• This case clarifies a crucial aspect of VAT incentives for PEZA-registered enterprises. The Supreme Court ruled that the VAT zero-rating incentive is strictly territorial. It applies only to goods and services that are consumed or rendered *inside* a PEZA ecozone. For purchases consumed *outside* the ecozone (like construction of worker dormitories in the customs territory), the transaction is subject to the standard 12% VAT. Consequently, the PEZA enterprise can validly claim a refund from the BIR for the unutilized input VAT attributable to its zero-rated export sales.

• The Claimant: Coral Bay Nickel Corporation is a PEZA-registered export enterprise that manufactures and exports nickel and cobalt.
• The Refund Claim: For the year 2012, Coral Bay sought a refund of PHP 22,577,290.53 in unutilized input VAT. This VAT was passed on by its suppliers for goods and services (e.g., construction of worker housing, dormitories, and a bus terminal) that were consumed and rendered *outside* the PEZA ecozone.
• CIR's Argument: The CIR denied the claim, arguing that as a PEZA-registered entity, all of Coral Bay's purchases are effectively zero-rated, so its suppliers should not have charged VAT. The CIR stated Coral Bay's remedy was to seek reimbursement from the suppliers, not a refund from the BIR.

• CTA Division Ruling: The CTA Division partially granted the refund (in the reduced amount of PHP 11.8M). It ruled that the zero-rating incentive is territorial; since the services were rendered outside the ecozone, they were subject to 12% VAT, allowing Coral Bay to claim the input tax.
• CTA En Banc Ruling: The CTA *En Banc* reversed the Division and denied the entire refund. It held that because Coral Bay is a VAT-exempt entity, all its purchases, regardless of location, should be effectively zero-rated.

• Are purchases of goods and services by a PEZA-registered enterprise, which are delivered or rendered *outside* the PEZA ecozone, subject to 12% VAT or are they effectively zero-rated?
• If such purchases are subject to 12% VAT, is the PEZA-registered enterprise the proper party to claim a refund for the unutilized input VAT?

The Supreme Court GRANTED the petition, REVERSED the CTA En Banc, and REINSTATED the CTA Division's decision to grant a partial refund.

• VAT Treatment is Territorial: The Court clarified that the VAT incentives for PEZA enterprises are strictly limited by geography. The legal fiction of the ecozone as a "separate customs territory" means the cross-border doctrine (and thus, zero-rating) applies only to transactions where goods or services are consumed *inside* the ecozone.
• Purchases Outside Ecozone Subject to 12% VAT: Since the services purchased by Coral Bay were rendered and consumed in the customs territory (outside the ecozone), they were correctly subjected to the standard 12% VAT by the suppliers.
• Refund is Proper: Because Coral Bay validly paid input VAT on its local purchases (consumed outside the ecozone) and had zero-rated export sales, it is the proper party to claim a refund from the BIR for its unutilized input VAT under Section 112 of the NIRC. The CTA *En Banc*'s reliance on the 2016 *Coral Bay* case was misplaced as the nature of the purchases was different.

• Cross-Border Doctrine & Destination Principle: These principles dictate that VAT is a tax on consumption. Goods and services are taxed where they are consumed. Ecozones are treated as foreign territory for tax purposes, so sales to entities *within* the ecozone are considered exports and are zero-rated.
• Territoriality of PEZA Incentives: The VAT zero-rating incentive granted to PEZA-registered enterprises is not absolute; it is limited by geography. It only applies to purchases of goods and services that are delivered, rendered, and consumed *within the ecozone*.
• VAT on Purchases Outside the Ecozone: When a PEZA enterprise purchases goods or services that are consumed or rendered in the customs territory (outside the ecozone), the transaction is subject to the standard 12% VAT, and the enterprise can claim a refund for this input tax if attributable to its zero-rated sales.