[C.T.A. EB CASE NO. 1264. April 20, 2016.

TOTAL (PHILIPPINES) CORPORATION, petitioner, vs.

COMMISSIONER OF INTERNAL REVENUE, respondent.

FACTS:

Petitioner (Total) is a Philippine corporation with principal office address in Taguig City. Its primary
purpose is to 'acquire, assemble, install, construct, equip, repair, remodel, maintain, develop, operate,
hold, own, lease and otherwise deal with oil terminals and service station networks; to develop and
operate a wholesale distribution network and carry out the purchase, acquisition, including importation, if
appropriate, storage, marketing, distribution, transport, use, wholesale, exportation, refinement, treatment,
distillation and manufacture of, and generally deal in, Fuel Oils, Gas Oils, Gasolines, Lubricants and,
subject to market conditions, Bitumens, Solvents and Kerosenes and, subject to the written agreement of
the stockholders, any and all kinds of oil and oil products, such as Jet Fuel and liquefied petroleum gas.' It
is a VAT-registered entity.

Respondent, on the other hand, is the Commissioner of Internal Revenue (CIR) with the authority to grant
claims for refund or tax credit of taxes erroneously or illegally collected. She holds office at the BIR
National Office Building, Diliman, Quezon City.

Petitioner alleges that during the four quarters of taxable year 2008, it sold and exported products to
companies located in foreign countries and to companies in special economic and Freeport zones. During
the same period, it incurred/paid input taxes on its purchases and/or importations of VATable goods and
services.

On account that its VAT returns showed excess input taxes, petitioner filed with respondent
administrative claims for refund/tax credit of its unutilized input taxes pertaining to zero-rated sales for
taxable year 2008.

On March 30, 2010 and September 29, 2010, petitioner filed separate Petitions for Review respectively
docketed as CTA Case Nos. 8056 and 8163, alleging respondent's inaction in her level.

On May 31, 2010, respondent in her Answer in CTA Case No. 8056 moved to dismiss the case citing that
its unutilized input VAT on purchase/importations of VATable goods and services attributable to its zero-
rated sales for the 1st and 2nd quarters of taxable year 2008 were not properly and fully substantiated; the
sales of goods and services to various alleged clients/affiliates do not qualify for VAT zero-rating; the
amount subject of the claim for refund do not pertain in full to its input VAT attributable to its zero-rated
sales for the 1st and 2nd quarters of taxable year 2008; petitioner failed to exhaust administrative
remedies for failure to comply with the legal requirements under Section 112(C) of the National Internal
Revenue Code (NIRC) of 1997; and a claim for refund being in the nature of tax exemption is strictly
construed against the claimant, hence, looked upon with disfavor.

On November 19, 2010, respondent filed her Answer in CTA Case No. 8163 invoking Section 23 of
Republic Act (RA) No. 7916 which states that an enterprise registered with Philippine Economic Zone
Authority (PEZA) has the option to choose between two sets of fiscal incentives. The first, provided for
under Presidential Decree (PD) No. 66, as amended, and Section 24 of RA 7916 which include the 5%
preferential tax on gross income earned in lieu of national and local taxes, and the second, those under
Book VI of Executive Order No. 226, including but not limited to an income tax holiday (ITH) of 4 to 6
years depending on whether an entity is registered as a pioneer or non-pioneer enterprise. If an ecozone
enterprise chooses the 5% preferential tax, it is exempt from payment of all national and local taxes.
However, if the option chosen is the income tax holiday, the ecozone enterprise is only exempt from
payment of the income tax but still subject to other national internal revenue taxes including the VAT.
Thus, if petitioner's PEZA-registered enterprises clients availed of the income tax holiday under
Executive Order No. 226, petitioner's sales of goods, property and services to them shall be subject to
12% VAT.

Further, in an action for tax refund/credit, petitioner has the burden of establishing by sufficient evidence
his entitlement to refund and failure to discharge this burden is fatal to his cause. Petitioner must prove
that compliance with the requirements under Section 112 (A) and (C) of the NIRC of 1997, as amended,
as well as Revenue Regulations (RR) No. 5-87, as amended by RR Nos. 3-88 and 7-95.

Lastly, claims for refund are strictly construed against the claimant for it partake the nature of exemption
from taxation, thus, looked upon with disfavor.

On January 4, 2011, at the instance of petitioner, CTA Case Nos. 8056 and 8163 were consolidated.

On January 28, 2014, the Court in Division rendered its Decision denying Total's consolidated Petitions
for Review for lack of merit.

On February 13, 2014, Total filed a Motion for Reconsideration/New Trial, followed by a Supplemental
Motion for Reconsideration/New Trial filed on March 14, 2014, both praying for the reconsideration by
the Court in Division of its Decision dated January 28, 2014 and granting of a new trial for the
presentation of supporting documents. On March 6, 2014, CIR filed her Opposition.

On May 26, 2014, the Court in Division granted Total's motion to reopen the case for the presentation of
additional documents and held in abeyance the resolution of its Motion for Reconsideration. Thereafter,
on December 19, 2014, the Court in Division promulgated the assailed Amended Decision partially
granting Total's Motion for Reconsideration. In the assailed Amended Decision, the Court in Division
ordered the CIR to refund or issue a tax credit certificate in favor of Total in the reduced amount of
P16,117,727.89, representing the latter's excess unutilized input value-added tax (VAT) attributable to
Total's zero-rated sales for the year 2008.

On January 22, 2015, CIR filed her Motion for Partial Reconsideration of the assailed Amended Decision
which the Court in Division denied in the assailed Resolution. On January 21, 2015, Total filed its
Petition for Review before the Court En Banc while the CIR filed her Petition for Review on April 14,
2015.

ISSUES:

In CTA EB No. 1264, Total raised the following errors, to wit:

 1. Whether or not the Honorable Court erred in ruling that the grant of refund or tax credit
certificate representing input VAT attributable to zero-rated sales must be made only when the
output tax does not exceed the input tax for the period in question.
2. Whether or not the Honorable Court erred when it held that Peti tioner did not present VAT
invoices and official receipts to prove its input tax carry-over from previous years 2006 and 2007,
and thus should not be credited against its output tax for the year 2008.
3. Whether or not the Honorable Court erred in ruling that Petitioner's sales in 2008 to Nidec Subic
Philippines Corporation in the amount of P566,328.00 and to Subic Shipyard and Engineering,
Inc. in the amount of P42,670.00 should be denied VAT zero-rating.
4. Whether or not the Honorable Court erred when it ruled that Petitioner is only entitled to a refund
or issuance of a tax credit certificate in the reduced amount of SIXTEEN MILLION ONE
HUNDRED SEVENTEEN THOUSAND SEVEN HUNDRED TWENTY SEVEN AND 89/100
PESOS (P16,117,727.89) representing excess unutilized input VAT attributable to Petitioner's
zero-rated sales for the year 2008.

In CTA EB No. 1295, the CIR assails the Amended Decision based on the sole issue, stated as follows:

5. Whether or not the third division erred in partially granting respondent's claim for refund in the
amount of p16,117,727.89 allegedly representing its excess unutilized input vat attributable to its
zero-rated sales for the year 2008.

HELD:

1. No. Refund of input VAT is only proper when the input VAT attributable to zero-rated
sales exceeds output VAT.

Section 112 of the 1997 NIRC must be read and applied in conjunction with the other provisions of the
VAT law, particularly Section 110 (B). When the input tax exceeds the output tax, the excess shall be
carried over to the succeeding quarter/s. But when input tax attributable to zero-rated sales exceeds the
output tax, the excess input tax may be refunded or credited against other internal revenue taxes. Hence,
for input tax attributable to zero-rated sales, it is only when input tax exceeds the output tax that a refund
or credit is proper. The input tax attributable to zero-rated sales must be proven to be "excess and
unutilized" before it may be considered a proper subject of refund or credit, is fully in consonance with
the "tax credit method", the method of computing VAT from which our present VAT law has been drawn.

2. No. No input taxes can be carried over from previous years.

In fine, Total's claim for refund for the year 2007 was denied because its properly substantiated input
taxes are not enough to cover its output taxes for the same year and there is no excess input VAT which
may be the subject of a claim for refund. Consequently, there can be no excess input taxes to be carried
over to the succeeding taxable period.

3. No. Total failed to prove that its sales were zero-rated sales.

The audited financial statements submitted by Total failed to specifically state the effectivity period of
registration of the said entities with SBMA. The determination of effectivity period of the registration is
required since this will aid the court to ascertain whether or not the sales for taxable year 2008 were made
to duly registered ecozone entities. Absent any proof of the required period of coverage, there is no way
for the court to determine if the said registration covers the taxable year involved. This Court cannot
simply presume that the sales to these entities subject of the present claim fall within the covered period
of these entities' registration without any solid basis therefor.

4. No. Total is entitled to a refund or issuance of a tax credit certificate in the adjusted amount
of P18,403,837.32.

The Court is correct in disallowing the discrepancy as it is clear that the same is indeed unsupported.
However, the disallowance is only for the lesser amount of P1,047,220.00 since, the amount of
P18,497,873.25 was duly substantiated.

5. No. There is no need for Total to submit all of the supporting documents required under
Revenue Memorandum Order (RMO) No. 53-98.

There is no need for Total to submit all the supporting documents required under RMO No. 53-98. to
warrant the grant of the application for refund. It is well-settled that in claims for VAT refund, the non-
submission of complete supporting documents in the administrative level is not fatal to Total's judicial
claim. This Court is not barred from receiving, evaluating and appreciating evidence submitted before it.
Once the claim for refund has been elevated to the Court, the admissibility, materiality, relevance,
probative value and weight of evidence presented therein become subject to the relevant provisions of the
Rules of Court. The question of whether or not the evidence submitted by a party is sufficient to warrant
the granting of a claim for refund lies within the sound discretion and judgment of the Court.

Total presented proof that it did not file any other claim for refund covering the same
period.

A careful examination of the case records reveals that Total, indeed, failed to submit any certification
issued by the BOI, DOF, or Special Economic Zones/Freeport Zones to prove that no other claim for
refund covering the same period has been filed by Total. Nevertheless, the Certification/Verification
attached to Total's Petition for Review 32(32) before the Court in Division contains a pronouncement that
it has not commenced any other action or proceeding involving the same issues in the Supreme Court, or
in any other court, tribunal or agency other than the administrative claim for refund filed with the Bureau
of Internal Revenue. This, to the Court's view, constitutes sufficient compliance with the above stated
certification requirement.