G.R. No. 229338 , April 17, 2024
MANILA PENINSULA HOTEL, INC., PETITIONER, VS. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

FACTS

The present controversy arose from the denial of Manila Peninsula Hotel, Inc.’s (Manila Peninsula) administrative claim for refund of alleged erroneously paid or illegally collected Value-Added Tax (VAT) for taxable year (TY) 2010 amounting to PHP 3,807,771.77. This consisted of 12% VAT payments on its sale of services to Delta Air Lines, Inc. (Delta Air). The services were room accommodations, as well as food and beverage services, provided to Delta Air’s pilots and cabin crew during flight layovers in the Philippines. The cost of these hotel services was directly charged to Delta Air as a business expense. Both the Court of Tax Appeals (CTA) Division and the CTA En Banc disallowed the claim for refund for the first quarter of TY 2010 due to prescription. For the second, third, and fourth quarters of TY 2010, the CTA held that the claim failed for not satisfying the requisites for the transaction with Delta Air to qualify for zero-rating. The ponencia (main decision) affirmed the ruling on prescription for the first quarter but reversed the CTA on the claim for the other quarters, holding the services were subject to VAT zero-rating under Section 108(B)(4) of the National Internal Revenue Code (NIRC), as amended, and declared certain Revenue Memorandum Circulars (RMCs) invalid.

ISSUE

Whether the services (room accommodations, food, and beverage) rendered by Manila Peninsula to Delta Air for its pilots and crew during layovers are subject to VAT zero-rating under Section 108(B)(4) of the NIRC, as amended by Republic Act No. 9337 , prior to the TRAIN Act amendment.

RULING

The Separate Concurring Opinion of Justice Singh concurs with the ponencia’s finding that the subject services for the second, third, and fourth quarters of TY 2010 are subject to VAT zero-rating, entitling Manila Peninsula to a refund. The opinion adds that the proviso limiting zero-rating to services exclusively attributable to the recipient’s international shipping or air transport operations was already applicable under Section 108(B)(4) of the NIRC, as amended by Republic Act No. 9337 , even before the explicit amendment by the TRAIN Act in 2018. The opinion reasons that: (1) Section 108(B)(4), when the recipient is engaged in both domestic and international operations, is ambiguous; (2) VAT zero-rating is a form of tax exemption and must be construed strictly against the taxpayer; (3) the interpretation limiting zero-rating to services attributable to international operations is more aligned with this rule and avoids absurd results inconsistent with the Cross Border Doctrine of the VAT system; and (4) legislative intent supports this limiting interpretation. Therefore, the services rendered to Delta Air, which were for its international air transport operations, qualify for zero-rating.