DELTA AIR LINES, INC., Petitioner, -versus HON. SEC. CESAR V. PURISIMA (in his capacity as Sec. of the Department of Finance) and HON. COM. KIM S. JACINTO-HENARES (in her capacity as Incumbent Commissioner of Internal Revenue, Respondents.
CTA EB No. 1113
(CTA CASE NO. 8360)
FACTS:
Petitioner, Delta Airlines, Inc., is a foreign company under the laws US. It was licensed by the Securities and Exchange Commission (SEC) to establish a branch office in the Philippines to engage in international air transportation services.
Respondent Cesar V. Purisima, on the other hand, is the Secretary of the Department of Finance (DOF) with authority to review the CIR's interpretation of the National Internal Revenue Code (NIRC).
Respondent Kim S. Jacinto-Henares is the CIR vested with the power to interpret the provisions of the NIRC of 1997 and other tax laws.
During its operations in the Philippines, petitioner entered into Hotel Room Agreement with The Peninsula Manila (Hotel) under which the latter would provide room accommodations and other hotel services to petitioner's guests including its pilots and cabin crews during
flight layovers in the Philippines for consideration to be paid by petitioner.
Petitioner filed with the Law Division of the BIR a Request for VAT Ruling on the application of Section 108 (B)(4) of the NIRC of 1997, as amended, to services rendered to persons engaged in international air transport operations, such as services provided by local suppliers to petitioner for the accommodation/lodging, including meals of its pilots and cabin crews.
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. -
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(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:
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( 4) Services rendered to persons engaged in international shipping or international air transport operations, including leases of property for use thereof;"
Thereafter, petitioner received from respondent CIR, BIR Ruling No. 099-20117 dated April 6, 2011, the pertinent portion of which reads:
"In the instant case, the services provided by the Hotel to its clients engaged in international air transport operations pertain to room accommodations and food and beverage services. As they are rendered within the Hotel's premises, they have no direct connection with the transport of goods or passengers, and as such, they cannot be considered as services directly attributable to the transport of goods and passengers from a Philippine port directly to a foreign port entitled to zero-rating. Such being the case, the sale of the foregoing services by the Hotel is not zero rated, but is appropriately subject to the 12% VAT.
Petitioner elevated the matter for review to respondent Secretary, who eventually sustained BIR Ruling.
Petitioner filed with the Court in Division a Petition for Review impugning BIR Ruling and the letter issued by respondent Secretary.
Respondent CIR averred that BIR Ruling was a valid interpretation of the 1997 NIRC and it would remain to be such unless and until reversed or modified by the respondent Secretary. Moreover, the Court has no jurisdiction to rule on the issue of the validity of RMC No. 46-2008 for failure of petitioner to exhaust all administrative remedies.
Revenue Memorandum Circular (RMC) No. 046-08 dated February 1, 2008 states that the VAT zero-rating "is limited to goods, supplies, equipment, fuel and services pertaining to or attributable to the transport of goods and passengers from a port in the Philippines directly to a foreign port without docking or stopping at any other port in the Philippines to unload passengers and/or cargoes loaded in and from another domestic port".
The Court in Division dismissed the Petition for Review on jurisdictional ground. Petitioner moved for reconsideration on but it was denied in the similarly assailed resolution.
Hence, the instant Petition for Review.
ISSUE:
(1) Whether the Court has jurisdiction to rule on the validity of BIR Ruling No. 099-2011, DOF Letter.
(2) Whether the Court has jurisdiction to rule on the validity of Q&A No. 11 of Revenue Memorandum Circular No. 46-2008.
RULING:
(1) YES. The Court's jurisdiction is provided under Section 7(a){l) of Republic Act (RA) No. 112517, as amended by RA No. 928218, which provides that the Court shall exercise exclusive appellate jurisdiction to review by appeal, decisions of the CIR in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the NIRC or other laws administered by the Bureau of Internal Revenue.
In relation thereto, Section 4 of the NIRC of 1997, as amended, provides that the CIR has the power to interpret the NIRC and other tax laws administered by the BIR, subject to the review of the Secretary of Finance.
In light of the foregoing pronouncements by the Supreme Court, it is clear that the Court has the authority to review the rulings or opinions of the CIR which were issued to interpret the provisions of the NIRC and other laws administered by the BIR as it falls under the phrase "other matters" arising under the NIRC or other laws administered by the BIR. Consequently, the Court now has the jurisdiction over the instant Petition for Review insofar as the issue of the validity of BIR Ruling No. 099-2011, DOF Letter dated
September 8, 2011 and Q&A No. 11 of RMC No. 46-2008, as provided under Sec. 7(a)(1) of the NIRC of 1997, as amended.
(2) NO. With respect to RMC No. 46-2008, respondent CIR was correct when she argued that Court has no jurisdiction to rule on the issue of the validity of Answer 11 of RMC No. 46-2008 for failure of petitioner to exhaust all administrative remedies considering that petitioner did not question or elevate to respondent Secretary the validity of said RMC, as required under Section 4 of the NIRC of 1997, as amended.
Clearly, petitioner should first establish that it had already exhausted all available administrative remedies before seeking judicial recourse. In determining whether petitioner had exhausted all administrative remedies, this Court finds instructive Section 4 of the 1997 NIRC, as amended, which reads:
"SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. - The power to interpret the provisions of this Code and other tax laws shall be under
the exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance.
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Considering that the subject BIR Ruling interpreted the provisions of the 1997 NIRC, as amended, this Court finds that the said Ruling was issued in the exercise of the Commissioner's power to interpret tax laws. Consequently, the administrative remedy available to petitioner is to appeal the adverse ruling with the Secretary of Finance as provided for under the first paragraph of Section 4 of the 1997 NIRC, as
amended.
WHEREFORE, the Petition for Review filed by petitioner Delta Air Lines, Inc. is hereby DENIED. Accordingly, the interpretation in BIR Ruling No. 99-2011 dated April 6, 2011, as affirmed by the DOF Letter dated September 8, 2011 pertaining to the interpretation of Section 108(B)(4) of the Tax Code, as amended, is VALID. Consequently, the sale of services rendered by VAT-registered suppliers for the accommodation/lodging of pilots and cabin crew members of petitioner during flight layovers in the Philippines is subject to twelve percent (12%) VAT.
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