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G.R. No. L-41631 December 17, 1976

HON. RAMON D. BAGATSING, as Mayor of the City of Manila; ROMAN G.GARGANTIEL, as Secretary to the Mayor; THE MARKET ADMINISTRATOR; andTHE MUNICIPAL BOARD OF MANILA, petitioners,

vs.HON. PEDRO A. RAMIREZ, in his capacity as Presiding Judge of the Court of FirstInstance of Manila, Branch XXX and the FEDERATION OF MANILA MARKETVENDORS, INC., respondents.

Santiago F. Alidio and Restituto R. Villanueva for petitioners.

Antonio H. Abad, Jr. for private respondent.

Federico A. Blay for petitioner for intervention.

MARTIN, J.:

The chief question to be decided in this case is what law shall govern the publication ofa tax ordinance enacted by the Municipal Board of Manila, the Revised City Charter(R.A. 409, as amended), which requires publication of the ordinance before itsenactment and after its approval, or the Local Tax Code (P.D. No. 231), which onlydemands publication after approval.

On June 12, 1974, the Municipal Board of Manila enacted Ordinance No. 7522, "AN

ORDINANCE REGULATING THE OPERATION OF PUBLIC MARKETS ANDPRESCRIBING FEES FOR THE RENTALS OF STALLS AND PROVIDINGPENALTIES FOR VIOLATION THEREOF AND FOR OTHER PURPOSES." Thepetitioner City Mayor, Ramon D. Bagatsing, approved the ordinance on June 15, 1974.

On February 17, 1975, respondent Federation of Manila Market Vendors, Inc.commenced Civil Case 96787 before the Court of First Instance of Manila presided overby respondent Judge, seeking the declaration of nullity of Ordinance No. 7522 for thereason that (a) the publication requirement under the Revised Charter of the City ofManila has not been complied with; (b) the Market Committee was not given anyparticipation in the enactment of the ordinance, as envisioned by Republic Act 6039; (c)

Section 3 (e) of the Anti-Graft and Corrupt Practices Act has been violated; and (d) theordinance would violate Presidential Decree No. 7 of September 30, 1972 prescribingthe collection of fees and charges on livestock and animal products.

Resolving the accompanying prayer for the issuance of a writ of preliminary injunction,respondent Judge issued an order on March 11, 1975, denying the plea for failure of therespondent Federation of Manila Market Vendors, Inc. to exhaust the administrativeremedies outlined in the Local Tax Code.



After due hearing on the merits, respondent Judge rendered its decision on August 29,1975, declaring the nullity of Ordinance No. 7522 of the City of Manila on the primaryground of non-compliance with the requirement of publication under the Revised CityCharter. Respondent Judge ruled:

There is, therefore, no question that the ordinance in question was notpublished at all in two daily newspapers of general circulation in the City ofManila before its enactment. Neither was it published in the same mannerafter approval, although it was posted in the legislative hall and in all citypublic markets and city public libraries. There being no compliance withthe mandatory requirement of publication before and after approval, theordinance in question is invalid and, therefore, null and void.

Petitioners moved for reconsideration of the adverse decision, stressing that (a) only apost-publication is required by the Local Tax Code; and (b) private respondent failed toexhaust all administrative remedies before instituting an action in court.

On September 26, 1975, respondent Judge denied the motion.

Forthwith, petitioners brought the matter to Us through the present petition for review oncertiorari.

We find the petition impressed with merits.

1. The nexus of the present controversy is the apparent conflict between the RevisedCharter of the City of Manila and the Local Tax Code on the manner of publishing a taxordinance enacted by the Municipal Board of Manila. For, while Section 17 of the

Revised Charter provides:Each proposed ordinance shall be published in two daily newspapers ofgeneral circulation in the city, and shall not be discussed or enacted by theBoard until after the third day following such publication. * * * Eachapproved ordinance * * * shall be published in two daily newspapers ofgeneral circulation in the city, within ten days after its approval; and shalltake effect and be in force on and after the twentieth day following itspublication, if no date is fixed in the ordinance.

Section 43 of the Local Tax Code directs:

Within ten days after their approval , certified true copies of all provincial,city, municipal and barrio ordinances levying or imposing taxes, fees orother charges shall be published for three consecutive days in anewspaper or publication widely circulated within the jurisdiction of thelocal government, or posted in the local legislative hall or premises and intwo other conspicuous places within the territorial jurisdiction of the localgovernment. In either case, copies of all provincial, city, municipal and



barrio ordinances shall be furnished the treasurers of the respectivecomponent and mother units of a local government for dissemination.

In other words, while the Revised Charter of the City of Manila requires publicationbefore the enactment of the ordinance and after the approval thereof in two daily

newspapers of general circulation in the city, the Local Tax Code only prescribes forpublication after the approval of "ordinances levying or imposing taxes, fees or othercharges" either in a newspaper or publication widely circulated within the jurisdiction ofthe local government or by posting the ordinance in the local legislative hall or premisesand in two other conspicuous places within the territorial jurisdiction of the localgovernment. Petitioners' compliance with the Local Tax Code rather than with theRevised Charter of the City spawned this litigation.

There is no question that the Revised Charter of the City of Manila is a special act sinceit relates only to the City of Manila, whereas the Local Tax Code is a general lawbecause it applies universally to all local governments. Blackstone defines general law

as a universal rule affecting the entire community and special law as one relating toparticular persons or things of a class. 1 And the rule commonly said is that a priorspecial law is not ordinarily repealed by a subsequent general law. The fact that one isspecial and the other general creates a presumption that the special is to be consideredas remaining an exception of the general, one as a general law of the land, the other asthe law of a particular case. 2 However, the rule readily yields to a situation where thespecial statute refers to a subject in general, which the general statute treats in

particular . The exactly is the circumstance obtaining in the case at bar. Section 17 of theRevised Charter of the City of Manila speaks of "ordinance" in general, i.e., irrespectiveof the nature and scope thereof, whereas, Section 43 of the Local Tax Code relates to"ordinances levying or imposing taxes, fees or other charges" in particular. In regard,

therefore, to ordinances in general, the Revised Charter of the City of Manila isdoubtless dominant, but, that dominant force loses its continuity when it approaches therealm of "ordinances levying or imposing taxes, fees or other charges" in particular.There, the Local Tax Code controls. Here, as always, a general provision must give wayto a particular provision. 3 Special provision governs. 4 This is especially true where thelaw containing the particular provision was enacted later than the one containing thegeneral provision. The City Charter of Manila was promulgated on June 18, 1949 asagainst the Local Tax Code which was decreed on June 1, 1973. The law-makingpower cannot be said to have intended the establishment of conflicting and hostilesystems upon the same subject, or to leave in force provisions of a prior law by whichthe new will of the legislating power may be thwarted and overthrown. Such a resultwould render legislation a useless and Idle ceremony, and subject the law to thereproach of uncertainty and unintelligibility. 5

The case of City of Manila v. Teotico 6 is opposite. In that case, Teotico sued the City ofManila for damages arising from the injuries he suffered when he fell inside anuncovered and unlighted catchbasin or manhole on P. Burgos Avenue. The City ofManila denied liability on the basis of the City Charter (R.A. 409) exempting the City ofManila from any liability for damages or injury to persons or property arising from the



failure of the city officers to enforce the provisions of the charter or any other law orordinance, or from negligence of the City Mayor, Municipal Board, or other officers whileenforcing or attempting to enforce the provisions of the charter or of any other law orordinance. Upon the other hand, Article 2189 of the Civil Code makes cities liable fordamages for the death of, or injury suffered by any persons by reason of the defective

condition of roads, streets, bridges, public buildings, and other public works under theircontrol or supervision. On review, the Court held the Civil Code controlling. It is truethat, insofar as its territorial application is concerned, the Revised City Charter is aspecial law and the subject matter of the two laws, the Revised City Charter establishesa general rule of liability arising from negligence in general, regardless of the objectthereof, whereas the Civil Code constitutes a particular prescription for liability due todefective streets in particular. In the same manner, the Revised Charter of the Cityprescribes a rule for the publication of "ordinance" in general , while the Local Tax Codeestablishes a rule for the publication of "ordinance levying or imposing taxes fees orother charges in particular .

In fact, there is no rule which prohibits the repeal even by implication of a special orspecific act by a general or broad one. 7 A charter provision may be impliedly modifiedor superseded by a later statute, and where a statute is controlling, it must be read intothe charter notwithstanding any particular charter provision. 8 A subsequent general lawsimilarly applicable to all cities prevails over any conflicting charter provision, for thereason that a charter must not be inconsistent with the general laws and public policy ofthe state. 9 A chartered city is not an independent sovereignty. The state remainssupreme in all matters not purely local. Otherwise stated, a charter must yield to theconstitution and general laws of the state, it is to have read into it that general law whichgoverns the municipal corporation and which the corporation cannot set aside but towhich it must yield. When a city adopts a charter, it in effect adopts as part of its chartergeneral law of such character. 10

2. The principle of exhaustion of administrative remedies is strongly asserted bypetitioners as having been violated by private respondent in bringing a direct suit incourt. This is because Section 47 of the Local Tax Code provides that any question orissue raised against the legality of any tax ordinance, or portion thereof, shall bereferred for opinion to the city fiscal in the case of tax ordinance of a city. The opinion ofthe city fiscal is appealable to the Secretary of Justice, whose decision shall be final andexecutory unless contested before a competent court within thirty (30) days. But, thepetition below plainly shows that the controversy between the parties is deeply rooted ina pure question of law: whether it is the Revised Charter of the City of Manila or theLocal Tax Code that should govern the publication of the tax ordinance. In other words,the dispute is sharply focused on the applicability of the Revised City Charter or theLocal Tax Code on the point at issue, and not on the legality of the imposition of the tax.Exhaustion of administrative remedies before resort to judicial bodies is not an absoluterule. It admits of exceptions. Where the question litigated upon is purely a legal one, therule does not apply. 11 The principle may also be disregarded when it does not provide aplain, speedy and adequate remedy. It may and should be relaxed when its applicationmay cause great and irreparable damage. 12



3. It is maintained by private respondent that the subject ordinance is not a "taxordinance," because the imposition of rentals, permit fees, tolls and other fees is notstrictly a taxing power but a revenue-raising function, so that the procedure forpublication under the Local Tax Code finds no application. The pretense bears its ownmarks of fallacy. Precisely, the raising of revenues is the principal object of taxation.

Under Section 5, Article XI of the New Constitution, "Each local government unit shallhave the power to create its own sources of revenue and to levy taxes, subject to suchprovisions as may be provided by law." 13 And one of those sources of revenue is whatthe Local Tax Code points to in particular: "Local governments may collect fees orrentals for the occupancy or use of public markets and premises * * *." 14 They canprovide for and regulate market stands, stalls and privileges, and, also, the sale, leaseor occupancy thereof. They can license, or permit the use of, lease, sell or otherwisedispose of stands, stalls or marketing privileges. 15

It is a feeble attempt to argue that the ordinance violates Presidential Decree No. 7,dated September 30, 1972, insofar as it affects livestock and animal products, because

the said decree prescribes the collection of other fees and charges thereon "with theexception of ante-mortem and post-mortem inspection fees, as well as the delivery,stockyard and slaughter fees as may be authorized by the Secretary of Agriculture andNatural Resources." 16 Clearly, even the exception clause of the decree itself permitsthe collection of the proper fees for livestock. And the Local Tax Code (P.D. 231, July 1,1973) authorizes in its Section 31: "Local governments may collect fees for theslaughter of animals and the use of corrals * * * "

4. The non-participation of the Market Committee in the enactment of Ordinance No.7522 supposedly in accordance with Republic Act No. 6039, an amendment to the CityCharter of Manila, providing that "the market committee shall formulate, recommendand adopt, subject to the ratification of the municipal board, and approval of the mayor ,policies and rules or regulation repealing or maneding existing provisions of the marketcode" does not infect the ordinance with any germ of invalidity. 17 The function of thecommittee is purely recommendatory as the underscored phrase suggests, itsrecommendation is without binding effect on the Municipal Board and the City Mayor. Itsprior acquiescence of an intended or proposed city ordinance is not a condition sine quanon before the Municipal Board could enact such ordinance. The native power of theMunicipal Board to legislate remains undisturbed even in the slightest degree. It canmove in its own initiative and the Market Committee cannot demur. At most, the MarketCommittee may serve as a legislative aide of the Municipal Board in the enactment ofcity ordinances affecting the city markets or, in plain words, in the gathering of thenecessary data, studies and the collection of consensus for the proposal of ordinancesregarding city markets. Much less could it be said that Republic Act 6039 intended todelegate to the Market Committee the adoption of regulatory measures for the operationand administration of the city markets. Potestas delegata non delegare potest .

5. Private respondent bewails that the market stall fees imposed in the disputedordinance are diverted to the exclusive private use of the Asiatic Integrated Corporationsince the collection of said fees had been let by the City of Manila to the said



corporation in a "Management and Operating Contract." The assumption is of coursesaddled on erroneous premise. The fees collected do not go direct to the private coffersof the corporation. Ordinance No. 7522 was not made for the corporation but for thepurpose of raising revenues for the city. That is the object it serves. The entrusting ofthe collection of the fees does not destroy the public purpose of the ordinance. So long

as the purpose is public, it does not matter whether the agency through which themoney is dispensed is public or private. The right to tax depends upon the ultimate use,purpose and object for which the fund is raised. It is not dependent on the nature orcharacter of the person or corporation whose intermediate agency is to be used inapplying it. The people may be taxed for a public purpose, although it be under thedirection of an individual or private corporation. 18

Nor can the ordinance be stricken down as violative of Section 3(e) of the Anti-Graft andCorrupt Practices Act because the increased rates of market stall fees as levied by theordinance will necessarily inure to the unwarranted benefit and advantage of thecorporation. 19 We are concerned only with the issue whether the ordinance in question

is intra vires. Once determined in the affirmative, the measure may not be invalidatedbecause of consequences that may arise from its enforcement. 20

ACCORDINGLY, the decision of the court below is hereby reversed and set aside.Ordinance No. 7522 of the City of Manila, dated June 15, 1975, is hereby held to havebeen validly enacted. No. costs.

SO ORDERED.

Castro, C.J., Barredo, Makasiar, Antonio, Muñoz Palma, Aquino and Concepcion, Jr.,JJ., concur.

Teehankee, J., reserves his vote.

Separate Opinions

FERNANDO, J., concurring:But qualifies his assent as to an ordinance intra vires not being open to question"because of consequences that may arise from its enforcement."



Separate Opinions

FERNANDO, J., concurring:

But qualifies his assent as to an ordinance intra vires not being open to question

"because of consequences that may arise from its enforcement."



G.R. No. 168056 September 1, 2005

ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S.

ALCANTARA and ED VINCENT S. ALBANO, Petitioners,vs.THE HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA; HONORABLESECRETARY OF THE DEPARTMENT OF FINANCE CESAR PURISIMA; andHONORABLE COMMISSIONER OF INTERNAL REVENUE GUILLERMO PARAYNO,JR., Respondent.

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G.R. No. 168207

AQUILINO Q. PIMENTEL, JR., LUISA P. EJERCITO-ESTRADA, JINGGOY E.ESTRADA, PANFILO M. LACSON, ALFREDO S. LIM, JAMBY A.S. MADRIGAL, ANDSERGIO R. OSMEÑA III, Petitioners,vs.EXECUTIVE SECRETARY EDUARDO R. ERMITA, CESAR V. PURISIMA,SECRETARY OF FINANCE, GUILLERMO L. PARAYNO, JR., COMMISSIONER OFTHE BUREAU OF INTERNAL REVENUE, Respondent.

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G.R. No. 168461

ASSOCIATION OF PILIPINAS SHELL DEALERS, INC. represented by its President,ROSARIO ANTONIO; PETRON DEALERS‘ ASSOCIATION represented by itsPresident, RUTH E. BARBIBI; ASSOCIATION OF CALTEX DEALERS‘ OF THEPHILIPPINES represented by its President, MERCEDITAS A. GARCIA; ROSARIO

ANTONIO doing business under the name and style of "ANB NORTH SHELL SERVICESTATION"; LOURDES MARTINEZ doing business under the name and style of "SHELLGATE – N. DOMINGO"; BETHZAIDA TAN doing business under the name and style of"ADVANCE SHELL STATION"; REYNALDO P. MONTOYA doing business under thename and style of "NEW LAMUAN SHELL SERVICE STATION"; EFREN SOTTO doingbusiness under the name and style of "RED FIELD SHELL SERVICE STATION";

DONICA CORPORATION represented by its President, DESI TOMACRUZ; RUTH E.MARBIBI doing business under the name and style of "R&R PETRON STATION";PETER M. UNGSON doing business under the name and style of "CLASSIC STARGASOLINE SERVICE STATION"; MARIAN SHEILA A. LEE doing business under thename and style of "NTE GASOLINE & SERVICE STATION"; JULIAN CESAR P.POSADAS doing business under the name and style of "STARCARGAENTERPRISES"; ADORACION MAÑEBO doing business under the name and style of"CMA MOTORISTS CENTER"; SUSAN M. ENTRATA doing business under the name



and style of "LEONA‘S GASOLINE STATION and SERVICE CENTER"; CARMELITABALDONADO doing business under the name and style of "FIRST CHOICE SERVICECENTER"; MERCEDITAS A. GARCIA doing business under the name and style of"LORPED SERVICE CENTER"; RHEAMAR A. RAMOS doing business under the nameand style of "RJRAM PTT GAS STATION"; MA. ISABEL VIOLAGO doing business

under the name and style of "VIOLAGO-PTT SERVICE CENTER"; MOTORISTS‘HEART CORPORATION represented by its Vice-President for Operations, JOSELITOF. FLORDELIZA; MOTORISTS‘ HARVARD CORPORATION represented by its Vice-President for Operations, JOSELITO F. FLORDELIZA; MOTORISTS‘ HERITAGECORPORATION represented by its Vice-President for Operations, JOSELITO F.FLORDELIZA; PHILIPPINE STANDARD OIL CORPORATION represented by its Vice-President for Operations, JOSELITO F. FLORDELIZA; ROMEO MANUEL doingbusiness under the name and style of "ROMMAN GASOLINE STATION"; ANTHONY

ALBERT CRUZ III doing business under the name and style of "TRUE SERVICESTATION", Petitioners,vs.

CESAR V. PURISIMA, in his capacity as Secretary of the Department of Financeand GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of InternalRevenue, Respondent.

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G.R. No. 168463

FRANCIS JOSEPH G. ESCUDERO, VINCENT CRISOLOGO, EMMANUEL JOEL J.VILLANUEVA, RODOLFO G. PLAZA, DARLENE ANTONINO-CUSTODIO, OSCAR G.MALAPITAN, BENJAMIN C. AGARAO, JR. JUAN EDGARDO M. ANGARA, JUSTIN

MARC SB. CHIPECO, FLORENCIO G. NOEL, MUJIV S. HATAMAN, RENATO B.MAGTUBO, JOSEPH A. SANTIAGO, TEOFISTO DL. GUINGONA III, RUY ELIAS C.LOPEZ, RODOLFO Q. AGBAYANI and TEODORO A. CASIÑO, Petitioners,vs.CESAR V. PURISIMA, in his capacity as Secretary of Finance, GUILLERMO L.PARAYNO, JR., in his capacity as Commissioner of Internal Revenue, andEDUARDO R. ERMITA, in his capacity as Executive Secretary, Respondent.

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G.R. No. 168730

BATAAN GOVERNOR ENRIQUE T. GARCIA, JR. Petitioner, vs. HON. EDUARDO R. ERMITA, in his capacity as the Executive Secretary; HON.MARGARITO TEVES, in his capacity as Secretary of Finance; HON. JOSE MARIOBUNAG, in his capacity as the OIC Commissioner of the Bureau of Internal Revenue;and HON. ALEXANDER AREVALO, in his capacity as the OIC Commissioner of theBureau of Customs, Respondent.



D E C I S I O N

AUSTRIA-MARTINEZ, J .:

The expenses of government, having for their object the interest of all, should be borne

by everyone, and the more man enjoys the advantages of society, the more he ought tohold himself honored in contributing to those expenses.

-Anne Robert Jacques Turgot (1727-1781)

French statesman and economist

Mounting budget deficit, revenue generation, inadequate fiscal allocation for education,increased emoluments for health workers, and wider coverage for full value-added taxbenefits … these are the reasons why Republic Act No. 9337 (R.A. No. 9337)1 wasenacted. Reasons, the wisdom of which, the Court even with its extensive constitutional

power of review, cannot probe. The petitioners in these cases, however, question notonly the wisdom of the law, but also perceived constitutional infirmities in its passage.

Every law enjoys in its favor the presumption of constitutionality. Their argumentsnotwithstanding, petitioners failed to justify their call for the invalidity of the law. Hence,R.A. No. 9337 is not unconstitutional.

LEGISLATIVE HISTORY

R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill Nos. 3555and 3705, and Senate Bill No. 1950.

Hous e Bil l No. 3555 2 was introduced on first reading on January 7, 2005. The House

Committee on Ways and Means approved the bill, in substitution of House Bill No.1468, which Representative (Rep.) Eric D. Singson introduced on August 8, 2004. ThePresident certified the bill on January 7, 2005 for immediate enactment. On January 27,2005, the House of Representatives approved the bill on second and third reading.

Hous e Bil l No. 3705 3 on the other hand, substituted House Bill No. 3105 introduced by

Rep. Salacnib F. Baterina, and House Bill No. 3381 introduced by Rep. Jacinto V.Paras. Its "mother bill" is House Bill No. 3555. The House Committee on Ways andMeans approved the bill on February 2, 2005. The President also certified it as urgent

on February 8, 2005. The House of Representatives approved the bill on second andthird reading on February 28, 2005.

Meanwhile, the Senate Committee on Ways and Means approved Senate Bil l No .1950

4 on March 7, 2005, "in substitution of Senate Bill Nos. 1337, 1838 and 1873,

taking into consideration House Bill Nos. 3555 and 3705." Senator Ralph G. Rectosponsored Senate Bill No. 1337, while Senate Bill Nos. 1838 and 1873 were bothsponsored by Sens. Franklin M. Drilon, Juan M. Flavier and Francis N. Pangilinan. The

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President certified the bill on March 11, 2005, and was approved by the Senate onsecond and third reading on April 13, 2005.

On the same date, April 13, 2005, the Senate agreed to the request of the House ofRepresentatives for a committee conference on the disagreeing provisions of the

proposed bills.

Before long, the Conference Committee on the Disagreeing Provisions of House Bill No.3555, House Bill No. 3705, and Senate Bill No. 1950, "after having met and discussedin full free and conference," recommended the approval of its report, which the Senatedid on May 10, 2005, and with the House of Representatives agreeing thereto the nextday, May 11, 2005.

On May 23, 2005, the enrolled copy of the consolidated House and Senate version wastransmitted to the President, who signed the same into law on May 24, 2005. Thus,came R.A. No. 9337.

July 1, 2005 is the effectivity date of R.A. No. 9337.5 When said date came, the Courtissued a temporary restraining order, effective immediately and continuing until furtherorders, enjoining respondents from enforcing and implementing the law.

Oral arguments were held on July 14, 2005. Significantly, during the hearing, the Courtspeaking through Mr. Justice Artemio V. Panganiban, voiced the rationale for itsissuance of the temporary restraining order on July 1, 2005, to wit:

J. PANGANIBAN : . . . But before I go into the details of your presentation, let me justtell you a little background. You know when the law took effect on July 1, 2005, the

Court issued a TRO at about 5 o‘clock in the afternoon. But before that, there was a lotof complaints aired on television and on radio. Some people in a gas station werecomplaining that the gas prices went up by 10%. Some people were complaining thattheir electric bill will go up by 10%. Other times people riding in domestic air carrier werecomplaining that the prices that they‘ll have to pay would have to go up by 10%. Whileall that was being aired, per your presentation and per our own understanding of thelaw, that‘s not true. It‘s not true that the e-vat law necessarily increased prices by 10%uniformly isn‘t it?

ATTY. BANIQUED : No, Your Honor.

J. PANGANIBAN : It is not? ATTY. BANIQUED : It‘s not, because, Your Honor, there is an Executive Order thatgranted the Petroleum companies some subsidy . . . interrupted

J. PANGANIBAN : That‘s correct . . .







ATTY. BANIQUED : . . . and therefore that was meant to temper the impact . . .interrupted

J. PANGANIBAN : . . . mitigating measures . . .

ATTY. BANIQUED : Yes, Your Honor.

J. PANGANIBAN : As a matter of fact a part of the mitigating measures would be theelimination of the Excise Tax and the import duties. That is why, it is not correct to saythat the VAT as to petroleum dealers increased prices by 10%.

ATTY. BANIQUED : Yes, Your Honor.

J. PANGANIBAN : And therefore, there is no justification for increasing the retail priceby 10% to cover the E-Vat tax. If you consider the excise tax and the import duties, theNet Tax would probably be in the neighborhood of 7%? We are not going into exact

figures I am just trying to deliver a point that different industries, different products,different services are hit differently. So it‘s not correct to say that all prices must go upby 10%.

ATTY. BANIQUED : You‘re right, Your Honor.

J. PANGANIBAN : Now. For instance, Domestic Airline companies, Mr. Counsel, are atpresent imposed a Sales Tax of 3%. When this E-Vat law took effect the Sales Tax wasalso removed as a mitigating measure. So, therefore, there is no justification to increasethe fares by 10% at best 7%, correct?

ATTY. BANIQUED : I guess so, Your Honor, yes.J. PANGANIBAN : There are other products that the people were complaining on thatfirst day, were being increased arbitrarily by 10%. And that‘s one reason among manyothers this Court had to issue TRO because of the confusion in the implementation.That‘s why we added as an issue in this case, even if it‘s tangentially taken up by thepleadings of the parties, the confusion in the implementation of the E-vat. Our peoplewere subjected to the mercy of that confusion of an across the board increase of 10%,which you yourself now admit and I think even the Government will admit is incorrect. Insome cases, it should be 3% only, in some cases it should be 6% depending on thesemitigating measures and the location and situation of each product, of each service, of

each company, isn‘t it? ATTY. BANIQUED : Yes, Your Honor.

J. PANGANIBAN : Alright. So that‘s one reason why we had to issue a TRO pendingthe clarification of all these and we wish the government will take time to clarify all theseby means of a more detailed implementing rules, in case the law is upheld by this Court.. . .6







The Court also directed the parties to file their respective Memoranda.

G.R. No. 168056

Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a

petition for prohibition on May 27, 2005. They question the constitutionality of Sections4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of theNational Internal Revenue Code (NIRC). Section 4 imposes a 10% VAT on sale ofgoods and properties, Section 5 imposes a 10% VAT on importation of goods, andSection 6 imposes a 10% VAT on sale of services and use or lease of properties. Thesequestioned provisions contain a uniform proviso authorizing the President, uponrecommendation of the Secretary of Finance, to raise the VAT rate to 12%, effectiveJanuary 1, 2006, after any of the following conditions have been satisfied, to wit:

. . . That the President, upon the recommendation of the Secretary of Finance, shall,effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%),

after any of the following conditions has been satisfied:(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of theprevious year exceeds two and four-fifth percent (2 4/5%); or

(ii) National government deficit as a percentage of GDP of the previous year exceedsone and one-half percent (1 ½%).

Petitioners argue that the law is unconstitutional, as it constitutes abandonment byCongress of its exclusive authority to fix the rate of taxes under Article VI, Section 28(2)of the 1987 Philippine Constitution.

G.R. No. 168207

On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a petition for certiorari likewise assailing the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337.

Aside from questioning the so-called stand-by authority of the President to increase theVAT rate to 12%, on the ground that it amounts to an undue delegation of legislativepower, petitioners also contend that the increase in the VAT rate to 12% contingent onany of the two conditions being satisfied violates the due process clause embodied in

Article III, Section 1 of the Constitution, as it imposes an unfair and additional tax

burden on the people, in that: (1) the 12% increase is ambiguous because it does notstate if the rate would be returned to the original 10% if the conditions are no longersatisfied; (2) the rate is unfair and unreasonable, as the people are unsure of theapplicable VAT rate from year to year; and (3) the increase in the VAT rate, which issupposed to be an incentive to the President to raise the VAT collection to at least 2 4/5 of the GDP of the previous year, should only be based on fiscal adequacy.



Petitioners further claim that the inclusion of a stand-by authority granted to thePresident by the Bicameral Conference Committee is a violation of the "no-amendmentrule" upon last reading of a bill laid down in Article VI, Section 26(2) of the Constitution.

G.R. No. 168461

Thereafter, a petition for prohibition was filed on June 29, 2005, by the Association ofPilipinas Shell Dealers, Inc., et al., assailing the following provisions of R.A. No. 9337:

1) Section 8 , amending Section 110 (A)(2) of the NIRC, requiring that the input tax ondepreciable goods shall be amortized over a 60-month period, if the acquisition,excluding the VAT components, exceeds One Million Pesos (P1, 000,000.00);

2) Section 8 , amending Section 110 (B) of the NIRC, imposing a 70% limit on theamount of input tax to be credited against the output tax; and

3) Section 12 , amending Section 114 (c) of the NIRC, authorizing the Government orany of its political subdivisions, instrumentalities or agencies, including GOCCs, todeduct a 5% final withholding tax on gross payments of goods and services, which aresubject to 10% VAT under Sections 106 (sale of goods and properties) and 108 (sale ofservices and use or lease of properties) of the NIRC.

Petitioners contend that these provisions are unconstitutional for being arbitrary,oppressive, excessive, and confiscatory.

Petitioners‘ argument is premised on the constitutional right of non -deprivation of life,liberty or property without due process of law under Article III, Section 1 of the

Constitution. According to petitioners, the contested sections impose limitations on theamount of input tax that may be claimed. Petitioners also argue that the input taxpartakes the nature of a property that may not be confiscated, appropriated, or limitedwithout due process of law. Petitioners further contend that like any other property orproperty right, the input tax credit may be transferred or disposed of, and that by limitingthe same, the government gets to tax a profit or value-added even if there is no profit orvalue-added.

Petitioners also believe that these provisions violate the constitutional guarantee ofequal protection of the law under Article III, Section 1 of the Constitution, as thelimitation on the creditable input tax if: (1) the entity has a high ratio of input tax; or (2)

invests in capital equipment; or (3) has several transactions with the government, is notbased on real and substantial differences to meet a valid classification.

Lastly, petitioners contend that the 70% limit is anything but progressive, violative of Article VI, Section 28(1) of the Constitution, and that it is the smaller businesses withhigher input tax to output tax ratio that will suffer the consequences thereof for it wipesout whatever meager margins the petitioners make.



G.R. No. 168463

Several members of the House of Representatives led by Rep. Francis Joseph G.Escudero filed this petition for certiorari on June 30, 2005. They question theconstitutionality of R.A. No. 9337 on the following grounds:

1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue delegation of legislativepower, in violation of Article VI, Section 28(2) of the Constitution;

2) The Bicameral Conference Committee acted without jurisdiction in deleting the no pass on provisions present in Senate Bill No. 1950 and House Bill No. 3705; and

3) Insertion by the Bicameral Conference Committee of Sections 27, 28, 34, 116, 117,119, 121, 125,7 148, 151, 236, 237 and 288, which were present in Senate Bill No.1950, violates Article VI, Section 24(1) of the Constitution, which provides that allappropriation, revenue or tariff bills shall originate exclusively in the House of

Representatives

G.R. No. 168730

On the eleventh hour, Governor Enrique T. Garcia filed a petition for certiorari andprohibition on July 20, 2005, alleging unconstitutionality of the law on the ground that

the limitation on the creditable input tax in effect allows VAT-registered establishmentsto retain a portion of the taxes they collect, thus violating the principle that tax collectionand revenue should be solely allocated for public purposes and expenditures. Petitioner

Garcia further claims that allowing these establishments to pass on the tax to theconsumers is inequitable, in violation of Article VI, Section 28(1) of the Constitution.

RESPONDENTS’ COMMENT

The Office of the Solicitor General (OSG) filed a Comment in behalf of respondents.Preliminarily, respondents contend that R.A. No. 9337 enjoys the presumption of

constitutionality and petitioners failed to cast doubt on its validity.

Relying on the case of Tolentino vs. Secretary of Finance, 235 SCRA

630 (1994), respondents argue that the procedural issues raised by petitioners, i.e.,legality of the bicameral proceedings, exclusive origination of revenue measures and

the power of the Senate concomitant thereto, have already been settled. With regard tothe issue of undue delegation of legislative power to the President, respondentscontend that the law is complete and leaves no discretion to the President but toincrease the rate to 12% once any of the two conditions provided therein arise.

Respondents also refute petitioners‘ argument that the increase to 12%, as well as the70% limitation on the creditable input tax, the 60-month amortization on the purchase orimportation of capital goods exceeding P1,000,000.00, and the 5% final withholding tax







by government agencies, is arbitrary, oppressive, and confiscatory, and that it violatesthe constitutional principle on progressive taxation, among others.

Finally, respondents manifest that R.A. No. 9337 is the anchor of the government‘sfiscal reform agenda. A reform in the value-added system of taxation is the core

revenue measure that will tilt the balance towards a sustainable macroeconomicenvironment necessary for economic growth.

ISSUES

The Court defined the issues, as follows:

PROCEDURAL ISSUE

Whether R.A. No. 9337 violates the following provisions of the Constitution:

a. Article VI, Section 24, and

b. Article VI, Section 26(2)

SUBSTANTIVE ISSUES

1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108of the NIRC, violate the following provisions of the Constitution:

a. Article VI, Section 28(1), and


2. Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of theNIRC; and Section 12 of R.A. No. 9337, amending Section 114(C) of the NIRC, violatethe following provisions of the Constitution:


b. Article III, Section 1

RULING OF THE COURT

As a prelude, the Court deems it apt to restate the general principles and concepts ofvalue-added tax (VAT), as the confusion and inevitably, litigation, breeds from afallacious notion of its nature.

The VAT is a tax on spending or consumption. It is levied on the sale, barter, exchangeor lease of goods or properties and services.8 Being an indirect tax on expenditure, theseller of goods or services may pass on the amount of tax paid to the buyer ,9 with the











seller acting merely as a tax collector .10 The burden of VAT is intended to fall on theimmediate buyers and ultimately, the end-consumers.

In contrast, a direct tax is a tax for which a taxpayer is directly liable on the transactionor business it engages in, without transferring the burden to someone else.11 Examples

are individual and corporate income taxes, transfer taxes, and residence taxes.

12

In the Philippines, the value-added system of sales taxation has long been in existence,albeit in a different mode. Prior to 1978, the system was a single-stage tax computedunder the "cost deduction method" and was payable only by the original sellers. Thesingle-stage system was subsequently modified, and a mixture of the "cost deductionmethod" and "tax credit method" was used to determine the value-added tax payable.13 Under the "tax credit method," an entity can credit against or subtract from the VATcharged on its sales or outputs the VAT paid on its purchases, inputs and imports .14

It was only in 1987, when President Corazon C. Aquino issued Executive Order No.

273, that the VAT system was rationalized by imposing a multi-stage tax rate of 0% or10% on all sales using the "tax credit method."15

E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT Law,16 R.A. No.8241 or the Improved VAT Law,17 R.A. No. 8424 or the Tax Reform Act of 1997,18 andfinally, the presently beleaguered R.A. No. 9337, also referred to by respondents as theVAT Reform Act.

The Court will now discuss the issues in logical sequence.

PROCEDURAL ISSUE

I.

Whether R.A. No. 9337 violates the following provisions of the Constitution:

a. Article VI, Section 24, and


A. The Bicameral Conference Committee

Petitioners Escudero, et al., and Pimentel, et al., allege that the Bicameral ConferenceCommittee exceeded its authority by:

1) Inserting the stand-by authority in favor of the President in Sections 4, 5, and 6 ofR.A. No. 9337;

2) Deleting entirely the no pass-on provisions found in both the House and Senate bills;







































3) Inserting the provision imposing a 70% limit on the amount of input tax to be creditedagainst the output tax; and

4) Including the amendments introduced only by Senate Bill No. 1950 regarding otherkinds of taxes in addition to the value-added tax.

Petitioners now beseech the Court to define the powers of the Bicameral ConferenceCommittee.

It should be borne in mind that the power of internal regulation and discipline areintrinsic in any legislative body for, as unerringly elucidated by Justice Story, "[i]f thepower did not exist, it would be utterly impracticable to transact the business ofthe nation, either at all, or at least with decency, deliberation, and order. "19 Thus,

Article VI, Section 16 (3) of the Constitution provides that "each House may determinethe rules of its proceedings." Pursuant to this inherent constitutional power topromulgate and implement its own rules of procedure, the respective rules of each

house of Congress provided for the creation of a Bicameral Conference Committee.Thus, Rule XIV, Sections 88 and 89 of the Rules of House of Representatives providesas follows:

Sec. 88. Conference Committee. – In the event that the House does not agree with theSenate on the amendment to any bill or joint resolution, the differences may be settledby the conference committees of both chambers.

In resolving the differences with the Senate, the House panel shall, as much aspossible, adhere to and support the House Bill. If the differences with the Senate are so

substantial that they materially impair the House Bill, the panel shall report such fact tothe House for the latter‘s appropriate action.

Sec. 89. Conference Committee Reports. – . . . Each report shall contain a detailed,sufficiently explicit statement of the changes in or amendments to the subject measure.

. . .

The Chairman of the House panel may be interpellated on the Conference CommitteeReport prior to the voting thereon. The House shall vote on the Conference CommitteeReport in the same manner and procedure as it votes on a bill on third and final reading.

Rule XII, Section 35 of the Rules of the Senate states:

Sec. 35. In the event that the Senate does not agree with the House of Representativeson the provision of any bill or joint resolution, the differences shall be settled by aconference committee of both Houses which shall meet within ten (10) days after theircomposition. The President shall designate the members of the Senate Panel in theconference committee with the approval of the Senate.







Each Conference Committee Report shall contain a detailed and sufficiently explicitstatement of the changes in, or amendments to the subject measure, and shall besigned by a majority of the members of each House panel, voting separately.

A comparative presentation of the conflicting House and Senate provisions and a

reconciled version thereof with the explanatory statement of the conference committeeshall be attached to the report.

. . .

The creation of such conference committee was apparently in response to a problem,not addressed by any constitutional provision, where the two houses of Congress findthemselves in disagreement over changes or amendments introduced by the otherhouse in a legislative bill. Given that one of the most basic powers of the legislativebranch is to formulate and implement its own rules of proceedings and to discipline itsmembers, may the Court then delve into the details of how Congress complies with its

internal rules or how it conducts its business of passing legislation? Note that in thepresent petitions, the issue is not whether provisions of the rules of both housescreating the bicameral conference committee are unconstitutional, but whether thebicameral conference committee has strictly complied with the rules of bothhouses, thereby remaining within the jurisdiction conferred upon it by Congress.

In the recent case of Fariñas vs. The Executive Secretary ,20 the Court En Banc ,unanimously reiterated and emphasized its adherence to the "enrolled bill doctrine,"thus, declining therein petitioners‘ plea for the Court to go behind the enrolled copy ofthe bill. Assailed in said case was Congress‘s creation of two sets of bicameralconference committees, the lack of records of said committees‘ proceedings, the

alleged violation of said committees of the rules of both houses, and the disappearanceor deletion of one of the provisions in the compromise bill submitted by the bicameralconference committee. It was argued that such irregularities in the passage of the lawnullified R.A. No. 9006, or the Fair Election Act.

Striking down such argument, the Court held thus:

Under the "enrolled bill doctrine," the signing of a bill by the Speaker of the House andthe Senate President and the certification of the Secretaries of both Houses ofCongress that it was passed are conclusive of its due enactment. A review of casesreveals the Court‘s consistent adherence to the rule. The Court finds no reason todeviate from the salutary rule in this case where the irregularities alleged by thepetitioners mostly involved the internal rules of Congress, e.g., creation of the2nd or 3rd Bicameral Conference Committee by the House. This Court is not theproper forum for the enforcement of these internal rules of Congress, whetherHouse or Senate. Parliamentary rules are merely procedural and with theirobservance the courts have no concern. Whatever doubts there may be as to theformal validity of Rep. Act No. 9006 must be resolved in its favor. The Courtreiterates its ruling in Arroyo vs. De Venecia, viz.:







But the cases, both here and abroad, in varying forms of expression, all deny tothe courts the power to inquire into allegations that, in enacting a law, a House ofCongress failed to comply with its own rules, in the absence of showing thatthere was a violation of a constitutional provision or the rights of privateindividuals. In Osmeña v. Pendatun, it was held: "At any rate, courts have declared

that ‗the rules adopted by deliberative bodies are subject to revocation, modification orwaiver at the pleasure of the body adopting them.‘ And it has been said that"Parliamentary rules are merely procedural, and with their observance, the courtshave no concern. They may be waived or disregarded by the legislative body."Consequently, "mere failure to conform to parliamentary usage will not invalidatethe action (taken by a deliberative body) when the requisite number of membershave agreed to a particular measure."21 (Emphasis supplied)

The foregoing declaration is exactly in point with the present cases, where petitionersallege irregularities committed by the conference committee in introducing changes ordeleting provisions in the House and Senate bills. Akin to the Fariñas case,22 the

present petitions also raise an issue regarding the actions taken by the conferencecommittee on matters regarding Congress‘ compliance with its own internal rules. Asstated earlier, one of the most basic and inherent power of the legislature is the powerto formulate rules for its proceedings and the discipline of its members. Congress is thebest judge of how it should conduct its own business expeditiously and in the mostorderly manner. It is also the sole

concern of Congress to instill discipline among the members of its conferencecommittee if it believes that said members violated any of its rules of proceedings. Eventhe expanded jurisdiction of this Court cannot apply to questions regarding only theinternal operation of Congress, thus, the Court is wont to deny a review of the internal

proceedings of a co-equal branch of government.Moreover, as far back as 1994 or more than ten years ago, in the case of Tolentino vs.Secretary of Finance,23 the Court already made the pronouncement that "[i]f a changeis desired in the practice [of the Bicameral Conference Committee] it must besought in Congress since this question is not covered by any constitutionalprovision but is only an internal rule of each house." 24 To date, Congress has notseen it fit to make such changes adverted to by the Court. It seems, therefore, thatCongress finds the practices of the bicameral conference committee to be very usefulfor purposes of prompt and efficient legislative action.

Nevertheless, just to put minds at ease that no blatant irregularities tainted theproceedings of the bicameral conference committees, the Court deems it necessary todwell on the issue. The Court observes that there was a necessity for a conferencecommittee because a comparison of the provisions of House Bill Nos. 3555 and 3705on one hand, and Senate Bill No. 1950 on the other, reveals that there were indeeddisagreements. As pointed out in the petitions, said disagreements were as follows:

House Bill No. 3555 House Bill No.3705 Senate Bill No. 1950



















With regard to "Stand-By Author i ty" in favor of President Provides for 12% VATon every sale of goodsor properties (amendingSec. 106 of NIRC); 12%

VAT on importation ofgoods (amending Sec.107 of NIRC); and 12%VAT on sale of servicesand use or lease ofproperties (amendingSec. 108 of NIRC)

Provides for 12% VAT ingeneral on sales of goods orproperties and reduced ratesfor sale of certain locally

manufactured goods andpetroleum products and rawmaterials to be used in themanufacture thereof(amending Sec. 106 ofNIRC); 12% VAT onimportation of goods andreduced rates for certainimported products includingpetroleum products(amending Sec. 107 of

NIRC); and 12% VAT onsale of services and use orlease of properties and areduced rate for certainservices including powergeneration (amending Sec.108 of NIRC)

Provides for a single rateof 10% VAT on sale ofgoods or properties(amending Sec. 106 of

NIRC), 10% VAT on saleof services including saleof electricity bygeneration companies,transmission anddistribution companies,and use or lease ofproperties (amendingSec. 108 of NIRC)

With regard to the "no pass-on" prov is ion No similar provision Provides that the VAT

imposed on powergeneration and on the sale

of petroleum products shallbe absorbed by generationcompanies or sellers,respectively, and shall notbe passed on to consumers

Provides that the VATimposed on sales ofelectricity by generation

companies and servicesof transmissioncompanies anddistribution companies, aswell as those of franchisegrantees of electricutilities shall not apply toresidential

end-users. VAT shall beabsorbed by generation,

transmission, anddistribution companies.With regard to 70% limi t on in put tax credi t

Provides that the inputtax credit for capitalgoods on which a VAThas been paid shall beequally distributed over 5

No similar provision Provides that the input taxcredit for capital goods onwhich a VAT has beenpaid shall be equallydistributed over 5 years or



years or the depreciablelife of such capitalgoods; the input taxcredit for goods andservices other than

capital goods shall notexceed 5% of the totalamount of such goodsand services; and forpersons engaged inretail trading of goods,the allowable input taxcredit shall not exceed11% of the total amountof goods purchased.

the depreciable life ofsuch capital goods; theinput tax credit for goodsand services other thancapital goods shall not

exceed 90% of the outputVAT.

With regard to amendments to b e made to NIRC provis ions regarding inc ome and

excise taxes No similar provision No similar provision Provided for amendmentsto several NIRCprovisions regardingcorporate income,percentage, franchiseand excise taxes

The disagreements between the provisions in the House bills and the Senate bill werewith regard to (1) what rate of VAT is to be imposed; (2) whether only the VAT imposedon electricity generation, transmission and distribution companies should not be passed

on to consumers, as proposed in the Senate bill, or both the VAT imposed on electricitygeneration, transmission and distribution companies and the VAT imposed on sale ofpetroleum products should not be passed on to consumers, as proposed in the Housebill; (3) in what manner input tax credits should be limited; (4) and whether the NIRCprovisions on corporate income taxes, percentage, franchise and excise taxes shouldbe amended.

There being differences and/or disagreements on the foregoing provisions of the Houseand Senate bills, the Bicameral Conference Committee was mandated by the rules ofboth houses of Congress to act on the same by settling said differences and/ordisagreements. The Bicameral Conference Committee acted on the disagreeing

provisions by making the following changes:

1. With regard to the disagreement on the rate of VAT to be imposed, it would appearfrom the Conference Committee Report that the Bicameral Conference Committee triedto bridge the gap in the difference between the 10% VAT rate proposed by the Senate,and the various rates with 12% as the highest VAT rate proposed by the House, bystriking a compromise whereby the present 10% VAT rate would be retained untilcertain conditions arise, i.e., the value-added tax collection as a percentage of gross



domestic product (GDP) of the previous year exceeds 2 4/5%, or National Governmentdeficit as a percentage of GDP of the previous year exceeds 1½%, when the President,upon recommendation of the Secretary of Finance shall raise the rate of VAT to 12%effective January 1, 2006.

2. With regard to the disagreement on whether only the VAT imposed on electricitygeneration, transmission and distribution companies should not be passed on toconsumers or whether both the VAT imposed on electricity generation, transmissionand distribution companies and the VAT imposed on sale of petroleum products may bepassed on to consumers, the Bicameral Conference Committee chose to settle suchdisagreement by altogether deleting from its Report any no pass-on provision.

3. With regard to the disagreement on whether input tax credits should be limited or not,the Bicameral Conference Committee decided to adopt the position of the House byputting a limitation on the amount of input tax that may be credited against the outputtax, although it crafted its own language as to the amount of the limitation on input tax

credits and the manner of computing the same by providing thus:(A) Creditable Input Tax. – . . .

. . .

Provided , The input tax on goods purchased or imported in a calendar month for use intrade or business for which deduction for depreciation is allowed under this Code, shallbe spread evenly over the month of acquisition and the fifty-nine (59) succeedingmonths if the aggregate acquisition cost for such goods, excluding the VAT componentthereof, exceeds one million Pesos (P1,000,000.00): PROVIDED, however, that if the

estimated useful life of the capital good is less than five (5) years, as used fordepreciation purposes, then the input VAT shall be spread over such shorter period: . . .

(B) Excess Output or Input Tax. – If at the end of any taxable quarter the output taxexceeds the input tax, the excess shall be paid by the VAT-registered person. If theinput tax exceeds the output tax, the excess shall be carried over to the succeedingquarter or quarters: PROVIDED that the input tax inclusive of input VAT carried overfrom the previous quarter that may be credited in every quarter shall not exceed seventypercent (70%) of the output VAT: PROVIDED, HOWEVER, THAT any input taxattributable to zero-rated sales by a VAT-registered person may at his option berefunded or credited against other internal revenue taxes, . . .

4. With regard to the amendments to other provisions of the NIRC on corporate incometax, franchise, percentage and excise taxes, the conference committee decided toinclude such amendments and basically adopted the provisions found in Senate Bill No.1950, with some changes as to the rate of the tax to be imposed.

Under the provisions of both the Rules of the House of Representatives and SenateRules, the Bicameral Conference Committee is mandated to settle the differences



between the disagreeing provisions in the House bill and the Senate bill. The term"settle" is synonymous to "reconcile" and "harmonize."25 To reconcile or harmonizedisagreeing provisions, the Bicameral Conference Committee may then (a) adopt thespecific provisions of either the House bill or Senate bill, (b) decide that neitherprovisions in the House bill or the provisions in the Senate bill would

be carried into the final form of the bill, and/or (c) try to arrive at a compromise betweenthe disagreeing provisions.

In the present case, the changes introduced by the Bicameral Conference Committeeon disagreeing provisions were meant only to reconcile and harmonize the disagreeingprovisions for it did not inject any idea or intent that is wholly foreign to the subjectembraced by the original provisions.

The so-called stand-by authority in favor of the President, whereby the rate of 10% VATwanted by the Senate is retained until such time that certain conditions arise when the

12% VAT wanted by the House shall be imposed, appears to be a compromise to try tobridge the difference in the rate of VAT proposed by the two houses of Congress.Nevertheless, such compromise is still totally within the subject of what rate of VATshould be imposed on taxpayers.

The no pass-on provision was deleted altogether. In the transcripts of the proceedingsof the Bicameral Conference Committee held on May 10, 2005, Sen. Ralph Recto,Chairman of the Senate Panel, explained the reason for deleting the no pass-onprovision in this wise:

. . . the thinking was just to keep the VAT law or the VAT bill simple. And we were

thinking that no sector should be a beneficiary of legislative grace, neither should anysector be discriminated on. The VAT is an indirect tax. It is a pass on-tax. And let‘skeep it plain and simple. Let‘s not confuse the bill and put a no pass -on provision. Two-thirds of the world have a VAT system and in this two-thirds of the globe, I have yet tosee a VAT with a no pass-though provision. So, the thinking of the Senate is basicallysimple, let‘s keep the VAT simple.26 (Emphasis supplied)

Rep. Teodoro Locsin further made the manifestation that the no pass-on provision"never really enjoyed the support of either House."27

With regard to the amount of input tax to be credited against output tax, the Bicameral

Conference Committee came to a compromise on the percentage rate of the limitationor cap on such input tax credit, but again, the change introduced by the BicameralConference Committee was totally within the intent of both houses to put a cap on inputtax that may be

credited against the output tax. From the inception of the subject revenue bill in theHouse of Representatives, one of the major objectives was to "plug a glaring loophole inthe tax policy and administration by creating vital restrictions on the claiming of input















VAT tax credits . . ." and "[b]y introducing limitations on the claiming of tax credit, we arecapping a major leakage that has placed our collection efforts at an apparentdisadvantage."28

As to the amendments to NIRC provisions on taxes other than the value-added tax

proposed in Senate Bill No. 1950, since said provisions were among those referred to it,the conference committee had to act on the same and it basically adopted the version ofthe Senate.

Thus, all the changes or modifications made by the Bicameral Conference Committeewere germane to subjects of the provisions referred

to it for reconciliation. Such being the case, the Court does not see any grave abuse ofdiscretion amounting to lack or excess of jurisdiction committed by the BicameralConference Committee. In the earlier cases of Philippine Judges Association vs.Prado29 and Tolentino vs. Secretary of Finance,30 the Court recognized the long-

standing legislative practice of giving said conference committee ample latitude forcompromising differences between the Senate and the House. Thus, in the Tolentinocase, it was held that:

. . . it is within the power of a conference committee to include in its report an entirelynew provision that is not found either in the House bill or in the Senate bill. If thecommittee can propose an amendment consisting of one or two provisions, there is noreason why it cannot propose several provisions, collectively considered as an"amendment in the nature of a substitute," so long as such amendment is germane tothe subject of the bills before the committee. After all, its report was not final but neededthe approval of both houses of Congress to become valid as an act of the legislative

department. The charge that in this case the Conference Committee acted as athird legislative chamber is thus without any basis.31 (Emphasis supplied)

B. R.A. No. 9337 Does Not Violate Article VI, Section 26(2) of the Constitution on the"No-Amendment Rule"

Article VI, Sec. 26 (2) of the Constitution, states:

No bill passed by either House shall become a law unless it has passed three readingson separate days, and printed copies thereof in its final form have been distributed to itsMembers three days before its passage, except when the President certifies to the

necessity of its immediate enactment to meet a public calamity or emergency. Upon thelast reading of a bill, no amendment thereto shall be allowed, and the vote thereon shallbe taken immediately thereafter, and the yeas and nays entered in the Journal.

Petitioners‘ argument that the practice where a bicameral conference committee isallowed to add or delete provisions in the House bill and the Senate bill after these hadpassed three readings is in effect a circumvention of the "no amendment rule" (Sec. 26


















(2), Art. VI of the 1987 Constitution), fails to convince the Court to deviate from its rulingin the Tolentino case that:

Nor is there any reason for requiring that the Committee‘s Report in these cases musthave undergone three readings in each of the two houses. If that be the case, there

would be no end to negotiation since each house may seek modification of thecompromise bill. . . .

Art. VI. § 26 (2) must, therefore, be construed as referring only to bills introducedfor the first time in either house of Congress, not to the conference committeereport.32 (Emphasis supplied)

The Court reiterates here that the "no-amendment rule" refers only to the procedureto be followed by each house of Congress with regard to bills initiated in each ofsaid respective houses, before said bill is transmitted to the other house for itsconcurrence or amendment. Verily, to construe said provision in a way as to proscribe

any further changes to a bill after one house has voted on it would lead to absurdity asthis would mean that the other house of Congress would be deprived of its constitutionalpower to amend or introduce changes to said bill. Thus, Art. VI, Sec. 26 (2) of theConstitution cannot be taken to mean that the introduction by the Bicameral ConferenceCommittee of amendments and modifications to disagreeing provisions in bills that havebeen acted upon by both houses of Congress is prohibited.

C. R.A. No. 9337 Does Not Violate Article VI, Section 24 of the Constitution onExclusive Origination of Revenue Bills

Coming to the issue of the validity of the amendments made regarding the NIRC

provisions on corporate income taxes and percentage, excise taxes. Petitioners refer tothe following provisions, to wit:

Section 27 Rates of Income Tax on Domestic Corporation28(A)(1) Tax on Resident Foreign Corporation28(B)(1) Inter-corporate Dividends34(B)(1) Inter-corporate Dividends116 Tax on Persons Exempt from VAT117 Percentage Tax on domestic carriers and keepers of Garage119 Tax on franchises121 Tax on banks and Non-Bank Financial Intermediaries148 Excise Tax on manufactured oils and other fuels151 Excise Tax on mineral products236 Registration requirements237 Issuance of receipts or sales or commercial invoices288 Disposition of Incremental Revenue







Petitioners claim that the amendments to these provisions of the NIRC did not at alloriginate from the House. They aver that House Bill No. 3555 proposed amendmentsonly regarding Sections 106, 107, 108, 110 and 114 of the NIRC, while House Bill No.3705 proposed amendments only to Sections 106, 107,108, 109, 110 and 111 of theNIRC; thus, the other sections of the NIRC which the Senate amended but which

amendments were not found in the House bills are not intended to be amended by theHouse of Representatives. Hence, they argue that since the proposed amendments didnot originate from the House, such amendments are a violation of Article VI, Section 24of the Constitution.

The argument does not hold water.

Article VI, Section 24 of the Constitution reads:

Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the publicdebt, bills of local application, and private bills shall originate exclusively in the House of

Representatives but the Senate may propose or concur with amendments.In the present cases, petitioners admit that it was indeed House Bill Nos. 3555 and3705 that initiated the move for amending provisions of the NIRC dealing mainly withthe value-added tax. Upon transmittal of said House bills to the Senate, the Senatecame out with Senate Bill No. 1950 proposing amendments not only to NIRC provisionson the value-added tax but also amendments to NIRC provisions on other kinds oftaxes. Is the introduction by the Senate of provisions not dealing directly with the value-added tax, which is the only kind of tax being amended in the House bills, still within thepurview of the constitutional provision authorizing the Senate to propose or concur withamendments to a revenue bill that originated from the House?

The foregoing question had been squarely answered in the Tolentino case, wherein theCourt held, thus:

. . . To begin with, it is not the law – but the revenue bill – which is required by theConstitution to "originate exclusively" in the House of Representatives. It is important toemphasize this, because a bill originating in the House may undergo such extensivechanges 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 beproduced. To insist that a revenue statute – and not only the bill which initiatedthe legislative process culminating in the enactment of the law – mustsubstantially be the same as the House bill would be to deny the Senate’s powernot only to "concur w i th amendments " but also to "propose amendments ." Itwould be to violate the coequality of legislative power of the two houses of Congressand in fact make the House superior to the Senate.

…



…Given, then, the power of the Senate to propose amendments, the Senate canpropose its own version even with respect to bills which are required by theConstitution to originate in the House.

. . .

Indeed, what the Constitution simply means is that the initiative for filing revenue, tariffor tax bills, bills authorizing an increase of the public debt, private bills and bills of localapplication must come from the House of Representatives on the theory that, elected asthey are from the districts, the members of the House can be expected to be moresensitive to the local needs and problems. On the other hand, the senators, whoare elected at large, are expected to approach the same problems from thenational perspective. Both views are thereby made to bear on the enactment ofsuch laws.33 (Emphasis supplied)

Since there is no question that the revenue bill exclusively originated in the House of

Representatives, the Senate was acting within itsconstitutional power to introduce amendments to the House bill when it includedprovisions in Senate Bill No. 1950 amending corporate income taxes, percentage,excise and franchise taxes. Verily, Article VI, Section 24 of the Constitution does notcontain any prohibition or limitation on the extent of the amendments that may beintroduced by the Senate to the House revenue bill.

Furthermore, the amendments introduced by the Senate to the NIRC provisions thathad not been touched in the House bills are still in furtherance of the intent of the Housein initiating the subject revenue bills. The Explanatory Note of House Bill No. 1468, the

very first House bill introduced on the floor, which was later substituted by House BillNo. 3555, stated:

One of the challenges faced by the present administration is the urgent and dauntingtask of solving the country‘s serious financial problems. To do this, governmentexpenditures must be strictly monitored and controlled and revenues must besignificantly increased. This may be easier said than done, but our fiscal authorities arestill optimistic the government will be operating on a balanced budget by the year 2009.In fact, several measures that will result to significant expenditure savings have beenidentified by the administration. It is supported with a credible package of revenuemeasures that include measures to improve tax administration and control theleakages in revenues from income taxes and the value-added tax (VAT).(Emphasis supplied)

Rep. Eric D. Singson, in his sponsorship speech for House Bill No. 3555, declared that:

In the budget message of our President in the year 2005, she reiterated that we allacknowledged that on top of our agenda must be the restoration of the health of ourfiscal system.







In order to considerably lower the consolidated public sector deficit and eventuallyachieve a balanced budget by the year 2009, we need to seize windows ofopportunities which might seem poignant in the beginning, but in the long runprove effective and beneficial to the overall status of our economy. One suchopportunity is a review of existing tax rates, evaluating the relevance given our

present conditions.

34

(Emphasis supplied)

Notably therefore, the main purpose of the bills emanating from the House ofRepresentatives is to bring in sizeable revenues for the government

to supplement our country‘s serious financial problems, and improve tax administrationand control of the leakages in revenues from income taxes and value-added taxes. Asthese house bills were transmitted to the Senate, the latter, approaching the measuresfrom the point of national perspective, can introduce amendments within the purposesof those bills. It can provide for ways that would soften the impact of the VAT measureon the consumer, i.e., by distributing the burden across all sectors instead of putting it

entirely on the shoulders of the consumers. The sponsorship speech of Sen. RalphRecto on why the provisions on income tax on corporation were included is worthquoting:

All in all, the proposal of the Senate Committee on Ways and Means will raise P64.3billion in additional revenues annually even while by mitigating prices of power, servicesand petroleum products.

However, not all of this will be wrung out of VAT. In fact, only P48.7 billion amount isfrom the VAT on twelve goods and services. The rest of the tab – P10.5 billion- will bepicked by corporations.

What we therefore prescribe is a burden sharing between corporate Philippines and theconsumer. Why should the latter bear all the pain? Why should the fiscal salvation beonly on the burden of the consumer?

The corporate world‘s equity is in form of the increase in the corporate income tax from32 to 35 percent, but up to 2008 only. This will raise P10.5 billion a year. After that, therate will slide back, not to its old rate of 32 percent, but two notches lower, to 30percent.

Clearly, we are telling those with the capacity to pay, corporations, to bear with this

emergency provision that will be in effect for 1,200 days, while we put our fiscal housein order. This fiscal medicine will have an expiry date.

For their assistance, a reward of tax reduction awaits them. We intend to keep thelength of their sacrifice brief. We would like to assure them that not because there is alight at the end of the tunnel, this government will keep on making the tunnel long.







The responsibility will not rest solely on the weary shoulders of the small man. Bigbusiness will be there to share the burden.35

As the Court has said, the Senate can propose amendments and in fact, theamendments made on provisions in the tax on income of corporations are germane to

the purpose of the house bills which is to raise revenues for the government.

Likewise, the Court finds the sections referring to other percentage and excise taxesgermane to the reforms to the VAT system, as these sections would cushion the effectsof VAT on consumers. Considering that certain goods and services which were subjectto percentage tax and excise tax would no longer be VAT-exempt, the consumer wouldbe 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. Again, in hissponsorship speech, Sen. Recto said:

However, for power plants that run on oil, we will reduce to zero the present excise tax

on bunker fuel, to lessen the effect of a VAT on this product.For electric utilities like Meralco, we will wipe out the franchise tax in exchange for aVAT.

And in the case of petroleum, while we will levy the VAT on oil products, so as not todestroy the VAT chain, we will however bring down the excise tax on socially sensitiveproducts such as diesel, bunker, fuel and kerosene.

. . .

What do all these exercises point to? These are not contortions of giving to the left handwhat was taken from the right. Rather, these sprang from our concern of softening theimpact of VAT, so that the people can cushion the blow of higher prices they will have topay as a result of VAT.36

The other sections amended by the Senate pertained to matters of tax administrationwhich are necessary for the implementation of the changes in the VAT system.

To reiterate, the sections introduced by the Senate are germane to the subject matterand purposes of the house bills, which is to supplement our country‘s fiscal deficit,among others. Thus, the Senate acted within its power to propose those amendments.

SUBSTANTIVE ISSUES

I.

Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 ofthe NIRC, violate the following provisions of the Constitution:













A. No Undue Delegation of Legislative Power

Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et al., and Escudero, et al. contend in common that Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106,107 and 108, respectively, of the NIRC giving the President the stand-by authority toraise the VAT rate from 10% to 12% when a certain condition is met, constitutes unduedelegation of the legislative power to tax.

The assailed provisions read as follows:

SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended to read asfollows:

SEC. 106. Value-Added Tax on Sale of Goods or Properties. –

(A) Rate and Base of Tax. – There shall be levied, assessed and collected on everysale, barter or exchange of goods or properties, a value-added tax equivalent to tenpercent (10%) of the gross selling price or gross value in money of the goods orproperties sold, bartered or exchanged, such tax to be paid by the seller or transferor:provided, that the President, upon the recommendation of the Secretary ofFinance, shall, effective January 1, 2006, raise the rate of value-added tax totwelve percent (12%), after any of the following conditions has been satisfied.

(i) value-added tax collection as a percentage of Gross Domestic Product (GDP)of the previous year exceeds two and four-fifth percent (2 4/5%) or

(ii) national government deficit as a percentage of GDP of the previous yearexceeds one and one-half percent (1 ½%).

SEC. 5. Section 107 of the same Code, as amended, is hereby further amended to readas follows:

SEC. 107. Value-Added Tax on Importation of Goods. –

(A) In General. – There shall be levied, assessed and collected on every importation ofgoods a value-added tax equivalent to ten percent (10%) based on the total value usedby the Bureau of Customs in determining tariff and customs duties, plus customs duties,excise taxes, if any, and other charges, such tax to be paid by the importer prior to therelease of such goods from customs custody: Provided, That where the customs dutiesare determined on the basis of the quantity or volume of the goods, the value-added taxshall be based on the landed cost plus excise taxes, if any: provided, further, that thePresident, upon the recommendation of the Secretary of Finance, shall, effective



January 1, 2006, raise the rate of value-added tax to twelve percent (12%) afterany of the following conditions has been satisfied.


(ii) national government deficit as a percentage of GDP of the previous yearexceeds one and one-half percent (1 ½%).

SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to readas follows:

SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties –

(A) Rate and Base of Tax. – There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or

exchange of services: provided, that the President, upon the recommendation ofthe Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has beensatisfied.


(ii) national government deficit as a percentage of GDP of the previous yearexceeds one and one-half percent (1 ½%). (Emphasis supplied)

Petitioners allege that the grant of the stand-by authority to the President to increase theVAT rate is a virtual abdication by Congress of its exclusive power to tax because suchdelegation is not within the purview of Section 28 (2), Article VI of the Constitution,which provides:

The Congress may, by law, authorize the President to fix within specified limits, andmay impose, tariff rates, import and export quotas, tonnage and wharfage dues, andother duties or imposts within the framework of the national development program of thegovernment.

They argue that the VAT is a tax levied on the sale, barter or exchange of goods and

properties as well as on the sale or exchange of services, which cannot be includedwithin the purview of tariffs under the exempted delegation as the latter refers tocustoms duties, tolls or tribute payable upon merchandise to the government andusually imposed on goods or merchandise imported or exported.

Petitioners ABAKADA GURO Party List, et al., further contend that delegating to thePresident the legislative power to tax is contrary to republicanism. They insist thataccountability, responsibility and transparency should dictate the actions of Congress



and they should not pass to the President the decision to impose taxes. They alsoargue that the law also effectively nullified the President‘s power of control, whichincludes the authority to set aside and nullify the acts of her subordinates like theSecretary of Finance, by mandating the fixing of the tax rate by the President upon therecommendation of the Secretary of Finance.

Petitioners Pimentel, et al. aver that the President has ample powers to cause, influenceor create the conditions provided by the law to bring about either or both the conditionsprecedent.

On the other hand, petitioners Escudero, et al. find bizarre and revolting the situationthat the imposition of the 12% rate would be subject to the whim of the Secretary ofFinance, an unelected bureaucrat, contrary to the principle of no taxation withoutrepresentation. They submit that the Secretary of Finance is not mandated to give afavorable recommendation and he may not even give his recommendation. Moreover,they allege that no guiding standards are provided in the law on what basis and as to

how he will make his recommendation. They claim, nonetheless, that anyrecommendation of the Secretary of Finance can easily be brushed aside by thePresident since the former is a mere alter ego of the latter, such that, ultimately, it is thePresident who decides whether to impose the increased tax rate or not.

A brief discourse on the principle of non-delegation of powers is instructive.

The principle of separation of powers ordains that each of the three great branches ofgovernment has exclusive cognizance of and is supreme in matters falling within its ownconstitutionally allocated sphere.37 A logical

corollary to the doctrine of separation of powers is the principle of non-delegation ofpowers, as expressed in the Latin maxim: potestas delegata non delegari potest whichmeans "what has been delegated, cannot be delegated."38 This doctrine is based on theethical principle that such as delegated power constitutes not only a right but a duty tobe performed by the delegate through the instrumentality of his own judgment and notthrough the intervening mind of another .39

With respect to the Legislature, Section 1 of Article VI of the Constitution provides that"the Legislative power shall be vested in the Congress of the Philippines which shallconsist of a Senate and a House of Representatives ." The powers which Congress isprohibited from delegating are those which are strictly, or inherently and exclusively,legislative. Purely legislative power, which can never be delegated, has been describedas the authority to make a complete law – complete as to the time when it shalltake effect and as to whom it shall be applicable – and to determine theexpediency of its enactment.40 Thus, the rule is that in order that a court may be

justified in holding a statute unconstitutional as a delegation of legislative power, it mustappear that the power involved is purely legislative in nature – that is, one appertainingexclusively to the legislative department. It is the nature of the power, and not the



















liability of its use or the manner of its exercise, which determines the validity of itsdelegation.

Nonetheless, the general rule barring delegation of legislative powers is subject to thefollowing recognized limitations or exceptions:

(1) Delegation of tariff powers to the President under Section 28 (2) of Article VI of theConstitution;

(2) Delegation of emergency powers to the President under Section 23 (2) of Article VIof the Constitution;

(3) Delegation to the people at large;

(4) Delegation to local governments; and

(5) Delegation to administrative bodies.

In every case of permissible delegation, there must be a showing that the delegationitself is valid. It is valid only if the law (a) is complete in itself, setting forth therein thepolicy to be executed, carried out, or implemented by the delegate;41 and (b) fixes astandard — the limits of which are sufficiently determinate and determinable — to whichthe delegate must conform in the performance of his functions.42 A sufficient standard isone which defines legislative policy, marks its limits, maps out its boundaries andspecifies the public agency to apply it. It indicates the circumstances under which thelegislative command is to be effected.43 Both tests are intended to prevent a totaltransference of legislative authority to the delegate, who is not allowed to step into the

shoes of the legislature and exercise a power essentially legislative.

44

In People vs. Vera,45 the Court, through eminent Justice Jose P. Laurel, expounded onthe concept and extent of delegation of power in this wise:

In testing whether a statute constitutes an undue delegation of legislative power or not,it is usual to inquire whether the statute was complete in all its terms and provisionswhen it left the hands of the legislature so that nothing was left to the judgment of anyother appointee or delegate of the legislature.

. . .

‗The true distinction’, says Judge Ranney, ‘is between the delegation of power tomake the law, which necessarily involves a discretion as to what it shall be, andconferring an authority or discretion as to its execution, to be exercised underand in pursuance of the law. The first cannot be done; to the latter no validobjection can be made.’

. . .























It is contended, however, that a legislative act may be made to the effect as law after itleaves the hands of the legislature. It is true that laws may be made effective on certaincontingencies, as by proclamation of the executive or the adoption by the people of aparticular community. In Wayman vs. Southard, the Supreme Court of the United Statesruled that the legislature may delegate a power not legislative which it may itself

rightfully exercise. The power to ascertain facts is such a power which may bedelegated. There is nothing essentially legislative in ascertaining the existence offacts or conditions as the basis of the taking into effect of a law. That is a mentalprocess common to all branches of the government. Notwithstanding the apparenttendency, however, to relax the rule prohibiting delegation of legislative authority onaccount of the complexity arising from social and economic forces at work in thismodern industrial age, the orthodox pronouncement of Judge Cooley in his work onConstitutional Limitations finds restatement in Prof. Willoughby's treatise on theConstitution of the United States in the following language — speaking of declaration oflegislative power to administrative agencies: The principle which permits thelegislature to provide that the administrative agent may determine when the

circumstances are such as require the application of a law is defended upon theground that at the time this authority is granted, the rule of public policy, which isthe essence of the legislative act, is determined by the legislature. In other words,the legislature, as it is its duty to do, determines that, under given circumstances,certain executive or administrative action is to be taken, and that, under othercircumstances, different or no action at all is to be taken. What is thus left to theadministrative official is not the legislative determination of what public policydemands, but simply the ascertainment of what the facts of the case require to bedone according to the terms of the law by which he is governed. The efficiency ofan Act as a declaration of legislative will must, of course, come from Congress,but the ascertainment of the contingency upon which the Act shall take effectmay be left to such agencies as it may designate. The legislature, then, mayprovide that a law shall take effect upon the happening of future specifiedcontingencies leaving to some other person or body the power to determinewhen the specified contingency has arisen. (Emphasis supplied).46

In Edu vs. Ericta,47 the Court reiterated:

What cannot be delegated is the authority under the Constitution to make laws and toalter and repeal them; the test is the completeness of the statute in all its terms andprovisions when it leaves the hands of the legislature. To determine whether or notthere is an undue delegation of legislative power, the inquiry must be directed to thescope and definiteness of the measure enacted. The legislative does not abdicate itsfunctions when it describes what job must be done, who is to do it, and what isthe scope of his authority. For a complex economy, that may be the only way in whichthe legislative process can go forward. A distinction has rightfully been madebetween delegation of power to make the laws which necessarily involves adiscretion as to what it shall be, which constitutionally may not be done, anddelegation of authority or discretion as to its execution to be exercised under andin pursuance of the law, to which no valid objection can be made. The Constitution











is thus not to be regarded as denying the legislature the necessary resources offlexibility and practicability. (Emphasis supplied).48

Clearly, the legislature may delegate to executive officers or bodies the power todetermine certain facts or conditions, or the happening of contingencies, on which the

operation of a statute is, by its terms, made to depend, but the legislature mustprescribe sufficient standards, policies or limitations on their authority.49 While the powerto tax cannot be delegated to executive agencies, details as to the enforcement andadministration of an exercise of such power may be left to them, including the power todetermine the existence of facts on which its operation depends.50

The rationale for this is that the preliminary ascertainment of facts as basis for theenactment of legislation is not of itself a legislative function, but is simply ancillary tolegislation. Thus, the duty of correlating information and making recommendations is thekind of subsidiary activity which the legislature may perform through its members, orwhich it may delegate to others to perform. Intelligent legislation on the complicated

problems of modern society is impossible in the absence of accurate information on thepart of the legislators, and any reasonable method of securing such information isproper .51 The Constitution as a continuously operative charter of government does notrequire that Congress find for itself

every fact upon which it desires to base legislative action or that it make for itselfdetailed determinations which it has declared to be prerequisite to application oflegislative policy to particular facts and circumstances impossible for Congress itselfproperly to investigate.52

In the present case, the challenged section of R.A. No. 9337 is the common proviso in

Sections 4, 5 and 6 which reads as follows:That the President, upon the recommendation of the Secretary of Finance, shall,effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%),after any of the following conditions has been satisfied:

(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of theprevious year exceeds two and four-fifth percent (2 4/5%); or


The case before the Court is not a delegation of legislative power. It is simply adelegation of ascertainment of facts upon which enforcement and administration of theincrease rate under the law is contingent. The legislature has made the operation of the12% rate effective January 1, 2006, contingent upon a specified fact or condition. Itleaves the entire operation or non-operation of the 12% rate upon factual mattersoutside of the control of the executive.























No discretion would be exercised by the President. Highlighting the absence ofdiscretion is the fact that the word shall is used in the common proviso. The use of theword shall connotes a mandatory order. Its use in a statute denotes an imperativeobligation and is inconsistent with the idea of discretion.53 Where the law is clear andunambiguous, it must be taken to mean exactly what it says, and courts have no choice

but to see to it that the mandate is obeyed.

54

Thus, it is the ministerial duty of the President to immediately impose the 12% rate uponthe existence of any of the conditions specified by Congress. This is a duty whichcannot be evaded by the President. Inasmuch as the law specifically uses the wordshall , the exercise of discretion by the President does not come into play. It is a cleardirective to impose the 12% VAT rate when the specified conditions are present. Thetime of taking into effect of the 12% VAT rate is based on the happening of a certainspecified contingency, or upon the ascertainment of certain facts or conditions by aperson or body other than the legislature itself.

The Court finds no merit to the contention of petitioners ABAKADA GURO Party List, etal. that the law effectively nullified the President‘s power of control over the Secretary ofFinance by mandating the fixing of the tax rate by the President upon therecommendation of the Secretary of Finance. The Court cannot also subscribe to theposition of petitioners

Pimentel, et al. that the word shall should be interpreted to mean may in view of thephrase "upon the recommendation of the Secretary of Finance." Neither does the Courtfind persuasive the submission of petitioners Escudero, et al. that any recommendationby the Secretary of Finance can easily be brushed aside by the President since theformer is a mere alter ego of the latter.

When one speaks of the Secretary of Finance as the alter ego of the President, it simplymeans that as head of the Department of Finance he is the assistant and agent of theChief Executive. The multifarious executive and administrative functions of the ChiefExecutive are performed by and through the executive departments, and the acts of thesecretaries of such departments, such as the Department of Finance, performed andpromulgated in the regular course of business, are, unless disapproved or reprobatedby the Chief Executive, presumptively the acts of the Chief Executive. The Secretary ofFinance, as such, occupies a political position and holds office in an advisory capacity,and, in the language of Thomas Jefferson, "should be of the President's bosomconfidence" and, in the language of Attorney-General Cushing, is "subject to thedirection of the President."55

In the present case, in making his recommendation to the President on the existence ofeither of the two conditions, the Secretary of Finance is not acting as the alter ego of thePresident or even her subordinate. In such instance, he is not subject to the power ofcontrol and direction of the President. He is acting as the agent of the legislativedepartment, to determine and declare the event upon which its expressed will is to takeeffect.56 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 gatherdata 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 andverify if any of the two conditions laid out by Congress is present. His personality insuch instance is in reality but a projection of that of Congress. Thus, being the agent of

Congress and not of the President, the President cannot alter or modify or nullify, or setaside the findings of the Secretary of Finance and to substitute the judgment of theformer for that of the latter.

Congress simply granted the Secretary of Finance the authority to ascertain theexistence of a fact, namely, whether by December 31, 2005, the value-added taxcollection as a percentage of Gross Domestic Product (GDP) of the previous yearexceeds two and four-fifth percent (24/5%) or the national government deficit as apercentage of GDP of the previous year exceeds one and one-half percent (1½%). Ifeither of these two instances has occurred, the Secretary of Finance, by legislativemandate, must submit such information to the President. Then the 12% VAT rate must

be imposed by the President effective January 1, 2006. There is no undue delegationof legislative power but only of the discretion as to the execution of a law. This isconstitutionally permissible.57 Congress does not abdicate its functions or undulydelegate power when it describes what job must be done, who must do it, and what isthe scope of his authority; in our complex economy that is frequently the only way inwhich the legislative process can go forward.58

As to the argument of petitioners ABAKADA GURO Party List, et al. that delegating tothe President the legislative power to tax is contrary to the principle of republicanism,the same deserves scant consideration. Congress did not delegate the power to tax butthe 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 legislativepolicy. That Congress chose to do so in such a manner is not within the province of theCourt to inquire into, its task being to interpret the law.59

The insinuation by petitioners Pimentel, et al. that the President has ample powers tocause, influence or create the conditions to bring about either or both the conditionsprecedent does not deserve any merit as this argument is highly speculative. The Courtdoes not rule on allegations which are manifestly conjectural, as these may not exist atall. The Court deals with facts, not fancies; on realities, not appearances. When theCourt acts on appearances instead of realities, justice and law will be short-lived.

B. The 12% Increase VAT Rate Does Not Impose an Unfair and Unnecessary Additional Tax Burden

Petitioners Pimentel, et al. argue that the 12% increase in the VAT rate imposes anunfair and additional tax burden on the people. Petitioners also argue that the 12%increase, dependent on any of the 2 conditions set forth in the contested provisions, isambiguous because it does not state if the VAT rate would be returned to the original10% if the rates are no longer satisfied. Petitioners also argue that such rate is unfair















and unreasonable, as the people are unsure of the applicable VAT rate from year toyear.

Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of the twoconditions set forth therein are satisfied, the President shall increase the VAT rate to

12%. The provisions of the law are clear. It does not provide for a return to the 10% ratenor does it empower the President to so revert if, after the rate is increased to 12%, theVAT collection goes below the 24/5 of the GDP of the previous year or that the nationalgovernment deficit as a percentage of GDP of the previous year does not exceed 1½%.

Therefore, no statutory construction or interpretation is needed. Neither can conditionsor limitations be introduced where none is provided for. Rewriting the law is a forbiddenground that only Congress may tread upon.60

Thus, in the absence of any provision providing for a return to the 10% rate, which inthis case the Court finds none, petitioners‘ argument is, at best, purely speculative.

There is no basis for petitioners‘ fear of a fluctuating VAT rate because the law itselfdoes not provide that the rate should go back to 10% if the conditions provided inSections 4, 5 and 6 are no longer present. The rule is that where the provision of thelaw is clear and unambiguous, so that there is no occasion for the court's seeking thelegislative intent, the law must be taken as it is, devoid of judicial addition orsubtraction.61

Petitioners also contend that the increase in the VAT rate, which was allegedly anincentive to the President to raise the VAT collection to at least 2 4/5 of the GDP of theprevious year, should be based on fiscal adequacy.

Petitioners obviously overlooked that increase in VAT collection is not the only condition. There is another condition, i.e., the national government deficit as apercentage of GDP of the previous year exceeds one and one-half percent (1 ½%).

Respondents explained the philosophy behind these alternative conditions:

1. VAT/GDP Ratio > 2.8%

The condition set for increasing VAT rate to 12% have economic or fiscal meaning. IfVAT/GDP is less than 2.8%, it means that government has weak or no capability ofimplementing the VAT or that VAT is not effective in the function of the tax collection.

Therefore, there is no value to increase it to 12% because such action will also beineffectual.

2. Nat‘l Gov‘t Deficit/GDP >1.5%

The condition set for increasing VAT when deficit/GDP is 1.5% or less means the fiscalcondition of government has reached a relatively sound position or is towards thedirection of a balanced budget position. Therefore, there is no need to increase the VAT











rate since the fiscal house is in a relatively healthy position. Otherwise stated, if the ratiois more than 1.5%, there is indeed a need to increase the VAT rate.62

That the first condition amounts to an incentive to the President to increase the VATcollection does not render it unconstitutional so long as there is a public purpose for

which the law was passed, which in this case, is mainly to raise revenue. In fact, fiscaladequacy dictated the need for a raise in revenue.

The principle of fiscal adequacy as a characteristic of a sound tax system was originallystated by Adam Smith in his Canons of Taxation (1776), as:

IV. Every tax ought to be so contrived as both to take out and to keep out of the pocketsof the people as little as possible over and above what it brings into the public treasuryof the state.63

It simply means that sources of revenues must be adequate to meet government

expenditures and their variations.

64

The dire need for revenue cannot be ignored. Our country is in a quagmire of financialwoe. During the Bicameral Conference Committee hearing, then Finance SecretaryPurisima bluntly depicted the country‘s gloomy state of economic affairs, thus:

First, let me explain the position that the Philippines finds itself in right now. We are in aposition where 90 percent of our revenue is used for debt service. So, for every peso ofrevenue that we currently raise, 90 goes to debt service. That‘s interest plusamortization of our debt. So clearly, this is not a sustainable situation. That‘s the firstfact.

The second fact is that our debt to GDP level is way out of line compared to other peercountries that borrow money from that international financial markets. Our debt to GDPis approximately equal to our GDP. Again, that shows you that this is not a sustainablesituation.

The third thing that I‘d like to point out is the environment that we are presentlyoperating in is not as benign as what it used to be the past five years.

What do I mean by that?

In the past five years, we‘ve been lucky because we were oper ating in a period ofbasically global growth and low interest rates. The past few months, we have seen aninching up, in fact, a rapid increase in the interest rates in the leading economies of theworld. And, therefore, our ability to borrow at reasonable prices is going to bechallenged. In fact, ultimately, the question is our ability to access the financial markets.

When the President made her speech in July last year, the environment was not as badas it is now, at least based on the forecast of most financial institutions. So, we were















assuming that raising 80 billion would put us in a position where we can then convincethem to improve our ability to borrow at lower rates. But conditions have changed on usbecause the interest rates have gone up. In fact, just within this room, we tried toaccess the market for a billion dollars because for this year alone, the Philippines willhave to borrow 4 billion dollars. Of that amount, we have borrowed 1.5 billion. We

issued last January a 25-year bond at 9.7 percent cost. We were trying to access lastweek and the market was not as favorable and up to now we have not accessed and wemight pull back because the conditions are not very good.

So given this situation, we at the Department of Finance believe that we really need tofront-end our deficit reduction. Because it is deficit that is causing the increase of thedebt and we are in what we call a debt spiral. The more debt you have, the more deficityou have because interest and debt service eats and eats more of your revenue. Weneed to get out of this debt spiral. And the only way, I think, we can get out of this debtspiral is really have a front-end adjustment in our revenue base.65

The image portrayed is chilling. Congress passed the law hoping for rescue from aninevitable catastrophe. Whether the law is indeed sufficient to answer the state‘seconomic dilemma is not for the Court to judge. In the Fariñas case, the Court refusedto consider the various arguments raised therein that dwelt on the wisdom of Section 14of R.A. No. 9006 (The Fair Election Act), pronouncing that:

. . . policy matters are not the concern of the Court. Government policy is within theexclusive dominion of the political branches of the government. It is not for this Court tolook into the wisdom or propriety of legislative determination. Indeed, whether anenactment is wise or unwise, whether it is based on sound economic theory, whether itis the best means to achieve the desired results, whether, in short, the legislative

discretion within its prescribed limits should be exercised in a particular manner arematters for the judgment of the legislature, and the serious conflict of opinions does notsuffice to bring them within the range of judicial cognizance.66

In the same vein, the Court in this case will not dawdle on the purpose of Congress orthe executive policy, given that it is not for the judiciary to "pass upon questions ofwisdom, justice or expediency of legislation."67

II.

Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of theNIRC; and Section 12 of R.A. No. 9337, amending Section 114(C) of the NIRC, violatethe following provisions of the Constitution:


b. Article III, Section 1

A. Due Process and Equal Protection Clauses















Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue that Section 8 of R.A.No. 9337, amending Sections 110 (A)(2), 110 (B), and Section 12 of R.A. No. 9337,amending Section 114 (C) of the NIRC are arbitrary, oppressive, excessive andconfiscatory. Their argument is premised on the constitutional right against deprivationof life, liberty of property without due process of law, as embodied in Article III, Section 1

of the Constitution.

Petitioners also contend that these provisions violate the constitutional guarantee ofequal protection of the law.

The doctrine is that where the due process and equal protection clauses are invoked,considering that they are not fixed rules but rather broad standards, there is a need forproof of such persuasive character as would lead to such a conclusion. Absent such ashowing, the presumption of validity must prevail.68

Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC imposes a limitation

on the amount of input tax that may be credited against the output tax. It states, in part:"[P ]rovided , that the input tax inclusive of the input VAT carried over from the previousquarter that may be credited in every quarter shall not exceed seventy percent (70%) ofthe output VAT: …"

Input Tax is defined under Section 110(A) of the NIRC, as amended, as the value-added tax due from or paid by a VAT-registered person on the importation of goods orlocal purchase of good and services, including lease or use of property, in the course oftrade or business, from a VAT-registered person, and Output Tax is the value-added taxdue on the sale or lease of taxable goods or properties or services by any personregistered or required to register under the law.

Petitioners claim that the contested sections impose limitations on the amount of inputtax that may be claimed. In effect, a portion of the input tax that has already been paidcannot now be credited against the output tax.

Petitioners‘ argument is not absolute. It assumes that the input tax exceeds 70% of theoutput tax, and therefore, the input tax in excess of 70% remains uncredited. However,to the extent that the input tax is less than 70% of the output tax, then 100% of suchinput tax is still creditable.

More importantly, the excess input tax, if any, is retained in a business‘s books of

accounts and remains creditable in the succeeding quarter/s. This is explicitly allowedby Section 110(B), which provides that "if the input tax exceeds the output tax, theexcess shall be carried over to the succeeding quarter or quarters." In addition, Section112(B) allows a VAT-registered person to apply for the issuance of a tax creditcertificate or refund for any unused input taxes, to the extent that such input taxes havenot been applied against the output taxes. Such unused input tax may be used inpayment of his other internal revenue taxes.







The non-application of the unutilized input tax in a given quarter is not ad infinitum, aspetitioners exaggeratedly contend. Their analysis of the effect of the 70% limitation isincomplete and one-sided. It ends at the net effect that there will be unapplied/unutilizedinputs VAT for a given quarter. It does not proceed further to the fact that suchunapplied/unutilized input tax may be credited in the subsequent periods as allowed by

the carry-over provision of Section 110(B) or that it may later on be refunded through atax credit certificate under Section 112(B).

Therefore, petitioners‘ argument must be rejected.

On the other hand, it appears that petitioner Garcia failed to comprehend the operationof the 70% limitation on the input tax. According to petitioner, the limitation on thecreditable input tax in effect allows VAT-registered establishments to retain a portion ofthe taxes they collect, which violates the principle that tax collection and revenue shouldbe for public purposes and expenditures

As earlier stated, the input tax is the tax paid by a person, passed on to him by theseller, when he buys goods. Output tax meanwhile is the tax due to the person when hesells goods. In computing the VAT payable, three possible scenarios may arise:

First, if at the end of a taxable quarter the output taxes charged by the seller are equalto the input taxes that he paid and passed on by the suppliers, then no payment isrequired;

Second, when the output taxes exceed the input taxes, the person shall be liable for theexcess, which has to be paid to the Bureau of Internal Revenue (BIR);69 and

Third, if the input taxes exceed the output taxes, the excess shall be carried over to thesucceeding quarter or quarters. Should the input taxes result from zero-rated oreffectively zero-rated transactions, any excess over the output taxes shall instead berefunded to the taxpayer or credited against other internal revenue taxes, at thetaxpayer‘s option.70

Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input tax. Thus, aperson can credit his input tax only up to the extent of 70% of the output tax. Inlayman‘s term, the value-added taxes that a person/taxpayer paid and passed on to himby a seller can only be credited up to 70% of the value-added taxes that is due to himon a taxable transaction. There is no retention of any tax collection because the

person/taxpayer has already previously paid the input tax to a seller, and the seller willsubsequently remit such input tax to the BIR. The party directly liable for the payment ofthe tax is the seller .71 What only needs to be done is for the person/taxpayer to apply orcredit these input taxes, as evidenced by receipts, against his output taxes.

Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also argue that the input taxpartakes the nature of a property that may not be confiscated, appropriated, or limitedwithout due process of law.















The input tax is not a property or a property right within the constitutional purview of thedue process clause. A VAT-registered person‘s entitlement to the creditable input tax isa mere statutory privilege.

The distinction between statutory privileges and vested rights must be borne in mind for

persons have no vested rights in statutory privileges. The state may change or takeaway rights, which were created by the law of the state, although it may not take awayproperty, which was vested by virtue of such rights.72

Under the previous system of single-stage taxation, taxes paid at every level ofdistribution are not recoverable from the taxes payable, although it becomes part of thecost, which is deductible from the gross revenue. When Pres. Aquino issued E.O. No.273 imposing a 10% multi-stage tax on all sales, it was then that the crediting of theinput tax paid on purchase or importation of goods and services by VAT-registeredpersons against the output tax was introduced.73 This was adopted by the ExpandedVAT Law (R.A. No. 7716),74 and The Tax Reform Act of 1997 (R.A. No. 8424).75 The

right to credit input tax as against the output tax is clearly a privilege created by law, aprivilege that also the law can remove, or in this case, limit.

Petitioners also contest as arbitrary, oppressive, excessive and confiscatory, Section 8of R.A. No. 9337, amending Section 110(A) of the NIRC, which provides:

SEC. 110. Tax Credits. –

(A) Creditable Input Tax . – …

Provided , That the input tax on goods purchased or imported in a calendar month for

use in trade or business for which deduction for depreciation is allowed under this Code,shall be spread evenly over the month of acquisition and the fifty-nine (59) succeedingmonths if the aggregate acquisition cost for such goods, excluding the VAT componentthereof, exceeds One million pesos (P1,000,000.00): Provided , however, That if theestimated useful life of the capital goods is less than five (5) years, as used fordepreciation purposes, then the input VAT shall be spread over such a shorter period:Provided , finally , That in the case of purchase of services, lease or use of properties,the input tax shall be creditable to the purchaser, lessee or license upon payment of thecompensation, rental, royalty or fee.

The foregoing section imposes a 60-month period within which to amortize the

creditable input tax on purchase or importation of capital goods with acquisition cost ofP1 Million pesos, exclusive of the VAT component. Such spread out only poses a delayin the crediting of the input tax. Petitioners‘ argument is without basis because thetaxpayer is not permanently deprived of his privilege to credit the input tax.

It is worth mentioning that Congress admitted that the spread-out of the creditable inputtax in this case amounts to a 4-year interest-free loan to the government.76 In the samebreath, Congress also justified its move by saying that the provision was designed to























raise an annual revenue of 22.6 billion.77 The legislature also dispelled the fear that theprovision will fend off foreign investments, saying that foreign investors have other taxincentives provided by law, and citing the case of China, where despite a 17.5% non-creditable VAT, foreign investments were not deterred.78 Again, for whatever is thepurpose of the 60-month amortization, this involves executive economic policy and

legislative wisdom in which the Court cannot intervene.

With regard to the 5% creditable withholding tax imposed on payments made by thegovernment for taxable transactions, Section 12 of R.A. No. 9337, which amendedSection 114 of the NIRC, reads:

SEC. 114. Return and Payment of Value-added Tax. –

(C) Withholding of Value-added Tax. – The Government or any of its politicalsubdivisions, instrumentalities or agencies, including government-owned or controlledcorporations (GOCCs) shall, before making payment on account of each purchase of

goods and services which are subject to the value-added tax imposed in Sections 106and 108 of this Code, deduct and withhold a final value-added tax at the rate of fivepercent (5%) of the gross payment thereof: Provided, That the payment for lease or useof properties or property rights to nonresident owners shall be subject to ten percent(10%) withholding tax at the time of payment. For purposes of this Section, the payor orperson in control of the payment shall be considered as the withholding agent.

The value-added tax withheld under this Section shall be remitted within ten (10) daysfollowing the end of the month the withholding was made.

Section 114(C) merely provides a method of collection, or as stated by respondents, a

more simplified VAT withholding system. The government in this case is constituted asa withholding agent with respect to their payments for goods and services.

Prior to its amendment, Section 114(C) provided for different rates of value-added taxesto be withheld -- 3% on gross payments for purchases of goods; 6% on gross paymentsfor services supplied by contractors other than by public works contractors; 8.5% ongross payments for services supplied by public work contractors; or 10% on payment forthe lease or use of properties or property rights to nonresident owners. Under thepresent Section 114(C), these different rates, except for the 10% on lease or propertyrights payment to nonresidents, were deleted, and a uniform rate of 5% is applied.

The Court observes, however, that the law the used the word final . In tax usage, final , as opposed to creditable, means full. Thus, it is provided in Section 114(C): "final value-added tax at the rate of five percent (5%)."

In Revenue Regulations No. 02-98, implementing R.A. No. 8424 (The Tax Reform Actof 1997), the concept of final withholding tax on income was explained, to wit:

SECTION 2.57. Withholding of Tax at Source











(A) Final Withholding Tax. – Under the final withholding tax system the amount ofincome tax withheld by the withholding agent is constituted as full and final payment ofthe income tax due from the payee on the said income. The liability for payment of thetax rests primarily on the payor as a withholding agent. Thus, in case of his failure towithhold the tax or in case of underwithholding, the deficiency tax shall be collected

from the payor/withholding agent. …

(B) Creditable Withholding Tax. – Under the creditable withholding tax system, taxeswithheld on certain income payments are intended to equal or at least approximate thetax due of the payee on said income. … Taxes withheld on income payments coveredby the expanded withholding tax (referred to in Sec. 2.57.2 of these regulations) andcompensation income (referred to in Sec. 2.78 also of these regulations) are creditablein nature.

As applied to value-added tax, this means that taxable transactions with the governmentare subject to a 5% rate, which constitutes as full payment of the tax payable on the

transaction. This represents the net VAT payable of the seller. The other 5% effectivelyaccounts for the standard input VAT (deemed input VAT), in lieu of the actual input VATdirectly or attributable to the taxable transaction.79

The Court need not explore the rationale behind the provision. It is clear that Congressintended to treat differently taxable transactions with the government.80 This issupported by the fact that under the old provision, the 5% tax withheld by thegovernment remains creditable against the tax liability of the seller or contractor, to wit:

SEC. 114. Return and Payment of Value-added Tax. –

(C) Withholding of Creditable Value-added Tax. – The Government or any of itspolitical subdivisions, instrumentalities or agencies, including government-owned orcontrolled corporations (GOCCs) shall, before making payment on account of eachpurchase of goods from sellers and services rendered by contractors which are subjectto the value-added tax imposed in Sections 106 and 108 of this Code, deduct andwithhold the value-added tax due at the rate of three percent (3%) of the gross paymentfor the purchase of goods and six percent (6%) on gross receipts for services renderedby contractors on every sale or installment payment which shall be creditable againstthe value-added tax liability of the seller or contractor : Provided, however, That inthe case of government public works contractors, the withholding rate shall be eight andone-half percent (8.5%): Provided, further, That the payment for lease or use ofproperties or property rights to nonresident owners shall be subject to ten percent (10%)withholding tax at the time of payment. For this purpose, the payor or person in controlof the payment shall be considered as the withholding agent.

The valued-added tax withheld under this Section shall be remitted within ten (10) daysfollowing the end of the month the withholding was made. (Emphasis supplied)











As amended, the use of the word final and the deletion of the word creditable exhibitsCongress‘s intention to treat transactions with the government differently. Since it hasnot been shown that the class subject to the 5% final withholding tax has beenunreasonably narrowed, there is no reason to invalidate the provision. Petitioners, aspetroleum dealers, are not the only ones subjected to the 5% final withholding tax. It

applies to all those who deal with the government.

Moreover, the actual input tax is not totally lost or uncreditable, as petitioners believe.Revenue Regulations No. 14-2005 or the Consolidated Value-Added Tax Regulations2005 issued by the BIR, provides that should the actual input tax exceed 5% of grosspayments, the excess may form part of the cost. Equally, should the actual input tax beless than 5%, the difference is treated as income.81

Petitioners also argue that by imposing a limitation on the creditable input tax, thegovernment gets to tax a profit or value-added even if there is no profit or value-added.

Petitioners‘ stance is purely hypothetical, argumentative, and again, one-sided. TheCourt will not engage in a legal joust where premises are what ifs, arguments,theoretical and facts, uncertain. Any disquisition by the Court on this point will only be,as Shakespeare describes life in Macbeth,82 "full of sound and fury, signifying nothing."

What‘s more, petitioners‘ contention assumes the proposition that there is no profit orvalue-added. It need not take an astute businessman to know that it is a matter ofexception that a business will sell goods or services without profit or value-added. Itcannot be overstressed that a business is created precisely for profit.

The equal protection clause under the Constitution means that "no person or class of

persons shall be deprived of the same protection of laws which is enjoyed by otherpersons or other classes in the same place and in like circumstances."83

The power of the State to make reasonable and natural classifications for the purposesof taxation has long been established. Whether it relates to the subject of taxation, thekind of property, the rates to be levied, or the amounts to be raised, the methods ofassessment, valuation and collection, the State‘s power is entitled to presumpt ion ofvalidity. As a rule, the judiciary will not interfere with such power absent a clear showingof unreasonableness, discrimination, or arbitrariness.84

Petitioners point out that the limitation on the creditable input tax if the entity has a high

ratio of input tax, or invests in capital equipment, or has several transactions with thegovernment, is not based on real and substantial differences to meet a validclassification.

The argument is pedantic, if not outright baseless. The law does not make anyclassification in the subject of taxation, the kind of property, the rates to be levied or theamounts to be raised, the methods of assessment, valuation and collection. Petitioners‘alleged distinctions are based on variables that bear different consequences. While the



















R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The VATrate of 0% or 10% (or 12%) does not apply to sales of goods or services with grossannual sales or receipts not exceeding P1,500,000.00.88 Also, basic marine andagricultural food products in their original state are still not subject to the tax,89 thusensuring that prices at the grassroots level will remain accessible. As was stated in

Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan :

90

The disputed sales tax is also equitable. It is imposed only on sales of goods or servicesby persons engaged in business with an aggregate gross annual sales exceedingP200,000.00. Small corner sari-sari stores are consequently exempt from itsapplication. Likewise exempt from the tax are sales of farm and marine products, so thatthe costs of basic food and other necessities, spared as they are from the incidence ofthe VAT, are expected to be relatively lower and within the reach of the general public.

It is admitted that R.A. No. 9337 puts a premium on businesses with low profit margins,and unduly favors those with high profit margins. Congress was not oblivious to this.

Thus, to equalize the weighty burden the law entails, the law, under Section 116,imposed a 3% percentage tax on VAT-exempt persons under Section 109(v), i.e.,transactions with gross annual sales and/or receipts not exceeding P1.5 Million. Thisacts as a equalizer because in effect, bigger businesses that qualify for VAT coverageand VAT-exempt taxpayers stand on equal-footing.

Moreover, Congress provided mitigating measures to cushion the impact of theimposition of the tax on those previously exempt. Excise taxes on petroleum products 91 and natural gas92 were reduced. Percentage tax on domestic carriers was removed.93 Power producers are now exempt from paying franchise tax.94

Aside from these, Congress also increased the income tax rates of corporations, inorder to distribute the burden of taxation. Domestic, foreign, and non-residentcorporations are now subject to a 35% income tax rate, from a previous 32%.95 Intercorporate dividends of non-resident foreign corporations are still subject to 15%final withholding tax but the tax credit allowed on the corporation‘s domicile wasincreased to 20%.96 The Philippine Amusement and Gaming Corporation (PAGCOR) isnot exempt from income taxes anymore.97 Even the sale by an artist of his works orservices performed for the production of such works was not spared.

All these were designed to ease, as well as spread out, the burden of taxation, whichwould otherwise rest largely on the consumers. It cannot therefore be gainsaid that R.A.No. 9337 is equitable.

C. Progressivity of Taxation

Lastly, petitioners contend that the limitation on the creditable input tax is anything butregressive. It is the smaller business with higher input tax-output tax ratio that will sufferthe consequences.









































Progressive taxation is built on the principle of the taxpayer‘s ability to pay. Thisprinciple was also lifted from Adam Smith‘s Canons of Taxation, and it states:

I. The subjects of every state ought to contribute towards the support of thegovernment, as nearly as possible, in proportion to their respective abilities; that is, in

proportion to the revenue which they respectively enjoy under the protection of thestate.

Taxation is progressive when its rate goes up depending on the resources of the personaffected.98

The VAT is an antithesis of progressive taxation. By its very nature, it is regressive. Theprinciple of progressive taxation has no relation with the VAT system inasmuch as theVAT paid by the consumer or business for every goods bought or services enjoyed isthe same regardless of income. In

other words, the VAT paid eats the same portion of an income, whether big or small.The disparity lies in the income earned by a person or profit margin marked by abusiness, such that the higher the income or profit margin, the smaller the portion of theincome or profit that is eaten by VAT. A converso, the lower the income or profit margin,the bigger the part that the VAT eats away. At the end of the day, it is really the lowerincome group or businesses with low-profit margins that is always hardest hit.

Nevertheless, the Constitution does not really prohibit the imposition of indirect taxes,like the VAT. What it simply provides is that Congress shall "evolve a progressivesystem of taxation." The Court stated in the Tolentino case, thus:

The Constitution does not really prohibit the imposition of indirect taxes which, like theVAT, are regressive. What it simply provides is that Congress shall ‗evolve aprogressive system of taxation.‘ The constitutional provision has been interpreted tomean simply that ‗direct taxes are . . . to be preferred [and] as much as possib le,indirect taxes should be minimized.‘ (E. FERNANDO, THE CONSTITUTION OF THEPHILIPPINES 221 (Second ed. 1977)) Indeed, the mandate to Congress is not toprescribe, but to evolve, a progressive tax system. Otherwise, sales taxes, whichperhaps are the oldest form of indirect taxes, would have been prohibited with theproclamation of Art. VIII, §17 (1) of the 1973 Constitution from which the present Art. VI,§28 (1) was taken. Sales taxes are also regressive.

Resort to indirect taxes should be minimized but not avoided entirely because it isdifficult, if not impossible, to avoid them by imposing such taxes according to thetaxpayers' ability to pay. In the case of the VAT, the law minimizes the regressiveeffects of this imposition by providing for zero rating of certain transactions (R.A. No.7716, §3, amending §102 (b) of the NIRC), while granting exemptions to othertransactions. (R.A. No. 7716, §4 amending §103 of the NIRC)99

CONCLUSION











It has been said that taxes are the lifeblood of the government. In this case, it is just anenema, a first-aid measure to resuscitate an economy in distress. The Court is neitherblind nor is it turning a deaf ear on the plight of the masses. But it does not have thepanacea for the malady that the law seeks to remedy. As in other cases, the Court

cannot strike down a law as unconstitutional simply because of its yokes.

Let us not be overly influenced by the plea that for every wrong there is a remedy, andthat the judiciary should stand ready to afford relief. There are undoubtedly manywrongs the judicature may not correct, for instance, those involving political questions. .. .

Let us likewise disabuse our minds from the notion that the judiciary is the repository ofremedies for all political or social ills; We should not forget that the Constitution has

judiciously allocated the powers of government to three distinct and separatecompartments; and that judicial interpretation has tended to the preservation of theindependence of the three, and a zealous regard of the prerogatives of each, knowing

full well that one is not the guardian of the others and that, for official wrong-doing, eachmay be brought to account, either by impeachment, trial or by the ballot box.100

The words of the Court in Vera vs. Avelino101 holds true then, as it still holds true now. All things considered, there is no raison d'être for the unconstitutionality of R.A. No.9337.

WHEREFORE, Republic Act No. 9337 not being unconstitutional, the petitions in G.R.Nos. 168056, 168207, 168461, 168463, and 168730, are hereby DISMISSED.

There being no constitutional impediment to the full enforcement and implementation of

R.A. No. 9337, the temporary restraining order issued by the Court on July 1, 2005 isLIFTED upon finality of herein decision.

SO ORDERED.

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice

WE CONCUR:

HILARIO G. DAVIDE, JR. Chief Justice

REYNATO S. PUNO

Associate Justice

ARTEMIO V. PANGANIBAN

Associate Justice










LEONARDO A. QUISUMBING

Associate Justice

CONSUELO YNARES-SANTIAGO

Associate JusticeANGELINA SANDOVAL-GUTIERREZ

Associate Justice

ANTONIO T. CARPIO Associate Justice

RENATO C. CORONA

Associate Justice

CONCHITA CARPIO-MORALES

Associate JusticeROMEO J. CALLEJO, SR.

Associate Justice

ADOLFO S. AZCUNA Associate Justice

DANTE O. TINGA

Associate Justice

MINITA V. CHICO-NAZARIO Associate Justice

CANCIO C. GARCIA

Associate Justice

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that theconclusions in the above Decision were reached in consultation before the case wasassigned to the writer of the opinion of the Court.

HILARIO G. DAVIDE, JR.

Chief Justice

Footnotes

1 Entitled "An Act Amending Sections 27, 28, 34, 106, 107, 108, 109, 110, 111,112, 113, 114, 116, 117, 119, 121, 148, 151, 236, 237, and 288 of the NationalInternal Revenue Code of 1997, As Amended and For Other Purposes."

2 Entitled, "An Act Restructuring the Value-Added Tax, Amending for the PurposeSections 106, 107, 108, 110 and 114 of the National Internal Revenue Code of1997, As Amended, and For Other Purposes."

3 Entitled, "An Act Amending Sections 106, 107, 108, 109, 110 and 111 of theNational Internal Revenue Code of 1997, As Amended, and For OtherPurposes."












4 Entitled, "An Act Amending Sections 27, 28, 34, 106, 108, 109, 110, 112, 113,114, 116, 117, 119, 121, 125, 148, 151, 236, 237 and 288 of the National InternalRevenue Code of 1997, As Amended, and For Other Purposes."

5 Section 26, R.A. No. 9337.

6 TSN, July 14, 2005.

7 Section 125 of the National Internal Revenue Code, as amended, was notamended by R.A. No. 9337, as can be gleaned from the title and body of the law.

8 Section 105, National Internal Revenue of the Philippines, as amended.

9 Ibid .

10 Deoferio, Jr., V.A. and Mamalateo, V.C., The Value Added Tax in the

Philippines (First Edition 2000).11 Maceda vs. Macaraig, Jr., G.R. No. 88291, May 31, 1991, 197 SCRA 771.

12 Maceda vs. Macaraig, Jr., G.R. No. 88291, June 8, 1993, 223 SCRA, 217.

13 Id ., Deoferio, Jr., V.A. and Mamalateo, V.C., The Value Added Tax in thePhilippines (First Edition 2000).

14 Commissioner of Internal Revenue vs. Seagate, G.R. No. 153866, February11, 2005.

15 Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan, G.R.Nos. L-81311, L-81820, L-81921, L-82152, June 30, 1988, 163 SCRA 371.

16 Entitled, "An Act Restructuring the Value-Added Tax (VAT) System, Wideningits Tax Base and Enhancing its Administration, And for these Purposes

Amending and Repealing the Relevant Provisions of the National InternalRevenue Code, as amended, and for other Purposes."

17 Entitled, "An Act Amending Republic Act No. 7716, otherwise known as theValue-Added Tax Law and Other Pertinent Provisions of the National Internal

Revenue Code, as Amended."18 Entitled, "An Act Amending the National Internal Revenue Code, as Amended,and for other Purposes."

19 Story, Commentaries 835 (1833).

20 G.R. No. 147387, December 10, 2003, 417 SCRA 503.






















































21 Id ., pp. 529-530.

22 Supra., Note 20.

23 G.R. No. 115455, August 25, 1994, 235 SCRA 630.

24 Id ., p. 670.

25 Wester‘s Third New International Dictionary, p. 1897.

26 TSN, Bicameral Conference Committee on the Disagreeing Provisions ofSenate Bill No. 1950 and House Bill Nos. 3705 and 3555, May 10, 2005, p. 4.

27 Id ., p. 3.

28 Sponsorship Speech of Representative Teves, in behalf of Representative

Jesli Lapus, TSN, January 7, 2005, pp. 34-35.29 G.R. No. 105371, November 11, 1993, 227 SCRA 703.

30 Supra, Note 23.

31 Id ., p. 668.

32 Id ., p. 671.

33 Id ., pp. 661-663.

34 Transcript of Session Proceedings, January 7, 2005, pp. 19-20.

35 Journal of the Senate, Session No. 67, March 7, 2005, pp. 727-728.

36 Id ., p. 726.

37 See Angara vs. Electoral Commission, No. 45081, July 15, 1936, 63 Phil. 139,156.

38 Defensor-Santiago vs. Commission on Elections, G.R. No. 127325, March 19,

1997, 270 SCRA 106, 153; People vs. Rosenthal, Nos. 46076 & 46077, June 12,1939, 68 Phil. 328; ISAGANI A. CRUZ, Philippine Political Law 86 (1996). JudgeCooley enunciates the doctrine in the following oft-quoted language: "One of thesettled maxims in constitutional law is, that the power conferred upon thelegislature to make laws cannot be delegated by that department to any otherbody or authority. Where the sovereign power of the state has located theauthority, there it must remain; and by the constitutional agency alone the lawsmust be made until the Constitution itself is changed. The power to whose

























































judgment, wisdom, and patriotism this high prerogative has been intrustedcannot relieve itself of the responsibility by choosing other agencies uponwhich the power shall be devolved, nor can it substitute the judgment,wisdom, and patriotism of any other body for those to which alone thepeople have seen fit to confide this sovereign trust." (Cooley on

Constitutional Limitations, 8th ed., Vol. I, p. 224)39 United States vs. Barrias, No. 4349, September 24, 1908, 11 Phil. 327, 330.

40 16 Am Jur 2d, Constitutional Law, § 337.

41 Pelaez vs. Auditor General, No. L-23825, December 24, 1965, 122 Phil. 965,974 citing Calalang vs. Williams, No. 47800, December 2, 1940, 70 Phil. 726;Pangasinan Transp. Co. vs. Public Service Commission, No. 47065, June 26,1940, 70 Phil. 221; Cruz vs. Youngberg, No. 34674, October 26, 1931, 56 Phil.234; Alegre vs. Collector of Customs, No. 30783, August 27, 1929, 53 Phil. 394

et seq.42 Pelaez vs. Auditor General, supra, citing People vs. Lim Ho, No. L-12091-2,January 28, 1960, 106 Phil. 887; People vs. Jolliffee, No. L-9553, May 13, 1959,105 Phil 677; People vs. Vera, No. 45685, November 16, 1937, 65 Phil. 56; U.S.vs. Nag Tang Ho, No. L-17122, February 27, 1922, 43 Phil. 1; Compañia Generalde Tabacos vs. Board of Public Utility, No. 11216, March 6, 1916, 34 Phil. 136 etseq.

43 Edu vs. Ericta, No. L-32096, October 24, 1970, 35 SCRA 481, 497.

44

Eastern Shipping Lines, Inc. vs. POEA, No. L-76633, October 18, 1988, 166SCRA 533, 543-544.

45 No. 45685, November 16, 1937, 65 Phil. 56.

46 Id ., pp. 115-120.

47 Supra, note 43.

48 Id ., pp. 496-497.

49

16 C.J.S., Constitutional Law, § 138.50 Ibid .

51 16 Am Jur 2d, Constitutional Law § 340.

52 Yajus vs. United States, 321 US 414, 88 L Ed 834, 64 S Ct. 660, 28 Ohio Ops220.













































53 Province of Batangas vs. Romulo, G.R. No. 152774, May 27, 2004; Enriquezvs. Court of Appeals, G.R. No. 140473, January 28, 2003, 396 SCRA 377;Codoy vs. Calugay, G.R. No. 123486, August 12, 1999, 312 SCRA 333.

54 Province of Batangas vs. Romulo, supra; Quisumbing vs. Meralco, G.R. No.

142943, April 3, 2002, 380 SCRA 195; Agpalo, Statutory Construction, 1990 ed.,p. 45.

55 Villena vs. Secretary of Interior, No. 46570, April 21, 1939, 67 Phil 451, 463-464.

56 Alunan vs. Mirasol, G.R. No. 108399, July 31, 1997, 276 SCRA 501, 513-514,citing Panama Refining Co. vs. Ryan, 293 U.S. 388, 79 L.Ed. 469 (1935).

57 Compañia General de Tabacos de Filipinas vs. The Board of Public UtilityCommissioners, No. 11216, 34 Phil. 136; Cruz vs. Youngberg, No. 34674,

October 26, 1931, 56 Phil. 234; People vs. Vera, No. 45685, November 16, 1937,65 Phil. 56, 113; Edu vs. Ericta, No. L-32096, October 24, 1970, 35 SCRA 481;Tatad vs. Secretary of the Department of Energy, G.R. No. 124360, November 5,1997, 281 SCRA 330; Alunan vs. Mirasol, supra.

58 Bowles vs. Willinghan, 321 US 503, 88 l Ed 892, 64 S Ct 641, 28 Ohio Ops180.

59 United Residents of Dominican Hill, Inc. vs. Commission on the Settlement ofLand Problems, G.R. No. 135945, March 7, 2001, 353 SCRA 782; Commissionerof Internal Revenue vs. Santos, G.R. No. 119252, August 18, 1997, 277 SCRA

617, 630.60 Commission on Internal Revenue vs. American Express International, Inc.(Philippine Branch), G.R. No. 152609, June 29, 2005.

61 Acting Commissioner of Customs vs. MERALCO, No. L-23623, June 30, 1977,77 SCRA 469, 473.

62 Respondents‘ Memorandum, pp. 168-169.

63 The Wealth of Nations, Book V, Chapter II.

64 Chavez vs. Ongpin, G.R. No. 76778, June 6, 1990, 186 SCRA 331, 338.

65 TSN, Bicameral Conference Committee on the Disagreeing Provisions ofSenate Bill No. 1950 and House Bill Nos. 3705 and 3555, April 25, 2005, pp. 5-6.

66 G.R. No. 147387, December 10, 2003, 417 SCRA 503, 524.













































67 National Housing Authority vs. Reyes, G.R. No. L-49439, June 29, 1983, 123SCRA 245, 249.

68 Sison vs. Ancheta, G.R. No. L-59431, July 25, 1984, 130 SCRA 654, 661.

69

Section 8, R.A. No. 9337, amending Section 110(A)(B),NIRC.70 Ibid .

71 Commissioner of Internal Revenue vs. Benguet Corp., G.R. Nos. 134587 &134588, July 8, 2005.

72 United Paracale Mining Co. vs. Dela Rosa, G.R. Nos. 63786-87, April 7, 1993,221 SCRA 108, 115.

73 E.O. No. 273, Section 1.

74 Section 5.

75 Section 110(B).

76 Journal of the Senate, Session No. 71, March 15, 2005, p. 803.

77 Id., Session No. 67, March 7, 2005, p. 726.

78 Id ., Session No. 71, March 15, 2005, p. 803.

79

Revenue Regulations No. 14-2005, 4.114-2(a).80 Commissioner of Internal Revenue vs. Philam, G.R. No. 141658, March 18,2005.

81 Revenue Regulations No. 14-2005, Sec. 4. 114-2.

82 Act V, Scene V.

83 Philippine Rural Electric Cooperatives Association, Inc. vs. DILG, G.R. No.143076, June 10, 2003, 403 SCRA 558, 565.

84 Aban, Benjamin, Law of Basic Taxation in the Philippines (First Edition 1994).

85 Philippine Judges Association case, supra., note 29.

86 Commissioner of Internal Revenue vs. Court of Appeals, G.R. No. 119761, August 29, 1996, 261 SCRA 236, 249.































































87 Kee vs. Court of Tax Appeals, No. L-18080, April 22, 1963, 117 Phil 682, 688.

88 Section 7, R.A. No. 9337.

89 Ibid .

90 No. L-81311, June 30, 1988, 163 SCRA 371, 383.

91 Section 17, R.A. No. 9337, amending Section 148, NIRC.

92 Section 18, amending Section 151, NIRC.



95

Sections 1 and 2, amending Sections 27 and 28, NIRC.96 Section 2, amending Section 28, NIRC.

97 Section 1, amending Section 27(C), NIRC.

98 Reyes vs. Almanzor, G.R. Nos. 49839-46, April 26, 1991, 196 SCRA 322, 327.

99 Tolentino vs. Secretary of Finance, G.R. No. 115455, October 30, 1995, 249SCRA 628, 659.

100

Vera vs. Avelino, G.R. No. L-543, August 31, 1946, 77 Phil. 365.101 Ibid .

The Lawphil Project - Arellano Law Foundation

EN BANC

G.R. No. 168056 - ABAKADA GURO PARTY LIST, ET AL . V. EXECUTIVESECRETARY EDUARDO R. ERMITA, ET AL.

G.R. No. 168207 - AQUILINO PIMENTEL, JR., ET AL . V. EXECUTIVE SECRETARYEDUARDO ERMITA, ET AL .

G.R. No. 168461 - ASSOCIATION OF PILIPINAS SHELL DEALERS, INC, ET AL . V.CESAR V. PURISIMA, ET AL .
















































G.R. No. 168463 - FRANCIS JOSEPH G. ESCUDERO, ET AL . V. CESAR V.PURISIMA, ET AL .

X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X

SEPARATE CONCURRING

AND DISSENTING OPINION

DAVIDE, JR., C.J .:

While I still hold on to my position expressed in my dissenting opinion in the first VATcases,1 I partly yield to the application to the cases at bar of the rule on "germaneness"therein enunciated. Thus, I concur with the ponencia of my highly-esteemed colleagueMme. Justice Ma. Alicia Austria-Martinez except as regards its ruling on the issue ofwhether Republic Act No. 9337 violates Section 24, Article VI of the Constitution.

R.A. No. 9337 primarily aims to restructure the value-added tax (VAT) system bybroadening its base and raising the rate so as to generate more revenues for thegovernment that can assuage the economic predicament that our country is now facing.This recently enacted law stemmed from three legislative bills: House Bill (HB) No.3555, HB No. 3705, and Senate Bill (SB) 1950. The first (HB No. 3555) called for theamendment of Sections 106, 107, 108, 109, 110, and 111 of the National InternalRevenue Code (NIRC) as amended; while the second (HB No. 3705) proposedamendments to Sections 106, 107, 108, 110, and 114 of the NIRC, as amended. It issignificant to note that all these Sections specifically deal with VAT. And indubitably,these bills are revenue bills in that they are intended to levy taxes and raise funds for

the government.

2

On the other hand, SB No. 1950 introduced amendments to "Sections 27, 28, 34, 106,108, 109, 110, 111, 112, 113, 114, 116, 117, 118, 119, 125, 148, 236, 237, and 288" ofthe NIRC, as amended. Among the provisions sought to be amended, only Sections106, 108, 109, 110, 111, 112, 113, 114, and 116 pertain to VAT. And while Sections236, 237, and 288 are administrative provisions pertaining to registration requirementsand issuance of receipts commercial invoices, the proposed amendments thereto arerelated to VAT. Hence, the proposed amendments to these Sections were validly takencognizance of and properly considered by the Bicameral Conference Committee (BCC).

However, I am of the opinion that the inclusion into the law of the amendmentsproposed in SB No. 1950 to the following provisions (with modifications on the rates oftaxes) is invalid.

Provision Subject matter

Section 27 Rate of income tax on domestic corporations











Section 28(A)(1) Rate of income tax on resident foreign corporation

Section 28(B)(1) Rate of income tax on non-resident foreign corporation

Section 28(B)(5-b) Rate of income tax on intra-corporate dividends received by non-

resident foreign corporation

Section 34(B)(1) Deductions from gross income

Section 117 Percentage tax on domestic carriers and keepers of garages

Section 119 Tax on franchises

Section 148 Excise tax on manufactured oils and other fuels

Obviously, these provisions do not deal with VAT. It must be noted that the House Bills

initiated amendments to provisions pertaining to VAT only. Doubtless, the Senate hasthe constitutional power to concur with the amendments to the VAT provisionsintroduced in the House Bills or even to propose its own version of VAT measure. Butthat power does not extend to initiation of other tax measures, such as introducingamendments to provisions on corporate income taxes, percentage taxes, franchisetaxes, and excise taxes like what the Senate did in these cases. It was beyond theambit of the authority of the Senate to propose amendments to provisions not coveredby the House Bills or not related to the subject matter of the House Bills, which is VAT.To allow the Senate to do so would be tantamount to vesting in it the power to initiaterevenue bills -- a power that exclusively pertains to the House of Representatives underSection 24, Article VI of the Constitution, which provides:

Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the publicdebt, bills of local application, and private bills shall originate exclusively in the House ofRepresentatives but the Senate may propose or concur with amendments.

Moreover, Sections 121 (Percentage Tax on Banks and Non-Bank FinancialIntermediaries) and 151 (Excise Tax on Mineral Products) of the NIRC, as amended,have been included by the BCC in R.A. N0. 9337 even though they were not found inthe Senate and House Bills.

In Philippine Judges Association v. Prado,3 the Court described the function of a

conference committee in this wise: "A conference committee may deal generally withthe subject matter or it may be limited to resolving the precise differences between thetwo houses. Even where the conference committee is not by rule limited in its

jurisdiction, legislative custom severely limits the freedom with which new subjectmatter can be inserted into the conference bill."

The limitation on the power of a conference committee to insert new provisions was laiddown in Tolentino v. Secretary of Finance.4 There, the Court, while recognizing the











power of a conference committee to include in its report an entirely new provision that isnot found either in the House bill or in the Senate bill, held that the exercise of thatpower is subject to the condition that the said provision is "germane to the subject ofthe House and Senate bills."

As pointed out by the petitioners, Tolentino differs from the present cases in the sensethat in that case the amendments introduced in the Senate bill were on the samesubject matter treated in the House bill, which was VAT, and the new provisioninserted by the conference committee had relation to that subject matter. Specifically,HB No. 11197 called for the (1) amendment of Sections99,100,102,103,104,105,106,107, 108, 110, 112,115, 116, 236,237, and 238 of theNIRC, as amended; and (2) repeal of Sections 113 and 114 of the NIRC, as amended.SB No. 1630, on the other hand, proposed the (1) amendment of Sections99,100,102,103,104,105,107, 108, 110, 112, 236, 237, and 238 of the NIRC, asamended; and (2) repeal of Sections 113, 114, and 116 of the NIRC, as amended. Inshort, all the provisions sought to be changed in the Senate bill were covered in the

House bill. Although the new provisions inserted by the conference committee were notfound in either the House or Senate bills, they were germane to the general subject ofthe bills.

In the present cases, the provisions inserted by the BCC, namely, Sections 121(Percentage Tax on Banks and Non-Bank Financial Intermediaries) and 151 (ExciseTax on Mineral Products) of the NIRC, as amended, are undoubtedly germane to SBNo. 1950, which introduced amendments to the provisions on percentage and excisetaxes -- but foreign to HB Nos. 3555 and 3705, which dealt with VAT only. Since theproposed amendments in the Senate bill relating to percentage and excise taxes cannotthemselves be sustained because they did not take their root from, or are not related to

the subject of, HB Nos. 3705 and 3555, in violation of Section 24, Article VI of theConstitution, the new provisions inserted by the BCC on percentage and excise taxeswould have no leg to stand on.

I understand very well that the amendments of the Senate and the BCC relating tocorporate income, percentage, franchise, and excise taxes were designed to "soften theimpact of VAT measure on the consumer, i.e., by distributing the burden across allsectors instead of putting it entirely on the shoulders of the consumers" and to alleviatethe country‘s financial problems by bringing more revenues for the government.However, these commendable intentions do not justify a deviation from the Constitution,which mandates that the initiative for filing revenue bills should come from the House ofRepresentatives, not from the Senate. After all, these aims may still be realized bymeans of another bill that may later be initiated by the House of Representatives.

Therefore, I vote to declare R.A. No. 9337 as constitutional insofar as it amendsprovisions pertaining to VAT. However, I vote to declare as unconstitutional Sections1, 2, 3, 14, 15, 16, 17, and 18 thereof which, respectively, amend Sections 27, 28, 34,117, 119, 121, 148, and 151 of the NIRC, as amended because these amendmentsdeal with subject matters which were not touched or covered by the bills emanating



from the House of Representatives, thereby violating Section 24 of Article VI of theConstitution.

HILARIO G. DAVIDE, JR.

Footnotes

1 Tolentino v. Secretary of Finance, G.R. No. 115455, 25 August 1994, 235SCRA 630, and companion cases.

2 ISAGANI A. CRUZ, POLITICAL LAW 154 (2002 ed.) citing U.S. v. Nortorn, 91U.S. 566.

3 G.R. No. 105371, 11 November 1993, 27 SCRA 703, 708, citing Davies,

Legislative Law and Process: In a Nutshell 81 (1986 ed.)4 Supra note 1.


G.R. No. 168056 – ABAKADA GURO PARTY LIST, ET AL. VS. EXECUTIVESECRETARY EDUARDO ERMITA, ET AL.

G.R. No. 168207 – AQUILINO PIMENTEL, JR., ET AL. VS. EXECUTIVESECRETARY EDUARDO 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, ET AL. VS. CESAR V.PURISIMA, ET AL.

Promulgated: September 1, 2005

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

CONCURRING AND

DISSENTING OPINION

PUNO, J .:















The main opinion of Madam Justice Martinez exhaustively discusses the numerousconstitutional and legal issues raised by the petitioners. Be that as it may, I wish to raisethe following points, viz :

First. Petitioners assail sections 4 to 6 of Republic Act No. 9337 as violative of the

principle of non-delegation of legislative power. These sections authorize the President,upon recommendation of the Secretary of Finance, to raise the value-added tax (VAT)rate to 12% effective January 1, 2006, upon satisfaction of the following conditions:viz :



The power of judicial review under Article VIII, section 5(2) of the 1987 Constitution islimited to the review of "actual cases and controversies."1 As rightly stressed byretired Justice Vicente V. Mendoza, this requirement gives the judiciary "the opportunity,denied to the legislature, of seeing the actual operation of the statute as it is applied toactual facts and thus enables it to reach sounder judgment" and "enhances publicacceptance of its role in our system of government."2 It also assures that the judiciarydoes not intrude on areas committed to the other branches of government and isconfined to its role as defined by the Constitution.3 Apposite thereto is the doctrine ofripeness whose basic rationale is "to prevent the courts, through prematureadjudication, from entangling themselves in abstract disagreements."4 Central to thedoctrine is the determination of "whether the case involves uncertain or contingent

future events that may not occur as anticipated, or indeed may not occur at all. "

5

Theripeness requirement must be satisfied for each challenged legal provision and partsof a statute so that those which are "not immediately involved are not thereby thrownopen for a judicial determination of constitutionality."6

It is manifest that the constitutional challenge to sections 4 to 6 of R.A. No. 9337 cannothurdle the requirement of ripeness. These sections give the President the power toraise the VAT rate to 12% on January 1, 2006 upon satisfaction of certain fact-based conditions. We are not endowed with the infallible gift of prophesy to knowwhether these conditions are certain to happen. The power to adjust the tax rate givento the President is futuristic and may or may not be exercised. The Court is thereforebeseeched to render a conjectural judgment based on hypothetical facts. Such asupplication has to be rejected.

Second. With due respect, I submit that the most important constitutional issue posedby the petitions at bar relates to the parameters of power of a Bicameral ConferenceCommittee. Most of the issues in the petitions at bar arose because the BicameralConference Committee concerned exercised powers that went beyond reconciling thedifferences between Senate Bill No. 1950 and House Bill Nos. 3705 and 3555. In



























Tolentino v. Secretary of Finance,7 I ventured the view that a Bicameral ConferenceCommittee has limited powers and cannot be allowed to act as if it were a "thirdhouse" of Congress. I further warned that unless its roving powers are reigned in, aBicameral Conference Committee can wreck the lawmaking process which is acornerstone of the democratic, republican regime established in our Constitution. The

passage of time fortifies my faith that there ought to be no legal u-turn on thispreeminent principle. I wish, therefore, to reiterate my reasons for this unbending view,viz :8

Section 209, Rule XII of the Rules of the Senate provides:

In the event that the Senate does not agree with the House of Representatives on theprovision of any bill or joint resolution, the differences shall be settled by a conferencecommittee of both Houses which shall meet within ten days after their composition.

Each Conference Committee Report shall contain a detailed and sufficiently explicit

statement of the changes in or amendments to the subject measure, and shall besigned by the conferees. (Emphasis supplied)

The counterpart rule of the House of Representatives is cast in near identical language.Section 85 of the Rules of the House of Representatives pertinently provides:

In the event that the House does not agree with the Senate on the amendments to anybill or joint resolution, the differences may be settled by a conference committee of bothchambers.

x x x. Each report shall contain a detailed, sufficiently explicit statement of the changes

in or amendments to the subject measure. (Emphasis supplied)The Jefferson‘s Manual has been adopted as a supplement to our parliamentary rulesand practice. Section 456 of Jefferson‘s Manual similarly confines the powers of aconference committee, viz :

The managers of a conference must confine themselves to the differences committed tothem … and may not include subjects not within the disagreements, even thoughgermane to a question in issue.

This rule of antiquity has been honed and honored in practice by the Congress of the

United States. Thus, it is chronicled by Floyd Biddick, Parliamentarian Emeritus of theUnited States Senate, viz :

Committees of conference are appointed for the sole purpose of compromising andadjusting the differing and conflicting opinions of the two Houses and the committees ofconference alone can grant compromises and modify propositions of either Houseswithin the limits of the disagreement. Conferees are limited to the consideration ofdifferences between the two Houses.











Congress shall not insert in their report matters not committed to them by either House,nor shall they strike from the bill matters agreed to by both Houses . No matter on whichthere is nothing in either the Senate or House passed versions of a bill may be includedin the conference report and actions to the contrary would subject the report to a pointof order. (Emphasis ours)

In fine, there is neither a sound nor a syllable in the Rules of the Senate and the Houseof Representatives to support the thesis of the respondents that a bicameral conferencecommittee is clothed with an ex post veto power.

But the thesis that a Bicameral Conference Committee can wield ex post veto powerdoes not only contravene the rules of both the Senate and the House. It wages waragainst our settled ideals of representative democracy. For the inevitable, catastrophiceffect of the thesis is to install a Bicameral Conference Committee as the ThirdChamber of our Congress, similarly vested with the power to make laws but with thedissimilarity that its laws are not the subject of a free and full discussion of both Houses

of Congress. With such a vagrant power, a Bicameral Conference Committee acting asa Third Chamber will be a constitutional monstrosity.

It needs no omniscience to perceive that our Constitution did not provide for a Congresscomposed of three chambers. On the contrary, section 1, Article VI of the Constitutionprovides in clear and certain language: "The legislative power shall be vested in theCongress of the Philippines which shall consist of a Senate and a House ofRepresentatives …" Note that in vesting legislative power exclusively to the Senate andthe House, the Constitution used the word "shall." Its command for a Congress of twohouses is mandatory. It is not mandatory sometimes.

In vesting legislative power to the Senate, the Constitution means the Senate "…composed of twenty-four Senators xxx elected at large by the qualified voters of thePhilippines …" Similarly, when the Constitution vested the legislative power to theHouse, it means the House "… composed of not more than two hundred and fiftymembers xxx who shall be elected from legislative districts xxx and those who xxx shallbe elected through a party-list system of registered national, regional, and sectoralparties or organizations." The Constitution thus, did not vest on a Bicameral ConferenceCommittee with an ad hoc membership the power to legislate for it exclusively vestedlegislative power to the Senate and the House as co-equal bodies. To be sure, theConstitution does not mention the Bicameral Conference Committees of Congress. Noconstitutional status is accorded to them. They are not even statutory creations. Theyowe their existence from the internal rules of the two Houses of Congress. Yet,respondents peddle the disconcerting idea that they should be recognized as a ThirdChamber of Congress and with ex post veto power at that.

The thesis that a Bicameral Conference Committee can exercise law making power withex post veto power is freighted with mischief. Law making is a power that can be usedfor good or for ill, hence, our Constitution carefully laid out a plan and a procedure for itsexercise. Firstly, it vouchsafed that the power to make laws should be exercised by no



other body except the Senate and the House. It ought to be indubitable that what iscontemplated is the Senate acting as a full Senate and the House acting as a fullHouse. It is only when the Senate and the House act as whole bodies that they trulyrepresent the people. And it is only when they represent the people that they canlegitimately pass laws. Laws that are not enacted by the people‘s rightful

representatives subvert the people‘s sovereignty. Bicameral Conference Committees,with their ad hoc character and limited membership, cannot pass laws for they do notrepresent the people. The Constitution does not allow the tyranny of the majority. Yet,the respondents will impose the worst kind of tyranny – the tyranny of the minority overthe majority. Secondly, the Constitution delineated in deft strokes the steps to befollowed in making laws. The overriding purpose of these procedural rules is to assurethat only bills that successfully survive the searching scrutiny of the proper committeesof Congress and the full and unfettered deliberations of both Houses can become laws.For this reason, a bill has to undergo three (3) mandatory separate readings in eachHouse. In the case at bench, the additions and deletions made by the BicameralConference Committee did not enjoy the enlightened studies of appropriate committees.

It is meet to note that the complexities of modern day legislations have made ourcommittee system a significant part of the legislative process. Thomas Reed called thecommittee system as "the eye, the ear, the hand, and very often the brain of the house."President Woodrow Wilson of the United States once referred to the government of theUnited States as "a government by the Chairmen of the Standing Committees ofCongress …" Neither did these additions and deletions of the Bicameral ConferenceCommittee pass through the coils of collective deliberation of the members of the twoHouses acting separately. Due to this shortcircuiting of the constitutional procedure ofmaking laws, confusion shrouds the enactment of R.A. No. 7716. Who inserted theadditions and deletions remains a mystery. Why they were inserted is a riddle. To use aChurchillian phrase, lawmaking should not be a riddle wrapped in an enigma. It cannotbe, for Article II, section 28 of the Constitution mandates the State to adopt andimplement a "policy of full public disclosure of all its transactions involving publicinterest." The Constitution could not have contemplated a Congress of invisible andunaccountable John and Mary Does. A law whose rationale is a riddle and whoseauthorship is obscure cannot bind the people.

All these notwithstanding, respondents resort to the legal cosmetology that theseadditions and deletions should govern the people as laws because the BicameralConference Committee Report was anyway submitted to and approved by the Senateand the House of Representatives. The submission may have some merit with respectto provisions agreed upon by the Committee in the process of reconciling conflictsbetween S.B. No. 1630 and H.B. No. 11197. In these instances, the conflictingprovisions had been previously screened by the proper committees, deliberated uponby both Houses and approved by them. It is, however, a different matter with respect toadditions and deletions which were entirely new and which were made not to reconcileinconsistencies between S.B. No. 1630 and H.B. No. 11197. The members of theBicameral Conference Committee did not have any authority to add new provisions ordelete provisions already approved by both Houses as it was not necessary todischarge their limited task of reconciling differences in bills. At that late stage of law



making, the Conference Committee cannot add/delete provisions which can becomelaws without undergoing the study and deliberation of both chambers given to bills on1st, 2nd, and 3rd readings. Even the Senate and the House cannot enact a law whichwill not undergo these mandatory three (3) readings required by the Constitution. If theSenate and the House cannot enact such a law, neither can the lesser Bicameral

Conference Committee.

Moreover, the so-called choice given to the members of both Houses to either approveor disapprove the said additions and deletions is more of an optical illusion. Theseadditions and deletions are not submitted separately for approval. They are tucked tothe entire bill. The vote is on the bill as a package, i.e., together with the insertions anddeletions. And the vote is either "aye" or "nay," without any further debate anddeliberation. Quite often, legislators vote "yes" because they approve of the bill as awhole although they may object to its amendments by the Conference Committee. Thislack of real choice is well observed by Robert Luce:

Their power lies chiefly in the fact that reports of conference committees must beaccepted without amendment or else rejected in toto. The impulse is to get done withthe matter and so the motion to accept has undue advantage, for some members aresure to prefer swallowing unpalatable provisions rather than prolong controversy. This isthe more likely if the report comes in the rush of business toward the end of a session,when to seek further conference might result in the loss of the measure altogether. Atany time in the session there is some risk of such a result following the rejection of aconference report, for it may not be possible to secure a second conference, or delaymay give opposition to the main proposal chance to develop more strength.

In a similar vein, Prof. Jack Davies commented that "conference reports are returned to

assembly and Senate on a take-it or leave-it-basis, and the bodies are generally placedin the position that to leave-it is a practical impossibility." Thus, he concludes that"conference committee action is the most undemocratic procedure in the legislativeprocess."

The respondents also contend that the additions and deletions made by the BicameralConference Committee were in accord with legislative customs and usages. Theargument does not persuade for it misappreciates the value of customs and usages inthe hierarchy of sources of legislative rules of procedure. To be sure, every legislativeassembly has the inherent right to promulgate its own internal rules. In our jurisdiction,

Article VI, section 16(3) of the Constitution provides that "Each House may determinethe rules of its proceedings x x x." But it is hornbook law that the sources of Rules ofProcedure are many and hierarchical in character. Mason laid them down as follows:

x x x

1. Rules of Procedure are derived from several sources. The principal sources are asfollows:



a. Constitutional rules.

b. Statutory rules or charter provisions.

c. Adopted rules.

d. Judicial decisions.

e. Adopted parliamentary authority.

f. Parliamentary law.

g. Customs and usages.

2. The rules from the different sources take precedence in the order listed above exceptthat judicial decisions, since they are interpretations of rules from one of the other

sources, take the same precedence as the source interpreted. Thus, for example, aninterpretation of a constitutional provision takes precedence over a statute.

3. Whenever there is conflict between rules from these sources the rule from the sourcelisted earlier prevails over the rule from the source listed later . Thus, where theConstitution requires three readings of bills, this provision controls over any provision ofstatute, adopted rules, adopted manual, or of parliamentary law, and a rule ofparliamentary law controls over a local usage but must give way to any rule from ahigher source of authority. (Emphasis ours)

As discussed above, the unauthorized additions and deletions made by the Bicameral

Conference Committee violated the procedure fixed by the Constitution in the making oflaws. It is reasonless for respondents therefore to justify these insertions as sanctionedby customs and usages.

Finally, respondents seek sanctuary in the conclusiveness of an enrolled bill to bar any judicial inquiry on whether Congress observed our constitutional procedure in thepassage of R.A. No. 7716. The enrolled bill theory is a historical relic that should notcontinuously rule us from the fossilized past. It should be immediately emphasized thatthe enrolled bill theory originated in England where there is no written constitution andwhere Parliament is supreme. In this jurisdiction, we have a written constitution and thelegislature is a body of limited powers. Likewise, it must be pointed out that starting from

the decade of the 40s, even American courts have veered away from the rigidity andunrealism of the conclusiveness of an enrolled bill. Prof. Sutherland observed:

x x x

Where the failure of constitutional compliance in the enactment of statutes is notdiscoverable from the face of the act itself but may be demonstrated by recourse to thelegislative journals, debates, committee reports or papers of the governor, courts have



used several conflicting theories with which to dispose of the issue. They have held: (1)that the enrolled bill is conclusive and like the sheriff‘s return cannot be attacked; (2)that the enrolled bill is prima facie correct and only in case the legislative journal showsaffirmative contradiction of the constitutional requirement will the bill be held invalid; (3)that although the enrolled bill is prima facie correct, evidence from the journals, or other

extrinsic sources is admissible to strike the bill down; (4) that the legislative journal isconclusive and the enrolled bills is valid only if it accords with the recital in the journaland the constitutional procedure.

Various jurisdictions have adopted these alternative approaches in view of strongdissent and dissatisfaction against the philosophical underpinnings of theconclusiveness of an enrolled bill. Prof. Sutherland further observed:

x x x. Numerous reasons have been given for this rule. Traditionally, an enrolled bill was"a record" and as such was not subject to attack at common law. Likewise, the rule ofconclusiveness was similar to the common law rule of the inviolability of the sheriff‘s

return. Indeed, they had the same origin, that is, the sheriff was an officer of the kingand likewise the parliamentary act was a regal act and no official might dispute theking‘s word. Transposed to our democratic system of government, courts held that asthe legislature was an official branch of government the court must indulge everypresumption that the legislative act was valid. The doctrine of separation of powers wasadvanced as a strong reason why the court should treat the acts of a co-ordinate branchof government with the same respect as it treats the action of its own officers; indeed, itwas thought that it was entitled to even greater respect, else the court might be in theposition of reviewing the work of a supposedly equal branch of government. Whenthese arguments failed, as they frequently did, the doctrine of convenience wasadvanced, that is, that it was not only an undue burden upon the legislature to preserve

its records to meet the attack of persons not affected by the procedure of enactment,but also that it unnecessarily complicated litigation and confused the trial of substantiveissues.

Although many of these arguments are persuasive and are indeed the basis for the rulein many states today, they are not invulnerable to attack. The rule most relied on – thesheriff‘s return or sworn official rule – did not in civil litigation deprive the injured party ofan action, for always he could sue the sheriff upon his official bond. Likewise, althoughcollateral attack was not permitted, direct attack permitted raising the issue of fraud, andat a later date attack in equity was also available; and that the evidence of the sheriffwas not of unusual weight was demonstrated by the fact that in an action against thesheriff no presumption of its authenticity prevailed.

The argument that the enrolled bill is a "record" and therefore unimpeachable is likewisemisleading, for the correction of records is a matter of established judicial procedure.

Apparently, the justification is either the historical one that the king‘s word could not bequestioned or the separation of powers principle that one branch of the governmentmust treat as valid the acts of another.



Persuasive as these arguments are, the tendency today is to avoid reaching results byartificial presumptions and thus it would seem desirable to insist that the enrolled billstand or fall on the basis of the relevant evidence which may be submitted for or againstit. (Emphasis ours)

Thus, as far back as the 1940s, Prof. Sutherland confirmed that "x x x the tendencyseems to be toward the abandonment of the conclusive presumption rule and theadoption of the third rule leaving only a prima facie presumption of validity which may beattacked by any authoritative source of information.

Third. I respectfully submit that it is only by strictly following the contours of powers ofa Bicameral Conference Committee, as delineated by the rules of the House and theSenate, that we can prevent said Committee from acting as a "third" chamber ofCongress. Under the clear rules of both the Senate and House, its power can go nofurther than settling differences in their bills or joint resolutions. Sections 88 and 89,Rule XIV of the Rules of the House of Representatives provide as follows:

Sec. 88. Conference Committee. – In the event that the House does not agree with theSenate on the amendment to any bill or joint resolution, the differences may be settledby the conference committees of both chambers.

In resolving the differences with the Senate, the House panel shall, as much aspossible, adhere to and support the House Bill. If the differences with the Senate are sosubstantial that they materially impair the House Bill, the panel shall report such fact tothe House for the latter‘s appropriate action.

Sec. 89. Conference Committee Reports. - . . . Each report shall contain a detailed,

sufficiently explicit statement of the changes in or amendments to the subject measure.. . .

The Chairman of the House panel may be interpellated on the Conference CommitteeReport prior to the voting thereon. The House shall vote on the Conference CommitteeReport in the same manner and procedure as it votes a bill on third and final reading.

Section 35, Rule XII of the Rules of the Senate states:

Sec. 35. In the event that the Senate does not agree with the House of Representatives

on the provision of any bill or joint resolution, the differences shall be settled by aconference committee of both Houses which shall meet within ten (10) days after theircomposition. The President shall designate the members of the Senate Panel in theconference committee with the approval of the Senate.

Each Conference Committee Report shall contain a detailed and sufficiently explicitstatement of the changes in, or amendments to the subject measure, and shall besigned by a majority of the members of each House panel, voting separately.



The House rule brightlines the following: (1) the power of the Conference Committee islimited . . . it is only to settle differences with the Senate; (2) if the differences aresubstantial, the Committee must report to the House for the latter‘s appropriate action;and (3) the Committee report has to be voted upon in the same manner and procedureas a bill on third and final reading. Similarly, the Senate rule underscores in crimson

that (1) the power of the Committee is limited - - - to settle differences with the House;(2) it can make changes or amendments only in the discharge of this limited power tosettle differences with the House; and (3) the changes or amendments are merelyrecommendatory for they still have to be approved by the Senate.

Under both rules, it is obvious that a Bicameral Conference Committee is a mereagent of the House or the Senate with limited powers. The House contingent in theCommittee cannot, on its own, settle differences which are substantial incharacter. If it is confronted with substantial differences, it has to go back to thechamber that created it "for the latter’s appropriate action." In other words, it musttake the proper instructions from the chambers that created it. It cannot exercise its

unbridled discretion. Where there is no difference between the bills, it cannot makeany change. Where the difference is substantial, it has to return to the chamber of itsorigin and ask for appropriate instructions. It ought to be indubitable that it cannotcreate a new law, i.e., that which has never been discussed in either chamber ofCongress. Its parameters of power are not porous, for they are hedged by the clearlimitation that its only power is to settle differences in bills and joint resolutions of thetwo chambers of Congress.

Fourth. Prescinding from these premises, I respectfully submit that the following acts ofthe Bicameral Conference Committee constitute grave abuse of discretion amounting tolack or excess of jurisdiction and should be struck down as unconstitutional nullities, viz :

a. Its deletion of the pro poor "no pass on provision" which is common in both SenateBill No. 1950 and House Bill No. 3705.

Sec. 1 of House Bill No. 37059 provides:

Section 106 of the National Internal Revenue Code of 1997, as amended, is herebyfurther amended to read as follows:

SEC. 106. Value-added Tax on Sale of Goods or Properties. –

x x xProvided, further, that notwithstanding the provision of the second paragraph of Section105 of this Code, the Value-added Tax herein levied on the sale of petroleum productsunder Subparagraph (1) hereof shall be paid and absorbed by the sellers of petroleumproducts who shall be prohibited from passing on the cost of such tax payments,either directly or indirectly[,] to any consumer in whatever form or manner , it






being the express intent of this act that the Value-added Tax shall be borne andabsorbed exclusively by the sellers of petroleum products x x x.

Sec. 3 of the same House bill provides:

Section 108 of the National Internal Revenue Code of 1997, as amended, is herebyfurther amended to read as follows:

Sec. 108. Value-added Tax on Sale of Goods or Properties. –

Provided, further, that notwithstanding the provision of the second paragraph of Section105 of this Code, the Value-added Tax imposed under this paragraph shall be paid andabsorbed by the subject generation companies who shall be prohibited frompassing on the cost of such tax payments, either directly or indirectly[,] to anyconsumer in whatever form or manner , it being the express intent of this act that theValue-added Tax shall be borne and absorbed exclusively [by] the power-generating

companies.

In contrast and comparison, Sec. 5 of Senate Bill No. 1950 provides:

Value-added Tax on sale of Services and Use or Lease of Properties. –

x x x Provided , that the VAT on sales of electricity by generation companies, andservices of transmission companies and distribution companies, as well as those offranchise grantees of electrical utilities shall not apply to residential end-users:Provided , that the Value-added Tax herein levied shall be absorbed and paid by thegeneration, transmission and distribution companies concerned. The said companies

shall not pass on such tax payments to NAPOCOR or ultimately to theconsumers, including but not limited to residential end users, either as costs or in anyother form whatsoever, directly or indirectly. x x x.

Even the faintest eye contact with the above provisions will reveal that: (a) both theHouse bill and the Senate bill prohibited the passing on to consumers of the VAT onsales of electricity and (b) the House bill prohibited the passing on to consumers of theVAT on sales of petroleum products while the Senate bill is silent on the prohibition.

In the guise of reconciling disagreeing provisions of the House and the Senate bills onthe matter, the Bicameral Conference Committee deleted the "no pass on

provision" on both the sales of electricity and petroleum products. This action bythe Committee is not warranted by the rules of either the Senate or the House. Asaforediscussed, the only power of a Bicameral Conference Committee is to reconciledisagreeing provisions in the bills or joint resolutions of the two houses of Congress.The House and the Senate bills both prohibited the passing on to consumers of theVAT on sales of electricity. The Bicameral Conference Committee cannot overridethis unequivocal decision of the Senate and the House. Nor is it clear that there is aconflict between the House and Senate versions on the "no pass on provisions" of the



which fall beyond the median thereof. They transgress the limits of the BicameralConference Committee‘s authority and must be struck down.

I cannot therefore subscribe to the thesis of the majority that "the changes introduced bythe Bicameral Conference Committee on disagreeing provisions were meant only to

reconcile and harmonize the disagreeing provisions for it did not inject any idea orintent that is wholly foreign to the subject embraced by the original provisions."

Fifth. The majority further defends the constitutionality of the above provisions byholding that "all the changes or modifications were germane to subjects of theprovisions referred to it for reconciliation."

With due respect, it is high time to re-examine the test of germaneness proffered inTolentino.

The test of germaneness is overly broad and is the fountainhead of mischief for it

allows the Bicameral Conference Committee to change provisions in the bills of theHouse and the Senate when they are not even in disagreement. Worse still, it enablesthe Committee to introduce amendments which are entirely new and have notpreviously passed through the coils of scrutiny of the members of both houses. TheConstitution did not establish a Bicameral Conference Committee that can act as a"third house" of Congress with super veto power over bills passed by the Senate andthe House. We cannot concede that super veto power without wrecking the delicatearchitecture of legislative power so carefully laid down in our Constitution. The clearintent of our fundamental law is to install a lawmaking structure composed only of twohouses whose members would thoroughly debate proposed legislations inrepresentation of the will of their respective constituents. The institution of this

lawmaking structure is unmistakable from the following provisions: (1) requiring thatlegislative power shall be vested in a bicameral legislature;10 (2) providing for quorumrequirements;11 (3) requiring that appropriation, revenue or tariff bills, bills authorizingincrease of public debt, bills of local application, and private bills originate exclusively inthe House of Representatives;12 (4) requiringthat bills embrace one subject expressed in the title thereof ;13 and (5) mandating thatbills undergo three readings on separate days in each House prior to passage into lawand prohibiting amendments on the last reading thereof .14 A Bicameral ConferenceCommittee with untrammeled powers will destroy this lawmaking structure. At the veryleast, it will diminish the free and open debate of proposed legislations and facilitatethe smuggling of what purports to be laws.

On this point, Mr. Robert Luce’s disconcerting observations are apropos:

"Their power lies chiefly in the fact that reports of conference committees must beaccepted without amendment or else rejected in toto. The impulse is to get done withthe matters and so the motion to accept has undue advantage, for some membersare sure to prefer swallowing unpalatable provisions rather than prolongcontroversy. This is more likely if the report comes in the rush of business toward the























end of the session, when to seek further conference might result in the loss of themeasure altogether. At any time in the session there is some risk of such a resultfollowing the rejection of a conference report, for it may not be possible to secure asecond conference, or delay may give opposition to the main proposal chance todevelop more strength.

xxx xxx xxx

Entangled in a network of rule and custom, the Representative who resents and wouldresist this theft of his rights, finds himself helpless. Rarely can be vote, rarely can hevoice his mind, in the matter of any fraction of the bill. Usually he cannot even recordhimself as protesting against some one feature while accepting the measure as whole.Worst of all, he cannot by argument or suggested change, try to improve what the otherbranch has done.

This means more than the subversion of individual rights. It means to a degree the

abandonment of whatever advantage the bicameral system may have. By somuch it in effect transfers the lawmaking power to small group of members whowork out in private a decision that almost always prevails. What is worse, thesemen are not chosen in a way to ensure the wisest choice. It has become the practice toname as conferees the ranking members of the committee, so that the accident ofseniority determines. Exceptions are made, but in general it is not a question of who aremost competent to serve. Chance governs, sometimes giving way to favor, rarely tomerit.

xxx xxx xxx

Speaking broadly, the system of legislating by conference committee is unscientific andtherefore defective. Usually it forfeits the benefit of scrutiny and judgment by allthe wisdom available. Uncontrolled, it is inferior to that process by which everyamendment is secured independent discussion and vote. . . ."15

It cannot be overemphasized that in a republican form of government, laws can only beenacted by all the duly elected representatives of the people. It cuts againstconventional wisdom in democracy to lodge this power in the hands of a few or inthe claws of a committee. It is for these reasons that the argument that we shouldoverlook the excesses of the Bicameral Conference Committee because its report isanyway approved by both houses is a futile attempt to square the circle for anunconstitutional act is void and cannot be redeemed by any subsequent ratification.

Neither can we shut our eyes to the unconstitutional acts of the Bicameral ConferenceCommittee by holding that the Court cannot interpose its checking powers over mereviolations of the internal rules of Congress. In Arroyo, et al. v. de Venecia, et al.,16 weruled that when the violations affect private rights or impair the Constitution, theCourt has all the power, nay, the duty to strike them down.











In conclusion, I wish to stress that this is not the first time nor will it be last thatarguments will be foisted for the Court to merely wink at assaultson the Constitution on the ground of some national interest, sometimes clear and atother times inchoate. To be sure, it cannot be gainsaid that the country is in the vortexof a financial crisis. The broadsheets scream the disconcerting news that our debt

payments for the year 2006 will exceed Pph1 billion daily for interest alone. Expertsunderscore some factors that will further drive up the debt service expenses such as thedevaluation of the peso, credit downgrades and a spike in interest rates.17 But nodoomsday scenario will ever justify the thrashing of the Constitution. The Constitution ismeant to be our rule both in good times as in bad times. It is the Court‘suncompromising obligation to defend the Constitution at all times lest it be condemnedas an irrelevant relic.

WHEREFORE, I concur with the majority but dissent on the following points:

a) I vote to withhold judgment on the constitutionality of the "standby authority" in

Sections 4 to 6 of Republic Act No. 9337 as this issue is not ripe for adjudication.;b) I vote to declare unconstitutional the deletion by the Bicameral ConferenceCommittee of the pro poor "no pass on provision" on electricity to residentialconsumers as it contravened the unequivocal intent of both Houses of Congress; and

c) I vote to declare Section 21 of Republic Act No. 9337 as unconstitutional as itcontains extraneous provisions not found in its constituent bills.

REYNATO S. PUNO

Associate Justice

Footnotes

1 Angara v. Electoral Commission, 63 Phil. 139 (1936); See also Tribe, AmericanConstitutional Law, pp. 311-314 (3rd ed.).

2 Mendoza, Judicial Review of Constitutional Questions: Cases and Materials, p.86 (2004).

3 Id. at 87.

4 Abbott Laboratories v. Gardner, 387 U.S. 136 (1967); I Tribe, AmericanConstitutional Law, p. 334 (3rd ed.).



















5 Texas v. United States, 523 U.S. 296 (1998); Thomas v. Union Carbide Agricultural Products Co., 473 U.S. 568 (1985); I Tribe, American ConstitutionalLaw, pp. 335-336 (3rd ed.).

6 Communist Party of the United States v. Subversive Activities Control Bd., 367

U.S. 1, 71 (1961); I Tribe, American Constitutional Law, p. 336 (3rd ed.); Seealso concurring opinion of Justice Brandeis in Ashwander v. Tennessee Valley Authority, 297 U.S. 288 (1936).

7 235 SCRA 630 (1994).

8 See Opinion in 235 SCRA 630, 805-825.

9 H.B. No. 3555 has no "no pass on provision." House Bill No. 3705 expressesthe latest intent of the House on the matter.

10

1 Sutherland Statutory Construction § 6:2 (6th ed.): The provision requiringthat legislative power shall be vested in a bicameral legislature seeks to "assuresound judgment that comes from separate deliberations and actions in therespective bodies that check and balance each other."

11 Const., Article VI, Section 16(2) (1987): "(2) A majority of each House shallconstitute a quorum to do business, but a smaller number may adjourn from dayto day and may compel the attendance of absent Members in such manner, andunder such penalties, as such House may provide."

12 Const., Article VI, Section 24 (1987); 1 Sutherland Statutory Construction § 9:6

(6th ed.): The provision helps guarantee that the exercise of the taxing power iswell studied as the lower house is "presumably more representative incharacter."

13 Const., Article VI, Section 26(1) (1987); I Cooley, A Treatise on ConstitutionalLimitations, p. 143; Central Capiz v. Ramirez, 40 Phil. 883 (1920): "In theconstruction and application of this constitutional restriction the courts have keptsteadily in view the correction of the mischief against which it was aimed. Theobject is to prevent the practice, which was common in all legislative bodieswhere no such restrictions existed of embracing in the same bill incongruousmatters having no relation to each other or to the subject specified in the title, by

which measures were often adopted without attracting attention. Such distinctsubjects represented diverse interests, and were combined in order to unite themembers of the legislature who favor either in support of all. These combinationswere corruptive of the legislature and dangerous to the State. Such omnibus billssometimes included more than a hundred sections on as many different subjects,with a title appropriate to the first section, and for other purposes."






























"The failure to indicate in the title of the bill the object intended to beaccomplished by the legislation often resulted in members voting ignorantly formeasures which they would not knowingly have approved; and not only werelegislators thus misled, but the public also; so that legislative provisions weresteadily pushed through in the closing hours of a session, which, having no merit

to commend them, would have been made odious by popular discussion andremonstrance if their pendency had been seasonably announced. Theconstitutional clause under discussion is intended to correct these evils; toprevent such corrupting aggregations of incongruous measures, by confiningeach act to one subject or object; to prevent surprise and inadvertence byrequiring that subject or object to be expressed in the title."

14 Const., Article VI, Section 26(2) (1987); 1 Sutherland Statutory Construction §10:4 (6th ed.); See also IV Laurel, Journal of the (1935) ConstitutionalConvention, pp. 436-437, 440-441 where the 1934 Constitutional Conventionnoted the anomalous legislative practice of railroading bills on the last day of the

legislative year when members of Congress were eager to go home. By thisirregular procedure, legislators were able to successfully insert matters into billswhich would not otherwise stand scrutiny in leisurely debate; I Cooley, A Treatiseon the Constitutional Limitations, pp. 286-287(8th ed.); Smith v. Mitchell, 69W.Va 481, 72 S.E. 755 (1911): "The purpose of this provision of the Constitutionis to inform legislators and people of legislation proposed by a bill, and to preventhasty legislation."

15 235 SCRA 630, 783-784 citing Luce, Legislative Procedure, pp. 404-405, 407(1922); See also Davies, Legislative Law and Process, p. 81 (2nd ed.):"conference reports are returned to assembly and Senate on a take-it or leave-it-

basis, and the bodies are generally placed in the position that to leave-it is apractical impossibility." Thus, he concludes that "conference committee action isthe most undemocratic procedure in the legislative process."

16 268 SCRA 269, 289 (1997).

17 The Manila Standard Today, August 26, 2005, p. 1.


EN BANC

GR No. 168056 -- ABAKADA GURO PARTY LIST, etc. et al. v. HON. EXECUTIVESECRETARY EDUARDO R. ERMITA et al.















GR No. 168207 -- AQUILINO Q. PIMENTEL JR. et al. v. EXECUTIVE SECRETARYEDUARDO R. ERMITA et al.

GR No. 168461 -- ASSOCIATION OF PILIPINAS SHELL DEALERS, INC., etc. et al.v. CESAR V. PURISIMA, etc. et al.

GR No. 168463 -- FRANCIS JOSEPH G. ESCUDERO et al. v. CESAR V. PURISIMAetc., et al.

GR No. 168730 -- BATAAN GOVERNOR ENRIQUE T. GARCIA JR. v. HON.EDUARDO R. ERMITA, etc. et al.

Promulgated: September 1, 2005

x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x

SEPARATE OPINION

PANGANIBAN, J .:

The ponencia written by the esteemed Madame Justice Ma. Alicia Austria-Martinezdeclares that the enrolled bill doctrine has been historically and uniformly upheld in ourcountry. Cited as recent reiterations of this doctrine are the two Tolentino v. Secretary ofFinance judgments1 and Fariñas v. Executive Secretary .2

Precedence of Mandatory

Const i tut ional Provis ions

Over the Enrol led Bi l l Doctr ine

I believe, however, that the enrolled bill doctrine3 is not absolute. It may be all-encompassing in some countries like Great Britain,4 but as applied to our jurisdiction, itmust yield to mandatory provisions of our 1987 Constitution. The Court can take judicialnotice of the form of government5 in Great Britain.6 It is unlike that in our country and,therefore, the doctrine from which it originated7 could be modified accordingly by ourConstitution.

In fine, the enrolled bill doctrine applies mainly to the internal rules and processesfollowed by Congress in its principal duty of lawmaking. However, when the Constitutionimposes certain conditions, restrictions or limitations on the exercise of congressionalprerogatives, the judiciary has both the power and the duty to strike down congressionalactions that are done in plain contravention of such conditions, restrictions orlimitations.8 Insofar as the present case is concerned, the three most importantrestrictions or limitations to the enrolled bill doctrine are the "origination," "no-amendment" and "three-reading" rules which I will discuss later.
































Verily, these restrictions or limitations to the enrolled bill doctrine are safeguarded bythe expanded9 constitutional mandate of the judiciary "to determine whether or not therehas been a grave abuse of discretion amounting to lack or excess of jurisdiction on thepart of any branch or instrumentality of the government."10 Even the ponente ofTolentino,11 the learned Mr. Justice Vicente V. Mendoza, concedes in another decision

that each house "may not by its rules ignore constitutional restraints or violatefundamental rights, and there should be a reasonable relation between the mode ormethod of proceeding established by the rule and the result which is sought to beattained."12

The Bicameral Conference Committee (BCC) created by Congress to iron outdifferences between the Senate and the House of Representatives versions of the E-VAT bills13 is one such "branch or instrumentality of the government," over which thisCourt may exercise certiorari review to determine whether or not grave abuse ofdiscretion has been committed; and, specifically, to find out whether the constitutionalconditions, restrictions and limitations on law-making have been violated.

In general, the BCC has at least five options in performing its functions: (1) adopt theHouse version in part or in toto, (2) adopt the Senate version in part or in toto, (3)consolidate the two versions, (4) reject non-conflicting provisions, and (5) adoptcompletely new provisions not found in either version. This, therefore, is the simplequestion: In the performance of its function of reconciling conflicting provisions, has theCommittee blatantly violated the Constitution?

My short answer is: No, except those relating to income taxes referred to in Sections 1,2 and 3 of Republic Act (RA) No. 9337. Let me explain.

Adopt ing the House

Version in Part or in Toto

First , the BCC had the option of adopting the House bills either in part or in toto,endorsing them without changes. Since these bills had passed the three-readingrequirement14 under the Constitution,15 it readily becomes apparent that no proceduralimpediment would arise. There would also be no question as to their origination,16 because the bills originated exclusively from the House of Representatives itself.

In the present case, the BCC did not ignore the Senate and adopt any of the House billsin part or in toto. Therefore, this option was not taken by the BCC.

Ado pt ing the Senate

Version in Part or in Toto

Second , the BCC may choose to adopt the Senate version eitherin part or in toto, endorsing it also without changes. In so doing, the question of

































origination arises. Under the 1987 Constitution, all "revenue x x x bills x x x shalloriginate exclusively in the House of Representatives, but the Senate may propose orconcur with amendments."17

If the revenue bill originates exclusively from the Senate, then obviously the origination

provision

18

of the Constitution would be violated. If, however, it originates exclusivelyfrom the House and presumably passes the three-reading requirement there, then thequestion to contend with is whether the Senate amendments complied with the"germane" principle.

While in the Senate, the House version may, per Tolentino, undergo extensive changes,such that the Senate may rewrite not only portions of it but even all of it.19 I believe thatsuch rewriting is limited by the "germane" principle: although "relevant"20 or "related"21 to the general subject of taxation, the Senate version is not necessarily "germane" allthe time. The "germane" principle requires a legal -- not necessarily an economic22 orpolitical -- interpretation. There must be an "inherent logical connection."23 What may be

germane in an economic or political sense is not necessarily germane in the legalsense. Otherwise, any provision in the Senate version that is entirely new andextraneous, or that is remotely or even slightly connected, to the vast and perplexingsubject of taxation, would always be germane. Under this interpretation, the originationprinciple would surely be rendered inutile.

To repeat, in Tolentino, the Court said that the Senate may even write its own version,which in effect would be an amendment by substitution.24 The Court went further bysaying that "the Constitution does not prohibit the filing in the Senate of a substitute billin anticipation of its receipt of the bill from the House, so long as action by the Senateas a body is withheld pending receipt of the House bill."25 After all, the initiative for filing

a revenue bill must come from the House

26

on the theory that, elected as its membersare from their respective districts, the House is more sensitive to local needs andproblems. By contrast, the Senate whose members are elected at large approaches thematter from a national perspective,27 with a broader and more circumspect outlook.28

Even if I have some reservations on the foregoing sweeping pronouncements inTolentino, I shall not comment any further, because the BCC, in reconciling conflictingprovisions, also did not take the second option of ignoring the House bills completelyand of adopting only the Senate version in part or in toto. Instead, the BCC used orapplied the third option as will be discussed below.

Compromis ing

by Consol idat ing

As a third option, the BCC may reach a compromise byconsolidating both the Senate and the House versions. It can adopt some parts andreject other parts of both bills, and craft new provisions or even a substitute bill. I believethis option is viable, provided that there is no violation of the origination and germane
















































principles, as well as the three-reading rule. After all, the report generated by the BCCwill not become a final valid act of the Legislative Department until the BCC obtains theapproval of both houses of Congress.29

Standby Author i ty . I believe that the BCC did not exceed its authority when it crafted

the so-called "standby authority" of the President. The originating bills from the Houseimposed a 12 percent VAT rate,30 while the bill from the Senate retained theoriginal 10 percent.31 The BCC opted to initially use the 10 percent Senate provisionand to increase this rate to the 12 percent House provision, effective January 1, 2006,upon the occurrence of a predetermined factual scenario as follows:

"(i) [VAT] collection as a percentage of Gross Domestic Product (GDP) of the previousyear exceeds two and four-fifth percent (2 4/5%) or

(ii) National Government Deficit as a percentage of GDP of the previous year exceedsone and one-half percent (1 1/2%)."32

In the computation of the percentage requirements in the alternative conditions underthe law, the amounts of the VAT collection, National Deficit,33 and GDP34 -- as well asthe interrelationship among them -- can easily be derived by the finance secretary fromthe proper government bodies charged with their determination. The law is completeand standards have been fixed.35 Only the fact-finding mathematical computation for itsimplementation on January 1, 2006, is necessary.

Once either of the factual and mathematical events provided in the law takes place, thePresident has no choice but to implement the increase of the VAT rate to 12 percent .36 This eventuality has been predetermined by Congress.37

The taxing power has not been delegated by Congress to either or both the Presidentand the finance secretary. What was delegated

was only the power to ascertain the facts in order to bring the law into operation. In fact,there was really no "delegation‘ to speak of;

__________________

Culled from the same record, the following excerpts show the position of publicrespondents:

"Justice Panganiban: It will be based on actual figures?

"Usec. Bonoan: It will be based on actual figures.

"Justice Panganiban: That creates a problem[,] because where do you get the actualfigures[?]






































"Usec. Bonoan: I understand that[,] traditionally[,] we can come in March, but thereis no impediment to speeding up the gathering.

"Justice Panganiban: Speed it up. February 15?

"Usec. Bonoan: Even within January, Your Honor, I think this can be….

"Justice Panganiban: Alright at the end of January, it’s just estimate to get the figur esin January.

"Usec. Bonoan: Yes, Your Honor (pp. 661-662); and

x x x

"Justice Panganiban: My only point is, I raised this earlier and I promised counsel for thepetitioner whom I was questionin[g] that I will raise it with you, whether the date

January 1, 2006 would present an impossibility of a condition happening .

"Usec. Bonoan: It will not, Your Honor.

"Justice Panganiban: So, your position [is] it will not present an impossibility. Elaborateon it in your memorandum.

"Usec. Bonoan: Yes, Your Honor.

"Justice Panganiban: Because it is important. The administrative regulations areimportant[,] because they clarify the law and it will guide taxpayers . So[,] by

January 1[,] [taxpayers] would not be wondering. Do we charge the end consumers 10[percent] or 12 [percent]? The regulations should be able to spell that out [i]n the samemanner that even now the various consumers of various products and services must beable to get from your

there was merely a declaration of an administrative, not a legislative, function.38

I concur with the ponencia in that there was no undue delegation of legislative power inthe increase from 10 percent to 12 percent of the VAT rate. I respectfully disagree,however, with the statements therein that, first , the secretary of finance is "acting as theagent of the legislative department" or an "agent of Congress" in determining and

declaring the event upon which its expressed will is to take effect; and, second , that thesecretary‘s personality "is in reality but a projection of that of Congress."

The secretary of finance is not an alter ego of Congress, but of the President . Themandate given by RA 9337 to the secretary is not equipollent to an authority to makelaws. In passing this law, Congress did not restrict or curtail the constitutional power of







the President to retain control and supervision over the entire Executive Department.The law should be construed to be merely asking the President, with a recommendationfrom the President‘s alter ego in finance matters, to determine the factual bases formaking the increase in VAT rate operative.39 Indeed, as I have mentioned earlier, thefact-finding condition is a mere administrative, not legislative, function.

The ponencia states that Congress merely delegates the implementation of the law tothe secretary of finance. How then can the latter be its agent? Making a law is differentfrom implementing it . While the first (the making of laws) may be delegated undercertain conditions and only in specific instances provided under the Constitution, thesecond (the implementation of laws) may not be done by Congress. After all, thelegislature does not have the power to implement laws. Therefore, congressionalagency arises only in the first , not in the second . The first is a legislative function; thesecond , an executive one.

Petitioners‘ argument is that because the GDP does not account for the economic

effects of so-called underground businesses, it is an inaccurate indicator of eithereconomic growth or slowdown in transitional economies.40 Clearly, this matter is withinthe confines of lawmaking. This Court is neither a substitute for the wisdom, or lack of it,in Congress,41 nor an arbiter of flaws within the latter‘s internal rules.42 Policy matters liewithin the domain of the political branches of government,43 outside the range of judicialcognizance.44 "[T]he right to select the measure and objects of taxation devolves uponthe Congress, and not upon the courts, and such selections are valid unlessconstitutional limitations are overstepped."45 Moreover, each house of Congress has thepower and authority to determine the rules of its proceedings.46 The contention that thiscase is not ripe for determination because there is no violation yet of the Constitutionregarding the exercise of the President‘s standby authority has no basis. The question

raised is whether the BCC, in passing the law, committed grave abuse of discretion, notwhether the provision in question had been violated. Hence, this case is not prematureand is, in fact, subject to judicial determination.

Amendments on Incom e Taxes . I respectfully submit that the amendments made bythe BCC (that were culled from the Senate version) regarding income taxes 47 are notlegally germane to the subject matter of the House bills. Revising the income tax rateson domestic, resident foreign and nonresident foreign corporations; increasing the taxcredit against taxes due from nonresident foreign corporations on intercorporatedividends; and reducing the allowable deduction for interest expense are legallyunrelated and not germane to the subject matter contained in the House bills; theyviolate the origination principle.48 The reasons are as follows:

One, an income tax is a direct tax imposed on actual or presumed income -- gross ornet -- realized by a taxpayer during a given taxable year ,49 while a VAT is an indirect tax not in the context of who is directly and legally liable for its payment, but in terms of itsnature as "a tax on consumption."50 The former cannot be passed on to the consumer,but the latter can.51 It is too wide a stretch of the imagination to even relate one conceptwith the other. In like manner, it is inconceivable how the provisions that increase






















































corporate income taxes can be considered as mitigating measures for increasing theVAT and, as I will explain later, for effectively imposing a maximum of 3 percent tax ongross sales or revenues because of the 70 percent cap. Even the argument that thecorporate income tax rates will be reduced to 30 percent does not hold water. Thisreduction will take effect only in 2009, not 2006 when the 12 percent VAT rate will have

been implemented.

Two, taxes on intercorporate dividends are final , but the input VAT is generallycreditable. Under a final withholding tax system, the amount of income tax that iswithheld by a withholding agent is constituted as a full and final payment of the incometax due from the payee on said income.52 The liability for the tax primarily rests upon thepayor as a withholding agent.53 Under a creditable withholding tax system, taxeswithheld on certain payments are meant to approximate the tax that is due of the payeeon said payments.54 The liability for the tax rests upon the payee who is mandated bylaw to still file a tax return, report the tax base, and pay the difference between the taxwithheld and the tax due.55

From this observation alone, it can already be seen that not only are dividends alien tothe tax base upon which the VAT is imposed, but their respective methods ofwithholding are totally different. VAT-registered persons may not always be nonresidentforeign corporations that declare and pay dividends, while intercorporate dividends arecertainly not goods or properties for sale, barter, exchange, lease or importation.Certainly, input VAT credits are different from tax credits on dividends received bynonresident foreign corporations.

Three, itemized deductions from gross income partake of the nature of a taxexemption.56 Interest -- which is among such deductions -- refers to the amount paid by

a debtor to a creditor for the use or forbearance of money.

57

It is an expense item that ispaid or incurred within a given taxable year on indebtedness in connection with ataxpayer‘s trade, business or exercise of profession.58 In order to reduce revenuelosses, Congress enacted RA 842459 which reduces the amount of interest expensedeductible by a taxpayer from gross income, equal to the applicable percentage ofinterest income subject to final tax.60 To assert that reducing the allowable deduction ininterest expense is a matter that is legally related to the proposed VAT amendments istoo far-fetched. Interest expenses are not allowed as credits against output VAT.Neither are VAT-registered persons always liable for interest.

Having argued on the unconstitutionality (non-germaneness) of the BCC insertions onincome taxes, let me now proceed to the other provisions that were attacked bypetitioners.

No Pass-on Provis ion s . I agree with the ponencia that the BCC did not exceed itsauthority when it deleted the no pass-on provisions found in the congressional bills. Itsauthority to make amendments not only implies the power to make insertions, but alsodeletions, in order to resolve conflicting provisions.






































The no pass-on provision in House Bill (HB) No. 3705 referred to the petroleumproducts subject to excise tax (and the raw materials used in the manufacture of suchproducts), the sellers of petroleum products, and the generation companies.61 Theanalogous provision in Senate Bill (SB) No. 1950 dealt with electricity, businesses otherthan generation companies, and services of franchise grantees of electric utilities.62 In

contrast, there was a marked absence of the no pass-on provision in HB 3555. Facedwith such variances, the BCC had the option of retaining or modifying the no pass-onprovisions and determining their extent, or of deleting them altogether. In opting fordeletion to resolve the variances, it was merely acting within its discretion. No graveabuse may be imputed to the BCC.

The 70 Percent Cap o n Input Tax and the 5 Percent Final Withhold ing VAT .Deciding on the 70 percent cap and the 5 percent final withholding VAT in theconsolidated bill is also within the power of the BCC. While HB 3555 included limits of 5percent and 11 percent on input tax,63 SB 1950 proposed an even spread over 60months.64 The decision to put a cap and fix its rate, so as to harmonize or to find a

compromise in settling the apparent differences in these versions,

65

was within thesound discretion of the BCC.

In like manner, HB 3555 contained provisions on the withholding of creditable VAT atthe rates of 5 percent, 8 percent, 10.5 percent, and 12 percent.66 HB 3705 had no suchequivalent amendment, and SB 1950 pegged the rates at only 5 percent and 10percent.67 I believe that the decision to impose a final (not creditable) VAT and to fix therates at 5 percent and 10 percent, so as to harmonize the apparent differences in allthree versions, was also within the sound discretion of the BCC.

Indeed, the tax credit method under our VAT system is not only practical, but also

principally used in almost all taxing jurisdictions. This does not mean, however, that inthe eyes of Congress through the BCC, our country can neither deviate from thismethod nor modify its application to suit our fiscal requirements. The VAT is usually collected through the tax credit method (and in the past, even through the costdeduction method or a mixture of these two methods),68 but there is no hard and fastrule that 100 percent of the input taxes will always be allowed as a tax credit.

In fact, it was Maurice Lauré, a French engineer ,69 who invented the VAT. In 1954, hehad the idea of imposing an indirect tax on consumption, called taxe sur la valeurajoutée,70 which was quickly adopted by the Direction Générale des Impost , the newFrench tax authority of which he became joint director. Consequently, taxpayers at alllevels in the production process, rather than retailers or tax authorities, were forced toadminister and account for the tax themselves.71

Since the unutilized input VAT can be carried over to succeeding quarters, there is noundue deprivation of property. Alternatively, it can be passed on to the consumers;72 there is no law prohibiting that. Merely speculative and unproven, therefore, is thecontention that the law is arbitrary and oppressive.73 Laws that impose taxes arenecessarily burdensome, compulsory, and involuntary.























































The deferred input tax account -- which accumulates the unutilized input VAT -- remainsan asset in the accounting records of a business. It is not at all confiscated by thegovernment. By deleting Section 112(B) of the Tax Code,74 Congress no longer madeavailable tax credit certificates for such asset account until retirement from or cessationof business, or changes in or cessation of VAT-registered status.75 This is a matter of

policy, not legality. The Court cannot step beyond the confines of its constitutionalpower, if there is absolutely no clear showing of grave abuse of discretion in theenactment of the law.

That the unutilized input VAT would be rendered useless is merely speculative.76 Although it is recorded as a deferred asset in the books of a company, it remains to be amere privilege. It may be written off or expensed outright; it may also be denied as a taxcredit.

There is no vested right in a deferred input tax account; it is a mere statutory privilege.77 The State may modify or withdraw such privilege, which is merely an asset granted by

operation of law.

78

Moreover, there is no vested right in generally accepted accountingprinciples.79 These refer to accounting concepts, measurement techniques, andstandards of presentation in a company‘s financial statements, and are not rooted inlaws of nature, as are the laws of physical science, for these are merely developed andcontinually modified by local and international regulatory accounting bodies.80 To stateotherwise and recognize such asset account as a vested right is to limit the taxingpower of the State. Unlimited, plenary, comprehensive and supreme, this power cannotbe unduly restricted by mere creations of the State.

That the unutilized input VAT would also have an unequal effect on businesses -- somewith low, others with high, input-output ratio -- is not a legal ground for invalidating the

law. Profit margins are a variable of sound business judgment, not of legal doctrine. Thelaw applies equally to all businesses; it is up to each of them to determine the bestformula for selling their goods or services in the face of stiffer competition. There is,thus, no violation of the equal protection clause. If the implementation of the 70 percentcap would cause an ad infinitum deferment of input taxes or an unequal effect upondifferent types of businesses with varying profit margins and capital requirements, thenthe remedy would be an amendment of the law -- not an unwarranted and outrightdeclaration of unconstitutionality.

The matter of business establishments shouldering 30 percent of output tax andremitting the amount, as computed, to the government is in effect imposing a tax that isequivalent to a maximum of 3 percent of gross sales or revenues.81 This imposition isarguably another tax on gross -- not net -- income and thus a deviation from the conceptof VAT as a tax on consumption; it also assumes that sales or revenues are on cashbasis or, if on credit, given credit terms shorter than a quarter of a year. However, suchadditional imposition and assumption are also arguably within the power of Congress tomake. The State may in fact choose to impose an additional 3 percent tax on grossincome, in lieu of the 70 percent cap, and thus subject the income of businesses to two



































types of taxes -- one on gross, the other on net. These impositions may constitutedouble taxation,82 which is not constitutionally proscribed.83

Besides, prior to the amendments introduced by the BCC, already extant in the TaxCode was a 3 percent percentage tax on the gross quarterly sales or receipts of

persons who were not VAT-registered, and whose sales or receipts were exempt fromVAT.84 This is another type of tax imposed by the Tax Code, in addition to the tax ontheir respective incomes. No question as to its validity was raised before; none is beingbrought now. More important, there is a presumption in favor of constitutionality,85 "rooted in the doctrine of separation of powers which enjoins upon the three coordinatedepartments of the Government a becoming courtesy for each other‘s acts."86

As to the argument that Section 8 of RA 9337 contravenes Section 1 of Article III andSection 20 of Article II of the 1987 Constitution, I respectfully disagree.

One, petitioners have not been denied due process or, as I have illustrated earlier,

equal protection. In the exercise of its inherent power to tax, the State validly interfereswith the right to property of persons, natural or artificial. Those similarly situated areaffected in the same way and treated alike, "both as to privileges conferred andliabilities enforced."87

RA 9337 was enacted precisely to achieve the objective of raising revenues to defraythe necessary expenses of government.88 The means that this law employs arereasonably related to the accomplishment of such objective, and not unduly oppressive.The reduction of tax credits is a question of economic policy, not of legal perlustration.Its determination is vested in Congress, not in this Court. Since the purpose of the law isto raise revenues, it cannot be denied that the means employed is reasonably related to

the achievement of that purpose. Moreover, the proper congressional procedure for itsenactment was followed;89 neither public notice nor public hearings were denied.

Two, private enterprises are not discouraged. Tax burdens are never delightful, but withthe imposition of the 70 percent cap, there will be an assurance of a steady cash flow tothe government, which can be translated to the production of improved goods, renditionof better services, and construction of better facilities for the people, including all privateenterprises. Perhaps, Congress deems it best to make our economy depend more onbusinesses that are easier to monitor, so there will be a more efficient collection oftaxes. Whatever is expected of the outcome of the law, or its wisdom, should be thesole responsibility of the representatives chosen by the electorate.

The profit margin rates of various industries generally do not change. However, theprofit margin figures do, because these are obviously monetary variables that affectbusiness, along with the level of competition, the quality of goods and services offered,and the cost of their production. And there will inevitably be a conscious desire on thepart of those who engage in business and those who consume their output to adapt oradjust accordingly to any congressional modification of the VAT system.



































In addition, it is contended that the VAT should be proportional in nature. I submit thatthis proportionality pertains to the rate imposable, not the credit allowable. Privateenterprises are subjected to a proportional VAT rate, but VAT credits need not be. TheVAT is, after all, a human concept that is neither immutable nor invariable. In fact, it haschanged after it was adopted as a system of indirect taxation by other countries. Again

unlike the laws of physical science, the VAT system can always be modified to suitmodern fiscal demands. The State, through the Legislative Department, may evenchoose to do away with it and revert to our previous system of turnover taxes, salestaxes and compensating taxes, in which credits may be disallowed altogether.

Not expensed, but amortized over its useful life, is capital equipment, which ispurchased or treated as capital leases by private enterprises. Aimed at achieving thetwin objectives of profitability and solvency, such purchase or lease is a matter ofprudence in business decision-making.

Hence, business judgments, sales volume, and their effect on competition are for

businesses to determine and for Congress to regulate -- not for this Court to interferewith, absent a clear showing that constitutional provisions have been violated. Taxcollection and administrative feasibility are for the executive branch to focus on, againnot for this Court to dwell upon.

The Transcript of the Oral Arguments on July 14, 2005 clearly point out in a long line ofrelevant questioning that, absent a violation of constitutional provisions, the Courtcannot interfere with the 70 percent cap, the 5 percent final withholding tax, and the 60-month amortization, there being other extra-judicial remedies available to petitioners,thus:

"Atty. Baniqued: But if your profit margin is low as i[n] the case of the petroleum dealers,x x x then we would have a serious problem, Your Honor.

"Justice Panganiban: Isn‘t the solution to increase the price then?

"Atty. Baniqued: If you increase the price which you can very well do, Your Honor, thenthat [will] be deflationary and it [will] have a cascading effect on all other basiccommodities[, especially] because what is involved here is petroleum, Your Honor.

"Justice Panganiban: That may be true[,] but it’s not unconstitutional?

"Atty. Baniqued: That may be true, Your Honor, but the very limitation of the [seventypercent] input [VAT], when applied to the case of the petroleum dealers[,] isoppressive[.] [I]t‘s unjust and it‘s unreasonable, Your Honor.

"Justice Panganiban: But it can be passed as a part of sales, sales costs rather.

"Atty. Baniqued: But the petroleum dealers here themselves…… interrupted



"Justice Panganiban: In your [b]alance [s]heet, it could be reflected as Cost of Salesand therefore the price will go up?

"Atty. Baniqued: Even if it were to be reflected as part of the Cost of Sales, Your Honor,the [input VAT] that you cannot claim, the benefit to you is only to the extent of the

corporate tax rate which is 32 now 35 [percent].

"Justice Panganiban: Yes.

"Atty. Baniqued: It‘s not 100 [percent] credi[ta]bility[,] unlike if it were applied againstyour [output VAT], you get to claim 100 [percent] of it, Your Honor.

"Justice Panganiban: That might be true, but we are talking about whether thatparticular provision would be unconstitutional. You say it‘s oppressive, but you have aremedy, you just pass it on to the customer . I am not sayin[g] it‘s good[.] [N]eitheram I saying it‘s wise[.] [A]ll I‘m talking about is, whether it‘s constitutional or not.

"Atty. Baniqued: Yes, in fact we acknowledge, Your Honor, that that is a remedyavailable to the petroleum dealers, but considering the impact of that limitation[,] andwere just talking of the 70 [percent cap] on [input VAT] in the level of the petroleumdealers. Were not even talking yet of the limitation on the [input VAT] available to themanufacturers, so, what if they pass that on as well?

"Justice Panganiban: Yes.

"Atty. Baniqued: Then, it would complicate… interrupted

"Justice Panganiban: What I am saying is, there is a remedy, which is business incharacter. The mere fact that the government is imposing that [seventy percent] capdoes not make the law unconstitutional, isn‘t it?

"Atty. Baniqued: It does, Your Honor, if it can be shown. And as we have shown, it isoppressive and unreasonable, it is excessive, Your Honor… interrupted

"Justice Panganiban: If you have no way of recouping it. If you have no way ofrecouping that amount, then it will be oppressive, but you have a business way ofrecouping it[.] I am saying that, not advising that it‘s good. All I am saying is, is itconstitutional or not[?] We‘re not here to determine the wisdom of the law, that‘s up for

Congress. As pointed out earlier, if the law is not wise, the law makers will be changedby the people[.] [T]hat is their solution t[o] the lack of wisdom of a law. If the law isunconstitutional[,] then the Supreme Court will declare it unconstitutional and void it,but[,] in this case[,] there seems to be a business remedy in the same manner thatCongress may just impose that tax straight without saying it‘s [VAT]. If Congress will justsay all petroleum will pay 3 [percent] of their Gross Sales, but you don‘t bear that, youpass that on, isn‘t it?



"Atty. Baniqued: We acknowledge your concern, Your Honor, but we should not forgetthat when the petroleum dealers pass these financial burden or this tax differential tothe consumers, they themselves are consumers in their own right. As a matter of fact,they filed this case both as petroleum dealer[s] and as taxpayers. If they pass if on, theythemselves would ultimately bear the burden[, especially] in increase[d] cost of

electricity, land transport, food, everything, Your Honor.

"Justice Panganiban: Yes, but the issue here in this Court, is whether that act ofCongress is unconstitutional.

"Atty. Baniqued: Yes, we believe it is unconstitutional, Your Honor.

"Justice Panganiban: You have a right to complain that it is oppressive, it is excessive, itburdens the people too much, but is it unconstitutional?

"Atty. Baniqued: Besides, passing it on, Your Honor, may not be as simple as it may

seem. As a matter of fact, at the strike of midnight on June 30, when petroleum priceswere being changed upward, the [s]ecretary of [the] Department of Energy was goingaround[.] [H]e was seen on TV going around just to check that prices don‘t go up. Andas a matter of fact, he had pronouncements that, the increase in petroleum price shouldonly be limited to the effect of 10 [percent] E-VAT.

"Justice Panganiban: It‘s becaus[e] the implementing rules were not clear and were notextensive enough to cover how much really should be the increase for various oilproducts, refined oil products. It‘s up for the dealers to guess, and the dealers wereguessing to their advantage by saying plus 10 [percent] anyway, right?

"Atty. Baniqued: In fact, the petroleum dealers, Your Honors, are not only faced withconstitutional issues before this Court. They are also faced with a possibility of theDepartment of Energy not allowing them to pass it on[,] because this would be anunreasonable price increase. And so, they are being hit from both sides…interrupted

"Justice Panganiban: That‘s why I say, that there is need to refine the implementingrules so that everyone will know, the customers will know how much to pay for gasoline,not only gasoline, gasoline, and so on, diesel and all kinds of products, so there‘ll be noconfusion and there‘ll be no undue taking advantage. There will be a smoothimplementation[,] if the law were to be upheld by the Court. In your case, as I said, itmay be unwise to pass that on to the customers, but definitely, the dealers will not bear

that [--] to suffer the loss that you mentioned in your consolidated balance sheets.Certainly, the dealers will not bear that [cost], isn‘t it?

"Atty. Baniqued: It will be a very hard decision to make, Your Honor.

"Justice Panganiban: Why, you will not pass it on?

"Atty. Baniqued: I cannot speak for the dealers…. interrupted.



"Justice Panganiban: As a consumer, I will thank you if you don‘t pass it on[;] but you oryour clients as businessm[e]n, I know, will pass it on.

"Atty. Baniqued: As I have said, Your Honor, there are many constraints on their abilityto do that[,] and that is why the first step that we are seeking is to seek redress from this

Honorable Court[,] because we feel that the imposition is excessive and oppressive…..interrupted

"Justice Panganiban: You can find redress here, only if you can show that the law isunconstitutional.

"Atty. Baniqued: We realized that, Your Honor.

"Justice Panganiban: Alright. Let‘s talk about the 5 [percent] [d]epreciation rate, butthat applies only to the capital equipment worth over a million?

"Atty. Baniqued: Yes, Your Honor.

"Justice Panganiban: And that doesn’t apply at all times, isn‘t it?

"Atty. Baniqued: Well……

"Justice Panganiban: That doesn‘t at all times?

"Atty. Baniqued: For capital goods costing less than 1 million, Your Honor, then….

"Justice Panganiban: That will not apply?

"Atty. Baniqued: That will not apply, but you will have the 70 [percent] cap on input[VAT], Your Honor.

"Justice Panganiban: Yes, but we talked already about the 70 [percent].


"Justice Panganiban: When you made your presentation on the balance sheet, it is as ifevery capital expenditure you made is subject to the 5 [percent,] rather the [five year]depreciation schedule[.] [T]hat‘s not so. So, the presentation you made is a little

inaccurate and misleading.

"Atty. Baniqued: At the start of our presentation, Your Honor[,] we stated clearly that thisapplies only to capital goods costing more than one [million].

"Justice Panganiban: Yes, but you combined it later on with the 70 [percent] cap toshow that the dealers are so disadvantaged. But you didn‘t tell us that that will apply



only when capital equipment or goods is one million or more. And in your case, whatkind of capital goods will be worth one million or more in your existing gas stations?

"Atty. Baniqued: Well, you would have petroleum dealers, Your Honor, who wouldhave[,] aside from sale of petroleum[,] they would have their service centers[,] like[…] to

service cars and they would have those equipments, they are, Your Honor.

"Justice Panganiban: But that‘s a different profit center, that‘s not from the sale of…

"Atty. Baniqued: No, they would form part of their [VATable] sale, Your Honor.

Justice Panganiban: It‘s a different profit center[;] it‘s not in the sale of petroleumproducts. In fact the mode now is to put up super stores in huge gas stations. I do notbegrudge the gas station[.] [A]ll I am saying is it should be presented to us inperspective. Neither am I siding with the government. All I am saying is, when I sawyour complicated balance sheet and mathematics, I saw that you were to put in all the

time the depreciation that should be spread over [five] years. But we have agreed thatthat applies only to capital equipment [-- ]not to any kind of goods [--] but to capitalequipment costing over 1 million pesos.

"Atty. Baniqued: Yes, Your Honor, we apologize if it has caused a little confusion….

"Justice Panganiban: Again the solution could b[e] to pass that on, because that’san added cost, isn‘t it?

"Atty. Baniqued: Well, yes, you can pass it on….

"Justice Panganiban: I am not teaching you, I am just saying that you have a remedy… Iam not saying either that the remedy is wise or should be done, because[,] as aconsumer[,] I wouldn‘t want that to be done to me.

"Atty. Baniqued: We realiz[e] that, Your Honor, but the fact remain[s] that whether it is inthe hands of the petroleum dealers or in the hands of the consumers[,] if this impositionis unreasonable and oppressive, it will remain so, even after it is passed on, YourHonor.

"Justice Panganiban: Alright. Let‘s go to the third. The 5 [percent] withholding tax, [f]inal[w]ithholding [t]ax, but this applies to sales to government?


"Justice Panganiban: So, you can pass on this 5 [percent] to the [g]overnment. After all, that 5 [percent] will still go back to the government.

"Atty. Baniqued: Then it will come back to haunt us, Your Honor…..



"Justice Panganiban: Why?

"Atty. Baniqued: By way of, for example sales to NAPOCOR or NTC…. interrupted

"Justice Panganiban: Sales of petroleum products….

"Atty. Baniqued: ………… in the case of NTC, Your Honor, it would come back to us byway of increase[d] cost, Your Honor.

"Justice Panganiban: Okay, let‘s see. You sell, let‘s say[,] your petroleum products tothe Supreme Court, as a gas station that sells gasoline to us here. Under this law, the 5[percent] withholding tax will have to be charged, right?


"Justice Panganiban: You will charge that[.] [T]herefore[,] the sales to the Supreme

Court by that gas station will effectively be higher?


"Justice Panganiban: So, the Supreme Court will pay more, you will not [be] going to[absorb] that 5 [percent], will you?

"Atty. Baniqued; If it is passed on, Your Honor, that‘s of course we agree…. Interrupted.

"Justice Panganiban: Not if, you can pass it on….

"Atty. Baniqued: Yes, we can…. interrupted

"Justice Panganiban: There is no prohibition to passing it on[.] [P]robably the gas stationwill simply pass it on to the Supreme Court and say[,] well[,] there is this 5 [percent] finalVAT on you so[,] therefore, for every tank full you buy[,] we‘ll just have to [charge] you 5[percent] more. Well, the Supreme Court will probably say, well, anyway, that 5[percent] that we will pay the gas dealer, will be paid back to the government, isn‘t it[?]So, how [will] you be affected?

"Atty. Baniqued: I hope the passing on of the burden, Your Honor, doesn‘t come back toparty litigants by way of increase in docket fees, Your Honor.

"Justice Panganiban: But that‘s quite another m[a]tter, though…(laughs) [W]hat I amsaying, Mr. [C]ounsel is, you still have to show to us that your remedy is to declare thelaw unconstitutional[,] and it‘s not business in character.

"Atty. Baniqued: Yes, Your Honor, it is our submission that this limitation in the input[VAT] credit as well as the amortization…….



"Justice Panganiban: All you talk about is equal protection clause, about due process,depreciation of property without observance of due process[,] could really be a remedythan a business way.

"Atty. Baniqued: Business in the level of the petroleum dealers, Your Honor, or in the

level of Congress, Your Honor.

"Justice Panganiban: Yes, you can pass them on to customers[,] in other words. It‘s thecustomers who should [complain].

"Atty. Baniqued: Yes, Your Honor… interrupted

"Justice Panganiban: And perhaps will not elect their representatives anymore[.]

"Atty. Baniqued: Yes, Your Honor…..

"Justice Panganiban: For agreeing to it, because the wisdom of a law is not for theSupreme Court to pass upon.

"Atty. Baniqued: It just so happens, Your Honor, that what is [involved] here is acommodity that when it goes up, it affects everybody….

"Justice Panganiban: Yes, inflationary and inflammatory….

"Atty. Baniqued: …just like what Justice Puno says it shakes the entire economicfoundation, Your Honor.

"Justice Panganiban: Yes, it‘s inflationary[,] brings up the prices of everything…

"Atty. Baniqued: And it is our submission that[,] if the petroleum dealers cannot absorb itand they pass it on to the customers, a lot of consumers would neither be in a positionto absorb it too and that[‘s] why we patronize, Your Honor.

"Justice Panganiban: There might be wisdom in what you‘re saying, but is thatunconstitutional?

"Atty. Baniqued: Yes, because as I said, Your Honor, there are even constraints in thepetroleum dealers to pass it on, and we[‗]re not even sure whether….interrupted

"Justice Panganiban: Are these constraints [--] legal constraints?

"Atty. Baniqued: Well, it would be a different story, Your Honor[.] [T]hat’s somethingwe probably have to take up with the Department of Energy, lest [we may] beaccused of …..

"Justice Panganiban: In other words, that‘s your remedy



[--] to take it up with the Department of Energy

"Atty. Baniqued: …..unreasonable price increases, Your Honor.

"Justice Panganiban: Not for us to declare those provisions unconstitutional.

"Atty. Baniqued: We, again, wish to stress that the petroleum dealers went to thisCourt[,] both as businessmen and as consumers. And as consumers, [we‘re] also goingto bear the burden of whatever they themselves pass on.

"Justice Panganiban: You know[,] as a consumer, I wish you can really show that thelaws are unconstitutional, so I don‘t have to pay it. But as a magistrate of this Court, Iwill have to pass upon judgment on the basis of [--] whether the law is unconstitutionalor not. And I hope you can in your memorandum show that.

"Atty. Baniqued: We recognized that, Your Honor." (boldface supplied, pp. 386-410).

Amendments o n Other Taxes and Administrat ive Matters . Finally, the BCC‘samendments regarding other taxes90 are both germane in a legal sense and reasonablynecessary in an economic sense. This fact is evident, considering that the proposedchanges in the VAT law will have inevitable implications and repercussions on suchtaxes, as well as on the procedural requirements and the disposition of incrementalrevenues, in the Tax Code. Either mitigating measures91 have to be put in place orincreased rates imposed, in order to achieve the purpose of the law, cushion the impactof increased taxation, and still maintain the equitability desired of any other revenuelaw.92 Directly related to the proposed VAT changes, these amendments are expectedalso to have a salutary effect on the national economy.

The no-amendment rule93 in the Constitution was not violated by the BCC, because nocompletely new provision was inserted in the approved bill. The amendments may beunpopular or even work hardship upon everyone (this writer included). If so, the remedycannot be prescribed by this Court, but by Congress.

Rejecting Non-Conflicting

Provis ions

Fourth, the BCC may choose neither to adopt nor to consolidate the versions presented

to it by both houses of Congress, but instead to reject non-conflicting provisions in thoseversions. In other words, despite the lack of conflict in them, such provisions are stilleliminated entirely from the consolidated bill. There may be a constitutional problemhere.

The no pass-on provisions in the congressional bills are the only item raised bypetitioners concerning deletion.94 As I have already mentioned earlier, these provisionswere in conflict. Thus, the BCC exercised its prerogative to remove them. In fact,





















congressional rules give the BCC the power to reconcile disagreeing provisions, and inthe process of reconciliation, to delete them. No other non-conflicting provision wasdeleted .

At this point, and after the extensive discussion above, it can readily be seen no non-

conflicting provisions of the E-VAT bills were rejected indiscriminately by the BCC.

Approv ing and Insert ing

Comp letely New Provis ions

Fifth, the BCC had the option of inserting completely new provisions not found in any ofthe provisions of the bills of either house of Congress, or make and endorse an entirelynew bill as a substitute. Taking this option may be a blatant violation of the Constitution,for not only will the surreptitious insertion or unwarranted creation contravene the"origination" principle; it may likewise desecrate the three-reading requirement and the

no-amendment rule.

95

Fortunately, however, the BCC did not approve or insert completely new provisions.Thus, no violation of the Constitution was committed in this regard.

Summary

The enrolled bill doctrine is said to be conclusive not only as to the provisions of a law,but also to its due enactment. It is not absolute, however, and must yield to mandatoryprovisions of the 1987 Constitution. Specifically, this Court has the duty of striking downprovisions of a law that in their enactment violate conditions, restrictions or limitations

imposed by the Constitution.

96

The Bicameral Conference Committee (BCC) is a merecreation of Congress. Hence, the BCC may resolve differences only in conflictingprovisions of congressional bills that are referred to it; and it may do so only on thecondition that such resolution does not violate the origination, the three-reading, and theno-amendment rules of the Constitution.

In crafting RA 9337, the BCC opted to reconcile the conflicting provisions of the Senateand House bills, particularly those on the 70 percent cap on input tax; the 5 percent finalwithholding tax; percentage taxes on domestic carriers, keepers of garages andinternational carriers; franchise taxes; amusement taxes; excise taxes on manufacturedoils and other fuels; registration requirements; issuance of receipts or sales or

commercial invoices; and disposition of incremental revenues. To my mind, thesechanges do not violate the origination or the germaneness principles.

Neither is there undue delegation of legislative power in the standby authority given byCongress to the President. The law is complete, and the standards are fixed. While Iconcur with the ponencia’s view that the President was given merely the power toascertain the facts to bring the law into operation -- clearly an administrative, not a











legislative, function -- I stress that the finance secretary remains the Chief Executive‘s alter ego, not an agent of Congress.

The BCC exercised its prerogative to delete the no pass-on provisions, because thesewere in conflict. I believe, however, that it blatantly violated the origination and the

germaneness principles when it inserted provisions not found in the House versions ofthe E-VAT Law: (1) increasing the tax rates on domestic, resident foreign andnonresident foreign corporations; (2) increasing the tax credit against taxes due fromnonresident foreign corporations on intercorporate dividends; and (3) reducing theallowable deduction for interest expense. Hence, I find these insertions unconstitutional.

Some have criticized the E-VAT Law as oppressive to our already suffering people. Onthe other hand, respondents have justified it by comparing it to bitter medicine thatpatients must endure to be healed eventually of their maladies. The advantages anddisadvantages of the E-VAT Law, as well as its long-term effects on the economy, arebeyond the reach of judicial review. The economic repercussions of the statute are

policy in nature and are beyond the power of the courts to pass upon.I have combed through the specific points raised in the Petitions. Other than the threeitems on income taxes that I respectfully submit are unconstitutional, I cannot otherwiseattribute grave abuse of discretion to the BCC, or Congress for that matter, for passingthe law.

"[T]he Court -- as a rule -- is deferential to the actions taken by the other branches ofgovernment that have primary responsibility for the economic development of ourcountry."97 Thus, in upholding the Philippine ratification of the treaty establishing theWorld Trade Organization (WTO), Tañada v. Angara held that "this Court never forgets

that the Senate, whose act is under review, is one of two sovereign houses of Congressand is thus entitled to great respect in its actions. It is itself a constitutional body,independent and coordinate, and thus its actions are presumed regular and done ingood faith. Unless convincing proof and persuasive arguments are presented tooverthrow such presumption, this Court will resolve every doubt in its favor."98 Aspointed our in Cawaling Jr. v. Comelec , the grounds for nullity of the law "must bebeyond reasonable doubt, for to doubt is to sustain."99 Indeed, "there must be clear andunequivocal showing that what the Constitutions prohibits, the statute permits."100

WHEREFORE, I vote to GRANT the Petitions in part and to declare Sections 1, 2, and3 of Republic Act No. 9337 unconstitutional, insofar as these sections (a) amend therates of income tax on domestic, resident foreign, and nonresident foreign corporations;(b) amend the tax credit against taxes due from nonresident foreign corporations onintercorporate dividends; and (c) reduce the allowable deduction for interest expense.The other provisions are constitutional, and as to these I vote to DISMISS the Petitions.

ARTEMIO V. PANGANIBAN

Associate Justice



















Footnotes

1 235 SCRA 630, August 25, 1994; and 249 SCRA 628, October 30, 1995. The

second case is an en banc Resolution on the Motions for Reconsideration of thefirst case.

2 417 SCRA 503, December 10, 2003.

3 "[I]t is well settled that the enrolled bill doctrine is conclusive upon the courts asregards the tenor of the measure passed by Congress and approved by thePresident." Resins Inc. v. Auditor General , 134 Phil. 697, 700, October 29, 1968,per Fernando, J., later CJ .; (citing Casco Philippine Chemical Co., Inc. v.Gimenez , 117 Phil. 363, 366, February 28, 1963, per Concepción, J., later CJ.). Itis a doctrine that flows as a corollary to the separation of powers, and by which

due respect is given by one branch of government to the actions of the others.See Morales v. Subido, 136 Phil. 405, 412, February 27, 1969.

Following Field v. Clark (143 US 649, 12 S.Ct. 495, February 29, 1892), suchconclusiveness refers not only to the provisions of the law, but also to its dueenactment. Mabanag v. Lopez Vito, 78 Phil. 1, 13-18, March 5, 1947.

"[T]he signing of a bill by the Speaker of the House and the Senate President andthe certification of the Secretaries of both [h]ouses of Congress that it waspassed are conclusive of its due enactment." Fariñas v. Executive Secretary ,supra, p. 529, per Callejo Sr., J .

4 Mabanag v. Lopez Vito, supra, p. 12.

5 §1 of Rule 129 of the Rules of Court.

6 The United Kingdom has an uncodified Constitution, consisting of both writtenand unwritten sources, capable of evolving to be responsive to political andsocial change, and found partly in conventions and customs and partly in statute.Its Parliament has the power to change or abolish any written or unwrittenelement of the Constitution. There is neither separation of powers nor formalchecks and balances. Every bill drafted has to be approved by both the House of

Commons and the House of Lords, before it receives the Royal Assent andbecomes an Act of Parliament. The House of Lords is the second chamber thatcomplements the work of the Commons, whose members are elected torepresent their constituents. The first is the House of Commons that alone maystart bills to raise taxes or authorize expenditures. Each bill goes through severalstages in each House. The first stage, called the first reading, is a mere formality.The second -- the second reading -- is when general principles of the bill aredebated upon. At the second reading, the House may vote to reject the bill. Once





















the House considers the bill, the third reading follows. In the House of Commons,no further amendments may be made, and the passage of the motion amounts topassage of the whole bill. The House of Lords, however, may not amend a bill soas to insert a provision relating to taxation.http://en.wikipedia.org/wiki/Constitution_of_the_United_Kingdom; http://

www.oefre.unibe.ch/law/icl/uk00000_.html; www.parliament.uk; andhttp://encyclopedia.thefreedictionary.com/British+Parliament (Last visited August4, 2005, 11:30am PST).

7 See Dissenting Opinion of Puno, J . in Tolentino v. Secretary of Finance, supra,p. 818.

8 Cf. Francisco Jr. v. House of Representatives, 415 SCRA 44, November 10,2003.

9 Tolentino v. Secretary of Finance, supra.

10 2nd paragraph, §1 of Article VIII of the 1987 Constitution.

11 Tolentino v. Secretary of Finance, supra.

12 Arroyo v. De Venecia, 343 Phil. 42, 61-62, August 14, 1997, per Mendoza, J .

13 These refer to House Bill Nos. 3555 & 3705; and Senate Bill No. 1950.

14 §26(2) of Article VI of the 1987 Constitution.

15

"The purpose for which three readings on separate days is required is said tobe two-fold: (1) to inform the members of Congress of what they must vote onand (2) to give them notice that a measure is progressing through the enactingprocess, thus enabling them and others interested in the measure to preparetheir positions with reference to it." Tolentino v. Secretary of Finance, supra, p.647, October 30, 1995, per Mendoza, J .

16 §24 of Article VI of the 1987 Constitution.


The power of the Senate to propose or concur with amendments is, apparently,without restriction. By virtue of this power, the Senate can practically rewrite a billthat is required to come from the House and leave only a trace of the original bill.See Flint v. Stone Tracy Co., 220 US 107, 31 S.Ct. 342, March 13, 1911.


19 Tolentino v. Secretary of Finance, supra, p. 661, August 25, 1994.










































20 Garner (ed. in chief), Black’s Law Dictionary (8th ed., 2004), p. 708.

21 Statsky, West’s Legal Thesaurus/Dictionary (1986), p. 348.

22 To argue that the raising of revenues makes the non-VAT provisions of a VAT

bill automatically germane is to bring legal analysis within the penumbra ofeconomic scrutiny. The burden or impact of any tax depends on the relativeelasticities of supply and demand and is chiefly a matter of policy confined withinthe august halls of Congress. See Pindyck and Rubinfeld, Microeconomics (5thed., 2003), pp. 314-317.

23 Exxon Mobil Corp. v. Allapattah Services, Inc., 125 S.Ct. 2611, 2622, June 23,2005, per Kennedy, J .

24 Tolentino v. Secretary of Finance, supra, p. 663, August 25, 1994. See Cruz,Philippine Political Law (2002), p. 154.

25 Tolentino v. Secretary of Finance, supra, August 25, 1994, per Mendoza, J.

26 Cruz, Philippine Political Law (2002), p. 155.

27 Tolentino v. Secretary of Finance, supra, August 25, 1994.

28 Cruz, Philippine Political Law (2002), p. 111.

29 Tolentino v. Secretary of Finance, supra, p. 668, August 25, 1994.

There is no allegation in any of the memoranda submitted to this Court that theconsolidated bill was not approved. In fact, both houses of Congress votedseparately and majority of each house approved it.

30 On the one hand, §§1-3 of House Bill (HB) No. 3555 seek to amend §§106,107 & 108 the Tax Code by increasing the VAT rate to 12% on every sale, barteror exchange of goods or properties; importation of goods; and sale or exchangeof services, including the use or lease of properties.

§§1-3 of HB 3705, on the other, seek to amend §§106, 107 & 108 the Tax Codeby also increasing the VAT rate to 12% on every sale, barter or exchange of

goods or properties; importation of goods; and sale or exchange of services,including the use or lease of properties, but decreasing such rate to 8% on everyimportation of certain goods; 6% on the sale, barter or exchange of certain locallymanufactured goods; and 4% on the sale, barter or exchange, as well asimportation, of petroleum products subject to excise tax and raw materials to beused in their manufacture (subject to subsequent increases of such reducedrates), and on the gross receipts derived from services rendered on the sale ofgenerated power.




































The Tax Code referred to in this case is RA 8424, otherwise known as the "TaxReform Act of 1997."

31 §§4-5 of Senate Bill (SB) No. 1950 seek to amend §§106 & 108 of the TaxCode by retaining the VAT rate of 10% on every sale, barter or exchange of

goods or properties; and on the sale or exchange of services, including the useor lease of properties, and the sale of electricity by generation, transmission, anddistribution companies.

32 §§4-6 of the consolidated bill amending §§106-108 of the Tax Code,respectively. Conference Committee Report on HBs 3555 & 3705, and SB 1950 ,pp. 4-7.

The predetermined factual scenario in the above-cited sections of theconsolidated bill also appears in §§4-6 of Republic Act (RA) No. 9337, amendingthe same provisions of the Tax Code. Mathematically, it is expressed as follows:

VAT Collection > 2.8%

GDP

or

National Government Deficit > 1.5%

GDP

33

A negative budget surplus, or an excess of expenditure over revenues, is abudget deficit. Dornbusch, Fischer, and Startz, Macroeconomics (9th ed., 2005),p. 231.

34 GDP refers to the value of all goods and services produced domestically; thesum of gross value added of all resident institutional units engaged in production(plus any taxes, and minus any subsidies, on products not included in the valuesof their outputs). www.nscb.gov.ph/sna/default.asp (Last visited July 14, 200510am PST).

35 See Pelaez v. Auditor General , 122 Phil. 965, 974, December 24, 1965.

36 The acts of retroactively implementing the 12 percent VAT rate, should thefinance secretary be able to make recommendation only weeks or months afterthe end of fiscal year 2005, or reverting to 10 percent if both conditions are notmet, are best addressed to the political branches of government.





















The following excerpts from the Transcript of the Oral Arguments in GR Nos.168461, 168463, 168056, and 168207 , held on July 14, 2005 at the SupremeCourt Session Hall, are instructive on the position of petitioners:

"Atty. Gorospe: [It‘s] supposed to be 2005, Your Honor, but apparently, it [will]

be impossible to determine GDP the first day of 2006 , Your Honor." (p. 57);

x x x

"Justice Panganiban: Now [let‘s see] when it is possible then to determine thisformula. It cannot be on the first day of January 2006, because the year [2005]ended just the midnight before, isn‘t it?

"Atty. Gorospe: Yes, Your Honor.

"Justice Panganiban: x x x if it‘s only determined on March 1[,] then how can the

law become effective January 1[.] In other words, how will the [people be] able topay the tax if ever that formula is exceeded x x x?" (pp. 59-60);

x x x

"Atty. Gana: Well, x x x it would take a grace period of 6 to 8 months[,]because obviously, determination could not be made on January 1, 2006. Yes, they were under the impression that at the earliest it would take 30 days.

"Justice Panganiban: Historically, when [will] these figures [be] available[:] theGDP, [VAT] collection?" (p. 192);

x x x

"Justice Panganiban: But certainly not on January 1. Therefore, by January 1,people would not know whether the rate would be increased or not, even ifthere is no discretion?

"Atty. Gana: That’s true, Your Honor, even if there is no discretion.

"Justice Panganiban: It will take weeks, or months to be able to determine that?

"Atty. Gana: Well, they anticipated it, would take at most by March." (p. 193);and

x x x

"Justice Panganiban: March, I will ask the government later on when they argue.



"Atty. Gana: As early as January but not later than 60 to 90 days." (boldfacesupplied; p. 194).

37

38

r egulations how much they [would] be charged, how much should gasolinestations charge in addition to their correct prices, how much carriers shouldcharge[,] so there [would] be no confusion.

"Usec. Bonoan: Yes, Your Honor." (boldface supplied; pp. 665-666).

37 Using available statistics, it is approximated that the 24/5 percent has beenreached. VAT collection (in million pesos) for the first quarter alone of 2004 is83,542.83, or 83 percent of revenue collections amounting to 100,654.01.Divided into GDP of 13,053, the quotient is already 6.4 percent.http://www.nscb.gov.ph/sna/2005/1stQ2005/2005per1.asp; and the 2003 Bureau

of Internal Revenue (BIR) Annual Report found on www.bir.gov.ph (Last visitedJuly 14, 2005, 10:45am PST).

[38] Besides, the use of the word "shall" in §§106(A), 107(A) & 108(A) of the TaxCode, as amended respectively by §§4, 5 & 6 of RA 9337, is mandatory,imperative and compulsory. See Agpalo, Statutory Construction (4th ed., 1998),p. 333.

39 See Separate Opinion (Concurring and Dissenting) of Panganiban, J ., inSouthern Cross Cement Corp. v. Philippine Cement Manufacturers Corp. , GRNo. 158540, August 3, 2005, p. 31.

40 Escudero Memorandum, pp. 38-39.

GDP data are far from perfect measures of either economic output or welfare.There are three major problems: (1) some outputs are poorly measured becausethey are not traded in the market, and government services are not directlypriced by such market; (2) some activities measured as additions to GDP in factonly represent the use of resources in order to avoid crime or risks to nationalsecurity; and (3) it is difficult to account correctly for improvements in the qualityof goods. Dornbusch, Fischer, and Startz, Macroeconomics (9th ed., 2005), pp.35-36.

41 Fariñas v. Executive Secretary , 417 SCRA, 503, 530, December 10, 2003.

42 "Any meaningful change in the method and procedures of Congress or itscommittees must x x x be sought in that body itself." Tolentino v. Secretary ofFinance, supra, p. 650, October 30, 1995, per Mendoza, J .





















43 The necessity, desirability or expediency of a law must be addressed toCongress as the body that is responsible to the electorate, for "legislators are theultimate guardians of the liberties and welfare of the people in quite as great adegree [as the] courts." Tolentino v. Secretary of Finance, supra, p. 650, October30, 1995, per Mendoza, J .; (citing Missouri, K. & T. Ry. Co. v. May , 194 US 267,

270, 24 S.Ct. 638, 639, May 2, 1904, per Holmes, J .)44 Fariñas v. Executive Secretary , 417 SCRA, 503, 524, December 10, 2003.

45 Flint v. Stone Tracy Co., 220 US 107, 167, 31 S.Ct. 342, 355, March 13, 1911,per Day, J .


"Parliamentary rules are merely procedural, and with their observance, the courtshave no concern. They may be waived or disregarded by the legislative body."

Arroyo v. De Venecia, supra, p. 61, August 14, 1997, per Mendoza, J .; (citingOsmeña Jr. v. Pendatun, 109 Phil 863, 870-871, October 28, 1960, per Bengzon,J .).

47 HBs 3555 & 3705 do not contain any provision that seeks to revise non-VATprovisions of the Tax Code, but SB 1950 has §§1-3 that seek to amend the ratesof income tax on domestic, resident foreign and nonresident foreign corporationsat 35% (30% in 2009), with a tax credit on intercorporate dividends at 20% (15%in 2009); and to reduce the allowable deductions for interest expense by 42%(33% in 2009) of the interest income subject to final tax.

48

The amendments to income taxes also partake of the nature of taxationwithout representation. As I will discuss in the succeeding paragraphs of thisOpinion, they did not emanate from the House of Representatives that, under§24 of Article VI of the 1987 Constitution, is the only body from which revenuebills should exclusively originate.

49 Mamalateo, Philippine Income Tax (2004), p. 1.

50 Commissioner of Internal Revenue v. American Express International, Inc.(Philippine Branch), GR No. 152609, p. 20, June 29, 2005, per Panganiban, J .See Deoferio Jr. & Mamalateo, The Value Added Tax in the Philippines (2000),

p. 36.51 De Leon, The Fundamentals of Taxation (12th ed., 1998), pp. 92 & 132.


53 Vitug, Tax Law and Jurisprudence (2nd ed., 2000), p. 188.





































55 De Leon, The Law on Transfer and Business Taxation with Illustrations,Problems, and Solutions (1998), pp. 195-196 & 222-224.

56

Mamalateo, Philippine Income Tax (2004), p. 173.57 See §78 of Revenue Regulations No. 2-1940 , recommended by Bibiano L.Meer, then Collector of Internal Revenue, and promulgated by Manuel Roxas,then Secretary of Finance, later President of the Republic of the Philippines, onFebruary 11, 1941, XXXIX OG 18, 325.


59 RA 8424 refers to the Tax Reform Act of 1997.

60

The 42 percent reduction rate under §3 of RA 9337, amending §34(B)(1) of theTax Code, is derived by first subtracting the 20 percent tax on interest incomefrom the increased tax rate of 35 percent imposed on domestic, resident foreign,and nonresident foreign corporations, and then dividing the difference obtainedby the increased rate. Hence, it is computed as follows:

35% - 20% = 15%

15% : 35% = 42%, the amount of reduction.

61 §§1-3 of HB 3705.

62 §5 of SB 1950. There seems to be a discrepancy between the ConferenceCommittee Report and the various pleadings before this Court. While suchreport, attaching a copy of the bill as reconciled and approved by its conferees,as well as the report submitted by the Senate‘s Committee on Ways & Means tothe Senate President on March 7, 2005, show that SB 1950 does not contain ano-pass on provision, the petitioners and respondents show that it does(Pimentel Memorandum, Annex A showing a "Matrix on the DisagreeingProvisions of the [VAT] Bills," pp. 9-11; Escudero Memorandum, p. 42; andRespondents‘ Memorandum, pp. 109-110). Notably, the qualified dissent ofSenator Joker Arroyo to the Bicameral Conference Report states that the Senate

version prohibits the power companies from passing on the VAT that they willpay.

63 §4 of HB 3555 seeks to amend §110(A) of the Tax Code by limiting to 5% and11% of their respective total amounts the claim for input tax credit of capitalgoods, through equal distribution of the amount of such claim over theirdepreciable lives; and of goods and services other than capital goods, and goodspurchased by persons engaged in retail trade.

































64 §7 of SB 1950 seeks to amend §110 of the Tax Code by also limiting the claimfor input tax credit of goods purchased or imported for use in trade or business,through an even depreciation or amortization over the month of acquisition andthe 59 succeeding months, if the aggregate acquisition cost of such goodsexceeds P 660,000.

The depreciation or amortization in the amendments is referred to as a "spread-out" in an unnumbered Revenue Memorandum Circular dated July 12, 2005,submitted to this Court by public respondents in their Compliance dated August16, 2005. Such spread-out recognizes industries where capital assets areconstructed or assembled.

65 No cap is found in HB 3705.

66 §5 of HB 3555 seeks to amend §114 of the Tax Code by requiring that the VATbe deducted and withheld by the government or by any of its political

subdivisions, instrumentalities or agencies -- including government-owned-and-controlled corporations (GOCCs) -- before making any payment on account ofeach purchase of goods from sellers and services rendered by contractors. TheVAT deducted and withheld shall be at the rates of 5% of the gross payment forthe purchase of goods and 8% of the gross receipts for services rendered bycontractors on every sale or installment payment. The VAT that is deducted andwithheld shall be creditable against their respective VAT liabilities -- 10.5%, incase of government public works contractors; and 12% of the payments for thelease or use of properties or property rights to nonresident owners.

67 §11 of SB 1950 seeks to amend §114 of the Tax Code by requiring that the

VAT be deducted and withheld by the government or by any of its politicalsubdivisions, instrumentalities or agencies -- including government-owned or -controlled corporations (GOCCs) -- before making any payment on account ofeach purchase of goods from sellers and services rendered by contractors. TheVAT deducted and withheld shall be at the rates of 5% of the gross payment forthe purchase of goods and on the gross receipts for services rendered bycontractors, including public works contractors. The VAT that is deducted andwithheld shall be creditable against the VAT liability of the seller; and 10% of thegross payment for the lease or use of properties or property rights to nonresidentowners.

68 Deoferio Jr. & Mamalateo, The Value Added Tax in the Philippines (2000), pp.34-35 & 44.

69 http://explanation-guide.info/meaning/Maurice-LaurÃ©.html (Last visited August 23, 2005, 3:25pm PST).

70 This refers to a "tax on value added" -- TVA in French and VAT in English.
























71 http://en.wikipedia.org/wiki/ Maurice-LaurÃ© (Last visited August 23, 2005,3:20pm PST).

72 The Transcript of the Oral Arguments in GR Nos. 168461, 168463 , 168056,and 168207 , held on July 14, 2005 at the Supreme Court Session Hall, show that

the act of passing on to consumers is a mere cash flow problem, as agreed to bycounsel for petitioners in GR No. 168461:

"Justice Panganiban: So, the final consumer pays the tax?


"Justice Panganiban: The trade people in between the middlemen just take it asan input and then [collect] it as output, isn‘t it?

Atty. Baniqued: Yes, Your Honor.

"Justice Panganiban: It‘s just a cash flow problem for them, essentially?

"Atty. Baniqued: Yes x x x." (p. 375).

73 The 5 percent final withholding tax may also be charged as part of a supplier‘sCost of Sales.

74 This refers to RA 8424, as amended.

75 In fact, §112(B) of the Tax Code, prior to and after its amendment by §10 of

RA 9337, does not at all prohibit the application of unused input taxes againstother internal revenue taxes. The manner of application is determined though bythe BIR through §4.112-1(b) of Revenue Regulations No. 14-2005, otherwiseknown as the "Consolidated VAT Regulations of 2005," dated June 22, 2005.

76 That the unutilized input VAT can be considered an ordinary and necessaryexpense for which a corresponding deduction will be allowed against grossincome under §34(A)(1) of the Tax Code -- instead of a deferred asset -- isanother matter to be adjudicated upon in proper cases.

77 See United Paracale Mining Co. v. De la Rosa, 221 SCRA 108, 115, April 7,

1993.78 The law referred to is not only the Tax Code, but also RA 9298, otherwiseknown as the "Philippine Accountancy Act of 2004."

79 These are based on pronouncements of recognized bodies involved in settingaccounting principles. Greatest weight shall be given to their pronouncements inthe order listed below:






























1. Securities and Exchange Commission (SEC);

2. Accounting Standards Council;

3. Standards issued by the International Accounting Standards Board (now

Committee); and

4. Accounting principles and practices for which there has been a long history ofacceptance and usage.

If there appears to be a conflict between any of the bodies listed above, thepronouncements of the first listed body shall be applied. SEC SecuritiesRegulation Code Rule 68(1)(b)(iv) as amended, cited in Appendix C of Morales,The Philippine Securities Regulation Code (Annotated), [2005], p. 578.

Recommended by the World Bank and the Asian Development Bank, and

increasingly recognized worldwide, international accounting standards (IAS) havebeen merely adopted by Philippine regulatory bodies and accredited professionalorganizations. The SEC, for instance, complies with the agreement among co-members of the International Organization of Securities Commissions to adoptIAS in order to ensure high-quality and transparent financial reporting, with fulldisclosure as a means to promote credibility and efficiency in the capital markets.In implementing the General Agreement on Trade in Services, the ProfessionalRegulatory Board of Accountancy (PRBOA) of the Professional RegulatoryCommission supports the adoption of IAS. The Philippine Institute of CertifiedPublic Accountants, a member of the International Accounting StandardsCommittee (IASC), also has the commitment to support the work of the IASC and

uses best endeavors to foster compliance with IAS.http://www.picpa.com.ph/adb/index.htm (Last visited August 23, 2005, 3:15pmPST).

80 Meigs & Meigs, Accounting: The Basis for Business Decisions (1981), pp. 28 &515.

Under §9(b) & (g) of RA 9298, the PRBOA shall supervise the practice ofaccountancy in the Philippines and adopt measures -- such as the promulgationof accounting and auditing standards, rules and regulations, and best practices --that may be deemed proper for the enhancement and maintenance of high

professional, ethical, accounting, and auditing standards that includeinternational accounting and auditing standards and generally accepted bestpractices.

81 The VAT is collected on each sale of goods or properties or upon the actual orconstructive receipt of consideration for services, starting from the productionstage, followed by the intermediate stages in the distribution process, andculminating with the sale to the final consumer. This is the essence of a VAT; it is









a tax on the value added, that is, on the excess of sales over purchases. See Deoferio Jr. & Mamalateo, The Value Added Tax in the Philippines (2000), pp.33-34. With the 70 percent cap on output tax that is allowable as an input taxcredit, the remaining 30 percent becomes an outright expense that is, however,immediately payable and remitted by the business establishment to the

government. This amount can never be recovered or passed on to the consumer,but it can be an allowable deduction from gross income under §34(A)(1) of theTax Code. In effect, it is a tax computed by multiplying 30 percent to the 10percent VAT that is imposed on gross sales, receipts or revenues. It is not a taxon tax and, mathematically, it is derived as follows:

30% x 10% = 3% of gross sales, receipts or revenues.

82 "Double taxation means taxing the same property [or subject matter] twicewhen it should be taxed only once; that is, ‗taxing the same person twice by thesame jurisdiction for the same thing.‘" Commissioner of Internal Revenue v.

Solidbank Corp., 416 SCRA 436, November 25, 2003, per Panganiban, J .; (citing Afisco Insurance Corp. v. CA, 361 Phil. 671, 687, January 25, 1999, perPanganiban, J .). See Commissioner of Internal Revenue v. Bank of Commerce,GR No. 149636, pp. 17-18, June 8, 2005.

83 "The rule x x x is well settled that there is no constitutional prohibition againstdouble taxation." China Banking Corp. v. CA, 403 SCRA 634, 664, June 10,2003, per Carpio, J . Cruz, Constitutional Law (1998), p. 89.

84 §116 of the Tax Code as amended.

85

"[C]ourts accord the presumption of constitutionality to legislative enactments,not only because the legislature is presumed to abide by the Constitution[,] butalso because the judiciary[,] in the determination of actual cases andcontroversies[,] must reflect the wisdom and justice of the people as expressedthrough their representatives in the executive and legislative departments of thegovernment." Angara v. Electoral Commission, 63 Phil. 139, 158-159, July 15,1936, per Laurel, J .; (cited in Francisco Jr. v. House of Representatives, supra,pp. 121-122.)

86 Cawaling Jr. v. COMELEC , 420 Phil. 524, 530, October 26, 2001, perSandoval-Gutierrez, J .

87 Ichong v. Hernandez , 101 Phil. 1155, 1164, May 31, 1957, per Labrador, J .

88 De Leon, The Fundamentals of Taxation (12th ed., 1998), p. 1.

89 Except, as earlier discussed, for Sections 1, 2 and 3 of the law.



























90 §§13-20 of SB 1950 seek to amend Tax Code provisions on percentage taxeson domestic carriers and keepers of garages in §117, and on internationalcarriers in §118; franchise taxes in §119; amusement taxes in §125; excise taxeson manufactured oils and other fuels in §148; registration requirements in §236;issuance of receipts or sales or commercial invoices in §237; and disposition of

incremental revenues in §288.91 "[T]he removal of the excise tax on diesel x x x and other socially sensitiveproducts such as kerosene and fuel oil substantially lessened the impact of VAT.The reduction in import duty x x x also eased the impact of VAT." Manila Bulletin,"Impact of VAT on prices of oil products should be less than 10%, says DoE ," byJames A. Loyola, Business Bulletin B-3, Friday, July 1, 2005, attached as Annex

A to the Memorandum filed by the Association of Pilipinas Shell Dealers, Inc.

The Transcript of the Oral Arguments in GR Nos. 168461, 168463 , 168056, and168207 on July 14, 2005 also reveals the effect of mitigating measures upon

petitioners in GR No. 168461:"Justice Panganiban: As a matter of fact[,] a part of the mitigating measureswould be the elimination of the [e]xcise [t]ax and the import duties. That is [why] itis not correct to say that the [VAT] as to petroleum dealers increase to 10[percent].


"Justice Panganiban: And[,] therefore, there is no justification for increasing theretail price by 10 [percent] to cover the E-[VAT.] [I]f you consider the excise tax

and the import duties, the [n]et [t]ax would probably be in the neighborhood of 7[percent]? We are not going into exact figures[.] I am just trying to deliver a pointthat different industries, different products, different services are hit differently. Soit‘s not correct to say that all prices must go up by 10 [percent].

"Atty. Baniqued: You‘re right, Your Honor.

"Justice Panganiban: Now. For instance, [d]omestic [a]irline companies, Mr.Counsel, are at present imposed a [s]ales [t]ax of 3 [percent]. When this E-[VAT]law took effect[,] the [s]ales [t]ax was also removed as a mitigating measure. So,therefore, there is no justification to increase the fares by 10 [percent;] at best 7

[percent], correct?"Atty. Baniqued: I guess so, Your Honor, yes." (pp. 367-368).

















94 These bills refer to HB 3705 and SB 1950.

95 §26(2), supra.

96 "Each house may not by its rules ignore constitutional restraints or violate

fundamental rights, and there should be a reasonable relation between the modeor method of proceeding established by the rule and the result which is sought tobe attained." US v. Ballin, 144 US 1, 5, 12 S.Ct. 507, 509, February 29, 1892, perBrewer, J .

97 Panganiban, Leveling the Playing Field (2004), PRINTTOWN Group ofCompanies, pp. 46-47.

98 338 Phil. 546, 604-605, May 2, 1997, per Panganiban, J .

99 420 Phil. 525, 531, October 26, 2001, per Sandoval-Gutierrez, J .; (citing The

Philippine Judges Association v. Prado, 227 SCRA 703, 706, November 11,1993, per Cruz, J .).

100 Veterans Federation Party v. COMELEC , 396 Phil. 419, 452-453, October 6,2000, per Panganiban, J .; (citing Garcia v. COMELEC , 227 SCRA 100, 107-108,October 5, 1993).


EN BANC

G.R. No. 168056 --- ABAKADA Guro Party List (Formerly AASJAS) OfficersSamson S. Alcantara and Ed Vincent S. Albano, Petitioners, versus The HonorableExecutive Secretary Eduardo Ermita, et al., Respondents.

G.R. No. 168207 --- Aquilino Q. Pimentel, Jr., et al., Petitioners, versus ExecutiveSecretary Eduardo R. Ermita, et al., Respondents.

G.R. No. 168461 --- Association of Pilipinas Shell Dealers, Inc., et al., Petitioners,

versus Cesar V. Purisima, et al., Respondents.G.R. No. 168463 --- Francis Joseph G. Escudero, et al., Petitioners, versus Cesar V.Purisima, et al., Respondents.

G.R. No. 168730 --- Bataan Governor Enrique T. Garcia, Jr., et al., Petitioners,versus Hon. Eduardo R. Ermita, et al., Respondents.
























Promulgated:

September 1, 2005

x ---------------------------------------------------------------------------------------- x

CONCURRING AND DISSENTING OPINION

YNARES-SANTIAGO, J.:

The ponencia states that under the provisions of the Rules of the House ofRepresentatives and the Senate Rules, the Bicameral Conference Committee ismandated to settle differences between the disagreeing provisions in the House bill andSenate bill. However, the ponencia construed the term "settle" as synonymous to"reconcile" and "harmonize," and as such, the Bicameral Conference Committee mayeither (a) adopt the specific provisions of either the House bill or Senate bill, (b) decide

that neither provisions in the House bill or the provisions in the Senate bill would becarried into the final form of the bill, and/or (c) try to arrive at a compromise betweenthe disagreeing provisions.

I beg to differ on the third proposition.

Indeed, Section 16(3), Article VI of the 1987 Constitution explicitly allows each House todetermine the rules of its proceedings. However, the rules must not contraveneconstitutional provisions. The rule-making power of Congress should take its bearingsfrom the Constitution. If in the exercise of this rule-making power, Congress failed to setparameters in the functions of the committee and allowed the latter unbridled authority

to perform acts which Congress itself is prohibited, like the passage of a law withoutundergoing the requisite three-reading and the so-called no-amendment rule, then thesame amount to grave abuse of discretion which this Court is empowered to correctunder its expanded certiorari jurisdiction. Notwithstanding the doctrine of separation ofpowers, therefore, it is the duty of the Court to declare as void a legislative enactment,either from want of constitutional power to enact or because the constitutionalforms or conditions have not been observed.1 When the Court declares asunconstitutional a law or a specific provision thereof because procedural requirementsfor its passage were not complied, the Court is by no means asserting its ascendancyover the Legislature, but simply affirming the supremacy of the Constitution asrepository of the sovereign will.2 The judicial branch must ensure that constitutional

norms for the exercise of powers vested upon the two other branches are properlyobserved. This is the very essence of judicial authority conferred upon the Court underSection 1, Article VII of the 1987 Constitution.

The Rules of the House of Representatives and the Rules of the Senate provide that inthe event there is disagreement between the provisions of the House and Senate bills,the differences shall be settled by a bicameral conference committee.











By this, I fully subscribe to the theory advanced in the Dissenting Opinion of ChiefJustice Hilario G. Davide, Jr. in Tolentino v. Secretary of Finance3 that the authority ofthe bicameral conference committee was limited to the reconciliation of disagreeingprovisions or the resolution of differences or inconsistencies. Thus, it could only either(a) restore, wholly or partly, the specific provisions of the House bill amended by

the Senate bill, (b) sustain, wholly or partly, the Senate’s amendments, or (c) byway of a compromise, to agree that neither provisions in the House bill amendedby the Senate nor the latter’s amendments thereto be carried into the final form ofthe former.

Otherwise stated, the Bicameral Conference Committee is authorized only to adopteither the version of the House bill or the Senate bill, or adopt neither. It cannot, as the

ponencia proposed, "try to arrive at a compromise", such as introducing provisions notincluded in either the House or Senate bill, as it would allow a mere ad hoc committeeto substitute the will of the entire Congress and without undergoing the requisite three-reading, which are both constitutionally proscribed. To allow the committee unbridled

discretion to overturn the collective will of the whole Congress defies logic consideringthat the bills are passed presumably after study, deliberation and debate in bothhouses. A lesser body like the Bicameral Conference Committee should not be allowedto substitute its judgment for that of the entire Congress, whose will is expressedcollectively through the passed bills.

When the Bicameral Conference Committee goes beyond its limited function bysubstituting its own judgment for that of either of the two houses, it violates the internalrules of Congress and contravenes material restrictions imposed by the Constitution,particularly on the passage of law. While concededly, the internal rules of both Housesdo not explicitly limit the Bicameral Conference Committee to a consideration only of

conflicting provisions, it is understood that the provisions of the Constitution should beread into these rules as imposing limits on what the committee can or cannot do. Assuch, it cannot perform its delegated function in violation of the three-readingrequirement and the no-amendment rule.

Section 26(2) of Article VI of the 1987 Constitution provides that:

(2) No bill shall be passed by either House shall become a law unless it has passedthree readings on separate days, and printed copies thereof in its final form have beendistributed to its Members three days before its passage, except when the Presidentcertifies to the necessity of its immediate enactment to meet a public calamity oremergency. Upon the last reading of a bill, no amendment hereto shall be allowed, andthe vote thereon shall be taken immediately thereafter, and the yeas and nays enteredin the Journal.

Thus, before a bill becomes a law, it must pass three readings. Hence, the ponencia’s submission that despite its limited authority, the Bicameral Conference Committee could"compromise the disagreeing provisions" by substituting it with its own version – clearlyviolate the three-reading requirement, as the committee‘s version would no longer






undergo the same since it would be immediately put into vote by the respective houses.In effect, it is not a bill that was passed by the entire Congress but by the members ofthe ad hoc committee only, which of course is constitutionally infirm.

I disagree that the no-amendment rule referred only to "the procedure to be followed by

each house of Congress with regard to bills initiated in each of said respective houses"because it would relegate the no-amendment rule to a mere rule of procedure. To mymind, the no-amendment rule should be construed as prohibiting the BicameralConference Committee from introducing amendments and modifications to non-disagreeing provisions of the House and Senate bills. In sum, the committee could onlyeither adopt the version of the House bill or the Senate bill, or adopt neither. As JusticeReynato S. Puno said in his Dissenting Opinion in Tolentino v. Secretary of Finance,4 there is absolutely no legal warrant for the bold submission that a Bicameral ConferenceCommittee possesses the power to add/delete provisions in bills already approved onthird reading by both Houses or an ex post veto power.

In view thereof, it is my submission that the amendments introduced by the BicameralConference Committee which are not found either in the House or Senate versions ofthe VAT reform bills, but are inserted merely by the Bicameral Conference Committeeand thereafter included in Republic Act No. 9337, should be declared unconstitutional.The insertions and deletions made do not merely settle conflicting provisions butmaterially altered the bill, thus giving rise to the instant petitions.

I, therefore, join the concurring and dissenting opinion of Mr. Justice Reynato S. Puno.

CONSUELO YNARES-SANTIAGO

Associate Justice

Footnotes

1 Cooley on Constitutional Limitations, 8th Ed., Vol. I, p. 332.

2 Angara v. Electoral Commission, 63 Phil. 139, 158 [1936].

3 G.R. Nos. 115455, 115525, 115543, 115544, 115754, 115781, 115852,

115873, 115931, 25 August 1994, 235 SCRA 630, 750.4 Supra, p. 811.




















G.R. NO. 168056 – ABAKADA GURO PARTY LIST (FORMERLY AASJAS) OFFICERSSAMSON S. ALCANTARA AND ED VINCENT S. ALBANO, petitioners – versus – THEHONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA, ET AL., respondents.

G.R. NO. 168207 – AQUILINO Q. PIMENTEL, JR., ET AL., petitioners – versus – THE

HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA, ET AL., respondents.

G.R. NO. 168461 – ASSOCIATION OF PILIPINAS SHELL DEALERS, INC., ET AL., petitioners – versus – CESAR V. PURISIMA, ET AL., respondents.

G.R. NO. 168463 – FRANCIS JOSEPH G. ESCUDERO, ET AL., petitioners – versus – CESAR V. PURISIMA, ET AL., respondents.

G.R. NO. 168730 – BATAAN GOVERNOR ENRIQUE T. GARCIA, JR., ET AL., petitioners – versus – HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA,ET AL., respondents.

Promulgated:

September 1, 2005

x----------------------------------------------------------------------------------------------x


SANDOVAL – GUTIERREZ, J .:

Adam Smith, the great 18

th

– century political economist, enunciated the dictum that "thesubjects of every state ought to contribute to the support of government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenuewhich they respectively enjoy under the protection of the state." 1 At no other time thisdictum becomes more urgent and obligatory as in the present time, when thePhilippines is in its most precarious fiscal position.

At this juncture, may I state that I join Mr. Senior Justice Reynato S. Puno in hisOpinion, specifically on the following points:

1. It is "high time to re-examine the test of germaneness proffered in Tolentino;"

2. The Bicameral Conference Committee "cannot exercise its unbridled discretion," "itcannot create a new law," and its deletion of the "no pass on provision" common in bothSenate Bill No. 1950 and House Bill No. 3705 is "unconstitutional."

In addition to the above points raised by Mr. Senior Justice Puno, may I expound on theissues specified hereunder:







There is no reason to rush and stamp the imprimatur of validity to a tax law, R.A. 9337,that contains patently unconstitutional provisions. I refer to Sections 4 to 6 which violatethe principle of non-delegation of legislative power. These Sections authorize thePresident, upon recommendation of the Secretary of Finance, to raise the VAT ratefrom

10% to 12% effective January 1, 2006, if the conditions specified therein are met, thus:

. . . That the President, upon the recommendation of the Secretary of Finance, shall,effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%)after any of the following conditions has been satisfied:

(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP)of the previous year exceeds two and four-fifth percent (2 4/5%); or

(ii) National government deficit as a percentage of GDP of the previous yearexceeds one and one-half percent (1 ½%).

This proviso on the author i ty of the President is uniformly appended to Sections 4, 5and 6 of R.A. No. 9337, provisions amending Sections 106, 107 and 108 of the NIRC,respectively. Section 4 imposes a 10% VAT on sales of goods and properties, Section 5imposes a 10% VAT on importation of goods, and Section 6 imposes a 10% VAT onsale of services and use or lease of properties.

Petitioners in G.R. Nos. 168056,2 1682073 and 1684634 assail the constitutionality ofthe above provisions on the ground that such stand-by authority granted to thePresident constitutes: (1) undue delegation of legislative power; (2) violation of dueprocess; and (3) violation of the principle of "exclusive origination." They cited as their

basis Article VI, Section 28 (2); Article III, Section 1; and Article VI, Section 24 of theConstitution.

I

Undue Delegation of L egis lat ive Power

Taxation is an inherent attribute of sovereignty.5 It is a power that is purely legislativeand which the central legislative body cannot delegate either to the executive or judicialdepartment of government without infringing upon the theory of separation of powers.6 The rationale of this doctrine may be traced from the democratic principle of "no taxation

without representation." The power of taxation being so pervasive, it is in the bestinterest of the people that such power be lodged only in the Legislature. Composed ofthe people‘s representatives, it is "closer to the pulse of the people and… are thereforein a better position to determine both the extent of the legal burden the people arecapable of bearing and the benefits they need."7 Also, this set-up provides securityagainst the abuse of power. As Chief Justice Marshall said: "In imposing a tax, thelegislature acts upon its constituents. The power may be abused; but the interest,

























wisdom, and justice of the representative body, and its relations with its constituents,furnish a sufficient security."

Consequently, Section 24, Article VI of our Constitution enshrined the principle of "notaxation without representation" by providing that "all… revenue bills… shall originate

exclusively in the House of Representatives, but the Senate may propose or concur withamendments." This provision generally confines the power of taxation to the Legislature.

R.A. No. 9337, in granting to the President the stand-by author i ty to increase the VATrate from 10% to 12%, the Legislature abdicated its power by delegating it to thePresident. This is constitutionally impermissible. The Legislature may not escape itsduties and responsibilities by delegating its power to any other body or authority. Anyattempt to abdicate the power is unconstitutional and void, on the principle that potestasdelegata non delegare potest .8 As Judge Cooley enunciated:

"One of the settled maxims in constitutional law is, that the power conferred upon the

legislature to make laws cannot be delegated by that department to any other body orauthority. Where the sovereign power of the state has located the authority, thereit must remain; and by the constitutional agency alone the laws must be madeuntil the Constitution itself is changed. The power to whose judgment, wisdom, andpatriotism this high prerogative has been entrusted cannot relieve itself of theresponsibility by choosing other agencies upon which the power shall be devolved, norcan it substitute the judgment, wisdom, and patriotism of any other body for those towhich alone the people have seen fit to confide this sovereign trust."9

Of course, the rule which forbids the delegation of the power of taxation is not absoluteand inflexible. It admits of exceptions. Retired Justice Jose C. Vitug enumerated such

exceptions, to wit: (1) delegations to local governments (to be exercised by the locallegislative bodies thereof) or political subdivisions; (2) delegations allowed by theConstitution; and (3) delegations relating merely to administrative implementation thatmay call for some degree of discretionary powers under a set of sufficient standardsexpressed by law.10

Patently, the act of the Legislature in delegating its power to tax does not fall under anyof the exceptions.

First , it does not involve a delegation of taxing power to the local government. It is adelegation to the President.

Second , it is not allowed by the Constitution. Section 28 (2), Article VI of theConstitution enumerates the charges or duties, the rates of which may be fixed by thePresident pursuant to a law passed by Congress, thus:

The Congress may, by law, authorize the President to fix within specified limits ,and subject to such limitations and restrictions as it may impose, tariff rates, import















and export quotas, tonnage and wharfage dues, and other duties or imposts withinthe framework of the national development program of the Government.

Noteworthy is the absence of tax rates or VAT rates in the enumeration. If the intentionof the Framers of the Constitution is to permit the delegation of the power to fix tax

rates or VAT rates to the President, such could have been easily achieved by the mereinclusion of the term "tax rates" or "VAT rates" in the enumeration. It is a dictum instatutory construction that what is expressed puts an end to what is implied .Expressium facit cessare tacitum.11 This is a derivative of the more familiar maximexpress mention is implied exclusion or expressio unius est exclusio alterius. Considering that Section 28 (2), Article VI expressly speaks only of "tariff rates,12 impor t13 and exportquotas,14 tonnage15 and wharfage dues16 and other duties and imposts,17" by no stretchof imagination can this enumeration be extended to include the VAT.

And thi rd , it does not relate merely to the administrative implementation of R.A. No.

9337.In testing whether a statute constitutes an undue delegation of legislative power or not,it is usual to inquire whether the statute was complete in all its terms and provisionswhen it left the hands of the Legislature so that nothing was left to the judgment of anyother appointee or delegate of the legislature.18

In the present case, the President is the delegate of the Legislature, endowed with thepower to raise the VAT rate from 10 % to 12% if any of the following conditions, toreiterate, has been satisfied: (i) value-added tax collection as a percentage of grossdomestic product (GDP) of the previous year exceeds two and four-fifths percent (2

4/5%) or (ii) National Government deficit as a percentage of GDP of the previous yearexceeds one and one-half percent (1 ½%).

At first glance, the two conditions may appear to be definite standards sufficient to guidethe President. However, to my mind, they are ineffectual and malleable as they give thePresident ample opportunity to exercise her author i ty in arbitrary and discretionaryfashion.

The two conditions set forth by law would have been sufficient had it not been for thefact that the President, being at the helm of the entire officialdom, has more thanenough power of control to bring about the existence of such conditions. Obviously,R.A. No. 9337 allows the President to determine for herself whether the VAT rate shallbe increased or not at all. The fulfillment of the conditions is entirely placed in herhands. If she wishes to increase the VAT rate, all she has to do is to strictly enforce theVAT collection so as to exceed the 2 4/5% ceiling. The same holds true with thenational government deficit. She will just limit government expenses so as not to exceedthe 1 ½% ceiling. On the other hand, if she does not wish to increase the VAT rate, shemay discourage the Secretary of Finance from making the recommendation.

































That the President‘s exercise of an authority is practically within her control istantamount to giving no conditions at all. I believe this amounts to a virtual surrender oflegislative power to her. It must be stressed that the validity of a law is not tested bywhat has been done but by what may be done under its provisions.19

II

Violat ion of Due Process

The constitutional safeguard of due process is briefly worded in Section 1, Article III ofthe Constitution which states that, "no person shall be deprived of life, liberty or propertywithout due process of law."20

Substantive due process requires the intrinsic validity of the law in interfering with therights of the person to his property. The inquiry in this regard is not whether or not thelaw is being enforced in accordance with the prescribed manner but whether or not, to

begin with, it is a proper exercise of legislative power .

To be so, the law must have a valid governmental objective, i.e., the interest of thepublic as distinguished from those of a particular class, requires the intervention of theState. This objective must be pursued in a lawful manner , or in other words, the meansemployed must be reasonably related to the accomplishment of the purpose and notunduly oppressive.

There is no doubt that R.A. No. 9337 was enacted pursuant to a valid governmentalobjective, i.e. to raise revenues for the government. However, with respect to the meansemployed to accomplish such objective, I am convinced that R.A. No. 9337, particularly

Sections 4, 5 and 6 thereof, are arbitrary and unduly oppressive. A reading of the Senate deliberation reveals that the first condition constitutes a rewardto the President for her effective collection of VAT. Thus, the President may increasethe VAT rate from 10% to 12% if her VAT collection during the previous year exceeds 24/5% of the Gross Domestic Product. I quote the deliberation:

Senator Lacson. Thank you, Mr. President. Now, I will go back to my original question,my first question. Who are we threatening to punish on the imposed condition No. 1 – the public or the President?

Senator Recto. That is not a punishment, that is supposed to be a reward system. Senator Lacson. Yes, an incentive. So we are offering an incentive to the ChiefExecutive.

Senator Recto. That is right.

Senator Lacson. – in order for her to be able to raise the VAT to 12 %.











Senator Recto. That is right. That is the intention, yes.

x x x x x x

Senator Osmena. All right. Therefore, with the lifting of exemptions it stands to

reason that Value-added tax collections as a percentage of GDP will be muchhigher than… Now, if it is higher than 2.5%, in other words, because theycollected more, we will allow them to even tax more. Is that the meaning of thisparticular phrase?

Senator Recto. Yes, Mr. President, that is why it is as low as 2.8%. It is like if aperson has a son and his son asks him for an allowance, I do not think that hewould immediately give his son an increase in allowance unless he tells his son,

You better improve your grades and I will give you an allowance. That is theanalogy of this.

x x x x x x

Senator Osmena. So the gentleman is telling the President, If you collect morethan 138 billion, I will give you additional powers to tax the people.

Senator Recto. x x x We are saying, kung mataas and grade mo, dadagdagan koan allowance mo. Katulad ng sinabi natin ditto. What we are saying here is youprove to me that you can collect it, then we will increase your rate, you can raiseyour rate. It is an incentive.21

Why authorize the President to increase the VAT rate on the premise alone that she

deserves an "incentive" or "reward"? Indeed, why should she be rewarded forperforming a duty reposed upon her by law?

The rationale stated by Senator Recto is flawed. One of the principles of sound taxationis fiscal adequacy. The proceeds of tax revenue should coincide with, and approximatethe needs of, government expenditures. Neither an excess nor a def ic iency ofrevenue v is-à-v is the needs of government would be in keeping with theprinciple.22

Equating the grant of author i ty to the President to increase the VAT rate with the grantof additional allowance to a studious son is highly inappropriate. Our Senators must

have forgotten that for every increase of taxes, the burden always redounds to thepeople. Unlike the additional allowance given to a studious son that comes from thepocket of the granting parent alone, the increase in the VAT rate would be shoulderedby the masses. Indeed, mandating them to pay the increased rate as an award to thePresident is arbitrary and unduly oppressive. Taxation is not a power to be exercised atone‘s whim.

III











Exclusive Origination from the

Hous e of Representatives

Section 24, Article VI of the Constitution provides:

SEC. 24. All appropriations, revenue or tariff bills, bills authorizing increase of the publicdebt, bills of local application, and private bills shall originate exclusively in the Houseof Representatives, but the Senate may propose or concur with amendments.

In Tolentino vs. Secretary of Finance,23 this Court expounded on the foregoing provisionby holding that:

"x x x To begin with, it is not the law – but the revenue bill – which is required by theConstitution to ‗originate exclusively in the House of Representatives. It is important toemphasize this, because a bill originating the in the House may undergo such extensive

changes in the Senate that the result may be a rewriting of the whole x x x. At this point,what is important to note is that, as a result of the Senate action, a distinct bill may beproduced. To insist that a revenue statute -- and not only the bill which initiated thelegislative process culminating in the enactment of the law – must substantially be thesame as the House Bill would be to deny the Senate‘s power not only to ‗concur withamendments: but also to ‗propose amendments.‘ It would be to violate the co-equality ofthe legislative power of the two houses of Congress and in fact, make the Housesuperior to the Senate."

The case at bar gives us an opportunity to take a second hard look at the efficacy of theforegoing jurisprudence.

Section 25, Article VI is a verbatim re-enactment of Section 18, Article VI of the 1935Constitution. The latter provision was modeled from Section 7 (1), Article I of the UnitedStates Constitution, which states:

"All bills for raising revenue shall originate in the House of Representatives, but theSenate may propose or concur with amendments, as on other bills."

The American people, in entrusting what James Madison termed "the power of thepurse" to their elected representatives, drew inspiration from the British practice andexperience with the House of Commons. As one commentator puts it:

"They knew the inestimable value of the House of Commons, as a component branch ofthe British parliament; and they believed that it had at all times furnished the bestsecurity against the oppression of the crown and the aristocracy. While the power oftaxation, of revenue, and of supplies remained in the hands of a popular branch,it was difficult for usurpation to exist for any length of time without check, andprerogative must yield of that necessity which controlled at once the sword andthe purse."







But while the fundamental principle underlying the vesting of the power to proposerevenue bills solely in the House of Representatives is present in both the Philippinesand US Constitutions, stress must be laid on the differences between the two quotedprovisions. For one, the word "exclusively" appearing in Section 24, Article VI of ourConstitution is nowhere to be found in Section 7 (1), Article I of the US Constitution. For

another, the phrase "as on other bills," present in the same provision of the USConstitution, is not written in our Constitution.

The adverb "exclusively" means "in an exclusive manner."24 The term "exclusive" isdefined as "excluding or having power to exclude; limiting to or limited to; single, sole,undivided, whole."25 In one case, this Court define the term "exclusive" as "possessedto the exclusion of others; appertaining to the subject alone, not including, admitting, orpertaining to another or others."26

As for the term "originate," its meaning are "to cause the beginning of; to give riseto; to initiate; to start on a course or journey; to take or have origin; to be

deprived; arise; begin or start."

27

With the foregoing definitions in mind, it can be reasonably concluded that when Section24, Article VI provides that revenue bills shall originate exclusively from the House ofRepresentatives, what the Constitution mandates is that any revenue statute mustbegin or start solely and only in the House. Not the Senate. Not both Chambers ofCongress. But there is more to it than that. It also means that "an act for taxationmust pass the House first." It is no consequence what amendments the Senateadds.28

A perusal of the legislative history of R.A. No. 9337 shows that it did not "exclusively

originate" from the House of Representatives.The House of Representatives approved House Bill Nos. 355529 and 370530. TheseBills intended to amend Sections 106, 107, 108, 109, 110, 111 and 114 of the NIRC.For its part, the Senate approved Senate Bill No. 1950,31 taking into considerationHouse Bill Nos. 3555 and 3705. It intended to amend Sections 27, 28, 34, 106, 108,109, 110, 112, 113, 114, 116, 117, 119, 121, 125, 148, 151, 236, 237 and 288 of theNIRC.

Thereafter, on April 13, 2005, a Committee Conference was created to thresh out thedisagreeing provisions of the three proposed bills.

In less than a month, the Conference Committee "after having met and discussed in fullfree and conference," came up with a report and recommended the approval of theconsolidated version of the bills. The Senate and the House of Representativesapproved it.

On May 23, 2005, the enrolled copy of the consolidated version of the bills wastransmitted to President Arroyo, who signed it into law. Thus, the enactment of R.A. No.


































9337, entitled " An Act Amending Sections 27, 28, 34, 106, 107, 108, 109, 110, 111,112, 113, 114, 116, 117, 119, 121, 148, 151, 236, 237 and 288 of the National InternalRevenue Code of 1997, As Amended and For Other Purposes."

Clearly, Senate Bill No. 1950 is not based on any bill passed by the House of

Representatives. It has a legislative identity and existence separate and apart fromHouse Bills No. 3555 and 3705. Instead of concurring or proposing amendments,Senate Bill No. 1950 merely "takes into consideration" the two House Bills. To takeinto consideration means "to take into account." Consideration, in this sense, means"deliberation, attention, observation or contemplation.32 Simply put, the Senate inpassing Senate Bill No. 1950, a tax measure, merely took into account House Bills No.3555 and 3705, but did not concur with or amend either or both bills. As a matter of fact,it did not even take these two House Bills as a frame of reference.

In Tolentino, the majority subscribed to the view that Senate may amend the Houserevenue bill by substitution or by presenting its own version of the bill. In either case, the

result is "two bills on the same subject."

33

This is the source of the "germaneness"rule which states that the Senate bill must be germane to the bill originally passed bythe House of Representatives. In Tolentino, this was not really an issue as both theHouse and Senate Bills in question had one subject – the VAT.

The facts obtaining here is very much different from Tolentino. It is very apparent thatHouse Bills No. 3555 and 3705 merely intended to amend Sections 106, 107, 108, 109,110, 111 and 114 of the NIRC of 1997, pertaining to the VAT provisions. On the otherhand, Senate Bill No. 1950 intended to amend Sections 27, 28, 34, 106, 108, 109, 110,112, 113, 114, 116, 117, 119, 121, 125, 148, 151, 236, 237 and 288 of the NIRC,pertaining to matters outside of VAT, such as income tax, percentage tax, franchise tax,

taxes on banks and other financial intermediaries, excise taxes, etc.Thus, I am of the position that the Senate could not, without violating the germanenessrule and the principle of "exclusive origination," propose tax matters not included in theHouse Bills.

WHEREFORE, I vote to CONCUR with the majority opinion except with respect to thepoints above-mentioned.

ANGELINA SANDOVAL-GUTIERREZ

Associate J ustice

Footnotes

1 Book V of The Wealth of Nations.














2 ABAKADA GURO Party List (Formerly AASJAS), Officers Samson S. Alcantaraand Ed Vincent S. Albano.

3 Aquilino Q. Pimentel, Jr., Luisa P. Ejercito-Estrada, Jinggoy E. Estrada, PanfiloM. Lacson, Alfredo S. Lim, Jamby A.S. Madrigal and Sergio R. Osmena III.

4 Francis Joseph G. Escudero, Vincent Crisologo, Emmanuel Joel J. Villanueva,Rodolfo G. Plaza, Darlene Antonino-Custodio, Oscar G. Malapitan, Benjamin C.

Agarao, Jr., Juan Edgardo M. Angara, Justin Marc SB. Chipeco, Florencio G.Noel, Mujiv S. Hataman, Renato B. Magtubo, Joseph A. Santiago, Teofisto DL.Guingona III, Ruy Elias C. Lopez, Rodolfo Q. Agbayani and Teodoro A. Casino.

5 Luzon Stevedoring Co. vs. Court of Tax Appeals, L-302332, July 29, 1998, 163SCRA 647 cited in Vitug, Acosta, Tax Law and Jurisprudence, Second Edition, at7.

6

Pepsi Cola Bottling Company of the Philippines vs. Municipality of Tanauan,Leyte, G.R. No. L-31156, February 27, 1976, 69 SCRA 460. See also NationalPower Corporation vs. Albay , G.R. No. 87479, June 4, 1990, 186 SCRA 198.

7 Bernas, SJ, The 1987 Constitution of the Republic of the Philippines, ACommentary , 1996 Edition, at 687.

8 People vs. Vera, 65 Phil. 56 (1937).

9 Cooley on Constitutional Limitations, 8th ed., Vol. I, p. 224.

10

Vitug, Acosta, Tax Law and Jurisprudence, Second Edition, at 8-9.11 Espiritu vs. Cipriano, G.R. No. 32743, February 15, 1974, 55 SCRA 533, 538,citing Sutherlands Statutory Construction, Vol. 2, Section 4945, p. 412.

12 A tariff is a list or schedule of articles on which a duty is imposed upon theirimportation, with the rates at which they are severally taxed, it is also the customor duty payable on such articles. (Black‘s Law Dictionary [6th Edition], 1990, at1456).

13 An import quota is a quantitative restriction on the importation of an article into

a country, and is a remedy available to the executive department upon itsdetermination that an imported article threatens serious injury to a domesticindustry. (Id. at 755).

14 An export quota is an amount of specific goods which may be exported andare set by the government for purposes of national defense, economic stabilityand price support. (Id. at 579).










































15 Tonnage dues are duties laid upon vessels according to their tonnage orcubical capacity. (Id. at 1488).

16 Wharfage dues are generally understood to be the fees paid for landing goodsupon or loading them from a wharf. It is a charge for the use of the wharf and

may be treated either as rent or compensation. (Marine Lighterage Corp. vs.Luckenbach S.S. Co., 119 Misc. 612, 248 NYS 71).

17 A duty is generally understood to be a tax on the importation or exportation ofgoods, merchandise and other commodities, while imposts are duties orimpositions levied for various reasons. (Crew Levick Co. vs. Commonwealth ofPennsylvania, 245 US 292, 62 L. Ed. 295, 38 S. Ct. 126).

18 People vs. Vera, supra.

19 Walter E. Olsen & Co. vs. Aldanese and Trinidad (1922), 43 Phil., 259; 12 C.

J., p. 786.20 Cruz, Constitutional Law, 1987 Edition, at 101.

21 TSN, May 10, 2005, Annex ‗E" of the Petition in G.R. No. 168056.

22 Vitug, Acosta, Tax Law and Jurisprudence, Second Edition, at 3.

23 G.R. No. 115455, August 25, 1994, 235 SCRA 630.

24 Merriam-Webster‘s Third New International Dictionary (1993 Ed.), at 793.

25 Id.

26 City Mayor vs. The Chief of Philippine Constabulary, G.R. No. 20346, October31, 1967, 21 SCRA 665, 673.

27 Merriam-Webster‘s Third New International Dictionary (1993 Ed.), at 1592.

28 Davies, Legislative Law and Process, (2d. Ed. 1986), at 89.

29 Entitled " An Act Restructuring the Value-Added Tax, Amending for the

Purpose Sections 106, 107, 108, 110 and 114 of the National Internal RevenueCode of 1997, As amended, and For Other Purposes." Approved on January 27,2005.

30 Entitled "An Act Amending Sections 106, 107, 108, 109, 110 and 111 of theNational Internal Revenue Code of 1997, As Amended, and For OtherPurposes." Approved on February 28, 2005.



















































31 Entitled " An Act Amending Sections 27, 28, 34, 106,108, 109,110, 112, 113,114, 116, 117, 119, 121, 125, 148, 151, 236, 237 and 288 of the National InternalRevenue Code of 1997, As Amended, and For Other Purposes." Approved on

April1 3, 2005.

32

Merriam-Webster‘s Third New International Dictionary (1993 Ed.), at 484.33 Supra.


G.R. No. 168056 – (Abakada Guro Party List [Former ly AASJAS] Off icers SamsonS. Alc antara and Ed Vin cent S. Albano v . The Hon. Executive Secretary Eduardo

Ermita, et al.)

G.R. No. 168207 – (Aquil ino Q. Pimen tel, Jr., et al. v. Executive Secretary Eduard oR. Ermit a, et al.)

G.R. No. 168461 – (As so ciation of Fi l ipin as Shell Dealers, Inc., et al. v. Cesar V.Purisim a, et al.)

G.R. No. 168463 – (Francis J oseph G. Escudero, et al. v. Cesar V. Purisim a, et al.)

G.R. No. 168730 – (Bataan Gov ernor En rique T. Garcia, Jr. v. Hon. Eduardo R.

Ermita, et al.) Promulgated:

September 1, 2005

X - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X


CALLEJO, SR., J .:

I join the concurring and dissenting opinion of Mr. Justice Reynato S. Puno as I concurwith the majority opinion but vote to declare as unconstitutional the deletion of the "no-pass on provision" contained in Senate Bill No. 1950 and House Bill No. 3705 (theconstituent bills of Republic Act No. 9337).

The present petitions provide an opportune












occasion for the Court to re-examine

Tolentino v. Secretary of Finance

In ruling that Congress, in enacting R.A. No. 9337, complied with the formal

requirements of the Constitution, the ponencia relies mainly on the Court‘s rulings inTolentino v. Secretary of Finance.1 To recall, Tolentino involved Republic Act No. 7716,which similarly amended the NIRC by widening the tax base of the VAT system. Theprocedural attacks against R.A. No. 9337 are substantially the same as those leveledagainst R.A. No. 7716, e.g., violation of the "Origination Clause" (Article VI, Section 24)and the "Three-Reading Rule" and the "No-Amendment Rule" (Article VI, Section 26[2])of the Constitution.

The present petitions provide an opportune occasion for the Court to re-examine itsrulings in Tolentino particularly with respect to the scope of the powers of the BicameralConference Committee vis-à-vis Article VI, Section 26(2) of the Constitution.

The crucial issue posed by the present petitions is whether the Bicameral ConferenceCommittee may validly introduce amendments that were not contained in the respectivebills of the Senate and the House of Representatives. As a corollary, whether it mayvalidly delete provisions uniformly contained in the respective bills of the Senate and theHouse of Representatives.

In Tolentino, the Court declared as valid amendments introduced by the BicameralConference Committee even if these were not contained in the Senate and House bills.The majority opinion therein held:

As to the possibility of an entirely new bill emerging out of a Conference Committee, ithas been explained:

Under congressional rules of procedures, conference committees are not expected tomake any material change in the measure at issue, either by deleting provisions towhich both houses have already agreed or by inserting new provisions. But this is adifficult provision to enforce. Note the problem when one house amends a proposaloriginating in either house by striking out everything following the enacting clause andsubstituting provisions which make it an entirely new bill. The versions are nowaltogether different, permitting a conference committee to draft essentially a new bill …

The result is a third version, which is considered an "amendment in the nature of asubstitute," the only requirement for which being that the third version be germane tothe subject of the House and Senate bills.

Indeed, this Court recently held that it is within the power of a conference committee toinclude in its report an entirely new provision that is not found either in the House bill orin the Senate Bill. If the committee can propose an amendment consisting of one or twoprovisions, collectively considered as an "amendment in the nature of a substitute," so







long as such an amendment is germane to the subject of the bills before the committee. After all, its report was not final but needed the approval of both houses of Congress tobecome valid as an act of the legislative department. The charge that in this case theConference Committee acted a third legislative chamber is thus without any basis.2

The majority opinion in Tolentino relied mainly on the practice of the United Stateslegislature in making the foregoing disquisition. It was held, in effect, that following theUS Congress‘ practice where a conference committee is permitted to draft a bill that isentirely different from the bills of either the House of Representatives or Senate, theBicameral Conference Committee is similarly empowered to make amendments notfound in either the House or Senate bills.

The ponencia upholds the acts of the Bicameral Conference Committee with respect toR.A. No. 9337, following the said ruling in Tolentino.

To my mind, this unqualified adherence by the majority opinion in Tolentino, and now by

the ponencia, to the practice of the US Congress and its conference committee systemought to be re-examined. There are significant textual differences between the USFeder al Constitution‘s and our Constitution‘s prescribed congressional procedure forenacting laws. Accordingly, the degree of freedom accorded by the US FederalConstitution to the US Congress markedly differ from that accorded by our Constitutionto the Philippine Congress.

Section 7, Article I of the US Federal Constitution reads:

[1] All Bills for raising Revenue shall originate in the House of Representatives; but theSenate may propose or concur with Amendments as on other Bills.

[2] Every Bill which shall have passed the House of Representatives and the Senate,shall, before it become a Law, be presented to the President of the United States; If heapprove he shall it, but if not he shall return it, with his Objections to the House in whichit shall have originated, who shall enter the Objections at large on their Journal, andproceed to reconsider it. If after such Reconsideration two thirds of that House shallagree to pass the Bill, it shall be sent together with the Objections, to the other House,by which it shall, likewise, be reconsidered, and if approved by two thirds of that House,it shall become a Law. But in all such Cases the Votes of both Houses shall bedetermined by yeas and Nays, and the Names of the Persons voting for and against theBill shall be entered on the Journal of each House respectively. If any Bill shall not bereturned by the President within ten Days (Sundays excepted) after it shall have beenpresented to him, the Same shall be a Law, in like Manner as if he had signed it, unlessthe Congress by their Adjournment prevent its return in which Case it shall not be aLaw.

[3] Every Order, Resolution, or Vote to Which the Concurrence of the Senate andHouse of Representatives may be necessary (except on a question of Adjournment)shall be presented to the President of the United States; and before the Same shall take







Effect, shall be approved by him, or being disapproved by him, shall be repassed by twothirds of the Senate and House of Representatives, according to the Rules andLimitations prescribed in the Case of a Bill.

On the other hand, Article VI of our Constitution prescribes for the following procedure

for enacting a law:

Sec. 26. (1) Every bill passed by Congress shall embrace only one subject which shallbe expressed in the title thereof.

(2) No bill passed by either House shall become a law unless it has passed threereadings on separate days, and printed copies thereof in its final form have beendistributed to its Members three days before its passage, except when the Presidentcertifies to the necessity of its immediate enactment to meet a public calamity oremergency. Upon the last reading of a bill, no amendment thereto shall be allowed, andthe vote thereon shall be taken immediately thereafter, and the yeas and nays entered

in the Journal.Sec. 27. (1) Every bill passed by Congress shall, before it becomes a law, be presentedto the President. If he approves the same, he shall sign it; otherwise, he shall veto it andreturn the same with his objections to the House where it originated, which shall enterthe objections at large in its Journal and proceed to reconsider it. If, after suchreconsideration, two-thirds of all the Members of such House shall agree to pass thebill, it shall be sent, together with the objections, to the other House by which it shalllikewise be reconsidered, and if approved by two-thirds of all the Members of thatHouse, it shall become a law. In all such cases, the votes of each House shall bedetermined by yeas and nays, and the names of the Members voting for or against shall

be entered in its Journal. The President shall communicate his veto of any bill to theHouse where it originated within thirty days after the date of receipt thereof; otherwise, itshall become a law as if he had signed it.

(2) The President shall have the power to veto any particular item or items in anappropriation, revenue, or tariff bill, but the veto shall not affect the item or items towhich he does not object.

Two distinctions are readily apparent between the two procedures:

1. Unlike the US Federal Constitution, our Constitution prescribes the "three-reading"

rule or that no bill shall become a law unless it shall have been read on three separatedays in each house except when its urgency is certified by the President; and

2. Unlike the US Federal Constitution, our Constitution prescribes the "no-amendment"rule or that no amendments shall be allowed upon the last reading of the bill.

American constitutional experts have lamented that certain congressional procedureshave not been entrenched in the US Federal Constitution. According to a noted



constitutional law professor, the absence of the "three-reading" requirement as well assimilar legislative-procedure rules from the US Federal Constitution is a "cause forregret."3

In this connection, it is interesting to note that the conference committee system in the

US Congress has been described in this wise:

Conference Committees

Another main mechanism of joint House and Senate action is the conferencecommittee. Inherited from the English Constitution, the conference committee system isan evolutionary product whose principal threads were woven on the loom ofcongressional practice into a unified pattern by the middle of the nineteenth century. "By1852," writes Ada McCown, historian of the origin and development of the conferencecommittee, "the customs of presenting identical reports from the committees ofconference in both houses, of granting high privilege to these conference reports, of

voting upon the conference report as a whole and permitting no amendment of it, ofkeeping secret the discussions carried on in the meetings of the conference committee,had become established in American parliamentary practice."

Conference committees are composed of Senators and Representatives, usually threeeach, appointed by the presiding officers of both houses, for the purpose of adjustingdifferences between bills they have passed. This device has been extensively used byevery Congress since 1789. Of the 1157 laws enacted by the 78th Congress, forexample, 107 went through conference and, of these, 36 were appropriation bills onwhich the House had disagreed to Senate amendments. In practice, most importantlegislation goes through the conference closet and is there revised, sometimes beyond

recognition, by the all-powerful conferees or managers, as they are styled. A large bodyof law and practice has been built up over the years governing conference procedureand reports.

Suffice it to say here that serious evils have marked the development of the conferencecommittee system. In the first place, it is highly prodigal of members‘ time. McConachiecalculated that the average time consumed in conference was 33 days per bill. Bills aresent to conference without reading the amendments of the other chamber. Despite rulesto the contrary, conferees do not confine themselves to matters in dispute, but ofteninitiate entirely new legislation and even strike out identical provisions previouslyapproved by both houses. This happened during the 78th Congress, for instance, whenan important amendment to the surplus property bill, which had been approved by bothhouses, was deleted in conference.

Conference committees, moreover, suffer like other committees from the seniority rule.The senior members of the committees concerned, who are customarily appointed asmanagers on the part of the House and Senate, are not always the best informed on thequestions at issue, nor do they always reflect the majority sentiment of their houses.Furthermore, conference reports must be accepted or rejected in toto without







amendment and they are often so complex and obscure that they are voted uponwithout knowledge of their contents. What happens in practice is that Congresssurrenders its legislative function to irresponsible committees of conference. Thestanding rules against including new and extraneous matter in conference reports havebeen gradually whittled away in recent years by the decisions of presiding officers.

Senate riders attached to appropriation bills enable conference committees to legislateand the House usually accepts them rather than withhold supply, thus putting it, asSenator Hoar once declared, under a degrading duress.

It is also alleged that under this secret system lobbyist are able to kill legislation theydislike and that "jokers" designed to defeat the will of Congress can be inserted withoutdetection. Senator George W. Norris once characterized the conference committee as athird house of Congress. "The members of this ‗house,‘ he said, "are not elected by thepeople. The people have no voice as to who these members shall be ... This conferencecommittee is many times, in very important matters of legislation, the most importantbranch of our legislature. There is no record kept of the workings of the conference

committee. Its work is performed, in the main, in secret. No constituent has any definiteknowledge as to how members of this conference committee vote, and there is norecord to prove the attitude of any member of the conference committee ... As apractical proposition we have legislation, then, not by the voice of the members of theSenate, not by the members of the House of Representatives, but we have legislationby the voice of five or six men. And for practical purposes, in most cases, it isimpossible to defeat the legislation proposed by this conference committee. Everyexperienced legislator knows that it is the hardest thing in the world to defeat aconference report."

Despite these admitted evils, impartial students of the conference committee system

defend it on net balance as an essential part of the legislative process. Somemechanism for reconciling differences under bicameral system is obviouslyindispensable. The remedy for the defects of the device is not to abolish it, but to keep itunder congressional control. This can be done by enforcing the rules which prohibit theinclusion in conference reports of matter not committed to them by either house andforbid the deletion of items approved by both bodies; by permitting conferencemanagers to report necessary new matter separately and the houses to consider itapart from the conference report; by fixing a deadline toward the close of a session afterwhich no bills could be sent to conference, so as to eliminate congestion at the end ofthe session – a suggestion made by the elder Senator La Follete in 1919; by holdingconferences in sessions open to the public, letting conference reports lie over longer,and printing them in bill form (with conference changes in italics) so as to allowmembers more time to examine them and discover "jokers."4

The "three-reading" and "no-amendment" rules, absent in the US Federal Constitution,but expressly mandated by Article VI, Section 26(2) of our Constitution are mechanismsinstituted to remedy the "evils" inherent in a bicameral system of legislature, includingthe conference committee system.







Sadly, the ponencia’s refusal to apply Article VI, Section 26(2) of the Constitution on theBicameral Conference Committee and the amendments it introduced to R.A. No. 9337has "effectively dismantled" the "three-reading rule" and "no-amendment rule." Asposited by Fr. Joaquin Bernas, a member of the Constitutional Commission:

In a bicameral system, bills are independently processed by both House of Congress. Itis not unusual that the final version approved by one House differs from what has beenapproved by the other. The "conference committee," consisting of members nominatedfrom both Houses, is an extra-constitutional creation of Congress whose function is topropose to Congress ways of reconciling conflicting provisions found in the Senateversion and in the House version of a bill. It performs a necessary function in abicameral system. However, since conference committees have merely delegatedauthority from Congress, they should not perform functions that Congress itself may notdo. Moreover, their proposals need confirmation by both Houses of Congress.

In Tolentino v. Secretary of Finance, the Court had the opportunity to delve into the

limits of what conference committees may do. The petitioners contended that theconsolidation of the House and Senate bills made by the conference committeecontained provisions which neither the Senate bill nor the House bill had. In herdissenting opinion, Justice Romero laid out in great detail the provisions that had beeninserted by the conference committee. These provisions, according to the petitionershad been introduced "surreptitiously" during a closed door meeting of the committee.

The Court‘s answer to this was that in United States practice conference committeescould be held in executive sessions and amendments germane to the purpose of the billcould be introduced even if these were not in either original bill. But the Court did notbother to check whether perhaps the American practice was based on a constitutional

text different from that of the Philippine Constitution.There are as a matter of fact significant differences in the degree of freedom Americanand Philippine legislators have. The only rule that binds the Federal Congress is that itmay formulate its own rules of procedure. For this reason, the Federal Congress ismaster of its own procedures. It is different with the Philippine Congress. Our Congressindeed is also authorized to formulate its own rules of procedure – but within limits notfound in American law. For instance, there is the "three readings on separate days" rule.

Another important rule is that no amendments may be introduced by either house duringthird reading. These limitations were introduced by the 1935 and 1973 Constitutions andconfirmed by the 1987 Constitution as a defense against the inventiveness of thestealthy and surreptitious. These, however, were disregarded by the Court in Tolentinoin favor of contrary American practice.

This is not to say that conference committees should not be allowed. But an effortshould be made to lay out the scope of what conference committees may do accordingto the requirements and the reasons of the Philippine Constitution and not according tothe practice of the American Congress. For instance, if the two Houses are not allowedto introduce and debate amendments on third reading, can they circumvent this rule by



coursing new provisions through the instrumentality of a conference committee createdby Congress and meeting in secret? The effect of the Court‘s uncritical embrace of thepractice of the American Congress and its conference committees is to dismantle theno-amendment rule.5

The task at hand for the Court, but which the ponencia eschews, is to circumscribe thepowers of the Bicameral Conference Committee in light of the "three-reading" and "no-amendment" rules in Article VI, Section 26(2) of the Constitution.

The Bicameral Conference Committee, in

deleting the "no pass on provision" contained in

Senate Bill No. 1950 and House Bill No. 3705,

violated Article VI , Section 26(2) of the Constitution

Pertinently, in his dissenting opinion in Tolentino, Justice Davide (now Chief Justice)opined that the duty of the Bicameral Conference Committee was limited to thereconciliation of disagreeing provisions or the resolution of differences orinconsistencies. This proposition still applies as can be gleaned from the following textof Sections 88 and 89, Rule XIV of the Rules of the House of Representatives:

Sec. 88. Conference Committee. – In the event that the House does not agree with theSenate on the amendments to any bill or joint resolution, the differences may be settledby the conference committees of both chambers.

In resolving the differences with the Senate, the House panel shall, as much aspossible, adhere to and support the House Bill. If the differences with the Senate are sosubstantial that they materially impair the House Bill, the panel shall report such fact tothe House for the latter‘s appropriate action.

Sec. 89. Conference Committee Reports. - …Each report shall contain a detailed,sufficiently explicit statement of the changes in or amendments to the subject measure.

…

The Chairman of the House panel may be interpellated on the Conference Committee

Report prior to the voting thereon. The House shall vote on the Conference Committeereport in the same manner and procedure as it votes on a bill on third and final reading.

and Rule XII, Section 35 of the Rules of the Senate:

Sec. 35. In the event that the Senate does not agree with the House of Representativeson the provision of any bill or joint resolution, the differences shall be settled by aconference committee of both Houses which shall meet within ten (10) days after their







composition. The President shall designate the members of the Senate Panel in theconference committee with the approval of the Senate.

Each Conference Committee Report shall contain a detailed and sufficiently explicitstatement of the changes in, or amendments to the subject measure, and shall be

signed by a majority of the members of each House panel, voting separately.

Justice Davide further explained that under its limited authority, the BicameralConference Committee could only (a) restore, wholly or partly, the specific provisions ofthe House Bill amended by the Senate Bill; (b) sustain, wholly or partly, the Senate‘samendments, or (c) by way of compromise, to agree that neither provisions in theHouse Bill amended by the Senate nor the latter‘s amendments thereto be carried intothe final form of the former. Justice Romero, who also dissented in Tolentino, addedthat the conference committee is not authorized to initiate or propose completely newmatters although under certain legislative rules like the Jefferson’s Manual , aconference committee may introduce germane matters in a particular bill. However,

such matters should be circumscribed by the committee‘s sole authority and function toreconcile differences.

In the case of R.A. No. 9337, the Bicameral Conference Committee made an"amendment by deletion" with respect to the "no pass on provision" contained in bothHouse Bill (HB) No. 3705 and Senate Bill (SB) No. 1950. HB 3705 proposed to amendSections 106 and 108 of the NIRC by expressly stating therein that sellers of petroleumproducts and power generation companies selling electricity are prohibited from passingon the VAT to the consumers. SB 1950 proposed to amend Section 108 by likewiseprohibiting power generation companies from passing on the VAT to the consumers.However, these "no pass on provisions" were altogether deleted by the Bicameral

Conference Committee. At the least, since there was no disagreement between HB3705 and SB 1950 with respect to the "no pass on provision" on the sale of electricity,the Bicameral Conference Committee acted beyond the scope of its authority in deletingthe pertinent proviso.

At this point, it is well to recall the rationale for the "no-amendment rule" and the "three-reading rule" in Article VI, Section 26(2) of the Constitution. The proscription onamendments upon the last reading is intended to subject all bills and their amendmentsto intensive deliberation by the legislators and the ample ventilation of issues to affordthe public an opportunity to express their opinions or objections thereon.6 Analogously,it is said that the "three-reading rule" operates "as a self-binding mechanism that allowsthe legislature to guard against the consequences of its own future passions, myopia, orherd behavior. By requiring that bills be read and debated on successive days,legislature may anticipate and forestall future occasions on which it will be seized bydeliberative pathologies."7 As Jeremy Bentham, a noted political analyst, put it: "[t]hemore susceptible a people are of excitement and being led astray, so much the moreought they to place themselves under the protection of forms which impose thenecessity of reflection, and prevent surprises."8















Reports of the Bicameral Conference Committee, especially in cases where substantialamendments, or in this case deletions, have been made to the respective bills of eitherhouse of Congress, ought to undergo the "three-reading" requirement in order to giveeffect to the letter and spirit of Article VI, Section 26(2) of the Constitution.

The Bicameral Conference Committee Report that eventually became R.A. No. 9337, infact, bolsters the argument for the strict compliance by Congress of the legislativeprocedure prescribed by the Constitution. As can be gleaned from the said Report, ofthe 9 Senators-Conferees,9 only 5 Senator s10 unqualifiedly approved it. Senator JokerP. Arroyo expressed his qualified dissent while Senators Sergio R. Osmeña III and JuanPonce Enrile approved it with reservations. On the other hand, of the twenty-eight (28)Members of the House of Representatives-Conferees,11 fourteen (14)12 approved thesame with reservations while three13 voted no. All the reservations expressed by theconferees relate to the deletion of the "no pass on provision." Only eleven (11)unqualifiedly approved it. In other words, even among themselves, the conferees werenot unanimous on their Report. Nonetheless, Congress approved it without even

thoroughly discussing the reservations or qualifications expressed by the confereestherein.

This "take it or leave it" stance vis-à-vis conference committee reports opens thepossibility of amendments, which are substantial and not even germane to the originalbills of either house, being introduced by the conference committees and voted upon bythe legislators without knowledge of their contents. This practice cannot becountenanced as it patently runs afoul of the essence of Article VI, Section 26(2) of theConstitution. Worse, it is tantamount to Congress surrendering its legislative functions tothe conference committees.

Ratification by Congress did not cure the unconstitutional act of the Bicameral Conference

Committee of deleting the "no pass on provision"

That both the Senate and the House of Representatives approved the BicameralConference Committee Report which deleted the "no pass on provision" did not cure theunconstitutional act of the said committee. As succinctly put by Chief Justice Davide inhis dissent in Tolentino, "[t]his doctrine of ratification may apply to minor proceduralflaws or tolerable breaches of the parameters of the bicameral conference committee‘slimited powers but never to violations of the Constitution. Congress is not above theConstitution."14

Enrolled Bill Doctrine is not applicable where, as in

this case, there is grave violation of the Constitution


























As expected, the ponencia invokes the enrolled bill doctrine to buttress its refusal topass upon the validity of the assailed acts of the Bicameral Conference Committee.Under the "enrolled bill doctrine," the signing of a bill by the Speaker of the House andthe Senate President and the certification of the Secretaries of both houses of Congressthat it was passed are conclusive of its due enactment. In addition to Tolentino, the

ponencia cites Fariñas v. Executive Secretary

15

where the Court declined to go behindthe enrolled bill vis-à-vis the allegations of the petitioners therein that irregularitiesattended the passage of Republic Act No. 9006, otherwise known as the Fair Election

Act.

Reliance by the ponencia on Fariñas is quite misplaced. The Court‘s adherence to theenrolled bill doctrine in the said case was justified for the following reasons:

The Court finds no reason to deviate from the salutary in this case where theirregularities alleged by the petitioners mostly involved the internal rules of Congress,whether House or Senate. Parliamentary rules are merely procedural and with their

observance the courts have no concern. Whatever doubts there may be as to the formalvalidity of Rep. Act No. 9006 must be resolved in its favor. The Court reiterates its rulingin Arroyo v. De Venecia, viz .:

But the cases, both here and abroad, in varying forms of expression, all deny to thecourts the power to inquire into the allegations that, in enacting a law, a House ofCongress failed to comply with its own rules, in the absence of showing that there was aviolation of a constitutional provision or the rights of private individuals. In Osmeña v.Pendatun, it was held: "At any rate, courts have declared that ‗the ru les adopted bydeliberative bodies are subject to revocation, modification or waiver at the pleasure ofthe body adopting them.‘ And it has been said that ‗Parliamentary rules are merely

procedural, and with their observance, the courts have no concern. They may bewaived or disregarded by the legislative body.‘ Consequently, ‗mere failure to conformto parliamentary usage will not invalidate the action (taken by a deliberative body) whenthe requisite number of members have agreed to a particular measure.16

Thus, in Fariñas, the Court‘s refusal to go behind the enrolled bill was based on the factthat the alleged irregularities that attended the passage of R.A. No. 9006 merelyinvolved the internal rules of both houses of Congress. The procedural irregularitiesallegedly committed by the conference committee therein did not amount to a violationof a provision of the Constitution.17

In contrast, the act of the Bicameral Conference Committee of deleting the "no pass onprovision" of SB 1950 and HB 3705 infringe Article VI, Section 26(2) of the Constitution.The violation of this constitutional provision warrants the exercise by the Court of itsconstitutionally-ordained power to strike down any act of a branch or instrumentality ofgovernment or any of its officials done with grave abuse of discretion amounting to lackor excess of jurisdiction.18


















ACCORDINGLY, I join the concurring and dissenting opinion of Mr. Justice Reynato S.Puno and vote to dismiss the petitions with respect to Sections 4, 5 and 6 of Republic

Act No. 9337 for being premature. Further, I vote to declare as unconstitutional Section21 thereof and the deletion of the "no pass on provision" contained in the constituentbills of Republic Act No. 9337.

ROMEO J. CALLEJO, SR.

Associate Justice

Footnotes

1 G.R. No. 115455, 25 August 1994, 235 SCRA 630.

2

Tolentino v. Secretary of Finance, supra, at 667-668.3 See, for example, Vermuele, A., The Constitutional Law of CongressionalProcedure, 71 U. Chi. L. Rev. 361 (Spring 2004).

4 Galloway, G., Congress at the Crossroads, pp. 98-100.

5 Bernas SJ, J., The 1987 Constitution of the Republic of the Philippines, ACommentary, pp. 702-703 (1996 Ed.).

6 Dissenting Opinion of Justice Romero in Tolentino, supra.

7 Vermuele, supra.

8 Id . citing Bentham, J., Political Tactics.

9 Senators Ralph G. Recto, Joker P. Arroyo, Manuel B. Villar, Richard J. Gordon,Rodolfo G. Biazon, Edgardo G. Angara, M.A. Madrigal, Sergio R. Osmena III,Juan Ponce Enrile.

10 Senators Recto, Villar, Gordon, Biazon.

11

Representatives Jesli A. Lapus, Danilo E. Suarez, Arnulfo P. Fuentebella, EricD. Singson, Junie E. Cua, Teodoro L. Locsin, Jr., Salacnib Baterina, Edcel C.Lagman, Luis R. Villafuerte, Herminio G. Teves, Eduardo G. Gullas, Joey SarteSalceda, Prospero C. Nograles, Exequiel B. Javier, Rolando G. Andaya, Jr.,Guillermo P. Cua, Arthur D. Defensor, Raul V. Del Mar, Ronaldo B. Zamora,Rolex P. Suplico, Jacinto V. Paras, Vincent P. Crisologo, Alan Peter S.Cayetano, Joseph Santiago, Oscar G. Malapitan, Catalino Figueroa, Antonino P.Roman and Imee R. Marcos.




































12 Representatives Suarez, Fuentebella, Cua, Locsin, Jr., Teves, Gullas, Javier,Cua, Defensor, Crisologo, Cayetano, Santiago, Malapitan and Marcos.

13 Representatives Del Mar, Suplico and Paras.

14

Dissenting Opinion in Tolentino, supra.15 G.R. No. 147387, 10 December 2003, 417 SCRA 503.

16 Id ., pp. 529-530. (Emphases mine.)

17 By way of explanation, the constitutional issues raised in Fariñas were (1)whether Section 14 of R.A. No. 9006 was a rider or that it violated Article VI,Section 26(1) of the Constitution requiring that "[e]very bill passed by Congressshall embrace only one subject which shall be expressed in the title thereof;" and(2) whether Section 14 of R.A. No. 9006 violated the equal protection clause of

the Constitution. On both issues the Court ruled in the negative. To reiterate,unlike in the present cases, the acts of the conference committee with respect toR.A. No. 9006 in Fariñas allegedly violated the internal rules of either house ofCongress, but it was not alleged therein that they amounted to a violation of anyconstitutional provision on legislative procedure.

18 Article VIII, Section 1, CONSTITUTION.


EN BANC

G.R. No. 168056 (ABAKADA Guro Party List [formerly ASSJS] Officers Samson S.Alcantara, et al. v. Hon. Executive Secretary Eduardo Ermita, et al.);

G.R. No. 168207 (Aquilino Q. Pimentel, Jr., et al. v. Executive Secretary EduardoR. Ermita, et al.);

G.R. No. 168461 (Association of Pilipinas Shell Dealers, Inc., etc., et al. v. Cesar V.

Purisima, etc., et al.);

G.R. No. 168463 (Francis Joseph G. Escudero, et al. v. Cesar V. Purisima, etc., etal.); and

G.R. No. 168730 (Bataan Governor Enrique T. Garcia, Jr. v. Hon. Eduardo R.Ermita, etc., et al.)
























Promulgated:

September 1, 2005

X----------------------------------------------------------------------------------------X


AZCUNA, J .:

Republic Act No. 9337, the E-VAT law, is assailed as an unconstitutional abdication ofCongress of its power to tax through its delegation to the President of the decision toincrease the rate of the tax from 10% to 12%, effective January 1, 2006, after any of twoconditions has been satisfied.1

The two conditions are:


(ii) National government deficit as a percentage of GDP of the previous year exceedsone and one-half percent (1 ½%).2

A scrutiny of these "conditions" shows that one of them is certain to happen on January1, 2006.

The first condition is that the collection from the E-VAT exceeds 2 4/5% of the Gross

Domestic Product (GDP) of the previous year, a ratio that is known as the tax effort.

The second condition is that the national government deficit exceeds 1 ½% of the GDPof the previous year.

Note that the law says that the rate shall be increased if any of the two conditionshappens, i.e., if condition (i) or condition (ii) occurs.

Now, in realistic terms, considering the short time-frame given, the only practicable waythat the present deficit of the national government can be reduced to 1 ½% or lower,thus preventing condition (ii) from happening, is to increase the tax effort, which mainly

has to come from the E-VAT. But increasing the tax effort through the E-VAT, to theextent needed to reduce the national deficit to 1 ½% or less, will trigger the happeningof condition (i) under the law. Thus, the happening of condition (i) or condition (ii) is inreality certain and unavoidable, as of January 1, 2006.

This becomes all the more clear when we consider the figures provided during the oralarguments.











The Gross Domestic Product for 2005 is estimated at P5.3 Trillion pesos.

The tax effort of the present VAT is now at 1.5%.

The national budgetary deficit against the GDP is now at 3%.

So to reduce the deficit to 1.5% from 3%, one has to increase the tax effort from VAT,now at 1.5%, to at least 3%, thereby exceeding the 2 4/5 percent ceiling in condition (i),making condition (i) happen.

If, on the other hand, this is not done, then condition (ii) happens – the budget deficitremains over 1.5%.

What is the result of this? The result is that in reality, the law does not impose anycondition, or the rate increase thereunder, from 10% to 12%, effective January 1, 2006,is unconditional. For a condition is an event that may or may not happen, or one whose

occurrence is uncertain.

3

Now while condition (i) is indeed uncertain and condition (ii) islikewise uncertain, the combination of both makes the occurrence of one of themcertain.

Accordingly, there is here no abdication by Congress of its power to fix the rate of thetax since the rate increase provided under the law, from 10% to 12%, is definite andcertain to occur, effective January 1, 2006. All that the President will do is state which ofthe two conditions occurred and thereupon implement the rate increase.

At first glance, therefore, it would appear that the decision to increase the rate is to bemade by the President, or that the increase is still uncertain, as it is subject to the

happening of any of two conditions.Nevertheless, the contrary is true and thus it would be best in these difficult and criticaltimes to let our people know precisely what burdens they are being asked to bear as thenecessary means to recover from a crisis that calls for a heroic sacrifice by all.

It is for this reason that the Court required respondents to submit a copy of the rules toimplement the E-VAT, particularly as to the impact of the tax on prices of affectedcommodities, specially oil and electricity. For the onset of the law last July 1, 2005 wasconfusing, resulting in across-the-board increases of 10% in the prices of commodities.This is not supposed to be the effect of the law, as was made clear during the oral

arguments, because the law also contains provisions that mitigate the impact of the E-VAT through reduction of other kinds of taxes and duties, and other similar measures,specially as to goods that go into the supply chain of the affected products. A properimplementation of the E-VAT, therefore, should cause only the appropriate incrementalincrease in prices, reflecting the net incremental effect of the tax, which is notnecessarily 10%, but possibly less, depending on the products involved.







The introduction of the mitigating or cushioning measures through the Senate orthrough the Bicameral Conference Committee, is also being questioned by petitionersas unconstitutional for violating the rule against amendments after third reading and therule that tax measures must originate exclusively in the House of Representatives (Art.VI, Secs. 24 and 26 [2], Constitution). For my part, I would rather give the necessary

leeway to Congress, as long as the changes are germane to the bill being changed, thebill which

originated from the House of Representatives, and these are so, since these wereprecisely the mitigating measures that go hand-on-hand with the E-VAT, and are,therefore, essential -- and hopefully sufficient -- means to enable our people to bear thesacrifices they are being asked to make. Such an approach is in accordance with theEnrolled Bill Doctrine that is the prevailing rule in this jurisdiction. (Tolentino v. Secretaryof Finance, 249 SCRA 628 [1994]). The exceptions I find are the provisions oncorporate income taxes, which are not germane to the E-VAT law, and are not found in

the Senate and House bills.I thus agree with Chief Justice Hilario G. Davide, Jr. in his separate opinion that thefollowing are not germane to the E-VAT legislation:

Amended TAX

CODE Provision Subject Matter

Section 27 Rate of income tax on domestic corporations

Section 28(A)(1) Rate of income tax on resident foreign corporationsSection 28(B)(1) Rate of income tax on non-resident foreign corporations

Section 28(B)(5-b) Rate of income tax on intercorporate dividends received by non-resident foreign corporations

Section 34(B)(1) Deduction from gross income

Similarly, I agree with Justice Artemio V. Panganiban in his separate opinion that thefollowing are not germane to the E-VAT law:

"Sections 1, 2, and 3 of the Republic Act No. 9337…, in so far as these sections (a)amend the rates of income tax on domestic, resident foreign, and nonresident foreigncorporations; (b) amend the tax credit against taxes due from nonresident foreigncorporations on the intercorporate dividends; and (c) reduce the allowable deductionfrom interest expense."



Respondents should, in any case, now be able to implement the E-VAT law withoutconfusion and thereby achieve its purpose.4

I vote to GRANT the petitions to the extent of declaring unconstitutional the provisions inRepublic Act. No. 9337 that are not germane to the subject matter and DENY said

petitions as to the rest of the law, which are constitutional.

ADOLFO S. AZCUNA

Associate Justice

Footnotes

1 The Constitution states that "Congress may, by law, allow the President to fix

within specified limits, and subject to such limitations and restrictions as it mayimpose, tariff rates, import and export quotas, tonnage and wharfage dues, andother duties as imposts within the framework of the national developmentprogram of the Government." (Art. VI, Sec. 28 [2], emphasis supplied.)

Petitioners claim that the power does not extend to fixing the rates of taxes, sincetaxes are not tariffs, import and export quotas, tonnage and wharfage dues, orother duties or imposts.

2 Section 4, Republic Act No. 9337. The pertinent portion of the provision states:

SEC. 4. Section 106 of the same Code, as amended, is hereby further amendedto read as follows:

"SEC. 106. Value-added Tax on Sale of Goods or Properties. –

"(A) Rate and Base of Tax . – There shall be levied, assessed and collected onevery sale, barter or exchange of goods or properties, a value-added taxequivalent to ten percent (10%) of the gross selling price or gross value in moneyof the goods or properties sold, bartered or exchanged, such tax to be paid bythe seller or transferor: Provided , That the President, upon the recommendationof the Secretary of Finance, shall, effective January 1, 2006, raise the rate of

value-added tax to twelve percent (12%), after any of the following conditions hasbeen satisfied:

"(i) Value-added tax collection as a percentage of Gross Domestic Product(GDP) of the previous year exceeds two and four-fifth percent (2 4/5%); or

"(ii) National government deficit as a percentage of GDP of the previous yearexceeds one and one-half percent (1 ½%)."













3 Condition has been defined by Escriche as "every future and uncertain eventupon which an obligation or provision is made to depend." It is a future anduncertain event upon which the acquisition or resolution of rights is made todepend by those who execute the juridical act. Futurity and uncertainty mustconcur as characteristics of the event.

. . .

An event which is not uncertain but must necessarily happen cannot be acondition; the obligation will be considered as one with a term. (IV TOLENTINO,COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE OF THEPHILIPPINES, 144).

4 I voted for the issuance of the temporary restraining order to prevent thedisorderly implementation of the law that would have defeated its very purposeand disrupted the entire VAT system, resulting in less revenues. The rationale,

therefore, of the rule against enjoining the collection of taxes, that taxes are thelifeblood of Government, leaned in favor of the temporary restraining order.


GR No. 168056 - (ABAKADA GURO PARTY LIST (Form erly AASJAS) OFFICERSSAMSON S. ALCANTARA and ED VINCENT S. ALBANO v. THE HONORABLEEXECUTIVE SECRETARY EDUARDO ERMITA; HONORABLE SECRETARY OF

THE DEPARTMENT OF FINANCE CESAR PURISIMA; and HONORABLECOMMISSIONER OF INTERNAL REVENUE GUILLERMO PARAYNO, JR.)

GR No. 168207 – (AQUIL INO Q. PIMENTEL, JR., LUISA P. EJERCITO-ESTRADA ,JINGGOY E. ESTRADA , PANFILO M. LACSON, AL FREDO S. LIM, JAMBY A .S.MADRIGAL, and SERGIO R. OSMEÑA III v. EXECUTIVE SECRETARY EDUARDOR. ERMITA, CESAR V. PURISIMA, SECRETARY OF FINANCE, GUILLERMO L.PARAYNO, JR., COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE)

GR No. 168461 – ASSOCIATION OF PILIPINAS SHELL DEALERS, INC.represented by its President, ROSARIO ANTONIO; PETRON DEALERS’

ASSOCIATION represented by its Presid ent, RUTH E. BARB IBI; ASSOCIATION OFCALTEX D EALERS’ OF THE PHILIPPINES represented by its President,MERCEDITAS A. GARCIA; ROSARIO ANTONIO do ing b usin ess under the nameand s tyle of " ANB NORTH SHELL SERVICE STATION"; LOURDES MARTINEZdoing busin ess under the name and sty le of "SHELL GATE – N. DOMINGO" ;BETHZAIDA TAN doing b usiness u nder the name and sty le of " ADVANCEDSHELL STATION"; REYNALDO P. MONTOYA do ing b usiness under th e name andstyle of " NEW LAMUAN SHELL SERVICE STATION"; EFREN SOTTO doing









bu sines s under the name and sty le of "REDFIELD SHELL SERVICE STATION";DONICA CORPORATION represen ted b y its President, DESI TOMACRUZ; RUTH E.MARBIBI doing b usiness und er the name and sty le of " R&R PETRO STATION";PETER M. UNGSON doing bus iness un der the name and sty le of " CLASSIC STARGASOL INE SERVICE STATION"; MARIAN SHEILA A . LEE doin g bu siness u nder

the nam e and st yle "NTE GASOLINE & SERVICE STATION"; JULIAN CESAR P.POSADAS doing bu siness und er the name and sty le of "STARCARGAENTERPRISES" ; ADORACION MAÑEBO d oing busin ess un der the n ame and sty leof " CMA MOTORISTS CENTER" ; SUSAN M. ENTRATA do ing bus iness un der thename and style of "LEONA’S GASOLINE STATION and SERVICE CENTER";CARMELITA BALDONADO doing b usiness u nder the name and sty le of " FIRSTCHOICE SERVICE CENTER’: RHEAMAR A. RAMOS doing business u nder thename and s ty le of " RJAM PTT GAS STATION"; MA. ISABEL VIOLAGO do ingbu sines s under the name and sty le of "VIOLAGO-PTT SERVICE CENTER" ;MOTORISTS’ HEART CORPORATON represented by its Vice-President forOperations, JOSELITO F. FLORDELIZA; MOTORISTS’ HARVARD CORPORATION

represented b y its Vice-President fo r Operations , JOSELITO F. FLORDELIZA;MOTORISTS’ HERITAGE CORPORATION represented by its Vice-President forOperation s, JOSELITO F. FLORDELIZA; PHILIPPINE STANDARD OILCORPORATION represented b y its Vice-Presiden t for Operations, JOSELITO F.FLORDELIZA; ROMEO MANUEL do ing b usiness und er the name and sty le of" ROMMAN GASOLINE STATION"; ANTHONY ALB ERT CRUZ III doing b usin essunder the name and style of " TRUE SERVICE STATION" v. CESAR V. PURISIMA,in his capacity as Secretary of the Departmen t of Finance and GUILLERMO L.PARAYNO, JR., in h is capaci ty as Commission er of Internal Revenue.

GR No. 168463 – FRANCIS JOSEPH G. ESCUDERO, VINCENT CRISOLOGO,

EMMANUEL JOSEL J. VILLANUEVA, RODOLFO G. PLAZA, DARLENE ANTONINO- CUSTODIO, OSCAR G. MA LAPITAN, BENJAMIN C. AGARAO, JR., JUANEDGARDO M. ANGARA, JUSTIN MARC SB . CHIPECO, FLORENCIOI G. NOEL,MUJIV S. HATAMAN, RENATO B . MAGTUBO, JOSEPH A . SANTIAGO, TEOFISTODL. GUINGONA III, RUY ELIAS C. LOPEZ, RODOLFO Q. AGBAYANI andTEODORO A. CASIÑO, v. CESAR V. PURISIMA, in his capacity as Secretary o fFinance, GUILLERMO L. PARAYNO, JR., in his c apacity as Commis sion er ofInternal Revenue, and EDUARDO R. ERMITA, in his capacity as Executiv eSecretary.

GR. No. 168730 – BATAAN GOVERNOR ENRIQUE T. GARCIA, JR. v. HON.EDUARDO R. ERMITA, in his capacity as the Execu tive Secretary; HON.MARGARITO TEVES, in his c apacity as Secretary o f Finance; HON. JOSE MARIOBUNAG, in his c apaci ty as the OIC Commiss ioner of the Bu reau of Customs.

x-------------------------------------------------------------------x

DISSENTING OPINION



Tinga, J.:

The E-VAT Law,1 as it stands, will exterminate our country’s smal l to mediumenterprises. This will be the net effect of affirming Section 8 of the law, which amendsSections 110 of the National Internal Revenue Code (NIRC) by imposing a seventy

percent (70%) cap on the creditable input tax a VAT-registered person may apply everyquarter and a mandatory sixty (60) -month amortization period on the input tax on goodspurchased or imported in a calendar month if the acquisition cost of such goodsexceeds One Million Pesos (P1,000,000.00).

Taxes may be inherently punitive, but when the fine line between damage anddestruction is crossed, the courts must step forth and cut the hangman’s noose. Justice Holmes once confidently asserted that "the power to tax is not the power todestroy while this Court sits", and we should very well live up to this expectation not onlyof the revered Holmes, but of the Filipino people who rely on this Court as the guardianof their rights. At stake is the right to exist and subsist despite taxes, which is

encompassed in the due process clause. I respectfully submit these views while maintaining the deepest respect for theprerogative of the legislature to impose taxes, and of the national government to charteconomic policy. Such respect impels me to vote to deny the petitions in G.R. Nos.168056, 168207, 168463,2 and 168730, even as I acknowledge certain merit in thechallenges against the E-VAT law that are asserted in those petitions. In the finalanalysis, petitioners therein are unable to convincingly demonstrate the constitutionalinfirmity of the provisions they seek to assail. The only exception is Section 21 of thelaw, which I consider unconstitutional, for reasons I shall later elaborate.

However, I see the petition in G.R. No. 168461 as meritorious and would vote to grant it. Accordingly, I dissent and hold as unconstitutional Section 8 of Republic Act No. 9337,insofar as it amends Section 110(A) and (B) of the National Internal Revenue Code(NIRC) as well as Section 12 of the same law, with respect to its amendment of Section114(C) of the NIRC.

The first part of my discussion pertains to the petitions in G.R. Nos. 168056, 168207,168463, and 168730, while the second part is devoted to what I deem the most crucialissue before the Court, the petition in G.R. No. 168461.

I.

Undue Delegation and the Increase

Of the VAT Rate

My first point pertains to whether or not Sections 4, 5 and 6 of the E-VAT Lawconstitutes an undue delegation of legislative power. In appreciating the aspect ofundue delegation as regards taxation statutes, the fundamental point remains that the











power of taxation is inherently legislative,3 and may be imposed or revoked only by thelegislature.4 In tandem with Section 1, Article VI of the Constitution whichinstitutionalizes the law-making power of Congress, Section 24 under the same Articlecrystallizes this principle, as it provides that "[a]ll appropriation, revenue or tariff bills …shall originate exclusively in the House of Representatives."5

Consequently, neither the executive nor judicial branches of government may originatetax measures. Even if the President desires to levy new taxes, the imposition cannot bedone by mere executive fiat. In such an instance, the President would have to rely onCongress to enact tax laws.

Moreover, this plenary power of taxation cannot be delegated by Congress to any otherbranch of government or private persons, unless its delegation is authorized by theConstitution itself .6 In this regard, the situation stands different from that in the recentcase Southern Cross v. PHILCEMCOR ,7 wherein I noted in my ponencia that the TariffCommission and the DTI Secretary may be regarded as agents of Congress for the

purpose of imposing safeguard measures. That pronouncement was made in light ofSection 28(2) Article VI, which allows Congress to delegate to the President through lawthe power to impose tariffs and imposts, subject to limitations and restrictions as may beordained by Congress. In the case of taxes, no such constitutional authorization exists,and the discretion to ascertain the rates, subjects, and conditions of taxation may not bedelegated away by Congress.

However, as the majority correctly points out, the power to ascertain the facts orconditions as the basis of the taking into effect of a law may be delegated by Congress,8 and that the details as to the enforcement and administration of an exercise of taxingpower may be delegated to executive agencies, including the power to determine the

existence of facts on which its operation depends.

9

Proceeding from these principles, Sections 4, 5, and 6 of the E-VAT Law warrantexamination. The provisions read:

SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended to read asfollows:

SEC. 106. Value-Added Tax on Sale of Goods or Properties. —

(A) Rate and Base of Tax. — There shall be levied, assessed and collected on every

sale, barter or exchange of goods or properties, a value-added tax equivalent to tenpercent (10%) of the gross selling price or gross value in money of the goods orproperties sold, bartered or exchanged, such tax to be paid by the seller or transferor;provided, that the President, upon the recommendation of the Secretary ofFinance, shall, effective January 1, 2006, raise the rate of value-added tax totwelve percent (12%), after any of the following conditions has been satisfied.
































(ii) national government deficit as a percentage of GDP of the previous yearexceeds one and one-half percent 1 ½%).

Sec. 5. Section 107 of the same Code, as amended, is hereby further amended to readas follows:

SEC. 107. Value-Added Tax on Importation of Goods.—

(a) In General.— There shall be levied, assessed and collected on every importation ofgoods a value-added tax equivalent to ten percent (10%) based on the total value usedby the Bureau of Customs in determining tariff and customs duties, plus customs duties,excise taxes, if any, and other charges, such tax to be paid by the importer prior to therelease of such goods from customs custody: Provided, That where the customs duties

are determined on the basis of the quantity or volume of the goods, the value-added taxshall be based on the landed cost plus excise taxes, if any: provided, further, that thePresident, upon the recommendation of the Secretary of Finance, shall, effectiveJanuary 1, 2006, raise the rate of value-added tax to twelve percent (12%) afterany of the following conditions has been satisfied.

(i) national value-added tax collection as a percentage of Gross Domestic Product(GDP) of the previous year exceeds two and four-fifth percent (2 4/5%) or

(ii) government deficit as a percentage of GDP of the previous year exceeds oneand one-half percent (1 ½%).

SEC. 6. Section 108 of the same Code, as amended, is hereby further amended toread as follows:

SEC. 108. Value-added Tax on Sale of Services and Use of Lease of Properties-

(A) Rate and Base of Tax. – There shall be levied, assessed and collected, avalue-added tax equivalent to ten percent (10%) of gross receipts derived fromthe sale or exchange of services; provided, that the President, upon therecommendation of the Secretary of Finance, shall, effective January 1, 2006, raise therate of value-added tax to twelve percent (12%), after any of the following conditions

has been satisfied.(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of theprevious year exceeds two and four-fifth percent (2 4/5%) or

(ii) national government deficit as a percentage of GDP of the previous year exceedsame and on-half percent (1 ½%).



The petitioners deem as noxious the proviso common to these provisions that "thePresident, upon the recommendation of the Secretary of Finance, shall, effectiveJanuary 1, 2006, raise the rate of value-added tax to twelve percent (12%)," after thesatisfaction of the twin conditions that value-added tax collection as a percentage ofGross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent

(2 4/5%); or that the national government deficit as a percentage of GDP of the previousyear exceed same and on-half percent (1 ½%).

At first blush, it does seem that the assailed provisions are constitutionally deficient. It isCongress, and not the President, which is authorized to raise the rate of VAT from 10%to 12%, no matter the circumstance. Yet a closer analysis of the proviso reveals thatthis is not exactly the operative effect of the law. The qualifier "shall" denotes amandatory, rather than discretionary function on the part of the President to raise therate of VAT to 12% upon the existence of any of the two listed conditions.

Since the President is not given any discretion in refusing to raise the VAT rate to 12%,

there is clearly no delegation of the legislative power to tax by Congress to theexecutive branch. The use of the word "shall" obviates any logical construction thatwould allow the President leeway in not raising the tax rate. More so, it is accepted thatthe principle of constitutional construction that every presumption should be indulged infavor of constitutionality and the court in considering the validity of the 'statute inquestion should give it such reasonable construction as can be reached to bring it withinthe fundamental law.10 While all reasonable doubts should be resolved in favor, of theconstitutionality of a statute,11 it should necessarily follow that the construction upheldshould be one that is not itself noxious to the Constitution.

Congress should be taken to task for imperfect draftsmanship at least. Much trouble

would have been avoided had the provisos instead read: "that effective January 1,2006, the rate of value-added tax shall be raised to twelve percent (12%), after any ofthe following conditions has been satisfied xxx." This, after all is the operative effect ofthe provision as it stands. In relation to the operation of the tax increase, thedenominated role of the President and the Secretary of Finance may be regarded as asuperfluity, as their imprimatur as a precondition to the increase of the VAT rate musthave no bearing.

Nonetheless, I cannot ignore the fact that both the President and the Secretary ofFinance have designated roles in the implementation of the tax increase. Consideringthat it is Congress, and not these officials, which properly have imposed the increase inthe VAT rate, how should these roles be construed?

The enactment of a law should be distinguished from its implementation. Even if it isCongress which exercises the plenary power of taxation, it is not the body thatadministers the implementation of the tax. Under Section 2 of the National InternalRevenue Code (NIRC), the assessment and collection of all national internal revenuetaxes, and the enforcement of all forefeitures, penalties and fines connected therewith











had been previously delegated to the Bureau of Internal Revenue, under thesupervision and control of the Department of Finance.12

Moreover, as intimated earlier, Congress may delegate to other components of thegovernment the power to ascertain the facts or conditions as the basis of the taking into

effect of a law. It follows that ascertainment of the existence of the two conditionsprecedent for the increase as stated in the law could very well be delegated to thePresident or the Secretary of Finance.13

Nonetheless, the apprehensions arise that the process of ascertainment of the listedconditions delegated to the Secretary of Finance and the President effectively vestdiscretionary authority to raise the VAT rate on the President, through the subterfugesthat may be employed to delay the determination, or even to manipulate the factualpremises. Assuming arguendo that these feared abuses may arise, I think it possible toseek judicial enforcement of the increased VAT rate, even without the participation orconsent of the President or Secretary of Finance, upon indubitable showing that any of

the two listed conditions do exist. After all, the Court is ruling that the increase in theVAT rate is mandatory and beyond the discretion of the President to impose or delay.

The majority states that in making the recommendation to the President on theexistence of either of the two conditions, the Secretary of Finance is acting as the agentof the legislative branch, to determine and declare the event upon which its expressedwill is to take effect.14 This recognition of agency must be qualified. I do not doubt theability of Congress to delegate to the Secretary of Finance administrative functions inthe implementation of tax laws, as it does under Section 2 of the NIRC. Yet it would beimpermissible for Congress to delegate to the Secretary of Finance the plenary functionof enacting a tax law. As stated earlier, the situation stands different from that in

Southern Cross wherein the Constitution itself authorizes the delegation by Congressthrough a law to the President of the discretion to impose tariff measures, subject torestrictions and limitations provided in the law.15 Herein, Congress cannot delegate toeither the President or the Secretary of Finance the discretion to raise the tax, as suchpower belongs exclusively to the legislative branch.

Perhaps the term "agency" is not most suitable in describing the delegation exercisedby Congress in this case, for agency implies that the agent takes on attributes of theprincipal by reason of representative capacity. In this case, whatever "agency" that canbe appreciated would be of severely limited capacity, encompassing as it only could theadministration, not enactment, of the tax measure.

I do not doubt the impression left by the provisions that it is the President, and notCongress, which is authorized to raise the VAT rate. On paper at least, these imperfectprovisions could be multiple sources of mischief. On the political front, whatever blameor scorn that may be attended with the increase of the VAT rate would fall on thePresident, and not on Congress which actually increased the tax rate. On the legal front,a President averse to increasing the VAT rate despite the existence of the two listedconditions may take refuge in the infelicities of the provision, and refuse to do so on the



















ground that the law, as written, implies some form of discretion on the part of thePresident who was, after all, "authorized" to increase the tax rate. It is critical for theCourt to disabuse this notion right now.

The Continued Viability of

Tolentino v. Secretary of Finance

One of the more crucial issues now before us, one that has seriously divided the Court,pertains to the ability of the Bicameral Conference Committee to introduce amendmentsto the final bill which were not contained in the House bill from which the E-VAT Laworiginated. Most of the points addressed by the petitioners have been settled in ourruling in Tolentino v. Secretary of Finance,16 yet a revisit of that precedent is urged uponthis Court. On this score, I offer my qualified concurrence with the ponencia.

Two key provisions of the Constitution come into play: Sections 24 and 26(2), Article VI

of the Constitution. They read:

Section 24: All appropriation, revenue or tariff bills, bills authorizing increase of thepublic debt, bills of local application, and private bills shall originate exclusively in theHouse of Representatives, but the Senate may propose or concur with amendments.

Section 26(2): No bill passed by either House shall become a law unless it has passedthree readings on separate days, and printed copies thereof in its final form have beendistributed to its Members three days before its passage, except when the Presidentcertifies to the necessity of its immediate enactment to meet a public calamity oremergency. Upon the last reading of a bill, no amendment thereto shall be allowed, and

the vote thereon shall be taken immediately thereafter, and the yeas and nays enteredin the Journal.

Section 24 is also known as the origination clause, which derives origin from Britishpractice. From the assertion that the power to tax the public at large must reside in therepresentatives of the people, the principle evolved that money bills must originate inthe House of Commons and may not be amended by the House of Lords.17 Theprinciple was adopted across the shores in the United States, and was famouslydescribed by James Madison in The Federalist Papers as follows:

This power over the purse, may in fact be regarded as the most compleat and effectual

weapon with which any constitution can arm the immediate representatives of thepeople, for obtaining a redress of every grievance, and for carrying into effect every justand salutary measure.18

There is an eminent difference from the British system from which the principleemerged, and from our own polity. To this day, only members of the British House ofCommons are directly elected by the people, with the members of the House of Lordsderiving their seats from hereditary peerage. Even in the United States, members of the















Senate were not directly elected by the people, but chosen by state legislatures, untilthe adoption of the Seventeenth Amendment in 1913. Hence, the rule assured theBritish and American people that tax legislation arises with the consent of the sovereignpeople, through their directly elected representatives. In our country though, bothmembers of the House and Senate are directly elected by the people, hence the vitality

of the original conception of the rule has somewhat lost luster.

Still, the origination clause deserves obeisance in this jurisdiction, simply because it isprovided in the Constitution. At the same time, its proper interpretation is settledprecedent, as enunciated in Tolentino:

To begin with, it is not the law — but the revenue bill — which is required by theConstitution to "originate exclusively" in the House of Representatives. It is important toemphasize this, because a bill originating in the House may undergo such extensivechanges in the Senate that the result may be a rewriting of the whole. The possibility ofa third version by the conference committee will be discussed later. At this point, what is

important to note is that, as a result of the Senate action, a distinct bill may beproduced. To insist that a revenue statute — and not only the bill which initiated thelegislative process culminating in the enactment of the law — must substantially be thesame as the House bill would be to deny the Senate's power not only to "concur withamendments" but also to " propose amendments." It would be to violate the coequalityof legislative power of the two houses of Congress and in fact make the House superiorto the Senate.19

The vested power of the Senate to " propose or concur with amendments" necessarilyimplies the ability to adduce transformations from the original House bill into the finallaw. Since the House and Senate sit separately in sessions, the only opportunity for the

Senate to introduce its amendments would be in the Bicameral Conference Committee,which emerges only after both the House and the Senate have approved theirrespective bills.

In the present petitions, Tolentino comes under fire on two fronts. The first controversyarises from the adoption in Tolentino of American legislative practices relating tobicameral committees despite the difference in constitutional frameworks, particularlythe limitation under Section 26(2), Article VI which does not exist in the AmericanConstitution.

The majority points out that the "no amendment rule" refers only to the procedure to befollowed by each house of Congress with regard to bills initiated in the houseconcerned, before said bills are transmitted to the other house for its concurrence oramendment. I agree with this statement. Clearly, the procedure under Section 26(2),

Article VI only relates to the passage of a bill before the House and Senate, and not theprocess undertaken afterwards in the Bicameral Conference Committee.







Indeed, Sections 26 and 27 of Article VI, which detail the procedure how a bill becomesa law, are silent as to what occurs between the passage by both houses of theirrespective bills, and the presentation to the President of

"every bill passed by the Congress".20 Evidently, "Congress" means both Houses, such

that a bill approved by the Senate but not by the House is not presented to thePresident for approval. There is obviously a need for joint concurrence by the Houseand Senate of a bill before it is transmitted to the President, but the Constitution doesnot provide how such concurrence is acquired. This lacuna has to be filled, otherwise nobill may be transmitted to the President.

Even if the Bicameral Conference Committee is not a constitutionally organized body, ithas existed as the necessary conclave for both chambers of Congress to reconcile theirrespective versions of a prospective law. The members of the Bicameral ConferenceCommittee may possess in them the capacity to represent their particular chamber, yetthe collective is neither the House nor the Senate. Hence, the procedure contained in

Section 26(2), Article VI cannot apply to the Bicameral Conference Committee.Tellingly, the version approved by the Bicameral Conference Committee still undergoesdeliberation and approval by both Houses. Only one vote is taken to approve thereconciled bill, just as only one vote is taken in order to approve the original bill.Certainly, it could not be contended that this final version surreptitiously evadesapproval of either the House or Senate.

The second front concerns the scope and limitations of the Bicameral ConferenceCommittee to amend, delete, or otherwise modify the bills as approved by the Houseand the Senate.

Tolentino adduced the principle, adopted from American practice, that the version asapproved by the Bicameral Conference Committee need only be germane to the subjectof the House and Senate bills in order to be valid.21 The majority, in applying the test ofgermaneness, upholds the contested provisions of the E-VAT Law. Even the membersof the Court who prepared to strike down provisions of the law applying germanenessnonetheless accept the basic premise that such test is controlling.

I agree that any amendment made by the Bicameral Conference Committee that is notgermane to the subject matter of the House or Senate Bills is not valid. It is the onlyvalid ground by which an amendment introduced by the Bicameral ConferenceCommittee may be judicially stricken.

The germaneness standard which should guide Congress or the Bicameral ConferenceCommittee should be appreciated in its normal but total sense. In that regard, myviews contrast with that of Justice Panganiban, who asserts that provisions that are not"legally germane" should be stricken down. The legal notion of germaneness is justbut one component, along with other factors such as economics and politics,which guides the Bicameral Conference Committee, or the legislature for that











matter, in the enactment of laws. After all, factors such as economics or politics areexpected to cast a pervasive influence on the legislative process in the first place, and itis essential as well to allow such "non-legal" elements to be considered in ascertainingwhether Congress has complied with the criteria of germaneness.

Congress is a political body, and its rationale for legislating may be guided byfactors other than established legal standards. I deem it unduly restrictive on theplenary powers of Congress to legislate, to coerce the body to adhere to judge-made standards, such as a standard of "legal germaneness". The Constitution isthe only legal standard that Congress is required to abide by in its enactment oflaws.

Following these views, I cannot agree with the position maintained by the Chief Justice,Justices Panganiban and Azcuna that the provisions of the law that do not pertain toVAT should be stricken as unconstitutional. These would include, for example, theprovisions raising corporate income taxes. The Bicameral Conference Committee, in

evaluating the proposed amendments, necessarily takes into account not just theprovisions relating to the VAT, but the entire revenue generating mechanism in place. If,for example, amendments to non-VAT related provisions of the NIRC were intended tooffset the expanded coverage for the VAT, then such amendments are germane to thepurpose of the House and Senate Bills.

Moreover, it would be myopic to consider that the subject matter of the House Bill issolely the VAT system, rather than the generation of revenue. The majority hassufficiently demonstrated that the legislative intent behind the bills that led to the E-VATLaw was the generation of revenue to counter the country‘s dire fiscal situation.

The mere fact that the law is popularly known as the E-VAT Law, or that most of itsprovisions pertain to the VAT, or indirect taxes, does not mean that any and allamendments which are introduced by the Bicameral Conference Committee mustpertain to the VAT system. As the Court noted in Tatad v. Secretary of Energy :22

[I]t is contended that section 5(b) of R.A. No. 8180 on tariff differential violates theprovision 17 of the Constitution requiring every law to have only one subject whichshould be expressed in its title. We do not concur with this contention. As a policy, thisCourt has adopted a liberal construction of the one title - one subject rule. Wehave consistently ruled that the title need not mirror, fully index or catalogue allcontents and minute details of a law. A law having a single general subjectindicated in the title may contain any number of provisions, no matter howdiverse they may be, so long as they are not inconsistent with or foreign to thegeneral subject, and may be considered in furtherance of such subject byproviding for the method and means of carrying out the general subject. We holdthat section 5(b) providing for tariff differential is germane to the subject of R.A. No.8180 which is the deregulation of the downstream oil industry. The section is supposedto sway prospective investors to put up refineries in our country and make them relyless on imported petroleum.23











I submit that if the amendments are attuned to the goal of revenue generation, thestated purpose of the original House Bills, then the test of germaneness is satisfied. Itmight seem that the goal of revenue generation, which is stated in virtually all tax ortariff bills, is so encompassing in scope as to justify the inclusion by the BicameralConference Committee of just about any revenue generation measure. This may be so,

but it does not mean that the test of germaneness would be rendered inutile when itcomes to revenue laws.

I do believe that the test of germaneness was violated by the E-VAT Law in one regard.Section 21 of the law, which was not contained in either the House or Senate Bills,imposes restrictions on the use by local government units of their incremental revenuefrom the VAT. These restrictions are alien to the principal purposes of revenuegeneration, or the purposes of restructuring the VAT system. I could not see how theprovision, which relates to budgetary allocations, is germane to the E-VAT Law. Since itwas introduced only in the Bicameral Conference Committee, the test of germanenessis essential, and the provision does not pass muster. I join Justice Puno and the Chief

Justice in voting to declare Section 21 as unconstitutional.I also offer this brief comment regarding the deletion of the so-called "no pass on"provisions, which several of my colleagues deem unconstitutional. Both the House andSenate Bills contained these provisions that would prohibit the seller/producer frompassing on the cost of the VAT payments to the consumers. However, an examinationof the said bills reveal that the "no pass on" provisions in the House Bill affects adifferent subject of taxation from that of the Senate Bill. In the House Bill No. 3705, thetaxpayers who are prohibited from passing on the VAT payments are the sellers ofpetroleum products and electricity/power generation companies. In Senate Bill No.1950, no prohibition was adopted as to sellers of petroleum products, but enjoined

therein are electricity/power generation companies but also transmission anddistribution companies.

I consider such deletions as valid, for the same reason that I deem the amendmentsvalid. The deletion of the two disparate "no pass on" provisions which were approved bythe House in one instance, and only by the Senate in the other, remains in the sphere ofcompromise that ultimately guides the approval of the final version. Again, I point outthat even while the two provisions may have been originally approved by the House andSenate respectively, their subsequent deletion by the Bicameral Conference Committeeis still subject to approval by both chambers of Congress when the final version issubmitted for deliberation and voting.

Moreover, the fact that the nature of the "no pass on" provisions adopted by the Houseessentially differs from that of the Senate necessarily required the corrective relief fromthe Bicameral Conference Committee. The Committee could have either insisted on theHouse version, the Senate version, or both versions, and it is not difficult to divine thatany of these steps would have obtained easy approval. Hence, the deletion altogetherof the "no pass on" provisions existed as a tangible solution to the possible impasse,and the Committee should be accorded leeway to implement such a compromise,



especially considering that the deletion would have remained germane to the law, andwould not be constitutionally prohibited since the prohibition on amendments underSection 26(2), Article VI does not apply to the Committee.

An outright declaration that the deletion of the two elementally different "no-pass on"

provisions is unconstitutional, is of dubious efficacy in this case. Had suchpronouncement gained endorsement of a majority of the Court, it could not result in theipso facto restoration of the provision, the omission of which was ultimately approved inboth the House and Senate. Moreover, since the House version of the "no pass on" isquite different from that of the Senate, there would be a question as to whether theHouse version, the Senate version, or both versions would be reinstated. And of course,if it were the Court which would be called upon to choose, such would be way beyondthe bounds of judicial power.

Indeed, to intimate that the Court may require Congress to reinstate a provision thatfailed to meet legislative approval would result in a blatant violation of the principle of

separation of powers, with the Court effectively dictating to Congress the content of itslegislation. The Court cannot simply decree to Congress what laws or provisions toenact, but is limited to reviewing those enactments which are actually ratified by thelegislature.

II.

My earlier views, as are the submissions I am about to offer, are rooted in nothing morethan constitutional interpretation. Perhaps my preceding discussion may lead to animpression that I whole-heartedly welcome the passage of the E-VAT Law. Yetwhatever relief I may have over the enactment of a law designed to relieve our country‘s

financial woes are sadly obviated with the realization that a key amendment introducedin the law is not only unconstitutional, but of fatal consequences. The clarion call of judicial review is most critical when it stands as the sole barrier against the deprivationof life, liberty and property without due process of law. It becomes even more impellingnow as we are faced with provisions of the E-VAT Law which, though in bland disguise,would operate as the most destructive of tax measures enacted in generations.

Tax Statutes and the Due Process Clause

It is the duty of the courts to nullify laws that contravene the due process clause of theBill of Rights. This task is at the heart not only of judicial review, but of the democraticsystem, for the fundamental guarantees in the Bill of Rights become merely hortatory iftheir judicial enforcement is unavailing. Even if the void law in question is a tax statute,or one that encompasses national economic policy, the courts should not shirk fromstriking it down notwithstanding any notion of deference to the executive or legislativebranch on questions of policy. Neither Congress nor the President has the right to enactor enforce unconstitutional laws.



The Bill of Rights is by no means the only constitutional yardstick by which the validity ofa tax law can be measured. Nonetheless, it stands as the most unyielding ofconstitutional standards, given its position of primacy in the fundamental law way abovethe articles on governmental power .24 If the question lodged, for example, hinges on theproper exercise of legislative powers in the enactment of the tax law, leeway can be

appreciated in favor of affirming the legislature‘s inherent power to levy taxes. On theother hand, no quarter can be ceded, no concession yielded, on the people‘sfundamental rights as enshrined in the Bill of Rights, even if the sacrifice is ostensiblymade "in the national interest." It is my understanding that "the national interests,"however comported, always subsumes in the first place recognition and enforcement ofthe Bill of Rights, which manifests where we stand as a democratic society.

The constitutional safeguard of due process is embodied in the fiat "No person shall bedeprived of life, liberty or property without due process of law".25 The purpose of theguaranty is to prevent governmental encroachment against the life, liberty and propertyof individuals; to secure the individual from the arbitrary exercise of the powers of the

government, unrestrained by the established principles of private rights and distributive justice; to protect property from confiscation by legislative enactments, from seizure,forfeiture, and destruction without a trial and conviction by the ordinary mode of judicialprocedure; and to secure to all persons equal and impartial justice and the benefit of thegeneral law.26

In Magnano Co. v. Hamilton,27 the U.S. Supreme Court recognized that the due processclause may be utilized to strike down a taxation statute, "if the act be so arbitrary as tocompel the conclusion that it does not involve an exertion of the taxing power, butconstitutes, in substance and effect, the direct exertion of a different and forbiddenpower, as, for example, the confiscation of property."28 Locally, Sison v. Ancheta29 has

long provided sanctuary for persons assailing the constitutionality of taxing statutes. Theoft-quoted pronouncement of Justice Fernando follows:

2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute ofsovereignty. It is the strongest of all the powers of government." It is, of course, to beadmitted that for all its plenitude, the power to tax is not unconfined. There arerestrictions. The Constitution sets forth such limits. Adversely affecting as it doesproperty rights, both the due process and equal protection clauses may properlybe invoked, as petitioner does, to invalidate in appropriate cases a revenuemeasure. If it were otherwise, there would be truth to the 1803 dictum of Chief JusticeMarshall that "the power to tax involves the power to destroy." In a separate opinion inGraves v. New York, Justice Frankfurter, after referring to it as an "unfortunate remark,"characterized it as "a flourish of rhetoric [attributable to] the intellectual fashion of thetimes [allowing] a free use of absolutes." This is merely to emphasize that it is not andthere cannot be such a constitutional mandate. Justice Frankfurter could rightfullyconclude: "The web of unreality spun from Marshall's famous dictum was brushed awayby one stroke of Mr. Justice Holmes's pen: 'The power to tax is not the power to destroywhile this Court sits.'" So it is in the Philippines.


























3. This Court then is left with no choice. The Constitution as the fundamental lawoverrides any legislative or executive act that runs counter to it. In any casetherefore where it can be demonstrated that the challenged statutory provision — as petitioner here alleges — fails to abide by its command, then this Court mustso declared and adjudge it null. The inquiry thus is centered on the question of

whether the imposition of a higher tax rate on taxable net income derived from businessor profession than on compensation is constitutionally infirm.

4. The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mereallegation, as here, does not suffice. There must be a factual foundation of suchunconstitutional taint. Considering that petitioner here would condemn such a provisionas void on its face, he has not made out a case. This is merely to adhere to theauthoritative doctrine that where the due process and equal protection clauses areinvoked, considering that they are not fixed rules but rather broad standards, there is aneed for proof of such persuasive character as would lead to such a conclusion. Absentsuch a showing, the presumption of validity must prevail.

5. It is undoubted that the due process clause may be invoked where a taxingstatute is so arbitrary that it finds no support in the Constitution. An obviousexample is where it can be shown to amount to the confiscation of property. Thatwould be a clear abuse of power. It then becomes the duty of this Court to saythat such an arbitrary act amounted to the exercise of an authority not conferred.That properly calls for the application of the Holmes dictum. It has also been heldthat where the assailed tax measure is beyond the jurisdiction of the state, or isnot for a public purpose, or, in case of a retroactive statute is so harsh andunreasonable, it is subject to attack on due process grounds.30

Sison pronounces more concretely how a tax statute may contravene the due processclause. Arbitrariness, confiscation, overstepping the state‘s jurisdiction, and lack of apublic purpose are all grounds for nullity encompassed under the due processinvocation.

Yet even these more particular standards as enunciated in Sison are quite exacting,and difficult to reach. Even the constitutional challenge posed in Sison failed to passmuster. The majority cites Sison in asserting that due process and equal protection arebroad standards which need proof of such persuasive character to lead to such aconclusion.

It is difficult though to put into quantifiable terms how onerous a taxation statute must bebefore it contravenes the due process clause.31 After all, the inherent nature of taxationis to cause pain and injury to the taxpayer, albeit for the greater good of society.Perhaps whatever collective notion there may be of what constitutes an arbitrary,confiscatory, and unreasonable tax might draw more from the fairy tale/legend traditionsof absolute monarchs and the oppressed peasants they tax. Indeed, it is easier to jumpto the conclusion that a tax is oppressive and unfair if it is imposed by a tyrant or anauthoritarian state.











But could an arbitrary, confiscatory or unreasonable tax actually be enacted by ademocratic state such as ours? Of course it could, but these would exist in morepalatable guises. In a democratic society wherein statutes are enacted by arepresentative legislature only after debate and deliberation, tax statutes will most likely,on their face, seem fair and even-handed. After all, if Congress passes a tax law that on

facial examination is obviously harsh and unfair, it faces the wrath of the voting public,to say nothing of the media.

In testing the validity of a tax statute as against the due process clause, I think that theCourt should go beyond a facial examination of the statute, and seek to understand howexactly it would operate. The express terms of a statute, especially tax laws, are usuallyinadequate in spelling out the practical effects of its implementation. The devil is usuallyin the details.

Admittedly, the degree of difficulty involved of judicial review of tax laws has increasedwith the growing complexities of business, economic and accounting practices. These

are sciences which laymen are not normally equipped by their general education to fullygrasp, hence the possible insecurity on their part when confronted with such questionson these fields.

However, we should not cede ground to those transgressions of the people‘sfundamental rights simply because the mechanism employed to violate constitutionalguarantees is steeped in disciplines not normally associated with the legal profession.Venality cannot be allowed to triumph simply due to its sophistication. This petitionimputes in the E-VAT Law unconstitutional oppression of the fatal variety, but in order tocomprehend exactly how and why that is so, one has to delve into the complex milieu ofthe VAT system. The party alleging the law‘s unconstitutionality of course has the

burden to demonstrate the violations in understandable terms, but if such proof ispresented, the Court‘s duty is to engage accordingly.

The Viability of the Clear and Present

Danger Doctrine as Counterweight

To the Shibboleths of Speculation

and Wisdom

I do not see as an impediment to the annulment of a tax law the fact that it has yet to beimplemented, or the fear that doing so constitutes an undue attack on the wisdom,rather than the legality of a statute. However, my position in this petition has beenchallenged on those grounds, and I see it fit to refute these preemptive allegationsbefore delving into the operative aspect of the E-VAT Law.

If there is cause to characterize my arguments as speculative, it is only becausethe E-VAT Law has yet to be implemented. No person as of yet can claim to have



sustained actual injury by reason of the implementation of the assailed provisions inG.R. No. 168461. Yet this should not mean that the Court is impotent from declaring aprovision of law as violative of the due process clause if it is clear that itsimplementation will cause the illegal deprivation of life, liberty or property without dueprocess of

law. This is especially so if, as in this case, the injury is of mathematical certainty, andthe extent of the loss quantifiable through easy reference to the most basic of businesspractices.

These arguments are conjectural for the same reason that the bare statement"firing a gunshot into the head will cause a fatal wound" would be conjectural .Some people are lucky enough to survive gunshot wounds to the head, while manyothers are not. Yet just because the fear of mortality would be merely speculative, itdoes not mean that there should be less compulsion to avoid a situation of getting shotin the head.

Indeed, the Court has long responded to strike down prospective actions, even if theinjury has not yet even occurred. One of the most significant legal principles of thelast century, the "clear and present danger" doctrine in free speech cases, in factemanates from the prospectivity, and not the actuality of danger . The Court hasnot been hesitant to nullify acts which might cause injury, owing to the presence of aclear and present danger of a substantive evil which the State has the right to prevent. Ithas even extended the "clear and present danger rule" beyond the confines of freedomof expression to the

realm of freedom of religion, as noted by Justice Puno in his ponencia in Estrada v.

Escritor .

32

Justice Teodoro Padilla goes further in his concurring opinion in Basco v. PAGCOR,and asserts that the clear and present danger test squarely applies to the due processclause: "The courts, as the decision states, cannot inquire into the wisdom,morality or expediency of policies adopted by the political departments ofgovernment in areas which fall within their authority, except only when suchpolicies pose a clear and present danger to the life, liberty or property of theindividual."

I see no reason why the clear and present danger test cannot apply in this case,or any case wherein a taxing statute poses a clear and present danger to the life,liberty or property of the individual. The application of this standard frees theCourt from inutility in the face of patently unconstitutional tax laws that havebeen enacted but are yet to be fully operational.

If for example, Congress deems it wise to impose the most draconian of tax measures ─ such as trebling the income taxes of all persons over 40, raising the gross sales taxrate to 50%, or penalizing delinquent taxpayers with 50 lashes of the whip ─ there







certainly would be a massive public outcry, and an expectation that the Court wouldimmediately nullify the offensive measures even before they are actually imposed.

Applying the clear and present danger test, the Court is empowered to strike down thenoxious measures even before they are implemented. Yet with this "bar onspeculativeness" as argued by the majority, the Court could easily refuse to pay heed to

the prayers for injunctive relief, and instead demand that the taxing subjects must firstsuffer before the Court can act.

In the same vein, the claim that my arguments strike at the wisdom, rather than theconstitutionality of the law are misplaced. Concededly, the assailed provisions of the E-VAT law are basically unwise. But any provision of law that directly contradicts theConstitution, especially the Bill of Rights, are similarly unwise, as they run inconsistentwith the fundamental law of the land, the enunciated state policies and the elementalguarantees assured by the State to its people. Not every unwise law isunconstitutional, but every unconstitutional law is unwise, for an unconstitutionallaw contravenes a primordial principle or guarantee on which our polity is

founded.If it can be shown that the E-VAT Law violates these provisions of the Constitution,especially the due process clause, then the Court should accordingly act and nullify.Such is the essence of judicial review, which stands as the sole barrier to theimplementation of an unconstitutional law.

The Separate Opinion of Justice Panganiban notes that "[t]he Court cannot step beyondthe confines of its constitutional power, if there is absolutely no clear showing of graveabuse of discretion in the enactment of the law"33. This, I feel, is an unduly narrow viewof judicial review, implying that such merely encompasses the procedural aspect by

which a law is enacted. If the policy of the law, and/or the means by which such policy isimplemented run counter to the Constitution, then the Court is empowered to strikedown the law, even if the legislative and executive branches act within their discretion inlegislating and signing the law.

It is also asserted that if the implementation of the 70% cap imposes an unequal effecton different types of businesses with varying profit margins and capital requirements,then the remedy would be an amendment of the law.34 Of course, the remedy oflegislative amendment applies to even the most unconstitutional of laws. But if oursociety can take cold comfort in the ability of the legislature to amend its enactments asthe defense against unconstitutional laws, what remains then as the function of judicialreview? This legislative capacity to amend unconstitutional laws runs concurrently withthe judicial capacity to strike down unconstitutional laws. In fact, the long-standingtradition has been reliance on the judicial branch, and not the legislative branch, forsalvation from unconstitutional laws.

I do recognize that the Separate Opinion of Justice Panganiban ultimately proceedsfrom the premise that the assailed provisions of the E-VAT Law may be merely unwise,but not unconstitutional. Hence, its preference to rely on Congress to amend the











offending provisions rather than judicial nullification. But I maintain that the assailedprovisions of the E-VAT Law violate the due process clause of the Constitution andmust be stricken down.

The Nature of VAT

To understand why Sections 8 and 12 of the E-VAT law contravenes the due processclause, it is essential to understand the nature of the value-added tax itself. Filipinoconsumers may comprehend VAT at its elemental form, having been accustomed forseveral years now in paying an extra 10% of the listed selling price for a wide class ofconsumer goods. From the perspective of the end consumer, such as the patron whopurchases a meal from a fastfood restaurant, VAT is simply a tax on transactionsinvolving the sale of goods. The tax is shouldered by the buyer, and is based on apercentage of the purchase price. Since an excise or percentage tax shares the samecharacteristics, there could be some confusion as between such taxes and the VAT.

However, VAT is distinguishable from the standard excise or percentage taxes in that itis imposable not only on the final transaction involving the end user, but on previousstages as well so long as there was a sale involved. Thus, VAT does not simply pertainto the extra percentage paid by the buyer of a fast-food meal, but also that paid byrestaurant itself to its suppliers of raw food products. This multi-stage system is moreacclimated to the vagaries of the modern industrial climate, which has long surpassedthe stage when there was only one level of transfer between the farmer who harveststhe crop and the person who eats the crop. Indeed, from the extraction or production ofthe raw material to its final consumption by a user, several transactions or salesmaterialize. The VAT system assures that the government shall reap income for everytransaction that is had, and not just on the final sale or transfer.

The European Union, which has long required its member states to apply the VATsystem, provided the following definition of the tax which I deem clear andcomprehensive:

The principle of the common system of value added tax involves the application togoods and services of a general tax on consumption exactly proportional to the priceof the goods and services, whatever the number of transactions that take place inthe production and distribution process before the stage at which tax is charged.

On each transaction, value added tax, calculated on the price of the goods or servicesat the rate applicable to such goods or services, shall be chargeable after deductionof the amount of value added tax borne directly by the various costcomponents.35

The above definition alludes to a key characteristic of the VAT system, that theimposable tax remains proportional to the price of goods and services no matter thenumber of transactions that takes place.







There is another key characteristic of the VAT ─ that no matter how many the taxabletransactions that precede the final purchase or sale, it is the end-user, or the consumer,that ultimately shoulders the tax. Despite its name, VAT is generally not intended to bea tax on value added, but rather as a tax on consumption. Hence, there is a mechanismin the VAT system that enables firms to offset the tax they have paid on their own

purchases of goods and services against the tax they charge on their sales of goodsand services.36 Section 105 of the NIRC assures that "the amount of tax may be shiftedor passed on to the buyer, transferee or lessee of the goods, properties or services."The assailed provisions of the E-VAT law strike at the heart of this accepted principle.

And there is one final basic element of the VAT system integral to this disquisition: themode by which the tax is remitted to the government. In simple theory, the VAT payablecan be remitted to the government immediately upon the occurrence of the transaction,but such a demand proves excessively unwieldy. The number of VAT coveredtransactions a modern enterprise may contract in a single day, plus the recognizedprinciple that it is the final end user who ultimately shoulders the tax; render the

remittance of the tax on a per transaction basis impossible.Thus, the VAT is delivered by the purchaser not directly to the government but to theseller, who then collates the VAT received and remits it to the government everyquarter. The process may seem simple if cast in this manner, but there is a wrinkle, dueto the offsetting mechanism designed to ultimately make the end consumer bear thecost of the VAT.

The Concepts of Input and

Output VAT

This mechanism is employed through the introduction of two concepts, the input tax andthe output tax. Section 110(A) of the National Internal Revenue Code defines the inputtax as the VAT due from or paid by a VAT-registered person on the importation ofgoods or local purchase of goods and services in the course of trade or business, froma VAT registered person.

Let us put this in operational terms. A VAT registered person, engaged in an enterprise,necessarily purchases goods such as raw materials and machinery in order to produceconsumer goods. The purchase of such raw materials and machineries is subject toVAT, hence the enterprise pays an additional 10% of the purchase price to the supplieras VAT. This extra amount paid by the enterprise constitutes its input VAT. Theenterprise likewise pays input VAT when it purchases services covered by the tax, orrentals of property.

Since VAT is a final tax that is supposed to be ultimately shouldered by the endconsumer, the VAT system allows for a mechanism by which the business is able torecover the input VAT that it paid. This comes into play when the business, havingtransformed the raw materials into consumer goods, sells these goods to the public. As







widely known, the consumer pays to the business an additional amount of 10% of thepurchase price as VAT. As to the business, this VAT payments it collects from theconsumer represents output VAT, which is formally described under Section 110(A) ofthe NIRC as "the value-added tax due on the sale or lease of taxable goods orproperties or services by" by any VAT-registered person.

The output VAT collected by the business from the consumers accumulates, until theend of every quarter, when the enterprise is obliged to remit the collected output VAT tothe government. This is where the crediting mechanism comes into play. Since thebusiness is entitled to recover the prepaid input VAT, it does so in every quarter byapplying the amount of prepaid input VAT against the collected output VAT which is tobe remitted. If the output VAT collected exceeds the prepaid input VAT, then theamount of input VAT is deducted from the output VAT, and it is entitled to remit only theremainder as output VAT to the government. To illustrate, if Business X collectsP1,000,000.00 as output VAT and incurs P500,000.00 as input VAT, the P500,000.00 isdeducted from the P1,000,000.00 output VAT, and X is required to remit only

P500,000.00 of the output VAT it collected from customers.On the other hand, if the input VAT prepaid exceeds the output VAT collected, then thebusiness need not remit any amount as output VAT for the quarter. Moreover, thedifference between the input VAT and the output VAT may be credited as input VAT bythe business in the succeeding quarter. Thus, if in the First Quarter of a year, BusinessX prepays P1,000,000.00 as input VAT, and collects only P500,000.00 as output VAT, itneed not remit any amount of output VAT to the government. Moreover, in the SecondQuarter, Business X can credit the remaining P500,000.00 as part of its input VAT forthat quarter. Hence, if in the Second Quarter, X actually prepays P400,000.00 as inputVAT, and collects P500,000.00 as output VAT, it may add the P500,000.00 input VAT

from the previous quarter to the P400,000.00 prepaid in the current quarter, bringing thetotal input VAT it could claim to P900,000.00. Since the input VAT of P900,000.00 nowexceeds the output VAT collected of P500,000, then X need not remit any output VATas well to the government for the Second Quarter.

However, reality is far bleaker than that befaced by Business X. The VAT collected andremitted is not the most relevant statistic evaluated by the business. The figure ofprimary concern of the enterprise would be the profit margin, which is simply the excessof revenue less expenditures. Revenue is derived from the gross sales of the business.Expenditures encompass all expenses incurred by the business including overheadexpenses, wages and purchases of capital goods. Crucially, expenditures would includethe input VAT prepaid by the business on its capital expenditures.

Since a significant amount of the capital outlay incurred by a business is subjected tothe prepayment of input taxes, the necessity of recovering these losses through theoutput VAT collected becomes more impelling. These output taxes are obviouslyproportional to the volume of gross sales the higher the gross sales, the higher theoutput VAT collected. The output taxes collected on sales answer for not onlythose input taxes paid on the purchase of the raw materials, but also for the input



taxes paid on the multifarious overhead expenses covered by VAT. The burdencarried by the sales volume on the stability, if not survival of the business thus justbecame more crucial. The maintenance of the proper equilibrium is not an easy matter.Increasing the selling price of the goods sold does not necessarily increase the grosssales, as it could have the counter-effect of repelling the consumer and diminishing the

number of goods sold. At the same time, keeping the selling price low may increase thevolume of goods sold, but not necessarily the amount of gross sales.

Profit is a chancy matter, and in cases of small to medium enterprises, usually small ifany. It is quite common for retail and distribution enterprises to incur profits of less than1% of their gross revenues. Low profitability is not an automatic badge of poor businessskills, but a reality dictated by the laws of the marketplace. The probability of profit islower than that of capital expenditures, and ultimately, many business establishmentsend up with a higher input tax than output tax in a given quarter. This would beespecially true for small to medium enterprises who do not reap sufficient profits from itsbusiness in the first place, and for those firms that opt to also invest in capital expenses

in addition to the overhead. Whatever miniscule profit margins that can be obtainedusually spell the difference between life and death of the business.

The possibility of profit is further diminished by the fact that businesses have to shoulderthe input VAT in the purchase of their capital expenses. Yet the erstwhile VAT systemwas not tainted by the label of oppressiveness and neither did it bear theconfiscatory mode. This was because of the immediate relief afforded from theinput taxes paid by the crediting system. In theory, VAT is not supposed to affectthe profit margin. If such margin is affected, it is only because of the prepaymentof the input taxes, and this should be remedied by the immediate recoverythrough the crediting system of the settled input taxes.

The new E-VAT law changes all that, and puts in jeopardy the survival of small tomedium enterprises.

The Effects of the 70% Cap on Creditable Input VAT

The first radical shift introduced by the E-VAT law to the creditable input system ─ the70% cap on the creditable input tax that may be carried over into the next quarter ─ isprovided in Section 8 of the law, which amends Section 110(A) of the NIRC, amongothers. Section 110(A) as amended would now read:

Sec. 110. Tax Credits. –

(B) Excess Output or Input Tax. – If at the end of any taxable quarter the output taxexceeds the input tax, the excess shall be paid by the VAT-registered person. If theinput tax exceeds the output tax, the excess shall be carried over to the succeedingquarter or quarters. Provided , That the input tax inclusive of input VAT carried overfrom the previous quarter that may be credited in every quarter shall not exceedseventy percent (70%) of the output VAT: Provided, however , That any input tax



attributable to zero rated sales by a VAT-registered person may at his option berefunded or credited against other internal revenue taxes, subject to the provisions ofSection 112. (emphasis supplied)

All hope for entrepreneurial stability is dashed with the imposition of the 70% cap. Under

the E-VAT Law, the business, regardless of stability or financial capability, is obliged toremit to the government every quarter at least 30% of the output VAT collected fromcustomers, or roughly 3% of the amount of gross sales. Thus, if a quarterly gross salesof Y Business totaled P1,000,000, and Y is prudent enough to keep its capital expensesdown to P980,000, it would then appear on paper that Y incurred a profit of P20,000.However, with the 70% cap, Y would be obliged to remit to the government P30,000,thus wiping out the profit margin for the quarter. Y would be entitled to credit the excessinput VAT it prepaid for the next quarter, but the continuous operation of the 70% capobviates whatever benefits this may give, and cause the accumulation of the unutilizedcreditable input VAT which should be returned to the business.

The difference is even more dramatic if seen how the unutilized creditable input VATaccumulates over a one year period. To illustrate, Business Y prepays the followingamounts of input VAT over a one-year period: P100,000.00 - First Quarter; P100,000.00

– 2nd Quarter; P34,000.00 – 3rd Quarter; and P50,000.00 – 4th Quarter. On the otherhand, Y collects the following amounts of output VAT from consumers: P60,000.00 -First Quarter; P60,000.00 – 2nd Quarter; P100,000.00 – 3rd Quarter; and P50,000.00 – 4th Quarter. Applying the 70% cap, which would limit the amount of the declarable inputVAT to 70% in a quarter, the following results obtain, as presented in tabular form:

Particulars 1st Quarter 2nd Quarter 3rd Quarter 4th QuarterOutput VAT 60,000 60,000 100,000 50,000

Input VAT( Actual ) +Carry Over

100,000 100,000 [input]+58,000

[excesscreditable]

158,000

34,000

[input]

+116,000

[excesscreditable]

150,000

50,000

[input]

+80,000

[excesscreditable]

130,000Declarable

Input VAT(70% ofoutput VAT)

(60,000x70%)

42,000

(60,000x70%)

42,000

(100,000x70%)

70,000

(50,000x70%)

35,000

Lower ofactual and70% cap – allowable

(60,000 -42,000)

18,000

(60,000 -42,000)

18,000

(100,000-70,000)

30,000

(50,000-35,000)

15,000



VAT

PayableCreditable Input VAT

(100,000 – 42,000)

58,000

(158,000 – 42,000)

116,000

(150,000-

70,000)

80,000

(130,000-35,000)

95,000

This stands in contrast to same business VAT accountability under the present system,using the same variables of output VAT and input VAT. The need to distinguish adeclarable input VAT is obviated with the elimination of the 70% cap.

Particulars 1st Quarter 2nd Quarter 3rd Quarter 4th QuarterOutput VAT 60,000 60,000 100,000 50,000Input VAT( Actual ) +Carry Over

100,000 100,000[input]

+40,000

[excesscreditable]

140,000

34,000

[input]

+80,000

[excesscreditable]

114,000

50,000

[input]

+ 14,000

(excess

creditable)

50,000

VAT Payable 0 0 0 0Creditable

Input VAT

40,000 80,000 14,000 14,000

The differ ence is dramatic, as is the impact on the business‘s profit margin andavailable cash on hand. Under normal conditions, small to medium enterprises arealready encumbered with the likelihood of obtaining only a minimal profit margin.Without the 70% cap, those businesses would nonetheless be able to expect animmediate return on its input taxes earlier advanced, taxes which under the VAT systemit is not supposed to shoulder in the first place. However, with the 70% cap in place, the

unutilized input taxes would continue to accumulate, and the enterprise precluded fromimmediate recovery thereof. The inability to utilize these input taxes, which couldspell the difference between profit and loss, solvency and insolvency, willeventually impair, if not kill off the enterprise.

The majority fails to consider one of the most important concepts in finance, time valuefor money.37 Simply put, the value of one peso is worth more today than in 2006. Moneythat you hold today is worth more because you can invest it and earn interest .38 By











reason of the 70% cap, the amount of input VAT credit that remains unutilized wouldcontinue accumulate for months and years. The longer the amount remains unutilized,the higher the degree of its depreciation in value, in accordance with the concept of timevalue of money. Even assuming that the business eventually recovers the input VATcredit, the sum recovered would have decreased in practical value.

It would be sad, but fair, if a business ceases because of its inability to competewith other businesses. It would be utter malevolence to condemn an enterprise todeath solely through the employment of a deceptive accounting wizardry. For theraison d’etre of this 70% cap is to make it appear on paper that the government ismore solvent than it actually is. Conceding for the nonce, there is a temporaryadvantage gained by the government by this 70% cap, as the steady remittance bybusinesses of the 30% output VAT would assure a cash flow. Such collection may onlymomentarily resolve an endemic problem in our local tax system, the problem ofcollection itself.

If the 70% cap was designed in order to enhance revenue collection, then I submit thatthe means employed stand beyond reason. If sheer will proves insufficient in assuringthat the State all taxes due it, there should be allowable discretion for the government toformulate creative means to enhance collection. But to do so by depriving low profitenterprises of whatever meager income earned and consequently assuring the death ofthese industries goes beyond any valid State purpose.

Only stable businesses with substantial cash flows, or extraordinarily successfulenterprises will be able to remain in operation should the 70% cap be retained. Theeffect of the 70% cap is to effectively impose a tax amounting to 3% of gross revenue.The amount may seem insignificant to those without working knowledge of the ways of

business, but anybody who is actually familiar with business would be well aware theprofit margins of the retailing and distribution sectors typically amount to less than 1% ofthe gross revenues. A taxpayer has to earn a margin of at least 3% on gross revenue inorder to recoup the losses sustained due to the 70% cap. But as stated earlier, profitsare chancy, and the entrepreneur does not have full control of the conditions that lead toprofit.

Even more galling is the fact that the 70% cap, oppressive as it already is to thebusiness establishment, even limits the options of the business to recover the unutilizedinput VAT credit. During the deliberations, the argument was raised that the problempresented by the 70% cap was a business problem, which can only be solved bybusiness. Yet there is only one viable option for the enterprise to resolve the problem,and that is to increase the selling price of goods.39 It would be incorrect to assume thatincrease the volume of the goods sold could solve the problem, since for items with thesame purchasing cost, the effect of the 70% cap remains constant regardless of anincrease in volume.

But the additional burden is not limited to the increase of prices by the retailer to the endconsumer. Since VAT is a transaction tax, every level of distribution becomes subject







not only to the VAT, but also to the 70% cap. The problem increases due to a cascadingeffect as the number of distribution levels increases since it will result in the collection ofan effective 3% percentage tax at every distribution level.

In analyzing the effects of the 70% cap, and appreciating how it violates the due

process clause, we should not focus solely on the end consumers. Undoubtedly,consumers will face hardships due to the increased prices, but their threshold ofphysical survival, as individual people, is significantly less than that of enterprises.Somehow, I do not think the new E-VAT would generally deprive consumers of the barenecessities such as food, water, shelter and clothing. There may be significantdeprivation of comfort as a result, but not of life.

The same does not hold true for businesses. The standard of "deprivation of life" of juridical persons employs different variables than that of natural persons. What food andwater may be for persons, profit is for an enterprise the bare necessity for survival.For businesses, the implementation of the same law, with the 70% cap and 60-month

amortization period, would mean the deprivation of profit, which is the determinativenecessity for the survival of a business.

It is easy to admonish both the consumer and the enterprise to cut back onexpenditures to survive the new E-VAT Law. However, this can be realistically expectedonly of the consumer. The small/medium enterprise cannot just cut back easily onexpenditures in order to survive the implementation of the E-VAT Law. For suchbusinesses, expenditures do not normally contemplate unnecessary expenses such asexecutive perks which can be dispensed with without injury to the enterprises. Theseexpenditures pertain to expenses necessary for the survival of the enterprise, such aswages, overhead and purchase of raw materials. Those three basic items of

expenditure cannot simply be reduced, as to do so with impair the ability of the businessto operate on a daily basis.

And reduction of expenditures is not the exclusive antidote to these impositions underthe E-VAT Law, as there must also be a corresponding increase in the amount of grosssales. To do so though, would require an increase in the selling price, dampeningconsumer enthusiasm, and further impairing the ability of the enterprise to recover fromthe E-VAT Law. This is your basic Catch-2240 situation — no matter which means theenterprise employs to recover from the E-VAT Law, it will still go down in flames.

Section 8 of the E-VAT law, while ostensibly even-handed in application, fails toappreciate valid substantial distinctions between large scale enterprises and small andmedium enterprises. The latter group, owing to the limited capability for capitalinvestment, subsists on modest profit margins, whereas the former expects, by reasonof its substantial capital investments, a high margin. In essentially prohibiting therecovery of small profit margins, the E-VAT law effectively sends the messagethat only high margin businesses are welcome to do business in the Philippines.It stifles any entrepreneurial ambitions of Filipinos unfortunate enough to havebeen born poor yet seek a better life by sacrificing all to start a small business.






Among the enunciated State policies in the Constitution, as stated in Section 20, ArticleII, is that "the State recognizes the indispensable role of the private sector,encourages private enterprise, and provides incentives to needed investments."41 The provision, as with other declared State policies in the Constitution, have sufficientimport and consequence such that in assessing the constitutionality of the governmental

action, these provisions should be considered and weighed as against the rationale forthe assailed State action.42 The incompatibility of the 70% cap with this provision ispatent.

Pilipinas Shell Dealers, on whom the burden to establish the violation of due processand equal protection lies, offers the following chart of the income statement of a typicalpetroleum dealer:

QUARTERLY PROFIT AND LOSS STATEMENT

DEALER "A "

Price VAT (without 70%cap)

VAT (with 70%cap)

Sales/Output 32,748,534 3,274,853.40 3,274,853.40Cost of Sales 31,834,717 3,183,471.70Gross Margin 913,817Operating ExpensesNon-vatable items

Vatable Items

536,249

317,584

31,758.40

Total Cost 853,833Net Profit 59,984 Total Input Tax 3,215,230.10 2,292,397.38VAT Payable 59,623.30 982,456.02

Unutilized Input VAT 922,832.72

*computed by multiplying output VAT by 70% [3,274,853.40 x 70% = 2,292.397.38]

The presentation of the Pilipinas Shell Dealers more or less jibes with my ownobservations on the impact of the 70% cap. The dealer whose income is illustrated

above has to outlay a cash amount of P922,832.72 more than what would have beenshelled out if the 70% cap were not in place. Considering that the net profit of the dealeris only P59,984.00, the consequences could very well be fatal, especially if these stateof events persist in succeeding quarters.

The burden of proof was on the Pilipinas Shell Dealers‘ to prove their allegations, andaccordingly, these figures have been duly presented to the Court for appreciation andevaluation. Instead, the majority has shunted aside these presentations as being merely











theoretical, despite the fact that they present a clear and present danger to the very lifeof our nation‘s enterprises. The majority‘s position would have been more credible had itfaced the issue squarely, and endeavored to demonstrate in like numerical fashion whythe 70% cap is not oppressive, confiscatory, or otherwise violative of the due processclause.

Sadly, the majority refuses to confront the figures or engage in a meaningfuldemonstration of how these assailed provisions truly operate. Instead, it counters withplatitudes and bromides that do not intellectually satisfy. Considering that the veryvitality, if not life of our domestic economy is at stake, I think it derelict to our duty toblock out these urgent concerns presented to the Court with blind faith tinged withirrational Panglossian43 optimism.

The obligation of the majority to refute on the merits the arguments of the PetroleumDealers becomes even more grave considering that the respondents have abjectlyfailed to convincingly dispute the claims. During oral arguments, respondents attempted

to counter the arguments that the 70% cap was oppressive and confiscatory bypresenting the following illustration, which I fear is severely misleading:

Slide 1

Item Cost VAT

Sales 1,000,000.00 100,000.00

Purchases 800,000.00 80,000.00

Due BIR without cap Due BIR with 70% cap

Output VAT 100,000.00 Output VAT 100,000.00

Actual Input VAT 80,000.00 Allowable Input VAT 70,000.00

Net VAT Payable 20,000.00 Net VAT Payable 30,000.00






Excess Input VAT 10,000.00

Carry-over to next quarter

Slide 2

___________________________________________Item Cost VAT

Sales 1,000,000.00 100,000.00

Purchases 600,000.00 60,000.00

Due BIR without cap Due BIR with70% cap

Output VAT 100,000.00 Output VAT100,000.00

Actual Input VAT (60% ofoutput VAT) 60,000.00

Allowable Input VAT60,000.00

Net VAT Payable 40,000.00 Net VAT Payable 40,000.00

Excess Input VAT 0

Carry-over to next quarter

This presentation of the respondents is grossly deceptive, as it fails to account for theexcess creditable input VAT that remains unutilized due to the 70% cap. This excess orcreditable input VAT is supposed to be carried over for the computation of the input VATof the next quarter. Instead, this excess or creditable input VAT magically disappearsfrom the table of the respondents. In their memorandum, the Pilipinas Shell Dealerscounter with their own presentation using the same variables as respondents‘, buttaking into account the excess creditable input VAT and extending the situation over a

one-year period. I cite with approval the following char t44

of the Pilipinas Shell Dealers:

Slide 1

Quarter 1

Item No. Cost VAT







Sales 1,000,000.00 100,000.00

Purchases 800,000.00 80,000.00

Due BIR with 70% cap

Output VAT 100,000.00

Allowable Input VAT 70,000.00

Net VAT Payable 30,000.00

Excess Input Vat

Carry-over to next quarter 10,000.00

Quarter 2

Cost VAT

Sales 1,000,000.00 100,000.00

Purchases 800,000.00 80,000.00

Due BIR with 7-% cap


Less: Input VAT

Excess Input VAT fr. 1st Quarter 10,000.00

Input VAT-Current Qtr. 80,000.00

Total Available Input VAT 90,000.00

Allowable Input VAT (100,000 x 70%) 70,000.00 70,000.00


=========





Excess Input VAT to be carried over to next

Quarter 20,000.00

=========

Quarter 3

Cost VAT

Sales 1,000,000.00 100,000.00

Purchases 800,000.00 80,000.00



Less: Input VAT

Excess Input VAT fr. 2nd Qtr. 20,000.00





=========



Excess Input VAT to be carried over to next quarter 30,000.00

==========

Quarter 4

Cost VAT

Sales 1,000,000.00 100,000.00



Purchases 800,000.00 80,000.00



Less: Input VAT

Excess Input VAT fr. 3rd Qtr. 30,000.00





========



Excess Input VAT to be carried over to next quarter 40,000.00

==========

The 70% cap is not merely an unwise imposition. It is a burden designed, eitherthrough sheer heedlessness or cruel calculation, to kill off the small and mediumenterprises that are the soul, if not the heart, of our economy. It is not merely anundue taking of property, but constitutes an unjustified taking of life as well.

And what legitimate, germane purposes does this lethal 70% cap serve? Itcertainly does not increase the government’s revenue since the unutilizedcreditable input VAT should be entered in the government books as a debtpayable as it is supposed to be eventually repaid to the taxpayer, and so on thecontrary it increases the government’s debts. I do see that the 70% cap

temporarily allows the government to brag to the world of an increased cash flow.But this situation would be akin to the provincial man who borrows fromeverybody in the barrio in order to show off money and maintain the pretense ofprosperity to visiting city relatives. The illusion of wealth is hardly a legitimatestate purpose, especially if projected at the expense of the very business life ofthe country.



The majority, in an effort to belittle these concerns, points out that that the excess inputtax remains creditable in succeeding quarters. However, as seen in the aboveillustration, the actual application of the excess input tax will always be limited by theamount of output taxes collected in a quarter, as a result of the 70% cap. Thus, it isentirely possible that a VAT-registered person, through the accumulation of unutilized

input taxes, would have in a quarter an express creditable input tax of P50,000,000, butwould be allowed to actually credit only P70,000 if the output tax collected for thatquarter were only P100,000.

The burden of the VAT may fall at first to the immediate buyers, but it is supposed to beeventually shifted to the end-consumer. The 70% cap effectively prevents this fromhappening, as it limits the ability of the business to recover the prepaid input taxes. Thisis unconscionable, since in the first place, these intervening

players ─ the manufacturers, producers, traders, retailers ─ are not even supposed tosustain the losses incurred by reason of the prepayment of the input taxes. Worse, they

would be obliged every quarter to pay to the government from out of their own pocketsthe equivalent of 30% of the output taxes, no matter their own particular financialcondition. Worst, this twin yoke on the taxpayer of having to sustain a debit equivalentto 30% of output taxes, and having to await forever in order to recover the prepaid taxeswould impair the cash flow and prove fatal for a shocking number of businesses which,as they now stand, have to make do with a minimum profit that stands to be wiped outwith the introduction of the 70% cap.

Nonetheless, the majority notes that the excess creditable input tax may be the subjectof a tax credit certificate, which then could be used in payment of internal revenuetaxes, or a refund to the extent that such input taxes have not been applied against

output taxes.

45

What the majority fails to mention is that under Section 10 of the E-VAT Law, which amends Section 112 of the NIRC, such credit or refund may notbe done while the enterprise remains operational:


SEC. 112. Refunds or Tax Credits of Input Tax.—

xxx

"(B) Cancellation of VAT Registration.—

A person whose registration has beencancelled due to retirement from or cessation of business or due to changes orcessation of status under Section 106(C) of this Code may, within two (2) years

from the date of cancellation, apply for the issuance of a tax credit certificate forany unused input tax which may be used in payment of his other internal revenue

taxes.

xxx







This stands in marked contrast to Section 112(B) of the NIRC as it read prior to thisamendment. Under the previous rule, a VAT-registered person was entitled to apply forthe tax credit certificate or refund paid on capital goods even while it remained inoperation:

SEC. 112. Refunds or Tax Credits of Input Tax.—

xxx

"(B) Capital Goods .— A VAT-registered person may apply for the issuance of a taxcredit certificate or refund of input taxes paid on capital goods imported or locally

purchased, to the extent that such input taxes have not been applied against outputtaxes. The application may be made only within two (2) years after the close of the

taxable quarter when the importation or purchase was made.

This provision, which could have provided foreseeable and useful relief to the VAT-

registered person, was deleted under the new E-VAT Law. At present, the refund or taxcredit certificate may only be issued upon two instances: on zero-rated or effectivelyzero-rated sales, and upon cancellation of VAT registration due to retirement from orcessation of business.46 This is the cruelest cut of all. Only after the businessceases to be may the State be compelled to repay the entire amount of theunutilized input tax. It is like a macabre form of sweepstakes wherein the winneris to be paid his fortune only when he is already dead . Aanhin pa ang damo kun gpatay na ang kabayo .

Moreover, the inability to immediately credit or otherwise recover the unutilized inputVAT could cause such prepaid amount to actually be recognized in the accounting

books as a loss. Under international accounting practices, the unutilized input VAT dueto the 70% cap would not even be recognized as a deferred asset. The same would nothold true if the 70% cap were eliminated. Under the International AccountingStandards47, the unutilized input VAT credit is recognized as an asset "to the extent thatit is probable that future taxable profit will be available against which the unused taxlosses and unused tax credits can be utili[z]ed"48 Thus, if the immediate accreditation ofthe input VAT credit can be obtained, as it would without the 70% cap, the asset couldbe recognized.

However, the same Standards hold that "[t]o the extent that it is not probable thattaxable profit will be available against which the unused tax losses or unused tax creditscan be utilised, the deferred tax asset is not recognised".49 As demonstrated, thecontinuous operation of the 70% cap precludes the recovery of input VAT prepaidmonths or years prior. Moreover, the inability to claim a refund or tax credit certificateuntil after the business has already ceased virtually renders it improbable for the inputVAT to be recovered. As such, under the International Accounting Standards, it is withall likelihood that the prepaid input VAT, ostensibly creditable, would actually bereflected as a loss.50 What heretofore was recognized as an asset would now, with the






















imposition of the 70% cap, be now considered as a loss, enhancing the view that the70% cap is ultimately confiscatory in nature.

This leads to my next point. The majority asserts that the input tax is not a property orproperty right within the purview of the due process clause.51 I respectfully but strongly

disagree.

Tellingly, the BIR itself has recognized that unutilized input VAT is one of those assets,corporate attributes or property rights that, in the event of a merger, are transferred tothe surviving corporation by operation of law.52 Assets would fall under the purview ofproperty under the due process clause, and if the taxing arm of the State recognizesthat such property belongs to the taxpayer and not to the State, then due respect shouldbe given to such expert opinion.

Even under the International Accounting Standards I adverted to above, the unutilizedinput VAT credit may be recognized as an asset "to the extent that it is probable that

future taxable profit will be available against which the unused tax losses and unusedtax credits can be utilised"53 If not probable, it would be recognized as a loss.54 Sincethese international standards, duly recognized by the Securities and ExchangeCommission as controlling in this jurisdiction, attribute tangible gain or loss to the VATcredit, it necessarily follows that there is proprietary value attached to such gain or loss.

Moreover, the prepaid input tax represents unutilized profit, which can only be utilized ifit is refunded or credited to output taxes. To assert that the input VAT is merely aprivilege is to correspondingly claim that the business profit is similarly a mere privilege.The Constitution itself recognizes the right to profit by private enterprises. As I statedearlier, one of the enunciated State policies under the Constitution is the recognition of

the indispensable role of the private sector, the encouragement of private enterprise,and the provision of incentives to needed investments.55 Moreover, the Constitutionalso requires the State to recognize the right of enterprises to reasonable returnson investments, and to expansion and growth.56 This, I believe, encompasses profit.

60-Month Amortization Period

Another portion of Section 8 of the E-VAT Law is unconstitutional, essentially for thesame reasons as above. The relevant portion reads:

SEC. 8. Section 110 of the same Code, as amended, is hereby further amended to read

as follows:"SEC. 110. Tax Credits. –

(A) Creditable Input Tax . –

. . . .



























Provided , That the input tax on goods purchased or imported in a calendar monthfor use in trade or business for which deduction for depreciation is allowed underthis Code, shall be spread evenly over the month of acquisition and the fifty-nine(59) succeeding months if the aggregate acquisition cost for such goods,excluding the VAT component thereof, exceeds One million pesos (P1,000,000) :

Provided , however, That if the estimated useful life of the capital good is less than five(5) years, as used for depreciation purposes, then the input VAT shall be spread oversuch a shorter period: Provided, finally, that in the case of purchase of services, leaseor use of properties, the input tax shall be creditable to the purchaser, lessee orlicensee upon payment of the compensation, rental, royalty or fee.

Again, this provision unreasonably severely limits the ability of an enterprise to recoverits prepaid input VAT. On its face, it might appear injurious primarily to high marginenterprises, whose purchase of capital goods in a given quarter would routinely exceedP1,000,000.00. The amortization over a five-year period of the input VAT on thesecapital goods would definitely eat up into their profit margin. But it is still possible for

such big businesses to survive despite this new restriction, and their financial pain alonemay not be sufficient to cause the invalidity of a taxing statute.

However, this amortization plan will prove especially fatal to start-ups and othernew businesses, which need to purchase capital goods in order to start up theirnew businesses. It is a known fact in the financial community that a majority ofbusinesses start earning profit only after the second or third year, and many enterprisesdo not even get to survive that long. The first few years of a business are the mostcrucial to its survival, and any financial benefits it can obtain in those years, no matterhow miniscule, may spell the difference between life and death. For such emergingbusinesses, it is already difficult under the present system to recover the prepaid input

VAT from the output VAT collected from customers because initial sales volumes areusually low. With this further limitation, diminishing as it does any opportunity to have asustainable cash flow, the ability of new businesses to survive the first three yearsbecomes even more endangered.

Even existing small to medium enterprises are imperiled by this 60 month amortizationrestriction, especially considering the application of the 70% cap. The additionalpurchase of capital goods bears as a means of adding value to the consumer good, asa means to justify the increased selling price. However, the purchase of capital goods inexcess of P1,000,000.00 would impose another burden on the small to mediumenterprise by further restricting their ability to immediately recover the entire prepaidinput VAT (which would exceed at least P100,000.00), as they would be compelled towait for at least five years before they can do so. Another hurdle is imposed for suchsmall to medium enterprise to obtain the profit margin critical to survival. For somelucky enterprises who may be able to survive the injury brought about by the 70%cap, this 60 month amortization period might instead provide the mortal headwound.



Moreover, the increased administrative burden on the taxpayer should not bediscounted, considering this Court‘s previous recognition of the aims of the VAT systemto "rationalize the system of taxes on goods and services, [and] simplify taxadministration".57 With the amortization requirement, the taxpayer would be forced tosegregate assets into several classes and strictly monitor the useful life of assets so

that proper classification can be made. The administrative requirements of the taxpayerin order to monitor the input VAT from the purchase of capital assets thus hasexponentially increased.

5% Withholding VAT on Sales

Pilipinas Shell Dealers argue that Section 12 of the E-VAT law, which amends Section114(C) of the NIRC, is also unconstitutional. The provision is supremely unwise,oppressive and confiscatory in nature, and ruinous to private enterprise and evenState development. The provision reads:


"SEC. 114. Return and Payment of Value-Added Tax . –

xxx

"(C) Withholding of Value-added Tax . – The Government or any of its politicalsubdivisions, instrumentalities or agencies, including government-owned or –controlledcorporations (GOCCs) shall, before making payment on account of each purchase ofgoods and services which are subject to the value-added tax imposed in Sections 106

and 108 of this Code, deduct and withhold a final value-added tax at the rate of fivepercent (5%) of the gross payment thereof: Provided , That the payment for lease or useof properties or property rights to nonresident owners shall be subject to ten percent(10%) withholding tax at the time of payment. For purposes of this Section, the payor orperson in control of the payment shall be considered as the withholding payment. xxx

The principle that the Government and its subsidiaries may deduct and withhold a finalvalue-added tax on its purchase of goods and services is not new, as the NIRC hadallowed such deduction and withholding at the rate of 3% of the gross payment for thepurchase of goods, and 6% of the gross receipts for services. However, the NIRC hadalso provided that this tax withheld would also be creditable against the VAT

liability of the seller or contractor, a mechanism that was deleted by the E-VATlaw. The deletion of this credit apparatus effectively compels the privateenterprise transacting with the government to shoulder the output VAT thatshould have been paid by the government in excess of 5% of the gross sellingprice, and at the same time unduly burdens the private enterprise by precluding itfrom applying any creditable input VAT on the same transaction.







Notably, the removal of the credit mechanism runs contrary to the essence of the VATsystem, which characteristically allows the crediting of input taxes against output taxes.Without such crediting mechanism, which allows the shifting of the VAT to onlythe final end user, the tax becomes a straightforward tax on business or income.The effect on the enterprise doing business with the government would be that

two taxes would be imposed on the income by the business derived on suchtransaction: the regular personal or corporate income tax on such income, andthis final withholding tax of 5%.

Granted that Congress is not bound to adopt with strict conformity the VAT system, andthat it has to power to impose new taxes on business income, this amendment toSection 114(C) of the NIRC still remains unconstitutional. It unfairly discriminatesagainst entities which contract with the government by imposing an additionaltax on the income derived from such transactions. The end result of suchdiscrimination is double taxation on income that is both oppressive andconfiscatory.

It is a legitimate purpose of a tax law to devise a manner by which thegovernment could save money on its own transactions, but it is another matter ifa private enterprise is punished for doing business with the government. Theerstwhile NIRC worked towards such advantage, by allowing the government to reduceits cash outlay on purchases of goods and services by withholding the payment of apercentage thereof. While the new E-VAT law retains this benefit to the government, atthe same time it burdens the private enterprise with an additional tax by refusing toallow the crediting of this tax withheld to the business‘s input VAT.

This imposition would be grossly unfair for private entities that transact with the

government, especially on a regular basis. It might be argued that the provision, even ifconcededly unwise, nonetheless fails to meet the standard of unconstitutionality, as itaffects only those persons or establishments that choose to do business with thegovernment. However, it is an acknowledged fact that the government and itssubsidiaries rely on contracts with private enterprises in order to be able to carry outinnumerable functions of the State. This provision effectively discourages privateenterprises to do business with the State, as it would impose on the business ahigher rate of tax if it were to transact with the State, as compared to transactionswith other private entities.

Established industries with track records of quality performance could very well bedissuaded from doing further business with government entities as the higher tax ratewould make no economic sense. Only those enterprises which really need the money,such as those with substandard track records that have affected their viability in themarketplace, would bother seeking out government contracts. The correspondingsacrifice in quality would eventually prove detrimental to the State. Our society can illafford shoddy infrastructures such as roads, bridges and buildings that wouldunnecessarily pose danger to the public at large simply because the governmentwanted to skimp on expenses.



The provision squarely contradicts Section 20, Article II of the Constitution as itvacuously discourages private enterprise, and provides disincentives to neededinvestments such as those expected by the State from private businesses.Whatever advantages may be gained by the temporary increase in the governmentcoffers would be overturned by the disadvantages of having a reduced pool of private

enterprises willing to do business with the government. Moreover, since governmentcontracts with private enterprises will still remain a necessary fact of life, theamendment to Section 114(C) of the NIRC introduced by the E-VAT Law.

Double taxation means taxing for the same tax period the same thing or activity twice,when it should be taxed but once, for the same purpose and with the same kind ofcharacter of tax.58 Double taxation is not expressly forbidden in our constitution, but theCourt has recognized it as obnoxious "where the taxpayer is taxed twice for the benefitof the same governmental entity or by the same jurisdiction for the same purpose."59 Certainly, both the 5% final tax withheld and the general corporate income tax are bothpaid for the benefit of the national government, and for the same incidence of taxation,

the sale/lease of goods and services to the government.The Court, in Re: Request of Atty. Bernardo Zialcita60 had cause to make the followingobservation I submit apropos to the case at bar, on double taxation in a case involvingthe attempt of the BIR to tax the commuted accumulated leave credits of a governmentlawyer upon his retirement:

Section 284 of the Revised Administrative Code grants to a government employee 15days vacation leave and 15 days sick leave for every year of service. Hence, even if thegovernment employee absents himself and exhausts his leave credits, he is stilldeemed to have worked and to have rendered services. His leave benefits are already

imputed in, and form part of, his salary which in turn is subject to withholding taxon income. He is taxed on the entirety of his salaries without any deductions forany leaves not utilized. It follows then that the money values corresponding tothese leave benefits both the used and unused have already been taxed duringthe year that they were earned. To tax them again when the retiring employeereceives their money value as a form of government concern and appreciationplainly constitutes an attempt to tax the employee a second time. This istantamount to double taxation.61

Conclusions

The VAT system, in itself, is intelligently designed, and stands as a fair means to raiserevenue. It has been adopted worldwide by countries hoping to employ an efficientmeans of taxation. The concerns I have raised do not detract from my general approvalof the VAT system.

I do lament though that our government‘s wholehearted adoption of the VAT system isendemic of what I deem a flaw in our national tax policy in the last few decades. Thepower of taxation, inherent in the State and ever so powerful, has been generally


















employed by our financial planners for a solitary purpose: the raising of revenue.Revenue generation is a legitimate purpose of taxation, but standing alone, it is awoefully unsophisticated design. Intelligent tax policy should extend beyond thesingular-minded goal of raising State funds ─ the old-time philosophy behind the taxingschemes of war-mongering monarchs and totalitarian states ─ and should sincerely

explore the concept of taxation as a means of providing genuine incentives to privateenterprise to spur economic growth; of promoting egalitarian social justice that wouldallow everyone to their fair share of the nation‘s wealth.

Instead, we are condemned by a national policy driven by the monomania for Staterevenue. It may be beyond my oath as a Justice to compel the government to adopt aneconomic policy in consonance with my personal views, but I offer these observationssince they lie at the very heart of the noxiousness of the assailed provisions of the E-VAT law. The 70% cap, the 60-month amortization period and the 5% withholding taxon government transactions were selfishly designed to increase government revenue atthe expense of the survival of local industries.

I am not insensitive to the concerns raised by the respondents as to the direconsequences to the economy should the E-VAT law be struck down. I am aware thatthe granting of the petition in G.R. No. 168461 will negatively affect the cash flow of thegovernment. If that were the only relevant concern at stake, I would have no problemsdenying the petition. Unfortunately, under the device employed in the E-VAT law,the price to be paid for a more sustainable liquidity of the government’s financeswill be the death of local business, and correspondingly, the demise of oursociety. It is a measure just as draconian as the standard issue taxes of medievaltyrants.

I am not normally inclined towards the language of the overwrought, yet if the sky wereindeed truly falling, how else could that fact be communicated. The E-VAT Law is ofmultiple fatal consequences. How are we to survive as a nation without the bulwark ofprivate industries? Perhaps the larger scale, established businesses may ultimatelyremain standing, but they will be unable to sustain the void left by the demise of small tomedium enterprises. Or worse, domestic industry would be left in the absolute control ofmonopolies, combines or cartels, whether dominated by foreigners or local oligarchs.The destruction of subsisting industries would be bad enough, the destruction ofopportunity and the entrepreneurial spirit would be even more grievous and tragic, as itwould mark as well the end of hope. Taxes may be the lifeblood of the state, but neverat the expense of the life of its subjects.

Accordingly, I VOTE to:

1) DENY the Petitions in G.R. Nos. 168056, 168207, and 168730 for lack of merit;

2) PARTIALLY GRANT the Petition in G.R. Nos. 168463 and declare Section 21 of theE-VAT Law as unconstitutional;



3) GRANT the Petition in G.R. No. 168461 and declare as unconstitutional Section 8 ofRepublic Act No. 9337, insofar as it amends Section 110(A) and (B) of the NationalInternal Revenue Code (NIRC) as well as Section 12 of the same law, with respect to itsamendment of Section 114(C) of the NIRC.

DANTE O. TINGA

Associate Justice

Footnotes

1Republic Act No. 9337. Referred to intext as "E-VAT Law."

2Except insofar as it prays that Section 21 of the E-VAT Law be declared

unconstitutional. Infra.3J . Vitug and E. Acosta, Tax Law and Jurisprudence (2nd ed., 2000), at 7-8.

4See National Power Corporation v. Province of Albay, G.R. No. 87479, 4 June1990, 186 SCRA 198, 203.

5See Section 24, Article VI, Constitution.

6The recognized exceptions, both expressly provided by the Constitution, beingthe tariff clause under Section 28(2), Article VI, and the powers of taxation of

local government units under Section 5, Article X.7G.R. No. 158540, 8 July 2005, 434 SCRA 65.

8See People v. Vera, 65 Phil. 56, 117 (1937).

9Decision, infra.

10Carpio v. Executive Secretary, GR No. 96409 February 14,1992, 206 SCRA290, 298; citing In re Guarina, 24 Phil. 37.

11

People v. Vera, supra note 8.12See Section 2, National Internal Revenue Code.

13There are two eminent tests for valid delegation, the "completeness test" andthe "sufficient standard test". The law must be complete in its essential terms andconditions when it leaves the legislature so that there will be nothing left for thedelegate to do when it reaches him except enforce it. U.S. v. Ang Tang Ho, 43





























Phil. 1, 6-7 (1922). On the other hand, a sufficient standard is intended to mapout the boundaries of the delegate‘s authority by defining legislative policy and indicating the circumstances under which it is to be pursued and effected;intended to prevent a total transference of legislative power from the legislatureto the delegate.

14Decision, infra, citing Alunan v. Mirasol, G.R. No. 108399, 31 July 1997, 276SCRA 501, 513-514.

15Notwithstanding, the Court in Southern Cross did rule that Section 5 of theSafeguard Measures Act, which required a positive final determination by theTariff Commission before the DTI or Agriculture Secretaries could imposegeneral safeguard measures, operated as a valid restriction and limitation on theexercise by the executive branch of government of its tariff powers.

16G.R. No. 115455, 25 August 1994, 235 SCRA 630.

17M. Evans, ‗A Source of Frequent and Obstinate Altercations‘: The History and Application of the Origination Clause.

18The Federalist No. 58, at 394 (J. Madison) (J.Cooke ed. 1961), cited in J. M.Medina, The Orignation Clause in the American Constitution: A ComparativeSurvey, 23 Tulsa Law Journal 2, at 165.

19Tolentino v. Secretary of Finance, supra note 16 at 661.

20See Section 27(1), Article VI, Constitution.

21Tolentino v. Secretary of Finance, supra note 16 at 668.

22G.R. No. 124360, 5 November 1997, 281 SCRA 330.

23I d . at 349-350.

24People v. Tudtud, G.R. No. 144037, 26 September 2003, 412 SCRA 142, 168.

25See Section 1, Article III, Constitution. Private corporations and partnershipsare persons within the scope of the guaranty insofar as their property is

concerned. Smith Bell & Co. v. Natividad, 40 Phil. 136, 145 (1919).2616 C.J.S., at 1150-1151.

27292 U.S. 40 (1934).

28I d . at 44.



































29G.R. No. L-59431, 25 July 1984, 130 SCRA 654.

30I d . at 660-662.

31Justice Isagani Cruz offers the following examples of taxes that contravene the

due process clause: "A tax, for example, that would claim 80 percent of aperson‘s net income would clearly be oppressive and could unquestionablystruck down as a deprivation of his property without due process of law. Aproperty tax retroacting to as long as fifty years back would by tyrannical andunrealistic, as the property might not yet have been then in the possession of thetaxpayer nor, presumably, would he have acquired it had he known of the tax tobe imposed on it." I. Cruz, Constitutional Law, p. 85.

32 "After defining religion, the Court, citing Tanada and Fernando, made thisstatement, viz :

The constitutional guaranty of the free exercise and enjoyment of religiousprofession and worship carries with it the right to disseminate religiousinformation. Any restraint of such right can only be justified like other restraints offreedom of expression on the grounds that there is a clear and present danger ofany substantive evil which the State has the right to prevent. (Tanada andFernando on the Constitution of the Philippines, vol. 1, 4th ed., p. 297) (emphasissupplied)

This was the Court's maiden unequivocal affirmation of the "clear and presentdanger" rule in the religious freedom area, and in Philippine jurisprudence, forthat matter." Estrada v. Escritor, A.M. No. P-02-1651, 4 August 2003, 408 SCRA

1.33Separate Opinion, infra.

34I bid .

35 Art. 2, European Commission First Council Directive 67/227 of 11 April 1967 onthe Harmonization of Legislation of Member States Concerning Turnover Taxes,1971 O.J. (L 71) 1301.

36Liam & Ebrill, The Modern VAT.

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39There is also the option for the business to go underground and avoid VATregistration, and consequently avoid remitting VAT payments to the government.It would be facetious though for a Justice of the Supreme Court to characterizethis illegal option as "viable."

40

In Joseph Heller‘s Catch-22 , Yossarian, a World War II pilot reasoned that if hefeigned insanity, he would be necessarily exempt from assignment to dangerousbombing runs in enemy territory. However, his superiors reasoned that if he weretruly insane, he then would be heedless enough to be sent on those dangerousbombing runs he had sought to avoid in the first place.

41Section 20, Article II, Constitution.

42The due process clause alone is sufficient to invalidate any contravening taxingstatute. On the other hand, Section 20, Article II on its own might not be similarlysufficient. However, if the taxing statute violates both the due process clause and

Section 20, Article II, then the impetus to strike down the offending law becomeseven more compelling, so as to defeat the generalist invocation of the State‘sinherent powers of taxation.

43Pangloss was a famed character ridiculed in Voltaire‘s Candide, renowned forhis absolute blind faith in optimism, no matter how dire the circumstances.

44I d . at 29-30.

45Decision, infra.

46

This is confirmed by the BIR in its draft Revenue Memorandum Circular dated12 July 2005, submitted by respondents in its Compliance dated 16 August 2005:

"[Q]: Is there a way by which such unapplied excess input tax credits can beclaimed for refund or issuance of TCC?

[A]: The only time application for refund/issuance of TCC is allowed forinput taxes incurred on the purchase of domestic goods/services is whenthe same are directly attributable to zero-rated or effectively zero-ratedsales (of goods/services). xxx

For those engaged purely in domestic transactions, the only time thatunapplied input taxes may be applied for the issuance of TCC is when theVAT registration of the taxpayer is cancelled due to retirement or cessationof business or change in the status of the taxpayer as a VAT registeredtaxpayer . As provided for in Section 112(B0, in case of cancellation of VATregistration due to cessation of business or change in status of taxpayer, the onlyrecourse given to such taxpayer is to apply for the issuance of TCC on his





















excess input tax credits which may be used in payment of his other internalrevenue taxes, application for refund thereof is not an option."

See Annexes "18-N" and "18-O", Compliance dated 12 July 2005.

47

See SRC Rule 68(1)(b)(c), Implementing Rules and Regulations to theSecurities and Regulations Code.

48Section 34, International Accounting Standards 12.

49Section 36, id .

50In his Separate Opinion, Justice Panganiban asserts that the deferred input taxcredit is not really confiscated by the government, as it remains an asset in theaccounting records of a business. See Separate Opinion, infra. By the samelogic, a law requiring all businesses to surrender to the government 100% of its

gross sales subject to reimbursement only after a five year period, would passmuster, since the amount is "not really confiscated by the government as itremains an asset in the accounting records of a business."

51Justice Panganiban cites United Paracale Mining Co. v. De la Rosa (cited as221 SCRA 108, 115, April 7, 1993) to bolster his stated position that ""[t]here isno vested right in a deferred input tax account; it is a mere statutory privilege".Separate Opinion, infra. United Paracale does not pertain to any deferred inputtaxes, but instead to "mining claims which according to [petitioners] is privateproperty would constitute impairment of vested rights since by shifting the forumof the petitioner‘s case from the courts to the Bureau of Mines…[the] substantive

rights to full protection of its property rights shall be greatly impaired." UnitedParacale Mining Co. v. Hon. Dela Rosa, G.R. Nos. 63786-87, 7 April 1993, 221SCRA 108, `115. Clearly, United Paracale is not even a tax case, involving as itdoes, questions of the jurisdiction of the Bureau of Mines.

52See Part III, Paragraph 3, Revenue Memorandum Ruling No. 1-2002.

53Section 32, International Accounting Standards 12.

54Supra note 47.

55

Supra note 9.56Section 3, Article XIII, Constitution.

57Kapatiran ng Mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. et al. v. Tan, G.R. No. L-81311, 30 June 1988.

58J . Vitug and E. Acosta, supra note 3 at 41.






























59Pepsi-Cola Bottling Co. of the Philippines, Inc. v. Municipality of Tanauan, G.R.No. L-31156, 27 February 1976, 69 SCRA 460, 466-67; citing CIR v. Lednicky, L-18169, July 31, 1964, 11 SACRA 609 and SMB, Inc. v. City of Cebu, L-20312,February 26, 1972, 43 SCRA 280.

60

A.M. No. 90-6-015-SC, 18 October 1990, 190 SCRA 851.61I d . at 856.


EN BANC

G.R. No. 168056 – ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERSSAMSON S. ALCANTARA and ED VINCENT S. ALBANO v. THE HONORABLEEXECUTIVE SECRETARY EDUARDO ERMITA, ET AL.

G.R. No. 168207 – AQUILINO Q. PIMENTEL, JR., ET AL. v. EXECUTIVESECRETARY EDUARDO R. ERMITA

G.R. No. 168461 – ASSOCIATION OF PILIPINAS SHELL DEALERS, INC., ET AL. v.CESAR V. PURISIMA, ET AL.

G.R. No. 168463 – FRANCIS JOSEPH G. ESCUDERO, ET AL. v. CESAR V.

PURISIMA, ET AL.

G.R. No. 168730 – BATAAN GOVERNOR ENRIQUE T. GARCIA, JR., ET AL. v. HON.EDUARDO R. ERMITA, ET AL.

Promulgated:

September 1, 2005

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

CONCURRING OPINION CHICO-NAZARIO, J .:

Five petitions were filed before this Court questioning the constitutionality of Republic Act No. 9337. Rep. Act No. 9337, which amended certain provisions of the NationalInternal Revenue Code of 1997,1 by essentially increasing the tax rates and expandingthe coverage of the Value-Added Tax (VAT). Undoubtedly, during these financially














difficult times, more taxes would be additionally burdensome to the citizenry. However,like a bitter pill, all Filipino citizens must bear the burden of these new taxes so as toraise the much-needed revenue for the ailing Philippine economy. Taxation is theindispensable and inevitable price for a civilized society, and without taxes, thegovernment would be paralyzed.2 Without the tax reforms introduced by Rep. Act No.

9337, the then Secretary of the Department of Finance, Cesar V. Purisima, assessedthat "all economic scenarios point to the National Government‘s inability to sustain itsprecarious fiscal position, resulting in severe erosion of investor confidence andeconomic stagnation."3

Finding Rep. Act No. 9337 as not unconstitutional, both in its procedural enactment andin its substance, I hereby concur in full in the foregoing majority opinion, penned by myesteemed colleague, Justice Ma. Alicia Austria-Martinez.

According to petitioners, the enactment of Rep. Act No. 9337 by Congress was riddledwith irregularities and violations of the Constitution. In particular, they alleged that: (1)

The Bicameral Conference Committee exceeded its authority to merely settle orreconcile the differences among House Bills No. 3555 and 3705 and Senate Bill No.1950, by including in Rep. Act No. 9337 provisions not found in any of the said bills, ordeleting from Rep. Act No. 9337 or amending provisions therein even though they werenot in conflict with the provisions of the other bills; (2) The amendments introduced bythe Bicameral Conference Committee violated Article VI, Section 26(2), of theConstitution which forbids the amendment of a bill after it had passed third reading; and(3) Rep. Act No. 9337 contravened Article VI, Section 24, of the Constitution whichprescribes that revenue bills should originate exclusively from the House ofRepresentatives.

Invoking the expanded power of judicial review granted to it by the Constitution of 1987,petitioners are calling upon this Court to look into the enactment of Rep. Act No. 9337by Congress and, consequently, to review the applicability of the enrolled bill doctrine inthis jurisdiction. Under the said doctrine, the enrolled bill, as signed by the Speaker ofthe House of Representatives and the Senate President, and certified by theSecretaries of both Houses of Congress, shall be conclusive proof of its dueenactment.4

Petitioners‘ arguments failed to convince me of the wisdom of abandoning the enrolledbill doctrine. I believe that it is more prudent for this Court to remain conservative and tocontinue its adherence to the enrolled bill doctrine, for to abandon the said doctrinewould be to open a Pandora‘s Box, giving rise to a situation more fraught with evil andmischief. Statutes enacted by Congress may not attain finality or conclusiveness unlessdeclared so by this Court. This would undermine the authority of our statutes becausedespite having been signed and certified by the designated officers of Congress, theirvalidity would still be in doubt and their implementation would be greatly hampered byallegations of irregularities in their passage by the Legislature. Such an uncertainty inthe statutes would indubitably result in confusion and disorder. In all probability, it is thecontemplation of such a scenario that led an American judge to proclaim, thus –















. . . Better, far better, that a provision should occasionally find its way into the statutethrough mistake, or even fraud, than, that every Act, state and national, should at anyand all times be liable to put in issue and impeached by the journals, loose papers ofthe Legislature, and parol evidence. Such a state of uncertainty in the statute laws ofthe land would lead to mischiefs absolutely intolerable. . . .5

Moreover, this Court must attribute good faith and accord utmost respect to the acts of aco-equal branch of government. While it is true that its jurisdiction has been expandedby the Constitution, the exercise thereof should not violate the basic principle ofseparation of powers. The expanded jurisdiction does not contemplate judicialsupremacy over the other branches of government. Thus, in resolving the proceduralissues raised by the petitioners, this Court should limit itself to a determination ofcompliance with, or conversely, the violation of a specified procedure in the Constitutionfor the passage of laws by Congress, and not of a mere internal rule of proceedings ofits Houses.

It bears emphasis that most of the irregularities in the enactment of Rep. Act No. 9337concern the amendments introduced by the Bicameral Conference Committee. TheConstitution is silent on such a committee, it neither prescribes the creation thereof nordoes it prohibit it. The creation of the Bicameral Conference Committee is authorized bythe Rules of both Houses of Congress. That the Rules of both Houses of Congressprovide for the creation of a Bicameral Conference Committee is within the prerogativeof each House under the Constitution to determine its own rules of proceedings.

The Bicameral Conference Committee is a creation of necessity and practicalityconsidering that our Congress is composed of two Houses, and it is highly improbablethat their respective bills on the same subject matter shall always be in accord and

consistent with each other. Instead of all their members, only the appointedrepresentatives of both Houses shall meet to reconcile or settle the differences in theirbills. The resulting bill from their meetings, embodied in the Bicameral ConferenceReport, shall be subject to approval and ratification by both Houses, voting separately.

It does perplex me that members of both Houses would again ask the Court to defineand limit the powers of the Bicameral Conference Committee when such committee isof their own creation. In a number of cases,6 this Court already made a determination ofthe extent of the powers of the Bicameral Conference Committee after taking intoaccount the existing Rules of both Houses of Congress. In gist, the power of theBicameral Conference Committee to reconcile or settle the differences in the twoHouses‘ respective bills is not limited to the conflicting provisions of the bills; but mayinclude matters not found in the original bills but germane to the purpose thereof. If bothHouses viewed the pronouncement made by this Court in such cases as extreme orbeyond what they intended, they had the power to amend their respective Rules toclarify or limit even further the scope of the authority which they grant to the BicameralConference Committee. Petitioners‘ grievance that, unfortunately, they cannot bringabout such an amendment of the Rules on the Bicameral Conference Committeebecause they are members of the minority, deserves scant consideration. That the











majority of the members of both Houses refuses to amend the Rules on the BicameralConference Committee is an indication that it is still satisfied therewith. At any rate, thisis how democracy works – the will of the majority shall be controlling.

Worth reiterating herein is the concluding paragraph in Arroyo v. De Venecia,7 which

reads –

It would be unwarranted invasion of the prerogative of a coequal department for thisCourt either to set aside a legislative action as void because the Court thinks the househas disregarded its own rules of procedure, or to allow those defeated in the politicalarena to seek a rematch in the judicial forum when petitioners can find remedy in thatdepartment. The Court has not been invested with a roving commission to inquire intocomplaints, real or imagined, of legislative skullduggery. It would be acting in excess ofits power and would itself be guilty of grave abuse of its discretion were it to do so. . . .

Present jurisprudence allows the Bicameral Conference Committee to amend, add, and

delete provisions of the Bill under consideration, even in the absence of conflict thereonbetween the Senate and House versions, but only so far as said provisions aregermane to the purpose of the Bill.8 Now, there is a question as to whether theBicameral Conference Committee, which produced Rep. Act No. 9337, exceeded itsauthority when it included therein amendments of provisions of the National InternalRevenue Code of 1997 not related to VAT.

Although House Bills No. 3555 and 3705 were limited to the amendments of theprovisions on VAT of the National Internal Revenue Code of 1997, Senate Bill No. 1950had a much wider scope and included amendments of other provisions of the saidCode, such as those on income, percentage, and excise taxes. It should be borne in

mind that the very purpose of these three Bills and, subsequently, of Rep. Act No. 9337,was to raise additional revenues for the government to address the dire economicsituation of the country. The National Internal Revenue Code of 1997, as its titlesuggests, is the single Code that governs all our national internal revenue taxes. Whileit does cover different taxes, all of them are imposed and collected by the nationalgovernment to raise revenues. If we have one Code for all our national internal revenuetaxes, then there is no reason why we cannot have a single statute amending provisionsthereof even if they involve different taxes under separate titles. I hereby submit that theamendments introduced by the Bicameral Conference Committee to non-VATprovisions of the National Internal Revenue Code of 1997 are not unconstitutional forthey are germane to the purpose of House Bills No. 3555 and 3705 and Senate Bill No.1950, which is to raise national revenues.

Furthermore, the procedural issues raised by the petitioners were already addressedand resolved by this Court in Tolentino v. Executive Secretary .9 Since petitioners failedto proffer novel factual or legal argument in support of their positions that were notpreviously considered by this Court in the same case, then I am not compelled to departfrom the conclusions made therein.















The majority opinion has already thoroughly discussed each of the substantial issuesraised by the petitioners. I would just wish to discuss additional matters pertaining to thepetition of the petroleum dealers in G.R. No. 168461.

They claim that the provision of Rep. Act No. 9337 limiting their input VAT credit to only

70% of their output VAT deprives them of their property without due process of law.They argue further that such 70% cap violates the equal protection and uniformity oftaxation clauses under Article III, Section 1, and Article VI, Section 28(1), respectively,of the Constitution, because it will unduly prejudice taxpayers who have high input VATand who, because of the cap, cannot fully utilize their input VAT as credit.

I cannot sustain the petroleum dealers‘ position for the following reasons –

First , I adhere to the view that the input VAT is not a property to which the taxpayer hasvested rights. Input VAT consists of the VAT a VAT-registered person had paid on hispurchases or importation of goods, properties, and services from a VAT-registered

supplier; more simply, it is VAT paid. It is not, as averred by petitioner petroleumdealers, a property that the taxpayer acquired for valuable consideration.10 A VAT-registered person incurs input VAT because he complied with the National InternalRevenue Code of 1997, which imposed the VAT and made the payment thereofmandatory; and not because he paid for it or purchased it for a price.

Generally, when one pays taxes to the government, he cannot expect any direct andconcrete benefit to himself for such payment. The benefit of payment of taxes shallredound to the society as a whole. However, by virtue of Section 110(A) of the NationalInternal Revenue Code of 1997, prior to its amendment by Rep. Act No. 9337, a VAT-registered person is allowed, subject to certain substantiation requirements, to credit his

input VAT against his output VAT.Output VAT is the VAT imposed by the VAT-registered person on his own sales ofgoods, properties, and services or the VAT he passes on to his buyers. Hence, theVAT-registered person selling the goods, properties, and services does not pay for theoutput VAT; said output VAT is paid for by his consumers and he only collects andremits the same to the government.

The crediting of the input VAT against the output VAT is a statutory privilege, granted bySection 110 of the National Internal Revenue Code of 1997. It gives the VAT-registeredperson the opportunity to recover the input VAT he had paid, so that, in effect, the inputVAT does not constitute an additional cost for him. While it is true that input VAT creditsare reported as assets in a VAT-registered person‘s financial statements and books ofaccount, this accounting treatment is still based on the statutory provision recognizingthe input VAT as a credit. Without Section 110 of the National Internal Revenue Code of1997, then the accounting treatment of any input VAT will also change and may nolonger be booked outright as an asset. Since the privilege of an input VAT credit isgranted by law, then an amendment of such law may limit the exercise of or may totallywithdraw the privilege.







The amendment of Section 110 of the National Internal Revenue Code of 1997 by Rep. Act No. 9337, which imposed the 70% cap on input VAT credits, is a legitimate exerciseby Congress of its law-making power. To say that Congress may not trifle with Section110 of the National Internal Revenue Code of 1997 would be to violate a basic preceptof constitutional law – that no law is irrepealable.11 There can be no vested right to the

continued existence of a statute, which precludes its change or repeal.

12

It bears to emphasize that Rep. Act No. 9337 does not totally remove the privilege ofcrediting the input VAT against the output VAT. It merely limits the amount of input VATone may credit against his output VAT per quarter to an amount equivalent to 70% ofthe output VAT. What is more, any input VAT in excess of the 70% cap may be carried-over to the next quarter .13 It is certainly a departure from the VAT crediting systemunder Section 110 of the National Internal Revenue Code of 1997, but it is an innovationthat Congress may very well introduce, because –

VAT will continue to evolve from its pioneering original structure. Dynamically, it will be

subjected to reforms that will make it conform to many factors, among which are: thechanging requirements of government revenue; the social, economic and politicalvicissitudes of the times; and the conflicting interests in our society. In the course of itsevolution, it will be injected with some oddities and inevitably transformed into astructure which its revisionists believe will be an improvement overtime.14

Second, assuming for the sake of argument, that the input VAT credit is indeed aproperty, the petroleum dealers‘ right thereto has not vested. A right is deemed vestedand subject to constitutional protection when –

". . . [T]he right to enjoyment, present or prospective, has become the property of some

particular person or persons as a present interest. The right must be absolute,complete, and unconditional, independent of a contingency, and a mere expectancy offuture benefit, or a contingent interest in property founded on anticipated continuance ofexisting laws, does not constitute a vested right. So, inchoate rights which have notbeen acted on are not vested." (16 C. J. S. 214-215)15

Under the National Internal Revenue Code of 1997, before it was amended by Rep. ActNo. 9337, the sale or importation of petroleum products were exempt from VAT, andinstead, were subject to excise tax.16 Petroleum dealers did not impose any output VATon their sales to consumers. Since they had no output VAT against which they couldcredit their input VAT, they shouldered the costs of the input VAT that they paid on theirpurchases of goods, properties, and services. Their sales not being subject to VAT, thepetroleum dealers had no input VAT credits to speak of.

It is only under Rep. Act No. 9337 that the sales by the petroleum dealers have becomesubject to VAT and only in its implementation may they use their input VAT as creditagainst their output VAT. While eager to use their input VAT credit accorded to it byRep. Act No. 9337, the petroleum dealers reject the limitation imposed by the very samelaw on such use.



























It should be remembered that prior to Rep. Act No. 9337, the petroleum dealers‘ inputVAT credits were inexistent – they were unrecognized and disallowed by law. Thepetroleum 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 creditswhen 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, isthat petroleum dealers‘ right to use their input VAT as credit against their output V ATunlimitedly has not vested, being a mere expectancy of a future benefit and beingcontingent on the continuance of Section 110 of the National Internal Revenue Code of1997, prior to its amendment by Rep. Act No. 9337.

Third, although the petroleum dealers presented figures and computations to supporttheir contention that the cap shall lead to the demise of their businesses, I remainunconvinced.

Rep. Act No. 9337, while imposing the 70% cap on input VAT credits, allows thetaxpayer to carry-over to the succeeding quarters any excess input VAT. The petroleumdealers presented a situation wherein their input VAT would always exceed 70% of theiroutput VAT, and thus, their excess input VAT will be perennially carried-over and wouldremain unutilized. Even though they consistently questioned the 70% cap on their inputVAT credits, the petroleum dealers failed to establish what is the average ratio of theirinput VAT vis-à-vis their output VAT per quarter. Without such fact, I consider theirobjection to the 70% cap arbitrary because there is no basis therefor.

On the other, I find that the 70% cap on input VAT credits was not imposed by

Congress arbitrarily. Members of the Bicameral Conference Committee settled on thesaid percentage so as to ensure that the government can collect a minimum of 30%output VAT per taxpayer. This is to put a VAT-taxpayer, at least, on equal footing with aVAT-exempt taxpayer under Section 109(V) of the National Internal Revenue Code, asamended by Rep. Act No. 9337.17 The latter taxpayer is exempt from VAT on the basisthat his sale or lease of goods or properties or services do not exceed P1,500,000;instead, he is subject to pay a three percent (3%) tax on his gross receipts in lieu of theVAT.18 If a taxpayer with presumably a smaller business is required to pay three percent(3%) gross receipts tax, a type of tax which does not even allow for any crediting, aVAT-taxpayer with a bigger business should be obligated, likewise, to pay a minimum of30% output VAT (which should be equivalent to 3% of the gross selling price per goodor property or service sold). The cap assures the government a collection of at least30% output VAT, contributing to an improved cash flow for the government.

Attention is further called to the fact that the output VAT is the VAT imposed on thesales by a VAT-taxpayer; it is paid by the purchasers of the goods, properties, andservices, and merely collected through the VAT-registered seller. The latter, therefore,serves as a collecting agent for the government. The VAT-registered seller is merely











being required to remit to the government a minimum of 30% of his output VATcollection.

Fourth, I give no weight to the figures and computations presented before this Court bythe petroleum dealers, particularly the supposed quarterly profit and loss statement of a

"typical dealer." How these data represent the financial status of a typical dealer, Iwould not know when there was no effort to explain the manner by which they weresurveyed, collated, and averaged out. Without establishing their source therefor, thefigures and computations presented by the petroleum dealers are merely self-servingand unsubstantiated, deserving scant consideration by this Court. Even assuming thatthese figures truly represent the financial standing of petroleum dealers, the introductionand application thereto of the VAT factor, which forebode the collapse of said petroleumdealers‘ businesses, would be nothing more than an anticipated damage – an injury thatmay or may not happen. To resolve their petition on this basis would be premature andcontrary to the established tenet of ripeness of a cause of action before this Court couldvalidly exercise its power of judicial review.

Fifth, in response to the contention of the petroleum dealers during oral argumentsbefore this Court that they cannot pass on to the consumers the VAT burden andincrease the prices of their goods, it is worthy to quote below this Court‘s ruling inChurchill v. Concepcion,19 to wit –

It will thus be seen that the contention that the rates charged for advertising cannot beraised is purely hypothetical, based entirely upon the opinion of the plaintiffs,unsupported by actual test, and that the plaintiffs themselves admit that a number ofother persons have voluntarily and without protest paid the tax herein complained of.Under these circumstances, can it be held as a matter of fact that the tax is confiscatory

or that, as a matter of law, the tax is unconstitutional? Is the exercise of the taxingpower of the Legislature dependent upon and restricted by the opinion of two interestedwitnesses? There can be but one answer to these questions, especially in view of thefact that others are paying the tax and presumably making reasonable profit from theirbusiness.

As a final observation, I perceive that what truly underlies the opposition to Rep. Act No.9337 is not the question of its constitutionality, but rather the wisdom of its enactment.Would it truly raise national revenue and benefit the entire country, or would it onlyincrease the burden of the Filipino people? Would it contribute to a revival of oureconomy or only contribute to the difficulties and eventual closure of businesses? Theseare issues that we cannot resolve as the Supreme Court. As this Court explained in

Agustin v. Edu,20 to wit –

It does appear clearly that petitioner‘s objection to this Letter of Instruction is no tpremised on lack of power, the justification for a finding of unconstitutionality, but on thepessimistic, not to say negative, view he entertains as to its wisdom. That approach, itput it at its mildest, is distinguished, if that is the appropriate word, by its unorthodoxy. Itbears repeating "that this Court, in the language of Justice Laurel, ‗does not pass upon











questions of wisdom, justice or expediency of legislation.‘ As expressed by JusticeTuason: ‗It is not the province of the courts to supervise legislation and keep it within thebounds of propriety and common sense. That is primarily and exclusively a legislativeconcern.‘ There can be no possible objection then to the observation of JusticeMontemayor: ‗As long as laws do not violate any Const itutional provision, the Courts

merely interpret and apply them regardless of whether or not they are wise or salutary.‘For they, according to Justice Labrador, ‗are not supposed to override legitimate policyand * * * never inquire into the wisdom of the law.‘ It is thus settled, to paraphrase ChiefJustice Concepcion in Gonzales v. Commission on Elections, that only congressionalpower or competence, not the wisdom of the action taken, may be the basis fordeclaring a statute invalid. This is as it ought to be. The principle of separation ofpowers has in the main wisely allocated the respective authority of each departmentand confined its jurisdiction to such sphere. There would then be intrusion not allowableunder the Constitution if on a matter left to the discretion of a coordinate branch, the

judiciary would substitute its own…"21

To reiterate, we cannot substitute our discretion for Congress, and even though thereare provisions in Rep. Act No. 9337 which we may believe as unwise or iniquitous, butnot unconstitutional, we cannot strike them off by invoking our power of judicial review.In such a situation, the recourse of the people is not judicial, but rather political. If theyseverely doubt the wisdom of the present Congress for passing a statute such as Rep.

Act No. 9337, then they have the power to hold the members of said Congressaccountable by using their voting power in the next elections.

In view of the foregoing, I vote for the denial of the present petitions and the upholdingof the constitutionality of Rep. Act No. 9337 in its entirety.

MINITA V. CHICO-NAZARIO Associate Justice







G.R. No. L-1104 May 31, 1949

EASTERN THEATRICAL CO., INC., ET AL., plaintiffs-appellants,

vs.VICTOR, ALFONSO as City Treasurer of Manila, THE MUNICIPAL BOARD OF THECITY OF MANILA, and JUAN NOLASCO, as Mayor of the City of Manila, defendants-appellees.

Francisco Zulueta and Poblador Jr. for appellants.City Fiscal Jose P. Bengzon and Assistant City Fiscal Julio Villamor for appellees.

Assistant Solicitor General Carmelino G. Alvendia, Solicitor Guillermo E.Torres andManuel D. Baldeo as amicus curiae.

PERFECTO, J.:

Twelve corporation engaged in motion picture business have initiated these proceedingthrough a complaint dated May 5, 1946, to impugn the validity of Ordinance No. 2958 ofthe City of Manila which was enacted by the municipalBoard of said city on April 251946 approved by the Mayor on April 27, 1946 and took effect on May 1, 1946 saidordinance reading as follows:

AN ORDINANCE IMPOSING A FEE ON THE PRICE OF EVERY ADMISSION TICKET SOLD BY CINEMATOGRAPHS, THEATERSVAUDEVILLE COMPANIES THEATRICAL SHOWS AND BOXING

EXHIBITION AND PROVIDING FOR OTHER PURPOSES.

SEC. 1. In addition to the fees paid by cinematographers, theaters, vaudevillecompanies, theatrical shows and boxing exhibitions, as provided for in sections633 and 778 of Ordinance No. 1600, known as the Revised Ordinance of the Cityof Manila, as amended, there shall be collected from the place of amusementwhich are specifically mentioned above the following fees on the price of everyadmission ticket sold by such enterprises:

a. For every ticket sold the price of which is fromP0.25 to P0.99

P0.05

b. For every ticket sold the price of which is from

P1 to P1.99

0.10

c . For every ticket sold the price of which is fromP2 to P2.99

0.15

d . for every ticket sold the price of which is fromP3 to P4.99

0.20

e. or every ticket sold the price of which is fromP5 to P5.99

0.25



f. For every ticket sold the price of which is fromP0 to P14.99

0.35

g . For ticket sold thee price of which is from P15or more

0.50

SEC. 2 It shall be the duty of every proprietor lessee, promoter, or operatorofsuch cinematographs, theater, vaudeville companies, theatrical show and boxingexhibition to provide himself with tickets which shall be serially numbered,indication therein the name of amusement place and the fee charge foradmission. Before such ticket are sold he same shall be presented to the office ofthe city Treasurer for registration. Tickets once issued and presented at the gateof entrance shall be cut by the gatekeeper into halves, the first half to be returnedto the customer and the other half to be retained by the gate keeper.

It shall also be the duty of said proprietor lessee promoter or operator to deliverto the Office of the City Treasurer the fees corresponding to the number of ticket

old by him within two days after the performances or exhibition has taken place.

SEC. 3. The fees herein prescribed shall not be paid where the admission fees orcharge are collection for and in behalf of any charitable education or religioninstitution or association.

All place of amusement which are operate by U.S. Army and Navy with fundbelonging to the U.S. Government are hereby exempted from fees hereinimposed.

SEC. 4. Any person violation any of the provision of this ordinance shall upon

conviction thereof be punished by a fine of not more than P200 or byimprisonment for not more than six months or by both such fine andimprisonment in the discretion of the court. If the violation is committed by theclub firm or corporation the manager the managing director or person chargedwith the management of the business of such club firm or corporation shall becriminally responsible therefor.

SEC. 5. This Ordinance shall take effect on the May 1, 1946.

Plaintiffs, operator of theaters in Manila And distributor of local or imported films allegethat they are interested in the provision of section 1,2 and 4 of said ordinance which

they impugn as null and void upon the following grounds: (a) For violation theConstitution more particular the provision regarding the uniformity and equality oftaxation and thee equal protection of the laws; (b) because the Municipal Board ofManila exceeded and over-stepped the power granted it the Charter of the City ofManila; (c ) because it contravenes violates and is inconsistent with, existingnationallegislation more particularly revenue and tax laws and (d ) because it is unfair,unjust, arbitrary capricious unreasonable oppressive and is contrary to and violation ourbasic and recognizes principles of taxation and licensing laws.



Defendants allege as affirmative defenses the following: (a) That the ordinance waspassed by the Municipal Board of Manila by virtue of its express legislative power to taxfix the license fee and regulate the business of theaters, cinematographs and further tofix the location of and to tax, fix the license fee for and regulate the business oftheatrical performances public exhibition circus and other performances and places of

amusement; (b) that the graduated tax required by said ordinance being applied to allcinematographs, theaters, vaudeville companies theatricalshow and boxing exhibitionssimilarly situated and as a class without distinction or exception the same does notviolate the prohibition against uniformity and equality of taxation; (c ) that the graduatedtax onadmission tickets to theaters and other places of amusement imposed by theNational Internal Revenue Code (Commonwealth Act No. 466) is collected by and forthe purposes of the National Government, whereas, Ordinance No.2958 imposes andrequires the collection of a similar tax by and for the purposes of the Government of theCity of Manila, and there is no case of double taxation, (d ) that said ordinance havingbeen enacted under the express power of the Municipal Board to tax for revenue asdistinguishedfrom its power to license for purely police purposes, the fact that the

amount collected thereunder are higher than what are needed for police regulation andsupervision does not render said ordinance unfair unjust capricious unreasonable andoppressive; (e) that consideration the nature of the business of the plaintiffs and theenormous volume of business they handle the graduated tax fixed by the ordinance isnot unreasonable.

Defendants allege also that since May 1, 1946, when the ordinance in question tookeffect plaintiffs have been charging the theater-going public increased prices foradmission to the cinematographs owned and operated to the graduated tax imposed bysaid ordinance and as a result while refusing to pay said tax but at the same timecollecting an amount equal to said tax plaintiffs have taken undue advantage of saidordinance to realized more profits.

On September 5, 1946, Judge Emilio Pena of the court of first Instance of Manilarendered a decision upholding the validity of Ordinance No. 2958.

Plaintiffs appellants assign in the their brief three errors committed by the trial court. Wewill consider them separately.

Appellants contend that the lower court erred in holding that under section 2444 (m) ofthe Revised administrative Code the Municipal Board of the City ofManila had the powerto enact Ordinance No. 2958.

Section 2444 (m) of the Revised Administrative code reads as follows:

To tax fix the license fee and regulate the business of hotels restaurantsrefreshment places, cafes, lodging houses, boarding houses livery garageswarehouses, pawnshops theaters, cinematographs; and further to fix the locationof and to tax fix the license fee for and regulate the businessof lively stables, thelicense fee for and regulate the business of livery stable, boarding stables,



embalmers, public billiard table public pool tables, bowling alleys, dance halls,public dancing halls, cabarets, circusand other similar parades, public vehicles,race tracks, horse races,Junk dealers, theatrical performances, publicexhibitions, circus andother performances and places of amusements, matchfactories, blacksmith shops, foundries, steam boilers, lumber yards, shipyards,

thestorage and sale of gunpowder, tar, pitch, resin, coal, oil, gasoline,benzene,turpentine, 'hemp, cotton, nitroglycerin, petroleum or any Ofthe products thereofand of all other highly combustible or explosivematerials and other establishmentlikely to endanger the public safety or give rise to conflagration or explosion andsubject to the provision of ordinance issue by the (Philippines Health Service)Bureau of Health in accordance with law tanneries, renders tallow chandlersbone factories and soap factories.

Appellants line of argument runs as follows:

By virtue of the specific power granted in the above quoted provision of the Revised

Administration Code Ordinance No. 2958 was enacted.On August 7, 1940 the National Assembly enacted Commonwealth Act No. 466, knownas the National Internal Revenue Code section 18, 260 and 261 of which read asfollows:

SEC. 18. Sources of revenue. — The following taxes fees and charges aredeemed to be national internal revenue taxes:

(a) Income tax;(b) Estate inheritance and gift taxes;

(c ) Specific taxes on certain articles;(d ) Privilege taxes on business or occupation;(e) Documentary stamp taxes;(f) Mining taxes;(g ) Miscellaneous taxes fees and charges, namely, taxes on banks andinsurance companies franchise taxes on amusements charges on forestproduct fees for sealing weights and measures firearms license fees radioregistration fees and water rentals.

SEC. 260. Amusement taxes. — There shall be collected from the proprietor,lessee, or operation of theater cinematographs, concert halls, circuses, boxingexhibition and other places of amusement the following taxes:

(a) When the amount paid for admission exceeds twenty-nine centavos, twocentavos on each admission;

(b) When the amount paid for admission exceeds twenty-nine but does notexceed thirty-nine centavos, three centavos on each admission;



(c ) When the amount paid for admission exceeds thirty-nine centavos but doesnot exceed forty-nine centavos four centavos on each admission.

(d ) When the amount paid for admission exceeds forty-nine centavos but doesnot exceed fifty-nine centavos five admission.

(e) When the amount paid for admission exceeds fifty-nine centavos but does notexceed sixty-nine centavos six centavos on each admission.

(f ) When the amount paid for admission exceeds sixty-nine centavos but doesnot exceed seventy nine centavos seven centavos on each admission.

(g ) When the amount paid for admission exceeds seventy nine centavos butdoes not exceed eighty-nine centavos eight centavos on each admission;

(h) When the amount paid for admission exceeds eighty-nine centavos but does

not exceed ninty-nine centavos, nine centavos on each admission;

(i ) When the amount paid for admission exceeds ninety-nine centavos, tencentavos on each admission.

In the case of theaters or cinematographs, the taxes herein prescribed shall firstbe decuted and withheld by the proprietros, lessees, or operators of suchtheaters or cinematogrphs and paid to the Collector of Internal Revenue beforethe gross receipts are divided between the proprietros, lessees, or operators ofthe theaters of cinematographs and the distributors of the cinematographic films.

In the case of cockpits, race tracks, and cabarets, there shall be collected fromthe proprietor, lessee, or operator a tax equivalent to ten per centum of the grossreceipts, irrespective of whether or not any amount is charged or paid foradmission: Provided, however, That in the case of race tracks, this tax is inaddition to the privilege tax prescribed in seciton 193. for the purpose of theamusement tax, the term "gross receipts" embraces all the receipts of theproprietor, lessee, or operator of the amusement place, excluding the receiptsderived by him from the sale of liquors, beverages, or other articles subject tospecific tax, or from any business subject to tax under this Code. (This sectionwas amended by section 8, Republic Act No. 39, effective October 1, 1946. Weare quoting the original provision to show the status of the law when the

Ordinance was passed.)SEC. 261. Exemption. — The tax herein imposed shall not be paid where theadmission fee or charges are collected by or for and in behalf of any religious,charitable, scientific, or educational institution or association, and where no partof the net proceeds of such admission fees or charges inures to the benefit ofany private stockholder or individual.



We see absolutely no force in plaintiffs' contention. The conflict pointed out by them isimaginary. Both provisions of law may stand together and be enforced at the same timewithout any incompatibility among themselves.

Finally, plaintiffs contend that the trial court erred in not holding that Ordinance No. 2958

violated the principle of equality and uniformity of taxation enjoined by the Constitution(sec. 22, sub-sec. 1, Art. VI, Constitution of the philippines).

To support this contenttion, appellantts point out to the fact that the ordinance inquestion does not tax "many more kinds of amusements" than those therein specified,such as "race tracks, cockpits, cabarets, concert halls, circuses, and other places ofamusement." the argument has absolutely no merit. The fact that some places ofamusement are not taxed while others, such as cinematographs, theaters, vaudevillecompanies, theatrical shows, and boxing exhibitions and other kinds of amusements orplaces of amusement are taxed, is no argument at all against the equality and uniformityof the tax imposition. Equality and uniformity of the tax imposition. Equality and

uniformity in taxation means that all taxable articles or kinds of property of the sameclass shall be taxed at the same rate. The taxing power has the authority to makereasonable and natural classifications for purposes of taxation; and the appellantscannot point out what places of amusement taxed by the ordinance do not constitute aclass by themselves and which can be confused with those not included in theordinance.

The judgment of the trial court is affirmed with costs against appellants.



SECOND DIVISION

WILLIAM GOLANGCO CONSTRUCTION

CORPORATION,

Petitioner,

- versus –

RAY BURTON DEVELOPMENT

CORPORATION,

Respondent.

G.R. No. 163582

Present:

CARPIO, J ., Chairperson,

NACHURA,

PERALTA

ABAD, and

MENDOZA, JJ .

Promulgated:

August 9, 2010

x----------------------------------------------------------------------------------------x

D E C I S I O N



PERALTA, J .:

This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of

Court, praying that the Decision[1] of the Court of Appeals (CA) dated December 19,

2003, holding that the Construction Industry Arbitration Commission (CIAC) had no

jurisdiction over the dispute between herein parties, and the CA Resolution[2] dated

May 24, 2004, denying herein petitioner's motion for reconsideration, be reversed and

set aside.

The undisputed facts, as accurately narrated in the CA Decision, are as follows.

On July 20, 1995, petitioner Ray Burton Development Corporation[herein respondent] (RBDC for brevity) and private respondent WilliamGolangco Construction Corporation [herein petitioner] (WGCC) entered intoa Contract for the construction of the Elizabeth Place (Office/ResidentialCondominium).

On March 18, 2002, private respondent WGCC filed a complaintwith a request for arbitration with the Construction Industry ArbitrationCommission (hereinafter referred to as CIAC). In its complaint, privaterespondent prayed that CIAC render judgment ordering petitioner to payprivate respondent the amount of, to wit:

1. P24,703,132.44 for the unpaid balance on thecontract price;

2. P10,602,670.25 for the unpaid balance on thelabor cost adjustment;

3. P9,264,503.70 for the unpaid balance ofadditive works;

4. P2,865,615.10 for extended overheadexpenses;



[1] Clause 17.2 of Art. XVII of the Contract Agreement explicitly provides that ―any dispute‖ arisingunder the construction contract shall be submitted to ―theConstruction Arbitration Authority created by theGovernment.‖ Even without this provision, the bare

agreement to submit a construction dispute to arbitrationvests in the Commission original and exclusive jurisdictionby virtue of Sec. 4 of Executive Order No. 1008, whether ornot a dispute involves a collection of sum of money orcontract interpretation as long as the same arises from, or inconnection with, contracts entered into by the partiesinvolved. The Supreme Court jurisprudence on Tesco vs.Vera case referred to by respondent is no longer controllingas the same was based on the old provision of Article III,Sec. 1 of the CIAC Rules which has long been amended.

[2] The issue raised by Respondent in its Motion toDismiss is similar to the issue set forth in CA-G.R. Sp. No.67367, Continental Cement Corporation vs. CIAC and EEICorporation, where the appellate court upheld the ruling ofthe CIAC thereon that since the parties agreed to submit toarbitration any dispute, the same does not exclude disputesrelating to claims for payment in as much as the said disputeoriginates from execution of the works. As such, the subjectdispute falls within the original and exclusive jurisdiction ofthe CIAC.

WHEREFORE, in view of the foregoing, Respondent'sMotion to Dismiss is DENIED for lack of merit. Respondentis given anew an inextendible period of ten (10) days fromreceipt hereof within which to file its Answer and nomineesfor the Arbitral Tribunal. If Respondent shall fail to complywithin the prescribed period, the Commission shall proceedwith arbitration in accordance with its Rules. x x x

Thereafter, petitioner filed a Motion to Suspend Proceedings prayingthat the CIAC order a suspension of the proceedings in Case No. 13-2002until the resolution of the negotiations between the parties, andconsequently, that the period to file an Answer be held in abeyance.



Private respondent filed an Opposition to the aforesaid Motion and aCounter-Motion to Declare respondent to Have Refused to Arbitrate and toProceed with Arbitration Ex Parte.

On May 24, 2002 the CIAC issued an Order, the pertinent portion ofwhich reads:

In view of the foregoing, Respondent's (petitioner's)Motion to Suspend Proceedings is DENIED. Accordingly,respondent is hereby given a non-extendible period of five(5) days from receipt thereof within which to submit its

Answer and nominees for the Arbitral Tribunal. In defaultthereof, claimant's (private respondent's) Counter-Motion isdeemed granted and arbitration shall proceed in accordancewith the CIAC Rules Governing Construction Arbitration.

SO ORDERED. x x x

On June 3, 2002, petitioner RBDC filed [with the Court of Appeals (CA)]a petition for Certiorari and Prohibition with prayer for the issuance of a

temporary restraining order and a writ of preliminary injunction. Petitionercontended that CIAC acted without or in excess of its jurisdiction when itissued the questioned order despite the clear showing that there is lack of

jurisdiction on the issue submitted by private respondent for arbitration.[3]

On December 19, 2003, the CA rendered the assailed Decision granting the

petition for certiorari, ruling that the CIAC had no jurisdiction over the subject matter of

the case because the parties agreed that only disputes regarding differences ininterpretation of the contract documents shall be submitted for arbitration, while the

allegations in the complaint make out a case for collection of sum of money. Petitioner

moved for reconsideration of said ruling, but the same was denied in a Resolution dated

May 24, 2004.



Hence, this petition where it is alleged that:

I.

THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OFDISCRETION IN FAILING TO DISMISS PRIVATE RESPONDENTRBDC'S PETITION IN CA-G.R. SP NO. 70959 OUTRIGHT IN VIEW OFRBDC'S FAILURE TO FILE A MOTION FOR RECONSIDERATION OFTHE CIAC'S ORDER, AS WELL AS FOR RBDC'S FAILURE TO

ATTACH TO THE PETITION THE RELEVANT PLEADINGS IN CIACCASE NO. 13-2002, IN VIOLATION OF THE REQUIREMENT UNDER

RULE 65, SECTIONS 1 AND 2, PARAGRAPH 2 THEREOF, AND RULE46, SECTION 3, PARAGRAPH 2 THEREOF.

II.

THE COURT OF APPEALS ERRED GRAVELY IN NOT RULING THATTHE CIAC HAS JURISDICTION OVER WGCC'S CLAIMS, WHICH AREIN THE NATURE OF ARBITRABLE DISPUTES COVERED BY CLAUSE17.1 OF ARTICLE XVII INVOLVING CONTRACT INTERPRETATION.

x x x x

III.

THE COURT OF APPEALS ERRED GRAVELY IN FAILING TODISCERN THAT CLAUSE 17.2 OF ARTICLE XVII CANNOT BETREATED AS BEING ―LIMITED TO DISPUTES ARISING FROMINTERPRETATION OF THE CONTRACT.‖

x x x x

IV.



THE COURT OF APPEALS ERRED GRAVELY IN NOT RULING THATRBDC IS ESTOPPED FROM DISPUTING THE JURISDICTION OF THECIAC.

x x x x

V.

FINALLY, THE COURT OF APPEALS COMMITTED GRAVE ABUSE OFDISCRETION IN REFUSING TO PAY HEED TO THE DECLARATION INEXECUTIVE ORDER NO. 1008 THAT THE POLICY OF THE STATE ISIN FAVOR OF ARBITRATION OF CONSTRUCTION DISPUTES,WHICH POLICY HAS BEEN REINFORCED FURTHER BY THERECENT PASSAGE OF THE ―ALTERNATIVE DISPUTE RESOLUTION

ACT OF 2004‖(R.A. NO. 9285).[4]

The petition is meritorious.

The aforementioned issues boil down to (1) whether the CA acted with grave

abuse of discretion in failing to dismiss the petition for certiorari filed by herein

respondent, in view of the latter's failure to file a motion for reconsideration of the

assailed CIAC Order and for failure to attach to the petition the relevant pleadings in

CIAC Case No. 13-2002; and (2) whether the CA gravely erred in not upholding the

jurisdiction of the CIAC over the subject complaint.

Petitioner is correct that it was grave error for the CA to have given due course to

respondent's petition for certiorari despite its failure to attach copies of relevant

pleadings in CIAC Case No. 13-2002. In Tagle v. Equitable PCI Bank ,[5] the party

filing the petition for certiorari before the CA failed to attach the Motion to Stop Writ of

Possession and the Order denying the same. On the ground of non-compliance with



the rules, the CA dismissed said petition for certiorari . When the case was elevated to

this Court via a petition for certiorari , the same was likewise dismissed. In said case,

the Court emphasized the importance of complying with the formal requirements for

filing a petition for certiorari and held as follows:

x x x Sec. 1, Rule 65, in relation to Sec. 3, Rule 46, of the RevisedRules of Court. Sec. 1 of Rule 65 reads:

SECTION 1. Petition for certiorari . – When any tribunal,board or officer exercising judicial or quasi-judicial functions hasacted without or in excess of its or his jurisdiction, or with graveabuse of discretion amounting to lack or excess of [its or his]

jurisdiction, and there is no appeal, or any plain, speedy, andadequate remedy in the ordinary course of law, a personaggrieved thereby may file a verified petition in the proper court,alleging the facts with certainty and praying that judgment berendered annulling or modifying the proceedings of suchtribunal, board or officer, and granting such incidental reliefs aslaw and justice may require.

The petition shall be accompanied by a certified true copyof the judgment, order or resolution subject thereof, copies of all

pleadings and documents relevant and pertinent thereto, and asworn certification of non-forum shopping as provided in thethird paragraph of Section 3, Rule 46. (Emphasis supplied.)

And Sec. 3 of Rule 46 provides:

SEC. 3. Contents and filing of petition; effect of non-compliance with requirements. – The petition shall contain thefull names and actual addresses of all the petitioners andrespondents, a concise statement of the matters involved, thefactual background of the case, and the grounds relied upon forthe relief prayed for.

In actions filed under Rule 65, the petition shall furtherindicate the material dates showing when notice of the judgmentor final order or resolution subject thereof was received, when amotion for new trial or reconsideration, if any, was filed andwhen notice of the denial thereof was received.

It shall be filed in seven (7) clearly legible copies togetherwith proof of service thereof on the respondent with the original



copy intended for the court indicated as such by the petitionerand shall be accompanied by a clearly legible duplicate originalor certified true copy of the judgment, order, resolution, or rulingsubject thereof, such material portions of the record as arereferred to therein, and other documents relevant or pertinent

thereto. The certification shall be accomplished by the properclerk of court or by his duly-authorized representative, or by theproper officer of the court, tribunal, agency or office involved orby his duly authorized representative. The other requisitenumber of copies of the petition shall be accompanied by clearlylegible plain copies of all documents attached to the original.

x x x x

The failure of the petitioner to comply with any of theforegoing requirements shall be sufficient ground for the

dismissal of the petition. (Emphasis supplied.)The afore-quoted provisions are plain and unmistakable. Failure

to comply with the requirement that the petition be accompanied by aduplicate original or certified true copy of the judgment, order, resolution orruling being challenged is sufficient ground for the dismissal of saidpetition. Consequently, it cannot be said that the Court of Appealsacted with grave abuse of discretion amounting to lack or excess of

jurisdiction in dismissing the petition x x x for non-compliance withSec. 1, Rule 65, in relation to Sec. 3, Rule 46, of the Revised Rules ofCourt.[6]

In the present case, herein petitioner (private respondent below) strongly argued

against the CA's granting due course to the petition, pointing out that pertinent

pleadings such as the Complaint before the CIAC, herein respondent's Motion to

Dismiss, herein petitioner's Comment and Opposition (Re: Motion to Dismiss), and the

Motion to Suspend Proceedings, have not been attached to the petition. Herein

respondent (petitioner before the CA) argued in its Reply[7] before the CA that it did notdeem such pleadings or documents germane to the petition. However, in the CA

Resolution[8] dated July 4, 2002, the appellate court itself revealed the necessity of

such documents by ordering the submission of copies of pleadings relevant to the

petition. Indeed, such pleadings are necessary for a judicious resolution of the issues



raised in the petition and should have been attached thereto. As mandated by the

rules, the failure to do so is sufficient ground for the dismissal of the petition. The CA

did not give any convincing reason why the rule regarding requirements for filing a

petition should be relaxed in favor of herein respondent. Therefore, it was error for the

CA to have given due course to the petition for certiorari despite herein respondent's

failure to comply with the requirements set forth in Section 1, Rule 65, in relation to

Section 3, Rule 46, of the Revised Rules of Court.

Even on the main issue regarding the CIAC's jurisdiction, the CA erred in ruling

that said arbitration body had no jurisdiction over the complaint filed by herein petitioner.

There is no question that, as provided under Section 4 of Executive Order No. 1008,

also known as the ―Construction Industry Arbitration Law,‖ the CIAC has original and

exclusive jurisdiction over disputes arising from, or connected with, contracts entered

into by parties involved in construction in the Philippines and all that is needed for the

CIAC to acquire jurisdiction is for the parties to agree to submit the same to voluntary

arbitration. Nevertheless, respondent insists that the only disputes it agreed to submit

to voluntary arbitration are those arising from interpretation of contract documents. It

argued that the claims alleged in petitioner's complaint are not disputes arising frominterpretation of contract documents; hence, the CIAC cannot assume jurisdiction over

the case.

Respondent's contention is tenuous.

The contract between herein parties contained an arbitration clause which reads

as follows:



17.1.1. Any dispute arising in the course of the execution of this Contractby reason of differences in interpretation of the Contract Documents whichthe OWNER and the CONTRACTOR are unable to resolve betweenthemselves, shall be submitted by either party for resolution or decision, xx x to a Board of Arbitrators composed of three (3) members, to be

chosen as follows:

One (1) member each shall be chosen by the OWNER andthe CONTRACTOR. The said two (2) members, in turn, shallselect a third member acceptable to both of them. Thedecision of the Board of Arbitrators shall be rendered withinfifteen (15) days from the first meeting of the Board. Thedecision of the Board of Arbitrators when reached throughthe affirmative vote of at least two (2) of its members shall befinal and binding upon the OWNER and the CONTRACTOR.

17.2 Matters not otherwise provided for in this Contract or by specialagreement of the parties shall be governed by the provisions of theConstruction Arbitration Law of the Philippines. As a last resort, anydispute which is not resolved by the Board of Arbitrators shall besubmitted to the Construction Arbitration Authority created by thegovernment.[9]

In gist, the foregoing provisions mean that herein parties agreed to submit

disputes arising by reason of differences in interpretation of the contract to a Board of

Arbitrators the composition of which is mutually agreed upon by the parties, and, as a

last resort, any other dispute which had not been resolved by the Board of Arbitrators

shall be submitted to the Construction Arbitration Authority created by the government,

which is no other than the CIAC. Moreover, other matters not dealt with by provisions

of the contract or by special agreements shall be governed by provisions of the

Construction Industry Arbitration Law, or Executive Order No. 1008.



CIAC Rules of Procedure Governing Construction Arbitration (CIAC Rules) further

provide that ―[a]n arbitration clause in a construction contract or a submission to

arbitration of a construction dispute shall be deemed an agreement to submit an

existing or future controversy to CIAC jurisdiction, notwithstanding the reference to a

different arbitration institution or arbitral body in such contract or submission.‖ Thus,

even if there is no showing that petitioner previously brought its claims before a Board

of Arbitrators constituted under the terms of the contract, this circumstance would not

divest the CIAC of jurisdiction. In HUTAMA-RSEA Joint Operations, Inc. v. Citra Metro

Manila Tollways Corporation,[11] the Court held that:

Under Section 1, Article III of the CIAC Rules, an arbitration clausein a construction contract shall be deemed as an agreement to submit anexisting or future controversy to CIAC jurisdiction, ―notwithstanding thereference to a different arbitration institution or arbitral body in suchcontract x x x.‖ Elementary is the rule that when laws or rules are clear, itis incumbent on the court to apply them. When the law (or rule) isunambiguous and unequivocal, application, not interpretation thereof, isimperative.

Hence, the bare fact that the parties herein incorporated anarbitration clause in the EPCC is sufficient to vest the CIAC with

jurisdiction over any construction controversy or claim between theparties. The arbitration clause in the construction contract ipso facto vested the CIAC with jurisdiction. This rule applies, regardless of whetherthe parties specifically choose another forum or make reference toanother arbitral body. Since the jurisdiction of CIAC is conferred by law, itcannot be subjected to any condition; nor can it be waived or diminishedby the stipulation, act or omission of the parties, as long as the partiesagreed to submit their construction contract dispute to arbitration, or ifthere is an arbitration clause in the construction contract. The parties willnot be precluded from electing to submit their dispute to CIAC, becausethis right has been vested in each party by law.

x x x x

It bears to emphasize that the mere existence of an arbitrationclause in the construction contract is considered by law as anagreement by the parties to submit existing or future controversiesbetween them to CIAC jurisdiction, without any qualification orcondition precedent. To affirm a condition precedent in the construction



contract, which would effectively suspend the jurisdiction of the CIACuntil compliance therewith, would be in conflict with the recognizedintention of the law and rules to automatically vest CIAC with jurisdictionover a dispute should the construction contract contain an arbitrationclause.

Moreover, the CIAC was created in recognition of the contributionof the construction industry to national development goals. Realizing thatdelays in the resolution of construction industry disputes would also holdup the development of the country, Executive Order No. 1008 expresslymandates the CIAC to expeditiously settle construction industry disputesand, for this purpose, vests in the CIAC original and exclusive jurisdictionover disputes arising from, or connected with, contracts entered into bythe parties involved in construction in the Philippines [12]