G.R. No. 134272 - Layus vs. Sandiganbayan

On 24 March 1996, tailings from Marcopper Mining Corporation’s Taipan Pit escaped into Makulapnit Tunnel and Boac Rivers, halting operations and threatening environmental damage.
Placer Dome, Inc. (PDI), 39.9% owner of Marcopper, undertook clean-up via subsidiary Placer Dome Technical Services Limited (PDTSL), a non-resident foreign corporation.

PDTSL engaged Placer Dome Technical Services (Philippines), Inc. (respondent), a domestic VAT-registered corporation, by Implementation Agreement signed 15 November 1996; all services rendered even prior to signing deemed under the Agreement.
PDTSL agreed to pay respondent in U.S. dollars “an amount equal to all Costs incurred for Implementation Services performed” plus a fee of 1% of such Costs.

In August 1998, respondent amended its VAT returns for Q3–Q4 1996 and all 1997, declaring input VAT payments of ₱43,015,461.98 and excess input VAT of ₱42,837,933.60.
On 11 September 1998, respondent filed an administrative refund claim of ₱43,015,461.98, arguing its services to PDTSL were zero-rated under Section 102(b)(2) of the 1986 NIRC as paid in foreign currency inwardly remitted per BSP rules.

The CIR did not act; respondent filed a Petition for Review with the CTA seeking refund of ₱42,837,933.60. CIR’s Answer invoked presumption of correct tax collection and strict construction of exemptions.
CTA Decision (19 March 2002) granted zero-rating under Sec. 102(b)(2) but found only US$14,750,473.00 inwardly remitted (of US$27,544,707.00) and disallowed improperly supported input VAT; awarded refund of ₱17,178,373.12.
CIR’s Motion for Reconsideration, citing Rev. Reg. No. 5-96 §4.102-2(b)(2) and VAT Ruling No. 040-98, was denied by CTA Resolution (20 June 2002), reaffirming American Express precedent and rejecting administrative overreach.

Petitioner elevated CTA rulings to the CA.
CA Decision (30 June 2004) affirmed CTA, upholding zero-rating and invalidating VAT Ruling No. 040-98’s “consumed abroad” limitation.

CIR sought review of CA’s affirmance, challenging the interpretation of zero-rating provisions and validity of administrative rules.

Whether services performed in the Philippines by a VAT-registered person and paid in acceptable foreign currency inwardly remitted are subject to zero percent VAT under Section 102(b)(2) of the 1986 NIRC.
Whether Revenue Regulation No. 5-96 §4.102-2(b)(2) and VAT Ruling No. 040-98, which limit zero-rating to services “destined for consumption outside the Philippines,” validly interpret Section 102(b)(2) or are ultra vires.