EN BANC

Agenda for October 18, 2005

Item No. 45

G.R. No. 168056 (ABAKADA Guro Party List Officer Samson S. Alcantara, et al. vs. The Hon. Executive
Secretary Eduardo R. Ermita); G.R. No. 168207 (Aquilino Q. Pimentel, Jr., et al. vs. Executive
Secretary Eduardo R. Ermita, et al.); G.R. No. 168461 (Association of Pilipinas Shell Dealers, Inc., et
al. vs. Cesar V. Purisima, et al.); G.R. No. 168463 (Francis Joseph G. Escudero vs. Cesar V. Purisima,
et al); 'and G.R. No. 168730 (Bataan Governor Enrique T. Garcia, Jr. vs. Hon. Eduardo R. Ermita, et
al.)

RESOLUTION

For resolution are the following motions for reconsideration of the Court's Decision dated September
1, 2005 upholding the constitutionality of Republic Act No. 9337 or the VAT Reform Act [1]:

1) Motion for Reconsideration filed by petitioners in G.R. No. 168463, Escudero, et al., on the
following grounds:

A. THE DELETION OF THE 'NO PASS ON PROVISIONS' FOR THE SALE OF

PETROLEUM PRODUCTS AND POWER GENERATION SERVICES CONSTITUTED GRAVE
ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION ON
THE PART OF THE BICAMERAL CONFERENCE COMMITTEE.

B. REPUBLIC ACT NO. 9337 GROSSLY VIOLATES THE CONSTITUTIONAL

IMPERATIVE ON EXCLUSIVE ORIGINATION OF REVENUE BILLS UNDER '24, ARTICLE
VI, 1987 PHILIPPINE CONSTITUTION.

C. REPUBLIC ACT NO. 9337'S STAND-BY AUTHORITY TO THE EXECUTIVE TO INCREASE THE
VAT RATE, ESPECIALLY ON ACCOUNT OF THE EFFECTIVE RECOMMENDATORY POWER
GRANTED TO THE SECRETARY OF FINANCE, CONSTITUTES UNDUE DELEGATION OF
LEGISLATIVE AUTHORITY.

2) Motion for Reconsideration of petitioner in G.R. No. 168730, Bataan Governor Enrique T.
Garcia, Jr., with the argument that burdening the consumers with significantly higher
prices under a VAT regime vis--vis a 3% gross tax renders the law unconstitutional for
being arbitrary, oppressive and inequitable.
 and

3) Motion for Reconsideration by petitioners Association of Pilipinas Shell Dealers, Inc. in G.R.
No. 168461, on the grounds that:

I. This Honorable Court erred in upholding the constitutionality of Section 110(A)(2) and
Section 110(B) of the NIRC, as amended by the EVAT Law, imposing limitations on the
amount of input VAT that may be claimed as a credit against output VAT, as well as Section
114(C) of the NIRC, as amended by the EVAT Law, requiring the government or any of its
instrumentalities to withhold a 5% final withholding VAT on their gross payments on
purchases of goods and services, and finding that the questioned provisions:

A. are not arbitrary, oppressive and consfiscatory as to amount to a deprivation of

property without due process of law in violation of Article III, Section 1 of
the 1987 Philippine Constitution;
B. do not violate the equal protection clause prescribed under Article III, Section 1
of the 1987 Philippine Constitution; and
C. apply uniformly to all those belonging to the same class and do not violate Article
VI, Section 28(1) of the 1987 Philippine Constitution.

II. This Honorable Court erred in upholding the constitutionality of Section 110(B) of the
NIRC, as amended by the EVAT Law, imposing a limitation on the amount of input VAT that
may be claimed as a credit against output VAT notwithstanding the finding that the tax is
not progressive as exhorted by Article VI, Section 28(1) of the 1987 Philippine Constitution.

Respondents filed their Consolidated Comment. Petitioner Garcia filed his Reply.

Petitioners Escudero, et al., insist that the bicameral conference committee should not even have
acted on the no pass-on provisions since there is no disagreement between House Bill Nos. 3705 and
3555 on the one hand, and Senate Bill No. 1950 on the other, with regard to the no pass-on provision
for the sale of service for power generation because both the Senate and the House were in
agreement that the VAT burden for the sale of such service shall not be passed on to the end-
consumer. As to the no pass-onprovision for sale of petroleum products, petitioners argue that the
fact that the presence of such a no pass-on provision in the House version and the absence thereof in
the Senate Bill means there is no conflict because 'a House provision cannot be in conflict with
something that does not exist.

Such argument is flawed. Note that the rules of both houses of Congress provide that a conference
committee shall settle the 'differences' in the respective bills of each house. Verily, the fact that a no
pass-on provision is present in one version but absent in the other, and one version intends two
industries, i.e., power generation companies and petroleum sellers, to bear the burden of the tax,
while the other version intended only the industry of power generation, transmission and distribution
to be saddled with such burden, clearly shows that there are indeed differences between the bills
coming from each house, which differences should be acted upon by the bicameral conference
committee. It is incorrect to conclude that there is no clash between two opposing forces with regard
to the no pass-on provision for VAT on the sale of petroleum products merely because such provision
exists in the House version while it is absent in the Senate version. It is precisely the absence of such
provision in the Senate bill and the presence thereof in the House bills that causes the conflict. The
absence of the provision in the Senate bill shows the Senate's disagreement to the intention of the
House of Representatives make the sellers of petroleum bear the burden of the VAT. Thus, there are
indeed two opposing forces: on one side, the House of Representatives which wants petroleum dealers
to be saddled with the burden of paying VAT and on the other, the Senate which does not see it
proper to make that particular industry bear said burden. Clearly, such conflicts and differences
between the no pass-on provisions in the Senate and House bills had to be acted upon by the
bicameral conference committee as mandated by the rules of both houses of Congress.

Moreover, the deletion of the no pass-on provision made the present VAT law more in consonance
with the very nature of VAT which, as stated in the Decision promulgated on September 1, 2005, is a
tax on spending or consumption, thus, the burden thereof is ultimately borne by the end-consumer.

Escudero, et al., then claim that there had been changes introduced in the Rules of the House of
Representatives regarding the conduct of the House panel in a bicameral conference committee, since
the time of Tolentino vs. Secretary of Finance [2] to act as safeguards against possible abuse of
authority by the House members of the bicameral conference committee. Even assuming that the rule
requiring the House panel to report back to the House if there are substantial differences in the House
and Senate bills had indeed been introduced after Tolentino, the Court stands by its ruling that the
issue of whether or not the House panel in the bicameral conference committee complied with said
internal rule cannot be inquired into by the Court. To reiterate, 'mere failure to conform to
parliamentary usage will not invalidate the action (taken by a deliberative body) when the requisite
number of members have agreed to a particular measure. [3]

Escudero, et. al., also contend that Republic Act No. 9337 grossly violates the constitutional
imperative on exclusive origination of revenue bills under Section 24 of Article VI of the Constitution
when the Senate introduced amendments not connected with VAT.

The Court is not persuaded.

Article VI, Section 24 of the Constitution provides:

Sec. 24 All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of
local application, and private bills shall originate exclusively in the House of Representatives, but the
Senate may propose or concur with amendments.
Section 24 speaks of origination of certain bills from the House of Representatives which has been
interpreted in the Tolentino case as follows:

To begin with, it is not the law ' but the revenue bill ' which is required by the
Constitution to "originate exclusively" in the House of Representatives. It is important
to emphasize this, because a bill originating in the House may undergo such extensive
changes in the Senate that the result may be a rewriting of the whole At this point,
what is important to note is that, as a result of the Senate action, a distinct bill may
be produced. To insist that a revenue statute ' and not only the bill which initiated the
legislative process culminating in the enactment of the law ' must substantially be the
same as the House bill would be to deny the Senate's power not only to "concur with
amendments" but also to " propose amendments." It would be to violate the
coequality of legislative power of the two houses of Congress and in fact make the
House superior to the Senate.

Given, then, the power of the Senate to propose amendments, the Senate can propose
its own version even with respect to bills which are required by the Constitution to
originate in the House.
...
Indeed, what the Constitution simply means is that the initiative for filing revenue,
tariff, or tax bills, bills authorizing an increase of the public debt, private bills and bills
of local application must come from the House of Representatives on the theory that,
elected as they are from the districts, the members of the House can be expected to
be more sensitive to the local needs and problems. On the other hand, the senators,
who are elected at large, are expected to approach the same problems from the
national perspective. Both views are thereby made to bear on the enactment of such
laws. [4]

Clearly, after the House bills as approved on third reading are duly transmitted to the Senate, the
Constitution states that the latter can propose or concur with amendments. The Court finds that the
subject provisions found in the Senate bill are within the purview of such constitutional provision as
declared in the Tolentino case.

The intent of the House of Representatives in initiating House Bill Nos. 3555 and 3705 was to solve
the country's serious financial problems. It was stated in the respective explanatory notes that there is
a need for the government to make significant expenditure savings and a credible package of revenue
measures. These measures include improvement of tax administration and control and leakages in
revenues from income taxes and value added tax. It is also stated that one opportunity that could be
beneficial to the overall status of our economy is to review existing tax rates, evaluating the relevance
given our present conditions. Thus, with these purposes in mind and to accomplish these purposes for
which the house bills were filed, i.e., to raise revenues for the government, the Senate introduced
amendments on income taxes, which as admitted by Senator Ralph Recto, would yield about P10.5
billion a year.

Moreover, since the objective of these house bills is to raise revenues, the increase in corporate
income taxes would be a great help and would also soften the impact of VAT measure on the
consumers by distributing the burden across all sectors instead of putting it entirely on the shoulders
of the consumers.

As to the other National Internal Revenue Code (NIRC) provisions found in Senate Bill No. 1950, i.e.,
percentage taxes, franchise taxes, amusement and excise taxes, these provisions are needed so as to
cushion the effects of VAT on consumers. As we said in our decision, certain goods and services which
were subject to percentage tax and excise tax would no longer be VAT exempt, thus, the consumer
would be burdened more as they would be paying the VAT in addition to these taxes. Thus, there is a
need to amend these sections to soften the impact of VAT. The Court finds no reason to reverse the
earlier ruling that the Senate introduced amendments that are germane to the subject matter and
purposes of the house bills.

Petitioners Escudero, et al., also reiterate that R.A. No. 9337's stand- by authority to the Executive to
increase the VAT rate, especially on account of the recommendatory power granted to the Secretary of
Finance, constitutes undue delegation of legislative power. They submit that the recommendatory
power given to the Secretary of Finance in regard to the occurrence of either of two events using the
Gross Domestic Product (GDP) as a benchmark necessarily and inherently required extended analysis
and evaluation, as well as policy making.

There is no merit in this contention. The Court reiterates that in making his recommendation to the
President on the existence of either of the two conditions, the Secretary of Finance is not acting as the
alter ego of the President or even her subordinate. He is acting as the agent of the legislative
department, to determine and declare the event upon which its expressed will is to take effect. The
Secretary of Finance becomes the means or tool by which legislative policy is determined and
implemented, considering that he possesses all the facilities to gather data and information and has a
much broader perspective to properly evaluate them. His function is to gather and collate statistical
data and other pertinent information and verify if any of the two conditions laid out by Congress is
present. Congress granted the Secretary of Finance the authority to ascertain the existence of a fact,
namely, whether by December 31, 2005, the value-added tax collection as a percentage of GDP of the
previous year exceeds two and four-fifth percent (24/5%) or the national government deficit as a
percentage of GDP of the previous year exceeds one and one-half percent (1%). If either of these two
instances has occurred, the Secretary of Finance, by legislative mandate, must submit such
information to the President. Then the 12% VAT rate must be imposed by the President effective
January 1, 2006. Congress does not abdicate its functions or unduly delegate power when it describes
what job must be done, who must do it, and what is the scope of his authority; in our complex
economy that is frequently the only way in which the legislative process can go forward. There is no
undue delegation of legislative power but only of the discretion as to the execution of a law. This is
constitutionally permissible. Congress did not delegate the power to tax but the mere implementation
of the law. The intent and will to increase the VAT rate to 12% came from Congress and the task of
the President is to simply execute the legislative policy. That Congress chose to use the GDP as a
benchmark to determine economic growth is not within the province of the Court to inquire into, its
task being to interpret the law.

With regard to petitioner Garcia's arguments, the Court also finds the same to be without merit. As
stated in the assailed Decision, the Court recognizes the burden that the consumers will be bearing
with the passage of R.A. No. 9337. But as was also stated by the Court, it cannot strike down the law
as unconstitutional simply because of its yokes. The legislature has spoken and the only role that the
Court plays in the picture is to determine whether the law was passed with due regard to the
mandates of the Constitution. Inasmuch as the Court finds that there are no constitutional infirmities
with its passage, the validity of the law must therefore be upheld.

Finally, petitioners Association of Pilipinas Shell Dealers, Inc. reiterated their arguments in the
petition, citing this time, the dissertation of Associate Justice Dante O. Tinga in his Dissenting Opinion.

The glitch in petitioners' arguments is that it presents figures based on an event that is yet to happen.
Their illustration of the possible effects of the 70% limitation, while seemingly concrete, still remains
theoretical. Theories have no place in this case as the Court must only deal with an existing case
or controversy that is appropriate or ripe for judicial determination, not one that is
conjectural or merely anticipatory. [5] The Court will not intervene absent an actual and
substantial controversy admitting of specific relief through a decree conclusive in nature, as
distinguished from an opinion advising what the law would be upon a hypothetical state of facts. [6]

The impact of the 70% limitation on the creditable input tax will ultimately depend on how one
manages and operates its business. Market forces, strategy and acumen will dictate their moves. With
or without these VAT provisions, an entrepreneur who does not have the ken to adapt to economic
variables will surely perish in the competition. The arguments posed are within the realm of business,
and the solution lies also in business.

Petitioners also reiterate their argument that the input tax is a property or a property right. In the
same breath, the Court reiterates its finding that it is not a property or a property right, and a VAT-
registered person's entitlement to the creditable input tax is a mere statutory privilege.

Petitioners also contend that even if the right to credit the input VAT is merely a statutory privilege, it
has already evolved into a vested right that the State cannot remove.

As the Court stated in its Decision, the right to credit the input tax is a mere creation of law. Prior to
the enactment of multi-stage sales taxation, the sales taxes paid at every level of distribution are not
recoverable from the taxes payable. With the advent of Executive Order No. 273 imposing a 10%
multi-stage tax on all sales, it was only then that the crediting of the input tax paid on purchase or
importation of goods and services by VAT-registered persons against the output tax was established.
This continued with the Expanded VAT Law (R.A. No. 7716), and The Tax Reform Act of 1997 (R.A.
No. 8424). The right to credit input tax as against the output tax is clearly a privilege created by law,
a privilege that also the law can limit. It should be stressed that a person has no vested right in
statutory privileges. [7]

The concept of vested right is a consequence of the constitutional guaranty of due process that
expresses a present fixed interest which in right reason and natural justice is protected against
arbitrary state action; it includes not only legal or equitable title to the enforcement of a demand but
also exemptions from new obligations created after the right has become vested. Rights are
considered vested when the right to enjoyment is a present interest, absolute, unconditional, and
perfect or fixed and irrefutable. [8]As adeptly stated by Associate Justice Minita V. Chico-Nazario in
her Concurring Opinion, which the Court adopts, petitioners' right to the input VAT credits has not yet
vested, thus '

It should be remembered that prior to Rep. Act No. 9337, the petroleum dealers' input
VAT credits were inexistent ' they were unrecognized and disallowed by law. The
petroleum dealers had no such property called input VAT credits. It is only rational,
therefore, that they cannot acquire vested rights to the use of such input VAT credits
when they were never entitled to such credits in the first place, at least, not until Rep.
Act No. 9337.

My view, at this point, when Rep. Act No. 9337 has not yet even been implemented, is
that petroleum dealers' right to use their input VAT as credit against their output VAT
unlimitedly has not vested, being a mere expectancy of a future benefit and being
contingent on the continuance of Section 110 of the National Internal Revenue Code of
1997, prior to its amendment by Rep. Act No. 9337.

The elucidation of Associate Justice Artemio V. Panganiban is likewise worthy of note, to wit:

Moreover, there is no vested right in generally accepted accounting principles. These refer to
accounting concepts, measurement techniques, and standards of presentation in a company's financial
statements, and are not rooted in laws of nature, as are the laws of physical science, for these are
merely developed and continually modified by local and international regulatory accounting bodies. To
state otherwise and recognize such asset account as a vested right is to limit the taxing power of the
State. Unlimited, plenary, comprehensive and supreme, this power cannot be unduly restricted by
mere creations of the State.

More importantly, the assailed provisions of R.A. No. 9337 already involve legislative policy and
wisdom. So long as there is a public end for which R.A. No. 9337 was passed, the means through
which such end shall be accomplished is for the legislature to choose so long as it is within
constitutional bounds. As stated in Carmichael vs. Southern Coal & Coke Co.:

If the question were ours to decide, we could not say that the legislature, in adopting the present
scheme rather than another, had no basis for its choice, or was arbitrary or unreasonable in its action.
But, as the state is free to distribute the burden of a tax without regard to the particular purpose for
which it is to be used, there is no warrant in the Constitution for setting the tax aside because a court
thinks that it could have distributed the burden more wisely. Those are functions reserved for the
legislature.[9]
WHEREFORE, the Motions for Reconsideration are hereby DENIED WITH FINALITY. The temporary
restraining order issued by the Court is LIFTED.

SO ORDERED.

(The Justices who filed their respective concurring and dissenting opinions maintain their respective
positions. Justice Dante O. Tinga filed a dissenting opinion to the present Resolution; while Justice
Consuelo Ynares- Santiago joins him in his dissenting opinion.)