipt-Private P7,410,900.09 P8,516,341.05 P7,591,842.80 P23,519,083.94 Sale to Government 179,659,999.79 236,830,465.55 196,019,593.83 612,510,059.17 Total Sales P187,070,899.88 P245,346,806.60 P203,611,436.63 P636,029,143.11 Output Tax Due Vatable Sales/Receipt-Private P889,308.01 P1,021,960.93 P911,021.14 P2,822,290.08 Sale to Government 21,559,199.97 28,419,655.87 23,522,351.26 73,501,207.10 Total Output Tax P22,448,507.98 P29,441,616.80 P24,433,372.40 P76,323,497.18 Less: Available Input Tax Domestic Purchases of Goods Other than Capital Goods P721,159.51 P2,368,260.18 P901,333.92 P3,990,753.61 Domestic Purchase of Services 1,302,859.74 1,071,899.80 1,411,365.84 3,786,125.38 Services Rendered by Non-residents - - 2,671,055.90 2,671,055.90 Total Input Tax for the Current period P2,024,019.25 P3,440,159.98 P4,983,755.66 P10,447,934.89 Add: Input Tax on Sale to Gov't closed to expense 10,632,363.20 13,257,385.52 8,923,439.90 32,813,188.62 Total Available Input VAT P12,656,382.45 P16,697,545.50 P13,907,195.56 P43,261,123.51 Net VAT Payable P9,792,125.53 P12,744,071.30 P10,526,176.84 P33,062,373.67 Less: Tax Credits/Payments Monthly VAT Payments- previous 2 months P6,834,913.55 P8,591,739.57 P8,535,937.11 P23,962,590.23 VAT withheld an Sales to Government 8,982,999.99 11,841,523.28 9,800,979.69 30,625,502.96 VAT paid in return previously filed, if this is an amended return 4,606,575.14 5,568,193.82 3,783,755.91 13,958,524.87 Total Tax Credits P20,424,488.68 P26,001,456.67 P22,120,672.71 P68,546,618.06 Total Amount Payable (Overpayment) P(10,632,363.15) P(13,257,385.37) P(11,594,495.87) P(35,484,244.39) ============== ============== ============== ============= Petitioner asserts that the VAT overpayment of P76,091,087.98 constitutes erroneously paid tax which can be claimed as tax refund/credit under Section 229 of the NIRC of 1997, as amended, to wit: "SEC. 229. Recovery of Tax Erroneously or Illegally Collected . No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however , That the Commissioner may, even without claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid." Petitioner further asserts that being an entity predominantly engaged in providing services to government or any of its political subdivisions, instrumentalities or agencies, including government-owned or controlled corporations (GOCCs), the distinct rule in Section 4.114-2 of Revenue Regulations (RR) No. 16-05, as amended, specifically on the rules in computing the VAT payable for the covered period must be taken into account. 64 On these points, respondent counters that petitioner is claiming a refund based on an erroneous perception of the revenue issuances particularly Revenue Memorandum Circular (RMC) No. 62-05 and petitioner failed to follow the procedure indicated in RMC No. 62-05 that it should mandatorily close the input difference between the standard and actual VAT to cost or expense. Hence, it was only correct for petitioner to pay VAT by computing 12% output tax net of actual input tax and credits. 65 Respondent continues to say that based on the law and implementing regulations, the total output tax of 12% is still due from sales to government entities, 5% is output tax withheld by the government agency and 7% is still output tax but to be treated in a specific manner. For petitioner's failure to follow the procedure, it was correct that it paid the total output tax due as originally filed because in the regular scheme of the VAT computation, the total output tax less input tax (with proper documentation based on actual purchases) is equivalent to output tax due. 66 Respondent's arguments are untenable. Section 4.114-2 of RR No. 16-05, as amended by RR No. 04-07, implementing Section 114 (C) of the NIRC of 1997, as amended, mandates the withholding of 5% final VAT on government money payments. In addition, Q & A No. 31 of RMC No. 62-05 authorizes the application of the standard input tax of seven percent (7%) of the selling price/gross receipts attributable to government sales. Conversely stated, the allowable input tax for sales of goods and services to the government shall not exceed five percent (5%) of the selling price/gross receipts. If actual input tax exceeds five percent (5%) of gross payments, the excess shall form part of the seller's cost or expense. On the other hand, if actual input VAT is less than five (5%) of gross payments, the difference shall be closed to cost or expense of the seller. The five percent (5%) final VAT withholding rate shall represent the net VAT payable of the seller. SDHTEC The remaining seven percent (7%) effectively accounts for the standard input VAT for sales of goods or services to government or any of its political subdivisions, instrumentalities or agencies including GOCCs, in lieu of the actual input VAT directly attributable or ratably apportioned to such sales to the Government. Should actual input VAT exceed the standard input VAT of 7% of gross payments, the excess may form part of the sellers' expense or cost. Conversely, if actual input VAT is less than the standard input VAT of 7% of gross payment, the difference must be treated as taxable income. 67 Therefore, petitioner's overpayment of VAT which arose from erroneous application of its actual accumulated input VAT for the four quarters of CY 2009 and the succeeding three quarters of CY 2010 instead of the seven percent (7%) standard input VAT shall be refundable as erroneously paid tax pursuant to Section 229 of the NIRC of 1997, as amended, if petitioner can establish that its actual accumulated input VAT attributable to its government sales was lower than the 7% standard input VAT. As stated however, only the VAT overpayment pertaining to the second quarter of 2009 up to the third quarter of 2010 in the total amount of P67,166,766.36 (P76,091,087.98 less P8,924,321.62) may be a proper subject of a refund claim pursuant to Section 229 of the NIRC of 1997, as amended. Based on the record of the case, petitioner derived its gross sales to government from its build, transfer and operate contract (BTO Contract) with the NSO for the design, development, construction, installation, testing and commissioning of NSO's Civil Registry System-Information Technology, which provides that petitioner will receive a percentage of the revenues generated by the NSO from the services rendered under its CRS-IT. For the second quarter of CY 2009 to the third quarter of CY 2010, petitioner generated gross sales in the aggregate amount of P1,213,112,410.82, broken down as follows: Period Private Sales Sales to Total Government 2009 2nd Quarter P8,539,710.51 P222,035,976.18 P230,575,686.69 3rd Quarter 7,192,998.36 169,331,838.06 176,524,836.42 4th Quarter 6,851,970.50 163,130,774.10 169,982,744.60 2010 1st Quarter 7,410,900.09 179,659,999.79 187,070,899.88 2nd Quarter 8,516,341.05 236,830,465.55 245,346,806.60 3rd Quarter 7,591,842.80 196,019,593.83 203,611,436.63 Total P46,103,763.31 P1,167,008,647.51 1,213,122,410.82 ============= =============== ============== To substantiate its sales to government in the amount of P1,167,008,647.51, petitioner presented the official receipts it issued to the NSO. The said revenues were duly reported in petitioner's Amended VAT Returns and were subjected to the corresponding 12% VAT and to 5% final VAT, which it withheld pursuant to Section 114 (C) of the NIRC of 1997, as amended. 68 Moreover, to be entitled to refund/TCC, petitioner must prove that it incurred and had enough input tax credits and VAT payments. An examination of the record shows that petitioner's VAT payments consisted of the following: Actual VAT 5% VAT payments upon withheld by Total VAT Period filing of NSO supported Payments original VAT by BIR Form returns 69 No. 2307 70 2009 2nd Quarter April P4,133,377.31 P3,477,715.67 P7,611,092.98 May 4,079,198.14 3,358,851.16 7,438,049.30 June 5,297,570.66 4,265,231.98 9,562,802.64 3rd Quarter July 3,925,140.40 3,121,927.37 7,047,067.77 August 2,964,278.01 2,870,308.92 5,834,586.93 September 3,197,817.09 2,474,355.61 5,672,172.70 4th Quarter October 3,480,657.46 2,721,988.37 6,202,645.83 November 3,378,612.26 2,833,452.59 6,212,064.85 December 3,454,437.07 2,601,097.75 6,055,534.82 2010 1st Quarter January 2,567,289.81 2,086,271.92 4,653,561.73 February 4,267,623.74 3,406,787.97 7,674,411.71 March 4,606,575.14 3,489,940.09 8,096,515.23 2nd Quarter April 4,544,027.78 3,895,019.19 8,439,046.97 May 4,047,711.79 3,740,266.91 7,787,978.70 June 5,568,193.82 4,206,237.17 9,774,430.99 3rd Quarter July 4,430,051.66 3,704,193.04 8,134,244.70 August 4,105,885.45 3,174,665.97 7,280,551.42 September 3,783,755.91 2,922,120.68 6,705,876.59 Total P71,832,203.50 P58,350,432.36 P130,182,635.86 ============= ============ ============== However, of the P58,350,432.36 total VAT withheld by the NSO, the amount of P3,895,019.19 pertaining to the month of April 2010 71 shall be disallowed as tax credit since its supporting Certificate of Creditable Tax Withheld at Source (BIR Form No. 2307) lacks the signature of the authorized signatory; thus, shall bear no weight. Consequently, only the amount of P54,455,413.17 (P58,350,432.36 less P3,895,019.19) is considered as VAT withheld by NSO, which may be credited against its output liability. AScHCD On the other hand, petitioner reported input VAT from the second quarter of CY 2009 to the third quarter of CY 2010 in the total amount of P22,588,300.99, summarized per quarter as follows: PERIOD AMOUNT 2009 2nd Quarter P3,057,136.96 3rd Quarter 5,083,038.41 4th Quarter 4,000,190.73 2010 1st Quarter 2,024,019.25 2nd Quarter 3,440,159.98 3rd Quarter 4,983,755.66 Total P22,588,300.99 ============= To substantiate the foregoing figures, petitioner submitted various suppliers' invoices and official receipts 72 and its Monthly Remittance Returns of Value-added Tax and Other Percentage Taxes Withheld (BIR Form No. 1600). 73 Upon scrutiny of the said documents, the Court finds that the input VAT amount of P12,083,947.19, as summarized below, should be disallowed for petitioner's failure to meet the substantiation requirements under Sections 110 (A) and 113 (A) and (B) of the NIRC of 1997, as amended by RA No. 9337, as implemented by Sections 4.110-2, 4.110-8, and 4.113-1 of RR No. 16-05: FINDINGS ANNEX AMOUNT 1. Input VAT on purchases of A P5,922.86 goods/services supported by VAT invoices/ORs wherein the input VAT amount per invoice/OR is lower than the amount per claim (over-claimed input VAT) 2. Input VAT on domestic purchases of B 6,154,663.67 goods/services supported by VAT invoices/ORs wherein the input VAT amounts were not separately shown 3. Input VAT on domestic purchases of C 157,629.07 goods/services supported by VAT invoices/ORs issued not in petitioner's name 4. Input VAT on domestic purchases of D 383,663.24 goods/services supported by VAT invoices/ORs dated outside the period of claim or were not dated 5. Input VAT on domestic purchases of E 393,472.00 goods/services supported by invoices/ORs with supplier's TIN but without the word "VAT" 6. Input VAT on domestic purchases of F 3,698,869.72 goods supported by documents other than VAT invoices 7. Input VAT on domestic purchases of services supported by documents G 193,149.52 other than VAT ORs 8. Input VAT on domestic purchases of H 24,164.00 services supported by documents other than VAT ORs and issued not in petitioner's name 9. Input VAT on domestic purchases of I 924,914.94 goods/services supported by documents other than VAT invoices/ORs with printed notation not a valid source of input tax 10. Input VAT on domestic purchases J 15,982.98 of goods and services supported by photocopy of VAT invoices/ORs 11. Unaccounted/unsupported input VAT claim K 121,515.19 TOTAL P12,083,947.19 ============ Consequently, only the remaining input VAT of P10,504,353.80 (P22,588,300.99 less P12,083,947.19) represents petitioner's valid input VAT for the second quarter of CY 2009 to the third quarter of CY 2010, which may be credited against petitioner's output VAT for the same period. In fine, petitioner was able to substantiate erroneous VAT payments of P51,187,799.96 only, as computed below: Output VAT per Returns Sales to Private *CY 2009 (P3,714,837.46-P1,004,675.94) P2,710,161.52 CY 2010 P2,822,290.08 P5,532,451.60 Sales to Government *CY 2009 (P85,840,057.30-P19,300,226.70) 66,539,830.60 CY 2010 73,501,207.10 140,041,037.70 Total Output VAT P145,573,489.30 Less: Input VAT Valid Input VAT 10,504,353.80 Input Tax on Sale to Government closed to expense *CY 2009 (P36,080,451.55-P8,924,321.38) P27,156,130.17 CY 2010 32,813,188.62 59,969,318.79 70,473,672.59 Net VAT Payable P75,099,816.71 Less: VAT Payments Actual Payments 71,832,203.50 VAT Withheld on Sales to Government 54,455,413.17 126,287,616.67 VAT Overpayment P(51,187,799.96) ============== Moreover, based on its Quarterly VAT Returns from the fourth quarter of CY 2010 to the second quarter of CY 2012, 74 petitioner did not carry over the input VAT of P76,091,087.98, which is the subject matter of the present claim. The said amount was neither presented as "Input tax carried over from previous period" nor claimed or utilized as deduction from output VAT in the subsequently filed returns for the fourth quarter of CY 2010 to the second quarter of CY 2012. WHEREFORE , the instant Petition for Review is hereby PARTIALLY GRANTED . Accordingly, respondent is hereby ORDERED TO REFUND or TO ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner in the reduced amount of P51,187,799.96, representing petitioner's erroneous payments of VAT for the second to fourth quarters of CY 2009 and the succeeding three quarters of CY 2010. SO ORDERED. AcICHD (SGD.) ESPERANZA R. FABON-VICTORINO Associate Justice Lovell R. Bautista and Ma. Belen M. Ringpis-Liban, JJ. , concur. Annexes are available upon request. Footnotes 1. Exhibits "A" to "A-2". 2. Exhibit "B". 3. Exhibit "N". 4. Exhibit "O". 5. Exhibits "C", "D", "E", "F", "G", "H" and "I". 6. Exhibit "D". 7. Exhibit "D". 8. Exhibit "E". 9. Exhibit "F". 10. Exhibit "G". 11. Exhibit "G". 12. Exhibit "C". 13. Docket, pp. 1-12. 14. Docket, pp. 100-108. 15. Commissioner of Internal Revenue vs. Ledesma , 31 SCRA 95. 16. Western Minolco Corp. vs. Commissioner of Internal Revenue , 124 SCRA 1211. 17. Docket, pp. 155-160. 18. Docket, pp. 131-133. 19. Exhibits "EEE" and "EEE-1". 20. Exhibits "A" to "A-2". 21. Exhibit "B". 22. Exhibit "N". 23. Exhibit "O". 24. Exhibits "GG-2", "HH-2", "II-2", "JJ-2", "KK-2", "LL-2", "MM-2", "NN-2", "OO-2", "PP-2", "QQ-2", "RR-2", "SS-2", "TT-2", "UU-2", "VV-2", "WW-2", "XX-2", "YY-2", "ZZ-2" and "AAA-2". 25. Exhibits "GG', "HH", "II", "JJ", "KK", "LL", "MM", "NN", "OO", "PP", "QQ", "RR", "SS", "TT", "UU", "VV", "WW", "XX", "YY" and "ZZ". 26. Exhibits "F", "F-1", "G", "G-1" "H", "H-1", "I", "I-1", "J", "J-1", "K", "K-1", "L", "L-1", "S", "S-1", "T", "T-1", "U", "U-1", "V", "V-1", "W", "W-1", "X", "X-1", "Y" and "Y-1". 27. Exhibits "S-1", "T-1", U-1", "V-1", "W-1", "X-1" and "Y-1". 28. Exhibits "C" to "C-2" and "M" to "M-2". 29. Exhibits "HHHH" and "HHHH-1." 30. Exhibits "E" and "Q". 31. Exhibits "BBB", "CCC" and "DDD". 32. Exhibits "FFFFFFF" and "FFFFFFF-1". 33. Docket, pp. 720-722. 34. Exhibits "13" and "13-A". 35. Exhibit "2". 36. Exhibit "3". 37. Exhibit "4". 38. Exhibits "2-A", "3-A" and "4-A". 39. Exhibits "2-B", "3-B" and "4-B". 40. Exhibits "5-A" and "5-B". 41. Exhibits "6" and "6-A". 42. Exhibit "6-B". 43. Exhibits "14" and "14-A". 44. Docket, p. 914. 45. Stipulation of Issues, JSFI, docket, pp. 132-133. 46. "SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes . The Commissioner may xxx xxx xxx (C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however , That a return filed showing an overpayment shall be considered as a written claim for credit or refund." "SEC. 229. Recovery of Tax Erroneously or Illegally Collected . No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however , That the Commissioner may, even without claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid." (Emphasis supplied) 47. July 24, 2011 fell on a Sunday. 48. Exhibit "C", docket, pp. 335-339. 49. Exhibit "S". 50. Exhibit "T". 51. Exhibit "U". 52. Exhibit "V". 53. Exhibit "W". 54. Exhibit "X". 55. Exhibit "Y". 56. P40,606,843.60 (CY 2009) plus P35,484,244.39 (CY 2010). 57. Exhibit "F". 58. Exhibit "G". 59. Exhibit "H". 60. Exhibit "I". 61. Exhibit "J". 62. Exhibit "K". 63. Exhibit "L". 64. Par. 25, petitioner's Memorandum, docket, p. 903. 65. Respondent's Memorandum, docket, p. 879. 66. Respondent's Memorandum, docket, pp. 880-881. 67. Revenue Memorandum Circular No. 29-05, Q & A No. 17. 68. "SEC. 114. Return and Payment of Value-added Tax . xxx xxx xxx (C) Withholding of Creditable Value-added Tax . The Government or any of its political subdivisions, instrumentalities or agencies, including government-owned or controlled-corporations (GOCCs) shall, before making payment on account of each purchase of goods from sellers and services rendered by contractors which are subject to the value-added tax imposed in Sections 106 and 108 of this Code, deduct and withhold the value-added tax due at the rate of five percent (5%) of the gross payment thereof: Provided , That the payment for lease or use of properties or property rights to non-resident owners shall be subject to ten percent (10%) withholding tax at the time of payment. For purposes of this Section, the payor or person in control of the payment shall be considered as the withholding agent." 69. Exhibits "JJJ-2", "LLL-2", "AA", "NNN-2", "PPP-2", "BB", "RRR-2", "TTT-2", "CC", "VVV-2", "XXX-2", "DD", "ZZZ-2", "BBBB-2", "EE", "DDDD-2", "FFFF-2", and "FF", docket, pp. 597, 607, 507, 617, 627, 508, 637, 647, 509, 657, 667, 510, 675, 681, 511, 687, 693, and 512, respectively. 70. Exhibits "II", "JJ", "KK", "LL", "MM", "NN", "OO", "PP", "QQ", "RR", "SS", "TT", "UU", "VV", "WW", "XX", "YY", and "ZZ", docket, pp. 517, 519, 521, 523, 525, 527, 529, 531, 533, 535, 537, 539, 541, 543, 545, 547, 549, and 551, respectively. 71. Exhibit "UU". 72. Exhibits "MMMMM" to "SSSSS". 73. Exhibits "BBB" to "DDD". 74. Exhibits "TTTTT" to "YYYYY" and "BBBBBBB".