REPUBLIC OF THE PHILIPPINES

CO URT OF TAX APPEALS

QUEZON CITY

SECOND DIVISION

PILIPINAS KYOHRITSU CTA CASE NO . 9757

INC.,
Petitioner,
Members:

CASTANEDA, JR., Chairperson, and

-versus - BACORRO-VILLENA, fl.

COMMISSIONER OF
Promulgated:
INTERNAL REVENUE,
Respondent. JUL ~ 6 2021

X - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -1- - X

DECISION

BACORRO-VILLENA, L.:

At bar is a Petition for Review filed by Pilipinas Kyohritsu Inc.

(petitioner/PKI) pursuant to Section 3(aY, Rule 8 in relation to f
Section 3(a)(1)3, Rule 4 of the Revised Rules of the Court of Tax Appeay

Filed on 26 January 20 18, Division Docket, Volume I, pp. 10- 155, with annexes.
SEC. 3. Who may appeal; period to file petition. - (a) A party adversely affected by a decision,
ruling or the inaction of the Commissioner of Internal Revenue on disputed assessments or claims
for refund of internal revenue taxes, or by a decision or ruling of the Commissioner of Customs,
the Secretary of Finance, the Secretary of Trade and Industry, the Secretary of Agriculture, or a
Regional Trial Court in the exercise of its original jurisdiction may appeal to the Court by petition
for review filed within thirty days after receipt of a copy of such decision or ruling, or expiration
of the period fixed by law for the Commissioner of Internal Revenue to act on the disputed
assessments. In case of inaction of the Comm issioner of Internal Revenue on claims for refund of
internal revenue taxes erroneously or illegally collected, the taxpayer must file a petition for
review within the two-year period prescribed by law from payment or collection of the taxes.
SEC. 3. Cases within the jurisdiction of the Court in Divisions. - The Court in Divisions shall
exercise:
(a) Exclusive origi nal over or appellate jurisdiction to re view by appeal the following:
 CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 2 of 53
X------------------------------------- -X

(RRCTA). It seeks the refund of its alleged unutilized input value-

added tax (VAT) on its domestic purchases of goods and services and
importations of goods attributable to zero-rated sales for the period
from 01 January 2016 to 31 March 2016 or the 4'h quarter of fiscal year
(FY) ending 31 March 2016 in the aggregate amount ofP10,923,055·28.

PARTIES OF THE CASE

Petitioner is a domestic corporation registered with the

Securities and Exchange Commission (SEC) with Company
Registration No. 157828. 4 It is engaged in the business of
manufacturing and exporting parts and accessories, specifically wiring
harness, weld cap and engineering design activity. Petitioner is duly
registered with the Bureau of Internal Revenue (BIR) as a VAT
taxpayer with Taxpayer's Identification No. (TIN) ooo-269-082-ooo, as
evidenced by BIR Certificate of Registration No. OCN
8RCoooo906901E. 5 It is also registered with the Board of Investments
(BOI) as an export producer of automotive wiring harness and weld
cap for automotive application with BOI Registration Nos. 2003-0466 ,
2005-1777 , 2007-0608 , and 2015-080. 9

Respondent, on the other hand, is the Commissioner of Internal

Revenue (respondent/CIR), who was duly appointed and is
empowered to perform the duties of his office, including the power to
grant or deny tax refunds pursuant to Section 112( C) of the National
Internal Revenue Code (NIRC) of 1997, as amended, with office
address at the BIR National Office Building, Agham Road, Diliman,
Quezon City.'1

( 1) Decisions of the Commissioner of Internal Revenue in cases involving disputed

assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto,
or other matters arising under the National Internal Revenue Code or other laws administered by
the Bureau of Internal Revenue[.]
4
ICPA Exhibit "P-37-C", CD.
Exhibit "P-3", Division Docket, Volume II, pp. 716-717.
6
Registration as a new IT-enabled service exporter in the field of engineering design of automotive
wiring harness; Exhibit "P-4", id., pp. 718-723.
7
Registration as a new export producer of weld cap for automotive application; Exhibit "P-5", id.,
pp. 724-729.
Registration as a new export producer of automotive wiring harness; Exhibit "P-6", id., pp. 730-
735.
9
Registration as a new export producer of tie band products for automotive wiring harness; Exhibit
"P-7", id., pp. 736-744.
10
Par. 2, Joint Stipulation of facts and Issues (JSFI), id., Volume I, p. 566.
CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
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FACTS OF THE CASE

For the 4th quarter of FY ending 31 March 2016, petitioner

submitted the following:

Monthly VAT Declaration/

Period Date of filing
Quarterly VAT Return
January 2016 Monthly VAT Declaration" 22 February 2016
February 2016 Monthly VAT Declaration" 21 March 2016
4 •h Quarter - FY 2016 Quarterly VAT Return'' 18 April 2016
( 01 January 2016 to 31 March 2016)
4th Quarter - FY 2016 Amended Quarterly 22 February 2017
(01 January 2016 to 31 March 2016) VAT Return'4

On 29 August 2017, petitioner filed with the BIR Large Taxpayers

Division its Application for Tax Credits/Refunds (BIR Form No. 1914)'5,
covering the period from 01 January 2016 to 31 March 2016 (or the 4th
quarter of FY ending 31 March 2016), in the aggregate amount of
P10,923,oss.28. Petitioner also submitted complete supporting
documents along with its Letter-Request'6 for refund of unutilized
input VAT for the said period (with attached copy of the Checklist of
Mandatory Requirements for Claims for VAT Credit/Refund17).

On 10 January 2018, petitioner received a copy of the Letter

dated 12 December 2017'8 (Denial Letter), denying the subject
administrative claim on the following grounds: (1) there were no
export sales for the period 01 January 2016 to 31 March 2016 because the
total sales for the first three (3) quarters per quarterly VAT returns
were already greater than the total sales per annual Income Tax Return
(ITR) for FY ending 31 March 2016; (2) proceeds from export sales,
which were offset or netted against amounts due to or from
petitioner's related parties, were not duly accounted for in acceptable
foreign currency in accordance with Bangko Sentral ng Pilipinas (BSP)
I
rules and regulations; (3) there was no sufficient proof that the goo"'

II
Exhibit "P-10", id., Volume II, pp. 749-750.
12
Exhibit "P-10-1", id., pp. 751-752.
13
Exhibit "P·l 0·2", id., pp. 753· 754.
14
Exhibit "P·l 0-3", id., pp. 755· 756.
"
16
Exhibit "P·9", id., p. 748.
Exhibit "P-8", id., pp. 745-747.
17
!d., p. 747; The supporting documents were compiled in thirty-three (33) folders and placed in two
(2) boxes.
18
Exhibit "P-2", Division Docket, Volume II, pp. 711·715.
 CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 4 of 53
X------------------------------------- -X

were exported and the services were rendered to non-resident foreign

corporations (NRFCs) doing business outside the Philippines; (4) the
total amount of input VAT arising from importations and local
purchases in the 4th quarter of FY 2016 should only be Pw,8s6,049·93;
and, (5) the authenticity of the entries/information appearing on
petitioner's supporting documents cannot be ascertained outright and
respondent cannot merely rely upon the affidavit of petitioner's
representative as to the general validity of the invoices and official
receipts (ORs)_ Then Officer-In-Charge Assistant Commissioner
Teresita M. Angeles (Ole-Assistant Commissioner Angeles) signed
the Denial Letter for BIR Commissioner Caesar Dulay (Commissioner
Dulay).

PROCEEDINGS BEFORE THE FIRST DIVISION

On 26 January 2018 and within thirty (30) days from receipt of

the Denial Letter, petitioner filed the instant Petition for Review before
the Court in Division to appeal the denial of its administrative claim. 19
The same was raffled to the First Division and docketed as CTA Case
20
No. 9757-

Respondent, after being granted an extension of time to file it, 21

filed his Answer22 interposing special and affirmative defenses. In his
Answer, respondent insisted that petitioner failed to substantiate its
claim that it was to be entitled to the refund being prayed for.
According to him, petitioner likewise failed to comply with the
invoicing and accounting requirements laid down in Sections 11323, 11424
and 23625 of the NIRC of 1997, as amended, and its implementing
regulations under Revenue Regulations (RR) No. 16-2oos.'6
Additionally, respondent countered that petitioner did not strictly •
comply since it failed to submit all supporting and relevant documeny

19
Supra at note I .
20
The First Division is composed of Hon. Presiding Justice Roman G. Del Rosario, as Chairperson,
Hon. Associate Justice Erlinda P. Uy and Hon. Associate Justice Cielito N. Mindaro-Grulla (Ret.),
as Members.
21
See Order dated 23 February 2018, Division Docket, Volume I, pp. 163-164.
22
Filed on 22 March 2018, id., pp. 165-178.
23
Sec. 113. Invoicing and Accounting Requirements/or VAT-Registered Persons.-
24
Sec. 114. Return and Payment of Value-added Tax.-
25
Sec. 236. Registration Requirements.-
26
Consolidated Value-Added Tax Regulations of2005.
 CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
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X------------------------------------- -X

provided under Revenue Memorandum Order (RMO) No. 53-9827 and

other existing rules and regulations to warrant the grant of the
application for refund.

On 26 March 2018, the Court issued a Notice of Pre-Trial

Conference 28 , setting the Pre-Trial Conference on 31 May 2018.
Accordingly, petitioner filed its Pre-Trial Brief9 on 25 May 2018, while
respondent filed his Pre-Trial Brie£3° on 25 July 2018.

On 25 May 2018, respondent transmitted to the First Division the

present case's BIR Records consisting of 31 folders in three (3)
bundles. 3' The First Division noted the same in the Minute Resolution
dated 02 July 2018. 32

On 28 May 2018, respondent filed his "Urgent Motion to Reset

Pre-Trial Conference Scheduled on May 31, 2018". 33 In the Order dated
29 May 20183\ the First Division granted the same and reset the Pre-
Trial Conference to 26 July 2018.

At the re-scheduled Pre-Trial Conference on 26 July 2018, the

First Division granted both parties 15 days within which to file their
Joint Stipulation of Facts and Issues (JSFI). 35 On 10 August 2018, the
parties submitted their JSFP6 which was approved in the Resolution
dated 03 September 2018. 37

On 10 August 2018, simultaneous to the filing of the parties' JSFI,

petitioner filed its "Motion for the Appointment of an Independent •
Certified Public Accountant". 38 In the Order dated 16 August 20183 )/f
27
Checklist of Documents to be Submitted by a Taxpayer upon Audit of his Tax Liabilities as well as
of the Mandatory Reporting Requirements to be Prepared by a Revenue Officer. all of which
Comprise a Complete Tax Docket.
28
Division Docket, Volume I, pp. 179-180.
29
1d., pp. 186-196.
30
1d., pp. 537-543.
31
See Compliance dated 18 May 2018, id., pp. 181-185.
32
ld., pp. 535-536.
33
ld., pp. 524-530.
34
ld., pp. 531-532.
35
See Order dated 26 July 2018, id., pp. 545-547.
36
ld., pp. 566-574.
37
1d., p. 598.
38
ld., pp. 548-551.
39
ld., Volume II, pp. 638-639.
 CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
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the First Division appointed Neil U. Sison (Sison) as the Independent

Certified Public Accountant (ICPA) and directed him to submit his
report within 30 days or until17 September 2018. 40

On os September 2018, respondent filed his "Urgent Motion to

Reset Hearing" asking the Court to reset the n September 2018
hearing. 4 ' In the Order dated o6 September 2018 4', the First Division
granted the same and reset the hearing to og October 2018.

In the Order dated 25 September 2018 43 , the First Division noted

the ICPA's Report filed on 17 September 2018, as well as the
accompanying transmittal letter (indicating the submission of soft
copies of the said ICPA Report, working papers and exhibits). In the
same Order, the First Division transferred the case to the Second
Division. 44

PROCEEDINGS BEFORE THE SECOND DIVISION

On 28 January 2019, the Second Division issued a Pre-Trial Order

and terminated the pre-trial. 45

In the trial that ensued thereafter, petitioner offered the

testimonies of its witnesses, namely: (1) Edna Luisa Lopez (Lopez), the
Manager of petitioner's Finance and Management Accounting
Department; (2) Ria M. Tadeo (Tadeo), petitioner's Accounting
Specialist II; (3) Evelyn Ocampo (Ocampo), the Assistant Manager of
petitioner's Management Accounting Section; and, (4) Sison, the
Court-commissioned ICPA.

On the witness stand, Tadeo, who testified by way of her Judicial

Affidavit46 , declared essentially that: (1) as petitioner's Accounting ,
Specialist II, she is responsible for the preparation, analysis and filinv

40
15 September 2018 is a Saturday.
41
Division Docket, Volume I, pp. 599-602.
42
ld., p. 603.
43
1d., Volume ll, p. 640.
44
The case was transferred to the Second Division pursuant to CT A Administrative Circular No. 02-
2018 dated 18 September 2018 entitled "Reorganizing the Three (3) Divisions of the Court".
45
Division Docket, Volume ll, pp. 646-653.
46
Exhibit "P-27", id., Volume 1, pp. 414-501, with exhibits.
 CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 7 of 53
X-------------------------------------- X

of monthly and quarterly VAT returns, including auditing and

certifying purchase documents together with the compilation and
preparation of all required documents for a VAT refund application;
(2) petitioner filed an administrative claim for refund in the total
amount of P10,923,055·28; and, (3) petitioner's unutilized input VAT
for the 41h quarter of FY ending 31 March 2016 was not applied against
its output VAT and remained unutilized until the said total amount
was deducted as "VAT Refund/TCC Claimed" from the total input VAT
in its Amended Quarterly VAT Return for the 4th quarter of FY ending
31 March 2016.

Ocampo, who also testified by way of her Judicial Affidavit4 7,

stated that: (1) as the Assistant Manager of petitioner's Management
Accounting Section, she is responsible for counterchecking payment
requests on import/export charges, fees and taxes on local and
imported purchases of raw materials, goods, supplies and capital
equipment, payment of duties and taxes, signing and reviewing
check requests, purchase requisitions, check vouchers for
brokers/forwarders, liquidations, etc.; (2) petitioner purchases raw
materials from both local and international suppliers; (3) petitioner
pays its foreign suppliers of raw materials through bank remittances;
(4) for the foreign suppliers to whom petitioner also exports its
finished products, offsetting is done and any remaining balance is paid
through bank remittances; (s) petitioner has an offsetting arrangement
with its non-resident foreign affiliates, namely, Sumitomo Wiring
Systems, Ltd. (SWS-Japan) and Sumitomo Electric Wiring Systems,
Inc. (SEWS-USA); and, (6) pursuant to the Terms of Payment agreed
upon by petitioner and its non-resident foreign affiliates, the offsetting
arrangement is done by counterbalancing the export sales and other
charges for the account of the foreign customer/supplier with the
value of the goods or supplies bought by petitioner from the same
foreign customer/supplier from the previous month.

On cross examination, Ocampo stated that purchases from

foreign suppliers and purchases from local suppliers during the 4th
quarter of FY ending 31 March 2016 are both substantial and more or
less equally distributed. She also confirmed that purchases of raw
materials from local and foreign suppliers formed part of the finished
products.,

47
Exhibit "P-28", id., pp. 502-523, with exhibits.
CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 8 of 53
X-------------------------------------- X

Lopez, through her Judicial Affidavit48, testified that: (1) as

Manager of petitioner's Finance and Management Accounting
Department, she is responsible for reviewing and recommending for
approval all payment requests from all sections pertaining to
purchases, importations, exportations and other government-related
payments and other services and for the supervision of the filing of tax
returns, applications for VAT refund and handling of BIR assessments,
among others; (2) the BIR denied petitioner's claim for VAT refund for
the following reasons: (a) petitioner's alleged ineligibility for income
tax holiday, (b) the alleged unacceptability of the offsetting
arrangement between petitioner and its foreign customers/suppliers,
(c) the alleged lack of proof that the finished goods were exported to
foreign customers because of the absence of the foreign customers'
articles of foreign corporation or registration, (d) the alleged
irregularities with the submitted invoicing and documentary
requirements, (e) the alleged inconsistency of sales reports in quarterly
and annual ITRs, and, (f) the alleged discrepancy in the amount
applied for refund of input VAT paid for the months of January to
March 2016; (3) petitioner secured a certification that SWS-Japan is a
corporation duly registered and existing under the laws of Japan
(marked as Exhibit "P-19"49 and attached to her Judicial Affidavit) and
proof that SEWS-USA is a corporation duly registered and existing
under the laws of the State of Delaware, USA (marked as Exhibit "P-
2o"50 and attached to her Judicial Affidavit); and, (4) petitioner
submitted certified true copies of the required invoicing documents
and it has secured certifications from its customers that the
handwritten details on the invoices are true and correct, countersigned
by authorized signatories.

On cross-examination, Lopez confirmed that the Certifications

of Non-Registration of Company of SWS-Japan and SEWS-USA and
the certifications from suppliers (attesting that the handwritten details
on the invoices issued to petitioner were true and correct) were not
submitted during the filing of the administrative claim before the BIR.
On re-direct, Lopez explained that they did not submit such
certifications because they were not included in the list oJI
48
Exhibit "P-26", id., pp. 356-413, with exhibits.
49
Exhibit "P-19" attached to the Judicial Affidavit of Edna Luisa Lopez, id., pp. 406-412.
50
Exhibit "P-20" attached to the Judicial Affidavit of Edna Luisa Lopez, id., p. 413.
CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
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X-------------------------------------- X

requirements or checklist as required by Revenue Memorandum

Circular (RMC) No. 54-2014. 51

As for ICPA Sison, he identified his ICPA Report dated 19 March

2018 and his Judicial Affidavit dated 01 February 2019 53 in relation
52

thereto during the hearing held on o6 February 2019. 54

On 26 February 2019, after completing the presentation of its

testimonial evidence, petitioner filed its Formal Offer of Evidence 55
(FOE) consisting of Exhibits "P-1" to "P-37-BD", inclusive of sub-
markings. On 27 February 2019, respondent filed his comment
thereto. 56

In the Resolution dated 02 April 2019 57, the Second Division

admitted all of petitioner's exhibits except for Exhibits "P-10", "P-10-1"
and "P-21"58 , for failure to identify; "P-37-X-51" 59, for being illegible; "P-
37-AG -6 " to "P -37-AG -15", "P -37-AG -17" to "P -37-AG -18" , "P -37-AG -20"
to "P-37-AG-105", and "P-37-AV-1" to "P-37-AV-2"60 , for not being found
in the records.,

5I
ClarifYing Issues Relative to the Application for Value Added Tax (VAT) Refund/Credit under
Section 112 of the Tax Code, As Amended.
52
Exhibit "P-30", Division Docket, Volume II, pp. 816-835.
53
Exhibit "P-31 ", id., pp. 657-665.
54
See TSN dated 06 February 2019.
55
Division Docket, Volume 11, pp. 695-708.
56
!d., pp. 836-838.
S7
Id., pp. 839-840.
" Exhibit No. Description
"P-I 0" Petitioner's Monthly VAT Declaration for January 20I 6.
"P-I 0-1" Petitioner's Monthly VAT Declaration for February 2016.
"P-21" Petitioner's sworn statement of non-filing of similar claims with BOI,
DOF, BOC and BIR for the 41h quarter covering the period January to
March 2016. -

59

Exhibit No. Description

"P-37-X-5 I" Certification Letter signed by the authorized employee of Luz
Pharmacy.
60

Exhibit No. Description

"P-37-AG-6" to Documents supporting valid input tax on purchases of capital goods
"P-37-AG- I 5" not exceeding One Million, goods other than capital goods and
"P-37-AG- I 7'' to services.
"P-37-AG- I 8"
"P-37-AG-20" to "P-
37-AG-105"
CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 10 of 53
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On 02 April 2019, respondent filed a "Motion to Reset Hearing"6'

set on o8 April 2019 for the initial presentation of his evidence. The
Second Division granted the same and reset the hearing to os June
2019.62

Subsequently, on 17 April 2019, petitioner filed a "Motion for

Reconsideration with Motion to Direct ICPA to Submit Exhibits of its
ICPA Report" 63 (MR on the FOE Resolution), asking the Second
Division to allow the continuance of the presentation of Tadeo to
identify Exhibits "P-10", "P-10-1" and "P-21"64 and the admission of said
exhibits, and to direct ICPA Sison to produce and submit the exhibits
which form part of his ICPA Report, namely, Exhibits "P-37-AG-6" to
"P-37-AG -IS "' "P-37-AG -17" to "P -37-AG -I8" ' "P-37-AG -20" to "P-37-AG -
105" and "P-37-AV-1" to "P-37-AV-2"65 as well as a clear copy of Exhibit
"P-37-X -51" .66

On 30 April 2019, the Second Division ordered respondent to

comment on petitioner's MR on the FOE Resolution within 10 days
from notice thereof. 67 In response thereto, respondent filed a "Motion
for Additional Time to File Comment"68 which the Court granted on
31 May 2019. 69 On even date and without waiting for the Court's
Resolution on his motion, respondent filed his "Opposition"70 to
petitioner's MR on the FOE Resolution. Petitioner later filed a Reply71
to respondent's Opposition, reiterating its prayer in the MR on the
FOE Resolution.

In the Resolution dated 30 July 20197', the Second Division

allowed the recall of Tadeo for the purpose of identifying her Judicial ,
Affidavit as well as Exhibits "P-10", "P-10-1" and "P-21"73 and directed

"P-37-AV-1" to "P-
37-AV-2"'
61
Division Docket, Volume II, pp. 846-849.
62
See Order dated 08 April 2019, id., p. 852.
63
ld., pp. 853-857.
64
Supra at note 58.
65
Supra at note 60.
66
Supra at note 59.
67
See Resolution dated 30 April2019, Division Docket, Volume II, p. 870.
68
Filed on 27 May 2019, id .. pp. 889-892.
69
See Resolution dated 31 May 2019, id., p. 899.
70
ld., pp. 893-897.
71
Id., pp. 900-904.
72
!d., pp. 906-9 I 0.
73
Supra at note 58.
CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
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X-------------------------------------- X

ICPA Sison to submit a clear copy of the missing exhibits. In the same
Resolution, the Court set the presentation ofTadeo on 28 August 2019.

On 13 August 2019, petitioner filed an "Urgent Motion to Reset

Hearing" 74, asking the Second Division to reset the 28 August 2019
Hearing because Tadeo is unavailable on such date due to a conflict of
schedule. The Court granted the same and reset the hearing to
23 September 2019?5

During the 23 September 2019 Hearing, petitioner presented

Tadeo and the Second Division granted petitioner five (5) days or until
28 September 2019 to submit its Supplemental FOE.76 Accordingly,
petitioner filed its Supplemental FOE 77 on 27 September 2019, while
respondent filed his Comment78 thereto on 03 October 2019.

In the Resolution dated 18 November 201979 , the Second Division

granted petitioner's MR on the FOE Resolution, that is, it resolved to
admit Exhibits "P-w", "P-10-1" and "P-21" and ICPA Exhibits "P-37-X-51",
"P-37-AG -6" to "P -37-AG -15", "P-37-AG -17" to "P -37-AG -18" , "P-37-AG -
20" to "P-37-AG-105" and "P-37-AV-1" to "P-37-AV-2". 80 In the same
Resolution, the Court likewise set the initial presentation of evidence
for the respondent on 20 November 2019.

On 20 November 20198 ', respondent presented his lone witness,

Revenue Officer Aurelio Agustin T. Zamora (RO Zamora), who
testified by way of his Judicial Affidavit82 that: (1) the mandatory audit
or evaluation of petitioner's application for refund or tax credit (for
alleged unutilized input VAT on local purchases of goods and services
covering the period 01 January 2016 to 31 March 2016) was assigned to
his group through Letter of Authority (LOA) No. AUDM
04/015072/2017 dated 04 October 201783 ; (2) as explained in th;/

74
Division Docket, Volume II, pp. 911-913.
75
See Order dated 16 August 2019, id., p. 915.
76
See Order dated 23 September 2019, id., p. 932.
77
ld., pp. 922-926.
78
ld., pp. 927-930.
79
ld., pp. 934-936.
80
Supra at notes 58 to 60.
81
Minutes of the Hearing dated 20 November 2019, Division Docket, Volume II, p. 939.
82
Exhibit "R-5", id., pp. 875-883.
83
Exhibit "R-1", BIR Records, Folder I, p. 877.
 CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
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Memorandum Report dated 01 December 20178 \ petitioner is not

entitled to refund because: (a) the reconciliation of inward remittances
and offsetting AR/AP do not substantially comply with Sections
w6(A)(2}(a)(1), w8(B)(2) and m(A) of the NIRC of 1997, as amended,
and its implementing regulations which specifically require that the
proceeds from export sales be duly accounted for in acceptable foreign
currency in accordance with BSP rules and regulations, (b} petitioner
failed to prove that the goods were exported and the services were
rendered to NRFCs doing business outside the Philippines, (c) there is
a discrepancy in the amount applied for tax refund, and, (d) petitioner
did not substantially comply with the required invoicing and
documentary requirments; and, (3) based on such findings, his group
recommended the denial of petitioner's administrative claim for input
VAT refund for lack oflegal and factual bases.

On 09 December 2019, respondent filed his FOE and

Manifestation8 5, consisting of Exhibits "R-1" to "R-4". 86 Petitioner filed
its "Comment/Objections"87 , asking the Second Division to deny the
admission of respondent's exhibits for the reason that copies thereof
were not attached to the latter's FOE and that Exhibit "R-4" was not
properly identified, authenticated and marked in evidence.

In the Resolution dated 24 January 202088 , the Second Division

admitted all of respondent's exhibits and gave the parties a period of
30 days within which to file their respective memoranda.

Thereafter, petitioner filed its Memorandum89 on 27 February

2020. Respondent, after being granted an extension of time to file his
Memorandum until 29 March 2020 90 , filed a Manifestation 91 through,
registered mail on 30 June 2020, praying that his Answer datey

84
Exhibit "R-2'', id., pp. 919-930.
85
Division Docket, Volume II, pp. 942-946.
86

Exhibit No. Description

"'R-1" Letter of Authority No. AUDM 04/015072/2017 dated 4 October 2017.
"R-2" Memorandum Report dated I December 2017.
"R-3" Letter Denial dated 12 December 2017.
"R-4" BIR Records.
87
Division Docket, Volume II, pp. 947-950.
88
ld., pp. 952-953.
89
ld., pp. 954-966.
90
See Order dated 02 March 2020, id., p. 971.
91
Received by the Court on 06 July 2020, id., pp. 972-975.
 CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
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X-------------------------------------- X

22 March 2018 92 be adopted as his Memorandum. Accordingly, on

13 July 2020, the Court considered the case submitted for decision. 93

ISSUE

As the parties so stipulated94 , the main issue for this Court's

determination is -

WHETHER PETITIONER PILIPINAS KYOHRITSU INC. IS

ENTITLED TO THE REFUND OF ITS UNUTILIZED INPUT VALUE-
ADDED TAX (VAT) IN THE TOTAL AMOUNT OF 1"10,923,055·28
COVERING THE PERIOD FROM 01 JANUARY 2016 TO 31 MARCH
2016 (FOURTH QUARTER OF FISCAL YEAR ENDING 31 MARCH
2016).

RULING OF THE COURT

After a thorough review of the records of the case, this Court

finds partial merit in the present Petition for Review.

Petitioner's claim for refund or tax credit finds legal basis in

Section m(A) and (C) of the NIRC of 1997, as amended, which
provides:

SEC.112. Refunds or Tax Credits of Input Tax.-

(A) Zero-Rated or Effectively Zero-Rated Sales. -Any VAT -registered

person, whose sales are zero-rated or effectively zero-rated may,
within two (2) years after the close of the taxable quarter when the
sales were made, apply for the issuance of a tax credit certificate or
refund of creditable input tax due or paid attributable to such sales,
except transitional input tax, to the extent that such input tax has
not been applied against output tax: Provided, however, That in the
case ofzero-rated sales under Section w6(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 (BSPY

92
Supra at note 22.
93
See Resolution dated 13 July 2020, Division Docket, Volume II, p. 977.
94
JSFI, id., Volume I, p. 567.
CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 14 of 53
X-------------------------------------- X

Provided, further, That where the taxpayer is engaged in zero-rated

or effectively zero-rated sale and also in taxable or exempt sale of
goods of properties or services, and the amount of creditable input
tax due or paid cannot be directly and entirely attributed to any one
of the transactions, it shall be allocated proportionately on the basis
of the volume of sales: Provided, finally, That for a person making
sales that are zero-rated under Section w8(B)(6), the input taxes
shall be allocated ratably between his zero-rated and non-zero-rated
sales.

(C) Period within which Refund or Tax Credit of Input Taxes shall be
Made. - In proper cases, the Commissioner shall grant a refund or
issue the tax credit certificate for creditable input taxes within one
hundred twenty (120) days from the date of submission of complete
documents in support of the application filed in accordance with
Subsection (A) hereof.

In case of full or partial denial of the claim for tax refund or tax
credit, or the failure on the part of the Commissioner to act on the
application within the period prescribed above, the taxpayer affected
may, within thirty (30) days from the receipt of the decision denying
the claim or after the expiration of the one hundred twenty day-
period, appeal the decision or the unacted claim with the Court of
Tax Appeals.

Pursuant to the above-quoted provisions, jurisprudence has laid

down certain requisites which the taxpayer-applicant must comply
with to successfully obtain a credit/refund of input VAT. Said
requisites are classified into the following categories, to wit:

As to the timeliness of the filing of the administrative and

judicial claims:

1. the claim is filed with the BIR within two (2) years after the
close of the taxable quarter when the sales were made;95

2. that in case of full or partial denial of the refund claim, or the

failure on the part of the CIR to act on the said claim within a ,
period of 120 days, the judicial claim has been filed with thy
95
AT&T Communications Services Philippines, Inc. v. Commissioner of Internal Revenue, G.R. No.
182364, 03 August 2010: San Roque Power Corporation v. Commissioner of Internal Revenue,
G.R. No. 180345, 25 November 2009; and Intel Technology Philippines. Inc. v. Commissioner of
Internal Revenue, G.R. No. 166732,27 April2007.
 CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 15 of 53
X------------------------------------- -X

Court, within 30 days from receipt of the decision or after the

expiration of the said 120-day period;96

With reference to the taxpayer's registration with the BIR:

3· the taxpayer is a VAT-registered person; 97

In relation to the taxpayer's output VAT:

4· the taxpayer-claimant is engaged in zero-rated or effectively

zero-rated sales; 98

5· for zero-rated sales under Sections 106(A)(2)(a)(1), (2) and (b)

and 108(8)(1) and (2), the acceptable foreign currency
exchange proceeds have been duly accounted for in
accordance with BSP rules and regulations; 99

As regards the taxpayer's input VAT being refunded:

6. the input taxes are not transitional input taxes;100

7· the input taxes are due or paid;10'

8. the input taxes claimed are attributable to zero-rated or

effectively zero-rated sales. However, where there are both
zero-rated or effectively zero-rated sales and taxable or
exempt sales, and the input taxes cannot be directly and
entirely attributable to any of these sales, the input taxes shall
be proportionately allocated on the basis of sales volume;102
and,

9· the input taxes have not been applied a~ainst output taxes
during and in the succeeding quarters. 103/

96
Steag State Power. Inc. (Formerly State Power Development Corporation) v. Commissioner of
Internal Revenue, G.R. No. 205282, 14 January 2019; Rohm Apollo Semiconductor Philippines v.
Commissioner of Internal Revenue, G.R. No. 168950, 14 January 2015.
97
Supra at note 95.
98
!d.
99
Id.
100
!d.
101
!d.
102
Id.
103
Id.
CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 16 of 53
X-------------------------------------- X

Relative thereto, it must be emphasized that in cases filed before

this Court, which are litigated de novo, party-litigants must prove every
minute aspect of their case.104 Thus, it behooves petitioner to show full
compliance with each of the foregoing requisites.

I. PETITIONER'S ADMINISTRATIVE
AND JUDICIAL CLAIMS WERE
TIMELY FILED.

The first requisite pertains to the filing of the administrative

claim for refund of unutilized input VAT before the BIR that must be
within two (2) years after the close of the taxable quarter when the
zero-rated or effectively zero-rated sales were made.

The subject administrative claim covers the 41h quarter of FY

ending 31 March 2016. Counting two (2) years from the close of the said
quarter, the last day for the filing of petitioner's administrative claim in
this case fell on 31 March 2018.

Petitioner filed its administrative claim for refund, together with

the supporting documents, in the amount of P10,923,055·28 on
29 August 2017. 105 Clearly, petitioner's administrative claim was filed
well within the two-year prescriptive period.

The second requisite relates to the prescriptive period for filing a

judicial claim for the refund or tax credit of alleged excess or
unutilized input VAT. Section 112( C) of the NIRC of 1997, as amended,
states the said prescriptive period and it speaks of two (2) periods,
namely: (1) the period of 120 days, which serves as a waiting period to
give time for the CIR to act on the administrative claim for a refund or
credit; and, (2) the period of 30 days, which refers to the period for
filing a judicial claim with the CTA. 106/

104
Edison (Bataan) Cogeneration Corporation v. Commissioner of Internal Revenue, et a!., G.R.
No. 201665, 30 August 2017; Commissioner of Internal Revenue v. Philippine National Bank,
G.R. No. 180290, 29 September 2014; Commissioner of Internal Revenue v. United Salvage and
Towage (Phi/s.), Inc., G.R. No. 197515,02 July 2014; Dizon v. Court ofTax Appeals, eta/., G.R.
No. 140944, 30 April 2008; Atlas Consolidated Mining and Development Corporation v.
Commissioner of Internal Revenue, G.R. No. 145526, 16 March 2007; and Commissioner of
Internal Revenue v. Manila Mining Corporation, G.R. No. 153204, 31 August 2005.
105
Supra at note 15; BIR Records, p. 76.
106
Rohm Apollo Semiconductor Philippines v. Commissioner of Internal Revenue, supra at note 96.
CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 17 of 53
X------------------------------------ --X

Significant to the reckoning of the 120-day period is the

declaration of the Supreme Court that the application for VAT refund
or tax credit must be accompanied by complete supporting documents
with a statement under oath, attesting to the completeness of said
supporting documents pursuant to RMC 54-2014. 107 The affidavit shall
also state that these documents are sufficient to support the claim, and
no other documents shall be accepted from the taxpayer in order for
the CIR to render his decision. Below is the pertinent portion of the
Supreme Court's ruling in the case of Pilipinas Total Gas, Inc. v.
Commissioner of Internal Revenue108 (Total):

... As it now stands, RMC 54-2014 dated June n, 2014 mandates that:

The application for VAT refund/tax credit must be

accompanied by complete supporting documents
as enumerated in Annex "A" hereof. In addition, the
taxpayer shall attach a statement under oath
attesting to the completeness of the submitted
documents (Annex B). The affidavit shall further state
that the said documents are the only documents which
the taxpayer will present to support the claim. If the
taxpayer is a juridical person, there should be a sworn
statement that the officer signing the affidavit (i.e., at
the very least, the Chief Financial Officer) has been
authorized by the Board of Directors of the company.

Upon submission of the administrative claim and its

supporting documents, the claim shall be processed
and no other documents shall be accepted/required
from the taxpayer in the course of its evaluation. A
decision shall be rendered by the Commissioner based
only on the documents submitted by the taxpayer. The
application for tax refund/tax credit shall be denied
where the taxpayer/claimant failed to submit the
complete supporting documents. For this purpose, the
concerned processing/investigating office shall prepare
and issue the corresponding Denial Letter to the
taxpayer I claimant.

Thus, under the current rule, the reckoning of the 120-day period has
been withdrawn from the taxpayer by RMC 54-2014, since it requires
him at the time he files his claim to complete his supporting
documents and attest that he will no longer submit any oth~~

107
Supra at note 51.
108
G.R. No. 207112,08 December2015; Emphasis in the original text.
CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 18 of 53
X------------------------------------- -X

document to prove his claim. Further, the taxpayer is barred from

submitting additional documents after he has filed his
administrative claim.

Applying the foregoing, the 120-day period shall be reckoned

from 29 August 2017 on which date petitioner was already obliged to
submit complete supporting documents.

The records show that petitioner submitted complete supporting

documents upon the filing of its administrative claim on 29 August
2017 based on the Checklist of Mandatory Requirements for Claims for
VAT Credit/Refund109 and the Sworn Certification110 executed by
petitioner's Manager, Lopez.

Accordingly, respondent had 120 days from 29 August 2017, or

until 27 December 2017. to decide on petitioner's claim. However,
petitioner received a copy of the Denial Letter only on 10 January 2018.
Considering the rule that inaction on the part of CIR is deemed a
denial111, petitioner's claim is deemed denied as early as 27 December
2017 or the expiration of the 12o-day waiting period. Thus, petitioner
had 30 days, or until 26 January 2018, to appeal such inaction to the
Court. Evidently, petitioner's judicial claim for refund was timely filed
on 26 January 2018.

The Court shall now proceed with its discussion of the other
requisites.

II. PETITIONER IS A VAT-REGISTERED

PERSON.

Petitioner likewise complied with the third requisite as it is

undisputed that petitioner is duly registered with the BIR as a VAT
taxpayer with TIN ooo-269-082-ooo. 112/

109
Supra at note 17; BIR Records, Folder I, p. 758.
110
Exhibit "P-11", Division Docket, Volume 11, p. 757; BIR Records, Folder I, p. 759.
Ill
Commissioner of Internal Revenue v. San Roque Power Corporation, G.R. No. 187485, 12
February 2013.
112
JSFI, Division Docket, Volume I, p. 566.
CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 19 of 53
X-------------------------------------- X

III. PETITIONER HAD ZERO-RATED OR

EFFECTIVELY ZERO-RATED SALES
DURING THE 4TH QUARTER OF
FISCAL YEAR ENDING 31 MARCH
2016.

The fourth and fifth requisites, respectively, require that the

taxpayer is engaged in zero-rated or effectively zero-rated sales and,
for zero-rated sales under Sections w6(A)(2)(a)(1), (2) and (b), and
108(8)(1) and (2) of the NIRC of 1997, as amended, the acceptable
foreign currency exchange proceeds must have been duly accounted
for in accordance with the BSP rules and regulations.

In its Amended 4th Quarterly VAT return for FY 2016113, petitioner

reported total sales in the amount of P2,o4s,6ss,o46.2S, broken down
as follows:

VATable Sales P629,556.19

Zero-Rated Sales 2,045,025,490.06
Total Sales P2,o4<;,65s,o46.25

In support of its declared zero-rated sales for the 4th quarter of

FY 2016, petitioner submitted various documents such as sales
invoices, export documents (i.e., bills of lading or airway bills and
export declarations) and certificate of inward remittance!14

In his Report, ICPA Sison accounted petitioner's total zero-rated

sales in the amount ofP2,04S,025,490.o6, detailed as follows: 115

USD PHP
Particulars
Actual exoort sale of goods $42,815,841.40 P2,030, 790,316.26
Actual export sale of services 399.599-42 9.453,246.78
Sale to PEZA-registered entities 100,884.00 4.781,927.02
Total Zero-Rated Sales $43>316,J24.82 P2,045,025,490.o6 ,.;
h

113
Supra at note 14.
114
!CPA Exhibits "P-37-R", "P-37-R-1" to "P-37-R-6", "P-37-S", "P-37-S-1" to "P-37-S-10", "P-37-
T", ''P-37-T-1" to "P-37-T-274", "P-37-U", "P-37-U-1" to "P-37-U-2", ''P-37-W", and "P-37-W-
1", "P-37-BA", CD.
115
Supra at note 52.
CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 20 of 53
X-------------------------------------- X

Based on the above breakdown, petitioner has three (3) sources

of zero-rated sales, namely:

(i) Actual export sale of goods under Section w6(A)(2)(a)(1) of

the NIRC of 1997, as amended;
(ii) Actual export sale of services under Section w8(B)(2) of
the NIRC of1997, as amended; and,
(iii) Sale to Philippine Economic Zone Authority (PEZA)-
registered entities under Section w6(A)(2)(a)(s) of the
NIRC of1997, as amended.

i. Actual export sale of goods

under Section 106(a)(2)(a)(t) of
the NIRC of 1997, as amended
(P2,030,790>316.26)

Section w6(A)(2)(a)(1) of the NIRC of1997, as amended, states:

SEC. 106. Value-Added Tax on Sale of Goods or Properties.-

(A) Rate and Base of Tax. - ...

(2) The following sales by VAT-registered persons shall be subject to

zero percent (o%) rate:

(a) Export Sales. -The term 'export sales' means:

(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)[.]

Based on the foregoing, in order for an export sale of goods to

qualify as zero-rated under Section w6(A)(2)(a)(1) of the NIRC of 1997,
as amended, the following essential elements must be preseny
CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 21 of 53
X-------------------------------------- X

1. The sale was made by a VAT-registered person;

2. There was a sale and actual shipment of goods from the
Philippines to a foreign country; and,
3· The sale was paid for in acceptable foreign currency
accounted for in accordance with the rules and regulations of
the BSP.

As for the first essential element, it has already been settled that
petitioner is a VAT-registered person.

As for the second essential element, Sections 113(A)(1), (B)(1) and

(2)(c) of the NIRC of 1997, as amended, and Sections 4·113-I(A)(I),
(B)(1) and (2)( c) of RR No. 16-2oos, respectively provide:

SEC. 113. Invoicing and Accounting Requirements for VAT-Registered

Persons.-

(A) Invoicing Requirements.- A VAT-registered person shall issue:

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

properties; and

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

(B) Information Contained in the VAT Invoice or VAT Official Receipt.

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

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

his Taxpayer's Identification Number (TIN);

(2) The total amount which the purchaser pays or is obligated to pay
to the seller with the indication that such amount includes the
value-added tax: Provided, That:

(c) If the sale is subject to zero percent (o%) value-added tax, the
term 'zero-rated sale' shall be written or printed prominently
on the invoice or receipt;/
CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 22 of 53
X------------------------------·------- X

SEC. 4·113-1. Invoicing Requirements. -

(A) A VAT-registered person shall issue: -

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

or properties; and

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

Only VAT-registered persons are required to print their TIN

followed by the word "VAT" in their invoice or official receipts. Said
documents shall be considered as a 'VAT Invoice' or VAT official
receipt. All purchases covered by invoices/receipts other than VAT
Invoice/VAT Official Receipt shall not give rise to any input tax.

VAT invoice/official receipt shall be prepared at least in duplicate,

the original to be given to the buyer and the duplicate to be retained
by the seller as part of his accounting records.

(B) Information contained in VAT invoice or VAT official receipt. -

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

(1) A statement that the seller is a VAT-registered person, followed

by his TIN;
(2) The total amount which the purchaser pays or is obligated to
pay to the seller with the indication that such amount includes
the VAT; Provided, That:

(c) If the sale is subject to zero percent (o%) VAT, the

term "zero-rated sale" shall be written or printed
prominently on the invoice or receipt[.]u6

Based on the foregoing, any VAT-registered person claiming for

VAT zero-rating in relation to export sales of goods must present the
following documents, to wit:

1. Sales invoice as proof of sale of goods; and,

2. Bill of lading or airway bill as proof of actual shipment of
goods from the Philippines to a foreign country~

116
Emphasis supplied.
CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 23 of 53
X-------------------------------------- X

In addition to the above requirements, the sales invoices

supporting the export sales must be duly registered with the BIR and
must contain all the required information, pursuant to Sections 237
and 238 of the NIRC ofl997, as amended, viz:

SEC. 2.37. Issuance of Receipts or Sales or Commercial Invoices. - All

persons subject to an internal revenue tax shall, for each sale or
transfer of merchandise or for services rendered valued at Twenty-
five pesos (Pzs.oo) or more, issue duly registered receipts or sales or
commercial invoices, prepared at least in duplicate, showing the date
of transaction, quantity, unit cost and description of merchandise or
nature of service ...

SEC. 2.38. Printing of Receipts or Sales or Commercial Invoices. - All

persons who are engaged in business shall secure from the Bureau of
Internal Revenue an authority to print receipts or sales or
commercial invoices before a printer can print the same.

No authority to print receipts or sales or commercial invoices shall

be granted unless the receipts or invoices to be printed are serially
numbered and shall show, among other things, the name, business
style, Taxpayer Identification Number (TIN) and business address of
the person or entity to use the same, and such other information
that may be required by rules and regulations to be promulgated by
the Secretary of Finance, upon recommendation of the
Commissioner.

Thus, only export sales supported by the above-stated

documents shall qualify for VAT zero-rating under Section
w6(A)(2)(a)(1) of the NIRC ofl997, as amended.

As per ICPA Sison's verification of the Schedule of Zero-Rated

Export Sales of Goods117, petitioner's sales amounting to
P2,030,790,JI6.26 for the 41h quarter ofFY 2016 arose from the export of
goods to SWS-Japan and SEWS-USA which are properly supported
with VAT zero-rated sales invoices, bills of lading or airway bills and
export declarations. 118 Thus, petitioner satisfactorily complied with the
second essential element.~

117
!CPA Exhibit "P-37-N-3", CD.
J\8
!CPA Exhibits "P-37-T-1" to "P-37-T-274", "P-37-U-1" to "P-37-U-2", and "P-37-W-1", id.
CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 24 of 53
X-------------------------------------- X

As for the third essential element (i.e., the sale was paid for in
acceptable foreign currency accounted for in accordance with the rules
and regulations of the BSP), petitioner presented the following
documents: (1) Certificate of Inward Remittance CIR17-356899n9 issued
by The Bank of Tokyo-Mitsubishi UFJ, Ltd. Manila Branch;
(2) Reconciliation of Export Sales and Dollar Remittances120
(Reconciliation); and, (3) Schedule of Offsetting of Receivables and
Payables'21 (Schedule of Offsetting).

The said Certificate of Inward Remittance shows certain

amounts of dollar remittances from SWS-Japan and SEWS-USA and
such amounts can be traced to the sales amounts indicated in the
supporting sales invoices using the Reconciliation, which enumerates
the invoices comprising a particular amount of remittance for a
specific date, and the Schedule of Offsetting, which reflects the details
of the adjustments to the sales amounts (such as receivables, payables
and other charges) to arrive at the net proceeds or amounts of dollar
remittances. The foregoing documents thus confirm that the foreign
currency remittances actually pertain to the payments for the zero-
rated export sales of goods during the 4th quarter of FY 2016 ending
31 March 2016.

An examination of the Reconciliation and Schedule of Offsetting

reveals that the monthly dollar remittances for export sales of goods
per Certificate of Inward Remittance were either lower or higher than
the unadjusted sales due to certain adjustments. Based on the Court's
independent verification, the adjustments can be categorized as
follows: (1) sales adjustments based on the date of delivery of exported
goods and invoice price differences; (2) offsetting of receivables and
payables between petitioner and its non-resident foreign affiliates; and,
(3) deductions for importation of raw materials from petitioner's non-
resident foreign affiliates. Below is the breakdown of the said
adjustments:~

119
ICPA Exhibit "P-37-BA", id.
120
ICPA Exhibit "P-37-BD", id.
121
!CPA Exhibit "P-37-BC", id.
 CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 25 of 53
X-------------------------------------- X

Sales Other
4 1h Quarter Unadjusted Adjusted Importation of Other Charges
Adjustments Receivables Net Proceeds'z3
ofFY Sales = Sales Raw Materials Debited
Credited (USD)
ending (USD) (USD) (USD) (USD)
(USD) (USD)
31 March
(g)- (b)+ (c)+
2016 (a) (b) (c) (d) (e) (0
(d)+ (e)+ (0
SWS-Japan
January $7,6>3,466.89 $(>,3'5·'65.09) $6,298,3m.8o $33,776.03 $('),800,241.26) $(28>,047·76) $2')0,788.8t
February 7,486,810.08 88,845·82 7·575,655·90 48,034.65 (3.357.729·4') (348.524.95) 3.9>7.436.>9
March s,788,9s6.75 9>9,6>6.07 6,708,'}72.82 94.7'5.6> (4,293.907.60) h45,277-70) 2,164,101.1'~
--------- ------ --------- ------ -------- ------ --------- ------- --------- --------- ---- ----------- ----- -------------
Subtotal S2o,88Q,21l-72 s( w6,']01.2o) $20,.!i82,;10.-';2. $1J6,s>6.2Q $(11,4;1,8?8.27) $(974,8;o.41) s6,,u,J28,'l_
SEWS-USA
January $6,925,925·49 s(1,598.3oo.2 5 ) $5.327,625.24 $24,167.22 $0.00 s(s62,2Bo.oo) '4·789.512.46
February 8,057.104.83 598,6 58.62 8,655,763.45 8, 588.84 0.00 (550,9>4.oo) 8,nJ,43B.29
March 6,943.577-34 661,508.31 7,6o5,o85.65 2,341.64 0.00 0.00 7,607,427.29
------------------ ------------------ ------------------ ------------------ -------- ---------- ----------------- -------- ----------
Subtotal $2.1,C)2.6,607.66 s(,,s,m.12) $21,;88,474·14 n;,oQ?.']O $0.00 $(1,1ll,1Q4.00) $2.0,';10,178.04
------ ----------- ------ --------- ------- --------- -------- -------- ------ ---------- ----- ----------- ------- -----------
Total $42.,81!i,84J-.181.1.4 $(644,816.52) $42.,17J.,004.86 $2.11,62.1·99 $(11,4.. ,878.27) s(:z.,o88,o44.4J-) $:z.6,~.p,7o6.I7
:::========="== :::=========="::: ============ ============ ============ ============ ===="========

The total amount of unadjusted sales of US$42,815,841.40 when

converted to Philippine peso corresponds to the reported zero-rated
sales arising from export sales of goods amounting to
P2,030,790,J16.26.

As for the sales adjustments based on the date of delivery of

exported goods and invoice price differences, the amounts can be
traced to the supporting sales invoices, bills of lading or airway bills
and credit/debit notes provided by petitioner. 125 As such, the proper
basis for the zero-rated sales arising from export sales of goods should
instead be the peso equivalent of the total amount of adjusted sales of
US$42,171,004.86. However, with regard to the other adjustments for
offsetting of receivables and payables and deductions for importation
of raw materials from petitioner's non-resident foreign affiliates,
petitioner failed to provide any supporting document for each of the
additions for "other receivables credited" and the deductions for
"importation of raw materials" and "other charges debited"/

122
Amounts comprising the adjustments were traced to the supporting sales invoices. bills of lading
or airway bills and credit/debit notes. ICPA Exhibits "P-37-T-72" to "P-37-T-74", "P-37-T-77" to
"P-37-T-78", "P-37-T-93", "P-37-T-167'", "P-37-T-169'" to "P-3 7-T-170". "P-37-T-172" to "P-37-
T-174", "P-37-T-256". "P-37-T-266" to "P-37-T-267" and "P-37-T-271 ", id.
123
Amounts were traced to the remittances per Certificate of Inward Remittance. supra at note 119.
124
$0.02 discrepancy against the sum per Reconciliation of Export Sales and Dollar Remittances is
due to rounding off difference.
125
Supra at note 119.
CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 26 of 53
X------------------------------------- -X

Aside from the fact that the offsetting of receivables and

payables were unsubstantiated, it is worth mentioning that the BIR
issued RMC 61-2016126 which prohibited "offsetting arrangements" for
taxation purposes, viz:

BACKGROUND:

It is a general principle of accounting that the offsetting of assets and

liabilities in the balance sheet is improper. Hence, under no
circumstance is offsetting to be considered appropriate in recording
transactions that are subject to a wide range of "netting"
arrangements or similar practices, including those with standard
commercial provisions that allow parties to "net settle", such as trade
receivables and payables.

Questions have been raised about offsetting amounts recognized for

transactions for which the net amount of those transactions, rather
than the gross amount is reported for accounting/tax purposes. In
the absence of definitive policies for reporting assets and liabilities
arising from those transactions, various financial reporting practices
have developed giving rise to accounting treatments that result in
offsetting which adversely affect the complete measurement of an
asset or a liability.

TAX CONSEQUENCE:

The practice of offsetting due to/due from and/or

payable/receivable transactions of taxpayers and consequently
the accounting and recording of the same and its related
transactions in the books of the parties is strictly prohibited
for taxation purposes. Thus, at all times, the accrued
receivables or payables arising from sale or lease of goods or
properties or the performance of service, shall be recognized at
gross for income and value-added tax or percentage tax
purposes.'27

In view of the foregoing principle against offsetting or netting for

tax purposes and given that petitioner failed to present evidence
relative to the above-mentioned adjustments, We cannot simp!~'

126
Prescribing Policies and Guidelines for Accounting and Recording Transactions Involving
"Netting" or "'Offsetting".
127
Emphasis supplied.
 CTACase No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 27 of 53
X-------------------------------------- X

declare the full amount of adjusted sales as valid zero-rated export

sales of goods.

In order to determine the reasonable amount of valid zero-rated

sales for exported goods in this case, the proper approach would be to
take the amount of adjusted sales covered in full by the amount of net
proceeds on a monthly and per remittance basis. If the net proceeds
per remittance is lower than the adjusted sales, only the peso
equivalent of the net proceeds remitted (converted at the exchange
rate used on the corresponding invoices) should be treated as valid
zero-rated sales. Otherwise, the peso equivalent of the adjusted sales
pertaining to the net proceeds remitted should be treated as valid
zero-rated sales.

Accordingly, out of petitioner's P2,030,790,JI6.26"'8 (equivalent

to US$42,81s,841.40129) reported zero-rated sales arising from export
sales of goods to its non-resident foreign affiliates (i.e., SWS-Japan and
SEWS-USA), only P1,274,943,827.29 (the peso equivalent of
US$26,84o.364·53, which is the sum of the adjusted sales or net
proceeds, whichever is lower, on a per remittance basis) could qualify
for VAT zero-rating under Section w6(A)(2)(a)(1) of the NIRC of1997,
as amended, computed as follows:

Adjusted Valid Zero- Valid Zero-kated

Net Proceeds Date of Exchange
Sales Rated Sales Sales
(USD) Remittance Rate
4thQuarter of (USD) (USD) (PHP)
FY ending (c)=
31 March zot6 (a) or(b),
(a) (b) (d) (e)= (c) • (d)
whichever is
lower
SWS·Japan
January $6,~98, 101.80 szso.788.8t szso.?88.8t z6 February 2016 47·0600 Pn,8oz,t21.40
February 7875,6,..qo 1·9'7·"6,,q 3·9'7·436·'2_ z8 March 2016 47.6soo ,s6,665,s3+45
March 6,7o8, 57z.Bz 2,164,103.13 2,164,103.13 25 April zm6 47·5450 <02,892,z83·32
------------------ ------------------ ------------------ ------------------
Subtotal $20J582.,SJ0-52 S6,JJ2,p8.t3 s6,J32,p8.t3 P)ot,J60,239·•7
SEWS·USA
January $5.127,625.24 S4.78Q,5<>.46 S4.78Q,5<>.46 t6 March 2016 47.o6oo P22;,104.456.17
February 8,6ss,761-45 8,lll,4l8.29 8,lll,4l8.29 15 April2016 47-6'}00 386,6o:;.}3±52
March 7,6os,o8s.6s 7,607.427.2Q 7,6os,o8s.6s 13 May 2016 47·o4so 36l,58J,72H3
---------------- -- ------------- ----- ------------------ ------------------
Subtotal $21,588·474·34 $2.0,S10 1378.o4 S:zo,soS,OJ6.4o Pm.sS3,s83·12·

Total 42·1']1,004.86 $26,842,7o6.17 526,840,]64·53 Pt,274·943,827·29

'
t1
----------= -- -- --- --- --=¥',

128
!CPA Exhibits "P-37-T", "P-37-U" and "P-37-W", CD.
129
Id.
 CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 28 of 53
X-------------------------------------- X

Considering that the Certificate of Inward Remittance130 attests

to the fact of payment "in acceptable foreign currency ... and
accounted for in accordance with the rules and regulations of the BSP",
petitioner is considered to have complied with the above-stated third
essential element for an export sale of goods to qualify as VAT zero-
rated to the extent of PI,274,943,827.29, representing the customers'
payments for petitioner's export sales of goods for the 4th quarter of FY
2016.

ii. Actual export sale of services

under Section 108(8)(2) of the
NIRC of 1997, as amended
(P9,453.246.78)

Based on the Schedule of Zero-Rated Export Sales of Services13\

the alleged export sales of services in the amount off'9AS3,259-09 were
made to SWS-Japan.

Section 108(B)(2) of the NIRC of1997, as amended, states:

SEC. 108. Value-Added Tax on Sale of Services and Use or Lease of

Properties. -

(B) Transactions Subject to Zero Percent (o%) Rate. - The

following services performed in the Philippines by VAT-
registered persons shall be subject to zero percent (o%) rate:

(1) Processing, manufacturing or repacking of goods for other

persons doing business outside the Philippines which goods are
subsequently exported, where the services are paid for in acceptable
foreign currency and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);

(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 i ; /

130
Supra at note 119.
\31
!CPA Exhibit "P-37-N-1 ", id.
CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 29 of 53
X-------------------------------------- X

accordance with the rules and regulations of the Bangko

Sentral ng Pilipinas (BSP)[.]'32

Based on the foregoing, in order for a sale or supply of services to

qualify as zero-rated under Section 108(8)(2) of the NIRC of 1997, as
amended, the following essential elements must be present:

1. The recipient of the services is a foreign corporation, and the

said corporation is doing business outside the Philippines, or
is a non-resident person not engaged in business who is
outside the Philippines when the services are performed;133
2. The services fall under any of the categories under Section 108
(B)(2r34, or simply, the services rendered should be other than
"processing, manufacturing or repacking goods"; 135
3· The service must be performed in the Philippines by a VAT-
registered person;136 and,
4· The payment was accounted for in accordance with the rules
and regulations of the BSP. 137

Relative to the first essential element, petitioner presented the

Certification of Non-Registration of Company dated 26 May 2017138
issued by the SEC to the effect that the records of the latter do not
show the registration of SWS-Japan as either a corporation or a
partnership. Such document, however, does not prove that SWS-Japan,
petitioner's affiliate-customer, is an NRFC doing business outside the
Philippines.~

132
Emphasis supplied.
133
Site/ Philippines Corporation (Formerly Clientlogic Phils., Inc.) v. Commissioner of Internal
Revenue, G.R. No. 201326, 08 February 2017; Accenture, Inc. v. Commissioner of Internal
Revenue, G.R. No. 190102, II July 2012; Commissioner of Internal Revenue v. Burmeister and
Wain Scandinavian Contractor Mindanao, Inc., G.R. No. 153205,22 January 2007.
134
Commissioner of Internal Revenue v. American Express International, Inc. (Philippine Branch),
G.R. No. 152609, 29 June 2005.
135
Commissioner of Internal Revenue v. Burmeister and Wain Scandinavian Contractor Mindanao,
Inc., supra at note 133.
136
ld.; Commissioner of Internal Revenue v. American Express International, Inc. (Philippine
Branch), supra at note 134.
137
Id.
138
Exhibit "P-37-A W-1 ",CD.
CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 30 of 53
X-------------------------------------- X

As consistently ruled by this Court in a number of cases139, to be

considered as an NRFC doing business outside the Philippines, such
must be proven by presenting, for each corporation involved, at the
very least, both the SEC Certification of Non-Registration of Company
and the proof of incorporation or registration in a foreign country, and
that there is no other indication which would disqualifY said entity in
being classified as an NRFC.

Nevertheless, as culled from the records, petitioner submitted a

photocopy of a certification from the tax authorities of Japan, marked
as Exhibit "P-Ig,.40 , indicating that SWS-Japan is a resident of and
subject to taxation in Japan. Exhibit "P-Ig" was attached to Lopez's
Judicial Affidavit (which was marked as Exhibit "P-26" and admitted
into evidence per the Court's Resolution dated 02 April 20lg141 ), but it
was not included in petitioner's FOE.

Although Exhibit "P-Ig" was not formally offered in evidence,

this Court is inclined to consider the same in favor of petitioner given
that the following conditions were satisfied, namely: (1) Lopez
identified the certification in her Judicial Affidavit; and, (2) the same
has been incorporated in the records of the case!42

With regard to the second and third essential elements, the

Engineering Service Agreement143 made by and between petitioner and
SWS-Japan was offered in evidence and admitted by the Court. The
said agreement contains, in part, the following statements~

139
NCR Cebu Development Center, Inc. v. Commissioner of Internal Revenue, CTA Case No. 9255,
04 April 2019; Deutsche Knowledge Services Pte. Ltd v. Commissioner of Internal Revenue, CTA
Case No. 9079, 09 January 2018; Deutsche Knowledge Services Pte. Ltd v. Commissioner of
Internal Revenue, CTA Case No. 8065, 20 September 20 17; Deutsche Knowledge Services Pte.
Ltd v. Commissioner of Internal Revenue, CTA Case Nos. 8623, 8656, 8661 and 8685,
04 August 2017; Emerson Electric (Asia) Limited-ROHQ v. Commissioner of Internal Revenue,
CTA Case No. 8657, 21 December 2016; Procter & Gamble Asia, Pte. Ltd v. Commissioner of
Internal Revenue, CTA Case No. 7820, 22 June 20 16; Deutsche Knowledge Services Pte. Ltd v.
Commissioner of Internal Revenue, CTA Case No. 7808, 16 December 2014 affirmed in toto by
the CTA En Bane on 16 August 2016 in CTA EB No. 1290.
140
Supra at note 49.
141
Supra at note 57.
142
Heirs of Serapio Mabborang, et a/. v. Hermogenes Mabborang and Benjamin Mabborang, G.R.
No. 182805,22 April2015, citing Heirs ofRomana Saves, eta/. v. Heirs ofEscolastico Saves, 646
Phil. 536 (2010).
143
Exhibit "P-37-BB".
CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 31 of 53
X------------------------------------- -X

ARTICLE I. STATEMENT OF SERVICES

(a) Services requested by SWS

During the term of the agreement, PKI shall furnish SWS with its
services for the input and maintenance of designing data of
automotive wiring harnesses in the capacity of an independent
contractor ....

ARTICLE 10. INDEMNIFICATION

(b) PKI agrees that in the performance of the services hereunder it

will comply with all applicable national, state, or local safety
protection requirements, rules, regulations, and laws (public or
private) of the Philippines, while performing services anywhere in
the Philippines.'44

Based on the aforesaid agreement, petitioner has rendered

services to SWS-Japan for the input and maintenance of designing data
of automotive wiring harnesses. Nonetheless, the agreement does not
state whether the services were exclusively performed in the
Philippines, or part of the services were performed in the place where
SWS-Japan was located. Although the agreement includes a provision
for indemnification, stating that petitioner will comply with Philippine
laws "while performing services anywhere in the Philippines," it
connotes that petitioner may render services outside the Philippines.

None of petitioner's witnesses testified on any matters

concerning the sale or supply of services to SWS-Japan. As such, the
Court cannot ascertain if the services performed by petitioner to SWS-
Japan were done in the Philippines.

As regards the fourth essential element, petitioner presented a

Certificate of Inward Remittance145 purportedly showing the foreign
currency remittances ofSWS-Japan to petitioner/

144
Underscoring supplied.
145
Supra at note 119.
CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 32 of 53
X-------------------------------------- X

Corollary thereto, the said foreign currency remittances must be

duly supported by VAT zero-rated ORs, in accordance with the above
stated Section 113(A)(2), (B)(1) and (2)(c)'46 of the NIRC of 1997, as
amended, and Section 4.113-1 (A)(2), B(1) and (2)(c)'47 of RR No. 16-
2005, which provide that a VAT taxpayer, like herein petitioner, shall
for every lease of goods or properties and for every sale, barter or
exchange of services, issue a VAT OR, which must contain the
information stated in the said provisions.

In this case, however, the foreign currency remittances were not

supported by VAT zero-rated ORs. The supporting documents for
petitioner's sale of services to SWS-Japan merely consisted of debit
notes (with notation "This document is not valid for claiming input
taxes") and approved engineering sheets.'48 As such, it cannot be
verified whether the relevant foreign currency remittances actually
pertain to the alleged zero-rated sales of services. Thus, petitioner
likewise failed to comply with the fourth essential element that the
services were paid in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP.

Considering the foregoing, petitioner fell short in establishing

that its sales of services to SWS-Japan amounting to f'9A53,246.78
qualifY for VAT zero-rating under Section 108(B)(2) of the NIRC of
1997, as amended.

iii. Sale to PEZA-registered Entities

under Section 106(A)(2)(a)(s) of
the NIRC of 1997, as amended
(P4,781,927.o2)

Section w6(A)(2)(a)(s) of the NIRC ofi997, as amended, states:

SEC. 106. Value-Added Tax on Sale of Goods or Properties.-

~~)Rate and Base of Tax. - ·! '

146
Supra at p. 21.
147
Supra at p. 22.
148
!CPA Exhibits "P-37-V-1" to "P-37-V-6", CD.
CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 33 of 53
X-------------------------------------- X

(2) The following sales by VAT -registered persons shall be subject to

zero percent (o%) rate:

(a) Export Sales.- The term 'export sales' means:

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

Relative thereto, Section 4.106-s(a)(s) of RR No. t6-2o05149 , as

amended by RR No. 04-2ooi 50 , provides:

SEC. 4.106-s. Zero-Rated Sales of Goods or Properties.- ...

The following sales by VAT -registered persons shall be subject to

zero percent (o%) rate:

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

(5) Transactions considered export sales under Executive Order No.

226, otherwise known as the Omnibus Investments Code of 1987,
and other special laws.

'Considered export sales under Executive Order No. 226' shall

mean the Philippine port F.O.B. value determined from invoices,
bills of lading, inward letters of credit, landing certificates, and other
commercial documents, of export products exported directly by a
registered export producer, or the net selling price of export products
sold by a registered export producer to another export producer, or
to an export trader that subsequently exports the same; Provided,
That sales of export products to another producer or to an export
trader shall only be deemed export sales when actually exported by
the latter, as evidenced by landing certificates or similar commercial
documents; Provided, further, That pursuant to EO 226 and other
special laws, even without actual exportation, the following shall be
considered constructively exported: (1) sales to bonded
manufacturing warehouses of export-oriented manufacturers; (2) 1
sales to export processing zones pursuant to Republic Act (RA) Noy

149
Supra at note 26.
150
Amending Certain Provisions of Revenue Regulations No. 16-2005, As Amended, Otherwise
Known as the Consolidated Value-Added Tax Regulations of2005.
CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 34 of 53
X-------------------------------------- X

7916, as amended, 7903, 7922 and other similar export processing

zones; (3) sale to enterprises duly registered and accredited with the
Subic Bay Metropolitan Authority pursuant to RA 7227; (4) sales to
registered export traders operating bonded trading warehouses
supplying raw materials in the manufacture of export products under
guidelines to be set by the Board in consultation with the Bureau of
Internal Revenue (BIR) and the Bureau of Customs (BOC); (s) sales
to diplomatic missions and other agencies and/or instrumentalities
granted tax immunities, of locally manufactured, assembled or
repacked products whether paid for in foreign currency or not.' 5'

The special law applicable to this case is Republic Act (RA) No.
7916 \ as amended by RA 8748153, otherwise known as "The Special
15

Economic Zone Act of 1995." Sections 8 and 24 thereof read:

SEC. 8. ECOZONE to be Operated and Managed as Separate

Customs Territory. - The ECOZONE shall be managed and
operated by the PEZA as separate customs territory.

The PEZA is hereby vested with the authority to issue certificates of

origin for products manufactured or processed in each ECOZONE in
accordance with the prevailing rules of origin, and the pertinent
regulations of the Department of Trade and Industry and/or the
Department of Finance.

SEC. 24. Exemption from National and Local Taxes. - Except for
real property taxes on land owned by developers, no taxes, local
and national, shall be imposed on business establishments
operating within the ECOZONE ....' 54

Since the ecozone is viewed as a foreign territory by legal fiction,

sales of goods and services made by a VAT-registered person in the
Philippine customs territory to an entity registered and operating ,
within the ecozone are considered exports to a foreign country subjectj

151
Italics in the original text and emphasis supplied.
152
AN ACT PROVIDING FOR THE LEGAL FRAMEWORK AND MECHANISMS FOR THE
CREATION, OPERATION, ADMINISTRATION, AND COORDINATION OF SPECIAL
ECONOMIC ZONES IN THE PHILIPPINES, CREATING FOR THIS PURPOSE, THE
PHILIPPINE ECONOMIC ZONE AUTHORITY (PEZA), AND FOR OTHER PURPOSES.
153
AN ACT AMENDING REPUBLIC ACT NO. 79I6, OTHERWISE KNOWN AS THE
"SPECIAL ECONOMIC ZONE ACT OF 1995".
154
Italics in the original text and emphasis supplied.
CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 35 of 53
X------------------------------------- -X

to zero percent (o%) VAT. This was explained by the Supreme Court in
the case of Commissioner of Internal Revenue v. Toshiba Information
Equipment (Phils.), Inc.' 55, viz:

This Court agrees, however, that PEZA-registered

enterprises, which would necessarily be located within
ECOZONES, are VAT-exempt entities, not because of Section 24 of
Rep. Act No. 7916, as amended, which imposes the five percent (s%)
preferential tax rate on gross income of PEZA-registered enterprises,
in lieu of all taxes; but, rather, because of Section 8 of the same
statute which establishes the fiction that ECOZONES are
foreign territory.

... An ECOZONE or a Special Economic Zone has been

described as -

[S]elected areas with highly developed or

which have the potential to be developed into agro-
industrial, industrial, tourist, recreational, commercial,
banking, investment and financial centers whose metes
and bounds are fixed or delimited by Presidential
Proclamations. An ECOZONE may contain any or all of
the following: industrial estates (IEs), export
processing zones (EPZs), free trade zones and
tourist/recreational centers.

The national territory of the Philippines outside of the

proclaimed borders of the ECOZONE shall be referred to as the
Customs Territory.

Section 8 of Rep. Act No. 7916, as amended, mandates that

the PEZA shall manage and operate the ECOZONES as a separate
customs territory; thus, creating the fiction that the ECOZONE is a
foreign territory. As a result, sales made by a supplier in the Customs
Territory to a purchaser in the ECOZONE shall be treated as an
exportation from the Customs Territory. Conversely, sales made by a
supplier from the ECOZONE to a purchaser in the Customs Territory
shall be considered as an importation into the Customs Territory.

Given the preceding discussion, what would be the VAT

implication of sales made by a supplier from the Customs Territory
to an ECOZONE enterprise?/

155
G.R. No. 150154,09 August2005.
 CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 36 of 53
X-------------------------------------- X

The Philippine VAT system adheres to the Cross Border

Doctrine, according to which, no VAT shall be imposed to form
part of the cost of goods destined for consumption outside of
the territorial border of the taxing authority. Hence, actual
export of goods and services from the Philippines to a foreign
country must be free of VAT; while, those destined for use or
consumption within the Philippines shall be imposed with ten
percent (w%) VAT [now, twelve percent (12%)].' 56

Based on the foregoing, in order for an export sale to qualify for

VAT zero-rating under Section w6{A)(2)(a){s) of the NIRC of 1997, as
amended, the following essential elements must be present:

1. The sale was made by a VAT-registered person; and,

2. The sale of goods must be to an entity entitled to incentives
under Executive Order {EO) No. 226, otherwise known as the
Omnibus Investment Code of 1987 (OIC), and other special
laws.

As determined earlier, petitioner is a VAT-registered person.

Hence, the first essential element was already fulfilled.

Relative to the second essential element, petitioner presented a

Certification dated os June 2017'57 , which was issued by PEZA,
confirming that its customers, International Wiring Systems {Phils.)
Corporation (IWSPC) and Sumi Philippines Wiring Systems
Corporation (SPWSC) are registered with PEZA.

Hence, petitioner's sales of goods to IWSPC and SPWSC for the

4th quarter of FY 2016 qualify for VAT zero-rating pursuant to Section
w6(A){2)(a)(s) of the NIRC of 1997, as amended, provided that the
same are properly supported by VAT zero-rated sales invoices in
accordance with the above stated Sections 113(A)(1), (B)(1) and (2)(c)'58 ,
237 and 238'59, all of the NIRC of 1997, as amended, in relation to
Section 4.113-1 (A)(1), {B)(1) and (2)(c)' 60 of RR No. 16-2001

156
Citations omitted and emphasis supplied.
157
!CPA Exhibit "P-37-Q", CD.
158
Supraatp. 21.
159
Supra at p. 23.
16<1
Supra at p. 22.
 CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 37 of 53
X------------------------------------- -X

Upon examination of the submitted sales invoices and related

delivery receipts161 in support of petitioner's sales of goods to IWSPC
and SPWSC, the following zero-rated export sales of goods amounting
to US$wo,884.oo or P4,781,927.02 which were duly supported by VAT
zero-rated sales invoices, complied with the second essential element:

!CPA Name of Invoice Date Amount Conversion Amount

Exhibit No. Client No. (USD) Rate (PHP)
"P-37-R-r" IWSPC 2140 o8 january 2016 $U,025.00 47-06 1'518,836.50
"P-37-S-1" SPWSC 2141 o8 january 2016 4·599-00 47-06 216,428.94
"P-37-S-2" SPWSC 2142 o8 january 2016 9.870.00 47·06 464,482.20
"P-37-S-1" IWSPC 2144 21 january 2016 63.00 47·06 2,964·78
"P-37-R-2" IWSPC 2145 21 january 2016 11,235·00 47-06 ')28, 719.10
"P-37-R-3" IWSPC 2146 04 February 2016 63.00 47-65 3,001.95
"P-37-R-4 " IWSPC 2147 04 February 2016 1o,6o5.oo 47·65 505,J28.25
"P-37-S-4 " SPWSC 2148 04 February_ 2016 3·969.00 47·65 189,122.85
"P-37-S-5 " SPWSC 2149 04 February 2016 8,505.00 47·65 405,263.25
"P-37-S-6" IWSPC 2153 18 February 2016 63.00 47·65 3,001.95
"P-37-R-5" IWSPC 2154 18 February 2016 7,665.00 47-65 365,237-25
"P-37-S-7" IWSPC 2155 03 March 2016 63.00 47·5451 2,995·34
"P-37-R-6" IWSPC 2156 03 March 2016 9·450.00 47·5450 449.300.25
"P-17-S-8" SPWSC 2157 01 March 2016 2.394-00 47-'54'50 l13,822. Z3_
"P-37-S-9" SPWSC 21')8 03 March 2016 7,')60.00 47-'54'50 3'59.440.20
"P-37-S-w" IWSPC 2159 17 March 2016 13,755-00 47·5450 653.981.48
Total $wo,884.oo "4·781,927.02

Hence, petitioner was able to prove that its sales of goods to

PEZA-registered entities, in the amount of US$wo,884.00 or
P4,781,927.02, qualify for VAT zero-rating under Section
w6(A)(2)(a)(5) of the NIRC of1997, as amended.

To recapitulate, out of the total reported zero-rated sales or

receipts for the 4th quarter of FY ending 31 March 2016 amounting to
P2,045,025,490.o6, only the amount of P1,279,725,754·31 represents
petitioner's valid zero-rated sales for the same period, broken down as
follows:

Particulars Zero-Rated Sales

Actual export sale of goods p 1,274,943,827.29
Sale to PEZA-registered entities 4,781,927.02
\
Total Zero-Rated Sales Pl,279,725,754·3• ;,
A"

161
!CPA Exhibits "P-37-R-1" to "P-37-R-6" and "P-37-S-1" to "P-37-S-10", id.
CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 38 of 53
X------------------------------------- -X

After finding that petitioner had VAT zero-rated sales in the

total amount of PI,279,725,754·31 for the subject period of claim, this
Court shall now proceed to determine whether petitioner complied
with the remaining requisites pertaining to the input VAT being
claimed for refund.

IV. THE INPUT VALUE-ADDED TAX

(VAT) BEING CLAIMED DOES NOT
APPEAR TO BE TRANSITIONAL
INPUT TAXES.

In its Amended 41h Quarterly VAT Return for FY 2016162 ,

petitioner declared total input VAT ofPio,998,6oz.m from its domestic
purchases and importations of goods and services, of which the
amount of P10,923,055·28 is the subject of the present claim, as shown
below:

Total
Input VAT deferred on capital goods exceeding 1'1 million from
carried over from previous quarter
1'8,893·556.67
Add: Input VAT on purchase of capital goods exceeding I'I million 616,872.00
Total l'g,sw,428.67
Less: Input VAT on purchase of capital goods exceeding 1'1 million
deferred for the succeeding period 8, 751,004.59
Amortized Input VAT 1'759>424·08
Current II1j>_ut VAT:
On purchase of capital goods not exceeding 1'1 million 1'130,65_0.00
On domestic purchase of goods other than capital goods 1,280,170.00
On importation of goods other than capital goods 956.324.62
On domestic purchase of services 7.872,033·31
Total 10,239,177·93
Total Input VAT for the period Pw,998,6o2.or
Less: Output VAT 75.<;46·74
Input VAT claim PI0,923,055·27'"'

The above input VAT does not appear to be transitional input

taxes as understood under Section m(A) of the NIRC of 1997, as
amended, to wit:

SEC. 111. Transitional Presumptive Input Tax Credits. - -';

162
Supra at note 14.
163
The discrepancy of PO.O I from the amount of claim may be due to rounding off.
CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 39 of 53
X-------------------------------------- X

(A) Transitional Input Tax Credits. - A person who becomes liable

to value-added tax or any person who elects to be a VAT-registered
person shall, subject to the filing of an inventory according to the
rules and regulations prescribed by the Secretary of Finance, upon
recommendation of the Commissioner, be allowed input tax on his
beginning inventory of goods, materials and supplies equivalent to
two percent (2%) of the value of such inventory or the actual value-
added tax paid on such goods, materials and supplies, whichever is
higher, which shall be creditable against the output tax.

Parenthetically, transitional input tax credit operates to benefit

newly VAT-registered persons, whether or not they previously paid
taxes in the acquisitions of their beginning inventory of goods,
materials and supplies. During the period of transition from non-VAT
to VAT status, the transitional input tax credit serves to alleviate the
impact of the VAT on the taxpayer. 164

Since there is no showing that the claimed input VAT is

transitional input VAT, petitioner has complied with the sixth
requisite for the grant of an input VAT refund.

V. ONLY A PORTION OF THE INPUT

VALUE-ADDED TAX (VAT) BEING
CLAIMED ARE DUE OR PAID.

Regarding the seventh requisite in claiming VAT refund, it is of

fatal importance that petitioner provide supporting documents to
prove that the input VAT claimed during the subject period are
actually due or paid in accordance with Section uo(A) of the NIRC of
1997, as amended, which provides:

SEC. no. Tax Credits. -

(A) Creditable Input Tax. -

(1) Any input tax evidenced by a VAT invoice or official receipt

issued in accordance with Section 113 hereof on the following
transactions shall be creditable against the output taxi

164
Fort Bonifacio Development Corporation v. Commissioner of Internal Revenue, eta/., G.R. No.
158885, 02 April 2009.
CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 40 of 53
X------------------------------------- -X

(a) Purchase or importation of goods:

(i) For sale; or

(ii) For conversion into or intended to form part of a finished
product for sale including packaging materials; or
(iii) For use as supplies in the course of business; or
(iv) For use as materials supplied in the sale of service; or
(v) For use in trade or business for which deduction for
depreciation or amortization is allowed under this Code.

(b) Purchase of services on which a value-added tax has

actually been paid.

(2) The input tax on domestic purchase or importation of goods or

properties by a VAT-registered person shall be creditable:

(a) To the purchaser upon consummation of sale and on

importation of goods or properties; and
(b) To the importer upon payment of the value-added tax
prior to the release of the goods from the custody of the
Bureau of Customs.

Provided, That the input tax on goods purchased or imported

in a calendar month for use in trade or business for which deduction
for depreciation is allowed under this Code, shall be spread evenly
over the month of acquisition and the fifty-nine (59) succeeding
months if the aggregate acquisition cost for such goods, excluding
the VAT component thereof, exceeds One million pesos
(PI,ooo,ooo): Provided, however, That if the estimated useful life of
the capital good is less than five (s) years, as used for depreciation
purposes, then the input VAT shall be spread over such a shorter
period: Provided, finally, That in the case of purchase of services,
lease or use of properties, the input tax shall be creditable to the
purchaser, lessee or licensee upon payment of the compensation,
rental, royalty or fee.

The above provisions are implemented by Sections 4.110-1 to

65
4.110-3 ofRR No. 16-2005' which provide as follows:

SEC. 4.110-1. Credits For Input Tax.- 'Input tax' means the VAT
due on or paid by a VAT-registered person on importation of goods
or local purchases of goods, properties, or services, including lease or
use of properties, in the course of his trade or business. It shall als1 '

165
Supra at note 26.
CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 41 of 53
X---·---------------------------------- X

include the transitional input tax and the presumptive input tax
determined in accordance with Sec. 111 of the Tax Code.

It includes input taxes which can be directly attributed to

transactions subject to the VAT plus a ratable portion of any input
tax which cannot be directly attributed to either the taxable or
exempt activity.

Any input tax on the following transactions evidenced by a VAT

invoice or official receipt issued by a VAT -registered person in
accordance with Sees. 113 and 237 of the Tax Code shall be creditable
against the output tax:

(a) Purchase or importation of goods

(1) For sale; or
(z) For conversion into or intended to form part of a finished
product for sale, including packaging materials; or
(3) For use as supplies in the course of business; or
(4) For use as raw materials supplied in the sale of services; or
(5) For use in trade or business for which deduction for
depreciation or amortization is allowed under the Tax Code.
(b) Purchase of real properties for which a VAT has actually been
paid;
(c) Purchase of services in which a VAT has actually been paid;
(d) Transactions "deemed sale" under Sec. 106 (B) of the Tax Code;
(e) Transitional input tax allowed under Sec. 4.111 (a) of these
Regulations;
(f) Presumptive input tax allowed under Sec. 4.m (b) of these
Regulations;
(g) Transitional input tax credits allowed under the transitory and
other provisions of these Regulations.

SEC. 4.110-2. Persons Who Can Avail of the Input Tax Credit.-
The input tax credit on importation of goods or local purchases of
goods, properties or services by a VAT-registered person shall be
creditable:

(a) To the importer upon payment of VAT prior to the release of

goods from customs custody;
(b) To the purchaser of the domestic goods or properties upon
consummation of the sale; or
(c) To the purchaser of services or the lessee or licensee upon
... payment ofthe compensation, rental, royalty or fe~
CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 42 of 53
X------------------------------------- -X

SEC. 4.110-3. Claim for Input Tax on Depreciable Goods. -

Where a VAT-registered person purchases or imports capital goods,
which are depreciable assets for income tax purposes, the aggregate
acquisition cost of which (exclusive of VAT) in a calendar month
exceeds One Million pesos (P1,ooo,ooo.oo), regardless of the
acquisition cost of each capital good, shall be claimed as credit
against output tax in the following manner:

(a) If the estimated useful life of a capital good is five (5) years or
more - The input tax shall be spread evenly over a period of
sixty (6o) months and the claim for input tax credit will
commence in the calendar month when the capital good is
acquired. The total input taxes on purchases or importations of
this type of capital goods shall be divided by 6o and the quotient
will be the amount to be claimed monthly.
(b) If the estimated useful life of a capital good is less than five (5)
years - The input tax shall be spread evenly on a monthly basis
by dividing the input tax by the actual number of months
comprising the estimated useful life of the capital good. The
claim for input tax credit shall commence in the calendar month
that the capital goods were acquired.

Where the aggregate acquisition cost (exclusive of VAT) of the

existing or finished depreciable capital goods purchased or imported
during any calendar month does not exceed One million pesos
(P1,ooo,ooo.oo), the total input taxes will be allowable as credit
against output tax in the month of acquisition; Provided, however,
that the total amount of input taxes (input tax on depreciable capital
goods plus other allowable input taxes) allowed to be claimed
against the output tax in the quarterly VAT Returns shall be subject
to the limitation prescribed under Sec. 4.110-7 of these Regulations.

The aggregate acquisition cost of a depreciable asset in any calendar

month refers to the total price agreed upon for one or more assets
acquired and not on the payments actually made during the calendar
month. Thus, an asset acquired in installment for an acquisition cost
of more than P1,ooo,ooo.oo will be subject to the amortization of
input tax despite the fact that the monthly payments/installments
may not exceed P1,ooo,ooo.oo.

If the depreciable capital good is sold/transferred within a period of

five (s) years or prior to the exhaustion of the amortizable input tax
thereon, the entire unamortized input tax on the capital goods
sold/transferred can be claimed as input tax credit during the
month/quarter when the sale or transfer was made but subject to the
~~~itation prescribed under Sec. 4.110-7 of these Regulations/
CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 43 of 53
X----------------------------------- ---X

Meanwhile, Section 4.no-8 of RR No. 16-2005166 provides for the

substantiation requirements of input tax credits, as follows:

SEC. 4.no-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 Sees. 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 Sees. 113 and 237 of the Tax Code.

A cash register machine tape issued to a registered buyer shall

constitute valid proof of substantiation of tax credit only if it shows
the information required under Sees. 113 and 237 of the Tax Code.

(b) Transitional input tax shall be supported by an inventory of

goods as shown in a detailed list to be submitted to the BIR.
(c) Input tax on "deemed sale" transactions shall be substantiated
with the invoice required under Sec. 4.113-2 of these Regulations.
(d) Input tax from payments made to non-residents (such as for
services, rentals and royalties) shall be supported by a copy of the
Monthly Remittance Return of Value Added Tax Withheld (BIR
Form 16oo) filed by the resident payor in behalf of the non-resident
evidencing remittance of VAT due which was withheld by the payor.

1
(e) Advance VAT on sugar shall be supported by the Payment
~rder showing payment of the advance VAT

166
Supra at note 26.
CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 44 of 53
X------------------------------------- -X

From the above, it is categorically mentioned that in order to be

entitled to input tax credits, the same must be evidenced by a VAT
invoice or OR issued in accordance with Section 113167 of the NIRC of
1997, as amended.

Thus, to prove entitlement to credits for input taxes due and

paid, petitioner must not only present the supporting documents
prescribed under Section 4.110-8 of RR No. 16-2005 above but more
importantly, it must also show that these documents comply with the
invoicing requirements of Sections 113(A) and (B)'68 , 237 and 238169 of
the NIRC of 1997, as amended, as implemented by Section 4.113-1(A)
and (B)'70 ofRR No. 16-2005.

In his report, ICPA Sison accounted for petitioner's input VAT, in

the amount ofPlo,998,6o2.o2, detailed as follows:

Particulars Input VAT !CPA Exhibit No.

A. Compliant with Invoicing Requirements
Domestic purchases - services and non-capital goods 1'9,221.445·35 "P-37-AC" to "P-37-
AG" and "P-37-AT"
Importations - non-capital goods 6<)0,602.00 "P-37-AR"
Capital goods exceeding 1'1 million 684,179·32 "P-37-AS"
Subtotal P:to,s¢,226.67
B. Not Compliant with Invoicing Requirements
Domestic purchases - services and non-capital goods:
a. Excess amount of VAT claimed 1'22,635·75 "P-37-AF"
b. Out of period 1,913.64 "P-37-AH"
c. Unreadable supporting documents 12,733-13 "P-37-AI"
d. Improperly substantiated 4,221-43 "P-37-Aj"
e. No TIN of petitioner 7.238-49 "P-37-AK"
f. No name, TIN and address of petitioner 173.29 "P-37-AL"
g. No supporting documents 659.84 "P-37-AM"
h. Handwritten VAT information, no countersign 1,278.73 "P-37-AN"
i. Incorrect spelling of petitioner's name 368.87 "P-37-AO"
j. Supporting documents with erasures, no countersign 7,084.29 "P-37-AP"
k. Improperly classified as purchase of services 337·50 "P-37-AQ"
1. I. Incorrect spelling of supplier's name 2,763.00 "P-37-AU"
Importations - non-capital goods:
Duties and taxes (not input VAT) 265.722.62 "P-37-AB"
Amortization of input VAT on capital goods exceeding
1'1 million:
Purchases that do not qualifY as capital goods 75,244·77 "P-37-Y"
Subtotal 1'402,375·35
Total Input VAT accounted by the ICPA Plo,998,6o2.02 IN'
J
1/

167
Supra at p. 21.
168
Id.
169
Supra at p. 23.
170
Supra at p. 22.
CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 45 of 53
X-------------------------------------- X

i. Input VAT from Domestic

Purchases of Capital Goods not
exceeding Pl. Million and
Purchases of Non-Capital Goods
and Services

In support of its input VAT from domestic purchases of capital

goods not exceeding PI million and non-capital goods and services,
petitioner submitted its suppliers' sales invoices for purchases of goods
and ORs (for purchases of services) which were all examined by ICPA
Sison.

A scrutiny of the ICPA's Report discloses that petitioner's input

VAT on domestic purchases of capital goods not exceeding PI million
and non-capital goods and services amounted to 1"9,282,853·31, which
was classified as 'compliant with invoicing requirements' and 'not
compliant with invoicing requirements' in the amounts of
1"9,221.445·35 and 1"61.407.96, respectively!71

The above exceptions found by ICPA Sison in the aggregate

amount of 1"61.407.96172 were noted, and thus, shall be disallowed for
refund purposes.

Thus, out of the input VAT on domestic purchases of services

and non-capital goods amounting to 1"9,282,853·31, only the amount of
1"9,221.445·35173 were duly substantiated.

ii. Input VAT from Importation of

Non-Capital Goods

In support of its input VAT from importation of non-capital

goods, petitioner submitted the Bureau of Customs (BOC) Statements
of Settlement of Duties and Taxes (SSDTs), Import Entry and Internal ,
Revenue Declarations (IEIRDs), supplier sales invoices, bills of ladiny

171
Supra at note 52.
172
ICPA Exhibits "P-37-AF", "'P-37-AH", "P-37-AI", "P-37-AJ", ''P-37-AK", "P-37-AL", "P-37-
AM", "P-37-AN", "P-37-AO", "P-37-AP", "P-37-AQ" and "P-37-AU", CD.
173
ICPA Exhibits "P-37-AC", "P-37-AD", "P-37-AE", "P-37-AF", "P-37-AG", "P-37-AT" and "P-
37-A V". CD.
CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 46 of 53
X------------------------------------- -X

or airway bills and other related importation documents which were

all examined by ICPA Sison.

An examination of the ICPA's Report shows that petitioner's

input VAT on importation of non-capital goods amounted to
f'956,324.62, which was classified as 'compliant with invoicing
requirements' and 'not compliant with invoicing requirements' in the
amounts off'69o,6o2.oo and f'265,722.62, respectively.'74

As found by ICPA Sison, the aggregate amount of f'265,722.62' 75

does not pertain to input VAT for these were actually duties and taxes
as shown in the pertinent Withdrawal Permits. As such, We adopt
ICPA Sison's recommendation to disallow the same for refund
purposes.

Thus, out of the input VAT on importation of non-capital goods

amounting to P9s6,324-62, only the amount of f'69o,6o2.oo' 76 were
duly substantiated.

iii. Input VAT from Capital Goods

exceeding l'i Million

In support of its input VAT from purchases of capital goods

exceeding PI million, petitioner submitted suppliers' sales invoices for
local purchases and SSDTs for importations which were all examined
by ICPA Sison.

A perusal of the ICPA's Report reveals that petitioner's

amortization of input VAT on purchases of capital goods amounted to
f'759.424.09, which was classified as 'compliant with invoicing
requirements' and 'not compliant with invoicing requirements' in the
amounts off'684,179·32 and f'75,244·77, respectively.'?

174
Supra at note 52.
"'
176
ICPA Exhibits "P-37-AB", CD.
!CPA Exhibits "P-37-AR" and "P-37-AR-1" to "P-37-AR-5".
177
Supra at note 52.
 CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 47 of 53
X------------------------------------- -X

As found by ICPA Sison, the aggregate amount of P75,244.77178

pertains to input VAT on progress billings for supply and installation
services which formed part of petitioner's application for refund.
However, said purchases do not qualify as 'capital goods'; hence, the
corresponding input VAT should not have been amortized but rather
claimed outright on the date of purchase. As such, We likewise adopt
ICPA Sison's recommendation to disallow the same for refund
purposes.

Thus, only the amortization for the 4th quarter of FY 2016 in the
total amount ofP684,179.32179 as determined below, may be claimed by
petitioner as valid input VAT for the same taxable quarter pursuant to
the previously stated Section no(AY80 of the NIRC of 1997, as amended,
as implemented by Section 4.110-3 181 ofRR No. 16-2005:

Est. Input VAT

ICPA
SI/SSDT Useful Monthly Allowable Deferred to
Supplier Input VAT Exhibit
Date Life Amort. Input VAT Future
No.
(in mos.) Periods
Accent Micro Technologies, 21 October 2013 Pt2,642.86 36 PJst.19 "'·053·57 P2,458.33 "P-37-AS-w"
Inc. 27 November 2013 6,32'-43 36 17,.60 ,26.79 1,,80.36 "P-37-AS-14"
zo December 2013 6,904.07 36 191.78 57,·34 1,917.80 "P-37-AS-27"
20 October 2014 U,t81.t4 36 110.64 031.03 >801.>7 "P-37-AS-""
American Technologies, Inc. 04 September 2011 28,192.86 36 788.6o 2,366.07 4·73~·14 "P-37-AS-t"
Atlas Copco (Philippines) Inc. t6 December 2011 17,201.78 36 477-83 1,411·48 4.778.27 "P- 37-AS- 56"
Automated Technologies o6 November 2013 )1,143·52 36 B6 5.w 2,595·29 7,78 5.88 "P-37-AS-ts"
(AT!) Inc.
GLC Forklift, inc. 14 November 2015 80,J57·14 12 6,6o6.43 20,08().29 46,87'}.00 "P-37-AS-48"
Honda Cars Batangas 24 October 2014 tl2,-=\2l.::J3 6o 2,202,36 6,616.07 92,625.oo "P-37-AS-28"
Huotari & Sons Inc. o6 June 2013 98-41 36 2.73 8.20 16.40 "P-37-AS-2"
o6 June 2013 98·41 36 2.73 8.20 16.40 "P-37-AS-3''
o6 June 2013 246.03 36 6.83 20.50 41.00 "P-37-AS-4''
o6 June 2013 49.20 36 1.37 4·10 8.20 "P-37-AS-'"
o6 June 2013 49.20 36 1-37 4.10 8.20 "P-37-AS-6"
27 September 2013 49.20 36 1-37 4·10 8.20 "P-37-AS-7''
Japan Automatic Machine 04 December 2m~ 14Q,Oll.OO 6o >,816.8> 17,4'10.'}'} 1Q1,Q'}6.0'} "P-37-AS-22"
Co., Ltd. ~ December 2013 t,165,5n.oo 6o 22,758,52 68,275·55 751,031.05 "P-37-AS-24''
04 September 201'1 1,04.1}11,00 6o 17.388.55 52,165.65 921,593-15 "P-37-AS-47"
11 November 2015 t,os8,44o.oo 6o 17.640.67 52,922.00 970,236.67 "P-37-AS-49"
14 December 2015 795,685.oo 6o 13,261-42 39.784-25 742,639-33 "P-37-AS-52"
16 December 2015 1,218,565.00 6o 20,309.42 60,928.2, 1,137.327-33 "P-37-AS->1"
24 February 2016 616,872.00 6o 10,281.20 20,562.40 >96.309.60 "P-37-AS-54''
Meridian LT. Corporation 30 August 2013 3.771.00 36 104·7'5 -=\14.2'1 628.'}0 "P-37-AS-8"
17 September 2013 3,,64.00 36 qg.oo 297·00 594.00 "P-37-AS-9"
oq October 2011 4,200.00 36 n6.67 350.00 8t6.67 "P-37-AS-n"
21 October 2013 7,128.oo 36 198.oo 594.00 1,386.oo "P-37-AS-12"
21 October 2on 7,128.oo 36 tg8.oo 594·00 1,386.oo "P-37-AS-1)'
27 November 2013 16,714·29 36 464-29 1,Jg2.86 4,178·57 "P-37-AS-16"
27 November 2013 8,J57-14 36 232.14 696·43 2,089.29 "P-37-AS-17''
27 November 2013 4·•78·57 36 n6.07 148.21 1,044·64 "P-37-AS-18"
10 December 2013 3.798.7, 36 10,.,2 316.,6 "P-37-AS-19"
049.69 ~
o8 January 2014 8,48,-5o 36 23>.7' 707.1i 2,1'}7.08 "P-37-AS-57'' 'r

178
ICPA Exhibits "P-37-Y".
179
!CPA Exhibits "P-37-AS" and "P-37-AS-1" to "P-37-AS-62".
180
Supra at pp. 39-40.
181
Supra at p. 42.
 CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 48 of 53
X------------------------------------- -X

Est. Input VAT

ICPA
SI/SSDT Useful Monthly Allowable Deferred to
Supplier Input VAT Exhibit
Date Life Amort. Input VAT Future
No.
(in mos.) Periods
25 February 2015 4.713·75 36 >30.94 39Z.8> z,88o.63 "P-37-AS-3o"
25 February 2015 171,410.';0 36 4,8>6.96 14,450.88 >05,9?>.08 "P-37-AS-3>"
t8 March 20I'i 1')8,<;80.00 36 4,40'i.OO 11,21'}.00 IOI,1I'i.OO "P-37-AS-11'
31 March 2015 ISB.sBo.oo _36 4,405.00 IJ,2I5.00 10!2_!5.00 "P-37-AS-34 "
31 March 2015 9·150.00 J6 254·17 76z.5o 5·1l15.83 "P-37-AS-35"
14 Aprilzms 190,296.00 36 5,z86.oo Is,BsS.oo 126,864.00 "P-37-AS-37''
22 Aprilzo15 89.715.00 36 2,492.08 7,476.z5 59.810.00 "P-37-AS-38"
30 June 2015 5.482.50 36 152.29 456.88 3-959·58 "P-37-AS-4o"
02 September 2015 457.500.00 >Z 3B,us.oo ll4,375·00 190,62').00 "P-37-AS-46"
t8 December 2015 7,84Z.75 36 217.85 653.56 6,971·" "P-37-AS-5o"
Nexus Technologies, Inc. 30 October 2013 1,607.14 36 44·64 mm 401.78 "P-37-AS-zo"
07 November 2011 40I.7Q 36 ll.I6 33,48 100.4'i "P-37-AS-z>''
o6 December 2013 2,008.()1 36 ".So 167.41 "8.04 "P-37-AS-58"
14 August 2014 401.7() '6 11.16 3H8 >78·57 "P-37-AS-z6"
01 April2015 119,119.05 u 9,926.59 Z9-779·76 0.00 "P-37-AS-6z"
01 June 2015 7,088.96 36 >96.9z 590·75 5,n9.8o "P-37-AS-4>"
02 July 2015 2,6n.o8 >Z 223.09 669.27 669.Z7 "P-37-AS-44"
27 July 2015 4->3'·50 u 35z.63 >,057·88 1,057·88 "P-37-AS-45"
z9)ulyzm5 4,191.29 u 349.z7 1,047.82 1,047.82 "P-37-AS-43'
PC Chain Superstore - 22 October 2013 214.29 36 5·95 17.86 5387 "P-37-AS-zz"
Franchisee 04 January 2014 20.04 36 0.56 1.67 "P-37-AS-,q"
04 January 2014 214.29 36 ,.q, 17.86 ,Q.,
'"7
"P-37-AS-6o"
04 January 2014 241.07 36 6.70 20.0() 66.96 "P-37-AS-6>''
ShinMaywa Industries, Ltd. o8 December 201~i_ 376,706.00 6o 6,278-43 >8,835·30 351,592.27 "P-37-AS-53 "
Sumitomo Wiring Systems, o8 November 2013 7,801.00 36 »6.69 65o.o8 >,95o.z5 "P-37-AS-z3''
Ltd. 20 October 2014 785,522.00 6o >3,09Z.03 39,276.10 549,865.40 "P-37-AS-zg"
05 June 2015 223,848.oo 6o 3-730.80 11,192.40 186,540.00 "P-37-AS-39"
22 July 2015 896,681.00 6o '4-944·68 44,834·05 76>.>78.85 "P-37-AS-42"
Twin Tech Engineering 16 February 2015 6,4z8.57 6o 107.14 3ZL43 4.9>8.,7 "P-37-AS-3z"
17 March 2015 14,134·29 6o 235·57 706.71 n,071.86 "P-37-AS-36"
1
Total Pio,sso,s89.51 "'3•·486·85 P684,179·33 h P8,0']7.972..2.5

It must be noted that part of the total reported input taxes for
the period in the amount ofP10,998,6o2.01 is the amortized input VAT
of 1"759,424.08, as shown earlier. The said amount of P759,424.08 is
comprised of the amortization of input VAT deferred on purchase of
capital goods exceeding PI million from the previous period and
current input VAT on purchase of capital goods exceeding PI million
for the 4'h quarter of FY 2016. Considering that the allowable input
VAT amortization from current purchases of capital goods exceeding
PI million and the input VAT deferred on purchases of capital goods
exceeding PI million from the previous period amounts to P684,I79.33
only, the remaining amount of P75,244.77 (P759,424.o8 less
P684,I79.33) shall be disallowed for purposes of computing the amount
of refundable input VAT.

In sum, for purposes of compliance with the seventh requisite, .

only the amount of Pio,596,226.67 represents petitioner's valid inpuy

182
The discrepancy ofi'O.O I may be due to rounding off.
CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 49 of 53
X------------------------------------- -X

VAT due or paid for the 4th quarter of FY ending 31 March 2016, as
computed below:

Input VAT due or paid on domestic P9,22IA45·35

purchases of capital goods not exceeding PI
million and non-capital goods and services
Input VAT paid on importations of non- 69o,6o2.oo
capital goods
Input VAT due or paid on capital goods 684,I79-32
exceeding PI million
Total Valid Input VAT 1"10,596,226.67

VI. SINCE THERE ARE BOTH ZERO-RATED

OR EFFECTIVELY ZERO-RATED SALES
AND TAXABLE SALES, THE TOTAL
AMOUNT OF VALID INPUT VALUE-
ADDED TAX (VAT) OF (P10,596,226.67)
SHALL BE PROPORTIONATELY
ALLOCATED ON THE BASIS OF SALES
VOLUME.

The eighth requisite for the grant of an input VAT refund is to

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

As previously mentioned, ICPA Sison accounted petitioner's

zero-rated or effectively zero-rated sales amounting to
183
P2,045,025A90.o6. Further, petitioner had taxable sales amounting
ofP629,556.19. 184 Hence, petitioner's total sales for the 4th quarter ofFY
2016 amounted to P2,o4s,6ss,o46.25.185

Since petitioner's input VAT cannot be directly or entirely .

attributed to any of the transactions, the valid input VAT oy
183
Exhibit "P-I 0-3" (Line I 7), supra at note 14.
184
Exhibit "P-I 0-3" (Line I SA), id.
185
Exhibit "P-I 0-3" (Line I 9A), id.
CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 50 of 53
X------------------------------------- -X

P1.0,596,226.67 shall be allocated proportionately on the basis of the

volume of its sales, as shown below:

Total VATable Sales for the period 1'629,556.19

Divided by the Total Sales for the period 2,045,655,046.25
Multiplied by Total Valid Input VAT 10,596,226.67
Valid Input VAT Allocated to VATable Sales PJ,26I.02

Total Zero-Rate Sales for the period 1'2,045,025,490.06

Divided by the Total Sales for the period 2,045,655,046.25
Multiplied by Total Valid Input VAT 10,596,226.67
Valid Input VAT Allocated to Zero-Rated Sales Pio,s92,965.6s

Thus, with regard to petitioner's compliance with the eighth

requisite, only the amount of PJ.0,592,965.65 represents valid input
VAT attributable to its zero-rated sales.

VII. DETERMINATION OF THE

REFUNDABLE AMOUNT.

Having determined that petitioner had valid input VAT

attributable to its zero-rated sales, We now determine whether the
same was not applied against its output VAT liability during and in the
succeeding quarters, relative to the ninth requisite for the successful
prosecution of an input VAT refund claim.

For the 41h quarter of FY 2016, petitioner had an output VAT

liability in the total amount of P75,546·74- 186 Since petitioner's valid
input VAT allocated to sales subject to 12% VAT in the amount of
P3,261.02 is not enough to cover the said output VAT liability,
petitioner still has an output VAT due of P72,285.72, as computed
below:

Output VAT per Amended Quarterly VAT Return 1'75,546·74

Less: Valid Input VAT allocated to VATable sales 3,261.02
Output VAT Still Due ..,2,285-72 ~
"

186
Exhibit "P·l 0-3" (Line 158), id.
 CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 51 of 53
X-------------------------------------- X

Upon applying the valid input VAT allocated to the total zero-
rated sales in the amount of P10,592,96s.6s against the said remaining
output VAT liability of f72,285. 72, the unutilized input VAT allocated
to the total zero-rated sales amounted to P10,520,679·93· However, out
of the said unutilized input VAT allocated to the total zero-rated sales
in the amount of Pw,s2o,679·93, only the remaining input VAT of
P6,s83,578.n is attributable to its valid zero-rated sales of
Pl,279,725,754·3I, as determined below:

Valid Input VAT Allocated to the Total Zero-Rated Sales 1'10,592,965.65

Less: Output VAT still due 72,285-72
Unutilized Input VAT Allocated to the Total Zero-Rated Sales Plo,520,679·93
Divided by the Total Zero-Rated Sales 2,045,025.490.06
Multiplied by the Valid Zero-Rated Sales 1,279· 725, 754· 31
Unutilized Input VAT Attributable to Valid Zero-Rated Sales P6,s83o578.u

Evidently, the said amount of P6,s83,578.n is included in the

amount of the subject refund claim, i.e., the amount ofP10,923,055·28.

It is noteworthy that petitioner deducted the claimed input VAT

of P10,923,055·28187 as "VAT Refund/TCC claimed" in its Amended 4th
Quarterly VAT Return of FY ending 31 March 2016. Accordingly, the
subject claim no longer forms part of the excess input VAT of
Pl3,746,J8s.o8188 as of the end of the 4th quarter of FY ending 31 March
2016 to be carried over or applied to the succeeding quarters of the
next FY. Thus, petitioner has fulfilled the said ninth requisite in the
refund of input VAT under Section n2(A) of the NIRC of 1997, as
amended.

WHEREFORE, the instant Petition for Review filed on

26 January 2018 by petitioner Pilipinas Kyohritsu Inc. is hereby
PARTIALLY GRANTED. Accordingly, respondent Commissioner of
Internal Revenue is ORDERED TO REFUND petitioner the amount of
SIX MILLION FIVE HUNDRED EIGHTY THREE THOUSAND FIVE
HUNDRED SEVENTY EIGHT PESOS and ELEVEN CENTAVOS
(P6,s83,578.n), representing the unutilized input value-added tax
(VAT) attributable to zero-rated sales or receipts for the perioy

187
Exhibit "P-I 0-3" (Line 230), id.
188
Exhibit "P-I 0-3" (Line 29), id.
CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 52 of 53
X------------------------------------- -X

covering the 4th quarter of fiscal year ending 31 March 2016, or from
01 January 2016 to 31 March 2016.

SO ORDERED.

~
•

JEAN MARl LLENA

I CONCUR:

Ou _.,{t;;: c. ~a.-..c-'""1:>(..1 'i.. .

JfiANITO C. CASTANEDA, JR.
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached

m consultation before the case was assigned to the writer of the
opinion of the Court's Division.

~·~c. a7-c.-.~"' ~
JtiANITO c. CASTANEDA, JR.
Associate Justice
2nd Division Chairperson
CTA Case No. 9757
Pilipinas Kyohritsu Inc. v. CIR
DECISION
Page 53 of 53
X-------------------------------------- X

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, it is

hereby certified that the conclusions in the above Decision were
reached in consultation before the case was assigned to the writer of
the opinion of the Court.

Presiding Justice