G.R. No. 222436 - Commissioner of Internal Revenue vs. Euro-Philippines Airline Services, Inc.

The petitioner is the Commissioner of Internal Revenue (CIR).
The respondent is Euro-Philippines Airline Services, Inc. (Euro-Phil), an exclusive passenger sales agent for British Airways, PLC in the Philippines.
The case is a Petition for Review on Certiorari filed under Rule 45 seeking to set aside a decision and a resolution of the Court of Tax Appeals (CTA) En Banc.

On September 13, 2010, Euro-Phil received a Formal Assessment Notice (FAN) from the CIR, assessing deficiency value-added tax (VAT), among other charges, for the taxable year ending March 31, 2007.
Euro-Phil asserted that the receipts in question related to services rendered to persons engaged exclusively in international air transport, thereby qualifying for a zero-rated VAT under Section 108 of the National Internal Revenue Code (NIRC) of 1997.
Following the FAN, Euro-Phil filed a final protest on September 29, 2010 and subsequently raised the issue before the CTA after the protest period lapsed.

The CTA Special First Division rendered its decision on July 25, 2013, finding that Euro-Phil’s services were provided to persons engaged in international air transport operations and thus entitled to a zero percent (0%) VAT rate under Section 108 of the NIRC.
Based on the decision, the assessments for deficiency VAT, documentary stamp tax, interest, and surcharges were cancelled and withdrawn for the taxable year ending March 31, 2007.
The CIR filed a Motion for Partial Reconsideration to reassert that the presentation of VAT official receipts lacking the inscription “zero-rated” was a prerequisite for cancelling the VAT assessment; this motion was denied in a Resolution dated November 18, 2013.

The CIR appealed the decision of the CTA Special First Division to the CTA En Banc, arguing that Euro-Phil’s failure to comply with the invoicing requirements (i.e. the absence of the “zero-rated” inscription on the VAT official receipts) should result in the application of the regular 12% VAT rate.
The CTA En Banc denied the petition, thereby sustaining the ruling of the CTA Special First Division.
In its dissent, CTA Presiding Justice Roman G. Del Rosario emphasized that compliance with the invoicing requirements under Section 113 of the NIRC was vital to the availment of VAT zero-rating.
The CIR subsequently moved for reconsideration of the En Banc decision through a Resolution dated December 22, 2015, arguing that the failure to print “zero-rated” should invalidate the zero-rating of VAT.

The CIR raised for the first time on appeal the issue of non-compliance with the invoicing requirements as a basis to reclassify the sale from zero-rated to subject to 12% VAT.
The petitioner contended that because Euro-Phil did not print “zero-rated” on its VAT official receipts, the transaction should not benefit from the zero-rated VAT treatment as provided under Section 108.

Whether the issue of non-compliance with the invoicing requirements mandated under Section 113 of the NIRC of 1997—specifically, the failure to print “zero-rated” on VAT official receipts—can be recognized when raised for the first time on appeal.
Whether the CTA En Banc erred in its ruling that the transaction by Euro-Phil is entitled to the benefit of zero-rated VAT despite its failure to comply with the invoicing requirements, thereby rejecting the CIR’s argument for imposing the regular 12% VAT rate.