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.

CONSTITUTES UNDUE DELEGATION OF LEGISLATIVE AUTHORITY. as amended by the EVAT Law. B. on the grounds that: I. No. as amended by the EVAT Law. 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. 168461. Bataan Governor Enrique T. and finding that the questioned provisions: A. and . ESPECIALLY ON ACCOUNT OF THE EFFECTIVE RECOMMENDATORY POWER GRANTED TO THE SECRETARY OF FINANCE. oppressive and consfiscatory as to amount to a deprivation of property without due process of law in violation of Article III. as well as Section 114(C) of the NIRC. do not violate the equal protection clause prescribed under Article III. Section 1 of the 1987 Philippine Constitution. oppressive and inequitable. Garcia. imposing limitations on the amount of input VAT that may be claimed as a credit against output VAT. are not arbitrary..R. 168730. Inc. 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. 2) Motion for Reconsideration of petitioner in G. This Honorable Court erred in upholding the constitutionality of Section 110(A)(2) and Section 110(B) of the NIRC.R.C. REPUBLIC ACT NO. Jr. in G. and 3) Motion for Reconsideration by petitioners Association of Pilipinas Shell Dealers. No. 9337'S STAND-BY AUTHORITY TO THE EXECUTIVE TO INCREASE THE VAT RATE. Section 1 of the 1987 Philippine Constitution.

e. 3705 and 3555 on the one hand. i. while the other version intended only the industry of power generation. petitioners argue that the fact that the presence of such a no pass-onprovision 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. II. et al. as amended by the EVAT Law. Section 28(1) of the 1987 Philippine Constitution. and one version intends two industries. Petitioner Garcia filed his Reply. the fact that a no pass-on provision is present in one version but absent in the other. Section 28(1) of the 1987 Philippine Constitution. 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. This Honorable Court erred in upholding the constitutionality of Section 110(B) of the NIRC. insist that the bicameral conference committee should not even have acted on the no pass-onprovisions since there is no disagreement between House Bill Nos. As to the no pass-on provision for sale of petroleum products. clearly .. 1950 on the other. Verily. Petitioners Escudero. apply uniformly to all those belonging to the same class and do not violate Article VI.. 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. 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. transmission and distribution to be saddled with such burden. power generation companies and petroleum sellers. Such argument is flawed. Respondents filed their Consolidated Comment. to bear the burden of the tax. and Senate Bill No.C.

is a tax on spending or consumption. as stated in the Decision promulgated on September 1. the burden thereof is ultimately borne by the end-consumer. 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. et al. [3] . Moreover.. since the time of Tolentino vs. To reiterate. 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. there are indeed two opposing forces: on one side. Escudero. which differences should be acted upon by the bicameral conference committee. the Senate which does not see it proper to make that particular industry bear said burden. 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. 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. '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. the House of Representatives which wants petroleum dealers to be saddled with the burden of paying VAT and on the other. 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.shows that there are indeed differences between the bills coming from each house. 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 deletion of the no pass-on provision made the present VAT law more in consonance with the very nature of VAT which. thus. 2005. It is precisely the absence of such provision in the Senate bill and the presence thereof in the House bills that causes the conflict. Clearly.

24 All appropriation. and private bills shall originate exclusively in the House of Representatives. Section 24 of the Constitution provides: Sec. a distinct bill may be produced." It would be to violate the coequality of legislative power of . 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. 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. 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.Escudero. et. 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. but the Senate may propose or concur with amendments. revenue or tariff bills. al.. bills of local application. 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. The Court is not persuaded. bills authorizing increase of the public debt. Article VI. as a result of the Senate action. also contend that Republic Act No. what is important to note is that.

after the House bills as approved on third reading are duly transmitted to the Senate. who are elected at large. with these purposes in mind and to accomplish these purposes for which the house bills were filed. 3555 and 3705 was to solve the country's serious financial problems. the members of the House can be expected to be more sensitive to the local needs and problems. the power of the Senate to propose amendments. or tax bills. evaluating the relevance given our present conditions. [4] Clearly. the Constitution states that the latter can propose or concur with amendments. elected as they are from the districts. . The intent of the House of Representatives in initiating House Bill Nos. Indeed. are expected to approach the same problems from the national perspective. It is also stated that one opportunity that could be beneficial to the overall status of our economy is to review existing tax rates. Both views are thereby made to bear on the enactment of such laws. private bills and bills of local application must come from the House of Representatives on the theory that.. the Senate introduced . 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...e. i. to raise revenues for the government. Thus.the two houses of Congress and in fact make the House superior to the Senate. what the Constitution simply means is that the initiative for filing revenue. tariff. the Senate can propose its own version even with respect to bills which are required by the Constitution to originate in the House. These measures include improvement of tax administration and control and leakages in revenues from income taxes and value added tax. Given. 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. On the other hand. bills authorizing an increase of the public debt. the senators. then.

9337's standby authority to the Executive to increase the VAT rate. Thus.5 billion a year. since the objective of these house bills is to raise revenues.e. thus.amendments on income taxes. There is no merit in this contention.. As to the other National Internal Revenue Code (NIRC) provisions found in Senate Bill No. Petitioners Escudero. certain goods and services which were subject to percentage tax and excise tax would no longer be VAT exempt. amusement and excise taxes.A. which as admitted by Senator Ralph Recto. percentage taxes. constitutes undue delegation of legislative power. 1950. He is acting as the agent of the legislative department. these provisions are needed so as to cushion the effects of VAT on consumers. No. would yield about P10. as well as policy making. Moreover. the consumer would be burdened more as they would be paying the VAT in addition to these taxes. The Court reiterates that in making his recommendation to the President on the existence of either of the two conditions. especially on account of the recommendatory power granted to the Secretary of Finance. to determine and declare the . 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 we said in our decision. et al. also reiterate that R. i.. franchise taxes. 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. there is a need to amend these sections to soften the impact of VAT. 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. the Secretary of Finance is not acting as the alter ego of the President or even her subordinate.

the Court also finds the same to be without merit. 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%). considering that he possesses all the facilities to gather data and information and has a much broader perspective to properly evaluate them. in our complex economy that is frequently the only way in which the legislative process can go forward. Then the 12% VAT rate must be imposed by the President effective January 1. If either of these two instances has occurred. . it cannot strike down the law as unconstitutional simply because of its yokes. must submit such information to the President. Inasmuch as the Court finds that there are no constitutional infirmities with its passage. As stated in the assailed Decision. Congress did not delegate the power to tax but the mere implementation of the law. This is constitutionally permissible. 9337. namely. The Secretary of Finance becomes the means or tool by which legislative policy is determined and implemented. Congress does not abdicate its functions or unduly delegate power when it describes what job must be done. 2005.event upon which its expressed will is to take effect. 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. 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. 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. the validity of the law must therefore be upheld. whether by December 31. who must do it. With regard to petitioner Garcia's arguments. the Court recognizes the burden that the consumers will be bearing with the passage of R. its task being to interpret the law. 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. by legislative mandate. and what is the scope of his authority.A. No. There is no undue delegation of legislative power but only of the discretion as to the execution of a law. the Secretary of Finance. 2006. But as was also stated by the Court.

the dissertation of Associate Justice Dante O. an entrepreneur who does not have the ken to adapt to economic variables will surely perish in the competition. Market forces. Tinga in his Dissenting Opinion. petitioners Association of Pilipinas Shell Dealers. reiterated their arguments in the petition. The arguments posed are within the realm of business. [5] The Court will not intervene absent an actual and substantial controversy admitting of specific relief through a decree conclusive in nature. . strategy and acumen will dictate their moves. With or without these VAT provisions. Petitioners also contend that even if the right to credit the input VAT is merely a statutory privilege. as distinguished from an opinion advising what the law would be upon a hypothetical state of facts. not one that is conjectural or merely anticipatory. still remains theoretical. [6] The impact of the 70% limitation on the creditable input tax will ultimately depend on how one manages and operates its business. In the same breath. citing this time. it has already evolved into a vested right that the State cannot remove. Petitioners also reiterate their argument that the input tax is a property or a property right. Theories have no place in this case asthe Court must only deal with an existing case or controversy that is appropriate or ripe for judicial determination. Their illustration of thepossible effects of the 70% limitation. while seemingly concrete. and the solution lies also in business.Finally. The glitch in petitioners' arguments is that it presents figures based on an event that is yet to happen. and a VATregistered person's entitlement to the creditable input tax is a mere statutory privilege. the Court reiterates its finding that it is not a property or a property right. Inc.

being a mere expectancy of a future benefit and being contingent on the continuance of . 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. at this point. With the advent of Executive Order No. not until Rep. No. Act No.A. 8424).As the Court stated in its Decision. 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. Prior to the enactment of multi-stage sales taxation. 9337. 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. [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. is that petroleum dealers' right to use their input VAT as credit against their output VAT unlimitedly has not vested. at least. a privilege that also the law can limit. and perfect or fixed and irrefutable. Act No. 7716). The right to credit input tax as against the output tax is clearly a privilege created by law.A. It is only rational. which the Court adopts. unconditional. petitioners' right to the input VAT credits has not yet vested. It should be stressed that a person has no vested right in statutory privileges. the petroleum dealers' input VAT credits were inexistent ' they were unrecognized and disallowed by law. absolute. 273 imposing a 10% multi-stage tax on all sales. My view. Chico-Nazario in her Concurring Opinion. the right to credit the input tax is a mere creation of law. No. [8] As adeptly stated by Associate Justice Minita V. Rights are considered vested when the right to enjoyment is a present interest. when Rep. therefore. This continued with the Expanded VAT Law (R. 9337. the sales taxes paid at every level of distribution are not recoverable from the taxes payable. thus ' It should be remembered that prior to Rep. 9337 has not yet even been implemented. and The Tax Reform Act of 1997 (R. Act No. The petroleum dealers had no such property called input VAT credits.

and are not rooted in laws of nature. [9] . prior to its amendment by Rep. No. To state otherwise and recognize such asset account as a vested right is to limit the taxing power of the State. Those are functions reserved for the legislature. in adopting the present scheme rather than another. As stated in Carmichael vs. there is no vested right in generally accepted accounting principles. for these are merely developed and continually modified by local and international regulatory accounting bodies. as are the laws of physical science. 9337 already involve legislative policy and wisdom. Unlimited. the assailed provisions of R. No. 9337. So long as there is a public end for which R. comprehensive and supreme. More importantly. 9337 was passed. we could not say that the legislature. 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. the means through which such end shall be accomplished is for the legislature to choose so long as it is within constitutional bounds. to wit: Moreover. These refer to accounting concepts.Section 110 of the National Internal Revenue Code of 1997. The elucidation of Associate Justice Artemio V. But. Act No. measurement techniques. Southern Coal & Coke Co. had no basis for its choice. and standards of presentation in a company's financial statements. plenary. or was arbitrary or unreasonable in its action.A.: If the question were ours to decide.A. 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. this power cannot be unduly restricted by mere creations of the State. Panganiban is likewise worthy of note.

The temporary restraining order issued by the Court is LIFTED. the Motions for Reconsideration are hereby DENIED WITH FINALITY. SO ORDERED.WHEREFORE. .