SECOND DIVISION

G.R. No. 164365             June 8, 2007

COMMISSIONER OF INTERNAL REVENUE, petitioner, 

vs.
PLACER DOME TECHNICAL SERVICES (PHILS.), INC., respondent.

DECISION

TINGA, J.:

Two years ago, the Court in Commissioner of Internal Revenue v. American Express International, Inc. (Philippine
Branch)1 definitively ruled that under the National Internal Revenue Code of 1986, as amended, 2 "services performed
by VAT-registered persons in the Philippines (other than the processing, manufacturing or repacking of goods for
persons doing business outside the Philippines), when paid in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the [Bangko Sentral ng Pilipinas], are zero-rated." 3 The grant of the
present petition entails the extreme step of rejecting American Express as precedent, a recourse which the Court is
unwilling to take.

The facts, as culled from the recital in the assailed Decision4 dated 30 June 2004 of the Court of Appeals, follow.

On 24 March 1996, at the San Antonio Mines in Marinduque owned by Marcopper Mining Corporation (Marcopper),
mine tailings from the Taipan Pit started to escape through the Makulapnit Tunnel and Boac Rivers, causing the
cessation of mining and milling operations, and causing potential environmental damage to the rivers and the
immediate area. To contain the damage and prevent the further spread of the tailing leak, Placer Dome, Inc. (PDI),
the owner of 39.9% of Marcopper, undertook to perform the clean-up and rehabilitation of the Makalupnit and Boac
Rivers, through a subsidiary. To accomplish this, PDI engaged Placer Dome Technical Services Limited (PDTSL), a
non-resident foreign corporation with office in Canada, to carry out the project. In turn, PDTSL engaged the services
of Placer Dome Technical Services (Philippines), Inc. (respondent), a domestic corporation and registered Value-
Added Tax (VAT) entity, to implement the project in the Philippines.

PDTSL and respondent thus entered into an Implementation Agreement signed on 15 November 1996. Due to the
urgency and potentially significant damage to the environment, respondent had agreed to immediately implement the
project, and the Implementation Agreement stipulated that all implementation services rendered by respondent even
prior to the agreement’s signing shall be deemed to have been provided pursuant to the said Agreement. The
Agreement further stipulated that PDTSL was to pay respondent "an amount of money, in U.S. funds, equal to all
Costs incurred for Implementation Services performed under the Agreement,"5 as well as "a fee agreed to one
percent (1%) of such Costs."6

In August of 1998, respondent amended its quarterly VAT returns for the last two quarters of 1996, and for the four
quarters of 1997. In the amended returns, respondent declared a total input VAT payment of P43,015,461.98 for the
said quarters, and P42,837,933.60 as its total excess input VAT for the same period. Then on 11 September 1998,
respondent filed an administrative claim for the refund of its reported total input VAT payments in relation to the
project it had contracted from PDTSL, amounting to P43,015,461.98. In support of this claim for refund, respondent
argued that the revenues it derived from services rendered to PDTSL, pursuant to the Agreement, qualified as zero-
rated sales under Section 102(b)(2) of the then Tax Code, since it was paid in foreign currency inwardly remitted to
the Philippines. When the Commissioner of Internal Revenue (CIR) did not act on this claim, respondent duly filed a
Petition for Review with the Court of Tax Appeals (CTA), praying for the refund of its total reported excess input VAT
totaling P42,837,933.60. In its Answer to the Petition, the CIR merely invoked the presumption that taxes are
collected in accordance with law, and that claims for refund of taxes are construed strictly against claimants, as the
same was in the nature of an exemption from taxation.7

In its Decision dated 19 March 2002,8 the CTA supported respondent’s legal position that its sale of services to
PDTSL constituted a zero-rated transaction under the Tax Code, as these services were paid for in acceptable
foreign currency which had been inwardly remitted to the Philippines in accordance with the rules and regulations of
the Bangko Sentral ng Pilipinas (BSP). At the same time, the CTA pointed out that of the US$27,544,707.00 paid by
PDTSL to respondent, only US$14,750,473.00 was inwardly remitted and accounted for in accordance with the
BSP.9 The CTA also noted that not all the reported total input VAT payments of respondent were properly supported
by VAT invoices and/or official receipts,10 and that not all of the allowable input VAT of the respondent could be
directly attributed to its zero-rated sales.11 In the end, the CTA found that only the resulting input VAT
of P17,178,373.12 could be refunded the respondent.12

The CIR filed a Motion for Reconsideration where he invoked Section 4.102-2(b)(2) of Revenue Regulation No. 5-
96,13 and especially VAT Ruling No. 040-98 dated 23 November 1998, which had interpreted the aforecited provision.

The CTA remained unpersuaded despite the cited issuances. In fact, the CTA Resolution14 dated 20 June 2002,
denying the CIR’s motion for reconsideration, noted that petitioner’s argument was not novel as it had debunked the
same when first raised before it, referring to its decision dated 19 April 2002 in CTA Case No. 6099, American
Express International, Inc. – Philippine Branch v. Commissioner of Internal Revenue.15 The CTA reiterated its
pronouncement in said case, thus: "x x x it is very clear that VAT Ruling No. 040-98 not only expands the language of
Section (108)(B)(2) but also of Revenue Regulation No. 5-96 which interprets the said statute. The same cannot be
countenanced. It is a settled rule of legal hermeneutics that the implementing rules and regulations cannot amend the
act of Congress x x x for administrative rules and regulations are intended to carry out, not supplant or modify, the
law."16

The rulings of the CTA were elevated by petitioner to the Court of Appeals on Petition for Review. In a
Decision17dated 30 June 2004, the appellate court affirmed the CTA rulings. As a consequence, the present petition
is now before us.

Our evaluation of the petition must begin with the statutory scope of the "services performed in the Philippines by
VAT-registered persons,"18 referred to in the law applicable at the time of the subject incidents, the National Internal
Revenue Code of 1986, as amended19 (1986 NIRC). Section 102(b) of the 1986 NIRC reads:

Section 102. Value-Added Tax on Sale of Services and Use or Lease of Properties.

(a) x x x

(b) Transactions Subject to Zero Percent (0%) Rate. ─ The following services performed in the Philippines
by VAT-registered persons shall be subject to zero percent (0%) rate:

(1) Processing, manufacturing or repacking 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 subparagraph, the consideration for
which is paid for in acceptable foreign currency and accounted for in accordance with the rules and
regulations of the [BSP].

x x x 20

It is Section 102(b)(2) which finds special relevance to this case. As explicitly provided in the law, a zero-rated VAT
transaction includes services by VAT-registered persons other than processing, manufacturing or repacking goods for
other persons doing business outside the Philippines, which goods are subsequently exported, the consideration for
which is paid in foreign currency and accounted for in accordance with the rules and regulations of the BSP.

Still, this provision was interpreted by the Bureau of Internal Revenue through Revenue Regulation No. 5-96, Section
4.102-2(b)(2) of which states:

Section 4.102(b)(2)- Services other than processing, manufacturing or repacking for other persons doing
business outside the Philippines for goods which are subsequently exported, as well as services by a
resident to a non-resident foreign client such as project studies, information services, engineering and
architectural designs and other similar services, the consideration for which is paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations of the BSP.
Although there is nothing in Section 4.102-2(b)(2) that is expressly fatal to respondent’s claim, VAT Ruling No. 040-
98 interpreted the provision in such fashion. The relevant portion of the ruling reads:

The sales of services subject to zero percent (0%) VAT under Section 108(B)(2), of the Tax Code of 1997,
are limited to such sales which are destined for consumption outside of the Philippines in that such services
are tacked-in as part of the cost of goods exported. The zero-rating also extends to project studies,
information services, engineering and architectural designs and other similar services sold by a resident of
the Philippines to a non-resident foreign client because these services are likewise destined to be consumed
abroad. The phrase ‘project studies, information services, engineering and architectural designs and other
similar services’ does not include services rendered by travel agents to foreign tourists in the Philippines
following the doctrine of ejusdem generis, since such services by travel agents are not of the same class or
of the same nature as those enumerated under the aforesaid section.

Considering that the services by your client to foreign tourists are basically and substantially rendered within
the Philippines, it follows that the onus of taxation of the revenue arising therefrom, for VAT purposes, is
also within the Philippines. For this reason, it is our considered opinion that the tour package services of
your client to foreign tourists in the Philippines cannot legally qualify for zero-rated (0%) VAT but rather
subject to the regular VAT rate of 10%.

Petitioner argues that following Section 4.102-2(b)(2) of Revenue Regulation No. 5-96, there are only two categories
of services that are subject to zero percent VAT, namely: services other than processing, manufacturing or repacking
for other persons doing business outside the Philippines for goods which are subsequently exported; and services by
a resident to a non-resident foreign client, such as project studies, information services, engineering and architectural
designs and other similar services.21 Petitioner explains that the services rendered by respondent were not for goods
which were subsequently exported. Likewise, it is argued that the services rendered by respondent were not similar
to "project studies, information services, engineering and architectural designs" which were destined to be consumed
abroad by non-resident foreign clients.

These views, petitioner points out, were reiterated in VAT Ruling No. 040-98. It is clear from that issuance that the
location or "destination" where the services were destined for consumption was determinative of whether the zero-
rating availed when such services were sold by a resident of the Philippines to a non-resident foreign client. VAT
Ruling No. 040-98 expresses that the zero-rating may apply only when the services are destined for consumption
abroad. This view aligns with the theoretical principle that the VAT is ultimately levied on consumption.22 If the service
were destined for consumption in the Philippines, the service provider would have the faculty to pass on its VAT
liability to the end-user, thus avoiding having to shoulder the tax itself.

Unfortunately for petitioner, his arguments are no longer fresh. The Court spurned them in Commissioner of Internal
Revenue v. American Express.23

American Express involved transactions invoked as "zero-rated" by a "VAT-registered person that facilitates the
collection and payment of receivables belonging to its non-resident foreign client, for which it gets paid in acceptable
foreign currency inwardly remitted and accounted for in conformity with BSP rules and regulations." 24 The CIR in that
case relied extensively on the same VAT Ruling No. 040-98 now cited before us. However, the Court would conclude
in American Express that the opinion therein that the service must be destined for consumption outside of the
Philippines was "clearly ultra vires and invalid."25

The discussion of the issues in American Express was comprehensive enough as to address each issue now
presently raised before us.

American Express explained the nature of VAT imposed on services in this manner:

The VAT is a tax on consumption "expressed as a percentage of the value added to goods or services"
purchased by the producer or taxpayer. As an indirect tax on services, its main object is the transaction itself
or, more concretely, the performance of all kinds of services conducted in the course of trade or business in
the Philippines. These services must be regularly conducted in this country; undertaken in "pursuit of a
commercial or an economic activity;" for a valuable consideration; and not exempt under the Tax Code,
other special laws, or any international agreement.26
Yet even as services may be subject to VAT, our tax laws extend the benefit of zero-rating the VAT due on certain
services. The aforementioned Section 102(b) of the 1986 NIRC activates such zero-rating on two categories of
transactions: (1) Processing, manufacturing or repacking 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 BSP; and (2) services other than those
mentioned in the preceding subparagraph, the consideration for which is paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the BSP.27

Obviously, it is the second category that begs for further explication, owing to its apparently broad scope, covering as
it does "services other than those mentioned in the preceding subparagraph." Yet, as found by the Court in American
Express, such broad scope did not mean that Section 102(b) is vague, thus:

The law is very clear. Under the last paragraph [of Section 102(b)], services performed by VAT-registered
persons in the Philippines (other than the processing, manufacturing or repacking of goods for persons
doing business outside the Philippines), when paid in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP, are zero-rated.28

Since Section 102(b) is, in fact, "very clear," the Court declared that any resort to statutory construction or
interpretation was unnecessary.

As mentioned at the outset, Section 102(b)(2) of the Tax Code is very clear. Therefore, no statutory
construction or interpretation is needed. Neither can conditions or limitations be introduced where none is
provided for. Rewriting the law is a forbidden ground that only Congress may tread upon.

The Court may not construe a statute that is free from doubt. "[W]here the law speaks in clear and
categorical language, there is no room for interpretation. There is only room for application." The Court has
no choice but to "see to it that its mandate is obeyed."29

It was from the awareness that Section 102(b) is free from ambiguity in providing so broad an extension of the zero-
rated benefit on VAT-registered persons performing services that the Court in American Express proceeded to
consider the same Section 4.102-2(b)(2) of Revenue Regulation No. 5-96 now cited by petitioner. The Court
in American Express explained that Revenue Regulation No. 5-96 had amended Revenue Regulation No. 7-95,
Section 4.102-2 of which had retained the broad language of Section 102(b) in defining "transactions subject to zero-
rate," adding only, by way of specific example, the phrase "those [services] rendered by hotels and other service
establishments."30 However, the amendatory Revenue Regulation No. 5-96 opted for a more specific approach,
providing, by way of example, an enumeration of those services contemplated as zero-rated. 31 In the present case, it
is because of such enumeration that petitioner now argues that "respondent’s services likewise do not fall under the
second category mentioned in Section 4.102-2(b)(2) [as amended by Revenue Regulation No. 5-96], because they
are not similar to ‘project studies, information services, engineering and architectural designs’ which are destined to
be consumed abroad by non-resident foreign clients."32

However, the Court in American Express clearly rebuffed a similar contention.

Aside from the already scopious coverage of services in Section 4.102-2(b)(2) of RR 7-95, the amendment
introduced by RR 5-96 further enumerates specific services entitled to zero rating. Although superfluous,
these sample services are meant to be merely illustrative. In this provision, the use of the term "as well
as" is not restrictive. As a prepositional phrase with an adverbial relation to some other word, it
simply means "in addition to, besides, also or too."

Neither the law nor any of the implementing revenue regulations aforequoted categorically defines
or limits the services that may be sold or exchanged for a fee, remuneration or consideration. Rather,
both merely enumerate the items of service that fall under the term "sale or exchange of services."

xxxx

The canon of statutory construction known as ejusdem generis or "of the same kind or specie" does not
apply to Section 4.102-2(b)(2) of RR 7-95 as amended by RR 5-96.
 First, although the regulatory provision contains an enumeration of particular or specific words,
followed by the general phrase "and other similar services," such words do not constitute a readily
discernible class and are patently not of the same kind. Project studies involve investments or
marketing; information services focus on data technology; engineering and architectural designs require
creativity. Aside from calling for the exercise or use of mental faculties or perhaps producing written
technical outputs, no common denominator to the exclusion of all others characterizes these three services.
Nothing sets them apart from other and similar general services that may involve advertising, computers,
consultancy, health care, management, messengerial work — to name only a few.

Second, there is the regulatory intent to give the general phrase "and other similar services" a broader
meaning. Clearly, the preceding phrase "as well as" is not meant to limit the effect of "and other
similar services."

Third, and most important, the statutory provision upon which this regulation is based is by itself not
restrictive. The scope of the word "services" in Section 102(b)(2) of the [1986 NIRC] is broad; it is not
susceptible of narrow interpretation. (Emphasis supplied)33

The Court in American Express recognized the existence of the contrary holding in VAT Ruling No. 040-98, now
relied upon by petitioner especially as he states that the zero-rating applied only when the services are destined for
consumption abroad. American Express minced no words in criticizing said ruling.

VAT Ruling No. 040-98 relied upon by petitioner is a less general interpretation at the administrative level,
rendered by the BIR commissioner upon request of a taxpayer to clarify certain provisions of the VAT law.
As correctly held by the CA, when this ruling states that the service must be "destined for
consumption outside of the Philippines" in order to qualify for zero rating, it contravenes both the
law and the regulations issued pursuant to it. This portion of VAT Ruling No. 040-98 is clearly ultra
vires and invalid.

Although "[i]t is widely accepted that the interpretation placed upon a statute by the executive
officers, whose duty is to enforce it, is entitled to great respect by the courts," this interpretation is
not conclusive and will have to be "ignored if judicially found to be erroneous" and "clearly absurd x
x x or improper." An administrative issuance that overrides the law it merely seeks to interpret,
instead of remaining consistent and in harmony with it, will not be countenanced by this Court .
(Emphasis supplied)34

Petitioner presently invokes the "destination principle," citing that [r]espondent’s services, while rendered to a non-
resident foreign corporation, are not destined to be consumed abroad. Hence, the onus of taxation of the revenue
arising therefrom, for VAT purposes, is also within the Philippines. Yet the Court in American Express debunked this
argument when it rebutted the theoretical underpinnings of VAT Ruling No. 040-98, particularly its reliance on the
"destination principle" in taxation:

As a general rule, the VAT system uses the destination principle as a basis for the jurisdictional
reach of the tax. Goods and services are taxed only in the country where they are consumed. Thus,
exports are zero-rated, while imports are taxed.

Confusion in zero rating arises because petitioner equates the performance of a particular type of
service with the consumption of its output abroad. In the present case, the facilitation of the collection of
receivables is different from the utilization or consumption of the outcome of such service. While the
facilitation is done in the Philippines, the consumption is not. Respondent renders assistance to its foreign
clients — the ROCs outside the country — by receiving the bills of service establishments located here in
the country and forwarding them to the ROCs abroad. The consumption contemplated by law, contrary
to petitioner's administrative interpretation, does not imply that the service be done abroad in order
to be zero-rated.

Consumption is "the use of a thing in a way that thereby exhausts it." Applied to services, the term
means the performance or "successful completion of a contractual duty, usually resulting in the
performer's release from any past or future liability x x x" The services rendered by respondent are
performed or successfully completed upon its sending to its foreign client the drafts and bills it has gathered
 from service establishments here. Its services, having been performed in the Philippines, are therefore
also consumed in the Philippines.

Unlike goods, services cannot be physically used in or bound for a specific place when their
destination is determined. Instead, there can only be a "predetermined end of a course" when
determining the service "location or position x x x for legal purposes." Respondent's facilitation
service has no physical existence, yet takes place upon rendition, and therefore upon consumption, in the
Philippines. Under the destination principle, as petitioner asserts, such service is subject to VAT at the rate
of 10 percent.

xxxx

However, the law clearly provides for an exception to the destination principle; that is, for a zero
percent VAT rate for services that are performed in the Philippines, "paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations of the [BSP]." Thus, for the
supply of service to be zero-rated as an exception, the law merely requires that first, the service be
performed in the Philippines; second, the service fall under any of the categories in Section 102(b) of the
Tax Code; and, third, it be paid in acceptable foreign currency accounted for in accordance with BSP rules
and regulations. (Emphasis supplied)35

xxxx

Again, contrary to petitioner's stand, for the cost of respondent's service to be zero-rated, it need not be
tacked in as part of the cost of goods exported. The law neither imposes such requirement nor
associates services with exported goods. It simply states that the services performed by VAT-
registered persons in the Philippines — services other than the processing, manufacturing or
repacking of goods for persons doing business outside this country — if paid in acceptable foreign
currency and accounted for in accordance with the rules and regulations of the BSP, are zero-rated.
The service rendered by respondent is clearly different from the product that arises from the
rendition of such service. The activity that creates the income must not be confused with the main
business in the course of which that income is realized. (Emphasis supplied)36

xxxx

The law neither makes a qualification nor adds a condition in determining the tax situs of a zero-rated
service. Under this criterion, the place where the service is rendered determines the jurisdiction to impose
the VAT. Performed in the Philippines, such service is necessarily subject to its jurisdiction, for the
State necessarily has to have "a substantial connection" to it, in order to enforce a zero rate. The
place of payment is immaterial; much less is the place where the output of the service will be further
or ultimately used.37

Finally, the Court in American Express found support from the legislative record that revealed that consumption
abroad is not a pertinent factor to imbue the zero-rating on services by VAT-registered persons performed in the
Philippines.

Interpellations on the subject in the halls of the Senate also reveal a clear intent on the part of the legislators
not to impose the condition of being "consumed abroad" in order for services performed in the Philippines by
a VAT-registered person to be zero-rated. We quote the relevant portions of the proceedings:

"Senator Maceda: Going back to Section 102 just for the moment. Will the Gentleman kindly
explain to me — I am referring to the lower part of the first paragraph with the 'Provided'. Section
102. 'Provided that the following services performed in the Philippines by VAT registered persons
shall be subject to zero percent.' There are three here. What is the difference between the three
here which is subject to zero percent and Section 103 which is exempt transactions, to being with?

"Senator Herrera: Mr. President, in the case of processing and manufacturing or repacking goods
for persons doing business outside the Philippines which are subsequently exported, and where
 the services are paid for in acceptable foreign currencies inwardly remitted, this is considered as
subject to 0%. But if these conditions are not complied with, they are subject to the VAT.

"In the case of No. 2, again, as the Gentleman pointed out, these three are zero-rated and the
other one that he indicated are exempted from the very beginning. These three enumerations
under Section 102 are zero-rated provided that these conditions indicated in these three
paragraphs are also complied with. If they are not complied with, then they are not entitled to the
zero ratings. Just like in the export of minerals, if these are not exported, then they cannot qualify
under this provision of zero rating.

"Senator Maceda: Mr. President, just one small item so we can leave this. Under the proviso, it is
required that the following services be performed in the Philippines.

"Under No. 2, services other than those mentioned above includes, let us say, manufacturing
computers and computer chips or repacking goods for persons doing business outside the
Philippines. Meaning to say, we ship the goods to them in Chicago or Washington and they send
the payment inwardly to the Philippines in foreign currency, and that is, of course, zero-rated.

"Now, when we say 'services other than those mentioned in the preceding subsection[,'] may I have
some examples of these?

"Senator Herrera: Which portion is the Gentleman referring to?

"Senator Maceda: I am referring to the second paragraph, in the same Section 102. The first
paragraph is when one manufactures or packages something here and he sends it abroad and they
pay him, that is covered. That is clear to me. The second paragraph says 'Services other than
those mentioned in the preceding subparagraph, the consideration of which is paid for in
acceptable foreign currency. . . .'

"One example I could immediately think of—I do not know why this comes to my mind tonight—is
for tourism or escort services. For example, the services of the tour operator or tour escort—just a
good name for all kinds of activities—is made here at the Midtown Ramada Hotel or at the
Philippine Plaza, but the payment is made from outside and remitted into the country.

"Senator Herrera: What is important here is that these services are paid in acceptable foreign
currency remitted inwardly to the Philippines.

"Senator Maceda: Yes, Mr. President. Like those Japanese tours which include $50 for the
services of a woman or a tourist guide, it is zero-rated when it is remitted here.

"Senator Herrera: I guess it can be interpreted that way, although this tourist guide should also be
considered as among the professionals. If they earn more than P200,000, they should be covered.

xxxx

Senator Maceda: So, the services by Filipino citizens outside the Philippines are subject to VAT,
and I am talking of all services. Do big contractual engineers in Saudi Arabia pay VAT?

"Senator Herrera: This provision applies to a VAT-registered person. When he performs services in
the Philippines, that is zero-rated.

"Senator Maceda: That is right."38

It is indubitable that petitioner’s arguments cannot withstand the Court’s ruling in American Express, a precedent
warranting stare decisis application and one which, in any event, we are disinclined to revisit at this juncture.
WHEREFORE, the petition is DENIED. No pronouncement as to costs.

SO ORDERED.
G.R. No. 153205             January 2a2, 2007

COMMISSIONER OF INTERNAL REVENUE, Petitioner, 

vs.
BURMEISTER AND WAIN SCANDINAVIAN CONTRACTOR MINDANAO, INC., Respondent.

DECISION

CARPIO,  J.:

The Case

This petition for review1 seeks to set aside the 16 April 2002 Decision2 of the Court of Appeals in CA-G.R. SP No.
66341 affirming the 8 August 2001 Decision3 of the Court of Tax Appeals (CTA). The CTA ordered the Commissioner
of Internal Revenue (petitioner) to issue a tax credit certificate for P6,994,659.67 in favor of Burmeister and Wain
Scandinavian Contractor Mindanao, Inc. (respondent).

The Antecedents

The CTA summarized the facts, which the Court of Appeals adopted, as follows:

[Respondent] is a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines
with principal address located at Daruma Building, Jose P. Laurel Avenue, Lanang, Davao City.

It is represented that a foreign consortium composed of Burmeister and Wain Scandinavian Contractor A/S (BWSC-
Denmark), Mitsui Engineering and Shipbuilding, Ltd., and Mitsui and Co., Ltd. entered into a contract with the
National Power Corporation (NAPOCOR) for the operation and maintenance of [NAPOCOR’s] two power barges. The
Consortium appointed BWSC-Denmark as its coordination manager.

BWSC-Denmark established [respondent] which subcontracted the actual operation and maintenance of
NAPOCOR’s two power barges as well as the performance of other duties and acts which necessarily have to be
done in the Philippines.

NAPOCOR paid capacity and energy fees to the Consortium in a mixture of currencies (Mark, Yen, and Peso). The
freely convertible non-Peso component is deposited directly to the Consortium’s bank accounts in Denmark and
Japan, while the Peso-denominated component is deposited in a separate and special designated bank account in
the Philippines. On the other hand, the Consortium pays [respondent] in foreign currency inwardly remitted to the
Philippines through the banking system.

In order to ascertain the tax implications of the above transactions, [respondent] sought a ruling from the BIR which
responded with BIR Ruling No. 023-95 dated February 14, 1995, declaring therein that if [respondent] chooses to
register as a VAT person and the consideration for its services is paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas, the aforesaid services
shall be subject to VAT at zero-rate.

[Respondent] chose to register as a VAT taxpayer. On May 26, 1995, the Certificate of Registration bearing RDO
Control No. 95-113-007556 was issued in favor of [respondent] by the Revenue District Office No. 113 of Davao City.

For the year 1996, [respondent] seasonably filed its quarterly Value-Added Tax Returns reflecting, among others, a
total zero-rated sales of P147,317,189.62 with VAT input taxes of P3,361,174.14, detailed as follows:

Qtr. Exh. Date Filed Zero-Rated Sales VAT Input Tax

 1st  E  04-18-96  P 33,019,651.07  P608,953.48

2nd  F  07-16-96  37,108,863.33  756,802.66

3rd  G  10-14-96  34,196,372.35  930,279.14

4th  H  01-20-97  42,992,302.87  1,065,138.86

Totals  P147,317,189.62 P3,361,174.14

On December 29, 1997, [respondent] availed of the Voluntary Assessment Program (VAP) of the BIR. It allegedly
misinterpreted Revenue Regulations No. 5-96 dated February 20, 1996 to be applicable to its case. Revenue
Regulations No. 5-96 provides in part thus:

SECTIONS 4.102-2(b)(2) and 4.103-1(B)(c) of Revenue Regulations No. 7-95 are hereby amended to read as
follows:

Section 4.102-2(b)(2) – "Services other than processing, manufacturing or repacking for other persons doing
business outside the Philippines for goods which are subsequently exported, as well as services by a resident to a
non-resident foreign client such as project studies, information services, engineering and architectural designs and
other similar services, the consideration for which is paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP."

x x x x x x x x x x.

In [conformity] with the aforecited Revenue Regulations, [respondent] subjected its sale of services to the Consortium
to the 10% VAT in the total amount of P103,558,338.11 representing April to December 1996 sales since said
Revenue Regulations No. 5-96 became effective only on April 1996. The sum of P43,893,951.07, representing
January to March 1996 sales was subjected to zero rate. Consequently, [respondent] filed its 1996 amended VAT
return consolidating therein the VAT output and input taxes for the four calendar quarters of 1996. It paid the amount
of P6,994,659.67 through BIR’s collecting agent, PCIBank, as its output tax liability for the year 1996, computed as
follows:

Amount subject to 10% VAT P103,558,338.11

Multiply by 10%

VAT Output Tax P 10,355,833.81

Less: 1996 Input VAT P 3,361,174.14

VAT Output Tax Payable P 6,994,659.67 

On January 7,1999, [respondent] was able to secure VAT Ruling No. 003-99 from the VAT Review Committee which
reconfirmed BIR Ruling No. 023-95 "insofar as it held that the services being rendered by BWSCMI is subject to VAT
at zero percent (0%)."

On the strength of the aforementioned rulings, [respondent] on April 22,1999, filed a claim for the issuance of a tax
credit certificate with Revenue District No. 113 of the BIR. [Respondent] believed that it erroneously paid the output
VAT for 1996 due to its availment of the Voluntary Assessment Program (VAP) of the BIR.4

On 27 December 1999, respondent filed a petition for review with the CTA in order to toll the running of the two-year
prescriptive period under the Tax Code. 
The Ruling of the Court of Tax Appeals

In its 8 August 2001 Decision, the CTA ordered petitioner to issue a tax credit certificate for P6,994,659.67 in favor of
respondent. The CTA’s ruling stated:

[Respondent’s] sale of services to the Consortium [was] paid for in acceptable foreign currency inwardly remitted to
the Philippines and accounted for in accordance with the rules and regulations of Bangko Sentral ng Pilipinas. These
were established by various BPI Credit Memos showing remittances in Danish Kroner (DKK) and US dollars (US$) as
payments for the specific invoices billed by [respondent] to the consortium. These remittances were further certified
by the Branch Manager x x x of BPI-Davao Lanang Branch to represent payments for sub-contract fees that came
from Den Danske Aktieselskab Bank-Denmark for the account of [respondent]. Clearly, [respondent’s] sale of
services to the Consortium is subject to VAT at 0% pursuant to Section 108(B)(2) of the Tax Code. 

xxxx

The zero-rating of [respondent’s] sale of services to the Consortium was even confirmed by the [petitioner] in BIR
Ruling No. 023-95 dated February 15, 1995, and later by VAT Ruling No. 003-99 dated January 7,1999, x x x.

Since it is apparent that the payments for the services rendered by [respondent] were indeed subject to VAT at zero
percent, it follows that it mistakenly availed of the Voluntary Assessment Program by paying output tax for its sale of
services. x x x 

x x x Considering the principle of solutio indebiti which requires the return of what has been delivered by mistake, the
[petitioner] is obligated to issue the tax credit certificate prayed for by [respondent]. x x x5

Petitioner filed a petition for review with the Court of Appeals, which dismissed the petition for lack of merit and
affirmed the CTA decision.6

Hence, this petition.

The Court of Appeals’ Ruling

In affirming the CTA, the Court of Appeals rejected petitioner’s view that since respondent’s services are not destined
for consumption abroad, they are not of the same nature as project studies, information services, engineering and
architectural designs, and other similar services mentioned in Section 4.102-2(b)(2) of Revenue Regulations No. 5-
967 as subject to 0% VAT. Thus, according to petitioner, respondent’s services cannot legally qualify for 0% VAT but
are subject to the regular 10% VAT.8

The Court of Appeals found untenable petitioner’s contention that under VAT Ruling No. 040-98, respondent’s
services should be destined for consumption abroad to enjoy zero-rating. Contrary to petitioner’s interpretation, there
are two kinds of transactions or services subject to zero percent VAT under VAT Ruling No. 040-98. These are (a)
services other than repacking goods for other persons doing business outside the Philippines which goods are
subsequently exported; and (b) services by a resident to a non-resident foreign client, such as project studies,
information services, engineering and architectural designs and other similar services, the consideration for which is
paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of
the Bangko Sentral ng Pilipinas (BSP).9

The Court of Appeals stated that "only the first classification is required by the provision to be consumed abroad in
order to be taxed at zero rate. In x x x the absence of such express or implied stipulation in the statute, the second
classification need not be consumed abroad."10

The Court of Appeals further held that assuming petitioner’s interpretation of Section 4.102-2(b)(2) of Revenue
Regulations No. 5-96 is correct, such administrative provision is void being an amendment to the Tax Code.
Petitioner went beyond merely providing the implementing details by adding another requirement to zero-rating. "This
is indicated by the additional phrase ‘as well as services by a resident to a non-resident foreign client, such as project
studies, information services and engineering and architectural designs and other similar services.’ In effect, this
phrase adds not just one but two requisites: (a) services must be rendered by a resident to a non-resident; and (b)
these must be in the nature of project studies, information services, etc."11
The Court of Appeals explained that under Section 108(b)(2) of the Tax Code,12 for services which were performed in
the Philippines to enjoy zero-rating, these must comply only with two requisites, to wit: (1) payment in acceptable
foreign currency and (2) accounted for in accordance with the rules of the BSP. Section 108(b)(2) of the Tax Code
does not provide that services must be "destined for consumption abroad" in order to be VAT zero-rated.13

The Court of Appeals disagreed with petitioner’s argument that our VAT law generally follows the destination principle
(i.e., exports exempt, imports taxable).14 The Court of Appeals stated that "if indeed the ‘destination principle’
underlies and is the basis of the VAT laws, then petitioner’s proper remedy would be to recommend an amendment of
Section 108(b)(2) to Congress. Without such amendment, however, petitioner should apply the terms of the basic
law. Petitioner could not resort to administrative legislation, as what [he] had done in this case."15

The Issue

The lone issue for resolution is whether respondent is entitled to the refund of P6,994,659.67 as erroneously paid
output VAT for the year 1996.16

The Ruling of the Court

We deny the petition.

At the outset, the Court declares that the denial of the instant petition is not on the ground that respondent’s services
are subject to 0% VAT. Rather, it is based on the non-retroactivity of the prejudicial revocation of BIR Ruling No. 023-
9517 and VAT Ruling No. 003-99,18 which held that respondent’s services are subject to 0% VAT and which
respondent invoked in applying for refund of the output VAT. 

Section 102(b) of the Tax Code,19 the applicable provision in 1996 when respondent rendered the services and paid
the VAT in question, enumerates which services are zero-rated, thus: 

(b) Transactions subject to zero-rate. ― The following services performed in the Philippines by VAT-registered
persons shall be subject to 0%:

(1) Processing, manufacturing or repacking 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 sub-paragraph, the consideration for which is
paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of
the Bangko Sentral ng Pilipinas  (BSP);

(3) Services rendered to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero
rate;

(4) Services rendered to vessels engaged exclusively in international shipping; and

(5) Services performed by subcontractors and/or contractors in processing, converting, or manufacturing

goods for an enterprise whose export sales exceed seventy percent (70%) of total annual production.
(Emphasis supplied)

In insisting that its services should be zero-rated, respondent claims that it complied with the requirements of the Tax
Code for zero rating under the second paragraph of Section 102(b). Respondent asserts that (1) the payment of its
service fees was in acceptable foreign currency, (2) there was inward remittance of the foreign currency into the
Philippines, and (3) accounting of such remittance was in accordance with BSP rules. Moreover, respondent
contends that its services which "constitute the actual operation and management of two (2) power barges in
Mindanao" are not "even remotely similar to project studies, information services and engineering and architectural
designs under Section 4.102-2(b)(2) of Revenue Regulations No. 5-96." As such, respondent’s services need not be
"destined to be consumed abroad in order to be VAT zero-rated." 

Respondent is mistaken. 

The Tax Code not only requires that the services be other than "processing, manufacturing or repacking of goods"
and that payment for such services be in acceptable foreign currency accounted for in accordance with BSP rules.
Another essential condition for qualification to zero-rating under Section 102(b)(2) is that the recipient of such
services is doing business outside the Philippines. While this requirement is not expressly stated in the second
paragraph of Section 102(b), this is clearly provided in the first paragraph of Section 102(b) where the listed services
must be "for other persons doing business outside the Philippines." The phrase "for other persons doing business
outside the Philippines" not only refers to the services enumerated in the first paragraph of Section 102(b), but also
pertains to the general term "services" appearing in the second paragraph of Section 102(b). In short, services other
than processing, manufacturing, or repacking of goods must likewise be performed for persons doing business
outside the Philippines. 

This can only be the logical interpretation of Section 102(b)(2). If the provider and recipient of the "other services" are
both doing business in the Philippines, the payment of foreign currency is irrelevant. Otherwise, those subject to the
regular VAT under Section 102(a) can avoid paying the VAT by simply stipulating payment in foreign currency
inwardly remitted by the recipient of services. To interpret Section 102(b)(2) to apply to a payer-recipient of services
doing business in the Philippines is to make the payment of the regular VAT under Section 102(a) dependent on the
generosity of the taxpayer. The provider of services can choose to pay the regular VAT or avoid it by stipulating
payment in foreign currency inwardly remitted by the payer-recipient. Such interpretation removes Section 102(a) as
a tax measure in the Tax Code, an interpretation this Court cannot sanction. A tax is a mandatory exaction, not a
voluntary contribution. 

When Section 102(b)(2) stipulates payment in "acceptable foreign currency" under BSP rules, the law clearly
envisions the payer-recipient of services to be doing business outside the Philippines. Only those not doing business
in the Philippines can be required under BSP rules20 to pay in acceptable foreign currency for their purchase of goods
or services from the Philippines. In a domestic transaction, where the provider and recipient of services are both
doing business in the Philippines, the BSP cannot require any party to make payment in foreign currency. 

Services covered by Section 102(b) (1) and (2) are in the nature of export sales since the payer-recipient of services
is doing business outside the Philippines. Under BSP rules,21 the proceeds of export sales must be reported to the
Bangko Sentral ng Pilipinas. Thus, there is reason to require the provider of services under Section 102(b) (1) and (2)
to account for the foreign currency proceeds to the BSP. The same rationale does not apply if the provider and
recipient of the services are both doing business in the Philippines since their transaction is not in the nature of an
export sale even if payment is denominated in foreign currency. 

Further, when the provider and recipient of services are both doing business in the Philippines, their transaction falls
squarely under Section 102(a) governing domestic sale or exchange of services. Indeed, this is a purely local sale or
exchange of services subject to the regular VAT, unless of course the transaction falls under the other provisions of
Section 102(b).

Thus, when Section 102(b)(2) speaks of "[s]ervices other than those mentioned in the preceding
subparagraph," the legislative intent is that only the services are different between subparagraphs 1 and 2. The
requirements for zero-rating, including the essential condition that the recipient of services is doing business outside
the Philippines, remain the same under both subparagraphs. 

Significantly, the amended Section 108(b)22 [previously Section 102(b)] of the present Tax Code clarifies this
legislative intent. Expressly included among the transactions subject to 0% VAT are "[s]ervices other than those
mentioned in the [first] paragraph [of Section 108(b)] rendered to a person engaged in business conducted outside
the Philippines or to a nonresident person not engaged in business who is outside the Philippines when the services
are performed, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance
with the rules and regulations of the BSP."

In this case, the payer-recipient of respondent’s services is the Consortium which is a joint-venture doing business in
the Philippines. While the Consortium’s principal members are non-resident foreign corporations, the Consortium
itself is doing business in the Philippines. This is shown clearly in BIR Ruling No. 023-95 which states that the
contract between the Consortium and NAPOCOR is for a 15-year term, thus: 

This refers to your letter dated January 14, 1994 requesting for a clarification of the tax implications of a contract
between a consortium composed of Burmeister & Wain Scandinavian Contractor A/S ("BWSC"), Mitsui Engineering &
Shipbuilding, Ltd. (MES), and Mitsui & Co., Ltd. ("MITSUI"), all referred to hereinafter as the "Consortium", and the
National Power Corporation ("NAPOCOR") for the operation and maintenance of two 100-Megawatt power
barges ("Power Barges") acquired by NAPOCOR for a 15-year term.23 (Emphasis supplied)

Considering this length of time, the Consortium’s operation and maintenance of NAPOCOR’s power barges cannot
be classified as a single or isolated transaction. The Consortium does not fall under Section 102(b)(2) which requires
that the recipient of the services must be a person doing business outside the Philippines. Therefore, respondent’s
services to the Consortium, not being supplied to a person doing business outside the Philippines, cannot legally
qualify for 0% VAT. 

Respondent, as subcontractor of the Consortium, operates and maintains NAPOCOR’s power barges in the
Philippines. NAPOCOR pays the Consortium, through its non-resident partners, partly in foreign currency outwardly
remitted. In turn, the Consortium pays respondent also in foreign currency inwardly remitted and accounted for in
accordance with BSP rules. This payment scheme does not entitle respondent to 0% VAT. As the Court held in
Commissioner of Internal Revenue v. American Express International, Inc. (Philippine Branch), 24 the place of
payment is immaterial, much less is the place where the output of the service is ultimately used. An essential
condition for entitlement to 0% VAT under Section 102(b)(1) and (2) is that the recipient of the services is a person
doing business outside the Philippines. In this case, the recipient of the services is the Consortium, which is doing
business not outside, but within the Philippines because it has a 15-year contract to operate and maintain
NAPOCOR’s two 100-megawatt power barges in Mindanao. 

The Court recognizes the rule that the VAT system generally follows the "destination principle" (exports are zero-
rated whereas imports are taxed). However, as the Court stated in American Express, there is an exception to this
rule.25 This exception refers to the 0% VAT on services enumerated in Section 102 and performed in the Philippines.
For services covered by Section 102(b)(1) and (2), the recipient of the services must be a person doing business
outside the Philippines. Thus, to be exempt from the destination principle under Section 102(b)(1) and (2), the
services must be (a) performed in the Philippines; (b) for a person doing business outside the Philippines; and (c)
paid in acceptable foreign currency accounted for in accordance with BSP rules.

Respondent’s reliance on the ruling in American Express 26 is misplaced. That case involved a recipient of services,
specifically American Express International, Inc. (Hongkong Branch), doing business outside the Philippines. There,
the Court stated:

Respondent [American Express International, Inc. (Philippine Branch)] is a VAT-registered person that facilitates the
collection and payment of receivables belonging to its non-resident foreign client [American Express International,
Inc. (Hongkong Branch)], for which it gets paid in acceptable foreign currency inwardly remitted and accounted for in
accordance with BSP rules and regulations. x x x x27 (Emphasis supplied)

In contrast, this case involves a recipient of services – the Consortium – which is doing business in the Philippines.
Hence, American Express’ services were subject to 0% VAT, while respondent’s services should be subject to 10%
VAT. 

Nevertheless, in seeking a refund of its excess output tax, respondent relied on VAT Ruling No. 003-99, 28 which
reconfirmed BIR Ruling No. 023-9529 "insofar as it held that the services being rendered by BWSCMI is subject to
VAT at zero percent (0%)." Respondent’s reliance on these BIR rulings binds petitioner. 

Petitioner’s filing of his Answer before the CTA challenging respondent’s claim for refund effectively serves as a
revocation of VAT Ruling No. 003-99 and BIR Ruling No. 023-95. However, such revocation cannot be given
retroactive effect since it will prejudice respondent. Changing respondent’s status will deprive respondent of a refund
of a substantial amount representing excess output tax.30 Section 246 of the Tax Code provides that any revocation
of a ruling by the Commissioner of Internal Revenue shall not be given retroactive application if the revocation will
prejudice the taxpayer. Further, there is no showing of the existence of any of the exceptions enumerated in Section
246 of the Tax Code for the retroactive application of such revocation.
However, upon the filing of petitioner’s Answer dated 2 March 2000 before the CTA contesting respondent’s claim for
refund, respondent’s services shall be subject to the regular 10% VAT. 31 Such filing is deemed a revocation of VAT
Ruling No. 003-99 and BIR Ruling No. 023-95. 

WHEREFORE, the Court DENIES the petition.

SO ORDERED.

ANTONIO T. CARPIO
Pilipinas Total Gas, Inc. vs Commissioner of Internal Revenue. G.R. No. 207112. December 8,
2015.
FACTS:

Total Gas filed its Amended Quarterly VAT Returns. Total claims that they incurred unused
input VAT credits. 

On May 15, 2008, Total filed an administrative claim for the refund. On August 28, 2008, Total
submitted to the BIR additional documents. On January 23, 2009, Total elevated the case to the
CTA. 

The CTA dismissed the case citing that the case was prematurely filed as the neccesary documents
were incomplete; that the 120 day period allowed to the CIR to decide on the claim under Section 112 of the NRC has
not started to run.

With the CTA en banc, the case was again dismissed reiterating the decision of the Division. The en banc also stated
that the reckoning point of the 120 day period was on May 2008 thus the petition filed on January 2009 was
considered belatedly filed.

ISSUE: Whether the claim has prescribed. 

RULING:

NO. 

The SC held that Total timely filed its judicial claim on January 2009.

The NIRC provides that the CIR has 120 days from the date of submission of complete documents to decide on the
claim for tax credits. Upon inaction of the BIR after 120 days, the taxpayer may, within 30 days, appeal on the CTA.

The BIR did not give notice to Total with regard to the documents submitted on August 2008. Thus the counting of
the 120 day period should start from August 2008 or when Total made its submission of complete documents to
support its application. The BIR had until December 2008 to decide. Because of the BIR's inaction, Total had until
January 25, 2009 to file their judicial claim. 

COMMISSIONER OF INTERNAL REVENUE, PETITIONER, V. EURO-PHILIPPINES AIRLINE

SERVICES, INC., RESPONDENT.

DECISION
REYES, JR., J:
This is a Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court, seeking to set aside the
Decision[2]dated July 14, 2015 and Resolution[3] dated December 22, 2015 of the Court of Tax Appeals (CTA) En
Banc in case CTA EB Case No. 1106 affirming the Decision of the CTA Special First Division which cancelled and
withdrew the assessments for deficiency value-added tax, as well as interest and surcharges.
THE ANTECEDENTS
Respondent Euro-Philippines Airline Services, Inc. (Euro-Phil) is an exclusive passenger sales agent of British
Airways, PLC, an off-line international airline in the Philippines to service the latter's passengers in the Philippines.[4]
Euro-Phil received a Formal Assessment Notice (FAN)[5] dated September 13, 2010 from petitioner Commissioner of
Internal Revenue (CIR) on 14 September 2010 in the aggregate amount of P4,271,228.20 consisting of assessment
of Value Added Tax (VAT), among others, for the taxable year ending March 31, 2007 with Details of Discrepancies.[6]
On 29 September 2010, Euro-Phil filed a final protest on CIR.[7]
Following the lapse of the 180-day period within which to resolve the protest, Euro-Phil filed a petition for review
before the Court of Tax Appeals Special First Division (CTA-First Division) praying, among others, for the cancellation
of the FAN issued by CIR for deficiency VAT. Euro-Phil argued therein that the receipts that are supposedly subject
to 12% VAT actually pertained to "services rendered to persons engaged exclusively in international air transport"
hence, zero-rated.[8]
The CTA- Special First Division rendered a Decision[9] on 25 July 2013 finding Euro-Phil is rendering services to
persons engaged in international air transport operations and, as such, is zero-rated under Section 108 of the NIRC
of 1997. The said decision disposed thus:[10]
WHEREFORE, the instant Petition for Review is PARTIALLY GRANTED. The assessments for deficiency value-
added tax and documentary stamp tax, as well as the interests and surcharges, for the taxable year ending March 31,
2007 are hereby CANCELLED and WITHDRAWN for lack of legal basis.
x x x x 

SO ORDERED."[11]
CIR filed a Motion for Partial Reconsideration of the said Decision covering only the value-added tax that was denied
therein. Such motion was denied for lack of merit in a Resolution dated 18 November 2013.[12]
CIR then appealed before the CTA En Banc alleging that CTA Special First Division erred in not holding that Euro-
Phil's services is subject to 12% VAT.[13]
The CTA En Banc rendered a Decision[14] denying the petition and sustaining the CTA Special First Division with
which CTA Presiding Justice Roman G. Del Rosario (Justice Del Rosario) concurred with Dissenting Opinion.[15] The
said decision disposed thus: 
WHEREFORE, premises considered, the instant Petition for Review is hereby DENIED. Accordingly, the Decision
and the Resolution, dated July 25, 2013 and November 18, 2013, respectively, are hereby AFFIRMED. 
SO ORDERED.[16]

CIR moved for reconsideration of the said decision insisting that the presentation of VAT official receipts with the
words "zero-rated" imprinted thereon is indispensable to cancel the value-added tax (VAT) assessment against Euro-
Phil.[17] However, it was denied in a Resolution[18] dated December 22, 2015 with a dissenting opinion[19] from CTA
Presiding Justice (Justice del Rosario), to quote as follows, pertinent to the issue of VAT: 
In the case at bar, respondent is assessed for deficiency VAT for services it rendered as passenger sales agent of
British Airways PLC. Respondent invokes that services rendered by VAT-registered persons to persons engaged in
international air transport operations is subject to zero percent (0%) rate, pursuant to Section 108 of the National
Internal Revenue Code (NIRC) of 1997, as amended.

To reiterate, it is not enough for respondent to invoke Section 108 of the NIRC of 1997, as amended. Respondent
has likewise the burden to show compliance with the invoicing requirements laid down in Section 113 of the NIRC of
1997, as amended, to be entitled to zero rating. Needless to say, unless appropriately refuted, tax assessments by
tax examiners are presumed correct and made in good faith.

In fine, the issue of compliance with Section 113 of the NIRC of 1997, as amended, is vital in the disposition of the
present controversy which the Court should consider, lest an indispensable requirement for the availment of VAT
zero-rating is blatantly ignored.

For all the foregoing, I VOTE to grant petitioner's Motion for Reconsideration and UPHOLD the VAT assessment."[20]
Hence, this petition with CIR adopting Justice Del Rosario's dissent and that Euro-Phil had to comply with the
invoicing requirements to be entitled to zero rating of VAT.[21] CIR also takes exception to the doctrine of "issues
cannot be raised the first time on appeal." 
The Issues 

1. Whether or not the issue of non-compliance of the invoicing requirements by Euro-Phil must be recognized
despite being raised only on appeal; and 

2. Whether or not the Court of Tax Appeals En Banc erred in finding that the transaction sale made by
respondent is entitled to the benefit of zero-rated VAT despite its failure to comply with invoicing requirements as
mandated by law. 
Our Ruling
The petition is denied. 

The CTA En Banc did not commit any

reversible error.
Euro-Phil contends that CIR raised new matters in its Petition for Review with the CTA En Banc and does it again in
this Petition for Review which should not be allowed by this Court. 
We agree. 

In the case of Aguinaldo Industries Corporation (Fishing Nets Division) vs. Commissioner of Internal Revenue and
the Court of Tax Appeals,[22] this doctrine was explained by this Court as follows: 
To allow a litigant to assume a different posture when he comes before the court and challenge the position he had
accepted at the administrative level would be to sanction a procedure whereby the court – which is supposed to
review administrative determinations would not review, but determine and decide for the first time, a question not
raised at the administrative forum. This cannot be permitted, for the same reason that underlies the requirement of
prior exhaustion of administrative remedies to give administrative authorities the prior opportunity to decide
controversies within its competence, and in much the same way that, on the judicial level, issues not raised in the
lower court cannot be raised for the first time on appeal.[23]
Here, it is not disputed that CIR raised the issue that the alleged failure to present VAT official receipts with the
imprinted words "zero rated" adopting the dissent of Justice Del Rosario, only at the latter stage of the appeal on
Motion for Reconsideration of the CTA En Banc's decision. Accordingly, with the doctrine that issues may not be
raised for the first time on appeal, CIR should not be allowed by this Court to raise this matter. 
Moreover, while the issue arose from the dissent of Justice Del Rosario, the law is clear on the matter. Section 108 of
the NIRC of 1997 imposes zero percent (0%) value-added tax on services performed in the Philippines by VAT-
registered persons to persons engaged in international air transport operations, as it thus provides: 

Section 108. Value-added Tax on Sale of Services and Use or Lease of Properties. –
(A) x x x x 

(B) Transactions Subject to Zero Percent (0%) Rate - The following services performed in the Philippines by
VAT- registered persons shall be subject to zero percent (0%) rate.
(1) x x x x 

x x x x 

(4) Services rendered to persons engaged in international shipping or International air-transport operations,

including leases of property for use thereof; 
xxxx

Here, there is no dispute that Euro-Phil is VAT registered. Next, it is also not disputed that the services rendered by
Euro-Phil was to a person engaged in international air-transport operations. Thus, by application, Section 108 of the
NIRC of 1997 subjects the services of Euro-Phil to British Airways PLC, to the rate of zero percent VAT. 

While CIR contends that the dissenting opinion of Justice del Rosario that Euro-Phil's failure to present and offer any
proof to show that it has complied with the invoicing requirements, deems its sale of services to British Airways PLC
subject to 12% VAT, it does not negate the established fact that British Airways PLC is engaged in international air-
transport operations.

Moreover, as dictated by Section 113 of the NIRC of 1997, on the said provisions on the "Consequences of Issuing
Erroneous VAT Invoice of VAT Official Receipt,[24] nowhere therein is a presumption created by law that the non-
imprintment of the word "zero rated" deems the transaction subject to 12 % VAT. In addition, Section 4. 113-4 of
Revenue Regulations 16-2005,[25] Consolidated Value-Added Tax Regulations of 2005, also does not state that the
non-imprintment of the word "zero rated" deems the transaction subject to 12 %VAT. Thus, in this case, failure to
comply with invoicing requirements as mandated by law does not deem the transaction subject to 12% VAT. 
In view of the foregoing considerations, the Court finds that the CTA En Banc did not commit any reversible error. 
WHEREFORE, the Petition for Review is DENIED. The Decision[26] dated July 14, 2015 and Resolution[27] dated
December 22,2015 of the Court of Tax Appeals (CTA) En Banc in CTA EB Case No. 1106 is AFFIRMED. 
SO ORDERED.