Emerson Electric (Asia) Limited-ROHQ v. Commissioner of Internal Revenue

THIRD DIVISION [C.T.A. CASE NO. 8657. December 21, 2016.] EMERSON ELECTRIC (ASIA) LIMITED-ROHQ , petitioner , vs. COMMISSIONER OF INTERNAL REVENUE , respondent . DECISION BAUTISTA , J p : The Case Before the Court is a Petition for Review 1 filed by petitioner Emerson Electric (Asia) Limited ("EEL")-Regional Operating Headquarters ("ROHQ") on May 24, 2013, pursuant to Section 7 (a) (2) 2 of Republic Act ("RA") No. 1125 , 3 as amended by RA No. 9282 4 and RA No. 9503 , 5 which seeks for the Court to render judgment declaring petitioner entitled to a refund or issuance of a tax credit certificate ("TCC") in the amount of Seventy Four Million Fourteen Thousand Five Hundred Twenty One and 32/100 Pesos (Php74,014,521.32), representing unutilized input value added tax ("VAT") arising from petitioner's domestic purchases of goods and services, purchases of capital goods and purchases of services rendered by non-residents for the 1st to 4th Quarters of fiscal year ("FY") 2011 which are attributed to zero-rated transactions; and ordering respondent to grant/issue the corresponding tax refund or TCC in the amount of Php74,014,521.32. 6 The Parties 7 Petitioner EEL-ROHQ is a corporation duly organized and existing under the laws of Hongkong, with license to transact business in the Philippines and with office address at 7/F Robinson Cybergate Plaza Bldg., EDSA, Mandaluyong City. Respondent Commissioner of Internal Revenue ("CIR"), is the head of the Bureau of Internal Revenue ("BIR"), and holds office at the BIR National Office Building located at Agham Road, Diliman, Quezon City. He is vested with authority to administer all laws pertaining to internal revenue taxes and has jurisdiction to decide tax refund cases at the administrative level. The Facts Petitioner is duly registered with the Securities and Exchange Commission ("SEC") and is licensed as an ROHQ with Certificate of Registration and License No. FS200703133 issued on February 28, 2007. 8 It is authorized to engage in general administration and planning; business planning and coordination; sourcing/procurement of raw materials and components; corporate finance advisory services; marketing control and sales promotion; training and personnel management; logistics services and product development; technical support and maintenance; data processing and communication; and business development. 9 Petitioner is registered with the BIR Revenue Region ("RR") No. 007 Revenue District ("RD") No. 041, as evidenced by Certificate of Registration No./OCN 3RC0000597452, 10 which was issued on June 19, 2013, for additional tax type WG and as a replacement of previous Certificate of Registration with OCN 3RC0000527738 dated January 13, 2012. Petitioner adopts the fiscal year as its accounting period, starting from October 1, 2010 and ending on September 30, 2011. 11 Petitioner filed its Quarterly VAT Returns (BIR Form No. 2550-Q) for the 1st to 4th Quarters of FY 2011; 1st to 4th Quarters of FY 2012; and 1st Quarter of FY 2013; as follows: PERIOD DATE FILED EXHIBIT DATE FILED EXHIBIT ORIGINAL AMENDED FY 2011 1st Quarter Oct. to Dec. 2010 - - 4/24/2012 P-2 12 2nd Quarter Jan. to March 2011 - - 4/24/2012 P-2-a 13 3rd Quarter April to June 2011 - - 4/24/2012 P-2-b 14 4th Quarter July to Sept. 2011 - - 4/24/2012 P-2-c 15 FY 2012 1st Quarter Oct. to Dec. 2011 - - 4/24/2012 P-2-d 16 2nd Quarter Jan. to March 2012 - - 4/25/2012 P-2-e 17 3rd Quarter April to June 2012 7/24/2012 P-2-f 18 4th Quarter July to Sept. 2012 10/23/2012 P-2-g 19 FY 2013 1st Quarter Oct. to Dec. 2012 1/22/2013 P-2-h 20 On December 27, 2012, the BIR RR-RD No. 41, received petitioner's letter application for a claim for tax refund, 21 of unutilized input VAT for the period October 1, 2010 to September 30, 2011 (1st to 4th Quarters of FY 2011), on amounts paid for various purchases of services, goods, importation and capital goods which are attributable to its zero-rated sales; together with Applications for Tax Credits/Refunds (BIR Form No. 1914), amounting to Php74,014,521.32, broken down as follows: CAIHTE PERIOD AMOUNT EXHIBIT 1st Quarter Oct. to Dec. 2010 Php15,342,842.24 P-5 22 2nd Quarter Jan. to March 2011 21,976,351.91 P-5-a 23 3rd Quarter April to June 2011 15,315,484.71 P-5-b 24 4th Quarter July to Sept. 2011 21,379,842.46 P-5-c 25 TOTAL PHP74,014,521.32 ============== On account of the BIR's inaction, petitioner filed the present Petition for Review 26 on May 24, 2013, which was docketed as CTA Case No. 8567 and raffled to the CTA Third Division. On May 30, 2013, the 3rd Division issued a Summons, 27 requiring respondent to file her (now "his") Answer to the Petition for Review. On June 19, 2013, respondent filed a Motion for Extension of Time to File Answer, 28 which was granted by the Court in its Order 29 dated June 20, 2013. On July 22, 2013, respondent filed an Answer, 30 wherein she (now "he") alleged that petitioner's claim for issuance of TCC is subject to administrative investigation/examination by respondent; that taxes paid and collected are presumed to have been paid in accordance with law and regulations, hence, not refundable; that it is incumbent upon the taxpayer to prove its compliance with Sections 112, 113 and 114 of the 1997 National Internal Revenue Code, as amended, ("1997 NIRC") to validly claim for a tax refund or issuance of a TCC; that the taxpayer must establish by sufficient and competent evidence that it is entitled to a tax refund or issuance of a TCC; that it failed to substantiate its claim, that is, to submit complete supporting documents along with the filing of application for refund on December 27, 2012; and that claims for tax refund are strictly construed against taxpayer as the same partakes the nature of a tax exemption. On September 20, 2013 31 and October 25, 2013, 32 petitioner and respondent filed their respective pre-trial briefs. On November 22, 2013, the parties filed their Joint Stipulation of Facts and Issue 33 ("JSFI"). Thereafter, the Court issued a Pre-trial Order 34 on December 4, 2013. During trial, petitioner presented the following witnesses: (1) Ms. Carla Francesca Lim 35 ("Ms. Lim"), Tax Specialist 1 of petitioner; 36 (2) Atty. Raquel Dujunco 37 ("Atty. Dujunco"), the previous Tax and Compliance Manager of petitioner; 38 (3) Ms. Anna Mae G. Santos 39 ("Ms. Santos"), the Accounting Manager of petitioner; 40 and (4) Atty. Fredieric B. Landicho 41 ("Atty. Landicho"), Independent Certified Public Accountant ("ICPA"). 42 On June 2, 2014, petitioner moved for the commissioning of an ICPA, which was granted by the Court. 43 On June 19, 2014, Atty. Landicho was allowed to take his oath 44 as the Court-commissioned ICPA in this case, and was ordered to submit his ICPA Report within thirty (30) days. 45 On July 21, 2014, Atty. Landicho submitted to the Court his ICPA Report. 46 His Judicial Affidavit followed on July 31, 2014. 47 Thereafter, on October 14, 2014, Atty. Landicho submitted to the Court an amended ICPA Report. 48 Hence, on October 15, 2014, petitioner submitted the Judicial Affidavit of Atty. Landicho. 49 On November 19, 2014, petitioner filed its Formal Offer of Evidence ("FOE") with Omnibus Motion, 50 submitting Exhibits "P," "P-1," "P-1-a" to "P-1-d," "P-2," "P-2-a" to "P-2-h," "P-3," "P-3-a" to "P-3-c," "P-4," "P-4-a" to "P-4-c," "P-5," "P-5-a" to "P-5-c," "P-6," "P-7," "P-7-a" to "P-7-d," "P-8," "P-8-a" to "P-8-k," "P-9," "P-10," "P-10-a" to "P-10-d," "P-11," "P-15," "P-15-a," "P-16.1" to "P-16.694," "P-17.1" to "P-17.4962," "P-18.1" to "P-18.507," "P-19.1" to "P-19.14481," "P-20.1" to "P-20.104," "P-21.1" to "P-21.663," "P-22.1" to "P-22.121," "P-23.1" to "P-23.2744," "P-24.1" to "P-24.777," "P-25.1" to "P-25.4," "P-26.1" to "P-26.4," "P-27.1" to "P-27.4," "P-28.1" to "P-28.1" [sic] , "P-29.1," "P-30.1" to "P-30.771," "P-31.1" to "P-31.2224," "P-32.1" to "P-32.505," "P-33.1" to "P-33.60," "P-34.1" to "P-34.57," "P-35.1" to "P-35.91," "P-36," "P-37.1" to "P-37.60," and "P-38," for the purposes indicated. Included thereto is petitioner's Motion to Admit Secondary Evidence, praying that the photocopies of its previous BIR Certificates of Registration, i.e. , Exhibits "P-1-a" and "P-1-b," be admitted as secondary evidence. On February 2, 2015, the Court resolved 51 to admit most of petitioner's exhibits but rejected several of them for failure to correspond with the documents actually marked, for failure to submit the originals for comparison, and for failure to submit the same to the Court. The Court likewise denied petitioner's Motion to Admit Secondary Evidence. On February 25, 2015, petitioner filed a Motion for Reconsideration (Of Resolution Dated February 2, 2015) with Motion for Leave of Court to Present Documents in Support of the Motion for Reconsideration 52 ("Motion for Reconsideration"), which prayed, among others, that it be given a period of twenty (20) days or no later than March 17, 2015, within which to submit a Supplemental Report from the ICPA in support of the Motion for Reconsideration. The Court resolved 53 to grant the prayer to present supplemental ICPA report, and set the case for presentation thereof on May 19, 2015. DETACa Petitioner's counsel failed to appear on the scheduled hearing on May 19, 2015. 54 Likewise, it failed to submit the required ICPA Supplemental Report, thus, the Court granted the Manifestation and Motion of respondent's counsel to waive petitioner's right to present additional evidence and imposed a fine of Php1,000.00 upon petitioner. 55 Thereafter, petitioner's Motion for Reconsideration was deemed submitted for resolution. 56 These declarations were confirmed in a Resolution dated May 26, 2015. 57 On June 10, 2015, the Court promulgated a Resolution 58 denying petitioner's Motion for Reconsideration. On even date, petitioner filed a Motion for Reconsideration (Of the Resolution dated May 26, 2015) with Motion to Admit Attached Supplemental Report of the [ICPA]. 59 This was followed by a Submission [of Supplemental Judicial Affidavit of Atty. Fredieric B. Landicho] 60 on June 22, 2015. Nonetheless, these were denied by the Court in its Resolution 61 dated August 25, 2015. On the scheduled presentation of evidence for respondent on October 12, 2015, counsel for respondent manifested that he has not received any report from the Revenue Officers, and moved that he be given a chance to verify if there is such a report. 62 The Court thereafter reset the presentation of respondent's evidence to December 1, 2015. 63 During the hearing on December 1, 2015, respondent manifested that no report of investigation was submitted by the Revenue Officers, hence, he has no evidence to present. 64 The Court granted the parties forty (40) days or until January 10, 2016 to simultaneously file their respective memoranda, which was confirmed by the Court in its Resolution 65 dated December 10, 2015. On January 11, 2016, petitioner filed an Urgent Motion for Extension of Time to File Formal Offer of Evidence, 66 followed by an Urgent Manifestation 67 on January 13, 2016, stating that the said Motion should instead read as Urgent Motion for Extension of Time to Memorandum, which was granted by the Court in its Resolution 68 dated January 21, 2016. With the filing of petitioner's Memorandum 69 on January 15, 2016, and the Records Verification Report 70 stating that respondent failed to file his Memorandum, the Court resolved 71 to submit the case for decision on January 29, 2016. On March 4, 2016, respondent filed his Memorandum. The Court notes that the last day to file a Memorandum was set on January 10, 2016. Considering that respondent neither filed a motion for extension of time to file nor a motion to admit his Memorandum, the same is hereby DENIED for being filed out of time. Consequently, the Court promulgates this Decision. The Issue 72 WHETHER PETITIONER IS ENTITLED TO A REFUND OR ISSUANCE OF A TCC OF ITS UNUTILIZED INPUT VAT ARISING FROM PURCHASES OF GOODS AND SERVICES, AS WELL AS PURCHASES AND IMPORTATION OF CAPITAL GOODS, ATTRIBUTABLE TO ZERO-RATED SALES FOR THE PERIOD STARTING FROM THE FIRST TO THE FOURTH QUARTERS OF FISCAL YEAR 2011, IN THE AGGREGATE AMOUNT OF SEVENTY FOUR MILLION FOURTEEN THOUSAND FIVE HUNDRED TWENTY ONE AND 32/100 PESOS (PHP74,014,521.32). Petitioner's Arguments 73 Petitioner alleges that the claim for refund was timely filed as it complied with the period provided under Section 112 (A) of the 1997 NIRC ; that it has sufficiently complied with the requisites laid down in San Roque Power Corporation v. CIR ; that it is entitled to its claim for tax refund or issuance of TCC, at the very least in the amount of Php45,885,592.86; that tax cases are civil in nature, hence, only preponderance of evidence is needed to grant a claim for tax refund or issuance of TCC of unutilized input VAT attributable to zero-rated sales; that to deny its claim for tax refund or issuance of TCC would render efforts to attain economic achievements for the country useless; and that the principle of solutio indebiti requires the speedy refund of taxes wrongfully collected. Respondent's Counter-Arguments 74 On the other hand, respondent counter-argues in his Answer, that petitioner's claim for issuance of TCC is subject to administrative investigation/examination by respondent; that taxes paid and collected are presumed to have been paid in accordance with law and regulations, hence, not refundable; that taxpayer must establish by sufficient and competent evidence that it is entitled to a tax refund or issuance of a TCC; that it is incumbent upon the taxpayer to prove its compliance with Sections 112, 113 and 114 of the 1997 NIRC to validly claim for a tax refund or issuance of a TCC; that it failed to substantiate its claim; and that claims for tax refund are strictly construed against the taxpayer as the same partakes the nature of a tax exemption. The Ruling of the Court The Court has jurisdiction over the instant case. From the outset, the Court must determine whether it has jurisdiction over the case at bar. In order to do this, the Court must first ascertain whether the administrative and judicial claims for refund were filed on time. Section 112 (A) (C) of the 1997 NIRC is instructive, viz. : Sec. 112. Refunds or Tax Credits of Input Tax. (A) Zero-Rated or Effectively Zero-Rated Sales. Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales , except transitional input tax, to the extent that such input tax has not been applied against output tax: Provided, however, That in the case of zero-rated sales under Section 106 (A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods of properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales. aDSIHc 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 Subsections (A) and (B) hereof. In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals . 75 Likewise, RR No. 16-2005 76 provides the following: Sec. 4.112-1. Claims for Refund/Tax Credit Certificate of Input Tax. xxx xxx xxx (d) Period within which refund or tax credit certificate/refund of input taxes shall be made In proper cases, the Commissioner of Internal Revenue shall grant a tax credit certificate/refund 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 subparagraph (a) above. In case of full or partial denial of the claim for tax credit certificate/refund as decided by the Commissioner of Internal Revenue, the taxpayer may appeal to the Court of Tax Appeals (CTA) within thirty (30) days from the receipt of said denial, otherwise the decision shall become final. However, if no action on the claim for tax credit certificate/refund has been taken by the Commissioner of Internal Revenue after the one hundred twenty (120)-day period from the date of submission of the application with complete documents, the taxpayer may appeal to the CTA within 30 days from the lapse of the 120-day period . 77 Records disclose the following pertinent dates relative to the filing of the administrative and judicial claims: QUARTER CLOSE OF QUARTER ADMIN DUE DATE (+ 2 YEARS) ADMIN CLAIM FILED + 120 DAYS + 30 DAYS JUDICIAL CLAIM FILED 1ST Dec. 31, 2010 December 31, 2012 December 27, 2012 April 26, 2013 May 27, 2013 78 May 24, 2013 2ND March 31, 2011 March 31, 2013 3RD June 30, 2011 June 30, 2013 4TH Sept. 30, 2011 September 30, 2013 Based on Section 112 (A) of the 1997 NIRC , petitioner had two (2) years from the close of the taxable quarter when the sales were made to file its administrative claim. Thus, it had until December 31, 2012, March 31, June 30, and September 30, 2013, within which to file its administrative claims for the respective 1st, 2nd, 3rd and 4th quarters of FY 2011. Petitioner filed its claim for all the taxable quarters of FY 2011 on December 27, 2012, thus complying with the two (2)-year prescriptive period. In accordance with Section 112 (C) of the 1997 NIRC , in relation to RR No. 16-2005 , respondent had one hundred twenty (120) days from December 27, 2012 or until April 26, 2013, within which to issue its decision on the administrative claim. However, as borne by the records, no decision was taken by the respondent, hence, petitioner had thirty (30) days from April 26, 2013 or until May 27, 2013 to file its judicial claim. As enunciated by the Supreme Court in Commissioner of Internal Revenue v. San Roque Power Corporation, et al. , 79 strict compliance with the mandatory 120 + 30-day period is necessary for a claim for tax refund or credit. In the instant case, petitioner filed its judicial claim for refund on May 24, 2013, thus complying with the mandatory periods. Hence, both the administrative and judicial claims for refund were filed on time. Having settled the issue of jurisdiction, the Court now proceeds to discuss petitioner's compliance with the requirements for VAT refund. Petitioner has valid zero-rated sales. Based on the aforecited Section 112 (A) of the 1997 NIRC , a taxpayer engaged in zero-rated or effectively zero-rated sales is entitled to a refund or tax credit of unutilized input VAT attributable to such zero-rated or effectively zero-rated sales upon compliance with the following requisites: 80 1. There must be zero-rated or effectively zero-rated sales; 2. Input taxes were incurred or paid; 3. Such input taxes are attributable to zero-rated or effectively zero-rated sales; 4. Such input taxes were not applied against any output VAT liability; and 5. The claim for refund was filed within the two-year prescriptive period. Having discussed the fifth requisite, which pertains to the Court's jurisdiction, it now proceeds to the determination of petitioner's compliance with the remaining requisites provided under Section 112 (A) of the 1997 NIRC . 1. There must be zero-rated or effectively zero-rated sales. Petitioner submits that the subject sales of services to its various non-resident affiliates are subject to zero percent VAT pursuant to Section 108 (B) (2) of the 1997 NIRC , which reads as follows: 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 nonresident 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) ; . . . 81 ETHIDa In the case of Commissioner of Internal Revenue v. Burmeister and Wain Scandinavian Contractor Mindanao, Inc. , 82 the Supreme Court held that in order for the sale of services to be VAT zero-rated under Section 108 (B) (2) of the 1997 NIRC , the following requisites must be met: 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. The Court will now apply the foregoing to the case at bar. Anent the first requisite, it was undisputed that petitioner is a registered VAT taxpayer, with license issued by the SEC to operate as an ROHQ in the Philippines and to provide qualifying services of general administration and planning, business planning and coordination, sourcing/procurement of raw materials and components, corporate finance and advisory services, marketing control and sales promotion, training and personnel management, logistics services and product development, technical support and maintenance, data processing and communication, and business development, to its affiliates in the Philippines and abroad. 83 Clearly, the enumerated services are in no way the same as "processing, manufacturing or repacking of goods." As to the second requisite, the services rendered by petitioner to its non-resident foreign affiliates were supported by official receipts stamped with "Zero-Rated Sales" 84 and invoices, 85 denominated in US Dollars, which were inwardly remitted and accounted for in accordance with the BSP rules and regulations, as evidenced by the Certificates of Inward Remittances, Credit Advices from Standard Chartered Bank and Citibank 86 and monthly Certificates issued by Standard Chartered Bank. 87 Regarding the third requisite, to be considered as a non-resident foreign corporation doing business outside the Philippines, each corporation must be supported at the very least by both SEC Certificate of Non-Registration and proof of incorporation or registration in a foreign country ( e.g. , Certificate of Incorporation, Memorandum and Articles of Association, and Certificate of Registration). Upon review of the evidence submitted, the Court found that only the following clients of petitioner submitted the required documents to be considered as non-resident foreign corporations doing business outside the Philippines, to wit: CLIENT SEC CERTIFICATE ARTICLES OF OF NON- INCORPORATION/ REGISTRATION CERTIFICATE OF (EXHIBIT NO.) 88 REGISTRATION IN A FOREIGN COUNTRY (EXHIBIT NO.) 89 Alber Corporation P-35-1 P-34-1 Asco Controls BV P-35-4 P-34-2 Asco Joucomatic Ltd. P-35-5 P-34-3 Asco Power Technologies, LP P-35-8 P-34-5 Bristol, Inc. P-35-13 P-34-7 Closetmaid P-35-15 P-34-8 Computational Systems, Inc. P-35-16 P-34-9 Control Techniques-AU P-35-17 P-34-10 Control Techniques America P-35-18 P-34-11 Daniel Measurement & Control (CA) P-35-20 P-34-12 EGS Electrical Group P-35-22 P-34-13 Emerson Climate Technologies (USA) P-35-26 P-34-14 Emerson Electric Asia-Pacific P-35-27 P-34-15 Emerson Electric Company P-35-28 P-34-16 Emerson FZE P-35-32 P-34-17 Emerson Hermetic Motors P-35-34 P-34-18 Emerson Network Power (Malaysia) P-35-41 P-34-22 Sdn Bhd Emerson Network Power (Singapore) P-35-42 P-34-23 Pte Ltd. Emerson Network Power Connectivity P-35-45 P-34-24 Solutions Emerson Network Power Pakistan P-35-48 P-34-26 Emerson Network Power SRL P-35-49 P-34-27 Emerson Process Management (Australia) P-35-52 P-34-32 Emerson Process Management Flow BV P-35-57 P-34-33 Emerson Process Management Gmbh & Co. P-35-58 P-34-34 Ohg Argelsrieder Emerson Process Management Korea P-35-59 P-34-36 Emerson Process Management Shared P-35-63 P-34-39 Services Ltd. Emerson Process Management Valve P-35-64 P-34-40 Automation, Inc. Emerson Tool Company P-35-66 P-34-41 Fisher Rosemount Systems, Inc. P-35-70 P-34-42 Fusite P-35-71 P-34-43 Insinkerator P-35-73 P-34-44 Instrument & Valve Services Company P-35-74 P-34-45 Intermetro P-35-75 P-34-46 Kato Engineering, Inc. P-35-76 P-34-47 Knaack L.L.C. P-35-77 P-34-48 KOP-Lex, Inc. P-35-78 P-34-49 Mobrey Ltd. P-35-82 P-34-52 Ridge Tool Company P-35-85 P-34-55 Thermo-O Disc P-35-91 P-34-57 After scrutiny of the documents presented, the Court decided not to give weight on the documents attached relating to the following entities for the reasons stated below: 1. Daniel Measurement & Control (CA) Certifications from Philippine Embassy, Department of State and Department of Treasury of USA, indicates a company name of "Daniel Measurement & Control, Inc." This Court cannot conclude whether these entities are one and the same. 2. Emerson Climate Technologies (USA) Certifications from Philippine Embassy, Department of State and Department of Treasury of USA, indicates a company name of "Emerson Climate Technologies, Inc." This Court cannot conclude whether these entities are one and the same. 3. Emerson Process Management Gmbh & Co. Ohg Argelsrieder Certification from Honorary Consulate of the Philippines, Munich Republic of Germany indicates a corporate name of "Emerson Process Management GmbH & Co. OHG" while the Tax Office in Stanberg indicates a corporate name of "Emerson Process Management GmbH & Co. OHG Argelsrieder Feld 3." Similarly, this Court cannot conclude whether these entities are one and the same. 4. Fusite The Registration of Fictitious Name in the State of Missouri, USA indicates a registration date of October 23, 2012. This case involves a claim for refund for the fiscal year ending September 30, 2011, thus, any input VAT attributable to zero-rated sales of Fusite to petitioner from the stated date of registration is outside the period of claim. 5. Intermetro Certifications indicates a corporate name of "Intermetro Industries Corporation." Likewise, the Court cannot conclude whether these entities are one and the same. Accordingly, petitioner's sales of services rendered to the aforementioned entities for the FY ending September 30, 2011 in the total amount of USD36,232,911.44, with peso equivalent of Php1,576,181,357.27, 90 qualify for VAT zero-rating pursuant to Section 108 (B) (2) of the 1997 NIRC . Thus, after finding that petitioner had valid VAT zero-rated sales for the FY ending September 30, 2011, the Court shall now determine the input VAT attributable thereto. 2. Input taxes were incurred or paid. In its amended Quarterly VAT Returns for the four quarters of FY 2011, petitioner reflected a total input VAT of Php84,682,126.26 91 arising from its purchases of capital goods exceeding Php1,000,000.00, domestic purchases goods and services, and importation of goods other than capital goods. In support of the said input taxes reported, petitioner submitted various suppliers' invoices, official receipts, schedules and importation documents 92 to prove that input taxes were incurred or paid. 3. Such input taxes are attributable to zero-rated or effectively zero-rated sales. The instant case involves a claim for refund or issuance of a TCC representing unutilized input VAT arising from petitioner's domestic purchases of goods and services, purchases of capital goods and importation of goods other than capital goods for the 1st to 4th quarters of FY 2011 which are attributed to zero-rated transactions, amounting to Php74,014,521.32, computed below: 1ST QUARTER 93 2ND QUARTER 94 3RD QUARTER 95 4TH QUARTER 96 TOTAL Input VAT on: Purchases of Capital Goods exceeding Php1,206,332.08 Php6,053,649.78 Php4,699,401.00 Php3,747,791.75 Php15,707,174.61 1Million Domestic Purchases of Goods Other Than Capital Goods 14,287,485.50 20,877,505.74 13,252,673.29 3,147,374.16 51,565,038.69 Importation of Goods Other Than Capital Goods - - 732,002.92 3,534,858.79 4,266,861.71 Domestic Purchases of Services - - - 13,143,051.25 13,143,051.25 Total Input VAT Php15,493,817.58 Php26,931,155.52 Php18,684,077.21 Php23,573,075.95 Php 84,682,126.26 Less: Output VAT 698,207.81 853,993.52 859,808.28 885,198.73 3,297,208.34 Sub-total Php14,795,609.77 Php26,077,162.00 Php17,824,268.93 Php22,687,877.22 Php81,384,917.92 Amortization of Input VAT on Capital Goods Exceeding 1Million: Input Tax on Capital Goods Exceeding 1Million Deferred from Previous Quarter 22,360,579.00 21,813,346.53 25,914,156.62 28,422,940.83 22,360,576.00 Input Tax on Capital Goods Exceeding 1Million Deferred for Succeeding Period (21,813,346.53) (25,914,156.62) (28,422,940.83) (29,730,975.59) (29,730,975.59) Amortization 547,232.47 (4,100,810.09) (2,508,784.21) (1,308,034.76) (7,370,399.59) INPUT VAT CLAIM PHP15,342,842.24 PHP21,976,351.91 PHP15,315,484.72 PHP21,379,84246 PHP74,014,518.33 97 ============== ============== ============== ============== ============== To determine the accuracy of petitioner's declarations, the ICPA Atty. Landicho examined petitioner's voluminous documents in support of its claim for refund. In his report, 98 Atty. Landicho stated that based on his verification/examination of the documents presented, input VAT amounting to Php65,914,010.83 was supported by valid documents, while Php25,638,851.57 should be disallowed due to reasons stated as follows: cSEDTC a. Without exceptions: DESCRIPTION INPUT VAT EXHIBITS Capital goods supported with original sales invoice or original ORs Php13,314,269.13 P-16.1 to P-16.694 Goods supported with original sales invoice or certified true copies of sales invoice 8,489,987.40 P-17.1 to P-17.4962 Importation supported with customs declaration 149,249.36 P-18.1 to P-18.507 Services supported with original ORs 37,072,343.95 P-19.1 to P-19.14481 Sub-total Php59,025,849.84 Amortization for the period October 2010 to September 2011 of capital goods exceeding 1M purchased in 2007 & allocable to zero-rated sales ( per audit ) Php771,252.30 - Amortization for the period October 2010 to September 2011 of capital goods exceeding 1M purchased in 2008 & allocable to zero-rated sales ( per audit ) 2,801,158.00 - Amortization for the period October 2010 to September 2011 of capital goods exceeding 1M purchased in 2009 & allocable to zero-rated sales ( per audit ) 2,104,844.50 - Amortization for the period October 2010 to September 2011 of capital goods exceeding 1M purchased in January to September 2010 & allocable to zero-rated sales (per audit) 1,210,906.19 - Sub-total Php6,888,160.99 TOTAL UNUTILIZED INPUT VAT WITHOUT EXCEPTIONS PHP65,914,010.83 =============== b. With exceptions: DESCRIPTION INPUT VAT EXHIBITS Capital goods purchased during October 2010 to September 2011 supported with sales invoice or ORs but dated out of period Php127,431.67 P-20.1 to P-20.58 Capital goods purchased during October 2010 to September 2011 supported with sales invoice or ORs but undated 154,017.85 P-20.59 to P-20.65 Capital goods purchased during October 2010 to September 2011 supported with original sales invoice in US dollars 97,828.23 P-20.66 to P-20.69 Capital goods purchased during October 2010 to September 2011 supported with original ORs but not in the name of the company 44,318.14 P-20.70 to P-20.78 Capital goods purchased during October 2010 to September 2011 supported with sales invoice and ORs but with error in computation, determined upon audit. (disallowable portion) 86,103.77 P-16.686 to P-16.694 Capital goods purchased during October 2010 to September 2011 supported with photocopy of sales invoice or photocopy of ORs 434,458.09 P-20.79 to P-20.104 Capital goods purchased during October 2010 to September 2011 but not supported with any sales invoice or OR 1,448,783.85 - Goods supported with original sales invoice but no BIR ATP 518,926.78 P-21.1 to P-21.33 Goods supported with original sales invoice dated out of period 557,781.18 P-21.34 to P-21.582 Goods supported with non-VAT document/document is not a qualified source of input VAT 36,122.65 P-21.583 to P-21.607 Goods supported with original sales invoice but not in the name of the company 124,698.21 P-21.608 to P-21.612 Goods supported with photocopy of sales invoice 117,624.48 P-21.613 to P-21.663 Goods not supported with any sales invoice, photocopy or original 219,963.29 - Goods supported with sales invoice but with error in computation, determined upon audit. (disallowable portion) 992.86 P-17-4909 to P17-4962 Importation supported with photocopy of customs declaration 22,811.00 P-22.1 to P-22.15 Importation supported with customs declaration not in the name of the company 24,578.00 P-22.16 to P-22.101 Importation supported with customs declaration but dated out of period 2,005.00 P-22.102 to P-22.111 Importation supported with customs declaration but with OR/proof of payment is stamped VAT exempt 2,564.98 P-22.112 to P-22.121 Importation supported with customs declaration but with error in computation, determined upon audit (disallowable portion) 1,049.00 P-18.499 to P-18.507 Importation not supported with customs declaration/ no supporting documents 4,342,619.13 - Services supported with original ORs but no BIR ATP 274,534.09 P-23.1 to P-23.238 Services supported with original ORs but not in the name of the company 258,897.89 P-23.239 to P-23.276 Services supported with non-VAT document/ document is not a qualified source of input VAT 588,594.58 P-23.277 to P-23.491 Services supported with original ORs but dated out- of-period 576,674.82 P-23.492 to P-23.722 Services pertaining to transactions twice taken up/ double entry 739.29 P-23.723 to P-23.725 Services supported with original ORs without any date indicated 81,189.92 P-23.726 to P-23.780 Services supported with photocopy of ORs 1,762,833.10 P-23.781 to P-23.2744 Services not supported with any OR, photocopy or original but with statement of account/billing statement 13,727,309.26 - Services supported with ORs but with error in computation, determined upon audit P-19.14451 to P- (disallowable portion) 3,400.46 19.14481 TOTAL DISALLOWED INPUT VAT PHP25,638,851.57 =============== The remaining and unaccounted input VAT for FY 2011 in the amount of Php17,424.85 shall be disallowed instantaneously; computed as follows: DETAILS AMOUNT Total Input VAT per Quarterly Returns Php84,682,126.26 Less: Input VAT per ICPA Findings Without Exceptions Php59,025,849.84 With Exceptions 25,638,851.57 Php84,664,701.41 UNACCOUNTED INPUT VAT PHP17,424.85 ============= Section 4.110-8 of RR No. 16-2005 provides for the required supporting documents that must be presented in order to substantiate the alleged input tax credits for the period of claim. Section 4.110-8 of RR No. 16-2005 reads, to wit: SEC. 4.110-8. Substantiation of Input Tax Credits. (a) Input taxes for the importation of goods or the domestic purchase of goods, properties or services is made in the course of trade or business, whether such input taxes shall be credited against zero-rated sale, non-zero-rated sales, or subjected to the 5% Final Withholding VAT, must be substantiated and supported by the following documents, and must be reported in the information returns required to be submitted to the Bureau: (1) For the importation of goods import entry or other equivalent document showing actual payment of VAT on the imported goods. (2) For the domestic purchase of goods and properties invoice showing the information required under Secs. 113 and 237 of the Tax Code. (3) For the purchase of real property public instrument i.e. , deed of absolute sale, deed of conditional sale, contract/agreement to sell, etc., together with VAT invoice issued by the seller. (4) For the purchase of services official receipt showing the information required under Secs. 113 and 237 of the Tax Code. Applying the afore-cited provision in the case at bar, in addition to the disallowances found by the ICPA, the Court further disallows input VAT in the amount of Php11,095,246.03 for failure to meet the substantiation requirements required thereunder, broken down as follows: DETAILS AMOUNT Disallowed input VAT on Purchases of Goods Other than Capital Goods 99 Php1,299,856.68 Disallowed input VAT on Importation 149,249.36 (Details in Annex 3 of ICPA Report) Disallowed input VAT on Purchases of Services 100 9,646,139.99 TOTAL PHP 11,095,246.03 =============== The input VAT on importation found by ICPA to be without exception in the amount of Php149,249.36 should be disallowed for being supported by irrelevant documents such as DHL Inbound Charges Invoice, BOC Official Receipts, Shipment Waybill, Commercial Invoices, DHL Official Receipts, Proforma Invoices, Import Invoices, Informal Import Declaration and Entry, Official Receipts and Debit Memo. 101 Although petitioner submitted BOC official receipts, it failed to submit the Import Entry Internal Revenue Declaration ("IEIRDs") to prove that VAT payments reflected on the official receipts are for the said importations, or that the VAT on importations were correctly paid. SDAaTC Moreover, the amortization of the input VAT on current purchases of capital goods exceeding Php1,000,000.00 in the amount of Php315,263.59 should be disallowed from petitioner's claim for violation of invoicing and accounting requirements for VAT registered persons pursuant to Section 113 of the 1997 NIRC . 102 In sum, petitioner's substantiated input VAT for the FY ending September 30, 2011 amounts to Php36,947,735.28, as computed below: DETAILS AMOUNT Claimed Input VAT Php74,014,521.32 Less: Disallowances Per ICPA Findings Php25,638,851.57 Per Court's Findings: Unaccounted Input VAT by the ICPA 17,424.85 Input VAT on Goods 1,299,856.68 Input VAT on Importation 149,249.36 Input VAT on Services 9,646,139.99 Input VAT on Amortization of Capital 315,263.59 Php37,066,786.04 Goods SUBSTANTIATED INPUT VAT PHP 36,947,735.28 ============== However, this substantiated input VAT cannot be claimed in full by petitioner. Pursuant to Section 112 (A) of the 1997 NIRC , if the taxpayer is engaged in both zero-rated/effectively zero-rated and taxable/exempt sale of goods of properties or services, the amount of creditable input tax due should be allocated proportionately on the basis of the volume of sales. In view of this, the substantiated input VAT will be allocated according to the proportion of the valid zero-rated sales of Php1,576,181,357.27 in relation to the total zero-rated sales of Php2,947,207,616.44; 103 thus only the amount of Php19,759,648.83 can be attributed to the valid zero-rated sales, computed in the following manner: DETAILS AMOUNT Substantiated Input VAT Php36,947,735.28 Multiplied by: Percentage of Valid Zero-Rated Sales Valid Zero-Rated Sales Total Zero-Rated Sales (Php1,576,181,357.27 Php2,947,207,616.44) 53.48% EXCESS INPUT VAT ATTRIBUTABLE TO VALID ZERO-RATED SALES PHP19,759,648.83 ============== 4. Such input taxes were not applied against any output VAT liability. Although the claimed input VAT was carried over by petitioner in the succeeding Quarterly VAT Returns from the first quarter of FY 2012 to the first quarter of FY 2013, 104 the same remained unutilized since it was deducted as "VAT Refund/TCC Claimed" 105 from petitioner's total available input tax in the first quarter of FY 2013. Consequently, the subject claim no longer formed part of the excess input VAT of Php61,530,563.70 106 as of the first quarter of FY 2013 which was carried over/applied to the succeeding second quarter of FY 2013. 107 In sum, petitioner has sufficiently proven its entitlement to a refund or issuance of a TCC in the reduced amount of Php19,759,648.83, representing unutilized input VAT attributed to zero-rated transactions for the 1st to 4th Quarters of FY 2011. WHEREFORE , premises considered, the instant Petition for Review is hereby PARTIALLY GRANTED . Respondent is ORDERED to refund or issue a tax credit certificate in favor of petitioner in the reduced amount of NINETEEN MILLION SEVEN HUNDRED FIFTY-NINE THOUSAND SIX HUNDRED FORTY-EIGHT AND 83/100 PESOS (Php19,759,648.83) representing petitioner's unutilized input VAT attributable to its zero-rated sales for the 1st to 4th Quarters of FY 2011. acEHCD SO ORDERED. (SGD.) LOVELL R. BAUTISTA Associate Justice Esperanza R. Fabon-Victorino, J. , concurs. Ma. Belen M. Ringpis-Liban, J. , is on leave. ANNEXES A to D List of Clients and Registered Name of Suppliers Footnotes 1. Records, CTA Case No. 8657, Vol. 1, Petition for Review , pp. 7-39, with annexes. 2. Section 7 (a) (2) 2 of RA No. 1125 reads as follows: Sec. 7. Jurisdiction. The Court of Tax Appeals shall exercise: (a) Exclusive appellate jurisdiction to review by appeal, as herein provided. xxx xxx xxx (2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relations thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period of action, in which case the inaction shall be deemed a denial; 3. An Act Creating the Court of Tax Appeals, as Amended. 4. An Act Expanding the Jurisdiction of the Court of Tax Appeals (CTA), Elevating its Rank to the Level of a Collegiate Court with Special Jurisdiction and Enlarging its Membership, Amending for the Purpose Certain Sections of Republic Act No. 1125, as amended, Otherwise Known as the Law Creating the Court of Tax Appeals, and for Other Purposes. 5. An Act Enlarging the Organizational Structure of the Court of Tax Appeals, Amending for the Purpose Certain Sections of the Law Creating the Court of Tax Appeals, and for Other Purposes. 6. Records, Vol. 1, Petition for Review , p. 18. 7. Id., Joint Stipulation of Facts and Issues ("JSFI"), pars. (I) (1), (I) (4) and (I) (5) , pp. 482-483. 8. Id., Vol. 2, Exhibit "P," Certificate of Registration and License , p. 1045. 9. Records, Vol. 2, Exhibit "P," Certificate of Registration and License , p. 1045. 10. Id., Exhibit "P-1," Certificate of Registration , p. 1058. 11. Id., Vol. 1, JSFI, par. III (A) (1) (o) , p. 484. 12. Id., Vol. 2 , pp. 1063-1064; see Exhibit "P-3," Summary of Zero Rated Sales for October to December 2010 , pp. 1081-1084. 13. Id. at 1065-1066, see Exhibit "P-3-a," Summary of Zero Rated Sales for January to March 2011 , pp. 1085-1088. 14. Id. at 1067-1068, see Exhibit "P-3-b," Summary of Zero Rated Sales for April to June 2011 , pp. 1089-1101. 15. Records, Vol. 2 , pp. 1069-1070, see Exhibit "P-3-c," Summary of Zero Rated Sales for July to September 2011 , pp. 1102-1113. 16. Id. at 1071-1072. 17. Id. at 1073-1074. 18. Id. at 1075-1076. 19. Id. at 1077-1078. 20. Id. at 1079-1080. 21. Records, Vol. 2, Exhibit "P-6," Administrative Claim for Refund dated December 21, 2012 , pp. 1244-1249. 22. Id., Exhibits "P-5," BIR Form No. 1914 , p. 1240. 23. Id., Exhibits "P-5-a," BIR Form No. 1914 , p. 1241. 24. Id., Exhibits "P-5-b," BIR Form No. 1914 , p. 1242. 25. Id., Exhibits "P-5-c," BIR Form No. 1914 , p. 1243. 26. Id., Vol. 1, Petition for Review , pp. 7-39, with annexes. 27. Records, Vol. 1 , p. 40. 28. Id. at 42-43. 29. Id. at 44. 30. Id. at 45-47. 31. Records, Vol. 1, Pre-Trial Brief for Petitioner , pp. 58-69. 32. Id., Respondent's Pre-Trial Brief , pp. 470-473. 33. Id., JSFI , pp. 482-491. 34. Id., Pre-Trial Order ("PTO") , pp. 493-498. 35. Id., Minutes of Hearing on February 3, 2014 , p. 508. 36. Id., Exhibit "P-30," Judicial Affidavit ("JA") of Ms. Carla Francesca Lim , p. 83. 37. Records, Vol. 1, Minutes of Hearing on April 7, 2014 , p. 516; Minutes of Hearing on May 5, 2014 , p. 520. 38. Id., Exhibit "P-15," JA of Atty. Raquel Dujunco , p. 71. 39. Id., Minutes of Hearing on June 2, 2014 , p. 521. 40. Id., Exhibit "P-15," JA of Ms. Anna Mae G. Santos , p. 97. 41. Id., Minutes of Hearing on June 19, 2014 , p. 535. 42. Id., Vol. 2, Minutes of Hearing on October 20, 2014 , p. 984. 43. Records, Vol. 1, Minutes of Hearing on June 2, 2014 , p. 521. 44. Records, Vol. 1, Oath of Commission , p. 536. 45. Id., Minutes of Hearing on June 19, 2014 , p. 535. 46. Id., Vol. 2, Independent Certified Public Accountant ("ICPA") Report , pp. 539-741. 47. Id., JA of Atty. Landicho , pp. 747-751. 48. Id., Exhibit "P-15," Amended ICPA Report , pp. 771-975. 49. Id., JA of Atty. Landicho , pp. 979-983. 50. Records, Vol. 2, petitioner's Formal Offer of Evidence , pp. 992-1044. 51. Id., Vol. 3 , pp. 1603-1615. 52. Records, Vol. 3 , pp. 1621-1631. 53. Id. at 1638-1639. 54. Id., Minutes of Hearing on May 19, 2015 , p. 1640. 55. Id. 56. Id. 57. Id. at 1642-1643. 58. Records, Vol. 3 , pp. 1645-1646. 59. Id. at 1647-1652. 60. Id. at 1653-1662. 61. Id. at 1670-1673. 62. Id., Minutes of Hearing on October 12, 2015 , p. 1676. 63. Records, Vol. 3, Minutes of Hearing on October 12, 2015 , p. 1676. 64. Records, Vol. 3, Minutes of Hearing on December 1, 2015 , p. 1679. 65. Id. at 1681. 66. Id. at 1682-1683. 67. Id. at 1684-1685. 68. Id. at 1712. 69. Id., petitioner's Memorandum , pp. 1686-1710. 70. Records, Vol. 3 , p. 1713. 71. Id. at 1715. 72. Id., Vol. 1, PTO , pp. 494-495. 73. Records, Vol. 3, petitioner's Memorandum , pp. 1686-1709. 74. Id., Vol. 1, Answer , pp. 45-47. 75. Underscoring ours. 76. Consolidated Value-Added Tax Regulations of 2005, effective November 1, 2005. 77. Underscoring ours. 78. May 26, 2013 fell on a Sunday. 79. G.R. No. 187485, February 12, 2013, 690 SCRA 336. 80. Commissioner of Internal Revenue v. Team Sual Corporation , G.R. No. 205055, July 18, 2014, 730 SCRA 242. 81. Underscoring ours. 82. G.R. No. 153205, January 22, 2007, 515 SCRA 124. 83. Records, Vol. 1, JSFI par. 2 , p. 482. 84. Records, Petitioner's FOE, Exhibits "P-30-1" to "P-30-771." 85. Id., Exhibits "P-31-1" to "P-31-2224." 86. Id., Exhibits "P-32-1" to "P-32-505." 87. Id., Vol. 2, Exhibits "P-8" to "P-8-k," pp. 1255-1266. 88. Id., Petitioner's FOE, Box No. 9. 89. Id. 90. See Annex A of this Decision. 91. Records, Petitioner's FOE, Exhibits "P-25.1" lines 21D and 21F, "P-25.2" lines 21D and 21F, "P-25.3" lines 21D, 21F and 21H, "P-25.4" lines 21D, 21F, 21H and 21J. 92. Id., Exhibits "P-16.1" to "P-16.694," "P-17.1" to "P-17.4962," "P-18.1" to "P-18.507," "P-19.1" to "P-19.14481" "P-20.1" to "P-20.104," "P-21.1" to "P-21.663," "P-22.1" to "P-22.121," "P-23.1" to "P-23.2744," "P-24.1" to "P-24.777." 93. Records, Petitioner's FOE, Exhibit "P-25.1." 94. Id., Exhibit "P-25.2." 95. Id., Exhibit "P-25.3." 96. Id., Exhibit "P-25.4." 97. Rounding off difference of .01. 98. Records, Vol. 2, Amended ICPA Report, Exhibit "P-15," pp. 774-975. 99. See Annex B of this Decision. 100. See Annex C of this Decision. 101. Records, Petitioner's FOE, Exhibits "P-18.1" to "P-18-498." 102. See Annex D of this Decision. 103. Php686,536,670.28 + Php711,771,453.85 + Php765,311,412.34 + Php783,588,079.97 ( Exhibits "P-25.1," line 17; "P-25.2," line 17; "P-25.3," line 17 and "P-25.4," line 17). 104. Records, Petitioner's FOE, Exhibit "P-27.1." 105. Id., line 23D. 106. Id., line 29. 107. Id., Exhibit "P-27.2," line 20A.