EASTERN TELECOMMUNICATIONS PHILIPPINES, INC., PETITIONER, VS.

THE
COMMISSIONER OF INTERNAL REVENUE, RESPONDENTS.
G.R. No. 168856 August 29, 2012
MENDOZA, J.:
TOPIC/DOCTRINE: COMPLIANCE REQUIREMENT- WORD ZERO-RATED IN THE
RECEIPT
FACTS:
Petitioner Eastern Telecommunications Philippines, Inc. (ETPI) is a duly authorized
corporation engaged in telecommunications services by virtue of a legislative franchise.
It has entered into various international service agreements with international nonresident telecommunications companies and it handles incoming telecommunications
services for non-resident foreign telecommunication companies and the relay of said
international calls within the Philippines. In addition, to broaden the coverage of its
distribution of telecommunications services, it executed several interconnection
agreements with local carriers for the receipt of foreign calls relayed by it and the
distribution of such calls to the intended local end-receiver.
From these services to non-resident foreign telecommunications companies, ETPI
generates foreign currency revenues which are inwardly remitted in accordance with the
rules and regulations of the Bangko Sentral ng Pilipinas to its US dollar accounts in
banks such as the Hong Kong and Shanghai Banking Corporation, Metrobank and
Citibank. The manner and mode of payments follow the international standard as set
forth in the Blue Book or Manual prepared by the Consultative Commission of
International Telegraph and Telephony.
Believing that it is entitled to a refund for the unutilized input VAT attributable to its zerorated sales, ETPI filed with the Bureau of Internal Revenue (BIR) an administrative
claim for refund and/or tax credit in the amount of P 23,070,911.75 representing excess
input VAT derived from its zero-rated sales for the period from January 1999 to
December 1999.7
On March 26, 2001, without waiting for the decision of the BIR, ETPI filed a petition for
review before the Court of Tax Appeals (CTA) to toll the running of the two-year
prescriptive period.
In its Decision,9 dated December 12, 2003, the Division10 of the CTA (CTA-Division)
denied the petition for lack of merit, finding that ETPI failed to imprint the word "zerorated" on the face of its VAT invoices or receipts, in violation of Revenue Regulations
No. 7-95. In addition, ETPI failed to substantiate its taxable and exempt sales, the
verification of which was not included in the examination of the commissioned
independent certified public accountant.

ISSUE:
Whether ETPIs failure to imprint the word "zero-rated" on its invoices or receipts is fatal
to its claim for tax refund or tax credit for excess input VAT.
HELD:
YES.
The petition is bereft of merit. Imprinting of the word "zero-rated" on the invoices or
receipts is required.
Section 244 of the NIRC explicitly grants the Secretary of Finance the authority to
promulgate the necessary rules and regulations for the effective enforcement of the
provisions of the tax code. Such rules and regulations "deserve to be given weight and
respect by the courts in view of the rule-making authority given to those who formulate
them and their specific expertise in their respective fields.
Consequently, the following invoicing requirements enumerated in Section 4.108-1 of
Revenue Regulations No. 7-95 must be observed by all VAT-registered taxpayers:
Sec. 4.108-1. Invoicing Requirements. All VAT-registered persons shall, for every sale
or lease of goods or properties or services, issue duly registered receipts or sales or
commercial invoices which must show:
1. the name, TIN and address of seller;
2. date of transaction;
3. quantity, unit cost and description of merchandise or nature of service;
4. the name, TIN, business style, if any, and address of the VAT-registered purchaser,
customer or client;
5. the word "zero-rated" imprinted on the invoice covering zero-rated sales; and
6. the invoice value or consideration.
In the case of sale of real property subject to VAT and where the zonal or market value
is higher than the actual consideration, the VAT shall be separately indicated in the
invoice or receipt.
Only VAT-registered persons are required to print their TIN followed by the word "VAT"
in their invoices or receipts and this shall be considered as a "VAT invoice." All
purchases covered by invoices other than a "VAT Invoice" shall not give rise to any input
tax. (Emphasis supplied)
The need for taxpayers to indicate in their invoices and receipts the fact that they are
zero-rated or that its transactions are zero-rated became more apparent upon the
integration of the abovequoted provisions of Revenue Regulations No. 7-95 in Section
113 of the NIRC enumerating the invoicing requirements of VAT-registered persons
when the tax code was amended by Republic Act (R.A.) No. 9337.20

A consequence of failing to comply with the invoicing requirements is the denial of the
claim for tax refund or tax credit, as stated in Revenue Memorandum Circular No. 422003