Rules and Regulations Implementing Republic Act No. 9174, An Act Amending the Balikbayan Program (RA 6768)

SECOND DIVISION [C.T.A. CASE NO. 7718. January 8, 2010.] GST PHILIPPINES, INC. , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . DECISION CASTAEDA, JR. , J p : This case involves a claim for issuance of tax credit certificate in the amount of P18,192,151.91, allegedly representing unutilized input value-added tax (VAT) attributable to zero-rated sales, covering the periods of October 1, 2005 to June 30, 2006 and October 1, 2006 to September 30, 2007. IASCTD Petitioner GST Philippines, Inc. is a corporation duly organized and existing under Philippine law, with principal office at 2nd Floor ALPAP I Building, 140 Leviste Street, Salcedo Village, Makati City. 1 It is a duly registered VAT enterprise pursuant to Section 107 of the National Internal Revenue Code (NIRC) of 1997, with Tax Identification Number 000-155-645-000. 2 It is engaged, among others, in the manufacture and sale of grinding balls. 3 Respondent Commissioner of Internal Revenue is a public officer duly appointed by the President of the Philippines and is the head of the Bureau of Internal Revenue (BIR), the government agency officially responsible for the assessment and collection of all national and internal revenue taxes. He is vested with the power and authority to refund any internal revenue tax 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. For the period beginning from the fourth quarter of 2005 to the third quarter of 2007, petitioner filed with the BIR its Quarterly VAT Returns (BIR Form No. 2550Q), including the amendments thereto on the following dates: Period Original Return Amended Return Covered Filed On Exhibit Filed On Exhibit 4th Quarter-2005 Jan. 19, 2006, 12:08 pm G-2 Jan. 19, 2006, 3:35 pm H-2 1st Quarter-2006 April 21, 2006, 16:53 I-2 April 21, 2006, 17:58 (1st) J-2 April 26, 2006 (2nd) K-2 May 30, 2006 (3rd) L-2 2nd Quarter-2006 July 20, 2006, 14:54 M-2 July 20, 2006, 15:07 N-2 3rd Quarter-2006 October 19, 2006 O-2 4th Quarter-2006 January 19, 2007 P-2 January 25, 2007 (1st) Q-2 January 26, 2007 (2nd) R-2 1st Quarter-2007 April 17, 2007 S-2 November 14, 2007 T-2 2nd Quarter-2007 July 20, 2007 U-2 November 15, 2007 V-2 3rd Quarter-2007 October 9, 2007 W-2 October 15, 2007 X-2 November 15, 2007 Y-2 In its final amended Quarterly VAT Returns covering the fourth quarter of 2005 to the second quarter of 2006 and fourth quarter of 2006 to the third quarter of 2007, petitioner reflected the following zero-rated sales in the amount of P205,884,108.30, taxable sales in the amount of P3,533,282.50, with the corresponding output VAT of P423,993.90 and unutilized input VAT in the amount of P18,192,151.91; broken down as follows: SAHIDc Exhibit Period Covered Zero-rated Sales Taxable Sales Output VAT Year Quarter (a) (b) (c) H 2005 4th Qtr P57,047,930.17 P - P - L 2006 1st Qtr 61,115,610.35 840,509.84 100,861.18 N 2nd Qtr 58,422,188.00 - - R 4th Qtr - 55,000.00 6,600.00 T 2007 1st Qtr - 630,100.00 75,612.00 V 2nd Qtr - 1,962,964.33 235,555.72 Y 3rd Qtr 29,298,379.78 44,708.33 5,365.00 Total P205,884,108.30 P3,533,282.50 P423,993.90 ============= =========== ========== Input VAT on Domestic Purchases of Goods other VAT Period than Capital Payment Excess Input Covered Goods Services Made VAT (d) (e) (f) (g)=(d)+(e)+(f)-(c) 4th Qtr-2005 P5,222.87 P - P - P5,222.87 1st Qtr-2006 8,720,409.75 99,249.01 30,258.36 8,749,055.94 2nd Qtr-2006 436,897.08 469,355.36 - 906,252.44 4th Qtr-2006 7,653,888.08 277,545.06 - 7,924,833.14 1st Qtr-2007 447,106.72 161,603.39 - 533,098.11 2nd Qtr-2007 478.93 148,542.57 - (86,534.22) 3rd Qtr-2007 61,681.71 103,906.92 - 160,223.63 Total P17,325,685.14 P1,260,202.31 P30,258.36 P18,192,151.91 ============ =========== ========= ============ Petitioner avers that the reported zero-rated sales in the amount of P205,884,108.30 was derived from its domestic sales of goods to Philex Mining Corporation (PMC), Philippine Associated Smelting and Refining Corporation (PASAR) and Rapu-Rapu Processing, Inc. (hereinafter referred to as "Rapu-Rapu"), as well as from its export sales to CSR Building Materials (hereinafter referred to as "CSR"), GSI Lucchini SPA (hereinafter referred to as "GSI"), and Boroo Gold Mining Company, Ltd. (hereinafter referred to as "Boroo"). PMC is registered with the Board of Investments (BOI) pursuant to Executive Order No. 226, otherwise known as the "Omnibus Investments Code of 1987", whose manufactured products are one hundred percent (100%) exported to foreign countries. 4 PASAR and Rapu-Rapu are both registered with the Philippine Economic Zone Authority (PEZA). 5 CSR, GSI, and Boroo are companies allegedly based in Malaysia, Italy, and Mongolia, respectively. Petitioner's sales to the aforesaid entities are purportedly VAT zero-rated pursuant to Revenue Memorandum Order (RMO) No. 9-00, Revenue Memorandum Circular (RMC) No. 74-99, and Section 106 (A) (2) (a) (1) and (c) of the NIRC of 1997, as amended. As a result, petitioner allegedly was unable to utilize the input VAT which it incurred/paid on its domestic purchases of taxable goods and services from the fourth quarter of 2005 to the second quarter of 2006 and from the fourth quarter of 2006 to the third quarter of 2007, in the total amount of P18,192,151.91. Relying on Section 112 (A) of the NIRC of 1997, as amended, on September 19, 2006, petitioner filed with the BIR a letter together with duly accomplished BIR Form No. 1914 (Application for Tax Credits/Refunds), 6 requesting the refund of the amount of P9,660,531.25, representing unutilized input VAT for the period covering October 1, 2005 to June 30, 2006. Likewise, on November 23, 2007, petitioner simultaneously filed with the BIR two letters with the corresponding duly accomplished BIR Forms No. 1914, 7 asking refund of the amounts of P7,924,833.14 and P606,787.52, representing unutilized input VAT for the periods of October 1, 2006 to December 31, 2006 and January 1, 2007 to September 30, 2007, respectively. aSHAIC Due to respondent's inaction on its claims totaling P18,192,151.91, petitioner filed before this Court a Petition for Review on January 11, 2008. In his Answer filed through registered mail on February 21, 2008, respondent raised the following Special and Affirmative Defenses: "4. Granting arguendo that Petitioner filed a claim for refund, the same is subject to investigation by the Bureau of Internal Revenue. 5. Petitioner failed to demonstrate that the alleged tax sought for refund or tax credit has been or erroneously or illegally collected in violation of the tax laws relied upon by the petitioner. 6. Well-settled is the rule that the interpretation placed upon a statute by executive officers, whose duty is to enforce it, is entitled to great respect by the courts. Nevertheless, such interpretation is not conclusive and will be ignored if judicially found to be erroneous. Thus, the courts will not countenance administrative issuances and rulings that override, instead of remaining consistent and in harmony with the law which they seek to apply and implement (Philippine Bank of Communications v. Commissioner of Internal Revenue , G.R. No. 112024, 302 SCRA 241, January 28, 1999). 7. Taxes paid and collected are presumed to be made in accordance with the laws and regulations, hence, not creditable or refundable. 8. It is incumbent upon the Petitioner to show that it has complied with the provision of Sections 106 (2) (a) (1) & (c) and 112 (A) in relation to Section 229 of the 1997 Tax Code, as amended. 9. In an action for tax credit or refund, the burden is upon the taxpayer to prove that he is entitled thereto, and failure to discharge the said burden is fatal to the claim (Emmanuel & Zenaida Aguilar v. Commissioner , CA-GR No. Sp. 16432, March 30, 1990 cited in Aban, Law of Basic Taxation in the Philippines, 1st Edition, p. 206). 10. Claims for refund are construed strictly against the claimant, the same partake the nature of exemption from taxation ( Commissioner of Internal Revenue vs. Ledesma , 31 SCRA 95) and, as such, they are looked upon with disfavor ( Western Minolco Corp. vs. Commissioner of Internal Revenue , 124 SCRA 121)." During trial, petitioner presented documentary and testimonial evidence; while respondent was declared to have waived his right to present evidence due to his counsel's failure to appear despite notice. 8 ACIEaH The case was submitted for decision on February 6, 2009, after petitioner filed its Memorandum, sans the Memorandum of respondent. The parties submitted the following issues 9 for this Court's resolution: "1. Whether or not Petitioner has excess input VAT in the amount of P18,192,151.91 for the period from October 1, 2005 to September 30, 2007. 2. Whether or not Petitioner's excess input VAT are attributable to its purchases that are directly related to its zero-rated revenue for the same period. 3. Whether or not Petitioner's excess input VAT were not applied to any of petitioner's output VAT liability during the same period or the succeeding quarters of 2007. 4. Whether or not Petitioner's claim for refund was filed within the period prescribed by law. 5. Whether or not Petitioner, based on the facts and applicable laws, is entitled to a refund of its excess and unapplied input VAT payments for the period from October 1, 2005 to September 30, 2007." Pertinent to the proper resolution of this case is Section 112 (A) of the NIRC of 1997, as amended, which states as follows: "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 sales and also in taxable or exempt sale of goods or 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." SAcCIH Based on the foregoing, in order to be entitled to a refund or tax credit of unutilized input VAT, the following requisites must be satisfied: 1. there must be zero-rated or effectively zero-rated sales; 2. that input taxes were incurred or paid; 3. that such input taxes are attributable to zero-rated or effectively zero-rated sales; 4. that the input taxes were not applied against any output VAT liability; and 5. that the claim for refund was filed within the two-year prescriptive period. The Court finds it appropriate to first determine the timelines of the filing of the instant claim. The reckoning of the two-year prescriptive period for the filing of a claim for input VAT refund under Section 112 (A) of the NIRC of 1997, as amended, starts from the close of the taxable quarter when the relevant sales were made pertaining to input VAT regardless of whether said tax was paid or not. 10 Counting from December 31, 2005, March 31, 2006, June 30, 2006, December 31, 2006, March 31, 2007, June 30, 2007, and September 30, 2007, the close of each taxable quarter covering the subject periods of claim (October 1, 2005 to June 30, 2006 and October 1, 2006 to September 30, 2007) petitioner had until December 31, 2007, at the earliest, within which to file its claim both in the administrative and judicial levels. Below are the dates pertinent to the present case: Period Covered Close of End of Date of Filing of Excess Taxable Two (2) Administrative Judicial Input VAT Year Quarter Quarter years Claim Claim 2005 4th Qtr 12/31/05 12/31/07 09/19/06 11 01/11/08 P5,222.87 1st Qtr 03/31/06 03/31/08 8,749,055.94 2006 2nd Qtr 06/30/06 06/30/08 906,252.44 4th Qtr 12/31/06 12/31/08 11/23/07 12 01/11/08 7,924,833.14 1st Qtr 03/31/07 03/31/09 533,098.11 2007 2nd Qtr 06/30/07 06/30/09 11/23/07 13 01/11/08 (86,534.22) 3rd Qtr 09/30/07 09/30/09 160,223.63 Total P18,192,151.91 ============ The foregoing table shows that while petitioner's claim for the fourth quarter of 2005 was timely filed in the administrative level on September 19, 2006, however, the same was filed out of time before this Court on January 11, 2008. Thus, petitioner is barred from claiming refund of the input taxes for the fourth quarter of 2005 in the amount of P5,222.87 due to prescription. The Court shall now proceed to evaluate petitioner's remaining input VAT claim in the amount of P18,181,706.17, covering the first, second, and fourth quarters of 2006 and the first three quarters of 2007; which was filed within the two-year prescriptive period. Anent the first requisite, petitioner's Quarterly VAT Returns for the fourth quarter of 2006 14 and first two quarters of 2007 15 showed that it had no zero-rated sales for the said quarters. However, in its Quarterly VAT Returns for the first and second quarters of 2006 and third quarter of 2007, petitioner reflected zero-rated sales in the respective amounts of P61,115,610.35, 16 P58,422,188.00, 17 and P29,298,379.78, 18 or in the sum of P148,836,178.13; which consisted of domestic sales in the amount of P100,134,970.00 and export sales in the amount of P48,701,208.13, detailed as follows: Period ZERO-RATED SALES Covered Exh. Domestic Exh. Export Total 2006 1st Qtr AAA P41,094,542.00 YY-1 P20,021,068.35 P61,115,610.35 2nd Qtr BBB 58,422,188.00 YY-1 - 58,422,188.00 Subtotal P99,516,730.00 P20,021,068.35 P119,537,798.35 2007 3rd Qtr DDD P618,240.00 YY-1 P28,680,139.78 P29,298,379.78 Subtotal P618,240.00 P28,680,139.78 P29,298,379.78 TOTAL P100,134,970.00 P48,701,208.13 P148,836,178.13 ============= ============= ============= In order to substantiate its export sales of P48,701,208.13 and the foreign currency proceeds therefrom, petitioner presented various sales invoices, 19 bills of lading, 20 packing list, 21 bank credit advices/memos, 22 and judicial affidavits of Ms. Maria Lina P. Grecia, 23 petitioner's Budget and Accounting Officer and of Mr. Roque S. Fado, 24 the Court-commissioned Independent Certified Public Accountant (CPA). A perusal of these documents proved that petitioner shipped and sold its products abroad to the following entities: (1) CSR Building Materials SDN BHD in Malaysia; (2) Boroo Gold Co. Ltd. in Mongolia; (3) UAC Berhad in Malaysia; and (4) GSI Lucchini Spa in Italy. In consideration thereof, petitioner received foreign currency payments, which were inwardly remitted in accordance with the BSP rules and regulations. These export sales fall within those transactions referred to as subject to zero percent (0%) VAT under Section 106 (A) (2) (a) (1) of the NIRC of 1997, as amended, which states: "SEC. 106. Value-added Tax on Sale of Goods or Properties. (A) Rate and Base of Tax. There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, value-added tax equivalent to ten percent (10%) of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor. xxx xxx xxx (2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: (a) Export Sales. The term 'export sales' means: xxx xxx xxx (1) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported and paid for in acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP)." DTcACa As to the domestic sales of P100,134,970.00, records show that the same pertained to sales made by petitioner to PMC, a VAT taxpayer 25 and BOI-registered 26 entity whose products are 100% exported; as well as to PASAR 27 and Rapu-Rapu, 28 both PEZA-registered entities. Sales to PMC are covered by VAT invoices and official receipts 29 duly stamped with the word "zero-rated", the name of PMC, its corresponding BOI registry number, and registration date; while sales to PASAR and Rapu-Rapu are supported by VAT invoices and official receipts duly stamped with the word "zero-rated". 30 Petitioner's domestic sales to the afore-mentioned BOI and PEZA-registered entities qualify for VAT zero-rating, pursuant to Section 106 (A) (2) (a) (5) of the NIRC of 1997, as amended, which provides: "SEC. 106. Value-added Tax on Sale of Goods or Properties. (A) Rate and Base of Tax. There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, value-added tax equivalent to ten percent (10%) of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor. xxx xxx xxx (2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: (a) Export Sales. The term 'export sales' means: xxx xxx xxx (5) Those considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987, and other special laws." Sales by a VAT taxpayer from the Customs Territory to a PEZA-registered entity are considered export sales under Executive Order No. 226, 31 the relevant portions of which read as follows. "ARTICLE 23. 'Export Sales' shall mean the Philippine port F.O.B. value, determined from invoices, bills of lading, inward letters of credit, landing certificates, and other commercial documents, of export products exported directly by a registered export producer or the net selling price of export product sold by a registered export producer to another export producer, or to an export trader that subsequently exports the same: Provided, That sales of export products to another producer or to an export trader shall only be deemed export sales when actually exported by the latter, as evidenced by landing certificates or similar commercial documents: Provided, further, That without actual exportation the following shall be considered constructively exported for purposes of this provision: (1) sales to bonded manufacturing warehouses of export-oriented manufacturers; (2) sales to export processing zones ; . . ." (Emphasis supplied) EHaCID "ARTICLE 77. Tax Treatment of Merchandise in the Zone. (1) Except as otherwise provided in this Code, foreign and domestic merchandise, raw materials, supplies, articles, equipment, machineries, spare parts and wares of every description, except those prohibited by law, brought into the zone to be sold, stored, broken up, repacked, assembled, installed, sorted, cleaned, graded, or otherwise processed, manipulated, manufactured, mixed with foreign or domestic merchandise whether directly or indirectly related in such activity, shall not be subject to customs and internal revenue laws and regulations nor to local tax ordinances, the provisions of law to the contrary notwithstanding. (2) Merchandise purchased by a registered zone enterprise from the customs territory and subsequently brought into the zone, shall be considered as export sales and the exported thereof shall be entitled to the benefits allowed by law for such transaction. " (Emphasis supplied) Moreover, in the case of Commissioner of Internal Revenue vs. Toshiba Information Equipment (Phils.), Inc. , 32 the Honorable Supreme Court held that: "Sales of goods, properties and services by a VAT-registered supplier from the Customs Territory to an ECOZONE enterprise shall be treated as export sales. If such sales are made by a VAT-registered supplier, they shall be subject to VAT at zero percent (0%). In zero-rated transactions, the VAT-registered supplier shall not pass on any output VAT to the ECOZONE enterprise, and at the same time, shall be entitled to claim tax credit/refund of its input VAT attributable to such sales. Zero-rating of export sales primarily intends to benefit the exporter ( i.e. , the supplier from the Customs Territory), who is directly and legally liable for the VAT, making it internationally competitive by allowing it to credit/refund the input VAT attributable to its export sales." The VAT zero-rating of sales made by a VAT taxpayer, like herein petitioner, to a PEZA-registered entity was further clarified in Revenue Memorandum Circular No. 74-99, the pertinent provisions of which read as follows: aDIHTE "SECTION 3. Tax Treatment of Sales Made By a VAT Registered Supplier from the Customs Territory, to a PEZA Registered Enterprise. (1) If the Buyer is a PEZA registered enterprise which is subject to the 5% special tax regime, in lieu of all taxes, except real property tax, pursuant to R.A. No. 7916, as amended: (a) Sale of goods (i.e., merchandise). This shall be treated as indirect export hence, considered subject to zero percent (0%) VAT, pursuant to Sec. 106(A)(2)(a)(5), NIRC and Sec. 23 of R.A. No. 7916, in relation to ART. 77(2) of the Omnibus Investments Code. xxx xxx xxx (2) If Buyer is a PEZA registered enterprise which is not embraced by the 5% special tax regime, hence, subject to taxes under the NIRC, e.g. , Service Establishments which are subject to taxes under the NIRC rather than the 5% special tax regime: (a) Sale of goods (i.e., merchandise). This shall be treated as indirect export hence, considered subject to zero percent (0%) VAT, pursuant to Sec. 106(A)(2)(a)(5), NIRC and Sec. 23 of R.A. No. 7916, in relation to ART. 77(2) of the Omnibus Investments Code. xxx xxx xxx (3) In the final analysis, any sale of goods, property or services made by a VAT registered supplier from the Customs Territory to any registered enterprise operating in the ecozone, regardless of the class or type of the latter's PEZA registration, is actually qualified and thus legally entitled to the zero percent (0%) VAT. Accordingly, all sales of goods or property to such enterprise made by a VAT registered supplier from the Customs Territory shall be treated subject to 0% VAT, pursuant to Sec. 106(A)(2)(a)(5), NIRC, in relation to Art. 77(2) of the Omnibus Investments Code, while all sales of services to the said enterprises, made by VAT registered suppliers from the Customs Territory, shall be treated effectively subject to 0% VAT, pursuant to Section 108(B)(3), NIRC in relation to the provisions of R.A. 7916 and the 'Cross Border Doctrine' of the VAT system. aAEIHC This Circular shall serve as a sufficient basis to entitle such supplier of goods, property or services to the benefit of the zero percent (0%) VAT for sales made to the aforementioned ECOZONE enterprises and shall serve as sufficient compliance to the requirement for prior approval of zero-rating imposed by Revenue Regulations No. 7-95 effective as of the date of issuance of this Circular." Likewise, in Revenue Memorandum Order No. 9-00 dated February 2, 2000, the BIR enumerated the requirements for the zero-rating of sales by a VAT taxpayer to a BOI-registered entity, to wit: "SECTION 3. Sales of goods, properties or services made by a VAT-registered supplier to a BOI-registered exporter shall be accorded automatic zero-rating , i.e., without necessity of applying for and securing approval of the application for zero-rating as provided in Revenue Regulations No. 7-95, subject to the following conditions: (1) The supplier must be VAT-registered; (2) The BOI-registered buyer must likewise be VAT-registered; (3) The buyer must be a BOI-registered manufacturer/producer whose products are 100% exported. For this purpose a Certification to this effect must be issued by the Board of Investments (BOI) and which certification shall be good for one year unless subsequently re-issued by the BOI; (4) The BOI-registered buyer shall furnish each of its suppliers with a copy of the aforementioned BOI Certification which shall serve as authority for the supplier to avail of the benefits of zero-rating for its sales to said BOI-registered buyers; and (5) The VAT-registered supplier shall issue for each sale to BOI-registered manufacturer/exporters a duly registered VAT invoice with the words 'zero-rated' stamped thereon in compliance with Sec. 4.108-1(5) of RR 7-95. The supplier must likewise indicate in the VAT invoice the name and BOI-registry number of the buyer." (Emphasis supplied) CHIEDS After resolving that petitioner's sales in the amount of P148,836,178.13 qualifies for VAT zero-rating, the Court will now determine the amount of unutilized input VAT attributable thereto. Petitioner presented its Summary List of Purchases and the related suppliers' invoices and official receipts 33 in support of the P18,580,664.58 excess input VAT, reflected in its Quarterly VAT Returns for the first, second, and fourth quarters of 2006 and the first three quarters of 2007 as follows: Exhibit Period Covered Input VAT 2006 L 1st Qtr P8,819,658.76 N 2nd Qtr 906,252.44 R 4th Qtr 7,931,433.14 Subtotal P17,657,344.34 2007 T 1st Qtr P608,710.11 V 2nd Qtr 149,021.50 Y 3rd Qtr 165,588.63 Subtotal P923,320.24 TOTAL P18,580,664.58 ============ Since no amount of zero-rated sales/receipts was reported in petitioner's VAT returns for the fourth quarter of 2006, first, and second quarters of 2007, the declared input VAT for the said quarters in the amounts of P7,931,433.14, P608,710.11, and P149,021.50, respectively, totaling P8,689,164.75, cannot be the subject of a claim for refund under Section 112 (A) of the NIRC of 1997, as amended. It is clear from Section 112 (A) of the NIRC of 1997, as amended, that the refund/tax credit of input tax is premised on the existence of zero-rated or effectively zero-rated sales. With reference to the reported input VAT for the first and second quarters of 2006 and the third quarter of 2007 in the amounts of P8,819,658.76, P906,252.44, and P165,588.63, respectively, totaling P9,891,499.83, this Court, upon verification of the Independent CPA Report 34 and petitioner's supporting documents, finds that the following input taxes in the amount of P313,808.40 should be disallowed for failure to meet the substantiation requirements under Section 113 (A) of the NIRC of 1997, as amended, in relation to Section 4.110-8 of Revenue Regulations No. 14-05, as amended by Section 4.110-7 of Revenue Regulations No. 16-05: Disallowed Supplier Exhibit Input VAT 1.) Input taxes erroneously computed 1st Qtr-2006 Supercast Foundry & Machinery Per Claim P2,835.00 Per Audit - QQ-56/57 P2,835.00 Cathay Pacific Steel Corp. Per Claim P44,312.18 Per Audit 41,360.15 QQ-91 2,952.03 2.) Input taxes claimed on purchases of services without official receipts 2nd Qtr-2006 Cathay Pacific Steel Corp. RR-144 128,662.80 Welltech Service Corp. RR-128 360.64 Globe Telecom RR-200 318.77 3.) Input taxes claimed but not separately indicated on invoices and/or official receipts 1st Qtr-2006 Uptown Industrial Sales, Inc. QQ-2 397.67 Supreme Engine Rebuilding QQ-13 6,419.09 Allied Distributor QQ-31 545.45 Tradepoints, Inc. QQ-93 1,000.00 2nd Qtr-2006 Veterans Security Agency, Inc. RR-116 2,400.69 Veterans Security Agency, Inc. RR-137 2,250.64 Veterans Security Agency, Inc. RR-178 2,250.64 Veterans Security Agency, Inc. RR-184 2,400.65 Veterans Security Agency, Inc. RR-202 2,450.70 Veterans Security Agency, Inc. RR-153 2,250.64 Alexander Forbes Phil. Risk RR-147/149/151 5,394.29 Alexander Forbes Phil. Risk RR-152/162 3,358.97 Alexander Forbes Phil. Risk RR-187 19,942.20 Cathay Pacific Steel Corp. RR-119 53,174.61 Supreme Engine Rebuilding RR-134 4,451.75 U-bix Corporation RR-146 530.33 Tourworld Corporation RR-165 22,211.25 Tourworld Corporation RR-167 21,243.83 Roque S. Fado, CPA RR-186 2,400.00 Migi Mystar Industrial Gases RR-40 618.21 Jem Gas Trading RR-89 618.21 3rd Qtr-2007 ABC Oxygen Marketing WW-1 744.64 Dan Darryl Phil. Inc. WW-3 546.43 Nimfa Drum Dealer WW-9 1,299.11 Veterans Security Agency, Inc. WW-13 2,250.64 Veterans Security Agency, Inc. WW-33/35 4,651.30 Veterans Security Agency, Inc. WW-47/51 4,651.33 Sycip Salazar Hernandez & Gatmaitan WW-32 720.00 Sycip Salazar Hernandez & Gatmaitan WW-40 720.00 VIL Printing Press WW-42 417.32 Direct Electrix Equip't Corp. WW-44 578.57 Sycip Salazar Hernandez & Gatmaitan WW-56 5,070.00 Sycip Salazar Hernandez & Gatmaitan WW-58 720.00 Total P313,808.40 =========== Out of petitioner's reported input VAT for the first and second quarters of 2006 and the third quarter of 2007 in the amount of P9,891,499.83, only the input VAT of P9,577,691.43 was properly substantiated by VAT invoices or official receipts, as computed below: Input VAT per Return 1st Quarter-2006 P8,749,055.94 2nd Quarter-2006 906,252.44 3rd Quarter-2007 160,223.63 P9,891,499.83 Less: Disallowances 313,808.40 Substantiated Input VAT P9,577,691.43 ============ Regarding the issue of whether or not the said input VAT was applied against any output VAT and/or carried over to the succeeding taxable quarters, petitioner's Quarterly VAT Returns for the first and second quarters of 2006 and the third quarter of 2007 showed that petitioner had taxable sales in the amount of P885,218.17 for the said period, with the related output tax liability in the amount of P106,226.18, broken down as follows: Exhibit Year Quarter Taxable Sales Output VAT L 2006 1st Qtr P840,509.84 P100,861.18 N 2006 2nd Qtr - - Y 2007 3rd Qtr 44,708.33 5,365.00 Total P885,218.17 P106,226.18 ========== ========== A portion of the substantiated input VAT of P9,577,691.43 shall be applied against petitioner's reported output VAT liability of P106,226.18. Hence, only the remaining input VAT of P9,471,465.25 can be attributed to the P148,836,178.13 zero-rated sales (domestic and exports) declared by petitioner for the first and second quarters of 2006 and third quarter of 2007, as computed below: Substantiated input VAT P9,577,691.43 Less: Output VAT 106,226.18 Excess Input VAT (1st & 2nd Qtrs-2006 & 3rd Qtr-2007) P9,471,465.25 =========== It was established that petitioner deducted the claimed excess input VAT for the first and second quarters of 2006 and the third quarter of 2007 as "VAT Refund/TCC Claimed" in its Quarterly VAT Returns for the third quarter of 2006 35 and the fourth quarter of 2007. 36 Thus, no amount of the claimed excess input VAT was carried over or applied against any output tax in the succeeding taxable quarters. In sum, the Court finds petitioner to have sufficiently proven its entitlement to the issuance of tax credit certificate in the amount of P9,471,465.25, representing unutilized input VAT attributable to zero-rated sales for the first and second quarters of 2006 and the third quarter of 2007. WHEREFORE , premises considered, the instant Petition for Review is hereby PARTIALLY GRANTED . Accordingly, respondent Commissioner of Internal Revenue is hereby ORDERED TO ISSUE A TAX CREDIT CERTIFICATE in the amount of NINE MILLION FOUR HUNDRED SEVENTY ONE THOUSAND FOUR HUNDRED SIXTY FIVE PESOS AND 25/100 (P9,471,465.25) in favor of petitioner, representing unutilized excess input taxes attributable to zero-rated sales covering the first and second quarters of 2006 and the third quarter of 2007. SAcCIH SO ORDERED . (SGD.) JUANITO C. CASTAEDA, JR. Associate Justice Erlinda P. Uy and Olga Palanca-Enriquez, JJ., concur. Footnotes 1. Par. 1, Stipulated Facts, Joint Stipulation of Facts and Issues for Trial (JSFIT), docket, p. 183. 2. Exhibit "B". 3. Exhibits "A-2" and "NN", page 2. 4. Par. 3, Stipulated Facts, JSFI, docket, p. 183. 5. Par. 4, Stipulated Facts, JSFI, docket, p. 183. 6. Exhibits "HH" and "II". 7. Exhibits "JJ", "KK", "LL", and "MM". 8. Docket, pp. 154 and 156. 9. Issues for Trial, JSFIT, docket, p. 184. 10. Commissioner of Internal Revenue vs. Mirant Pagbilao Corporation (Formerly Southern Energy Quezon, Inc.) G.R. No. 172129, September 12, 2008. 11. Exhibits "HH" and "II". 12. Exhibits "JJ" and "KK". 13. Exhibits "LL" and "MM". 14. Exhibit "R", line 17. 15. Exhibits "T" and "V", line 17. 16. Exhibit "L", line 17. 17. Exhibit "N", line 17. 18. Exhibit "Y", line 17. 19. Exhibits "YY-6", "YY-16", and "YY-20". 20. Exhibits "YY-7", "YY-17", and "YY-21". 21. Exhibits "YY-8", "YY-9", "YY-18", and "YY-22". 22. Exhibits "YY-10", "YY-11", "YY-19", and "YY-23". 23. Exhibits "NN" and "OO". 24. Exhibit "EEE". 25. Exhibit "CC". 26. Exhibits "AA" and "BB". 27. Exhibits "DD", "EE", and "EE-1". 28. Exhibits "FF" and "GG". 29. Exhibits "AAA" to "AAA-37", "AAA-40" to "AAA-65", "BBB" to "BBB-78", "BBB-81" to "BBB-94", and "CCC" to "CCC-56". 30. Exhibits "AAA-38" to "AAA-39", "DDD" to "DDD-4", and "BBB-79" to "BBB-80". 31. Omnibus Investments Code of 1987. 32. G.R. No. 150154, promulgated on August 9, 2005. 33. Exhibits "QQ" to "QQ-107", "RR" to "RR-207", "SS" to "SS-111", "TT" to "TT-85", "UU'' to "UU-134", "VV" to "VV-80", and "WW" to "WW-58". 34. Exhibit "FFF". 35. Exhibit "O", line 23D. 36. Exhibit "Z", line 23D.