Commissioner of Internal Revenue v. Euro-Philippines Airline Services
REITERATIONFacts
The Antecedents: Respondent Euro-Philippines Airline Services, Inc. (Euro-Phil), an exclusive passenger sales agent for British Airways, PLC, received a Formal Assessment Notice (FAN) from the Commissioner of Internal Revenue (CIR) for deficiency Value-Added Tax (VAT) for the taxable year ending March 31, 2007, amounting to ₱4,271,228.20. Euro-Phil protested the assessment, arguing that the services rendered were to persons engaged exclusively in international air transport, thus qualifying for zero-rating under Section 108 of the National Internal Revenue Code (NIRC) of 1997. Procedural History: The Court of Tax Appeals (CTA) Special First Division granted Euro-Phil's petition, cancelling the VAT and documentary stamp tax assessments, finding that Euro-Phil's services were indeed zero-rated. The CIR's motion for partial reconsideration was denied. The CIR appealed to the CTA En Banc, reiterating that Euro-Phil's services were subject to 12% VAT. The CTA En Banc denied the CIR's petition, affirming the Special First Division's decision. The CIR moved for reconsideration, insisting on the necessity of VAT official receipts imprinted with "zero-rated." This motion was denied, with a dissenting opinion arguing that compliance with invoicing requirements under Section 113 of the NIRC was vital for zero-rating. The Petition: The CIR filed a Petition for Review on Certiorari with the Supreme Court, adopting the dissenting opinion's stance that Euro-Phil failed to comply with invoicing requirements and thus should not be entitled to zero-rating. The CIR also argued against the doctrine of issues not being raised for the first time on appeal.
Issue(s)
Whether or not the issue of non-compliance with invoicing requirements by Euro-Phil must be recognized despite being raised only on appeal. 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.
Ruling
The petition is denied. The CTA En Banc did not commit any reversible error. The Decision dated July 14, 2015 and Resolution dated December 22, 2015 of the CTA En Banc in CTA EB Case No. 1106 are affirmed.
Ratio Decidendi
On the issue of raising new matters on appeal: The Supreme Court agreed with Euro-Phil that the CIR raised the issue of non-compliance with invoicing requirements, specifically the imprinting of "zero-rated" on VAT official receipts, only at the latter stage of the appeal, specifically in its Motion for Reconsideration of the CTA En Banc's decision. Citing the doctrine established in Aguinaldo Industries Corporation (Fishing Nets Division) vs. Commissioner of Internal Revenue and the Court of Tax Appeals, the Court held that allowing a litigant to assume a different posture when before the court, which was not raised at the administrative level, would sanction a procedure where the court reviews issues not previously decided by the administrative forum. Therefore, the CIR should not be allowed to raise this matter for the first time on appeal. On the entitlement to zero-rated VAT despite alleged non-compliance with invoicing requirements: The Court affirmed that Section 108 of the NIRC of 1997 subjects services performed in the Philippines by VAT-registered persons to persons engaged in international air-transport operations to a zero percent (0%) VAT rate. It was undisputed that Euro-Phil was VAT registered and that its services were rendered to British Airways PLC, a company engaged in international air-transport operations. While the CIR contended that the failure to present VAT official receipts with "zero-rated" imprinted thereon, as per the dissenting opinion, should subject the transaction to 12% VAT, the Court found that this did not negate the established fact of British Airways PLC's engagement in international air-transport operations. Furthermore, the Court examined Section 113 of the NIRC of 1997 and Section 4.113-4 of Revenue Regulations 16-2005, finding no provision that creates a presumption that the non-imprintment of the word "zero rated" automatically deems the transaction subject to 12% VAT. Thus, the failure to comply with invoicing requirements, in this specific instance, did not automatically render the transaction subject to the 12% VAT.
Main Doctrine
The failure to comply with invoicing requirements for zero-rated transactions does not automatically render the transaction subject to the 12% Value-Added Tax if the substantive requirements for zero-rating are met and the law does not explicitly create such a presumption.