Page 1 of 403

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-28896 February 17, 1988
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.
CRUZ, J.:
Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On the other hand,
such collection should be made in accordance with law as any arbitrariness will negate the very reason for government
itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that
the real purpose of taxation, which is the promotion of the common good, may be achieved.
The main issue in this case is whether or not the Collector of Internal Revenue correctly disallowed the P75,000.00
deduction claimed by private respondent Algue as legitimate business expenses in its income tax returns. The corollary
issue is whether or not the appeal of the private respondent from the decision of the Collector of Internal Revenue was
made on time and in accordance with law.
We deal first with the procedural question.
The record shows that on January 14, 1965, the private respondent, a domestic corporation engaged in engineering,
construction and other allied activities, received a letter from the petitioner assessing it in the total amount of P83,183.85
as delinquency income taxes for the years 1958 and 1959. 1 On January 18, 1965, Algue flied a letter of protest or request
for reconsideration, which letter was stamp received on the same day in the office of the petitioner. 2 On March 12, 1965, a
warrant of distraint and levy was presented to the private respondent, through its counsel, Atty. Alberto Guevara, Jr., who
refused to receive it on the ground of the pending protest. 3 A search of the protest in the dockets of the case proved
fruitless. Atty. Guevara produced his file copy and gave a photostat to BIR agent Ramon Reyes, who deferred service of
the warrant. 4 On April 7, 1965, Atty. Guevara was finally informed that the BIR was not taking any action on the protest
and it was only then that he accepted the warrant of distraint and levy earlier sought to be served. 5 Sixteen days later, on
April 23, 1965, Algue filed a petition for review of the decision of the Commissioner of Internal Revenue with the Court of
Tax Appeals. 6
The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125, the appeal may be
made within thirty days after receipt of the decision or ruling challenged. 7 It is true that as a rule the warrant of distraint
and levy is "proof of the finality of the assessment" 8 and renders hopeless a request for reconsideration," 9being
"tantamount to an outright denial thereof and makes the said request deemed rejected." 10 But there is a special
circumstance in the case at bar that prevents application of this accepted doctrine.
The proven fact is that four days after the private respondent received the petitioner's notice of assessment, it filed its
letter of protest. This was apparently not taken into account before the warrant of distraint and levy was issued; indeed,
such protest could not be located in the office of the petitioner. It was only after Atty. Guevara gave the BIR a copy of the
protest that it was, if at all, considered by the tax authorities. During the intervening period, the warrant was premature
and could therefore not be served.
As the Court of Tax Appeals correctly noted," 11 the protest filed by private respondent was not pro forma and was based
on strong legal considerations. It thus had the effect of suspending on January 18, 1965, when it was filed, the
reglementary period which started on the date the assessment was received, viz., January 14, 1965. The period started
running again only on April 7, 1965, when the private respondent was definitely informed of the implied rejection of the
said protest and the warrant was finally served on it. Hence, when the appeal was filed on April 23, 1965, only 20 days of
the reglementary period had been consumed.
Now for the substantive question.
The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because it was not an ordinary
reasonable or necessary business expense. The Court of Tax Appeals had seen it differently. Agreeing with Algue, it held
that the said amount had been legitimately paid by the private respondent for actual services rendered. The payment was
in the form of promotional fees. These were collected by the Payees for their work in the creation of the Vegetable Oil
Investment Corporation of the Philippines and its subsequent purchase of the properties of the Philippine Sugar Estate
Development Company.
Parenthetically, it may be observed that the petitioner had Originally claimed these promotional fees to be personal
holding company income 12 but later conformed to the decision of the respondent court rejecting this assertion. 13 In fact, as

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the said court found, the amount was earned through the joint efforts of the persons among whom it was distributed It has
been established that the Philippine Sugar Estate Development Company had earlier appointed Algue as its agent,
authorizing it to sell its land, factories and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr.,
Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of the Vegetable Oil
Investment Corporation, inducing other persons to invest in it. 14 Ultimately, after its incorporation largely through the
promotion of the said persons, this new corporation purchased the PSEDC properties. 15 For this sale, Algue received as
agent a commission of P126,000.00, and it was from this commission that the P75,000.00 promotional fees were paid to
the aforenamed individuals. 16
There is no dispute that the payees duly reported their respective shares of the fees in their income tax returns and paid
the corresponding taxes thereon. 17 The Court of Tax Appeals also found, after examining the evidence, that no distribution
of dividends was involved. 18
The petitioner claims that these payments are fictitious because most of the payees are members of the same family in
control of Algue. It is argued that no indication was made as to how such payments were made, whether by check or in
cash, and there is not enough substantiation of such payments. In short, the petitioner suggests a tax dodge, an attempt
to evade a legitimate assessment by involving an imaginary deduction.
We find that these suspicions were adequately met by the private respondent when its President, Alberto Guevara, and
the accountant, Cecilia V. de Jesus, testified that the payments were not made in one lump sum but periodically and in
different amounts as each payee's need arose. 19 It should be remembered that this was a family corporation where strict
business procedures were not applied and immediate issuance of receipts was not required. Even so, at the end of the
year, when the books were to be closed, each payee made an accounting of all of the fees received by him or her, to
make up the total of P75,000.00. 20 Admittedly, everything seemed to be informal. This arrangement was understandable,
however, in view of the close relationship among the persons in the family corporation.
We agree with the respondent court that the amount of the promotional fees was not excessive. The total commission
paid by the Philippine Sugar Estate Development Co. to the private respondent was P125,000.00. 21After deducting the
said fees, Algue still had a balance of P50,000.00 as clear profit from the transaction. The amount of P75,000.00 was 60%
of the total commission. This was a reasonable proportion, considering that it was the payees who did practically
everything, from the formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar
Estate properties. This finding of the respondent court is in accord with the following provision of the Tax Code:
SEC. 30. Deductions from gross income.--In computing net income there shall be allowed as deductions

(a) Expenses:
(1) In general.--All the ordinary and necessary expenses paid or incurred during the taxable year in
carrying on any trade or business, including a reasonable allowance for salaries or other compensation
for personal services actually rendered; ... 22
and Revenue Regulations No. 2, Section 70 (1), reading as follows:
SEC. 70. Compensation for personal services.--Among the ordinary and necessary expenses paid or
incurred in carrying on any trade or business may be included a reasonable allowance for salaries or
other compensation for personal services actually rendered. The test of deductibility in the case of
compensation payments is whether they are reasonable and are, in fact, payments purely for service.
This test and deductibility in the case of compensation payments is whether they are reasonable and are,
in fact, payments purely for service. This test and its practical application may be further stated and
illustrated as follows:
Any amount paid in the form of compensation, but not in fact as the purchase price of services, is not
deductible. (a) An ostensible salary paid by a corporation may be a distribution of a dividend on stock.
This is likely to occur in the case of a corporation having few stockholders, Practically all of whom draw
salaries. If in such a case the salaries are in excess of those ordinarily paid for similar services, and the
excessive payment correspond or bear a close relationship to the stockholdings of the officers of
employees, it would seem likely that the salaries are not paid wholly for services rendered, but the
excessive payments are a distribution of earnings upon the stock. . . . (Promulgated Feb. 11, 1931, 30
O.G. No. 18, 325.)
It is worth noting at this point that most of the payees were not in the regular employ of Algue nor were they its controlling
stockholders. 23
The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity of the claimed
deduction. In the present case, however, we find that the onus has been discharged satisfactorily. The private respondent
has proved that the payment of the fees was necessary and reasonable in the light of the efforts exerted by the payees in
inducing investors and prominent businessmen to venture in an experimental enterprise and involve themselves in a new
business requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently recompensed.

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It is said that taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for lack of
the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard earned
income to the taxing authorities, every person who is able to must contribute his share in the running of the government.
The government for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the
lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and
should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that
it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a right to
complain and the courts will then come to his succor. For all the awesome power of the tax collector, he may still be
stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not been observed.
We hold that the appeal of the private respondent from the decision of the petitioner was filed on time with the respondent
court in accordance with Rep. Act No. 1125. And we also find that the claimed deduction by the private respondent was
permitted under the Internal Revenue Code and should therefore not have been disallowed by the petitioner.
ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in toto, without costs.
SO ORDERED.
Teehankee, C.J., Narvasa, Gancayco and Grio-Aquino, JJ., concur.
Footnotes
1 Rollo, pp. 28-29.
2 Ibid., pp. 29; 42.
3 Id., p. 29.
4 Respondent's Brief, p. 11.
5 Id., p. 29.
6 Id,
7 Sec. 11.
8 Phil. Planters Investment Co. Inc. v. Comm. of Internal Revenue, CTA Case No. 1266, Nov. 11, 1962; Rollo, p. 30.
9 Vicente Hilado v. Comm. of Internal Revenue, CTA Case No. 1266, Oct. 22,1962; Rollo, p. 30.
10 Ibid.
11 Penned by Associate Judge Estanislao R. Alvarez, concurred by Presiding Judge Ramon M. Umali and Associate Judge Ramon
L. Avancea.
12 Rollo, p. 33.
13 Ibid., pp. 7-8; Petition, pp. 2-3. 11 Id., p. 37.
15 Id.
16 Id.
17 Id.
18 Id.
19 Respondents Brief, pp. 25-32.
20 Ibid., pp. 30-32.
21 Rollo, p. 37.
22 Now Sec. 30, (a)(1)-(A.), National Internal Revenue Code.
23 Respondent's Brief, p. 35.

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Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-68252 May 26, 1995
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
TOKYO SHIPPING CO. LTD., represented by SORIAMONT STEAMSHIP AGENCIES INC., and COURT OF TAX
APPEALS, respondents.
PUNO, J.:
For resolution is whether or not private respondent Tokyo Shipping Co. Ltd., is entitled to a refund or tax credit for
amounts representing pre-payment of income and common carrier's taxes under the National Internal Revenue Code,
section 24 (b) (2), as amended. 1
Private respondent is a foreign corporation represented in the Philippines by Soriamont Steamship Agencies,
Incorporated. It owns and operates tramper vessel M/V Gardenia. In December 1980, NASUTRA 2 chartered M/V
Gardenia to load 16,500 metric tons of raw sugar in the Philippines. 3 On December 23, 1980, Mr. Edilberto Lising, the
operations supervisor of Soriamont Agency, 4 paid the required income and common carrier's taxes in the respective sums
of FIFTY-NINE THOUSAND FIVE HUNDRED TWENTY-THREE PESOS and SEVENTY-FIVE CENTAVOS (P59,523.75)
and FORTY-SEVEN THOUSAND SIX HUNDRED NINETEEN PESOS (P47,619.00), or a total of ONE HUNDRED
SEVEN THOUSAND ONE HUNDRED FORTY-TWO PESOS and SEVENTY-FIVE CENTAVOS (P107,142.75) based on
the expected gross receipts of the vessel. 5 Upon arriving, however, at Guimaras Port of Iloilo, the vessel found no sugar
for loading. On January 10, 1981, NASUTRA and private respondent's agent mutually agreed to have the vessel sail for
Japan without any cargo.
Claiming the pre-payment of income and common carrier's taxes as erroneous since no receipt was realized from the
charter agreement, private respondent instituted a claim for tax credit or refund of the sum ONE HUNDRED SEVEN
THOUSAND ONE HUNDRED FORTY-TWO PESOS and SEVENTY-FIVE CENTAVOS (P107,142.75) before petitioner
Commissioner of Internal Revenue on March 23, 1981. Petitioner failed to act promptly on the claim, hence, on May 14,
1981, private respondent filed a petition for review 6 before public respondent Court of Tax Appeals.
Petitioner contested the petition. As special and affirmative defenses, it alleged the following: that taxes are presumed to
have been collected in accordance with law; that in an action for refund, the burden of proof is upon the taxpayer to show
that taxes are erroneously or illegally collected, and the taxpayer's failure to sustain said burden is fatal to the action for
refund; and that claims for refund are construed strictly against tax claimants. 7
After trial, respondent tax court decided in favor of the private respondent. It held:
It has been shown in this case that 1) the petitioner has complied with the mentioned statutory
requirement by having filed a written claim for refund within the two-year period from date of payment; 2)
the respondent has not issued any deficiency assessment nor disputed the correctness of the tax returns
and the corresponding amounts of prepaid income and percentage taxes; and 3) the chartered vessel
sailed out of the Philippine port with absolutely no cargo laden on board as cleared and certified by the
Customs authorities; nonetheless 4) respondent's apparent bit of reluctance in validating the legal merit of
the claim, by and large, is tacked upon the "examiner who is investigating petitioner's claim for refund
which is the subject matter of this case has not yet submitted his report. Whether or not respondent will
present his evidence will depend on the said report of the examiner." (Respondent's Manifestation and
Motion dated September 7, 1982). Be that as it may the case was submitted for decision by respondent
on the basis of the pleadings and records and by petitioner on the evidence presented by
counsel sans the respective memorandum.
An examination of the records satisfies us that the case presents no dispute as to relatively simple
material facts. The circumstances obtaining amply justify petitioner's righteous indignation to a more
expeditious action. Respondent has offered no reason nor made effort to submit any controverting
documents to bash that patina of legitimacy over the claim. But as might well be, towards the end of some
two and a half years of seeming impotent anguish over the pendency, the respondent Commissioner of
Internal Revenue would furnish the satisfaction of ultimate solution by manifesting that "it is now his turn
to present evidence, however, the Appellate Division of the BIR has already recommended the approval
of petitioner's claim for refund subject matter of this petition. The examiner who examined this case has
also recommended the refund of petitioner's claim. Without prejudice to withdrawing this case after the
final approval of petitioner's claim, the Court ordered the resetting to September 7, 1983." (Minutes of
June 9, 1983 Session of the Court) We need not fashion any further issue into an apparently settled legal
situation as far be it from a comedy of errors it would be too much of a stretch to hold and deny the refund
of the amount of prepaid income and common carrier's taxes for which petitioner could no longer be
made accountable.

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On August 3, 1984, respondent court denied petitioner's motion for reconsideration, hence, this petition for review
on certiorari.
Petitioner now contends: (1) private respondent has the burden of proof to support its claim of refund; (2) it failed to prove
that it did not realize any receipt from its charter agreement; and (3) it suppressed evidence when it did not present its
charter agreement.
We find no merit in the petition.
There is no dispute about the applicable law. It is section 24 (b) (2) of the National Internal Revenue Code which at that
time provides as follows:
A corporation organized, authorized, or existing under the laws of any foreign country, engaged in trade or
business within the Philippines, shall be taxable as provided in subsection (a) of this section upon the
total net income derived in the preceding taxable year from all sources within the Philippines: Provided,
however, That international carriers shall pay a tax of two and one-half per cent (2 1/2%) on their gross
Philippine billings: "Gross Philippine Billings" include gross revenue realized from uplifts anywhere in the
world by any international carrier doing business in the Philippines of passage documents sold therein,
whether for passenger, excess baggage or mail, provided the cargo or mail originates from the
Philippines. The gross revenue realized from the said cargo or mail include the gross freight charge up to
final destination. Gross revenue from chartered flights originating from the Philippines shall likewise form
part of "Gross Philippine Billings" regardless of the place or payment of the passage documents . . . . .
Pursuant to this provision, a resident foreign corporation engaged in the transport of cargo is liable for taxes depending on
the amount of income it derives from sources within the Philippines. Thus, before such a tax liability can be enforced the
taxpayer must be shown to have earned income sourced from the Philippines.
We agree with petitioner that a claim for refund is in the nature of a claim for exemption 8 and should be construed
in strictissimi juris against the taxpayer. 9 Likewise, there can be no disagreement with petitioner's stance that private
respondent has the burden of proof to establish the factual basis of its claim for tax refund.
The pivotal issue involves a question of fact whether or not the private respondent was able to prove that it derived no
receipts from its charter agreement, and hence is entitled to a refund of the taxes it pre-paid to the government.
The respondent court held that sufficient evidence has been adduced by the private respondent proving that it derived no
receipt from its charter agreement with NASUTRA. This finding of fact rests on a rational basis, and hence must be
sustained. Exhibits "E", "F," and "G" positively show that the tramper vessel M/V "Gardenia" arrived in Iloilo on January 10,
1981 but found no raw sugar to load and returned to Japan without any cargo laden on board. Exhibit "E" is the Clearance
Vessel to a Foreign Port issued by the District Collector of Customs, Port of Iloilo while Exhibit "F" is the Certification by
the Officer-in-Charge, Export Division of the Bureau of Customs Iloilo. The correctness of the contents of these
documents regularly issued by officials of the Bureau of Customs cannot be doubted as indeed, they have not been
contested by the petitioner. The records also reveal that in the course of the proceedings in the court a quo, petitioner
hedged and hawed when its turn came to present evidence. At one point, its counsel manifested that the BIR examiner
and the appellate division of the BIR have both recommended the approval of private respondent's claim for refund. The
same counsel even represented that the government would withdraw its opposition to the petition after final approval of
private respondents' claim. The case dragged on but petitioner never withdrew its opposition to the petition even if it did
not present evidence at all. The insincerity of petitioner's stance drew the sharp rebuke of respondent court in its Decision
and for good reason. Taxpayers owe honesty to government just as government owes fairness to taxpayers.
In its last effort to retain the money erroneously prepaid by the private respondent, petitioner contends that private
respondent suppressed evidence when it did not present its charter agreement with NASUTRA. The contention cannot
succeed. It presupposes without any basis that the charter agreement is prejudicial evidence against the private
respondent. 10 Allegedly, it will show that private respondent earned a charter fee with or without transporting its supposed
cargo from Iloilo to Japan. The allegation simply remained an allegation and no court of justice will regard it as truth.
Moreover, the charter agreement could have been presented by petitioner itself thru the proper use of asubpoena duces
tecum. It never did either because of neglect or because it knew it would be of no help to bolster its position. 11 For
whatever reason, the petitioner cannot take to task the private respondent for not presenting what it mistakenly calls
"suppressed evidence."
We cannot but bewail the unyielding stance taken by the government in refusing to refund the sum of ONE HUNDRED
SEVEN THOUSAND ONE HUNDRED FORTY TWO PESOS AND SEVENTY FIVE CENTAVOS (P107,142.75)
erroneously prepaid by private respondent. The tax was paid way back in 1980 and despite the clear showing that it was
erroneously paid, the government succeeded in delaying its refund for fifteen (15) years. After fifteen (15) long years and
the expenses of litigation, the money that will be finally refunded to the private respondent is just worth a damaged nickel.
This is not, however, the kind of success the government, especially the BIR, needs to increase its collection of taxes. Fair
deal is expected by our taxpayers from the BIR and the duty demands that BIR should refund without any unreasonable
delay what it has erroneously collected. Our ruling inRoxas v. Court of Tax Appeals 12 is apropos to recall:
The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised
with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally

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and uniformly, lest the tax collector kill the "hen that lays the golden egg." And, in order to maintain the
general public's trust and confidence in the Government this power must be used justly and not
treacherously.
IN VIEW HEREOF, the assailed decision of respondent Court of Tax Appeals, dated September 15, 1983, is
AFFIRMED in toto. No costs.
SO ORDERED.
Narvasa, C.J., Regalado and Mendoza, JJ., concur.
Footnotes
1 This appeal was brought pursuant to Republic Act No. 1125 (June 16, 1954), as amended. Under Batas Blg. 129, decisions of the
Court of Tax Appeals are appealable to the Court of Appeals, amending the procedure prescribed by the Act. The change has been
held to be merely procedural. (First Lepanto Ceramics, Inc. vs. Court of Appeals, G.R. No. 110571, March 10, 1994, 231 SCRA 30).
2 TSN of May 10, 1982, p. 7.
3 Annex "C."
4 TSN of May 10, 1982, p. 3.
5 Annex "A."
6 Docketed C.T.A. Case No. 3260.
7 Petition, pp. 6-9; Rollo, pp. 18-21.
8 Resins, Inc. v. Auditor General, L-17888, October 29, 1968, 25 SCRA 754.
9 Province of Tarlac v. Alcantara, G.R. No. 65230, December 23, 1992, 216 SCRA 790.
10 See Nicolas v. Nicolas, 52 Phil. 265 [1928].
11 See Ang Seng Quiem v. Te Chico, 7 Phil 541 [1907].
12 No. L-25043, April 26, 1968,23 SCRA 276.

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Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 122480

April 12, 2000

BPI-FAMILY SAVINGS BANK, Inc., petitioner,

vs.
COURT OF APPEALS, COURT OF TAX APPEALS and the COMMISSIONER OF INTERNAL REVENUE,respondents.
PANGANIBAN, J.:
If the State expects its taxpayers to observe fairness and honesty in paying their taxes, so must it apply the same
standard against itself in refunding excess payments. When it is undisputed that a taxpayer is entitled to a refund, the
State should not invoke technicalities to keep money not belonging to it. No one, not even the State, should enrich oneself
at the expense of another.
The Case
Before us is a Petition for Review assailing the March 31, 1995 Decision of the Court of Appeals 1 (CA) in CA-GR SP No.
34240, which affirmed the December 24, 1993 Decision 2 of the Court of Tax Appeals (CTA). The CA disposed as follows:
WHEREFORE, foregoing premises considered, the petition is hereby DISMISSED for lack of merit. 3
On the other hand, the dispositive portion of the CTA Decision affirmed by the CA reads as follows:
WHEREFORE, in [view of] all the foregoing, Petitioner's claim for refund is hereby DENIED and this Petition for
Review is DISMISSED for lack of merit.4
Also assailed is the November 8, 1995 CA Resolution5 denying reconsideration.
The Facts
The facts of this case were summarized by the CA in this wise:
This case involves a claim for tax refund in the amount of P112,491.00 representing petitioner's tax withheld for
the year 1989.
In its Corporate Annual Income Tax Return for the year 1989, the following items are reflected:
Income P1,017,931,831.00
Deductions P1,026,218,791.00
Net Income (Loss) (P8,286,960.00)
Taxable Income (Loss) (P8,286,960.00)
Less:
1988 Tax Credit P185,001.00
1989 Tax Credit P112,491.00
TOTAL AMOUNT P297,492.00
REFUNDABLE
It appears from the foregoing 1989 Income Tax Return that petitioner had a total refundable amount of
P297,492 inclusive of the P112,491.00 being claimed as tax refund in the present case. However,
petitioner declared in the same 1989 Income Tax Return that the said total refundable amount of
P297,492.00 will be applied as tax credit to the succeeding taxable year.
On October 11, 1990, petitioner filed a written claim for refund in the amount of P112,491.00 with the
respondent Commissioner of Internal Revenue alleging that it did not apply the 1989 refundable amount

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of P297,492.00 (including P112,491.00) to its 1990 Annual Income Tax Return or other tax liabilities due
to the alleged business losses it incurred for the same year.
Without waiting for respondent Commissioner of Internal Revenue to act on the claim for refund, petitioner
filed a petition for review with respondent Court of Tax Appeals, seeking the refund of the amount
of P112,491.00.
The respondent Court of Tax Appeals dismissed petitioner's petition on the ground that petitioner failed to
present as evidence its corporate Annual Income Tax Return for 1990 to establish the fact that petitioner
had not yet credited the amount of P297,492.00 (inclusive of the amount P112,491.00 which is the subject
of the present controversy) to its 1990 income tax liability.
Petitioner filed a motion for reconsideration, however, the same was denied by respondent court in its
Resolution dated May 6, 1994.6
As earlier noted, the CA affirmed the CTA. Hence, this Petition. 7
Ruling of the Court of Appeals
In affirming the CTA, the Court of Appeals ruled as follows:
It is incumbent upon the petitioner to show proof that it has not credited to its 1990 Annual income Tax
Return, the amount of P297,492.00 (including P112,491.00), so as to refute its previous declaration in the
1989 Income Tax Return that the said amount will be applied as a tax credit in the succeeding year of
1990. Having failed to submit such requirement, there is no basis to grant the claim for refund. . . .
Tax refunds are in the nature of tax exemptions. As such, they are regarded as in derogation of sovereign
authority and to be construed strictissimi juris against the person or entity claiming the exemption. In other
words, the burden of proof rests upon the taxpayer to establish by sufficient and competent evidence its
entitlement to the claim for refund.8
Issue
In their Memorandum, respondents identify the issue in this wise:
The sole issue to be resolved is whether or not petitioner is entitled to the refund of P112,491.90, representing
excess creditable withholding tax paid for the taxable year 1989. 9
The Court's Ruling
The Petition is meritorious.
Main Issue:
Petitioner Entitled to Refund
It is undisputed that petitioner had excess withholding taxes for the year 1989 and was thus entitled to a refund amounting
to P112,491. Pursuant to Section 69 10 of the 1986 Tax Code which states that a corporation entitled to a refund may opt
either (1) to obtain such refund or (2) to credit said amount for the succeeding taxable year, petitioner indicated in its 1989
Income Tax Return that it would apply the said amount as a tax credit for the succeeding taxable year, 1990.
Subsequently, petitioner informed the Bureau of Internal Revenue (BIR) that it would claim the amount as a tax refund,
instead of applying it as a tax credit. When no action from the BIR was forthcoming, petitioner filed its claim with the Court
of Tax Appeals.
The CTA and the CA, however, denied the claim for tax refund. Since petitioner declared in its 1989 Income Tax Return
that it would apply the excess withholding tax as a tax credit for the following year, the Tax Court held that petitioner was
presumed to have done so. The CTA and the CA ruled that petitioner failed to overcome this presumption because it did
not present its 1990 Return, which would have shown that the amount in dispute was not applied as a tax credit. Hence,
the CA concluded that petitioner was not entitled to a tax refund.
We disagree with the Court of Appeals. As a rule, the factual findings of the appellate court are binding on this Court. This
rule, however, does not apply where, inter alia, the judgment is premised on a misapprehension of facts, or when the
appellate court failed to notice certain relevant facts which if considered would justify a different conclusion. 11 This case is
one such exception.
In the first place, petitioner presented evidence to prove its claim that it did not apply the amount as a tax credit. During
the trial before the CTA, Ms. Yolanda Esmundo, the manager of petitioner's accounting department, testified to this fact. It
likewise presented its claim for refund and a certification issued by Mr. Gil Lopez, petitioner's vice-president, stating that

Page 9 of 403
the amount of P112,491 "has not been and/or will not be automatically credited/offset against any succeeding quarters'
income tax liabilities for the rest of the calendar year ending December 31, 1990." Also presented were the quarterly
returns for the first two quarters of 1990.
The Bureau of Internal Revenue, for its part, failed to controvert petitioner's claim. In fact, it presented no evidence at all.
Because it ought to know the tax records of all taxpayers, the CIR could have easily disproved petitioner's claim. To
repeat, it did not do so.
More important, a copy of the Final Adjustment Return for 1990 was attached to petitioner's Motion for Reconsideration
filed before the CTA. 12 A final adjustment return shows whether a corporation incurred a loss or gained a profit during the
taxable year. In this case, that Return clearly showed that petitioner incurred P52,480,173 as net loss in 1990. Clearly, it
could not have applied the amount in dispute as a tax credit.
Again, the BIR did not controvert the veracity of the said return. It did not even file an opposition to petitioner's Motion and
the 1990 Final Adjustment Return attached thereto. In denying the Motion for Reconsideration, however, the CTA ignored
the said Return. In the same vein, the CA did not pass upon that significant document.
True, strict procedural rules generally frown upon the submission of the Return after the trial.1wphi1 The law creating the
Court of Tax Appeals, however, specifically provides that proceedings before it "shall not be governed strictly by the
technical rules of evidence." 13 The paramount consideration remains the ascertainment of truth. Verily, the quest for
orderly presentation of issues is not an absolute. It should not bar courts from considering undisputed facts to arrive at a
just determination of a controversy.
In the present case, the Return attached to the Motion for Reconsideration clearly showed that petitioner suffered a net
loss in 1990. Contrary to the holding of the CA and the CTA, petitioner could not have applied the amount as a tax credit.
In failing to consider the said Return, as well as the other documentary evidence presented during the trial, the appellate
court committed a reversible error.
It should be stressed that the rationale of the rules of procedure is to secure a just determination of every action. They are
tools designed to facilitate the attainment of justice. 14 But there can be no just determination of the present action if we
ignore, on grounds of strict technicality, the Return submitted before the CTA and even before this Court. 15 To repeat, the
undisputed fact is that petitioner suffered a net loss in 1990; accordingly, it incurred no tax liability to which the tax credit
could be applied. Consequently, there is no reason for the BIR and this Court to withhold the tax refund which rightfully
belongs to the petitioner.
Public respondents maintain that what was attached to petitioner's Motion for Reconsideration was not the final
adjustment Return, but petitioner's first two quarterly returns for 1990. 16 This allegation is wrong. An examination of the
records shows that the 1990 Final Adjustment Return was attached to the Motion for Reconsideration. On the other hand,
the two quarterly returns for 1990 mentioned by respondent were in fact attached to the Petition for Review filed before
the CTA. Indeed, to rebut respondents' specific contention, petitioner submitted before us its Surrejoinder, to which was
attached the Motion for Reconsideration and Exhibit "A" thereof, the Final Adjustment Return for 1990. 17
CTA Case No. 4897
Petitioner also calls the attention of this Court, as it had done before the CTA, to a Decision rendered by the Tax Court in
CTA Case No. 4897, involving its claim for refund for the year 1990. In that case, the Tax Court held that "petitioner
suffered a net loss for the taxable year 1990 . . . ." 18 Respondent, however, urges this Court not to take judicial notice of
the said case. 19
As a rule, "courts are not authorized to take judicial notice of the contents of the records of other cases, even when such
cases have been tried or are pending in the same court, and notwithstanding the fact that both cases may have been
heard or are actually pending before the same judge." 20
Be that as it may, Section 2, Rule 129 provides that courts may take judicial notice of matters ought to be known to judges
because of their judicial functions. In this case, the Court notes that a copy of the Decision in CTA Case No. 4897 was
attached to the Petition for Review filed before this Court. Significantly, respondents do not claim at all that the said
Decision was fraudulent or nonexistent. Indeed, they do not even dispute the contents of the said Decision, claiming
merely that the Court cannot take judicial notice thereof.
To our mind, respondents' reasoning underscores the weakness of their case. For if they had really believed that petitioner
is not entitled to a tax refund, they could have easily proved that it did not suffer any loss in 1990. Indeed, it is noteworthy
that respondents opted not to assail the fact appearing therein that petitioner suffered a net loss in 1990 in the same
way that it refused to controvert the same fact established by petitioner's other documentary exhibits.
In any event, the Decision in CTA Case No. 4897 is not the sole basis of petitioner's case. It is merely one more bit of
information showing the stark truth: petitioner did not use its 1989 refund to pay its taxes for 1990.
Finally, respondents argue that tax refunds are in the nature of tax exemptions and are to be construedstrictissimi
juris against the claimant. Under the facts of this case, we hold that petitioner has established its claim. Petitioner may

Page 10 of 403
have failed to strictly comply with the rules of procedure; it may have even been negligent. These circumstances,
however, should not compel the Court to disregard this cold, undisputed fact: that petitioner suffered a net loss in 1990,
and that it could not have applied the amount claimed as tax credits.
Substantial justice, equity and fair play are on the side of petitioner. Technicalities and legalisms, however exalted, should
not be misused by the government to keep money not belonging to it and thereby enrich itself at the expense of its lawabiding citizens. If the State expects its taxpayers to observe fairness and honesty in paying their taxes, so must it apply
the same standard against itself in refunding excess payments of such taxes. Indeed, the State must lead by its own
example of honor, dignity and uprightness.
WHEREFORE, the Petition is hereby GRANTED and the assailed Decision and Resolution of the Court of Appeals
REVERSED and SET ASIDE. The Commissioner of Internal Revenue is ordered to refund to petitioner the amount of
P112,491 as excess creditable taxes paid in 1989. No costs.1wphi1.nt
SO ORDERED.
Melo, Purisima and Gonzaga-Reyes, JJ., concur.
Vitug, J., abroad on official business.
Footnotes
1

Fourth Division, composed of JJ. Quirino D. Abad Santos Jr. (ponente), Gloria C. Paras (chairman) and Delilah Vidallon-Magtolis (member).
Written by Associate Judge Ramon O. De Veyra, with the concurrence of Presiding Judge Ernesto A. Acosta and Associate Judge Manuel K. Gruba.
The case was docketed as CTA Case No. 4694.
3
Rollo, p. 30.
4
Rollo, p. 38.
5
Rollo, p. 32.
6
Rollo, pp. 27-28.
7
The case was deemed submitted for resolution on October 18, 1999, upon receipt by this Court of respondents' Memorandum, which was signed by
Assistant Solicitor General Mariano M. Martinez and Associate Solicitor Olivia V. Non. Petitioner's Memorandum, which was signed by Atty. Sabino B.
Padilla IV of the Padilla Law Office, was received earlier on August 19, 1999. This case, however, was assigned to the undersigned ponente for the
writing of the Court's Decision during the deliberations of the Court on April 5, 2000 when his erstwhile Dissent was voted as the majority opinion.
Subsequently, the original ponentechanged his mind and now agrees with this Decision.
8
Rollo, p. 29.
9
Respondents' Memorandum, p. 5.
10
Sec. 69. Final Adjustment Return. Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total taxable
income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total due
on the entire taxable net income of that year the corporation shall either:
(a) Pay the excess tax still due; or
(b) Be refunded the excess amount paid, as the case may be.
In case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment
return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year.
11
National Steel Corporation v. CA, 283 SCRA 45, December 12, 1997; Fuentes Jr. v. Court of Appeals, 253 SCRA 430, 435, February 9, 1996.
12
Exhibit "A," Motion for Reconsideration filed before the CTA. This was attached to Petitioner's Surrejoinder (Rollo, p. 160).
13
Sec. 8, Republic Act No. 1125.
14
See De Guzman v. Sandiganbayan, 256 SCRA 171, April 11, 1996.
15
See Annex "A," Petitioner's Surrejoinder; rollo, p. 160.
16
Respondent's Memorandum, p. 7.
17
Rollo, p. 160.
18
Decision in CTA Case No. 4897, p. 7; rollo, p. 59.
19
Respondents' Memorandum, pp. 9-10.
20
Tabuena v. CA, 196 SCRA 650, May 6, 1991, per Cruz, J.
2

The Lawphil Project - Arellano Law Foundation

Page 11 of 403
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 112024 January 28, 1999
PHILIPPINE BANK OF COMMUNICATIONS, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, COURT OF TAX APPEALS and COURT OF APPEALS,respondent.
QUISUMBING, J.:
This petition for review assails the Resolution 1 of the Court of Appeals dated September 22, 1993 affirming the
Decision 2 and a Resolution 3 of the Court Of Tax Appeals which denied the claims of the petitioner for tax refund and tax
credits, and disposing as follows:
IN VIEW OF ALL, THE FOREGOING, the instant petition for review, is DENIED due course. The Decision
of the Court of Tax Appeals dated May 20, 1993 and its resolution dated July 20, 1993, are hereby
AFFIRMED in toto.
SO ORDERED. 4
The Court of Tax Appeals earlier ruled as follows:
WHEREFORE, Petitioner's claim for refund/tax credits of overpaid income tax for 1985 in the amount of
P5,299,749.95 is hereby denied for having been filed beyond the reglementary period. The 1986 claim for
refund amounting to P234,077.69 is likewise denied since petitioner has opted and in all likelihood
automatically credited the same to the succeeding year. The petition for review is dismissed for lack of
merit.
SO ORDERED. 5
The facts on record show the antecedent circumstances pertinent to this case.
Petitioner, Philippine Bank of Communications (PBCom), a commercial banking corporation duly organized under
Philippine laws, filed its quarterly income tax returns for the first and second quarters of 1985, reported profits, and paid
the total income tax of P5,016,954.00. The taxes due were settled by applying PBCom's tax credit memos and
accordingly, the Bureau of Internal Revenue (BIR) issued Tax Debit Memo Nos. 0746-85 and 0747-85 for P3,401,701.00
and P1,615,253.00, respectively.
Subsequently, however, PBCom suffered losses so that when it filed its Annual Income Tax Returns for the year-ended
December 31, 1986, the petitioner likewise reported a net loss of P14,129,602.00, and thus declared no tax payable for
the year.
But during these two years, PBCom earned rental income from leased properties. The lessees withheld and remitted to
the BIR withholding creditable taxes of P282,795.50 in 1985 and P234,077.69 in 1986.
On August 7, 1987, petitioner requested the Commissioner of Internal Revenue, among others, for a tax credit of
P5,016,954.00 representing the overpayment of taxes in the first and second quarters of 1985.
Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes withheld by their lessees from property
rentals in 1985 for P282,795.50 and in 1986 for P234,077.69.
Pending the investigation of the respondent Commissioner of Internal Revenue, petitioner instituted a Petition for Review
on November 18, 1988 before the Court of Tax Appeals (CTA). The petition was docketed as CTA Case No. 4309 entitled:
"Philippine Bank of Communications vs. Commissioner of Internal Revenue."
The losses petitioner incurred as per the summary of petitioner's claims for refund and tax credit for 1985 and 1986, filed
before the Court of Tax Appeals, are as follows:
1985 1986

Net Income (Loss) (P25,317,288.00) (P14,129,602.00)

Page 12 of 403
Tax Due NIL NIL
Quarterly tax.
Payments Made 5,016,954.00
Tax Withheld at Source 282,795.50 234,077.69

Excess Tax Payments P5,299,749.50* P234,077.69
=============== =============
* CTA's decision reflects PBCom's 1985 tax claim as P5,299,749.95. A forty five centavo
difference was noted.
On May 20, 1993, the CTA rendered a decision which, as stated on the outset, denied the request of petitioner for a tax
refund or credit in the sum amount of P5,299,749.95, on the ground that it was filed beyond the two-year reglementary
period provided for by law. The petitioner's claim for refund in 1986 amounting to P234,077.69 was likewise denied on the
assumption that it was automatically credited by PBCom against its tax payment in the succeeding year.
On June 22, 1993, petitioner filed a Motion for Reconsideration of the CTA's decision but the same was denied due
course for lack of merit. 6
Thereafter, PBCom filed a petition for review of said decision and resolution of the CTA with the Court of Appeals.
However on September 22, 1993, the Court of Appeals affirmed in toto the CTA's resolution dated July 20, 1993. Hence
this petition now before us.
The issues raised by the petitioner are:
I. Whether taxpayer PBCom which relied in good faith on the formal assurances of BIR
in RMC No. 7-85 and did not immediately file with the CTA a petition for review asking for
the refund/tax credit of its 1985-86 excess quarterly income tax payments can be
prejudiced by the subsequent BIR rejection, applied retroactivity, of its assurances in
RMC No. 7-85 that the prescriptive period for the refund/tax credit of excess quarterly
income tax payments is not two years but ten (10). 7
II. Whether the Court of Appeals seriously erred in affirming the CTA decision which
denied PBCom's claim for the refund of P234,077.69 income tax overpaid in 1986 on the
mere speculation, without proof, that there were taxes due in 1987 and that PBCom
availed of tax-crediting that year. 8
Simply stated, the main question is: Whether or not the Court of Appeals erred in denying the plea for tax refund or tax
credits on the ground of prescription, despite petitioner's reliance on RMC No. 7-85, changing the prescriptive period of
two years to ten years?
Petitioner argues that its claims for refund and tax credits are not yet barred by prescription relying on the applicability of
Revenue Memorandum Circular No. 7-85 issued on April 1, 1985. The circular states that overpaid income taxes are not
covered by the two-year prescriptive period under the tax Code and that taxpayers may claim refund or tax credits for the
excess quarterly income tax with the BIR within ten (10) years under Article 1144 of the Civil Code. The pertinent portions
of the circular reads:
REVENUE MEMORANDUM CIRCULAR NO. 7-85
SUBJECT: PROCESSING OF REFUND OR TAX CREDIT OF EXCESS
CORPORATE INCOME TAX RESULTING FROM THE FILING OF THE
FINAL ADJUSTMENT RETURN.
TO: All Internal Revenue Officers and Others Concerned.
Sec. 85 And 86 Of the National Internal Revenue Code provide:
xxx xxx xxx
The foregoing provisions are implemented by Section 7 of Revenue Regulations Nos. 10-77 which
provide;

Page 13 of 403
xxx xxx xxx
It has been observed, however, that because of the excess tax payments, corporations file claims for
recovery of overpaid income tax with the Court of Tax Appeals within the two-year period from the date of
payment, in accordance with sections 292 and 295 of the National Internal Revenue Code. It is obvious
that the filing of the case in court is to preserve the judicial right of the corporation to claim the refund or
tax credit.
It should he noted, however, that this is not a case of erroneously or illegally paid tax under the provisions
of Sections 292 and 295 of the Tax Code.
In the above provision of the Regulations the corporation may request for the refund of the overpaid
income tax or claim for automatic tax credit. To insure prompt action on corporate annual income tax
returns showing refundable amounts arising from overpaid quarterly income taxes, this Office has
promulgated Revenue Memorandum Order No. 32-76 dated June 11, 1976, containing the procedure in
processing said returns. Under these procedures, the returns are merely pre-audited which consist mainly
of checking mathematical accuracy of the figures of the return. After which, the refund or tax credit is
granted, and, this procedure was adopted to facilitate immediate action on cases like this.
In this regard, therefore, there is no need to file petitions for review in the Court of Tax Appeals in order to
preserve the right to claim refund or tax credit the two year period. As already stated, actions hereon by
the Bureau are immediate after only a cursory pre-audit of the income tax returns. Moreover, a taxpayer
may recover from the Bureau of Internal Revenue excess income tax paid under the provisions of Section
86 of the Tax Code within 10 years from the date of payment considering that it is an obligation created by
law (Article 1144 of the Civil Code). 9 (Emphasis supplied.)
Petitioner argues that the government is barred from asserting a position contrary to its declared circular if it would result
to injustice to taxpayers. Citing ABS CBN Broadcasting Corporation vs. Court of Tax Appeals 10petitioner claims that
rulings or circulars promulgated by the Commissioner of Internal Revenue have no retroactive effect if it would be
prejudicial to taxpayers, In ABS-CBN case, the Court held that the government is precluded from adopting a position
inconsistent with one previously taken where injustice would result therefrom or where there has been a
misrepresentation to the taxpayer.
Petitioner contends that Sec. 246 of the National Internal Revenue Code explicitly provides for this rules as follows:
Sec. 246 Non-retroactivity of rulings Any revocation, modification or reversal of any of the rules and
regulations promulgated in accordance with the preceding section or any of the rulings or circulars
promulgated by the Commissioner shall not be given retroactive application if the revocation, modification
or reversal will be prejudicial to the taxpayers except in the following cases:
a). where the taxpayer deliberately misstates or omits material facts from
his return or in any document required of him by the Bureau of Internal
Revenue;
b). where the facts subsequently gathered by the Bureau of Internal
Revenue are materially different from the facts on which the ruling is
based;
c). where the taxpayer acted in bad faith.
Respondent Commissioner of Internal Revenue, through Solicitor General, argues that the two-year prescriptive period for
filing tax cases in court concerning income tax payments of Corporations is reckoned from the date of filing the Final
Adjusted Income Tax Return, which is generally done on April 15 following the close of the calendar year. As precedents,
respondent Commissioner cited cases which adhered to this principle, to wit ACCRA Investments Corp. vs. Court of
Appeals, et al., 11 and Commissioner of Internal Revenue vs. TMX Sales, Inc., et al.. 12Respondent Commissioner also
states that since the Final Adjusted Income Tax Return of the petitioner for the taxable year 1985 was supposed to be filed
on April 15, 1986, the latter had only until April 15, 1988 to seek relief from the court. Further, respondent Commissioner
stresses that when the petitioner filed the case before the CTA on November 18, 1988, the same was filed beyond the
time fixed by law, and such failure is fatal to petitioner's cause of action.
After a careful study of the records and applicable jurisprudence on the matter, we find that, contrary to the petitioner's
contention, the relaxation of revenue regulations by RMC 7-85 is not warranted as it disregards the two-year prescriptive
period set by law.
Basic is the principle that "taxes are the lifeblood of the nation." The primary purpose is to generate funds for the State to
finance the needs of the citizenry and to advance the common weal. 13 Due process of law under the Constitution does not
require judicial proceedings in tax cases. This must necessarily be so because it is upon taxation that the government
chiefly relies to obtain the means to carry on its operations and it is of utmost importance that the modes adopted to
enforce the collection of taxes levied should be summary and interfered with as little as possible. 14

Page 14 of 403
From the same perspective, claims for refund or tax credit should be exercised within the time fixed by law because the
BIR being an administrative body enforced to collect taxes, its functions should not be unduly delayed or hampered by
incidental matters.
Sec. 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec. 229, NIRC of 1997) provides for the
prescriptive period for filing a court proceeding for the recovery of tax erroneously or illegally collected, viz.:
Sec. 230. Recovery of tax erroneously or illegally collected. No suit or proceeding shall be maintained
in any court for the recovery of any national internal revenue tax hereafter alleged to have been
erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without
authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a
claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be
maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceedings shall begun after the expiration of two years from the date of
payment of the tax or penalty regardless of any supervening cause that may arise after payment;Provided
however, That the Commissioner may, even without a written claim therefor, refund or credit any tax,
where on the face of the return upon which payment was made, such payment appears clearly to have
been erroneously paid. (Emphasis supplied)
The rule states that the taxpayer may file a claim for refund or credit with the Commissioner of Internal Revenue, within
two (2) years after payment of tax, before any suit in CTA is commenced. The two-year prescriptive period provided,
should be computed from the time of filing the Adjustment Return and final payment of the tax for the year.
In Commissioner of Internal Revenue vs. Philippine American Life Insurance Co., 15 this Court explained the application of
Sec. 230 of 1977 NIRC, as follows:
Clearly, the prescriptive period of two years should commence to run only from the time that the refund is
ascertained, which can only be determined after a final adjustment return is accomplished. In the present
case, this date is April 16, 1984, and two years from this date would be April 16, 1986. . . . As we have
earlier said in the TMX Sales case, Sections 68. 16 69, 17 and 70 18 on Quarterly Corporate Income Tax
Payment and Section 321 should be considered in conjunction with it 19
When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the prescriptive period of two years to
ten years on claims of excess quarterly income tax payments, such circular created a clear inconsistency with the
provision of Sec. 230 of 1977 NIRC. In so doing, the BIR did not simply interpret the law; rather it legislated guidelines
contrary to the statute passed by Congress.
It bears repeating that Revenue memorandum-circulars are considered administrative rulings (in the sense of more
specific and less general interpretations of tax laws) which are issued from time to time by the Commissioner of Internal
Revenue. It is widely accepted that the interpretation placed upon a statute by the executive officers, whose duty is to
enforce it, is entitled to great respect by the courts. Nevertheless, such interpretation is not conclusive and will be ignored
if judicially found to be erroneous. 20 Thus, courts will not countenance administrative issuances that override, instead of
remaining consistent and in harmony with the law they seek to apply and implement. 21
In the case of People vs. Lim, 22 it was held that rules and regulations issued by administrative officials to implement a law
cannot go beyond the terms and provisions of the latter.
Appellant contends that Section 2 of FAO No. 37-1 is void because it is not only inconsistent with but is
contrary to the provisions and spirit of Act. No 4003 as amended, because whereas the prohibition
prescribed in said Fisheries Act was for any single period of time not exceeding five years duration, FAO
No 37-1 fixed no period, that is to say, it establishes an absolute ban for all time. This discrepancy
between Act No. 4003 and FAO No. 37-1 was probably due to an oversight on the part of Secretary of
Agriculture and Natural Resources. Of course, in case of discrepancy, the basic Act prevails, for the
reason that the regulation or rule issued to implement a law cannot go beyond the terms and provisions of
the
latter. . . . In this connection, the attention of the technical men in the offices of Department Heads who
draft rules and regulation is called to the importance and necessity of closely following the terms and
provisions of the law which they intended to implement, this to avoid any possible misunderstanding or
confusion as in the present case. 23
Further, fundamental is the rule that the State cannot be put in estoppel by the mistakes or errors of its officials or
agents. 24 As pointed out by the respondent courts, the nullification of RMC No. 7-85 issued by the Acting Commissioner
of Internal Revenue is an administrative interpretation which is not in harmony with Sec. 230 of 1977 NIRC. for being
contrary to the express provision of a statute. Hence, his interpretation could not be given weight for to do so would, in
effect, amend the statute.
It is likewise argued that the Commissioner of Internal Revenue, after promulgating RMC No. 7-85, is
estopped by the principle of non-retroactively of BIR rulings. Again We do not agree. The Memorandum
Circular, stating that a taxpayer may recover the excess income tax paid within 10 years from date of

Page 15 of 403
payment because this is an obligation created by law, was issued by the Acting Commissioner of Internal
Revenue. On the other hand, the decision, stating that the taxpayer should still file a claim for a refund or
tax credit and corresponding petition fro review within the
two-year prescription period, and that the lengthening of the period of limitation on refund from two to ten
years would be adverse to public policy and run counter to the positive mandate of Sec. 230, NIRC, - was
the ruling and judicial interpretation of the Court of Tax Appeals. Estoppel has no application in the case at
bar because it was not the Commissioner of Internal Revenue who denied petitioner's claim of refund or
tax credit. Rather, it was the Court of Tax Appeals who denied (albeit correctly) the claim and in effect,
ruled that the RMC No. 7-85 issued by the Commissioner of Internal Revenue is an administrative
interpretation which is out of harmony with or contrary to the express provision of a statute (specifically
Sec. 230, NIRC), hence, cannot be given weight for to do so would in effect amend the statute. 25
Art. 8 of the Civil Code 26 recognizes judicial decisions, applying or interpreting statutes as part of the legal system of the
country. But administrative decisions do not enjoy that level of recognition. A memorandum-circular of a bureau head
could not operate to vest a taxpayer with shield against judicial action. For there are no vested rights to speak of
respecting a wrong construction of the law by the administrative officials and such wrong interpretation could not place the
Government in estoppel to correct or overrule the same. 27 Moreover, the non-retroactivity of rulings by the Commissioner
of Internal Revenue is not applicable in this case because the nullity of RMC No. 7-85 was declared by respondent courts
and not by the Commissioner of Internal Revenue. Lastly, it must be noted that, as repeatedly held by this Court, a claim
for refund is in the nature of a claim for exemption and should be construed in strictissimi juris against the taxpayer. 28
On the second issue, the petitioner alleges that the Court of Appeals seriously erred in affirming CTA's decision denying
its claim for refund of P234,077.69 (tax overpaid in 1986), based on mere speculation, without proof, that PBCom availed
of the automatic tax credit in 1987.
Sec. 69 of the 1977 NIRC 29 (now Sec. 76 of the 1997 NIRC) provides that any excess of the total quarterly payments over
the actual income tax computed in the adjustment or final corporate income tax return, shall either (a) be refunded to the
corporation, or (b) may be credited against the estimated quarterly income tax liabilities for the quarters of the succeeding
taxable year.
The corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR
form) its intention, whether to request for a refund or claim for an automatic tax credit for the succeeding taxable year. To
ease the administration of tax collection, these remedies are in the alternative, and the choice of one precludes the other.
As stated by respondent Court of Appeals:
Finally, as to the claimed refund of income tax over-paid in 1986 the Court of Tax Appeals, after
examining the adjusted final corporate annual income tax return for taxable year 1986, found out that
petitioner opted to apply for automatic tax credit. This was the basis used (vis-avis the fact that the 1987
annual corporate tax return was not offered by the petitioner as evidence) by the CTA in concluding that
petitioner had indeed availed of and applied the automatic tax credit to the succeeding year, hence it can
no longer ask for refund, as to [sic] the two remedies of refund and tax credit are alternative. 30
That the petitioner opted for an automatic tax credit in accordance with Sec. 69 of the 1977 NIRC, as specified in its 1986
Final Adjusted Income Tax Return, is a finding of fact which we must respect. Moreover, the 1987 annual corporate tax
return of the petitioner was not offered as evidence to contovert said fact. Thus, we are bound by the findings of fact by
respondent courts, there being no showing of gross error or abuse on their part to disturb our reliance thereon. 31
WHEREFORE, the, petition is hereby DENIED, The decision of the Court of Appeals appealed from is AFFIRMED, with
COSTS against the petitioner.1wphi1.nt
SO ORDERED.
Bellosillo, Puno, Mendoza, and Buena, JJ., concur.
Footnotes
1. Penned by Associate Justices Isaali S. Isnami and concurred in by Associate Justice Nathanael P. De Pano, Jr. and Associate
Justice Corona Ibay Somera; rollo. 101-104.
2. Penned by Ernesto D. Acosta, Presiding Judge, concurred in by Associate Judge Manuel K. Gruba and Associate Judge Ramon
O. De Veyra; rollo, pp. 33-47.
3. Rollo, pp. 70-73.
4. Supra, see note 1, at p. 103.
5. Supra, see note 2. at p. 46.
6. Supra, see note 3, at 73.

Page 16 of 403
7. Memorandum of petitioner, rollo, pp. 179-198, at p. 183.
8. Ibid., at p. 194.
9. Supra, See note 2, pp. 37-38.
10. 108 SCRA 142 (1981).
11. 204 SCRA 957 (1991).
12. 205 SCRA 184 (1992).
13. Napocor vs. Province of Albay, 186 SCRA 198 (1990), at p. 207.
14. Teodoro and de Leon, Law on Income Taxation, 1993 ed., at 485.
15. 244 SCRA 446 (1995).
16. Declaration of Corporate Quarterly Income Tax (now Sec. 75, 1997 NIRC).
17. Final Adjustment Return (now Sec. 76. 1997 NIRC).
18. Place of Filing (now Sec.77. 1997 NIRC).
19. Supra, see note 15, at p. 453.
20. People vs. Hernandez, 59 Phil. 272 (1933) at p. 276; Molina vs. Rafferty, 37 Phil. 545 (1918) at p. 555.
21. Commissioner of Internal Revenue vs. Court of Appeals, 240 SCRA 368 (1993) at p. 372.
22 108 Phil. 1091 (1960).
23. Ibid., at pp. 1093-1094.
24. Republic vs. Intermediate Appellate Court, 209 SCRA 90 (1992); DBP vs. Commission on Audit, 231 SCRA 202 (1994); Sharp
International Marketing vs. CA, 201 SCRA 299 (1991) GSIS vs. CA, 218 SCRA 233 (1990 citing Beronilla vs. GSIS, 36 SCRA 44, 55
(1970); Republic vs. PLDT, 26 SCRA 620 (1969); Pineda vs. CFI of Tayabas, 52 Phil. 803 (1929); Beguet Consolidated Mining Co.
vs. Pineda 98 Phil. 711 (1956); Repulic vs. Philippine Rabbit Bus Lines, Inc., 32 SCRA 211(1970); People vs. Castaeda, 165 SCRA
327 (1988).
25. Supra, see note 1, p. 102.
26. Sec. 8. Judicial decisions applying or interpreting the laws or the Constitution shall form a part of the legal system of the
Philippines.
27. Tan Guan vs. Court of Tax Appeals, 19 SCRA 903 (1967) at p. 907; Compania General de Tabacos de Filipinas vs. City of
Manila, 8 SCRA, 367 (1963) at p. 372.
28. Commissioner of Internal Revenue vs. Tokyo shipping Co., Ltd., 244 SCRA 332, Province of Tarlac vs. Alcantara, 216 SCRA
790, Philippine Petroluem Corp. vs. Municipality of Pililia Rizal, 198 SCRA 82, Commissioner of Internal Revenue vs. Mitsubishi
Metal Corp., 181 SCRA 214.
29. Sec. 69. Final Adjustment Return Every corporation liable to tax under Section 24 shall file a final adjustment return covering
the total net income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable
year is not equal to the total tax due on the entire taxable net income of that year the corporation shall either:
a) Pay the excess tax still due; or
b) Be refunded the excess amount paid as tile case may be.
In case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the
refundable amount shown on its final adjustment return may be credited against the estimated
quarterly income tax liabilities for the taxable quarters of the succeeding taxable year.
30. Supra, see note 1. at p. 103.
31. Philippine Refining Company vs. Court of Appeals, 256 SCRA 667 (1996) at p. 676, citing: the Coca-Cola Export Corporation vs.
Commissioner of Internal Revenue , et al., L-23604, March 15, 1974, 56 SCRA 5; Nasiad, et, al., vs. Court of Appeals, L-29318,
November 29, 1974, 61 SCRA 236.

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Page 17 of 403
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 76778 June 6, 1990
FRANCISCO I. CHAVEZ, petitioner,
vs.
JAIME B. ONGPIN, in his capacity as Minister of Finance and FIDELINA CRUZ, in her capacity as Acting Municipal
Treasurer of the Municipality of Las Pias, respondents, REALTY OWNERS ASSOCIATION OF THE PHILIPPINES,
INC., petitioner-intervenor.
Brotherhood of Nationalistic, Involved and Free Attorneys to Combat Injustice and Oppression (Bonifacio) for petitioner.
Ambrosia Padilla, Mempin and Reyes Law Offices for movant Realty Owners Association.
MEDIALDEA, J.:
The petition seeks to declare unconstitutional Executive Order No. 73 dated November 25, 1986, which We quote in full,
as follows (78 O.G. 5861):
EXECUTIVE ORDER No. 73
PROVIDING FOR THE COLLECTION OF REAL PROPERTY TAXES BASED ON THE 1984 REAL
PROPERTY VALUES, AS PROVIDED FOR UNDER SECTION 21 OF THE REAL PROPERTY TAX
CODE, AS AMENDED
WHEREAS, the collection of real property taxes is still based on the 1978 revision of property values;
WHEREAS, the latest general revision of real property assessments completed in 1984 has rendered the
1978 revised values obsolete;
WHEREAS, the collection of real property taxes based on the 1984 real property values was deferred to
take effect on January 1, 1988 instead of January 1, 1985, thus depriving the local government units of an
additional source of revenue;
WHEREAS, there is an urgent need for local governments to augment their financial resources to meet
the rising cost of rendering effective services to the people;
NOW, THEREFORE, I. CORAZON C. AQUINO, President of the Philippines, do hereby order:
SECTION 1. Real property values as of December 31, 1984 as determined by the local assessors during
the latest general revision of assessments shall take effect beginning January 1, 1987 for purposes of real
property tax collection.
SEC. 2. The Minister of Finance shall promulgate the necessary rules and regulations to implement this
Executive Order.
SEC. 3. Executive Order No. 1019, dated April 18, 1985, is hereby repealed.
SEC. 4. All laws, orders, issuances, and rules and regulations or parts thereof inconsistent with this
Executive Order are hereby repealed or modified accordingly.
SEC. 5. This Executive Order shall take effect immediately.
On March 31, 1987, Memorandum Order No. 77 was issued suspending the implementation of Executive Order No. 73
until June 30, 1987.
The petitioner, Francisco I. Chavez, 1 is a taxpayer and an owner of three parcels of land. He alleges the following: that
Executive Order No. 73 accelerated the application of the general revision of assessments to January 1, 1987 thereby
mandating an excessive increase in real property taxes by 100% to 400% on improvements, and up to 100% on land; that
any increase in the value of real property brought about by the revision of real property values and assessments would
necessarily lead to a proportionate increase in real property taxes; that sheer oppression is the result of increasing real
property taxes at a period of time when harsh economic conditions prevail; and that the increase in the market values of
real property as reflected in the schedule of values was brought about only by inflation and economic recession.

Page 18 of 403
The intervenor Realty Owners Association of the Philippines, Inc. (ROAP), which is the national association of ownerslessors, joins Chavez in his petition to declare unconstitutional Executive Order No. 73, but additionally alleges the
following: that Presidential Decree No. 464 is unconstitutional insofar as it imposes an additional one percent (1%) tax on
all property owners to raise funds for education, as real property tax is admittedly a local tax for local governments; that
the General Revision of Assessments does not meet the requirements of due process as regards publication, notice of
hearing, opportunity to be heard and insofar as it authorizes "replacement cost" of buildings (improvements) which is not
provided in Presidential Decree No. 464, but only in an administrative regulation of the Department of Finance; and that
the Joint Local Assessment/Treasury Regulations No. 2-86 2 is even more oppressive and unconstitutional as it imposes
successive increase of 150% over the 1986 tax.
The Office of the Solicitor General argues against the petition.
The petition is not impressed with merit.
Petitioner Chavez and intervenor ROAP question the constitutionality of Executive Order No. 73 insofar as the revision of
the assessments and the effectivity thereof are concerned. It should be emphasized that Executive Order No. 73 merely
directs, in Section 1 thereof, that:
SECTION 1. Real property values as of December 31, 1984 as determined by the local assessors during
the latest general revision of assessments shall take effect beginning January 1, 1987 for purposes of real
property tax collection. (emphasis supplied)
The general revision of assessments completed in 1984 is based on Section 21 of Presidential Decree No. 464 which
provides, as follows:
SEC. 21. General Revision of Assessments. Beginning with the assessor shall make a calendar year
1978, the provincial or city general revision of real property assessments in the province or city to take
effect January 1, 1979, and once every five years thereafter: Provided; however, That if property values in
a province or city, or in any municipality, have greatly changed since the last general revision, the
provincial or city assesor may, with the approval of the Secretary of Finance or upon bis direction,
undertake a general revision of assessments in the province or city, or in any municipality before the fifth
year from the effectivity of the last general revision.
Thus, We agree with the Office of the Solicitor General that the attack on Executive Order No. 73 has no legal basis as
the general revision of assessments is a continuing process mandated by Section 21 of Presidential Decree No. 464. If at
all, it is Presidential Decree No. 464 which should be challenged as constitutionally infirm. However, Chavez failed to raise
any objection against said decree. It was ROAP which questioned the constitutionality thereof. Furthermore, Presidential
Decree No. 464 furnishes the procedure by which a tax assessment may be questioned:
SEC. 30. Local Board of Assessment Appeals. Any owner who is not satisfied with the action of the
provincial or city assessor in the assessment of his property may, within sixty days from the date of
receipt by him of the written notice of assessment as provided in this Code, appeal to the Board of
Assessment Appeals of the province or city, by filing with it a petition under oath using the form prescribed
for the purpose, together with copies of the tax declarations and such affidavit or documents submitted in
support of the appeal.
xxx xxx xxx
SEC. 34. Action by the Local Board of assessment Appeals. The Local Board of Assessment Appeals
shall decide the appeal within one hundred and twenty days from the date of receipt of such appeal. The
decision rendered must be based on substantial evidence presented at the hearing or at least contained
in the record and disclosed to the parties or such relevant evidence as a reasonable mind might accept as
adequate to support the conclusion.
In the exercise of its appellate jurisdiction, the Board shall have the power to summon witnesses,
administer oaths, conduct ocular inspection, take depositions, and issue subpoena and subpoenaduces
tecum. The proceedings of the Board shall be conducted solely for the purpose of ascertaining the truth
without-necessarily adhering to technical rules applicable in judicial proceedings.
The Secretary of the Board shall furnish the property owner and the Provincial or City Assessor with a
copy each of the decision of the Board. In case the provincial or city assessor concurs in the revision or
the assessment, it shall be his duty to notify the property owner of such fact using the form prescribed for
the purpose. The owner or administrator of the property or the assessor who is not satisfied with the
decision of the Board of Assessment Appeals, may, within thirty days after receipt of the decision of the
local Board, appeal to the Central Board of Assessment Appeals by filing his appeal under oath with the
Secretary of the proper provincial or city Board of Assessment Appeals using the prescribed form stating
therein the grounds and the reasons for the appeal, and attaching thereto any evidence pertinent to the
case. A copy of the appeal should be also furnished the Central Board of Assessment Appeals, through its
Chairman, by the appellant.

Page 19 of 403
Within ten (10) days from receipt of the appeal, the Secretary of the Board of Assessment Appeals
concerned shall forward the same and all papers related thereto, to the Central Board of Assessment
Appeals through the Chairman thereof.
xxx xxx xxx
SEC. 36. Scope of Powers and Functions. The Central Board of Assessment Appeals shall have
jurisdiction over appealed assessment cases decided by the Local Board of Assessment Appeals. The
said Board shall decide cases brought on appeal within twelve (12) months from the date of receipt, which
decision shall become final and executory after the lapse of fifteen (15) days from the date of receipt of a
copy of the decision by the appellant.
In the exercise of its appellate jurisdiction, the Central Board of Assessment Appeals, or upon express
authority, the Hearing Commissioner, shall have the power to summon witnesses, administer oaths, take
depositions, and issue subpoenas and subpoenas duces tecum.
The Central Board of assessment Appeals shall adopt and promulgate rules of procedure relative to the
conduct of its business.
Simply stated, within sixty days from the date of receipt of the, written notice of assessment, any owner who doubts the
assessment of his property, may appeal to the Local Board of Assessment Appeals. In case the, owner or administrator of
the property or the assessor is not satisfied with the decision of the Local Board of Assessment Appeals, he may, within
thirty days from the receipt of the decision, appeal to the Central Board of Assessment Appeals. The decision of the
Central Board of Assessment Appeals shall become final and executory after the lapse of fifteen days from the date of
receipt of the decision.
Chavez argues further that the unreasonable increase in real property taxes brought about by Executive Order No. 73
amounts to a confiscation of property repugnant to the constitutional guarantee of due process, invoking the cases
of Ermita-Malate Hotel, et al. v. Mayor of Manila (G.R. No. L-24693, July 31, 1967, 20 SCRA 849) andSison v. Ancheta, et
al. (G.R. No. 59431, July 25, 1984, 130 SCRA 654).
The reliance on these two cases is certainly misplaced because the due process requirement called for therein applies to
the "power to tax." Executive Order No. 73 does not impose new taxes nor increase taxes.
Indeed, the government recognized the financial burden to the taxpayers that will result from an increase in real property
taxes. Hence, Executive Order No. 1019 was issued on April 18, 1985, deferring the implementation of the increase in real
property taxes resulting from the revised real property assessments, from January 1, 1985 to January 1, 1988. Section 5
thereof is quoted herein as follows:
SEC. 5. The increase in real property taxes resulting from the revised real property assessments as
provided for under Section 21 of Presidential Decree No. 464, as amended by Presidential Decree No.
1621, shall be collected beginning January 1, 1988 instead of January 1, 1985 in order to enable the
Ministry of Finance and the Ministry of Local Government to establish the new systems of tax collection
and assessment provided herein and in order to alleviate the condition of the people, including real
property owners, as a result of temporary economic difficulties. (emphasis supplied)
The issuance of Executive Order No. 73 which changed the date of implementation of the increase in real property taxes
from January 1, 1988 to January 1, 1987 and therefore repealed Executive Order No. 1019, also finds ample justification
in its "whereas' clauses, as follows:
WHEREAS, the collection of real property taxes based on the 1984 real property values was deferred to
take effect on January 1, 1988 instead of January 1, 1985, thus depriving the local government units of
an additional source of revenue;
WHEREAS, there is an urgent need for local governments to augment their financial resources to meet
the rising cost of rendering effective services to the people; (emphasis supplied)
xxx xxx xxx
The other allegation of ROAP that Presidential Decree No. 464 is unconstitutional, is not proper to be resolved in the
present petition. As stated at the outset, the issue here is limited to the constitutionality of Executive Order No. 73.
Intervention is not an independent proceeding, but an ancillary and supplemental one which, in the nature of things,
unless otherwise provided for by legislation (or Rules of Court), must be in subordination to the main proceeding, and it
may be laid down as a general rule that an intervention is limited to the field of litigation open to the original parties (59
Am. Jur. 950. Garcia, etc., et al. v. David, et al., 67 Phil. 279).
We agree with the observation of the Office of the Solicitor General that without Executive Order No. 73, the basis for
collection of real property taxes win still be the 1978 revision of property values. Certainly, to continue collecting real
property taxes based on valuations arrived at several years ago, in disregard of the increases in the value of real

Page 20 of 403
properties that have occurred since then, is not in consonance with a sound tax system. Fiscal adequacy, which is one of
the characteristics of a sound tax system, requires that sources of revenues must be adequate to meet government
expenditures and their variations.
ACCORDINGLY, the petition and the petition-in-intervention are hereby DISMISSED.
SO ORDERED.
Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Feliciano, Gancayco, Bidin, Sarmiento, Cortes and Regalado, JJ., concur.
Padilla, J., took no part.
Grio-Aquino, J., is on leave.
Footnotes
1 He filed the instant petition before he was appointed to his present position as Solicitor General.
2 The Joint Local Assessment/Treasury Regulations No. 2-86 issued on December 12, 1986 implements Executive Order No. 73.

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Page 21 of 403
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 125704 August 28, 1998
PHILEX MINING CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, COURT OF APPEALS, and THE COURT OF TAX
APPEALS,respondents.
ROMERO, J.:
Petitioner Philex Mining Corp. assails the decision of the Court of Appeals promulgated on April 8, 1996 in CA-G.R. SP
No. 36975 1 affirming the Court of Tax Appeals decision in CTA Case No. 4872 dated March 16, 1995 2 ordering it to pay
the amount of P110,677,668.52 as excise tax liability for the period from the 2nd quarter of 1991 to the 2nd quarter of
1992 plus 20% annual interest from August 6, 1994 until fully paid pursuant to Sections 248 and 249 of the Tax Code of
1977.
The facts show that on August 5, 1992, the BIR sent a letter to Philex asking it to settle its tax liabilities for the 2nd, 3rd
and 4th quarter of 1991 as well as the 1st and 2nd quarter of 1992 in the total amount of P123,821.982.52 computed as
follows:
PERIOD COVERED BASIC TAX 25% SURCHARGE INTEREST TOTAL EXCISE
TAX DUE
2nd Qtr., 1991 12,911,124.60 3,227,781.15 3,378,116.16 19,517,021.91
3rd Qtr., 1991 14,994,749.21 3,748,687.30 2,978,409.09 21,721,845.60
4th Qtr., 1991 19,406,480.13 4,851,620.03 2,631,837.72 26,889,937.88

47,312,353.94 11,828,088.48 8,988,362.97 68,128,805.39

1st Qtr., 1992 23,341,849.94 5,835,462.49 1,710,669.82 30,887,982.25
2nd Qtr., 1992 19,671,691.76 4,917,922.94 215,580.18 24,805,194.88

43,013,541.70 10,753,385.43 1,926,250.00 55,693,177.13

90,325,895.64 22,581,473.91 10,914,612.97 123,821,982.52

========= ========= ========= =========

In a letter dated August 20, 1992, 4 Philex protested the demand for payment of the tax liabilities stating that it has
pending claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in the amount of
P119,977,037.02 plus interest. Therefore these claims for tax credit/refund should be applied against the tax liabilities,
citing our ruling inCommissioner of Internal Revenue v. Itogon-Suyoc Mines, Inc. 5
In reply, the BIR, in a letter dated September 7, 1992, 6 found no merit in Philex's position. Since these pending claims
have not yet been established or determined with certainty, it follows that no legal compensation can take place. Hence,
the BIR reiterated its demand that Philex settle the amount plus interest within 30 days from the receipt of the letter.
In view of the BIR's denial of the offsetting of Philex's claim for VAT input credit/refund against its excise tax obligation,
Philex raised the issue to the Court of Tax Appeals on November 6, 1992. 7 In the course of the proceedings, the BIR

Page 22 of 403
issued Tax Credit Certificate SN 001795 in the amount of P13,144,313.88 which, applied to the total tax liabilities of Philex
of P123,821,982.52; effectively lowered the latter's tax obligation to P110,677,688.52.
Despite the reduction of its tax liabilities, the CTA still ordered Philex to pay the remaining balance of P110,677,688.52
plus interest, elucidating its reason, to wit:
Thus, for legal compensation to take place, both obligations must be liquidated and demandable.
"Liquidated" debts are those where the exact amount has already been determined (PARAS, Civil Code
of the Philippines, Annotated, Vol. IV, Ninth Edition, p. 259). In the instant case, the claims of the
Petitioner for VAT refund is still pending litigation, and still has to be determined by this Court (C.T.A. Case
No. 4707). A fortiori, the liquidated debt of the Petitioner to the government cannot, therefore, be set-off
against the unliquidated claim which Petitioner conceived to exist in its favor (see Compaia General de
Tabacos vs. French and Unson, No. 14027, November 8, 1918, 39 Phil. 34). 8
Moreover, the Court of Tax Appeals ruled that "taxes cannot be subject to set-off on compensation since claim for taxes is
not a debt or contract." 9 The dispositive portion of the CTA decision 10 provides:
In all the foregoing, this Petition for Review is hereby DENIED for lack of merit and Petitioner is hereby
ORDERED to PAY the Respondent the amount of P110,677,668.52 representing excise tax liability for the
period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from August 6,
1994 until fully paid pursuant to Section 248 and 249 of the Tax Code, as amended.
Aggrieved with the decision, Philex appealed the case before the Court of Appeals docketed as CA-GR. CV No.
36975. 11 Nonetheless, on April 8, 1996, the Court of Appeals a Affirmed the Court of Tax Appeals observation. The
pertinent portion of which reads: 12
WHEREFORE, the appeal by way of petition for review is hereby DISMISSED and the decision dated
March 16, 1995 is AFFIRMED.
Philex filed a motion for reconsideration which was, nevertheless, denied in a Resolution dated July 11, 1996.

13

However, a few days after the denial of its motion for reconsideration, Philex was able to obtain its VAT input credit/refund
not only for the taxable year 1989 to 1991 but also for 1992 and 1994, computed as follows: 14
Period Covered Tax Credit Date
By Claims For Certificate of
VAT refund/credit Number Issue Amount
1994 (2nd Quarter) 007730 11 July 1996 P25,317,534.01
1994 (4th Quarter) 007731 11 July 1996 P21,791,020.61
1989 007732 11 July 1996 P37,322,799.19
1990-1991 007751 16 July 1996 P84,662,787.46
1992 (1st-3rd Quarter) 007755 23 July 1996 P36,501,147.95
In view of the grant of its VAT input credit/refund, Philex now contends that the same should, ipso jure, off-set its excise
tax liabilities 15 since both had already become "due and demandable, as well as fully liquidated;" 16 hence, legal
compensation can properly take place.
We see no merit in this contention.
In several instances prior to the instant case, we have already made the pronouncement that taxes cannot be subject to
compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each
other. 17 There is a material distinction between a tax and debt. Debts are due to the Government in its corporate capacity,
while taxes are due to the Government in its sovereign capacity. 18 We find no cogent reason to deviate from the
aforementioned distinction.
Prescinding from this premise, in Francia v. Intermediate Appellate Court, 19 we categorically held that taxes cannot be
subject to set-off or compensation, thus:
We have consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer
may have against the government. A person cannot refuse to pay a tax on the ground that the

Page 23 of 403
government owes him an amount equal to or greater than the tax being collected. The collection of a tax
cannot await the results of a lawsuit against the government.
The ruling in Francia has been applied to the subsequent case of Caltex Philippines, Inc. v. Commission on Audit,20 which
reiterated that:
. . . a taxpayer may not offset taxes due from the claims that he may have against the government. Taxes
cannot be the subject of compensation because the government and taxpayer are not mutually creditors
and debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is
allowed to be set-off.
Further, Philex's reliance on our holding in Commissioner of Internal Revenue v. Itogon-Suyoc Mines Inc., wherein we
ruled that a pending refund may be set off against an existing tax liability even though the refund has not yet been
approved by the Commissioner, 21 is no longer without any support in statutory law.
It is important to note, that the premise of our ruling in the aforementioned case was anchored on Section 51 (d) of the
National Revenue Code of 1939. However, when the National Internal Revenue Code of 1977 was enacted, the same
provision upon which the Itogon-Suyoc pronouncement was based was omitted. 22 Accordingly, the doctrine enunciated
in Itogon-Suyoc cannot be invoked by Philex.
Despite the foregoing rulings clearly adverse to Philex's position, it asserts that the imposition of surcharge and interest for
the non-payment of the excise taxes within the time prescribed was unjustified. Philex posits the theory that it had no
obligation to pay the excise tax liabilities within the prescribed period since, after all, it still has pending claims for VAT
input credit/refund with BIR. 23
We fail to see the logic of Philex's claim for this is an outright disregard of the basic principle in tax law that taxes are the
lifeblood of the government and so should be collected without unnecessary hindrance. 24 Evidently, to countenance
Philex's whimsical reason would render ineffective our tax collection system. Too simplistic, it finds no support in law or in
jurisprudence.
To be sure, we cannot allow Philex to refuse the payment of its tax liabilities on the ground that it has a pending tax claim
for refund or credit against the government which has not yet been granted. It must be noted that a distinguishing feature
of a tax is that it is compulsory rather than a matter of bargain. 25 Hence, a tax does not depend upon the consent of the
taxpayer. 26 If any taxpayer can defer the payment of taxes by raising the defense that it still has a pending claim for
refund or credit, this would adversely affect the government revenue system. A taxpayer cannot refuse to pay his taxes
when they fall due simply because he has a claim against the government or that the collection of the tax is contingent on
the result of the lawsuit it filed against the government. 27 Moreover, Philex's theory that would automatically apply its VAT
input credit/refund against its tax liabilities can easily give rise to confusion and abuse, depriving the government of
authority over the manner by which taxpayers credit and offset their tax liabilities.
Corollarily, the fact that Philex has pending claims for VAT input claim/refund with the government is immaterial for the
imposition of charges and penalties prescribed under Section 248 and 249 of the Tax Code of 1977. The payment of the
surcharge is mandatory and the BIR is not vested with any authority to waive the collection thereof. 28 The same cannot be
condoned for flimsy reasons, 29 similar to the one advanced by Philex in justifying its non-payment of its tax liabilities.
Finally, Philex asserts that the BIR violated Section 106 (e) 30 of the National Internal Revenue Code of 1977, which
requires the refund of input taxes within 60 days, 31 when it took five years for the latter to grant its tax claim for VAT input
credit/refund. 32
In this regard, we agree with Philex. While there is no dispute that a claimant has the burden of proof to establish the
factual basis of his or her claim for tax credit or refund, 33 however, once the claimant has submitted all the required
documents it is the function of the BIR to assess these documents with purposeful dispatch. After all, since taxpayers owe
honestly to government it is but just that government render fair service to the taxpayers. 34
In the instant case, the VAT input taxes were paid between 1989 to 1991 but the refund of these erroneously paid taxes
was only granted in 1996. Obviously, had the BIR been more diligent and judicious with their duty, it could have granted
the refund earlier. We need not remind the BIR that simple justice requires the speedy refund of wrongly-held taxes. 35 Fair
dealing and nothing less, is expected by the taxpayer from the BIR in the latter's discharge of its function. As aptly held
inRoxas v. Court of Tax Appeals: 36
The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised
with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally
and uniformly, lest the tax collector kill the "hen that lays the golden egg" And, in order to maintain the
general public's trust and confidence in the Government this power must be used justly and not
treacherously.
Despite our concern with the lethargic manner by which the BIR handled Philex's tax claim, it is a settled rule that in the
performance of governmental function, the State is not bound by the neglect of its agents and officers. Nowhere is this

Page 24 of 403
more true than in the field of taxation. 37 Again, while we understand Philex's predicament, it must be stressed that the
same is not a valid reason for the non-payment of its tax liabilities.
To be sure, this is not to state that the taxpayer is devoid of remedy against public servants or employees, especially BIR
examiners who, in investigating tax claims are seen to drag their feet needlessly. First, if the BIR takes time in acting upon
the taxpayer's claim for refund, the latter can seek judicial remedy before the Court of Tax Appeals in the manner
prescribed by law. 38 Second, if the inaction can be characterized as willful neglect of duty, then recourse under the Civil
Code and the Tax Code can also be availed of.
Art. 27 of the Civil Code provides:
Art. 27. Any person suffering material or moral loss because a public servant or employee refuses or
neglects, without just cause, to perform his official duty may file an action for damages and other relief
against the latter, without prejudice to any disciplinary action that may be taken.
More importantly, Section 269 (c) of the National Internal Revenue Act of 1997 states:
xxx xxx xxx
(c) Wilfully neglecting to give receipts, as by law required for any sum collected in the performance of duty
or wilfully neglecting to perform, any other duties enjoyed by law.
Simply put, both provisions abhor official inaction, willful neglect and unreasonable delay in the performance of official
duties. 39 In no uncertain terms must we stress that every public employee or servant must strive to render service to the
people with utmost diligence and efficiency. Insolence and delay have no place in government service. The BIR, being the
government collecting arm, must and should do no less. It simply cannot be apathetic and laggard in rendering service to
the taxpayer if it wishes to remain true to its mission of hastening the country's development. We take judicial notice of the
taxpayer's generally negative perception towards the BIR; hence, it is up to the latter to prove its detractors wrong.
In sum, while we can never condone the BIR's apparent callousness in performing its duties, still, the same cannot justify
Philex's non-payment of its tax liabilities. The adage "no one should take the law into his own hands" should have guided
Philex's action.
WHEREFORE, in view of the foregoing, the instant petition is hereby DISMISSED. The assailed decision of the Court of
Appeals dated April 8, 1996 is hereby AFFIRMED.
SO ORDERED.
Narvasa, C.J., Kapunan and Purisima, JJ., concur.
Footnotes
1 Penned by Justice Artemon D. Luna, concurred in by Justices Ramon A. Barcelona and Portia Alino-Hormachuelos.
2 Penned by Associate Judge Manuel K. Gruba. concurred in by Presiding Judge Ernesto D. Acosta and Associate Judge Ramon O.
De Veyra.
3 CTA Records, pp. 34-35.
4 Rollo, pp. 172-174.
5 28 SCRA 867 (1969).
6 Id., pp. 175-176.
7 Docketed as Case No. 4872. Rollo, pp. 177-187.
8 Rollo, p. 55.
9 CTA Decision, Rollo, p. 59.
10 Rollo, pp. 59-60.
11 Rollo, pp. 87-101.
12 Rollo, p. 45.
13 Rollo, p. 48.
14 Rollo, pp. 112-116.

Page 25 of 403
15 Memorandum, Rollo, pp. 307-308.
16 Ibid.
17 Cordero v. Gonda, 18 SCRA 331 (1966).
18 Commissioner of Internal Revenue v. Palanca, 18 SCRA 496 (1966).
19 162 SCRA 753 (1988).
20 208 SCRA 726 (1992).
21 Rollo, p. 33.
22 Aban, Law on Basic Taxation, 1994, p. 19.
23 Memorandum, Rollo, p. 389.
24 Commissioner of Internal Revenue v. Algue, Inc., 158 SCRA 9 (1988).
25 I Cooley, Taxation, 22.
26 Ibid.
27 Supra, note 19.
28 Republic v. Philippine Bank of Commerce, 34 SCRA 361 (1970).
29 Jamora v. Meer, 74 Phil. 22 (1942).
30 (e) Period within which refund of input taxes may be made by the Commissioner. The Commissioner shall refund input taxes
within 60 days from the date the application for refund was filed with him or his duly authorized representative. No refund of input
taxes shall be allowed unless the VAT-registered person files an application for refund within the period prescribed in paragraphs
(a), (b) and (c) as the case may be.
31 Rollo, pp. 32-33.
32 This provision has been amended by Section 112 (D) of Republic Act 8424 entitled the "National Internal Revenue Act of 1997."
"(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. In proper cases, the Commissioner shall grant a
refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission
of complete documents in support of the application filed in accordance with Subsections (A) and (B) hereof.
In case of full of partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the
application within the period prescribed above, the taxpayer affected, within thirty (30) days from the receipt of the decision denying
the claim or after the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax
Appeals."
33 Commissioner of Internal Revenue v. Tokyo Shipping Co. Ltd., 244 SCRA 332 (1995).
34 Ibid.
35 Citibank of N.A. v. Court of Appeals. G.R. No. 107434, October 10, 1997.
36 23 SCRA 276 (1968).
37 Commissioner of Internal Revenue v. Proctor and Gamble PMC, 160 SCRA 560 (1988).
38 Insular Lumber Co. v. Court of Appeals, 104 SCRA 721 (1981); Commissioner of Internal Revenue v. Victoria Milling Co., Inc., 22
SCRA 12 (1968).
39 Tolentino, Civil Code of the Philippines, Vol. 1, 1983, p. 117.

The Lawphil Project - Arellano Law Foundation

Page 26 of 403
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 159796

July 17, 2007

ROMEO P. GEROCHI, KATULONG NG BAYAN (KB) and ENVIRONMENTALIST CONSUMERS NETWORK, INC.
(ECN), Petitioners,
vs.
DEPARTMENT OF ENERGY (DOE), ENERGY REGULATORY COMMISSION (ERC), NATIONAL POWER
CORPORATION (NPC), POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT GROUP (PSALM Corp.),
STRATEGIC POWER UTILITIES GROUP (SPUG), and PANAY ELECTRIC COMPANY INC. (PECO),Respondents.
DECISION
NACHURA, J.:
Petitioners Romeo P. Gerochi, Katulong Ng Bayan (KB), and Environmentalist Consumers Network, Inc. (ECN)
(petitioners), come before this Court in this original action praying that Section 34 of Republic Act (RA) 9136, otherwise
known as the "Electric Power Industry Reform Act of 2001" (EPIRA), imposing the Universal Charge, 1and Rule 18 of the
Rules and Regulations (IRR)2 which seeks to implement the said imposition, be declared unconstitutional. Petitioners also
pray that the Universal Charge imposed upon the consumers be refunded and that a preliminary injunction and/or
temporary restraining order (TRO) be issued directing the respondents to refrain from implementing, charging, and
collecting the said charge.3 The assailed provision of law reads:
SECTION 34. Universal Charge. Within one (1) year from the effectivity of this Act, a universal charge to be
determined, fixed and approved by the ERC, shall be imposed on all electricity end-users for the following purposes:
(a) Payment for the stranded debts4 in excess of the amount assumed by the National Government and stranded
contract costs of NPC5 and as well as qualified stranded contract costs of distribution utilities resulting from the
restructuring of the industry;
(b) Missionary electrification;6
(c) The equalization of the taxes and royalties applied to indigenous or renewable sources of energy vis--vis
imported energy fuels;
(d) An environmental charge equivalent to one-fourth of one centavo per kilowatt-hour (P0.0025/kWh), which shall
accrue to an environmental fund to be used solely for watershed rehabilitation and management. Said fund shall
be managed by NPC under existing arrangements; and
(e) A charge to account for all forms of cross-subsidies for a period not exceeding three (3) years.
The universal charge shall be a non-bypassable charge which shall be passed on and collected from all end-users on a
monthly basis by the distribution utilities. Collections by the distribution utilities and the TRANSCO in any given month
shall be remitted to the PSALM Corp. on or before the fifteenth (15th) of the succeeding month, net of any amount due to
the distribution utility. Any end-user or self-generating entity not connected to a distribution utility shall remit its
corresponding universal charge directly to the TRANSCO. The PSALM Corp., as administrator of the fund, shall create a
Special Trust Fund which shall be disbursed only for the purposes specified herein in an open and transparent manner. All
amount collected for the universal charge shall be distributed to the respective beneficiaries within a reasonable period to
be provided by the ERC.
The Facts
Congress enacted the EPIRA on June 8, 2001; on June 26, 2001, it took effect. 7
On April 5, 2002, respondent National Power Corporation-Strategic Power Utilities Group 8 (NPC-SPUG) filed with
respondent Energy Regulatory Commission (ERC) a petition for the availment from the Universal Charge of its share for
Missionary Electrification, docketed as ERC Case No. 2002-165. 9
On May 7, 2002, NPC filed another petition with ERC, docketed as ERC Case No. 2002-194, praying that the proposed
share from the Universal Charge for the Environmental charge of P0.0025 per kilowatt-hour (/kWh), or a total
of P119,488,847.59, be approved for withdrawal from the Special Trust Fund (STF) managed by respondent Power Sector
Assets and
Liabilities Management Group (PSALM)10 for the rehabilitation and management of watershed areas. 11

Page 27 of 403
On December 20, 2002, the ERC issued an Order 12 in ERC Case No. 2002-165 provisionally approving the computed
amount of P0.0168/kWh as the share of the NPC-SPUG from the Universal Charge for Missionary Electrification and
authorizing the National Transmission Corporation (TRANSCO) and Distribution Utilities to collect the same from its endusers on a monthly basis.
On June 26, 2003, the ERC rendered its Decision13 (for ERC Case No. 2002-165) modifying its Order of December 20,
2002, thus:
WHEREFORE, the foregoing premises considered, the provisional authority granted to petitioner National Power
Corporation-Strategic Power Utilities Group (NPC-SPUG) in the Order dated December 20, 2002 is hereby modified to the
effect that an additional amount of P0.0205 per kilowatt-hour should be added to the P0.0168 per kilowatt-hour
provisionally authorized by the Commission in the said Order. Accordingly, a total amount ofP0.0373 per kilowatt-hour is
hereby APPROVED for withdrawal from the Special Trust Fund managed by PSALM as its share from the Universal
Charge for Missionary Electrification (UC-ME) effective on the following billing cycles:
(a) June 26-July 25, 2003 for National Transmission Corporation (TRANSCO); and
(b) July 2003 for Distribution Utilities (Dus).
Relative thereto, TRANSCO and Dus are directed to collect the UC-ME in the amount of P0.0373 per kilowatt-hour and
remit the same to PSALM on or before the 15th day of the succeeding month.
In the meantime, NPC-SPUG is directed to submit, not later than April 30, 2004, a detailed report to include Audited
Financial Statements and physical status (percentage of completion) of the projects using the prescribed format.1avvphi1
Let copies of this Order be furnished petitioner NPC-SPUG and all distribution utilities (Dus).
SO ORDERED.
On August 13, 2003, NPC-SPUG filed a Motion for Reconsideration asking the ERC, among others, 14 to set aside the
above-mentioned Decision, which the ERC granted in its Order dated October 7, 2003, disposing:
WHEREFORE, the foregoing premises considered, the "Motion for Reconsideration" filed by petitioner National Power
Corporation-Small Power Utilities Group (NPC-SPUG) is hereby GRANTED. Accordingly, the Decision dated June 26,
2003 is hereby modified accordingly.
Relative thereto, NPC-SPUG is directed to submit a quarterly report on the following:
1. Projects for CY 2002 undertaken;
2. Location
3. Actual amount utilized to complete the project;
4. Period of completion;
5. Start of Operation; and
6. Explanation of the reallocation of UC-ME funds, if any.
SO ORDERED.15
Meanwhile, on April 2, 2003, ERC decided ERC Case No. 2002-194, authorizing the NPC to draw up toP70,000,000.00
from PSALM for its 2003 Watershed Rehabilitation Budget subject to the availability of funds for the Environmental Fund
component of the Universal Charge.16
On the basis of the said ERC decisions, respondent Panay Electric Company, Inc. (PECO) charged petitioner Romeo P.
Gerochi and all other end-users with the Universal Charge as reflected in their respective electric bills starting from the
month of July 2003.17
Hence, this original action.
Petitioners submit that the assailed provision of law and its IRR which sought to implement the same are unconstitutional
on the following grounds:
1) The universal charge provided for under Sec. 34 of the EPIRA and sought to be implemented under Sec. 2,
Rule 18 of the IRR of the said law is a tax which is to be collected from all electric end-users and self-generating

Page 28 of 403
entities. The power to tax is strictly a legislative function and as such, the delegation of said power to any
executive or administrative agency like the ERC is unconstitutional, giving the same unlimited authority. The
assailed provision clearly provides that the Universal Charge is to be determined, fixed and approved by the ERC,
hence leaving to the latter complete discretionary legislative authority.
2) The ERC is also empowered to approve and determine where the funds collected should be used.
3) The imposition of the Universal Charge on all end-users is oppressive and confiscatory and amounts to
taxation without representation as the consumers were not given a chance to be heard and represented. 18
Petitioners contend that the Universal Charge has the characteristics of a tax and is collected to fund the operations of the
NPC. They argue that the cases19 invoked by the respondents clearly show the regulatory purpose of the charges
imposed therein, which is not so in the case at bench. In said cases, the respective funds 20 were created in order to
balance and stabilize the prices of oil and sugar, and to act as buffer to counteract the changes and adjustments in prices,
peso devaluation, and other variables which cannot be adequately and timely monitored by the legislature. Thus, there
was a need to delegate powers to administrative bodies. 21 Petitioners posit that the Universal Charge is imposed not for a
similar purpose.
On the other hand, respondent PSALM through the Office of the Government Corporate Counsel (OGCC) contends that
unlike a tax which is imposed to provide income for public purposes, such as support of the government, administration of
the law, or payment of public expenses, the assailed Universal Charge is levied for a specific regulatory purpose, which is
to ensure the viability of the country's electric power industry. Thus, it is exacted by the State in the exercise of its inherent
police power. On this premise, PSALM submits that there is no undue delegation of legislative power to the ERC since the
latter merely exercises a limited authority or discretion as to the execution and implementation of the provisions of the
EPIRA.22
Respondents Department of Energy (DOE), ERC, and NPC, through the Office of the Solicitor General (OSG), share the
same view that the Universal Charge is not a tax because it is levied for a specific regulatory purpose, which is to ensure
the viability of the country's electric power industry, and is, therefore, an exaction in the exercise of the State's police
power. Respondents further contend that said Universal Charge does not possess the essential characteristics of a tax,
that its imposition would redound to the benefit of the electric power industry and not to the public, and that its rate is
uniformly levied on electricity end-users, unlike a tax which is imposed based on the individual taxpayer's ability to pay.
Moreover, respondents deny that there is undue delegation of legislative power to the ERC since the EPIRA sets forth
sufficient determinable standards which would guide the ERC in the exercise of the powers granted to it. Lastly,
respondents argue that the imposition of the Universal Charge is not oppressive and confiscatory since it is an exercise of
the police power of the State and it complies with the requirements of due process. 23
On its part, respondent PECO argues that it is duty-bound to collect and remit the amount pertaining to the Missionary
Electrification and Environmental Fund components of the Universal Charge, pursuant to Sec. 34 of the EPIRA and the
Decisions in ERC Case Nos. 2002-194 and 2002-165. Otherwise, PECO could be held liable under Sec. 46 24 of the
EPIRA, which imposes fines and penalties for any violation of its provisions or its IRR. 25
The Issues
The ultimate issues in the case at bar are:
1) Whether or not, the Universal Charge imposed under Sec. 34 of the EPIRA is a tax; and
2) Whether or not there is undue delegation of legislative power to tax on the part of the ERC. 26
Before we discuss the issues, the Court shall first deal with an obvious procedural lapse.
Petitioners filed before us an original action particularly denominated as a Complaint assailing the constitutionality of Sec.
34 of the EPIRA imposing the Universal Charge and Rule 18 of the EPIRA's IRR. No doubt, petitioners have locus
standi. They impugn the constitutionality of Sec. 34 of the EPIRA because they sustained a direct injury as a result of the
imposition of the Universal Charge as reflected in their electric bills.
However, petitioners violated the doctrine of hierarchy of courts when they filed this "Complaint" directly with us.
Furthermore, the Complaint is bereft of any allegation of grave abuse of discretion on the part of the ERC or any of the
public respondents, in order for the Court to consider it as a petition for certiorari or prohibition.
Article VIII, Section 5(1) and (2) of the 1987 Constitution 27 categorically provides that:
SECTION 5. The Supreme Court shall have the following powers:
1. Exercise original jurisdiction over cases affecting ambassadors, other public ministers and consuls, and
over petitions for certiorari, prohibition, mandamus, quo warranto, and habeas corpus.

Page 29 of 403
2. Review, revise, reverse, modify, or affirm on appeal or certiorari, as the law or the rules of court may provide,
final judgments and orders of lower courts in:
(a) All cases in which the constitutionality or validity of any treaty, international or executive agreement, law, presidential
decree, proclamation, order, instruction, ordinance, or regulation is in question.
But this Court's jurisdiction to issue writs of certiorari, prohibition, mandamus, quo warranto, and habeas corpus, while
concurrent with that of the regional trial courts and the Court of Appeals, does not give litigants unrestrained freedom of
choice of forum from which to seek such relief.28 It has long been established that this Court will not entertain direct resort
to it unless the redress desired cannot be obtained in the appropriate courts, or where exceptional and compelling
circumstances justify availment of a remedy within and call for the exercise of our primary jurisdiction. 29 This circumstance
alone warrants the outright dismissal of the present action.
This procedural infirmity notwithstanding, we opt to resolve the constitutional issue raised herein. We are aware that if the
constitutionality of Sec. 34 of the EPIRA is not resolved now, the issue will certainly resurface in the near future, resulting
in a repeat of this litigation, and probably involving the same parties. In the public interest and to avoid unnecessary delay,
this Court renders its ruling now.
The instant complaint is bereft of merit.
The First Issue
To resolve the first issue, it is necessary to distinguish the States power of taxation from the police power.
The power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its very nature no limits, so
that security against its abuse is to be found only in the responsibility of the legislature which imposes the tax on the
constituency that is to pay it.30 It is based on the principle that taxes are the lifeblood of the government, and their prompt
and certain availability is an imperious need.31 Thus, the theory behind the exercise of the power to tax emanates from
necessity; without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of the
people.32
On the other hand, police power is the power of the state to promote public welfare by restraining and regulating the use
of liberty and property.33 It is the most pervasive, the least limitable, and the most demanding of the three fundamental
powers of the State. The justification is found in the Latin maxims salus populi est suprema lex (the welfare of the people
is the supreme law) and sic utere tuo ut alienum non laedas (so use your property as not to injure the property of others).
As an inherent attribute of sovereignty which virtually extends to all public needs, police power grants a wide panoply of
instruments through which the State, as parens patriae, gives effect to a host of its regulatory powers.34 We have held that
the power to "regulate" means the power to protect, foster, promote, preserve, and control, with due regard for the
interests, first and foremost, of the public, then of the utility and of its patrons. 35
The conservative and pivotal distinction between these two powers rests in the purpose for which the charge is made. If
generation of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is
the primary purpose, the fact that revenue is incidentally raised does not make the imposition a tax. 36
In exacting the assailed Universal Charge through Sec. 34 of the EPIRA, the State's police power, particularly its
regulatory dimension, is invoked. Such can be deduced from Sec. 34 which enumerates the purposes for which the
Universal Charge is imposed37 and which can be amply discerned as regulatory in character. The EPIRA resonates such
regulatory purposes, thus:
SECTION 2. Declaration of Policy. It is hereby declared the policy of the State:
(a) To ensure and accelerate the total electrification of the country;
(b) To ensure the quality, reliability, security and affordability of the supply of electric power;
(c) To ensure transparent and reasonable prices of electricity in a regime of free and fair competition and full
public accountability to achieve greater operational and economic efficiency and enhance the competitiveness of
Philippine products in the global market;
(d) To enhance the inflow of private capital and broaden the ownership base of the power generation,
transmission and distribution sectors;
(e) To ensure fair and non-discriminatory treatment of public and private sector entities in the process of
restructuring the electric power industry;
(f) To protect the public interest as it is affected by the rates and services of electric utilities and other providers of
electric power;

Page 30 of 403
(g) To assure socially and environmentally compatible energy sources and infrastructure;
(h) To promote the utilization of indigenous and new and renewable energy resources in power generation in
order to reduce dependence on imported energy;
(i) To provide for an orderly and transparent privatization of the assets and liabilities of the National Power
Corporation (NPC);
(j) To establish a strong and purely independent regulatory body and system to ensure consumer protection and
enhance the competitive operation of the electricity market; and
(k) To encourage the efficient use of energy and other modalities of demand side management.
From the aforementioned purposes, it can be gleaned that the assailed Universal Charge is not a tax, but an exaction in
the exercise of the State's police power. Public welfare is surely promoted.
Moreover, it is a well-established doctrine that the taxing power may be used as an implement of police
power.38In Valmonte v. Energy Regulatory Board, et al.39 and in Gaston v. Republic Planters Bank,40 this Court held that
the Oil Price Stabilization Fund (OPSF) and the Sugar Stabilization Fund (SSF) were exactions made in the exercise of
the police power. The doctrine was reiterated in Osmea v. Orbos41 with respect to the OPSF. Thus, we disagree with
petitioners that the instant case is different from the aforementioned cases. With the Universal Charge, a Special Trust
Fund (STF) is also created under the administration of PSALM. 42 The STF has some notable characteristics similar to the
OPSF and the SSF, viz.:
1) In the implementation of stranded cost recovery, the ERC shall conduct a review to determine whether there is
under-recovery or over recovery and adjust (true-up) the level of the stranded cost recovery charge. In case of an
over-recovery, the ERC shall ensure that any excess amount shall be remitted to the STF. A separate account
shall be created for these amounts which shall be held in trust for any future claims of distribution utilities for
stranded cost recovery. At the end of the stranded cost recovery period, any remaining amount in this account
shall be used to reduce the electricity rates to the end-users. 43
2) With respect to the assailed Universal Charge, if the total amount collected for the same is greater than the
actual availments against it, the PSALM shall retain the balance within the STF to pay for periods where a
shortfall occurs.44
3) Upon expiration of the term of PSALM, the administration of the STF shall be transferred to the DOF or any of
the DOF attached agencies as designated by the DOF Secretary.45
The OSG is in point when it asseverates:
Evidently, the establishment and maintenance of the Special Trust Fund, under the last paragraph of Section 34, R.A. No.
9136, is well within the pervasive and non-waivable power and responsibility of the government to secure the physical and
economic survival and well-being of the community, that comprehensive sovereign authority we designate as the police
power of the State.46
This feature of the Universal Charge further boosts the position that the same is an exaction imposed primarily in pursuit
of the State's police objectives. The STF reasonably serves and assures the attainment and perpetuity of the purposes for
which the Universal Charge is imposed, i.e., to ensure the viability of the country's electric power industry.
The Second Issue
The principle of separation of powers ordains that each of the three branches of government has exclusive cognizance of
and is supreme in matters falling within its own constitutionally allocated sphere. A logical corollary to the doctrine of
separation of powers is the principle of non-delegation of powers, as expressed in the Latin maxim potestas delegata non
delegari potest (what has been delegated cannot be delegated). This is based on the ethical principle that such delegated
power constitutes not only a right but a duty to be performed by the delegate through the instrumentality of his own
judgment and not through the intervening mind of another. 47
In the face of the increasing complexity of modern life, delegation of legislative power to various specialized administrative
agencies is allowed as an exception to this principle. 48 Given the volume and variety of interactions in today's society, it is
doubtful if the legislature can promulgate laws that will deal adequately with and respond promptly to the minutiae of
everyday life. Hence, the need to delegate to administrative bodies - the principal agencies tasked to execute laws in their
specialized fields - the authority to promulgate rules and regulations to implement a given statute and effectuate its
policies. All that is required for the valid exercise of this power of subordinate legislation is that the regulation be germane
to the objects and purposes of the law and that the regulation be not in contradiction to, but in conformity with, the
standards prescribed by the law. These requirements are denominated as the completeness test and the sufficient
standard test.

Page 31 of 403
Under the first test, the law must be complete in all its terms and conditions when it leaves the legislature such that when
it reaches the delegate, the only thing he will have to do is to enforce it. The second test mandates adequate guidelines or
limitations in the law to determine the boundaries of the delegate's authority and prevent the delegation from running riot. 49
The Court finds that the EPIRA, read and appreciated in its entirety, in relation to Sec. 34 thereof, is complete in all its
essential terms and conditions, and that it contains sufficient standards.
Although Sec. 34 of the EPIRA merely provides that "within one (1) year from the effectivity thereof, a Universal Charge to
be determined, fixed and approved by the ERC, shall be imposed on all electricity end-users," and therefore, does not
state the specific amount to be paid as Universal Charge, the amount nevertheless is made certain by the legislative
parameters provided in the law itself. For one, Sec. 43(b)(ii) of the EPIRA provides:
SECTION 43. Functions of the ERC. The ERC shall promote competition, encourage market development, ensure
customer choice and penalize abuse of market power in the restructured electricity industry. In appropriate cases, the
ERC is authorized to issue cease and desist order after due notice and hearing. Towards this end, it shall be responsible
for the following key functions in the restructured industry:
xxxx
(b) Within six (6) months from the effectivity of this Act, promulgate and enforce, in accordance with law, a National Grid
Code and a Distribution Code which shall include, but not limited to the following:
xxxx
(ii) Financial capability standards for the generating companies, the TRANSCO, distribution utilities and suppliers:
Provided, That in the formulation of the financial capability standards, the nature and function of the entity shall be
considered: Provided, further, That such standards are set to ensure that the electric power industry participants meet the
minimum financial standards to protect the public interest. Determine, fix, and approve, after due notice and public
hearings the universal charge, to be imposed on all electricity end-users pursuant to Section 34 hereof;
Moreover, contrary to the petitioners contention, the ERC does not enjoy a wide latitude of discretion in the determination
of the Universal Charge. Sec. 51(d) and (e) of the EPIRA 50 clearly provides:
SECTION 51. Powers. The PSALM Corp. shall, in the performance of its functions and for the attainment of its
objective, have the following powers:
xxxx
(d) To calculate the amount of the stranded debts and stranded contract costs of NPC which shall form the basis
for ERC in the determination of the universal charge;
(e) To liquidate the NPC stranded contract costs, utilizing the proceeds from sales and other property contributed
to it, including the proceeds from the universal charge.
Thus, the law is complete and passes the first test for valid delegation of legislative power.
As to the second test, this Court had, in the past, accepted as sufficient standards the following: "interest of law and
order;"51 "adequate and efficient instruction;"52 "public interest;"53 "justice and equity;"54 "public convenience and
welfare;"55 "simplicity, economy and efficiency;"56 "standardization and regulation of medical education;" 57and "fair and
equitable employment practices."58 Provisions of the EPIRA such as, among others, "to ensure the total electrification of
the country and the quality, reliability, security and affordability of the supply of electric power" 59 and "watershed
rehabilitation and management"60 meet the requirements for valid delegation, as they provide the limitations on the ERCs
power to formulate the IRR. These are sufficient standards.
It may be noted that this is not the first time that the ERC's conferred powers were challenged. In Freedom from Debt
Coalition v. Energy Regulatory Commission,61 the Court had occasion to say:
In determining the extent of powers possessed by the ERC, the provisions of the EPIRA must not be read in separate
parts. Rather, the law must be read in its entirety, because a statute is passed as a whole, and is animated by one general
purpose and intent. Its meaning cannot to be extracted from any single part thereof but from a general consideration of
the statute as a whole. Considering the intent of Congress in enacting the EPIRA and reading the statute in its entirety, it
is plain to see that the law has expanded the jurisdiction of the regulatory body, the ERC in this case, to enable the latter
to implement the reforms sought to be accomplished by the EPIRA. When the legislators decided to broaden the
jurisdiction of the ERC, they did not intend to abolish or reduce the powers already conferred upon ERC's predecessors.
To sustain the view that the ERC possesses only the powers and functions listed under Section 43 of the EPIRA is to
frustrate the objectives of the law.

Page 32 of 403
In his Concurring and Dissenting Opinion62 in the same case, then Associate Justice, now Chief Justice, Reynato S. Puno
described the immensity of police power in relation to the delegation of powers to the ERC and its regulatory functions
over electric power as a vital public utility, to wit:
Over the years, however, the range of police power was no longer limited to the preservation of public health, safety and
morals, which used to be the primary social interests in earlier times. Police power now requires the State to "assume an
affirmative duty to eliminate the excesses and injustices that are the concomitants of an unrestrained industrial economy."
Police power is now exerted "to further the public welfare a concept as vast as the good of society itself." Hence,
"police power is but another name for the governmental authority to further the welfare of society that is the basic end of
all government." When police power is delegated to administrative bodies with regulatory functions, its exercise should be
given a wide latitude. Police power takes on an even broader dimension in developing countries such as ours, where the
State must take a more active role in balancing the many conflicting interests in society. The Questioned Order was
issued by the ERC, acting as an agent of the State in the exercise of police power. We should have exceptionally good
grounds to curtail its exercise. This approach is more compelling in the field of rate-regulation of electric power
rates. Electric power generation and distribution is a traditional instrument of economic growth that affects not only a few
but the entire nation. It is an important factor in encouraging investment and promoting business. The engines of progress
may come to a screeching halt if the delivery of electric power is impaired. Billions of pesos would be lost as a result of
power outages or unreliable electric power services. The State thru the ERC should be able to exercise its police power
with great flexibility, when the need arises.
This was reiterated in National Association of Electricity Consumers for Reforms v. Energy Regulatory
Commission63 where the Court held that the ERC, as regulator, should have sufficient power to respond in real time to
changes wrought by multifarious factors affecting public utilities.
From the foregoing disquisitions, we therefore hold that there is no undue delegation of legislative power to the ERC.
Petitioners failed to pursue in their Memorandum the contention in the Complaint that the imposition of the Universal
Charge on all end-users is oppressive and confiscatory, and amounts to taxation without representation. Hence, such
contention is deemed waived or abandoned per Resolution 64 of August 3, 2004.65Moreover, the determination of whether
or not a tax is excessive, oppressive or confiscatory is an issue which essentially involves questions of fact, and thus, this
Court is precluded from reviewing the same.66
As a penultimate statement, it may be well to recall what this Court said of EPIRA:
One of the landmark pieces of legislation enacted by Congress in recent years is the EPIRA. It established a new policy,
legal structure and regulatory framework for the electric power industry. The new thrust is to tap private capital for the
expansion and improvement of the industry as the large government debt and the highly capital-intensive character of the
industry itself have long been acknowledged as the critical constraints to the program. To attract private investment,
largely foreign, the jaded structure of the industry had to be addressed. While the generation and transmission sectors
were centralized and monopolistic, the distribution side was fragmented with over 130 utilities, mostly small and
uneconomic. The pervasive flaws have caused a low utilization of existing generation capacity; extremely high and
uncompetitive power rates; poor quality of service to consumers; dismal to forgettable performance of the government
power sector; high system losses; and an inability to develop a clear strategy for overcoming these shortcomings.
Thus, the EPIRA provides a framework for the restructuring of the industry, including the privatization of the assets of the
National Power Corporation (NPC), the transition to a competitive structure, and the delineation of the roles of various
government agencies and the private entities. The law ordains the division of the industry into four (4) distinct sectors,
namely: generation, transmission, distribution and supply.
Corollarily, the NPC generating plants have to privatized and its transmission business spun off and privatized thereafter. 67
Finally, every law has in its favor the presumption of constitutionality, and to justify its nullification, there must be a clear
and unequivocal breach of the Constitution and not one that is doubtful, speculative, or argumentative. 68Indubitably,
petitioners failed to overcome this presumption in favor of the EPIRA. We find no clear violation of the Constitution which
would warrant a pronouncement that Sec. 34 of the EPIRA and Rule 18 of its IRR are unconstitutional and void.
WHEREFORE, the instant case is hereby DISMISSED for lack of merit.
SO ORDERED.
ANTONIO EDUARDO B. NACHURA
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Chief Justice

LEONARDO A. QUISUMBING

CONSUELO YNARES-SANTIAGO

Page 33 of 403
Associate Justice

Associate Justice

ANGELINA SANDOVAL-GUTIERREZ
Associate Justice

ANTONIO T. CARPIO
Associate Justice

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice

RENATO C. CORONA
Associate Justice

CONCHITA CARPIO MORALES

Associate Justice

ADOLFO S. AZCUNA
Associate Justice

DANTE O. TINGA
Associate Justice

MINITA V. CHICO-NAZARIO
Associate Justice

CANCIO C. GARCIA
Associate Justice

PRESBITERO J. VELASCO, JR.

Associate Justice

C E R TI F I CATI O N
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Court.
REYNATO S. PUNO
Chief Justice
Footnotes
1

Sec. 4 (ddd) of the EPIRA provides that the Universal Charge refers to the charge, if any, imposed for the recovery of the stranded cost and
other purposes pursuant to Section 34 hereof.
2

Rules and Regulations to Implement Republic Act No. 9136, entitled "Electric Power Industry Reform Act of 2001, (IRR) approved on
February 27, 2002, particularly Rule 4 (rrrr) provides that the "Universal Charge" refers to the charge, if any, imposed for the recovery of the
Stranded Debts, Stranded Contract Costs of NPC, and Stranded Contract Costs of Eligible Contracts of Distribution Utilities and other
purposes pursuant to Section 34 of the EPIRA.
3

Particularly denominated as Complaint dated September 15, 2003; rollo, pp. 3-15.

Sec. 4 [vv] of the EPIRA provides that Stranded Debts of NPC refer to any unpaid financial obligations of NPC which have not been
liquidated by the proceeds from the sales and privatization of NPC assets.
5

Sec. 4 [uu] of the EPIRA also provides that Stranded contract costs of NPC or distribution utility refer to the excess of the contracted cost of
electricity under eligible contracts over the actual selling price of the contracted energy output of such contracts in the market. Such contracts
shall have been approved by the ERB as of December 31, 2000.
6

Rule 4 (ddd) of the IRR provides that Missionary Electrification refers to the provision of basic electricity service in Unviable Areas with the
ultimate aim of bringing the operations in these areas to viability levels.
7

Manila Electric Company, Inc. v. Lualhati, G.R. Nos. 166769 and 166818, December 6, 2006.

IRR, Rule 4 (bbbb) states that Small Power Utilities Group or SPUG refers to the functional unit of NPC created to pursue Missionary
Electrification function.
9

ERC Record for ERC Case No. 2002-165, pp. 1-7.

10

PSALM is a government-owned and controlled corporation created under Sec. 49 of the EPIRA, which shall take ownership of all existing
NPC generation assets, liabilities, IPP contracts, real estate and all other disposable assets. All outstanding obligations of the NPC arising
from loans, issuances of bonds, securities and other instruments of indebtedness shall be transferred to and assumed by the PSALM.
11

ERC Record for ERC Case No. 2002-194, pp. 1-5.

12

Supra note 9, at 110-122.

13

Id. at 215-224.

14

NPC-SPUG's Motion for Reconsideration dated August 13, 2003 also prayed that it be allowed (1) to have flexibility in the utilization of UCME considering its mandate to implement the MEDP responsive to the needs and constraints of missionary electrification; (2) to authorize it to
re-prioritize its CAPEX and its OPEX to the extent possible, for CY 2003; and (3) to give it the flexibility to reallocate available UC-ME funds
among the revised priority activities/projects for CY 2003, Id. at 225-236.
15

Id. at 237-239.

16

Supra note 11, at 110-122.

17

Rollo, p. 8.

Page 34 of 403
18

Supra note 3.

19

Osmea v. Orbos, G.R. No. 99886, March 31, 1993, 220 SCRA 703; Valmonte v. Energy Regulatory Board, G.R. Nos. L-79601-03, June 23,
1988, 162 SCRA 521; and Gaston v. Republic Planters Bank, No. L-77194, March 15, 1988, 158 SCRA 626.
20

These funds are the Oil Price Stabilization Fund (OPSF) and Sugar Stabilization Fund (SSF).

21

Petitioners' Memorandum dated October 6, 2004; rollo, pp. 123-138.

22

PSALM's Memorandum dated December 8, 2004; id. at 154-167.

23

OSG's Memorandum dated January 4, 2005; id. at 168-187.

24

SECTION 46. Fines and Penalties. The fines and penalties that shall be imposed by the ERC for any violation of or non-compliance with
this Act or the IRR shall range from a minimum of Fifty thousand pesos (P50,000.00) to a maximum of Fifty million pesos (P50,000,000.00).
Any person who is found guilty of any of the prohibited acts pursuant to Section 45 hereof shall suffer the penalty of prision mayor
and a fine ranging from Ten thousand pesos (P10,000.00) to Ten million pesos (P10,000.000.00), or both, at the discretion of the
court.
The members of the Board of Directors of the juridical companies participating in or covered in the generation companies, the
distribution utilities, the TRANSCO or its concessionaire or supplier who violate the provisions of this Act may be fined by an amount
not exceeding double the amount of damages caused by the offender or by imprisonment of one (1) year or two (2) years or both at
the discretion of the court. This rule shall apply to the members of the Board who knowingly or by neglect allows the commission or
omission under the law.
If the offender is a government official or employee, he shall, in addition, be dismissed from the government service with prejudice to
reinstatement and with perpetual or temporary disqualification from holding any elective or appointive office.
If the offender is an alien, he may, in addition to the penalties prescribed, be deported without further proceedings after service of
sentence.
Any case which involves question of fact shall be appealable to the Court of Appeals and those which involve question of law shall
be directly appealable to the Supreme Court.
The administrative sanction that may be imposed by the ERC shall be without prejudice to the filing of a criminal action, if warranted.
To ensure compliance with this Act, the penalty of prision correccional or a fine ranging from Five thousand pesos (P5,000.00) to
Five million pesos (P5,000,000.00), or both, at the discretion of the court, shall be imposed on any person, including but not limited
to the president, member of the Board, Chief Executive Officer or Chief Operating Officer of the corporation, partnership, or any
other entity involved, found guilty of violating or refusing to comply with any provision of this Act or its IRR, other than those provided
herein.
Any party to an administrative proceeding may, at any time, make an offer to the ERC, conditionally or otherwise, for a consented
decree, voluntary compliance or desistance and other settlement of the case. The offer and any or all of the ultimate facts upon
which the offer is based shall be considered for settlement purposes only and shall not be used as evidence against any party for
any other purpose and shall not constitute an admission by the party making the offer of any violation of the laws, rules, regulations,
orders and resolutions of the ERC, nor as a waiver to file any warranted criminal actions.
In addition, Congress may, upon recommendation of the DOE and/or ERC, revoke such franchise or privilege granted to the party
who violated the provisions of this Act.
25

PECO's Memorandum dated April 18, 2005; rollo, pp. 205-210.

26

Supra note 21, at 125.

27

Emphasis supplied.

28

Francisco, Jr. v. Fernando, G.R. No. 166501, November 16, 2006, citing People v. Cuaresma, 172 SCRA 415, 423-424 (1989).

29

Lacson Hermanas, Inc. v. Heirs of Cenon Ignacio, G.R. No. 165973, June 29, 2005, 462 SCRA 290, 294 and Santiago v. Vasquez, G.R.
Nos. 99289-90, January 27, 1993, 217 SCRA 633, 652.
30

Mactan Cebu International Airport Authority v. Marcos, 330 Phil. 392, 404 (1996).

31

Proton Pilipinas Corporation v. Republic of the Philippines, G.R. No. 165027, October 16, 2006, citingProvince of Tarlac v. Alcantara, 216
SCRA 790, 798 (1992).
32

National Power Corporation v. City of Cabanatuan, 449 Phil. 233, 248 (2003).

33

Didipio Earth-Savers' Multi-Purpose Association, Inc. (DESAMA) v. Gozun, G.R. No. 157882, March 30, 2006, 485 SCRA 586, 604,
citing U.S. v. Torribio, 15 Phil. 85, 93 (1910) and Rubi v. The Provincial Board of Mindoro, 39 Phil. 660, 708 (1919).
34

35

JMM Promotion and Management, Inc. v. Court of Appeals, G.R. No. 120095, August 5, 1996, 260 SCRA 319, 324.

Philippine Association of Service Exporters, Inc. v. Hon. Ruben D. Torres, G.R. No. 101279, August 6, 1992, 212 SCRA 298, 304,
citing Philippine Communications Satellite Corporation v. Alcuaz, 180 SCRA 218 (1989).

Page 35 of 403
36

Progressive Development Corporation vs. Quezon City, G.R. No. 36081, April 24, 1989, 172 SCRA 629, 635, citing Manila Electric Company
v. El Auditor General y La Comision de Servicios Publicos, 73 Phil. 133 (1941); Republic v. Philippine Rabbit Lines, 143 Phil. 158, 163 (1970).
37

The purposes are:

(a) Payment for the stranded debts in excess of the amount assumed by the National Government and stranded contract costs of
NPC and as well as qualified stranded contract costs of distribution utilities resulting from the restructuring of the industry;
(b) Missionary electrification;
(c) The equalization of the taxes and royalties applied to indigenous or renewable sources of energy vis--vis imported energy fuels;
(d) An environmental charge equivalent to one-fourth of one centavo per kilowatt-hour (P0.0025/kWh), which shall accrue to an
environmental fund to be used solely for watershed rehabilitation and management. Said fund shall be managed by NPC under
existing arrangements; and
(e) A charge to account for all forms of cross-subsidies for a period not exceeding three (3) years.

38

Osmea v. Orbos, supra note 19, at 710, Gaston v. Republic Planters Bank, supra note 19, at 632, Tio v. Videogram Regulatory Board, No.
L-75697, June 18, 1987, 151 SCRA 208, 216, and Lutz v. Araneta, 98 Phil. 148 (1955).
39

Supra note 19, at 539; Decided jointly with Citizen's Alliance for Consumer Protection v. Energy Regulatory Board., G.R. Nos. L-78888-90,
and Kilusang Mayo Uno Labor Center v. Energy Regulatory, Board., G.R. Nos. L-79690-92.
40

Supra note 19, at 632-633.

41

Id. at 710-711.

42

Last paragraph, Sec. 34, EPIRA provides: The PSALM Corp., as administrator of the fund, shall create a Special Trust Fund which shall be
disbursed only for the purposes specified herein in an open and transparent manner. All amount collected for the universal charge shall be
distributed to the respective beneficiaries within a reasonable period to be provided by the ERC.
IRR of the EPIRA, Rule 18, SECTION 6, also provides:
(a) Pursuant to the last paragraph of Section 34 of the Act, PSALM shall act as the administrator of the funds generated from the
Universal Charge. For this purpose, the PSALM shall create a STF to be established in the Bureau of Treasury (BTr) or in a
Government Financing Institution (GFI) that is acceptable to the DOF. Separate STFs shall be established for each of the intended
purposes of the Universal Charge. Funds shall be disbursed in an open and transparent manner and shall only be used for the
intended purposes specified in Section 3 of this Rule.
43

EPIRA, Sec. 33, last paragraph and IRR, Sec. 5 (f), Rule 17.

44

IRR, Sec. 6 (f), Rule 18.

45

IRR, Sec. 4, Rule 21.

46

Supra note 23, at 177-178, citing Osmea v. Orbos, supra note 19.

47

Abakada Guro Party List v. Ermita, G.R. Nos. 168056, 168207, 168461, 168463 and 168730, September 1, 2005, 469 SCRA 10, 115-116.

48

The recognized exceptions to the general principle are as follows:

(1) Delegation of tariff powers to the President under Section 28(2) of Article VI of the Constitution;
(2) Delegation of emergency powers to the President under Section 23(2) of Article VI of the Constitution;
(3) Delegation to the people at large;
(4) Delegation to local governments; and
(5) Delegation to administrative bodies. Abakada Guro Party List v. Ermita, supra note 47, at 117 and Santiago v. Comelec, 336 Phil.
848, 897-898 (1997), citing People v. Vera, 65 Phil. 56 (1937).

49

Equi-Asia Placement, Inc. v. DFA, G.R. No. 152214, September 19, 2006, citing Beltran v. Secretary of Health, 476 SCRA 168, 191
(2005); The Conference of Maritime Manning Agencies v. Philippine Overseas Employment Agency, 313 Phil. 592, 606 (1995); and Eastern
Shipping Lines, Inc. v. Philippine Overseas Employment Agency, G.R. No. L-76633, October 18, 1998, 166 SCRA 533, 543.
50

Emphasis supplied.

51

Rubi v. Provincial Board of Mindoro, supra note 33, at 706.

52

Philippine Association of Colleges and University v. Secretary of Education, 97 Phil. 806, 814 (1955).

53

People v. Rosenthal, 68 Phil. 328, 342 (1939).

Page 36 of 403
54

Antamok Gold Fields v. CIR, 70 Phil. 340 (1940).

55

Calalang v. Williams, 70 Phil. 726, 733 (1940).

56

Cervantes v. Auditor General, 91 Phil 359, 364 (1952).

57

Tablarin v. Gutierrez, No. L-78164, July 31, 1987, 152 SCRA 731.

58

The Conference of Maritime Manning Agencies, Inc. v. Philippine Overseas Employment Administration, supra note 49.

59

Sec. 2(a) and (b), Declaration of Policies of the EPIRA.

60

Supra note 37.

61

G.R. No. 161113, June 15, 2004, 432 SCRA 157, 182.

62

Id. at 219-220 (Emphasis supplied).

63

G.R. No. 163935, February 2, 2006, 481 SCRA 480, 515-516, citing Freedom from Debt Coalition v. Energy Regulatory Commission, supra
note 61.
64

Rollo, pp. 108-109

65

Republic v. Kalaw, G.R. No. 155138, June 8, 2004, 431 SCRA 401, 406.

66

Lopez v. City of Manila, G.R. No. 127139, February 19, 1999, 303 SCRA 448, 460, citing Ty v. Trampe, 250 SCRA 500 (1995).

67

Freedom from Debt Coalition v. Energy Regulatory Commission, supra note 61, at 171-172.

68

Arceta v. Mangrobang, G.R. Nos. 152895 & 153151, June 15, 2004, 432 SCRA 136, 142, citing Lacson v. The Executive Secretary, 361
Phil. 251, 263 (1999).

The Lawphil Project - Arellano Law Foundation

Republic of the Philippines

SUPREME COURT
Manila
EN BANC

Page 37 of 403
G.R. No. L-25043

April 26, 1968

ANTONIO ROXAS, EDUARDO ROXAS and ROXAS Y CIA., in their own respective behalf and as judicial coguardians of JOSE ROXAS, petitioners,
vs.
COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents.
Leido, Andrada, Perez and Associates for petitioners.
Office of the Solicitor General for respondents.
BENGZON, J.P., J.:
Don Pedro Roxas and Dona Carmen Ayala, Spanish subjects, transmitted to their grandchildren by hereditary succession
the following properties:
(1) Agricultural lands with a total area of 19,000 hectares, situated in the municipality of Nasugbu, Batangas
province;
(2) A residential house and lot located at Wright St., Malate, Manila; and
(3) Shares of stocks in different corporations.
To manage the above-mentioned properties, said children, namely, Antonio Roxas, Eduardo Roxas and Jose Roxas,
formed a partnership called Roxas y Compania.
AGRICULTURAL LANDS
At the conclusion of the Second World War, the tenants who have all been tilling the lands in Nasugbu for generations
expressed their desire to purchase from Roxas y Cia. the parcels which they actually occupied. For its part, the
Government, in consonance with the constitutional mandate to acquire big landed estates and apportion them among
landless tenants-farmers, persuaded the Roxas brothers to part with their landholdings. Conferences were held with the
farmers in the early part of 1948 and finally the Roxas brothers agreed to sell 13,500 hectares to the Government for
distribution to actual occupants for a price of P2,079,048.47 plus P300,000.00 for survey and subdivision expenses.
It turned out however that the Government did not have funds to cover the purchase price, and so a special arrangement
was made for the Rehabilitation Finance Corporation to advance to Roxas y Cia. the amount of P1,500,000.00 as loan.
Collateral for such loan were the lands proposed to be sold to the farmers. Under the arrangement, Roxas y Cia. allowed
the farmers to buy the lands for the same price but by installment, and contracted with the Rehabilitation Finance
Corporation to pay its loan from the proceeds of the yearly amortizations paid by the farmers.
In 1953 and 1955 Roxas y Cia. derived from said installment payments a net gain of P42,480.83 and P29,500.71. Fifty
percent of said net gain was reported for income tax purposes as gain on the sale of capital asset held for more than one
year pursuant to Section 34 of the Tax Code.
RESIDENTIAL HOUSE
During their bachelor days the Roxas brothers lived in the residential house at Wright St., Malate, Manila, which they
inherited from their grandparents. After Antonio and Eduardo got married, they resided somewhere else leaving only Jose
in the old house. In fairness to his brothers, Jose paid to Roxas y Cia. rentals for the house in the sum of P8,000.00 a
year.
ASSESSMENTS
On June 17, 1958, the Commissioner of Internal Revenue demanded from Roxas y Cia the payment of real estate
dealer's tax for 1952 in the amount of P150.00 plus P10.00 compromise penalty for late payment, and P150.00 tax for
dealers of securities for 1952 plus P10.00 compromise penalty for late payment. The assessment for real estate dealer's
tax was based on the fact that Roxas y Cia. received house rentals from Jose Roxas in the amount of P8,000.00.
Pursuant to Sec. 194 of the Tax Code, an owner of a real estate who derives a yearly rental income therefrom in the
amount of P3,000.00 or more is considered a real estate dealer and is liable to pay the corresponding fixed tax.
The Commissioner of Internal Revenue justified his demand for the fixed tax on dealers of securities against Roxas y Cia.,
on the fact that said partnership made profits from the purchase and sale of securities.
In the same assessment, the Commissioner assessed deficiency income taxes against the Roxas Brothers for the years
1953 and 1955, as follows:

Antonio Roxas

1953
P7,010.00

1955
P5,813.00

Page 38 of 403
Eduardo Roxas
Jose Roxas

7,281.00
6,323.00

5,828.00
5,588.00

The deficiency income taxes resulted from the inclusion as income of Roxas y Cia. of the unreported 50% of the net
profits for 1953 and 1955 derived from the sale of the Nasugbu farm lands to the tenants, and the disallowance of
deductions from gross income of various business expenses and contributions claimed by Roxas y Cia. and the Roxas
brothers. For the reason that Roxas y Cia. subdivided its Nasugbu farm lands and sold them to the farmers on installment,
the Commissioner considered the partnership as engaged in the business of real estate, hence, 100% of the profits
derived therefrom was taxed.
The following deductions were disallowed:
ROXAS Y CIA.:
1953
Tickets for Banquet in honor of
S. Osmea
Gifts of San Miguel beer

P 40.00
28.00

Contributions to
Philippine Air Force Chapel

100.00

Manila Police Trust Fund

150.00

Philippines Herald's fund for Manila's

neediest families

100.00

1955
Contributions to Contribution to
Our Lady of Fatima Chapel, FEU

50.00

ANTONIO ROXAS:
1953
Contributions to
Pasay City Firemen Christmas Fund

25.00

Pasay City Police Dept. X'mas fund

50.00

1955
Contributions to
Baguio City Police Christmas fund

25.00

Pasay City Firemen Christmas fund

25.00

Pasay City Police Christmas fund

50.00

EDUARDO ROXAS:
1953
Contributions to
Hijas de Jesus' Retiro de Manresa

450.00

Philippines Herald's fund for Manila's

neediest families

100.00

Contributions to Philippines
Herald's fund for Manila's
neediest families

120.00

1955

JOSE ROXAS:
1955

Page 39 of 403
Contributions to Philippines
Herald's fund for Manila's
neediest families

120.00

The Roxas brothers protested the assessment but inasmuch as said protest was denied, they instituted an appeal in the
Court of Tax Appeals on January 9, 1961. The Tax Court heard the appeal and rendered judgment on July 31, 1965
sustaining the assessment except the demand for the payment of the fixed tax on dealer of securities and the
disallowance of the deductions for contributions to the Philippine Air Force Chapel and Hijas de Jesus' Retiro de Manresa.
The Tax Court's judgment reads:
WHEREFORE, the decision appealed from is hereby affirmed with respect to petitioners Antonio Roxas, Eduardo
Roxas, and Jose Roxas who are hereby ordered to pay the respondent Commissioner of Internal Revenue the
amounts of P12,808.00, P12,887.00 and P11,857.00, respectively, as deficiency income taxes for the years 1953
and 1955, plus 5% surcharge and 1% monthly interest as provided for in Sec. 51(a) of the Revenue Code; and
modified with respect to the partnership Roxas y Cia. in the sense that it should pay only P150.00, as real estate
dealer's tax. With costs against petitioners.
Not satisfied, Roxas y Cia. and the Roxas brothers appealed to this Court. The Commissioner of Internal Revenue did not
appeal.
The issues:
(1) Is the gain derived from the sale of the Nasugbu farm lands an ordinary gain, hence 100% taxable?
(2) Are the deductions for business expenses and contributions deductible?
(3) Is Roxas y Cia. liable for the payment of the fixed tax on real estate dealers?
The Commissioner of Internal Revenue contends that Roxas y Cia. could be considered a real estate dealer because it
engaged in the business of selling real estate. The business activity alluded to was the act of subdividing the Nasugbu
farm lands and selling them to the farmers-occupants on installment. To bolster his stand on the point, he cites one of the
purposes of Roxas y Cia. as contained in its articles of partnership, quoted below:
4. (a) La explotacion de fincas urbanes pertenecientes a la misma o que pueden pertenecer a ella en el futuro,
alquilandoles por los plazos y demas condiciones, estime convenientes y vendiendo aquellas que a juicio de sus
gerentes no deben conservarse;
The above-quoted purpose notwithstanding, the proposition of the Commissioner of Internal Revenue cannot be favorably
accepted by Us in this isolated transaction with its peculiar circumstances in spite of the fact that there were hundreds of
vendees. Although they paid for their respective holdings in installment for a period of ten years, it would nevertheless not
make the vendor Roxas y Cia. a real estate dealer during the ten-year amortization period.
It should be borne in mind that the sale of the Nasugbu farm lands to the very farmers who tilled them for generations was
not only in consonance with, but more in obedience to the request and pursuant to the policy of our Government to
allocate lands to the landless. It was the bounden duty of the Government to pay the agreed compensation after it had
persuaded Roxas y Cia. to sell its haciendas, and to subsequently subdivide them among the farmers at very reasonable
terms and prices. However, the Government could not comply with its duty for lack of funds. Obligingly, Roxas y Cia.
shouldered the Government's burden, went out of its way and sold lands directly to the farmers in the same way and
under the same terms as would have been the case had the Government done it itself. For this magnanimous act, the
municipal council of Nasugbu passed a resolution expressing the people's gratitude.
The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to
minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax
collector kill the "hen that lays the golden egg". And, in order to maintain the general public's trust and confidence in the
Government this power must be used justly and not treacherously. It does not conform with Our sense of justice in the
instant case for the Government to persuade the taxpayer to lend it a helping hand and later on to penalize him for duly
answering the urgent call.
In fine, Roxas y Cia. cannot be considered a real estate dealer for the sale in question. Hence, pursuant to Section 34 of
the Tax Code the lands sold to the farmers are capital assets, and the gain derived from the sale thereof is capital gain,
taxable only to the extent of 50%.
DISALLOWED DEDUCTIONS
Roxas y Cia. deducted from its gross income the amount of P40.00 for tickets to a banquet given in honor of Sergio
Osmena and P28.00 for San Miguel beer given as gifts to various persons. The deduction were claimed as representation
expenses. Representation expenses are deductible from gross income as expenditures incurred in carrying on a trade or
business under Section 30(a) of the Tax Code provided the taxpayer proves that they are reasonable in amount, ordinary

Page 40 of 403
and necessary, and incurred in connection with his business. In the case at bar, the evidence does not show such link
between the expenses and the business of Roxas y Cia. The findings of the Court of Tax Appeals must therefore be
sustained.
The petitioners also claim deductions for contributions to the Pasay City Police, Pasay City Firemen, and Baguio City
Police Christmas funds, Manila Police Trust Fund, Philippines Herald's fund for Manila's neediest families and Our Lady of
Fatima chapel at Far Eastern University.
The contributions to the Christmas funds of the Pasay City Police, Pasay City Firemen and Baguio City Police are not
deductible for the reason that the Christmas funds were not spent for public purposes but as Christmas gifts to the
families of the members of said entities. Under Section 39(h), a contribution to a government entity is deductible when
used exclusively for public purposes. For this reason, the disallowance must be sustained. On the other hand, the
contribution to the Manila Police trust fund is an allowable deduction for said trust fund belongs to the Manila Police, a
government entity, intended to be used exclusively for its public functions.
The contributions to the Philippines Herald's fund for Manila's neediest families were disallowed on the ground that the
Philippines Herald is not a corporation or an association contemplated in Section 30 (h) of the Tax Code. It should be
noted however that the contributions were not made to the Philippines Herald but to a group of civic spirited citizens
organized by the Philippines Herald solely for charitable purposes. There is no question that the members of this group of
citizens do not receive profits, for all the funds they raised were for Manila's neediest families. Such a group of citizens
may be classified as an association organized exclusively for charitable purposes mentioned in Section 30(h) of the Tax
Code.
Rightly, the Commissioner of Internal Revenue disallowed the contribution to Our Lady of Fatima chapel at the Far
Eastern University on the ground that the said university gives dividends to its stockholders. Located within the premises
of the university, the chapel in question has not been shown to belong to the Catholic Church or any religious
organization. On the other hand, the lower court found that it belongs to the Far Eastern University, contributions to which
are not deductible under Section 30(h) of the Tax Code for the reason that the net income of said university injures to the
benefit of its stockholders. The disallowance should be sustained.
Lastly, Roxas y Cia. questions the imposition of the real estate dealer's fixed tax upon it, because although it earned a
rental income of P8,000.00 per annum in 1952, said rental income came from Jose Roxas, one of the partners. Section
194 of the Tax Code, in considering as real estate dealers owners of real estate receiving rentals of at least P3,000.00 a
year, does not provide any qualification as to the persons paying the rentals. The law, which states: 1wph1.t
. . . "Real estate dealer" includes any person engaged in the business of buying, selling, exchanging, leasing or
renting property on his own account as principal and holding himself out as a full or part-time dealer in real estate
or as an owner of rental property or properties rented or offered to rent for an aggregate amount of three
thousand pesos or more a year: . . . (Emphasis supplied) .
is too clear and explicit to admit construction. The findings of the Court of Tax Appeals or, this point is
sustained.1wph1.t
To Summarize, no deficiency income tax is due for 1953 from Antonio Roxas, Eduardo Roxas and Jose Roxas. For 1955
they are liable to pay deficiency income tax in the sum of P109.00, P91.00 and P49.00, respectively, computed as
follows: *
ANTONIO ROXAS
Net income per return
Add: 1/3 share, profits in Roxas y Cia.

P315,476.59
P 153,249.15

Less amount declared

146,135.46

Amount understated

P 7,113.69

Contributions disallowed

115.00
P 7,228.69

Less 1/3 share of contributions

amounting to P21,126.06 disallowed
from partnership but allowed to partners
Net income per review
Less: Exemptions
Net taxable income

7,042.02

186.67
P315,663.26
4,200.00

Page 41 of 403
P311,463.26
Tax due

154,169.00

Tax paid

154,060.00

Deficiency

P 109.00
==========
EDUARDO ROXAS
P
304,166.92

Net income per return

Add: 1/3 share, profits in Roxas y Cia

P 153,249.15

Less profits declared

146,052.58

Amount understated

P 7,196.57

Less 1/3 share in contributions

amounting to P21,126.06 disallowed
from partnership but allowed to partners

7,042.02

Net income per review

155.55
P304,322.47

Less: Exemptions

4,800.00

Net taxable income

P299,592.47

Tax Due

P147,250.00

Tax paid

147,159.00

Deficiency

P91.00
===========
JOSE ROXAS

Net income per return

Add: 1/3 share, profits in Roxas y Cia.
Less amount reported

P222,681.76
P153,429.15
146,135.46

Amount understated

7,113.69

Less 1/3 share of contributions

disallowed from partnership but allowed
as deductions to partners

7,042.02

Net income per review

P222,753.43

Less: Exemption

1,800.00

Net income subject to tax

P220,953.43

Tax due

P102,763.00

Tax paid

102,714.00

Deficiency

71.67

P 49.00
===========

WHEREFORE, the decision appealed from is modified. Roxas y Cia. is hereby ordered to pay the sum of P150.00 as real
estate dealer's fixed tax for 1952, and Antonio Roxas, Eduardo Roxas and Jose Roxas are ordered to pay the respective
sums of P109.00, P91.00 and P49.00 as their individual deficiency income tax all corresponding for the year 1955. No
costs. So ordered.

Page 42 of 403
Reyes, J.B.L., Dizon, Makalintal, Sanchez, Castro, Angeles and Fernando, JJ., concur.
Zaldivar, J., took no part.
Concepcion, C.J., is on leave.
Footnotes
*

See BIR Records, p. 387.

The Lawphil Project - Arellano Law Foundation

Republic of the Philippines

SUPREME COURT
Manila
SPECIAL FIRST DIVISION

Page 43 of 403
G.R. No. 167330

September 18, 2009

PHILIPPINE HEALTH CARE PROVIDERS, INC., Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
RESOLUTION
CORONA, J.:
ARTICLE II
Declaration of Principles and State Policies
Section 15. The State shall protect and promote the right to health of the people and instill health consciousness among
them.
ARTICLE XIII
Social Justice and Human Rights
Section 11. The State shall adopt an integrated and comprehensive approach to health development which shall endeavor
to make essential goods, health and other social services available to all the people at affordable cost. There shall be
priority for the needs of the underprivileged sick, elderly, disabled, women, and children. The State shall endeavor to
provide free medical care to paupers.1
For resolution are a motion for reconsideration and supplemental motion for reconsideration dated July 10, 2008 and July
14, 2008, respectively, filed by petitioner Philippine Health Care Providers, Inc. 2
We recall the facts of this case, as follows:
Petitioner is a domestic corporation whose primary purpose is "[t]o establish, maintain, conduct and operate a prepaid
group practice health care delivery system or a health maintenance organization to take care of the sick and disabled
persons enrolled in the health care plan and to provide for the administrative, legal, and financial responsibilities of the
organization." Individuals enrolled in its health care programs pay an annual membership fee and are entitled to various
preventive, diagnostic and curative medical services provided by its duly licensed physicians, specialists and other
professional technical staff participating in the group practice health delivery system at a hospital or clinic owned, operated
or accredited by it.
xxx

xxx

xxx

On January 27, 2000, respondent Commissioner of Internal Revenue [CIR] sent petitioner a formal demand letter and the
corresponding assessment notices demanding the payment of deficiency taxes, including surcharges and interest, for the
taxable years 1996 and 1997 in the total amount of P224,702,641.18. xxxx
The deficiency [documentary stamp tax (DST)] assessment was imposed on petitioners health care agreement with the
members of its health care program pursuant to Section 185 of the 1997 Tax Code xxxx
xxx

xxx

xxx

Petitioner protested the assessment in a letter dated February 23, 2000. As respondent did not act on the protest,
petitioner filed a petition for review in the Court of Tax Appeals (CTA) seeking the cancellation of the deficiency VAT and
DST assessments.
On April 5, 2002, the CTA rendered a decision, the dispositive portion of which read:
WHEREFORE, in view of the foregoing, the instant Petition for Review is PARTIALLY GRANTED. Petitioner is hereby
ORDERED to PAY the deficiency VAT amounting to P22,054,831.75 inclusive of 25% surcharge plus 20% interest from
January 20, 1997 until fully paid for the 1996 VAT deficiency and P31,094,163.87 inclusive of 25% surcharge plus 20%
interest from January 20, 1998 until fully paid for the 1997 VAT deficiency. Accordingly, VAT Ruling No. [231]-88 is
declared void and without force and effect. The 1996 and 1997 deficiency DST assessment against petitioner is hereby
CANCELLED AND SET ASIDE. Respondent is ORDERED to DESIST from collecting the said DST deficiency tax.
SO ORDERED.
Respondent appealed the CTA decision to the [Court of Appeals (CA)] insofar as it cancelled the DST assessment. He
claimed that petitioners health care agreement was a contract of insurance subject to DST under Section 185 of the 1997
Tax Code.

Page 44 of 403
On August 16, 2004, the CA rendered its decision. It held that petitioners health care agreement was in the nature of a
non-life insurance contract subject to DST.
WHEREFORE, the petition for review is GRANTED. The Decision of the Court of Tax Appeals, insofar as it cancelled and
set aside the 1996 and 1997 deficiency documentary stamp tax assessment and ordered petitioner to desist from
collecting the same is REVERSED and SET ASIDE.
Respondent is ordered to pay the amounts of P55,746,352.19 and P68,450,258.73 as deficiency Documentary Stamp Tax
for 1996 and 1997, respectively, plus 25% surcharge for late payment and 20% interest per annum from January 27,
2000, pursuant to Sections 248 and 249 of the Tax Code, until the same shall have been fully paid.
SO ORDERED.
Petitioner moved for reconsideration but the CA denied it. Hence, petitioner filed this case.
xxx

xxx

xxx

In a decision dated June 12, 2008, the Court denied the petition and affirmed the CAs decision. We held that petitioners
health care agreement during the pertinent period was in the nature of non-life insurance which is a contract of indemnity,
citing Blue Cross Healthcare, Inc. v. Olivares3 and Philamcare Health Systems, Inc. v. CA.4We also ruled that petitioners
contention that it is a health maintenance organization (HMO) and not an insurance company is irrelevant because
contracts between companies like petitioner and the beneficiaries under their plans are treated as insurance contracts.
Moreover, DST is not a tax on the business transacted but an excise on the privilege, opportunity or facility offered at
exchanges for the transaction of the business.
Unable to accept our verdict, petitioner filed the present motion for reconsideration and supplemental motion for
reconsideration, asserting the following arguments:
(a) The DST under Section 185 of the National Internal Revenue of 1997 is imposed only on a company engaged
in the business of fidelity bonds and other insurance policies. Petitioner, as an HMO, is a service provider, not an
insurance company.
(b) The Court, in dismissing the appeal in CIR v. Philippine National Bank, affirmed in effect the CAs disposition
that health care services are not in the nature of an insurance business.
(c) Section 185 should be strictly construed.
(d) Legislative intent to exclude health care agreements from items subject to DST is clear, especially in the light
of the amendments made in the DST law in 2002.
(e) Assuming arguendo that petitioners agreements are contracts of indemnity, they are not those contemplated
under Section 185.
(f) Assuming arguendo that petitioners agreements are akin to health insurance, health insurance is not covered
by Section 185.
(g) The agreements do not fall under the phrase "other branch of insurance" mentioned in Section 185.
(h) The June 12, 2008 decision should only apply prospectively.
(i) Petitioner availed of the tax amnesty benefits under RA 5 9480 for the taxable year 2005 and all prior years.
Therefore, the questioned assessments on the DST are now rendered moot and academic. 6
Oral arguments were held in Baguio City on April 22, 2009. The parties submitted their memoranda on June 8, 2009.
In its motion for reconsideration, petitioner reveals for the first time that it availed of a tax amnesty under RA 9480 7 (also
known as the "Tax Amnesty Act of 2007") by fully paying the amount of P5,127,149.08 representing 5% of its net worth as
of the year ending December 31, 2005.8
We find merit in petitioners motion for reconsideration.
Petitioner was formally registered and incorporated with the Securities and Exchange Commission on June 30, 1987. 9 It is
engaged in the dispensation of the following medical services to individuals who enter into health care agreements with it:
Preventive medical services such as periodic monitoring of health problems, family planning counseling, consultation and
advices on diet, exercise and other healthy habits, and immunization;

Page 45 of 403
Diagnostic medical services such as routine physical examinations, x-rays, urinalysis, fecalysis, complete blood count,
and the like and
Curative medical services which pertain to the performing of other remedial and therapeutic processes in the event of an
injury or sickness on the part of the enrolled member.10
Individuals enrolled in its health care program pay an annual membership fee. Membership is on a year-to-year basis. The
medical services are dispensed to enrolled members in a hospital or clinic owned, operated or accredited by petitioner,
through physicians, medical and dental practitioners under contract with it. It negotiates with such health care practitioners
regarding payment schemes, financing and other procedures for the delivery of health services. Except in cases of
emergency, the professional services are to be provided only by petitioner's physicians, i.e. those directly employed by
it11 or whose services are contracted by it.12 Petitioner also provides hospital services such as room and board
accommodation, laboratory services, operating rooms, x-ray facilities and general nursing care. 13 If and when a member
avails of the benefits under the agreement, petitioner pays the participating physicians and other health care providers for
the services rendered, at pre-agreed rates.14
To avail of petitioners health care programs, the individual members are required to sign and execute a standard health
care agreement embodying the terms and conditions for the provision of the health care services. The same agreement
contains the various health care services that can be engaged by the enrolled member, i.e., preventive, diagnostic and
curative medical services. Except for the curative aspect of the medical service offered, the enrolled member may actually
make use of the health care services being offered by petitioner at any time.
Health Maintenance Organizations Are Not Engaged In The Insurance Business
We said in our June 12, 2008 decision that it is irrelevant that petitioner is an HMO and not an insurer because its
agreements are treated as insurance contracts and the DST is not a tax on the business but an excise on the privilege,
opportunity or facility used in the transaction of the business. 15
Petitioner, however, submits that it is of critical importance to characterize the business it is engaged in, that is, to
determine whether it is an HMO or an insurance company, as this distinction is indispensable in turn to the issue of
whether or not it is liable for DST on its health care agreements. 16
A second hard look at the relevant law and jurisprudence convinces the Court that the arguments of petitioner are
meritorious.
Section 185 of the National Internal Revenue Code of 1997 (NIRC of 1997) provides:
Section 185. Stamp tax on fidelity bonds and other insurance policies. On all policies of insurance or bonds or
obligations of the nature of indemnity for loss, damage, or liability made or renewed by any person, association or
company or corporation transacting the business of accident, fidelity, employers liability, plate, glass, steam boiler,
burglar, elevator, automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire insurance),
and all bonds, undertakings, or recognizances, conditioned for the performance of the duties of any office or position, for
the doing or not doing of anything therein specified, and on all obligations guaranteeing the validity or legality of any bond
or other obligations issued by any province, city, municipality, or other public body or organization, and on all obligations
guaranteeing the title to any real estate, or guaranteeing any mercantile credits, which may be made or renewed by any
such person, company or corporation, there shall be collected a documentary stamp tax of fifty centavos (P0.50) on each
four pesos (P4.00), or fractional part thereof, of the premium charged. (Emphasis supplied)
It is a cardinal rule in statutory construction that no word, clause, sentence, provision or part of a statute shall be
considered surplusage or superfluous, meaningless, void and insignificant. To this end, a construction which renders
every word operative is preferred over that which makes some words idle and nugatory.17 This principle is expressed in
the maxim Ut magis valeat quam pereat, that is, we choose the interpretation which gives effect to the whole of the statute
its every word.18
From the language of Section 185, it is evident that two requisites must concur before the DST can apply, namely: (1)
the document must be a policy of insurance or an obligation in the nature of indemnity and (2)the maker should be
transacting the business of accident, fidelity, employers liability, plate, glass, steam boiler, burglar, elevator, automatic
sprinkler, or other branch of insurance (except life, marine, inland, and fire insurance).
Petitioner is admittedly an HMO. Under RA 7875 (or "The National Health Insurance Act of 1995"), an HMO is "an entity
that provides, offers or arranges for coverage of designated health services needed by plan members for a fixed prepaid
premium."19 The payments do not vary with the extent, frequency or type of services provided.
The question is: was petitioner, as an HMO, engaged in the business of insurance during the pertinent taxable years? We
rule that it was not.
Section 2 (2) of PD20 1460 (otherwise known as the Insurance Code) enumerates what constitutes "doing an insurance
business" or "transacting an insurance business:"

Page 46 of 403
a) making or proposing to make, as insurer, any insurance contract;
b) making or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental
to any other legitimate business or activity of the surety;
c) doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing
of an insurance business within the meaning of this Code;
d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to
evade the provisions of this Code.
In the application of the provisions of this Code, the fact that no profit is derived from the making of insurance contracts,
agreements or transactions or that no separate or direct consideration is received therefore, shall not be deemed
conclusive to show that the making thereof does not constitute the doing or transacting of an insurance business.
Various courts in the United States, whose jurisprudence has a persuasive effect on our decisions, 21 have determined that
HMOs are not in the insurance business. One test that they have applied is whether the assumption of risk and
indemnification of loss (which are elements of an insurance business) are the principal object and purpose of the
organization or whether they are merely incidental to its business. If these are the principal objectives, the business is that
of insurance. But if they are merely incidental and service is the principal purpose, then the business is not insurance.
Applying the "principal object and purpose test," 22 there is significant American case law supporting the argument that a
corporation (such as an HMO, whether or not organized for profit), whose main object is to provide the members of a
group with health services, is not engaged in the insurance business.
The rule was enunciated in Jordan v. Group Health Association23 wherein the Court of Appeals of the District of Columbia
Circuit held that Group Health Association should not be considered as engaged in insurance activities since it was
created primarily for the distribution of health care services rather than the assumption of insurance risk.
xxx Although Group Healths activities may be considered in one aspect as creating security against loss from illness or
accident more truly they constitute the quantity purchase of well-rounded, continuous medical service by its members.
xxx The functions of such an organization are not identical with those of insurance or indemnity companies. The
latter are concerned primarily, if not exclusively, with risk and the consequences of its descent, not with service, or its
extension in kind, quantity or distribution; with the unusual occurrence, not the daily routine of living. Hazard is
predominant. On the other hand, the cooperative is concerned principally with getting service rendered to its
members and doing so at lower prices made possible by quantity purchasing and economies in operation. Its
primary purpose is to reduce the cost rather than the risk of medical care; to broaden the service to the individual
in kind and quantity; to enlarge the number receiving it; to regularize it as an everyday incident of living, like
purchasing food and clothing or oil and gas, rather than merely protecting against the financial loss caused by
extraordinary and unusual occurrences, such as death, disaster at sea, fire and tornado. It is, in this instance, to
take care of colds, ordinary aches and pains, minor ills and all the temporary bodily discomforts as well as the more
serious and unusual illness. To summarize, the distinctive features of the cooperative are the rendering of service,
its extension, the bringing of physician and patient together, the preventive features, the regularization of service
as well as payment, the substantial reduction in cost by quantity purchasing in short, getting the medical job
done and paid for; not, except incidentally to these features, the indemnification for cost after the services is
rendered. Except the last, these are not distinctive or generally characteristic of the insurance
arrangement. There is, therefore, a substantial difference between contracting in this way for the rendering of service,
even on the contingency that it be needed, and contracting merely to stand its cost when or after it is rendered.
That an incidental element of risk distribution or assumption may be present should not outweigh all other factors. If
attention is focused only on that feature, the line between insurance or indemnity and other types of legal arrangement
and economic function becomes faint, if not extinct. This is especially true when the contract is for the sale of goods or
services on contingency. But obviously it was not the purpose of the insurance statutes to regulate all arrangements for
assumption or distribution of risk. That view would cause them to engulf practically all contracts, particularly conditional
sales and contingent service agreements. The fallacy is in looking only at the risk element, to the exclusion of all
others present or their subordination to it. The question turns, not on whether risk is involved or assumed, but on
whether that or something else to which it is related in the particular plan is its principal object
purpose.24 (Emphasis supplied)
In California Physicians Service v. Garrison,25 the California court felt that, after scrutinizing the plan of operation as a
whole of the corporation, it was service rather than indemnity which stood as its principal purpose.
There is another and more compelling reason for holding that the service is not engaged in the insurance
business. Absence or presence of assumption of risk or peril is not the sole test to be applied in determining its
status. The question, more broadly, is whether, looking at the plan of operation as a whole, service rather than
indemnity is its principal object and purpose. Certainly the objects and purposes of the corporation organized and
maintained by the California physicians have a wide scope in the field of social service. Probably there is no more
impelling need than that of adequate medical care on a voluntary, low-cost basis for persons of small income.
The medical profession unitedly is endeavoring to meet that need. Unquestionably this is service of a high order
and not indemnity.26 (Emphasis supplied)

Page 47 of 403
American courts have pointed out that the main difference between an HMO and an insurance company is that HMOs
undertake to provide or arrange for the provision of medical services through participating physicians while insurance
companies simply undertake to indemnify the insured for medical expenses incurred up to a pre-agreed
limit. Somerset Orthopedic Associates, P.A. v. Horizon Blue Cross and Blue Shield of New Jersey27 is clear on this point:
The basic distinction between medical service corporations and ordinary health and accident insurers is that the former
undertake to provide prepaid medical services through participating physicians, thus relieving subscribers of any
further financial burden, while the latter only undertake to indemnify an insured for medical expenses up to, but not
beyond, the schedule of rates contained in the policy.
xxx

xxx

xxx

The primary purpose of a medical service corporation, however, is an undertaking to provide physicians who will render
services to subscribers on a prepaid basis. Hence, if there are no physicians participating in the medical service
corporations plan, not only will the subscribers be deprived of the protection which they might reasonably have
expected would be provided, but the corporation will, in effect, be doing business solely as a health and accident
indemnity insurer without having qualified as such and rendering itself subject to the more stringent financial
requirements of the General Insurance Laws.
A participating provider of health care services is one who agrees in writing to render health care services to or for
persons covered by a contract issued by health service corporation in return for which the health service corporation
agrees to make payment directly to the participating provider.28 (Emphasis supplied)
Consequently, the mere presence of risk would be insufficient to override the primary purpose of the business to provide
medical services as needed, with payment made directly to the provider of these services. 29 In short, even if petitioner
assumes the risk of paying the cost of these services even if significantly more than what the member has prepaid, it
nevertheless cannot be considered as being engaged in the insurance business.
By the same token, any indemnification resulting from the payment for services rendered in case of emergency by nonparticipating health providers would still be incidental to petitioners purpose of providing and arranging for health care
services and does not transform it into an insurer. To fulfill its obligations to its members under the agreements, petitioner
is required to set up a system and the facilities for the delivery of such medical services. This indubitably shows that
indemnification is not its sole object.
In fact, a substantial portion of petitioners services covers preventive and diagnostic medical services intended to keep
members from developing medical conditions or diseases. 30 As an HMO, it is its obligation to maintain the good health of
its members. Accordingly, its health care programs are designed to prevent or to minimize the possibility of any
assumption of risk on its part. Thus, its undertaking under its agreements is not to indemnify its members against any
loss or damage arising from a medical condition but, on the contrary, to provide the health and medical services needed to
prevent such loss or damage.31
Overall, petitioner appears to provide insurance-type benefits to its members (with respect to its curative medical
services), but these are incidental to the principal activity of providing them medical care. The "insurance-like" aspect of
petitioners business is miniscule compared to its noninsurance activities. Therefore, since it substantially provides health
care services rather than insurance services, it cannot be considered as being in the insurance business.
It is important to emphasize that, in adopting the "principal purpose test" used in the above-quoted U.S. cases, we are not
saying that petitioners operations are identical in every respect to those of the HMOs or health providers which were
parties to those cases. What we are stating is that, for the purpose of determining what "doing an insurance business"
means, we have to scrutinize the operations of the business as a whole and not its mere components. This is of course
only prudent and appropriate, taking into account the burdensome and strict laws, rules and regulations applicable to
insurers and other entities engaged in the insurance business. Moreover, we are also not unmindful that there are other
American authorities who have found particular HMOs to be actually engaged in insurance activities. 32
Lastly, it is significant that petitioner, as an HMO, is not part of the insurance industry. This is evident from the fact that it is
not supervised by the Insurance Commission but by the Department of Health. 33 In fact, in a letter dated September 3,
2000, the Insurance Commissioner confirmed that petitioner is not engaged in the insurance business. This determination
of the commissioner must be accorded great weight. It is well-settled that the interpretation of an administrative agency
which is tasked to implement a statute is accorded great respect and ordinarily controls the interpretation of laws by the
courts. The reason behind this rule was explained in Nestle Philippines, Inc. v. Court of Appeals:34
The rationale for this rule relates not only to the emergence of the multifarious needs of a modern or modernizing society
and the establishment of diverse administrative agencies for addressing and satisfying those needs; it also relates to the
accumulation of experience and growth of specialized capabilities by the administrative agency charged with
implementing a particular statute. In Asturias Sugar Central, Inc. vs. Commissioner of Customs,35the Court stressed that
executive officials are presumed to have familiarized themselves with all the considerations pertinent to the meaning and
purpose of the law, and to have formed an independent, conscientious and competent expert opinion thereon. The courts
give much weight to the government agency officials charged with the implementation of the law, their competence,
expertness, experience and informed judgment, and the fact that they frequently are the drafters of the law they
interpret.36

Page 48 of 403
A Health Care Agreement Is Not An Insurance Contract Contemplated Under Section 185 Of The NIRC of 1997
Section 185 states that DST is imposed on "all policies of insurance or obligations of the nature of indemnity for loss,
damage, or liability." In our decision dated June 12, 2008, we ruled that petitioners health care agreements are
contracts of indemnity and are therefore insurance contracts:
It is incorrect to say that the health care agreement is not based on loss or damage because, under the said
agreement, petitioner assumes the liability and indemnifies its member for hospital, medical and related expenses (such
as professional fees of physicians). The term "loss or damage" is broad enough to cover the monetary expense or liability
a member will incur in case of illness or injury.
Under the health care agreement, the rendition of hospital, medical and professional services to the member in case of
sickness, injury or emergency or his availment of so-called "out-patient services" (including physical examination, x-ray
and laboratory tests, medical consultations, vaccine administration and family planning counseling) is the contingent event
which gives rise to liability on the part of the member. In case of exposure of the member to liability, he would be entitled
to indemnification by petitioner.
Furthermore, the fact that petitioner must relieve its member from liability by paying for expenses arising from the
stipulated contingencies belies its claim that its services are prepaid. The expenses to be incurred by each member
cannot be predicted beforehand, if they can be predicted at all. Petitioner assumes the risk of paying for the costs of the
services even if they are significantly and substantially more than what the member has "prepaid." Petitioner does not
bear the costs alone but distributes or spreads them out among a large group of persons bearing a similar risk, that is,
among all the other members of the health care program. This is insurance. 37
We reconsider. We shall quote once again the pertinent portion of Section 185:
Section 185. Stamp tax on fidelity bonds and other insurance policies. On all policies of insurance or bondsor
obligations of the nature of indemnity for loss, damage, or liability made or renewed by any person, association or
company or corporation transacting the business of accident, fidelity, employers liability, plate, glass, steam boiler,
burglar, elevator, automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire insurance), xxxx
(Emphasis supplied)
In construing this provision, we should be guided by the principle that tax statutes are strictly construed against the taxing
authority.38 This is because taxation is a destructive power which interferes with the personal and property rights of the
people and takes from them a portion of their property for the support of the government. 39Hence, tax laws may not be
extended by implication beyond the clear import of their language, nor their operation enlarged so as to embrace matters
not specifically provided.40
We are aware that, in Blue Cross and Philamcare, the Court pronounced that a health care agreement is in the nature of
non-life insurance, which is primarily a contract of indemnity. However, those cases did not involve the interpretation of a
tax provision. Instead, they dealt with the liability of a health service provider to a member under the terms of their health
care agreement. Such contracts, as contracts of adhesion, are liberally interpreted in favor of the member and strictly
against the HMO. For this reason, we reconsider our ruling that Blue Crossand Philamcare are applicable here.
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. An
insurance contract exists where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designed peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons
bearing a similar risk and
5. In consideration of the insurers promise, the insured pays a premium. 41
Do the agreements between petitioner and its members possess all these elements? They do not.
First. In our jurisdiction, a commentator of our insurance laws has pointed out that, even if a contract contains all the
elements of an insurance contract, if its primary purpose is the rendering of service, it is not a contract of insurance:
It does not necessarily follow however, that a contract containing all the four elements mentioned above would be an
insurance contract. The primary purpose of the parties in making the contract may negate the existence of an
insurance contract. For example, a law firm which enters into contracts with clients whereby in consideration of
periodical payments, it promises to represent such clients in all suits for or against them, is not engaged in the insurance
business. Its contracts are simply for the purpose of rendering personal services. On the other hand, a contract by which a

Page 49 of 403
corporation, in consideration of a stipulated amount, agrees at its own expense to defend a physician against all suits for
damages for malpractice is one of insurance, and the corporation will be deemed as engaged in the business of
insurance. Unlike the lawyers retainer contract, the essential purpose of such a contract is not to render personal
services, but to indemnify against loss and damage resulting from the defense of actions for malpractice. 42 (Emphasis
supplied)
Second. Not all the necessary elements of a contract of insurance are present in petitioners agreements. To begin with,
there is no loss, damage or liability on the part of the member that should be indemnified by petitioner as an HMO. Under
the agreement, the member pays petitioner a predetermined consideration in exchange for the hospital, medical and
professional services rendered by the petitioners physician or affiliated physician to him. In case of availment by a
member of the benefits under the agreement, petitioner does not reimburse or indemnify the member as the latter does
not pay any third party. Instead, it is the petitioner who pays the participating physicians and other health care providers
for the services rendered at pre-agreed rates. The member does not make any such payment.
In other words, there is nothing in petitioner's agreements that gives rise to a monetary liability on the part of the member
to any third party-provider of medical services which might in turn necessitate indemnification from petitioner. The terms
"indemnify" or "indemnity" presuppose that a liability or claim has already been incurred. There is no indemnity precisely
because the member merely avails of medical services to be paid or already paid in advance at a pre-agreed price under
the agreements.
Third. According to the agreement, a member can take advantage of the bulk of the benefits anytime, e.g.laboratory
services, x-ray, routine annual physical examination and consultations, vaccine administration as well as family planning
counseling, even in the absence of any peril, loss or damage on his or her part.
Fourth. In case of emergency, petitioner is obliged to reimburse the member who receives care from a non-participating
physician or hospital. However, this is only a very minor part of the list of services available. The assumption of the
expense by petitioner is not confined to the happening of a contingency but includes incidents even in the absence of
illness or injury.
In Michigan Podiatric Medical Association v. National Foot Care Program, Inc.,43 although the health care contracts called
for the defendant to partially reimburse a subscriber for treatment received from a non-designated doctor, this did not
make defendant an insurer. Citing Jordan, the Court determined that "the primary activity of the defendant (was) the
provision of podiatric services to subscribers in consideration of prepayment for such services." 44 Since indemnity of the
insured was not the focal point of the agreement but the extension of medical services to the member at an affordable
cost, it did not partake of the nature of a contract of insurance.
Fifth. Although risk is a primary element of an insurance contract, it is not necessarily true that risk alone is sufficient to
establish it. Almost anyone who undertakes a contractual obligation always bears a certain degree of financial risk.
Consequently, there is a need to distinguish prepaid service contracts (like those of petitioner) from the usual insurance
contracts.
Indeed, petitioner, as an HMO, undertakes a business risk when it offers to provide health services: the risk that it might
fail to earn a reasonable return on its investment. But it is not the risk of the type peculiar only to insurance companies.
Insurance risk, also known as actuarial risk, is the risk that the cost of insurance claims might be higher than the
premiums paid. The amount of premium is calculated on the basis of assumptions made relative to the insured. 45
However, assuming that petitioners commitment to provide medical services to its members can be construed as an
acceptance of the risk that it will shell out more than the prepaid fees, it still will not qualify as an insurance contract
because petitioners objective is to provide medical services at reduced cost, not to distribute risk like an insurer.
In sum, an examination of petitioners agreements with its members leads us to conclude that it is not an insurance
contract within the context of our Insurance Code.
There Was No Legislative Intent To Impose DST On Health Care Agreements Of HMOs
Furthermore, militating in convincing fashion against the imposition of DST on petitioners health care agreements under
Section 185 of the NIRC of 1997 is the provisions legislative history. The text of Section 185 came into U.S. law as early
as 1904 when HMOs and health care agreements were not even in existence in this jurisdiction. It was imposed under
Section 116, Article XI of Act No. 1189 (otherwise known as the "Internal Revenue Law of 1904") 46 enacted on July 2, 1904
and became effective on August 1, 1904. Except for the rate of tax, Section 185 of the NIRC of 1997 is a verbatim
reproduction of the pertinent portion of Section 116, to wit:
ARTICLE XI
Stamp Taxes on Specified Objects
Section 116. There shall be levied, collected, and paid for and in respect to the several bonds, debentures, or certificates
of stock and indebtedness, and other documents, instruments, matters, and things mentioned and described in this
section, or for or in respect to the vellum, parchment, or paper upon which such instrument, matters, or things or any of

Page 50 of 403
them shall be written or printed by any person or persons who shall make, sign, or issue the same, on and after January
first, nineteen hundred and five, the several taxes following:
xxx

xxx

xxx

Third xxx (c) on all policies of insurance or bond or obligation of the nature of indemnity for loss, damage, or
liability made or renewed by any person, association, company, or corporation transacting the business of
accident, fidelity, employers liability, plate glass, steam boiler, burglar, elevator, automatic sprinkle, or other
branch of insurance (except life, marine, inland, and fire insurance) xxxx (Emphasis supplied)
On February 27, 1914, Act No. 2339 (the Internal Revenue Law of 1914) was enacted revising and consolidating the laws
relating to internal revenue. The aforecited pertinent portion of Section 116, Article XI of Act No. 1189 was completely
reproduced as Section 30 (l), Article III of Act No. 2339. The very detailed and exclusive enumeration of items subject to
DST was thus retained.
On December 31, 1916, Section 30 (l), Article III of Act No. 2339 was again reproduced as Section 1604 (l), Article IV of
Act No. 2657 (Administrative Code). Upon its amendment on March 10, 1917, the pertinent DST provision became
Section 1449 (l) of Act No. 2711, otherwise known as the Administrative Code of 1917.
Section 1449 (1) eventually became Sec. 222 of Commonwealth Act No. 466 (the NIRC of 1939), which codified all the
internal revenue laws of the Philippines. In an amendment introduced by RA 40 on October 1, 1946, the DST rate was
increased but the provision remained substantially the same.
Thereafter, on June 3, 1977, the same provision with the same DST rate was reproduced in PD 1158 (NIRC of 1977) as
Section 234. Under PDs 1457 and 1959, enacted on June 11, 1978 and October 10, 1984 respectively, the DST rate was
again increased.1avvphi1
Effective January 1, 1986, pursuant to Section 45 of PD 1994, Section 234 of the NIRC of 1977 was renumbered as
Section 198. And under Section 23 of EO47 273 dated July 25, 1987, it was again renumbered and became Section 185.
On December 23, 1993, under RA 7660, Section 185 was amended but, again, only with respect to the rate of tax.
Notwithstanding the comprehensive amendment of the NIRC of 1977 by RA 8424 (or the NIRC of 1997), the subject legal
provision was retained as the present Section 185. In 2004, amendments to the DST provisions were introduced by RA
924348 but Section 185 was untouched.
On the other hand, the concept of an HMO was introduced in the Philippines with the formation of Bancom Health Care
Corporation in 1974. The same pioneer HMO was later reorganized and renamed Integrated Health Care Services, Inc.
(or Intercare). However, there are those who claim that Health Maintenance, Inc. is the HMO industry pioneer, having set
foot in the Philippines as early as 1965 and having been formally incorporated in 1991. Afterwards, HMOs proliferated
quickly and currently, there are 36 registered HMOs with a total enrollment of more than 2 million. 49
We can clearly see from these two histories (of the DST on the one hand and HMOs on the other) that when the law
imposing the DST was first passed, HMOs were yet unknown in the Philippines. However, when the various amendments
to the DST law were enacted, they were already in existence in the Philippines and the term had in fact already been
defined by RA 7875. If it had been the intent of the legislature to impose DST on health care agreements, it could have
done so in clear and categorical terms. It had many opportunities to do so. But it did not. The fact that the NIRC contained
no specific provision on the DST liability of health care agreements of HMOs at a time they were already known as such,
belies any legislative intent to impose it on them. As a matter of fact, petitioner was assessed its DST liability only on
January 27, 2000, after more than a decade in the business as an HMO. 50
Considering that Section 185 did not change since 1904 (except for the rate of tax), it would be safe to say that health
care agreements were never, at any time, recognized as insurance contracts or deemed engaged in the business of
insurance within the context of the provision.
The Power To Tax Is Not The Power To Destroy
As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its very
nature no limits, so that security against its abuse is to be found only in the responsibility of the legislature which imposes
the tax on the constituency who is to pay it.51 So potent indeed is the power that it was once opined that "the power to tax
involves the power to destroy."52
Petitioner claims that the assessed DST to date which amounts to P376 million53 is way beyond its net worth ofP259
million.54 Respondent never disputed these assertions. Given the realities on the ground, imposing the DST on petitioner
would be highly oppressive. It is not the purpose of the government to throttle private business. On the contrary, the
government ought to encourage private enterprise.55 Petitioner, just like any concern organized for a lawful economic
activity, has a right to maintain a legitimate business. 56 As aptly held in Roxas, et al. v. CTA, et al.:57

Page 51 of 403
The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to
minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax
collector kill the "hen that lays the golden egg." 58
Legitimate enterprises enjoy the constitutional protection not to be taxed out of existence. Incurring losses because of a
tax imposition may be an acceptable consequence but killing the business of an entity is another matter and should not be
allowed. It is counter-productive and ultimately subversive of the nations thrust towards a better economy which will
ultimately benefit the majority of our people.59
Petitioners Tax Liability Was Extinguished Under The Provisions Of RA 9840
Petitioner asserts that, regardless of the arguments, the DST assessment for taxable years 1996 and 1997 became moot
and academic60 when it availed of the tax amnesty under RA 9480 on December 10, 2007. It paidP5,127,149.08
representing 5% of its net worth as of the year ended December 31, 2005 and complied with all requirements of the tax
amnesty. Under Section 6(a) of RA 9480, it is entitled to immunity from payment of taxes as well as additions thereto, and
the appurtenant civil, criminal or administrative penalties under the 1997 NIRC, as amended, arising from the failure to
pay any and all internal revenue taxes for taxable year 2005 and prior years. 61
Far from disagreeing with petitioner, respondent manifested in its memorandum:
Section 6 of [RA 9840] provides that availment of tax amnesty entitles a taxpayer to immunity from payment of the tax
involved, including the civil, criminal, or administrative penalties provided under the 1997 [NIRC], for tax liabilities arising
in 2005 and the preceding years.
In view of petitioners availment of the benefits of [RA 9840], and without conceding the merits of this case as discussed
above, respondent concedes that such tax amnesty extinguishes the tax liabilities of petitioner. This admission,
however, is not meant to preclude a revocation of the amnesty granted in case it is found to have been granted under
circumstances amounting to tax fraud under Section 10 of said amnesty law.62(Emphasis supplied)
Furthermore, we held in a recent case that DST is one of the taxes covered by the tax amnesty program under RA
9480.63 There is no other conclusion to draw than that petitioners liability for DST for the taxable years 1996 and 1997
was totally extinguished by its availment of the tax amnesty under RA 9480.
Is The Court Bound By A Minute Resolution In Another Case?
Petitioner raises another interesting issue in its motion for reconsideration: whether this Court is bound by the ruling of the
CA64 in CIR v. Philippine National Bank65 that a health care agreement of Philamcare Health Systems is not an insurance
contract for purposes of the DST.
In support of its argument, petitioner cites the August 29, 2001 minute resolution of this Court dismissing the appeal
in Philippine National Bank (G.R. No. 148680).66 Petitioner argues that the dismissal of G.R. No. 148680 by minute
resolution was a judgment on the merits; hence, the Court should apply the CA ruling there that a health care agreement
is not an insurance contract.
It is true that, although contained in a minute resolution, our dismissal of the petition was a disposition of the merits of the
case. When we dismissed the petition, we effectively affirmed the CA ruling being questioned. As a result, our ruling in that
case has already become final.67 When a minute resolution denies or dismisses a petition for failure to comply with formal
and substantive requirements, the challenged decision, together with its findings of fact and legal conclusions, are
deemed sustained.68 But what is its effect on other cases?
With respect to the same subject matter and the same issues concerning the same parties, it constitutes res
judicata.69 However, if other parties or another subject matter (even with the same parties and issues) is involved, the
minute resolution is not binding precedent. Thus, in CIR v. Baier-Nickel,70 the Court noted that a previous case, CIR v.
Baier-Nickel71 involving the same parties and the same issues, was previously disposed of by the Court thru a minute
resolution dated February 17, 2003 sustaining the ruling of the CA. Nonetheless, the Court ruled that the previous case
"ha(d) no bearing" on the latter case because the two cases involved different subject matters as they were concerned
with the taxable income of different taxable years.72
Besides, there are substantial, not simply formal, distinctions between a minute resolution and a decision. The
constitutional requirement under the first paragraph of Section 14, Article VIII of the Constitution that the facts and the law
on which the judgment is based must be expressed clearly and distinctly applies only to decisions, not to minute
resolutions. A minute resolution is signed only by the clerk of court by authority of the justices, unlike a decision. It does
not require the certification of the Chief Justice. Moreover, unlike decisions, minute resolutions are not published in the
Philippine Reports. Finally, the proviso of Section 4(3) of Article VIII speaks of a decision. 73 Indeed, as a rule, this Court
lays down doctrines or principles of law which constitute binding precedent in a decision duly signed by the members of
the Court and certified by the Chief Justice.
Accordingly, since petitioner was not a party in G.R. No. 148680 and since petitioners liability for DST on its health care
agreement was not the subject matter of G.R. No. 148680, petitioner cannot successfully invoke the minute resolution in

Page 52 of 403
that case (which is not even binding precedent) in its favor. Nonetheless, in view of the reasons already discussed, this
does not detract in any way from the fact that petitioners health care agreements are not subject to DST.
A Final Note
Taking into account that health care agreements are clearly not within the ambit of Section 185 of the NIRC and there was
never any legislative intent to impose the same on HMOs like petitioner, the same should not be arbitrarily and unjustly
included in its coverage.
It is a matter of common knowledge that there is a great social need for adequate medical services at a cost which the
average wage earner can afford. HMOs arrange, organize and manage health care treatment in the furtherance of the
goal of providing a more efficient and inexpensive health care system made possible by quantity purchasing of services
and economies of scale. They offer advantages over the pay-for-service system (wherein individuals are charged a fee
each time they receive medical services), including the ability to control costs. They protect their members from exposure
to the high cost of hospitalization and other medical expenses brought about by a fluctuating economy. Accordingly, they
play an important role in society as partners of the State in achieving its constitutional mandate of providing its citizens
with affordable health services.
The rate of DST under Section 185 is equivalent to 12.5% of the premium charged. 74 Its imposition will elevate the cost of
health care services. This will in turn necessitate an increase in the membership fees, resulting in either placing health
services beyond the reach of the ordinary wage earner or driving the industry to the ground. At the end of the day, neither
side wins, considering the indispensability of the services offered by HMOs.
WHEREFORE, the motion for reconsideration is GRANTED. The August 16, 2004 decision of the Court of Appeals in CAG.R. SP No. 70479 is REVERSED and SET ASIDE. The 1996 and 1997 deficiency DST assessment against petitioner is
hereby CANCELLED and SET ASIDE. Respondent is ordered to desist from collecting the said tax.
No costs.
SO ORDERED.
RENATO C. CORONA
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Chief Justice
Chairperson
MINITA V. CHICO-NAZARIO*
Associate Justice

TERESITA J. LEONARDO-DE CASTRO

Associate Justice
LUCAS P. BERSAMIN**
Associate Justice
C E R TI F I CATI O N

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above resolution had been reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice
Footnotes
*

Per Special Order No. 698 dated September 4, 2009.

**

Additional member per raffle list of 13 April 2009.

1987 Constitution.

Now known as Maxicare Healthcare Corp. Rollo, p. 293.

G.R. No. 169737, 12 February 2008, 544 SCRA 580.

429 Phil. 82 (2002).

Republic Act.

Rollo, pp. 257-258.

Page 53 of 403
7

Entitled "An Act Enhancing Revenue Administration and Collection by Granting an Amnesty on All Unpaid Internal Revenue Taxes Imposed
by the National Government for Taxable Year 2005 and Prior Years."
8

Rollo, p. 288.

Id., p. 591.

10

Id., pp. 592, 613.

11

This is called the Staff Model, i.e., the HMO employs salaried health care professionals to provide health care services. (Id., pp. 268, 271.)

12

This is referred to as the Group Practice Model wherein the HMO contracts with a private practice group to provide health services to its
members. (Id., pp. 268, 271, 592.) Thus, it is both a service provider and a service contractor. It is a service provider when it directly provides
the health care services through its salaried employees. It is a service contractor when it contracts with third parties for the delivery of health
services to its members.
13

Id., p. 102.

14

Id., p. 280.

15

Decision, p. 422.

16

Rollo, p. 265.

17

Allied Banking Corporation v. Court of Appeals, G.R. No. 124290, 16 January 1998, 284 SCRA 327, 367, citing Shimonek v. Tillanan, 1 P.
2d., 154.
18

Inding v. Sandiganbayan, G.R. No. 143047, 14 July 2004, 434 SCRA 388, 403.

19

Section 4 (o) (3) thereof. Under this law, it is one of the classes of a "health care provider."

20

Presidential Decree.

21

Our Insurance Code was based on California and New York laws. When a statute has been adopted from some other state or country and
said statute has previously been construed by the courts of such state or country, the statute is deemed to have been adopted with the
construction given. (Prudential Guarantee and Assurance Inc. v. Trans-Asia Shipping Lines, Inc., G.R. No. 151890, 20 June 2006, 491 SCRA
411, 439; Constantino v. Asia Life Inc. Co., 87 Phil. 248, 251 [1950]; Gercio v. Sun Life Assurance Co. of Canada, 48 Phil. 53, 59
[1925]; Cerezo v. Atlantic, Gulf & Pacific Co., 33 Phil. 425, 428-429 [1916]).
22

H. S. de Leon, The Insurance Code of the Philippines Annotated, p. 56 (2002 ed.).

23

107 F.2d 239 (D.C. App. 1939). This is a seminal case which had been reiterated in succeeding cases,e.g. Smith v. Reserve Nat'l Ins. Co.,
370 So. 2d 186 ( La. Ct. App. 3d Cir. 1979); Transportation Guarantee Co. v. Jellins, 29 Cal.2d 242, 174 P.2d 625 (1946); State v. Anderson,
195 Kan. 649, 408 P.2d 864 (1966);Commissioner of Banking and Insurance v. Community Health Service, 129 N.J.L. 427, 30 A.2d 44 (1943).
24

Id., pp. 247-248.

25

28 Cal. 2d 790 (1946).

26

Id., p. 809.

27

345 N.J. Super. 410, 785 A.2d 457 (2001);< http://lawlibrary.rutgers.edu/courts/appellate/a1562-00.opn.html> (visited July 14, 2009).

28

Id., citing Group Health Ins. of N.J. v. Howell, 40 N.J. 436, 451 (1963).

29

L.R. Russ and S.F. Segalla, 1 Couch on Ins. 1:46 (3rd ed., December 2008).

30

This involves the determination of a medical condition (such as a disease) by physical examination or by study of its symptoms (Rollo, p.
613, citing Blacks Law Dictionary, p. 484 [8th ed.]).
31

Rollo, pp. 612-613.

32

One such decision of the United States Supreme Court is Rush Prudential HMO, Inc. v. Moran (536 U.S. 355 [2002]). In that case, the Court
recognized that HMOs provide both insurance and health care services and that Congress has understood the insurance aspects of HMOs
since the passage of the HMO Act of 1973. This case is not applicable here. Firstly, this was not a tax case. Secondly, the Court stated that
Congress expressly understood and viewed HMOs as insurers. It is not the same here in the Philippines. As will be discussed below, there is
no showing that the Philippine Congress had demonstrated an awareness of HMOs as insurers.
33

See Executive Order No. 119 (1987) and Administrative Order (AO) No. 34 (1994), as amended by AO No. 36 (1996).

34

G.R. No. 86738, 13 November 1991, 203 SCRA 504.

35

140 Phil. 20 (1969).

36

Supra note 34, pp. 510-511.

Page 54 of 403
37

Decision, pp. 420-421.

38

Commissioner of Internal Revenue v. Solidbank Corporation, G.R. No. 148191, 25 November 2003, 416 SCRA 436, citing Miller v. Illinois
Cent. R Co., Ill. So. 559, 28 February 1927.
39

Paseo Realty & Development Corporation v. Court of Appeals, G.R. No. 119286, 13 October 2004, 440 SCRA 235, 251.

40

Collector of Int. Rev. v. La Tondea, Inc. and CTA, 115 Phil. 841, 846 (1963).

41

Gulf Resorts, Inc. v. Philippine Charter Insurance Corporation, G.R. No. 156167, 16 May 2005, 458 SCRA 550, 566, citations omitted.

42

M. C. L. Campos, Insurance, pp. 17-18 (1983), citing Physicians Defense Co. v. OBrien, 100 Minn. 490, 111 N.W. 397 (1907).

43

438 N.W.2d 350. (Mich. Ct. App. 1989).

44

Id., p. 354.

45

Rollo, p. 702, citing Phillip, Booth et al., Modern Actuarial Theory and Practice (2005).

46

Entitled "An Act to Provide for the Support of the Insular, Provincial and Municipal Governments, by Internal Taxation."

47

Executive Order No.

48

An Act Rationalizing the Provisions of the DST of the NIRC of 1997, as amended, and for other purposes.

49

Rollo, pp. 589, 591, citing <http://www.rmaf.org.ph/Awardees/Biography/ Biography BengzonAlf.htm>;

<http://doktorko.com/_blog/index.php?mod=blog_article&a=80&md=897>; <http://www.hmi.com.ph/prof.html> (visited July 15, 2009).
50

Id., p. 592.

51

MCIAA v. Marcos, 330 Phil. 392, 404 (1996).

52

United States Chief Justice Marshall in McCulloch v. Maryland, 17 U.S. 316, 4 Wheat, 316, 4 L ed. 579, 607 (1819).

53

Inclusive of penalties.

54

Rollo, p. 589.

55

Manila Railroad Company v. A. L. Ammen Transportation Co., Inc., 48 Phil. 900, 907 (1926).

56

Constitution, Section 3, Article XIII on Social Justice and Human Rights reads as follows:
Section 3. xxx
The State shall regulate the relations between workers and employers, recognizing the right of labor to its just share in the fruits of
production and the right of enterprises to reasonable return on investments, and to expansion and growth. (Emphasis
supplied)

57

131 Phil. 773 (1968).

58

Id., pp. 780-781.

59

Manatad v. Philippine Telegraph and Telephone Corporation, G.R. No. 172363, 7 March 2008, 548 SCRA 64, 80.

60

Rollo, p. 661.

61

Id., pp. 260-261.

62

Id., p. 742.

63

Philippine Banking Corporation v. CIR, G.R. No. 170574, 30 January 2009.

64

CA-G.R. SP No. 53301, 18 June 2001.

65

G.R. No. 148680.

66

The dismissal was due to the failure of petitioner therein to attach a certified true copy of the assailed decision.

67

Del Rosario v. Sandiganbayan, G.R. No. 143419, 22 June 2006, 492 SCRA 170, 177.

68

Complaint of Mr. Aurelio Indencia Arrienda Against SC Justices Puno, Kapunan, Pardo, Ynares-Santiago, et al., A.M. No. 03-11-30-SC, 9
June 2005, 460 SCRA 1, 14, citing Tan v. Nitafan, G.R. No. 76965, 11 March 1994, 231 SCRA 129; Republic v. CA, 381 Phil. 558, 565 (2000),
citing Bernarte, et al. v. Court of Appeals, et al., 331 Phil. 643, 659 (1996).

Page 55 of 403
69

See Bernarte, et al. v. Court of Appeals, et al., id., p. 567.

70

G.R. No. 153793, 29 August 2006, 500 SCRA 87.

71

Extended Resolution, G.R. No. 156305, 17 February 2003.

72

Supra note 70, p. 102. G.R. No. 156305 referred to the income of Baier-Nickel for taxable year 1994 while G.R. No. 153793 pertained to
Baier-Nickels income in 1995.
73

Section 4. xxx
(3) Cases or matters heard by a Division shall be decided or resolved with the concurrence of a majority of the members who
actually took part in the deliberation on the issues in the case and voted thereon, and in no case, without the concurrence of at least
three of such members. When the required number is not obtained, the case shall be decided En Banc: Provided, that no doctrine
or principle of law laid down by the Court in a decision rendered En Banc or in Division may be modified or reversed
except by the Court sitting En Banc. (Emphasis supplied)

74

That is, fifty centavos (P0.50) on each four pesos (P4.00), or a fractional part thereof, of the premium charged.

The Lawphil Project - Arellano Law Foundation

Republic of the Philippines

SUPREME COURT
Manila

Page 56 of 403
EN BANC
G.R. No. L-23771 August 4, 1988
THE COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
LINGAYEN GULF ELECTRIC POWER CO., INC. and THE COURT OF TAX APPEALS, respondents.
Angel Sanchez for Lingayen Electric Power Co., Inc.
SARMIENTO, J.:
This is an appeal from the decision * of the Court of Tax Appeals (C.T.A., for brevity) dated September 15, 1964 in C.T.A.
Cases Nos. 581 and 1302, which were jointly heard upon agreement of the parties, absolving the respondent taxpayer
from liability for the deficiency percentage, franchise, and fixed taxes and surcharge assessed against it in the sums of
P19,293.41 and P3,616.86 for the years 1946 to 1954 and 1959 to 1961, respectively.
The respondent taxpayer, Lingayen Gulf Electric Power Co., Inc., operates an electric power plant serving the adjoining
municipalities of Lingayen and Binmaley, both in the province of Pangasinan, pursuant to the municipal franchise granted
it by their respective municipal councils, under Resolution Nos. 14 and 25 of June 29 and July 2, 1946, respectively.
Section 10 of these franchises provide that:
...The said grantee in consideration of the franchise hereby granted, shall pay quarterly into the Provincial Treasury of
Pangasinan, one per centum of the gross earnings obtained thru this privilege during the first twenty years and two per
centum during the remaining fifteen years of the life of said franchise.
On February 24, 1948, the President of the Philippines approved the franchises granted to the private respondent.
On November 21, 1955, the Bureau of Internal Revenue (BIR) assessed against and demanded from the private
respondent the total amount of P19,293.41 representing deficiency franchise taxes and surcharges for the years 1946 to
1954 applying the franchise tax rate of 5% on gross receipts from March 1, 1948 to December 31, 1954 as prescribed in
Section 259 of the National Internal Revenue Code, instead of the lower rates as provided in the municipal franchises. On
September 29, 1956, the private respondent requested for a reinvestigation of the case on the ground that instead of
incurring a deficiency liability, it made an overpayment of the franchise tax. On April 30, 1957, the BIR through its regional
director, denied the private respondent's request for reinvestigation and reiterated the demand for payment of the same. In
its letters dated July 2, and August 9, 1958 to the petitioner Commissioner, the private respondent protested the said
assessment and requested for a conference with a view to settling the liability amicably. In his letters dated July 25 and
August 28, 1958, the Commissioner denied the request of the private respondent. Thus, the appeal to the respondent
Court of Tax Appeals on September 19, 1958, docketed as C.T.A. Case No. 581.
In a letter dated August 21, 1962, the Commissioner demanded from the private respondent the payment of P3,616.86
representing deficiency franchise tax and surcharges for the years 1959 to 1961 again applying the franchise tax rate of
5% on gross receipts as prescribed in Section 259 of the National Internal Revenue Code. In a letter dated October 5,
1962, the private respondent protested the assessment and requested reconsideration thereof The same was denied on
November 9, 1962. Thus, the appeal to the respondent Court of Appeals on November 29, 1962, docketed as C.T.A. No.
1302.
Pending the hearing of the said cases, Republic Act (R.A.) No. 3843 was passed on June 22, 1 963, granting to the
private respondent a legislative franchise for the operation of the electric light, heat, and power system in the same
municipalities of Pangasinan. Section 4 thereof provides that:
In consideration of the franchise and rights hereby granted, the grantee shall pay into the Internal Revenue office of each
Municipality in which it is supplying electric current to the public under this franchise, a tax equal to two per centum of the
gross receipts from electric current sold or supplied under this franchise. Said tax shall be due and payable quarterly and
shall be in lieu of any and all taxes and/or licenses of any kind, nature or description levied, established, or collected by
any authority whatsoever, municipal, provincial or national, now or in the future, on its poles, wires, insulator ... and on its
franchise, rights, privileges, receipts, revenues and profits, from which taxes and/or licenses, the grantee is hereby
expressly exempted and effective further upon the date the original franchise was granted, no other tax and/or licenses
other than the franchise tax of two per centum on the gross receipts as provided for in the original franchise shall be
collected, any provision of law to the contrary notwithstanding.
On September 15, 1964, the respondent court ruled that the provisions of R.A. No. 3843 should apply and accordingly
dismissed the claim of the Commissioner of Internal Revenue. The said ruling is now the subject of the petition at bar.
The issues raised for resolution are:
1. Whether or not the 5% franchise tax prescribed in Section 259 of the National Internal Revenue Code assessed against
the private respondent on its gross receipts realized before the effectivity of R.A- No. 3843 is collectible.

Page 57 of 403
2. Whether or not Section 4 of R.A. No. 3843 is unconstitutional for being violative of the "uniformity and equality of
taxation" clause of the Constitution.
3. If the abovementioned Section 4 of R.A. No. 3843 is valid, whether or not it could be given retroactive effect so as to
render uncollectible the taxes in question which were assessed before its enactment.
4. Whether or not the respondent taxpayer is liable for the fixed and deficiency percentage taxes in the amount of
P3,025.96 for the period from January 1, 1946 to February 29, 1948, the period before the approval of its municipal
franchises.
The first issue raised by the petitioner before us is whether or not the five percent (5%) franchise tax prescribed in Section
259 of the National Internal Revenue Code (Commonwealth Act No. 466 as amended by R.A. No. 39) assessed against
the private respondent on its gross receipts realized before the effectivity of R.A- No. 3843 is collectible. It is the
contention of the petitioner Commissioner of Internal Revenue that the private respondent should have been held liable
for the 5% franchise tax on gross receipts prescribed in Section 259 of the Tax Code, instead of the lower franchise tax
rates provided in the municipal franchises (1% of gross earnings for the first twenty years and 2% for the remaining fifteen
years of the life of the franchises) because Section 259 of the Tax Code, as amended by RA No. 39 of October 1, 1946,
applied to existing and future franchises. The franchises of the private respondent were already in existence at the time of
the adoption of the said amendment, since the franchises were accepted on March 1, 1948 after approval by the
President of the Philippines on February 24, 1948. The private respondent's original franchises did not contain the proviso
that the tax provided therein "shall be in lieu of all taxes;" moreover, the franchises contained a reservation clause that
they shag be subject to amendment, alteration, or repeal, but even in the absence of such cause, the power of the
Legislature to alter, amend, or repeal any franchise is always deemed reserved. The franchise of the private respondent
have been modified or amended by Section 259 of the Tax Code, the petitioner submits.
We find no merit in petitioner's contention. R.A. No. 3843 granted the private respondent a legislative franchise in June,
1963, amending, altering, or even repealing the original municipal franchises, and providing that the private respondent
should pay only a 2% franchise tax on its gross receipts, "in lieu of any and all taxes and/or licenses of any kind, nature or
description levied, established, or collected by any authority whatsoever, municipal, provincial, or national, now or in the
future ... and effective further upon the date the original franchise was granted, no other tax and/or licenses other than the
franchise tax of two per centum on the gross receipts ... shall be collected, any provision of law to the contrary
notwithstanding." Thus, by virtue of R.A- No. 3843, the private respondent was liable to pay only the 2% franchise tax,
effective from the date the original municipal franchise was granted.
On the question as to whether or not Section 4 of R.A. No. 3843 is unconstitutional for being violative of the "uniformity
and equality of taxation" clause of the Constitution, and, if adjudged valid, whether or not it should be given retroactive
effect, the petitioner submits that the said law is unconstitutional insofar as it provides for the payment by the private
respondent of a franchise tax of 2% of its gross receipts, while other taxpayers similarly situated were subject to the 5%
franchise tax imposed in Section 259 of the Tax Code, thereby discriminatory and violative of the rule on uniformity and
equality of taxation.
A tax is uniform when it operates with the same force and effect in every place where the subject of it is found. Uniformity
means that all property belonging to the same class shall be taxed alike The Legislature has the inherent power not only
to select the subjects of taxation but to grant exemptions. Tax exemptions have never been deemed violative of the equal
protection clause. 1 It is true that the private respondents municipal franchises were obtained under Act No. 667 2 of the
Philippine Commission, but these original franchises have been replaced by a new legislative franchise, i.e. R.A. No.
3843. As correctly held by the respondent court, the latter was granted subject to the terms and conditions established in
Act No. 3636, 3 as amended by C.A. No. 132. These conditions Identify the private respondent's power plant as falling
within that class of power plants created by Act No. 3636, as amended. The benefits of the tax reduction provided by law
(Act No. 3636 as amended by C.A. No. 132 and R.A. No. 3843) apply to the respondent's power plant and others
circumscribed within this class. R.A-No. 3843 merely transferred the petitioner's power plant from that class provided for in
Act No. 667, as amended, to which it belonged until the approval of R.A- No. 3843, and placed it within the class falling
under Act No. 3636, as amended. Thus, it only effected the transfer of a taxable property from one class to another.
We do not have the authority to inquire into the wisdom of such act. Furthermore, the 5% franchise tax rate provided in
Section 259 of the Tax Code was never intended to have a universal application. 4 We note that the said Section 259 of
the Tax Code expressly allows the payment of taxes at rates lower than 5% when the charter granting the franchise of a
grantee, like the one granted to the private respondent under Section 4 of R.A. No. 3843, precludes the imposition of a
higher tax. R.A. No. 3843 did not only fix and specify a franchise tax of 2% on its gross receipts, but made it "in lieu of any
and all taxes, all laws to the contrary notwithstanding," thus, leaving no room for doubt regarding the legislative intent.
"Charters or special laws granted and enacted by the Legislature are in the nature of private contracts. They do not
constitute a part of the machinery of the general government. They are usually adopted after careful consideration of the
private rights in relation with resultant benefits to the State ... in passing a special charter the attention of the Legislature is
directed to the facts and circumstances which the act or charter is intended to meet. The Legislature consider (sic) and
make (sic) provision for all the circumstances of a particular case." 5 In view of the foregoing, we find no reason to disturb
the respondent court's ruling upholding the constitutionality of the law in question.
Given its validity, should the said law be applied retroactively so as to render uncollectible the taxes in question which
were assessed before its enactment? The question of whether a statute operates retrospectively or only prospectively
depends on the legislative intent. In the instant case, Act No. 3843 provides that "effective ... upon the date the original
franchise was granted, no other tax and/or licenses other than the franchise tax of two per centum on the gross receipts ...

Page 58 of 403
shall be collected, any provision to the contrary notwithstanding." Republic Act No. 3843 therefore specifically provided for
the retroactive effect of the law.
The last issue to be resolved is whether or not the private respondent is liable for the fixed and deficiency percentage
taxes in the amount of P3,025.96 (i.e. for the period from January 1, 1946 to February 29, 1948) before the approval of its
municipal franchises. As aforestated, the franchises were approved by the President only on February 24, 1948.
Therefore, before the said date, the private respondent was liable for the payment of percentage and fixed taxes as seller
of light, heat, and power which as the petitioner claims, amounted to P3,025.96. The legislative franchise (R.A. No.
3843) exempted the grantee from all kinds of taxes other than the 2% tax from the date the original franchise was granted.
The exemption, therefore, did not cover the period before the franchise was granted, i.e. before February 24, 1948.
However, as pointed out by the respondent court in its findings, during the period covered by the instant case, that is from
January 1, 1946 to December 31, 1961, the private respondent paid the amount of P34,184.36, which was very much
more than the amount rightfully due from it. Hence, the private respondent should no longer be made to pay for the
deficiency tax in the amount of P3,025.98 for the period from January 1, 1946 to February 29, 1948.
WHEREFORE, the appealed decision of the respondent Court of Tax Appeals is hereby AFFIRMED. No pronouncement
as to costs. SO ORDERED.
Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Feliciano, Gancayco, Padilla, Bidin, Cortes, Grio-Aquino and Medialdea, JJ.,
concur.
Footnotes
* Penned by Hon. Mariano Nable, Presiding Judge, Hon. Roman M. Umali, Associate Judge, concurring.
1 Gomez v. Palomar, 25 SCRA 827.
2 An Act prescribing the method of applying to governments of municipalities... and of provinces for franchises to construct and operate street railway,
electric light and power and telephone lines... (The model franchise for municipal franchises or the basic authority for granting municipal franchises.)
3 An Act prescribing the form for bills for the granting of electric light and power franchises, and for other purposes; Section 1 0 thereof provides for the
payment of a franchise tax of 2% of the gross earnings ... in lieu of any and all taxes x x x (Model Franchise for legislative franchises).
4 See Phil. Railway Co. v. Collector of Internal Revenue, 91 Phil. 35; Visayan Electric Co. v. David 92 Phil. 969.
5 Manila Railroad Co. v. David, 40 Phil. 224.
The Lawphil Project - Arellano Law Foundation

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

Page 59 of 403
G.R. No. 119252 August 18, 1997
COMMISSIONER OF INTERNAL REVENUE and COMMISSIONER OF CUSTOMS, petitioners,
vs.
HON. APOLINARIO B. SANTOS, in his capacity as Presiding Judge of the Regional Trial Court, Branch 67, Pasig
City; ANTONIO M. MARCO; JEWELRY BY MARCO & CO., INC., and GUILD OF PHILIPPINE JEWELLERS,
INC., respondents.
HERMOSISIMA, JR., J.:
Of grave concern to this Court is the judicial pronouncement of the court a quo that certain provisions of the Tariff &
Customs Code and the National Internal Revenue Code are unconstitutional. This provokes the issue: Can the Regional
Trial Courts declare a law inoperative and without force and effect or otherwise unconstitutional? If it can, under what
circumstances?
In this petition, the Commissioner of Internal Revenue and the Commissioner of Customs jointly seek the reversal of the
Decision, 1 dated February 16, 1995, of herein public respondent, Hon. Apolinario B. Santos, Presiding Judge of Branch
67 of the Regional Trial Court of Pasig City.
The following facts, concisely related in the petition 2 of the Office of the Solicitor General, appear to be undisputed:
1. Private respondent Guild of Philippine Jewelers, Inc., is an association of Filipino jewelers engaged in
the manufacture of jewelries (sic) and allied undertakings. Among its members are Hans Brumann, Inc.,
Miladay Jewels, Inc., Mercelles, Inc., Solid Gold International Traders, Inc., Diagem Trading Corporation,
and private respondent Jewelry by Marco & Co., Inc. Private respondent Antonio M. Marco is the
President of the Guild.
2. On August 5, 1988, Felicidad L. Viray, then Regional Director, Region No. 4-A of the Bureau of Internal
Revenue, acting for and in behalf of the Commissioner of Internal Revenue, issued Regional Mission
Order No. 109-88 to BIR officers, led by Eliseo Corcega, to conduct surveillance, monitoring, and
inventory of all imported articles of Hans Brumann, Inc., and place the same under preventive embargo.
The duration of the mission was from August 8 to August 20, 1988 (Exhibit "1"; Exhibit "A").
3. On August 17, 1988, pursuant to the aforementioned Mission Order, the BIR officers proceeded to the
establishment of Hans Brumann, Inc., served the Mission Order, and informed the establishment that they
were going to make an inventory of the articles involved to see if the proper taxes thereon have been
paid. They then made an inventory of the articles displayed in the cabinets with the assistance of an
employee of the establishment. They listed down the articles, which list was signed by the assistant
employee. They also requested the presentation of proof of necessary payments for excise tax and valueadded tax on said articles (pp. 10-15, TSN, April 12, 1993, Exhibits "2", "2-A", "3", "3-A").
4. The BIR officers requested the establishment not to sell the articles until it can be proven that the
necessary taxes thereon have been paid. Accordingly, Mr. Hans Brumann, the owner of the
establishment, signed a receipt for Goods, Articles, and Things Seized under Authority of the National
Internal Revenue Code (dated August 17, 1988), acknowledging that the articles inventoried have been
seized and left in his possession, and promising not to dispose of the same without authority of the
Commissioner of Internal Revenue pending investigation. 3
5. Subsequently, BIR officer Eliseo Corcega submitted to his superiors a report of the inventory conducted
and a computation of the value-added tax and ad valorem tax on the articles for evaluation and
disposition. 4
6. Mr. Hans Brumann, the owner of the establishment, never filed a protest with the BIR on the preventive
embargo of the articles. 5
7. On October 17, 1988, Letter of Authority No. 0020596 was issued by Deputy Commissioner Eufracio D.
Santos to BIR officers to examine the books of accounts and other accounting records of Hans Brumann,
Inc., for "stocktaking investigation for excise tax purposes for the period January 1, 1988 to present"
(Exhibit "C"). In a letter dated October 27, 1988, in connection with the physical count of the inventory
(stocks on hand) pursuant to said Letter of Authority, Hans Brumann, Inc. was requested to prepare and
make available to the BIR the documents indicated therein (Exhibit "D").

Page 60 of 403
8. Hans Brumann, Inc., did not produce the documents requested by the BIR. 6
9. Similar Letter of Authority were issued to BIR officers to examine the books of accounts and other
accounting records of Miladay Jewels, Inc., Mercelles, Inc., Solid Gold International Traders, Inc.,
(Exhibits "E", "G" and "N") and Diagem Trading Corporation 7 for "stocktaking/investigation far excise tax
purpose for the period January 1, 1988 to present."
10. In the case of Miladay Jewels, Inc. and Mercelles, Inc., there is no account of what actually transpired
in the implementation of the Letters of Authority.
11. In the case of Solid Gold International Traders Corporation, the BIR officers made an inventory of the
articles in the establishment. 8 The same is true with respect to Diagem Traders Corporation. 9
12. On November 29, 1988, private respondents Antonio M. Marco and Jewelry By Marco & Co., Inc. filed
with the Regional Trial Court, National Capital Judicial Region, Pasig City, Metro Manila, a petition for
declaratory relief with writ of preliminary injunction and/or temporary restraining order against herein
petitioners and Revenue Regional Director Felicidad L. Viray (docketed as Civil Case No. 56736) praying
that Sections 126, 127(a) and (b) and 150(a) of the National Internal Revenue Code and Hdg. No. 71.01,
71.02, 71.03, and 71.04, Chapter 71 of the Tariff and Customs Code of the Philippines be declared
unconstitutional and void, and that the Commissioner of Internal Revenue and Customs be prevented or
enjoined from issuing mission orders and other orders of similar nature. . . .
13. On February 9, 1989, herein petitioners filed their answer to the petition. . . .
14 On October 16, 1989, private respondents filed a Motion with Leave to Amend Petition by including as
petitioner the Guild of Philippine Jewelers, Inc., which motion was granted. . . .
15. The case, which was originally assigned to Branch 154, was later reassigned to Branch 67.
16. On February 16, 1995, public respondents rendered a decision, the dispositive portion of which reads:
In view of the foregoing reflections, judgment is hereby rendered, as follows:
1. Declaring Section 104 of the Tariff and the Customs Code of the
Philippines, Hdg. 71.01, 71.02, 71.03, and 71.04, Chapter 71 as
amended by Executive Order No. 470, imposing three to ten (3% to 10%)
percent tariff and customs duty on natural and cultured pearls and
precious or semi-precious stones, and Section 150 par. (a) the National
Internal Revenue Code of 1977, as amended, renumbered and
rearranged by Executive Order 273, imposing twenty (20%) percent
excise tax on jewelry, pearls and other precious stones, as
INOPERATIVE and WITHOUT FORCE and EFFECT insofar as
petitioners are concerned.
2. Enforcement of the same is hereby enjoined.
No cost.
SO ORDERED.
Section 150 (a) of Executive Order No. 273 reads:
Sec. 150. Non-essential goods. There shall be levied, assessed and collected a tax equivalent to 20%
based on the wholesale price or the value of importation used by the Bureau of Customs in determining
tariff and customs duties; net of the excise tax and value-added tax, of the following goods:
(a) All goods commonly or commercially known as jewelry, whether real or imitation,
pearls, precious and semi-precious stones and imitations thereof; goods made of, or
ornamented, mounted and fitted with, precious metals or imitations thereof or ivory (not
including surgical and dental instruments, silver-plated wares, frames or mountings for
spectacles or eyeglasses, and dental gold or gold alloys and other precious metals used
in filling, mounting or fitting of the teeth); opera glasses and lorgnettes. The term

Page 61 of 403
"precious metals" shall include platinum, gold, silver, and other metals of similar or
greater value. The term "imitations thereof" shall include platings and alloys of such
metals.
Section 150 (a) of Executive Order No. 273, which took effect on January 1, 1988, amended the then Section 163 (a) of
the Tax Code of 1986 which provided that:
Sec. 163. Percentage tax on sales of non-essential articles. There shall be levied, assessed and
collected, once only on every original sale, barter, exchange or similar transaction for nominal or valuable
consideration intended to transfer ownership of, or title to, the articles herein below enumerated a tax
equivalent to 50% of the gross value in money of the articles so sold, bartered, exchanged or transferred,
such tax to be paid by the manufacturer or producer:
(a) All articles commonly or commercially known as jewelry, whether real or imitation,
pearls, precious and semi-precious stones, and imitations thereof, articles made of, or
ornamented, mounted or fitted with, precious metals or imitations thereof or ivory (not
including surgical and dental instruments, silver-plated wares, frames or mounting for
spectacles or eyeglasses, and dental gold or gold alloys and other precious metal used in
filling, mounting or fitting of the teeth); opera glasses, and lorgnettes. The term "precious
metals" shall include platinum, gold, silver, and other metals of similar or greater value.
The term "imitations thereof" shall include platings and alloys of such metals;
Section 163 (a) of the 1986 Tax Code was formerly Section 194(a) of the 1977 Tax Code and Section 184(a) of the Tax
code, as amended by Presidential Decree No. 69, which took effect on January 1, 1974.
It will be noted that, while under the present law, jewelry is subject to a 20% excise tax in addition to a 10% value-added
tax under the old law, it was subjected to 50% percentage tax. It was even subjected to a 70% percentage tax under then
Section 184(a) of the Tax Code, as amended by P.D. 69.
Section 104, Hdg. Nos. 17.01, 17.02, 17.03 and 17.04, Chapter 71 of the Tariff and Customs Code, as amended by
Executive Order No. 470, dated July 20, 1991, imposes import duty on natural or cultured pearls and precious or semiprecious stones at the rate of 3% to 10% to be applied in stages from 1991 to 1994 and 30% in 1995.
Prior to the issuance of E.O. 470, the rate of import duty in 1988 was 10% to 50% when the petition was filed in the
court a quo.
In support of their petition before the lower court, the private respondents submitted a position paper purporting to be an
exhaustive study of the tax rates on jewelry prevailing in other Asian countries, in comparison to tax rates levied on the
same in the Philippines. 10
The following issues were thus raised therein:
1. Whether or not the Honorable Court has jurisdiction over the subject matter of the petition.
2. Whether the petition states a cause of action or whether the petition alleges a justiciable controversy
between the parties.
3. Whether Section 150, par. (a) of the NIRC and Section 104, Hdg. 71.01, 71.02, 71.03 and 71.04 of the
Tariff and Customs Code are unconstitutional.
4. Whether the issuance of the Mission Order and Letters of Authority is valid and legal.
In the assailed decision, the public respondent held indeed that the Regional Trial Court has jurisdiction to take
cognizance of the petition since "jurisdiction over the nature of the suit is conferred by law and it is determine[d] through
the allegations in the petition," and that the "Court of Tax Appeals has no jurisdiction to declare a statute unconstitutional
much less issue writs of certiorari and prohibition in order to correct acts of respondents allegedly committed with grave
abuse of discretion amounting to lack of jurisdiction."
As to the second issue, the public respondent, made the holding that there exists a justiciable controversy between the
parties, agreeing with the statements made in the position paper presented by the private respondents, and considering
these statements to be factual evidence, to wit:

Page 62 of 403
Evidence for the petitioners indeed reveals that government taxation policy treats jewelry, pearls, and
other precious stones and metals as non-essential luxury items and therefore, taxed heavily; that the
atmospheric cost of taxation is killing the local manufacturing jewelry industry because they cannot
compete with neighboring and other countries where importation and manufacturing of jewelry is not
taxed heavily, if not at all; that while government incentives and subsidies exit, local manufacturers cannot
avail of the same because officially many of them are unregistered and are unable to produce the
required official documents because they operate underground, outside the tariff and tax structure; that
local jewelry manufacturing is under threat of extinction, otherwise discouraged, while domestic trading
has become more attractive; and as a consequence, neighboring countries, such as: Hongkong,
Singapore, Malaysia, Thailand, and other foreign competitors supplying the Philippine market either
through local channels or through the black market for smuggled goods are the ones who are getting
business and making money, while members of the petitioner Guild of Philippine Jewelers, Inc. are
constantly subjected to bureaucratic harassment instead of being given by the government the necessary
support in order to survive and generate revenue for the government, and most of all fight competitively
not only in the domestic market but in the arena of world market where the real contest is.
Considering the allegations of fact in the petition which were duly proven during the trial, the Court holds
that the petition states a cause of action and there exists a justiciable controversy between the parties
which would require determination of constitutionality of the laws imposing excise tax and customs duty
on jewelry. 11 (emphasis ours)
The public respondent, in addressing the third issue, ruled that the laws in question are confiscatory and oppressive.
Again, virtually adopting verbatim the reasons presented by the private respondents in their position paper, the lower court
stated:
The Court finds that indeed government taxation policy trats(sic) hewelry(sic) as non-essential luxury item
and therefore, taxed heavily. Aside from the ten (10%) percent value added tax (VAT), local jewelry
manufacturers contend with the (manufacturing) excise tax of twenty (20%) percent (to be applied in
stages) customs duties on imported raw materials, the highest in the Asia-Pacific region. In contrast,
imported gemstones and other precious metals are duty free in Hongkong, Thailand, Malaysia and
Singapore.
The Court elaborates further on the experiences of other countries in their treatment of the jewelry sector.
MALAYSIA
Duties and taxes on imported gemstones and gold and the sales tax on jewelry were abolished in
Malaysia in 1984. They were removed to encourage the development of Malaysia's jewelry manufacturing
industry and to increase exports of jewelry.
THAILAND
Gems and jewelry are Thailand's ninth most important export earner. In the past, the industry was
overlooked by successive administrations much to the dismay of those involved in developing trade.
Prohibitive import duties and sales tax on precious gemstones restricted the growht (sic) of the industry,
resulting in most of the business being unofficial. It was indeed difficult for a government or businessman
to promote an industry which did not officially exist.
Despite these circumstances, Thailand's Gem business kept growing up in (sic) businessmen began to
realize it's potential. In 1978, the government quietly removed the severe duties on precious stones, but
imposed a sales tax of 3.5%. Little was said or done at that time as the government wanted to see if a
free trade in gemstones and jewelry would increase local manufacturing and exports or if it would mean
more foreign made jewelry pouring into Thailand. However, as time progressed, there were indications
that local manufacturing was indeed being encouraged and the economy was earning mom from exports.
The government soon removed the 3% sales tax too, putting Thailand at par with Hongkong and
Singapore. In these countries, there are no more import duties and sales tax on gems. (Cited in pages 6
and 7 of Exhibit "M". The Center for Research and Communication in cooperation with the Guild of
Philippine Jewelers, Inc., June 1986).
To illustrate, shown hereunder is the Philippine tariff and tax structure on jewelry and other precious and
semi-precious stones compared to other neighboring countries, to wit:

Page 63 of 403
Tariff on imported
Jewelry and (Manufacturing) Sales Tax 10% (VAT)
precious stones Excise tax
Philippines 3% to 10% to be 20% 10% VAT
applied in stages
Malaysia None None None
Thailand None None None
Singapore None None None
Hongkong None None None
In this connection, the present tariff and tax structure increases manufacturing costs and renders the local
jewelry manufacturers uncompetitive against other countries even before they start manufacturing and
trading. Because of the prohibitive cast (sic) of taxation, most manufacturers source from black market for
smuggled goods, and that while manufacturers can avail of tax exemption and/or tax credits from the
(manufacturing) excise tax, they have no documents to present when filing this exemption because, or
pointed out earlier, most of them source their raw materials from the block market, and since many of
them do not legally exist or operate onofficially (sic), or underground, again they have no records
(receipts) to indicate where and when they will utilize such tax credits. (Cited in Exhibit "M"
Buencamino Report).
Given these constraints, the local manufacturer has no recourse but to the back door for smuggled goods
if only to be able to compete even ineffectively, or cease manufacturing activities and instead engage in
the tradinf (sic) of smuggled finished jewelry.
Worthy of note is the fact that indeed no evidence was adduced by respondents to disprove the foregoing
allegations of fact. Under the foregoing factual circumstances, the Court finds the questioned statutory
provisions confiscatory and destructive of the proprietary right of the petitioners to engage in business in
violation of Section 1, Article III of the Constitution which states, as follows:
No person shall be deprived of the life, liberty, or property without due process of law . . . .

12

Anent the fourth and last issue, the herein public respondent did not find it necessary to rule thereon, since, in his opinion,
"the same has been rendered moot and academic by the aforementioned pronouncement." 13
The petitioners now assail the decision rendered by the public respondent, contending that the latter has no authority to
pass judgment upon the taxation policy of the government. In addition, the petitioners impugn the decision in question by
asserting that there was no showing that the tax laws on jewelry are confiscatory and destructive of private respondent's
proprietary rights.
We rule in favor of the petitioners.
It is interesting to note that public respondent, in the dispositive portion of his decision, perhaps keeping in mind his
limitations under the law as a trial judge, did not go so far as to declare the laws in question to be unconstitutional.
However, therein he declared the laws to be inoperative and without force and effect insofar as the private respondents
are concerned. But, respondent judge, in the body of his decision, unequivocally but wrongly declared the said provisions
of law to be violative of Section 1, Article III of the Constitution. In fact, in their Supplemental Comment on the Petition for
Review, 14 the private respondents insist that Judge Santos, in his capacity as judge of the Regional Trial Court, acted
within his authority in passing upon the issues, to wit:
A perusal of the appealed decision would undoubtedly disclose that public respondent did not pass
judgment on the soundness or wisdom of the government's tax policy on jewelry. True, public respondent,
in his questioned decision, observed, inter alia, that indeed government tax policy treats jewelry as nonessential item, and therefore, taxed heavily; that the present tariff and tax structure increase
manufacturing cost and renders the local jewelry manufacturers uncompetitive against other countries
even before they start manufacturing and trading; that many of the local manufacturers do not legally exist
or operate unofficially or underground; and that the manufacturers have no recourse but to the back door
for smuggled goods if only to be able to compete even if ineffectively or cease manufacturing activities.

Page 64 of 403
BUT, public respondent did not, in any manner, interfere with or encroach upon the prerogative of the
legislature to determine what should be the tax policy on jewelry. On the other hand, the issue raised
before, and passed upon by, the public respondent was whether or not Section 150, paragraph (a) of the
National Internal Revenue Code (NIRC) and Section 104, Hdg. 71.01, 71.02, 71.03 and 71.04 of the Tariff
and Customs Code are unconstitutional, or differently stated, whether or not the questioned statutory
provisions affect the constitutional right of private respondents to engage in business.
It is submitted that public respondent confined himself on this issue which is clearly a judicial question.
We find it incongruous, in the face of the sweeping pronouncements made by Judge Santos in his decision, that private
respondents can still persist in their argument that the former did not overreach the restrictions dictated upon him by law.
There is no doubt in the Court's mind, despite protestations to the contrary, that respondent judge encroached upon
matters properly falling within the province of legislative functions. In citing as basis for his decision unproven comparative
data pertaining to differences between tax rates of various Asian countries, and concluding that the jewelry industry in the
Philippines suffers as a result, the respondent judge took it upon himself to supplant legislative policy regarding jewelry
taxation. In advocating the abolition of local tax and duty on jewelry simply because other countries have adopted such
policies, the respondent judge overlooked the fact that such matters are not for him to decide. There are reasons why
jewelry, a non-essential item, is taxed as it is in this country, and these reasons, deliberated upon by our legislature, are
beyond the reach of judicial questioning. As held in Macasiano vs. National Housing Authority: 15
The policy of the courts is to avoid ruling on constitutional questions and to presume that the acts of the
political departments are valid in the absence of a clear and unmistakable showing to the contrary. To
doubt is to sustain. This presumption is based on the doctrine of separation of powers which enjoins upon
each department a becoming respect for the acts of the other departments. The theory is that as the joint
act of Congress and the President of the Philippines, a law has been carefully studied and determined to
be in accordance with the fundamental low before it was finally enacted. (emphasis ours)
What we see here is a debate on the WISDOM of the laws in question. This is a matter on which the RTC is not
competent to rule. 16 As Cooley observed: "Debatable questions are for the legislature to decide. The courts do not sit to
resolve the merits of conflicting issues." 17 In Angara vs. Electoral Commission, 18 Justice Laurel made it clear that "the
judiciary does not pass upon questions of wisdom, justice or expediency of legislation." And fittingly so, for in the exercise
of judicial power, we are allowed only "to settle actual controversies involving rights which are legally demandable and
enforceable", and may not annul an act of the political departments simply because we feel it is unwise or
impractical. 19This is not to say that Regional Trial Courts have no power whatsoever to declare a law unconstitutional.
In J.M. Tuason and Co. v. Court of Appeals, 20 we said that "[p]lainly the Constitution contemplates that the inferior courts
should have jurisdiction in cases involving constitutionality of any treaty or law, for it speaks of appellate review of final
judgments of inferior courts in cases where such constitutionality happens to be in issue." This authority of lower courts to
decide questions of constitutionality in the first instance reaffirmed in Ynos v. Intermediate Court of Appeals. 21 But this
authority does not extend to deciding questions which pertain to legislative policy.
The trial court is not the proper forum for the ventilation of the issues raised by the private respondents. The arguments
they presented focus on the wisdom of the provisions of law which they seek to nullify. Regional Trial Courts can only look
into the validity of a provision, that is, whether or not it has been passed according to the procedures laid down by law,
and thus cannot inquire as to the reasons for its existence. Granting arguendo that the private respondents may have
provided convincing arguments why the jewelry industry in the Philippines should not be taxed as it is, it is to the
legislature that they must resort to for relief, since with the legislature primarily lies the discretion to determine the nature
(kind), object (purpose), extent (rate), coverage (subjects) andsitus (place) of taxation. This Court cannot freely delve into
those matters which, by constitutional fiat, rightly rest on legislative judgment. 22
As succinctly put in Lim vs. Pacquing: 23 "Where a controversy may be settled on a platform other than one involving
constitutional adjudication, the court should exercise becoming modesty and avoid the constitutional question." As judges,
we can only interpret and apply the law and, despite our doubts about its wisdom, cannot repeal or amend it. 24
The respondents presented an exhaustive study on the tax rates on jewelry levied by different Asian countries. This is
meant to convince us that compared to other countries, the tax rates imposed on said industry in the Philippines is
oppressive and confiscatory. This Court, however, cannot subscribe to the theory that the tax rates of other countries
should be used as a yardstick in determining what may be the proper subjects of taxation in our own country. It should be
pointed out that in imposing the aforementioned taxes and duties, the State, acting through the legislative and executive
branches, is exercising its sovereign prerogative. It is inherent in the power to tax that the State be free to select the
subjects of taxation, and it has been repeatedly held that "inequalities which result from a singling out or one particular
class for taxation, or exemption, infringe no constitutional limitation." 25

Page 65 of 403
WHEREFORE, premises considered, the petition is hereby GRANTED, and the Decision in Civil Case No. 56736 is
hereby REVERSED and SET ASIDE. No costs.
SO ORDERED.
Padilla, Bellosillo, Vitug and Kapunan, JJ., concur.
Footnotes
1 Civil Case No. 56736.
2 Rollo, pp. 8-29
3 TSN, April 12, 1993, pp. 18-19; Exhibit "4"; Exhibit "B."
4 TSN, April 12, 1993, pp. 20-21; Exhibits "5" & "5-A."
5 TSN, June 16, 1993, p. 16.
6 TSN, October 21, 1992, p. 11.
7 TSN, September 16, 1992, pp. 9-14; pp. 44-45.
8 TSN, December 7, 1992, pp. 6-7.
9 TSN, September 16, 1992, pp. 9-14; pp. 44-45.
10 This position paper was prepared by a certain J. Antonio Buencamino of the Corporate Planning Services Division, Center for
Research and Communication, in cooperation with the Guild of Philippine Jewelers, Inc.
11 Decision, pp. 7-8, Rollo, pp. 36-37.
12 Decision, pp. 10-12; Rollo, pp. 39-41.
13 Decision, p. 13; Rollo, p. 42.
14 Rollo, pp. 146-147.
15 Macasiano vs. National Housing Authority, 224 SCRA 236 (1993), citing Garcia vs. Executive Secretary, 204 SCRA 516 (1991).
16 Ibid.
17 Ibid.
18 63 Phil. 139 (1936).
19 Macasiano vs. National Housing Authority, supra.
20 3 SCRA 696 [1961].
21 148 SCRA 659 [1987].
22 Tan vs. Del Rosario, Jr., 237 SCRA 324 (1994).
23 240 SCRA 649 (1995). See separate opinion.
24 Pangilinan vs. Maglaya, 225 SCRA 511 (1993).
25 Lutz vs. Araneta, 98 Phil. 148 (1955); Sison Jr. vs. Ancheta, 130 SCRA 654, 663 (1984); Kapatiran ng mga Naglilingkod sa
Pamahalaan ng Pilipinas, Inc. vs. Tan, 163 SCRA 371 (1988); Tolentino vs. Secretary of Finance, 249 SCRA 628 (1995).

The Lawphil Project - Arellano Law Foundation

Page 66 of 403

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 120082 September 11, 1996
MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY, petitioner,
vs.
HON. FERDINAND J. MARCOS, in his capacity as the Presiding Judge of the Regional Trial Court, Branch 20,
Cebu City, THE CITY OF CEBU, represented by its Mayor HON. TOMAS R. OSMEA, and EUSTAQUIO B.
CESA, respondents.
DAVIDE, JR., J.:
For review under Rule 45 of the Rules of Court on a pure question of law are the decision of 22 March 1995 1 of
the Regional Trial Court (RTC) of Cebu City, Branch 20, dismissing the petition for declaratory relief in Civil Case
No. CEB-16900 entitled "Mactan Cebu International Airport Authority vs. City of Cebu", and its order of 4, May
1995 2 denying the motion to reconsider the decision.
We resolved to give due course to this petition for its raises issues dwelling on the scope of the taxing power of
local government-owned and controlled corporations.
The uncontradicted factual antecedents are summarized in the instant petition as follows:
Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic Act No.
6958, mandated to "principally undertake the economical, efficient and effective control, management and
supervision of the Mactan International Airport in the Province of Cebu and the Lahug Airport in Cebu City,

Page 67 of 403
. . . and such other Airports as may be established in the Province of Cebu . . . (Sec. 3, RA 6958). It is
also mandated to:
a) encourage, promote and develop international and domestic air traffic
in the Central Visayas and Mindanao regions as a means of making the
regions centers of international trade and tourism, and accelerating the
development of the means of transportation and communication in the
country; and
b) upgrade the services and facilities of the airports and to formulate
internationally acceptable standards of airport accommodation and
service.
Since the time of its creation, petitioner MCIAA enjoyed the privilege of exemption from payment of realty
taxes in accordance with Section 14 of its Charter.
Sec. 14. Tax Exemptions. The authority shall be exempt from realty taxes imposed by
the National Government or any of its political subdivisions, agencies and
instrumentalities . . .
On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-in-Charge, Office of the Treasurer of the
City of Cebu, demanded payment for realty taxes on several parcels of land belonging to the petitioner
(Lot Nos. 913-G, 743, 88 SWO, 948-A, 989-A, 474, 109(931), I-M, 918, 919, 913-F, 941, 942, 947, 77
Psd., 746 and 991-A), located at Barrio Apas and Barrio Kasambagan, Lahug, Cebu City, in the total
amount of P2,229,078.79.
Petitioner objected to such demand for payment as baseless and unjustified, claiming in its favor the
aforecited Section 14 of RA 6958 which exempt it from payment of realty taxes. It was also asserted that it
is an instrumentality of the government performing governmental functions, citing section 133 of the Local
Government Code of 1991 which puts limitations on the taxing powers of local government units:
Sec. 133. Common Limitations on the Taxing Powers of Local Government Units.
Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangay shall not extend to the levy of the following:
a) . . .
xxx xxx xxx
o) Taxes, fees or charges of any kind on the National Government, its
agencies and instrumentalities, and local government units. (Emphasis
supplied)
Respondent City refused to cancel and set aside petitioner's realty tax account, insisting that the MCIAA
is a government-controlled corporation whose tax exemption privilege has been withdrawn by virtue of
Sections 193 and 234 of the Local Governmental Code that took effect on January 1, 1992:
Sec. 193. Withdrawal of Tax Exemption Privilege. Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons whether natural or
juridical,including government-owned or controlled corporations, except local water districts, cooperatives
duly registered under RA No. 6938, non-stock, and non-profit hospitals and educational institutions,are
hereby withdrawn upon the effectivity of this Code. (Emphasis supplied)
xxx xxx xxx
Sec. 234. Exemptions from Real Property taxes. . . .
(a) . . .
xxx xxx xxx
(c) . . .

Page 68 of 403
Except as provided herein, any exemption from payment of real property tax previously
granted to, or presently enjoyed by all persons, whether natural or juridical, including
government-owned or controlled corporations are hereby withdrawn upon the effectivity
of this Code.
As the City of Cebu was about to issue a warrant of levy against the properties of petitioner, the latter was
compelled to pay its tax account "under protest" and thereafter filed a Petition for Declaratory Relief with
the Regional Trial Court of Cebu, Branch 20, on December 29, 1994. MCIAA basically contended that the
taxing powers of local government units do not extend to the levy of taxes or fees of any kind on
an instrumentality of the national government. Petitioner insisted that while it is indeed a governmentowned corporation, it nonetheless stands on the same footing as an agency or instrumentality of the
national government. Petitioner insisted that while it is indeed a government-owned corporation, it
nonetheless stands on the same footing as an agency or instrumentality of the national government by
the very nature of its powers and functions.
Respondent City, however, asserted that MACIAA is not an instrumentality of the government but merely
a government-owned corporation performing proprietary functions As such, all exemptions previously
granted to it were deemed withdrawn by operation of law, as provided under Sections 193 and 234 of the
Local Government Code when it took effect on January 1, 1992. 3
The petition for declaratory relief was docketed as Civil Case No. CEB-16900.
In its decision of 22 March 1995, 4 the trial court dismissed the petition in light of its findings, to wit:
A close reading of the New Local Government Code of 1991 or RA 7160 provides the express
cancellation and withdrawal of exemption of taxes by government owned and controlled corporation per
Sections after the effectivity of said Code on January 1, 1992, to wit: [proceeds to quote Sections 193 and
234]
Petitioners claimed that its real properties assessed by respondent City Government of Cebu are
exempted from paying realty taxes in view of the exemption granted under RA 6958 to pay the same
(citing Section 14 of RA 6958).
However, RA 7160 expressly provides that "All general and special laws, acts, city charters, decress [sic],
executive orders, proclamations and administrative regulations, or part or parts thereof which are
inconsistent with any of the provisions of this Code are hereby repealed or modified accordingly." ([f],
Section 534, RA 7160).
With that repealing clause in RA 7160, it is safe to infer and state that the tax exemption provided for in
RA 6958 creating petitioner had been expressly repealed by the provisions of the New Local Government
Code of 1991.
So that petitioner in this case has to pay the assessed realty tax of its properties effective after January 1,
1992 until the present.
This Court's ruling finds expression to give impetus and meaning to the overall objectives of the New
Local Government Code of 1991, RA 7160. "It is hereby declared the policy of the State that the territorial
and political subdivisions of the State shall enjoy genuine and meaningful local autonomy to enable them
to attain their fullest development as self-reliant communities and make them more effective partners in
the attainment of national goals. Towards this end, the State shall provide for a more responsive and
accountable local government structure instituted through a system of decentralization whereby local
government units shall be given more powers, authority, responsibilities, and resources. The process of
decentralization shall proceed from the national government to the local government units. . . . 5
Its motion for reconsideration having been denied by the trial court in its 4 May 1995 order, the petitioner filed the
instant petition based on the following assignment of errors:
I RESPONDENT JUDGE ERRED IN FAILING TO RULE THAT THE PETITIONER IS
VESTED WITH GOVERNMENT POWERS AND FUNCTIONS WHICH PLACE IT IN THE
SAME CATEGORY AS AN INSTRUMENTALITY OR AGENCY OF THE GOVERNMENT.

Page 69 of 403
II RESPONDENT JUDGE ERRED IN RULING THAT PETITIONER IS LIABLE TO PAY
REAL PROPERTY TAXES TO THE CITY OF CEBU.
Anent the first assigned error, the petitioner asserts that although it is a government-owned or controlled
corporation it is mandated to perform functions in the same category as an instrumentality of Government. An
instrumentality of Government is one created to perform governmental functions primarily to promote certain
aspects of the economic life of the people. 6 Considering its task "not merely to efficiently operate and manage the
Mactan-Cebu International Airport, but more importantly, to carry out the Government policies of promoting and
developing the Central Visayas and Mindanao regions as centers of international trade and tourism, and
accelerating the development of the means of transportation and communication in the country," 7 and that it is an
attached agency of the Department of Transportation and Communication (DOTC), 8 the petitioner "may stand in
[sic] the same footing as an agency or instrumentality of the national government." Hence, its tax exemption
privilege under Section 14 of its Charter "cannot be considered withdrawn with the passage of the Local
Government Code of 1991 (hereinafter LGC) because Section 133 thereof specifically states that the taxing
powers of local government units shall not extend to the levy of taxes of fees or charges of any kind on the
national government its agencies and instrumentalities."
As to the second assigned error, the petitioner contends that being an instrumentality of the National Government,
respondent City of Cebu has no power nor authority to impose realty taxes upon it in accordance with the
aforesaid Section 133 of the LGC, as explained in Basco vs. Philippine Amusement and Gaming Corporation; 9
Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a
government owned or controlled corporation with an original character, PD 1869. All its shares of stock
are owned by the National Government. . . .
PAGCOR has a dual role, to operate and regulate gambling casinos. The latter joke is governmental,
which places it in the category of an agency or instrumentality of the Government. Being an
instrumentality of the Government, PAGCOR should be and actually is exempt from local taxes.
Otherwise, its operation might be burdened, impeded or subjected to control by a mere Local
government.
The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control
the operation of constitutional laws enacted by Congress to carry into execution the powers vested in the
federal government. (McCulloch v. Maryland, 4 Wheat 316, 4 L Ed. 579).
This doctrine emanates from the "supremacy" of the National Government over local government.
Justice Holmes, speaking for the Supreme Court, make references to the entire absence of power on the
part of the States to touch, in that way (taxation) at least, the instrumentalities of the United States
(Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision can regulate
a federal instrumentality in such a way as to prevent it from consummating its federal responsibilities, or
even to seriously burden it in the accomplishment of them. (Antieau Modern Constitutional Law, Vol. 2, p.
140)
Otherwise mere creature of the State can defeat National policies thru extermination of what local
authorities may perceive to be undesirable activities or enterprise using the power to tax as "a toll for
regulation" (U.S. v. Sanchez, 340 US 42). The power to tax which was called by Justice Marshall as the
"power to destroy" (McCulloch v. Maryland, supra) cannot be allowed to defeat an instrumentality or
creation of the very entity which has the inherent power to wield it. (Emphasis supplied)
It then concludes that the respondent Judge "cannot therefore correctly say that the questioned provisions of the
Code do not contain any distinction between a governmental function as against one performing merely
proprietary ones such that the exemption privilege withdrawn under the said Code would apply to al lgovernment
corporations." For it is clear from Section 133, in relation to Section 234, of the LGC that the legislature meant to
exclude instrumentalities of the national government from the taxing power of the local government units.
In its comment respondent City of Cebu alleges that as local a government unit and a political subdivision, it has
the power to impose, levy, assess, and collect taxes within its jurisdiction. Such power is guaranteed by the
Constitution 10 and enhanced further by the LGC. While it may be true that under its Charter the petitioner was
exempt from the payment of realty taxes, 11 this exemption was withdrawn by Section 234 of the LGC. In response
to the petitioner's claim that such exemption was not repealed because being an instrumentality of the National
Government, Section 133 of the LGC prohibits local government units from imposing taxes, fees, or charges of

Page 70 of 403
any kind on it, respondent City of Cebu points out that the petitioner is likewise a government-owned corporation,
and Section 234 thereof does not distinguish between government-owned corporation, and Section 234 thereof
does not distinguish between government-owned corporation, and Section 234 thereof does not distinguish
between government-owned or controlled corporations performing governmental and purely proprietary functions.
Respondent city of Cebu urges this the Manila International Airport Authority is a governmental-owned
corporation, 12 and to reject the application of Basco because it was "promulgated . . . before the enactment and
the singing into law of R.A. No. 7160," and was not, therefore, decided "in the light of the spirit and intention of the
framers of the said law.
As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its
very nature no limits, so that security against its abuse is to be found only in the responsibility of the legislature
which imposes the tax on the constituency who are to pay it. Nevertheless, effective limitations thereon may be
imposed by the people through their Constitutions. 13 Our Constitution, for instance, provides that the rule of
taxation shall be uniform and equitable and Congress shall evolve a progressive system of taxation. 14 So potent
indeed is the power that it was once opined that "the power to tax involves the power to destroy." 15Verily, taxation
is a destructive power which interferes with the personal and property for the support of the government.
Accordingly, tax statutes must be construed strictly against the government and liberally in favor of the
taxpayer. 16 But since taxes are what we pay for civilized society, 17 or are the lifeblood of the nation, the law frowns
against exemptions from taxation and statutes granting tax exemptions are thus construed strictissimi juris against
the taxpayers and liberally in favor of the taxing authority. 18 A claim of exemption from tax payment must be
clearly shown and based on language in the law too plain to be mistaken. 19 Elsewise stated, taxation is the rule,
exemption therefrom is the exception. 20 However, if the grantee of the exemption is a political subdivision or
instrumentality, the rigid rule of construction does not apply because the practical effect of the exemption is merely
to reduce the amount of money that has to be handled by the government in the course of its operations. 21
The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may be exercised by local
legislative bodies, no longer merely by virtue of a valid delegation as before, but pursuant to direct authority
conferred by Section 5, Article X of the Constitution. 22 Under the latter, the exercise of the power may be subject
to such guidelines and limitations as the Congress may provide which, however, must be consistent with the basic
policy of local autonomy.
There can be no question that under Section 14 of R.A. No. 6958 the petitioner is exempt from the payment of
realty taxes imposed by the National Government or any of its political subdivisions, agencies, and
instrumentalities. Nevertheless, since taxation is the rule and exemption therefrom the exception, the exemption
may thus be withdrawn at the pleasure of the taxing authority. The only exception to this rule is where the
exemption was granted to private parties based on material consideration of a mutual nature, which then
becomes contractual and is thus covered by the non-impairment clause of the Constitution. 23
The LGC, enacted pursuant to Section 3, Article X of the constitution provides for the exercise by local
government units of their power to tax, the scope thereof or its limitations, and the exemption from taxation.
Section 133 of the LGC prescribes the common limitations on the taxing powers of local government units as
follows:
Sec. 133. Common Limitations on the Taxing Power of Local Government Units. Unless otherwise
provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall
not extend to the levy of the following:
(a) Income tax, except when levied on banks and other financial institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, "inheritance, gifts, legacies and other acquisitions mortis causa,
except as otherwise provided herein
(d) Customs duties, registration fees of vessels and wharfage on wharves, tonnage dues,
and all other kinds of customs fees charges and dues except wharfage on wharves
constructed and maintained by the local government unit concerned:
(e) Taxes, fees and charges and other imposition upon goods carried into or out of, or
passing through, the territorial jurisdictions of local government units in the guise or

Page 71 of 403
charges for wharfages, tolls for bridges or otherwise, or other taxes, fees or charges in
any form whatsoever upon such goods or merchandise;
(f) Taxes fees or charges on agricultural and aquatic products when sold by marginal
farmers or fishermen;
(g) Taxes on business enterprise certified to be the Board of Investment as pioneer or
non-pioneer for a period of six (6) and four (4) years, respectively from the date of
registration;
(h) Excise taxes on articles enumerated under the National Internal Revenue Code, as
amended, and taxes, fees or charges on petroleum products;
(i) Percentage or value added tax (VAT) on sales, barters or exchanges or similar
transactions on goods or services except as otherwise provided herein;
(j) Taxes on the gross receipts of transportation contractor and person engage in the
transportation of passengers of freight by hire and common carriers by air, land, or water,
except as provided in this code;
(k) Taxes on premiums paid by ways reinsurance or retrocession;
(l) Taxes, fees, or charges for the registration of motor vehicles and for the issuance of all
kinds of licenses or permits for the driving of thereof, except, tricycles;
(m) Taxes, fees, or other charges on Philippine product actually exported, except as
otherwise provided herein;
(n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprise and
Cooperatives duly registered under R.A. No. 6810 and Republic Act Numbered Sixty nine
hundred thirty-eight (R.A. No. 6938) otherwise known as the "Cooperative Code of the
Philippines; and
(o) TAXES, FEES, OR CHARGES OF ANY KIND ON THE NATIONAL GOVERNMENT,
ITS AGENCIES AND INSTRUMENTALITIES, AND LOCAL GOVERNMENT UNITS.
(emphasis supplied)
Needless to say the last item (item o) is pertinent in this case. The "taxes, fees or charges" referred to are "of any
kind", hence they include all of these, unless otherwise provided by the LGC. The term "taxes" is well understood
so as to need no further elaboration, especially in the light of the above enumeration. The term "fees" means
charges fixed by law or Ordinance for the regulation or inspection of business activity, 24while "charges" are
pecuniary liabilities such as rents or fees against person or property. 25
Among the "taxes" enumerated in the LGC is real property tax, which is governed by Section 232. It reads as
follows:
Sec. 232. Power to Levy Real Property Tax. A province or city or a municipality within the Metropolitan
Manila Area may levy on an annual ad valorem tax on real property such as land, building, machinery and
other improvements not hereafter specifically exempted.
Section 234 of LGC provides for the exemptions from payment of real property taxes and withdraws previous
exemptions therefrom granted to natural and juridical persons, including government owned and controlled
corporations, except as provided therein. It provides:
Sec. 234. Exemptions from Real Property Tax. The following are exempted from payment of the real
property tax:
(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof had been granted, for
reconsideration or otherwise, to a taxable person;

Page 72 of 403
(b) Charitable institutions, churches, parsonages or convents appurtenants thereto,
mosques nonprofits or religious cemeteries and all lands, building and improvements
actually, directly, and exclusively used for religious charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and exclusively used by local
water districts and government-owned or controlled corporations engaged in the supply
and distribution of water and/or generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided for under R.A. No.
6938; and;
(e) Machinery and equipment used for pollution control and environmental protection.
Except as provided herein, any exemptions from payment of real property tax previously
granted to or presently enjoyed by, all persons whether natural or juridical, including all
government owned or controlled corporations are hereby withdrawn upon the effectivity of
his Code.
These exemptions are based on the ownership, character, and use of the property. Thus;
(a) Ownership Exemptions. Exemptions from real property taxes on the basis of
ownership are real properties owned by: (i) the Republic, (ii) a province, (iii) a city, (iv) a
municipality, (v) a barangay, and (vi) registered cooperatives.
(b) Character Exemptions. Exempted from real property taxes on the basis of their
character are: (i) charitable institutions, (ii) houses and temples of prayer like churches,
parsonages or convents appurtenant thereto, mosques, and (iii) non profit or religious
cemeteries.
(c) Usage exemptions. Exempted from real property taxes on the basis of the actual,
direct and exclusive use to which they are devoted are: (i) all lands buildings and
improvements which are actually, directed and exclusively used for religious, charitable or
educational purpose; (ii) all machineries and equipment actually, directly and exclusively
used or by local water districts or by government-owned or controlled corporations
engaged in the supply and distribution of water and/or generation and transmission of
electric power; and (iii) all machinery and equipment used for pollution control and
environmental protection.
To help provide a healthy environment in the midst of the modernization of the country, all machinery and
equipment for pollution control and environmental protection may not be taxed by local governments.
2. Other Exemptions Withdrawn. All other exemptions previously granted to natural or
juridical persons including government-owned or controlled corporations are withdrawn
upon the effectivity of the Code. 26
Section 193 of the LGC is the general provision on withdrawal of tax exemption privileges. It provides:
Sec. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this code, tax
exemptions or incentives granted to or presently enjoyed by all persons, whether natural or juridical,
including government-owned, or controlled corporations, except local water districts, cooperatives duly
registered under R.A. 6938, non stock and non profit hospitals and educational constitutions, are hereby
withdrawn upon the effectivity of this Code.
On the other hand, the LGC authorizes local government units to grant tax exemption privileges. Thus, Section
192 thereof provides:
Sec. 192. Authority to Grant Tax Exemption Privileges. Local government units may, through
ordinances duly approved, grant tax exemptions, incentives or reliefs under such terms and conditions as
they may deem necessary.

Page 73 of 403
The foregoing sections of the LGC speaks of: (a) the limitations on the taxing powers of local government units
and the exceptions to such limitations; and (b) the rule on tax exemptions and the exceptions thereto. The use
of exceptions of provisos in these section, as shown by the following clauses:
(1) "unless otherwise provided herein" in the opening paragraph of Section 133;
(2) "Unless otherwise provided in this Code" in section 193;
(3) "not hereafter specifically exempted" in Section 232; and
(4) "Except as provided herein" in the last paragraph of Section 234
initially hampers a ready understanding of the sections. Note, too, that the aforementioned clause in section 133
seems to be inaccurately worded. Instead of the clause "unless otherwise provided herein," with the "herein" to
mean, of course, the section, it should have used the clause "unless otherwise provided in this Code." The former
results in absurdity since the section itself enumerates what are beyond the taxing powers of local government
units and, where exceptions were intended, the exceptions were explicitly indicated in the text. For instance, in
item (a) which excepts the income taxes "when livied on banks and other financial institutions", item (d) which
excepts "wharfage on wharves constructed and maintained by the local government until concerned"; and item (1)
which excepts taxes, fees, and charges for the registration and issuance of license or permits for the driving of
"tricycles". It may also be observed that within the body itself of the section, there are exceptions which can be
found only in other parts of the LGC, but the section interchangeably uses therein the clause "except as otherwise
provided herein" as in items (c) and (i), or the clause "except as otherwise provided herein" as in items (c) and (i),
or the clause "excepts as provided in this Code" in item (j). These clauses would be obviously unnecessary or
mere surplus-ages if the opening clause of the section were" "Unless otherwise provided in this Code" instead of
"Unless otherwise provided herein". In any event, even if the latter is used, since under Section 232 local
government units have the power to levy real property tax, except those exempted therefrom under Section 234,
then Section 232 must be deemed to qualify Section 133.
Thus, reading together Section 133, 232 and 234 of the LGC, we conclude that as a general rule, as laid down in
Section 133 the taxing powers of local government units cannot extend to the levy of inter alia, "taxes, fees, and
charges of any kind of the National Government, its agencies and instrumentalties, and local government units";
however, pursuant to Section 232, provinces, cities, municipalities in the Metropolitan Manila Area may impose
the real property tax except on, inter alia, "real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial used thereof has been granted, for consideration or otherwise, to
a taxable person", as provided in item (a) of the first paragraph of Section 234.
As to tax exemptions or incentives granted to or presently enjoyed by natural or juridical persons, including
government-owned and controlled corporations, Section 193 of the LGC prescribes the general rule, viz., they
are withdrawn upon the effectivity of the LGC, except upon the effectivity of the LGC, except those granted to
local water districts, cooperatives duly registered under R.A. No. 6938, non stock and non-profit hospitals and
educational institutions, and unless otherwise provided in the LGC. The latter proviso could refer to Section 234,
which enumerates the properties exempt from real property tax. But the last paragraph of Section 234 further
qualifies the retention of the exemption in so far as the real property taxes are concerned by limiting the retention
only to those enumerated there-in; all others not included in the enumeration lost the privilege upon the effectivity
of the LGC. Moreover, even as the real property is owned by the Republic of the Philippines, or any of its political
subdivisions covered by item (a) of the first paragraph of Section 234, the exemption is withdrawn if the beneficial
use of such property has been granted to taxable person for consideration or otherwise.
Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC, exemptions from
real property taxes granted to natural or juridical persons, including government-owned or controlled corporations,
except as provided in the said section, and the petitioner is, undoubtedly, a government-owned corporation, it
necessarily follows that its exemption from such tax granted it in Section 14 of its charter, R.A. No. 6958, has
been withdrawn. Any claim to the contrary can only be justified if the petitioner can seek refuge under any of the
exceptions provided in Section 234, but not under Section 133, as it now asserts, since, as shown above, the said
section is qualified by Section 232 and 234.
In short, the petitioner can no longer invoke the general rule in Section 133 that the taxing powers of the local
government units cannot extend to the levy of:
(o) taxes, fees, or charges of any kind on the National Government, its agencies, or
instrumentalities, and local government units.

Page 74 of 403
I must show that the parcels of land in question, which are real property, are any one of those enumerated in
Section 234, either by virtue of ownership, character, or use of the property. Most likely, it could only be the first,
but not under any explicit provision of the said section, for one exists. In light of the petitioner's theory that it is an
"instrumentality of the Government", it could only be within be first item of the first paragraph of the section by
expanding the scope of the terms Republic of the Philippines" to embrace . . . . . . "instrumentalities" and
"agencies" or expediency we quote:
(a) real property owned by the Republic of the Philippines, or any of the Philippines, or
any of its political subdivisions except when the beneficial use thereof has been granted,
for consideration or otherwise, to a taxable person.
This view does not persuade us. In the first place, the petitioner's claim that it is an instrumentality of the
Government is based on Section 133(o), which expressly mentions the word "instrumentalities"; and in the second
place it fails to consider the fact that the legislature used the phrase "National Government, its agencies and
instrumentalities" "in Section 133(o),but only the phrase "Republic of the Philippines or any of its political
subdivision "in Section 234(a).
The terms "Republic of the Philippines" and "National Government" are not interchangeable. The former is
boarder and synonymous with "Government of the Republic of the Philippines" which the Administrative Code of
the 1987 defines as the "corporate governmental entity though which the functions of the government are
exercised through at the Philippines, including, saves as the contrary appears from the context, the various arms
through which political authority is made effective in the Philippines, whether pertaining to the autonomous
reason, the provincial, city, municipal or barangay subdivision or other forms of local government." 27 These
autonomous regions, provincial, city, municipal or barangay subdivisions" are the political subdivision. 28
On the other hand, "National Government" refers "to the entire machinery of the central government, as
distinguished from the different forms of local Governments." 29 The National Government then is composed of the
three great departments the executive, the legislative and the judicial. 30
An "agency" of the Government refers to "any of the various units of the Government, including a department,
bureau, office instrumentality, or government-owned or controlled corporation, or a local government or a distinct
unit therein;" 31 while an "instrumentality" refers to "any agency of the National Government, not integrated within
the department framework, vested with special functions or jurisdiction by law, endowed with some if not all
corporate powers, administering special funds, and enjoying operational autonomy; usually through a charter. This
term includes regulatory agencies, chartered institutions and government-owned and controlled corporations". 32
If Section 234(a) intended to extend the exception therein to the withdrawal of the exemption from payment of real
property taxes under the last sentence of the said section to the agencies and instrumentalities of the National
Government mentioned in Section 133(o), then it should have restated the wording of the latter. Yet, it did not
Moreover, that Congress did not wish to expand the scope of the exemption in Section 234(a) to include real
property owned by other instrumentalities or agencies of the government including government-owned and
controlled corporations is further borne out by the fact that the source of this exemption is Section 40(a) of P.D.
No. 646, otherwise known as the Real Property Tax Code, which reads:
Sec 40. Exemption from Real Property Tax. The exemption shall be as follows:
(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions and any government-owned or controlled
corporations so exempt by is charter: Provided, however, that this
exemption shall not apply to real property of the above mentioned
entities the beneficial use of which has been granted, for consideration or
otherwise, to a taxable person.
Note that as a reproduced in Section 234(a), the phrase "and any government-owned or controlled corporation so
exempt by its charter" was excluded. The justification for this restricted exemption in Section 234(a) seems
obvious: to limit further tax exemption privileges, specially in light of the general provision on withdrawal of
exemption from payment of real property taxes in the last paragraph of property taxes in the last paragraph of
Section 234. These policy considerations are consistent with the State policy to ensure autonomy to local
governments 33 and the objective of the LGC that they enjoy genuine and meaningful local autonomy to enable
them to attain their fullest development as self-reliant communities and make them effective partners in the
attainment of national goals. 34 The power to tax is the most effective instrument to raise needed revenues to
finance and support myriad activities of local government units for the delivery of basic services essential to the
promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people. It may

Page 75 of 403
also be relevant to recall that the original reasons for the withdrawal of tax exemption privileges granted to
government-owned and controlled corporations and all other units of government were that such privilege resulted
in serious tax base erosion and distortions in the tax treatment of similarly situated enterprises, and there was a
need for this entities to share in the requirements of the development, fiscal or otherwise, by paying the taxes and
other charges due from them. 35
The crucial issues then to be addressed are: (a) whether the parcels of land in question belong to the Republic of
the Philippines whose beneficial use has been granted to the petitioner, and (b) whether the petitioner is a
"taxable person".
Section 15 of the petitioner's Charter provides:
Sec. 15. Transfer of Existing Facilities and Intangible Assets. All existing public airport facilities,
runways, lands, buildings and other properties, movable or immovable, belonging to or presently
administered by the airports, and all assets, powers, rights, interests and privileges relating on airport
works, or air operations, including all equipment which are necessary for the operations of air navigation,
acrodrome control towers, crash, fire, and rescue facilities are hereby transferred to the
Authority: Provided however, that the operations control of all equipment necessary for the operation of
radio aids to air navigation, airways communication, the approach control office, and the area control
center shall be retained by the Air Transportation Office. No equipment, however, shall be removed by the
Air Transportation Office from Mactan without the concurrence of the authority. The authority may assist in
the maintenance of the Air Transportation Office equipment.
The "airports" referred to are the "Lahug Air Port" in Cebu City and the "Mactan International AirPort in the Province of
Cebu", 36 which belonged to the Republic of the Philippines, then under the Air Transportation Office (ATO). 37
It may be reasonable to assume that the term "lands" refer to "lands" in Cebu City then administered by the Lahug Air Port and
includes the parcels of land the respondent City of Cebu seeks to levy on for real property taxes. This section involves a
"transfer" of the "lands" among other things, to the petitioner and not just the transfer of the beneficial use thereof, with the
ownership being retained by the Republic of the Philippines.
This "transfer" is actually an absolute conveyance of the ownership thereof because the petitioner's authorized capital stock
consists of, inter alia "the value of such real estate owned and/or administered by the airports." 38 Hence, the petitioner is now
the owner of the land in question and the exception in Section 234(c) of the LGC is inapplicable.
Moreover, the petitioner cannot claim that it was never a "taxable person" under its Charter. It was only exempted from the
payment of real property taxes. The grant of the privilege only in respect of this tax is conclusive proof of the legislative intent
to make it a taxable person subject to all taxes, except real property tax.
Finally, even if the petitioner was originally not a taxable person for purposes of real property tax, in light of the forgoing
disquisitions, it had already become even if it be conceded to be an "agency" or "instrumentality" of the Government, a taxable
person for such purpose in view of the withdrawal in the last paragraph of Section 234 of exemptions from the payment of real
property taxes, which, as earlier adverted to, applies to the petitioner.
Accordingly, the position taken by the petitioner is untenable. Reliance on Basco vs. Philippine Amusement and Gaming
Corporation 39 is unavailing since it was decided before the effectivity of the LGC. Besides, nothing can prevent Congress from
decreeing that even instrumentalities or agencies of the government performing governmental functions may be subject to tax.
Where it is done precisely to fulfill a constitutional mandate and national policy, no one can doubt its wisdom.
WHEREFORE, the instant petition is DENIED. The challenged decision and order of the Regional Trial Court of Cebu, Branch
20, in Civil Case No. CEB-16900 are AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
Narvasa, C.J., Melo, Francisco and Panganiban, JJ., concur.
Footnotes
1 Rollo, 27-29. Per Judge Ferdinand J. Marcos.
2 Id., 30-31.
3 Rollo, 10-13.
4 Supra note 1.
5 Rollo, 28-29.
6 Citing Gonzales vs. Hechanova, 118 Phil. 1065 [1963].
7 Citing Section 3, R.A. No. 6958.
8 Citing Section 2, Id.
9 197 SCRA 52 [1991].

Page 76 of 403
10 Section 5, Article X, 1987 Constitution.
11 Section 14, R.A. No. 6958.
12 Manila International Airport Authority (MIAA) vs. Commission on Audit, 238 SCRA 714 [1994].
13 COOLEY on Constitutional Law, 4th ed. [1931], 62.
14 Section 28(1), Article VI, 1987 Constitution.
15 Chief Justice Marshall in McCulloch vs. Maryland, 4 Wheat, 316, 4 L. ed. 579, 607. Later Justice Holmes brushed this aside by declaring in
Panhandle Oil Co. vs. Mississippi (277 U.S. 218) that "the power to tax is not the power to destroy while this Court sits." Justice Frankfurter in Graves vs.
New York (306 U.S. 466) also remarked that Justice Marshall's statement was a "mere flourish of rhetoric" and a product of the "intellectual fashion of
the times to indulge in a free case of absolutes." (See SINCO, Philippine Political Law [1954], 577-578).
16 AGPALO, RUBEN E., Statutory Construction [1990 ed], 216. See also SANDS, DALLAS C., Statutes and Statutory Construction, vol. 3 [1974] 179.
17 Justice Holmes in his dissent in Compania General vs. Collector of Internal Revenue, 275 U.S. 87, 100[1927].
18 AGPALO, op. cit., 217 SANDS, op. cit., 207.
19 SINCO, op. cit., 587.
20 SANDS, op. cit., 207
21 Maceda vs. Macaraig, Jr. 197 SCRA 771, 799 [1991]; citing 2 COOLEY on the Law on Taxation, 4th ed. [1927], 1414, and SANDS, op. cit., 207.
22 CRUZ, ISAGANI, Constitutional Law [1991], 84.
23 Id., 91-92; SINCO, op. cit., 587.
24 Section 131(l), Local Government Code of 1991.
25 Section 131(g), id.
26 PIMENTEL, AQUILINO JR., The Local Government Code of 1991 The Key to National Development [1933], 329.
27 Section 2(1), Introductory Provisions, Administrative Code of 1987.
28 Section 1, Article X, 1987 Constitution.
29 Section 2(2), Introductory Provisions, Administrative Code of 1987.
30 Bacani vs. National Coconut Corporation, 100 Phil. 468, 472 [1956].
31 Section 2(4), Introductory Provisions, Administrative Code of 1987.
32 Section 2(10), Id., Id.
33 Section 25, Article II, and Section 2, Article X, Constitution.
34 Section 2(a), Local Government Code of 1991.
35 P.D. No. 1931.
36 Section 3, R.A. No. 6958.
37 Section 18, Id.,
38 Section 9(b), Id.
39 Supra note 9.
The Lawphil Project - Arellano Law Foundation

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-30232 July 29, 1988
LUZON STEVEDORING CORPORATION, petitioner-appellant,
vs.
COURT OF TAX APPEALS and the HONORABLE COMMISSIONER OF INTERNAL REVENUE, respondentsappellees.
H. San Luis & V.L. Simbulan for petitioner-appellant.
PARAS, J.:
This is a petition for review of the October 21, 1968 Decision * of the Court of Tax Appeals in CTA Case No. 1484, "Luzon
Stevedoring Corporation v. Hon. Ramon Oben, Commissioner, Bureau of Internal Revenue", denying the various claims
for tax refund; and the February 20, 1969 Resolution of the same court denying the motion for reconsideration.
Herein petitioner-appellant, in 1961 and 1962, for the repair and maintenance of its tugboats, imported various engine
parts and other equipment for which it paid, under protest, the assessed compensating tax. Unable to secure a tax refund
from the Commissioner of Internal Revenue, on January 2, 1964, it filed a Petition for Review (Rollo, pp. 14-18) with the
Court of Tax Appeals, docketed therein as CTA Case No. 1484, praying among others, that it be granted the refund of the
amount of P33,442.13. The Court of Tax Appeals, however, in a Decision dated October 21, 1969 (Ibid., pp. 22-27),
denied the various claims for tax refund. The decretal portion of the said decision reads:
WHEREFORE, finding petitioner's various claims for refund amounting to P33,442.13 without sufficient
legal justification, the said claims have to be, as they are hereby, denied. With costs against petitioner.
On January 24, 1969, petitioner-appellant filed a Motion for Reconsideration (Ibid., pp. 28-34), but the same was denied in
a Resolution dated February 20, 1969 (Ibid., p. 35). Hence, the instant petition.

Page 77 of 403
This Court, in a Resolution dated March 13, 1969, gave due course to the petition (Ibid., p. 40). Petitioner-appellant raised
three (3) assignments of error, to wit:
I
The lower court erred in holding that the petitioner-appellant is engaged in business as stevedore, the
work of unloading and loading of a vessel in port, contrary to the evidence on record.
II
The lower court erred in not holding that the business in which petitioner-appellant is engaged, is part and
parcel of the shipping industry.
III
The lower court erred in not allowing the refund sought by petitioner-appellant.
The instant petition is without merit.
The pivotal issue in this case is whether or not petitioner's tugboats" can be interpreted to be included in the term "cargo
vessels" for purposes of the tax exemption provided for in Section 190 of the National Internal Revenue Code, as
amended by Republic Act No. 3176.
Said law provides:
Sec. 190. Compensating tax. ... And Provided further, That the tax imposed in this section shall not
apply to articles to be used by the importer himself in the manufacture or preparation of articles subject to
specific tax or those for consignment abroad and are to form part thereof or to articles to be used by the
importer himself as passenger and/or cargo vessel, whether coastwise or oceangoing, including engines
and spare parts of said vessel. ....
Petitioner contends that tugboats are embraced and included in the term cargo vessel under the tax exemption provisions
of Section 190 of the Revenue Code, as amended by Republic Act. No. 3176. He argues that in legal contemplation, the
tugboat and a barge loaded with cargoes with the former towing the latter for loading and unloading of a vessel in part,
constitute a single vessel. Accordingly, it concludes that the engines, spare parts and equipment imported by it and used
in the repair and maintenance of its tugboats are exempt from compensating tax (Rollo, p. 23).
On the other hand, respondents-appellees counter that petitioner-appellant's "tugboats" are not "Cargo vessel" because
they are neither designed nor used for carrying and/or transporting persons or goods by themselves but are mainly
employed for towing and pulling purposes. As such, it cannot be claimed that the tugboats in question are used in carrying
and transporting passengers or cargoes as a common carrier by water, either coastwise or oceangoing and, therefore, not
within the purview of Section 190 of the Tax Code, as amended by Republic Act No. 3176 (Brief for RespondentsAppellees, pp. 45).
This Court has laid down the rule that "as the power of taxation is a high prerogative of sovereignty, the relinquishment is
never presumed and any reduction or dimunition thereof with respect to its mode or its rate, must be strictly construed,
and the same must be coached in clear and unmistakable terms in order that it may be applied." (84 C.J.S. pp. 659-800),
More specifically stated, the general rule is that any claim for exemption from the tax statute should be strictly construed
against the taxpayer (Acting Commissioner of Customs v. Manila Electric Co. et al., 69 SCRA 469 [1977] and
Commissioner of Internal Revenue v. P.J. Kiener Co. Ltd., et al., 65 SCRA 142 [1975]).
As correctly analyzed by the Court of Tax Appeals, in order that the importations in question may be declared exempt from
the compensating tax, it is indispensable that the requirements of the amendatory law be complied with, namely: (1) the
engines and spare parts must be used by the importer himself as a passenger and/or cargo, vessel; and (2) the said
passenger and/or cargo vessel must be used in coastwise or oceangoing navigation (Decision, CTA Case No. 1484;
Rollo, p. 24).
As pointed out by the Court of Tax Appeals, the amendatory provisions of Republic Act No. 3176 limit tax exemption from
the compensating tax to imported items to be used by the importer himself as operator of passenger and/or cargo vessel
(Ibid., p. 25).
As quoted in the decision of the Court of Tax Appeals, a tugboat is defined as follows:

Page 78 of 403
A tugboat is a strongly built, powerful steam or power vessel, used for towing and, now, also used for
attendance on vessel. (Webster New International Dictionary, 2nd Ed.)
A tugboat is a diesel or steam power vessel designed primarily for moving large ships to and from piers
for towing barges and lighters in harbors, rivers and canals. (Encyclopedia International Grolier, Vol. 18, p.
256).
A tug is a steam vessel built for towing, synonymous with tugboat. (Bouvier's Law Dictionary.) (Rollo, p.
24).
Under the foregoing definitions, petitioner's tugboats clearly do not fall under the categories of passenger and/or cargo
vessels. Thus, it is a cardinal principle of statutory construction that where a provision of law speaks categorically, the
need for interpretation is obviated, no plausible pretense being entertained to justify non-compliance. All that has to be
done is to apply it in every case that falls within its terms (Allied Brokerage Corp. v. Commissioner of Customs, L-27641,
40 SCRA 555 [1971]; Quijano, etc. v. DBP, L-26419, 35 SCRA 270 [1970]).
And, even if construction and interpretation of the law is insisted upon, following another fundamental rule that statutes
are to be construed in the light of purposes to be achieved and the evils sought to be remedied (People v. Purisima etc., et
al., L-42050-66, 86 SCRA 544 [1978], it will be noted that the legislature in amending Section 190 of the Tax Code by
Republic Act 3176, as appearing in the records, intended to provide incentives and inducements to bolster the shipping
industry and not the business of stevedoring, as manifested in the sponsorship speech of Senator Gil Puyat (Rollo, p. 26).
On analysis of petitioner-appellant's transactions, the Court of Tax Appeals found that no evidence was adduced by
petitioner-appellant that tugboats are passenger and/or cargo vessels used in the shipping industry as an independent
business. On the contrary, petitioner-appellant's own evidence supports the view that it is engaged as a stevedore, that is,
the work of unloading and loading of a vessel in port; and towing of barges containing cargoes is a part of petitioner's
undertaking as a stevedore. In fact, even its trade name is indicative that its sole and principal business is stevedoring
and lighterage, taxed under Section 191 of the National Internal Revenue Code as a contractor, and not an entity which
transports passengers or freight for hire which is taxed under Section 192 of the same Code as a common carrier by
water (Decision, CTA Case No. 1484; Rollo, p. 25).
Under the circumstances, there appears to be no plausible reason to disturb the findings and conclusion of the Court of
Tax Appeals.
As a matter of principle, this Court will not set aside the conclusion reached by an agency such as the Court of Tax
Appeals, which is, by the very nature of its function, dedicated exclusively to the study and consideration of tax problems
and has necessarily developed an expertise on the subject unless there has been an abuse or improvident exercise of
authority (Reyes v. Commissioner of Internal Revenue, 24 SCRA 199 [1981]), which is not present in the instant case.
PREMISES CONSIDERED, the instant petition is DISMISSED and the decision of the Court of Tax Appeals is AFFIRMED.
SO ORDERED.
Melencio-Herrera, Padilla and Sarmiento, JJ., concur.
Footnotes
* Penned by Associate Judge Estanislao R. Alverez, and concurred in by Presiding Judge Roman M. Umali and Associate Judge
Ramon L. Avancena

The Lawphil Project - Arellano Law Foundation

Page 79 of 403

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-18330

July 31, 1963

JOSE DE BORJA, petitioner-appellee,

vs.
VICENTE G. GELLA, ET AL., respondents-appellants.
David Guevara for petitioner-appellee.
Office of the Solicitor General for respondent-appellant Treasurer of the Philippines.
Assistant City Fiscal H. A. Avendano for respondent-appellant Treasurer of Pasay City.
BAUTISTA ANGELO, J.:
Jose de Borja has been delinquent in the payment of his real estate taxes since 1958 for properties located in the City of
Manila and Pasay City and has offered to pay them with two negotiable, certificates of indebtedness Nos. 3064 and 3065
in the amounts of P793.40 and P717.69, respectively. Borja was, however, a mere assignee of the aforesaid negotiable
certificates, the applicants for backpay rights covered by them being respectively Rafael Vizcaya and Pablo Batario Luna.

Page 80 of 403
The offers to pay the estate taxes in question were rejected by the city treasurers of both Manila and Pasay cities on the
ground of their limited negotiability under Section 2, Republic Act No. 304, as amended by Republic Act 800, and in the
case of the city treasurer of Manila on the further ground that he was ordered not to accept them by the city mayor, for
which reason Borja was prompted to bring the question to the Treasurer of the Philippines who opined, among others, that
the negotiable certificates cannot be accepted as payment of real estate taxes inasmuch as the law provides for their
acceptance from their backpay holder only or the original applicant himself, but not his assignee. In his letter of April 29,
1960 to the Treasurer of the Philippines, however, Borja entertained hope that the certificates would be accepted for
payment in view of the fact that they are already long past due and redeemable, but his hope was frustrated. So on June
30, 1960, Borja filed an action against the treasurers of both the City of Manila and Pasay City, as well as the Treasurer of
the Philippines, to impel them to execute an act which the law allegedly requires them to perform, to wit: to accept the
above-mentioned certificates of indebtedness considering that they were already due and redeemable so as not to
deprive him illegally of his privilege to pay his obligation to the government thru such means.
Respondents in due time filed their answer setting up the reasons for their refusal to accept the certificates, and after the
requisite trial was held, the court a quo rendered judgment the dispositive part of which reads:
WHEREFORE, the treasurers of the City of Manila and Pasay City, their agents and other persons acting in their
behalf are hereby enjoined from including petitioner's properties in the payment of real estate, taxes, and to sell
them at public auction and respondent Treasurer of the Philippines, and the treasurers of the City of Manila and
Pasay City are hereby ordered to accept petitioner's Negotiable Certificates of Indebtedness Nos. 3064 and 3065
in the sums of P793.40 and P717.39 in payment of real estate taxes of his properties in the City of Manila and
Pasay City, respectively, without costs.
Respondents took this appeal on purely questions of law.1wph1.t
Reduced to bare essentials, the 12 errors assigned by appellants may be boiled down to the following: (a) has appellee
the right to apply to the payment of his real estate taxes to the government of Manila and Pasay cities the certificates of
indebtedness he holds while appellants have the correlative legal duty to accept the certificates in payment of said taxes?;
(b) can compensation be invoked to extinguish appellee's real estate tax liability between the latter's obligation and the
credit represented by said certificates of indebtedness?
Anent the first issue, the pertinent legal provision to be reckoned with is Section 2 of Republic Act No. 304, as amended
by Republic Act No. 800, which in part reads:
SEC. 2. The Treasurer of the Philippines shall, upon application, and within one year from the approval of this Act,
and under such rules and regulations as may be promulgated by the Secretary of Finance, acknowledge and file
requests for the recognition of the right to the salaries and wages as provided in section one hereof, and notice of
such acknowledgment shall be issued to the applicant which shall state the total amount of such salaries or
wages due to the applicant, and certify that it shall be redeemed by the Government of the Philippines within ten
years from the date of their issuance without interest: Provided, that upon application . . . a certificate of
indebtedness may be issued by the Treasurer of the Philippines covering the whole or part of the total salaries or
wages the right to which has been duly acknowledged and recognized, provided that the face value of such
certificate of indebtedness shall not exceed the amount that the applicant may need for the payment of
(1) obligations subsisting at the time of the approval of this Act for which the applicant may directly be liable to the
Government or to any of its branches or instrumentalities, or the corporations owned or controlled by the
Government, or to any citizen of the Philippines, who may be willing to accept the same for such settlement;
(2) his taxes; . . . and Provided, also, That any person who is not an alien, bank or other financial institution at
least sixty per centum of whose capital is owned by Filipinos may, notwithstanding any provision of its charter,
articles of incorporation, by-laws, or rules and regulations to the contrary, accept or discount at not more than
three and one-half per centum per annum for ten years a negotiable certificate of indebtedness which shall be
issued by the Treasurer of the Philippines upon application by a holder of a back pay acknowledgment. . . . .
To begin with, it cannot be contended that appellants are in duty bound to accept the negotiable certificates of
indebtedness held by appellee in payment of his real estate taxes for the simple reason that they were not obligations
subsisting at the time of the approval of Republic Act No. 304 which took effect on June 18, 1948. It should be noted that
the real estate taxes in question have reference to those due in 1958 and subsequent years. The law is explicit that in
order that a certificate may be used in payment of an obligation the same must be subsisting at the time of its approval
even if we hold that a tax partakes of this character, neither can it be contended that appellee can compel the government
to accept the alleged certificates of indebtedness in payment of his real estate taxes under proviso No. 2 abovequoted
also for the reason that in order that such payment may be allowed the tax must be owed by the applicant himself . This is
the correct implication that may be drawn from the use by the law of the words "his taxes". Verily, the right to use the
backpay certificate in settlement of taxes is given only to the applicant and not to any holder of any negotiable certificate
to whom the law only gives the right to have it discounted by a Filipino citizen or corporation under certain limitations.

Page 81 of 403
Here appellee is not himself the applicant of the certificate, in question. He is merely an assignee thereof, or a subsequent
holder whose right is at most to have it discounted upon maturity or to negotiate it in the meantime. A fortiori, it may be
included that, not having the right to use said certificates to pay his taxes, appellee cannot compel appellants to accept
them as he requests in the present petition for mandamus. As a consequence, we cannot but hold that mandamus does
not lie against appellants because they have in no way neglected to perform an act enjoined upon them by law as a duty,
nor have they unlawfully excluded appellee from the use or enjoyment of a right to which be is entitled. 1
We are aware of the cases2 cited by the court a quo wherein the government banking institutions were ordered to accept
the backpay certificates of petitioners in payment of their indebtedness to them, but they are not here in point because in
the cases mentioned the petitioners were applicants and original holders of the corresponding backpay certificates. Here
appellee is not.
With regard to the second issue, i.e., whether compensation can be invoked insofar as the two obligations are concerned, Articles 1278
and 1279 of the new Civil Code provide:
ART. 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other.
ART. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the
same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they two liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due
time to the debtor.
It is clear from the above legal provisions that compensation cannot be effected with regard to the two obligations in question. In the
first place, the debtor insofar as the certificates of indebtedness are concerned is the Republic of the Philippines, whereas the real
estate taxes owed by appellee are due to the City of Manila and Pasay City, each one of which having a distinct and separate
personality from our Republic. With regard to the certificates, the creditor is the appellee while the debtor is the Republic of the
Philippines. And with regard to the taxes, the creditors are the City of Manila and Pasay City while the debtor is the appellee. It appears,
therefore, that each one of the obligors concerning the two obligations is not at the same time the principal creditor of the other. It
cannot also be said for certain that the certificates are already due. Although on their faces the certificates issued to appellee state that
they are redeemable on June 18, 1958, yet the law does not say that they are redeemable from its approval on June 18, 1948 but
"within ten years from the date of issuance" of the certificates. There is no certainty, therefore, when the certificates are really
redeemable within the meaning of the law. Since the requisites for the accomplishment of legal compensation cannot be fulfilled, the
latter cannot take place with regard to the two obligations as found by the court a quo.
WHEREFORE, the decision appealed from is reversed. The petition for mandamus is dismissed. The injunction issued against
respondents-appellants is hereby lifted. No costs.
Padilla, Labrador, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon, Regala and Makalintal, JJ., concur.
Bengzon, C.J., took no part.
Footnotes
1
2

Section 3, Rule 67, Rules of Court; Mendoza v. E. C. McCullough & Co., 29 Phil. 465; Olsen & Co. v. Herstein, et al., 32 Phil. 520.
Florentino v. PNB, 42 O.G., 2522; Sabalino v. RFC, L-11790, September 30, 1958.

The Lawphil Project - Arellano Law Foundation

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-15778

April 23, 1962

TAN TIONG BIO, ET AL., petitioners,

vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.

Page 82 of 403
Sycip, Salazar and Associates for petitioners.
Office of the Solicitor General for respondent.
BAUTISTA ANGELO, J.:
On October 19, 1946, the Central Syndicate, a corporation organized under the laws of the Philippines, thru its General
Manager, David Sycip, sent a letter to the Collector of Internal Revenue advising the latter that it purchased from Dee
Hong Lue the entire stock of surplus properties which the said Dee Hong Lue had bought from the Foreign Liquidation
Commission and that as it assumed Dee Hong Lue's obligation to pay the 3-1/2% sales tax on said surplus goods, it was
remitting the sum of P43,750.00 in his behalf as deposit to answer for the payment of said sales tax with the
understanding that it would later be adjusted after the determination of the exact consideration of the sale.
On January 31, 1948, the syndicate again wrote the Collector requesting the refund of P1,103.28 representing alleged
excess payment of sales tax due to the adjustment and reduction of the purchase price in the amount of P31,522.18. Said
letter was referred to an agent for verification and report. On September 18, 1951, after a thorough investigation of the
facts and circumstances surrounding the transaction, the agent reported (1) that Dee Hong Lue purchased the surplus
goods as trustee for the Central Syndicate which was in the process of organization at the time of the bidding; (2) that it
was the representatives of the Central Syndicate that removed the surplus goods from their base at Leyte on February 21,
1947; (3) that the syndicate must have realized a gross profit of 18.8% from its sales thereof; and (4) that if the sales tax
were to be assessed on its gross sales it would still be liable for the amount of P33,797.88 as deficiency sales tax and
surcharge in addition to the amount of P43,750.00 which the corporation had deposited in the name of Dee Hong Lue as
estimated sales tax due from the latter.
Based on the above findings of the agent in charge of the investigation, the Collector decided that the Central Syndicate
was the importer and original seller of the surplus goods in question and, therefore, the one liable to pay the sales tax.
Accordingly, on January 4, 1952, the Collector assessed against the syndicate the amount of P33,797.88 and P300.00 as
deficiency sales tax, inclusive of the 25% surcharge and compromise penalty, respectively, and on the same date, in a
separate letter, he denied the request of the syndicate for the refund of the sum of P1,103.28.
On September 8, 1954, the Central Syndicate elevated the case to the Court of Tax Appeals questioning the ruling of the
Collector which denies its claim for refund as well as the assessment made against it of the sum of P33,797.88, plus the
sum of P300.00 as compromise penalty, as stated above. The Collector filed his answer thereto wherein he reiterated his
ruling and prayed that the Central Syndicate be ordered to pay the deficiency sales tax and surcharge as demanded in his
letters dated January 4, 1952 and August 5, 1954. On October 28, 1954, the syndicate filed a motion requesting that the
issue of prescription it has raised against the collection of the tax be first determined as a preliminary question, but action
thereon was deferred by the Court of Tax Appeals until after the trial of the case on the merits.
On November 5, 1954, the Collector filed a motion requiring the syndicate to file a bond to guarantee the payment of the
tax assessed against it which motion was denied by the Court of Tax Appeals on the ground that cannot be legally done it
appearing that the syndicate is already a non-existing entity due to the expiration of its corporate existence. In view of this
development, the Collector filed a motion to dismiss the appeal on the ground of lack of personality on the part of the
syndicate, which met an opposition on the part of the latter, but on January 25, 1955, the Court of Tax Appeals issued a
resolution dismissing the appeal primarily on the ground that the Central Syndicate has no personality to maintain the
action then pending before it. From this order the syndicate appealed to the Supreme Court wherein it intimated that the
appeal should not be dismissed because it could be substituted by its successors-in-interest, to wit: Tan Tiong Bio, Yu Khe
Thai, Alfonso Sycip, Dee Hong Lue, Lim Shui Ty, Sy Seng Tong, Sy En, Co Giap and David Sycip. And taking cue from
this suggestion, this Court ruled against the dismissal and held: "The resolution appealed from is set aside and the
respondent court is ordered to permit the substitution of the officers and directors of the defunct Central Syndicate as
appellants, and to proceed with the hearing of the appeal upon its merits." In permitting the substitution, this Court labored
under the premise that said officers and directors "may be held personally liable for the unpaid deficiency assessments
made by the Collector of Internal Revenue against the defunct syndicate."
After trial, the Court of Tax Appeals rendered decision the dispositive part of which reads as follows:
WHEREFORE, in view of the foregoing considerations, the decision of the Collector of Internal Revenue appealed
from is hereby affirmed, except with regard to the imposition of the compromise penalty of P300.00 the collection
of which is unauthorized and illegal in the absence of a compromise agreement between the parties. (Collector of
Internal Revenue vs. University of Sto. Tomas, G. R. No. L-11274, November 28, 1958; Collector of Internal
Revenue vs. Bautista & Tan, G.R. No. L-12250, May 27, 1959.) .
The petitioners Tan Tiong Bio, Yu Khe Thai, Lim Shui Ty, Alfonso Sycip, Sy En alias Sy Seng Sui, Dee Hong Lue,
and Sy Seng Tong, who appear in the Articles of Incorporation of the Central Syndicate Annex A (pp. 60-66, CTA
rec.) as incorporators and directors of the corporation, the second named being in addition its President and the

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seventh its Treasurer, are hereby ordered to pay jointly and severally, to the Collector of Internal Revenue, the
sum of P33,797.88 as deficiency sales tax and surcharge on the surplus goods purchased by them from the
Foreign Liquidation Commission on July 5, 1946, from which they realized an estimated gross sales of
P1,447,551.65, with costs. ..
Petitioners interposed the present appeal.
The important issues to be determined in this appeal are: (1) whether the importer of the surplus goods in question the
sale of which is subject to the present tax liability is Dee Hong Lue or the Central Syndicate who has been substituted by
the present petitioners; (2) whether the deficiency sales tax which is now sought to be collected has already prescribed;
and (3) the Central Syndicate having already been dissolved because of the expiration of its corporate existence, whether
the sales tax in question can be enforced against its successors-in-interest who are the present petitioners.
1. Petitioners contend that the Central Syndicate cannot be held liable for the deficiency sales tax in question because it is
not the importer of the surplus goods purchased from the Foreign Liquidation Commission for the reason that said surplus
goods were purchased by Dee Hong Lue as shown by the contract executed between him and the Foreign Liquidation
Commission and the fact that the Central Syndicate only purchased the same from Dee Hong Lue and not from the
Foreign Liquidation Commission as shown by Exhibit 13.
This contention cannot be sustained. As correctly observed by the Court of Tax Appeals, the overwhelming evidence
presented by the Collector points to the conclusion that Dee Hong Lue purchased the surplus goods in question not for
himself but for the Central Syndicate which was then in the process of incorporation such that the deed of sale Exhibit 13
which purports to show that Dee Hong Lue sold said goods to the syndicate for a consideration of P1,250,000.00 (the
same amount paid by Dee Hong Lue to the Foreign Liquidation Commission) "is but a ruse to evade payment of a greater
amount of percentage tax." The aforesaid conclusion of the lower court was arrived at after a thorough analysis of the
evidence on record, pertinent portion of which we quote hereunder with approval:
Exhibit "38-A" for the respondent (p. 178, BIR rec.) shows that as early as July 23, 1946, or before the
organization and incorporation of Central Syndicate, Mr. David Sycip, who was subsequently appointed General
Manager of the corporation, together with Messrs. Sy En alias Sy Seng Sui (one of the incorporators of Central
Syndicate), Serge Gordeof and Chin Siu Bun (an employee of the same corporation), for and in the name of
Central Syndicate then in the process of organization, went to Leyte to take over the surplus properties sold by
the FLC to Dee Hong Lue, which the latter held in trust for the corporation. Exhibit 38-A, which is a certificate
issued by no less than David Sycip himself who was subsequently appointed General Manager of the corporation
admits in express terms the following "... the surplus property sold by the Foreign Liquidation Commission to Dee
Hong Lue (and held in trust by the latter for the Syndicate ...." (Emphasis ours.) We give full weight and credence
to the adverse admissions made by David Sycip against the petitioners as appearing in his certificate Exhibit 38-A
(p. 178, BIR rec.) considering that at the time he made them, he was a person jointly interested with the
petitioners in the transaction over which there was yet no controversy over any sales tax liability. (Secs. 11 and
33, Rule 123, Rules of Court; Clem vs. Forbeso, Tex. Cir App. 10 S.W. 2d 223; Street vs. Masterson, Tex. Cir.
App. 277 S.W. 407.) .
Exhibit '39' for the respondent (pp. 184-187, BIR rec.) which is a letter of Mr. Yu Khe Thai President, Director and
biggest stockholder of Central Syndicate (Exhibit A, pp. 60-65, CTA rec.) dated September 17, 1946 and
addressed to the Commanding General AFWESPAC, Manila, contains the following categorical admissions which
corroborate the admissions made by David Sycip; that the so-called Leyte 'Mystery Pile' surplus properties were
owned by Central Syndicate by virtue of a purchase from the FLC, effected in the name of Dee Hong Lue on July
5, 1946, inasmuch as Central Syndicate was then still in the process of organization; that Dee Hong Lue held the
said surplus properties in trust until the mere formal turnover to the corporation on August 20, 1946, when the
corporation had already been organized and incorporated under the laws of the Philippines; and that on July 23,
1946 viz., twenty-two (22) days before the incorporation of Central Syndicate on August 15, 1946 'our General
Manager, Mr. David Sycip accompanied by one of our directors, Mr. Sy En, arrived in Leyte to take over the
properties.'
Before passing on to the rest of the evidence supporting the finding of respondent, we would like to call attention
to this significant detail. It is stated in the letter, Exhibit 39 (pp. 184-187, BIR rec.) of Mr. Yu Khe Thai that 'on July
23, 1946, our General Manager, Mr. David Sycip, accompanied by one of our directors, Mr. Sy En, arrived in Leyte
to take over the properties,' We ask: Why was there such a hurry on the part of the promoters of Central
Syndicate in taking over the surplus properties when the formal agreement, Exhibit 13 (p. 66, BIR rec.), purporting
to be a contract of sale of the 'Mystery Pile' between Dee Hong Lue as vendor, and the Central Syndicate, as
vendee, for the amount of P1,250,000.00, was effected twenty-eight (28) days later viz., on August 20, 1946? Is
this not another clear and unmistakable indication that from the very start, as is the theory of the respondent, the
real purchasers of the 'Mystery Pile' from the FLC and as such the 'importers' of the goods, were the Central

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Syndicate and/or the group of big financiers composing it before said corporation was incorporated on August 15,
1946; and, that Dee Hong Lue acted merely as agent of these persons when he purchased the pile from the FLC?
As a general rule, one does not exercise all the acts of ownership over a property especially if it involves a big
amount until after the documents evidencing such ownership are fully accomplished.
Moreover, it appears that on October 3, 1946, Dee Hong Lue was investigated by Major Primitivo San Agustin, Jr.,
G-2 of the Philippine Army, because of the discovery of some gun parts found in his shipment of surplus material
from Palo, Leyte.
In his sworn statement, Exhibit 16 (pp. 133-139, BIR rec.) before said officer, Dee Hong Lue admitted the
following: That he paid the FLC the amount of P1,250,000.00 "with the checks of Yu Khe Thai, maybe also
Alfonso Sycip and my checks with many others"; that "at the beginning I was trying to buy the pile for myself
without telling other people and other friends of mine." "Watkins came to me and he bid for me for P600,000 or
P700,000, but later on when the price went up to P1,250,000, I talked to my friends who said I could get money."
"So, I bought it with their checks and mine" (Exhibit 16-B, p. 138, BIR rec.) and, that after buying the "Mystery
Pile", he (Dee Hong Lue) never inspected the same personally. (p. 141, BIR rec.)
In his affidavit, Exhibit 15 (p. 144, BIR rec.) Dee Hong Lue admitted that of the amount of P1,250,000.00 which he
paid in two installments sometime in July, 1946, to the FLC, P1,181,250.00 (should be P1,181,000.00) of the
amount came from the following: Yu Khe Thai who advanced to him P250,000.00; Sy Seng Tong P375,000.00;
Alfonso Z. Sycip - P375,000.00; Tan Tiong Bio - P125,000.00; Robert Dee Se Wee P25,000.00; and, Jose S.
Lim P31,000.00 that his understanding with these persons was that should they eventually join him in Central
Syndicate, such advances would be adjusted to constitute their investments; and, that soon after the "Mystery
Pile" was purchased from the FLC, all the above-named persons with the exception of Robert Dee Se Wee and
Jose S. Lim, formed the Central Syndicate and a re-allocation of shares was made corresponding to the amounts
advanced by them.
Added to these, we have before us other documentary evidence for the respondent consisting of Exhibits 18, 19,
20, 21, 23, 24, 25, 26, 27, 28 and 29 (pp. 85, 88, 92-96, 99-103, 117-128, 119-120, 121-128, BIR rec.) all tending
to prove the same thing - that the Central Syndicate and/or the group of big financiers composing it and not Dee
Hong Lue was the real purchaser (importer) of the "Mystery Pile" from the FLC; that in the contract of sale
between Dee Hong Lue and the FLC the former acted principally as agent (Article 1930, New Civil Code) of the
petitioners Yu Khe Thai, Sy Seng Tong, Alfonso Z. Sycip and Tan Tiong Bio who advanced the purchased price of
P1,125,000.00 out of the P1,250,000.00 paid to the FLC, Dee Hong Lue being the purchaser in his own right only
with respect to the amount of P69,000.00; and, that the deed, Exhibit 13 (p. 77, BIR rec.) purporting to show that
Dee Hong Lue sold the "Mystery Pile" to the Central Syndicate for consideration of P1,250.000.00 is but a ruse to
evade payment of a greater amount of percentage tax. 1wph1.t
To our mind, the deed of sale, Exhibit 13 (p. 66, BIR rec.) as well as the circumstances surrounding the
incorporation of the Central Syndicate, are shrouded with as much mystery as the so-called "Mystery Pile" subject
of the transaction. But, as oil is to water, the truth and underlying motives behind these transactions have to
surface in the end. Petitioners would want us to believe that Dee Hong Lue bought in his own right and for himself
the surplus goods in question for P1,250,000.00 from the FLC and then, by virtue of a valid contract of sale,
Exhibit 13 (p. 66, BIR rec.) transferred and conveyed the same to the Central Syndicate at cost. If this be so, what
need was there for Dee Hong Lue to agree in the immediate organization and incorporation of the Central
Syndicate with six other capitalists when he could very well have disposed of the surplus goods to the public in his
individual capacity and keep all the profits to himself without sharing 9/10th of it to the other six incorporators and
stockholders of the newly incorporated Syndicate.
It appears that Dee Hong Lue "sold" the pile to the Central Syndicate for exactly the same price barely forty-six
(46) days after acquiring it from FLC and exactly five (5) days after the Syndicate was registered with the
Securities and Exchange Commission on August 19, 1946. This is indeed most unusual for a businessman like
Dee Hong Lue who, it is to be presumed, was out to make a killing when he acquired the surplus goods from the
FLC for the staggering amount of P1,750,000.00 in cash.
Again, why did Dee Hong Lue waste all his time and effort not to say his good connections with the FLC by
acquiring the goods from that agency only to sell it for the same amount to the Central Syndicate? This would
have been understandable if Dee Hong Lue were the biggest and controlling stockholder of the Syndicate. He
could perhaps reason out to himself, "the profits which I am sacrificing now in this sale to the Syndicate, I will get
it anyway in the form of dividends from it after it shall have disposed of all the "Mystery Pile" to the public.' But
then, how could this be possible when Dee Hong Lue was the smallest subscriber to the capital stock of the
Syndicate? It appears from the Articles of Incorporation that of the authorized capital stock of the corporation in
the amount of P500,000.00, Dee Hong Lue subscribes to only P20,000.00 or 1/25th of the capital stock

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authorized and of this amount only P5,000.00 was paid by him at the time of incorporation. So here is an
experienced businessman like Dee Hong Lue who, following the theory of petitioners' counsel, bought the
"'Mystery Pile" for himself for P1,250,000.00 in cash, and after a few days sold the same at cost to a corporation
wherein he owned only 1/25th of the authorized capital stock and wherein he was not even an officer, thus doling
out to the other six incorporators and stockholders net profits in the sum conservatively estimated by the
respondent to be P206,116.45 out of a total of P229,073.83 which normally could all go to him. We take judicial
notice of the fact that as a result of our immense losses in property throughout the archipelago the during the
Japanese occupation, either through destruction or systematic commandering by the enemy and our forces,
surplus properties commanded a very good price in the open market after the liberation and that quite a number
of surplus dealers made immense fortunes out of it. We believe the respondent was quite charitable if not more
than fair to the Central Syndicate in computing the profits realized by it in the resale of the "Mystery Pile" to the
public at only 18.8% of the acquisition price.
Now, from the side of the Central Syndicate. This corporation, as its articles of incorporation, Exhibit A (pp. 60-66,
CTA rec.) will show, was incorporated on August 15, 1946 with an authorized capital stock of P500,000.00 of
which P200,000.00 worth was subscribed by seven (7) persons and P50,000.00 paid-up in cash at the time of
incorporation. Five (5) days after its incorporation, as the Deed of Sale, Exhibit 13 (p. 66, BIR rec.) purports to
show, the said corporation bought from Dee Hong Lue the "Mystery Pile" for P1,250,000.00 in cash. This is
indeed quite phenomenal and fantastic not to say the utmost degree of finance considering that the corporation
had a subscribed capital stock of only P200,000.00 of which only P50,000.00 was paid-up at the time of
incorporation and with not the least proof showing that it never borrowed money in its own name from outside
source to raise the enormous amount allegedly paid to Dee Hong Lue nor evidence to show that it had by then in
so short a time is five (5) days accumulated a substantial reserve to meet Dee Hong Lue's selling price.
Furthermore, at first blush it would seem quite difficult to understand why the seven (7) incorporators and
stockholders of the Central Syndicate formed a corporation with a subscribed capital stock of only P200,000.00,
and with cash on hand of only P50,000.00 knowing fully well that there was a transaction awaiting the newly
registered corporation involving an outlay of P1,250,000.00 in cash. We believe this was done after mature
deliberation and for some ulterior motive. As we see it, the only logical answer is that the incorporator wanted to
limit whatever civil liability that might arise in favor of third persons, as the present tax liability has now arisen, up
to the amount of their subscriptions, although the surplus deal they transacted and which we believe was the only
purpose in the incorporation of the Central Syndicate, was very much over and above their authorized capital.
Moreover, by limiting its capital, the corporation was also able to save on incidental expenses, such as attorney's
fee and the filing fee paid to the Securities and Exchange Commission, which were based on the amount of the
authorized capital stock.
Another mystery worth unravelling is what happened to the P1,181,240.00 (should be P1,181,000.00) which Dee
Hong Lue in his affidavit, Exhibit 15 (p. 144, BIR rec.) claims to have received from Messrs. Uy Khe Thai, Sy Seng
Tong, Alfonso Z. Sycip, Tan Tiong Bio (all incorporators of the Syndicate) and two others as 'advances' with which
to pay the FLC. There is no evidence on record to show that Dee Hong Lue ever returned this amount to those six
(6) persons after he supposedly received P1,250,000.00 from the newly incorporated Syndicate by virtue of the
Deed of Sale, Exhibit 13. This is the explanation that Dee Hong Lue gave in this regard as appearing in his
affidavit, Exhibit 15: "That soon after the above-mentioned property was purchased, the above parties, with the
exception of Robert Dee Se Wee and Jose S. Lim decided to join the proposed Central Syndicate and a reallocation of shares was made for the reason that some of the above parties in turn had to get advances from
third parties." If this were true, why was it that Messrs. Yu Khe Thai, Sy Seng Tong, Alfonso Z. Sycip and Tan
Tiong Bio who advanced P250,000.00; P375,000.00 and P125,000.00 to Dee Hong Lue were made to appear in
the Articles of incorporation of the Central Syndicate as having subscribed to shares worth only P40,000.00;
P30,000.00; P30,000.00 and P20,000.00 and of having paid only P10,000.00, P7,500.00, P7,500.00, and
P5,000.00 on their subscriptions, respectively? Would it not be more in keeping with corporate practice, following
the explanation of Dee Hong Lue, to just credit those four (4) persons in the corporation with shares worth the
amount advanced by them to Dee Hong Lue?
On the basis of the above figures, the re-allocation of shares in favor of the four (4) incorporators who advanced
enormous sums for the Syndicate seems at first glance to be totally disproportionate and unfair to them. However,
in the final analysis it is not so as we will now show. Immediately after the incorporation of the Syndicate, as the
evidence shows, Dee Hong Lue was made to execute a deed of transfer under the guise of a contract of sale,
conveying full and complete ownership of the "Mystery Pile" to the newly organized corporation. So we have, on
the face of the Articles of Incorporation and Exhibit 13, a corporation with assets worth only P50,000.00 cash
owning properties worth over a million pesos. Obviously, the incorporators of the Syndicate, particularly those four
who advanced enormous sums to Dee Hong Lue, are not ordinary businessmen who could easily be taken for a
ride. With the precipitated execution of the "Deed of Sale" by Dee Hong Lue in favor of the Syndicate, transferring
and conveying ownership over the entire pile to the latter, the recoupment of their advances from the newly

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acquired assets of the corporation was sufficiently secured, and at the same time, by making the document
appear to be a deed of sale instead of a deed of transfer as it should be under Article 1891 of the New Civil Code,
they have reduced (at least attempted to) their sales tax liability with the argument that Dee Hong Lue was the
original "purchaser" or "importer" of the goods and therefore the taxable sale was that one made by him to the
Syndicate and not the sales made by the latter to the public. After going over the Articles of Incorporation of the
Central Syndicate and the other circumstances of this case, we draw the conclusion that it was organized just for
this particular transaction that its life span was expressly limited to two (2) years from and after the date of
incorporation just to give it time to dispose of the "Mystery Pile" to the public and then liquidate all its assets
among the seven incorporators-stockholders as in fact it was done on August 15, 1948; that from the very start,
the seven (7) incorporators had intended it to be a closed corporation without the least intention of ever selling to
other persons the remaining authorized capital stock of P300,000.00 still unsubscribed; and, that upon its
liquidation, the seven (7) incorporators composing it got much more than their investments including those who
advanced P1,181,000.00 to the FLC for the corporation.
Petitioners would dispute the finding that Dee Hong Lue merely acted as a trustee of the Central Syndicate when he
purchased the surplus goods in question from the Foreign Liquidation Commission on July 5, 1946 considering that on
that date the syndicate has not yet been incorporated on the theory that no legal relation may exist between parties one of
whom has yet no legal existence. Technically this may be true, but the fact remains that it cannot be denied that Dee Hong
Lue purchased the goods on behalf of those who advanced the money for the purchase thereof who later became the
incorporators and only stockholders of the syndicate with the understanding that the amounts they had respectively
advanced would be their investment and would represent their interest in the corporation. And this is further evidenced by
the fact that this purchase made by Dee Hong Lue was later approved and adopted as the act of the Central Syndicate
itself as can be gleaned from the certificate executed by David Sycip, general manager of said syndicate, on September
16, 1946, wherein he emphasized that the persons named therein (from whom Dee Hong Lue obtained the money)
merely acted on behalf of the syndicate and in fact were the ones who went to Leyte to take over the aforesaid surplus
goods. In any event, even if Dee Hong Lue may be deemed as the purchaser of the surplus goods in his own right,
nevertheless, the corporation still may be regarded as the importer of the same goods for the reason that Dee Hong Lue
transferred to it all his rights and interests in the contract with the Foreign Liquidation Commission, and it was said
corporation that took delivery thereof from the place where they were stored in Leyte as may be seen from the letter of
Dee Hong Lue to the Foreign Liquidation Commission dated September 2, 1946 and the letter of the Central Syndicate to
the said Commission bearing the same date. Under these facts, it is clear that the Central Syndicate is the importer of the
surplus goods as correctly observed by Judge Umali in his concurring opinion, from which we quote: .
It is now well settled that a person who bought surplus goods from the Foreign Liquidation Commission and who
removed the goods bought from the U.S. military bases in the Philippines is considered an importer of such goods
and is subject to the sales tax or compensating tax, as the case may be. (Go Cheng Tee v. Meer, 47 O.G. 269;
Saura Import and Export v. Meer, G.R. No. L-2927, Jan. 26, 1951; P.M.P. Navigation v. Meer, G.R. No. L-4621,
March 24, 1953; Soriano y Cia v. Coll. of Int. Rev., 51 O.G. 4548.) In this case it appearing that the Central
Syndicate was the owner of the 'Mystery Pile' before its removal from Base K and that it was the one which
actually took delivery thereof and removed the same from the U.S. military base, it is the importer within the
meaning of Section 186 of the Revenue Code, as it stood before the enactment of Republic Act No. 594, and its
sales of the surplus goods are the original sales taxable under said section and not the sale to it by Dee Hong
Lue.
2. Since the Central Syndicate, as we have already pointed out, was the importer of the surplus goods in question, it was
its duty under Section 183 of the Internal Revenue Code to file a return of its gross sales within 20 days after the end of
each quarter in order that the office of the internal revenue may assess the sales tax that may be due thereon, but, as the
record shows, the Central Syndicate failed to file any return of its quarterly sales on the pretext that it was Dee Hong Lue
who imported the surplus goods and it merely purchased them from said importer. This is in fact what the syndicate
intended to impress upon the Collector when it wrote to him its letter of October 19, 1946 informing him that it purchased
from Dee Hong Lue the entire stock of the surplus goods which the latter had bought from the Foreign Liquidation
Commission and was therefore depositing in his name the sum of P43,750.00 to answer for his sales tax liability, but this
letter certainly cannot be considered as a return that may set in operation the application of the prescriptive period
provided for in Section 331 of the Tax Code, for, evidently, said letter if at all could only be considered as such in behalf of
Dee Hong Lue and not in behalf of the Central Syndicate because such is the only nature and import of the letter.
Besides, how can such letter be considered as a return of the sales of the Central Syndicate when it was only on February
21, 1947 when it removed the surplus goods in question from their base at Leyte? How can such return inure to the
benefit of the syndicate when the same surplus goods which were removed on said date could not have been sold by the
corporation earlier than the aforesaid date? It is obvious that the letter of October 19, 1946 cannot possibly be considered
as a return filed by the syndicate and so cannot serve as basis for the computation of the prescriptive period of five years
prescribed by law.

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Nor can the fact that the Collector did not include in the assessment a surcharge of 50% serve as an argument that a
return had already been filed, for such failure can only mean that an oversight had been committed in the non-inclusion of
said surcharge. The syndicate having failed to file its quarterly returns as required by Section 183 of the Tax Code, the
period that has to be reckoned with is that embodied in Section 332 of the same Code which provides that in case of
failure to file the return the tax may be assessed within 10 years after discovery of the falsity, fraud or omission of the
payment of the proper tax. Since it appears that the Collector discovered the failure of the syndicate to file the return only
on September 12, 1951 he has therefore up to September 18, 1961 within which to assess or collect the deficiency tax in
question. Consequently the assessment made on January 4, 1952 was made within the prescribed period.
3. Petitioners argue (1) that the Court of Tax Appeals acted in excess of its jurisdiction in holding them liable as officers or
directors of the defunct Central Syndicate for the tax liability of the latter; (2) that petitioners cannot be held liable for said
tax liability there being no statutory provision in this jurisdiction authorizing the government to proceed against the
stockholders of a defunct corporation as transferees of the corporate assets upon liquidation; (3) that assuming that the
stockholders can be held so liable, they are only liable to the extent of the benefits derived by them from the corporation
and there is no evidence showing that petitioners had been the beneficiaries of the defunct syndicate; (4) that considering
that the Collector instituted the present action on September 23, 1954 when he filed his answer to the appeal of
petitioners, said action was already barred by prescription pursuant to Sections 77 and 78 of the Corporation Law which
allows corporations to continue as a body corporate only for three years from its dissolution; and (5) that assuming that
petitioners are liable to pay the tax, their liability is not solidary, but only limited to the benefits derived by them from the
corporation.
It should be stated at the outset that it was petitioners themselves who caused their substitution as parties in the present
case, being the successors-in-interest of the defunct syndicate, when they appealed this case to the Supreme Court for
which reason the latter Court declared that "the respondent Court of Tax Appeals should have allowed the substitution of
its former officers and directors is parties-appellants, since they are proper parties in interest insofar as they may be (and
in fact are) held personally liable for the unpaid deficiency assessments made by the Collector of Internal Revenue
against the defunct Syndicate." In fact, because of this directive their substitution was effected. They cannot, therefore, be
now heard to complain if they are made responsible for the tax liability of the defunct syndicate whose representation they
assumed and whose assets were distributed among them.
In the second place, there is good authority to the effect that the creditor of a dissolved corporation may follow its assets
once they passed into the hands of the stockholders. Thus, recognized are the following rules in American jurisprudence:
The dissolution of a corporation does not extinguish the debts due or owing to it (Bacon v. Robertson, 18 How. 480, 15 L.
Ed., 406; Curron v. State, 16 How. 304, 14 L. Ed., 705). A creditor of a dissolve corporation may follow its assets, as in the
nature of a trust fund, into the hands of its stockholders (MacWilliams v. Excelsier Coal Co. [1924] 298 Fed. 384). An
indebtedness of a corporation to the federal government for income and excess profit taxes is not extinguished by the
dissolution of the corporation (Quinn v. McLeudon, 152 Ark. 271, 238 S.W., 32). And it has been stated, with reference to
the effect of dissolution upon taxes due from a corporation, "that the hands of the government cannot, of course, collect
taxes from a defunct corporation, it loses thereby none of its rights to assess taxes which had been due from the
corporation, and to collect them from persons, who by reason of transactions with the corporation, hold property against
which the tax can be enforced and that the legal death of the corporation no more prevents such action than would the
physical death of an individual prevent the government from assessing taxes against him and collecting them from his
administrator, who holds the property which the decedent had formerly possessed" (Wonder Bakeries Co. v. U.S. [1934]
Ct. Cl. 6 F. Supp. 288). Bearing in mind that our corporation law is of American origin, the foregoing authorities have
persuasive effect in considering similar cases in this jurisdiction. This must have been taken into account when in G.R.
No. L-8800 this Court said that petitioners could be held personally liable for the taxes in question as successors-ininterest of the defunct corporation.
Considering that the Central Syndicate realized from the sale of the surplus goods a net profit of P229,073.83, and that
the sale of said goods was the only transaction undertaken by said syndicate, there being no evidence to the contrary, the
conclusion is that said net profit remained intact and was distributed among the stockholders when the corporation
liquidated and distributed its assets on August 15, 1948, immediately after the sale of the said surplus goods. Petitioners
are therefore the beneficiaries of the defunct corporation and as such should be held liable to pay the taxes in question.
However, there being no express provision requiring the stockholders of the corporation to be solidarily liable for its debts
which liability must be express and cannot be presumed, petitioners should be held to be liable for the tax in
question only in proportion to their shares in the distribution of the assets of the defunct corporation. The decision of the
trial court should be modified accordingly.
WHEREFORE, with the above modification, we hereby affirm the decision appealed from, with costs against petitioners.
Bengzon, C.J., Padilla, Labrador, Concepcion, Reyes. J.B.L., Paredes and Dizon, JJ., concur.
Barrera, J., took no part.

Page 88 of 403
The Lawphil Project - Arellano Law Foundation

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-7859

December 22, 1955

WALTER LUTZ, as Judicial Administrator of the Intestate Estate of the deceased Antonio Jayme Ledesma, plaintiffappellant,
vs.
J. ANTONIO ARANETA, as the Collector of Internal Revenue, defendant-appellee.
Ernesto J. Gonzaga for appellant.
Office of the Solicitor General Ambrosio Padilla, First Assistant Solicitor General Guillermo E. Torres and Solicitor
Felicisimo R. Rosete for appellee.
REYES, J.B L., J.:
This case was initiated in the Court of First Instance of Negros Occidental to test the legality of the taxes imposed by
Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act.
Promulgated in 1940, the law in question opens (section 1) with a declaration of emergency, due to the threat to our
industry by the imminent imposition of export taxes upon sugar as provided in the Tydings-McDuffe Act, and the "eventual
loss of its preferential position in the United States market"; wherefore, the national policy was expressed "to obtain a
readjustment of the benefits derived from the sugar industry by the component elements thereof" and "to stabilize the
sugar industry so as to prepare it for the eventuality of the loss of its preferential position in the United States market and
the imposition of the export taxes."

Page 89 of 403
In section 2, Commonwealth Act 567 provides for an increase of the existing tax on the manufacture of sugar, on a
graduated basis, on each picul of sugar manufactured; while section 3 levies on owners or persons in control of lands
devoted to the cultivation of sugar cane and ceded to others for a consideration, on lease or otherwise
a tax equivalent to the difference between the money value of the rental or consideration collected and the
amount representing 12 per centum of the assessed value of such land.
According to section 6 of the law
SEC. 6. All collections made under this Act shall accrue to a special fund in the Philippine Treasury, to be known
as the 'Sugar Adjustment and Stabilization Fund,' and shall be paid out only for any or all of the following
purposes or to attain any or all of the following objectives, as may be provided by law.
First, to place the sugar industry in a position to maintain itself, despite the gradual loss of the preferntial position
of the Philippine sugar in the United States market, and ultimately to insure its continued existence
notwithstanding the loss of that market and the consequent necessity of meeting competition in the free markets
of the world;
Second, to readjust the benefits derived from the sugar industry by all of the component elements thereof the
mill, the landowner, the planter of the sugar cane, and the laborers in the factory and in the field so that all
might continue profitably to engage therein;lawphi1.net
Third, to limit the production of sugar to areas more economically suited to the production thereof; and
Fourth, to afford labor employed in the industry a living wage and to improve their living and working conditions:
Provided, That the President of the Philippines may, until the adjourment of the next regular session of the
National Assembly, make the necessary disbursements from the fund herein created (1) for the establishment and
operation of sugar experiment station or stations and the undertaking of researchers (a) to increase the recoveries
of the centrifugal sugar factories with the view of reducing manufacturing costs, (b) to produce and propagate
higher yielding varieties of sugar cane more adaptable to different district conditions in the Philippines, (c) to lower
the costs of raising sugar cane, (d) to improve the buying quality of denatured alcohol from molasses for motor
fuel, (e) to determine the possibility of utilizing the other by-products of the industry, (f) to determine what crop or
crops are suitable for rotation and for the utilization of excess cane lands, and (g) on other problems the solution
of which would help rehabilitate and stabilize the industry, and (2) for the improvement of living and working
conditions in sugar mills and sugar plantations, authorizing him to organize the necessary agency or agencies to
take charge of the expenditure and allocation of said funds to carry out the purpose hereinbefore enumerated,
and, likewise, authorizing the disbursement from the fund herein created of the necessary amount or amounts
needed for salaries, wages, travelling expenses, equipment, and other sundry expenses of said agency or
agencies.
Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio Jayme Ledesma, seeks to
recover from the Collector of Internal Revenue the sum of P14,666.40 paid by the estate as taxes, under section 3 of the
Act, for the crop years 1948-1949 and 1949-1950; alleging that such tax is unconstitutional and void, being levied for the
aid and support of the sugar industry exclusively, which in plaintiff's opinion is not a public purpose for which a tax may be
constitutioally levied. The action having been dismissed by the Court of First Instance, the plaintifs appealed the case
directly to this Court (Judiciary Act, section 17).
The basic defect in the plaintiff's position is his assumption that the tax provided for in Commonwealth Act No. 567 is a
pure exercise of the taxing power. Analysis of the Act, and particularly of section 6 (heretofore quoted in full), will show
that the tax is levied with a regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened
sugar industry. In other words, the act is primarily an exercise of the police power.
This Court can take judicial notice of the fact that sugar production is one of the great industries of our nation, sugar
occupying a leading position among its export products; that it gives employment to thousands of laborers in fields and
factories; that it is a great source of the state's wealth, is one of the important sources of foreign exchange needed by our
government, and is thus pivotal in the plans of a regime committed to a policy of currency stability. Its promotion,
protection and advancement, therefore redounds greatly to the general welfare. Hence it was competent for the legislature
to find that the general welfare demanded that the sugar industry should be stabilized in turn; and in the wide field of its
police power, the lawmaking body could provide that the distribution of benefits therefrom be readjusted among its
components to enable it to resist the added strain of the increase in taxes that it had to sustain (Sligh vs. Kirkwood, 237 U.
S. 52, 59 L. Ed. 835; Johnson vs. State ex rel. Marey, 99 Fla. 1311, 128 So. 853; Maxcy Inc. vs. Mayo, 103 Fla. 552, 139
So. 121).

Page 90 of 403
As stated in Johnson vs. State ex rel. Marey, with reference to the citrus industry in Florida
The protection of a large industry constituting one of the great sources of the state's wealth and therefore directly
or indirectly affecting the welfare of so great a portion of the population of the State is affected to such an extent
by public interests as to be within the police power of the sovereign. (128 Sp. 857).
Once it is conceded, as it must, that the protection and promotion of the sugar industry is a matter of public concern, it
follows that the Legislature may determine within reasonable bounds what is necessary for its protection and expedient for
its promotion. Here, the legislative discretion must be allowed fully play, subject only to the test of reasonableness; and it
is not contended that the means provided in section 6 of the law (above quoted) bear no relation to the objective pursued
or are oppressive in character. If objective and methods are alike constitutionally valid, no reason is seen why the state
may not levy taxes to raise funds for their prosecution and attainment. Taxation may be made the implement of the state's
police power (Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U. S. 412, 81 L. Ed. 1193; U. S. vs. Butler, 297 U. S. 1, 80 L.
Ed. 477; M'Culloch vs. Maryland, 4 Wheat. 316, 4 L. Ed. 579).
That the tax to be levied should burden the sugar producers themselves can hardly be a ground of complaint; indeed, it
appears rational that the tax be obtained precisely from those who are to be benefited from the expenditure of the funds
derived from it. At any rate, it is inherent in the power to tax that a state be free to select the subjects of taxation, and it
has been repeatedly held that "inequalities which result from a singling out of one particular class for taxation, or
exemption infringe no constitutional limitation" (Carmichael vs. Southern Coal & Coke Co., 301 U. S. 495, 81 L. Ed. 1245,
citing numerous authorities, at p. 1251).
From the point of view we have taken it appears of no moment that the funds raised under the Sugar Stabilization Act,
now in question, should be exclusively spent in aid of the sugar industry, since it is that very enterprise that is being
protected. It may be that other industries are also in need of similar protection; that the legislature is not required by the
Constitution to adhere to a policy of "all or none." As ruled in Minnesota ex rel. Pearson vs. Probate Court, 309 U. S. 270,
84 L. Ed. 744, "if the law presumably hits the evil where it is most felt, it is not to be overthrown because there are other
instances to which it might have been applied;" and that "the legislative authority, exerted within its proper field, need not
embrace all the evils within its reach" (N. L. R. B. vs. Jones & Laughlin Steel Corp. 301 U. S. 1, 81 L. Ed. 893).
Even from the standpoint that the Act is a pure tax measure, it cannot be said that the devotion of tax money to
experimental stations to seek increase of efficiency in sugar production, utilization of by-products and solution of allied
problems, as well as to the improvements of living and working conditions in sugar mills or plantations, without any part of
such money being channeled directly to private persons, constitutes expenditure of tax money for private purposes,
(compare Everson vs. Board of Education, 91 L. Ed. 472, 168 ALR 1392, 1400).
The decision appealed from is affirmed, with costs against appellant. So ordered.
Paras, C. J., Bengzon, Padilla, Reyes, A., Jugo, Bautista Angelo, Labrador, and Concepcion, JJ., concur.

The Lawphil Project - Arellano Law Foundation

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-23645

October 29, 1968

BENJAMIN P. GOMEZ, petitioner-appellee,

vs.
ENRICO PALOMAR, in his capacity as Postmaster General, HON. BRIGIDO R. VALENCIA, in his capacity as
Secretary of Public Works and Communications, and DOMINGO GOPEZ, in his capacity as Acting Postmaster of
San Fernando, Pampanga, respondent-appellants.
Lorenzo P. Navarro and Narvaro Belar S. Navarro for petitioner-appellee.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Frine C. Zaballero and Solicitor Dominador L.
Quiroz for respondents-appellants.

Page 91 of 403
CASTRO, J.:
This appeal puts in issue the constitutionality of Republic Act 1635, 1 as amended by Republic Act 2631,2 which provides
as follows:
To help raise funds for the Philippine Tuberculosis Society, the Director of Posts shall order for the period from
August nineteen to September thirty every year the printing and issue of semi-postal stamps of different
denominations with face value showing the regular postage charge plus the additional amount of five centavos for
the said purpose, and during the said period, no mail matter shall be accepted in the mails unless it bears such
semi-postal stamps: Provided, That no such additional charge of five centavos shall be imposed on newspapers.
The additional proceeds realized from the sale of the semi-postal stamps shall constitute a special fund and be
deposited with the National Treasury to be expended by the Philippine Tuberculosis Society in carrying out its
noble work to prevent and eradicate tuberculosis.
The respondent Postmaster General, in implementation of the law, thereafter issued four (4) administrative orders
numbered 3 (June 20, 1958), 7 (August 9, 1958), 9 (August 28, 1958), and 10 (July 15, 1960). All these administrative
orders were issued with the approval of the respondent Secretary of Public Works and Communications.
The pertinent portions of Adm. Order 3 read as follows:
Such semi-postal stamps could not be made available during the period from August 19 to September 30, 1957,
for lack of time. However, two denominations of such stamps, one at "5 + 5" centavos and another at "10 + 5"
centavos, will soon be released for use by the public on their mails to be posted during the same period starting
with the year 1958.
xxx

xxx

xxx

During the period from August 19 to September 30 each year starting in 1958, no mail matter of whatever class,
and whether domestic or foreign, posted at any Philippine Post Office and addressed for delivery in this country or
abroad, shall be accepted for mailing unless it bears at least one such semi-postal stamp showing the additional
value of five centavos intended for the Philippine Tuberculosis Society.
In the case of second-class mails and mails prepaid by means of mail permits or impressions of postage meters,
each piece of such mail shall bear at least one such semi-postal stamp if posted during the period above stated
starting with the year 1958, in addition to being charged the usual postage prescribed by existing regulations. In
the case of business reply envelopes and cards mailed during said period, such stamp should be collected from
the addressees at the time of delivery. Mails entitled to franking privilege like those from the office of the
President, members of Congress, and other offices to which such privilege has been granted, shall each also bear
one such semi-postal stamp if posted during the said period.
Mails posted during the said period starting in 1958, which are found in street or post-office mail boxes without the
required semi-postal stamp, shall be returned to the sender, if known, with a notation calling for the affixing of
such stamp. If the sender is unknown, the mail matter shall be treated as nonmailable and forwarded to the Dead
Letter Office for proper disposition.
Adm. Order 7, amending the fifth paragraph of Adm. Order 3, reads as follows:
In the case of the following categories of mail matter and mails entitled to franking privilege which are not
exempted from the payment of the five centavos intended for the Philippine Tuberculosis Society, such extra
charge may be collected in cash, for which official receipt (General Form No. 13, A) shall be issued, instead of
affixing the semi-postal stamp in the manner hereinafter indicated:
1. Second-class mail. Aside from the postage at the second-class rate, the extra charge of five centavos for the
Philippine Tuberculosis Society shall be collected on each separately-addressed piece of second-class mail
matter, and the total sum thus collected shall be entered in the same official receipt to be issued for the postage at
the second-class rate. In making such entry, the total number of pieces of second-class mail posted shall be
stated, thus: "Total charge for TB Fund on 100 pieces . .. P5.00." The extra charge shall be entered separate from
the postage in both of the official receipt and the Record of Collections.
2. First-class and third-class mail permits. Mails to be posted without postage affixed under permits issued by
this Bureau shall each be charged the usual postage, in addition to the five-centavo extra charge intended for said
society. The total extra charge thus received shall be entered in the same official receipt to be issued for the
postage collected, as in subparagraph 1.
3. Metered mail. For each piece of mail matter impressed by postage meter under metered mail permit issued
by this Bureau, the extra charge of five centavos for said society shall be collected in cash and an official receipt
issued for the total sum thus received, in the manner indicated in subparagraph 1.

Page 92 of 403
4. Business reply cards and envelopes. Upon delivery of business reply cards and envelopes to holders of
business reply permits, the five-centavo charge intended for said society shall be collected in cash on each reply
card or envelope delivered, in addition to the required postage which may also be paid in cash. An official receipt
shall be issued for the total postage and total extra charge received, in the manner shown in subparagraph 1.
5. Mails entitled to franking privilege. Government agencies, officials, and other persons entitled to the franking
privilege under existing laws may pay in cash such extra charge intended for said society, instead of affixing the
semi-postal stamps to their mails, provided that such mails are presented at the post-office window, where the
five-centavo extra charge for said society shall be collected on each piece of such mail matter. In such case, an
official receipt shall be issued for the total sum thus collected, in the manner stated in subparagraph 1.
Mail under permits, metered mails and franked mails not presented at the post-office window shall be affixed with
the necessary semi-postal stamps. If found in mail boxes without such stamps, they shall be treated in the same
way as herein provided for other mails.
Adm. Order 9, amending Adm. Order 3, as amended, exempts "Government and its Agencies and Instrumentalities
Performing Governmental Functions." Adm. Order 10, amending Adm. Order 3, as amended, exempts "copies of
periodical publications received for mailing under any class of mail matter, including newspapers and magazines admitted
as second-class mail."
The FACTS. On September l5, 1963 the petitioner Benjamin P. Gomez mailed a letter at the post office in San Fernando,
Pampanga. Because this letter, addressed to a certain Agustin Aquino of 1014 Dagohoy Street, Singalong, Manila did not
bear the special anti-TB stamp required by the statute, it was returned to the petitioner.
In view of this development, the petitioner brough suit for declaratory relief in the Court of First Instance of Pampanga, to
test the constitutionality of the statute, as well as the implementing administrative orders issued, contending that it violates
the equal protection clause of the Constitution as well as the rule of uniformity and equality of taxation. The lower court
declared the statute and the orders unconstitutional; hence this appeal by the respondent postal authorities.
For the reasons set out in this opinion, the judgment appealed from must be reversed.
I.
Before reaching the merits, we deem it necessary to dispose of the respondents' contention that declaratory relief is
unavailing because this suit was filed after the petitioner had committed a breach of the statute. While conceding that the
mailing by the petitioner of a letter without the additional anti-TB stamp was a violation of Republic Act 1635, as amended,
the trial court nevertheless refused to dismiss the action on the ground that under section 6 of Rule 64 of the Rules of
Court, "If before the final termination of the case a breach or violation of ... a statute ... should take place, the action may
thereupon be converted into an ordinary action."
The prime specification of an action for declaratory relief is that it must be brought "before breach or violation" of the
statute has been committed. Rule 64, section 1 so provides. Section 6 of the same rule, which allows the court to treat an
action for declaratory relief as an ordinary action, applies only if the breach or violation occurs after the filing of the action
but before the termination thereof.3
Hence, if, as the trial court itself admitted, there had been a breach of the statute before the firing of this action, then
indeed the remedy of declaratory relief cannot be availed of, much less can the suit be converted into an ordinary action.
Nor is there merit in the petitioner's argument that the mailing of the letter in question did not constitute a breach of the
statute because the statute appears to be addressed only to postal authorities. The statute, it is true, in terms provides
that "no mail matter shall be accepted in the mails unless it bears such semi-postal stamps." It does not follow, however,
that only postal authorities can be guilty of violating it by accepting mails without the payment of the anti-TB stamp. It is
obvious that they can be guilty of violating the statute only if there are people who use the mails without paying for the
additional anti-TB stamp. Just as in bribery the mere offer constitutes a breach of the law, so in the matter of the anti-TB
stamp the mere attempt to use the mails without the stamp constitutes a violation of the statute. It is not required that the
mail be accepted by postal authorities. That requirement is relevant only for the purpose of fixing the liability of postal
officials.
Nevertheless, we are of the view that the petitioner's choice of remedy is correct because this suit was filed not only with
respect to the letter which he mailed on September 15, 1963, but also with regard to any other mail that he might send in
the future. Thus, in his complaint, the petitioner prayed that due course be given to "other mails without the semi-postal
stamps which he may deliver for mailing ... if any, during the period covered by Republic Act 1635, as amended, as well as
other mails hereafter to be sent by or to other mailers which bear the required postage, without collection of additional
charge of five centavos prescribed by the same Republic Act." As one whose mail was returned, the petitioner is certainly
interested in a ruling on the validity of the statute requiring the use of additional stamps.
II.
We now consider the constitutional objections raised against the statute and the implementing orders.

Page 93 of 403
1. It is said that the statute is violative of the equal protection clause of the Constitution. More specifically the claim is
made that it constitutes mail users into a class for the purpose of the tax while leaving untaxed the rest of the population
and that even among postal patrons the statute discriminatorily grants exemption to newspapers while Administrative
Order 9 of the respondent Postmaster General grants a similar exemption to offices performing governmental functions. .
The five centavo charge levied by Republic Act 1635, as amended, is in the nature of an excise tax, laid upon the exercise
of a privilege, namely, the privilege of using the mails. As such the objections levelled against it must be viewed in the light
of applicable principles of taxation.
To begin with, it is settled that the legislature has the inherent power to select the subjects of taxation and to grant
exemptions.4 This power has aptly been described as "of wide range and flexibility." 5 Indeed, it is said that in the field of
taxation, more than in other areas, the legislature possesses the greatest freedom in classification. 6 The reason for this is
that traditionally, classification has been a device for fitting tax programs to local needs and usages in order to achieve an
equitable distribution of the tax burden.7
That legislative classifications must be reasonable is of course undenied. But what the petitioner asserts is that statutory
classification of mail users must bear some reasonable relationship to the end sought to be attained, and that absent such
relationship the selection of mail users is constitutionally impermissible. This is altogether a different proposition. As
explained in Commonwealth v. Life Assurance Co.:8
While the principle that there must be a reasonable relationship between classification made by the legislation and
its purpose is undoubtedly true in some contexts, it has no application to a measure whose sole purpose is to
raise revenue ... So long as the classification imposed is based upon some standard capable of reasonable
comprehension, be that standard based upon ability to produce revenue or some other legitimate distinction,
equal protection of the law has been afforded. See Allied Stores of Ohio, Inc. v. Bowers, supra, 358 U.S. at 527,
79 S. Ct. at 441; Brown Forman Co. v. Commonwealth of Kentucky, 2d U.S. 56, 573, 80 S. Ct. 578, 580 (1910).
We are not wont to invalidate legislation on equal protection grounds except by the clearest demonstration that it
sanctions invidious discrimination, which is all that the Constitution forbids. The remedy for unwise legislation must be
sought in the legislature. Now, the classification of mail users is not without any reason. It is based on ability to pay, let
alone the enjoyment of a privilege, and on administrative convinience. In the allocation of the tax burden, Congress must
have concluded that the contribution to the anti-TB fund can be assured by those whose who can afford the use of the
mails.
The classification is likewise based on considerations of administrative convenience. For it is now a settled principle of law
that "consideration of practical administrative convenience and cost in the administration of tax laws afford adequate
ground for imposing a tax on a well recognized and defined class." 9 In the case of the anti-TB stamps, undoubtedly, the
single most important and influential consideration that led the legislature to select mail users as subjects of the tax is the
relative ease and convenienceof collecting the tax through the post offices. The small amount of five centavos does not
justify the great expense and inconvenience of collecting through the regular means of collection. On the other hand, by
placing the duty of collection on postal authorities the tax was made almost self-enforcing, with as little cost and as little
inconvenience as possible.
And then of course it is not accurate to say that the statute constituted mail users into a class. Mail users were already a
class by themselves even before the enactment of the statue and all that the legislature did was merely to select their
class. Legislation is essentially empiric and Republic Act 1635, as amended, no more than reflects a distinction that exists
in fact. As Mr. Justice Frankfurter said, "to recognize differences that exist in fact is living law; to disregard [them] and
concentrate on some abstract identities is lifeless logic." 10
Granted the power to select the subject of taxation, the State's power to grant exemption must likewise be conceded as a
necessary corollary. Tax exemptions are too common in the law; they have never been thought of as raising issues under
the equal protection clause.
It is thus erroneous for the trial court to hold that because certain mail users are exempted from the levy the law and
administrative officials have sanctioned an invidious discrimination offensive to the Constitution. The application of the
lower courts theory would require all mail users to be taxed, a conclusion that is hardly tenable in the light of differences in
status of mail users. The Constitution does not require this kind of equality.
As the United States Supreme Court has said, the legislature may withhold the burden of the tax in order to foster what it
conceives to be a beneficent enterprise.11 This is the case of newspapers which, under the amendment introduced by
Republic Act 2631, are exempt from the payment of the additional stamp.
As for the Government and its instrumentalities, their exemption rests on the State's sovereign immunity from taxation.
The State cannot be taxed without its consent and such consent, being in derogation of its sovereignty, is to be strictly
construed.12 Administrative Order 9 of the respondent Postmaster General, which lists the various offices and
instrumentalities of the Government exempt from the payment of the anti-TB stamp, is but a restatement of this wellknown principle of constitutional law.
The trial court likewise held the law invalid on the ground that it singles out tuberculosis to the exclusion of other diseases
which, it is said, are equally a menace to public health. But it is never a requirement of equal protection that all evils of the

Page 94 of 403
same genus be eradicated or none at all.13 As this Court has had occasion to say, "if the law presumably hits the evil
where it is most felt, it is not to be overthrown because there are other instances to which it might have been applied." 14
2. The petitioner further argues that the tax in question is invalid, first, because it is not levied for a public purpose as no
special benefits accrue to mail users as taxpayers, and second, because it violates the rule of uniformity in taxation.
The eradication of a dreaded disease is a public purpose, but if by public purpose the petitioner means benefit to a
taxpayer as a return for what he pays, then it is sufficient answer to say that the only benefit to which the taxpayer is
constitutionally entitled is that derived from his enjoyment of the privileges of living in an organized society, established
and safeguarded by the devotion of taxes to public purposes. Any other view would preclude the levying of taxes except
as they are used to compensate for the burden on those who pay them and would involve the abandonment of the most
fundamental principle of government that it exists primarily to provide for the common good. 15
Nor is the rule of uniformity and equality of taxation infringed by the imposition of a flat rate rather than a graduated tax. A
tax need not be measured by the weight of the mail or the extent of the service rendered. We have said that
considerations of administrative convenience and cost afford an adequate ground for classification. The same
considerations may induce the legislature to impose a flat tax which in effect is a charge for the transaction, operating
equally on all persons within the class regardless of the amount involved. 16 As Mr. Justice Holmes said in sustaining the
validity of a stamp act which imposed a flat rate of two cents on every $100 face value of stock transferred:
One of the stocks was worth $30.75 a share of the face value of $100, the other $172. The inequality of the tax,
so far as actual values are concerned, is manifest. But, here again equality in this sense has to yield to practical
considerations and usage. There must be a fixed and indisputable mode of ascertaining a stamp tax. In another
sense, moreover, there is equality. When the taxes on two sales are equal, the same number of shares is sold in
each case; that is to say, the same privilege is used to the same extent. Valuation is not the only thing to be
considered. As was pointed out by the court of appeals, the familiar stamp tax of 2 cents on checks, irrespective
of income or earning capacity, and many others, illustrate the necessity and practice of sometimes substituting
count for weight ...17
According to the trial court, the money raised from the sales of the anti-TB stamps is spent for the benefit of the Philippine
Tuberculosis Society, a private organization, without appropriation by law. But as the Solicitor General points out, the
Society is not really the beneficiary but only the agency through which the State acts in carrying out what is essentially a
public function. The money is treated as a special fund and as such need not be appropriated by law. 18
3. Finally, the claim is made that the statute is so broadly drawn that to execute it the respondents had to issue
administrative orders far beyond their powers. Indeed, this is one of the grounds on which the lower court invalidated
Republic Act 1631, as amended, namely, that it constitutes an undue delegation of legislative power.
Administrative Order 3, as amended by Administrative Orders 7 and 10, provides that for certain classes of mail matters
(such as mail permits, metered mails, business reply cards, etc.), the five-centavo charge may be paid in cash instead of
the purchase of the anti-TB stamp. It further states that mails deposited during the period August 19 to September 30 of
each year in mail boxes without the stamp should be returned to the sender, if known, otherwise they should be treated as
nonmailable.
It is true that the law does not expressly authorize the collection of five centavos except through the sale of anti-TB
stamps, but such authority may be implied in so far as it may be necessary to prevent a failure of the undertaking. The
authority given to the Postmaster General to raise funds through the mails must be liberally construed, consistent with the
principle that where the end is required the appropriate means are given. 19
The anti-TB stamp is a distinctive stamp which shows on its face not only the amount of the additional charge but also that
of the regular postage. In the case of business reply cards, for instance, it is obvious that to require mailers to affix the
anti-TB stamp on their cards would be to make them pay much more because the cards likewise bear the amount of the
regular postage.
It is likewise true that the statute does not provide for the disposition of mails which do not bear the anti-TB stamp, but a
declaration therein that "no mail matter shall be accepted in the mails unless it bears such semi-postal stamp" is a
declaration that such mail matter is nonmailable within the meaning of section 1952 of the Administrative Code.
Administrative Order 7 of the Postmaster General is but a restatement of the law for the guidance of postal officials and
employees. As for Administrative Order 9, we have already said that in listing the offices and entities of the Government
exempt from the payment of the stamp, the respondent Postmaster General merely observed an established principle,
namely, that the Government is exempt from taxation.
ACCORDINGLY, the judgment a quo is reversed, and the complaint is dismissed, without pronouncement as to costs.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Angeles and Capistrano, JJ., concur.
Zaldivar, J., is on leave.
Separate Opinions
FERNANDO, J., concurring:

Page 95 of 403
I join fully the rest of my colleagues in the decision upholding Republic Act No. 1635 as amended by Republic Act No. 2631 and the majority opinion
expounded with Justice Castro's usual vigor and lucidity subject to one qualification. With all due recognition of its inherently persuasive character, it
would seem to me that the same result could be achieved if reliance be had on police power rather than the attribute of taxation, as the constitutional
basis for the challenged legislation.
1. For me, the state in question is an exercise of the regulatory power connected with the performance of the public service. I refer of course to the
government postal function, one of respectable and ancient lineage. The United States Constitution of 1787 vests in the federal government acting
through Congress the power to establish post offices.1 The first act providing for the organization of government departments in the Philippines,
approved Sept. 6, 1901, provided for the Bureau of Post Offices in the Department of Commerce and Police.2 Its creation is thus a manifestation of one
of the many services in which the government may engage for public convenience and public interest. Such being the case, it seems that any legislation
that in effect would require increase cost of postage is well within the discretionary authority of the government.
It may not be acting in a proprietary capacity but in fixing the fees that it collects for the use of the mails, the broad discretion that it enjoys is undeniable.
In that sense, the principle announced in Esteban v. Cabanatuan City,3 in an opinion by our Chief Justice, while not precisely controlling furnishes for me
more than ample support for the validity of the challenged legislation. Thus: "Certain exactions, imposable under an authority other than police power,
are not subject, however, to qualification as to the amount chargeable, unless the Constitution or the pertinent laws provide otherwise. For instance, the
rates of taxes, whether national or municipal, need not be reasonable, in the absence of such constitutional or statutory limitation. Similarly, when a
municipal corporation fixes the fees for the use of its properties, such as public markets, it does not wield the police power, or even the power of taxation.
Neither does it assert governmental authority. It exercises merely a proprietary function. And, like any private owner, it is in the absence of the
aforementioned limitation, which does not exist in the Charter of Cabanatuan City (Republic Act No. 526) free to charge such sums as it may deem
best, regardless of the reasonableness of the amount fixed, for the prospective lessees are free to enter into the corresponding contract of lease, if they
are agreeable to the terms thereof or, otherwise, not enter into such contract."
2. It would appear likewise that an expression of one's personal view both as to the attitude and awareness that must be displayed by inferior tribunals
when the "delicate and awesome" power of passing on the validity of a statute would not be inappropriate. "The Constitution is the supreme law, and
statutes are written and enforced in submission to its commands."4 It is likewise common place in constitutional law that a party adversely affected could,
again to quote from Cardozo, "invoke, when constitutional immunities are threatened, the judgment of the courts." 5
Since the power of judicial review flows logically from the judicial function of ascertaining the facts and applying the law and since obviously the
Constitution is the highest law before which statutes must bend, then inferior tribunals can, in the discharge of their judicial functions, nullify legislative
acts. As a matter of fact, in clear cases, such is not only their power but their duty. In the language of the present Chief Justice: "In fact, whenever the
conflicting claims of the parties to a litigation cannot properly be settled without inquiring into the validity of an act of Congress or of either House thereof,
the courts have, not only jurisdiction to pass upon said issue but, also, theduty to do so, which cannot be evaded without violating the fundamental law
and paving the way to its eventual destruction."6
Nonetheless, the admonition of Cooley, specially addressed to inferior tribunals, must ever be kept in mind. Thus: "It must be evident to any one that the
power to declare a legislative enactment void is one which the judge, conscious of the fallibility of the human judgment, will shrink from exercising in any
case where he can conscientiously and with due regard to duty and official oath decline the responsibility." 7
There must be a caveat however to the above Cooley pronouncement. Such should not be the case, to paraphrase Freund, when the challenged
legislation imperils freedom of the mind and of the person, for given such an undesirable situation, "it is freedom that commands a momentum of
respect." Here then, fidelity to the great ideal of liberty enshrined in the Constitution may require the judiciary to take an uncompromising and militant
stand. As phrased by us in a recent decision, "if the liberty involved were freedom of the mind or the person, the standard of its validity of governmental
acts is much more rigorous and exacting."8
So much for the appropriate judicial attitude. Now on the question of awareness of the controlling constitutional doctrines.
There is nothing I can add to the enlightening discussion of the equal protection aspect as found in the majority opinion. It may not be amiss to recall to
mind, however, the language of Justice Laurel in the leading case ofPeople v. Vera,9 to the effect that the basic individual right of equal protection "is a
restraint on all the three grand departments of our government and on the subordinate instrumentalities and subdivisions thereof, and on many
constitutional powers, like the police power, taxation and eminent domain."10 Nonetheless, no jurist was more careful in avoiding the dire consequences
to what the legislative body might have deemed necessary to promote the ends of public welfare if the equal protection guaranty were made to
constitute an insurmountable obstacle.
A similar sense of realism was invariably displayed by Justice Frankfurter, as is quite evident from the various citations from his pen found in the majority
opinion. For him, it would be a misreading of the equal protection clause to ignore actual conditions and settled practices. Not for him the at times
academic and sterile approach to constitutional problems of this sort. Thus: "It would be a narrow conception of jurisprudence to confine the notion of
'laws' to what is found written on the statute books, and to disregard the gloss which life has written upon it. Settled state practice cannot supplant
constitutional guaranties, but it can establish what is state law. The Equal Protection Clause did not write an empty formalism into the Constitution.
Deeply embedded traditional ways of carrying out state policy, such as those of which petitioner complains, are often tougher and truer law than the
dead words of the written text."11 This too, from the same distinguished jurist: "The Constitution does not require things which are different in fact or
opinion to be treated in law as though they were the same."12
Now, as to non-delegation. It is to be admitted that the problem of non-delegation of legislative power at times occasions difficulties. Its strict view has
been announced by Justice Laurel in the aforecited case of People v. Verain this language. Thus: "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 provisions when it left the hands of the
legislature so that nothing was left to the judgment of any other appointee or delegate of the legislature. .... InUnited States v. Ang Tang Ho ..., this court
adhered to the foregoing rule; it held an act of the legislature void in so far as it undertook to authorize the Governor-General, in his discretion, to issue a
proclamation fixing the price of rice and to make the sale of it in violation of the proclamation a crime." 13
Only recently, the present Chief Justice reaffirmed the above view in Pelaez v. Auditor General,14 specially where the delegation deals not with an
administrative function but one essentially and eminently legislative in character. What could properly be stigmatized though to quote Justice Cardozo, is
delegation of authority that is "unconfined and vagrant, one not canalized within banks which keep it from overflowing." 15
This is not the situation as it presents itself to us. What was delegated was power not legislative in character. Justice Laurel himself, in a later
case, People v. Rosenthal,16 admitted that within certain limits, there being a need for coping with the more intricate problems of society, the principle of
"subordinate legislation" has been accepted, not only in the United States and England, but in practically all modern governments. This view was
reiterated by him in a 1940 decision, Pangasinan Transportation Co., Inc. v. Public Service Commission.17 Thus: "Accordingly, with the growing
complexity of modern life, the multiplication of the subjects of governmental regulation, and the increased difficulty of administering the laws, there is a
constantly growing tendency toward the delegation of greater powers by the legislature, and toward the approval of the practice by the courts."
In the light of the above views of eminent jurists, authoritative in character, of both the equal protection clause and the non-delegation principle, it is
apparent how far the lower court departed from the path of constitutional orthodoxy in nullifying Republic Act No. 1635 as amended. Fortunately, the

Page 96 of 403
matter has been set right with the reversal of its decision, the opinion of the Court, manifesting its fealty to constitutional law precepts, which have been
reiterated time and time again and for the soundest of reasons.
Footnotes
CASTRO, J.:
1

Approved on June 30, 1957.

Approved on June 18, 1960.
3
See 3 M. Moran, Comments on the Rules of Court, 138 (6th ed., 1963).
4
Carmichael v. Southern Coal & Coke Co., 301 U.S. 496 (1937) ; Lutz v. Araneta, 98 Phil. 148 (1955).
5
Louisville Gas & E. Co. v. Coleman, 277 U.S. 32 (1928).
6
Madden v. Kentucky, 309 U.S. 83 (1940); Citizens' Telephone Co. v. Fuller, 229 U.S. 322 (1913).
7
Madden v. Kentucky, supra, note 6.
8
419 Pa. 370, 214 A. 2d 209, 214-15 (1965), appeal dismissed, Life Assur. Co. v. Pennsylvania, 348 U.S. (1966).
9
Fernandez v. Wiener, 327 U.S. 340, 360 (1945); accord, Carmichael v. Southern Coal & Coke Co., supra, note 4; Weber v. City of New York, 195 N.Y.S.
2d 269 (1959).
10
Morey v. Doud, 354 U.S. 457, 472 (1957) (dissent).
11
Carmichael v. Southern Coal & Coke Co., supra, note 4, at 512.
12
Cf. Town of Indian Lake v. State Brd. of E. & A., 45 Misc. 2d 463, 257 N.Y.S. 2d 301 (1905).
13
Railway Express Agency v. New York, 336 U.S. 106 (1949).
14
Lutz v. Araneta, 98 Phil. 148, 153 (1955) ; accord, McLauhlin v. Florida, 379 U.S. 184 (1964).
15
Carmichael v. Southern Coal & Coke Co., supra, note 4 at 522-523.
16
See Weber v. City of New York, supra, note 9; North Am. Co. v. Green, 120 So. 2d 603 (1960).
17
New York ex rel. Hatch v. Reardon, 204 U.S. 152, 159-160 (1907).
18
Const. art. VI, sec. 23 (l).
19
See Lo Cham Ocampo, 77 Phil. 635 (1946); Rev. Adm. Code, sec. 551.
2

FERNANDO, J., concurring:

1

Section 8, par. 7, Article 1.

Section 2, Act No. 222.
L-13662, May 30, 1960.
4
Cardozo, J., Municipal Gas Co. v. Public Service Commission, 121 NE 772, 774 (1919).
5
Ibid, p. 774.
6
Taada v. Cuenco, 103 Phil. 1051, 1061-1062 (1957).
7
Cooley on Constitutional Limitations, Vol. 1, 8th ed., 332 (1927).
8
Ermita-Malate Hotel Assn. v. Mayor of Manila, L-24693, July 31, 1967.
9
65 Phil. 56 (1937).
10
Ibid, 125.
11
Nashville, C. & St. L. Railmay v. Browning, 84 L ed. 1254, 1258 (1940).
12
Tigner v. Texas, 84 L. ed. 1124, 1128 (1940).
13
65 Phil. 56, 115 (1937).
14
L-23825, December 24, 1965.
15
Cardozo, J., concurring, Schenchter Poultry Corp. v. U.S., 295 U.S. 495 (1935).
16
Citation omitted.
17
Citation omitted.
2
3

The Lawphil Project - Arellano Law Foundation

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 166006

March 14, 2008

PLANTERS PRODUCTS, INC., Petitioner,

vs.
FERTIPHIL CORPORATION, Respondent.
DECISION

Page 97 of 403
REYES, R.T., J.:
THE Regional Trial Courts (RTC) have the authority and jurisdiction to consider the constitutionality of statutes, executive
orders, presidential decrees and other issuances. The Constitution vests that power not only in the Supreme Court but in
all Regional Trial Courts.
The principle is relevant in this petition for review on certiorari of the Decision 1 of the Court of Appeals (CA) affirming with
modification that of the RTC in Makati City,2 finding petitioner Planters Products, Inc. (PPI) liable to private respondent
Fertiphil Corporation (Fertiphil) for the levies it paid under Letter of Instruction (LOI) No. 1465.
The Facts
Petitioner PPI and private respondent Fertiphil are private corporations incorporated under Philippine laws. 3 They are both
engaged in the importation and distribution of fertilizers, pesticides and agricultural chemicals.
On June 3, 1985, then President Ferdinand Marcos, exercising his legislative powers, issued LOI No. 1465 which
provided, among others, for the imposition of a capital recovery component (CRC) on the domestic sale of all grades of
fertilizers in the Philippines.4 The LOI provides:
3. The Administrator of the Fertilizer Pesticide Authority to include in its fertilizer pricing formula a capital contribution
component of not less than P10 per bag. This capital contribution shall be collected until adequate capital is raised to
make PPI viable. Such capital contribution shall be applied by FPA to all domestic sales of fertilizers in the
Philippines.5 (Underscoring supplied)
Pursuant to the LOI, Fertiphil paid P10 for every bag of fertilizer it sold in the domestic market to the Fertilizer and
Pesticide Authority (FPA). FPA then remitted the amount collected to the Far East Bank and Trust Company, the
depositary bank of PPI. Fertiphil paid P6,689,144 to FPA from July 8, 1985 to January 24, 1986. 6
After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of the P10 levy. With the return of democracy,
Fertiphil demanded from PPI a refund of the amounts it paid under LOI No. 1465, but PPI refused to accede to the
demand.7
Fertiphil filed a complaint for collection and damages8 against FPA and PPI with the RTC in Makati. It questioned the
constitutionality of LOI No. 1465 for being unjust, unreasonable, oppressive, invalid and an unlawful imposition that
amounted to a denial of due process of law.9 Fertiphil alleged that the LOI solely favored PPI, a privately owned
corporation, which used the proceeds to maintain its monopoly of the fertilizer industry.
In its Answer,10 FPA, through the Solicitor General, countered that the issuance of LOI No. 1465 was a valid exercise of
the police power of the State in ensuring the stability of the fertilizer industry in the country. It also averred that Fertiphil did
not sustain any damage from the LOI because the burden imposed by the levy fell on the ultimate consumer, not the
seller.
RTC Disposition
On November 20, 1991, the RTC rendered judgment in favor of Fertiphil, disposing as follows:
WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the plaintiff and against the
defendant Planters Product, Inc., ordering the latter to pay the former:
1) the sum of P6,698,144.00 with interest at 12% from the time of judicial demand;
2) the sum of P100,000 as attorneys fees;
3) the cost of suit.
SO ORDERED.11
Ruling that the imposition of the P10 CRC was an exercise of the States inherent power of taxation, the RTC invalidated
the levy for violating the basic principle that taxes can only be levied for public purpose, viz.:
It is apparent that the imposition of P10 per fertilizer bag sold in the country by LOI 1465 is purportedly in the exercise of
the power of taxation. It is a settled principle that the power of taxation by the state is plenary. Comprehensive and
supreme, the principal check upon its abuse resting in the responsibility of the members of the legislature to their
constituents. However, there are two kinds of limitations on the power of taxation: the inherent limitations and the
constitutional limitations.
One of the inherent limitations is that a tax may be levied only for public purposes:

Page 98 of 403
The power to tax can be resorted to only for a constitutionally valid public purpose. By the same token, taxes may not be
levied for purely private purposes, for building up of private fortunes, or for the redress of private wrongs. They cannot be
levied for the improvement of private property, or for the benefit, and promotion of private enterprises, except where the
aid is incident to the public benefit. It is well-settled principle of constitutional law that no general tax can be levied except
for the purpose of raising money which is to be expended for public use. Funds cannot be exacted under the guise of
taxation to promote a purpose that is not of public interest. Without such limitation, the power to tax could be exercised or
employed as an authority to destroy the economy of the people. A tax, however, is not held void on the ground of want of
public interest unless the want of such interest is clear. (71 Am. Jur. pp. 371-372)
In the case at bar, the plaintiff paid the amount of P6,698,144.00 to the Fertilizer and Pesticide Authority pursuant to
the P10 per bag of fertilizer sold imposition under LOI 1465 which, in turn, remitted the amount to the defendant Planters
Products, Inc. thru the latters depository bank, Far East Bank and Trust Co. Thus, by virtue of LOI 1465 the plaintiff,
Fertiphil Corporation, which is a private domestic corporation, became poorer by the amount of P6,698,144.00 and the
defendant, Planters Product, Inc., another private domestic corporation, became richer by the amount of P6,698,144.00.
Tested by the standards of constitutionality as set forth in the afore-quoted jurisprudence, it is quite evident that LOI 1465
insofar as it imposes the amount of P10 per fertilizer bag sold in the country and orders that the said amount should go to
the defendant Planters Product, Inc. is unlawful because it violates the mandate that a tax can be levied only for a public
purpose and not to benefit, aid and promote a private enterprise such as Planters Product, Inc. 12
PPI moved for reconsideration but its motion was denied. 13 PPI then filed a notice of appeal with the RTC but it failed to
pay the requisite appeal docket fee. In a separate but related proceeding, this Court 14 allowed the appeal of PPI and
remanded the case to the CA for proper disposition.
CA Decision
On November 28, 2003, the CA handed down its decision affirming with modification that of the RTC, with the following
fallo:
IN VIEW OF ALL THE FOREGOING, the decision appealed from is hereby AFFIRMED, subject to the MODIFICATION
that the award of attorneys fees is hereby DELETED.15
In affirming the RTC decision, the CA ruled that the lis mota of the complaint for collection was the constitutionality of LOI
No. 1465, thus:
The question then is whether it was proper for the trial court to exercise its power to judicially determine the
constitutionality of the subject statute in the instant case.
As a rule, where the controversy can be settled on other grounds, the courts will not resolve the constitutionality of a law
(Lim v. Pacquing, 240 SCRA 649 [1995]). The policy of the courts is to avoid ruling on constitutional questions and to
presume that the acts of political departments are valid, absent a clear and unmistakable showing to the contrary.
However, the courts are not precluded from exercising such power when the following requisites are obtaining in a
controversy before it: First, there must be before the court an actual case calling for the exercise of judicial review.
Second, the question must be ripe for adjudication. Third, the person challenging the validity of the act must have standing
to challenge. Fourth, the question of constitutionality must have been raised at the earliest opportunity; and lastly, the
issue of constitutionality must be the very lis mota of the case (Integrated Bar of the Philippines v. Zamora, 338 SCRA 81
[2000]).
Indisputably, the present case was primarily instituted for collection and damages. However, a perusal of the complaint
also reveals that the instant action is founded on the claim that the levy imposed was an unlawful and unconstitutional
special assessment. Consequently, the requisite that the constitutionality of the law in question be the very lis mota of the
case is present, making it proper for the trial court to rule on the constitutionality of LOI 1465. 16
The CA held that even on the assumption that LOI No. 1465 was issued under the police power of the state, it is still
unconstitutional because it did not promote public welfare. The CA explained:
In declaring LOI 1465 unconstitutional, the trial court held that the levy imposed under the said law was an invalid exercise
of the States power of taxation inasmuch as it violated the inherent and constitutional prescription that taxes be levied
only for public purposes. It reasoned out that the amount collected under the levy was remitted to the depository bank of
PPI, which the latter used to advance its private interest.
On the other hand, appellant submits that the subject statutes passage was a valid exercise of police power. In addition, it
disputes the court a quos findings arguing that the collections under LOI 1465 was for the benefit of Planters Foundation,
Incorporated (PFI), a foundation created by law to hold in trust for millions of farmers, the stock ownership of PPI.
Of the three fundamental powers of the State, the exercise of police power has been characterized as the most essential,
insistent and the least limitable of powers, extending as it does to all the great public needs. It may be exercised as long

Page 99 of 403
as the activity or the property sought to be regulated has some relevance to public welfare (Constitutional Law, by Isagani
A. Cruz, p. 38, 1995 Edition).
Vast as the power is, however, it must be exercised within the limits set by the Constitution, which requires the
concurrence of a lawful subject and a lawful method. Thus, our courts have laid down the test to determine the validity of a
police measure as follows: (1) the interests of the public generally, as distinguished from those of a particular class,
requires its exercise; and (2) the means employed are reasonably necessary for the accomplishment of the purpose and
not unduly oppressive upon individuals (National Development Company v. Philippine Veterans Bank, 192 SCRA 257
[1990]).
It is upon applying this established tests that We sustain the trial courts holding LOI 1465 unconstitutional. To be sure,
ensuring the continued supply and distribution of fertilizer in the country is an undertaking imbued with public interest.
However, the method by which LOI 1465 sought to achieve this is by no means a measure that will promote the public
welfare. The governments commitment to support the successful rehabilitation and continued viability of PPI, a private
corporation, is an unmistakable attempt to mask the subject statutes impartiality. There is no way to treat the self-interest
of a favored entity, like PPI, as identical with the general interest of the countrys farmers or even the Filipino people in
general. Well to stress, substantive due process exacts fairness and equal protection disallows distinction where none is
needed. When a statutes public purpose is spoiled by private interest, the use of police power becomes a travesty which
must be struck down for being an arbitrary exercise of government power. To rule in favor of appellant would contravene
the general principle that revenues derived from taxes cannot be used for purely private purposes or for the exclusive
benefit of private individuals.17
The CA did not accept PPIs claim that the levy imposed under LOI No. 1465 was for the benefit of Planters Foundation,
Inc., a foundation created to hold in trust the stock ownership of PPI. The CA stated:
Appellant next claims that the collections under LOI 1465 was for the benefit of Planters Foundation, Incorporated (PFI), a
foundation created by law to hold in trust for millions of farmers, the stock ownership of PFI on the strength of Letter of
Undertaking (LOU) issued by then Prime Minister Cesar Virata on April 18, 1985 and affirmed by the Secretary of Justice
in an Opinion dated October 12, 1987, to wit:
"2. Upon the effective date of this Letter of Undertaking, the Republic shall cause FPA to include in its fertilizer pricing
formula a capital recovery component, the proceeds of which will be used initially for the purpose of funding the unpaid
portion of the outstanding capital stock of Planters presently held in trust by Planters Foundation, Inc. (Planters
Foundation), which unpaid capital is estimated at approximately P206 million (subject to validation by Planters and
Planters Foundation) (such unpaid portion of the outstanding capital stock of Planters being hereafter referred to as the
Unpaid Capital), and subsequently for such capital increases as may be required for the continuing viability of Planters.
The capital recovery component shall be in the minimum amount of P10 per bag, which will be added to the price of all
domestic sales of fertilizer in the Philippines by any importer and/or fertilizer mother company. In this connection, the
Republic hereby acknowledges that the advances by Planters to Planters Foundation which were applied to the payment
of the Planters shares now held in trust by Planters Foundation, have been assigned to, among others, the Creditors.
Accordingly, the Republic, through FPA, hereby agrees to deposit the proceeds of the capital recovery component in the
special trust account designated in the notice dated April 2, 1985, addressed by counsel for the Creditors to Planters
Foundation. Such proceeds shall be deposited by FPA on or before the 15th day of each month.
The capital recovery component shall continue to be charged and collected until payment in full of (a) the Unpaid Capital
and/or (b) any shortfall in the payment of the Subsidy Receivables, (c) any carrying cost accruing from the date hereof on
the amounts which may be outstanding from time to time of the Unpaid Capital and/or the Subsidy Receivables and (d)
the capital increases contemplated in paragraph 2 hereof. For the purpose of the foregoing clause (c), the carrying cost
shall be at such rate as will represent the full and reasonable cost to Planters of servicing its debts, taking into account
both its peso and foreign currency-denominated obligations." (Records, pp. 42-43)
Appellants proposition is open to question, to say the least. The LOU issued by then Prime Minister Virata taken together
with the Justice Secretarys Opinion does not preponderantly demonstrate that the collections made were held in trust in
favor of millions of farmers. Unfortunately for appellant, in the absence of sufficient evidence to establish its claims, this
Court is constrained to rely on what is explicitly provided in LOI 1465 that one of the primary aims in imposing the levy is
to support the successful rehabilitation and continued viability of PPI. 18
PPI moved for reconsideration but its motion was denied. 19 It then filed the present petition with this Court.
Issues
Petitioner PPI raises four issues for Our consideration, viz.:
I
THE CONSTITUTIONALITY OF LOI 1465 CANNOT BE COLLATERALLY ATTACKED AND BE DECREED VIA A
DEFAULT JUDGMENT IN A CASE FILED FOR COLLECTION AND DAMAGES WHERE THE ISSUE OF

Page 100 of 403

CONSTITUTIONALITY IS NOT THE VERY LIS MOTA OF THE CASE. NEITHER CAN LOI 1465 BE CHALLENGED BY
ANY PERSON OR ENTITY WHICH HAS NO STANDING TO DO SO.
II
LOI 1465, BEING A LAW IMPLEMENTED FOR THE PURPOSE OF ASSURING THE FERTILIZER SUPPLY AND
DISTRIBUTION IN THE COUNTRY, AND FOR BENEFITING A FOUNDATION CREATED BY LAW TO HOLD IN TRUST
FOR MILLIONS OF FARMERS THEIR STOCK OWNERSHIP IN PPI CONSTITUTES A VALID LEGISLATION
PURSUANT TO THE EXERCISE OF TAXATION AND POLICE POWER FOR PUBLIC PURPOSES.
III
THE AMOUNT COLLECTED UNDER THE CAPITAL RECOVERY COMPONENT WAS REMITTED TO THE
GOVERNMENT, AND BECAME GOVERNMENT FUNDS PURSUANT TO AN EFFECTIVE AND VALIDLY ENACTED
LAW WHICH IMPOSED DUTIES AND CONFERRED RIGHTS BY VIRTUE OF THE PRINCIPLE OF "OPERATIVE
FACT" PRIOR TO ANY DECLARATION OF UNCONSTITUTIONALITY OF LOI 1465.
IV
THE PRINCIPLE OF UNJUST VEXATION (SHOULD BE ENRICHMENT) FINDS NO APPLICATION IN THE INSTANT
CASE.20 (Underscoring supplied)
Our Ruling
We shall first tackle the procedural issues of locus standi and the jurisdiction of the RTC to resolve constitutional issues.
Fertiphil has locus standi because it suffered direct injury; doctrine of standing is a mere procedural technicality which may
be waived.
PPI argues that Fertiphil has no locus standi to question the constitutionality of LOI No. 1465 because it does not have a
"personal and substantial interest in the case or will sustain direct injury as a result of its enforcement." 21 It asserts that
Fertiphil did not suffer any damage from the CRC imposition because "incidence of the levy fell on the ultimate consumer
or the farmers themselves, not on the seller fertilizer company." 22
We cannot agree. The doctrine of locus standi or the right of appearance in a court of justice has been adequately
discussed by this Court in a catena of cases. Succinctly put, the doctrine requires a litigant to have a material interest in
the outcome of a case. In private suits, locus standi requires a litigant to be a "real party in interest," which is defined as
"the party who stands to be benefited or injured by the judgment in the suit or the party entitled to the avails of the suit." 23
In public suits, this Court recognizes the difficulty of applying the doctrine especially when plaintiff asserts a public right on
behalf of the general public because of conflicting public policy issues. 24 On one end, there is the right of the ordinary
citizen to petition the courts to be freed from unlawful government intrusion and illegal official action. At the other end,
there is the public policy precluding excessive judicial interference in official acts, which may unnecessarily hinder the
delivery of basic public services.
In this jurisdiction, We have adopted the "direct injury test" to determine locus standi in public suits. In People v. Vera, 25 it
was held that a person who impugns the validity of a statute must have "a personal and substantial interest in the case
such that he has sustained, or will sustain direct injury as a result." The "direct injury test" in public suits is similar to the
"real party in interest" rule for private suits under Section 2, Rule 3 of the 1997 Rules of Civil Procedure. 26
Recognizing that a strict application of the "direct injury" test may hamper public interest, this Court relaxed the
requirement in cases of "transcendental importance" or with "far reaching implications." Being a mere procedural
technicality, it has also been held that locus standi may be waived in the public interest. 27
Whether or not the complaint for collection is characterized as a private or public suit, Fertiphil has locus standi to file it.
Fertiphil suffered a direct injury from the enforcement of LOI No. 1465. It was required, and it did pay, theP10 levy
imposed for every bag of fertilizer sold on the domestic market. It may be true that Fertiphil has passed some or all of the
levy to the ultimate consumer, but that does not disqualify it from attacking the constitutionality of the LOI or from seeking
a refund. As seller, it bore the ultimate burden of paying the levy. It faced the possibility of severe sanctions for failure to
pay the levy. The fact of payment is sufficient injury to Fertiphil.
Moreover, Fertiphil suffered harm from the enforcement of the LOI because it was compelled to factor in its product the
levy. The levy certainly rendered the fertilizer products of Fertiphil and other domestic sellers much more expensive. The
harm to their business consists not only in fewer clients because of the increased price, but also in adopting alternative
corporate strategies to meet the demands of LOI No. 1465. Fertiphil and other fertilizer sellers may have shouldered all or
part of the levy just to be competitive in the market. The harm occasioned on the business of Fertiphil is sufficient injury for
purposes of locus standi.

Page 101 of 403

Even assuming arguendo that there is no direct injury, We find that the liberal policy consistently adopted by this Court on
locus standi must apply. The issues raised by Fertiphil are of paramount public importance. It involves not only the
constitutionality of a tax law but, more importantly, the use of taxes for public purpose. Former President Marcos issued
LOI No. 1465 with the intention of rehabilitating an ailing private company. This is clear from the text of the LOI. PPI is
expressly named in the LOI as the direct beneficiary of the levy. Worse, the levy was made dependent and conditional
upon PPI becoming financially viable. The LOI provided that "the capital contribution shall be collected until adequate
capital is raised to make PPI viable."
The constitutionality of the levy is already in doubt on a plain reading of the statute. It is Our constitutional duty to squarely
resolve the issue as the final arbiter of all justiciable controversies. The doctrine of standing, being a mere procedural
technicality, should be waived, if at all, to adequately thresh out an important constitutional issue.
RTC may resolve constitutional issues; the constitutional issue was adequately raised in the complaint; it is the lis mota of
the case.
PPI insists that the RTC and the CA erred in ruling on the constitutionality of the LOI. It asserts that the constitutionality of
the LOI cannot be collaterally attacked in a complaint for collection. 28 Alternatively, the resolution of the constitutional issue
is not necessary for a determination of the complaint for collection. 29
Fertiphil counters that the constitutionality of the LOI was adequately pleaded in its complaint. It claims that the
constitutionality of LOI No. 1465 is the very lis mota of the case because the trial court cannot determine its claim without
resolving the issue.30
It is settled that the RTC has jurisdiction to resolve the constitutionality of a statute, presidential decree or an executive
order. This is clear from Section 5, Article VIII of the 1987 Constitution, which provides:
SECTION 5. The Supreme Court shall have the following powers:
xxxx
(2) Review, revise, reverse, modify, or affirm on appeal or certiorari, as the law or the Rules of Court may provide,final
judgments and orders of lower courts in:
(a) All cases in which the constitutionality or validity of any treaty, international or executive agreement, law, presidential
decree, proclamation, order, instruction, ordinance, or regulation is in question. (Underscoring supplied)
In Mirasol v. Court of Appeals,31 this Court recognized the power of the RTC to resolve constitutional issues, thus:
On the first issue. It is settled that Regional Trial Courts have the authority and jurisdiction to consider the constitutionality
of a statute, presidential decree, or executive order. The Constitution vests the power of judicial review or the power to
declare a law, treaty, international or executive agreement, presidential decree, order, instruction, ordinance, or regulation
not only in this Court, but in all Regional Trial Courts. 32
In the recent case of Equi-Asia Placement, Inc. v. Department of Foreign Affairs, 33 this Court reiterated:
There is no denying that regular courts have jurisdiction over cases involving the validity or constitutionality of a rule or
regulation issued by administrative agencies. Such jurisdiction, however, is not limited to the Court of Appeals or to this
Court alone for even the regional trial courts can take cognizance of actions assailing a specific rule or set of rules
promulgated by administrative bodies. Indeed, the Constitution vests the power of judicial review or the power to declare a
law, treaty, international or executive agreement, presidential decree, order, instruction, ordinance, or regulation in the
courts, including the regional trial courts.34
Judicial review of official acts on the ground of unconstitutionality may be sought or availed of through any of the actions
cognizable by courts of justice, not necessarily in a suit for declaratory relief. Such review may be had in criminal actions,
as in People v. Ferrer35 involving the constitutionality of the now defunct Anti-Subversion law, or in ordinary actions, as in
Krivenko v. Register of Deeds36 involving the constitutionality of laws prohibiting aliens from acquiring public lands. The
constitutional issue, however, (a) must be properly raised and presented in the case, and (b) its resolution is necessary to
a determination of the case, i.e., the issue of constitutionality must be the very lis mota presented. 37
Contrary to PPIs claim, the constitutionality of LOI No. 1465 was properly and adequately raised in the complaint for
collection filed with the RTC. The pertinent portions of the complaint allege:
6. The CRC of P10 per bag levied under LOI 1465 on domestic sales of all grades of fertilizer in the Philippines,
isunlawful, unjust, uncalled for, unreasonable, inequitable and oppressive because:
xxxx

Page 102 of 403

(c) It favors only one private domestic corporation, i.e., defendant PPPI, and imposed at the expense and disadvantage of
the other fertilizer importers/distributors who were themselves in tight business situation and were then exerting all efforts
and maximizing management and marketing skills to remain viable;
xxxx
(e) It was a glaring example of crony capitalism, a forced program through which the PPI, having been presumptuously
masqueraded as "the" fertilizer industry itself, was the sole and anointed beneficiary;
7. The CRC was an unlawful; and unconstitutional special assessment and its imposition is tantamount to illegal exaction
amounting to a denial of due process since the persons of entities which had to bear the burden of paying the CRC
derived no benefit therefrom; that on the contrary it was used by PPI in trying to regain its former despicable monopoly of
the fertilizer industry to the detriment of other distributors and importers. 38 (Underscoring supplied)
The constitutionality of LOI No. 1465 is also the very lis mota of the complaint for collection. Fertiphil filed the complaint to
compel PPI to refund the levies paid under the statute on the ground that the law imposing the levy is unconstitutional.
The thesis is that an unconstitutional law is void. It has no legal effect. Being void, Fertiphil had no legal obligation to pay
the levy. Necessarily, all levies duly paid pursuant to an unconstitutional law should be refunded under the civil code
principle against unjust enrichment. The refund is a mere consequence of the law being declared unconstitutional. The
RTC surely cannot order PPI to refund Fertiphil if it does not declare the LOI unconstitutional. It is the unconstitutionality of
the LOI which triggers the refund. The issue of constitutionality is the very lis mota of the complaint with the RTC.
The P10 levy under LOI No. 1465 is an exercise of the power of taxation.
At any rate, the Court holds that the RTC and the CA did not err in ruling against the constitutionality of the LOI.
PPI insists that LOI No. 1465 is a valid exercise either of the police power or the power of taxation. It claims that the LOI
was implemented for the purpose of assuring the fertilizer supply and distribution in the country and for benefiting a
foundation created by law to hold in trust for millions of farmers their stock ownership in PPI.
Fertiphil counters that the LOI is unconstitutional because it was enacted to give benefit to a private company. The levy
was imposed to pay the corporate debt of PPI. Fertiphil also argues that, even if the LOI is enacted under the police
power, it is still unconstitutional because it did not promote the general welfare of the people or public interest.
Police power and the power of taxation are inherent powers of the State. These powers are distinct and have different
tests for validity. Police power is the power of the State to enact legislation that may interfere with personal liberty or
property in order to promote the general welfare, 39 while the power of taxation is the power to levy taxes to be used for
public purpose. The main purpose of police power is the regulation of a behavior or conduct, while taxation is revenue
generation. The "lawful subjects" and "lawful means" tests are used to determine the validity of a law enacted under the
police power.40 The power of taxation, on the other hand, is circumscribed by inherent and constitutional limitations.
We agree with the RTC that the imposition of the levy was an exercise by the State of its taxation power. While it is true
that the power of taxation can be used as an implement of police power,41 the primary purpose of the levy is revenue
generation. If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the
exaction is properly called a tax.42
In Philippine Airlines, Inc. v. Edu,43 it was held that the imposition of a vehicle registration fee is not an exercise by the
State of its police power, but of its taxation power, thus:
It is clear from the provisions of Section 73 of Commonwealth Act 123 and Section 61 of the Land Transportation and
Traffic Code that the legislative intent and purpose behind the law requiring owners of vehicles to pay for their registration
is mainly to raise funds for the construction and maintenance of highways and to a much lesser degree, pay for the
operating expenses of the administering agency. x x x Fees may be properly regarded as taxes even though they also
serve as an instrument of regulation.
Taxation may be made the implement of the state's police power (Lutz v. Araneta, 98 Phil. 148). If the purpose is primarily
revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called a tax.
Such is the case of motor vehicle registration fees. The same provision appears as Section 59(b) in the Land
Transportation Code. It is patent therefrom that the legislators had in mind a regulatory tax as the law refers to the
imposition on the registration, operation or ownership of a motor vehicle as a "tax or fee." x x x Simply put, if the exaction
under Rep. Act 4136 were merely a regulatory fee, the imposition in Rep. Act 5448 need not be an "additional" tax. Rep.
Act 4136 also speaks of other "fees" such as the special permit fees for certain types of motor vehicles (Sec. 10) and
additional fees for change of registration (Sec. 11). These are not to be understood as taxes because such fees are very
minimal to be revenue-raising. Thus, they are not mentioned by Sec. 59(b) of the Code as taxes like the motor vehicle
registration fee and chauffeurs license fee. Such fees are to go into the expenditures of the Land Transportation
Commission as provided for in the last proviso of Sec. 61. 44 (Underscoring supplied)
The P10 levy under LOI No. 1465 is too excessive to serve a mere regulatory purpose. The levy, no doubt, was a big
burden on the seller or the ultimate consumer. It increased the price of a bag of fertilizer by as much as five percent. 45 A

Page 103 of 403

plain reading of the LOI also supports the conclusion that the levy was for revenue generation. The LOI expressly
provided that the levy was imposed "until adequate capital is raised to make PPI viable."
Taxes are exacted only for a public purpose. The P10 levy is unconstitutional because it was not for a public purpose. The
levy was imposed to give undue benefit to PPI.
An inherent limitation on the power of taxation is public purpose. Taxes are exacted only for a public purpose. They cannot
be used for purely private purposes or for the exclusive benefit of private persons. 46 The reason for this is simple. The
power to tax exists for the general welfare; hence, implicit in its power is the limitation that it should be used only for a
public purpose. It would be a robbery for the State to tax its citizens and use the funds generated for a private purpose. As
an old United States case bluntly put it: "To lay with one hand, the power of the government on the property of the citizen,
and with the other to bestow it upon favored individuals to aid private enterprises and build up private fortunes, is
nonetheless a robbery because it is done under the forms of law and is called taxation." 47
The term "public purpose" is not defined. It is an elastic concept that can be hammered to fit modern standards.
Jurisprudence states that "public purpose" should be given a broad interpretation. It does not only pertain to those
purposes which are traditionally viewed as essentially government functions, such as building roads and delivery of basic
services, but also includes those purposes designed to promote social justice. Thus, public money may now be used for
the relocation of illegal settlers, low-cost housing and urban or agrarian reform.
While the categories of what may constitute a public purpose are continually expanding in light of the expansion of
government functions, the inherent requirement that taxes can only be exacted for a public purpose still stands. Public
purpose is the heart of a tax law. When a tax law is only a mask to exact funds from the public when its true intent is to
give undue benefit and advantage to a private enterprise, that law will not satisfy the requirement of "public purpose."
The purpose of a law is evident from its text or inferable from other secondary sources. Here, We agree with the RTC and
that CA that the levy imposed under LOI No. 1465 was not for a public purpose.
First, the LOI expressly provided that the levy be imposed to benefit PPI, a private company. The purpose is explicit from
Clause 3 of the law, thus:
3. The Administrator of the Fertilizer Pesticide Authority to include in its fertilizer pricing formula a capital contribution
component of not less than P10 per bag. This capital contribution shall be collected until adequate capital is raised to
make PPI viable. Such capital contribution shall be applied by FPA to all domestic sales of fertilizers in the
Philippines.48 (Underscoring supplied)
It is a basic rule of statutory construction that the text of a statute should be given a literal meaning. In this case, the text of
the LOI is plain that the levy was imposed in order to raise capital for PPI. The framers of the LOI did not even hide the
insidious purpose of the law. They were cavalier enough to name PPI as the ultimate beneficiary of the taxes levied under
the LOI. We find it utterly repulsive that a tax law would expressly name a private company as the ultimate beneficiary of
the taxes to be levied from the public. This is a clear case of crony capitalism.
Second, the LOI provides that the imposition of the P10 levy was conditional and dependent upon PPI becoming
financially "viable." This suggests that the levy was actually imposed to benefit PPI. The LOI notably does not fix a
maximum amount when PPI is deemed financially "viable." Worse, the liability of Fertiphil and other domestic sellers of
fertilizer to pay the levy is made indefinite. They are required to continuously pay the levy until adequate capital is raised
for PPI.
Third, the RTC and the CA held that the levies paid under the LOI were directly remitted and deposited by FPA to Far East
Bank and Trust Company, the depositary bank of PPI.49 This proves that PPI benefited from the LOI. It is also proves that
the main purpose of the law was to give undue benefit and advantage to PPI.
Fourth, the levy was used to pay the corporate debts of PPI. A reading of the Letter of Understanding 50 dated May 18,
1985 signed by then Prime Minister Cesar Virata reveals that PPI was in deep financial problem because of its huge
corporate debts. There were pending petitions for rehabilitation against PPI before the Securities and Exchange
Commission. The government guaranteed payment of PPIs debts to its foreign creditors. To fund the payment, President
Marcos issued LOI No. 1465. The pertinent portions of the letter of understanding read:
Republic of the Philippines
Office of the Prime Minister
Manila
LETTER OF UNDERTAKING
May 18, 1985
TO: THE BANKING AND FINANCIAL INSTITUTIONS
LISTED IN ANNEX A HERETO WHICH ARE

Page 104 of 403

CREDITORS (COLLECTIVELY, THE "CREDITORS")
OF PLANTERS PRODUCTS, INC. ("PLANTERS")
Gentlemen:
This has reference to Planters which is the principal importer and distributor of fertilizer, pesticides and agricultural
chemicals in the Philippines. As regards Planters, the Philippine Government confirms its awareness of the following: (1)
that Planters has outstanding obligations in foreign currency and/or pesos, to the Creditors, (2) that Planters is currently
experiencing financial difficulties, and (3) that there are presently pending with the Securities and Exchange Commission
of the Philippines a petition filed at Planters own behest for the suspension of payment of all its obligations, and a
separate petition filed by Manufacturers Hanover Trust Company, Manila Offshore Branch for the appointment of a
rehabilitation receiver for Planters.
In connection with the foregoing, the Republic of the Philippines (the "Republic") confirms that it considers and continues
to consider Planters as a major fertilizer distributor. Accordingly, for and in consideration of your expressed willingness to
consider and participate in the effort to rehabilitate Planters, the Republic hereby manifests its full and unqualified support
of the successful rehabilitation and continuing viability of Planters, and to that end, hereby binds and obligates itself to the
creditors and Planters, as follows:
xxxx
2. Upon the effective date of this Letter of Undertaking, the Republic shall cause FPA to include in its fertilizer pricing
formula a capital recovery component, the proceeds of which will be used initially for the purpose of funding the unpaid
portion of the outstanding capital stock of Planters presently held in trust by Planters Foundation, Inc. ("Planters
Foundation"), which unpaid capital is estimated at approximately P206 million (subject to validation by Planters and
Planters Foundation) such unpaid portion of the outstanding capital stock of Planters being hereafter referred to as the
"Unpaid Capital"), and subsequently for such capital increases as may be required for the continuing viability of Planters.
xxxx
The capital recovery component shall continue to be charged and collected until payment in full of (a) the Unpaid Capital
and/or (b) any shortfall in the payment of the Subsidy Receivables, (c) any carrying cost accruing from the date hereof on
the amounts which may be outstanding from time to time of the Unpaid Capital and/or the Subsidy Receivables, and (d)
the capital increases contemplated in paragraph 2 hereof. For the purpose of the foregoing clause (c), the "carrying cost"
shall be at such rate as will represent the full and reasonable cost to Planters of servicing its debts, taking into account
both its peso and foreign currency-denominated obligations.
REPUBLIC OF THE PHILIPPINES
By:
(signed)
CESAR E. A. VIRATA
Prime Minister and Minister of Finance51
It is clear from the Letter of Understanding that the levy was imposed precisely to pay the corporate debts of PPI. We
cannot agree with PPI that the levy was imposed to ensure the stability of the fertilizer industry in the country. The letter of
understanding and the plain text of the LOI clearly indicate that the levy was exacted for the benefit of a private
corporation.
All told, the RTC and the CA did not err in holding that the levy imposed under LOI No. 1465 was not for a public purpose.
LOI No. 1465 failed to comply with the public purpose requirement for tax laws.
The LOI is still unconstitutional even if enacted under the police power; it did not promote public interest.
Even if We consider LOI No. 1695 enacted under the police power of the State, it would still be invalid for failing to comply
with the test of "lawful subjects" and "lawful means." Jurisprudence states the test as follows: (1) the interest of the public
generally, as distinguished from those of particular class, requires its exercise; and (2) the means employed are
reasonably necessary for the accomplishment of the purpose and not unduly oppressive upon individuals. 52
For the same reasons as discussed, LOI No. 1695 is invalid because it did not promote public interest. The law was
enacted to give undue advantage to a private corporation. We quote with approval the CA ratiocination on this point, thus:
It is upon applying this established tests that We sustain the trial courts holding LOI 1465 unconstitutional.1awphil To be
sure, ensuring the continued supply and distribution of fertilizer in the country is an undertaking imbued with public
interest. However, the method by which LOI 1465 sought to achieve this is by no means a measure that will promote the
public welfare. The governments commitment to support the successful rehabilitation and continued viability of PPI, a
private corporation, is an unmistakable attempt to mask the subject statutes impartiality. There is no way to treat the selfinterest of a favored entity, like PPI, as identical with the general interest of the countrys farmers or even the Filipino

Page 105 of 403

people in general. Well to stress, substantive due process exacts fairness and equal protection disallows distinction where
none is needed. When a statutes public purpose is spoiled by private interest, the use of police power becomes a travesty
which must be struck down for being an arbitrary exercise of government power. To rule in favor of appellant would
contravene the general principle that revenues derived from taxes cannot be used for purely private purposes or for the
exclusive benefit of private individuals. (Underscoring supplied)
The general rule is that an unconstitutional law is void; the doctrine of operative fact is inapplicable.
PPI also argues that Fertiphil cannot seek a refund even if LOI No. 1465 is declared unconstitutional. It banks on the
doctrine of operative fact, which provides that an unconstitutional law has an effect before being declared unconstitutional.
PPI wants to retain the levies paid under LOI No. 1465 even if it is subsequently declared to be unconstitutional.
We cannot agree. It is settled that no question, issue or argument will be entertained on appeal, unless it has been raised
in the court a quo.53 PPI did not raise the applicability of the doctrine of operative fact with the RTC and the CA. It cannot
belatedly raise the issue with Us in order to extricate itself from the dire effects of an unconstitutional law.
At any rate, We find the doctrine inapplicable. The general rule is that an unconstitutional law is void. It produces no rights,
imposes no duties and affords no protection. It has no legal effect. It is, in legal contemplation, inoperative as if it has not
been passed.54 Being void, Fertiphil is not required to pay the levy. All levies paid should be refunded in accordance with
the general civil code principle against unjust enrichment. The general rule is supported by Article 7 of the Civil Code,
which provides:
ART. 7. Laws are repealed only by subsequent ones, and their violation or non-observance shall not be excused by disuse
or custom or practice to the contrary.
When the courts declare a law to be inconsistent with the Constitution, the former shall be void and the latter shall govern.
The doctrine of operative fact, as an exception to the general rule, only applies as a matter of equity and fair play.55 It
nullifies the effects of an unconstitutional law by recognizing that the existence of a statute prior to a determination of
unconstitutionality is an operative fact and may have consequences which cannot always be ignored. The past cannot
always be erased by a new judicial declaration.56
The doctrine is applicable when a declaration of unconstitutionality will impose an undue burden on those who have relied
on the invalid law. Thus, it was applied to a criminal case when a declaration of unconstitutionality would put the accused
in double jeopardy57 or would put in limbo the acts done by a municipality in reliance upon a law creating it. 58
Here, We do not find anything iniquitous in ordering PPI to refund the amounts paid by Fertiphil under LOI No. 1465. It
unduly benefited from the levy. It was proven during the trial that the levies paid were remitted and deposited to its bank
account. Quite the reverse, it would be inequitable and unjust not to order a refund. To do so would unjustly enrich PPI at
the expense of Fertiphil. Article 22 of the Civil Code explicitly provides that "every person who, through an act of
performance by another comes into possession of something at the expense of the latter without just or legal ground shall
return the same to him." We cannot allow PPI to profit from an unconstitutional law. Justice and equity dictate that PPI
must refund the amounts paid by Fertiphil.
WHEREFORE, the petition is DENIED. The Court of Appeals Decision dated November 28, 2003 is AFFIRMED.
SO ORDERED.
RUBEN T. REYES
Associate Justice
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice

MINITA V. CHICO-NAZARIO
Associate Justice

ANTONIO EDUARDO B. NACHURA

Associate Justice
AT T E S TAT I O N
I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the
Courts Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

Page 106 of 403

C E R TI F I CATI O N
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons Attestation, I certify that the conclusions in the above Decision had
been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice
Footnotes
1

Rollo, pp. 51-59. Penned by Associate Justice Conrado M. Vasquez, Jr., with Associate Justices Bienvenido L. Reyes and Arsenio L.
Magpale, concurring.
2

Id. at 75-77. Penned by Judge Teofilo L. Guadiz, Jr.

Id. at 8.

Id. at 75.

Id. at 155.

Id. at 76.

Id.

Id. at 195-202.

Id. at 196.

10

Id. at 66-73, 277.

11

Id. at 77.

12

Id. at 76-77.

13

Id. at 14.

14

Id. at 83-93. G.R. No. 156278, entitled "Planters Products, Inc. v. Fertiphil Corporation."

15

Id. at 59.

16

Id. at 54-55.

17

Id. at 129-130.

18

Id. at 55-58.

19

Id. at 61-62.

20

Id. at 15.

21

Id. at 21.

22

Id.

23

Rules of Civil Procedure (1997), Rule 3, Sec. 2 provides:

"A real party-in-interest is the party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the
avails of the suit. Unless otherwise authorized by law of these Rules, every action must be prosecuted or defended in the name of
the real party-in-interest."

24

David v. Macapagal-Arroyo, G.R. Nos. 171396, 171409, 171485, 171483, 171400, 171489 & 171424, May 3, 2006, 489 SCRA 160.

25

65 Phil. 56 (1937).

26

See note 23.

27

See note 24.

28

Rollo, p. 17.

29

Id. at 18.

Page 107 of 403

30

Id. at 290.

31

G.R. No. 128448, February 1, 2001, 351 SCRA 44.

32

Mirasol v. Court of Appeals, id. at 51.

33

G.R. No. 152214, September 19, 2006, 502 SCRA 295.

34

Equi-Asia Placement, Inc. v. Department of Foreign Affairs, id. at 309.

35

G.R. Nos. L-32613-14, December 27, 1972, 48 SCRA 382.

36

79 Phil. 461 (1947).

37

Tropical Homes, Inc. v. National Housing Authority, G.R. No. L-48672, July 31, 1987, 152 SCRA 540.

38

Rollo, pp. 197-198.

39

Edu v. Ericta, G.R. No. L-32096, October 24, 1970, 35 SCRA 481.

40

Lim v. Pacquing, G.R. Nos. 115044 & 117263, January 27, 1995, 240 SCRA 649.

41

Lutz v. Araneta, 98 Phil. 148 (1966).

42

Philippine Airlines, Inc. v. Edu, G.R. No. L-41383, August 15, 1988, 164 SCRA 320.

43

Supra.

44

Philippine Airlines, Inc. v. Edu, supra note 42, at 327-329.

45

Rollo, p. 197.

46

Cruz, I., Constitutional Law, 1998 ed., p. 90.

47

Bernas, J., The 1987 Constitution of the Republic of the Philippines: A Commentary, 1996 ed., p. 714.

48

Rollo, p. 155.

49

Id. at 52, 75-76.

50

Id. at 150-154.

51

Id.

52

Id. at 55-58.

53

Cojuangco, Jr. v. Court of Appeals, G.R. No. 119398, July 2, 1999, 309 SCRA 602, 614-615.

54

See note 46, at 33-34.

55

Republic v. Court of Appeals, G.R. No. 79732, November 8, 1993, 227 SCRA 509.

56

Peralta v. Civil Service Commission, G.R. No. 95832, August 10, 1992, 212 SCRA 425.

57

Tan v. Barrios, G.R. Nos. 85481-82, October 18, 1990, 190 SCRA 686, citing Aquino, Jr. v. Military Commission No. 2, G.R. No. L-37364,
May 9, 1975, 63 SCRA 546.
58

Id., citing Municipality of Malabang v. Benito, G.R. No. L-28113, March 28, 1969, 27 SCRA 533.

The Lawphil Project - Arellano Law Foundation

Page 108 of 403

Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. 101273 July 3, 1992

CONGRESSMAN ENRIQUE T. GARCIA (Second District of Bataan), petitioner,
vs.
THE EXECUTIVE SECRETARY, THE COMMISSIONER OF CUSTOMS, THE NATIONAL ECONOMIC AND
DEVELOPMENT AUTHORITY, THE TARIFF COMMISSION, THE SECRETARY OF FINANCE, and THE ENERGY
REGULATORY BOARD, respondents.
FELICIANO, J.:
On 27 November 1990, the President issued Executive Order No. 438 which imposed, in addition to any other duties,
taxes and charges imposed by law on all articles imported into the Philippines, an additional duty of five percent (5%) ad
valorem. This additional duty was imposed across the board on all imported articles, including crude oil and other oil
products imported into the Philippines. This additional duty was subsequently increased from five percent (5%) ad
valorem to nine percent (9%) ad valorem by the promulgation of Executive Order No. 443, dated 3 January 1991.
On 24 July 1991, the Department of Finance requested the Tariff Commission to initiate the process required by the Tariff
and Customs Code for the imposition of a specific levy on crude oil and other petroleum products, covered by HS Heading
Nos. 27.09, 27.10 and 27.11 of Section 104 of the Tariff and Customs Code as amended. Accordingly, the Tariff
Commission, following the procedure set forth in Section 401 of the Tariff and Customs Code, scheduled a public hearing
to give interested parties an opportunity to be heard and to present evidence in support of their respective positions.
Meantime, Executive Order No. 475 was issued by the President, on 15 August 1991 reducing the rate of additional duty
on all imported articles from nine percent (9%) to five percent (5%) ad valorem, except in the cases of crude oil and other
oil products which continued to be subject to the additional duty of nine percent (9%) ad valorem.
Upon completion of the public hearings, the Tariff Commission submitted to the President a "Report on Special Duty on
Crude Oil and Oil Products" dated 16 August 1991, for consideration and appropriate action. Seven (7) days later, the
President issued Executive Order No. 478, dated 23 August 1991, which levied (in addition to the aforementioned
additional duty of nine percent (9%) ad valorem and all other existing ad valorem duties) a special duty of P0.95 per liter
or P151.05 per barrel of imported crude oil and P1.00 per liter of imported oil products.
In the present Petition for Certiorari, Prohibition and Mandamus, petitioner assails the validity of Executive Orders Nos.
475 and 478. He argues that Executive Orders Nos. 475 and 478 are violative of Section 24, Article VI of the 1987
Constitution which provides as follows:
Sec. 24: All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local
application, and private bills shall originate exclusively in the House of Representatives, but the Senate
may propose or concur with amendments.
He contends that since the Constitution vests the authority to enact revenue bills in Congress, the President may
not assume such power by issuing Executive Orders Nos. 475 and 478 which are in the nature of revenuegenerating measures.
Petitioner further argues that Executive Orders No. 475 and 478 contravene Section 401 of the Tariff and Customs Code,
which Section authorizes the President, according to petitioner, to increase, reduce or remove tariff duties or to impose
additional duties only when necessary to protect local industries or products but not for the purpose of raising additional
revenue for the government.
Thus, petitioner questions first the constitutionality and second the legality of Executive Orders Nos. 475 and 478, and
asks us to restrain the implementation of those Executive Orders. We will examine these questions in that order.
Before doing so, however, the Court notes that the recent promulgation of Executive Order No. 507 did not render the
instant Petition moot and academic. Executive Order No. 517 which is dated 30 April 1992 provides as follows:

Page 109 of 403

Sec. 1. Lifting of the Additional Duty. The additional duty in the nature of ad valorem imposed on all
imported articles prescribed by the provisions of Executive Order No. 443, as amended, is
hereby lifted; Provided, however, that the selected articles covered by HS Heading Nos. 27.09 and 27.10
of Section 104 of the Tariff and Customs Code, as amended, subject of Annex "A" hereof, shall continue
to be subject to the additional duty of nine (9%) percent ad valorem.
Under the above quoted provision, crude oil and other oil products continue to be subject to the additional duty of
nine percent (9%) ad valorem under Executive Order No. 475 and to the special duty of P0.95 per liter of imported
crude oil and P1.00 per liter of imported oil products under Executive Order No. 478.
Turning first to the question of constitutionality, under Section 24, Article VI of the Constitution, the enactment of
appropriation, revenue and tariff bills, like all other bills is, of course, within the province of the Legislative rather than the
Executive Department. It does not follow, however, that therefore Executive Orders Nos. 475 and 478, assuming they may
be characterized as revenue measures, are prohibited to the President, that they must be enacted instead by the
Congress of the Philippines. Section 28(2) of Article VI of the Constitution provides as follows:
(2) 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, tonage and wharfage
dues, and other duties or imposts within the framework of the national development program of the
Government. (Emphasis supplied)
There is thus explicit constitutional permission 1 to Congress to authorize the President "subject to such limitations and
restrictions is [Congress] may impose" to fix "within specific limits" "tariff rates . . . and other duties or imposts . . ."
The relevant congressional statute is the Tariff and Customs Code of the Philippines, and Sections 104 and 401, the
pertinent provisions thereof. These are the provisions which the President explicitly invoked in promulgating Executive
Orders Nos. 475 and 478. Section 104 of the Tariff and Customs Code provides in relevant part:
Sec. 104. All tariff sections, chapters, headings and subheadings and the rates of import duty under
Section 104 of Presidential Decree No. 34 and all subsequent amendments issued under Executive
Orders and Presidential Decrees are hereby adopted and form part of this Code.
There shall be levied, collected, and paid upon all imported articles the rates of duty indicated in the
Section under this section except as otherwise specifically provided for in this Code: Provided, that, the
maximum rate shall not exceed one hundred per cent ad valorem.
The rates of duty herein provided or subsequently fixed pursuant to Section Four Hundred One of this
Code shall be subject to periodic investigation by the Tariff Commission and may be revised by the
President upon recommendation of the National Economic and Development Authority.
xxx xxx xxx
(Emphasis supplied)
Section 401 of the same Code needs to be quoted in full:
Sec. 401. Flexible Clause.
a. In the interest of national economy, general welfare and/or national security, and subject to the
limitations herein prescribed, the President, upon recommendation of the National Economic and
Development Authority (hereinafter referred to as NEDA), is hereby empowered: (1) to increase, reduce
or remove existing protective rates of import duty (including any necessary change in classification). The
existing rates may be increased or decreased but in no case shall the reduced rate of import duty be
lower than the basic rate of ten (10) per cent ad valorem, nor shall the increased rate of import duty be
higher than a maximum of one hundred (100) per cent ad valorem; (2) to establish import quota or to ban
imports of any commodity, as may be necessary; and (3) to impose an additional duty on all imports not
exceeding ten (10) per cent ad valorem, whenever necessary; Provided, That upon periodic investigations
by the Tariff Commission and recommendation of the NEDA, the President may cause a gradual
reduction of protection levels granted in Section One hundred and four of this Code, including those
subsequently granted pursuant to this section.

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b. Before any recommendation is submitted to the President by the NEDA pursuant to the provisions of
this section, except in the imposition of an additional duty not exceeding ten (10) per cent ad valorem, the
Commission shall conduct an investigation in the course of which they shall hold public hearings wherein
interested parties shall be afforded reasonable opportunity to be present, produce evidence and to be
heard. The Commission shall also hear the views and recommendations of any government office,
agency or instrumentality concerned. The Commission shall submit their findings and recommendations
to the NEDA within thirty (30) days after the termination of the public hearings.
c. The power of the President to increase or decrease rates of import duty within the limits fixed in
subsection "a" shall include the authority to modify the form of duty. In modifying the form of duty, the
corresponding ad valorem or specific equivalents of the duty with respect to imports from the principal
competing foreign country for the most recent representative period shall be used as bases.
d. The Commissioner of Customs shall regularly furnish the Commission a copy of all customs import
entries as filed in the Bureau of Customs. The Commission or its duly authorized representatives shall
have access to, and the right to copy all liquidated customs import entries and other documents
appended thereto as finally filed in the Commission on Audit.
e. The NEDA shall promulgate rules and regulations necessary to carry out the provisions of this section.
f. Any Order issued by the President pursuant to the provisions of this section shall take effect thirty (30)
days after promulgation, except in the imposition of additional duty not exceeding ten (10) per cent ad
valorem which shall take effect at the discretion of the President. (Emphasis supplied)
Petitioner, however, seeks to avoid the thrust of the delegated authorizations found in Sections 104 and 401 of the Tariff
and Customs Code, by contending that the President is authorized to act under the Tariff and Customs Code only "to
protect local industries and products for the sake of the national economy, general welfare and/or national security." 2 He
goes on to claim that:
E.O. Nos. 478 and 475 having nothing to do whatsoever with the protection of local industries and
products for the sake of national economy, general welfare and/or national security. On the contrary, they
work in reverse, especially as to crude oil, an essential product which we do not have to protect, since we
produce only minimal quantities and have to import the rest of what we need.
These Executive Orders are avowedly solely to enable the government to raise government finances,
contrary to Sections 24 and 28 (2) of Article VI of the Constitution, as well as to Section 401 of the Tariff
and Customs Code. 3 (Emphasis in the original)
The Court is not persuaded. In the first place, there is nothing in the language of either Section 104 or of 401 of the Tariff
and Customs Code that suggest such a sharp and absolute limitation of authority. The entire contention of petitioner is
anchored on just two (2) words, one found in Section 401 (a)(1): "existing protective rates of import duty," and the second
in the proviso found at the end of Section 401 (a): "protection levels granted in Section 104 of this Code . . . . " We believe
that the words "protective" and ''protection" are simply not enough to support the very broad and encompassing limitation
which petitioner seeks to rest on those two (2) words.
In the second place, petitioner's singular theory collides with a very practical fact of which this Court may take judicial
notice that the Bureau of Customs which administers the Tariff and Customs Code, is one of the two (2) principal
traditional generators or producers of governmental revenue, the other being the Bureau of Internal Revenue. (There is a
third agency, non-traditional in character, that generates lower but still comparable levels of revenue for the government
The Philippine Amusement and Games Corporation [PAGCOR].)
In the third place, customs duties which are assessed at the prescribed tariff rates are very much like taxes which are
frequently imposed for both revenue-raising and for regulatory purposes. 4 Thus, it has been held that "customs duties" is
"the name given to taxes on the importationand exportation of commodities, the tariff or tax assessed upon merchandise
imported from, or exported to, a foreign country." 5 The levying of customs duties on imported goods may have in some
measure the effect of protecting local industries where such local industries actually exist and are producing
comparable goods. Simultaneously, however, the very same customs duties inevitably have the effect of producing
governmental revenues. Customs duties like internal revenue taxes are rarely, if ever, designed to achieve one policy
objective only. Most commonly, customs duties, which constitute taxes in the sense of exactions the proceeds of which
become public funds 6 have either or both the generation of revenue and the regulation of economic or social activity as
their moving purposes and frequently, it is very difficult to say which, in a particular instance, is the dominant or principal
objective. In the instant case, since the Philippines in fact produces ten (10) to fifteen percent (15%) of the crude oil

Page 111 of 403

consumed here, the imposition of increased tariff rates and a special duty on imported crude oil and imported oil products
may be seen to have some "protective" impact upon indigenous oil production. For the effective, price of imported crude
oil and oil products is increased. At the same time, it cannot be gainsaid that substantial revenues for the government are
raised by the imposition of such increased tariff rates or special duty.
In the fourth place, petitioner's concept which he urges us to build into our constitutional and customs law, is a stiflingly
narrow one. Section 401 of the Tariff and Customs Code establishes general standards with which the exercise of the
authority delegated by that provision to the President must be consistent: that authority must be exercised in "the interest
of national economy, general welfare and/or national security." Petitioner, however, insists that the "protection of local
industries" is the only permissible objective that can be secured by the exercise of that delegated authority, and that
therefore "protection of local industries" is the sum total or the alpha and the omega of "the national economy, general
welfare and/or national security." We find it extremely difficult to take seriously such a confined and closed view of the
legislative standards and policies summed up in Section 401. We believe, for instance, that the protection of consumers,
who after all constitute the very great bulk of our population, is at the very least as important a dimension of "the national
economy, general welfare and national security" as the protection of local industries. And so customs duties may be
reduced or even removed precisely for the purpose of protecting consumers from the high prices and shoddy quality and
inefficient service that tariff-protected and subsidized local manufacturers may otherwise impose upon the community.
It seems also important to note that tariff rates are commonly established and the corresponding customs duties levied
and collected upon articles and goods which are not found at all and not produced in the Philippines. The Tariff and
Customs Code is replete with such articles and commodities: among the more interesting examples are ivory (Chapter 5,
5.10); castoreum or musk taken from the beaver (Chapter 5, 5.14); Olives (Chapter 7, Notes); truffles or European fungi
growing under the soil on tree roots (Chapter 7, Notes); dates (Chapter 8, 8.01); figs (Chapter 8, 8.03); caviar (Chapter
16, 16.01); aircraft (Chapter 88, 88.0l); special diagnostic instruments and apparatus for human medicine and surgery
(Chapter 90, Notes); X-ray generators; X-ray tubes;
X-ray screens, etc. (Chapter 90, 90.20); etc. In such cases, customs duties may be seen to be imposed either for revenue
purposes purely or perhaps, in certain cases, to discourage any importation of the items involved. In either case, it is clear
that customs duties are levied and imposed entirely apart from whether or not there are any competing local industries to
protect.
Accordingly, we believe and so hold that Executive Orders Nos. 475 and 478 which may be conceded to be substantially
moved by the desire to generate additional public revenues, are not, for that reason alone, either constitutionally flawed,
or legally infirm under Section 401 of the Tariff and Customs Code. Petitioner has not successfully overcome the
presumptions of constitutionality and legality to which those Executive Orders are entitled. 7
The conclusion we have reached above renders it unnecessary to deal with petitioner's additional contention that, should
Executive Orders Nos. 475 and 478 be declared unconstitutional and illegal, there should be a roll back of prices of
petroleum products equivalent to the "resulting excess money not be needed to adequately maintain the Oil Price
Stabilization Fund (OPSF)." 8
WHEREFORE, premises considered, the Petition for Certiorari, Prohibition and Mandamus is hereby DISMISSED for lack
of merit. Costs against petitioner.
SO ORDERED.
Narvasa, C.J., Gutierrez, Jr., Cruz, Paras, Padilla, Bidin, Grio-Aquino, Medialdea, Regalado, Davide, Jr., Romero, Nocon and Bellosilo, JJ., concur.
Footnotes
1 This provision also existed in substantially identical terms in the 1973 Constitution (Article VIII, Section 17[2]), and the 1935
Constitution (Article VI, Section 22[2]).
2 Petition, p. 11; Rollo, p. 12; underlining in the original.
3 Rollo, pp. 13-14.
4 Lutz v. Araneta, 98 Phil. 148 (1955); Republic v. Bacolod-Murcia Milling Co., Inc., et al., 17 SCRA 632 (1966); Progressive
Development Corp. v. Quezon City, 172 SCRA 629 (1989).
5 U.S. v. Sischo, 262 Fed. 1001 (1919); Flint v. Stone Tracey Company, 220 US 107 (1910); Keller-Dorian Corp. v. Commissioner of
Internal Revenue, 153 F 2d 1006 (1946). The close affinity of "customs duties" and "taxes" was stressed almost a century ago in the
following excerpt from Pollock v. Farmers' Loan and Trust Company (158 US 601; 39 Law Ed. 1108 [1895]):
"Cooley, on Taxation, p. 3, says that the word 'duty' ordinarily 'means an indirect tax, imposed on the importation, exportation, or
consumption of goods;' having 'a broader meaning than custom, which is a duty imposed on imports or exports;' that 'the term

Page 112 of 403

impost also signifies any tax, tribute or duty, but it is seldom applied to any but the indirect taxes. An excise duty is an inland impost,
levied upon articles of manufacture or sale, and also upon licenses to pursue certain trades or to deal in certain commodities."
(Emphasis partly in the original and partly supplied)
6 Compania General de Tabacos de Filipinas v. City of Manila, et al., 118 Phil. 380 (1963).
7 National Waterworks and Sewerage Authority v. Reyes, 22 SCRA 905 (1968); See also: Victoriano v. Elizalde Rope Workers'
Union, 59 SCRA 54 (1974); Ermita-Malate Hotel and Motel Operators Association Inc. v. City Mayor of Manila, 20 SCRA 849 (1967).
8 Rollo, pp. 14-16.
The Lawphil Project - Arellano Law Foundation

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 115455 August 25, 1994
ARTURO M. TOLENTINO, petitioner,
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, respondents.
G.R. No. 115525 August 25, 1994
JUAN T. DAVID, petitioner,
vs.
TEOFISTO T. GUINGONA, JR., as Executive Secretary; ROBERTO DE OCAMPO, as Secretary of Finance;
LIWAYWAY VINZONS-CHATO, as Commissioner of Internal Revenue; and their AUTHORIZED AGENTS OR
REPRESENTATIVES, respondents.
G.R. No. 115543 August 25, 1994
RAUL S. ROCO and the INTEGRATED BAR OF THE PHILIPPINES, petitioners,
vs.
THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE COMMISSIONERS OF THE BUREAU OF INTERNAL
REVENUE AND BUREAU OF CUSTOMS, respondents.
G.R. No. 115544 August 25, 1994
PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO., INC.; PUBLISHING CORPORATION; PHILIPPINE
JOURNALISTS, INC.; JOSE L. PAVIA; and OFELIA L. DIMALANTA, petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as Commissioner of Internal Revenue; HON. TEOFISTO T.
GUINGONA, JR., in his capacity as Executive Secretary; and HON. ROBERTO B. DE OCAMPO, in his capacity as
Secretary of Finance, respondents.
G.R. No. 115754 August 25, 1994
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC., (CREBA), petitioner,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.

Page 113 of 403

G.R. No. 115781 August 25, 1994
KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS, ERME CAMBA, EMILIO C. CAPULONG, JR., JOSE T.
APOLO, EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE ABCEDE, CHRISTINE TAN, FELIPE L. GOZON,
RAFAEL G. FERNANDO, RAOUL V. VICTORINO, JOSE CUNANAN, QUINTIN S. DOROMAL, MOVEMENT OF
ATTORNEYS FOR BROTHERHOOD, INTEGRITY AND NATIONALISM, INC. ("MABINI"), FREEDOM FROM DEBT
COALITION, INC., PHILIPPINE BIBLE SOCIETY, INC., and WIGBERTO TAADA,petitioners,
vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE, THE COMMISSIONER OF INTERNAL REVENUE
and THE COMMISSIONER OF CUSTOMS, respondents.
G.R. No. 115852 August 25, 1994
PHILIPPINE AIRLINES, INC., petitioner,
vs.
THE SECRETARY OF FINANCE, and COMMISSIONER OF INTERNAL REVENUE, respondents.
G.R. No. 115873 August 25, 1994
COOPERATIVE UNION OF THE PHILIPPINES, petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as the Commissioner of Internal Revenue, HON. TEOFISTO T.
GUINGONA, JR., in his capacity as Executive Secretary, and HON. ROBERTO B. DE OCAMPO, in his capacity as
Secretary of Finance, respondents.
G.R. No. 115931 August 25, 1994
PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC., and ASSOCIATION OF PHILIPPINE BOOKSELLERS, petitioners,
vs.
HON. ROBERTO B. DE OCAMPO, as the Secretary of Finance; HON. LIWAYWAY V. CHATO, as the Commissioner
of Internal Revenue and HON. GUILLERMO PARAYNO, JR., in his capacity as the Commissioner of
Customs, respondents.
Arturo M. Tolentino for and in his behalf.
Donna Celeste D. Feliciano and Juan T. David for petitioners in G.R. No. 115525.
Roco, Bunag, Kapunan, Migallos and Jardeleza for petitioner R.S. Roco.
Villaranza and Cruz for petitioners in G.R. No. 115544.
Carlos A. Raneses and Manuel M. Serrano for petitioner in G.R. No. 115754.
Salonga, Hernandez & Allado for Freedon From Debts Coalition, Inc. & Phil. Bible Society.
Estelito P. Mendoza for petitioner in G.R. No. 115852.
Panganiban, Benitez, Parlade, Africa & Barinaga Law Offices for petitioners in G.R. No. 115873.
R.B. Rodriguez & Associates for petitioners in G.R. No. 115931.
Reve A.V. Saguisag for MABINI.

MENDOZA, J.:
The value-added tax (VAT) is levied on the sale, barter or exchange of goods and properties as well as on the sale or
exchange of services. It is equivalent to 10% of the gross selling price or gross value in money of goods or properties
sold, bartered or exchanged or of the gross receipts from the sale or exchange of services. Republic Act No. 7716 seeks
to widen the tax base of the existing VAT system and enhance its administration by amending the National Internal
Revenue Code.
These are various suits for certiorari and prohibition, challenging the constitutionality of Republic Act No. 7716 on various
grounds summarized in the resolution of July 6, 1994 of this Court, as follows:
I. Procedural Issues:
A. Does Republic Act No. 7716 violate Art. VI, 24 of the Constitution?

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B. Does it violate Art. VI, 26(2) of the Constitution?
C. What is the extent of the power of the Bicameral Conference Committee?
II. Substantive Issues:
A. Does the law violate the following provisions in the Bill of Rights (Art. III)?
1. 1
2. 4
3. 5
4. 10
B. Does the law violate the following other provisions of the Constitution?
1. Art. VI, 28(1)
2. Art. VI, 28(3)
These questions will be dealt in the order they are stated above. As will presently be explained not all of these questions
are judicially cognizable, because not all provisions of the Constitution are self executing and, therefore, judicially
enforceable. The other departments of the government are equally charged with the enforcement of the Constitution,
especially the provisions relating to them.
I. PROCEDURAL ISSUES
The contention of petitioners is that in enacting Republic Act No. 7716, or the Expanded Value-Added Tax Law, Congress
violated the Constitution because, although H. No. 11197 had originated in the House of Representatives, it was not
passed by the Senate but was simply consolidated with the Senate version (S. No. 1630) in the Conference Committee to
produce the bill which the President signed into law. The following provisions of the Constitution are cited in support of the
proposition that because Republic Act No. 7716 was passed in this manner, it did not originate in the House of
Representatives and it has not thereby become a law:
Art. VI, 24: All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of
local application, and private bills shall originate exclusively in the House of Representatives, but the
Senate may propose or concur with amendments.
Id., 26(2): No bill passed by either House shall become a law unless it has passed three readings on
separate days, and printed copies thereof in its final form have been distributed to its Members 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 the last reading of a bill, no amendment thereto shall be
allowed, and the vote thereon shall be taken immediately thereafter, and the yeasand nays entered in the
Journal.
It appears that on various dates between July 22, 1992 and August 31, 1993, several bills 1 were introduced in the House
of Representatives seeking to amend certain provisions of the National Internal Revenue Code relative to the value-added
tax or VAT. These bills were referred to the House Ways and Means Committee which recommended for approval a
substitute measure, H. No. 11197, entitled
AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM TO WIDEN ITS TAX BASE AND
ENHANCE ITS ADMINISTRATION, AMENDING FOR THESE PURPOSES SECTIONS 99, 100, 102,
103, 104, 105, 106, 107, 108 AND 110 OF TITLE IV, 112, 115 AND 116 OF TITLE V, AND 236, 237 AND
238 OF TITLE IX, AND REPEALING SECTIONS 113 AND 114 OF TITLE V, ALL OF THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED
The bill (H. No. 11197) was considered on second reading starting November 6, 1993 and, on November 17, 1993, it was
approved by the House of Representatives after third and final reading.
It was sent to the Senate on November 23, 1993 and later referred by that body to its Committee on Ways and Means.
On February 7, 1994, the Senate Committee submitted its report recommending approval of S. No. 1630, entitled
AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM TO WIDEN ITS TAX BASE AND
ENHANCE ITS ADMINISTRATION, AMENDING FOR THESE PURPOSES SECTIONS 99, 100, 102,
103, 104, 105, 107, 108, AND 110 OF TITLE IV, 112 OF TITLE V, AND 236, 237, AND 238 OF TITLE IX,

Page 115 of 403

AND REPEALING SECTIONS 113, 114 and 116 OF TITLE V, ALL OF THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED, AND FOR OTHER PURPOSES
It was stated that the bill was being submitted "in substitution of Senate Bill No. 1129, taking into consideration P.S. Res.
No. 734 and H.B. No. 11197."
On February 8, 1994, the Senate began consideration of the bill (S. No. 1630). It finished debates on the bill and
approved it on second reading on March 24, 1994. On the same day, it approved the bill on third reading by the affirmative
votes of 13 of its members, with one abstention.
H. No. 11197 and its Senate version (S. No. 1630) were then referred to a conference committee which, after meeting four
times (April 13, 19, 21 and 25, 1994), recommended that "House Bill No. 11197, in consolidation with Senate Bill No.
1630, be approved in accordance with the attached copy of the bill as reconciled and approved by the conferees."
The Conference Committee bill, entitled "AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM,
WIDENING ITS TAX BASE AND ENHANCING ITS ADMINISTRATION AND FOR THESE PURPOSES AMENDING AND
REPEALING THE RELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND
FOR OTHER PURPOSES," was thereafter approved by the House of Representatives on April 27, 1994 and by the
Senate on May 2, 1994. The enrolled bill was then presented to the President of the Philippines who, on May 5, 1994,
signed it. It became Republic Act No. 7716. On May 12, 1994, Republic Act No. 7716 was published in two newspapers of
general circulation and, on May 28, 1994, it took effect, although its implementation was suspended until June 30, 1994 to
allow time for the registration of business entities. It would have been enforced on July 1, 1994 but its enforcement was
stopped because the Court, by the vote of 11 to 4 of its members, granted a temporary restraining order on June 30,
1994.
First. Petitioners' contention is that Republic Act No. 7716 did not "originate exclusively" in the House of Representatives
as required by Art. VI, 24 of the Constitution, because it is in fact the result of the consolidation of two distinct bills, H. No.
11197 and S. No. 1630. In this connection, petitioners point out that although Art. VI, SS 24 was adopted from the
American Federal Constitution, 2 it is notable in two respects: the verb "shall originate" is qualified in the Philippine
Constitution by the word "exclusively" and the phrase "as on other bills" in the American version is omitted. This means,
according to them, that to be considered as having originated in the House, Republic Act No. 7716 must retain the
essence of H. No. 11197.
This argument will not bear analysis. To begin with, it is not the law but the revenue bill which is required by the
Constitution to "originate exclusively" in the House of Representatives. It is important to emphasize this, because a bill
originating in the House may undergo such extensive changes in the Senate that the result may be a rewriting of the
whole. The possibility of a 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 be produced. To insist that a revenue statute
and not only the bill which initiated the legislative process culminating in the enactment of the law must substantially
be the same as the House bill would be to deny the Senate's power not only to "concur with amendments" but also to
"propose amendments." It would be to violate the coequality of legislative power of the two houses of Congress and in fact
make the House superior to the Senate.
The contention that the constitutional design is to limit the Senate's power in respect of revenue bills in order to
compensate for the grant to the Senate of the treaty-ratifying power 3 and thereby equalize its powers and those of the
House overlooks the fact that the powers being compared are different. We are dealing here with the legislative power
which under the Constitution is vested not in any particular chamber but in the Congress of the Philippines, consisting of
"a Senate and a House of Representatives." 4 The exercise of the treaty-ratifying power is not the exercise of legislative
power. It is the exercise of a check on the executive power. There is, therefore, no justification for comparing the
legislative powers of the House and of the Senate on the basis of the possession of such nonlegislative power by the
Senate. The possession of a similar power by the U.S. Senate 5 has never been thought of as giving it more legislative
powers than the House of Representatives.
In the United States, the validity of a provision ( 37) imposing an ad valorem tax based on the weight of vessels, which
the U.S. Senate had inserted in the Tariff Act of 1909, was upheld against the claim that the provision was a revenue bill
which originated in the Senate in contravention of Art. I, 7 of the U.S. Constitution. 6 Nor is the power to amend limited to
adding a provision or two in a revenue bill emanating from the House. The U.S. Senate has gone so far as changing the
whole of bills following the enacting clause and substituting its own versions. In 1883, for example, it struck out everything
after the enacting clause of a tariff bill and wrote in its place its own measure, and the House subsequently accepted the
amendment. The U.S. Senate likewise added 847 amendments to what later became the Payne-Aldrich Tariff Act of 1909;
it dictated the schedules of the Tariff Act of 1921; it rewrote an extensive tax revision bill in the same year and recast most
of the tariff bill of 1922. 7 Given, then, the power of the Senate to propose amendments, the Senate can propose its own
version even with respect to bills which are required by the Constitution to originate in the House.
It is insisted, however, that S. No. 1630 was passed not in substitution of H. No. 11197 but of another Senate bill (S. No.
1129) earlier filed and that what the Senate did was merely to "take [H. No. 11197] into consideration" in enacting S. No.
1630. There is really no difference between the Senate preserving H. No. 11197 up to the enacting clause and then writing
its own version following the enacting clause (which, it would seem, petitioners admit is an amendment by substitution),
and, on the other hand, separately presenting a bill of its own on the same subject matter. In either case the result are two
bills on the same subject.

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Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff, or tax bills, bills authorizing an
increase of the public debt, private bills and bills of local application must come from the House of Representatives on the
theory that, elected as they are from the districts, the members of the House can be expected to be more sensitive to the
local needs and problems. On the other hand, the senators, who are elected at large, are expected to approach the same
problems from the national perspective. Both views are thereby made to bear on the enactment of such laws.
Nor does the Constitution prohibit the filing in the Senate of a substitute bill in anticipation of its receipt of the bill from the
House, so long as action by the Senate as a body is withheld pending receipt of the House bill. The Court cannot,
therefore, understand the alarm expressed over the fact that on March 1, 1993, eight months before the House passed H.
No. 11197, S. No. 1129 had been filed in the Senate. After all it does not appear that the Senate ever considered it. It was
only after the Senate had received H. No. 11197 on November 23, 1993 that the process of legislation in respect of it
began with the referral to the Senate Committee on Ways and Means of H. No. 11197 and the submission by the
Committee on February 7, 1994 of S. No. 1630. For that matter, if the question were simply the priority in the time of filing
of bills, the fact is that it was in the House that a bill (H. No. 253) to amend the VAT law was first filed on July 22, 1992.
Several other bills had been filed in the House before S. No. 1129 was filed in the Senate, and H. No. 11197 was only a
substitute of those earlier bills.
Second. Enough has been said to show that it was within the power of the Senate to propose S. No. 1630. We now pass
to the next argument of petitioners that S. No. 1630 did not pass three readings on separate days as required by the
Constitution 8 because the second and third readings were done on the same day, March 24, 1994. But this was because
on February 24, 1994 9 and again on March 22, 1994, 10 the President had certified S. No. 1630 as urgent. The
presidential certification dispensed with the requirement not only of printing but also that of reading the bill on separate
days. The phrase "except when the President certifies to the necessity of its immediate enactment, etc." in Art. VI, 26(2)
qualifies the two stated conditions before a bill can become a law: (i) the bill has passed three readings on separate days
and (ii) it has been printed in its final form and distributed three days before it is finally approved.
In other words, the "unless" clause must be read in relation to the "except" clause, because the two are really coordinate
clauses of the same sentence. To construe the "except" clause as simply dispensing with the second requirement in the
"unless" clause (i.e., printing and distribution three days before final approval) would not only violate the rules of grammar.
It would also negate the very premise of the "except" clause: the necessity of securing the immediate enactment of a bill
which is certified in order to meet a public calamity or emergency. For if it is only the printing that is dispensed with by
presidential certification, the time saved would be so negligible as to be of any use in insuring immediate enactment. It
may well be doubted whether doing away with the necessity of printing and distributing copies of the bill three days before
the third reading would insure speedy enactment of a law in the face of an emergency requiring the calling of a special
election for President and Vice-President. Under the Constitution such a law is required to be made within seven days of
the convening of Congress in emergency session. 11
That upon the certification of a bill by the President the requirement of three readings on separate days and of printing
and distribution can be dispensed with is supported by the weight of legislative practice. For example, the bill defining
the certiorari jurisdiction of this Court which, in consolidation with the Senate version, became Republic Act No. 5440, was
passed on second and third readings in the House of Representatives on the same day (May 14, 1968) after the bill had
been certified by the President as urgent. 12
There is, therefore, no merit in the contention that presidential certification dispenses only with the requirement for the
printing of the bill and its distribution three days before its passage but not with the requirement of three readings on
separate days, also.
It is nonetheless urged that the certification of the bill in this case was invalid because there was no emergency, the
condition stated in the certification of a "growing budget deficit" not being an unusual condition in this country.
It is noteworthy that no member of the Senate saw fit to controvert the reality of the factual basis of the certification. To the
contrary, by passing S. No. 1630 on second and third readings on March 24, 1994, the Senate accepted the President's
certification. Should such certification be now reviewed by this Court, especially when no evidence has been shown that,
because S. No. 1630 was taken up on second and third readings on the same day, the members of the Senate were
deprived of the time needed for the study of a vital piece of legislation?
The sufficiency of the factual basis of the suspension of the writ of habeas corpus or declaration of martial law under Art.
VII, 18, or the existence of a national emergency justifying the delegation of extraordinary powers to the President under
Art. VI, 23(2), is subject to judicial review because basic rights of individuals may be at hazard. But the factual basis of
presidential certification of bills, which involves doing away with procedural requirements designed to insure that bills are
duly considered by members of Congress, certainly should elicit a different standard of review.
Petitioners also invite attention to the fact that the President certified S. No. 1630 and not H. No. 11197. That is because
S. No. 1630 was what the Senate was considering. When the matter was before the House, the President likewise
certified H. No. 9210 the pending in the House.
Third. Finally it is contended that the bill which became Republic Act No. 7716 is the bill which the Conference Committee
prepared by consolidating H. No. 11197 and S. No. 1630. It is claimed that the Conference Committee report included
provisions not found in either the House bill or the Senate bill and that these provisions were "surreptitiously" inserted by
the Conference Committee. Much is made of the fact that in the last two days of its session on April 21 and 25, 1994 the

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Committee met behind closed doors. We are not told, however, whether the provisions were not the result of the give and
take that often mark the proceedings of conference committees.
Nor is there anything unusual or extraordinary about the fact that the Conference Committee met in executive sessions.
Often the only way to reach agreement on conflicting provisions is to meet behind closed doors, with only the conferees
present. Otherwise, no compromise is likely to be made. The Court is not about to take the suggestion of a cabal or
sinister motive attributed to the conferees on the basis solely of their "secret meetings" on April 21 and 25, 1994, nor read
anything into the incomplete remarks of the members, marked in the transcript of stenographic notes by ellipses. The
incomplete sentences are probably due to the stenographer's own limitations or to the incoherence that sometimes
characterize conversations. William Safire noted some such lapses in recorded talks even by recent past Presidents of
the United States.
In any event, in the United States conference committees had been customarily held in executive sessions with only the
conferees and their staffs in attendance. 13 Only in November 1975 was a new rule adopted requiring open sessions. Even
then a majority of either chamber's conferees may vote in public to close the meetings. 14
As to the possibility of an entirely new bill emerging out of a Conference Committee, it has been explained:
Under congressional rules of procedure, conference committees are not expected to make any material
change in the measure at issue, either by deleting provisions to which both houses have already agreed
or by inserting new provisions. But this is a difficult provision to enforce. Note the problem when one
house amends a proposal originating in either house by striking out everything following the enacting
clause and substituting provisions which make it an entirely new bill. The versions are now altogether
different, permitting a conference committee to draft essentially a new bill. . . . 15
The result is a third version, which is considered an "amendment in the nature of a substitute," the only requirement for
which being that the third version be germane to the subject of the House and Senate bills. 16
Indeed, this Court recently held that it is within the power of a conference committee to include in its report an entirely new
provision that is not found either in the House bill or in the Senate bill. 17 If the committee can propose an amendment
consisting of one or two provisions, there is no reason why it cannot propose several provisions, collectively considered
as an "amendment in the nature of a substitute," so long as such 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 to become valid as
an act of the legislative department. The charge that in this case the Conference Committee acted as a third legislative
chamber is thus without any basis. 18
Nonetheless, it is argued that under the respective Rules of the Senate and the House of Representatives a conference
committee can only act on the differing provisions of a Senate bill and a House bill, and that contrary to these Rules the
Conference Committee inserted provisions not found in the bills submitted to it. The following provisions are cited in
support of this contention:
Rules of the Senate
Rule XII:
26. 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 a conference committee of both
Houses which shall meet within ten days after their composition.
The President shall designate the members of the conference committee in accordance with
subparagraph (c), Section 3 of Rule III.
Each Conference Committee Report shall contain a detailed and sufficiently explicit statement of the
changes in or amendments to the subject measure, and shall be signed by the conferees.
The consideration of such report shall not be in order unless the report has been filed with the Secretary
of the Senate and copies thereof have been distributed to the Members.
(Emphasis added)
Rules of the House of Representatives
Rule XIV:
85. Conference Committee Reports. In the event that the House does not agree with the Senate on
the amendments to any bill or joint resolution, the differences may be settled by conference committees
of both Chambers.

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The consideration of conference committee reports shall always be in order, except when the journal is
being read, while the roll is being called or the House is dividing on any question. Each of the pages of
such reports shall be signed by the conferees. Each report shall contain a detailed, sufficiently explicit
statement of the changes in or amendments to the subject measure.
The consideration of such report shall not be in order unless copies thereof are distributed to the
Members: Provided, That in the last fifteen days of each session period it shall be deemed sufficient that
three copies of the report, signed as above provided, are deposited in the office of the Secretary General.
(Emphasis added)
To be sure, nothing in the Rules limits a conference committee to a consideration of conflicting provisions. But Rule XLIV,
112 of the Rules of the Senate is cited to the effect that "If there is no Rule applicable to a specific case the precedents
of the Legislative Department of the Philippines shall be resorted to, and as a supplement of these, the Rules contained in
Jefferson's Manual." The following is then quoted from the Jefferson's Manual:
The managers of a conference must confine themselves to the differences committed to them. . . and
may not include subjects not within disagreements, even though germane to a question in issue.
Note that, according to Rule XLIX, 112, in case there is no specific rule applicable, resort must be to the legislative
practice. The Jefferson's Manual is resorted to only as supplement. It is common place in Congress that conference
committee reports include new matters which, though germane, have not been committed to the committee. This practice
was admitted by Senator Raul S. Roco, petitioner in G.R. No. 115543, during the oral argument in these cases. Whatever,
then, may be provided in the Jefferson's Manual must be considered to have been modified by the legislative practice. If a
change is desired in the practice it must be sought in Congress since this question is not covered by any constitutional
provision but is only an internal rule of each house. Thus, Art. VI, 16(3) of the Constitution provides that "Each House
may determine the rules of its proceedings. . . ."
This observation applies to the other contention that the Rules of the two chambers were likewise disregarded in the
preparation of the Conference Committee Report because the Report did not contain a "detailed and sufficiently explicit
statement of changes in, or amendments to, the subject measure." The Report used brackets and capital letters to
indicate the changes. This is a standard practice in bill-drafting. We cannot say that in using these marks and symbols the
Committee violated the Rules of the Senate and the House. Moreover, this Court is not the proper forum for the
enforcement of these internal Rules. To the contrary, as we have already ruled, "parliamentary rules are merely procedural
and with their observance the courts have no concern." 19 Our concern is with the procedural requirements of the
Constitution for the enactment of laws. As far as these requirements are concerned, we are satisfied that they have been
faithfully observed in these cases.
Nor is there any reason for requiring that the Committee's Report in these cases must have 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
modifications of the compromise bill. The nature of the bill, therefore, requires that it be acted upon by each house on a
"take it or leave it" basis, with the only alternative that if it is not approved by both houses, another conference committee
must be appointed. But then again the result would still be a compromise measure that may not be wholly satisfying to
both houses.
Art. VI, 26(2) must, therefore, be construed as referring only to bills introduced for the first time in either house of
Congress, not to the conference committee report. For if the purpose of requiring three readings is to give members of
Congress time to study bills, it cannot be gainsaid that H. No. 11197 was passed in the House after three readings; that in
the Senate it was considered on first reading and then referred to a committee of that body; that although the Senate
committee did not report out the House bill, it submitted a version (S. No. 1630) which it had prepared by "taking into
consideration" the House bill; that for its part the Conference Committee consolidated the two bills and prepared a
compromise version; that the Conference Committee Report was thereafter approved by the House and the Senate,
presumably after appropriate study by their members. We cannot say that, as a matter of fact, the members of Congress
were not fully informed of the provisions of the bill. The allegation that the Conference Committee usurped the legislative
power of Congress is, in our view, without warrant in fact and in law.
Fourth. Whatever doubts there may be as to the formal validity of Republic Act No. 7716 must be resolved in its favor. Our
cases 20 manifest firm adherence to the rule that an enrolled copy of a bill is conclusive not only of its provisions but also
of its due enactment. Not even claims that a proposed constitutional amendment was invalid because the requisite votes
for its approval had not been obtained 21 or that certain provisions of a statute had been "smuggled" in the printing of the
bill 22 have moved or persuaded us to look behind the proceedings of a coequal branch of the government. There is no
reason now to depart from this rule.
No claim is here made that the "enrolled bill" rule is absolute. In fact in one case 23 we "went behind" an enrolled bill and
consulted the Journal to determine whether certain provisions of a statute had been approved by the Senate in view of the
fact that the President of the Senate himself, who had signed the enrolled bill, admitted a mistake and withdrew his
signature, so that in effect there was no longer an enrolled bill to consider.
But where allegations that the constitutional procedures for the passage of bills have not been observed have no more
basis than another allegation that the Conference Committee "surreptitiously" inserted provisions into a bill which it had

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prepared, we should decline the invitation to go behind the enrolled copy of the bill. To disregard the "enrolled bill" rule in
such cases would be to disregard the respect due the other two departments of our government.
Fifth. An additional attack on the formal validity of Republic Act No. 7716 is made by the Philippine Airlines, Inc., petitioner
in G.R. No. 11582, namely, that it violates Art. VI, 26(1) which provides that "Every bill passed by Congress shall
embrace only one subject which shall be expressed in the title thereof." It is contended that neither H. No. 11197 nor S.
No. 1630 provided for removal of exemption of PAL transactions from the payment of the VAT and that this was made only
in the Conference Committee bill which became Republic Act No. 7716 without reflecting this fact in its title.
The title of Republic Act No. 7716 is:
AN ACT RESTRUCTURING THE VALUE- ADDED TAX (VAT) SYSTEM, WIDENING ITS TAX BASE AND
ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES AMENDING AND REPEALING
THE RELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND
FOR OTHER PURPOSES.
Among the provisions of the NIRC amended is 103, which originally read:
103. Exempt transactions. The following shall be exempt from the value-added tax:
....
(q) Transactions which are exempt under special laws or international agreements to which the
Philippines is a signatory. Among the transactions exempted from the VAT were those of PAL because it
was exempted under its franchise (P.D. No. 1590) from the payment of all "other taxes . . . now or in the
near future," in consideration of the payment by it either of the corporate income tax or a franchise tax of
2%.
As a result of its amendment by Republic Act No. 7716, 103 of the NIRC now provides:
103. Exempt transactions. The following shall be exempt from the value-added tax:
....
(q) Transactions which are exempt under special laws, except those granted under Presidential Decree
Nos. 66, 529, 972, 1491, 1590. . . .
The effect of the amendment is to remove the exemption granted to PAL, as far as the VAT is concerned.
The question is whether this amendment of 103 of the NIRC is fairly embraced in the title of Republic Act No. 7716,
although no mention is made therein of P.D. No. 1590 as among those which the statute amends. We think it is, since the
title states that the purpose of the statute is to expand the VAT system, and one way of doing this is to widen its base by
withdrawing some of the exemptions granted before. To insist that P.D. No. 1590 be mentioned in the title of the law, in
addition to 103 of the NIRC, in which it is specifically referred to, would be to insist that the title of a bill should be a
complete index of its content.
The constitutional requirement that every bill passed by Congress shall embrace only one subject which shall be
expressed in its title is intended to prevent surprise upon the members of Congress and to inform the people of pending
legislation so that, if they wish to, they can be heard regarding it. If, in the case at bar, petitioner did not know before that
its exemption had been withdrawn, it is not because of any defect in the title but perhaps for the same reason other
statutes, although published, pass unnoticed until some event somehow calls attention to their existence. Indeed, the title
of Republic Act No. 7716 is not any more general than the title of PAL's own franchise under P.D. No. 1590, and yet no
mention is made of its tax exemption. The title of P.D. No. 1590 is:
AN ACT GRANTING A NEW FRANCHISE TO PHILIPPINE AIRLINES, INC. TO ESTABLISH, OPERATE,
AND MAINTAIN AIR-TRANSPORT SERVICES IN THE PHILIPPINES AND BETWEEN THE
PHILIPPINES AND OTHER COUNTRIES.
The trend in our cases is to construe the constitutional requirement in such a manner that courts do not unduly interfere
with the enactment of necessary legislation and to consider it sufficient if the title expresses the general subject of the
statute and all its provisions are germane to the general subject thus expressed. 24
It is further contended that amendment of petitioner's franchise may only be made by special law, in view of 24 of P.D.
No. 1590 which provides:
This franchise, as amended, or any section or provision hereof may only be modified, amended, or
repealed expressly by a special law or decree that shall specifically modify, amend, or repeal this
franchise or any section or provision thereof.

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This provision is evidently intended to prevent the amendment of the franchise by mere implication resulting from the
enactment of a later inconsistent statute, in consideration of the fact that a franchise is a contract which can be altered
only by consent of the parties. Thus in Manila Railroad Co. v.
Rafferty, 25 it was held that an Act of the U.S. Congress, which provided for the payment of tax on certain goods and
articles imported into the Philippines, did not amend the franchise of plaintiff, which exempted it from all taxes except
those mentioned in its franchise. It was held that a special law cannot be amended by a general law.
In contrast, in the case at bar, Republic Act No. 7716 expressly amends PAL's franchise (P.D. No. 1590) by specifically
excepting from the grant of exemptions from the VAT PAL's exemption under P.D. No. 1590. This is within the power of
Congress to do under Art. XII, 11 of the Constitution, which provides that the grant of a franchise for the operation of a
public utility is subject to amendment, alteration or repeal by Congress when the common good so requires.
II. SUBSTANTIVE ISSUES
A. Claims of Press Freedom, Freedom of Thought and Religious
Freedom
The Philippine Press Institute (PPI), petitioner in G.R. No. 115544, is a nonprofit organization of newspaper publishers
established for the improvement of journalism in the Philippines. On the other hand, petitioner in G.R. No. 115781, the
Philippine Bible Society (PBS), is a nonprofit organization engaged in the printing and distribution of bibles and other
religious articles. Both petitioners claim violations of their rights under 4 and 5 of the Bill of Rights as a result of the
enactment of the VAT Law.
The PPI questions the law insofar as it has withdrawn the exemption previously granted to the press under 103 (f) of the
NIRC. Although the exemption was subsequently restored by administrative regulation with respect to the circulation
income of newspapers, the PPI presses its claim because of the possibility that the exemption may still be removed by
mere revocation of the regulation of the Secretary of Finance. On the other hand, the PBS goes so far as to question the
Secretary's power to grant exemption for two reasons: (1) The Secretary of Finance has no power to grant tax exemption
because this is vested in Congress and requires for its exercise the vote of a majority of all its members 26 and (2) the
Secretary's duty is to execute the law.
103 of the NIRC contains a list of transactions exempted from VAT. Among the transactions previously granted
exemption were:
(f) Printing, publication, importation or sale of books and any newspaper, magazine, review, or bulletin
which appears at regular intervals with fixed prices for subscription and sale and which is devoted
principally to the publication of advertisements.
Republic Act No. 7716 amended 103 by deleting (f) with the result that print media became subject to the VAT with
respect to all aspects of their operations. Later, however, based on a memorandum of the Secretary of Justice,
respondent Secretary of Finance issued Revenue Regulations No. 11-94, dated June 27, 1994, exempting the "circulation
income of print media pursuant to 4 Article III of the 1987 Philippine Constitution guaranteeing against abridgment of
freedom of the press, among others." The exemption of "circulation income" has left income from advertisements still
subject to the VAT.
It is unnecessary to pass upon the contention that the exemption granted is beyond the authority of the Secretary of
Finance to give, in view of PPI's contention that even with the exemption of the circulation revenue of print media there is
still an unconstitutional abridgment of press freedom because of the imposition of the VAT on the gross receipts of
newspapers from advertisements and on their acquisition of paper, ink and services for publication. Even on the
assumption that no exemption has effectively been granted to print media transactions, we find no violation of press
freedom in these cases.
To be sure, we are not dealing here with a statute that on its face operates in the area of press freedom. The PPI's claim
is simply that, as applied to newspapers, the law abridges press freedom. Even with due recognition of its high estate and
its importance in a democratic society, however, the press is not immune from general regulation by the State. It has been
held:
The publisher of a newspaper has no immunity from the application of general laws. He has no special
privilege to invade the rights and liberties of others. He must answer for libel. He may be punished for
contempt of court. . . . Like others, he must pay equitable and nondiscriminatory taxes on his
business. . . . 27
The PPI does not dispute this point, either.
What it contends is that by withdrawing the exemption previously granted to print media transactions involving printing,
publication, importation or sale of newspapers, Republic Act No. 7716 has singled out the press for discriminatory
treatment and that within the class of mass media the law discriminates against print media by giving broadcast media
favored treatment. We have carefully examined this argument, but we are unable to find a differential treatment of the
press by the law, much less any censorial motivation for its enactment. If the press is now required to pay a value-added

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tax on its transactions, it is not because it is being singled out, much less targeted, for special treatment but only because
of the removal of the exemption previously granted to it by law. The withdrawal of exemption is all that is involved in these
cases. Other transactions, likewise previously granted exemption, have been delisted as part of the scheme to expand the
base and the scope of the VAT system. The law would perhaps be open to the charge of discriminatory treatment if the
only privilege withdrawn had been that granted to the press. But that is not the case.
The situation in the case at bar is indeed a far cry from those cited by the PPI in support of its claim that Republic Act No.
7716 subjects the press to discriminatory taxation. In the cases cited, the discriminatory purpose was clear either from the
background of the law or from its operation. For example, in Grosjean v. American Press Co., 28 the law imposed a license
tax equivalent to 2% of the gross receipts derived from advertisements only on newspapers which had a circulation of
more than 20,000 copies per week. Because the tax was not based on the volume of advertisement alone but was
measured by the extent of its circulation as well, the law applied only to the thirteen large newspapers in Louisiana,
leaving untaxed four papers with circulation of only slightly less than 20,000 copies a week and 120 weekly newspapers
which were in serious competition with the thirteen newspapers in question. It was well known that the thirteen
newspapers had been critical of Senator Huey Long, and the Long-dominated legislature of Louisiana respondent by
taxing what Long described as the "lying newspapers" by imposing on them "a tax on lying." The effect of the tax was to
curtail both their revenue and their circulation. As the U.S. Supreme Court noted, the tax was "a deliberate and calculated
device in the guise of a tax to limit the circulation of information to which the public is entitled in virtue of the constitutional
guaranties." 29 The case is a classic illustration of the warning that the power to tax is the power to destroy.
In the other case 30 invoked by the PPI, the press was also found to have been singled out because everything was
exempt from the "use tax" on ink and paper, except the press. Minnesota imposed a tax on the sales of goods in that
state. To protect the sales tax, it enacted a complementary tax on the privilege of "using, storing or consuming in that state
tangible personal property" by eliminating the residents' incentive to get goods from outside states where the sales tax
might be lower. The Minnesota Star Tribune was exempted from both taxes from 1967 to 1971. In 1971, however, the
state legislature amended the tax scheme by imposing the "use tax" on the cost of paper and ink used for publication. The
law was held to have singled out the press because (1) there was no reason for imposing the "use tax" since the press
was exempt from the sales tax and (2) the "use tax" was laid on an "intermediate transaction rather than the ultimate retail
sale." Minnesota had a heavy burden of justifying the differential treatment and it failed to do so. In addition, the U.S.
Supreme Court found the law to be discriminatory because the legislature, by again amending the law so as to exempt the
first $100,000 of paper and ink used, further narrowed the coverage of the tax so that "only a handful of publishers pay
any tax at all and even fewer pay any significant amount of tax." 31 The discriminatory purpose was thus very clear.
More recently, in Arkansas Writers' Project, Inc. v. Ragland, 32 it was held that a law which taxed general interest
magazines but not newspapers and religious, professional, trade and sports journals was discriminatory because while
the tax did not single out the press as a whole, it targeted a small group within the press. What is more, by differentiating
on the basis of contents (i.e., between general interest and special interests such as religion or sports) the law became
"entirely incompatible with the First Amendment's guarantee of freedom of the press."
These cases come down to this: that unless justified, the differential treatment of the press creates risks of suppression of
expression. In contrast, in the cases at bar, the statute applies to a wide range of goods and services. The argument that,
by imposing the VAT only on print media whose gross sales exceeds P480,000 but not more than P750,000, the law
discriminates 33 is without merit since it has not been shown that as a result the class subject to tax has been
unreasonably narrowed. The fact is that this limitation does not apply to the press along but to all sales. Nor is
impermissible motive shown by the fact that print media and broadcast media are treated differently. The press is taxed on
its transactions involving printing and publication, which are different from the transactions of broadcast media. There is
thus a reasonable basis for the classification.
The cases canvassed, it must be stressed, eschew any suggestion that "owners of newspapers are immune from any
forms of ordinary taxation." The license tax in the Grosjean case was declared invalid because it was "one single in kind,
with a long history of hostile misuse against the freedom of the
press." 34 On the other hand, Minneapolis Star acknowledged that "The First Amendment does not prohibit all regulation of
the press [and that] the States and the Federal Government can subject newspapers to generally applicable economic
regulations without creating constitutional problems." 35
What has been said above also disposes of the allegations of the PBS that the removal of the exemption of printing,
publication or importation of books and religious articles, as well as their printing and publication, likewise violates
freedom of thought and of conscience. For as the U.S. Supreme Court unanimously held in Jimmy Swaggart Ministries v.
Board of Equalization, 36 the Free Exercise of Religion Clause does not prohibit imposing a generally applicable sales and
use tax on the sale of religious materials by a religious organization.
This brings us to the question whether the registration provision of the law, 37 although of general applicability, nonetheless
is invalid when applied to the press because it lays a prior restraint on its essential freedom. The case ofAmerican Bible
Society v. City of Manila 38 is cited by both the PBS and the PPI in support of their contention that the law imposes
censorship. There, this Court held that an ordinance of the City of Manila, which imposed a license fee on those engaged
in the business of general merchandise, could not be applied to the appellant's sale of bibles and other religious literature.
This Court relied on Murdock v. Pennsylvania, 39 in which it was held that, as a license fee is fixed in amount and
unrelated to the receipts of the taxpayer, the license fee, when applied to a religious sect, was actually being imposed as
a condition for the exercise of the sect's right under the Constitution. For that reason, it was held, the license fee "restrains
in advance those constitutional liberties of press and religion and inevitably tends to suppress their exercise." 40

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But, in this case, the fee in 107, although a fixed amount (P1,000), is not imposed for the exercise of a privilege but only
for the purpose of defraying part of the cost of registration. The registration requirement is a central feature of the VAT
system. It is designed to provide a record of tax credits because any person who is subject to the payment of the VAT
pays an input tax, even as he collects an output tax on sales made or services rendered. The registration fee is thus a
mere administrative fee, one not imposed on the exercise of a privilege, much less a constitutional right.
For the foregoing reasons, we find the attack on Republic Act No. 7716 on the ground that it offends the free speech,
press and freedom of religion guarantees of the Constitution to be without merit. For the same reasons, we find the claim
of the Philippine Educational Publishers Association (PEPA) in G.R. No. 115931 that the increase in the price of books
and other educational materials as a result of the VAT would violate the constitutional mandate to the government to give
priority to education, science and technology (Art. II, 17) to be untenable.

B. Claims of Regressivity, Denial of Due Process, Equal Protection, and

Impairment
of Contracts
There is basis for passing upon claims that on its face the statute violates the guarantees of freedom of speech, press and
religion. The possible "chilling effect" which it may have on the essential freedom of the mind and conscience and the
need to assure that the channels of communication are open and operating importunately demand the exercise of this
Court's power of review.
There is, however, no justification for passing upon the claims that the law also violates the rule that taxation must be
progressive and that it denies petitioners' right to due process and that equal protection of the laws. The reason for this
different treatment has been cogently stated by an eminent authority on constitutional law thus: "[W]hen freedom of the
mind is imperiled by law, it is freedom that commands a momentum of respect; when property is imperiled it is the
lawmakers' judgment that commands respect. This dual standard may not precisely reverse the presumption of
constitutionality in civil liberties cases, but obviously it does set up a hierarchy of values within the due process clause."

41

Indeed, the absence of threat of immediate harm makes the need for judicial intervention less evident and underscores
the essential nature of petitioners' attack on the law on the grounds of regressivity, denial of due process and equal
protection and impairment of contracts as a mere academic discussion of the merits of the law. For the fact is that there
have even been no notices of assessments issued to petitioners and no determinations at the administrative levels of their
claims so as to illuminate the actual operation of the law and enable us to reach sound judgment regarding so
fundamental questions as those raised in these suits.
Thus, the broad argument against the VAT is that it is regressive and that it violates the requirement that "The rule of
taxation shall be uniform and equitable [and] Congress shall evolve a progressive system of taxation." 42Petitioners in G.R.
No. 115781 quote from a paper, entitled "VAT Policy Issues: Structure, Regressivity, Inflation and Exports" by Alan A. Tait
of the International Monetary Fund, that "VAT payment by low-income households will be a higher proportion of their
incomes (and expenditures) than payments by higher-income households. That is, the VAT will be regressive." Petitioners
contend that as a result of the uniform 10% VAT, the tax on consumption goods of those who are in the higher-income
bracket, which before were taxed at a rate higher than 10%, has been reduced, while basic commodities, which before
were taxed at rates ranging from 3% to 5%, are now taxed at a higher rate.
Just as vigorously as it is asserted that the law is regressive, the opposite claim is pressed by respondents that in fact it
distributes the tax burden to as many goods and services as possible particularly to those which are within the reach of
higher-income groups, even as the law exempts basic goods and services. It is thus equitable. The goods and properties
subject to the VAT are those used or consumed by higher-income groups. These include real properties held primarily for
sale to customers or held for lease in the ordinary course of business, the right or privilege to use industrial, commercial or
scientific equipment, hotels, restaurants and similar places, tourist buses, and the like. On the other hand, small business
establishments, with annual gross sales of less than P500,000, are exempted. This, according to respondents, removes
from the coverage of the law some 30,000 business establishments. On the other hand, an occasional paper 43 of the
Center for Research and Communication cities a NEDA study that the VAT has minimal impact on inflation and income
distribution and that while additional expenditure for the lowest income class is only P301 or 1.49% a year, that for a
family earning P500,000 a year or more is P8,340 or 2.2%.
Lacking empirical data on which to base any conclusion regarding these arguments, any discussion whether the VAT is
regressive in the sense that it will hit the "poor" and middle-income group in society harder than it will the "rich," as the
Cooperative Union of the Philippines (CUP) claims in G.R. No. 115873, is largely an academic exercise. On the other
hand, the CUP's contention that Congress' withdrawal of exemption of producers cooperatives, marketing cooperatives,
and service cooperatives, while maintaining that granted to electric cooperatives, not only goes against the constitutional
policy to promote cooperatives as instruments of social justice (Art. XII, 15) but also denies such cooperatives the equal
protection of the law is actually a policy argument. The legislature is not required to adhere to a policy of "all or none" in
choosing the subject of taxation.44
Nor is the contention of the Chamber of Real Estate and Builders Association (CREBA), petitioner in G.R. 115754, that the
VAT will reduce the mark up of its members by as much as 85% to 90% any more concrete. It is a mere allegation. On the
other hand, the claim of the Philippine Press Institute, petitioner in G.R. No. 115544, that the VAT will drive some of its

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members out of circulation because their profits from advertisements will not be enough to pay for their tax liability, while
purporting to be based on the financial statements of the newspapers in question, still falls short of the establishment of
facts by evidence so necessary for adjudicating the question whether the tax is oppressive and confiscatory.
Indeed, regressivity is not a negative standard for courts to enforce. What Congress is required by the Constitution to do
is to "evolve a progressive system of taxation." This is a directive to Congress, just like the directive to it to give priority to
the enactment of laws for the enhancement of human dignity and the reduction of social, economic and political
inequalities (Art. XIII, 1), or for the promotion of the right to "quality education" (Art. XIV, 1). These provisions are put in
the Constitution as moral incentives to legislation, not as judicially enforceable rights.
At all events, our 1988 decision in Kapatiran 45 should have laid to rest the questions now raised against the VAT. There
similar arguments made against the original VAT Law (Executive Order No. 273) were held to be hypothetical, with no
more basis than newspaper articles which this Court found to be "hearsay and [without] evidentiary value." As Republic
Act No. 7716 merely expands the base of the VAT system and its coverage as provided in the original VAT Law, further
debate on the desirability and wisdom of the law should have shifted to Congress.
Only slightly less abstract but nonetheless hypothetical is the contention of CREBA that the imposition of the VAT on the
sales and leases of real estate by virtue of contracts entered into prior to the effectivity of the law would violate the
constitutional provision that "No law impairing the obligation of contracts shall be passed." It is enough to say that the
parties to a contract cannot, through the exercise of prophetic discernment, fetter the exercise of the taxing power of the
State. For not only are existing laws read into contracts in order to fix obligations as between parties, but the reservation
of essential attributes of sovereign power is also read into contracts as a basic postulate of the legal order. The policy of
protecting contracts against impairment presupposes the maintenance of a government which retains adequate authority
to secure the peace and good order of society. 46
In truth, the Contract Clause has never been thought as a limitation on the exercise of the State's power of taxation save
only where a tax exemption has been granted for a valid consideration. 47 Such is not the case of PAL in G.R. No. 115852,
and we do not understand it to make this claim. Rather, its position, as discussed above, is that the removal of its tax
exemption cannot be made by a general, but only by a specific, law.
The substantive issues raised in some of the cases are presented in abstract, hypothetical form because of the lack of a
concrete record. We accept that this Court does not only adjudicate private cases; that public actions by "nonHohfeldian" 48 or ideological plaintiffs are now cognizable provided they meet the standing requirement of the Constitution;
that under Art. VIII, 1, 2 the Court has a "special function" of vindicating constitutional rights. Nonetheless the feeling
cannot be escaped that we do not have before us in these cases a fully developed factual record that alone can impart to
our adjudication the impact of actuality 49 to insure that decision-making is informed and well grounded. Needless to say,
we do not have power to render advisory opinions or even jurisdiction over petitions for declaratory judgment. In effect we
are being asked to do what the Conference Committee is precisely accused of having done in these cases to sit as a
third legislative chamber to review legislation.
We are told, however, that the power of judicial review is not so much power as it is duty imposed on this Court by the
Constitution and that we would be remiss in the performance of that duty if we decline to look behind the barriers set by
the principle of separation of powers. Art. VIII, 1, 2 is cited in support of this view:
Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which
are legally demandable and enforceable, and to determine whether or not there has been a grave abuse
of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the
Government.
To view the judicial power of review as a duty is nothing new. Chief Justice Marshall said so in 1803, to justify the
assertion of this power in Marbury v. Madison:
It is emphatically the province and duty of the judicial department to say what the law is. Those who apply
the rule to particular cases must of necessity expound and interpret that rule. If two laws conflict with each
other, the courts must decide on the operation of each. 50
Justice Laurel echoed this justification in 1936 in Angara v. Electoral Commission:
And when the judiciary mediates to allocate constitutional boundaries, it does not assert any superiority
over the other departments; it does not in reality nullify or invalidate an act of the legislature, but only
asserts the solemn and sacred obligation assigned to it by the Constitution to determine conflicting claims
of authority under the Constitution and to establish for the parties in an actual controversy the rights which
that instrument secures and guarantees to them. 51
This conception of the judicial power has been affirmed in several
cases 52 of this Court following Angara.
It does not add anything, therefore, to invoke this "duty" to justify this Court's intervention in what is essentially a case that
at best is not ripe for adjudication. That duty must still be performed in the context of a concrete case or controversy, as

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Art. VIII, 5(2) clearly defines our jurisdiction in terms of "cases," and nothing but "cases." That the other departments of
the government may have committed a grave abuse of discretion is not an independent ground for exercising our power.
Disregard of the essential limits imposed by the case and controversy requirement can in the long run only result in
undermining our authority as a court of law. For, as judges, what we are called upon to render is judgment according to
law, not according to what may appear to be the opinion of the day.
_______________________________
In the preceeding pages we have endeavored to discuss, within limits, the validity of Republic Act No. 7716 in its formal
and substantive aspects as this has been raised in the various cases before us. To sum up, we hold:
(1) That the procedural requirements of the Constitution have been complied with by Congress in the enactment of the
statute;
(2) That judicial inquiry whether the formal requirements for the enactment of statutes beyond those prescribed by the
Constitution have been observed is precluded by the principle of separation of powers;
(3) That the law does not abridge freedom of speech, expression or the press, nor interfere with the free exercise of
religion, nor deny to any of the parties the right to an education; and
(4) That, in view of the absence of a factual foundation of record, claims that the law is regressive, oppressive and
confiscatory and that it violates vested rights protected under the Contract Clause are prematurely raised and do not
justify the grant of prospective relief by writ of prohibition.
WHEREFORE, the petitions in these cases are DISMISSED.
Bidin, Quiason, and Kapunan, JJ., concur.

Separate Opinions
NARVASA, C.J.:
I fully concur with the conclusions set forth in the scholarly opinion of my learned colleague, Mr. Justice Vicente V. Mendoza. I write this
separate opinion to express my own views relative to the procedural issues raised by the various petitions and death with by some
other Members of the Court in their separate opinions.
By their very nature, it would seem, discussions of constitutional issues prove fertile ground for a not uncommon phenomenon: debate
marked by passionate partisanship amounting sometimes to impatience with adverse views, an eagerness on the part of the
proponents on each side to assume the role of, or be perceived as, staunch defenders of constitutional principles, manifesting itself in
flights of rhetoric, even hyperbole. The peril in this, obviously, is a diminution of objectivity that quality which, on the part of those
charged with the duty and authority of interpreting the fundamental law, is of the essence of their great function. For the Court, more
perhaps than for any other person or group, it is necessary to maintain that desirable objectivity. It must make certain that on this as on
any other occasion, the judicial function is meticulously performed, the facts ascertained as comprehensively and as accurately as
possible, all the issues particularly identified, all the arguments clearly understood; else, it may itself be accused, by its own members
or by others, of a lack of adherence to, or a careless observance of, its own procedures, the signatures of its individual members on its
enrolled verdicts notwithstanding.
In the matter now before the Court, and whatever reservations some people may entertain about their intellectual limitations or moral
scruples, I cannot bring myself to accept the thesis which necessarily implies that the members of our august Congress, in enacting the
expanded VAT law, exposed their ignorance, or indifference to the observance, of the rules of procedure set down by the Constitution or
by their respective chambers, or what is worse, deliberately ignored those rules for some yet undiscovered purpose nefarious in nature,
or at least some purpose other than the public weal; or that a few of their fellows, acting as a bicameral conference committee, by
devious schemes and cunning maneuvers, and in conspiracy with officials of the Executive Department and others, succeeded in
"pulling the wool over the eyes" of all their other colleagues and foisting on them a bill containing provisions that neither chamber of our
bicameral legislature conceived or contemplated. This is the thesis that the petitioners would have this Court approve. It is a thesis I
consider bereft of any factual or logical foundation.
Other than the bare declarations of some of the petitioners, or arguments from the use and import of the language employed in the
relevant documents and records, there is no evidence before the Court adequate to support a finding that the legislators concerned,
whether of the upper or lower chamber, acted otherwise than in good faith, in the honest discharge of their functions, in the sincere
belief that the established procedures were being regularly observed or, at least, that there occurred no serious or fatal deviation
therefrom. There is no evidence on which reasonably to rest a conclusion that any executive or other official took part in or unduly
influenced the proceedings before the bicameral conference committee, or that the members of the latter were motivated by a desire to
surreptitiously introduce improper revisions in the bills which they were required to reconcile, or that after agreement had been reached
on the mode and manner of reconciliation of the "disagreeing provisions," had resorted to stratragems or employed under-handed ploys
to ensure their approval and adoption by either House. Neither is there any proof that in voting on the Bicameral Conference Committee
(BCC) version of the reconciled bills, the members of the Senate and the House did so in ignorance of, or without understanding, the
contents thereof or the bills therein reconciled.
Also unacceptable is the theory that since the Constitution requires appropriation and revenue bills to originate exclusively in the House
of Representatives, it is improper if not unconstitutional for the Senate to formulate, or even think about formulating, its own draft of this
type of measure in anticipation of receipt of one transmitted by the lower Chamber. This is specially cogent as regards much-publicized

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suggestions for legislation (like the expanded VAT Law) emanating from one or more legislators, or from the Executive Department, or
the private sector, etc. which understandably could be expected to forthwith generate much Congressional cogitation.
Exclusive origination, I submit, should have no reference to time of conception. As a practical matter, origination should refer to the
affirmative act which effectively puts the bicameral legislative procedure in motion, i.e., the transmission by one chamber to the other of
a bill for its adoption. This is the purposeful act which sets the legislative machinery in operation to effectively lead to the enactment of a
statute. Until this transmission takes place, the formulation and discussions, or the reading for three or more times of proposed
measures in either chamber, would be meaningless in the context of the activity leading towards concrete legislation. Unless
transmitted to the other chamber, a bill prepared by either house cannot possibly become law. In other words, the first affirmative,
efficacious step, the operative act as it were, leading to actual enactment of a statute, is the transmission of a bill from one house to the
other for action by the latter. This is the origination that is spoken of in the Constitution in its Article VI, Section 24, in reference to
appropriation, revenue, or tariff bills, etc.
It may be that in the Senate, revenue or tax measures are discussed, even drafted, and this before a similar activity takes place in the
House. This is of no moment, so long as those measures or bill remain in the Senate and are not sent over the House. There is no
origination of revenue or tax measures by the Senate in this case. However, once the House completes the drawing up of a similar tax
measure in accordance with the prescribed procedure, ven if this is done subsequent to the Senates own measure indeed, even if
this be inspired by information that measure of the Senate and after third reading transmits its bill to the Senate, there is origination
by (or in) the House within the contemplation of the Constitution.
So it is entirely possible, as intimated, that in expectation of the receipt of a revenue or tax bill from the House of Representatives, the
Senate commences deliberations on its own concept of such a legislative measure. This, possibly to save time, so that when the House
bill raches it, its thoughts and views on the matter are already formed and even reduced to writing in the form of a draft statute. This
should not be thought ilegal, as interdicted by the Constitution. What the Constitution prohibits is for the Senate to begin the legislative
process first, by sending its own revenue bill to the House of Representatives for its consideration and action. This is the initiation that is
prohibited to the Senate.
But petitioners claims that this last was what in fact happened, that the went through the legislative mill and was finally approved as
R.A. No. 7716, was the Senate version, SB 1630. This is disputed by the respondents. They claim it was House Bill 11197 that, after
being transmitted to the Senate, was referred after first reading to its Committee on Ways and Means; was reported out by said
Committee; underwent second and third readings, was sent to the bicameral conference committee and then, after appropriate
proceedings therein culminating in extensive amendments thereof, was finally approved by both Houses and became the Expanded
VAT Law.
On whose side does the truth lie? If it is not possible to make that determination from the pleadings and records before this Court, shall
it require evidence to be presented? No, on both law and principle. The Court will reject a case where the legal issues raised, whatever
they may be, depend for their resolution on still unsettled questions of fact. Petitioners may not, by raising what are Court to assume
the role of a trier of facts. It is on the contrary their obligation, before raising those questions to this Court, to see to it that all issues of
fact are settled in accordance with the procedures laid down by law for proof of facts. Failing this, petitioners would have only
themselves to blame for a peremptory dismissal.
Now, what is really proven about what happened to HB 11197 after it was transmitted to the Senate? It seems to be admitted on all
sides that after going through first reading, HB 11197 was referred to the Committee on Ways and Means chaired by Senator Ernesto
Herrera.
It is however surmised that after this initial step, HB 11197 was never afterwards deliberated on in the Senate, that it was there given
nothing more than a "passing glance," and that it never went through a proper second and third reading. There is no competent proof to
substantiate this claim. What is certain is that on February 7, 1994, the Senate Committee on Ways and Means submitted its Report
(No. 349) stating that HB 11197 was considered, and recommending that SB 1630 be approved "in substitution of S.B. No. 1129, taking
into consideration P.S. Res. No. 734 1 and H.B. No. 11197." This Report made known to the Senate, and clearly indicates, that H.B. No.
11197 was indeed deliberated on by the Committee; in truth, as Senator Herrera pointed out, the BCC later "agreed to adopt (a broader
coverage of the VAT) which is closely adhering to the Senate version ** ** with some new provisions or amendments." The plain
implication is that the Senate Committee had indeed discussed HB 11197 in comparison with the inconsistent parts of SB 1129 and
afterwards proposed amendments to the former in the form of a new bill (No. 1630) more closely akin to the Senate bill (No. 1129).
And it is as reasonable to suppose as not that later, during the second and third readings on March 24, 1994, the Senators, assembled
as a body, had before them copies of HB 11197 and SB 1129, as well as of the Committee's new "SB 1630" that had been
recommended for their approval, or at the very least were otherwise perfectly aware that they were considering the particular provisions
of these bills. That there was such a deliberation in the Senate on HB 11197 in light of inconsistent portions of SB 1630, may further be
necessarily inferred from the request, made by the Senate on the same day, March 24, 1994, for the convocation of a bicameral
conference committee to reconcile "the disagreeing provisions of said bill (SB 1630) and House Bill No. 11197," a request that could not
have been made had not the Senators more or less closely examined the provisions of HB 11197 and compared them with those of the
counterpart Senate measures.
Were the proceedings before the bicameral conference committee fatally flawed? The affirmative is suggested because the committee
allegedly overlooked or ignored the fact that SB 1630 could not validly originate in the Senate, and that HB 11197 and SB 1630 never
properly passed both chambers. The untenability of these contentions has already been demonstrated. Now, demonstration of the
indefensibility of other arguments purporting to establish the impropriety of the BCC proceedings will be attempted.
There is the argument, for instance, that the conference committee never used HB 11197 even as "frame of reference" because it does
not appear that the suggestion therefor (made by House Penal Chairman Exequiel Javier at the bicameral conference committee's
meeting on April 19, 1994, with the concurrence of Senator Maceda) was ever resolved, the minutes being regrettably vague as to what
occurred after that suggestion was made. It is, however, as reasonable to assume that it was, as it was not, given the vagueness of the
minutes already alluded to. In fact, a reading of the BCC Report persuasively demonstrates that HB 11197 was not only utilized as a
"frame of reference" but actually discussed and deliberated on.
Said BCC Report pertinently states: 2

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CONFERENCE COMMITTEE REPORT
The Conference Committee on the disagreeing provisions of House Bill No. 11197, entitled:
AN ACT RESTRUCTURING THE VALUE ADDED TAX (VAT) SYSTEM TO WIDEN ITS TAX BASE AND ENHANCE
ITS ADMINISTRATION, AMENDING FOR THESE PURPOSES SECTIONS 99, 100, 102, 1013, 104, 105, 106, 107,
108 AND 110 OF TITLE IV, 112, 115 AND 116 OF TITLE V, AND 236, 237, AND 238 OF TITLE IX, AND REPEALING
SECTIONS 113SD AND 114 OF TITLE V, ALL OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED
and Senate Bill No. 1630 entitled:
AN ACT RESTRUCTURING THE VALUE ADDED TAX (VAT) SYSTEM TO WIDEN ITS TAX BASE AND ENHANCE
ITS ADMINISTRATION, AMENDING FOR THESE PURPOSES SECTIONS 99, 100, 102, 103, 104, 1 106, 107, 108
AND 110 OF TITLE IV, 112, 115, 117 AND 121 OF TITLE V, ACND 236, 237, AND 238 OF TITLE IX, AND
REPEALING SECTIONS 1113, 114, 116, 119 AND 120 OF TITLE V, ALL OF THE NATIONAL INTERNAL REVENUE
CODE, AS AMENDED AND FOR OTHER PURPOSES
having met, after full and free conference, has agreed to recommend and do hereby recommend to their respective
Houses that House Bill No. 11197, in consolidation with Senate Bill No. 1630, be approved in accordance with the
attached copy of the bill as reconciled and approved by the conferees.
Approved.
The Report, it will be noted, explicitly adverts to House Bill No. 11197, it being in fact mentioned ahead of Senate Bill No. 1630;
graphically shows the very close identity of the subjects of both bills (indicated in their respective titles); and clearly says that the
committee met in "full and free conference" on the "disagreeing provisions" of both bills (obviously in an effort to reconcile them); and
that reconciliation of said "disagreeing provisions" had been effected, the BCC having agreed that "House Bill No. 11197, in
consolidation with Senate Bill No. 1630, be approved in accordance with the attached copy of the bill as reconciled and approved by
the conferees."
It may be concluded, in other words, that, conformably to the procedure provided in the Constitution with which all the Members of the
bicameral conference committee cannot but be presumed to be familiar, and no proof to the contrary having been adduced on the point,
it was the original bill (HB 11197) which said body had considered and deliberated on in detail, reconciled or harmonized with SB 1630,
and used as basis for drawing up the amended version eventually reported out and submitted to both houses of Congress.
It is further contended that the BCC was created and convoked prematurely, that SB 1630 should first have been sent to the House of
Representatives for concurrence It is maintained, in other words, that the latter chamber should have refused the Senate request for a
bicameral conference committee to reconcile the "disagreeing provisions" of both bills, and should have required that SB 1630 be first
transmitted to it. This, seemingly, is nit-picking given the urgency of the proposed legislation as certified by the President (to both
houses, in fact). Time was of the essence, according to the President's best judgment as regards which absolutely no one in either
chamber of Congress took exception, general acceptance being on the contrary otherwise manifested and that judgment the Court
will not now question. In light of that urgency, what was so vital or indispensable about such a transmittal that its absence would
invalidate all else that had been done towards enactment of the law, completely escapes me, specially considering that the House had
immediately acceded without demur to the request for convocation of the conference committee.
What has just been said should dispose of the argument that the statement in the enrolled bill, that "This Act which is a consolidation of
House Bill No. 11197 and Senate Bill No. 11630 was finally passed by the House of Representatives and the Senate on April 27, 1994
and May 2, 1994," necessarily signifies that there were two (2) bills separately introduced, retaining their independent existence until
they reached the bicameral conference committee where they were consolidated, and therefore, the VAT law did not originate
exclusively in the House having originated in part in the Senate as SB 1630, which bill was not embodied in but merely merged with HB
11197, retaining its separate identity until it was joined by the BCC with the house measure. The more logical, and fairer, course is to
construe the expression, "consolidation of House Bill No. 11197 and Senate Bill No. 11630" in the context of accompanying and
contemporaneous statements, i.e.: (a) the declaration in the BCC Report,supra, that the committee met to reconcile the disagreeing
provisions of the two bills, "and after full and free conference" on the matter, agreed and so recommended that "House Bill No. 11197, in
consolidation with Senate Bill No. 1630, be approved in accordance with the attached copy of the bill as reconciled and approved by
the conferees;" and (b) the averment of Senator Herrera, in the Report of the Ways and Means Committee, supra, that the committee
had actually "considered" (discussed) HB No. 11197 and taken it "into consideration" in recommending that its own version of the
measure (SB 1630) be the one approved.
That the Senate might have drawn up its own version of the expanded VAT bill, contemporaneously with or even before the House did,
is of no moment. It bears repeating in this connection that no VAT bill ever originated in the Senate; neither its SB 1129 or SB 1630 or
any of its drafts was ever officially transmitted to the House as an initiating bill which, as already pointed out, is what the Constitution
forbids; it was HB 11197 that was first sent to the Senate, underwent first reading, was referred to Committee on Ways and Means and
there discussed in relation to and in comparison with the counterpart Senate version or versions the mere formulation of which was,
as also already discussed, not prohibited to it and afterwards considered by the Senate itself, also in connection with SB 1630, on
second and third readings. HB 11197 was in the truest sense, the originating bill.
An issue has also arisen respecting the so-called "enrolled bill doctrine" which, it is said, whatever sacrosanct status it might originally
have enjoyed, is now in bad odor with modern scholars on account of its imputed rigidity and unrealism; it being also submitted that the
ruling in Mabanag v. Lopez Vito (78 Phil. 1) and the cases reaffirming it, is no longer good law, it being based on a provision of the
Code of Civil Procedure 3 long since stricken from the statute books.
I would myself consider the "enrolled bill" theory as laying down a presumption of so strong a character as to be well nigh absolute or
conclusive, fully in accord with the familiar and fundamental philosophy of separation of powers. The result, as far as I am concerned, is
to make discussion of the enrolled bill principle purely academic; for as already pointed out, there is no proof worthy of the name of any
facts to justify its reexamination and, possibly, disregard.

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The other question is, what is the nature of the power given to a bicameral conference committee of reconciling differences between, or
"disagreeing provisions" in, a bill originating from the House in relation to amendments proposed by the Senate whether as regards
some or all of its provisions? Is the mode of reconciliation, subject to fixed procedure and guidelines? What exactly can the committee
do, or not do? Can it only clarify or revise provisions found in either Senate or House bill? Is it forbidden to propose additional or new
provisions, even on matters necessarily or reasonably connected with or germane to items in the bills being reconciled?
In answer, it is postulated that the reconciliation function is quite limited. In these cases, the conference committee should have
confined itself to reconciliation of differences or inconsistencies only by (a) restoring provisions of HB11197 aliminated by SB 1630, or
(b) sustaining wholly or partly the Senate amendments, or (c) as a compromise, agreeing that neither provisions nor amendments be
carried into the final form of HB 11197 for submission to both chambers of the legislature.
The trouble is, it is theorized, the committee incorporated activities or transactions which were not within the contemplation of both bills;
it made additions and deletions which did not enjoy the enlightenment of initial committee studies; it exercised what is known as an "ex
post veto power" granted to it by no law, rule or regulation, a power that in truth is denied to it by the rules of both the Senate and the
House. In substantiation, the Senate rule is cited, similar to that of the House, providing that "differences shall be settled by a
conference committee" whose report shall contain "detailed and sufficiently explicit statement of the changes in or amendments to the
subject measure, ** (to be) signed by the conferees;" as well as the "Jefferson's Manual," adopted by the Senate as supplement to its
own rules, directing that the managers of the conference must confine themselves to differences submitted to them; they may not
include subjects not within the disagreements even though germane to a question in issue."
It is significant that the limiting proviso in the relevant rules has been construed and applied as directory, not mandatory. During the oral
argument, counsel for petitioners admitted that the practice for decades has been for bicameral conference committees to include such
provisions in the reconciled bill as they believed to be germane or necessary and acceptable to both chambers, even if not within any of
the "disagreeing provisions," and the reconciled bills, containing such provisions had invariably been approved and adopted by both
houses of Congress. It is a practice, they say, that should be stopped. But it is a practice that establishes in no uncertain manner the
prevailing concept in both houses of Congress of the permissible and acceptable modes of reconciliation that their conference
committees may adopt, one whose undesirability is not all that patent if not, indeed, incapable of unquestionable demonstration. The
fact is that conference committees only take up bills which have already been freely and fully discussed in both chambers of the
legislature, but as to which there is need of reconciliation in view of "disagreeing provisions" between them; and both chambers entrust
the function of reconciling the bills to their delegates at a conference committee with full awareness, and tacit consent, that conformably
with established practice unquestioningly observed over many years, new provisions may be included even if not within the
"disagreeing provisions" but of which, together with other changes, they will be given detailed and sufficiently explicit information prior to
voting on the conference committee version.
In any event, a fairly recent decision written for the Court by Senior Associate Justice Isagani A. Cruz, promulgated on November 11,
1993 (G.R. No. 105371, The Philippine Judges Association, etc., et al. v. Hon. Pete Prado, etc., et al.), should leave no doubt of the
continuing vitality of the enrolled bill doctrine and give an insight into the nature of the reconciling function of bicameral conference
committees. In that case, a bilateral conference committee was constituted and met to reconcile Senate Bill No. 720 and House Bill No.
4200. It adopted a "reconciled" measure that was submitted to and approved by both chambers of Congress and ultimately signed into
law by the President, as R.A. No. 7354. A provision in this statute (removing the franking privilege from the courts, among others) was
assailed as being an invalid amendment because it was not included in the original version of either the senate or the house bill and
hence had generated no disagreement between them which had to be reconciled. The Court held:
While it is true that a conference committee is the mechanism for compromising differences between the Senate and
the House, it is not limited in its jurisdiction to this question. Its broader function is described thus:
A conference committee may deal generally with the subject matter or it may be limited to resolving
the precise differences between the two houses. Even where the conference committee is not by
rule limited in its jurisdiction, legislative custom severely limits the freedom with which new subject
matter can be inserted into the conference bill. But occasionally a conference committee produces
unexpected results, results beyond its mandate. These excursions occur even where the rules
impose strict limitations on conference committee jurisdiction. This is symptomatic of the
authoritarian power of conference committee (Davies, Legislative Law and Process: In A Nutshell,
1987 Ed., p. 81).
It is a matter of record that the Conference Committee Report on the bill in question was returned to and duly
approved by both the Senate and the House of Representatives. Thereafter, the bill was enrolled with its certification
by Senate President Neptali A. Gonzales and Speaker Ramon V. Mitra of the House of Representatives as having
been duly passed by both Houses of Congress. It was then presented to and approved by President Corazon C.
Aquino on April 3, 1992.
Under the doctrine of separation of powers, the Court may not inquire beyond the certification of the approval of a bill
from the presiding officers of Congress. Casco Philippine Chemical Co. v. Gimenez(7 SCRA 347) laid down the rule
that the enrolled bill is conclusive upon the Judiciary (except in matters that have to be entered in the journals like
the yeas and nays on the final reading of the bill) (Mabanag v. Lopez Vito, 78 Phil. 1). The journals are themselves
also binding on the Supreme Court, as we held in the old (but still valid) case of U.S. v. Pons (34 Phil. 729), where we
explained the reason thus:
To inquire into the veracity of the journals of the Philippine legislature when they are, as we have
said, clear and explicit, would be to violate both the letter and spirit of the organic laws by which the
Philippine Government was brought into existence, to invade a coordinate and independent
department of the Government, and to interfere with the legitimate powers and functions of the
Legislature. Applying these principles, we shall decline to look into the petitioners' charges that an
amendment was made upon the last reading of the bill that eventually R.A. No. 7354 and that
copies thereof in its final form were not distributed among the members of each House. Both the
enrolled bill and the legislative journals certify that the measure was duly enacted i.e., in
accordance with Article VI, Sec. 26 (2) of the Constitution. We are bound by such official

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assurances from a coordinate department of the government, to which we owe, at the very least, a
becoming courtesy.
Withal, an analysis of the changes made by the conference committee in HB 11197 and SB 1630 by way of reconciling their
"disagreeing provisions," assailed by petitioners as unauthorized or incongrouous reveals that many of the changes related to
actual "disagreeing provisions," and that those that might perhaps be considered as entirely new are nevertheless necessarily or
logically connected with or germane to particular matters in the bills being reconciled.
For instance, the change made by the bicameral conference committee (BCC) concerning amendments to Section 99 of the National
Internal Revenue Code (NIRC) the addition of "lessors of goods or properties and importers of goods" is really a reconciliation of
disagreeing provisions, for while HB 11197 mentions as among those subject to tax, "one who sells, barters, or exchanges goods or
properties and any person who leases personal properties," SB 1630 does not. The change also merely clarifies the provision by
providing that the contemplated taxpayers includes "importers." The revision as regards the amendment to Section 100, NIRC, is also
simple reconciliation, being nothing more than the adoption by the BCC of the provision in HB 11197 governing the sale of gold to
Bangko Sentral, in contrast to SB 1630 containing no such provision. Similarly, only simple reconciliation was involved as regards
approval by the BCC of a provision declaring as not exempt, the sale of real properties primarily held for sale to customers or held for
lease in the ordinary course of trade or business, which provision is found in HB 11197 but not in SB 1630; as regards the adoption by
the BCC of a provision on life insurance business, contained in SB 1630 but not found in HB 11197; as regards adoption by the BCC of
the provision in SB 1630 for deferment of tax on certain goods and services for no longer than 3 years, as to which there was no
counterpart provision in SB 11197; and as regards the fixing of a period for the adoption of implementing rules, a period being
prescribed in SB 1630 and none in HB 11197.
In respect of other revisions, it would seem that questions logically arose in the course of the discussion of specific "disagreeing
provisions" to which answers were given which, because believed acceptable to both houses of Congress, were placed in the BCC
draft. For example, during consideration of radio and television time (Sec. 100, NIRC) dealt with in both House and Senate bills, the
question apparently came up, the relevance of which is apparent on its face, relative to satellite transmission and cable television time.
Hence, a provision in the BCC bill on the matter. Again, while deliberating on the definition of goods or properties in relation to the
provision subjecting sales thereof to tax, a question apparently arose, logically relevant, about real properties intended to be sold by a
person in economic difficulties, or because he wishes to buy a car, i.e., not as part of a business, the BCC evidently resolved to clarify
the matter by excluding from the tax, "real properties held primarily for sale to customers or held for lease in the ordinary course of
business." And in the course of consideration of the term,sale or exchange of services (Sec 102, NIRC), the inquiry most probably was
posed as to whether the term should be understood as including other services: e.g., services of lessors of property whether real or
personal, of warehousemen, of keepers of resthouses, pension houses, inns, resorts, or of common carriers, etc., and presumably the
BCC resolved to clarify the matter by including the services just mentioned. Surely, changes of this nature are obviously to be expected
in proceedings before bicameral conference committees and may even be considered grist for their mill, given the history of such BCCs
and their general practice here and abroad
In any case, all the changes and revisions, and deletions, made by the conference committee were all subsequently considered by and
approved by both the Senate and the House, meeting and voting separately. It is an unacceptable theorization, to repeat, that when the
BCC report and its proposed bill were submitted to the Senate and the House, the members thereof did not bother to read, or what is
worse, having read did not understand, what was before them, or did not realize that there were new provisions in the reconciled
version unrelated to any "disagreeing provisions," or that said new provisions or revisions were effectively concealed from them
Moreover, it certainly was entirely within the power and prerogative of either legislative chamber to reject the BCC bill and require the
organization of a new bicameral conference committee. That this option was not exercised by either house only proves that the BCC
measure was found to be acceptable as in fact it was approved and adopted by both chambers.
I vote to DISMISS the petitions for lack of merit.
PADILLA, J.:
The original VAT law and the expanded VAT law
In Kapatiran v. Tan, 1 where the ponente was the writer of this Separate Opinion, a unanimous Supreme Court en bancupheld the
validity of the original VAT law (Executive Order No. 273, approved on 25 July 1987). It will, in my view, be pointless at this time to reopen arguments advanced in said case as to why said VAT law was invalid, and it will be equally redundant to re-state the principles
laid down by the Court in the same case affirming the validity of the VAT law as a tax measure. And yet, the same arguments are, in
effect, marshalled against the merits and substance of the expanded VAT law (Rep. Act. No. 7716, approved on 5 May 1994). The
same Supreme Court decision should therefore dispose, in the main, of such arguments, for the expanded VAT law is predicated
basically on the same principles as the original VAT law, except that now the tax base of the VAT imposition has been expanded or
broadened.
It only needs to be stated what actually should be obvious that a tax measure, like the expanded VAT law (Republic Act. No.
7716), is enacted by Congress and approved by the President in the exercise of the State's power to tax, which is an attribute of
sovereignty. And while the power to tax, if exercised without limit, is a power to destroy, and should, therefore, not be allowed in such
form, it has to be equally recognized that the power to tax is an essential right of government. Without taxes, basic services to the
people can come to a halt; economic progress will be stunted, and, in the long run, the people will suffer the pains of stagnation and
retrogression.
Consequently, upon careful deliberation, I have no difficulty in reaching the conclusion that the expanded VAT law comes within
the legitimate power of the state to tax. And as I had occasion to previously state:
Constitutional Law, to begin with, is concerned with power not political convenience, wisdom, exigency, or even
necessity. Neither the Executive nor the legislative (Commission on Appointments) can create power where the
Constitution confers none. 2

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Likewise, in the first VAT case, I said:
In any event, if petitioners seriously believe that the adoption and continued application of the VAT are prejudicial to
the general welfare or the interests of the majority of the people, they should seek, recourse and relief from the
political branches of the government. The Court, following the time-honored doctrine of separation of powers, cannot
substitute its judgment for that of the President (and Congress) as to the wisdom, justice and advisability of the
adoption of the VAT. 3
This Court should not, as a rule, concern itself with questions of policy, much less, economic policy. That is better left to the two (2)
political branches of government. That the expanded VAT law is unwise, unpopular and even anti-poor, among other things said against
it, are arguments and considerations within the realm of policy-debate, which only Congress and the Executive have the authority to
decisively confront, alleviate, remedy and resolve.
II
The procedure followed in the approval of Rep. Act No. 7716
Petitioners however posit that the present case raises a far-reaching constitutional question which the Court is duty-bound to decide
under its expanded jurisdiction in the 1987 Constitution. 4 Petitioners more specifically question and impugn the manner by which the
expanded VAT law (Rep. Act. No. 7716) was approved by Congress. They contend that it was approved in violation of the Constitution
from which fact it follows, as a consequence, that the law is null and void. Main reliance of the petitioners in their assault in Section 24,
Art. VI of the Constitution which provides:
Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bill of local application,
and private bills shall originate exclusively in the House of Representatives, but the Senate may propose or concur
with amendments.
While it should be admitted at the outset that there was no rigorous and strict adherence to the literal command of the above provision,
it may however be said, after careful reflection, that there was substantial compliance with the provision.
There is no question that House Bill No. 11197 expanding the VAT law originated from the House of Representatives. It is undeniably a
House measure. On the other hand, Senate Bill No. 1129, also expanding the VAT law, originated from the Senate. It is undeniably a
Senate measure which, in point of time, actually antedated House Bill No. 11197.
But it is of record that when House Bill No. 11197 was, after approval by the House, sent to the Senate, it was referred to, and
considered by the Senate Committee on Ways and Means (after first reading) together with Senate Bill No. 1129, and the Committee
came out with Senate Bill No. 1630 in substitution of Senate Bill No. 1129 but after expressly taking into consideration House Bill No.
11197.
Since the Senate is, under the above-quoted constitutional provision, empowered to concur with a revenue measure exclusively
originating from the House, or to propose amendments thereto, to the extent of proposing amendments by SUBSTITUTION to the
House measure, the approval by the Senate of Senate Bill No. 1630, after it had considered House Bill No. 11197, may be taken, in my
view, as an AMENDMENT BY SUBSTITUTION by the Senate not only of Senate Bill No. 1129 but of House Bill No. 11197 as well
which, it must be remembered, originated exclusively from the House.
But then, in recognition of the fact that House Bill No. 11197 which originated exclusively from the House and Senate Bill No. 1630
contained conflicting provisions, both bills (House Bill No. 11197 and Senate Bill No. 1630) were referred to the Bicameral Conference
Committee for joint consideration with a view to reconciling their conflicting provisions.
The Conference Committee came out eventually with a Conference Committee Bill which was submitted to both chambers of Congress
(the Senate and the House). The Conference Committee reported out a bill consolidating provisions in House Bill No. 11197 and
Senate Bill No. 1630. What transpired in both chambers after the Conference Committee Report was submitted to them is not clear
from the records in this case. What is clear however is that both chambers voted separately on the bill reported out by the Conference
Committee and both chambers approved the bill of the Conference Committee.
To me then, what should really be important is that both chambers of Congress approved the bill reported out by the Conference
Committee. In my considered view, the act of both chambers of Congress in approving the Conference Committee bill, should put an
end to any inquiry by this Court as to how the bill came about. What is more, such separate approvals CURED whatever constitutional
infirmities may have arisen in the procedures leading to such approvals. For, if such infirmities were serious enough to impugn the very
validity of the measure itself, there would have been an objection or objections from members of both chambers to the approval. The
Court has been shown no such objection on record in both chambers.
Petitioners contend that there were violations of Sec. 26 paragraph 2, Article VI of the Constitution which provides:
Sec. 26. . . .
(2) No bill passed by either House shall become a law unless it has passed three readings on separate days, and
printed copies thereof in its final form have been distributed to its Members 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 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 entered in the Journal.
in that, when Senate Bill No. 1630 (the Senate counterpart of House Bill No. 11197) was approved by the Senate, after it had been
reported out by the Senate Committee on Ways and Means, the bill went through second and third readings on the same day (not

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separate days) and printed copies thereof in its final form were not distributed to the members of the Senate at least three (3) days
before its passage by the Senate. But we are told by the respondents that the reason for this "short cut" was that the President had
certified to the necessity of the bill's immediate enactment to meet an emergency a certification that, by leave of the same
constitutional provision, dispensed with the second and third readings on separate days and the printed form at least three (3) days
before its passage.
We have here then a situation where the President did certify to the necessity of Senate Bill No. 1630's immediate enactment to meet
an emergency and the Senate responded accordingly. While I would be the last to say that this Court cannot review the exercise of
such power by the President in appropriate cases ripe for judicial review, I am not prepared however to say that the President gravely
abused his discretion in the exercise of such power as to require that this Court overturn his action. We have been shown no fact or
circumstance which would impugn the judgment of the President, concurred in by the Senate, that there was an emergency that
required the immediate enactment of Senate Bill No. 1630. On the other hand, a becoming respect for a co-equal and coordinate
department of government points that weight and credibility be given to such Presidential judgment.
The authority or power of the Conference Committee to make insertions in and deletions from the bills referred to it, namely, House Bill
No. 11197 and Senate Bill No. 1630 is likewise assailed by petitioners. Again, what appears important here is that both chambers
approved and ratified the bill as reported out by the Conference Committee (with the reported insertions and deletions). This is perhaps
attributable to the known legislative practice of allowing a Conference Committee to make insertions in and deletions from bills referred
to it for consideration, as long as they are germane to the subject matter of the bills under consideration. Besides, when the Conference
Committee made the insertions and deletions complained of by petitioners, was it not actually performing the task assigned to it of
reconciling conflicting provisions in House Bill No. 11197 and Senate Bill No. 1630?
This Court impliedly if not expressly recognized the fact of such legislative practice in Philippine Judges Association, etc. vs. Hon. Peter
Prado, etc., 5 In said case, we stated thus:
The petitioners also invoke Sec. 74 of the Rules of the House of Representatives, requiring that amendment to any
bill when the House and the Senate shall have differences thereon may be settled by a conference committee of both
chambers. They stress that Sec. 35 was never a subject of any disagreement between both Houses and so the
second paragraph could not have been validly added as an amendment.
These arguments are unacceptable.
While it is true that a conference committee is the mechanism for compromising differences between the Senate and
the House, it is not limited in its jurisdiction to this question. Its broader function is described thus:
A conference committee may deal generally with the subject matter or it may be limited to resolving
the precise differences between the two houses. Even where the conference committee is not by
rule limited in its jurisdiction, legislative custom severely limits the freedom with which new subject
matter can be inserted into the conference bill. But occasionally a conference committee produces
unexpected results, results beyond its mandate. These excursions occurs even where the rules
impose strict limitations on conference committee jurisdiction. This is symptomatic of the
authoritarian power of conference committee (Davies, Legislative Law and Process: In A Nutshell,
1986 Ed., p. 81).
It is a matter of record that the Conference Committee Report on the bill in question was returned to and duly
approved by both the Senate and the House of Representatives. Thereafter, the bill was enrolled with its certification
by Senate President Neptali A. Gonzales and Speaker Ramon V. Mitra of the House of Representatives as having
been duly passed by both Houses of Congress. It was then presented to and approved by President Corazon C.
Aquino on April 3, 1992.
It would seem that if corrective measures are in order to clip the powers of the Conference Committee, the remedy should come from
either or both chambers of Congress, not from this Court, under the time-honored doctrine of separation of powers.
Finally, as certified by the Secretary of the Senate and the Secretary General of the House of Representatives
This Act (Rep. Act No. 7716) is a consolidation of House Bill No. 11197 and Senate Bill No. 1630 (w)as finally passed
by the House of Representatives and the Senate on April 27, 1994 and May 2, 1994 respectively.
Under the long-accepted doctrine of the "enrolled bill," the Court in deference to a co-equal and coordinate branch of government is
held to a recognition of Rep. Act No. 7716 as a law validly enacted by Congress and, thereafter, approved by the President on 5 May
1994. Again, we quote from out recent decision in Philippine Judges Association, supra:
Under the doctrine of separation of powers, the Court may not inquire beyond the certification of the approval of a bill
from the presiding officers of Congress. Casco Philippine Chemical Co. v. Gimenezlaid down the rule that the
enrolled bill is conclusive upon the Judiciary (except in matters that have to be entered in the journals like
the yeas and nays on the finally reading of the bill). The journals are themselves also binding on the Supreme Court,
as we held in the old (but still valid) case of U.S. vs. Pons, 8 where we explained the reason thus:
To inquire into the veracity of the journals of the Philippine legislature when they are, as we have
said, clear and explicit, would be to violate both the letter and spirit of the organic laws by which the
Philippine Government was brought into existence, to invade a coordinate and independent
department of the Government, and to interfere with the legitimate powers and functions of the
Legislature.

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Applying these principles, we shall decline to look into the petitioners' charges that an amendment was made upon
the last reading of the bill that eventually became R.A. No. 7354 and that copies thereof in its final form were not
distributed among the members of each House. Both the enrolled bill and the legislative journals certify that the
measure was duly enacted i.e., in accordance with Article VI, Sec. 26(2) of the Constitution. We are bound by such
official assurances from a coordinate department of the government, to which we owe, at the very least, a becoming
courtesy.
III
Press Freedom and Religious Freedom and Rep. Act No. 7716
The validity of the passage of Rep. Act No. 7716 notwithstanding, certain provisions of the law have to be examined separately and
carefully.
Rep. Act. No. 7716 in imposing a value-added tax on circulation income of newspapers and similar publications and on income derived
from publishing advertisements in newspapers 9, to my mind, violates Sec. 4, Art. III of the Constitution. Indeed, even the Executive
Department has tried to cure this defect by the issuance of the BIR Regulation No.11-94 precluding implementation of the tax in this
area. It should be clear, however, that the BIR regulation cannot amend the law (Rep. Act No. 7716). Only legislation (as distinguished
from administration regulation) can amend an existing law.
Freedom of the press was virtually unknown in the Philippines before 1900. In fact, a prime cause of the revolution against Spain at the
turn of the 19th century was the repression of the freedom of speech and expression and of the press. No less than our national hero,
Dr. Jose P. Rizal, in "Filipinas Despues de Cien Anos" (The Philippines a Century Hence) describing the reforms sine quibus non which
the Filipinos were insisting upon, stated: "The minister . . . who wants his reforms to be reforms, must begin by declaring the press in
the Philippines free . . . ". 10
Press freedom in the Philippines has met repressions, most notable of which was the closure of almost all forms of existing mass media
upon the imposition of martial law on 21 September 1972.
Section 4, Art. III of the Constitution maybe traced to the United States Federal Constitution. The guarantee of freedom of expression
was planted in the Philippines by President McKinley in the Magna Carta of Philippine Liberty, Instructions to the Second Philippine
Commission on 7 April 1900.
The present constitutional provision which reads:
Sec. 4 No law shall be passed abridging the freedom of speech, of expression, or of the press, or the right of the
people peaceably to assemble and petition the government for redress of grievances.
is essentially the same as that guaranteed in the U.S. Federal Constitution, for which reason, American case law giving judicial
expression as to its meaning is highly persuasive in the Philippines.
The plain words of the provision reveal the clear intention that no prior restraint can be imposed on the exercise of free speech and
expression if they are to remain effective and meaningful.
The U.S. Supreme Court in the leading case of Grosjean v. American Press Co. Inc. 11 declared a statute imposing a gross receipts
license tax of 2% on circulation and advertising income of newspaper publishers as constituting a prior restraint which is contrary to the
guarantee of freedom of the press.
In Bantam Books, Inc. v. Sullivan 12, the U.S. Supreme Court stated: "Any system of prior restraint of expression comes to this Court
bearing a heavy presumption against its constitutionality."
In this jurisdiction, prior restraint on the exercise of free expression can be justified only on the ground that there is a clear and present
danger of a substantive evil which the State has the right to prevent 13.
In the present case, the tax imposed on circulation and advertising income of newspaper publishers is in the nature of a prior
restraint on circulation and free expression and, absent a clear showing that the requisite for prior restraint is present, the constitutional
flaw in the law is at once apparent and should not be allowed to proliferate.
Similarly, the imposition of the VAT on the sale and distribution of religious articles must be struck down for being contrary to Sec. 5, Art.
III of the Constitution which provides:
Sec. 5. No law shall be made respecting an establishment of religion, or prohibiting the free exercise thereof. The free
exercise and enjoyment of religious profession and worship, without discrimination or preference, shall forever be
allowed. No religious test shall be required for the exercise of civil or political rights.
That such a tax on the sale and distribution of religious articles is unconstitutional, has been long settled in American Bible
Society, supra.
Insofar, therefore, as Rep. Act No. 7716 imposes a value-added tax on the exercise of the above- discussed two (2) basic constitutional
rights, Rep. Act No. 7716 should be declared unconstitutional and of no legal force and effect.
IV

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Petitions of CREBA and PAL and Rep. Act No. 7716
The Chamber of Real Estate and Builder's Association, Inc. (CREBA) filed its own petition (GR No. 11574) arguing that the provisions of
Rep. Act No. 7716 imposing a 10% value-added tax on the gross selling price or gross value in money of every sale, barter or
exchange of goods or properties (Section 2) and a 10% value-added tax on gross receipts derived from the sale or exchange of
services, including the use or lease of properties (Section 3), violate the equal protection, due process and non-impairment provisions
of the Constitution as well as the rule that taxation should be uniform, equitable and progressive.
The issue of whether or not the value-added tax is uniform, equitable and progressive has been settled inKapatiran.
CREBA which specifically assails the 10% value-added tax on the gross selling price of real properties, fails to distinguish between a
sale of real properties primarily held for sale to customers or held for lease in the ordinary course of trade or business and isolated
sales by individual real property owners (Sec. 103[s]). That those engaged in the business of real estate development realize great
profits is of common knowledge and need not be discussed at length here. The qualification in the law that the 10% VAT covers only
sales of real property primarily held for sale to customers, i.e. for trade or business thus takes into consideration a taxpayer's capacity
to pay. There is no showing that the consequent distinction in real estate sales is arbitrary and in violation of the equal protection clause
of the Constitution. The inherent power to tax of the State, which is vested in the legislature, includes the power to determine whom or
what to tax, as well as how much to tax. In the absence of a clear showing that the tax violates the due process and equal protection
clauses of the Constitution, this Court, in keeping with the doctrine of separation of powers, has to defer to the discretion and judgment
of Congress on this point.
Philippine Airlines (PAL) in a separate petition (G.R. No. 115852) claims that its franchise under PD No. 1590 which makes it liable for a
franchise tax of only 2% of gross revenues "in lieu of all the other fees and charges of any kind, nature or description, imposed, levied,
established, assessed or collected by any municipal, city, provincial, or national authority or government agency, now or in the future,"
cannot be amended by Rep. Act No. 7716 as to make it (PAL) liable for a 10% value-added tax on revenues, because Sec. 24 of PD
No. 1590 provides that PAL's franchise can only be amended, modified or repealed by a special law specifically for that purpose.
The validity of PAL's above argument can be tested by ascertaining the true intention of Congress in enacting Rep. Act No. 7716. Sec.
4 thereof dealing with Exempt Transactions states:
Sec. 103. Exempt Transactions. The following shall be exempt from the value-added tax:
xxx xxx xxx
(q) Transactions which are exempt under special laws, except those granted under Presidential Decrees No. 66, 529,
972, 1491,
1590, . . . " (Emphasis supplied)
The repealing clause of Rep. Act No. 7716 further reads:
Sec. 20. Repealing clauses. The provisions of any special law relative to the rate of franchise taxes are hereby
expressly repealed.
xxx xxx xxx
All other laws, orders, issuances, rules and regulations or parts thereof inconsistent with this Act are hereby repealed,
amended or modified accordingly (Emphasis supplied)
There can be no dispute, in my mind, that the clear intent of Congress was to modify PAL's franchise with respect to the taxes it has to
pay. To this extent, Rep. Act No. 7716 can be considered as a special law amending PAL's franchise and its tax liability thereunder. That
Rep. Act. No. 7716 imposes the value-added taxes on other subjects does not make it a general law which cannot amend PD No.
1590.
To sum up: it is my considered view that Rep. Act No. 7716 (the expanded value-added tax) is a valid law, viewed from both substantive
and procedural standards, except only insofar as it violates Secs. 4 and 5, Art. III of the Constitution (the guarantees of freedom of
expression and the free exercise of religion). To that extent, it is, in its present form, unconstitutional.
I, therefore, vote to DISMISS the petitions, subject to the above qualification.
VITUG, J.:
Lest we be lost by a quagmire of trifles, the real threshold and prejudicial issue, to my mind, is whether or not this Court is ready to
assume and to take upon itself with an overriding authority the awesome responsibility of overseeing the entire bureaucracy. Far from it,
ours is merely to construe and to apply the law regardless of its wisdom and salutariness, and to strike it down only when it clearly
disregards constitutional proscriptions. It is what the fundamental law mandates, and it is what the Court must do.
I cannot yet concede to the novel theory, so challengingly provocative as it might be, that under the 1987 Constitution the Court may
now at good liberty intrude, in the guise of the people's imprimatur, into every affair of the government. What significance can still then
remain, I ask, of the time honored and widely acclaimed principle of separation of powers, if at every turn the Court allows itself to pass
upon, at will, the disposition of a co-equal, independent and coordinate branch in our system of government. I dread to think of the so
varied uncertainties that such an undue interference can lead to. The respect for long standing doctrines in our jurisprudence,
nourished through time, is one of maturity not timidity, of stability rather than quiescence.

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It has never occurred to me, and neither do I believe it has been intended, that judicial tyranny is envisioned, let alone institutionalized,
by our people in the 1987 Constitution. The test of tyranny is not solely on how it is wielded but on how, in the first place, it can be
capable of being exercised. It is time that any such perception of judicial omnipotence is corrected.
Against all that has been said, I see, in actuality in these cases at bench, neither a constitutional infringement of substance, judging
from precedents already laid down by this Court in previous cases, nor a justiciability even now of the issues raised, more than an
attempt to sadly highlight the perceived shortcomings in the procedural enactment of laws, a matter which is internal to Congress and
an area that is best left to its own basic concern. The fact of the matter is that the legislative enactment, in its final form, has received
the ultimate approval of both houses of Congress. The finest rhetoric, indeed fashionable in the early part of this closing century, would
still be a poor substitute for tangibility. I join, nonetheless, some of my colleagues in respectfully inviting the kind attention of the
honorable members of our Congress in the suggested circumspect observance of their own rules.
A final remark. I should like to make it clear that this opinion does not necessarily foreclose the right, peculiar to any taxpayer adversely
affected, to pursue at the proper time, in appropriate proceedings, and in proper fora, the specific remedies prescribed therefor by the
National Internal Revenue Code, Republic Act 1125, and other laws, as well as rules of procedure, such as may be pertinent. Some
petitions filed with this Court are, in essence, although styled differently, in the nature of declaratory relief over which this Court is bereft
of original jurisdiction.
All considered, I, therefore, join my colleagues who are voting for the dismissal of the petitions.
CRUZ, J.:
It is a curious and almost incredible fact that at the hearing of these cases on July 7, 1994, the lawyers who argued for the petitioners
two of them former presidents of the Senate and the third also a member of that body all asked this Court to look into the internal
operations of their Chamber and correct the irregularities they claimed had been committed there as well as in the House of
Representatives and in the bicameral conference committee.
While a member of the legislative would normally resist such intervention and invoke the doctrine of separation of powers to protect
Congress from what he would call judicial intrusion, these counsel practically implored the Court to examine the questioned
proceedings and to this end go beyond the journals of each House, scrutinize the minutes of the committee, and investigate all other
matters relating to the passage of the bill (or bills) that eventually became R.A. No. 7716.
In effect, the petitioners would have us disregard the time-honored inhibitions laid down by the Court upon itself in the landmark case
of U.S. v. Pons (34 Phil. 725), where it refused to consider extraneous evidence to disprove the recitals in the journals of the Philippine
Legislature that it had adjourned sine die at midnight of February 28, 1914. Although it was generally known then that the special
session had actually exceeded the deadline fixed by the Governor-General in his proclamation, the Court chose to be guided solely by
the legislative journals, holding significantly as follows:
. . . From their very nature and object, the records of the legislature are as important as those of the judiciary, and to
inquire into the veracity of the journals of the Philippine Legislature, when they are, as we have said, clear and
explicit, would be to violate both the letter and the spirit of the organic laws by which the Philippine Government was
brought into existence, to invade a coordinate and independent department of the Government, and to interfere with
the legitimate powers and functions of the Legislature. But counsel in his argument says that the public knows that
the Assembly's clock was stopped on February 28, 1914, at midnight and left so until the determination of the
discussion of all pending matters. Or, in other words, the hands of the clock were stayed in order to enable the
Assembly to effect an adjournment apparently within the fixed time by the Governor's proclamation for the expiration
of the special session, in direct violation of the Act of Congress of July 1, 1902. If the clock was, in fact, stopped, as
here suggested, "the resultant evil might be slight as compared with that of altering the probative force and character
of legislative records, and making the proof of legislative action depend upon uncertain oral evidence, liable to loss by
death or absence, and so imperfect on account of the treachery of memory.
. . . The journals say that the Legislature adjourned at 12 midnight on February 28, 1914. This settles the question,
and the court did not err in declining to go beyond the journals.
As one who has always respected the rationale of the separation of powers, I realize only too well the serious implications of the
relaxation of the doctrine except only for the weightiest of reasons. The lowering of the barriers now dividing the three major branches
of the government could lead to individious incursions by one department into the exclusive domains of the other departments to the
detriment of the proper discharge of the functions assigned to each of them by the Constitution.
Still, while acknowledging the value of tradition and the reasons for judicial non-interference announced in Pons, I am not disinclined to
take a second look at the ruling from a more pragmatic viewpoint and to tear down, if we must, the iron curtain it has hung, perhaps
improvidently, around the proceedings of the legislature.
I am persuaded even now that where a specific procedure is fixed by the Constitution itself, it should not suffice for Congress to simply
say that the rules have been observed and flatly consider the matter closed. It does not have to be as final as that. I would imagine that
the judiciary, and particularly this Court, should be able to verify that statement and determine for itself, through the exercise of its own
powers, if the Constitution has, indeed, been obeyed.
In fact, the Court had already said that the question of whether certain procedural rules have been followed is justiciable rather than
political because what is involved is the legality and not the wisdom of the act in question. So we ruled in Sanidad v. Commission on
Elections (73 SCRA 333) on the amendment of the Constitution; inDaza v. Singson (180 SCRA 496) on the composition of the
Commission on Appointments; and in the earlier case of Taada v. Cuenco (100 SCRA 1101) on the organization of the Senate
Electoral Tribunal, among several other cases.

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By the same token, the ascertainment of whether a bill underwent the obligatory three readings in both Houses of Congress should not
be considered an invasion of the territory of the legislature as this would not involve an inquiry into its discretion in approving the
measure but only the manner in which the measure was enacted.
These views may upset the conservatives among us who are most comfortable when they allow themselves to be petrified by
precedents instead of venturing into uncharted waters. To be sure, there is much to be said of the wisdom of the past expressed by
vanished judges talking to the future. Via trita est tuttisima. Except when there is a need to revise them because of an altered situation
or an emergent idea, precedents should tell us that, indeed, the trodden path is the safest path.
It could be that the altered situation has arrived to welcome the emergent idea. The jurisdiction of this Court has been expanded by the
Constitution, to possibly include the review the petitioners would have us make of the congressional proceedings being questioned.
Perhaps it is also time to declare that the activities of Congress can no longer be smoke-screened in the inviolate recitals of its journals
to prevent examination of its sacrosanct records in the name of the separation of powers.
But then again, perhaps all this is not yet necessary at this time and all these observations are but wishful musings for a more activist
judiciary. For I find that this is not even necessary, at least for me, to leave the trodden path in the search for new adventures in the
byways of the law. The answer we seek, as I see it, is not far afield. It seems to me that it can be found through a study of the enrolled
bill alone and that we do not have to go beyond that measure to ascertain if R.A. No. 7716 has been validly enacted.
It is settled in this jurisdiction that in case of conflict between the enrolled bill and the legislative journals, it is the former that should
prevail except only as to matters that the Constitution requires to be entered in the journals. (Mabanag v. Lopez Vito, 78 Phil. 1). These
are the yeas and nays on the final reading of a bill or on any question at the request of at least one-fifth of the member of the House
(Constitution, Art. VI, Sec. 16[4]), the objections of the President to a vetoed bill or item (Ibid, Sec. 27 [1]), and the names of the
members voting for or against the overriding of his veto (Id. Section 27 [1]), The original of a bill is not specifically required by the
Constitution to be entered in the journals. Hence, on this particular manner, it is the recitals in the enrolled bill and not in the journals
that must control.
Article VI, Section 24, of the Constitution provides:
Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application,
and private bills shall originate exclusively in the House of Representatives, but the Senate may propose or concur
with amendments.
The enrolled bill submitted to and later approved by the President of the Philippines as R.A. No. 7716 was signed by the President of
the Senate and the Speaker of the House of Representatives. It carried the following certification over the signatures of the Secretary of
the Senate and the Acting Secretary of the House of Representatives:
This Act which is a consolidation of House Bill No. 11197 and Senate Bill No. 11630 was finally passed by the House
of Representative and the Senate on April 27, 1994, and May 2, 1994.
Let us turn to Webster for the meaning of certain words,
To "originate" is "to bring into being; to create something (original); to invent; to begin; start." The word "exclusively" means "excluding
all others" and is derived from the word "exclusive," meaning "not shared or divided; sole; single." Applying these meanings, I would
read Section 24 as saying that the bills mentioned therein must be brought into being, or created, or invented, or begun or started, only
or singly or by no other body than the house of Representatives.
According to the certification, R.A. No. 7716 "is a consolidation of House Bill No. 11197 and Senate Bill No. 1630." Again giving the
words used their natural and ordinary sense conformably to an accepted canon of construction, I would read the word "consolidation"
as a "combination or merger" and derived from the word "consolidated," meaning "to combine into one; merge; unite."
The two bills were separately introduced in their respective Chambers. Both retained their independent existence until they reached the
bicameral conference committee where they were consolidated. It was this consolidated measure that was finally passed by Congress
and submitted to the President of the Philippines for his approval.
House Bill No. 11197 originated in the House of Representatives but this was not the bill that eventually became R.A. No. 7716. The
measure that was signed into law by President Ramos was the consolidation of that bill and another bill, viz., Senate Bill No. 1630,
which was introduced in the Senate. The resultant enrolled bill thus did not originate exclusively in the House of Representatives. The
enrolled bill itself says that part of it (and it does not matter to what extent) originated in the Senate.
It would have been different if the only participation of the Senate was in the amendment of the measure that was originally proposed in
the House of Representatives. But this was not the case. The participation of the Senate was not in proposing or concurring with
amendments that would have been incorporated in House Bill No. 11197. Its participation was in originating its own Senate Bill No.
1630, which was not embodied in but merged with House Bill No. 11197.
Senate Bill No. 1630 was not even an amendment by substitution, assuming this was permissible. To "substitute" means "to take the
place of; to put or use in place of another." Senate Bill No. 1630 did not, upon its approval replace (and thus eliminate) House Bill No.
11197. Both bills retained their separate identities until they were joined or united into what became the enrolled bill and ultimately R.A.
No. 7716.
The certification in the enrolled bill says it all. It is clear that R.A. No. 7716 did not originate exclusively in the House of Representatives.

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To go back to my earlier observations, this conclusion does not require the reversal of U.S. vs. Pons and an inquiry by this Court into
the proceedings of the legislature beyond the recitals of its journals. All we need to do is consider the certification in the enrolled bill
and, without entering the precincts of Congress, declare that by this own admission it has, indeed, not complied with the Constitution.
While this Court respects the prerogatives of the other departments, it will not hesitate to rise to its higher duty to require from them, if
they go astray, full and strict compliance with the fundamental law. Our fidelity to it must be total. There is no loftier principle in our
democracy than the supremacy of the Constitution, to which all must submit.
I vote to invalidate R.A. No. 7716 for violation of Article VI, Sec. 24, of the Constitution.
REGALADO, J.:
It would seem like an inconceivable irony that Republic Act No. 7716 which, so respondents claim, was conceived by the collective
wisdom of a bicameral Congress and crafted with sedulous care by two branches of government should now be embroiled in
challenges to its validity for having been enacted in disregard of mandatory prescriptions of the Constitution itself. Indeed, such
impugnment by petitioners goes beyond merely the procedural flaws in the parturition of the law. Creating and regulating as it does
definite rights to property, but with its own passage having been violative of explicit provisions of the organic law, even without going
into the intrinsic merits of the provisions of Republic Act No. 7716 its substantive invalidity is pro facto necessarily entailed.
How it was legislated into its present statutory existence is not in serious dispute and need not detain us except for a recital of some
salient and relevant facts. The House of Representatives passed House Bill No. 11197 1 on third reading on November 17, 1993 and,
the following day, It transmitted the same to the Senate for concurrence. On its part, the Senate approved Senate Bill No. 1630 on
second and third readings on March 24, 1994. It is important to note in this regard that on March 22, 1994, said S.B. No. 1630 had
been certified by President Fidel V. Ramos for immediate enactment to meet a public emergency, that is, a growing budgetary
deficit. There was no such certification for H.B. No. 11197 although it was the initiating revenue bill.
It is, therefore, not only a curious fact but, more importantly, an invalid procedure since that Presidential certification was erroneously
made for and confined to S.B. No. 1630 which was indisputably a tax bill and, under the Constitution, could not validly originate in the
Senate. Whatever is claimed in favor of S.B. No. 1630 under the blessings of that certification, such as its alleged exemption from the
three separate readings requirement, is accordingly negated and rendered inutile by the inefficacious nature of said certification as it
could lawfully have been issued only for a revenue measure originating exclusively from the lower House. To hold otherwise would be
to validate a Presidential certification of a bill initiated in the Senate despite the Constitutional prohibition against its originating
therefrom.
Equally of serious significance is the fact that S.B. No. 1630 was reported out in Committee Report No. 349 submitted to the Senate on
February 7, 1994 and approved by that body "in substitution of S.B. No. 1129," while merely "taking into consideration P.S. No. 734 and
H.B. No. 11197." 2 S.B. No. 1630, therefore, was never filed in substitution of either P.S. No. 734 or, more emphatically, of H.B. No.
11197 as these two legislative issuances were merely taken account of, at the most, as referential bases or materials.
This is not a play on misdirection for, in the first instance, the respondents assure us that H.B. No. 11197 was actually the sole source of
and started the whole legislative process which culminated in Republic Act No. 7716. The participation of the Senate in enacting S.B.
No. 1630 was, it is claimed, justified as it was merely in pursuance of its power to concur in or propose amendments to H.B. No. 11197.
Citing the 83-year old case of Flint vs. Stone Tracy Co., 3 it is blithely announced that such power to amend includes an amendment by
substitution, that is, even the extent of substituting the entire H.B. No. 11197 by an altogether completely new measure of Senate
provenance. Ergo, so the justification goes, the Senate acted perfectly in accordance with its amending power under Section 24, Article
VI of the Constitution since it merely proposed amendments through a bill allegedly prepared in advance.
This is a mode of argumentation which, by reason of factual inaccuracy and logical implausibility, both astounds and confounds. For, it
is of official record that S.B. No. 1630 was filed, certified and enacted in substitution of S.B. No. 1129 which in itself was likewise in
derogation of the Constitutional prohibition against such initiation of a tax bill in the Senate. In any event, S.B. No. 1630 was neither
intended as a bill to be adopted by the Senate nor to be referred to the bicameral conference committee as a substitute for H.B. No.
11197. These indelible facts appearing in official documents cannot be erased by any amount of strained convolutions or incredible
pretensions that S.B. No. 1630 was supposedly enacted in anticipation of H.B. No. 11197.
On that score alone, the invocation by the Solicitor General of the hoary concept of amendment by substitution falls flat on its face.
Worse, his concomitant citation of Flint to recover from that prone position only succeeded in turning the same postulation over, this
time supinely flat on its back. As elsewhere noted by some colleagues, which I will just refer to briefly to avoid duplication, respondents
initially sought sanctuary in that doctrine supposedly laid down in Flint, thus: "It has, in fact, been held that the substitution of an entirely
new measure for the one originally proposed can be supported as a valid amendment." 4 (Emphasis supplied.) During the interpellation
by the writer at the oral argument held in these cases, the attention of the Solicitor General was called to the fact that the amendment
in Flint consisted only of a single item, that its, the substitution of a corporate tax for an inheritance tax proposed in a general revenue
bill; and that the text of the decision therein nowhere contained the supposed doctrines he quoted and ascribed to the court, as those
were merely summations of arguments of counsel therein. It is indeed a source of disappointment for us, but an admission of
desperation on his part, that, instead of making a clarification or a defense of his contention, the Solicitor General merely reproduced all
over again 5 the same quotations as they appeared in his original consolidated comment, without venturing any explanation or
justification.
The aforestated dissemblance, thus unmasked, has further undesirable implications on the contentions advanced by respondents in
their defense. For, even indulging respondents ex gratia argumenti in their pretension that S.B. No. 1630 substituted or replaced H.B.
No. 11197, aside from muddling the issue of the true origination of the disputed law, this would further enmesh respondents in a
hopeless contradiction.
In a publication authorized by the Senate and from which the Solicitor General has liberally quoted, it is reported as an accepted rule
therein that "(a)n amendment by substitution when approved takes the place of the principal bill. C.R. March 19, 1963, p. 943." 6 Stated
elsewise, the principal bill is supplanted and goes out of actuality. Applied to the present situation, and following respondents'

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submission that H.B. No. 11197 had been substituted or replaced in its entirety, then in law it had no further existence for purposes of
the subsequent stages of legislation except, possibly, for referential data.
Now, the enrolled bill thereafter submitted to the President of the Philippines, signed by the President of the Senate and the Speaker of
the House of Representatives, carried this solemn certification over the signatures of the respective secretaries of both chambers: "This
Act which is a consolidation of House Bill No. 11197 and Senate Bill No. 1630 was finally passed by the House of Representatives and
the Senate on April 27, 1994, and May 2, 1994." (Emphasis mine.) In reliance thereon, the Chief Executive signed the same into law as
Republic Act No. 7716.
The confusion to which the writer has already confessed is now compounded by that official text of the aforequoted certification which
speaks, and this cannot be a mere lapsus calami, of two independent and existingbills (one of them being H.B. No. 11197) which were
consolidated to produce the enrolled bill. In parliamentary usage, to consolidate two bills, is to unite them into one 7 and which, in the
case at bar, necessarily assumes that H.B. No. 11197 never became legally inexistent. But did not the Solicitor General, under the
theory of amendment by substitution of the entire H.B. No. 11197 by S.B. No. 1630, thereby premise the same upon the replacement,
hence the total elimination from the legislative process, of H.B. 11197?
It results, therefore, that to prove compliance with the requirement for the exclusive origination of H.B. No. 11197, two alternative but
inconsistent theories had to be espoused and defended by respondents' counsel. To justify the introduction and passage of S.B. No.
1630 in the Senate, it was supposedly enacted only as an amendment by substitution, hence on that theory H.B. No. 11197 had to be
considered as displaced and terminated from its role or existence. Yet, likewise for the same purpose but this time on the theory of
origination by consolidation, H.B. No. 11197 had to be resuscitated so it could be united or merged with S.B. No. 1630. This latter
alternative theory, unfortunately, also exacerbates the constitutional defect for then it is an admission of a dual origination of the two tax
bills, each respectively initiated in and coming from the lower and upper chambers of Congress.
Parenthetically, it was also this writer who pointedly brought this baffling situation to the attention of the Solicitor General during the
aforesaid oral argument, to the extent of reading aloud the certification in full. We had hoped thereby to be clarified on these vital issue
in respondents' projected memorandum, but we have not been favored with an explanation unraveling this delimma. Verily, by
passing sub silentio on these intriguing submissions, respondents have wreaked havoc on both logic and law just to gloss over their
non-compliance with the Constitutional mandate for exclusive origination of a revenue bill. The procedure required therefor, we
emphatically add, can be satisfied only by complete and strict compliance since this is laid down by the Constitution itself and not by a
mere statute.
This writer consequently agrees with the clearly tenable proposition of petitioners that when the Senate passed and approved S.B. No.
1630, had it certified by the Chief Executive, and thereafter caused its consideration by the bicameral conference committee in total
substitution of H.B. No. 11197, it clearly and deliberately violated the requirements of the Constitution not only in the origination of the
bill but in the very enactment of Republic Act No. 7716. Contrarily, the shifting sands of inconsistency in the arguments adduced for
respondents betray such lack of intellectual rectitude as to give the impression of being mere rhetorics in defense of the indefensible.
We are told, however, that by our discoursing on the foregoing issues we are introducing into non-justiciable areas long
declared verboten by such time-honored doctrines as those on political questions, the enrolled bill theory and the respect due to two coequal and coordinate branches of Government, all derived from the separation of powers inherent in republicanism. We appreciate the
lectures, but we are not exactly unaware of the teachings in U.S. vs. Pons, 8 Mabanag, vs. Lopez Vito, 9 Casco Philippine Chemical
Co., Inc. vs. Gimenez, etc., et al.,10 Morals vs. Subido, etc., 11 and Philippine Judges Association, etc., et al. vs. Prado, etc., et al., 12 on
the one hand, andTaada, et al. vs. Cuenco, et al., 13 Sanidad, et al., vs. Commission on Elections, et al., 14 and Daza vs. Singson, et
al.,15 on the other, to know which would be applicable to the present controversy and which should be rejected.
But, first, a positional exordium. The writer of this opinion would be among the first to acknowledge and enjoin not only courtesy to, but
respect for, the official acts of the Executive and Legislative departments, but only so long as the same are in accordance with or are
defensible under the fundamental charter and the statutory law. He would readily be numbered in the ranks of those who would preach
a reasoned sermon on the separation of powers, but with the qualification that the same are not contained in tripartite compartments
separated by empermeable membranes. He also ascribes to the general validity of American constitutional doctrines as a matter of
historical and legal necessity, but not to the extent of being oblivious to political changes or unmindful of the fallacy of undue
generalization arising from myopic disregard of the factual setting of each particular case.
These ruminations have likewise been articulated and dissected by my colleagues, hence it is felt that the only issue which must be set
aright in this dissenting opinion is the so-called enrolled bill doctrine to which we are urged to cling with reptilian tenacity. It will be
preliminarily noted that the official certification appearing right on the face of Republic Act No. 7716 would even render unnecessary any
further judicial inquiry into the proceedings which transpired in the two legislative chambers and, on a parody of tricameralism, in the
bicameral conference committee. Moreover, we have the excellent dissertations of some of my colleagues on these matters, but
respondents insist en contra that the congressional proceedings cannot properly be inquired into by this Court. Such objection confirms
a suppressive pattern aimed at sacrificing the rule of law to the fiat of expediency.
Respondents thus emplaced on their battlements the pronouncement of this Court in the aforecited case ofPhilippine Judges
Association vs. Prado. 16 Their reliance thereon falls into the same error committed by their seeking refuge in the Flint case, ante.
which, as has earlier been demonstrated (aside from the quotational misrepresentation), could not be on par with the factual situation in
the present case. Flint, to repeat, involved a mere amendment on a single legislative item, that is, substituting the proposal therein of an
inheritance tax by one on corporate tax. Now, in their submission based on Philippine Judges Association, respondents studiously avoid
mention of the fact that the questioned insertion referred likewise to a single item, that is, the repeal of the franking privilege thretofore
granted to the judiciary. That both cases cannot be equated with those at bar, considering the multitude of items challenged and the
plethora of constitutional violations involved, is too obvious to belabor. Legal advocacy and judicial adjudication must have a becoming
sense of qualitative proportion, instead of lapsing into the discredited and maligned practice of yielding blind adherence to precedents.
The writer unqualifiedly affirms his respect for valid official acts of the two branches of government and eschews any unnecessary
intrusion into their operational management and internal affairs. These, without doubt, are matters traditionally protected by the
republican principle of separation of powers. Where, however, there is an overriding necessity for judicial intervention in light of the
pervasive magnitude of the problems presented and the gravity of the constitutional violations alleged, but this Court cannot perform its
constitutional duty expressed in Section 1, Article VIII of the Constitution unless it makes the inescapable inquiry, then the confluence of

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such factors should compel an exception to the rule as an ultimate recourse. The cases now before us present both the inevitable
challenge and the inescapable exigency for judicial review. For the Court to now shirk its bounden duty would not only project it as a
citadel of the timorous and the slothful, but could even undermine its raison d'etre as the highest and ultimate tribunal.
Hence, this dissenting opinion has touched on events behind and which transpired prior to the presentation of the enrolled bill for
approval into law. The details of that law which resulted from the legislative action followed by both houses of Congress, the substantive
validity of whose provisions and the procedural validity of which legislative process are here challenged as unconstitutional, have been
graphically presented by petitioners and admirably explained in the respective opinions of my brethren. The writer concurs in the
conclusions drawn therefrom and rejects the contention that we have unjustifiably breached the dike of the enrolled bill doctrine.
Even in the land of its source, the so-called conclusive presumption of validity originally attributed to that doctrine has long been
revisited and qualified, if not altogether rejected. On the competency of judicial inquiry, it has been held that "(u)nder the 'enrolled bill
rule' by which an enrolled bill is sole expository of its contents and conclusive evidence of its existence and valid enactment, it is
nevertheless competent for courts to inquire as to what prerequisites are fixed by the Constitution of which journals of respective
houses of Legislature are required to furnish the evidence." 17
In fact, in Gwynn vs. Hardee, etc., et al., 18 the Supreme Court of Florida declared:
(1) While the presumption is that the enrolled bill, as signed by the legislative officers and filed with the secretary of
state, is the bill as it passed, yet this presumption is not conclusive, and when it is shown from the legislative journals
that a bill though engrossed and enrolled, and signed by the legislative officers, contains provisions that have not
passed both houses, such provisions will be held spurious and not a part of the law. As was said by Mr. Justice
Cockrell in the case of Wade vs. Atlantic Lumber Co., 51 Fla. 628, text 633, 41 So. 72, 73:
This Court is firmly committed to the holding that when the journals speak they control, and against
such proof the enrolled bill is not conclusive.
More enlightening and apropos to the present controversy is the decision promulgated on May 13, 1980 by the Supreme Court of
Kentucky in D & W Auto Supply, et al. vs. Department of Revenue, et al., 19 pertinent exceprts wherefrom are extensively reproduced
hereunder:
. . . In arriving at our decision we must, perforce, reconsider the validity of a long line of decisions of this court which
created and nurtured the so-called "enrolled bill" doctrine.
xxx xxx xxx
[1] Section 46 of the Kentucky Constitution sets out certain procedures that the legislature must follow before a bill
can be considered for final passage. . . . .
xxx xxx xxx
. . . Under the enrolled bill doctrine as it now exists in Kentucky, a court may not look behind such a bill, enrolled and
certified by the appropriate officers, to determine if there are any defects.
xxx xxx xxx
. . . In Lafferty, passage of the law in question violated this provision, yet the bill was properly enrolled and approved
by the governor. In declining to look behind the law to determine the propriety of its enactment, the court enunciated
three reasons for adopting the enrolled bill rule. First, the court was reluctant to scrutinize the processes of the
legislature, an equal branch of government. Second, reasons of convenience prevailed, which discouraged requiring
the legislature to preserve its records and anticipated considerable complex litigation if the court ruled otherwise.
Third, the court acknowledged the poor record-keeping abilities of the General Assembly and expressed a preference
for accepting the final bill as enrolled, rather than opening up the records of the legislature. . . . .
xxx xxx xxx
Nowhere has the rule been adopted without reason, or as a result of judicial whim. There are four historical bases for
the doctrine. (1) An enrolled bill was a "record" and, as such, was not subject to attack at common law. (2) Since the
legislature is one of the three branches of government, the courts, being coequal, must indulge in every presumption
that legislative acts are valid. (3) When the rule was originally formulated, record-keeping of the legislatures was so
inadequate that a balancing of equities required that the final act, the enrolled bill, be given efficacy. (4) There were
theories of convenience as expressed by the Kentucky court in Lafferty.
The rule is not unanimous in the several states, however, and it has not been without its critics. From an examination
of cases and treaties, we can summarize the criticisms as follows: (1) Artificial presumptions, especially conclusive
ones, are not favored. (2) Such a rule frequently (as in the present case) produces results which do not accord with
facts or constitutional provisions. (3) The rule is conducive to fraud, forgery, corruption and other wrongdoings. (4)
Modern automatic and electronic record-keeping devices now used by legislatures remove one of the original
reasons for the rule. (5) The rule disregards the primary obligation of the courts to seek the truth and to provide a
remedy for a wrong committed by any branch of government. In light of these considerations, we are convinced that
the time has come to re-examine the enrolled bill doctrine.
[2] This court is not unmindful of the admonition of the doctrine of stare decisis. The maxim is "Stare decisis et non
quieta movere," which simply suggests that we stand by precedents and not disturb settled points of law. Yet, this

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rule is not inflexible, nor is it of such a nature as to require perpetuation of error or logic. As we stated in Daniel's
Adm'r v. Hoofnel, 287 Ky 834, 155 S.W. 2d 469, 471-72 (1941) (citations omitted):
The force of the rule depends upon the nature of the question to be decided and the extent of the
disturbance of rights and practices which a change in the interpretation of the law or the course of
judicial opinions may create. Cogent considerations are whether there is clear error and urgent
reasons "for neither justice nor wisdom requires a court to go from one doubtful rule to another,"
and whether or not the evils of the principle that has been followed will be more injurious than can
possibly result from a change.
Certainly, when a theory supporting a rule of law is not grounded on facts, or upon sound logic, or is unjust, or has been discredited by
actual experience, it should be discarded, and with it the rule it supports.
[3] It is clear to us that the major premise of the Lafferty decision, the poor record-keeping of the legislature, has
disappeared. Modern equipment and technology are the rule in record-keeping by our General Assembly. Tape
recorders, electric typewriters, duplicating machines, recording equipment, printing presses, computers, electronic
voting machines, and the like remove all doubts and fears as to the ability of the General Assembly to keep accurate
and readily accessible records.
It is also apparent that the "convenience" rule is not appropriate in today's modern and developing judicial philosophy.
The fact that the number and complexity of lawsuits may increase is not persuasive if one is mindful that
the overriding purpose of our judicial system is to discover the truth and see that justice is done. The existence of
difficulties and complexities should not deter this pursuit and we reject any doctrine or presumption that so provides.
Lastly, we address the premises that the equality of the various branches of government requires that we shut our
eyes to constitutional failings and other errors of our coparceners in government. We simply do not agree. Section 26
of the Kentucky Constitution provides that any law contrary to the constitution is "void." The proper exercise of judicial
authority requires us to recognize any law which is unconstitutional and to declare it void. Without belaboring the
point, we believe that under section 228 of the Kentucky Constitution it is our obligation to "support . . . the
Constitution of the commonwealth." We are sworn to see that violations of the constitution by any person,
corporation, state agency or branch of government are brought to light and corrected. To countenance an artificial
rule of law that silences our voices when confronted with violations of our constitution is not acceptable to this court.
We believe that a more reasonable rule is the one which Professor Sutherland describes as the "extrinsic evidence"
rule . . . Under this approach there is a prima facie presumption that an enrolled bill is valid, but such presumption
may be overcome by clear, satisfactory and convincing evidence establishing that constitutional requirements have
not been met.
We therefore overrule Lafferty v. Huffman and all other cases following the so-called enrolled bill doctrine, to the
extent that there is no longer a conclusive presumption that an enrolled bill is valid. . . . (Emphasis mine.)
Undeniably, the value-added tax system may have its own merits to commend its continued adoption, and the proposed widening of its
base could achieve laudable governmental objectives if properly formulated and conscientiously implemented. We would like to believe,
however, that ours is not only an enlightened democracy nurtured by a policy of transparency but one where the edicts of the
fundamental law are sacrosanct for all, barring none. While the realization of the lofty ends of this administration should indeed be the
devout wish of all, likewise barring none, it can never be justified by methods which, even if unintended, are suggestive of
Machiavellism.
Accordingly, I vote to grant the instant petitions and to invalidate Republic Act No. 7716 for having been enacted in violation of Section
24, Article VI of the Constitution.
DAVIDE, JR., J.:
The legislative history of R.A. No. 7716, as highlighted in the Consolidated Memorandum for the public respondents submitted by the
Office of the Solicitor General, demonstrates beyond doubt that it was passed in violation or deliberate disregard of mandatory
provisions of the Constitution and of the rules of both chambers of Congress relating to the enactment of bills.
I therefore vote to strike down R.A. No. 7716 as unconstitutional and as having been enacted with grave abuse of discretion.
The Constitution provides for a bicameral Congress. Therefore, no bill can be enacted into law unless it is approved by both chambers
the Senate and the House of Representatives (hereinafter House). Otherwise stated, each chamber may propose and approve a bill,
but until it is submitted to the other chamber and passed by the latter, it cannot be submitted to the President for its approval into law.
Paragraph 2, Section 26, Article VI of the Constitution provides:
No bill passed by either House shall become a law unless it has passed three readings on separate days, and printed
copies thereof in its final form have been distributed to its Members 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 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 entered in the journal.
The "three readings" refers to the three readings in both chambers.
There are, however, bills which must originate exclusively in the House. Section 24, Article VI of the Constitution enumerates them:

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Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application,
and private bills shall originate exclusively in the House of Representatives, but the Senate may propose or concur
with amendments.
Webster's Third New International Dictionary 1 defines originate as follows:
vt 1: to cause the beginning of: give rise to: INITIATE . . . 2. to start (a person or thing) on a course or journey . . . vi:
to take or have origin: be derived: ARISE, BEGIN, START . . .
Black's Law Dictionary 2 defines the word exclusively in this wise:
Apart from all others; only; solely; substantially all or for the greater part. To the exclusion of all others; without
admission of others to participation; in a manner to exclude.
In City Mayor vs. The Chief of Philippine Constabulary, 3 this Court said:
The term "exclusive" in its usual and generally accepted sense, means possessed to the exclusion of others;
appertaining to the subject alone, not including, admitting or pertaining to another or others, undivided, sole. (15
Words and Phrases, p. 510, citing Mitchel v. Tulsa Water, Light, Heat and Power Co., 95 P. 961, 21 Okl. 243; and p.
513, citing Commonwealth v. Superintendent of House of Correction, 64 Pa. Super. 613, 615).
Indisputably then, only the House can cause the beginning or initiate the passage of any appropriation, revenue, or tarriff bill, any bill
increasing the public debt, any bill of local application, or any private bill. The Senate can only "propose or concur with amendments."
Under the Rules of the Senate, the first reading is the reading of the title of the bill and its referral to the corresponding committee; the
second reading consists of the reading of the bill in the form recommended by the corresponding committee; and the third reading is
the reading of the bill in the form it will be after approval on second reading. 4 During the second reading, the following takes place:
(1) Second reading of the bill;
(2) Sponsorship by the Committee Chairman or any member designated by the corresponding committee;
(3) If a debate ensues, turns for and against the bill shall be taken alternately;
(4) The sponsor of the bill closes the debate;
(5) After the close of the debate, the period of amendments follows;
(6) Then, after the period of amendments is closed, the voting on the bill on second reading.

After approval on second readings, printed copies thereof in its final form shall be distributed to the Members of the Senate at least
three days prior to the third reading, except in cases of certified bills. At the third reading, the final vote shall be taken and
the yeas and nays shall be entered in the Journal. 6
Under the Rules of the House, the first reading of a bill consists of a reading of the number, title, and author followed by the referral to
the appropriate committees; 7 the second reading consists of the reading in full of the bill with the amendments proposed by the
committee, it any; 8 and the third reading is the reading of the bill in the form as approved on second reading and takes place only after
printed copies thereof in its final form have been distributed to the Members at least three days before, unless the bill is
certified. 9 At the second reading, the following takes place:
(1) Reading of the bill;
(2) Sponsorship;
(3) Debates;
(4) Period of Amendments; and
(5) Voting on Second Reading. 10
At the third reading, the votes shall be taken immediately and the yeas and nays entered in the Journal. 11
Clearly, whether in the Senate or in the House, every bill must pass the three readings on separate days, except when the bill is
certified. Amendments to the bill on third reading are constitutionally prohibited. 12
After its passage by one chamber, the bill should then be transmitted to the other chamber for its concurrence. Section 83, Rule XIV of
the Rules of the House expressly provides:
Sec. 83. Transmittal to Senate. The Secretary General, without need of express order, shall transmit to the Senate
for its concurrence all the bills and joint or concurrent resolutions approved by the House or the amendments of the
House to the bills or resolutions of the Senate, as the case may be. If the measures approved without amendments

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are bills or resolutions of the Senate, or if amendments of the Senate to bills of the House are accepted, he shall
forthwith notify the Senate of the action taken.
Simplified, this rule means that:
1. As to a bill originating in the House:
(a) Upon its approval by the House, the bill shall be transmitted to the Senate;
(b) The Senate may approve it with or without amendments;
(c) The Senate returns the bill to the House;
(d) The House may accept the Senate amendments; if it does not, the Secretary General shall
notify the Senate of that action. As hereinafter be shown, a request for conference shall then be in
order.
2. As to bills originating in the Senate;
(a) Upon its approval by the Senate, the bill shall be transmitted to the House;
(b) The House may approve it with or without amendments;
(c) The House then returns it to the Senate, informing it of the action taken;
(d) The Senate may accept the House amendements; if it does not, it shall notify the House and
make a request for conference.
The transmitted bill shall then pass three readings in the other chamber on separate days. Section 84, Rule XIV of the Rules of the
House states:
Sec. 84. Bills from the Senate. The bills, resolutions and communications of the Senate shall be referred to the
corresponding committee in the same manner as bills presented by Members of the House.
and Section 51, Rule XXIII of the Rules of the Senate provides:
Sec. 51. Prior to their final approval, bills and joint resolutions shall be read at least three times.
It is only when the period of disagreement is reached, i.e., amended proposed by one chamber to a bill originating from the other are
not accepted by the latter, that a request for conference is made or is in order. The request for conference is specifically covered by
Section 26, Rule XII of the Rules of the Senate which reads:
Sec. 26. 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 a conference committee of both Houses which shall meet within ten
days after its composition.
and Section 85, Rule XIV of the Rules of the House which reads:
Sec. 85. Conference Committee Reports. In the event that the House does not agree with the Senate on the
amendments to any bill or joint resolution, the differences may be settled by conference committees of both
Chambers.
The foregoing provisions of the Constitution and the Rules of both chambers of Congress are mandatory.
In his Treatise On the Constitutional Limitations, 13 more particularly on enactment of bill, Cooley states:
Where, for an instance, the legislative power is to be exercised by two houses, and by settled and well-understood
parliamentary law these two houses are to hold separate sessions for their deliberations, and the determination of the
one upon a proposes law is to be submitted to the separate determination of the other, the constitution, in providing
for two houses, has evidently spoken in reference to this settled custom, incorporating it as a rule of constitutional
interpretation; so that it would require no prohibitory clause to forbid the two houses from combining in one, and
jointly enacting laws by the vote of a majority of all. All those rules which are of the essentials of law-making must be
observed and followed; and it is only the customary rules of order and routine, such as in every deliberative body are
always understood to be under its control, and subject to constant change at its will, that the constitution can be
understood to have left as matters of discretion, to be established, modified, or abolished by the bodies for whose
government in non-essential matters they exist.
In respect of appropriation, revenue, or tariff bills, bills increasing the public debt, bills of local application, or private bills, the return
thereof to the House after the Senate shall have "proposed or concurred with amendments" for the former either to accept or reject the
amendments would not only be in conformity with the foregoing rules but is also implicit from Section 24 of Article VI.

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With the foregoing as our guiding light, I shall now show the violations of the Constitution and of the Rules of the Senate and of the
House in the passage of R.A. No. 7716.
VIOLATIONS OF SECTION 24, ARTICLE VI
OF THE CONSTITUTION:
First violation. Since R.A. No. 7716 is a revenue measure, it must originate exclusively in the House not in the Senate. As
correctly asserted by petitioner Tolentino, on the face of the enrolled copy of R.A. No. 7716, it is a "CONSOLIDATION OF HOUSE BILL
NO. 11197 AND SENATE BILL NO. 1630." In short, it is an illicit marriage of a bill which originated in the House and a bill which
originated in the Senate. Therefore, R.A. No. 7716 did not originate exclusively in the House.
The only bill which could serve as a valid basis for R.A. No. 7716 is House Bill (HB) No. 11197. This bill, which is the substitute bill
recommended by the House Committee on Ways and Means in substitution of House Bills Nos. 253, 771, 2450, 7033, 8086, 9030,
9210, 9397, 10012, and 10100, and covered by its Committee Report No. 367, 14 was approved on third reading by the House on 17
November 1993. 15 Interestingly, HB No. 9210, 16 which was filed by Representative Exequiel B. Javier on 19 May 1993, was certified by
the President in his letter to Speaker Jose de Venecia, Jr. of 1 June 1993. 17 Yet, HB No. 11197, which substituted HB No. 9210 and the
others above-stated, was not. Its certification seemed to have been entirely forgotten.
On 18 November 1993, the Secretary-General of the House, pursuant to Section 83, Rule XIV of the Rules of the House, transmitted to
the President of the Senate HB No. 11197 and requested the concurrence of the Senate therewith. 18
However, HB No. 11197 had passed only its first reading in that Senate by its referral to its Committee on Ways and Means. That
Committee never deliberated on HB No. 11197 as it should have. It acted only on Senate Bill (SB) No. 1129 19 introduced by Senator
Ernesto F. Herrera on 1 March 1993. It then prepared and proposed SB No. 1630, and in its Committee Report No.
349 20 which was submitted to the Senate on 7 February 1994, 21 it recommended that SB No. 1630 be approved "in substitution of S.B.
No. 1129, taking into consideration P.S. Res. No. 734 and H.B. No. 11197." 22 It must be carefully noted that SB No. 1630 was proposed
and submitted for approval by the Senate in SUBSTITUTION of SB No. 1129, and not HB No. 11197. Obviously, the principal measure
which the Committee deliberated on and acted upon was SB No. 1129 and not HB No. 11197. The latter, instead of being the only
measure to be taken up, deliberated upon, and reported back to the Senate for its consideration on second reading and, eventually, on
third reading, was, at the most, merely given by the Committee a passing glance.
This specific unequivocal action of the Senate Committee on Ways and Means, i.e., proposing and recommending approval of SB No.
1630 as a substitute for or in substitution of SB No. 1129 demolishes at once the thesis of the Solicitor General that:
Assuming that SB 1630 is distinct from HB 11197, amendment by substitution is within the purview of Section 24,
Article VI of the Constitution.
because, according to him, (a) "Section 68, Rule XXIX of the Rules of the Senate authorizes an amendment by substitution and the
only condition required is that "the text thereof is submitted in writing"; and (b) "[I]n Flint vs. Stone Tracy Co. (220 U.S. 107) the United
Stated Supreme Court, interpreting the provision in the United States Constitution similar to Section 24, Article VI of the Philippine
Constitution, stated that the power of the Senate to amend a revenue bill includes substitution of an entirely new measure for the one
originally proposed by the House of Representatives." 23
This thesis is utterly without merit. In the first place, it reads into the Committee Report something which it had not contemplated, that
is, to propose SB No. 1630 in substitution of HB No. 11197; or speculates that the Committee may have committed an error in stating
that it is SB No. 1129, and not HB No. 11197, which is to be substituted by SB No. 1630. Either, of course, is unwarranted because the
words of the Report, solemnly signed by the Chairman, Vice-Chairman (who dissented), seven members, and three ex-officio
members, 24 leave no room for doubt that although SB No. 1129, P.S. Res No. 734, and HB No. 11197 were referred to and considered
by the Committee, it had prepared the attached SB No. 1630 which it recommends for approval "in substitution of S.B. No. 11197,
taking into consideration P.S. No. 734 and H.B. No. 11197 with Senators Herrera, Angara, Romulo, Sotto, Ople and Shahani as
authors." To do as suggested would be to substitute the judgment of the Committee with another that is completely inconsistent with it,
or, simply, to capriciously ignore the facts.
In the second place, the Office of the Solicitor General intentionally made it appear, to mislead rather than to persuade us, that in Flint
vs. Stone Tracy
Co. 25 The U.S. Supreme Court ruled, as quoted by it in the Consolidated Memorandum for Respondents, as follows: 26
The Senate has the power to amend a revenue bill. This power to amend is not confined to the elimination of
provisions contained in the original act, but embraces as well the addition of such provisions thereto as may render
the original act satisfactory to the body which is called upon to support it. It has, in fact, been held that the
substitution of an entirely new measure for the one originally proposed can be supported as a valid amendment.
xxx xxx xxx
It is contended in the first place that this section of the act is unconstitutional, because it is a revenue measure, and
originated in the Senate in violation of Section 7 of article 1 of the Constitution, providing that "all bills for raising
revenue shall originate in the House of Representatives, but the Senate may propose or concur with the
amendments, as on other bills."
The first part is not a statement of the Court, but a summary of the arguments of counsel in one of the companion cases (No. 425,
entitled, "Gay vs. Baltic Mining Co."). The second part is the second paragraph of the opinion of the Court delivered by Mr. Justice Day.
The misrepresentation that the first part is a statement of the Court is highly contemptuous. To show such deliberate misrepresentation,
it is well to quote what actually are found in 55 L.Ed. 408, 410, to wit:
Messrs. Charles A. Snow and Joseph H. Knight filed a brief for appellees in No. 425:

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xxx xxx xxx
The Senate has the power to amend a revenue bill. This power to amend is not confined to the elimination of
provisions contained in the original act, but embraces as well the addition of such provisions thereto as may render
the original act satisfactory to the body which is called upon to support it. It has, in fact, been held that the substitution
of an entirely new measure for the one originally proposed can be supported as a valid amendment.
Brake v. Collison, 122 Fed. 722.
Mr. James L. Quackenbush filed a statement for appellees in No. 442.
Solicitor General Lehmann (by special leave) argued the cause for the United States on reargument.
Mr. Justice Day delivered the opinion of the court:
These cases involve the constitutional validity of 38 of the act of Congress approved August 5,
1909, known as "the corporation tax" law. 36 Stat. at L. 11, 112-117, chap. 6, U.S. Comp. Stat.
Supp. 1909, pp. 659, 844-849.
It is contended in the first place that this section of the act is unconstitutional, because it is a
revenue measure, and originated in the Senate in violation of 7 of article 1 of the Constitution,
providing the "all bills for raising revenue shall originate in the House of Representatives, but the
Senate may propose or concur with the amendments, as on other bills." The history of the act is
contained in the government's brief, and is accepted as correct, no objection being made to its
accuracy.
This statement shows that the tariff bill of which the section under consideration is a part, originated
in the House of Representatives, and was there a general bill for the collection of revenue. As
originally introduced, it contained a plan of inheritance taxation. In the Senate the proposed tax was
removed from the bill, and the corporation tax, in a measure, substituted therefor. The bill having
properly originated in the House, we perceive no reason in the constitutional provision relied upon
why it may not be amended in the Senate in the manner which it was in this case. The amendment
was germane to the subject-matter of the bill, and not beyond the power of the Senate to propose.
(Emphasis supplied)
xxx xxx xxx
As shown above, the underlined portions were deliberately omitted in the quotation made by the Office of the Solicitor General.
In the third place, a Senate amendment by substitution with an entirely new bill of a bill, which under Section 24, Article VI of the
Constitution can only originate exclusively in the House, is not authorized by said Section 24. Flint vs. Stone Tracy Co. cannot be
invoked in favor of such a view. As pointed out by Mr. Justice Florenz D. Regalado during the oral arguments of these cases and during
the initial deliberations thereon by the Court, Flint involves a Senate amendment to a revenue bill which, under the United States
Constitution, should originate from the House of Representatives. The amendment consisted of the substitution of a corporation tax in
lieu of the plan of inheritance taxation contained in a general bill for the collection of revenue as it came from the House of
Representatives where the bill originated. The constitutional provision in question is Section 7, Article I of the United States Constitution
which reads:
Sec. 7. Bills and Resolutions. All Bills for raising Revenue shall originate in the House of Representatives; but the
Senate may propose or concur with Amendments, as on other Bills.
This provision, contrary to the misleading claim of the Solicitor General, is not similar to Section 24, Article VI of our Constitution, which
for easy comparison is hereunder quoted again:
All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and
private bills shall originate exclusively in the House of Representatives, but the Senate may propose or concur with
amendments.
Note that in the former the word exclusively does not appear. And, in the latter, the phrase "as on other Bill," which is found in the
former, does not appear. These are very significant in determining the authority of the upper chamber over the bills enumerated in
Section 24. Since the origination is not exclusively vested in the House of Representatives of the United States, the Senate's authority
to propose or concur with amendments is necessarily broader. That broader authority is further confirmed by the phrase "as on other
Bills," i.e., its power to propose or concur with amendments thereon is the same as in ordinary bills. The absence of this phrase in our
Constitution was clearly intended to restrict or limit the Philippine Senate's power to propose or concur with amendments. In the light of
the exclusivity of origination and the absence of the phrase "as on other Bills," the Philippine Senate cannot amend by substitution with
an entirely new bill of its own any bill covered by Section 24 of Article VI which the House of Representatives transmitted to it because
such substitution would indirectly violate Section 24.
These obvious substantive differences between Section 7, Article I of the U.S. Constitution and Section 24, Article VI of our Constitution
are enough reasons why this Court should neither allow itself to be misled by Flint vs. Stonenor be awed by Rainey vs. United
States 27 and the opinion of Messrs. Ogg and Ray 28 which the majority cites to support the view that the power of the U.S. Senate to
amend a revenue measure is unlimited. Rainey concerns the Tariff Act of 1909 of the United States of America and specifically involved
was its Section 37 which was an amendment introduced by the U.S. Senate. It was claimed by the petitioners that the said section is a
revenue measure which should originate in the House of Representatives. The U.S. Supreme Court, however, adopted and approved
the finding of the courta quo that:

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the section in question is not void as a bill for raising revenue originating in the Senate, and not in the House of
Representatives. It appears that the section was proposed by the Senate as an amendment to a bill for raising
revenue which originated in the House. That is sufficient.
Messrs. Ogg and Ray, who are professors emeritus of political science, based their statement not even on a case decided by the U.S.
Supreme Court but on their perception of what Section 7, Article I of the U.S. Constitution permits. In the tenth edition (1951) of their
work, they state:
Any bill may make its first appearance in either house, except only that bills for raising revenue are required by the
constitution to "originate" in the House of Representatives. Indeed, through its right to amend revenue bills, even to
the extent of substituting new ones, the Senate may, in effect, originate them also. 29
Their "in effect" conclusion is, of course, logically correct because the word exclusively does not appear in said Section 7, Article I of the
U.S. Constitution.
Neither can I find myself in agreement with the view of the majority that the Constitution does not prohibit the filing in the Senate of a
substitute bill in anticipation of its receipt of the bill from the House so long as action by the Senate as a body is withheld pending
receipt of the House bill, thereby stating, in effect, that S.B. No. 1129 was such an anticipatory substitute bill, which, nevertheless, does
not seem to have been considered by the Senate except only after its receipt of H.B. No. 11179 on 23 November 1993 when the
process of legislation in respect of it began with a referral to the Senate Committee on Ways and Means. Firstly, to say that the
Constitution does not prohibit it is to render meaningless Section 24 of Article VI or to sanction its blatant disregard through the simple
expedient of filing in the Senate of a so-called anticipatory substitute bill. Secondly, it suggests that S.B. No. 1129 was filed as an
anticipatory measure to substitute for H.B. No. 11179. This is a speculation which even the author of S.B. No. 1129 may not have
indulged in. S.B. No. 1129 was filed in the Senate by Senator Herrera on 1 March 1993. H.B. No. 11197 was approved by the House on
third reading only on 17 November 1993. Frankly, I cannot believe that Senator Herrera was able to prophesy that the House would
pass any VAT bill, much less to know its provisions. That "it does not seem that the Senate even considered" the latter not until after its
receipt of H.B. No. 11179 is another speculation. As stated earlier, S.B. No. 1129 was filed in the Senate on 1 March 1993, while H.B.
No. 11197 was transmitted to the Senate only on 18 November 1993. There is no evidence on record to show that both were referred to
the Senate Committee on Ways and Means at the same time. Finally, in respect of H.B. No. 11197, its legislative process did not begin
with its referral to the Senate's Ways and Means Committee. It began upon its filing, as a Committee Bill of the House of Committee on
Ways and Means, in the House.
Second violation. Since SB No. 1129 is a revenue measure, it could not even be validly introduced or initiated in the Senate. It
follows too, that the Senate cannot validly act thereon.
Third violation. Since SB No. 1129 could not have been validly introduced in the Senate and could not have been validly acted on by
the Senate, then it cannot be substituted by another revenue measure, SB No. 1630, which the Senate Committee on Ways and Means
introduced in substitution of SB No. 1129. The filing or introduction in the Senate of SB No. 1630 also violated Section 24, Article VI of
the Constitution.
VIOLATIONS OF SECTION 26(2), ARTICLE VI
OF THE CONSTITUTION:
First violation. The Senate, despite its lack of constitutional authority to consider SB No. 1630 or SB No. 1129 which the former
substituted, opened deliberations on second reading of SB No. 1630 on 8 February 1994. On 24 March 1994, the Senate approved it
on second reading and on third reading. 30 That approval on the same day violated Section 26(2), Article VI of the Constitution. The
justification therefor was that on 24 February 1994 the President certified to "the necessity of the enactment of SB No. 1630 . . . to meet
a public emergency." 31
I submit, however, that the Presidential certification is void ab initio not necessarily for the reason adduced by petitioner Kilosbayan,
Inc., but because it was addressed to the Senate for a bill which is prohibited from originating therein. The only bill which could be
properly certified on permissible constitutional grounds even if it had already been transmitted to the Senate is HB No. 11197. As earlier
observed, this was not so certified, although HB No. 9210 (one of those consolidated into HB No. 11197) was certified on 1 June
1993. 32
Also, the certification of SB No. 1630 cannot, by any stretch of the imagination, be extended to HB No. 11197 because SB No. 1630 did
not substitute HB No. 11197 but SB No. 1129.
Considering that the certification of SB No. 1630 is void, its approval on second and third readings in one day violated Section 26(2),
Article VI of the Constitution.
Second violation. It further appears that on 24 June 1994, after the approval of SB No. 1630, the Secretary of the Senate, upon
directive of the Senate President, formally notified the House Speaker of the Senate's approval thereof and its request for a bicameral
conference "in view of the disagreeing provisions of said bill and House Bill No. 11197." 33
It must be stressed again that HB No. 11197 was never submitted for or acted on second and third readings in the Senate, and SB No.
1630 was never sent to the House for its concurrence. Elsewise stated, both were only half-way through the legislative mill. Their
submission to a conference committee was not only anomalously premature, but violative of the constitutional rule on three readings.
The suggestion that SB No. 1630 was not required to be submitted to the House for otherwise the procedure would be endless, is
unacceptable for, firstly, it violates Section 26, Rule XII of the Rules of the Senate and Section 85, Rule XIV of the Rules of the House,
and, secondly, it is never endless. If the chamber of origin refuses to accept the amendments of the other chamber, the request for
conference shall be made.

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VIOLATIONS OF THE RULES OF BOTH CHAMBERS;
GRAVE ABUSE OF DISCRETION.
The erroneous referral to the conference committee needs further discussion. Since S.B. No. 1630 was not a substitute bill for H.B. No.
11197 but for S.B. No. 1129, it (S.B. No. 1630) remained a bill which originated in the Senate. Even assuming arguendo that it could be
validly initiated in the Senate, it should have been first transmitted to the House where it would undergo three readings. On the other
hand, since HB No. 11197 was never acted upon by the Senate on second and third readings, no differences or inconsistencies could
as yet arise so as to warrant a request for a conference. It should be noted that under Section 83, Rule XIV of the Rules of the House, it
is only when the Senate shall have approved with amendments HB no. 11197 and the House declines to accept the amendments after
having been notified thereof that the request for a conference may be made by the House, not by the Senate. Conversely, the Senate's
request for a conference would only be proper if, following the transmittal of SB No. 1630 to the House, it was approved by the latter
with amendments but the Senate rejected the amendments.
Indisputably then, when the request for a bicameral conference was made by the Senate, SB No. 1630 was not yet transmitted to the
House for consideration on three readings and HB No. 11197 was still in the Senate awaiting consideration on second and third
readings. Their referral to the bicameral conference committee was palpably premature and, in so doing, both the Senate and the
House acted without authority or with grave abuse of discretion. Nothing, and absolutely nothing, could have been validly acted upon by
the bicameral conference committee.
GRAVE ABUSE OF DISCRETION COMMITTED BY
THE BICAMERAL CONFERENCE COMMITTEE.
Serious irregularities amounting to lack of jurisdiction or grave abuse of discretion were committed by the bicameral conference
committee.
First, it assumed, and took for granted that SB No. 1630 could validly originate in the Senate. This assumption is erroneous.
Second, it assumed that HB No. 11197 and SB No. 1630 had properly passed both chambers of Congress and were properly and
regularly submitted to it. As earlier discussed, the assumption is unfounded in fact.
Third, per the bicameral conference committee's proceedings of 19 April 1994, Representative Exequiel Javier, Chairman of the panel
from the House, initially suggested that HB No. 11197 should be the "frame of reference," because it is a revenue measure, to which
Senator Ernesto Maceda concurred. However, after an incompletely recorded reaction of Senator Ernesto Herrera, Chairman of the
Senate panel, Representative Javier seemed to agree that "all amendments will be coming from the Senate." The issue of what should
be the "frame of reference" does not appear to have been resolved. These facts are recorded in this wise, as quoted in the
Consolidated Memorandum for Respondents: 34
CHAIRMAN JAVIER.
First of all, what would be the basis, no, or framework para huwag naman mawala yung personality namin dito sa
bicameral, no, because the bill originates from the House because this is a revenue bill, so we would just want to
ask, we make the House Bill as the frame of reference, and then everything will just be inserted?
HON. MACEDA.
Yes. That's true for every revenue measure. There's no other way. The House Bill has got to be the base. Of course,
for the record, we know that this is an administration; this is certified by the President and I was about to put into the
records as I am saying now that your problem about the impact on prices on the people was already decided when
the President and the administration sent this to us and certified it. They have already gotten over that political
implication of this bill and the economic impact on prices.
CHAIRMAN HERRERA.
Yung concern mo about the bill as the reference in this discussion is something that we can just . . .
CHAIRMAN JAVIER.
We will just . . . all the amendments will be coming from the Senate.
(BICAMERAL CONFERENCE ON MAJOR DIFFERENCES BETWEEN HB NO. 11197 AND SB NO. 1630 [Cte. on
Ways & Means] APRIL 19, 1994, II-6 and II-7; Emphasis supplied)
These exchanges would suggest that Representative Javier had wanted HB No. 11197 to be the principal measure on which
reconciliation of the differences should be based. However, since the Senate did not act on this Bill on second and third readings
because its Committee on Ways and Means did not deliberate on it but instead proposed SB No. 1630 in substitution of SB No. 1129,
the suggestion has no factual basis. Then, when finally he agreed that "all amendments will be coming from the Senate," he in fact
withdrew the former suggestion and agreed that SB No. 1630, which is the Senate version of the Value Added Tax (VAT) measure,
should be the "frame of reference." But then SB No. 1630 was never transmitted to the House for the latter's concurrence. Hence, it
cannot serve as the "frame of reference" or as the basis for deliberation. The posture taken by Representative Javier also indicates that
SB No. 1630 should be taken as the amendment to HB No. 11197. This, too, is unfounded because SB No. 1630 was not proposed in
substitution of HB No. 11197.

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Since SB No. 1630 did not pass three readings in the House and HB No. 11197 did not pass second and third readings in the Senate, it
logically follows that no disagreeing provisions had as yet arisen. The bicameral conference committee erroneously assumed the
contrary.
Even granting arguendo that both HB No. 11197 and SB No. 1630 had been validly approved by both chambers of Congress and
validly referred to the bicameral conference committee, the latter had very limited authority thereon. It was created "in view of the
disagreeing provisions of" the two bills. 35 Its duty was limited to the reconciliation of disagreeing provisions or the resolution of
differences or inconsistencies. The committee recognized that limited authority in the opening paragraph of its Report 36 when it said:
The Conference Committee on the disagreeing provisions of House Bill No. 11197 . . . and Senate Bill No. 1630 . . . .
Under such limited authority, it could only either (a) restore, wholly or partly, the specific provisions of HB No. 11197 amended by SB
No. 1630, (b) sustain, wholly or partly, the Senate's amendments, or (c) by way of a compromise, to agree that neither provisions in HB
No. 11197 amended by the Senate nor the latter's amendments thereto be carried into the final form of the former.
But as pointed out by petitioners Senator Raul Roco and Kilosbayan, Inc., the bicameral conference committee not only struck out nondisagreeing provisions of HB No. 11197 and SB No. 1630, i.e., provisions where both bills are in full agreement; it added more activities
or transactions to be covered by VAT, which were not within the contemplation of both bills.
Since both HB No. 11197 and SB No. 1630 were still half-cooked in the legislative vat, and were not ready for referral to a conference,
the bicameral conference committee clearly acted without jurisdiction or with grave abuse of discretion when it consolidated both into
one bill which became R.A. No. 7716.
APPROVAL BY BOTH CHAMBERS OF CONFERENCE
COMMITTEE REPORT AND PROPOSED BILL DID
NOT CURE CONSTITUTIONAL INFIRMITIES.
I cannot agree with the suggestion that since both the Senate and the House had approved the bicameral conference committee report
and the bill proposed by it in substitution of HB No. 11197 and SB No. 1630, whatever infirmities may have been committed by it were
cured by ratification. This doctrine of ratification may apply to minor procedural flaws or tolerable breachs of the parameters of the
bicameral conference committee's limited powers but never to violations of the Constitution. Congress is not above the Constitution. In
the instant case, since SB No. 1630 was introduced in violation of Section 24, Article VI of the Constitution, was passed in the Senate in
violation of the "three readings" rule, and was not transmitted to the House for the completion of the constitutional process of legislation,
and HB No. 11197 was not likewise passed by the Senate on second and third readings, neither the Senate nor the House could validly
approve the bicameral conference committee report and the proposed bill.
In view of the foregoing, the conclusion is inevitable that for non-compliance with mandatory provisions of the Constitution and of the
Rules of the Senate and of the House on the enactment of laws, R.A. No. 7716 is unconstitutional and, therefore, null and void. A
discussion then of the instrinsic validity of some of its provisions would be unnecessary.
The majority opinion, however, invokes the enrolled bill doctrine and wants this Court to desist from looking behind the copy of the
assailed measure as certified by the Senate President and the Speaker of the House. I respectfully submit that the invocation is
misplaced. First, as to the issue of origination, the certification in this case explicitly states that R.A. No. 7716 is a "consolidation of
House Bill No. 11197 and Senate Bill No. 1630." This is conclusive evidence that the measure did not originate exclusively in the
House. Second, the enrolled bill doctrine is of American origin, and unquestioned fealty to it may no longer be justified in view of the
expanded jurisdiction 37 of this Court under Section 1, Article VIII of our Constitution which now expressly grants authority to this Court
to:
determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on
the part of any branch or instrumentality of the Government.
Third, even under the regime of the 1935 Constitution which did not contain the above provision, this Court, through Mr. Chief
Justice Makalintal, in Astorga vs. Villegas, 38 declared that it cannot be truly said thatMabanag vs. Lopez
Vito 39 has laid to rest the question of whether the enrolled bill doctrine or the journal entry rule should be adhered to in this
jurisdiction, and stated:
As far as Congress itself is concerned, there is nothing sacrosanct in the certification made by the presiding officers.
It is merely a mode of authentication. The lawmaking process in Congress ends when the bill is approved by both
Houses, and the certification does not add to the validity of the bill or cure any defect already present upon its
passage. In other words, it is the approval of Congress and not the signatures of the presiding officers that is
essential. Thus the (1935) Constitution says that "[e]very bill passed by the Congress shall, before it becomes law, be
presented to the President." In Brown vs. Morris, supra, the Supreme Court of Missouri, interpreting a similar
provision in the State Constitution, said that the same "makes it clear that the indispensable step in the passage" and
it follows that if a bill, otherwise fully enacted as a law, is not attested by the presiding officer, other proof that it has
"passed both houses will satisfy the constitutional requirement."
Fourth, even in the United States, the enrolled bill doctrine has been substantially undercut. This is shown in the disquisitions of Mr.
Justice Reynato S. Puno in his dissenting opinion, citing Sutherland, Statutory Construction.
Last, the pleadings of the parties have established beyond doubt that HB No. 11197 was not acted on second and third readings in the
Senate and SB No. 1630, which was approved by the Senate on second and third readings in substitution of SB No. 1129,
was never transmitted to the House for its passage. Otherwise stated, they were only passed in their respective chamber of origin but
not in the other. In no way can each become a law under paragraph 2, Section 26, Article VI of the Constitution. For the Court to close
its eyes to this fact because of the enrolled bill doctrine is to shrink its duty to hold "inviolate what is decreed by the Constitution." 40

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I vote then to GRANT these petitions and to declare R.A. No. 7716 as unconstitutional.
ROMERO, J.:
Few issues brought before this Court for resolution have roiled the citizenry as much as the instant case brought by nine petitioners
which challenges the constitutionality of Republic Act No. 7716 (to be referred to herein as the "Expanded Value Added Tax" or EVAT
law to distinguish it from Executive Order No. 273 which is the VAT law proper) that was enacted on May 5, 1994. A visceral issue, it
has galvanized the populace into mass action and strident protest even as the EVAT proponents have taken to podia and media in
a post facto information campaign.
The Court is confronted here with an atypical case. Not only is it a vatful of seething controversy but some unlikely petitioners invoke
unorthodox remedies. Three Senator-petitioners would nullify a statute that bore the indispensable stamp of approval of their own
Chamber with two of them publicly repudiating what they had earlier endorsed. With two former colleagues, one of them an erstwhile
Senate President, making common cause with them, they would stay the implementation by the Executive Department of a law which
they themselves have initiated. They address a prayer to a co-equal Department to probe their official acts for any procedural
irregularities they have themselves committed lest the effects of these aberrations inflict such damage or irreparable loss as would bring
down the wrath of the people on their heads.
To the extent that they perceive that a vital cog in the internal machinery of the Legislature has malfunctioned from having operated in
blatant violation of the enabling Rules they have themselves laid down, they would now plead that this other Branch of Government
step in, invoking the exercise of what is at once a delicate and awesome power. Undoubtedly, the case at bench is as much a test for
the Legislature as it is for the Judiciary.
A backward glance on the Value Added Tax (VAT) is in order at this point.
The first codification of the country's internal revenue laws was effected with the enactment of Commonwealth Act No. 466, commonly
known as the 'National Internal Revenue Code' which was approved on June 15, 1939 and took effect on July 1, 1939, although the
provisions on the income tax were made retroactive to January 1, 1939.
Since 1939 when the turnover tax was replaced by the manufacturer's sales tax, the Tax Code had provided for a
single-stage value-added tax on original sales by manufacturers, producers and importers computed on the "cost
deduction method" and later, on the basis of the "tax credit method." The turnover tax was re-introduced in 1985 by
Presidential Decree No. 1991 (as amended by Presidential Decree No. 2006). 1
In 1986, a tax reform package was approved by the Aquino Cabinet. It contained twenty-nine measures, one of which proposed the
adoption of the VAT, as well as the simplification of the sales tax structure and the abolition of the turnover tax.
Up until 1987, the system of taxing goods consisted of (a) an excise tax on certain selected articles (b) fixed and
percentage taxes on original and subsequent sales, on importations and on milled articles and (c) mining taxes on
mineral products. Services were subjected to percentage taxes based mainly on gross receipts. 2
On July 25, 1987, President Corazon C. Aquino signed into law Executive Order No. 273 which adopted the VAT. From the former
single-stage value-added tax, it introduced the multi-stage VAT system where "the value-added tax is imposed on the sale of and
distribution process culminating in sale, to the final consumer. Generally described, the taxpayer (the seller) determines his tax liability
by computing the tax on the gross selling price or gross receipt ("output tax") and subtracting or crediting the earlier VAT on the
purchase or importation of goods or on the sale of service ("input tax") against the tax due on his own sale." 3
On January 1, 1988, implementing rules and regulations for the VAT were promulgated. President Aquino then issued Proclamation No.
219 on February 12, 1988 urging the public and private sectors to join the nationwide consumers' education campaign for VAT.
Soon after the implementation of Executive Order No. 273, its constitutionality was assailed before this Court in the case of Kapatiran
ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc., et al. v. Tan. 4 The four petitioners sought to nullify the VAT law "for being
unconstitutional in that its enactment is not allegedly within the powers of the President; that the VAT is oppressive, discriminatory,
regressive, and violates the due process and equal protection clauses and other provisions of the 1987 Constitution." 5 In dismissing
the consolidated petitions, this Court stated:
The Court, following the time-honored doctrine of separation of powers cannot substitute its judgment for that of the
President as to the wisdom, justice and advisability of the VAT. The Court can only look into and determine whether or
not Executive Order No. 273 was enacted and made effective as law, in the manner required by and consistent with,
the Constitution, and to make sure that it was not issued in grave abuse of discretion amounting to lack or excess of
jurisdiction; and, in this regard, the Court finds no reason to impede its application or continued implementation. 6
Although declared constitutional, the VAT law was sought to be amended from 1992 on by a series of bills filed in both Houses of
Congress. In chronological sequence, these were:

HB/SB No. Date Filed in Congress

HB No. 253 - July 22, 1992
HB No. 771 - August 10, 1992
HB No. 2450 - September 9, 1992
Senate Res. No. 734 7 - September 10, 1992
HB No. 7033 - February 3, 1993

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SB No. 1129 8 - March 1, 1993
HB No. 8086 - March 9, 1993
HB No. 9030 - May 11, 1993
HB No. 9210 9 - May 19, 1993
HB No. 9297 - May 25, 1993
HB No. 10012 - July 28, 1993
HB No. 10100 - August 3, 1993
HB No. 11197 in substitution of HB Nos. 253, 771, 2450, 7033, 8086, 9030, 9210, 9297,
10012 and
10100 10 - November 5, 1993
We now trace the course taken by H.B. No. 11197 and S.B. No. 1129.
HB/SB No.
HB No. 11197 was approved in the Lower House onsecond reading - November 11, 1993
HB No. 11197 was approved in
the Lower House on third
reading and voted upon
with 114 Yeas and 12 Nays - November 17, 1993
HB No. 11197 was transmitted
to the Senate - November 18, 1993
Senate Committee on Ways and
Means submitted Com.
Report No. 349 recommeding
for approval SB No. 1630 in
substitution of SB No. 1129,
taking into consideration PS Res. No.
734 and HB No. 11197 11 - February 7, 1994
Certification by President Fidel V.
Ramos of Senate Bill No.
1630 for immediate enactment
to meet a public emergency - March 22, 1994
SB No. 1630 was approved by
the Senate on second and third
readings and subsequently
voted upon with 13 yeas, none
against and one abstention - March 24, 1994
Transmittal by the Senate to the
Lower House of a request
for a conference in view of
disagreeing provisions of
SB No. 1630 and HB NO.
11197 - March 24, 1994
The Bicameral Conference Committee
conducted various meetings to
reconcile the proposals on the
VAT - April 13, 19, 20, 21, 25
The House agreed on the Conference
Committee Report - April 27, 1994
The Senate agreed on the Conference
Committee Report - May 2, 1994
The President signed Republic Act
No. 7716 - The Expanded
VAT Law 12 - May 5, 1994
Republic Act No. 7716 was
published in two newspapers
of general circulation - May 12, 1994
Republic Act No. 7716 became
effective - May 28, 1994

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Republic Act No. 7716 merely expanded the base of the VAT law even as the tax retained its multi-stage character.
At the oral hearing held on July 7, 1994, this Court delimited petitioners' arguments to the following issues culled from their respective
petitions.
PROCEDURAL ISSUES
Does Republic Act No. 7716 violate Article VI, Section 24, of the Constitution?

13

Does it violate Article VI, Section 26, paragraph 2, of the

Constitution? 14
What is the extent of the power of the Bicameral Conference Committee?
SUBSTANTIVE ISSUES
Does the law violate the following provisions in Article III (Bill of Rights) of the Constitution:
1. Section 1 15
2. Section 4 16
3. Section 5 17
4. Section 10 18
Does the law violate the following other provisions of the Constitution?
1. Article VI, Section 28, paragraph 1 19
2. Article VI, Section 28, paragraph 3 20
As a result of the unedifying experience of the past where the Court had the propensity to steer clear of questions it perceived to be
"political" in nature, the present Constitution, in contrast, has explicitly expanded judicial power to include the duty of the courts,
especially the Supreme Court, "to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or instrumentality of the Government." 21 I submit that under this explicit mandate, the Court is
empowered to rule upon acts of other Government entities for the purpose of determining whether there may have been, in fact,
irregularities committed tantamount to violation of the Constitution, which case would clearly constitute a grave abuse of discretion on
their part.
In the words of the sponsor of the above-quoted Article of the Constitution on the Judiciary, the former Chief Justice Roberto R.
Concepcion, "the judiciary is the final arbiter on the question of whether or not a branch of government or any of its officials has acted
without jurisdiction or in excess of jurisdiction, or so capriciously as to constitute an abuse of discretion amounting to excess of
jurisdiction or lack of jurisdiction. This is not only a judicial power but a duty to pass judgment on matters of this nature.
This is the back ground of paragraph 2 of Section 1, which means that the courts cannot hereafter exhibit its wonted reticence by
claiming that such matters constitute a political question." 22
In the instant petitions, this Court is called upon, not so much to exercise its traditional power of judicial review as to determine whether
or not there has indeed been a grave abuse of discretion on the part of the Legislature amounting to lack or excess of jurisdiction.
Where there are grounds to resolve a case without touching on its constitutionality, the Court will do so with utmost alacrity in due
deference to the doctrine of separation of powers anchored on the respect that must be accorded to the other branches of government
which are coordinate, coequal and, as far as practicable, independent of one another.
Once it is palpable that the constitutional issue is unavoidable, then it is time to assume jurisdiction, provided that the following
requisites for a judicial inquiry are met: that there must be an actual and appropriate case; a personal and substantial interest of the
party raising the constitutional question; the constitutional question must be raised at the earliest possible opportunity and the decision
of the constitutional question must be necessary to the determination of the case itself, the same being the lis mota of the case. 23
Having assured ourselves that the above-cited requisites are present in the instant petitions, we proceed to take them up.
ARTICLE VI, SECTION 24
Some petitioners assail the constitutionality of Republic Act No. 7716 as being in violation of Article VI, Section 24 of the Constitution
which provides:
All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and
private bills, shall originate exclusively in the House of Representatives, but the Senate may propose or concur with
amendments.
In G.R. Nos. 115455 and 115781, petitioners argue:

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(a) The bill which became Republic Act No. 7716 did not originate exclusively in the House of Representatives. The Senate, after
receiving H.B. No. 11197, submitted its own bill, S.B. No. 1630, and proceeded to vote and approve the same after second and third
readings.
(b) The Senate exceeded its authority to "propose or concur with amendments" when it submitted its own bill, S.B. No. 1630,
recommending its approval "in substitution of S.B. No. 1129, taking into consideration P.S. Res. No. 734 and H.B. No. 11197."
(c) H.B. No. 11197 was not deliberated upon by the Senate. Neither was it voted upon by the Senate on second and third readings, as
what was voted upon was S.B. No. 1630.
Article VI, Section 24 is taken word for word from Article VI, Section 18 of the 1935 Constitution which was, in turn, patterned after
Article I, Section 7 (1) of the Constitution of the United States, which states:
All bills for raising revenue shall originate in the House of Representatives, but the Senate may propose or concur
with amendments as on other bills.
The historical precedent for requiring revenue bills to originate in Congress is explained in the U.S. case ofMorgan v. Murray. 24
The constitutional requirement that all bills for raising revenue shall originate in the House of Representatives
stemmed from a remedial outgrowth of the historic conflict between Parliament (i.e., Commons) and the Crown,
whose ability to dominate the monarchially appointive and hereditary Lords was patent. See 1 Story, Constitution, S
875 et seq., 5th Ed.; 1 Cooley, Constitutional Limitations, pp. 267, 268, 8th Ed., 1 Sutherland, Statutory Construction,
S 806, 3d Ed. There was a measure of like justification for the insertion of the provision of article I, S 7, cl. 1, of the
Federal Constitution. At that time (1787) and thereafter until the adoption (in 1913) of the Seventeenth Amendment
providing for the direct election of senators, the members of the United States Senate were elected for each state by
the joint vote of both houses of the Legislature of the respective states, and hence, were removed from the
people . . .
The legislative authority under the 1935 Constitution being unicameral, in the form of the National Assembly, it served no purpose to
include the subject provision in the draft submitted by the 1934 Constitutional Convention to the Filipino people for ratification.
In 1940, however, the Constitution was amended to establish a bicameral Congress of the Philippines composed of a House of
Representatives and a Senate.
In the wake of the creation of a new legislative machinery, new provisions were enacted regarding the law-making power of Congress.
The National Assembly explained how the final formulation of the subject provision came about:
The concurrence of both houses would be necessary to the enactment of a law. However, all appropriation, revenue
or tariff bills, bills authorizing an increase of the public debt, bills of local application, and private bills, should originate
exclusively in the House of Representatives, although the Senate could propose or concur with amendments.
In one of the first drafts of the amendments, it was proposed to give both houses equal powers in lawmaking. There
was, however, much opposition on the part of several members of the Assembly. In another draft; the following
provision, more restrictive than the present provision in the amendment, was proposed and for sometime was
seriously considered:
All bills appropriating public funds, revenue or tariff bills, bills of local application, and private bills
shall originate exclusively in the Assembly, but the Senate may propose or concur with
amendments. In case of disapproval by the Senate of any such bills, the Assembly may repass the
same by a two-thirds vote of all its members, and thereupon, the bill so repassed shall be deemed
enacted and may be submitted to the President for corresponding action. In the event that the
Senate should fail to finally act on any such bills, the Assembly may, after thirty days from the
opening of the next regular sessions of the same legislative term, reapprove the same with a vote
of two-thirds of all the members of the Assembly. And upon such reapproval, the bill shall be
deemed enacted and may be submitted to the president for corresponding action.
However, the special committee voted finally to report the present amending provision as it is now worded; and in that
form it was approved by the National Assembly with the approval of Resolution No. 38 and later of Resolution No.
73. 25 (Emphasis supplied)
Thus, the present Constitution is identically worded as its 1935 precursor: "All appropriation, revenue or tariff bills, bills authorizing
increase of the public debt, bills of local application, and private bills, shall originate exclusively in the House of Representatives, but the
Senate may propose or concur with amendments." (Emphasis supplied)
That all revenue bills, such as Republic Act No. 7716, should "originate exclusively in the House of Representatives" logically flows from
the more representative and broadly-based character of this Chamber.
It is said that the House of Representatives being the more popular branch of the legislature, being closer to the
people, and having more frequent contacts with them than the Senate, should have the privilege of taking the
initiative in the proposals of revenue and tax project, the disposal of the people's money, and the contracting of public
indebtedness.
These powers of initiative in the raising and spending of public funds enable the House of Representatives not only to
implement but even to determine the fiscal policies of the government. They place on its shoulders much of the

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responsibility of solving the financial problems of the government, which are so closely related to the economic life of
the country, and of deciding on the proper distribution of revenues for such uses as may best advance public
interests. 26
The popular nature of the Lower House has been more pronounced with the inclusion of Presidentially-appointed sectoral
representatives, as provided in Article VI, Section 5 (2), of the Constitution, thus: "The party-list representatives shall constitute
twenty per centum of the total number of representatives including those under the party list. For three consecutive terms after the
ratification of this Constitution, one-half of the seats allocated to party-list representatives shall be filled, as provided by law, by
selection or election from the labor, peasant, urban poor, indigenous cultural communities, women, youth, and such other sectors as
may be provided by law, except the religious sector." (Emphasis supplied)
This novel provision which was implemented in the Batasang Pambansa during the martial law regime 27 was eventually incorporated in
the present Constitution in order to give those from the marginalized and often deprived sector, an opportunity to have their voices
heard in the halls of the Legislature, thus giving substance and meaning to the concept of "people empowerment."
That the Congressmen indeed have access to, and consult their constituencies has been demonstrated often enough by the fact that
even after a House bill has been transmitted to the Senate for concurrence, some Congressmen have been known to express their
desire to change their earlier official position or reverse themselves after having heard their constituents' adverse reactions to their
representations.
In trying to determine whether the mandate of the Constitution with regard to the initiation of revenue bills has been preserved inviolate,
we have recourse to the tried and tested method of definition of terms. The term "originate" is defined by Webster's New International
Dictionary (3rd Edition, 1986) as follows: "v.i., to come into being; begin; to start."
On the other hand, the word "exclusively" is defined by the same Webster's Dictionary as "in an exclusive manner; to the exclusion of
all others; only; as, it is his, exclusively." Black's Law Dictionary has this definition: "apart from all others; only; solely; substantially all or
for the greater part. To the exclusion of all other; without admission of others to participation; in a manner to exclude. Standard Oil Co.
of Texas v. State, Tex. Civ. App., 142 S.W. 2d 519, 521, 522, 523."
This Court had occasion to define the term "exclusive" as follows:
. . . In its usual and generally accepted sense, the term means possessed to the exclusion of others; appertaining to
the subject alone; not including, admitting or pertaining to another or others; undivided, sole. 28
When this writer, during the oral argument of July 7, 1994, asked the petitioner in G.R. No. 115455 whether he considers the word
"exclusively" to be synonymous with "solely," he replied in the affirmative. 29
A careful examination of the legislative history traced earlier in this decision shows that the original VAT law, Executive Order No. 273,
was sought to be amended by ten House bills which finally culminated in House Bill No. 11197, as well as two Senate bills. It is to be
noted that the first House Bill No. 253 was filed on July 22, 1992, and two other House bills followed in quick succession on August 10
and September 9, 1992 before a Senate Resolution, namely, Senate Res. No. 734, was filed on September 10, 1992 and much later, a
Senate Bill proper,viz., Senate Bill No. 1129 on March 1, 1993. Undoubtedly, therefore, these bills originated or had their start in the
House and before any Senate bill amending the VAT law was filed. In point of time and venue, the conclusion is ineluctable that
Republic Act No. 7716, which is indisputably a revenue measure, originated in the House of Representatives in the form of House Bill
No. 253, the first EVAT bill.
Additionally, the content and substance of the ten amendatory House Bills filed over the roughly one-year period from July 1992 to
August 1993 reenforce the position that these revenue bills, pertaining as they do, to Executive Order No. 273, the prevailing VAT law,
originated in the Lower House.
House Bill Nos. 253, 771, 2450, 7033, 8086, 9030, 9210, 9297, 10012 and 10100 were intended to restructure the VAT system by
exempting or imposing the tax on certain items or otherwise introducing reforms in the mechanics of implementation. 30 Of these, House
Bill No. 9210 was favored with a Presidential certification on the need for its immediate enactment to meet a public emergency. Easily
the most comprehensive, it noted that the revenue performance of the VAT, being far from satisfactory since the collections have always
fallen short of projections, "the system is rendered inefficient, inequitable and less comprehensive." Hence, the Bill proposed several
amendments designed to widen the tax base of the VAT and enhance its administration. 31
That House Bill No. 11197 being a revenue bill, originated from the Lower House was acknowledged, in fact was virtually taken for
granted, by the Chairmen of the Committee on Ways and Means of both the House of Representatives and the Senate. Consequently,
at the April 19, 1994 meeting of the Bicameral Conference Committee, the Members agreed to make the House Bill as the "frame of
reference" or "base" of the discussions of the Bicameral Conference Committee with the "amendments" or "insertions to emanate from
the Senate." 32
As to whether the bills originated exclusively in the Lower House is altogether a different matter. Obviously, bills amendatory of VAT did
not originate solely in the House to the exclusion of all others for there were P.S. Res. No. 734 filed in the Senate on September 10,
1992 followed by Senate Bill No. 1129 which was filed on March 1, 1993. About a year later, this was substituted by Senate Bill No.
1630 that eventually became the EVAT law, namely, Republic Act No. 7716.
Adverting to the passage of the amendatory VAT bills in the Lower House, it is to be noted that House Bill No. 11197 which substituted
all the prior bills introduced in said House complied with the required readings, that is, the first reading consisting of the reading of the
title and referral to the appropriate Committee, approval on second reading on November 11, 1993 and on third reading on November
17, 1993 before being finally transmitted to the Senate. In the Senate, its identity was preserved and its provisions were taken into
consideration when the Senate Committee on Ways and Means submitted Com. Report No. 349 which recommended for approval
"S.B. No. 1630 in substitution of S.B. No. 1129, taking into consideration P.S. Res. No. 734 and H.B. No. 11197." At this stage, the
subject bill may be considered to have passed first reading in the Senate with the submission of said Committee Report No. 349 by the

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Senate Committee on Ways and Means to which it had been referred earlier. What remained, therefore, was no longer House Bill No.
11197 but Senate Bill No. 1630. Thence, the Senate, instead of transmitting the bill to the Lower House for its concurrence and
amendments, if any, took a "shortcut," bypassed the Lower House and instead, approved Senate Bill No. 1630 on both second and
third readings on the same day, March 24, 1994.
The first irregularity, that is, the failure to return Senate Bill No. 1630 to the Lower House for its approval is fatal inasmuch as the other
chamber of legislature was not afforded the opportunity to deliberate and make known its views. It is no idle dictum that no less than the
Constitution ordains: "The legislative power shall be vested in the Congress of the Philippines which shall consist of a Senate and a
House of Representatives . . ." 33 (Emphasis supplied)
It is to be pointed out too, that inasmuch as Senate Bill No. 1630 which had "taken into consideration" House Bill No. 11197 was not
returned to the Lower House for deliberation, the latter Chamber had no opportunity at all to express its views thereon or to introduce
any amendment. The customary practice is, after the Senate has considered the Lower House Bill, it returns the same to the House of
origin with its amendments. In the event that there may be any differences between the two, the same shall then be referred to a
Conference Committee composed of members from both Chambers which shall then proceed to reconcile said differences.
In the instant case, the Senate transmitted to the Lower House on March 24, 1994, a letter informing the latter that it had "passed S.
No. 1630
entitled . . . (and) in view of the disagreeing provisions of said bill and House Bill No. 11197, entitled . . . the Senate requests a
conference . . ." This, in spite of the fact that Com. Report No. 349 of the Senate Committee on Ways and Means had already
recommended for approval on February 7, 1994 "S.B. No. 1630 . . . taking into consideration H.B. No. 11197." Clearly, the Conference
Committee could only have acted upon Senate Bill No. 1630, for House Bill No. 11197 had already been fused into the former.
At the oral hearing of July 7, 1994, petitioner in G.R. No. 115455 admitted, in response to this writer's query, that he had attempted to
rectify some of the perceived irregularities by presenting a motion in the Senate to recall the bill from the Conference Committee so that
it could revert to the period of amendment, but he was outvoted, in fact "slaughtered." 34
In accordance with the Rules of the House of Representatives and the Senate, Republic Act No. 7716 was duly authenticated after it
was signed by the President of the Senate and the Speaker of the House of Representatives followed by the certifications of the
Secretary of the Senate and the Acting Secretary General of the House of Representatives. 35 With the signature of President Fidel V.
Ramos under the words "Approved: 5 May 1994," it was finally promulgated.
Its legislative journey ended, Republic Act No. 7716 attained the status of an enrolled bill which is defined as one "which has been duly
introduced, finally passed by both houses, signed by the proper officers of each, approved by the governor (or president) and filed by
the secretary of state." 36
Stated differently:
It is a declaration by the two houses, through their presiding officers, to the president, that a bill, thus attested, has
received in due form, the sanction of the legislative branch of the government, and that it is delivered to him in
obedience to the constitutional requirement that all bills which pass Congress shall be presented to him. And when a
bill, thus attested, receives his approval, and is deposited in the public archives, its authentication as a bill that has
passed Congress should be deemed complete and unimpeachable. As the President has no authority to approve a
bill not passed by Congress, an enrolled Act in the custody of the Secretary of State, and having the official
attestations of the Speaker of the House of Representatives, of the President of the Senate, and of the President of
the United States, carries, on its face, a solemn assurance by the legislative and executive departments of the
government, charged, respectively, with the duty of enacting and executing the laws, that it was passed by Congress.
The respect due to coequal and independent departments requires the judicial department to act upon that
assurance, and to accept, as having passed Congress, all bills authenticated in the manner stated; leaving the courts
to determine, when the question properly arises, whether the Act, so authenticated, is in conformity with the
Constitution. 37
The enrolled bill assumes importance when there is some variance between what actually transpired in the halls of Congress, as
reflected in its journals, and as shown in the text of the law as finally enacted. But suppose the journals of either or both Houses fail to
disclose that the law was passed in accordance with what was certified to by their respective presiding officers and the President. Or
that certain constitutional requirements regarding its passage were not observed, as in the instant case. Which shall prevail: the journal
or the enrolled bill?
A word on the journal.
The journal is the official record of the acts of a legislative body. It should be a true record of the proceedings
arranged in chronological order. It should be a record of what is done rather than what is said. The journal should be
a clear, concise, unembellished statement of all proposals made and all actions taken complying with all requirements
of constitutions, statutes, charters or rules concerning what is to be recorded and how it is to be recorded. 38
Article VI, Section 16 (4) of the Constitution ordains:
Each house shall keep a Journal of its proceedings, and from time to time publish the same, excepting such parts as
may, in its judgment, affect national security; and the yeas and nays on any question shall, at the request of one-fifth
of the Members present, be entered in the Journal.
Each House shall also keep a Record of its proceedings." (Emphasis supplied)
The rationale behind the above provision and of the "journal entry rule" is as follows:

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It is apparent that the object of this provision is to make the legislature show what it has done, leaving nothing
whatever to implication. And, when the legislature says what it has done, with regard to the passage of any bill, it
negatives the idea that it has done anything else in regard thereto. Silence proves nothing where one is commanded
to speak . . . . Our constitution commands certain things to be done in regard to the passage of a bill, and says that
no bill shall become a law unless these things are done. It seems a travesty upon our supreme law to say that it
guaranties to the people the right to have their laws made in this manner only, and that there is no way of enforcing
this right, or for the court to say that this is law when the constitution says it is not law. There is one safe course which
is in harmony with the constitution, and that is to adhere to the rule that the legislature must show, as commanded by
the constitution, that it has done everything required by the constitution to be done in the serious and important
matter of making laws. This is the rule of evidence provided by the constitution. It is not presumptuous in the courts,
nor disrespectful to the legislature, to judge the acts of the legislature by its own evidence. 39
Confronted with a discrepancy between the journal proceedings and the law as duly enacted, courts have indulged in different theories.
The "enrolled bill" and "journal entry" rules, being rooted deep in the Parliamentary practices of England where there is no written
constitution, and then transplanted to the United States, it may be instructive to examine which rule prevails in the latter country through
which, by a process of legislative osmosis, we adopted them in turn.
There seems to be three distinct and different rules as applicable to the enrolled bill recognized by the various courts
of this country. The first of these rules appears to be that the enrolled bill is the ultimate proof and exclusive and
conclusive evidence that the bill passed the legislature in accordance with the provisions of the Constitution. Such
has been the holding in California, Georgia, Kentucky, Texas, Washington, New Mexico, Mississippi, Indiana, South
Dakota, and may be some others.
The second of the rules seems to be that the enrolled bill is a verity and resort cannot be had to the journals of the
Legislature to show that the constitutional mandates were not complied with by the Legislature, except as to those
provisions of the Constitution, compliance with which is expressly required to be shown on the journal. This rule has
been adopted in South Carolina, Montana, Oklahoma, Utah, Ohio, New Jersey, United States Supreme Court, and
others.
The third of the rules seems to be that the enrolled bill raises only a prima facie presumption that the mandatory
provisions of the Constitution have been complied with and that resort may be had to the journals to refute that
presumption, and if the constitutional provision is one, compliance with which is expressly required by the
Constitution to be shown on the journals, then the mere silence of the journals to show a compliance therewith will
refute the presumption. This rule has been adopted in Illinois, Florida, Kansas, Louisiana, Tennessee, Arkansas,
Idaho, Minnesota, Nebraska, Arizona, Oregon, New Jersey, Colorado, and others. 40
In the 1980 case of D & W Auto Supply v. Department of Revenue, the Supreme Court of Kentucky which had subscribed in the past to
the first of the three theories, made the pronouncement that it had shifted its stand and would henceforth adopt the third. It justified its
changed stance, thus:
We believe that a more reasonable rule is the one which Professor Sutherland describes as the "extrinsic evidence"
rule . . . . Under this approach there is a prima facie presumption that an enrolled bill is valid, but such presumption
may be overcome by clear satisfactory and convincing evidence establishing that constitutional requirements have
not been met. 41
What rule, if any, has been adopted in this jurisdiction?
Advocates of the "journal entry rule" cite the 1916 decision in U.S. v. Pons 42 where this Court placed reliance on the legislative journals
to determine whether Act No. 2381 was passed on February 28, 1914 which is what appears in the Journal, or on March 1, 1914 which
was closer to the truth. The confusion was caused by the adjournment sine die at midnight of February 28, 1914 of the Philippine
Commission.
A close examination of the decision reveals that the Court did not apply the "journal entry rule" vis-a-vis the "enrolled bill rule" but the
former as against what are "behind the legislative journals."
Passing over the question of whether the printed Act (No. 2381), published by authority of law, is conclusive evidence
as to the date when it was passed, we will inquire whether the courts may go behind the legislative journals for the
purpose of determining the date of adjournment when such journals are clear and explicit. 43
It is to be noted from the above that the Court "passed over" the probative value to be accorded to the enrolled bill.
Opting for the journals, the Court proceeded to explain:
From their very nature and object, the records of the Legislature are as important as those of the judiciary, and to
inquire into the veracity of the journals of the Philippine Legislature, when they are, as we have said clear and explicit,
would be to violate both the letter and the spirit of the organic laws by which the Philippine Government was brought
into existence, to invade a coordinate and independent department of the Government, and to interfere with the
legitimate powers and functions of the Legislature. 44
Following the courts in the United States since the Constitution of the Philippine Government is modeled after that of the Federal
Government, the Court did not hesitate to follow the courts in said country, i.e., to consider the journals decisive of the point at issue.
Thus: "The journals say that the Legislature adjourned at 12 midnight on February 28, 1914. This settles the question and the court did
not err in declining to go behind these journals." 45

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The Court made a categorical stand for the "enrolled bill rule" for the first time in the 1947 case of Mabanag v. Lopez Vito 46 where it
held that an enrolled bill imports absolute verity and is binding on the courts. This Court held itself bound by an authenticated resolution,
despite the fact that the vote of three-fourths of the Members of the Congress (as required by the Constitution to approve proposals for
constitutional amendments) was not actually obtained on account of the suspension of some members of the House of Representatives
and the Senate. In this connection, the Court invoked the "enrolled bill rule" in this wise: "If a political question conclusively binds the
judges out of respect to the political departments, a duly certified law or resolution also binds the judges under the 'enrolled bill rule'
born of that respect." 47
Mindful that the U.S. Supreme Court is on the side of those who favor the rule and for no other reason than that it conforms to the
expressed policy of our law making body (i.e., Sec. 313 of the old Code of Civil Procedure, as amended by Act No. 2210), the Court
said that "duly certified copies shall be conclusive proof of the provisions of such Acts and of the due enactment thereof." Without
pulling the legal underpinnings from U.S. v. Pons, it justified its position by saying that if the Court at the time looked into the journals,
"in all probability, those were the documents offered in evidence" and that "even if both the journals and authenticated copy of the Act
had been presented, the disposal of the issue by the Court on the basis of the journals does not imply rejection of the enrolled theory;
for as already stated, the due enactment of a law may be proved in either of the two ways specified in Section 313 of Act No. 190 as
amended." 48 Three Justices voiced their dissent from the majority decision.
Again, the Court made its position plain in the 1963 case of Casco Philippine Chemical Co., Inc. v. Gimenez 49when a unanimous Court
ruled that: "The enrolled bill is conclusive upon the courts as regards the tenor of the measure passed by Congress and approved by
the President. If there has been any mistake in the printing of a bill before it was certified by the officers of Congress and approved by
the Executive, the remedy is by amendment or curative legislation not by judicial decree." According to Webster's New 20th Century
Dictionary, 2nd ed., 1983, the word "tenor" means, among others, "the general drift of something spoken or written; intent, purport,
substance."
Thus, the Court upheld the respondent Auditor General's interpretation that Republic Act No. 2609 really exempted from the margin fee
on foreign exchange transactions "urea formaldehyde" as found in the law and not "urea and formaldehyde" which petitioner insisted
were the words contained in the bill and were so intended by Congress.
In 1969, the Court similarly placed the weight of its authority behind the conclusiveness of the enrolled bill. In denying the motion for
reconsideration, the Court ruled in Morales v. Subido that "the enrolled Act in the office of the legislative secretary of the President of
the Philippines shows that Section 10 is exactly as it is in the statute as officially published in slip form by the Bureau of Printing . . .
Expressed elsewise, this is a matter worthy of the attention not of an Oliver Wendell Holmes but of a Sherlock Holmes." 50 The alleged
omission of a phrase in the final Act was made, not at any stage of the legislative proceedings, but only in the course of the
engrossment of the bill, more specifically in the proofreading thereof.
But the Court did include a caveat that qualified the absoluteness of the "enrolled bill" rule stating:
By what we have essayed above we are not of course to be understood as holding that in all cases the journals must
yield to the enrolled bill. To be sure there are certain matters which the Constitution (Art. VI, secs. 10 [4], 20 [1], and
21 [1]) expressly requires must be entered on the journal of each house. To what extent the validity of a legislative act
may be affected by a failure to have such matters entered on the journal, is a question which we do not now decide
(Cf. e.g., Wilkes Country Comm'rs. v. Coler, 180 U.S. 506 [1900]). All we hold is that with respect to matters not
expressly required to be entered on the journal, the enrolled bill prevails in the event of any discrepancy. 51
More recently, in the 1993 case of Philippine Judges Association v. Prado, 52 this Court, in ruling on the unconstitutionality of Section 35
of Republic Act No. 7354 withdrawing the franking privilege from the entire hierarchy of courts, did not so much adhere to the enrolled
bill rule alone as to both "enrolled bill and legislative journals." Through Mr. Justice Isagani A. Cruz, we stated: "Both the enrolled bill
and the legislative journals certify that the measure was duly enacted, i.e., in accordance with Article VI, Sec. 26(2) of the Constitution.
We are bound by such official assurances from a coordinate department of the government, to which we owe, at the very least, a
becoming courtesy."
Aware of the shifting sands on which the validity and continuing relevance of the "enrolled bill" theory rests, I have taken pains to trace
the history of its applicability in this jurisdiction, as influenced in varying degrees by different Federal rulings.
As applied to the instant petition, the issue posed is whether or not the procedural irregularities that attended the passage of House Bill
No. 11197 and Senate Bill No. 1630, outside of the reading and printing requirements which were exempted by the Presidential
certification, may no longer be impugned, having been "saved" by the conclusiveness on us of the enrolled bill. I see no cogent reason
why we cannot continue to place reliance on the enrolled bill, but only with respect to matters pertaining to the procedure followed in the
enactment of bills in Congress and their subsequent engrossment, printing errors, omission of words and phrases and similar relatively
minor matters relating more to form and factual issues which do not materially alter the essence and substance of the law itself.
Certainly, "courts cannot claim greater ability to judge procedural legitimacy, since constitutional rules on legislative procedure are
easily mastered. Procedural disputes are over facts whether or not the bill had enough votes, or three readings, or whatever not
over the meaning of the constitution. Legislators, as eyewitnesses, are in a better position than a court to rule on the facts. The
argument is also made that legislatures would be offended if courts examined legislative procedure. 53
Such a rationale, however, cannot conceivably apply to substantive changes in a bill introduced towards the end of its tortuous trip
through Congress, catching both legislators and the public unawares and altering the same beyond recognition even by its sponsors.
This issue I wish to address forthwith.
EXTENT OF THE POWER OF THE BICAMERAL CONFERENCE COMMITTEE
One of the issues raised in these petitions, especially in G.R. Nos. 115781, 115543 and 115754, respectively, is whether or not

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Congress violated Section 26, par. 2, Article VI (of the 1987 Constitution) when it approved the Bicameral Conference
Committee Report which embodied, in violation of Rule XII of the Rules of the Senate, a radically altered tax measure
containing provisions not reported out or discussed in either House as well as provisions on which there was no
disagreement between the House and the Senate and, worse, provisions contrary to what the House and the Senate
had approved after three separate readings. 54
and
By adding or deleting provisions, when there was no conflicting provisions between the House and Senate versions,
the BICAM acted in excess of its jurisdiction or with such grave abuse of discretion as to amount to loss of
jurisdiction. . . . In adding to the bill and thus subjecting to VAT, real properties, media and cooperatives despite the
contrary decision of both Houses, the BICAM exceeded its jurisdiction or acted with such abuse of discretion as to
amount to loss of jurisdiction. . . . 55
I wish to consider this issue in light of Article VIII, Sec. 1 of the Constitution which provides that "(j)udicial power includes the duty of the
courts of justice . . . to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction
on the part of any branch or instrumentality of the Government." We are also guided by the principle that a court may interfere with the
internal procedures of its coordinate branch only to uphold the Constitution. 56
A conference committee has been defined:
. . . unlike the joint committee is two committees, one appointed by each house. It is normally appointed for a specific
bill and its function is to gain accord between the two houses either by the recession of one house from its bill or its
amendments or by the further amendment of the existing legislation or by the substitution of an entirely new bill.
Obviously the conference committee is always a special committee and normally includes the member who
introduced the bill and the chairman of the committee which considered it together with such other representatives of
the house as seem expedient. (Horack, Cases and Materials on Legislation [1940] 220. See also Zinn, Conference
Procedure in Congress, 38 ABAJ 864 [1952]; Steiner, The Congressional Conference Committee [U of III. Press,
1951]). 57
From the foregoing definition, it is clear that a bicameral conference committee is a creature, not of the Constitution, but of the
legislative body under its power to determine rules of its proceedings under Article VI, Sec. 16 (3) of the Constitution. Thus, it draws its
life and vitality from the rules governing its creation. The why, when, how and wherefore of its operations, in other words, the
parameters within which it is to function, are to be found in Section 26, Rule XII of the Rules of the Senate and Section 85 of the Rules
of the House of Representatives, respectively, which provide:
Rule XII, Rules of the Senate
Sec. 26. 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 a conference committee of both Houses which shall meet within ten
days after their composition.
The President shall designate the members of the conference committee in accordance with subparagraph (c),
Section 8 of Rule III.
Each Conference Committee Report shall contain a detailed and sufficiently explicit statement of the changes in or
amendments to the subject measure, and shall be signed by the conferees.
The consideration of such report shall not be in order unless the report has been filed with the Secretary of the
Senate and copies thereof have been distributed to the Members.
Rules of the House of Representatives
Sec. 85. Conference Committee Reports. In the event that the House does not agree with the Senate on the
amendments to any bill or joint resolution, the differences may be settled by conference committee of both
Chambers.
The consideration of conference committee reports shall always be in order, except when the journal is being read,
while the roll is being called or the House is dividing on any question. Each of the pages of such reports shall contain
a detailed, sufficiently explicit statement of the changes in or amendments to the subject measure.
The consideration of such report shall not be in order unless copies thereof are distributed to the Members: Provided,
That in the last fifteen days of each session period it shall be deemed sufficient that three copies of the report, signed
as above provided, are deposited in the office of the Secretary General.
Under these Rules, a bicameral conference committee comes into being only when there are disagreements and differences between
the Senate and the House with regard to certain provisions of a particular legislative act which have to be reconciled.
Jefferson's Manual, which, according to Section 112, Rule XLIX of the Senate Rules, supplements it, states that a conference
committee is usually called "on the occasion of amendments between the Houses" and "in all cases of difference of opinion between
the two House on matters pending between
them." 58 It further states:

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The managers of a conference must confine themselves to the differences committed to them, and may not include subjects not within
the disagreements, even though germane to a question in issue. But they may perfect amendments committed to them if they do not in
so doing go beyond the differences. . . . Managers may not change the text to which both Houses have agreed. 59 (Emphasis supplied.)
Mason's Manual of Legislative Procedures which is also considered as controlling authority for any situation not covered by a specific
legislative
rule, 60 states that either House may "request a conference with the other on any matter of difference or dispute between them" and that
in such a request, "the subject of the conference should always be stated." 61
In the Philippines, as in the United States, the Conference Committee exercises such a wide range of authority that they virtually
constitute a third House in the Legislature. As admitted by the Solicitor General, "It was the practice in past Congresses for Conference
Committees to insert in bills approved by the two Houses new provisions that were not originally contemplated by them." 62
In Legislative Procedure, Robert Luce gives a graphic description of the milieu and the circumstances which have conspired to
transform an initially innocuous mechanism designed to facilitate action into an all-powerful Frankenstein that brooks no challenge to its
authority even from its own members.
Their power lies chiefly in the fact that reports of conference committees must be accepted without amendment or
else rejected in toto. The impulse is to get done with the matters and so the motion to accept has undue advantage,
for some members are sure to prefer swallowing unpalatable provisions rather than prolong controversy. This is the
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. At any time in the session there is some risk of such a result
following the rejection of a conference report, for it may not be possible to secure a second conference, or delay may
give opposition to the main proposal chance to develop more strength.
xxx xxx xxx
Entangled in a network of rule and custom, the Representative who resents and would resist this theft of his rights,
finds himself helpless. Rarely can he vote, rarely can he voice his mind, in the matter of any fraction of the bill.
Usually he cannot even record himself 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 other branch 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 so much it in effect transfers the lawmaking power to a small group of
members who work out in private a decision that almost always prevails. What is worse, these men are not chosen in
a way to ensure the wisest choice. It has become the practice to name as conferees the ranking members of the
committee, so that the accident of seniority determines. Exceptions are made, but in general it is not a question of
who are most competent to serve. Chance governs, sometimes giving way to favor, rarely to merit.
xxx xxx xxx
Speaking broadly, the system of legislating by conference committee is unscientific and therefore defective. Usually it
forfeits the benefit of scrutiny and judgment by all the wisdom available. Uncontrolled, it is inferior to that process by
which every amendment is secured independent discussion and vote. . . . 63 (Emphasis supplied)
Not surprisingly has it been said: "Conference Committee action is the most undemocratic procedure in the legislative process; it is an
appropriate target for legislative critics." 64
In the case at bench, petitioners insist that the Conference Committee to which Senate Bill No. 1630 and House Bill No. 11197 were
referred for the purpose of harmonizing their differences, overreached themselves in not confining their "reconciliation" function to those
areas of disagreement in the two bills but actually making "surreptitious insertions" and deletions which amounted to a grave abuse of
discretion.
At this point, it becomes imperative to focus on the errant provisions which found their way into Republic Act No. 7716. Below is a
breakdown to facilitate understanding the grounds for petitioners' objections:
INSERTIONS MADE BY BICAMERAL CONFERENCE COMMITTEE (BICAM) TO SENATE BILL (SB) NO. 1630 AND HOUSE BILL
(HB) NO. 11197
1. Sec. 99 of the National Internal Revenue Code (NIRC)
(1) Under the HB, this section includes any person who, in the course of trade or business, sells, barters or exchanges goods OR
PROPERTIES and any person who LEASES PERSONAL PROPERTIES.
(2) The SB completely changed the said section and defined a number of words and phrases. Also, Section 99-A was added which
included one who sells, exchanges, barters PROPERTIES and one who imports PROPERTIES.
(3) The BICAM version makes LESSORS of goods OR PROPERTIES and importers of goods LIABLE to VAT (subject of petition in
G.R. No. 115754).
2. Section 100 (VAT on Sale of Goods)
The term "goods" or "properties" includes the following, which were not found in either the HB or the SB:

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In addition to radio and television time; SATTELITE TRANSMISSION AND CABLE TELEVISION TIME.
The term "Other similar properties" was deleted, which was present in the HB and the SB.
Real properties held primarily for sale to customers or held for lease in the ordinary course or business were
included, which was neither in the HB nor the SB (subject of petition in G.R. No. 115754).
3. Section 102
On what are included in the term "sale or exchange of services," as to make them subject to VAT, the BICAM included/inserted the
following (not found in either House or Senate Bills):
1. Services of lessors of property, whether personal or real (subject of petition in G.R. No. 115754);
2. Warehousing services;
3. Keepers of resthouses, pension houses, inns, resorts;
4. Common carriers by land, air and sea;
5. Services of franchise grantees of telephone and telegraph;
6. Radio and television broadcasting;
7. All other franchise grantees except those under Section 117 of this Code (subject of petition in G.R. No. 115852);
8. Services of surety, fidelity, indemnity, and bonding companies;
9. Also inserted by the BICAM (on page 8 thereof) is the lease or use of or the right to use of satellite transmission
and cable television time.
4. Section 103 (Exempt Transactions)
The BICAM deleted subsection (f) in its entirety, despite its inclusion in both the House and Senate Bills. Therefore, under Republic Act
No. 7716, the "printing, publication, importation or sale of books and any newspaper, magazine, review, or bulletin which appears at
regular intervals with fixed prices for subscription and sale and which is not devoted principally to the publication of advertisements" is
subject to VAT (subject of petition in G.R. No. 115931 and G.R. No. 115544).
The HB and SB did not touch Subsection (g) but it was amended by the BICAM by changing the word TEN to FIVE. Thus, importation
of vessels with tonnage of more than five thousand tons is VAT exempt.
Subsection L, which was identical in the HB and the SB that stated that medical, dental, hospital and veterinary services were
exempted from the VAT was amended by the BICAM by adding the qualifying phrase: EXCEPT THOSE RENDERED BY
PROFESSIONALS, thus subjecting doctors, dentists and veterinarians to the VAT.
Subsection U which exempts from VAT "transactions which are exempt under special laws," was amended by the BICAM by adding the
phrase: EXCEPT THOSE GRANTED UNDER PD Nos. 66, 529, 972, 1491, AND 1590, AND NON-ELECTRIC COOPERATIVES
UNDER RA 6938 (subject of petition in G.R. No. 115873), not found in either the HB or the SB, resulting in the inclusion of all
cooperatives to the VAT, except non-electric cooperatives.
The sale of real properties was included in the exempt transactions under the House Bill, but the BICAM qualified this with the
provision:
(S) SALE OF REAL PROPERTIES NOT PRIMARILY HELD FOR SALE TO CUSTOMERS OR HELD FOR LEASE IN
THE ORDINARY COURSE OF TRADE OR BUSINESS OR REAL PROPERTY UTILIZED FOR LOW-COST AND
SOCIALIZED HOUSING AS DEFINED BY RA NO. 7279 OTHERWISE KNOWN AS THE URBAN DEVELOPMENT
AND HOUSING ACT OF 1992 AND OTHER RELATED LAWS. (subject of petition in G.R. No. 115754)
The BICAM also exempted the sale of properties, the receipts of which are not less than P480,000.00 or more than P720,000.00.
Under the SB, no amount was given, but in the HB it was stated that receipts from the sale of properties not less than P350,000.00 nor
more than P600,000.00 were exempt.
It did not include, as VAT exempt, the sale or transfer of securities, as defined in the Revised Securities Act (BP 178) which was
contained in both Senate and House Bills.
5. Section 104
Not included in the HB or the SB is the phrase "INCLUDING PACKAGING MATERIALS" which was inserted by the BICAM in Section
104 (A) (1) (B), thus excluding from creditable input tax packaging materials and the phrase "ON WHICH A VALUE-ADDED TAX HAS
BEEN ACTUALLY PAID" in Section 104 (A) (2).
6. Section 107

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Both House and Senate Bills provide for the payment of P500.00 VAT registration fee but this was increased by BICAM to P1,000.00.
7. Section 112
Regarding a person whose sales or receipts are exempt under Section 103 (w), the BICAM inserted the phrase: "THREE PERCENT
UPON THE EFFECTIVITY OF THIS ACT AND FOUR PERCENT (4%) TWO YEARS THEREAFTER," although the SB and the HB
provide only "three percent of his gross quarterly sales."
8. Section 115
The BICAM adopted the HB version which subjects common carriers by land, air or water for the transport of passengers to 3% of their
gross quarterly sales, which is not found in the SB.
9. Section 117
The BICAM amended this section by subjecting franchises on electric, gas and water utilities to a tax of two percent (2%) on gross
receipts
derived . . ., although neither the HB nor the SB has a similar provision.
10. Section 17 (d)
(a) The BICAM defers for only 2 years the VAT on services of actors and actresses, although the SB defers it for 3 years.
(b) The BICAM uses the word "EXCLUDE" in the section on deferment of VAT collection on certain goods and services. The HB does
not contain any counterpart provision and SB only allows deferment for no longer than 3 years.
11. Section 18 on the Tax Administration Development Fund is an entirely new provision not contained in the House/Senate Bills. This
fund is supposed to ensure effective implementation of Republic Act No. 7716.
12. Section 19
No period within which to promulgate the implementing rules and regulations is found in the HB or the SB but BICAM provided "within
90 days" which found its way in Republic Act No. 7716.
Even a cursory perusal of the above outline will convince one that, indeed, the Bicameral Conference Committee (henceforth to be
referred to as BICAM) exceeded the power and authority granted in the Rules of its creation. Both Senate and House Rules limit the
task of the Conference Committee in almost identical language to the settlement of differences in the provisions or amendments to any
bill or joint resolution. If it means anything at all, it is that there are provisions in subject bill, to start with, which differ and, therefore,
need reconciliation. Nowhere in the Rules is it authorized to initiate or propose completely new matter. Although under certain rules on
legislative procedure, like those in Jefferson's Manual, a conference committee may introduce germane matters in a particular bill, such
matters should be circumscribed by the committee's sole authority and function to reconcile differences.
Parenthetically, in the Senate and in the House, a matter is "germane" to a particular bill if there is a common tie between said matter
and the provisions which tend to promote the object and purpose of the bill it seeks to amend. If it introduces a new subject matter not
within the purview of the bill, then it is not "germane" to the bill. 65The test is whether or not the change represented an amendment or
extension of the basic purpose of the original, or the introduction of an entirely new and different subject matter. 66
In the BICAM, however, the germane subject matter must be within the ambit of the disagreement between the two Houses. If the
"germane" subject is not covered by the disagreement but it is reflected in the final version of the bill as reported by the Conference
Committee or, if what appears to be a "germane" matter in the sense that it is "relevant or closely allied" 67 with the purpose of the bill,
was not the subject of a disagreement between the Senate and the House, it should be deemed an extraneous matter or even a "rider"
which should never be considered legally passed for not having undergone the three-day reading requirement. Insertion of new matter
on the part of the BICAM is, therefore, an ultra vires act which makes the same void.
The determination of what is "germane" and what is not may appear to be a difficult task but the Congress, having been confronted with
the problem before, resolved it in accordance with the rules. In that case, the Congress approved a Conference Committee's insertion
of new provisions that were not contemplated in any of the provisions in question between the Houses simply because of the provision
in Jefferson's Manual that conferees may report matters "which are germane modifications of subjects in disagreement between the
Houses and the committee. 68 In other words, the matter was germane to the points of disagreement between the House and the
Senate.
As regards inserted amendments in the BICAM, therefore, the task of determining what is germane to a bill is simplified, thus: If the
amendments are not circumscribed by the subjects of disagreement between the two Houses, then they are not germane to the
purpose of the bill.
In the instant case before us, the insertions and deletions made do not merely spell an effort at settling conflicting provisions but have
materially altered the bill, thus giving rise to the instant petitions on the part of those who were caught unawares by the legislative
legerdemain that took place. Going by the definition of the word "amendment" in Black's Law Dictionary, 5th Ed., 1979, which means "to
change or modify for the better; to alter by modification, deletion, or addition," said insertions and deletions constitute amendments.
Consequently, these violated Article VI, Section 26 (2) which provides inter alia: "Upon the last reading of a bill, no amendment thereto
shall be
allowed . . ." This proscription is intended to subject all bills and their amendments to intensive deliberation by the legislators and the
ample ventilation of issues to afford the public an opportunity to express their opinions or objections issues to afford the public an

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opportunity to express their opinions or objections thereon. The same rationale underlies the three-reading requirement to the end that
no surprises may be sprung on an unsuspecting citizenry.
Provisions of the "now you see it, now you don't" variety, meaning those which were either in the House and/or Senate versions but
simply disappeared or were "bracketed out" of existence in the BICAM Report, were eventually incorporated in Republic Act No. 7716.
Worse, some goods, properties or services which were not covered by the two versions and, therefore, were never intended to be so
covered, suddenly found their way into the same Report. No advance notice of such insertions prepared the rest of the legislators,
much less the public who could be adversely affected, so that they could be given the opportunity to express their views thereon. Well
has the final BICAM report been described, therefore, as an instance of "taxation without representation."
That the conferees or delegates in the BICAM representing the two Chambers could not possibly be charged with bad faith or sinister
motives or, at the very least, unseemly behavior, is of no moment. The stark fact is that items not previously subjected to the VAT now
fell under its coverage without interested sectors or parties having been afforded the opportunity to be heard thereon. This is not to say
that the Conference Committee Report should have undergone the three readings required in Article VI, Section 26 (2), for this clearly
refers only to bills which, after having been initially filed in either House, negotiated the labyrinthine passage therein until its approval.
The composition of the BICAM including as it usually does, the Chairman of the appropriate Committee, the sponsor of the bill and
other interested members ensures an informed discussion, at least with respect to the disagreeing provisions. The same does not
obtain as regards completely new matter which suddenly spring on the legislative horizon.
It has been pointed out that such extraneous matters notwithstanding, all Congressman and Senators were given the opportunity to
approve or turn down the Committee Report in toto, thus "curing" whatever defect or irregularity it bore.
Earlier in this opinion, I explained that the source of the acknowledged power of this ad hoc committee stems from the precise fact that,
the meetings, being scheduled "take it or leave it" basis. It has not been uncommon for legislators who, for one reason or another have
been frustrated in their attempt to pass a pet bill in their own chamber, to work for its passage in the BICAM where it may enjoy a more
hospitable reception and faster approval. In the instant case, had there been full, open and unfettered discussion on the bills during the
Committee sessions, there would not have been as much vociferous objections on this score. Unfortunately, however, the Committee
held two of the five sessions behind closed doors, sans stenographers, record-takers and interested observers. To that extent, the
proceedings were shrouded in mystery and the public's right to information on matters of public concern as enshrined in Article III,
Section 7 69 and the government's policy of transparency in transactions involving public interest in Article II, Section 28 of the
Constitution 70 are undermined.
Moreover, that which is void ab initio such as the objectionable provisions in the Conference Committee Report, cannot be "cured" or
ratified. For all intents and purposes, these never existed. Quae ab initio non valent, ex post facto convalescere non possunt. Things
that are invalid from the beginning are not made valid by a subsequent act.
Should this argument be unacceptable, the "enrolled bill" doctrine, in turn, is invoked to support the proposition that the certification by
the presiding officers of Congress, together with the signature of the President, bars further judicial inquiry into the validity of the law. I
reiterate my submission that the "enrolled bill ruling" may be applicable but only with respect to questions pertaining to the procedural
enactment, engrossment, printing, the insertion or deletion of a word or phrase here and there, but would draw a dividing line with
respect to substantial substantive changes, such as those introduced by the BICAM herein.
We have before us then the spectacle of a body created by the two Houses of Congress for the very limited purpose of settling
disagreements in provisions between bills emanating therefrom, exercising the plenary legislative powers of the parent chambers but
holding itself exempt from the mandatory constitutional requirements that are the hallmarks of legislation under the aegis of a
democratic political system. From the initial filing, through the three readings which entail detailed debates and discussions in
Committee and plenary sessions, and on to the transmittal to the other House in a repetition of the entire process to ensure exhaustive
deliberations all these have been skipped over. In the proverbial twinkling of an eye, provisions that probably may not have seen the
light of day had they but run their full course through the legislative mill, sprang into existence and emerged full-blown laws.
Yet our Constitution vests the legislative power in "the Congress of the Philippines which shall consist of a Senate and a House of
Representatives . . ." 71 and not in any special, standing or super committee of its own creation, no matter that these have been
described, accurately enough, as "the eye, the ear, the hand, and very often the brain of the house."
Firstly, that usage or custom has sanctioned this abbreviated, if questionable, procedure does not warrant its being legitimized and
perpetuated any longer. Consuetudo, contra rationem introducta, potius usurpatio quam consuetudo appellari debet. A custom against
reason is rather an usurpation. In the hierarchy of sources of legislative procedure, constitutional rules, statutory provisions and
adopted rules (as for example, the Senate and House Rules), rank highest, certainly much ahead of customs and usages.
Secondly, is this Court to assume the role of passive spectator or indulgent third party, timorous about exercising its power or more
importantly, performing its duty, of making a judicial determination on the issue of whether there has been grave abuse of discretion by
the other branches or instrumentalities of government, where the same is properly invoked? The time is past when the Court was not
loathe to raise the bogeyman of the political question to avert a head-on collision with either the Executive or Legislative Departments.
Even the separation of powers doctrine was burnished to a bright sheen as often as it was invoked to keep the judiciary within bounds.
No longer does this condition obtain. Article VIII, Section 2 of the Constitution partly quoted in this paragraph has broadened the scope
of judicial inquiry. This Court can now safely fulfill its mandate of delimiting the powers of co-equal departments like the Congress, its
officers or its committees which may have no compunctions about exercising legislative powers in full.
Thirdly, dare we close our eyes to the presumptuous assumption by a runaway committee of its progenitor's legislative powers in
derogation of the rights of the people, in the process, subverting the democratic principles we all are sworn to uphold, when a proper
case is made out for our intervention? The answers to the above queries are self-evident.
I call to mind this exhortation: "We are sworn to see that violations of the constitution by any person, corporation, state agency or
branch of government are brought to light and corrected. To countenance an artificial rule of law that silences our voices when
confronted with violations of our Constitution is not acceptable to this Court." 72

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I am not unaware that a rather recent decision of ours brushed aside an argument that a provision in subject law regarding the
withdrawal of the franking privilege from the petitioners and this Court itself, not having been included in the original version of Senate
Bill No. 720 or of House Bill No. 4200 but only in the Conference Committee Report, was violative of Article VI, Section 26 (2) of the
Constitution. Likewise, that said Section 35, never having been a subject of disagreement between both Houses, could not have been
validly added as an amendment before the Conference Committee.
The majority opinion in said case explained:
While it is true that a conference committee is the mechanism for compromising differences between the Senate and the House, it is
not limited in its jurisdiction to this question. Its broader function is described thus:
A conference committee may deal generally with the subject matter or it may be limited to resolving the precise
differences between the two houses. Even where the conference committee is not by rule limited in its
jurisdiction, legislative custom severely limits the freedom with which new subject matter can be inserted into the
conference bill. But occasionally a conference committee produces unexpected results, results beyond its mandate.
These excursions occur even where the rules impose strict limitations on conference committee jurisdiction. This is
symptomatic of the authoritarian power of conference committee (Davies, Legislative Law and Process: In a Nutshell,
1986 Ed., p. 81). 73 (Emphasis supplied)
At the risk of being repetitious, I wish to point out that the general rule, as quoted above, is: "Even where the conference committee is
not by rule limited in its jurisdiction, legislative custom severely limits the freedom with which new subject matter can be inserted into
the conference bill." What follows, that is, "occasionally a conference committee produces unexpected results, results beyond its
mandate. . ." is the exception. Then it concludes with a declaration that: "This is symptomatic of the authoritarian power of conference
committee." Are we about to reinstall another institution that smacks of authoritarianism which, after our past experience, has become
anathema to the Filipino people?
The ruling above can hardly be cited in support of the proposition that a provision in a BICAM report which was not the subject of
differences between the House and Senate versions of a bill cannot be nullified. It submit that such is not authorized in our Basic Law.
Moreover, this decision concerns merely one provision whereas the BICAM Report that culminated in the EVAT law has a wider scope
as it, in fact, expanded the base of the original VAT law by imposing the tax on several items which were not so covered prior to the
EVAT.
One other flaw in most BICAM Reports, not excluding this one under scrutiny, is that, hastily drawn up, it often fails to conform to the
Senate and House Rules requiring no less than a "detailed" and "sufficiently explicit statement of the changes in or amendments to the
subject measure." The Report of the committee, as may be gleaned from the preceding pages, was no more than the final version of
the bill as "passed" by the BICAM. The amendments or subjects of dissension, as well as the reconciliation made by the committee, are
not even pointed out, much less explained therein.
It may be argued that legislative rules of procedure may properly be suspended, modified, revoked or waived at will by the legislators
themselves. 74 This principle, however, does not come into play in interpreting what the record of the proceedings shows was, or was
not, done. It is rather designed to test the validity of legislative action where the record shows a final action in violation or disregard of
legislative rules. 75 Utilizing the Senate and the House Rules as both guidelines and yardstick, the BICAM here obviously did not adhere
to the rule on what the Report should contain.
Given all these irregularities that have apparently been engrafted into the BICAM system, and which have been tolerated, if not
accorded outright acceptance by everyone involved in or conversant with, the institution, it may be asked: Why not leave well enough
alone?
That these practices have remained unchallenged in the past does not justify our closing our eyes and turning a deaf ear to them. Writ
large is the spectacle of a mechanism ensconced in the very heart of the people's legislative halls, that now stands indicted with the
charge of arrogating legislative powers unto itself through the use of dubious "shortcuts." Here, for the people to judge, is the "mother of
all shortcuts."
In the petitions at bench, we are confronted with the enactment of a tax law which was designed to broaden the tax base. It is rote
learning for any law student that as an attribute of sovereignty, the power to tax is "the strongest of all the powers of
government." 76 Admittedly, "for all its plenitude, the power to tax is not unconfined. There are restrictions." 77 Were there none, then the
oft-quoted 1803 dictum of Chief Justice Marshall that "the power to tax involves the power to destroy" 78 would be a truism. Happily, we
can concur with, and the people can find comfort in, the reassuring words of Mr. Justice Holmes: "The power to tax is not the power to
destroy while this Court sits." 79
Manakanaka, mayroong dumudulog dito sa Kataastaasang Hukuman na may kamangha-manghang hinaing. Angkop na halimbawa ay
ang mga petisyong iniharap ngayon sa amin.
Ang ilan sa kanila ay mga Senador na nais mapawalang bisa ang isang batas ukol sa buwis na ipinasa mismo nila. Diumano ito ay
hindi tumalima sa mga itinatadhana ng Saligang Batas. Bukod sa rito, tutol sila sa mga bagong talata na isiningit ng "Bicameral
Conference Committee" na nagdagdag ng mga bagong bagay bagay at serbisyo na papatawan ng buwis. Ayon sa kanila, ginampanan
ng komiteng iyan ang gawain na nauukol sa buong Kongreso. Kung kaya't ang nararapat na mangyari ay ihatol ng Kataastaasang
Hukuman na malabis na pagsasamantala sa sariling pagpapasiya ang ginawa ng Kongreso.
Bagama't bantulot kaming makialam sa isang kapantay na sangay ng Pamahalaan, hindi naman nararapat na kami ay tumangging
gampanan ang tungkulin na iniatas sa amin ng Saligang Batas. Lalu't-lalo nang ang batas na kinauukulan ay maaaring makapinsala sa
nakararami sa sambayanan.
Sa ganang akin, itong batas na inihaharap sa amin ngayon, ay totoong labag sa Saligang Batas, samakatuwid ay walang bisa. Nguni't
ito ay nauukol lamang sa mga katiwalian na may kinalaman sa paraan ng pagpapasabatas nito. Hindi namin patakaran ang makialam o

Page 160 of 403

humadlang sa itinakdang gawain ng Saligang Batas sa Pangulo at sa Kongreso. Ang dalawang sangay na iyan ng Pamahalaan ang
higit na maalam ukol sa kung ang anumang panukalang batas ay nararapat, kanais-nais o magagampanan; kung kaya't hindi kami
nararapat na maghatol o magpapasiya sa mga bagay na iyan. Ang makapapataw ng angkop na lunas sa larangan na iyan ay ang
mismong mga kinatawan ng sambayanan sa Kongreso.
Faced with this challenge of protecting the rights of the people by striking down a law that I submit is unconstitutional and in the
process, checking the wonted excesses of the Bicameral Conference Committee system, I see in this case a suitable vehicle to
discharge the Court's Constitutional mandate and duty of declaring that there has indeed been a grave abuse of discretion amounting
to lack or excess of jurisdiction on the part of the Legislature.
Republic Act No. 7716, being unconstitutional and void, I find no necessity to rule on the substantive issues as dealt with in the majority
opinion as they have been rendered moot and academic. These issues pertain to the intrinsic merits of the law. It is axiomatic that the
wisdom, desirability and advisability of enacting certain laws lie, not within the province of the Judiciary but that of the political
departments, the Executive and the Legislative. The relief sought by petitioners from what they perceive to be the harsh and onerous
effect of the EVAT on the people is within their reach. For Congress, of which Senator-petitioners are a part, can furnish the solution by
either repealing or amending the subject law.
For the foregoing reasons, I VOTE to GRANT the petition.
PUNO, J.:
Petitioners plead that we affirm the self-evident proposition that they who make law should not break the law. There are many evils
whose elimination can be trusted to time. The evil of lawlessness in lawmaking cannot. It must be slain on sight for it subverts the
sovereignty of the people.
First, a fast snapshot of the facts. On November 17, 1993, the House of Representatives passed on third reading House Bill (H.B.) No.
11197 entitled "An Act Restructuring the Value Added Tax (VAT) System to Widen its Tax Base and Enhance its Administration,
Amending for These Purposes Sections 99, 100, 102 to 108 and 110 Title V and 236, 237 and 238 of Title IX, and Repealing Sections
113 and 114 of Title V, all of the National Internal Revenue Code as Amended." The vote was 114 Yeas and 12 Nays. The next day,
November 18, 1993, H.B. No. 11197 was transmitted to the Senate for its concurrence by the Hon. Camilo L. Sabio, Secretary General
of the House of Representatives.
On February 7, 1994, the Senate Committee on Ways and Means submitted Senate Bill (S.B.) No. 1630, recommending its approval "in
substitution of Senate Bill No. 1129 taking into consideration P.S. Res. No. 734 and House Bill No. 11197." On March 24, 1994, S.B. No.
1630 was approved on second and third readings. On the same day, the Senate, thru Secretary Edgardo E. Tumangan, requested the
House for a conference "in view of the disagreeing provisions of S.B. No. 1630 and H.B. No. 11197." It designated the following as
members of its Committee: Senators Ernesto F. Herrera, Leticia R. Shahani, Alberto S. Romulo, John H. Osmea, Ernesto M. Maceda,
Blas F. Ople, Francisco S. Tatad, Rodolfo G. Biazon, and Wigberto S. Taada. On the part of the House, the members of the Committee
were: Congressmen Exequiel B. Javier, James L. Chiongbian, Renato V. Diaz, Arnulfo P. Fuentebella, Mariano M. Tajon, Gregorio
Andolong, Thelma Almario, and Catalino Figueroa. After five (5) meetings, 1 the Bicameral Conference Committee submitted its Report
to the Senate and the House stating:
CONFERENCE COMMITTEE REPORT
The Conference Committee on the disagreeing provisions of House Bill No. 11197, entitled:
AN ACT RESTRUCTURING THE VALUE ADDED TAX (VAT) SYSTEM TO WIDEN ITS TAX BASE AND ENHANCE
ITS ADMINISTRATION, AMENDING FOR THESE PURPOSES SECTIONS 99, 100, 102, 103, 104, 105, 106, 107,
108 AND 110 OF TITLE IV, 112, 115 AND 116 OF TITLE V, AND 236, 237, AND 238 OF TITLE IX, AND REPEALING
SECTIONS 113 AND 114 OF TITLE V, ALL OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED
and Senate Bill No. 1630 entitled:
AN ACT RESTRUCTURING THE VALUE ADDED TAX (VAT) SYSTEM TO WIDEN ITS TAX BASE AND ENHANCE
ITS ADMINISTRATION, AMENDING FOR THESE PURPOSES SECTIONS 99, 100, 102, 103, 104, 106, 107, 108
AND 110 OF TITLE IV, 112, 115, 117 AND 121 OF TITLE V, AND 236, 237, AND 238 OF TITLE IX, AND REPEALING
SECTIONS 113, 114, 116, 119 AND 120 OF TITLE V, ALL OF THE NATIONAL INTERNAL REVENUE CODE, AS
AMENDED AND FOR OTHER PURPOSES
having met, after full and free conference, has agreed to recommend and do hereby recommend to their respective
Houses that House Bill No. 11197, in consolidation with Senate Bill No. 1630, be approved in accordance with the
attached copy of the bill as reconciled and approved by the conferees.
Approved.
The Report was approved by the House on April 27, 1994. The Senate approved it on May 2, 1994. On May 5, 1994, the President
signed the bill into law as R.A. No. 7716.
There is no question that the Bicameral Conference Committee did more than reconcile differences between House Bill No. 11197 and
Senate Bill No. 1630. In several instances, it either added new provisions or deleted provisions already approved in House Bill No.
11197 and Senate Bill No. 1630. These insertions/deletions numbering twenty four (24) are specified in detail by petitioner Tolentino as
follows: 2

Page 161 of 403

SOME SALIENT POINTS ON THE
(AMENDMENTS TO THE VATE LAW [EO 273])
SHOWING ADDITIONS/INSERTIONS MADE BY BICAMERAL
CONFERENCE COMMITTEE TO SB 1630 & HB 11197
I On Sec. 99 of the NIRC
H.B. 11197 amends this section by including, as liable to VAT, any person who in the course of trade of business,
sells, barters, or exchanges goods or PROPERTIES and any person who LEASES PERSONAL PROPERTIES.
Senate Bill 1630 deleted Sec. 99 to give way for a new Section 99 DEFINITION OF TERMS where eleven (11)
terms were defined. A new Section, Section 99-A was incorporated which included as subject to VAT, one who sells,
exchanges, barters PROPERTIES and one who imports PROPERTIES.
The BCC version (R.A. 7716) makes LESSORS of goods OR PROPERTIES and importers of goods LIABLE to VAT.
II On Section 100 (VAT on sale of goods)
A. The H.B., S.B., and the BCC (R.A. 7716) all included sale of PROPERTIES as subject to VAT.
The term GOODS or PROPERTIES includes the following:

HB (pls. refer

SB (pls. refer

BCC (RA 7716

to Sec. 2)

To Sec. 1(4)

(Sec. 2)

1. The same

1. The same

. Right or the

privilege to use

patent, copyright,

design, or model,

plan, secret

formula or process,

goodwill trademark,

tradebrand or other

like property or

right.

Page 162 of 403

2. Right or the

2. The same

2. The same

3. The same

3. The same

4. The same

4. In addition

privilege to use

in the Philippines

of any industrial,

commercial, or

scientific equip-

ment.

3. Right or the

privilege to use

motion picture films,

films, tapes and

discs.

4. Radio and

Page 163 of 403

Television time

to radio and

television time the

following were

included:

SATELLITE
TRANSMISSION

and CABLE

TELEVISION TIME

5. Other Similar

5. The Same

properties

5. 'Other

similar properties'

was deleted

6. -

6. -

6. Real

properties held

primarily for sale to

customers or held

for lease in the

Page 164 of 403

ordinary course or

business

B. The HB and the BCC Bills has each a provision which includes THE SALE OF GOLD TO BANGKO SENTRAL NG
PILIPINAS as falling under the term Export Sales, hence subject to 0% VAT. The Senate Bill does not contain such
provision (See Section 102-A thereof).
III. On Section 102
This section was amended to include as subject to a 10% VAT the gross receipts derived from THE SALE OR
EXCHANGE OF SERVICES, INCLUDING THE USE OR LEASE OF PROPERTIES.
The SB, HB, and BCC have the same provisions on this.
However, on what are included in the term SALE OR EXCHANGE OF SERVICES, the BCC included/inserted the
following (not found in either the House or Senate Bills):
1. Services of lessors of property WHETHER PERSONAL OR REAL; (See BCC Report/Bill p. 7)
2. WAREHOUSING SERVICES (Ibid.,)
3. Keepers of RESTHOUSES, PENSION HOUSES, INNS, RESORTS (Ibid.,)
4. Common carriers by LAND, AIR AND SEA (Ibid.,)
5. SERVICES OF FRANCHISE GRANTEES OF TELEPHONE AND TELEGRAPH;
6. RADIO AND TELEVISION BROADCASTING
7. ALL OTHER FRANCHISE GRANTEES EXCEPT THOSE UNDER SECTION 117 OF THIS
CODE
8. SERVICES OF SURETY, FIDELITY, INDEMNITY, AND BONDING COMPANIES.
9. Also inserted by the BCC (on page B thereof) is the LEASE OR USE OF OR THE RIGHT TO
USE OF SATTELITE TRANSMISSION AND CABLE TELEVISION TIME
IV. On Section 103 (Exempt Transactions)
The BCC deleted subsection (f) in its entirety, despite its retention in both the House and Senate Bills, thus under RA
7716, the "printing, publication, importation or sale of books and any newspaper, magazine, review, or bulletin which
appears at regular intervals with fixed prices for subscription and sale and which is not devoted principally to the
publication of advertisements" is subject to VAT.
Subsection (g) was amended by the BCC (both Senate and House Bills did not) by changing the word TEN to FIVE,
thus: "Importation of passenger and/or cargo vessel of more than five thousand ton to ocean going, including engine
and spare parts of said vessel to be used by the importer himself as operator thereof." In short, importation of vessels
with tonnage of more than 5 thousand is VAT exempt.
Subsection L, was amended by the BCC by adding the qualifying phrase: EXCEPT THOSE RENDERED BY
PROFESSIONALS.
Subsection U which exempts from VAT "Transactions which are exempt under special laws", was amended by BCC
by adding the phrase: EXCEPT THOSE GRANTED UNDER PD NOS. 66, 529, 972, 1491, and 1590, and NONELECTRIC COOPERATIVES under RA 6938. This is the reason why cooperatives are now subject to VAT.
While the SALE OF REAL PROPERTIES was included in the exempt transactions under the House Bill, the BCC
made a qualification by stating:

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(S) SALE OF REAL PROPERTIES NOT PRIMARILY HELD FOR SALE TO CUSTOMERS OR
HELD FOR LEASE IN THE ORDINARY COURSE OF TRADE OR BUSINESS OR REAL
PROPERTY UTILIZED FOR LOW-COST AND SOCIALIZED HOUSING AS DEFINED BY R.A. NO.
7279 OTHERWISE KNOWN AS THE URBAN DEVELOPMENT AND HOUSING ACT OF 1992
AND OTHER RELATED LAWS.
Under the Senate Bill, the sale of real property utilized for low-cost and socialized housing as
defined by RA 7279, is one of the exempt transactions.
Under the House Bill, also exempt from VAT, is the SALE OF PROPERTIES OTHER THAN THE
TRANSACTIONS MENTIONED IN THE FOREGOING PARAGRAPHS WITH A GROSS ANNUAL
SALES AND/OR RECEIPTS OF WHICH DOES NOT EXCEED THE AMOUNT PRESCRIBED IN
THE REGULATIONS TO BE PROMULGATED BY THE SECRETARY OF FINANCE WHICH
SHALL NOT BE LESS THAN P350,000.00 OR HIGHER THAN P600,000.00 . . . Under the Senate
Bill, the amount is P240,000.00. The BCC agreed at the amount of not less than P480,000.00 or
more than P720,000.00 SUBJECT TO TAX UNDER SEC. 112 OF THIS CODE.
The BCC did not include, as VAT exempt, the sale or transfer of securities as defined in the
Revised Securities Act (BP 178) which was contained in both Senate and House Bills.
V On Section 104
The phrase INCLUDING PACKAGING MATERIALS was included by the BCC on Section 104 (A) (1) (B), and the
phrase ON WHICH A VALUE-ADDED TAX HAS BEEN ACTUALLY on Section 104 (A) (2).
These phrases are not contained in either House and Senate Bills.
VI On Section 107
Both House and Senate Bills provide for the payment of P500.00 VAT registration fee. The BCC provides for
P1,000.00 VAT fee.
VII On Section 112
While both the Senate and House Bills provide that a person whose sales or receipts and are exempt under Section
103[w] of the Code, and who are not VAT registered shall pay a tax equivalent to THREE (3) PERCENT of his gross
quarterly sales or receipts, the BCC inserted the phrase: THREE PERCENT UPON THE EFFECTIVITY OF THIS
ACT AND FOUR PERCENT (4%) TWO YEARS THEREAFTER.
VIII On Section 115
Sec. 17 of SB 1630 Sec. 12 of House Bill 11197 amends this Section by clarifying that common carriers by land, air or
water FOR THE TRANSPORT OF PASSENGERS are subject to Percentage Tax equivalent to 3% of their quarterly
gross sales.
The BCC adopted this and the House Bill's provision that the GROSS RECEIPTS OF COMMON CARRIERS
DERIVED FROM THEIR INCOMING AND OUTGOING FREIGHT SHALL NOT BE SUBJECTED TO THE LOCAL
TAXES IMPOSED UNDER RA 7160. The Senate Bill has no similar provision.
IX On Section 117
This Section has not been touched by either Senate and House Bills. But the BCC amended it by subjecting
franchises on ELECTRIC, GAS and WATER UTILITIES A TAX OF TWO PERCENT (2%) ON GROSS RECEIPTS
DERIVED . . . .
X On Section 121
The BCC adopted the Senate Bills' amendment to this section by subjecting to 5% premium tax onlife insurance
business.
The House Bill does not contain this provision.
XI Others
A) The House Bill does not contain any provision on the deferment of VAT collection on Certain Goods and Services
as does the Senate Bill (Section 19, SB 1630). But although the Senate Bill authorizes the deferment on certain
goods and services for no longer than 3 years, there is no specific provision that authorizes the President to
EXCLUDE from VAT any of these. The BCC uses the word EXCLUDE.
B) Moreover, the Senate Bill defers the VAT on services of actors and actresses etc. for 3 years but the BCC defers it
for only 2 years.
C) Section 18 of the BCC Bill (RA 7716) is an entirely new provision not contained in the House/Senate Bills.

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D) The period within which to promulgate the implementing rules and regulations is within 60 days under SB 1630;
No specific period under the House Bill, within 90 days under RA 7716 (BCC).
E) The House Bill provides for a general repealing clause i.e., all inconsistent laws etc. are repealed. Section 16 of
the Senate Bill expressly repeals Sections 113, 114, 116, 119 and 120 of the code. The same Senate Bill however
contains a general repealing clause in Sec. 21 thereof.
RA 7716 (BCC's Bill) expressly repeals Sections 113, 114 and 116 of the NIRC; Article 39 (c) (d) and (e) of EO 226
and provides the repeal of Sec. 119 and 120 of the NIRC upon the expiration of two (2) years unless otherwise
excluded by the President.
The charge that the Bicameral Conference Committee added new provisions in the bills of the two chambers is hardly disputed by
respondents. Instead, respondents justify them. According to respondents: (1) the Bicameral Conference Committee has an ex
post veto power or a veto after the fact of approval of the bill by both Houses; (2) the bill prepared by the Bicameral Conference
Committee, with its additions and deletions, was anyway approved by both Houses; (3) it was the practice in past Congresses for
conference committees to insert in bills approved by the two Houses new provisions that were not originally contemplated by them; and
(4) the enrolled bill doctrine precludes inquiry into the regularity of the proceedings that led to the enactment of R.A. 7716.
With due respect, I reject these contentions which will cave in on closer examination.
First. There is absolutely no legal warrant for the bold submission that a Bicameral Conference Committee possesses the power to
add/delete provisions in bills already approved on third reading by both Houses or an ex post veto power. To support this postulate that
can enfeeble Congress itself, respondents cite no constitutional provision, no law, not even any rule or regulation. 3 Worse, their stance
is categorically repudiated by the rules of both the Senate and the House of Representatives which define with precision the
parameters of power of a Bicameral Conference Committee. Thus, 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 the provision of any bill or joint
resolution, the differences shall be settled by a conference committee of both Houseswhich 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 be signed 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 any bill or joint resolution, the
differences may be settled by a conference committee of both chambers.
. . . . 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 4 as a supplement to our parliamentary rules and practice. Section 456 of Jefferson's Manual
similarly confines the powers of a conference committee, viz: 5
The managers of a conference must confine themselves to the differences committed to them . . . and may not
include subjects not within the disagreements, even though germane 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 the United States Senate, viz: 6
Committees of conference are appointed for the sole purpose of compromising and adjusting the differing and
conflicting opinions of the two Houses and the committees of conference alone can grant compromises and modify
propositions of either Houses within the limits of the disagreement. Conferees are limited to the consideration of
differences between the two Houses.
Conferees 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 which there is nothing in either the Senate or House passed
versions of a bill may be included in the conference report and actions to the contrary would subject the report to a
point of order. (Emphasis ours)
In fine, there is neither a sound nor a syllable in the Rules of the Senate and the House of Representative to support the thesis of the
respondents that a bicameral conference committee is clothed with an ex post veto power.
But the thesis that a Bicameral Conference Committee can wield ex post veto power does not only contravene the rules of both the
Senate and the House. It wages war against our settled ideals of representative democracy. For the inevitable, catastrophic effect of the
thesis is to install a Bicameral Conference Committee as the Third Chamber of our Congress, similarly vested with the power to make
laws but with the dissimilarity 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 as a Third Chamber will be a constitutional monstrosity.
It needs no omniscience to perceive that our Constitution did not provide for a Congress composed of three chambers. On the contrary,
section 1, Article VI of the Constitution provides in clear and certain language: "The legislative power shall be vested in the Congress of
the Philippines which shall consist of a Senate and a House of Representatives . . ." Note that in vesting legislative power exclusively to

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the Senate and the House, the Constitution used the word "shall." Its command for a Congress of two houses is mandatory. It is not
mandatory sometimes.
In vesting legislative power to the Senate, the Constitution means the Senate ". . . composed of twenty-four Senators . . . elected at
large by the qualified voters of the Philippines . . . ." 7 Similarly, when the Constitution vested the legislative power to the House, it
means the House ". . . composed of not more than two hundred and fifty members . . . who shall be elected from legislative districts . . .
and those who . . . shall be elected through a party-list system of registered national, regional, and sectoral parties or
organizations." 8 The Constitution thus, did not vest on a Bicameral Conference Committee with an ad hoc membership the power to
legislate for it exclusively vested legislative power to the Senate and the House as co-equal bodies. To be sure, the Constitution does
not mention the Bicameral Conference Committees of Congress. No constitutional status is accorded to them. They are not even
statutory creations. They owe 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 Third Chamber of Congress and with ex post veto power at that.
The thesis that a Bicameral Conference Committee can exercise law making power with ex post veto power is freighted with mischief.
Law making is a power that can be used for good or for ill, hence, our Constitution carefully laid out a plan and a procedure for its
exercise. 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 is contemplated is the Senate acting as a full Senate and the House acting as a full House. It is only
when the Senate and the House act as whole bodies that they truly represent the people. And it is only when they represent the people
that they can legitimately 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 not represent 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 over the majority. Secondly, the Constitution delineated in deft strokes the steps to be followed in making laws.
The overriding purpose of these procedural rules is to assure that only bills that successfully survive the searching scrutiny of the
proper committees of 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 each House. In the case at bench, the additions and deletions made by the
Bicameral Conference Committee did not enjoy the enlightened studies of appropriate committees. It is meet to note that the
complexities of modern day legislations have made our committee system a significant part of the legislative process. Thomas Reed
called the committee 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 the United States as "a government by the Chairman of the Standing Committees of
Congress. . . " 9 Neither did these additions and deletions of the Bicameral Conference Committee pass through the coils of collective
deliberation of the members of the two Houses acting separately. Due to this shortcircuiting of the constitutional procedure of making
laws, confusion shrouds the enactment of R.A. No. 7716. Who inserted the additions and deletions remains a mystery. Why they were
inserted is a riddle. To use a Churchillian phrase, lawmaking should not be a riddle wrapped in an enigma. It cannot be, for Article II,
section 28 of the Constitution mandates the State to adopt and implement a "policy of full public disclosure of all its transactions
involving public interest." The Constitution could not have contemplated a Congress of invisible and unaccountable John and Mary
Does. A law whose rationale is a riddle and whose authorship is obscure cannot bind the people.
All these notwithstanding, respondents resort to the legal cosmetology that these additions and deletions should govern the people as
laws because the Bicameral Conference Committee Report was anyway submitted to and approved by the Senate and the House of
Representatives. The submission may have some merit with respect to provisions agreed upon by the Committee in the process of
reconciling conflicts between S.B. No. 1630 and H.B. No. 11197. In these instances, the conflicting provisions had been previously
screened by the proper committees, deliberated upon by both Houses and approved by them. It is, however, a different matter with
respect to additions and deletions which were entirely new and which were made not to reconcile inconsistencies between S.B. No.
1630 and H.B. No. 11197. The members of the Bicameral Conference Committee did not have any authority to add new provisions or
delete provisions already approved by both Houses as it was not necessary to discharge their limited task of reconciling differences in
bills. At that late stage of law making, the Conference Committee cannot add/delete provisions which can become laws without
undergoing the study and deliberation of both chambers given to bills on 1st, 2nd, and 3rd readings. Even the Senate and the House
cannot enact a law which will not undergo these mandatory three (3) readings required by the Constitution. If the Senate 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 approve or disapprove the said additions and deletions is
more of an optical illusion. These additions and deletions are not submitted separately for approval. They are tucked to the entire bill.
The vote is on the bill as a package, i.e., together with the insertions and deletions. And the vote is either "aye" or "nay," without any
further debate and deliberation. Quite often, legislators vote "yes" because they approve of the bill as a whole although they may object
to its amendments by the Conference Committee. This lack of real choice is well observed by Robert Luce: 10
Their power lies chiefly in the fact that reports of conference committees must be accepted without amendment or
else rejected in toto. The impulse is to get done with the matter and so the motion to accept has undue advantage, for
some members are sure to prefer swallowing unpalatable provisions rather than prolong controversy. This is the 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. At any time in the session there is some risk of such a result following the
rejection of a conference report, for it may not be possible to secure a second conference, or delay may 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-itbasis, and the bodies are generally placed in the position that to leave-it is a practical impossibility." 11 Thus, he concludes that
"conference committee action is the most undemocratic procedure in the legislative process." 12
The respondents also contend that the additions and deletions made by the Bicameral Conference Committee were in accord with
legislative customs and usages. The argument does not persuade for it misappreciates the value of customs and usages in the
hierarchy of sources of legislative rules of procedure. To be sure, every legislative assembly 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 determine the rules of its
proceedings . . ." But it is hornbook law that the sources of Rules of Procedure are many and hierarchical in character. Mason laid them
down as follows: 13
xxx xxx xxx

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1. Rules of Procedure are derived from several sources. The principal sources are as follows:
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 except that 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, an interpretation of a constitutional provision takes precedence over a statute.
3. Whenever there is conflict between rules from these sources the rule from the source listed earlier prevails over
the rule from the source listed, later. Thus, where the Constitution requires three readings of bills, this provision
controls over any provision of statute, adopted rules, adopted manual, or of parliamentary law, and a rule of
parliamentary law controls over a local usage but must give way to any rule from a higher 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 of laws. It is reasonless for respondents therefore to justify these insertions as sanctioned by
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 the passage of R.A. No. 7716. The enrolled bill theory is a historical relic that should not continuously
rule us from the fossilized past. It should be immediately emphasized that the enrolled bill theory originated in England where there is
no written constitution and where Parliament is
supreme. 14 In this jurisdiction, we have a written constitution and the legislature is a body of limited powers. Likewise, it must be
pointed out that starting from the decade of the 40's, even American courts have veered away from the rigidity and unrealism of the
conclusiveness of an enrolled bill. Prof. Sutherland observed: 15
xxx xxx xxx.
Where the failure of constitutional compliance in the enactment of statutes is not discoverable from the face of the act
itself but may be demonstrated by recourse to the legislative 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 shows affirmative 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 is conclusive and the enrolled bill
is valid only if it accords with the recital in the journal and the constitutional procedure.
Various jurisdictions have adopted these alternative approaches in view of strong dissent and dissatisfaction against the philosophical
underpinnings of the conclusiveness of an enrolled bill. Prof. Sutherland further observed:
. . . 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 of conclusiveness 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 king and
likewise the parliamentary act was a regal act and no official might dispute the king's word. Transposed to our
democratic system of government, courts held that as the legislature was an official branch of government the court
must indulge every presumption that the legislative act was valid. The doctrine of separation of powers was advanced
as a strong reason why the court should treat the acts of a co-ordinate branch of government with the same respect
as it treats the action of its own officers; indeed, it was thought that it was entitled to even greater respect, else the
court might be in the position of reviewing the work of a supposedly equal branch of government. When these
arguments failed, as they frequently did, the doctrine of convenience was advanced, 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 substantive issues.
Although many of these arguments are persuasive and are indeed the basis for the rule in many states today, they
are not invulnerable to attack. The rule most relied on the sheriff's return or sworn official rule did not in civil
litigation deprive the injured party of an action, for always he could sue the sheriff upon his official bond. Likewise,
although collateral attack was not permitted, direct attack permitted raising the issue of fraud, and at a later date
attack in equity was also available; and that the evidence of the sheriff was not of unusual weight was demonstrated
by the fact that in an action against the sheriff no presumption of its authenticity prevailed.
The argument that the enrolled bill is a "record" and therefore unimpeachable is likewise misleading, for the
correction of records is a matter of established judicial procedure. Apparently, the justification is either the historical

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one that the king's word could not be questioned or the separation of powers principle that one branch of the
government must treat as valid the acts of another.
Persuasive as these arguments are, the tendency today is to avoid reaching results by artificial presumptions and
thus it would seem desirable to insist that the enrolled bill stand or fall on the basis of the relevant evidence which
may be submitted for or against it.
(Emphasis ours)
Thus, as far back as the 1940's, Prof. Sutherland confirmed that ". . . the tendency seems to be toward the abandonment of the
conclusive presumption rule and the adoption of the third rule leaving only a prima faciepresumption of validity which may be attacked
by any authoritative source of information." 16
I am not unaware that this Court has subscribed to the conclusiveness of an enrolled bill as enunciated in the 1947 lead case
of Mabanag v. Lopez Vito, and reiterated in subsequent cases. 17
With due respect, I submit that these rulings are no longer good law. Part of the ratiocination in Mabanag states:
xxx xxx xxx
If for no other reason than that it conforms to the expressed policy of our law making body, we choose to follow the
rule. Section 313 of the old Code of Civil Procedure, as amended by Act No. 2210, provides: "Official documents"
may be proved as follows: . . . (2) the proceedings of the Philippine Commission, or of any legislative body that may
be provided for in the Philippine Islands, or of Congress, by the journals of those bodies or of either house thereof, or
by published statutes or resolutions, or by copies certified by the clerk or secretary, or printed by their order;
Provided, That in the case of Acts of the Philippine Commission or the Philippine Legislature, when there is an
existence of a copy signed by the presiding officers and secretaries of said bodies, it shall be conclusive proof of the
provisions of such Acts and of the due enactment thereof.
Suffice to state that section 313 of the Old Code of Civil Procedure as amended by Act No. 2210 is no longer in our statute books. It has
long been repealed by the Rules of Court. Mabanag also relied on jurisprudence and authorities in the United States which are under
severe criticisms by modern scholars. Hence, even in the United States the conclusiveness of an enrolled bill has been junked by most
of the States. It is also true that as late as last year, in the case of Philippine Judges Association v. Prado, op. cit., this Court still relied
on the conclusiveness of an enrolled bill as it refused to invalidate a provision of law on the ground that it was merely inserted by the
bicameral conference committee of both Houses. Prado, however, is distinguishable. In Prado, the alleged insertion of the second
paragraph of section 35 of R.A. No. 7354 repealing the franking privilege of the judiciary does not appear to be an uncontested fact. In
the case at bench, the numerous additions/deletions made by the Bicameral Conference Committee as detailed by petitioners Tolentino
and Salonga are not disputed by the respondents. In Prado, the Court was not also confronted with the argument that it can no longer
rely on the conclusiveness of an enrolled bill in light of the new provision in the Constitution defining judicial power. More specifically,
section 1 of Article VIII now provides:
Sec. 1. The judicial power shall be vested in one Supreme Court and in such lower courts as may be established by
law.
Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally
demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting
to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government. (Emphasis supplied)
Former Chief Justice Roberto R. Concepcion, the sponsor of this provision in the Constitutional Commission explained the sense and
the reach of judicial power as follows: 18
xxx xxx xxx
. . . In other words, the judiciary is the final arbiter on the question of whether or not a branch of government or any of
its officials has acted without jurisdiction or in excess of jurisdiction, or so capriciously as to constitute an abuse of
discretion amounting to excess of jurisdiction. This is not only a judicial power but a duty to pass judgment on matters
of this nature.
This is the background of paragraph 2 of Section 1, which means that the courts cannot hereafter evade the duty to
settle matters of this nature, by claiming that such matters constitute political question. (Emphasis ours)
The Constitution cannot be any clearer. What it granted to this Court is not a mere power which it can decline to exercise. Precisely to
deter this disinclination, the Constitution imposed it as a duty of this Court to strike down any act of a branch or instrumentality of
government or any of its officials done with grave abuse of discretion amounting to lack or excess of jurisdiction. Rightly or wrongly, the
Constitution has elongated the checking powers of this Court against the other branches of government despite their more democratic
character, the President and the legislators being elected by the people.
It is, however, theorized that this provision is nothing new. 19 I beg to disagree for the view misses the significant changes made in our
constitutional canvass to cure the legal deficiencies we discovered during martial law. One of the areas radically changed by the
framers of the 1987 Constitution is the imbalance of power between and among the three great branches of our government the
Executive, the Legislative and the Judiciary. To upgrade the powers of the Judiciary, the Constitutional Commission strengthened some
more the independence of courts. Thus, it further protected the security of tenure of the members of the Judiciary by providing "No law
shall be passed reorganizing the Judiciary when it undermines the security of tenure of its Members." 20 It also guaranteed fiscal
autonomy to the Judiciary. 21

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More, it depoliticalized appointments in the judiciary by creating the Judicial and Bar Council which was tasked with screening the list of
prospective appointees to the judiciary. 22 The power of confirming appointments to the judiciary was also taken away from
Congress. 23 The President was likewise given a specific time to fill up vacancies in the judiciary ninety (90) days from the
occurrence of the vacancy in case of the Supreme Court 24 and ninety (90) days from the submission of the list of recommendees by
the Judicial and Bar Council in case of vacancies in the lower courts. 25 To further insulate appointments in the judiciary from the virus of
politics, the Supreme Court was given the power to "appoint all officials and employees of the Judiciary in accordance with the Civil
Service Law." 26 And to make the separation of the judiciary from the other branches of government more watertight, it prohibited
members of the judiciary to be " . . . designated to any agency performing quasi judicial or administrative functions." 27While the
Constitution strengthened the sinews of the Supreme Court, it reduced the powers of the two other branches of government, especially
the Executive. Notable of the powers of the President clipped by the Constitution is his power to suspend the writ of and to proclaim
martial law. The exercise of this power is now subject to revocation by Congress. Likewise, the sufficiency of the factual basis for the
exercise of said power may be reviewed by this Court in an appropriate proceeding filed by any citizen. habeas corpus28
The provision defining judicial power as including the "duty of the courts of justice . . . to determine whether or not there has been a
grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government"
constitutes the capstone of the efforts of the Constitutional Commission to upgrade the powers of this Court vis-a-vis the other branches
of government. This provision was dictated by our experience under martial law which taught us that a stronger and more independent
judiciary is needed to abort abuses in government. As sharply stressed by petitioner Salonga, this provision is distinctly Filipino and its
interpretation should not be depreciated by undue reliance on inapplicable foreign jurisprudence. It is thus crystal clear that unlike other
Supreme Courts, this Court has been mandated by our new Constitution to be a more active agent in annulling acts of grave abuse of
discretion committed by a branch of government or any of its officials. This new role, however, will not compel the Court, appropriately
defined by Prof. A. Bickel as the least dangerous branch of government, to assume imperial powers and run roughshod over the
principle of separation of power for that is judicial tyranny by any language. But while respecting the essential of the principle of
separation of power, the Court is not to be restricted by its non-essentials. Applied to the case at bench, by voiding R.A. No. 7716 on
the ground that its enactment violated the procedure imposed by the Constitution in lawmaking, the Court is not by any means wrecking
the wall separating the powers between the legislature and the judiciary. For in so doing, the Court is not engaging in lawmaking which
is the essence of legislative power. But the Court's interposition of power should not be defeated by the conclusiveness of the enrolled
bill. A resort to this fiction will result in the enactment of laws not properly deliberated upon and passed by Congress. Certainly, the
enrolled bill theory was not conceived to cover up violations of the constitutional procedure in law making, a procedure intended to
assure the passage of good laws. The conclusiveness of the enrolled bill can, therefore, be disregarded for it is not necessary to
preserve the principle of separation of powers.
In sum, I submit that in imposing to this Court the duty to annul acts of government committed with grave abuse of discretion, the new
Constitution transformed this Court from passivity to activism. This transformation, dictated by our distinct experience as a nation, is not
merely evolutionary but revolutionary. Under the 1935 and 1973 Constitutions, this Court approached constitutional violations by initially
determining what it cannot do; under the 1987 Constitution, there is a shift in stress this Court is mandated to approach constitutional
violations not by finding out what it should not do but what it must do. The Court must discharge this solemn duty by not resuscitating a
past that petrifies the present.
I vote to declare R.A. No. 7716 unconstitutional.
BELLOSILLO, J.:
With a consensus already reached after due deliberations, silence perhaps should be the better part of discretion, except to vote. The
different views and opinions expressed are so persuasive and convincing; they are more than enough to sway the pendulum for or
against the subject petitions. The penetrating and scholarly dissertations of my brethren should dispense with further arguments which
may only confound and confuse even the most learned of men.
But there is a crucial point, a constitutional issue which, I submit, has been belittled, treated lightly, if not almost considered insignificant
and purposeless. It is elementary, as much as it is fundamental. I am referring to the word "exclusively" appearing in Sec. 24, Art. VI, of
our 1987 Constitution. This is regrettable, to say the least, as it involves a constitutional mandate which, wittingly or unwittingly, has
been cast aside as trivial and meaningless.
A comparison of the particular provision on the enactment of revenue bills in the U.S. Constitution with its counterpart in the Philippine
Constitution will help explain my position.
Under the U.S. Constitution, "[a]ll bills for raising revenue shall originate in the House of Representatives; but the Senate may propose
or concur with amendments as on other bills" (Sec. 7, par. [1], Art. I). In contrast, our 1987 Constitution reads: "All appropriation,
revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills shall originate exclusively in
the House of Representatives, but the Senate may propose or concur with amendments" (Sec. 24, Art. VI; Emphasis supplied).
As may be gleaned from the pertinent provision of our Constitution, all revenue bills are required to originate "exclusively" in the House
of Representatives. On the other hand, the U.S. Constitution does not use the word "exclusively;" it merely says, "[a]ll bills for raising
revenue shall originate in the House of Representatives."
Since the term "exclusively" has already been adequately defined in the various opinions, as to which there seems to be no dispute, I
shall no longer offer my own definition.
Verily, the provision in our Constitution requiring that all revenue bills shall originate exclusively from the Lower House is mandatory.
The word "exclusively" is an "exclusive word," which is indicative of an intent that the provision is mandatory. 1 Hence, all American
authorities expounding on the meaning and application of Sec. 7, par. (1), Art. I, of the U.S. Constitution cannot be used in the
interpretation of Sec. 24, Art. VI, of our 1987 Constitution which has a distinct feature of "exclusiveness" all its own. Thus, when our
Constitution absolutely requires as it is mandatory that a particular bill should exclusively emanate from the Lower House, there is
no alternative to the requirement that the bill to become valid law must originate exclusively from that House.

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In the interpretation of constitutions, questions frequently arise as to whether particular sections are mandatory or directory. The courts
usually hesitate to declare that a constitutional provision is directory merely in view of the tendency of the legislature to disregard
provisions which are not said to be mandatory. Accordingly, it is the general rule to regard constitutional provisions as mandatory, and
not to leave any discretion to the will of the legislature to obey or disregard them. This presumption as to mandatory quality is usually
followed unless it is unmistakably manifest that the provisions are intended to be merely directory. So strong is the inclination in favor of
giving obligatory force to the terms of the organic law that it has even been said that neither by the courts nor by any other department
of the government may any provision of the Constitution be regarded as merely directory, but that each and everyone of its provisions
should be treated as imperative and mandatory, without reference to the rules and distinguishing between the directory and the
mandatory statutes. 2
The framers of our 1987 Constitution could not have used the term "exclusively" if they only meant to replicate and adopt the U.S.
version. By inserting "exclusively" in Sec. 24, Art. VI, of our Constitution, their message is clear: they wanted it different, strong,
stringent. There must be a compelling reason for the inclusion of the word "exclusively," which cannot be an act of retrogression but
progression, an improvement on its precursor. Thus, "exclusively" must be given its true meaning, its purpose observed and virtue
recognized, for it could not have been conceived to be of minor consequence. That construction is to be sought which gives effect to
the whole of the statute its every word. .
in totoUt magis valeat quam pereat
Consequently, any reference to American authorities, decisions and opinions, however wisely and delicately put, can only mislead in the
interpretation of our own Constitution. To refer to them in defending the constitutionality of R.A. 7716, subject of the present petitions, is
to argue on a false premise, , that Sec. 24, Art. VI, of our 1987 Constitution is, or means exactly, the same as Sec. 7, par. (1), Art. I, of
the U.S. Constitution, which is not correct. Hence, only a wrong conclusion can be drawn from a wrong premise.
i.e.
For example, it is argued that in the United States, from where our own legislature is patterned, the Senate can practically substitute its
own tax measure for that of the Lower House. Thus, according to the Majority, citing an American case, "the validity of Sec. 37 which
the Senate had inserted in the Tariff Act of 1909 by imposing an tax based on the weight of vessels, was upheld against the claim that
the revenue bill originated in the Senate in contravention of Art. I, Sec. 7, of the U.S. Constitution."
ad valorem 3In an effort to be more convincing, the Majority even quotes the footnote in which reads Introduction to American
Government by F.A. Ogg and P.O. Ray
Thus in 1883 the upper house struck out everything after the enacting clause of a tariff bill and wrote its own measure, which the House
eventually felt obliged to accept. It likewise added 847 amendments to the Payne-Aldrich tariff act of 1909, dictated the schedules of the
emergency tariff act of 1921, rewrote an extensive tax revision bill in the same year, and recast most of the permanent tariff bill of 1922
4
which in fact suggests, very clearly, that the subject revenue bill actually originated from the Lower House and was only amended,
perhaps considerably, by the Senate
after it was passed by the former and transmitted to the latter.
In the cases cited, where the statutes passed by the U.S. Congress were upheld, the revenue bills did not actually originate from the
Senate but, in fact, from the Lower House. Thus, the Supreme Court of the United States, speaking through Chief Justice White in
Rainey v. United States 5upheld the revenue bill passed by Congress and adopted the ruling of the lower court that
. . . the section in question is not void as a bill for raising revenue originating in the Senate and not in the House of Representatives. It
appears that the section was proposed by the Senate as an amendment to a bill for raising revenue which originated in the House. That
is sufficient.
Flint v. Stone Tracy Co.,
6

on which the Solicitor General heavily leans in his Consolidated Comment as well as in his Memorandum, does not support the thesis
of the Majority since the subject bill therein actually originated from the Lower House and not from the Senate, and the amendment
merely covered a certain provision in the House bill.
In fine, in the cases cited which were lifted from American authorities, it appears that the revenue bills in question actually originated
from the House of Representatives and were amended by the Senate only after they were transmitted to it. Perhaps, if the factual
circumstances in those cases were exactly the same as the ones at bench, then the subject revenue or tariff bill may be upheld in this
jurisdiction on the principle of substantial compliance, as they were in the United States, except possibly in instances where the House
bill undergoes what is now referred to as "amendment by substitution," for that would be in derogation of our Constitution which vests
solely in the House of Representatives the power to initiate revenue bills. A Senate amendment by substitution simply means that the
bill in question did not in effect originate from the lower chamber but from the upper chamber and not disguises itself as a mere
amendment of the House version.
It is also theorized that in the U.S., amendment by substitution is recognized. That may be true. But the process may be validly effective
only under the U.S. Constitution. The cases before us present a totally different factual backdrop. Several months before the Lower
House could even pass HB No. 11197, P.S. Res. No. 734 and SB No. 1129 had already been filed in the Senate. Worse, the Senate
subsequently approved SB No. 1630 "in substitution of SB No. 1129, taking into consideration P.S. Res. No. 734 and HB No. 11197,"
and not HB No. 11197 itself "as amended." Here, the Senate could not have proposed or concurred with amendments because there

Page 172 of 403

was nothing to concur with or amend except its own bill. It must be stressed that the process of concurring or amending presupposes
that there exists a bill upon which concurrence may be based or amendments introduced. The Senate should have reported out HB No.
11197, as amended, even if in the amendment it took into consideration SB No. 1630. It should not have submitted to the Bicameral
Conference Committee SB No. 1630 which, admittedly, did not originate from the Lower House.
exclusively
But even assuming that in our jurisdiction a revenue bill of the Lower House may be amended by substitution by the Senate although
I am not prepared to accept it in view of Sec. 24, Art. VI, of our Constitution still R.A. 7716 could not have been the result of
amendment by substitution since the Senate had no House bill to speak of that it could amend when the Senate started deliberating on
its own version.
Be that as it may, I cannot rest easy on the proposition that a constitutional mandate calling for the exclusive power and prerogative of
the House of Representatives may just be discarded and ignored by the Senate. Since the Constitution is for the observance of all
the judiciary as well as the other departments of government and the judges are sworn to support its provisions, the courts are not at
liberty to overlook or disregard its commands. And it is not fair and just to impute to them undue interference if they look into the validity
of legislative enactments to determine whether the fundamental law has been faithfully observed in the process. It is their duty to give
effect to the existing Constitution and to obey all constitutional provisions irrespective of their opinion as to the wisdom of such
provisions.
The rule is fixed that the duty in a proper case to declare a law unconstitutional cannot be declined and must be performed in
accordance with the deliberate judgment of the tribunal before which the validity of the enactment is directly drawn into question. When
it is clear that a statute transgresses the authority vested in the legislature by the Constitution, it is the duty of the courts to declare the
act unconstitutional because they cannot shirk from it without violating their oaths of office. This duty of the courts to maintain the
Constitution as the fundamental law of the state is imperative and unceasing; and, as Chief Justice Marshal said, whenever a statute is
in violation of the fundamental law, the courts must so adjudge and thereby give effect to the Constitution. Any other course would lead
to the destruction of the Constitution. Since the question as to the constitutionality of a statute is a judicial matter, the courts will not
decline the exercise of jurisdiction upon the suggestion that action might be taken by political agencies in disregard of the judgment of
the judicial tribunals.
7

It is my submission that the power and authority to originate revenue bills under our Constitution is vested in the House of
Representatives. Its members being more numerous than those of the Senate, elected more frequently, and more directly represent the
people, are therefore considered better aware of the economic life of their individual constituencies. It is just proper that revenue bills
originate from them.
exclusivelyexclusively
In this regard, we do not have to devote much time delving into American decisions and opinions and invoke them in the interpretation
of our own Constitution which is different from the American version, particularly on the enactment of revenue bills. We have our own
Constitution couched in a language our own legislators thought best. Insofar as revenue bills are concerned, our Constitution is not
American; it is distinctively Filipino. And no amplitude of legerdemain can detract from our constitutional requirement that all
appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills shall originate
in the House of Representatives, although the Senate may propose or concur with amendments.
exclusively
In this milieu, I am left no option but to vote to grant the petitions and strike down R.A. 7716 as unconstitutional.
# Separate Opinions
NARVASA, C.J.:
I fully concur with the conclusions set forth in the scholarly opinion of my learned colleague, Mr Justice Vicente V. Mendoza. I write this
separate opinion to express my own views relative to the procedural issues raised by the various petitions and death with by some
other Members of the Court in their separate opinions.
By their very nature, it would seem, discussions of constitutional issues prove fertile ground for a not uncommon phenomenon: debate
marked by passionate partisanship amounting sometimes to impatience with adverse views, an eagerness on the part of the
proponents on each side to assume the role of, or be perceived as, staunch defenders of constitutional principles, manifesting itself in
flights of rhetoric, even hyperbole. The peril in this, obviously, is a diminution of objectivity that quality which, on the part of those
charged with the duty and authority of interpreting the fundamental law, is of the essence of their great function. For the Court, more
perhaps than for any other person or group, it is necessary to maintain that desirable objectivity. It must make certain that on this as on
any other occasion, the judicial function is meticulously performed, the facts ascertained as comprehensively and as accurately as
possible, all the issues particularly identified, all the arguments clearly understood; else, it may itself be accused, by its own members
or by others, of a lack of adherence to, or a careless observance of, its own procedures, the signatures of its individual members on its
enrolled verdicts notwithstanding.
In the matter now before the Court, and whatever reservations some people may entertain about their intellectual limitations or moral
scruples, I cannot bring myself to accept the thesis which necessarily implies that the members of our august Congress, in enacting the
expanded VAT law, exposed their ignorance, or indifference to the observance, of the rules of procedure set down by the Constitution or
by their respective chambers, or what is worse, deliberately ignored those rules for some yet undiscovered purpose nefarious in nature,
or at least some purpose other than the public weal; or that a few of their fellows, acting as a bicameral conference committee, by
devious schemes and cunning maneuvers, and in conspiracy with officials of the Executive Department and others, succeeded in

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"pulling the wool over the eyes" of all their other colleagues and foisting on them a bill containing provisions that neither chamber of our
bicameral legislature conceived or contemplated. This is the thesis that the petitioners would have this Court approve. It is a thesis I
consider bereft of any factual or logical foundation.
Other than the bare declarations of some of the petitioners, or arguments from the use and import of the language employed in the
relevant documents and records, there is no evidence before the Court adequate to support a finding that the legislators concerned,
whether of the upper or lower chamber, acted otherwise than in good faith, in the honest discharge of their functions, in the sincere
belief that the established procedures were being regularly observed or, at least, that there occurred no serious or fatal deviation
therefrom. There is no evidence on which reasonably to rest a conclusion that any executive or other official took part in or unduly
influenced the proceedings before the bicameral conference committee, or that the members of the latter were motivated by a desire to
surreptitiously introduce improper revisions in the bills which they were required to reconcile, or that after agreement had been reached
on the mode and manner of reconciliation of the "disagreeing provisions," had resorted to stratragems or employed under-handed ploys
to ensure their approval and adoption by either House. Neither is there any proof that in voting on the Bicameral Conference Committee
(BCC) version of the reconciled bills, the members of the Senate and the House did so in ignorance of, or without understanding, the
contents thereof or the bills therein reconciled.
Also unacceptable is the theory that since the Constitution requires appropriation and revenue bills to originate exclusively in the House
of Representatives, it is improper if not unconstitutional for the Senate to formulate, or even think about formulating, its own draft of this
type of measure in anticipation of receipt of one transmitted by the lower Chamber. This is specially cogent as regards much-publicized
suggestions for legislation (like the expanded VAT Law) emanating from one or more legislators, or from the Executive Department, or
the private sector, etc. which understandably could be expected to forthwith generate much Congressional cogitation.
Exclusive origination, I submit, should have no reference to time of conception. As a practical matter, origination should refer to the
affirmative act which effectively puts the bicameral legislative procedure in motion, , the transmission by one chamber to the other of a
bill for its adoption. This is the purposeful act which sets the legislative machinery in operation to effectively lead to the enactment of a
statute. Until this transmission takes place, the formulation and discussions, or the reading for three or more times of proposed
measures in either chamber, would be meaningless in the context of the activity leading towards concrete legislation. Unless
transmitted to the other chamber, a bill prepared by either house cannot possibly become law. In other words, the first affirmative,
efficacious step, the operative act as it were, leading to actual enactment of a statute, is the transmission of a bill from one house to the
other for action by the latter. This is the origination that is spoken of in the Constitution in its Article VI, Section 24, in reference to
appropriation, revenue, or tariff bills, etc.
i.e.
It may be that in the Senate, revenue or tax measures are discussed, even drafted, and this before a similar activity takes place in the
House. This is of no moment, so long as those measures or
MISSING PAGE 3
Report (No. 349) stating that HB 11197 was , and recommending that SB 1630 be approved "in substitution of S.B. No. 1129, taking into
consideration P.S. Res. No. 734
considered 1and H.B. No. 11197." This Report made known to the Senate, and clearly indicates, that H.B. No. 11197 was indeed
deliberated on by the Committee; in truth, as Senator Herrera pointed out, the BCC later "agreed to adopt (a broader coverage of the
VAT) which is closely adhering to the Senate version ** ** with some new provisions or amendments." The plain implication is that the
Senate Committee had indeed discussed HB 11197 in comparison with the inconsistent parts of SB 1129 and afterwards proposed
amendments to the former in the form of a new bill (No. 1630) more closely akin to the Senate bill (No. 1129).
And it is as reasonable to suppose as not that later, during the second and third readings on March 24, 1994, the Senators, assembled
as a body, had before them copies of HB 11197 and SB 1129, as well as of the Committee's new "SB 1630" that had been
recommended for their approval, or at the very least were otherwise perfectly aware that they were considering the particular provisions
of these bills. That there was such a deliberation in the Senate on HB 11197 in light of inconsistent portions of SB 1630, may further be
necessarily inferred from the request, made by the Senate on the same day, March 24, 1994, for the convocation of a bicameral
conference committee to reconcile "the disagreeing provisions of said bill (SB 1630) and House Bill No. 11197," a request that could not
have been made had not the Senators more or less closely examined the provisions of HB 11197 and compared them with those of the
counterpart Senate measures.

Were the proceedings before the bicameral conference committee fatally flawed? The affirmative is suggested because
the committee allegedly overlooked or ignored the fact that SB 1630 could not validly originate in the Senate, and that HB
11197 and SB 1630 never properly passed both chambers. The untenability of these contentions has already been
demonstrated. Now, demonstration of the indefensibility of other arguments purporting to establish the impropriety of the
BCC proceedings will be attempted.
There is the argument, for instance, that the conference committee never used HB 11197 even as "frame of reference"
because it does not appear that the suggestion therefor (made by House Penal Chairman Exequiel Javier at the
bicameral conference committee's meeting on April 19, 1994, with the concurrence of Senator Maceda) was ever
resolved, the minutes being regrettably vague as to what occurred after that suggestion was made. It is, however, as
reasonable to assume that it was, as it was not, given the vagueness of the minutes already alluded to. In fact, a reading
of the BCC Report persuasively demonstrates that HB 11197 was not only utilized as a "frame of reference" but actually
discussed and deliberated on.
Said BCC Report pertinently states:
2

Page 174 of 403

CONFERENCE COMMITTEE REPORT
The Conference Committee on of House Bill No. 11197, entitled:
the disagreeing provisions
AN ACT RESTRUCTURING THE VALUE ADDED TAX (VAT) SYSTEM TO WIDEN ITS TAX BASE AND ENHANCE ITS
ADMINISTRATION, AMENDING FOR THESE PURPOSES SECTIONS 99, 100, 102, 1013, 104, 105, 106, 107, 108 AND 110
OF TITLE IV, 112, 115 AND 116 OF TITLE V, AND 236, 237, AND 238 OF TITLE IX, AND REPEALING SECTIONS 113SD
AND 114 OF TITLE V, ALL OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED
and Senate Bill No. 1630 entitled:
AN ACT RESTRUCTURING THE VALUE ADDED TAX (VAT) SYSTEM TO WIDEN ITS TAX BASE AND ENHANCE ITS
ADMINISTRATION, AMENDING FOR THESE PURPOSES SECTIONS 99, 100, 102, 103, 104, 1 106, 107, 108 AND 110 OF
TITLE IV, 112, 115, 117 AND 121 OF TITLE V, ACND 236, 237, AND 238 OF TITLE IX, AND REPEALING SECTIONS 1113,
114, 116, 119 AND 120 OF TITLE V, ALL OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED AND FOR
OTHER PURPOSES
having met, after , has agreed to recommend and do hereby recommend to their respective Houses that , be approved in
accordance with the attached copy of the bill as by the conferees.
full and free conferenceHouse Bill No. 11197, in consolidation with Senate Bill No. 1630reconciled and approved
Approved.
The Report, it will be noted, explicitly adverts to House Bill No. 11197, it being in fact mentioned ahead of Senate Bill No. 1630;
graphically shows the very close identity of the subjects of both bills (indicated in their respective titles); and clearly says that the
committee met in of both bills (obviously in an effort to reconcile them); and that reconciliation of said "disagreeing provisions" had been
effected, the BCC having agreed that "House Bill No. 11197, in consolidation with Senate Bill No. 1630, be approved in accordance with
the attached copy of the bill and approved by the conferees."
"full and free conference" on the "disagreeing provisions" as reconciled
It may be concluded, in other words, that, conformably to the procedure provided in the Constitution with which all the Members of the
bicameral conference committee cannot but be presumed to be familiar, and no proof to the contrary having been adduced on the point,
it was the original bill (HB 11197) which said body had considered and deliberated on in detail, reconciled or harmonized with SB 1630,
and used as basis for drawing up the amended version eventually reported out and submitted to both houses of Congress.
It is further contended that the BCC was created and convoked prematurely, that SB 1630 should first have been sent to the House of
Representatives for concurrence It is maintained, in other words, that the latter chamber should have refused the Senate request for a
bicameral conference committee to reconcile the "disagreeing provisions" of both bills, and should have required that SB 1630 be first
transmitted to it. This, seemingly, is nit-picking given the urgency of the proposed legislation as certified by the President (to both
houses, in fact). Time was of the essence, according to the President's best judgment as regards which absolutely no one in either
chamber of Congress took exception, general acceptance being on the contrary otherwise manifested and that judgment the Court
will not now question. In light of that urgency, what was so vital or indispensable about such a transmittal that its absence would
invalidate all else that had been done towards enactment of the law, completely escapes me, specially considering that the House had
immediately acceded without demur to the request for convocation of the conference committee.
What has just been said should dispose of the argument that the statement in the enrolled bill, that "This Act which is a of House Bill
No. 11197 and Senate Bill No. 11630 was finally passed by the House of Representatives and the Senate on April 27, 1994 and May 2,
1994," necessarily signifies that there were two (2) bills separately introduced, retaining their independent existence until they reached
the bicameral conference committee where they were , and therefore, the VAT law did not originate exclusively in the House having
originated in part in the Senate as SB 1630, which bill was not embodied in but merely merged with HB 11197, retaining its separate
identity until it was joined by the BCC with the house measure. The more logical, and fairer, course is to construe the expression,
"consolidation of House Bill No. 11197 and Senate Bill No. 11630" in the context of accompanying and contemporaneous statements, .:
(a) the declaration in the BCC Report, , that the committee met to reconcile the disagreeing provisions of the two bills, "and after full
and free conference" on the matter, agreed and so recommended that "House Bill No. 11197, in consolidation with Senate Bill No.
1630, be approved in accordance with the attached copy of the bill as reconciled and approved by the conferees;" and (b) the averment
of Senator Herrera, in the Report of the Ways and Means Committee, , that the committee had actually "considered" (discussed) HB
No. 11197 and taken it "into consideration" in recommending that its own version of the measure (SB 1630) be the one approved.
consolidation consolidatedi.esuprasupra
That the Senate might have drawn up its own version of the expanded VAT bill, contemporaneously with or even before the House did,
is of no moment. It bears repeating in this connection that no VAT bill ever in the Senate; neither its SB 1129 or SB 1630 or any of its
drafts was ever officially transmitted to the House as an initiating bill which, as already pointed out, is what the Constitution forbids; it
was HB 11197 that was first sent to the Senate, underwent first reading, was referred to Committee on Ways and Means and there
discussed in relation to and in comparison with the counterpart Senate version or versions the mere formulation of which was, as
also already discussed, not prohibited to it and afterwards considered by the Senate itself, also in connection with SB 1630, on
second and third readings. HB 11197 was in the truest sense, the originating bill.
originated

Page 175 of 403

An issue has also arisen respecting the so-called "enrolled bill doctrine" which, it is said, whatever sacrosanct status it might originally
have enjoyed, is now in bad odor with modern scholars on account of its imputed rigidity and unrealism; it being also submitted that the
ruling in (78 Phil. 1) and the cases reaffirming it, is no longer good law, it being based on a provision of the Code of Civil Procedure
Mabanag v. Lopez Vito 3long since stricken from the statute books.
I would myself consider the "enrolled bill" theory as laying down a presumption of so strong a character as to be well nigh absolute or
conclusive, fully in accord with the familiar and fundamental philosophy of separation of powers. The result, as far as I am concerned, is
to make discussion of the enrolled bill principle purely academic; for as already pointed out, there is no proof worthy of the name of any
facts to justify its reexamination and, possibly, disregard.
The other question is, what is the nature of the power given to a bicameral conference committee of reconciling differences between, or
"disagreeing provisions" in, a bill originating from the House in relation to amendments proposed by the Senate whether as regards
some or all of its provisions? Is the mode of reconciliation, subject to fixed procedure and guidelines? What exactly can the committee
do, or not do? Can it only clarify or revise provisions found in either Senate or House bill? Is it forbidden to propose additional or new
provisions, even on matters necessarily or reasonably connected with or germane to items in the bills being reconciled?
In answer, it is postulated that the reconciliation function is quite limited. In these cases, the conference committee should have
confined itself to reconciliation of differences or inconsistencies only by (a) restoring provisions of HB11197 aliminated by SB 1630, or
(b) sustaining wholly or partly the Senate amendments, or (c) as a compromise, agreeing that neither provisions nor amendments be
carried into the final form of HB 11197 for submission to both chambers of the legislature.
The trouble is, it is theorized, the committee incorporated activities or transactions which were not within the contemplation of both bills;
it made additions and deletions which did not enjoy the enlightenment of initial committee studies; it exercised what is known as an
"veto power" granted to it by no law, rule or regulation, a power that in truth is denied to it by the rules of both the Senate and the
House. In substantiation, the Senate rule is cited, similar to that of the House, providing that "differences shall be settled by a
conference committee" whose report shall contain "detailed and sufficiently explicit statement of the changes in or amendments to the
subject measure, ** (to be) signed by the conferees;" as well as the "Jefferson's Manual," adopted by the Senate as supplement to its
own rules, directing that the managers of the conference must confine themselves to differences submitted to them; they may not
include subjects not within the disagreements even though germane to a question in issue."
ex post
It is significant that the limiting proviso in the relevant rules has been construed and applied as directory, not mandatory. During the oral
argument, counsel for petitioners admitted that the practice for decades has been for bicameral conference committees to include such
provisions in the reconciled bill as they believed to be germane or necessary and acceptable to both chambers, even if not within any of
the "disagreeing provisions," and the reconciled bills, containing such provisions had invariably been approved and adopted by both
houses of Congress. It is a practice, they say, that should be stopped. But it is a practice that establishes in no uncertain manner the
prevailing concept in both houses of Congress of the permissible and acceptable modes of reconciliation that their conference
committees may adopt, one whose undesirability is not all that patent if not, indeed, incapable of unquestionable demonstration. The
fact is that conference committees only take up bills which have already been freely and fully discussed in both chambers of the
legislature, but as to which there is need of reconciliation in view of "disagreeing provisions" between them; and both chambers entrust
the function of reconciling the bills to their delegates at a conference committee with full awareness, and tacit consent, that conformably
with established practice unquestioningly observed over many years, new provisions may be included even if not within the
"disagreeing provisions" but of which, together with other changes, they will be given detailed and sufficiently explicit information prior to
voting on the conference committee version.
In any event, a fairly recent decision written for the Court by Senior Associate Justice Isagani A. Cruz, promulgated on November 11,
1993 (G.R. No. 105371, .), should leave no doubt of the continuing vitality of the enrolled bill doctrine and give an insight into the nature
of the reconciling function of bicameral conference committees. In that case, a bilateral conference committee was constituted and met
to reconcile Senate Bill No. 720 and House Bill No. 4200. It adopted a "reconciled" measure that was submitted to and approved by
both chambers of Congress and ultimately signed into law by the President, as R.A. No. 7354. A provision in this statute (removing the
franking privilege from the courts, among others) was assailed as being an invalid amendment because it was not included in the
original version of either the senate or the house bill and hence had generated no disagreement between them which had to be
reconciled. The Court held:
The Philippine Judges Association, etc., et al. v. Hon. Pete Prado, etc., et al
While it is true that a conference committee is the mechanism for compromising differences between the Senate and the House, it is
not limited in its jurisdiction to this question. Its broader function is described thus:
A conference committee may deal generally with the subject matter or it may be limited to resolving the precise differences between the
two houses. Even where the conference committee is not by rule limited in its jurisdiction, legislative custom severely limits the freedom
with which new subject matter can be inserted into the conference bill. But occasionally a conference committee produces unexpected
results, results beyond its mandate. These excursions occur even where the rules impose strict limitations on conference committee
jurisdiction. This is symptomatic of the authoritarian power of conference committee (Davies, Legislative Law and Process: In A
Nutshell, 1987 Ed., p. 81).
It is a matter of record that the Conference Committee Report on the bill in question was returned to and duly approved by both the
Senate and the House of Representatives. Thereafter, the bill was enrolled with its certification by Senate President Neptali A.
Gonzales and Speaker Ramon V. Mitra of the House of Representatives as having been duly passed by both Houses of Congress. It
was then presented to and approved by President Corazon C. Aquino on April 3, 1992.
Under the doctrine of separation of powers, the Court may not inquire beyond the certification of the approval of a bill from the presiding
officers of Congress. Casco Philippine Chemical Co. v. Gimenez (7 SCRA 347) laid down the rule that the enrolled bill is conclusive
upon the Judiciary (except in matters that have to be entered in the journals like the and on the final reading of the bill) (Mabanag v.

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Lopez Vito, 78 Phil. 1). The journals are themselves also binding on the Supreme Court, as we held in the old (but still valid) case of
U.S. v. Pons (34 Phil. 729), where we explained the reason thus:
yeasnays
To inquire into the veracity of the journals of the Philippine legislature when they are, as we have said, clear and explicit, would be to
violate both the letter and spirit of the organic laws by which the Philippine Government was brought into existence, to invade a
coordinate and independent department of the Government, and to interfere with the legitimate powers and functions of the Legislature.
Applying these principles, we shall decline to look into the petitioners' charges that an amendment was made upon the last reading of
the bill that eventually R.A. No. 7354 and that copies thereof in its final form were not distributed among the members of each House.
Both the enrolled bill and the legislative journals certify that the measure was duly enacted , in accordance with Article VI, Sec. 26 (2) of
the Constitution. We are bound by such official assurances from a coordinate department of the government, to which we owe, at the
very least, a becoming courtesy.
i.e.
Withal, an analysis of the changes made by the conference committee in HB 11197 and SB 1630 by way of reconciling their
"disagreeing provisions," assailed by petitioners as unauthorized or incongrouous reveals that many of the changes related to
actual "disagreeing provisions," and that those that might perhaps be considered as entirely new are nevertheless necessarily or
logically connected with or germane to particular matters in the bills being reconciled.
For instance, the change made by the bicameral conference committee (BCC) concerning amendments to Section 99 of the National
Internal Revenue Code (NIRC) the addition of "" is really a reconciliation of disagreeing provisions, for while HB 11197 mentions
as among those subject to tax, "one who sells, barters, or exchanges goods or properties and ," SB 1630 does not. The change also
merely clarifies the provision by providing that the contemplated taxpayers includes "importers." The revision as regards the
amendment to Section 100, NIRC, is also simple reconciliation, being nothing more than the adoption by the BCC of the provision in HB
11197 governing the sale of gold to Bangko Sentral, in contrast to SB 1630 containing no such provision. Similarly, only simple
reconciliation was involved as regards approval by the BCC of a provision declaring as not exempt, the sale of real properties primarily
held for sale to customers or held for lease in the ordinary course of trade or business, which provision is found in HB 11197 but not in
SB 1630; as regards the adoption by the BCC of a provision on life insurance business, contained in SB 1630 but not found in HB
11197; as regards adoption by the BCC of the provision in SB 1630 for deferment of tax on certain goods and services for no longer
than 3 years, as to which there was no counterpart provision in SB 11197; and as regards the fixing of a period for the adoption of
implementing rules, a period being prescribed in SB 1630 and none in HB 11197.
lessors of goods or properties and importers of goodsany person who leases personal properties
In respect of other revisions, it would seem that questions logically arose in the course of the discussion of specific "disagreeing
provisions" to which answers were given which, because believed acceptable to both houses of Congress, were placed in the BCC
draft. For example, during consideration of (Sec. 100, NIRC) dealt with in both House and Senate bills, the question apparently came
up, the relevance of which is apparent on its face, relative to . Hence, a provision in the BCC bill on the matter. Again, while deliberating
on the definition of goods or properties in relation to the provision subjecting sales thereof to tax, a question apparently arose, logically
relevant, about real properties intended to be sold by a person in economic difficulties, or because he wishes to buy a car, , not as part
of a business, the BCC evidently resolved to clarify the matter by excluding from the tax, "." And in the course of consideration of the
term, (Sec 102, NIRC), the inquiry most probably was posed as to whether the term should be understood as including other services:
e.g., services of lessors of property whether real or personal, of warehousemen, of keepers of resthouses, pension houses, inns,
resorts, or of common carriers, etc., and presumably the BCC resolved to clarify the matter by including the services just mentioned.
Surely, changes of this nature are obviously to be expected in proceedings before bicameral conference committees and may even be
considered grist for their mill, given the history of such BCCs and their general practice here and abroad
radio and television time satellite transmission and cable television timei.e.real properties held primarily for sale to customers or held for
lease in the ordinary course of businesssale or exchange of services
In any case, all the changes and revisions, and deletions, made by the conference committee were all subsequently considered by and
approved by both the Senate and the House, meeting and voting separately. It is an unacceptable theorization, to repeat, that when the
BCC report and its proposed bill were submitted to the Senate and the House, the members thereof did not bother to read, or what is
worse, having read did not understand, what was before them, or did not realize that there were new provisions in the reconciled
version unrelated to any "disagreeing provisions," or that said new provisions or revisions were effectively concealed from them
Moreover, it certainly was entirely within the power and prerogative of either legislative chamber to reject the BCC bill and require the
organization of a new bicameral conference committee. That this option was not exercised by either house only proves that the BCC
measure was found to be acceptable as in fact it was approved and adopted by both chambers.
I vote to DISMISS the petitions for lack of merit.
PADILLA, J.:
The original VAT law and the expanded VAT law
In Kapatiran v. Tan,
1

where the ponente was the writer of this Separate Opinion, a Supreme Court upheld the validity of the original VAT law (Executive
Order No. 273, approved on 25 July 1987). It will, in my view, be pointless at this time to re-open arguments advanced in said case as
to why said VAT law was invalid, and it will be equally redundant to re-state the principles laid down by the Court in the same case
affirming the validity of the VAT law as a tax measure. And yet, the same arguments are, in effect, marshalled against the merits and
substance of the expanded VAT law (Rep. Act. No. 7716, approved on 5 May 1994). The same Supreme Court decision should

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therefore dispose, in the main, of such arguments, for the expanded VAT law is predicated basically on the same principles as the
original VAT law, except that now the tax base of the VAT imposition has been expanded or broadened. unanimousen banc
It only needs to be stated - what actually should be obvious - that a tax measure, like the expanded VAT law (Republic Act. No. 7716), is
enacted by Congress and approved by the President in the exercise of the State's power to tax, which is an attribute of sovereignty. And
while the power to tax, if exercised without limit, is a power to destroy, and should, therefore, not be allowed in such form, it has to be
equally recognized that the power to tax is an essential right of government. Without taxes, basic services to the people can come to a
halt; economic progress will be stunted, and, in the long run, the people will suffer the pains of stagnation and retrogression.
Consequently, upon careful deliberation, I have no difficulty in reaching the conclusion that the expanded VAT law comes within the
legitimate power of the state to tax. And as I had occasion to previously state:
Constitutional Law, to begin with, is concerned with power not political convenience, wisdom, exigency, or even necessity. Neither the
Executive nor the legislative (Commission on Appointments) can create power where the Constitution confers none."
2

Likewise, in the first VAT case, I said:

In any event, if petitioners seriously believe that the adoption and continued application of the VAT are prejudicial to the general welfare
or the interests of the majority of the people, they should seek, recourse and relief from the political branches of the government. The
Court, following the time-honored doctrine of separation of powers, cannot substitute its judgment for that of the President (and
Congress) as to the wisdom, justice and advisability of the adoption of the VAT.
3

This Court should not, as a rule, concern itself with questions of policy, much less, economic policy. That is better left to the two (2)
political branches of government. That the expanded VAT law is unwise, unpopular and even anti-poor, among other things said against
it, are arguments and considerations within the realm of policy-debate, which only Congress and the Executive have the authority to
decisively confront, alleviate, remedy and resolve.
II
The procedure followed in the approval of Rep. Act No. 7716
Petitioners however posit that the present case raises a far-reaching constitutional question which the Court is duty-bound to decide
under its expanded jurisdiction in the 1987 Constitution.
4

Petitioners more specifically question and impugn the by which the expanded VAT law (Rep. Act. No. 7716) was approved by
Congress. They contend that it was approved in violation of the Constitution from which fact it follows, as a consequence, that the law is
null and void. Main reliance of the petitioners in their assault in Section 24, Art. VI of the Constitution which provides: manner
Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bill of local application, and private bills
shall originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments.
While it should be admitted at the outset that there was no rigorous and strict adherence to the literal command of the above provision,
it may however be said, after careful reflection, that there was with the provision.
substantial compliance
There is no question that House Bill No. 11197 expanding the VAT law originated from the House of Representatives. It is undeniably a
House measure. On the other hand, Senate Bill No. 1129, also expanding the VAT law, originated from the Senate. It is undeniably a
Senate measure which, , actually antedated House Bill No. 11197.
in point of time
But it is of record that when House Bill No. 11197 was, after approval by the House, sent to the Senate, it was referred to, and
considered by the Senate Committee on Ways and Means (after first reading) together with Senate Bill No. 1129, and the Committee
came out with Senate Bill No. 1630 in substitution of Senate Bill No. 1129 but after expressly taking into consideration House Bill No.
11197.
Since the Senate is, under the above-quoted constitutional provision, empowered to concur with a revenue measure exclusively
originating from the House, or to propose amendments thereto, to the extent of proposing amendments by SUBSTITUTION to the
House measure, the approval by the Senate of Senate Bill No. 1630, after it had considered House Bill No. 11197, may be taken, in my
view, as an AMENDMENT BY SUBSTITUTION by the Senate not only of Senate Bill No. 1129 but of House Bill No. 11197 as well
which, it must be remembered, originated exclusively from the House.
But then, in recognition of the fact that House Bill No. 11197 which originated exclusively from the House and Senate Bill No. 1630
contained conflicting provisions, both bills (House Bill No. 11197 and Senate Bill No. 1630) were referred to the Bicameral Conference
Committee for joint consideration with a view to reconciling their conflicting provisions.
The Conference Committee came out eventually with a Conference Committee Bill which was submitted to both chambers of Congress
(the Senate and the House). The Conference Committee reported out a bill consolidating provisions in House Bill No. 11197 and

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Senate Bill No. 1630. What transpired in both chambers after the Conference Committee Report was submitted to them is not clear
from the records in this case. What is clear however is that both chambers voted separately on the bill reported out by the Conference
Committee and both chambers approved the bill of the Conference Committee.
To me then, what should really be important is that both chambers of Congress approved the bill reported out by the Conference
Committee. In my considered view, the act of both chambers of Congress in approving the Conference Committee bill, should put an
end to any inquiry by this Court as to how the bill came about. What is more, such separate approvals CURED whatever constitutional
infirmities may have arisen in the procedures leading to such approvals. For, if such infirmities were serious enough to impugn the very
validity of the measure itself, there would have been an objection or objections from members of both chambers to the approval. The
Court has been shown no such objection on record in both chambers.
Petitioners contend that there were violations of Sec. 26 paragraph 2, Article VI of the Constitution which provides:
SEC. 26. ...
(2) No bill passed by either House shall become a law unless it has passed three readings on separate days, and printed copies thereof
in its final form have been distributed to its Members 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 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 entered in the Journal.
in that, when Senate Bill No. 1630 (the Senate counterpart of House Bill No. 11197) was approved by the Senate, after it had been
reported out by the Senate Committee on Ways and Means, the bill went through second and third readings on the same day (not
separate days) and printed copies thereof in its final form were not distributed to the members of the Senate at least three (3) days
before its passage by the Senate. But we are told by the respondents that the reason for this "short cut" was that the President had
certified to the necessity of the bill's immediate enactment to meet an emergency - a certification that, by leave of the same
constitutional provision, dispensed with the second and third readings on separate days and the printed form at least three (3) days
before its passage.
We have here then a situation where the President did certify to the necessity of Senate Bill No. 1630's immediate enactment to meet
an emergency and the Senate responded accordingly. While I would be the last to say that this Court cannot review the exercise of
such power by the President in appropriate cases ripe for judicial review, I am not prepared however to say that the President gravely
abused his discretion in the exercise of such power as to require that this Court overturn his action. We have been shown no fact or
circumstance which would impugn the judgment of the President, concurred in by the Senate, that there was an emergency that
required the immediate enactment of Senate Bill No. 1630. On the other hand, a becoming respect for a co-equal and coordinate
department of government points that weight and credibility be given to such Presidential judgment.
The authority or power of the Conference Committee to make insertions in and deletions from the bills referred to it, namely, House Bill
No. 11197 and Senate Bill No. 1630 is likewise assailed by petitioners. Again, what appears important here is that both chambers
approved and ratified the bill as reported out by the Conference Committee (with the reported insertions and deletions). This is perhaps
attributable to the known legislative practice of allowing a Conference Committee to make insertions in and deletions from bills referred
to it for consideration, as long as they are germane to the subject matter of the bills under consideration. Besides, when the Conference
Committee made the insertions and deletions complained of by petitioners, was it not actually performing the task assigned to it of
reconciling conflicting provisions in House Bill No. 11197 and Senate Bill No. 1630?
This Court impliedly if not expressly recognized the fact of such legislative practice in
Philippine Judges Association, etc. vs. Hon. Peter Prado, etc., 5In said case, we stated thus:
The petitioners also invoke Sec. 74 of the Rules of the House of Representatives, requiring that amendment to any bill when the House
and the Senate shall have differences thereon may be settled by a conference committee of both chambers. They stress that Sec. 35
was never a subject of any disagreement between both Houses and so the second paragraph could not have been validly added as an
amendment.
These arguments are unacceptable.
While it is true that a conference committee is the mechanism for compromising differences between the Senate and the House, is
described thus:
it is not limited in its jurisdiction to this question. Its broader function
A conference committee may deal generally with the subject matter or it may be limited to resolving the precise differences between
the two houses. Even where the conference committee is not by rule limited in its jurisdiction, legislative custom severely limits the
freedom with which new subject matter can be inserted into the conference bill. But occasionally a conference committee produces
unexpected results, results beyond its mandate. These excursions occurs even where the rules impose strict limitations on conference
committee jurisdiction. This is symptomatic of the authoritarian power of conference committee
(Davies, Legislative Law and Process: In A Nutshell, 1986 Ed., p. 81).
It is a matter of record that the Conference Committee Report on the bill in question was returned to and duly approved by both the
Senate and the House of Representatives. Thereafter, the bill was enrolled with its certification by Senate President Neptali A.
Gonzales and Speaker Ramon V. Mitra of the House of Representatives as having been duly passed by both Houses of Congress. It
was then presented to and approved by President Corazon C. Aquino on April 3, 1992.

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It would seem that if corrective measures are in order to the powers of the Conference Committee, the remedy should come from either
or both chambers of Congress, not from this Court, under the time-honored doctrine of separation of powers.
clip
Finally, as certified by the Secretary of the Senate and the Secretary General of the House of Representatives This Act (Rep. Act No. 7716) is a consolidation of House Bill No. 11197 and Senate Bill No. 1630 (w)as finally passed by the House of
Representatives and the Senate on April 27, 1994 and May 2, 1994 respectively.
Under the long-accepted doctrine of the "enrolled bill," the Court in deference to a co-equal and coordinate branch of government is
held to a recognition of Rep. Act No. 7716 as a law validly enacted by Congress and, thereafter, approved by the President on 5 May
1994. Again, we quote from out recent decision in :
Philippine Judges Association, supra
Under the doctrine of separation of powers, the Court may not inquire beyond the certification of the approval of a bill from the presiding
officers of Congress. laid down the rule that the enrolled bill is conclusive upon the Judiciary (except in matters that have to be entered
in the journals like the and on the finally reading of the bill). The journals are themselves also binding on the Supreme Court, as we held
in the old (but still valid) case of ,
Casco Philippine Chemical Co. v. GimenezyeasnaysU.S. vs. Pons 8where we explained the reason thus:
To inquire into the veracity of the journals of the Philippine legislature when they are, as we have said, clear and explicit, would be to
violate both the letter and spirit of the organic laws by which the Philippine Government was brought into existence, to invade a
coordinate and independent department of the Government, and to interfere with the legitimate powers and functions of the
Legislature.
Applying these principles, we shall decline to look into the petitioners' charges that an amendment was made upon the last reading of
the bill that eventually became R.A. No. 7354 and that copies thereof in its final form were not distributed among the members of each
House. Both the enrolled bill and the legislative journals certify that the measure was duly enacted , in accordance with Article VI, Sec.
26(2) of the Constitution. We are bound by such official assurances from a coordinate department of the government, to which we owe,
at the very least, a becoming courtesy.
i.e.
III
Press Freedom and Religious Freedom and Rep. Act No. 7716
The validity of the passage of Rep. Act No. 7716 notwithstanding, certain provisions of the law have to be examined separately and
carefully.
Rep. Act. No. 7716 in imposing a value-added tax on circulation income of newspapers and similar publications and on income derived
from publishing advertisements in newspapers
9

, to my mind, violates Sec. 4, Art. III of the Constitution. Indeed, even the Executive Department has tried to cure this defect by the
issuance of the BIR Regulation No. precluding implementation of the tax in this area. It should be clear, however, that the BIR regulation
cannot amend the law (Rep. Act No. 7716). Only legislation (as distinguished from administration regulation) can amend an existing
law.11-94
Freedom of the press was virtually unknown in the Philippines before 1900. In fact, a prime cause of the revolution against Spain at the
turn of the 19 century was the repression of the freedom of speech and expression and of the press. No less than our national hero, Dr.
Jose P. Rizal, in "" (The Philippines a Century Hence) describing the reforms which the Filipinos were insisting upon, stated: "The
minister ... who wants his reforms to be reforms, must begin by declaring the press in the Philippines free ... ".
thFilipinas Despues de Cien Anossine quibus non 10
Press freedom in the Philippines has met repressions, most notable of which was the closure of almost all forms of existing mass media
upon the imposition of martial law on 21 September 1972.
Section 4, Art. III of the Constitution maybe traced to the United States Federal Constitution. The guarantee of freedom of expression
was planted in the Philippines by President McKinley in the Magna Carta of Philippine Liberty, Instructions to the Second Philippine
Commission on 7 April 1900.
The present constitutional provision which reads:
Sec. 4 No law shall be passed abridging the freedom of speech, of expression, or of the press, or the right of the people peaceably to
assemble and petition the government for redress of grievances.
is essentially the same as that guaranteed in the U.S. Federal Constitution, for which reason, American case law giving judicial
expression as to its meaning is highly persuasive in the Philippines.

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The plain words of the provision reveal the clear intention that can be imposed on the exercise of free speech and expression if they are
to remain effective and meaningful.
no prior restraint
The U.S. Supreme Court in the leading case of
Grosjean v. American Press Co. Inc@=. 11 declared a statute imposing a gross receipts license tax of 2% on circulation and advertising
income of newspaper publishers as constituting a prior restraint which is contrary to the guarantee of freedom of the press.
In
Bantam Books, Inc. v. Sullivan 12, the U.S. Supreme Court stated: "Any system of prior restraint of expression comes to this Court
bearing a heavy presumption against its constitutionality."
In this jurisdiction, prior restraint on the exercise of free expression can be justified only on the ground that there is a clear and present
danger of a substantive evil which the State has the right to prevent
13

In the present case, the tax imposed on circulation and advertising income of newspaper publishers is in the nature of a on circulation
and free expression and, absent a clear showing that the requisite for prior restraint is present, the constitutional flaw in the law is at
once apparent and should not be allowed to proliferate.
prior restraint
Similarly, the imposition of the VAT on the sale and distribution of religious articles must be struck down for being contrary to Sec. 5, Art.
III of the Constitution which provides:
Sec. 5. No law shall be made respecting an establishment of religion, or prohibiting the free exercise thereof. The free exercise and
enjoyment of religious profession and worship, without discrimination or preference, shall forever be allowed. No religious test shall be
required for the exercise of civil or political rights.
That such a tax on the sale and distribution of religious articles is unconstitutional, has been long settled in American Bible Society, .
supra
Insofar, therefore, as Rep. Act No. 7716 imposes a value-added tax on the exercise of the above- discussed two (2) basic constitutional
rights, Rep. Act No. 7716 should be declared unconstitutional and of no legal force and effect.
IV
Petitions of CREBA and PAL and Rep. Act No. 7716
The Chamber of Real Estate and Builder's Association, Inc. (CREBA) filed its own petition (GR No. 11574) arguing that the provisions of
Rep. Act No. 7716 imposing a 10% value-added tax on the gross selling price or gross value in money of every sale, barter or
exchange of goods or properties (Section 2) and a 10% value-added tax on gross receipts derived from the sale or exchange of
services, including the use or lease of properties (Section 3), violate the equal protection, due process and non-impairment provisions
of the Constitution as well as the rule that taxation should be uniform, equitable and progressive.
The issue of whether or not the value-added tax is uniform, equitable and progressive has been settled in .
Kapatiran
CREBA which specifically assails the 10% value-added tax on the gross selling price of real properties, fails to distinguish between a
sale of real properties primarily held for sale to customers or held for lease in the ordinary course of trade or business and isolated
sales by individual real property owners (Sec. 103[s]). That those engaged in the business of real estate development realize great
profits is of common knowledge and need not be discussed at length here. The qualification in the law that the 10% VAT covers only
sales of real property primarily held for sale to customers, for trade or business thus takes into consideration a taxpayer's capacity to
pay. There is no showing that the consequent distinction in real estate sales is arbitrary and in violation of the equal protection clause of
the Constitution. The inherent power to tax of the State, which is vested in the legislature, includes the power to determine whom or
what to tax, as well as how much to tax. In the abseence o f a clear showing that the tax violates the due process and equal protection
clauses of the Constitution, this Court, in keeping with the doctrine of separation of powers, has to defer to the discretion and judgment
of Congress on this point.
i.e.
Philippine Airlines (PAL) in a separate petition (G.R. No. 115852) claims that its franchise under PD No. 1590 which makes it liable for a
franchise tax of only 2% of gross revenues "in lieu of all the other fees and charges of any kind, nature or description, imposed, levied,
established, assessed or collected by any municipal, city, provincial, or national authority or government agency, now or in the future,"
cannot be amended by Rep. Act No. 7716 as to make it (PAL) liable for a 10% value-added tax on revenues, because Sec. 24 of PD
No. 1590 provides that PAL's franchise can only be amended, modified or repealed by a special law specifically for that purpose.

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The validity of PAL's above argument can be tested by ascertaining the true intention of Congress in enacting Rep. Act No. 7716. Sec.
4 thereof dealing with Exempt Transactions states:
Section 103. Exempt Transactions. - The following shall be exempt from the value-added tax:
xxx xxx xxx
(q) Transactions which are exempt under special laws, 66, 529, 972, 1491, , ... " (Italics supplied)
except those granted under Presidential Decrees No.1590
The repealing clause of Rep. Act No. 7716 further reads:
Sec. 20. Repealing clauses. - repealed.
The provisions of any special law relative to the rate of franchise taxes are hereby expressly
xxx xxx xxx
All other laws, orders, issuances, rules and regulations or parts thereof inconsistent with this Act are hereby repealed, amended or
modified accordingly (italics supplied)
There can be no dispute, in my mind, that the clear intent of Congress was to modify PAL's franchise with respect to the taxes it has to
pay. To this extent, Rep. Act No. 7716 can be considered as a amending PAL's franchise and its tax liability thereunder. That Rep. Act.
No. 7716 imposes the value-added taxes on other subjects does not make it a general law which cannot amend PD No. 1590.
special law
To sum up: it is my considered view that Rep. Act No. 7716 (the expanded value-added tax) is a valid law, viewed from both substantive
and procedural standards, except only insofar as it violates Secs. 4 and 5, Art. III of the Constitution (the guarantees of freedom of
expression and the free exercise of religion). To that extent, it is, in its present form, unconstitutional.
I, therefore, vote to DISMISS the petitions, subject to the above qualification.
VITUG, J.:
Lest we be lost by a quagmire of trifles, the real threshold and prejudicial issue, to my mind, is whether or not this Court is ready to
assume and to take upon itself with an overriding authority the owesome responsibility of overseeing the entire bureaucracy. Far from it,
ours is merely to construe and to apply the law regardless of its wisdom and salutariness, and to strike it down only when it clearly
disregards constitutional proscriptions. It is what the fundamental law mandates, and it is what the Court must do. I cannot yet concede
to the novel theory, so challengingly provocative as it might be, that under the 1987 Constitution the Court may now at good liberty
intrude, in the guise of the people's imprimatur, into every affair of the government. What significance can still then remain, I ask, of the
time honored and widely acclaimed principle of separation of powers, if at every turn the Court allows itself to pass upon, at will, the
disposition of a co-equal, independent and coordinate branch in our system of government. I dread to think of the so varied
uncertainties that such an undue interference can lead to. The respect for long standing doctrines in our jurisprudence, a nourished
through time, is one of maturity not timidity, of stability rather than quiescence.
It has never occurred to me, and neither do I believe it has been intended, that judicial tyranny is envisioned, let alone institutionalized,
by our people in the 1987 Constitution. The test of tyranny is not solely on how it is wielded but on how, in the first place, it can be
capable of being exercised. It is time that any such perception of judicial omnipotence is corrected.
Against all that has been said, I see, in actuality in these cases at bench, neither a constitutional infringement of substance, judging
from precedents already laid down by this Court in previous cases, nor a justiciability even now of the issues raised, more than an
attempt to sadly highlight the perceived shortcomings in the procedural enactment of laws, a matter which is internal to Congress and
an area that is best left to its own basic concern. The fact of the matter is that the legislative enactment, in its final form, has received
the ultimate approval of both houses of Congress. The finest rhetoric, indeed fashionable in the early part of this closing century, would
still be a poor substitute for tangibility. I join, nonetheless, some of my colleagues in respectfully inviting the kind attention of the
honorable members of our Congress in the suggested circumspect observance of their own rules.
A final remark. I should like to make it clear that this opinion does not necessarily foreclose the right, peculiar to any taxpayer adversely
affected, to pursue at the proper time, in appropriate proceedings, and in proper for a, the specific remedies prescribed therefor by the
National Internal Revenue Code, Republic Act 1125, and other laws, as well as rules of procedure, such as may be pertinent. Some
petitions filed with this Court are, in essence, although styled differently, in the nature of declaratory relief over which this Court is bereft
of original jurisdiction.
All considered, I, therefore, join my colleagues who are voting for the dismissal of the petitions.
CRUZ, J.:
It is a curious and almost incredible fact that at the hearing of these cases on July 7, 1994, the lawyers who argued for the petitioners two of them former presidents of the Senate and the third also a member of that body - all asked this Court to look into the internal
operations of their Chamber and correct the irregularities they claimed had been committed there as well as in the House of
Representatives and in the bicameral conference committee.

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While a member of the legislative would normally resist such intervention and invoke the doctrine of separation of powers to protect
Congress from what he would call judicial intrusion, these counsel practically implored the Court to examine the questioned
proceedings and to this end go beyond the journals of each House, scrutinize the minutes of the committee, and investigate all other
matters relating to the passage of the bill (or bills) that eventually became R.A. No. 7716.
In effect, the petitioners would have us disregard the time-honored inhibitions laid down by the Court upon itself in the landmark case of
(34 Phil. 725), where it refused to consider extraneous evidence to disprove the recitals in the journals of the Philippine Legislature that
it had adjourned at midnight of February 28, 1914. Although it was generally known then that the special session had actually exceeded
the deadline fixed by the Governor-General in his proclamation, the Court chose to be guided solely by the legislative journals, holding
significantly as follows:
U.S. v. Ponssine die
... From their very nature and object, the records of the legislature are as important as those of the judiciary, and to inquire into the
veracity of the journals of the Philippine Legislature, when they are, as we have said, clear and explicit, would be to violate both the
letter and the spirit of the organic laws by which the Philippine Government was brought into existence, to invade a coordinate and
independent department of the Government, and to interfere with the legitimate powers and functions of the Legislature. But counsel in
his argument says that the public knows that the Assembly's clock was stopped on February 28, 1914, at midnight and left so until the
determination of the discussion of all pending matters. Or, in other words, the hands of the clock were stayed in order to enable the
Assembly to effect an adjournment apparently within the fixed time by the Governor's proclamation for the expiration of the special
session, in direct violation of the Act of Congress of July 1, 1902. If the clock was, in fact, stopped, as here suggested, "the resultant
evil might be slight as compared with that of altering the probative force and character of legislative records, and making the proof of
legislative action depend upon uncertain oral evidence, liable to loss by death or absence, and so imperfect on account of the treachery
of memory.
... The journals say that the Legislature adjourned at 12 midnight on February 28, 1914. This settles the question, and the court did not
err in declining to go beyond the journals.
As one who has always respected the rationale of the separation of powers, I realize only too well the serious implications of the
relaxation of the doctrine except only for the weightiest of reasons. The lowering of the barriers now dividing the three major branches
of the government could lead to individious incursions by one department into the exclusive domains of the other departments to the
detriment of the proper discharge of the functions assigned to each of them by the Constitution.
Still, while acknowledging the value of tradition and the reasons for judicial non-interference announced in Pons, I am not disinclined to
take a second look at the ruling from a more pragmatic viewpoint and to tear down, if we must, the iron curtain it has hung, perhaps
improvidently, around the proceedings of the legislature.
I am persuaded even now that where a specific procedure is fixed by the Constitution itself, it should not suffice for Congress to simply
say that the rules have been observed and flatly consider the matter closed. It does not have to be as final as that. I would imagine that
the judiciary, and particularly this Court, should be able to verify that statement and determine for itself, through the exercise of its own
powers, if the Constitution has, indeed, been obeyed.
In fact, the Court had already said that the question of whether certain procedural rules have been followed is justiciable rather than
political because what is involved is the and not the of the act in question. So we ruled in (73 SCRA 333) on the amendment of the
Constitution; in (180 SCRA 496) on the composition of the Commission on Appointments; and in the earlier case of (100 SCRA 1101)
on the organization of the Senate Electoral Tribunal, among several other cases.
legalitywisdomSanidad v. Commission on ElectionsDaza v. SingsonTaada v. Cuenco
By the same token, the ascertainment of whether a bill underwent the obligatory three readings in both Houses of Congress should not
be considered an invasion of the territory of the legislature as this would not involve an inquiry into its in approving the measure but only
the in which the measure was enacted.
discretionmanner
These views may upset the conservatives among us who are most comfortable when they allow themselves to be petrified by
precedents instead of venturing into uncharted waters. To be sure, there is much to be said of the wisdom of the past expressed by
vanished judges talking to the future. . Except when there is a need to revise them because of an altered situation or an emergent idea,
precedents should tell us that, indeed, the trodden path is the safest path.
Via trita est tuttisima
It could be that the altered situation has arrived to welcome the emergent idea. The jurisdiction of this Court has been expanded by the
Constitution, to possibly include the review the petitioners would have us make of the congressional proceedings being questioned.
Perhaps it is also time to declare that the activities of Congress can no longer be smoke-screened in the inviolate recitals of its journals
to prevent examination of its sacrosanct records in the name of the separation of powers.
But then again, perhaps all this is not yet necessary at this time and all these observations are but wishful musings for a more activist
judiciary. For I find that this is not even necessary, at least for me, to leave the trodden path in the search for new adventures in the
byways of the law. The answer we seek, as I see it, is not far afield It seems to me that it can be found through a study of the enrolled
bill alone and that we do not have to go beyond that measure to ascertain if R.A. No. 7716 has been validly enacted.
It is settled in this jurisdiction that in case of conflict between the enrolled bill and the legislative journals, it is the former that should
prevail except only as to matters that the Constitution requires to be entered in the journals. (Mabanag v. Lopez Vito, 78 Phil. 1). These
are the yeas and nays on the final reading of a bill or on any question at the request of at least one-fifth of the member of the House

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(Constitution, Art. VI, Sec. 16[4]), the objections of the President to a vetoed bill or item (, Sec. 27 [1]), and the names of the members
voting for or against the overriding of his veto ( 27 [1]), The original of a bill is not specifically required by the Constitution to be entered
in the journals. Hence, on this particular manner, it is the recitals in the enrolled bill and not in the journals that must control.
IbidId.Section
Article VI, Section 24, of the Constitution provides:
Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills
shall originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments.
The enrolled bill submitted to and later approved by the President of the Philippines as R.A. No. 7716 was signed by the President of
the Senate and the Speaker of the House of Representatives. It carried the following certification over the signatures of the Secretary of
the Senate and the Acting Secretary of the House of Representatives:
This Act which is a consolidation of House Bill No. 11197 and Senate Bill No. 11630 was finally passed by the House of Representative
and the Senate on April 27, 1994, and May 2, 1994.
Let us turn to Webster for the meaning of certain words,
To "originate" is "to bring into being; to create something (original); to invent; to begin; start." The word "exclusively" means "excluding
all others" and is derived from the word "exclusive," meaning "not shared or divided; sole; single." Applying these meanings, I would
read Section 24 as saying that the bills mentioned therein must be brought into being, or created, or invented, or begun or started, only
or singly or by no other body than the house of Representatives.
According to the certification, R.A. No. 7716 "is a consolidation of House Bill No. 11197 and Senate Bill No. 1630." Again giving the
words used their natural and ordinary sense conformably to an accepted canon of construction, I would read the word "consolidation"
as a "combination or merger" and derived from the word "consolidated," meaning "to combine into one; merge; unite."
The two bills were separately introduced in their respective Chambers. Both retained their independent existence until they reached the
bicameral conference committee where they were consolidated. It was this consolidated measure that was finally passed by Congress
and submitted to the President of the Philippines for his approval.
House Bill No. 11197 originated in the House of Representatives but this was not the bill that eventually became R.A. No. 7716. The
measure that was signed into law by President Ramos was the consolidation of that bill and another bill, ., Senate Bill No. 1630, which
was introduced in the Senate. The resultant enrolled bill thus did not originate in the House of Representatives. The enrolled bill itself
says that part of it (and it does not matter to what extent) originated in the Senate.
vizexclusively
It would have been different if the only participation of the Senate was in the amendment of the measure that was originally proposed in
the House of Representatives. But this was not the case. The participation of the Senate was not in proposing or concurring with
amendments that would have been incorporated in House Bill No. 11197. Its participation was in its own Senate Bill No. 1630, which
was not embodied in but with House Bill No. 11197.
originating merged
Senate Bill No. 1630 was not even an amendment by substitution, assuming this was permissible. To "substitute" means "to take the
place of; to put or use in place of another." Senate Bill No. 1630 did not, upon its approval replace (and thus eliminate) House Bill No.
11197. Both bills retained their separate identities until they were joined or united into what became the enrolled bill and ultimately R.A.
No. 7716.
The certification in the enrolled bill says it all. It is clear that R.A. No. 7716 did not originate exclusively in the House of Representatives.
To go back to my earlier observations, this conclusion does not require the reversal of and an inquiry by this Court into the proceedings
of the legislature beyond the recitals of its journals. All we need to do is consider the certification in the enrolled bill and, without
entering the precincts of Congress, declare that by this own admission it has, indeed, not complied with the Constitution.
U.S. vs. Pons
While this Court respects the prerogatives of the other departments, it will not hesitate to rise to its higher duty to require from them, if
they go astray, full and strict compliance with the fundamental law. Our fidelity to it must be total. There is no loftier principle in our
democracy than the supremacy of the Constitution, to which all must submit.
I vote to invalidate R.A. No. 7716 for violation of Article VI, Sec. 24, of the Constitution.
REGALADO, J.:
It would seem like an inconceivable irony that Republic Act No. 7716 which, so respondents claim, was conceived by the collective
wisdom of a bicameral Congress and crafted with sedulous care by two branches of government should now be embroiled in
challenges to its validity for having been enacted in disregard of mandatory prescriptions of the Constitution itself. Indeed, such
impugnment by petitioners goes beyond merely the procedural flaws in the parturition of the law. Creating and regulating as it does

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definite rights to property, but with its own passage having been violative of explicit provisions of the organic law, even without going
into the intrinsic merits of the provisions of Republic Act No. 7716 its substantive invalidity is pro facto necessarily entailed.
How it was legislated into its present statutory existence is not in serious dispute and need not detain us except for a recital of some
salient and relevant facts. The House of Representatives passed House Bill No. 11197
1

on third reading on November 17, 1993 and, the following day, It transmitted the same to the Senate for concurrence. On its part, the
Senate approved Senate Bill No. 1630 on second and third readings on March 24, 1994. It is important to note in this regard that on
March 22, 1994, said S.B. No. 1630 had been certified by President Fidel V. Ramos for immediate enactment to meet a public
emergency, that is, a growing budgetary deficit. .There was no such certification for H.B. No. 11197 although it was the initiating
revenue bill
It is, therefore, not only a curious fact but, more importantly, an since that Presidential certification was erroneously made for and
confined to S.B. No. 1630 which was indisputably a tax bill and, under the Constitution, could not validly originate in the Senate.
Whatever is claimed in favor of S.B. No. 1630 under the blessings of that certification, such as its alleged exemption from the three
separate readings requirement, is accordingly negated and rendered inutile by the nature of said certification as it could lawfully have
been issued only for a revenue measure originating from the lower House. To hold otherwise would be to validate a Presidential
certification of a bill initiated in the Senate despite the Constitutional prohibition against its originating therefrom.
invalid procedureinefficaciousexclusively
Equally of serious significance is the fact that S.B. No. 1630 was reported out in Committee Report No. 349 submitted to the Senate on
February 7, 1994 and approved by that body "," while merely "taking into consideration P.S. No. 734 and H.B. No. 11197."
in substitution of S.B. No. 1129 2S.B. No. 1630, therefore, was never filed in substitution of either P.S. No. 734 or, more emphatically, of
H.B. No. 11197 as these two legislative issuances were merely taken account of, at the most, as referential bases or materials.
This is not a play on misdirection for, in the first instance, the respondents assure us that H.B. No. 11197 was actually the sole source of
and started the whole legislative process which culminated in Republic Act No. 7716. The participation of the Senate in enacting S.B.
No. 1630 was, it is claimed, justified as it was merely in pursuance of its power to concur in or propose amendments to H.B. No. 11197.
Citing the 83-year old case of Flint vs. Stone Tracy Co.,
3

it is blithely announced that such power to amend includes an amendment by substitution, that is, even the extent of substituting the
entire H.B. No. 11197 by an altogether completely new measure of Senate provenance. Ergo, so the justification goes, the Senate
acted perfectly in accordance with its amending power under Section 24, Article VI of the Constitution since it merely proposed
amendments through a bill allegedly prepared in advance.
This is a mode of argumentation which, by reason of factual inaccuracy and logical implausibility, both astounds and confounds. For, it
is of official record that S.B. No. 1630 was filed, certified and enacted in substitution of which in itself was likewise in derogation of the
Constitutional prohibition against such initiation of a tax bill in the Senate. In any event, S.B. No. 1630 was neither intended as a bill to
be adopted by the Senate nor to be referred to the bicameral conference committee as a substitute for . These indelible facts appearing
in official documents cannot be erased by any amount of strained convolutions or incredible pretensions that S.B. No. 1630 was
supposedly enacted in anticipation of H.B. No. 11197.
S.B. No. 1129H.B. No. 11197
On that score alone, the invocation by the Solicitor General of the hoary concept of amendment by substitution falls flat on its face.
Worse, his concomitant citation of to recover from that prone position only succeeded in turning the same postulation over, this time
supinely flat on its back. As elsewhere noted by some colleagues, which I will just refers to briefly to avoid duplication, respondents
initially sought sanctuary in that doctrine supposedly laid down in , thus: "It has, in fact, been held that the for the one originally
proposed can be supported as a valid amendment."
FlintFlintsubstitution of an entirely new measure 4(Italics supplied.) During the interpellation by the writer at the oral argument held in
these cases, the attention of the Solicitor General was called to the fact that the amendment in consisted only of a , that its, the
substitution of a corporate tax for an inheritance tax proposed in a general revenue bill; and that the text of the decision therein nowhere
contained the supposed doctrines he quoted and ascribed to the court, as those were merely summations of arguments of counsel
therein. It is indeed a source of disappointment for us, but an admission of desperation on his part, that, instead of making a clarification
or a defense of his contention, the Solicitor General merely reproduced all over again Flintsingle item 5the same quotations as they
appeared in his original consolidated comment, without venturing any explanation or justification.
The aforestated dissemblance, thus unmasked, has further undesirable implications on the contentions advanced by respondents in
their defense. For, even indulging respondents in their pretension that S.B. No. 1630 substituted or replaced H.B. No. 11197, aside from
muddling the issue of the true origination of the disputed law, this would further enmesh respondents in a hopeless contradiction.
ex gratiaargumenti
In a publication authorized by the Senate and from which the Solicitor General has liberally quoted, it is reported as an accepted rule
therein that "(a)n amendment by substitution when approved takes the place of the principal bill. C.R. March 19, 1963."
6

Stated elsewise, the principal bill is supplanted and goes out of actuality. Applied to the present situation, and following respondents'
submission that H.B. No. 11197 had been substituted or replaced in its entirety, then in law it had no further existence for purposes of
the subsequent stages of legislation except, possibly, for referential data.

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Now, the enrolled bill thereafter submitted to the President of the Philippines, signed by the President of the Senate and the Speaker of
the House of Representatives, carried this solemn certification over the signatures of the respective secretaries of both chambers: "This
Act which is a and Senate Bill No. 1630 was finally passed by the House of Representatives and the Senate on April 27, 1994, and May
2, 1994." (Italics mine.) In reliance thereon, the Chief Executive signed the same into law as Republic Act No. 7716.
consolidation of House Bill No. 11197
The confusion to which the writer has already confessed is now compounded by that official text of the aforequoted certification which
speaks, and this cannot be a mere , of two and bills (one of them being H.B. No. 11197) which were consolidated to produce the
enrolled bill. In parliamentary usage, to consolidate two bills, is to unite them into one
lapsus calamiindependentexisting 7and which, in the case at bar, necessarily assumes that H.B. No. 11197 never became legally
inexistent. But did not the Solicitor General, under the theory of amendment by substitution of the entire H.B. No. 11197 by S.B. No.
1630, thereby premise the same upon the replacement, hence the total elimination from the legislative process, of H.B. 11197?
It results, therefore, that to prove compliance with the requirement for the origination of H.B. No. 11197, two alternative but inconsistent
theories had to be espoused and defended by respondents' counsel. To justify the introduction and passage of S.B. No. 1630 in the
Senate, it was supposedly enacted only as an amendment by substitution, hence on that theory H.B. No. 11197 had to be considered
as displaced and terminated from its role or existence. Yet, likewise for the same purpose but this time on the theory of origination by
consolidation, H.B. No. 11197 had to be resuscitated so it could be united or merged with S.B. No. 1630. This latter alternative theory,
unfortunately, also exacerbates the constitutional defect for then it is an admission of a origination of the two tax bills, each respectively
initiated in and coming from the lower and upper chambers of Congress.
exclusivedual
Parenthetically, it was also this writer who pointedly brought this baffling situation to the attention of the Solicitor General during the
aforesaid oral argument, to the extent of reading aloud the certification in full. We had hoped thereby to be clarified on these vital issue
in respondents' projected memorandum, but we have not been favored with an explanation unraveling this delimma. Verily, by passing
on these intriguing submissions, respondents have wreaked havoc on both logic and law just to gloss over their non-compliance with
the Constitutional mandate for exclusive origination of a revenue bill. The procedure required therefor, we emphatically add, can be
satisfied only by complete and strict compliance since this is laid down by the Constitution itself and not by a mere statute.
sub silentio
This writer consequently agrees with the clearly tenable proposition of petitioners that when the Senate passed and approved S.B. No.
1630, had it certified by the Chief Executive, and thereafter caused its consideration by the bicameral conference committee in total
substitution of H.B. No. 11197, it clearly and deliberately violated the requirements of the Constitution not only in the origination of the
bill but in the very enactment of Republic Act No. 7716. Contrarily, the shifting sands of inconsistency in the arguments adduced for
respondents betray such lack of intellectual rectitude as to give the impression of being mere rhetorics in defense of the indefensible.
We are told, however, that by our discoursing on the foregoing issues we are introducing into non-justiciable areas long declared by
such time-honored doctrines as those on political questions, the enrolled bill theory and the respect due to two co-equal and coordinate
branches of Government, all derived from the separation of powers inherent in republicanism. We appreciate the lectures, but we are
not exactly unaware of the teachings in ,
verbotenU.S. vs. Pons 8Mabanag, vs. Lopez Vito, 9Casco Philippine Chemical Co.,. vs. Gimenez, etc., et al., 10Morals vs.
Subido, ., etc 11and ., Philippine Judges Association, etc., et al. vs. Prado, etc., et al 12on the one hand, and ., Taada, et al. vs. Cuenco,
et al 13Sanidad, et al., vs. Commission on Elections, et al., 14and , Daza vs. Singson, et al. 15on the other, to know which would be
applicable to the present controversy and which should be rejected.
But, first, a positional . The writer of this opinion would be among the first to acknowledge and enjoin not only courtesy to, but respect
for, the official acts of the Executive and Legislative departments, but only so long as the same are in accordance with or are defensible
under the fundamental charter and the statutory law. He would readily be numbered in the ranks of those who would preach a reasoned
sermon on the separation of powers, but with the qualification that the same are not contained in tripartite compartments separated by
empermeable membranes. He also ascribes to the general validity of American constitutional doctrines as a matter of historical and
legal necessity, but not to the extent of being oblivious to political changes or unmindful of the fallacy of undue generalization arising
from myopic disregard of the factual setting of each particular case.
exordium
These ruminations have likewise been articulated and dissected by my colleagues, hence it is felt that the only issue which must be set
aright in this dissenting opinion is the so-called enrolled bill doctrine to which we are urged to cling with reptilian tenacity. It will be
preliminarily noted that the official certification appearing right on the face of Republic Act No. 7716 would even render unnecessary any
further judicial inquiry into the proceedings which transpired in the two legislative chambers and, on a parody of tricameralism, in the
bicameral conference committee. Moreover, we have the excellent dissertations of some of my colleagues on these matters, but
respondents insist en contra that the congressional proceedings cannot properly be inquired into by this Court. Such objection confirms
a suppressive pattern aimed at sacrificing the rule of law to the fiat of expediency.
Respondents thus emplaced on their battlements the pronouncement of this Court in the aforecited case of .
Philippine Judges Association vs. Prado 16Their reliance thereon falls into the same error committed by their seeking refuge in the .
which, as has earlier been demonstrated (aside from the quotational misrepresentation), could not be on par with the factual situation in
the present case. , to repeat, involved a mere amendment on a single legislative item, that is, substituting the proposal therein of an
inheritance tax by one on corporate tax. Now, in their submission based on respondents studiously avoid mention of the fact that the
questioned insertion referred likewise to a single item, that is, the repeal of the franking privilege thretofore granted to the judiciary. That

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both cases cannot be equated with those at bar, considering the multitude of items challenged and the plethora of constitutional
violations involved, is too obvious to belabor. Legal advocacy and judicial adjudication must have a becoming sense of qualitative
proportion, instead of lapsing into the discredited and maligned practice of yielding blind adherence to precedents.Flint case,
anteFlintPhilippine Judges Association,
The writer unqualifiedly affirms his respect for valid official acts of the two branches of government and eschews any unnecessary
intrusion into their operational management and internal affairs. These, without doubt, are matters traditionally protected by the
republican principle of separation of powers. Where, however, there is an overriding necessity for judicial intervention in light of the
pervasive magnitude of the problems presented and the gravity of the constitutional violations alleged, but this Court cannot perform its
constitutional duty expressed in Section 1, Article VIII of the Constitution unless it makes the inescapable inquiry, then the confluence of
such factors should compel an exception to the rule as an ultimate recourse. The cases now before us present both the inevitable
challenge and the inescapable exigency for judicial review. For the Court to now shirk its bounden duty would not only project it as a
citadel of the timorous and the slothful, but could even undermine its as the highest and ultimate tribunal.
raison d'etre
Hence, this dissenting opinion has touched on events behind and which transpired prior to the presentation of the enrolled bill for
approval into law. The details of that law which resulted from the legislative action followed by both houses of Congress, the substantive
validity of whose provisions and the procedural validity of which legislative process are here challenged as unconstitutional, have been
graphically presented by petitioners and admirably explained in the respective opinions of my brethren. The writer concurs in the
conclusions drawn therefrom and rejects the contention that we have unjustifiably breached the dike of the enrolled bill doctrine.
Even in the land of its source, the so-called conclusive presumption of validity originally attributed to that doctrine has long been
revisited and qualified, if not altogether rejected. On the competency of judicial inquiry, it has been held that "(u)nder the 'enrolled bill
rule' by which an enrolled bill is sole expository of its contents and conclusive evidence of its existence and valid enactment, it is
nevertheless competent for courts to inquire as to what prerequisites are fixed by the Constitution of which journals of respective
houses of Legislature are required to furnish the evidence."
17

In fact, in .,
Gwynn vs. Hardee, etc., et al 18the Supreme Court of Florida declared:
(1) While the presumption is that the enrolled bill, as signed by the legislative officers and filed with the secretary of state, is the bill as it
passed, yet this presumption is not conclusive, and when it is shown from the legislative journals that a bill though engrossed and
enrolled, and signed by the legislative officers, contains provisions that have not passed both houses, such provisions will be held
spurious and not a part of the law. As was said by Mr. Justice Cockrell in the case of Wade vs. Atlantic Lumber Co., 51 Fla. 628, text
633, 41 So. 72, 73:
This Court is firmly committed to the holding that when the journals speak they control, and against such proof the enrolled bill is not
conclusive.'
More enlightening and to the present controversy is the decision promulgated on May 13, 1980 by the Supreme Court of Kentucky in ,
aproposD & W Auto Supply, et al. vs. Department of Revenue, et al. 19pertinent exceprts wherefrom are extensively reproduced
hereunder:
... In arriving at our decision we must, perforce, reconsider the validity of a long line of decisions of this court which created and
nurtured the so-called 'enrolled bill' doctrine.
xxx xxx xxx
[1] Section 46 of the Kentucky Constitution sets out certain procedures that the legislature must follow before a bill can be considered
for final passage. ... .
xxx xxx xxx
... Under the enrolled bill doctrine as it now exists in Kentucky, a court may not look behind such a bill, enrolled and certified by the
appropriate officers, to determine if there are any defects.
xxx xxx xxx
... In , passage of the law in question violated this provision, yet the bill was properly enrolled and approved by the governor. In
declining to look behind the law to determine the propriety of its enactment, the court enunciated three reasons for adopting the
enrolled bill rule. First, the court was reluctant to scrutinize the processes of the legislature, an equal branch of government. Second,
reasons of convenience prevailed, which discouraged requiring the legislature to preserve its records and anticipated considerable
complex litigation if the court ruled otherwise. Third, the court acknowledged the poor record-keeping abilities of the General Assembly
and expressed a preference for accepting the final bill as enrolled, rather than opening up the records of the legislature. ... .
Lafferty
xxx xxx xxx

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Nowhere has the rule been adopted without reason, or as a result of judicial whim. There are four historical bases for the doctrine. (1)
An enrolled bill was a 'record' and, as such, was not subject to attack at common law. (2) Since the legislature is one of the three
branches of government, the courts, being coequal, must indulge in every presumption that legislative acts are valid. (3) When the rule
was originally formulated, record-keeping of the legislatures was so inadequate that a balancing of equities required that the final act,
the enrolled bill, be given efficacy. (4) There were theories of convenience as expressed by the Kentucky court in .
Lafferty
The rule is not unanimous in the several states, however, and it has not been without its critics. From an examination of cases and
treaties, we can summarize the criticisms as follows:
(1) Artificial presumptions, especially conclusive ones, are not favored. (2) Such a rule frequently (as in the present case) produces
results which do not accord with facts or constitutional provisions. (3) The rule is conducive to fraud, forgery, corruption and other
wrongdoings. (4) Modern automatic and electronic record-keeping devices now used by legislatures remove one of the original reasons
for the rule. (5) The rule disregards the primary obligation of the courts to seek the truth and to provide a remedy for a wrong committed
by any branch of government. In light of these considerations, we are convinced that the time has come to re-examine the enrolled bill
doctrine.
[2] This court is not unmindful of the admonition of the doctrine of stare decisis. The maxim is "Stare decisis et non quieta movere,"
which simply suggests that we stand by precedents and not disturb settled points of law. . As we stated in , 287 Ky 834, 155 S.W. 2d
469, 471-72 (1941) (citations omitted):
Yet, this rule is not inflexible, nor is it of such a nature as to require perpetuation of error or logicDaniel's Adm'r v. Hoofnel
The force of the rule depends upon the nature of the question to be decided and the extent of the disturbance of rights and practices
which a change in the interpretation of the law or the course of judicial opinions may create. Cogent considerations are whether there is
clear error and urgent reasons 'for neither justice nor wisdom requires a court to go from one doubtful rule to another,' and whether or
not the evils of the principle that has been followed will be more injurious than can possibly result from a change.
Certainly, , and with it the rule it supports.
when a theory supporting a rule of law is not grounded on facts, or upon sound logic, or is unjust, or has been discredited by actual
experience, it should be discarded
[3] It is clear to us that the major premise of the Lafferty decision, the poor record- keeping of the legislature, has disappeared. by our
General Assembly. Tape recorders, electric typewriters, duplicating machines, recording equipment, printing presses, computers,
electronic voting machines, and the like remove all doubts and fears as to the ability of the General Assembly to keep accurate and
readily accessible records.
Modern equipment and technology are the rule in record-keeping
It is also apparent that the 'convenience' rule is not appropriate in today's modern and developing judicial philosophy. The fact that the
number and complexity of lawsuits may increase is not persuasive if one is mindful that the The existence of difficulties and
complexities should not deter this pursuit and we reject any doctrine or presumption that so provides.
overriding purpose of our judicial system is to discover the truth and see that justice is done.
Lastly, we address the premises that the equality of the various branches of government requires that we shut our eyes to constitutional
failings and other errors of our coparceners in government. We simply do not agree. Section 26 of the Kentucky Constitution provides
that any law contrary to the constitution is 'void.' . Without belaboring the point, we believe that under section 228 of the Kentucky
Constitution it is our obligation to 'support ... the Constitution of the commonwealth.' We are sworn to see that violations of the
constitution - by any person, corporation, state agency or branch of government - are brought to light and corrected.
The proper exercise of judicial authority requires us to recognize any law which is unconstitutional and to declare it voidTo countenance
an artificial rule of law that silences our voices when confronted with violations of our constitution is not acceptable to this court.
We believe that a more reasonable rule is the one which Professor Sutherland describes as the 'extrinsic evidence' rule ... Under this
approach there is a prima facie presumption that an enrolled bill is valid, but
such presumption may be overcome by clear, satisfactory and convincing evidence establishing that constitutional requirements have
not been met.
We therefore overrule and all other cases following the so-called enrolled bill doctrine, to the extent that there is no longer a conclusive
presumption that an enrolled bill is valid. ... (Italics mine.)
Lafferty v. Huffman
Undeniably, the value-added tax system may have its own merits to commend its continued adoption, and the proposed widening of its
base could achieve laudable governmental objectives if properly formulated and conscientiously implemented. We would like to believe,
however, that ours is not only an enlightened democracy nurtured by a policy of transparency but one where the edicts of the
fundamental law are sacrosanct for all, barring none. While the realization of the lofty ends of this administration should indeed be the
devout wish of all, likewise barring none, it can never be justified by methods which, even if unintended, are suggestive of
Machiavellism.

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Accordingly, I vote to grant the instant petitions and to invalidate Republic Act No. 7716 for having been enacted in violation of Section
24, Article VI of the Constitution.
DAVIDE, JR., J.:
The legislative history of R.A. No. 7716, as highlighted in the Consolidated Memorandum for the public respondents submitted by the
Office of the Solicitor General, demonstrates beyond doubt that it was passed in violation or deliberate disregard of mandatory
provisions of the Constitution and of the rules of both chambers of Congress relating to the enactment of bills.
I therefore vote to strike down R.A. No. 7716 as unconstitutional and as having been enacted with grave abuse of discretion.
The Constitution provides for a bicameral Congress. Therefore, no bill can be enacted into law unless it is approved by both chambers
-- the Senate and the House of Representatives (hereinafter ). Otherwise stated, each chamber may propose and approve a bill, but
until it is submitted to the other chamber and passed by the latter, it cannot be submitted to the President for its approval into law.
House
Paragraph 2, Section 26, Article VI of the Constitution provides:
No bill passed by either House shall become a law unless it has passed three readings on separate days, and printed copies thereof in
its final form have been distributed to its Members 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 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 entered in the journal.
The "three readings" refers to the three readings in both chambers.
There are, however, bills which must originate exclusively in the House. Section 24, Article VI of the Constitution enumerates them:
SEC. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills
shall originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments.
Webster's Third New International Dictionary
1

defines as follows:originate
vt 1: to cause the beginning of: give rise to: INITIATE ... 2. to start (a person or thing) on a course or journey ... : to take or
have origin: be derived: ARISE, BEGIN, START ...
vi

Black's Law Dictionary

2

defines the word in this wise:exclusively

Apart from all others; only; solely; substantially all or for the greater part. To the exclusion of all others; without admission of others to
participation; in a manner to exclude.
In ,
City Mayor vs. The Chief of Philippine Constabulary @= 3 this Court said:
The term 'exclusive' in its usual and generally accepted sense, means possessed to the exclusion of others; appertaining to the subject
alone, not including, admitting or pertaining to another or others, undivided, sole. (15 Words and Phrases, p. 510, citing Mitchel v. Tulsa
Water, Light, Heat and Power Co., 95 P. 961, 21 Okl. 243; and p. 513, citing Commonwealth v. Superintendent of House of Correction,
64 Pa. Super. 613, 615).
Indisputably then, only the House can cause the beginning or initiate the passage of any appropriation, revenue, or tarriff bill, any bill
increasing the public debt, any bill of local application, or any private bill. The Senate can only "propose or concur with amendments."
Under the Rules of the Senate, the first reading is the reading of the title of the bill and its referral to the corresponding committee; the
second reading consists of the reading of the bill in the form recommended by the corresponding committee; and the third reading is
the reading of the bill in the form it will be after approval on second reading.
4

During the second reading, the following takes place;

(1) Second reading of the bill;

(2) Sponsorship by the Committee Chairman or any member designated by the corresponding committee;
(3) If a debate ensues, turns for and against the bill shall be taken alternately;

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(4) The sponsor of the bill closes the debate;
(5) After the close of the debate, the period of amendments follows:
(6) Then, after the period of amendments is closed, the voting the bill on second reading.
5

After approval on second readings, printed copies thereof in its final form shall be distributed to the Members of the Senate at least
three days prior to the third reading, the final vote shall be taken and the and shall be entered in the Journal.
yeasnays 6
Under the Rules of the House, the first reading of a bill consists of a reading of the number, title, and author followed by the referral to
the appropriate committees;
7

the second reading consists of the reading in full of the bill with the amendments proposed by the committee, it any; 8 and the third
reading is the reading of the bill in the form as approved on second reading and takes place only after printed copies thereof in its final
form have been distributed to the Members at least three days before, unless the bill is certified.9At the second reading, the following
takes place:
(1) Reading of the bill;
(2) Sponsorship;
3) Debates;
(4) Period of Amendments; and
(5) Voting on Second Reading.
10

At the third reading, the votes shall be taken immediately and the and entered in the Journal.
yeasnays 11
Clearly, whether in the Senate or in the House, every bill must pass the three readings on separate days, except when the bill is
certified. Amendments to the bill on third reading are constitutionally prohibited.
12

After its passage by one chamber, the bill should then be transmitted to the other chamber for its concurrence. Section 83, Rule XIV of
the Rules of the House expressly provides:
SEC. 83. . -- The Secretary General, without need of express order, shall transmit to the Senate for its concurrence all the bills and joint
or concurrent resolutions approved by the House or the amendments of the House to the bills or resolutions of the Senate, or if
amendments of the Senate to bills of the House are accepted, he shall forthwith notify the Senate of the action taken.
Transmittal to Senate
Simplified, this rule means that:
1. As to a bill originating in the House:
(a) Upon its approval by the House, the bill shall be transmitted to the Senate;
(b) The Senate may approve it with or without amendments;
(c) The Senate returns the bill to the House;
(d) The House may accept the Senate amendments; if it does not, the Secretary General shall notify the Senate of that action. As
hereinafter be shown, a request for conference shall then be in order.
2. As to bills originating in the Senate;
(a) Upon its approval by the Senate, the bill shall be transmitted to the House;
(b) The House may approve it with or without amendments;

Page 190 of 403

(c) The House then returns it to the Senate, informing it of the action taken;
(d) The Senate may accept the House amendements; if it does not, it shall notify the House and make a request for conference.
The transmitted bill shall then pass three readings in the other chamber on separate days. Section 84, Rule XIV of the Rules of the
House states:
SEC. 84. . -- The bills, resolutions and communications of the Senate shall be referred to the corresponding committee in the same
manner as bills presented by Members of the House.
Bills from the Senate
and Section 51, Rule XXII of the Rules of the Senate provides:
SEC. 51. Prior to their final approval, bills and joint resolutions shall be read at least three times." It is only when the period of
disagreement is reached, , amendments proposed by one chamber to a bill originating from the other are not accepted by the latter,
that a request for conference is made or is in order. The request for conference is specifically covered by Section 26, Rule XI of the
Rules of the Senate which reads:
i.e.
It is only when the period of disagreement is reached, amended proposed by one chamber to a bill originating from the other are not
accepted by their latter, that a request for conference is made or is in order. The request for conference is specifically covered by
Section 26, Rule XII of the Rules of the Senate which reads:
i.e.,
SEC. 26. 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 a conference committee of both Houses which shall meet within ten days after its composition.
and Section 85, Rule XIV of the Rules of the House which reads:
SEC. 85. . -- In the event that the House does not agree with the Senate on the amendments to any bill or joint resolution, the
differences may be settled by conference committees of both Chambers.
Conference Committee Reports
The foregoing provisions of the Constitution and the Rules of both chambers of Congress are mandatory.
In his Treatise On the Constitutional Limitations,
13

more particularly on enactment of bill, Cooley states:

Where, for an instance, the legislative power is to be exercised by two houses, and by settled and well-understood parliamentary law
these two houses are to hold separate sessions for their deliberations, and the determination of the one upon a proposes law is to be
submitted to the separate determination of the other, the constitution, in providing for two houses, has evidently spoken in reference to
this settled custom, incorporating it as a rule of constitutional interpretation; so that it would require no prohibitory clause to forbid the
two houses from combining in one, and jointly enacting laws by the vote of a majority of all. All those rules which are of the essentials of
law-making must be observed and followed; and it is only the customary rules of order and routine, such as in every deliberative body
are always understood to be under its control, and subject to constant change at its will, that the constitution can be understood to have
left as matters of discretion, to be established, modified, or abolished by the bodies for whose government in non-essential matters they
exist.
First violation. -- Since R.A. No. 7716 is a revenue measure, it must in the House -- not in the Senate. As correctly asserted by
petitioner Tolentino, on the face of the enrolled copy of R.A. No. 7716, it is a "CONSOLIDATION OF HOUSE BILL NO. 11197 AND
SENATE BILL NO. 1630." In short, it is an illicit marriage of a bill which originated in the House and a bill which originated in the Senate.
Therefore, R.A. No. 7716 in the House.
originate exclusivelydid not originate exclusively
In respect of appropriation, revenue, or tariff bills, bills increasing the public debt, bills of local application, or private bills, the return
thereof to the House after the Senate shall have "proposed or concurred with amendments" for the former either to accept or reject the
amendments would not only be in conformity with the foregoing rules but is also implicit from Section 24 of Article VI.
With the foregoing as our guiding light, I shall now show the violations of the Constitution and of the Rules of the Senate and of the
House in the passage of R.A. No. 7716.
VIOLATIONS OF SECTION 24, ARTICLE VI OF THE CONSTITUTION:

Page 191 of 403

The only bill which could serve as a valid basis for R.A. No. 7716 is House Bill (HB) No. 11197. This bill, which is the substitute bill
recommended by the House Committee on Ways and Means in substitution of House Bills Nos. 253, 771, 2450, 7033, 8086, 9030,
9210, 9397, 10012, and 10100, and covered by its Committee Report No. 367,
14

was approved on third reading by the House on 17 November 1993. 15Interestingly, HB No. 9210, 16which was filed by Representative
Exequiel B. Javier on 19 May 1993, was by the President in his letter to Speaker Jose de Venecia, Jr. of 1 June 1993. certified 17Yet, HB
No. 11197, which substituted HB No. 9210 and the others above-stated, was not. Its certification seemed to have been entirely
forgotten.
On 18 November 1993, the Secretary-General of the House, pursuant to Section 83, Rule XIV of the Rules of the House, transmitted to
the President of the Senate HB No. 11197 and requested the concurrence of the Senate therewith.
18

However, HB No. 11197 had passed only its first reading in that Senate by its referral to its Committee on Ways and Means. That
Committee never deliberated on HB No. 11197 as it should have. It acted only on Senate Bill (SB) No. 1129
19

introduced by Senator Ernesto F. Herrera on 1 March 1993. It then prepared and proposed SB No. 1630, and in its Committee Report
No. 349 20which was submitted to the Senate on 7 February 1994, 21it recommended that SB No. 1630 be approved "" in substitution of
S.B. No. 1129, taking into consideration P.S. Res. No. 734 and H.B. No. 11197. 22It must be carefully noted that SB No. 1630 was
proposed and submitted for approval by the Senate Obviously, the principal measure which the Committee deliberated on and acted
upon was SB No. 1129 and not HB No. 11197. The latter, instead of being the only measure to be taken up, deliberated upon, and
reported back to the Senate for its consideration on second reading and, eventually, on third reading, was, at the most, merely given by
the Committee a passing glance.in SUBSTITUTION of SB No. 1129, and not HB No. 11197.
This specific unequivocal action of the Senate Committee on Ways and Means, proposing and recommending approval of SB No. 1630
as a substitute for or in substitution of SB No. 1129 demolishes at once the thesis of the Solicitor General that:
i.e.,
Assuming that SB 1630 is distinct from HB 11197, amendment by substitution is within the purview of Section 24, Article VI of the
Constitution.
because, according to him, (a) "Section 68, Rule XXIX of the Rules of the Senate authorizes an amendment by substitution and the
only condition required is that "the text thereof is submitted in writing'; and (b) '[I]n . (220 U.S. 107) the United Stated Supreme Court,
interpreting the provision in the United States Constitution similar to Section 24, Article VI of the Philippine Constitution, stated that the
power of the Senate to amend a revenue bill includes substitution of an entirely new measure for the one originally proposed by the
House of Representatives.'"
Flint vs. Stone Tracy Co 23
This thesis is utterly without merit. In the first place, it reads into the Committee Report something which it had not contemplated, that
is, to propose SB No. 1630 in substitution of HB No. 11197; or speculates that the Committee may have committed an error in stating
that it is SB No. 1129, and not HB No. 11197, which is to be substituted by SB No. 1630. Either, of course, is unwarranted because the
words of the Report, solemnly signed by the Chairman, Vice-Chairman (who dissented), seven members, and three members,
ex-officio 24leave no room for doubt that although SB No. 1129, P.S. Res No. 734, and HB No. 11197 were referred to and considered
by the Committee, it had prepared the attached SB No. 1630 which it recommends for approval "" To do as suggested would be to
substitute the judgment of the Committee with another that is completely inconsistent with it, or, simply, to capriciously ignore the
facts.in substitution of S.B. No. 11197, taking into consideration P.S. No. 734 and H.B. No. 11197 with Senators Herrera, Angara,
Romulo, Sotto, Ople and Shahani as authors.
In the second place, the Office of the Solicitor General intentionally made it appear, to mislead rather than to persuade us, that in
Flint vs. Stone Tracy Co. 25The U.S. Supreme Court ruled, as quoted by it in the Consolidated Memorandum for Respondents, as
follows: 26
The Senate has the power to amend a revenue bill. This power to amend is not confined to the elimination of provisions contained in
the original act, but embraces as well the addition of such provisions thereto as may render the original act satisfactory to the body
which is called upon to support it.
It has, in fact, been held that the substitution of an entirely new measure for the one originally proposed can be supported as a valid
amendment.
xxx xxx xxx
It is contended in the first place that this section of the act is unconstitutional, because it is a revenue measure, and originated in the
Senate in violation of Section 7 of article 1 of the Constitution, providing that 'all bills for raising revenue shall originate in the House of
Representatives, but the Senate may propose or concur with the amendments, as on other bills.'
The first part is not a statement of the Court, but a summary of the arguments of counsel in one of the companion cases (No. 425,
entitled, ""). The second part is the second paragraph of the opinion of the Court delivered by Mr. Justice Day. The misrepresentation
that the first part is a statement of the Court is highly contemptuous. To show such deliberate misrepresentation, it is well to quote what
actually are found in 55 L.Ed. 408, 410, to wit:

Page 192 of 403

Gay vs. Baltic Mining Co.
Messrs. Charles A. Snow and Joseph H. Knight filed a brief for appellees in No. 425:
Solicitor General Lehmann (by special leave) argued the cause for the United States on reargument.
xxx xxx xxx
The Senate has the power to amend a revenue bill. This power to amend is not confined to the elimination of provisions contained in
the original act, but embraces as well the addition of such provisions thereto as may render the original act satisfactory to the body
which is called upon to support it. It has, in fact, been held that the substitution of an entirely new measure for the one originally
proposed can be supported as a valid amendment.
Brake v. Collison, 122 Fed. 722.
Mr. James L. Quackenbush filed a statement for appellees in No. 442.
Mr. Justice Day delivered the opinion of the court:
These cases involve the constitutional validity of 38 of the act of Congress approved August 5, 1909, known as 'the corporation tax' law.
36 Stat. at L. 11, 112-117, chap. 6, U.S. Comp. Stat. Supp. 1909, pp. 659, 844-849.
It is contended in the first place that this section of the act is unconstitutional, because it is a revenue measure, and originated in the
Senate in violation of 7 of article 1 of the Constitution, providing the 'all bills for raising revenue shall originate in the House of
Representatives, but the Senate may propose or concur with the amendments, as on other bills.' The history of the act is contained in
the government's brief, and is accepted as correct, no objection being made to its accuracy.
This statement shows that the tariff bill of which the section under consideration is a part, originated in the House of Representatives,
and was there a general bill for the collection of revenue. As originally introduced, it contained a plan of inheritance taxation. In the
Senate the proposed tax was removed from the bill, and the corporation tax, in a measure, substituted therefor. The bill having properly
originated in the House, we perceive no reason in the constitutional provision relied upon why it may not be amended in the Senate in
the manner which it was in this case. The amendment was germane to the subject-matter of the bill, and not beyond the power of the
Senate to propose. (Italics supplied)
xxx xxx xxx
As shown above, the underlined portions were deliberately omitted in the quotation made by the Office of the Solicitor General.
In the third place, a Senate amendment by substitution with an entirely new bill of a bill, which under Section 24, Article VI of the
Constitution can only originate exclusively in the House, is not authorized by said Section 24. . cannot be invoked in favor of such a
view. As pointed out by Mr. Justice Florenz D. Regalado during the oral arguments of these cases and during the initial deliberations
thereon by the Court, involves a Senate amendment to a revenue bill which, under the United States Constitution, should originate from
the House of Representatives. The amendment consisted of the substitution of a corporation tax in lieu of the plan of inheritance
taxation contained in a general bill for the collection of revenue as it came from the House of Representatives where the bill originated.
The constitutional provision in question is Section 7, Article I of the United States Constitution which reads:
Flint vs. Stone Tracy CoFlint
Section 7. . -- All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with
Amendments, as on other Bills.
Bills and Resolutions
This provision, contrary to the misleading claim of the Solicitor General, is not similar to Section 24, Article VI of our Constitution, which
for easy comparison is hereunder quoted again:
All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills shall
originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments.
Note that in the former the word does not appear. And, in the latter, the phrase "as on other Bill," which is found in the former, does not
appear. These are very significant in determining the authority of the upper chamber over the bills enumerated in Section 24. Since the
origination is not exclusively vested in the House of Representatives of the United States, the Senate's authority to propose or concur
with amendments is necessarily broader. That broader authority is further confirmed by the phrase "as on other Bills," , its power to
propose or concur with amendments thereon is the same as in ordinary bills. The absence of this phrase in our Constitution was clearly
intended to restrict or limit the Philippine Senate's power to propose or concur with amendments. In the light of the of origination and
the absence of the phrase "as on other Bills," the Philippine Senate cannot amend by substitution with an entirely new bill of its own any
bill covered by Section 24 of Article VI which the House of Representatives transmitted to it because such substitution would indirectly
violate Section 24.
exclusivelyi.e.exclusivity
These obvious substantive differences between Section 7, Article I of the U.S. Constitution and Section 24, Article VI of our Constitution
are enough reasons why this Court should neither allow itself to be misled by nor be awed by

Page 193 of 403

Flint vs. StoneRainey vs. United States 27and the opinion of Messrs. Ogg and Ray 28which the majority cites to support the view that the
power of the U.S. Senate to amend a revenue measure is unlimited. Rainey concerns the Tariff Act of 1909 of the United States of
America and specifically involved was its Section 37 which was an amendment introduced by the U.S. Senate. It was claimed by the
petitioners that the said section is a revenue measure which should originate in the House of Representatives. The U.S. Supreme
Court, however, adopted and approved the finding of the court that:a quo
the section in question is not void as a bill for raising revenue originating in the Senate, and not in the House of Representatives. It
appears that the section was proposed by the Senate as an amendment to a bill for raising revenue which originated in the House. That
is sufficient.
Messrs. Ogg and Ray, who are professors emeritus of political science, based their statement not even on a case decided by the U.S.
Supreme Court but on their perception of what Section 7, Article I of the U.S. Constitution permits. In the tenth edition (1951) of their
work, they state:
Any bill may make its first appearance in either house, except only that bills for raising revenue are required by the constitution to
'originate' in the House of Representatives. Indeed, through its right to amend revenue bills, even to the extent of substituting new ones,
the Senate may, in effect, originate them also.
29

Second violation. -- Since SB No. 1129 is a revenue measure, it could not even be validly introduced or initiated in the Senate. It follows
too, that the Senate cannot validly act thereon.
Third violation. -- Since SB No. 1129 could not have been validly introduced in the Senate and could not have been validly acted on by
the Senate, then it cannot be substituted by another revenue measure, SB No. 1630, which the Senate Committee on Ways and Means
introduced in substitution of SB No. 1129. The filing or introduction in the Senate of SB No. 1630 also violated Section 24, Article VI of
the Constitution.
First violation. -- The Senate, despite its lack of constitutional authority to consider SB No. 1630 or SB No. 1129 which the former
substituted, opened deliberations on second reading of SB No. 1630 on 8 February 1994. On 24 March 1994, the Senate approved it
on and on .
second readingthird reading 30That approval on the same day violated Section 26(2), Article VI of the Constitution. The justification
therefor was that on 24 February 1994 the President certified to "the necessity of the enactment of SB No. 1630 ... to meet a public
emergency." 31
Their "in effect" conclusion is, of course, logically correct because the word does not appear in said Section 7, Article I of the U.S.
Constitution.
exclusively
Neither can I find myself in agreement with the view of the majority that the Constitution does not prohibit the filing in the Senate of a
substitute bill in anticipation of its receipt of the bill from the House so long as action by the Senate as a body is withheld pending
receipt of the House bill, thereby stating, in effect, that S.B. No. 1129 was such an anticipatory substitute bill, which, nevertheless, does
not seem to have been considered by the Senate except only after its receipt of H.B. No. 11179 on 23 November 1993 when the
process of legislation in respect of it began with a referral to the Senate Committee on Ways and Means. Firstly, to say that the
Constitution does not prohibit it is to render meaningless Section 24 of Article VI or to sanction its blatant disregard through the simple
expedient of filing in the Senate of a so-called anticipatory substitute bill. Secondly, it suggests that S.B. No. 1129 was filed as an
anticipatory measure to substitute for H.B. No. 11179. This is a speculation which even the author of S.B. No. 1129 may not have
indulged in. S.B. No. 1129 was filed in the Senate by Senator Herrera on 1 March 1993. H.B. No. 11197 was approved by the House on
third reading only on 17 November 1993. Frankly, I cannot believe that Senator Herrera was able to prophesy that the House would
pass any VAT bill, much less to know its provisions. That "it does not seem that the Senate even considered" the latter not until after its
receipt of H.B. No. 11179 is another speculation. As stated earlier, S.B. No. 1129 was filed in the Senate on 1 March 1993, while H.B.
No. 11197 was transmitted to the Senate only on 18 November 1993. There is no evidence on record to show that both were referred to
the Senate Committee on Ways and Means at the same time. Finally, in respect of H.B. No. 11197, its legislative process did not begin
with its referral to the Senate's Ways and Means Committee. It began upon its filing, as a Committee Bill of the House of Committee on
Ways and Means, in the House.
VIOLATIONS OF SECTION 26(2), ARTICLE VI OF THE CONSTITUTION:

I submit, however, that the Presidential certification is void not necessarily for the reason adduced by petitioner Kilosbayan, Inc., but
because it was addressed to the Senate for a bill which is prohibited from originating therein. The only bill which could be properly
certified on permissible constitutional grounds even if it had already been transmitted to the Senate is HB No. 11197. As earlier
observed, this was not so certified, although HB No. 9210 (one of those consolidated into HB No. 11197) was certified on 1 June 1993.
ab initio 32
Second violation. -- It further appears that on 24 June 1994, after the approval of SB No. 1630, the Secretary of the Senate, upon
directive of the Senate President, formally notified the House Speaker of the Senate's approval thereof and its request for a bicameral
conference "in view of the disagreeing provisions of said bill and House Bill No. 11197."
33

Page 194 of 403

Also, the certification of SB No. 1630 cannot, by any stretch of the imagination, be extended to HB No. 11197 because SB No. 1630 did
not substitute HB No. 11197 but SB No. 1129.
Considering that the certification of SB No. 1630 is void, its approval on second and third readings in one day violated Section 26(2),
Article VI of the Constitution.
It must be stressed again that HB No. 11197 was never submitted for or acted on second and third readings in the Senate, and SB No.
1630 was never sent to the House for its concurrence. Elsewise stated, both were only half-way through the legislative mill. Their
submission to a conference committee was not only anomalously premature, but violate of the constitutional rule on three readings.
The suggestion that SB No. 1630 was not required to be submitted to the House for otherwise the procedure would be endless, is
unacceptable for, firstly, it violates Section 26, Rule XII of the Rules of the Senate and Section 85, Rule XIV of the Rules of the House,
and, secondly, it is never endless. If the chamber of origin refuses to accept the amendments of the other chamber, the request for
conference shall be made.
VIOLATIONS OF THE RULES OF BOTH CHAMBERS; GRAVE ABUSE OF DISCRETION.

The erroneous referral to the conference committee needs further discussion. Since S.B. No. 1630 was not a substitute bill for H.B. No.
11197 but for S.B. No. 1129, it (S.B. No. 1630) remained a bill which originated in the Senate. Even assuming that it could be validly
initiated in the Senate, it should have been first transmitted to the House where it would undergo three readings. On the other hand,
since HB No. 11197 was never acted upon by the Senate on second and third readings, no differences or inconsistencies could as yet
arise so as to warrant a request for a conference. It should be noted that under Section 83, Rule XIV of the Rules of the House, it is
only when the Senate shall have approved with amendments HB no. 11197 and the House declines to accept the amendments after
having been notified thereof that the request for a conference may be made by the House, not by the Senate. Conversely, the Senate's
request for a conference would only be proper if, following the transmittal of SB No. 1630 to the House, it was approved by the latter
with amendments but the Senate rejected the amendments.
arguendo
Indisputably then, when the request for a bicameral conference was made by the Senate, SB No. 1630 was not yet transmitted to the
House for consideration on three readings and HB No. 11197 was still in the Senate awaiting consideration on second and third
readings. Their referral to the bicameral conference committee was palpably premature and, in so doing, both the Senate and the
House acted without authority or with grave abuse of discretion. Nothing, and absolutely nothing, could have been validly acted upon by
the bicameral conference committee.
GRAVE ABUSE OF DISCRETION COMMITTED BY THE BICAMERAL CONFERENCE COMMITTEE.

Serious irregularities amounting to lack of jurisdiction or grave abuse of discretion were committed by the bicameral conference
committee.
First, it assumed, and took for granted that SB No. 1630 could validly originate in the Senate. This assumption is erroneous.
Second, it assumed that HB No. 11197 and SB No. 1630 had properly passed both chambers of Congress and were properly and
regularly submitted to it. As earlier discussed, the assumption is unfounded in fact.
Third, per the bicameral conference committee's proceedings of 19 April 1994, Representative Exequiel Javier, Chairman of the panel
from the House, initially suggested that HB No. 11197 should be the "frame of reference," because it is a revenue measure, to which
Senator Ernesto Maceda concurred. However, after an incompletely recorded reaction of Senator Ernesto Herrera, Chairman of the
Senate panel, Representative Javier seemed to agree that "all amendments will be coming from the Senate." The issue of what should
be the "frame of reference" does not appear to have been resolved. These facts are recorded in this wise, as quoted in the
Consolidated Memorandum for Respondents:
34

Yung concern mo about the bill as the reference in this discussion is something that we can just ...
CHAIRMAN JAVIER.
First of all, what would be the basis, no, or framework para huwag naman mawala yung personality namin dito sa bicameral,
no, because the bill originates from the House because this is a revenue bill, so we would just want to ask, , and then
everything will just be inserted?
we make the House Bill as the frame of reference
HON. MACEDA.
Yes. That's true for every revenue measure. There's no other way. . Of course, for the record, we know that this is an
administration; this is certified by the President and I was about to put into the records as I am saying now that your problem

Page 195 of 403

about the impact on prices on the people was already decided when the President and the administration sent this to us and
certified it. They have already gotten over that political implication of this bill and the economic impact on prices.
The House Bill has got to be the base
CHAIRMAN HERRERA.
CHAIRMAN JAVIER.
We will just ...
all the amendments will be coming from the Senate.
(BICAMERAL CONFERENCE ON MAJOR DIFFERENCES BETWEEN HB NO. 11197 AND SB NO. 1630 [Cte. on Ways &
Means] APRIL 19, 1994, II-6 and II-7; Italics supplied)
These exchanges would suggest that Representative Javier had wanted HB No. 11197 to be the principal measure on which
reconciliation of the differences should be based. However, since the Senate did not act on this Bill on second and third readings
because its Committee on Ways and Means did not deliberate on it but instead proposed SB No. 1630 in substitution of SB No. 1129,
the suggestion has no factual basis. Then, when finally he agreed that "all amendments will be coming from the Senate," he in fact
withdrew the former suggestion and agreed that SB No. 1630, which is the Senate version of the Value Added Tax (VAT) measure,
should be the "frame of reference." But then SB No. 1630 was never transmitted to the House for the latter's concurrence. Hence, it
cannot serve as the "frame of reference" or as the basis for deliberation. The posture taken by Representative Javier also indicates that
SB No. 1630 should be taken as the amendment to HB No. 11197. This, too, is unfounded because SB No. 1630 was not proposed in
substitution of HB No. 11197.
Since SB No. 1630 did not pass three readings in the House and HB No. 11197 did not pass second and third readings in the Senate, it
logically follows that no disagreeing provisions had as yet arisen. The bicameral conference committee erroneously assumed the
contrary.
Even granting that both HB No. 11197 and SB No. 1630 had been validly approved by both chambers of Congress and validly referred
to the bicameral conference committee, the latter had very limited authority thereon. It was created "in view of the disagreeing
provisions of" the two bills.
arguendo 35Its duty was limited to the reconciliation of disagreeing provisions or the resolution of differences or inconsistencies. The
committee recognized that limited authority in the opening paragraph of its Report 36when it said:
The Conference Committee on the disagreeing provisions of House Bill No. 11197 ... and Senate Bill No. 1630 ... .
Under such limited authority, it could only either (a) restore, wholly or partly, the specific provisions of HB No. 11197 amended by SB
No. 1630, (b) sustain, wholly or partly, the Senate's amendments, or (c) by way of a compromise, to agree that neither provisions in HB
No. 11197 amended by the Senate nor the latter's amendments thereto be carried into the final form of the former.
But as pointed out by petitioners Senator Raul Roco and Kilosbayan, Inc., the bicameral conference committee not only struck out nondisagreeing provisions of HB No. 11197 and SB No. 1630, , provisions where both bills are in full agreement; it added more activities or
transactions to be covered by VAT, which were not within the contemplation of both bills.
i.e.
Since both HB No. 11197 and SB No. 1630 were still half-cooked in the legislative vat, and were not ready for referral to a conference,
the bicameral conference committee clearly acted without jurisdiction or with grave abuse of discretion when it consolidated both into
one bill which became R.A. No. 7716.
APPROVAL BY BOTH CHAMBERS OF CONFERENCE COMMITTEE REPORT AND PROPOSED BILL DID NOT CURE
CONSTITUTIONAL INFIRMITIES.

I cannot agree with the suggestion that since both the Senate and the House had approved the bicameral conference committee report
and the bill proposed by it in substitution of HB No. 11197 and SB No. 1630, whatever infirmities may have been committed by it were
cured by ratification. This doctrine of ratification may apply to minor procedural flaws or tolerable breachs of the parameters of the
bicameral conference committee's limited powers but never to violations of the Constitution. Congress is not above the Constitution. In
the instant case, since SB No. 1630 was introduced in violation of Section 24, Article VI of the Constitution, was passed in the Senate in
violation of the "three readings" rule, and was not transmitted to the House for the completion of the constitutional process of legislation,
and HB No. 11197 was not likewise passed by the Senate on second and third readings, neither the Senate nor the House could validly
approve the bicameral conference committee report and the proposed bill.
In view of the foregoing, the conclusion is inevitable that for non-compliance with mandatory provisions of the Constitution and of the
Rules of the Senate and of the House on the enactment of laws, R.A. No. 7716 is unconstitutional and, therefore, null and void. A
discussion then of the instrinsic validity of some of its provisions would be unnecessary.
The majority opinion, however, invokes the enrolled bill doctrine and wants this Court to desist from looking behind the copy of the
assailed measure as certified by the Senate President and the Speaker of the House. I respectfully submit that the invocation is

Page 196 of 403

misplaced. First, as to the issue of origination, the certification in this case explicitly states that R.A. No. 7716 is a " of House Bill No.
11197 and Senate Bill No. 1630." This is conclusive evidence that the measure did not originate exclusively in the House. Second, the
enrolled bill doctrine is of American origin, and unquestioned fealty to it may no longer be justified in view of the expanded jurisdiction
consolidation 37of this Court under Section 1, Article VIII of our Constitution which now expressly grants authority to this Court to:
determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any
branch or instrumentality of the Government.
Third, even under the regime of the 1935 Constitution which did not contain the above provision, this Court, through Mr. Chief Justice
Makalintal, in ,
Astorga vs. Villegas 38declared that it cannot be truly said that Mabanag vs. Lopez Vito 39has laid to rest the question of whether the
enrolled bill doctrine or the journal entry rule should be adhered to in this jurisdiction, and stated:
As far as Congress itself is concerned, there is nothing sacrosanct in the certification made by the presiding officers. It is merely a mode
of authentication. The lawmaking process in Congress ends when the bill is approved by both Houses, and the certification does not
add to the validity of the bill or cure any defect already present upon its passage. In other words, it is the approval of Congress and not
the signatures of the presiding officers that is essential. Thus the (1935) Constitution says that '[e]very bill passed by the Congress
shall, before it becomes a law, be presented to the President.' In , the Supreme Court of Missouri, interpreting a similar provision in the
State Constitution, said that the same 'makes it clear that the indispensable step in the passage' and it follows that if a bill, otherwise
fully enacted as a law, is not attested by the presiding officer, other proof that it has 'passed both houses will satisfy the constitutional
requirement.'
Brown vs. Morris, supra
Fourth, even in the United States, the enrolled bill doctrine has been substantially undercut. This is shown in the disquisitions of Mr.
Justice Reynato S. Puno in his dissenting opinion, citing .
Sutherland, Statutory Construction
Last, the pleadings of the parties have established beyond doubt that HB No. 11197 was not acted on second and third readings in the
Senate and SB No. 1630, which was approved by the Senate on second and third readings in substitution of SB No. 1129, was
transmitted to the House for its passage. Otherwise stated, they were only passed in their respective chamber of origin but not in the
other. In no way can each become a law under paragraph 2, Section 26, Article VI of the Constitution. For the Court to close its eyes to
this fact because of the enrolled bill doctrine is to shrink its duty to hold "inviolate what is decreed by the Constitution."
never 40
I vote then to GRANT these petitions and to declare R.A. No. 7716 as unconstitutional.
ROMERO, J.:
Few issues brought before this Court for resolution have roiled the citizenry as much as the instant case brought by nine petitioners
which challenges the constitutionality of Republic Act No. 7716 (to be referred to herein as the "Expanded Value Added Tax" or EVAT
law to distinguish it from Executive Order No. 273 which is the VAT law proper) that was enacted on May 5, 1994. A visceral issue, it
has galvanized the populace into mass action and strident protest even as the EVAT proponents have taken to podia and media in a
information campaign.
post facto
The Court is confronted here with an atypical case. Not only is it a vatful of seething controversy but some unlikely petitioners invoke
unorthodox remedies. Three Senator-petitioners would nullify a statute that bore the indispensable stamp of approval of their own
Chamber with two of them publicly repudiating what they had earlier endorsed. With two former colleagues, one of them an erstwhile
Senate President, making common cause with them, they would stay the implementation by the Executive Department of a law which
they themselves have initiated. They address a prayer to a co-equal Department to probe their official acts for any procedural
irregularities they have themselves committed lest the effects of these aberrations inflict such damage or irreparable loss as would bring
down the wrath of the people on their heads.
To the extent that they perceive that a vital cog in the internal machinery of the Legislature has malfunctioned from having operated in
blatant violation of the enabling Rules they have themselves laid down, they would now plead that this other Branch of Government
step in, invoking the exercise of what is at once a delicate and awesome power. Undoubtedly, the case at bench is as much a test for
the Legislature as it is for the Judiciary.
A backward glance on the Value Added Tax (VAT) is in order at this point.
The first codification of the country's internal revenue laws was effected with the enactment of Commonwealth Act No. 466, commonly
known as the 'National Internal Revenue Code' which was approved on June 15, 1939 and took effect on July 1, 1939, although the
provisions on the income tax were made retroactive to January 1, 1939.
Since 1939 when the turnover tax was replaced by the manufacturer's sales tax, the Tax Code had provided for a single-stage valueadded tax on original sales by manufacturers, producers and importers computed on the 'cost deduction method' and later, on the basis
of the 'tax credit method.' The turnover tax was re-introduced in 1985 by Presidential Decree No. 1991 (as amended by Presidential
Decree No. 2006).

Page 197 of 403

1

In 1986, a tax reform package was approved by the Aquino Cabinet. It contained twenty-nine measures, one of which proposed the
adoption of the VAT, as well as the simplification of the sales tax structure and the abolition of the turnover tax.
Up until 1987, the system of taxing goods consisted of (a) an excise tax on certain selected articles (b) fixed and percentage taxes on
original and subsequent sales, on importations and on milled articles and (c) mining taxes on mineral products. Services were
subjected to percentage taxes based mainly on gross receipts.
2

On July 25, 1987, President Corazon C. Aquino signed into law Executive Order No. 273 which adopted the VAT. From the former
single-stage value-added tax, it introduced the multi-stage VAT system where "the value-added tax is imposed on the sale of and
distribution process culminating in sale, to the final consumer. Generally described, the taxpayer (the seller) determines his tax liability
by computing the tax on the gross selling price or gross receipt ("output tax") and subtracting or crediting the earlier VAT on the
purchase or importation of goods or on the sale of service ("input tax") against the tax due on his own sale."
3

On January 1, 1988, implementing rules and regulations for the VAT were promulgated. President Aquino then issued Proclamation No.
219 on February 12, 1988 urging the public and private sectors to join the nationwide consumers' education campaign for VAT.
Soon after the implementation of Executive Order No. 273, its constitutionality was assailed before this Court in the case of .
Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc., et al. v. Tan 4The four petitioners sought to nullify the VAT law "for
being unconstitutional in that its enactment is not allegedly within the powers of the President; that the VAT is oppressive,
discriminatory, regressive, and violates the due process and equal protection clauses and other provisions of the 1987 Constitution." 5In
dismissing the consolidated petitions, this Court stated:
The Court, following the time-honored doctrine of separation of powers cannot substitute its judgment for that of the President as to the
wisdom, justice and advisability of the VAT. The Court can only look into and determine whether or not Executive Order No. 273 was
enacted and made effective as law, in the manner required by and consistent with, the Constitution, and to make sure that it was not
issued in grave abuse of discretion amounting to lack or excess of jurisdiction; and, in this regard, the Court finds no reason to impede
its application or continued implementation.
6

Although declared constitutional, the VAT law was sought to be amended from 1992 on by a series of bills filed in both Houses of
Congress. In chronological sequence, these were:
HB/SB No. - Date Filed in Congress
HB No. 253 - July 22, 1992
HB No. 771 - August 10, 1992
HB No. 2450 - September 9, 1992
Senate Res. No. 734
7

- September 10, 1992

HB No. 7033 - February 3, 1993

SB No. 1129
8

- March 1, 1993

HB No. 8086 - March 9, 1993

HB No. 9030 - May 11, 1993
HB No. 9210
9

- May 19, 1993

HB No. 9297 - May 25, 1993

HB No. 10012 - July 28, 1993
HB No. 10100 - August 3, 1993

Page 198 of 403

HB No. 11197 in
substitution of
HB Nos. 253, 771,
2450, 7033, 8086,
9030, 9210, 9297
10012 and 10100
10

- November 5, 1993
HB No. 11197 was approved in the Lower House on second reading - November 11, 1993

HB No. 11197 was approved in the Lower House on third reading and voted upon with 114
Yeas and 12 Nays - November 17, 1993

HB No. 11197 was transmitted to the Senate - November 18, 1993

Senate Committee on Ways and Means submitted Com. Report No. 349 recommeding for
approval SB No. 1630 in substitution of SB No. 1129, taking into consideration PS Res.
No. 734 and HB No. 11197

11

- February 7, 1994

Certification by President Fidel V. Ramos of Senate Bill No. 1630 for immediate enactment
to meet a public emergency - March 22, 1994

SB No. 1630 was approved by the Senate on second and third readings and subsequently
voted upon with 13 yeas, none against and one abstention - March 24, 1994

Transmittal by the Senate to the Lower House of a request for a conference in view of
disagreeing provisions of SB No. 1630 and HB NO. 11197 - March 24, 1994

The Bicameral Conference Committee conducted various meetings to reconcile the

proposals on the VAT - April 13, 19, 20, 21, 25

The House agreed on the Conference Committee Report - April 27, 1994

Page 199 of 403

The Senate agreed on the Conference Committee Report - May 2, 1994

The President signed Republic Act No. 7716 - The Expanded VAT Law

12

- May 5, 1994

Republic Act No. 7716 was published in two newspapers of general circulation - May 12,
1994

Republic Act No. 7716 became effective - May 28, 1994

Republic Act No. 7716 merely expanded the base of the VAT law even as the tax retained its multi-stage character.
At the oral hearing held on July 7, 1994, this Court delimited petitioners' arguments to the following issues culled from their respective
petitions.
PROCEDURAL ISSUES
Does Republic Act No. 7716 violate Article VI, Section 24, of the Constitution?
13

Does it violate Article VI, Section 26, paragraph 2, of the Constitution?

14

What is the extent of the power of the Bicameral Conference Committee?

SUBSTANTIVE ISSUES
Does the law violate the following provisions in Article III (Bill of Rights) of the Constitution:
1. Section 1
15

2. Section 4
16

3. Section 5
17

4. Section 10
18

Does the law violate the following other provisions of the Constitution?
1. Article VI, Section 28, paragraph 1
19

2. Article VI, Section 28, paragraph 3

20

Page 200 of 403

As a result of the unedifying experience of the past where the Court had the propensity to steer clear of questions it perceived to be
"political" in nature, the present Constitution, in contrast, has explicitly expanded judicial power to include the duty of the courts,
especially the Supreme Court, "to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or instrumentality of the Government."
21

I submit that under this explicit mandate, the Court is empowered to rule upon acts of other Government entities for the purpose of
determining whether there may have been, in fact, irregularities committed tantamount to violation of the Constitution, which case would
clearly constitute a grave abuse of discretion on their part.
In the words of the sponsor of the above-quoted Article of the Constitution on the Judiciary, the former Chief Justice Roberto R.
Concepcion, "the judiciary is the final arbiter on the question of whether or not a branch of government or any of its officials has acted
without jurisdiction or in excess of jurisdiction, or so capriciously as to constitute an abuse of discretion amounting to excess of
jurisdiction or lack of jurisdiction. This is not only a judicial power but a duty to pass judgment on matters of this nature.
This is the back ground of paragraph 2 of Section 1, which means that the courts cannot hereafter exhibit its wonted reticence by
claiming that such matters constitute a political question."
22

In the instant petitions, this Court is called upon, not so much to exercise its traditional power of judicial review as to determine whether
or not there has indeed been a grave abuse of discretion on the part of the Legislature amounting to lack or excess of jurisdiction.
Where there are grounds to resolve a case without touching on its constitutionality, the Court will do so with utmost alacrity in due
deference to the doctrine of separation of powers anchored on the respect that must be accorded to the other branches of government
which are coordinate, coequal and, as far as practicable, independent of one another.
Once it is palpable that the constitutional issue is unavoidable, then it is time to assume jurisdiction, provided that the following
requisites for a judicial inquiry are met: that there must be an actual and appropriate case; a personal and substantial interest of the
party raising the constitutional question; the constitutional question must be raised at the earliest possible opportunity and the decision
of the constitutional question must be necessary to the determination of the case itself, the same being the of the case.
lis mota 23
Having assured ourselves that the above-cited requisites are present in the instant petitions, we proceed to take them up.
ARTICLE VI, SECTION 24
Some petitioners assail the constitutionality of Republic Act No. 7716 as being in violation of Article VI, Section 24 of the Constitution
which provides:
All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills, shall
originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments.
In G.R. Nos. 115455 and 115781, petitioners argue:
(a) The bill which became Republic Act No. 7716 did not originate exclusively in the House of Representatives. The Senate, after
receiving H.B. No. 11197, submitted its own bill, S.B. No. 1630, and proceeded to vote and approve the same after second and third
readings.
(b) The Senate exceeded its authority to "propose or concur with amendments" when it submitted its own bill, S.B. No. 1630,
recommending its approval "in substitution of S.B. No. 1129, taking into consideration P.S. Res. No. 734 and H.B. No. 11197."
(c) H.B. No. 11197 was not deliberated upon by the Senate. Neither was it voted upon by the Senate on second and third readings, as
what was voted upon was S.B. No. 1630.
Article VI, Section 24 is taken word for word from Article VI, Section 18 of the 1935 Constitution which was, in turn, patterned after
Article I, Section 7 (1) of the Constitution of the United States, which states:
All bills for raising revenue shall originate in the House of Representatives, but the Senate may propose or concur with amendments as
on other bills.
The historical precedent for requiring revenue bills to originate in Congress is explained in the U.S. case of .
Morgan v. Murray 24
The constitutional requirement that all bills for raising revenue shall originate in the House of Representatives stemmed from a
remedial outgrowth of the historic conflict between Parliament (, Commons) and the Crown, whose ability to dominate the
monarchially appointive and hereditary Lords was patent. See 1 Story, Constitution, S 875 et seq., 5th Ed.; 1 Cooley,
Constitutional Limitations, pp. 267, 268, 8th Ed., 1 Sutherland, Statutory Construction, S 806, 3d Ed. There was a measure of
like justification for the insertion of the provision of article I, S 7, cl. 1, of the Federal Constitution. At that time (1787) and
thereafter until the adoption (in 1913) of the Seventeenth Amendment providing for the direct election of senators, the
members of the United States Senate were elected for each state by the joint vote of both houses of the Legislature of the
respective states, and hence, were removed from the people ...

Page 201 of 403

i.e.
The legislative authority under the 1935 Constitution being unicameral, in the form of the National Assembly, it served no purpose to
include the subject provision in the draft submitted by the 1934 Constitutional Convention to the Filipino people for ratification.
In 1940, however, the Constitution was amended to establish a bicameral Congress of the Philippines composed of a House of
Representatives and a Senate.
In the wake of the creation of a new legislative machinery, new provisions were enacted regarding the law-making power of Congress.
The National Assembly explained how the final formulation of the subject provision came about:
The concurrence of both houses would be necessary to the enactment of a law. However, all appropriation, revenue or tariff bills, bills
authorizing an increase of the public debt, bills of local application, and private bills, should originate exclusively in the House of
Representatives, although the Senate could propose or concur with amendments.
In one of the first drafts of the amendments, it was proposed to give both houses equal powers in lawmaking. There was, however,
much opposition on the part of several members of the Assembly. In another draft; the following provision, more restrictive than the
present provision in the amendment, was proposed and for sometime was seriously considered:
'All bills appropriating public funds, revenue or tariff bills, bills of local application, and private bills shall originate exclusively in the
Assembly, but the Senate may propose or concur with amendments. In case of disapproval by the Senate of any such bills, the
Assembly may repass the same by a two-thirds vote of all its members, and thereupon, the bill so repassed shall be deemed enacted
and may be submitted to the President for corresponding action. In the event that the Senate should fail to finally act on any such bills,
the Assembly may, after thirty days from the opening of the next regular sessions of the same legislative term, reapprove the same with
a vote of two-thirds of all the members of the Assembly. And upon such reapproval, the bill shall be deemed enacted and may be
submitted to the president for corresponding action.'
However, the special committee voted finally to report the present amending provision as it is now worded; and in that form it was
approved by the National Assembly with the approval of Resolution No. 38 and later of Resolution No. 73.
25

(Italics supplied)

Thus, the present Constitution is identically worded as its 1935 precursor: "All appropriation, revenue or tariff bills, bills authorizing
increase of the public debt, bills of local application, and private bills, shall in the House of Representatives, but the Senate may
propose or concur with amendments." (Italics supplied)
originate exclusively
That all revenue bills, such as Republic Act No. 7716, should "originate exclusively in the House of Representatives" logically flows from
the more representative and broadly-based character of this Chamber.
It is said that the House of Representatives being the more popular branch of the legislature, being closer to the people, and having
more frequent contacts with them than the Senate, should have the privilege of taking the initiative in the proposals of revenue and tax
project, the disposal of the people's money, and the contracting of public indebtedness.
These powers of initiative in the raising and spending of public funds enable the House of Representatives not only to implement but
even to determine the fiscal policies of the government. They place on its shoulders much of the responsibility of solving the financial
problems of the government, which are so closely related to the economic life of the country, and of deciding on the proper distribution
of revenues for such uses as may best advance public interests.
26

The popular nature of the Lower House has been more pronounced with the inclusion of Presidentially-appointed sectoral
representatives, as provided in Article VI, Section 5 (2), of the Constitution, thus: "The party-list representatives shall constitute twenty
per centum of the total number of representatives including those under the party list. For three consecutive terms after the ratification
of this Constitution, ." (Italics supplied)
one-half of the seats allocated to party-list representatives shall be filled, as provided by law, by selection or election from the labor,
peasant, urban poor, indigenous cultural communities, women, youth, and such other sectors as may be provided by law, except the
religious sector
This novel provision which was implemented in the Batasang Pambansa during the martial law regime
27

was eventually incorporated in the present Constitution in order to give those from the marginalized and often deprived sector, an
opportunity to have their voices heard in the halls of the Legislature, thus giving substance and meaning to the concept of "people
empowerment."
That the Congressmen indeed have access to, and consult their constituencies has been demonstrated often enough by the fact that
even after a House bill has been transmitted to the Senate for concurrence, some Congressmen have been known to express their
desire to change their earlier official position or reverse themselves after having heard their constituents' adverse reactions to their
representations.

Page 202 of 403

In trying to determine whether the mandate of the Constitution with regard to the initiation of revenue bills has been preserved inviolate,
we have recourse to the tried and tested method of definition of terms. The term "originate" is defined by Webster's New International
Dictionary (3rd Edition, 1986) as follows: ", to come into being; begin; to start."
v.i.
On the other hand, the word "exclusively" is defined by the same Webster's Dictionary as "in an exclusive manner; to the exclusion of
all others; only; as, it is his, exclusively." Black's Law Dictionary has this definition: "apart from all others; only; solely; substantially all or
for the greater part. to the exclusion of all other; without admission of others to participation; in a manner to exclude. Standard Oil Co. of
Texas v. State, Tex. Civ. App., 142 S.W. 2d 519, 521, 522, 523."
This Court had occasion to define the term "exclusive" as follows:
... In its usual and generally accepted sense, the term means possessed to the exclusion of others; appertaining to the subject alone;
not including, admitting or pertaining to another or others; undivided, sole.
28

When this writer, during the oral argument of July 7, 1994, asked the petitioner in G.R. No. 115455 whether he considers the word
"exclusively" to be synonymous with "solely," he replied in the affirmative.
29

A careful examination of the legislative history traced earlier in this decision shows that the original VAT law, Executive Order No. 273,
was sought to be amended by ten House bills which finally culminated in House Bill No. 11197, as well as two Senate bills. It is to be
noted that the first House Bill No. 253 was filed on July 22, 1992, and two other House bills followed in quick succession on August 10
and September 9, 1992 before a Senate Resolution, namely, Senate Res. No. 734, was filed on September 10, 1992 and much later, a
Senate Bill proper, ., Senate Bill No. 1129 on March 1, 1993. Undoubtedly, therefore, these bills originated or had their start in the
House and before any Senate bill amending the VAT law was filed. In point of time and venue, the conclusion is ineluctable that
Republic Act No. 7716, which is indisputably a revenue measure, originated in the House of Representatives in the form of House Bill
No. 253, the first EVAT bill.
viz
Additionally, the content and substance of the ten amendatory House Bills filed over the roughly one-year period from July 1992 to
August 1993 reenforce the position that these revenue bills, pertaining as they do, to Executive Order No. 273, the prevailing VAT law,
originated in the Lower House.
House Bill Nos. 253, 771, 2450, 7033, 8086, 9030, 9210, 9297, 10012 and 10100 were intended to restructure the VAT system by
exempting or imposing the tax on certain items or otherwise introducing reforms in the mechanics of implementation.
30

Of these, House Bill No. 9210 was favored with a Presidential certification on the need for its immediate enactment to meet a public
emergency. Easily the most comprehensive, it noted that the revenue performance of the VAT, being far from satisfactory since the
collections have always fallen short of projections, "the system is rendered inefficient, inequitable and less comprehensive." Hence, the
Bill proposed several amendments designed to widen the tax base of the VAT and enhance its administration. 31
That House Bill No. 11197 being a revenue bill, originated from the Lower House was acknowledged, in fact was virtually taken for
granted, by the Chairmen of the Committee on Ways and Means of both the House of Representatives and the Senate. Consequently,
at the April 19, 1994 meeting of the Bicameral Conference Committee, the Members agreed to make the House Bill as the "frame of
reference" or "base" of the discussions of the Bicameral Conference Committee with the "amendments" or "insertions to emanate from
the Senate."
32

As to whether the bills originated in the Lower House is altogether a different matter. Obviously, bills amendatory of VAT did not
originate solely in the House to the exclusion of all others for there were P.S. Res. No. 734 filed in the Senate on September 10, 1992
followed by Senate Bill No. 1129 which was filed on March 1, 1993. About a year later, this was substituted by Senate Bill No. 1630 that
eventually became the EVAT law, namely, Republic Act No. 7716.
exclusively
Adverting to the passage of the amendatory VAT bills in the Lower House, it is to be noted that House Bill No. 11197 which substituted
all the prior bills introduced in said House complied with the required readings, that is, the first reading consisting of the reading of the
title and referral to the appropriate Committee, approval on second reading on November 11, 1993 and on third reading on November
17, 1993 before being finally transmitted to the Senate. In the Senate, its identity was preserved and its provisions were taken into
consideration when the Senate Committee on Ways and Means submitted Com. Report No. 349 which recommended for approval
"S.B. No. 1630 in substitution of S.B. No. 1129, taking into consideration P.S. Res. No. 734 and H.B. No. 11197." At this stage, the
subject bill may be considered to have passed first reading in the Senate with the submission of said Committee Report No. 349 by the
Senate Committee on Ways and Means to which it had been referred earlier. What remained, therefore, was no longer House Bill No.
11197 but Senate Bill No. 1630. Thence, the Senate, instead of transmitting the bill to the Lower House for its concurrence and
amendments, if any, took a "shortcut," bypassed the Lower House and instead, approved Senate Bill No. 1630 on both second and
third readings on the same day, March 24, 1994.

Page 203 of 403

The first irregularity, that is, the failure to return Senate Bill No. 1630 to the Lower House for its approval is fatal inasmuch as the other
chamber of legislature was not afforded the opportunity to deliberate and make known its views. It is no idle dictum that no less than the
Constitution ordains: "The legislative power shall be vested in the Congress of the Philippines which shall consist of a Senate and a
House of Representatives ..."
33

(Italics supplied)

It is to be pointed out too, that inasmuch as Senate Bill No. 1630 which had "taken into consideration" House Bill No. 11197 was not
returned to the Lower House for deliberation, the latter Chamber had no opportunity at all to express its views thereon or to introduce
any amendment. The customary practice is, after the Senate has considered the Lower House Bill, it returns the same to the House of
origin with its amendments. In the event that there may be any differences between the two, the same shall then be referred to a
Conference Committee composed of members from both Chambers which shall then proceed to reconcile said differences.
In the instant case, the Senate transmitted to the Lower House on March 24, 1994, a letter informing the latter that it had "passed S.
No. 1630 entitled . . . (and) in view of the disagreeing provisions of said bill and House Bill No. 11197, entitled . . . the Senate requests a
conference . . ." This, in spite of the fact that Com. Report No. 349 of the Senate Committee on Ways and Means had already
recommended for approval on February 7, 1994 "S.B. No. 1630 . . . taking into consideration H.B. No. 11197." Clearly, the Conference
Committee could only have acted upon Senate Bill No. 1630, for House Bill No. 11197 had already been fused into the former.
At the oral hearing of July 7, 1994, petitioner in G.R. No. 115455 admitted, in response to this writer's query, that he had attempted to
rectify some of the perceived irregularities by presenting a motion in the Senate to recall the bill from the Conference Committee so that
it could revert to the period of amendment, but he was outvoted, in fact "slaughtered."
34

In accordance with the Rules of the House of Representatives and the Senate, Republic Act No. 7716 was duly authenticated after it
was signed by the President of the Senate and the Speaker of the House of Representatives followed by the certifications of the
Secretary of the Senate and the Acting Secretary General of the House of Representatives.
35

With the signature of President Fidel V. Ramos under the words "Approved: 5 May 1994," it was finally promulgated.

Its legislative journey ended, Republic Act No. 7716 attained the status of an enrolled bill which is defined as one "which has been duly
introduced, finally passed by both houses, signed by the proper officers of each, approved by the governor (or president) and filed by
the secretary of state."
36

Stated differently:
It is a declaration by the two houses, through their presiding officers, to the president, that a bill, thus attested, has received in due form,
the sanction of the legislative branch of the government, and that it is delivered to him in obedience to the constitutional requirement
that all bills which pass Congress shall be presented to him. And when a bill, thus attested, receives his approval, and is deposited in
the public archives, its authentication as a bill that has passed Congress should be deemed complete and unimpeachable. As the
President has no authority to approve a bill not passed by Congress, an enrolled Act in the custody of the Secretary of State, and
having the official attestations of the Speaker of the House of Representatives, of the President of the Senate, and of the President of
the United States, carries, on its face, a solemn assurance by the legislative and executive departments of the government, charged,
respectively, with the duty of enacting and executing the laws, that it was passed by Congress. The respect due to coequal and
independent departments requires the judicial department to act upon that assurance, and to accept, as having passed Congress, all
bills authenticated in the manner stated; leaving the courts to determine, when the question properly arises, whether the Act, so
authenticated, is in conformity with the Constitution.
37

The enrolled bill assumes importance when there is some variance between what actually transpired in the halls of Congress, as
reflected in its journals, and as shown in the text of the law as finally enacted. But suppose the journals of either or both Houses fail to
disclose that the law was passed in accordance with what was certified to by their respective presiding officers and the President. Or
that certain constitutional requirements regarding its passage were not observed, as in the instant case. Which shall prevail: the journal
or the enrolled bill?
A word on the journal.
The journal is the official record of the acts of a legislative body. It should be a true record of the proceedings arranged in chronological
order. It should be a record of what is done rather than what is said. The journal should be a clear, concise, unembellished statement of
all proposals made and all actions taken complying with all requirements of constitutions, statutes, charters or rules concerning what is
to be recorded and how it is to be recorded.
38

Article VI, Section 16 (4) of the Constitution ordains:

Each house shall keep a Journal of its proceedings, and from time to time publish the same, excepting such parts as may, in
its judgment, affect national security; and the yeas and nays on any question shall, at the request of one-fifth of the Members
present, be entered in the Journal.

Page 204 of 403

Each House shall also keep a Record of its proceedings." (Italics supplied)
The rationale behind the above provision and of the "journal entry rule" is as follows:
It is apparent that the object of this provision is to make the legislature show what it has done, leaving nothing whatever to implication.
And, when the legislature says what it has done, with regard to the passage of any bill, it negatives the idea that it has done anything
else in regard thereto. Silence proves nothing where one is commanded to speak . . . . Our constitution commands certain things to be
done in regard to the passage of a bill, and says that no bill shall become a law unless these things are done. It seems a travesty upon
our supreme law to say that it guaranties to the people the right to have their laws made in this manner only, and that there is no way of
enforcing this right, or for the court to say that this is law when the constitution says it is not law. There is one safe course which is in
harmony with the constitution, and that is to adhere to the rule that the legislature must show, as commanded by the constitution, that it
has done everything required by the constitution to be done in the serious and important matter of making laws. This is the rule of
evidence provided by the constitution. It is not presumptuous in the courts, nor disrespectful to the legislature, to judge the acts of the
legislature by its own evidence.
39

Confronted with a discrepancy between the journal proceedings and the law as duly enacted, courts have indulged in different theories.
The "enrolled bill" and "journal entry" rules, being rooted deep in the Parliamentary practices of England where there is no written
constitution, and then transplanted to the United States, it may be instructive to examine which rule prevails in the latter country through
which, by a process of legislative osmosis, we adopted them in turn.
There seems to be three distinct and different rules as applicable to the enrolled bill recognized by the various courts of this country.
The first of these rules appears to be that the enrolled bill is the ultimate proof and exclusive and conclusive evidence that the bill
passed the legislature in accordance with the provisions of the Constitution. Such has been the holding in California, Georgia,
Kentucky, Texas, Washington, New Mexico, Mississippi, Indiana, South Dakota, and may be some others.
The second of the rules seems to be that the enrolled bill is a verity and resort cannot be had to the journals of the Legislature to show
that the constitutional mandates were not complied with by the Legislature, except as to those provisions of the Constitution,
compliance with which is expressly required to be shown on the journal. This rule has been adopted in South Carolina, Montana,
Oklahoma, Utah, Ohio, New Jersey, United States Supreme Court, and others.
The third of the rules seems to be that the enrolled bill raises only a prima facie presumption that the mandatory provisions of the
Constitution have been complied with and that resort may be had to the journals to refute that presumption, and if the constitutional
provision is one, compliance with which is expressly required by the Constitution to be shown on the journals, then the mere silence of
the journals to show a compliance therewith will refute the presumption. This rule has been adopted in Illinois, Florida, Kansas,
Louisiana, Tennessee, Arkansas, Idaho, Minnesota, Nebraska, Arizona, Oregon, New Jersey, Colorado, and others.
40

In the 1980 case of , the Supreme Court of Kentucky which had subscribed in the past to the first of the three theories, made the
pronouncement that it had shifted its stand and would henceforth adopt the third. It justified its changed stance, thus:
D & W Auto Supply v. Department of Revenue
We believe that a more reasonable rule is the one which Professor Sutherland describes as the 'extrinsic evidence' rule . . . . Under this
approach there is a prima facie presumption that an enrolled bill is valid, but such presumption may be overcome by clear satisfactory
and convincing evidence establishing that constitutional requirements have not been met.
41

What rule, if any, has been adopted in this jurisdiction?

Advocates of the "journal entry rule" cite the 1916 decision in
U.S. v. Pons 42where this Court placed reliance on the legislative journals to determine whether Act No. 2381 was passed on February
28, 1914 which is what appears in the Journal, or on March 1, 1914 which was closer to the truth. The confusion was caused by the
adjournment at midnight of February 28, 1914 of the Philippine Commission.sine die
A close examination of the decision reveals that the Court did not apply the "journal entry rule" the "enrolled bill rule" but the former as
against what are "behind the legislative journals."
vis-a-vis
Passing over the question of whether the printed Act (No. 2381), published by authority of law, is conclusive evidence as to the date
when it was passed, we will inquire whether the courts may go behind the legislative journals for the purpose of determining the date of
adjournment when such journals are clear and explicit.
43

It is to be noted from the above that the Court "passed over" the probative value to be accorded to the enrolled bill.
Opting for the journals, the Court proceeded to explain:

Page 205 of 403

From their very nature and object, the records of the Legislature are as important as those of the judiciary, and to inquire into the
veracity of the journals of the Philippine Legislature, when they are, as we have said clear and explicit, would be to violate both the
letter and the spirit of the organic laws by which the Philippine Government was brought into existence, to invade a coordinate and
independent department of the Government, and to interfere with the legitimate powers and functions of the Legislature.
44

Following the courts in the United States since the Constitution of the Philippine Government is modeled after that of the Federal
Government, the Court did not hesitate to follow the courts in said country, , to consider the journals decisive of the point at issue. Thus:
"The journals say that the Legislature adjourned at 12 midnight on February 28, 1914. This settles the question and the court did not err
in declining to go behind these journals."
i.e. 45
The Court made a categorical stand for the "enrolled bill rule" for the first time in the 1947 case of
Mabanag v. Lopez Vito 46where it held that an enrolled bill imports absolute verity and is binding on the courts. This Court held itself
bound by an authenticated resolution, despite the fact that the vote of three-fourths of the Members of the Congress (as required by the
Constitution to approve proposals for constitutional amendments) was not actually obtained on account of the suspension of some
members of the House of Representatives and the Senate. In this connection, the Court invoked the "enrolled bill rule" in this wise: "If a
political question conclusively binds the judges out of respect to the political departments, a duly certified law or resolution also binds
the judges under the 'enrolled bill rule' born of that respect." 47
Mindful that the U.S. Supreme Court is on the side of those who favor the rule and for no other reason than that it conforms to the
expressed policy of our law making body (, Sec. 313 of the old Code of Civil Procedure, as amended by Act No. 2210), the Court said
that "duly certified copies shall be conclusive proof of the provisions of such Acts and of the due enactment thereof." Without pulling the
legal underpinnings from , it justified its position by saying that if the Court at the time looked into the journals, "in all probability, those
were the documents offered in evidence" and that "even if both the journals and authenticated copy of the Act had been presented, the
disposal of the issue by the Court on the basis of the journals does not imply rejection of the enrolled theory; for as already stated, the
due enactment of a law may be proved in either of the two ways specified in Section 313 of Act No. 190 as amended."
i.e.U.S. v. Pons 48Three Justices voiced their dissent from the majority decision.
Again, the Court made its position plain in the 1963 case of
Casco Philippine Chemical Co., Inc. v. Gimenez 49when a unanimous Court ruled that: "The enrolled bill is conclusive upon the courts If
there has been any mistake in the printing of a bill before it was certified by the officers of Congress and approved by the Executive, the
remedy is by amendment or curative legislation not by judicial decree." According to Webster's New 20th Century Dictionary, 2nd ed.,
1983, the word "tenor" means, among others, "the general drift of something spoken or written; intent, purport, substance."as regards
the tenor of the measure passed by Congress and approved by the President.
Thus, the Court upheld the respondent Auditor General's interpretation that Republic Act No. 2609 really exempted from the margin fee
on foreign exchange transactions "" as found in the law and not "" which petitioner insisted were the words contained in the bill and
were so intended by Congress.
urea formaldehydeurea and formaldehyde
In 1969, the Court similarly placed the weight of its authority behind the conclusiveness of the enrolled bill. In denying the motion for
reconsideration, the Court ruled in that "the enrolled Act in the office of the legislative secretary of the President of the Philippines
shows that Section 10 is exactly as it is in the statute as officially published in slip form by the Bureau of Printing ... Expressed elsewise,
this is a matter worthy of the attention not of an Oliver Wendell Holmes but of a Sherlock Holmes."
Morales v. Subido 50The alleged omission of a phrase in the final Act was made, not at any stage of the legislative proceedings, but only
in the course of the engrossment of the bill, more specifically in the proofreading thereof.
But the Court did include a caveat that qualified the absoluteness of the "enrolled bill" rule stating:
By what we have essayed above we are not of course to be understood as holding that in all cases the journals must yield to the
enrolled bill. To be sure there are certain matters which the Constitution (Art. VI, secs. 10 [4], 20 [1], and 21 [1)]) expressly requires
must be entered on the journal of each house. To what extent the validity of a legislative act may be affected by a failure to have such
matters entered on the journal, is a question which we do not now decide (Cf. e.g., Wilkes Country Comm'rs. v. Coler, 180 U.S. 506
[1900]). All we hold is that with respect to matters not expressly required to be entered on the journal, the enrolled bill prevails in the
event of any discrepancy.
51

More recently, in the 1993 case of ,

Philippine Judges Association v. Prado 52this Court, in ruling on the unconstitutionality of Section 35 of Republic Act No. 7354
withdrawing the franking privilege from the entire hierarchy of courts, did not so much adhere to the enrolled bill rule alone as to both
"enrolled bill and legislative journals." Through Mr. Justice Isagani A. Cruz, we stated: "Both the enrolled bill and the legislative journals
certify that the measure was duly enacted, , in accordance with Article VI, Sec. 26 (2) of the Constitution. We are bound by such official
assurances from a coordinate department of the government, to which we owe, at the very least, a becoming courtesy."i.e.

Page 206 of 403

Aware of the shifting sands on which the validity and continuing relevance of the "enrolled bill" theory rests, I have taken pains to trace
the history of its applicability in this jurisdiction, as influenced in varying degrees by different Federal rulings.
As applied to the instant petition, the issue posed is whether or not the procedural irregularities that attended the passage of House Bill
No. 11197 and Senate Bill No. 1630, outside of the reading and printing requirements which were exempted by the Presidential
certification, may no longer be impugned, having been "saved" by the conclusiveness on us of the enrolled bill. I see no cogent reason
why we cannot continue to place reliance on the enrolled bill, but only with respect to matters pertaining to the procedure followed in the
enactment of bills in Congress and their subsequent engrossment, printing errors, omission of words and phrases and similar relatively
minor matters relating more to form and factual issues which do not materially alter the essence and substance of the law itself.
Certainly, "courts cannot claim greater ability to judge procedural legitimacy, since constitutional rules on legislative procedure are
easily mastered. Procedural disputes are over facts - whether or not the bill had enough votes, or three readings, or whatever - not over
the meaning of the constitution. Legislators, as eyewitnesses, are in a better position than a court to rule on the facts. The argument is
also made that legislatures would be offended if courts examined legislative procedure.
53

Such a rationale, however, cannot conceivably apply to substantive changes in a bill introduced towards the end of its tortuous trip
through Congress, catching both legislators and the public unawares and altering the same beyond recognition even by its sponsors.
This issue I wish to address forthwith.
EXTENT OF THE POWER OF THE BICAMERAL CONFERENCE COMMITTEE
One of the issues raised in these petitions, especially in G.R. Nos. 115781, 115543 and 115754, respectively, is whether or not -Congress violated Section 26, par. 2, Article VI (of the 1987 Constitution) when it approved the Bicameral Conference Committee
Report which embodied, in violation of Rule XII of the Rules of the Senate, a radically altered tax measure containing provisions not
reported out or discussed in either House as well as provisions on which there was no disagreement between the House and the
Senate and, worse, provisions contrary to what the House and the Senate had approved after three separate readings.
54

and
By adding or deleting provisions, when there was no conflicting provisions between the House and Senate versions, the BICAM acted
in excess of its jurisdiction or with such grave abuse of discretion as to amount to loss of jurisdiction. ... In adding to the bill and thus
subjecting to VAT, real properties, media and cooperatives despite the contrary decision of both Houses, the BICAM exceeded its
jurisdiction or acted with such abuse of discretion as to amount to loss of jurisdiction. . . .
55

I wish to consider this issue in light of Article VIII, Sec. 1 of the Constitution which provides that "(j)udicial power includes the duty of the
courts of justice ... to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on
the part of any branch or instrumentality of the Government." We are also guided by the principle that a court may interfere with the
internal procedures of its coordinate branch only to uphold the Constitution.
56

A conference committee has been defined:

... unlike the joint committee is two committees, one appointed by each house. It is normally appointed for a specific bill and its function
is to gain accord between the two houses either by the recession of one house from its bill or its amendments or by the further
amendment of the existing legislation or by the substitution of an entirely new bill. Obviously the conference committee is always a
special committee and normally includes the member who introduced the bill and the chairman of the committee which considered it
together with such other representatives of the house as seem expedient. (Horack, Cases and Materials on Legislation [1940] 220. See
also Zinn, Conference Procedure in Congress, 38 ABAJ 864 [1952]; Steiner, The Congressional Conference Committee [U of III. Press,
1951]).
57

From the foregoing definition, it is clear that a bicameral conference committee is a creature, not of the Constitution, but of the
legislative body under its power to determine rules of its proceedings under Article VI, Sec. 16 (3) of the Constitution. Thus, it draws its
life and vitality from the rules governing its creation. The why, when, how and wherefore of its operations, in other words, the
parameters within which it is to function, are to be found in Section 26, Rule XII of the Rules of the Senate and Section 85 of the Rules
of the House of Representatives, respectively, which provide:
Rule XII, Rules of the Senate
SEC. 26. 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 a conference committee of both Houses which shall meet within ten days after their composition.
The President shall designate the members of the conference committee in accordance with subparagraph (c), Section 8 of Rule III.

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Each Conference Committee Report shall contain a detailed and sufficiently explicit statement of the changes in or amendments to the
subject measure, and shall be signed by the conferees.
The consideration of such report shall not be in order unless the report has been filed with the Secretary of the Senate and copies
thereof have been distributed to the Members."
Rules of the House of Representatives
SEC. 85. . - In the event that the House does not agree with the Senate on the amendments to any bill or joint resolution, the
differences may be settled by conference committee of both Chambers.
Conference Committee Reports
The consideration of conference committee reports shall always be in order, except when the journal is being read, while the roll is
being called or the House is dividing on any question. Each of the pages of such reports shall contain a detailed, sufficiently explicit
statement of the changes in or amendments to the subject measure.
The consideration of such report shall not be in order unless copies thereof are distributed to the Members: , That in the last fifteen
days of each session period it shall be deemed sufficient that three copies of the report, signed as above provided, are deposited in the
office of the Secretary General.
Provided
Jefferson's Manual, which, according to Section 112, Rule XLIX of the Senate Rules, supplements it, states that a conference
committee is usually called "on the occasion of amendments between the Houses" and "in all cases of difference of opinion between
the two House on matters pending between them."
58

It further states:

Under these Rules, a bicameral conference committee comes into being only when there are between the Senate and the House with
regard to certain provisions of a particular legislative act which have to be reconciled.
disagreements and differences managers of a conference must confine themselves to the differences committed to them, and may not
include subjects not within the disagreements, even though germane to a question in issue. But they may perfect amendments
committed to them if they do not in so doing go beyond the differences
The
. ... Managers may not change the text to which both Houses have agreed. 59(Italics supplied.)
Mason's Manual of Legislative Procedures which is also considered as controlling authority for any situation not covered by a specific
legislative rule,
60

states that either House may "request a conference with the other on any matter of difference or dispute between them" and that in
such a request, "the subject of the conference should always be stated." 61
In the Philippines, as in the United States, the Conference Committee exercises such a wide range of authority that they virtually
constitute a third House in the Legislature. As admitted by the Solicitor General, "It was the practice in past Congresses for Conference
Committees to insert in bills approved by the two Houses new provisions that were not originally contemplated by them."
62

In , Robert Luce gives a graphic description of the milieu and the circumstances which have conspired to transform an initially
innocuous mechanism designed to facilitate action into an all-powerful Frankenstein that brooks no challenge to its authority even from
its own members.
Legislative Procedure
Their power lies chiefly in the fact that reports of conference committees must be accepted without amendment or else rejected . The
impulse is to get done with the matters and so the motion to accept has undue advantage, for some members are sure to prefer
swallowing unpalatable provisions rather than prolong controversy. This is the 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. At any time in the
session there is some risk of such a result following the rejection of a conference report, for it may not be possible to secure a second
conference, or delay may give opposition to the main proposal chance to develop more strength.
in toto
xxx xxx xxx
Entangled in a network of rule and custom, the Representative who resents and would resist this theft of his rights, finds himself
helpless. Rarely can he vote, rarely can he voice his mind, in the matter of any fraction of the bill. Usually he cannot even record

Page 208 of 403

himself 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 other branch 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 so much . What is worse, these men are not chosen in a way to ensure the wisest choice. It has become the
practice to name as conferees the ranking members of the committee, so that the accident of seniority determines. Exceptions are
made, but in general it is not a question of who are most competent to serve. Chance governs, sometimes giving way to favor, rarely to
merit.
it in effect transfers the lawmaking power to a small group of members who work out in private a decision that almost always prevails
xxx xxx xxx
Speaking broadly, the system of legislating by conference committee is unscientific and therefore defective. Usually it forfeits the benefit
of scrutiny and judgment by all the wisdom available. Uncontrolled, it is inferior to that process by which every amendment is secured
independent discussion and vote. ...
63

(Italics supplied)

Not surprisingly has it been said: "Conference Committee action is the most undemocratic procedure in the legislative process; it is an
appropriate target for legislative critics."
64

In the case at bench, petitioners insist that the Conference Committee to which Senate Bill No. 1630 and House Bill No. 11197 were
referred for the purpose of harmonizing their differences, overreached themselves in not confining their "reconciliation" function to those
areas of disagreement in the two bills but actually making "surreptitious insertions" and deletions which amounted to a grave abuse of
discretion.
At this point, it becomes imperative to focus on the errant provisions which found their way into Republic Act No. 7716. Below is a
breakdown to facilitate understanding the grounds for petitioners' objections:
INSERTIONS MADE BY BICAMERAL CONFERENCE COMMITTEE (BICAM) TO SENATE BILL (SB) NO. 1630 AND HOUSE BILL
(HB) NO. 11197
1. Sec. 99 of the National Internal Revenue Code (NIRC)
(1) Under the HB, this section includes any person who, in the course of trade or business, sells, barters or exchanges goods OR
PROPERTIES and any person who LEASES PERSONAL PROPERTIES.
(2) The SB completely changed the said section and defined a number of words and phrases. Also, Section 99-A was added which
included one who sells, exchanges, barters PROPERTIES and one who imports PROPERTIES.
(3) The BICAM version makes LESSORS of goods OR PROPERTIES and importers of goods LIABLE to VAT (subject of petition in
G.R. No. 115754).
2. Section 100 (VAT on Sale of Goods)
The term "goods" or "properties" includes the following, which were not found in either the HB or the SB:
- In addition to radio and television time; SATTELITE TRANSMISSION AND CABLE TELEVISION TIME.
- The term "Other similar properties" was deleted, which was present in the HB and the SB.
- Real properties held primarily for sale to customers or held for lease in the ordinary course or business were included, which was
neither in the HB nor the SB (subject of petition in G.R. No. 115754).
3. Section 102
On what are included in the term "sale or exchange of services," as to make them subject to VAT, the BICAM included/inserted the
following (not found in either House or Senate Bills):
1. Services of lessors of property, whether personal or real (subject of petition in G.R. No. 115754);
2. Warehousing services;
3. Keepers of resthouses, pension houses, inns, resorts;
4. Common carriers by land, air and sea;
5. Services of franchise grantees of telephone and telegraph;

Page 209 of 403

6. Radio and television broadcasting;
7. All other franchise grantees except those under Section 117 of this Code (subject of petition in G.R. No. 115852);
8. Services of surety, fidelity, indemnity, and bonding companies;
9. Also inserted by the BICAM (on page 8 thereof) is the lease or use of or the right to use of satellite transmission and cable television
time.
4. Section 103 (Exempt Transactions)
The BICAM deleted subsection (f) in its entirety, despite its inclusion in both the House and Senate Bills. Therefore, under Republic Act
No. 7716, the "printing, publication, importation or sale of books and any newspaper, magazine, review, or bulletin which appears at
regular intervals with fixed prices for subscription and sale and which is not devoted principally to the publication of advertisements" is
subject to VAT (subject of petition in G.R. No. 115931 and G.R. No. 115544).
The HB and SB did not touch Subsection (g) but it was amended by the BICAM by changing the word TEN to FIVE. Thus, importation
of vessels with tonnage of more than five thousand tons is VAT exempt.
Subsection L, which was identical in the HB and the SB that stated that medical, dental, hospital and veterinary services were
exempted from the VAT was amended by the BICAM by adding the qualifying phrase: EXCEPT THOSE RENDERED BY
PROFESSIONALS, thus subjecting doctors, dentists and veterinarians to the VAT.
Subsection U which exempts from VAT "transactions which are exempt under special laws," was amended by the BICAM by adding the
phrase: EXCEPT THOSE GRANTED UNDER PD Nos. 66, 529, 972, 1491, AND 1590, AND NON-ELECTRIC COOPERATIVES
UNDER RA 6938 (subject of petition in G.R. No. 115873), not found in either the HB or the SB, resulting in the inclusion of all
cooperatives to the VAT, except non-electric cooperatives.
The sale of real properties was included in the exempt transactions under the House Bill, but the BICAM qualified this with the
provision:
(S) SALE OF REAL PROPERTIES NOT PRIMARILY HELD FOR SALE TO CUSTOMERS OR HELD FOR LEASE IN THE ORDINARY
COURSE OF TRADE OR BUSINESS OR REAL PROPERTY UTILIZED FOR LOW-COST AND SOCIALIZED HOUSING AS DEFINED
BY RA NO. 7279 OTHERWISE KNOWN AS THE URBAN DEVELOPMENT AND HOUSING ACT OF 1992 AND OTHER RELATED
LAWS. (subject of petition in G.R. No. 115754)
11. Section 18 on the Tax Administration Development Fund is an entirely new provision not contained in the House/Senate Bills. This
fund is supposed to ensure effective implementation of Republic Act No. 7716.
The BICAM also exempted the sale of properties, the receipts of which are not less than P480,000.00 or more than P720,000.00.
Under the SB, no amount was given, but in the HB it was stated that receipts from the sale of properties not less than P350,000.00 nor
more than P600,000.00 were exempt.
It did not include, as VAT exempt, the sale or transfer of securities, as defined in the Revised Securities Act (BP 178) which was
contained in both Senate and House Bills.
5. Section 104
Not included in the HB or the SB is the phrase "INCLUDING PACKAGING MATERIALS" which was inserted by the BICAM in Section
104 (A) (1) (B), thus excluding from creditable input tax packaging materials and the phrase "ON WHICH A VALUE-ADDED TAX HAS
BEEN ACTUALLY PAID" in Section 104 (A) (2).
6. Section 107
Both House and Senate Bills provide for the payment of P500.00 VAT registration fee but this was increased by BICAM to P1,000.00.
7. Section 112
Regarding a person whose sales or receipts are exempt under Section 103 (w), the BICAM inserted the phrase: "THREE PERCENT
UPON THE EFFECTIVITY OF THIS ACT AND FOUR PERCENT (4%) TWO YEARS THEREAFTER," although the SB and the HB
provide only "three percent of his gross quarterly sales."
8. Section 115
The BICAM adopted the HB version which subjects common carriers by land, air or water for the transport of passengers to 3% of their
gross quarterly sales, which is not found in the SB.
9. Section 117
The BICAM amended this section by subjecting franchises on electric, gas and water utilities to a tax of two percent (2%) on gross
receipts derived ..., although neither the HB nor the SB has a similar provision.

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10. Section 17 (d)
(a) The BICAM defers for only 2 years the VAT on services of actors and actresses, although the SB defers it for 3 years.
(b) The BICAM uses the word "EXCLUDE" in the section on deferment of VAT collection on certain goods and services. The HB does
not contain any counterpart provision and SB only allows deferment for no longer than 3 years.
12. Section 19
No period within which to promulgate the implementing rules and regulations is found in the HB or the SB but BICAM provided "within
90 days" which found its way in Republic Act No. 7716.
Even a cursory perusal of the above outline will convince one that, indeed, the Bicameral Conference Committee (henceforth to be
referred to as BICAM) exceeded the power and authority granted in the Rules of its creation. Both Senate and House Rules limit the
task of the Conference Committee in almost identical language to the settlement of differences in the provisions or amendments to any
bill or joint resolution. If it means anything at all, it is that there are provisions in subject bill, to start with, which differ and, therefore,
need reconciliation. Nowhere in the Rules is it authorized to initiate or propose completely new matter. Although under certain rules on
legislative procedure, like those in , a conference committee may introduce matters in a particular bill, such matters should be
circumscribed by the committee's sole authority and function to reconcile differences.
Jefferson's Manualgermane
Parenthetically, in the Senate and in the House, a matter is "germane" to a particular bill if there is a common tie between said matter
and the provisions which tend to promote the object and purpose of the bill it seeks to amend. If it introduces a new subject matter not
within the purview of the bill, then it is not "germane" to the bill.
65

The test is whether or not the change represented an amendment or extension of the basic purpose of the original, or the introduction
of an entirely new and different subject matter. 66
In the BICAM, however, the germane subject matter must be within the ambit of the disagreement between the two Houses. If the
"germane" subject is not covered by the disagreement but it is reflected in the final version of the bill as reported by the Conference
Committee or, if what appears to be a "germane" matter in the sense that it is "relevant or closely allied"
67

with the purpose of the bill, was not the subject of a disagreement between the Senate and the House, it should be deemed an
extraneous matter or even a "rider" which should never be considered legally passed for not having undergone the three-day reading
requirement. Insertion of new matter on the part of the BICAM is, therefore, an ultra vires act which makes the same void.
The determination of what is "germane" and what is not may appear to be a difficult task but the Congress, having been confronted with
the problem before, resolved it in accordance with the rules. In that case, the Congress approved a Conference Committee's insertion
of new provisions that were not contemplated in any of the provisions in question between the Houses simply because of the provision
in that conferees may report matters "which are between the Houses and the committee.
Jefferson's Manualgermane modifications of subjects in disagreement 68In other words, the matter was germane to the points of
disagreement between the House and the Senate.
As regards in the BICAM, therefore, the task of determining what is germane to a bill is simplified, thus: If the amendments are not
circumscribed by the subjects of disagreement between the two Houses, then they are to the purpose of the bill.
inserted amendmentsnot germane
In the instant case before us, the insertions and deletions made do not merely spell an effort at settling conflicting provisions but have
materially altered the bill, thus giving rise to the instant petitions on the part of those who were caught unawares by the legislative
legerdemain that took place. Going by the definition of the word "amendment" in Black's Law Dictionary, 5th Ed., 1979, which means "to
change or modify for the better; to alter by modification, deletion, or addition," said insertions and deletions constitute amendments.
Consequently, these violated Article VI, Section 26 (2) which provides : "Upon the last reading of a bill, no amendment thereto shall be
allowed . . ." This proscription is intended to subject all bills and their amendments to intensive deliberation by the legislators and the
ample ventilation of issues to afford the public an opportunity to express their opinions or objections thereon. The same rationale
underlies the three-reading requirement to the end that no surprises may be sprung on an unsuspecting citizenry.
inter alia
Provisions of the "now you see it, now you don't" variety, meaning those which were either in the House and/or Senate versions but
simply disappeared or were "bracketed out" of existence in the BICAM Report, were eventually incorporated in Republic Act No. 7716.
Worse, some goods, properties or services which were not covered by the two versions and, therefore, were never intended to be so
covered, suddenly found their way into the same Report. No advance notice of such insertions prepared the rest of the legislators,
much less the public who could be adversely affected, so that they could be given the opportunity to express their views thereon. Well
has the final BICAM report been described, therefore, as an instance of "taxation without representation."
That the conferees or delegates in the BICAM representing the two Chambers could not possibly be charged with bad faith or sinister
motives or, at the very least, unseemly behavior, is of no moment. The stark fact is that items not previously subjected to the VAT now
fell under its coverage without interested sectors or parties having been afforded the opportunity to be heard thereon. This is not to say
that the Conference Committee Report should have undergone the three readings required in Article VI, Section 26 (2), for this clearly
refers only to bills which, after having been initially filed in either House, negotiated the labyrinthine passage therein until its approval.
The composition of the BICAM including as it usually does, the Chairman of the appropriate Committee, the sponsor of the bill and

Page 211 of 403

other interested members ensures an informed discussion, at least with respect to the disagreeing provisions. The same does not
obtain as regards completely new matter which suddenly spring on the legislative horizon.
It has been pointed out that such extraneous matters notwithstanding, all Congressman and Senators were given the opportunity to
approve or turn down the Committee Report , thus "curing" whatever defect or irregularity it bore.
in toto
Earlier in this opinion, I explained that the source of the acknowledged power of this committee stems from the precise fact that, the
meetings, being scheduled "take it or leave it" basis. It has not been uncommon for legislators who, for one reason or another have
been frustrated in their attempt to pass a pet bill in their own chamber, to work for its passage in the BICAM where it may enjoy a more
hospitable reception and faster approval. In the instant case, had there been full, open and unfettered discussion on the bills during the
Committee sessions, there would not have been as much vociferous objections on this score. Unfortunately, however, the Committee
held two of the five sessions behind closed doors, stenographers, record-takers and interested observers. To that extent, the
proceedings were shrouded in mystery and the public's right to information on matters of public concern as enshrined in Article III,
Section 7
ad hocsans 69and the government's policy of transparency in transactions involving public interest in Article II, Section 28 of the
Constitution 70are undermined.
Moreover, that which is such as the objectionable provisions in the Conference Committee Report, cannot be "cured" or ratified. For all
intents and purposes, these never existed. . Things that are invalid from the beginning are not made valid by a subsequent act.
void ab initioQuae ab initio non valent, ex post facto convalescere non possunt
Should this argument be unacceptable, the "enrolled bill" doctrine, in turn, is invoked to support the proposition that the certification by
the presiding officers of Congress, together with the signature of the President, bars further judicial inquiry into the validity of the law. I
reiterate my submission that the "enrolled bill ruling" may be applicable but only with respect to questions pertaining to the procedural
enactment, engrossment, printing, the insertion or deletion of a word or phrase here and there, but would draw a dividing line with
respect to substantial substantive changes, such as those introduced by the BICAM herein.
We have before us then the spectacle of a body created by the two Houses of Congress for the very limited purpose of settling
disagreements in provisions between bills emanating therefrom, exercising the plenary legislative powers of the parent chambers but
holding itself exempt from the mandatory constitutional requirements that are the hallmarks of legislation under the aegis of a
democratic political system. From the initial filing, through the three readings which entail detailed debates and discussions in
Committee and plenary sessions, and on to the transmittal to the other House in a repetition of the entire process to ensure exhaustive
deliberations - all these have been skipped over. In the proverbial twinkling of an eye, provisions that probably may not have seen the
light of day had they but run their full course through the legislative mill, sprang into existence and emerged full-blown laws.
Yet our Constitution vests the legislative power in "the Congress of the Philippines which shall consist of a Senate and a House of
Representatives ..."
71

and not in any special, standing or super committee of its own creation, no matter that these have been described, accurately enough,
as "the eye, the ear, the hand, and very often the brain of the house."
Firstly, that usage or custom has sanctioned this abbreviated, if questionable, procedure does not warrant its being legitimized and
perpetuated any longer. . A custom against reason is rather an usurpation. In the hierarchy of sources of legislative procedure,
constitutional rules, statutory provisions and adopted rules (as for example, the Senate and House Rules), rank highest, certainly much
ahead of customs and usages.
Consuetudo, contra rationem introducta, potius usurpatio quam consuetudo appellari debet
Secondly, is this Court to assume the role of passive spectator or indulgent third party, timorous about exercising its power or more
importantly, performing its duty, of making a judicial determination on the issue of whether there has been grave abuse of discretion by
the other branches or instrumentalities of government, where the same is properly invoked? The time is past when the Court was not
loathe to raise the bogeyman of the political question to avert a head-on collision with either the Executive or Legislative Departments.
Even the separation of powers doctrine was burnished to a bright sheen as often as it was invoked to keep the judiciary within bounds.
No longer does this condition obtain. Article VIII, Section 2 of the Constitution partly quoted in this paragraph has broadened the scope
of judicial inquiry. This Court can now safely fulfill its mandate of delimiting the powers of co-equal departments like the Congress, its
officers or its committees which may have no compunctions about exercising legislative powers in full.
Thirdly, dare we close our eyes to the presumptuous assumption by a runaway committee of its progenitor's legislative powers in
derogation of the rights of the people, in the process, subverting the democratic principles we all are sworn to uphold, when a proper
case is made out for our intervention? The answers to the above queries are self-evident.
I call to mind this exhortation: "We are sworn to see that violations of the constitution - by any person, corporation, state agency or
branch of government - are brought to light and corrected. To countenance an artificial rule of law that silences our voices when
confronted with violations of our Constitution is not acceptable to this Court."
72

I am not unaware that a rather recent decision of ours brushed aside an argument that a provision in subject law regarding the
withdrawal of the franking privilege from the petitioners and this Court itself, not having been included in the original version of Senate
Bill No. 720 or of House Bill No. 4200 but only in the Conference Committee Report, was violative of Article VI, Section 26 (2) of the

Page 212 of 403

Constitution. Likewise, that said Section 35, never having been a subject of disagreement between both Houses, could not have been
validly added as an amendment before the Conference Committee.
The majority opinion in said case explained:
While it is true that a conference committee is the mechanism for compromising differences between the Senate and the House, it is
not limited in its jurisdiction to this question. Its broader function is described thus:
'A conference committee may deal generally with the subject matter or it may be limited to resolving the precise differences between
the two houses. Even where the conference committee is not by rule limited in its jurisdiction, . But occasionally a conference
committee produces unexpected results, results beyond its mandate. These excursions occur even where the rules impose strict
limitations on conference committee jurisdiction. This is symptomatic of the authoritarian power of conference committee (Davies,
Legislative Law and Process: In a Nutshell, 1986 Ed., p. 81).'
legislative custom severely limits the freedom with which new subject matter can be inserted into the conference bill73(Italics supplied)
At the risk of being repetitious, I wish to point out that the general rule, as quoted above, is: "Even where the conference committee is
not by rule limited in its jurisdiction, ." What follows, that is, "occasionally a conference committee produces unexpected results, results
beyond its mandate. . ." is the exception. Then it concludes with a declaration that: "This is symptomatic of the authoritarian power of
conference committee." Are we about to reinstall another institution that smacks of authoritarianism which, after our past experience,
has become anathema to the Filipino people?
legislative custom severely limits the freedom with which new subject matter can be inserted into the conference bill
The ruling above can hardly be cited in support of the proposition that a provision in a BICAM report which was not the subject of
differences between the House and Senate versions of a bill cannot be nullified. It submit that such is not authorized in our Basic Law.
Moreover, this decision concerns merely one provision whereas the BICAM Report that culminated in the EVAT law has a wider scope
as it, in fact, expanded the base of the original VAT law by imposing the tax on several items which were not so covered prior to the
EVAT.
One other flaw in most BICAM Reports, not excluding this one under scrutiny, is that, hastily drawn up, it often fails to conform to the
Senate and House Rules requiring no less than a "detailed" and "sufficiently explicit statement of the changes in or amendments to the
subject measure." The Report of the committee, as may be gleaned from the preceding pages, was no more than the final version of
the bill as "passed" by the BICAM. The amendments or subjects of dissension, as well as the reconciliation made by the committee, are
not even pointed out, much less explained therein.
It may be argued that legislative rules of procedure may properly be suspended, modified, revoked or waived at will by the legislators
themselves.
74

This principle, however, does not come into play in interpreting what the record of the proceedings shows was, or was not, done. It is
rather designed to test the validity of legislative action where the record shows a final action in violation or disregard of legislative
rules. 75Utilizing the Senate and the House Rules as both guidelines and yardstick, the BICAM here obviously did not adhere to the rule
on what the Report should contain.
Given all these irregularities that have apparently been engrafted into the BICAM system, and which have been tolerated, if not
accorded outright acceptance by everyone involved in or conversant with, the institution, it may be asked: Why not leave well enough
alone?
That these practices have remained unchallenged in the past does not justify our closing our eyes and turning a deaf ear to them. Writ
large is the spectacle of a mechanism ensconced in the very heart of the people's legislative halls, that now stands indicted with the
charge of arrogating legislative powers unto itself through the use of dubious "shortcuts." Here, for the people to judge, is the "mother of
all shortcuts."
In the petitions at bench, we are confronted with the enactment of a tax law which was designed to broaden the tax base. It is rote
learning for any law student that as an attribute of sovereignty, the power to tax is "the strongest of all the powers of government."
76

Admittedly, "for all its plenitude, the power to tax is not unconfined. There are restrictions." 77Were there none, then the oft-quoted
1803 dictum of Chief Justice Marshall that "the power to tax involves the power to destroy" 78would be a truism. Happily, we can concur
with, and the people can find comfort in, the reassuring words of Mr. Justice Holmes: "The power to tax is not the power to
destroy ." while this Court sits 79
Manakanaka, mayroong dumudulog dito sa Kataastaasang Hukuman na may kamangha-manghang hinaing. Angkop na halimbawa ay
ang mga petisyong iniharap ngayon sa amin.
Ang ilan sa kanila ay mga Senador na nais mapawalang bisa ang isang batas ukol sa buwis na ipinasa mismo nila. Diumano ito ay
hindi tumalima sa mga itinatadhana ng Saligang Batas. Bukod sa rito, tutol sila sa mga bagong talata na isiningit ng "Bicameral
Conference Committee" na nagdagdag ng mga bagong bagay bagay at serbisyo na papatawan ng buwis. Ayon sa kanila, ginampanan
ng komiteng iyan ang gawain na nauukol sa buong Kongreso. Kung kaya't ang nararapat na mangyari ay ihatol ng Kataastaasang
Hukuman na malabis na pagsasamantala sa sariling pagpapasiya ang ginawa ng Kongreso.
Bagama't bantulot kaming makialam sa isang kapantay na sangay ng Pamahalaan, hindi naman nararapat na kami ay tumangging
gampanan ang tungkulin na iniatas sa amin ng Saligang Batas. Lalu't-lalo nang ang batas na kinauukulan ay maaaring makapinsala sa
nakararami sa sambayanan.

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Sa ganang akin, itong batas na inihaharap sa amin ngayon, ay totoong labag sa Saligang Batas, samakatuwid ay walang bisa. Nguni't
ito ay nauukol lamang sa mga katiwalian na may kinalaman sa paraan ng pagpapasabatas nito. Hindi namin patakaran ang makialam o
humadlang sa itinakdang gawain ng Saligang Batas sa Pangulo at sa Kongreso. Ang dalawang sangay na iyan ng Pamahalaan ang
higit na maalam ukol sa kung ang anumang panukalang batas ay nararapat, kanais-nais o magagampanan; kung kaya't hindi kami
nararapat na maghatol o magpapasiya sa mga bagay na iyan. Ang makapapataw ng angkop na lunas sa larangan na iyan ay ang
mismong mga kinatawan ng sambayanan sa Kongreso.
Faced with this challenge of protecting the rights of the people by striking down a law that I submit is unconstitutional and in the
process, checking the wonted excesses of the Bicameral Conference Committee system, I see in this case a suitable vehicle to
discharge the Court's Constitutional mandate and duty of declaring that there has indeed been a grave abuse of discretion amounting
to lack or excess of jurisdiction on the part of the Legislature.
Republic Act No. 7716, being unconstitutional and void, I find no necessity to rule on the substantive issues as dealt with in the majority
opinion as they have been rendered moot and academic. These issues pertain to the intrinsic merits of the law. It is axiomatic that the
wisdom, desirability and advisability of enacting certain laws lie, not within the province of the Judiciary but that of the political
departments, the Executive and the Legislative. The relief sought by petitioners from what they perceive to be the harsh and onerous
effect of the EVAT on the people is within their reach. For Congress, of which Senator-petitioners are a part, can furnish the solution by
either repealing or amending the subject law.
For the foregoing reasons, I VOTE to GRANT the petition.
PUNO, J.:
Petitioners plead that we affirm the self-evident proposition that they who make law should not break the law. There are many evils
whose elimination can be trusted to time. The evil of lawlessness in lawmaking cannot. It must be slain on sight for it subverts the
sovereignty of the people.
First, a fast snapshot of the facts. On November 17, 1993, the House of Representatives passed on third reading House Bill (H.B.) No.
11197 entitled "An Act Restructuring the Value Added Tax (VAT) System to Widen its Tax Base and Enhance its Administration,
Amending for These Purposes Sections 99, 100, 102 to 108 and 110 Title V and 236, 237 and 238 of Title IX, and Repealing Sections
113 and 114 of Title V, all of the National Internal Revenue Code as Amended." The vote was 114 Yeas and 12 Nays. The next day,
November 18, 1993, H.B.
No. 11197 was transmitted to the Senate for its concurrence by the Hon. Camilo L. Sabio, Secretary General of the House of
Representatives.
On February 7, 1994, the Senate Committee on Ways and Means submitted Senate Bill (S.B.) No. 1630, recommending its approval "in
substitution of Senate Bill No. 1129 taking into consideration P.S. Res. No. 734 and House Bill No. 11197." On March 24, 1994, S.B. No.
1630 was approved on second and third readings. On the same day, the Senate, thru Secretary Edgardo E. Tumangan, requested the
House for a conference "in view of the disagreeing provisions of S.B. No. 1630 and H.B. No. 11197." It designated the following as
members of its Committee: Senators Ernesto F. Herrera, Leticia R. Shahani, Alberto S. Romulo, John H. Osmea, Ernesto M. Maceda,
Blas F. Ople, Francisco S. Tatad, Rodolfo G. Biazon, and Wigberto S. Taada. On the part of the House, the members of the Committee
were: Congressmen Exequiel B. Javier, James L. Chiongbian, Renato V. Diaz, Arnulfo P. Fuentebella, Mariano M. Tajon, Gregorio
Andolong, Thelma Almario, and Catalino Figueroa. After five (5) meetings,
1

the Bicameral Conference Committee submitted its Report to the Senate and the House stating:
CONFERENCE COMMITTEE REPORT

The Conference Committee on the disagreeing provisions of House Bill No. 11197, entitled:
AN ACT RESTRUCTURING THE VALUE ADDED TAX (VAT) SYSTEM TO WIDEN ITS TAX BASE AND ENHANCE ITS
ADMINISTRATION, AMENDING FOR THESE PURPOSES SECTIONS 99, 100, 102, 103, 104, 105, 106, 107, 108 AND 110 OF TITLE
IV, 112, 115 AND 116 OF TITLE V, AND 236, 237, AND 238 OF TITLE IX, AND REPEALING SECTIONS 113 AND 114 OF TITLE V, ALL
OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED
and Senate Bill No. 1630 entitled:
AN ACT RESTRUCTURING THE VALUE ADDED TAX (VAT) SYSTEM TO WIDEN ITS TAX BASE AND ENHANCE ITS
ADMINISTRATION, AMENDING FOR THESE PURPOSES SECTIONS 99, 100, 102, 103, 104, 106, 107, 108 AND 110 OF TITLE IV,
112, 115, 117 AND 121 OF TITLE V, AND 236, 237, AND 238 OF TITLE IX, AND REPEALING SECTIONS 113, 114, 116, 119 AND 120
OF TITLE V, ALL OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED AND FOR OTHER PURPOSES
having met, after full and free conference, has agreed to recommend and do hereby recommend to their respective Houses that House
Bill No. 11197, in consolidation with Senate Bill No. 1630, be approved in accordance with the attached copy of the bill as reconciled
and approved by the conferees.
Approved.
The Report was approved by the House on April 27, 1994. The Senate approved it on May 2, 1994. On May 5, 1994, the President
signed the bill into law as R.A. No. 7716.
There is no question that the Bicameral Conference Committee did more than reconcile differences between House Bill No. 11197 and
Senate Bill No. 1630. In several instances, it either added new provisions or deleted provisions already approved in House Bill No.

Page 214 of 403

11197 and Senate Bill No. 1630. These insertions/deletions numbering twenty four (24) are specified in detail by petitioner Tolentino as
follows:
2

SOME SALIENT POINTS ON THE (AMENDMENTS TO THE VATE LAW [EO 273]) SHOWING ADDITIONS/INSERTIONS
MADE BY BICAMERAL CONFERENCE COMMITTEE TO SB 1630 & HB 11197

I On Sec. 99 of the NIRC

H.B. 11197 amends this section by including, as liable to VAT, any person who in the course of trade of business, sells, barters,
or exchanges goods or PROPERTIES and any person who LEASES PERSONAL PROPERTIES.
Senate Bill 1630 deleted Sec. 99 to give way for a new Section 99 - DEFINITION OF TERMS - where eleven (11) terms were
defined. A new Section, Section 99-A was incorporated which included as subject to VAT, one who sells, exchanges, barters
PROPERTIES and one who imports PROPERTIES.
The BCC version (R.A. 7716) makes LESSORS of goods OR PROPERTIES and importers of goods LIABLE to VAT.
II On Section 100 (VAT on sale of goods)
A. The H.B., S.B., and the BCC (R.A. 7716) all included sale of PROPERTIES as subject to VAT.
The term GOODS or PROPERTIES includes the following:

HB (pls. refer
SB (pls. refer
BCC (RA 7716
to Sec. 2)
To Sec. 1(4)
(Sec. 2)

. Right or the 1
1. The same
1. The same
privilege to use

patent, copyright,

design, or model,

plan, secret

Page 215 of 403

formula or process,

goodwill trademark,

tradebrand or other

like property or

right.

2. Right or the
2. The same
2. The same
privilege to use

in the Philippines

of any industrial,

commercial, or

Page 216 of 403

scientific equip-

ment.

3. Right or the
3. The same
3. The same
privilege to use

motion picture films,

films, tapes and

discs.

4. Radio and
4. The same
4. In addition
Television time

to radio and

Page 217 of 403

television time the

following were

included:

SATELLITE TRANSMISSION

and CABLE

TELEVISION TIME

5. Other Similar
5. The Same
5. 'Other
properties

similar properties'

was deleted

6. -

Page 218 of 403

6. 6. Real

properties held

primarily for sale to

customers or held

for lease in the

ordinary course or

business

B. The HB and the BCC Bills has each a provision which includes THE SALE OF GOLD TO BANGKO SENTRAL NG PILIPINAS as
falling under the term Export Sales, hence subject to 0% VAT. The Senate Bill does not contain such provision (See Section 102-A
thereof).
III.
On Section 102
This section was amended to include as subject to a 10% VAT the gross receipts derived from THE SALE OR EXCHANGE OF
SERVICES, INCLUDING THE USE OR LEASE OF PROPERTIES.
The SB, HB, and BCC have the same provisions on this.
However, on what are included in the term SALE OR EXCHANGE OF SERVICES, the BCC included/inserted the following (not found
in either the House or Senate Bills):
1. Services of lessors of property WHETHER PERSONAL OR REAL; (See BCC Report/Bill p. 7)
2. WAREHOUSING SERVICES (Ibid.,)
3. Keepers of RESTHOUSES, PENSION HOUSES, INNS, RESORTS (Ibid.,)
4. Common carriers by LAND, AIR AND SEA (Ibid.,)
5. SERVICES OF FRANCHISE GRANTEES OF TELEPHONE AND TELEGRAPH;
6. RADIO AND TELEVISION BROADCASTING

Page 219 of 403

7. ALL OTHER FRANCHISE GRANTEES EXCEPT THOSE UNDER SECTION 117 OF THIS CODE
8. SERVICES OF SURETY, FIDELITY, INDEMNITY, AND BONDING COMPANIES.
9. Also inserted by the BCC (on page B thereof) is the LEASE OR USE OF OR THE RIGHT TO USE OF SATTELITE TRANSMISSION
AND CABLE TELEVISION TIME
IV.
On Section 103 (Exempt Transactions)
The BCC deleted subsection (f) in its entirety, despite its retention in both the House and Senate Bills, thus under RA 7716, the
'printing, publication, importation or sale of books and any newspaper, magazine, review, or bulletin which appears at regular intervals
with fixed prices for subscription and sale and which is not devoted principally to the publication of advertisements' is subject to VAT.
Subsection (g) was amended by the BCC (both Senate and House Bills did not) by changing the word TEN to FIVE, thus: "Importation
of passenger and/or cargo vessel of more than five thousand ton to ocean going, including engine and spare parts of said vessel to be
used by the importer himself as operator thereof." In short, importation of vessels with tonnage of more than 5 thousand is VAT exempt.
Subsection L, was amended by the BCC by adding the qualifying phrase: EXCEPT THOSE RENDERED BY PROFESSIONALS.
Subsection U which exempts from VAT "Transactions which are exempt under special laws", was amended by BCC by adding the
phrase: EXCEPT THOSE GRANTED UNDER PD NOS. 66, 529, 972, 1491, and 1590, and NON-ELECTRIC COOPERATIVES under
RA 6938. This is the reason why cooperatives are now subject to VAT.
While the SALE OF REAL PROPERTIES was included in the exempt transactions under the House Bill, the BCC made a qualification
by stating:
'(S) SALE OF REAL PROPERTIES NOT PRIMARILY HELD FOR SALE TO CUSTOMERS OR HELD FOR LEASE IN THE ORDINARY
COURSE OF TRADE OR BUSINESS OR REAL PROPERTY UTILIZED FOR LOW-COST AND SOCIALIZED HOUSING AS DEFINED
BY R.A. NO. 7279 OTHERWISE KNOWN AS THE URBAN DEVELOPMENT AND HOUSING ACT OF 1992 AND OTHER RELATED
LAWS.
Under the Senate Bill, the sale of real property utilized for low-cost and socialized housing as defined by RA 7279, is one of the exempt
transactions.
Under the House Bill, also exempt from VAT, is the SALE OF PROPERTIES OTHER THAN THE TRANSACTIONS MENTIONED IN
THE FOREGOING PARAGRAPHS WITH A GROSS ANNUAL SALES AND/OR RECEIPTS OF WHICH DOES NOT EXCEED THE
AMOUNT PRESCRIBED IN THE REGULATIONS TO BE PROMULGATED BY THE SECRETARY OF FINANCE WHICH SHALL NOT
BE LESS THAN P350,000.00 OR HIGHER THAN P600,000.00 ... Under the Senate Bill, the amount is P240,000.00. The BCC agreed
at the amount of not less than P480,000.00 or more than P720,000.00 SUBJECT TO TAX UNDER SEC. 112 OF THIS CODE.
The BCC did not include, as VAT exempt, the sale or transfer of securities as defined in the Revised Securities Act (BP 178) which was
contained in both Senate and House Bills.
V
On Section 104
The phrase INCLUDING PACKAGING MATERIALS was included by the BCC on Section 104 (A) (1) (B), and the phrase ON WHICH A
VALUE-ADDED TAX HAS BEEN ACTUALLY on Section 104 (A) (2).
These phrases are not contained in either House and Senate Bills.
VI
On Section 107
Both House and Senate Bills provide for the payment of P500.00 VAT registration fee. The BCC provides for P1,000.00 VAT fee.
VII
On Section 112
While both the Senate and House Bills provide that a person whose sales or receipts and are exempt under Section 103[w] of the
Code, and who are not VAT registered shall pay a tax equivalent to THREE (3) PERCENT of his gross quarterly sales or receipts, the
BCC inserted the phrase: THREE PERCENT UPON THE EFFECTIVITY OF THIS ACT AND FOUR PERCENT (4%) TWO YEARS
THEREAFTER.
VIII
On Section 115

Page 220 of 403

Sec. 17 of SB 1630 Sec. 12 of House Bill 11197 amends this Section by clarifying that common carriers by land, air or water FOR THE
TRANSPORT OF PASSENGERS are subject to Percentage Tax equivalent to 3% of their quarterly gross sales.
The BCC adopted this and the House Bill's provision that the GROSS RECEIPTS OF COMMON CARRIERS DERIVED FROM THEIR
INCOMING AND OUTGOING FREIGHT SHALL NOT BE SUBJECTED TO THE LOCAL TAXES IMPOSED UNDER RA 7160. The
Senate Bill has no similar provision.
IX
On Section 117
This Section has not been touched by either Senate and House Bills. But the BCC amended it by subjecting franchises on ELECTRIC,
GAS and WATER UTILITIES A TAX OF TWO PERCENT (2%) ON GROSS RECEIPTS DERIVED ... .
X
On Section 121
The BCC adopted the Senate Bills' amendment to this section by subjecting to 5% premium tax on .
life insurance business
The House Bill does not contain this provision.
XI
Others
A) The House Bill does not contain any provision on the deferment of VAT collection on Certain Goods and Services as does
the Senate Bill (Section 19, SB 1630). But although the Senate Bill authorizes the deferment on certain goods and services for
no longer than 3 years, there is no specific provision that authorizes the President to EXCLUDE from VAT any of these. The
BCC uses the word EXCLUDE.
B) Moreover, the Senate Bill defers the VAT on services of actors and actresses etc. for 3 years but the BCC defers it for only
2 years.
C) Section 18 of the BCC Bill (RA 7716) is an entirely new provision not contained in the House/Senate Bills.
D) The period within which to promulgate the implementing rules and regulations is within 60 days under SB 1630; No specific
period under the House Bill, within 90 days under RA 7716 (BCC).
E) The House Bill provides for a general repealing clause , all inconsistent laws etc. are repealed. Section 16 of the Senate Bill
expressly repeals Sections 113, 114, 116, 119 and 120 of the code. The same Senate Bill however contains a general
repealing clause in Sec. 21 thereof.
i.e.
RA 7716 (BCC's Bill) expressly repeals Sections 113, 114 and 116 of the NIRC; Article 39 (c) (d) and (e) of EO 226 and
provides the repeal of Sec. 119 and 120 of the NIRC upon the expiration of two (2) years unless otherwise excluded by the
President."
The charge that the Bicameral Conference Committee added new provisions in the bills of the two chambers is hardly disputed by
respondents. Instead, respondents justify them. According to respondents: (1) the Bicameral Conference Committee has an veto power
or a veto after the fact of approval of the bill by both Houses; (2) the bill prepared by the Bicameral Conference Committee, with its
additions and deletions, was anyway approved by both Houses; (3) it was the practice in past Congresses for conference committees to
insert in bills approved by the two Houses new provisions that were not originally contemplated by them; and (4) the enrolled bill
doctrine precludes inquiry into the regularity of the proceedings that led to the enactment of R.A. 7716.
ex post
With due respect, I reject these contentions which will cave in on closer examination.
First. There is absolutely no legal warrant for the bold submission that a Bicameral Conference Committee possesses the power to
add/delete provisions in bills already approved on third reading by both Houses or an veto power. To support this postulate that can
enfeeble Congress itself, respondents cite no constitutional provision, no law, not even any rule or regulation.
ex post 3Worse, their stance is categorically repudiated by the rules of both the Senate and the House of Representatives which define
with precision the parameters of power of a Bicameral Conference Committee. Thus, 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 the provision of any bill or joint resolution, which shall
meet within ten days after their composition.

Page 221 of 403

the differences shall be settled by a conference committee of both Houses
Each Conference Committee Report shall contain a detailed and sufficiently explicit statement of the changes in or amendments to the
subject measure, and shall be signed by the conferees. (Italics 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 any bill or joint resolution, the differences may be
settled by a conference committee of both chambers.
... . Each report shall contain a detailed, sufficiently explicit statement of the changes in or amendments to the subject measure. (Italics
supplied)
The Jefferson's Manual has been adopted
4

as a supplement to our parliamentary rules and practice. Section 456 of Jefferson's Manual similarly confines the powers of a
conference committee, : viz 5
The managers of a conference must confine themselves to the differences committed to them ... and may not include subjects not
within the disagreements, even though germane 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 the United States Senate, :
viz 6
Conferees 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 which there is nothing in either the Senate or House passed
versions of a bill may be included in the conference report and actions to the contrary would subject the report to a
point of order. (Italics ours)
Committees of conference are appointed for the and the committees of conference alone can grant compromises and modify
propositions of either Houses within the limits of the disagreement. Conferees are limited to the consideration of differences
between the two Houses.
sole purpose of compromising and adjusting the differing and conflicting opinions of the two Houses
In fine, there is neither a sound nor a syllable in the Rules of the Senate and the House of Representative to support the thesis of the
respondents that a bicameral conference committee is clothed with an power.
ex post veto
But the thesis that a Bicameral Conference Committee can wield power does not only contravene the rules of both the Senate and the
House. It wages war against our settled ideals of representative democracy. For the inevitable, catastrophic effect of the thesis is to
install a Bicameral Conference Committee as the Third Chamber of our Congress, vested with the power to make laws but with the 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 as a Third Chamber will be a constitutional monstrosity.
ex post vetosimilarlydissimilarity
It needs no omniscience to perceive that our Constitution did not provide for a Congress composed of three chambers. On the contrary,
section 1, Article VI of the Constitution provides in clear and certain language: "The legislative power be vested in the Congress of the
Philippines which consist of a Senate and a House of Representatives ..." Note that in vesting legislative power exclusively to the
Senate and the House, the Constitution used the word "shall." Its command for a Congress of two houses is mandatory. It is not
mandatory sometimes.
shallshall
In vesting legislative power to the Senate, the Constitution means the Senate "... composed of twenty-four Senators ... elected at large
by the qualified voters of the Philippines ... ."
7

Similarly, when the Constitution vested the legislative power to the House, it means the House "... composed of not more than two
hundred and fifty members ... who shall be elected from legislative districts ... and those who ... shall be elected through a party-list
system of registered national, regional, and sectoral parties or organizations." 8The Constitution thus, did not vest on a Bicameral
Conference Committee with an membership the power to legislate for it exclusively vested legislative power to the Senate and the
House as co-equal bodies. To be sure, the Constitution does not mention the Bicameral Conference Committees of Congress. No
constitutional status is accorded to them. They are not even statutory creations. They owe 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 Third Chamber of
Congress and with veto power at that.ad hocex post
The thesis that a Bicameral Conference Committee can exercise law making power with veto power is freighted with mischief. Law
making is a power that can be used for good or for ill, hence, our Constitution carefully laid out a plan and a procedure for its exercise.

Page 222 of 403

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 is contemplated is the Senate acting as a full Senate and the House acting as a full House. It is only when the
Senate and the House act as whole bodies that they truly represent the people. And it is only when they represent the people that they
can legitimately pass laws. Laws that are not enacted by the people's rightful representatives subvert the people's sovereignty.
Bicameral Conference Committees, with their character and limited membership, cannot pass laws for they do not represent 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 over the majority. Secondly, the Constitution delineated in deft strokes the steps to be followed in making laws.
The overriding purpose of these procedural rules is to assure that only bills that successfully survive the searching scrutiny of the
proper committees of 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 each House. In the case at bench, the additions and deletions made by the
Bicameral Conference Committee did not enjoy the enlightened studies of appropriate committees. It is meet to note that the
complexities of modern day legislations have made our committee system a significant part of the legislative process. Thomas Reed
called the committee 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 the United States as "a government by the Chairman of the Standing Committees of
Congress... "
ex postad hoc 9Neither did these additions and deletions of the Bicameral Conference Committee pass through the coils of collective
deliberation of the members of the two Houses acting separately. Due to this shortcircuiting of the constitutional procedure of making
laws, confusion shrouds the enactment of R.A. No. 7716. Who inserted the additions and deletions remains a mystery. Why they were
inserted is a riddle. To use a Churchillian phrase, lawmaking should not be a riddle wrapped in an enigma. It cannot be, for Article II,
section 28 of the Constitution mandates the State to adopt and implement a "policy of full public disclosure of all its transactions
involving public interest." The Constitution could not have contemplated a Congress of invisible and unaccountable John and Mary
Does. A law whose rationale is a riddle and whose authorship is obscure cannot bind the people.
All these notwithstanding, respondents resort to the legal cosmetology that these additions and deletions should govern the people as
laws because the Bicameral Conference Committee Report was anyway submitted to and approved by the Senate and the House of
Representatives. The submission may have some merit with respect to provisions agreed upon by the Committee in the process of
reconciling conflicts between S.B. No. 1630 and H.B. No. 11197. In these instances, the conflicting provisions had been previously
screened by the proper committees, deliberated upon by both Houses and approved by them. It is, however, a different matter with
respect to additions and deletions which were entirely new and which were made not to reconcile inconsistencies between S.B. No.
1630 and H.B. No. 11197. The members of the Bicameral Conference Committee did not have any authority to add new provisions or
delete provisions already approved by both Houses as it was not necessary to discharge their limited task of reconciling differences in
bills. At that late stage of law making, the Conference Committee cannot add/delete provisions which can become laws without
undergoing the study and deliberation of both chambers given to bills on 1st, 2nd, and 3rd readings. Even the Senate and the House
cannot enact a law which will not undergo these mandatory three (3) readings required by the Constitution. If the Senate 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 approve or disapprove the said additions and deletions is
more of an optical illusion. These additions and deletions are not submitted separately for approval. They are tucked to the entire bill.
The vote is on the bill as a package, , together with the insertions and deletions. And the vote is either "aye" or "nay," without any further
debate and deliberation. Quite often, legislators vote "yes" because they approve of the bill as a whole although they may object to its
amendments by the Conference Committee. This lack of real choice is well observed by Robert Luce:
i.e. 10
Their power lies chiefly in the fact that reports of conference committees must be accepted without amendment or else
rejected . The impulse is to get done with the matter and so the motion to accept has undue advantage, for some members
are sure to prefer swallowing unpalatable provisions rather than prolong controversy. This is the 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. At any time in the session there is some risk of such a result following the rejection of a conference report, for it
may not be possible to secure a second conference, or delay may give opposition to the main proposal chance to develop
more strength.
in toto
In a similar vein, Prof. Jack Davies commented that "conference reports are returned to assembly and Senate on a take-it or leave-itbasis, and the bodies are generally placed in the position that to leave-it is a practical impossibility."
11

Thus, he concludes that "conference committee action is the most undemocratic procedure in the legislative process." 12

The respondents also contend that the additions and deletions made by the Bicameral Conference Committee were in accord with
legislative customs and usages. The argument does not persuade for it misappreciates the value of customs and usages in the
hierarchy of sources of legislative rules of procedure. To be sure, every legislative assembly 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 determine the rules of its
proceedings ..." But it is hornbook law that the sources of Rules of Procedure are many and hierarchical in character. Mason laid them
down as follows:
13

xxx xxx xxx

1. Rules of Procedure are derived from several sources. The principal sources are as follows:
a. Constitutional rules.

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b. Statutory rules or charter provisions.
c. Adopted rules.
d. Judicial decisions.
e. Adopted parliamentary authority.
f. Parliamentary law.
g. .
Customs and usages
2. except that 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, an interpretation of a constitutional provision takes precedence over
a statute.
The rules from the different sources take precedence in the order listed above
3. . Thus, where the Constitution requires three readings of bills, this provision controls over any provision of statute, adopted
rules, adopted manual, or of parliamentary law, and a rule of parliamentary law controls over a local usage but must give way
to any rule from a higher source of authority. (Italics ours)
Whenever there is conflict between rules from these sources the rule from the source listed earlier prevails over the rule from
the source listed, later
As discussed above, the unauthorized additions and deletions made by the Bicameral Conference Committee violated the procedure
fixed by the Constitution in the making of laws. It is reasonless for respondents therefore to justify these insertions as sanctioned by
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 the passage of R.A. No. 7716. The enrolled bill theory is a historical relic that should not continuously
rule us from the fossilized past. It should be immediately emphasized that the enrolled bill theory originated in England where there is
no written constitution and where Parliament is supreme.
14

In this jurisdiction, we have a written constitution and the legislature is a body of limited powers. Likewise, it must be pointed out that
starting from the decade of the 40's, even American courts have veered away from the rigidity and unrealism of the conclusiveness of
an enrolled bill. Prof. Sutherland observed: 15
xxx xxx xxx.
Where the failure of constitutional compliance in the enactment of statutes is not discoverable from the face of the act itself but may be
demonstrated by recourse to the legislative 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 correct and only in case the legislative journal shows affirmative contradiction of the
constitutional requirement will the bill be held invalid, (3) that although the enrolled bill is correct, evidence from the journals, or other
extrinsic sources is admissible to strike the bill down; (4) that the legislative journal is conclusive and the enrolled bill is valid only if it
accords with the recital in the journal and the constitutional procedure.
prima facieprima facie
Persuasive as these arguments are, the tendency today is to avoid reaching results by artificial presumptions and thus it would seem
desirable to insist that the enrolled bill stand or fall on the basis of the relevant evidence which may be submitted for or against it.
(Italics ours)
Thus, as far back as the 1940's, Prof. Sutherland confirmed that "... the tendency seems to be toward the abandonment of the
conclusive presumption rule and the adoption of the third rule leaving only a presumption of validity which may be attacked by any
authoritative source of information."
prima facie 16
I am not unaware that this Court has subscribed to the conclusiveness of an enrolled bill as enunciated in the 1947 lead case of , and
reiterated in subsequent cases.
Mabanag v. Lopez Vito 17
With due respect, I submit that these rulings are no longer good law. Part of the ratiocination in Mabanag states:
xxx xxx xxx

Page 224 of 403

If for no other reason than that it conforms to the expressed policy of our law making body, we choose to follow the rule. Section 313 of
the old Code of Civil Procedure, as amended by Act No. 2210, provides: 'Official documents' may be proved as follows: * * * (2) the
proceedings of the Philippine Commission, or of any legislative body that may be provided for in the Philippine Islands, or of Congress,
by the journals of those bodies or of either house thereof, or by published statutes or resolutions, or by copies certified by the clerk or
secretary, or printed by their order; Provided, That in the case of Acts of the Philippine Commission or the Philippine Legislature, when
there is an existence of a copy signed by the presiding officers and secretaries of said bodies, it shall be conclusive proof of the
provisions of such Acts and of the due enactment thereof.
Suffice to state that section 313 of the Old Code of Civil Procedure as amended by Act No. 2210 is no longer in our statute books. It has
long been repealed by the Rules of Court. also relied on jurisprudence and authorities in the United States which are under severe
criticisms by modern scholars. Hence, even in the United States the conclusiveness of an enrolled bill has been junked by most of the
States. It is also true that as late as last year, in the case of ., this Court still relied on the conclusiveness of an enrolled bill as it refused
to invalidate a provision of law on the ground that it was merely inserted by the bicameral conference committee of both Houses. ,
however, is distinguishable. In , the alleged insertion of the second paragraph of section 35 of R.A. No. 7354 repealing the franking
privilege of the judiciary does not appear to be an uncontested fact. In the case at bench, the numerous additions/deletions made by
the Bicameral Conference Committee as detailed by petitioners Tolentino and Salonga are not disputed by the respondents. In , the
Court was not also confronted with the argument that it can no longer rely on the conclusiveness of an enrolled bill in light of the new
provision in the Constitution defining judicial power. More specifically, section 1 of Article VIII now provides:
MabanagPhilippine Judges Association v. Prado, op. citPradoPradoPrado
Section 1.The judicial power shall be vested in one Supreme Court and in such lower courts as may be established by law.
Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and
enforceable, and (Italics supplied)
to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any
branch or instrumentality of the Government.
Former Chief Justice Roberto R. Concepcion, the sponsor of this provision in the Constitutional Commission explained the sense and
the reach of judicial power as follows:
18

xxx xxx xxx

... In other words, the judiciary is the final arbiter on the question of whether or not or any of its officials has acted without
jurisdiction or in excess of jurisdiction, or so capriciously as to constitute an abuse of discretion amounting to excess of
jurisdiction.
a branch of governmentThis is not only a judicial power but a duty to pass judgment on matters of this nature.
This is the background of paragraph 2 of Section 1, . (Italics ours)
which means that the courts cannot hereafter evade the duty to settle matters of this nature, by claiming that such matters
constitute political question
The Constitution cannot be any clearer. What it granted to this Court is not a mere which it can decline to exercise. Precisely to deter
this disinclination, the Constitution imposed it as a of this Court to strike down any act of a branch or instrumentality of government or
any of its officials done with grave abuse of discretion amounting to lack or excess of jurisdiction. Rightly or wrongly, the Constitution
has elongated the checking powers of this Court against the other branches of government despite their more democratic character, the
President and the legislators being elected by the people.
powerduty
It is, however, theorized that this provision is nothing new.
19

I beg to disagree for the view misses the significant changes made in our constitutional canvass to cure the legal deficiencies we
discovered during martial law. One of the areas radically changed by the framers of the 1987 Constitution is the imbalance of power
between and among the three great branches of our government - the Executive, the Legislative and the Judiciary. To upgrade the
powers of the Judiciary, the Constitutional Commission strengthened some more the independence of courts. Thus, it further protected
the security of tenure of the members of the Judiciary by providing "No law shall be passed reorganizing the Judiciary when it
undermines the security of tenure of its Members." 20It also guaranteed fiscal autonomy to the Judiciary. 21
More, it depoliticalized appointments in the judiciary by creating the Judicial and Bar Council which was tasked with screening the list of
prospective appointees to the judiciary.
22

The power of confirming appointments to the judiciary was also taken away from Congress. 23The President was likewise given a
specific time to fill up vacancies in the judiciary - ninety (90) days from the occurrence of the vacancy in case of the Supreme
Court 24and ninety (90) days from the submission of the list of recommendees by the Judicial and Bar Council in case of vacancies in
the lower courts. 25To further insulate appointments in the judiciary from the virus of politics, the Supreme Court was given the power to
"appoint all officials and employees of the Judiciary in accordance with the Civil Service Law." 26And to make the separation of the
judiciary from the other branches of government more watertight, it prohibited members of the judiciary to be " ... designated to any
agency performing quasi judicial or administrative functions." 27While the Constitution strengthened the sinews of the Supreme Court, it

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reduced the powers of the two other branches of government, especially the Executive. Notable of the powers of the President clipped
by the Constitution is his power to suspend the writ of habeas corpus and to proclaim martial law. The exercise of this power is now
subject to revocation by Congress. Likewise, the sufficiency of the factual basis for the exercise of said power may be reviewed by this
Court in an appropriate proceeding filed by any citizen. 28
The provision defining judicial power as including the "duty of the courts of justice ... to determine whether or not there has been a
grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government"
constitutes the capstone of the efforts of the Constitutional Commission to upgrade the powers of this Court the other branches of
government. This provision was dictated by our experience under martial law which taught us that a stronger and more independent
judiciary is needed to abort abuses in government. As sharply stressed by petitioner Salonga, this provision is distinctly Filipino and its
interpretation should not be depreciated by undue reliance on inapplicable foreign jurisprudence. It is thus crystal clear that unlike other
Supreme Courts, this Court has been mandated by our new Constitution to be a more active agent in annulling acts of grave abuse of
discretion committed by a branch of government or any of its officials. This new role, however, will not compel the Court, appropriately
defined by Prof. A. Bickel as the least dangerous branch of government, to assume imperial powers and run roughshod over the
principle of separation of power for that is judicial tyranny by any language. But while respecting the essential of the principle of
separation of power, the Court is not to be restricted by its non-essentials. Applied to the case at bench, by voiding R.A. No. 7716 on
the ground that its enactment violated the procedure imposed by the Constitution in lawmaking, the Court is not by any means wrecking
the wall separating the powers between the legislature and the judiciary. For in so doing, the Court is not engaging in lawmaking which
is the essence of legislative power. But the Court's interposition of power should not be defeated by the conclusiveness of the enrolled
bill. A resort to this fiction will result in the enactment of laws not properly deliberated upon and passed by Congress. Certainly, the
enrolled bill theory was not conceived to cover up violations of the constitutional procedure in law making, a procedure intended to
assure the passage of good laws. The conclusiveness of the enrolled bill can, therefore, be disregarded for it is not necessary to
preserve the principle of separation of powers.
vis-a-vis
In sum, I submit that in imposing to this Court the duty to annul acts of government committed with grave abuse of discretion, the new
Constitution transformed this Court from passivity to activism. This transformation, dictated by our distinct experience as a nation, is not
merely evolutionary but revolutionary. Under the 1935 and 1973 Constitutions, this Court approached constitutional violations by initially
determining what it cannot do; under the 1987 Constitution, there is a shift in stress - this Court is mandated to approach constitutional
violations not by finding out what it should not do but what it must do. The Court must discharge this solemn duty by not resuscitating a
past that petrifies the present.
I vote to declare R.A. No. 7716 unconstitutional.
BELLOSILLO, J.:
With a consensus already reached after due deliberations, silence perhaps should be the better part of discretion, except to vote. The different views
and opinions expressed are so persuasive and convincing; they are more than enough to sway the pendulum for or against the subject petitions. The
penetrating and scholarly dissertations of my brethren should dispense with further arguments which may only confound and confuse even the most
learned of men.
But there is a crucial point, a constitutional issue which, I submit, has been belittled, treated lightly, if not almost considered insignificant and
purposeless. It is elementary, as much as it is fundamental. I am referring to the word "exclusively" appearing in Sec. 24, Art. VI, of our 1987
Constitution. This is regrettable, to say the least, as it involves a constitutional mandate which, wittingly or unwittingly, has been cast aside as trivial and
meaningless.
A comparison of the particular provision on the enactment of revenue bills in the U.S. Constitution with its counterpart in the Philippine Constitution will
help explain my position.
Under the U.S. Constitution, "[a]ll bills for raising revenue shall originate in the House of Representatives; but the Senate may propose or concur with
amendments as on other bills" (Sec. 7, par. [1], Art. I). In contrast, our 1987 Constitution reads: "All appropriation, revenue or tariff bills, bills authorizing
increase of the public debt, bills of local application, and private bills shall originate in the House of Representatives, but the Senate may propose or
concur with amendments" (Sec. 24, Art. VI; Italics supplied).
exclusively
As may be gleaned from the pertinent provision of our Constitution, all revenue bills are required to originate "exclusively" in the House of
Representatives. On the other hand, the U.S. Constitution does not use the word "exclusively;" it merely says, "[a]ll bills for raising revenue shall
originate in the House of Representatives."
Since the term "exclusively" has already been adequately defined in the various opinions, as to which there seems to be no dispute, I shall no longer
offer my own definition.
Verily, the provision in our Constitution requiring that all revenue bills shall originate exclusively from the Lower House is mandatory. The word
"exclusively" is an "exclusive word," which is indicative of an intent that the provision is mandatory.
1

Hence, all American authorities expounding on the meaning and application of Sec. 7, par. (1), Art. I, of the U.S. Constitution cannot be used in the
interpretation of Sec. 24, Art. VI, of our 1987 Constitution which has a distinct feature of "exclusiveness" all its own. Thus, when our Constitution
absolutely requires - as it is mandatory - that a particular bill should exclusively emanate from the Lower House, there is no alternative to the
requirement that the bill to become valid law must originate exclusively from that House.
In the interpretation of constitutions, questions frequently arise as to whether particular sections are mandatory or directory. The courts usually hesitate
to declare that a constitutional provision is directory merely in view of the tendency of the legislature to disregard provisions which are not said to be
mandatory. Accordingly, it is the general rule to regard constitutional provisions as mandatory, and not to leave any discretion to the will of the legislature
to obey or disregard them. This presumption as to mandatory quality is usually followed unless it is unmistakably manifest that the provisions are
intended to be merely directory. So strong is the inclination in favor of giving obligatory force to the terms of the organic law that it has even been said
that neither by the courts nor by any other department of the government may any provision of the Constitution be regarded as merely directory, but that

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each and everyone of its provisions should be treated as imperative and mandatory, without reference to the rules and distinguishing between the
directory and the mandatory statutes.
2

The framers of our 1987 Constitution could not have used the term "exclusively" if they only meant to replicate and adopt the U.S. version. By inserting
"exclusively" in Sec. 24, Art. VI, of our Constitution, their message is clear: they wanted it different, strong, stringent. There must be a compelling reason
for the inclusion of the word "exclusively," which cannot be an act of retrogression but progression, an improvement on its precursor. Thus, "exclusively"
must be given its true meaning, its purpose observed and virtue recognized, for it could not have been conceived to be of minor consequence. That
construction is to be sought which gives effect to the whole of the statute - its every word. .
in totoUt magis valeat quam pereat
Consequently, any reference to American authorities, decisions and opinions, however wisely and delicately put, can only mislead in the interpretation of
our own Constitution. To refer to them in defending the constitutionality of R.A. 7716, subject of the present petitions, is to argue on a false premise, ,
that Sec. 24, Art. VI, of our 1987 Constitution is, or means exactly, the same as Sec. 7, par. (1), Art. I, of the U.S. Constitution, which is not correct.
Hence, only a wrong conclusion can be drawn from a wrong premise.
i.e.
For example, it is argued that in the United States, from where our own legislature is patterned, the Senate can practically substitute its own tax measure
for that of the Lower House. Thus, according to the Majority, citing an American case, "the validity of Sec. 37 which the Senate had inserted in the Tariff
Act of 1909 by imposing an tax based on the weight of vessels, was upheld against the claim that the revenue bill originated in the Senate in
contravention of Art. I, Sec. 7, of the U.S. Constitution."
ad valorem 3In an effort to be more convincing, the Majority even quotes the footnote in which reads -Introduction to American Government by F.A. Ogg
and P.O. Ray
Thus in 1883 the upper house struck out everything after the enacting clause of a tariff bill and wrote its own measure, which the House eventually felt
obliged to accept. It likewise added 847 amendments to the Payne-Aldrich tariff act of 1909, dictated the schedules of the emergency tariff act of 1921,
rewrote an extensive tax revision bill in the same year, and recast most of the permanent tariff bill of 1922
4

which in fact suggests, very clearly, that the subject revenue bill actually originated from the Lower House and was only amended, perhaps considerably,
by the Senate
after it was passed by the former and transmitted to the latter.
In the cases cited, where the statutes passed by the U.S. Congress were upheld, the revenue bills did not actually originate from the Senate but, in fact,
from the Lower House. Thus, the Supreme Court of the United States, speaking through Chief Justice White in
Rainey v. United States 5upheld the revenue bill passed by Congress and adopted the ruling of the lower court that ... the section in question is not void as a bill for raising revenue originating in the Senate and not in the House of Representatives. It appears that the
section was proposed by the Senate as an amendment to a bill for raising revenue which originated in the House. That is sufficient.
Flint v. Stone Tracy Co.,
6

on which the Solicitor General heavily leans in his Consolidated Comment as well as in his Memorandum, does not support the thesis of the Majority
since the subject bill therein actually originated from the Lower House and not from the Senate, and the amendment merely covered a certain provision
in the House bill.
In fine, in the cases cited which were lifted from American authorities, it appears that the revenue bills in question actually originated from the House of
Representatives and were amended by the Senate only after they were transmitted to it. Perhaps, if the factual circumstances in those cases were
exactly the same as the ones at bench, then the subject revenue or tariff bill may be upheld in this jurisdiction on the principle of substantial compliance,
as they were in the United States, except possibly in instances where the House bill undergoes what is now referred to as "amendment by substitution,"
for that would be in derogation of our Constitution which vests solely in the House of Representatives the power to initiate revenue bills. A Senate
amendment by substitution simply means that the bill in question did not in effect originate from the lower chamber but from the upper chamber and not
disguises itself as a mere amendment of the House version.
It is also theorized that in the U.S., amendment by substitution is recognized. That may be true. But the process may be validly effective only under the
U.S. Constitution. The cases before us present a totally different factual backdrop. Several months before the Lower House could even pass HB No.
11197, P.S. Res. No. 734 and SB No. 1129 had already been filed in the Senate. Worse, the Senate subsequently approved SB No. 1630 "in substitution
of SB No. 1129, taking into consideration P.S. Res. No. 734 and HB No. 11197," and not HB No. 11197 itself "as amended." Here, the Senate could not
have proposed or concurred with amendments because there was nothing to concur with or amend except its own bill. It must be stressed that the
process of concurring or amending presupposes that there exists a bill upon which concurrence may be based or amendments introduced. The Senate
should have reported out HB No. 11197, as amended, even if in the amendment it took into consideration SB No. 1630. It should not have submitted to
the Bicameral Conference Committee SB No. 1630 which, admittedly, did not originate from the Lower House.
exclusively
But even assuming that in our jurisdiction a revenue bill of the Lower House may be amended by substitution by the Senate - although I am not prepared
to accept it in view of Sec. 24, Art. VI, of our Constitution - still R.A. 7716 could not have been the result of amendment by substitution since the Senate
had no House bill to speak of that it could amend when the Senate started deliberating on its own version.
Be that as it may, I cannot rest easy on the proposition that a constitutional mandate calling for the exclusive power and prerogative of the House of
Representatives may just be discarded and ignored by the Senate. Since the Constitution is for the observance of all - the judiciary as well as the other
departments of government - and the judges are sworn to support its provisions, the courts are not at liberty to overlook or disregard its commands. And
it is not fair and just to impute to them undue interference if they look into the validity of legislative enactments to determine whether the fundamental law

Page 227 of 403

has been faithfully observed in the process. It is their duty to give effect to the existing Constitution and to obey all constitutional provisions irrespective
of their opinion as to the wisdom of such provisions.
The rule is fixed that the duty in a proper case to declare a law unconstitutional cannot be declined and must be performed in accordance with the
deliberate judgment of the tribunal before which the validity of the enactment is directly drawn into question. When it is clear that a statute transgresses
the authority vested in the legislature by the Constitution, it is the duty of the courts to declare the act unconstitutional because they cannot shirk from it
without violating their oaths of office. This duty of the courts to maintain the Constitution as the fundamental law of the state is imperative and unceasing;
and, as Chief Justice Marshal said, whenever a statute is in violation of the fundamental law, the courts must so adjudge and thereby give effect to the
Constitution. Any other course would lead to the destruction of the Constitution. Since the question as to the constitutionality of a statute is a judicial
matter, the courts will not decline the exercise of jurisdiction upon the suggestion that action might be taken by political agencies in disregard of the
judgment of the judicial tribunals.
7

1 H. Nos. 253, 771, 2450, 7033, 8086, 9030, 9210, 9297, 10012 and 10100. (Respondents' Consolidated Memorandum, Annexes 3-12)
2 U.S. CONST., Art. I, 7, cl. 1: "All bills for raising revenue shall originate in the House of Representatives, but the Senate may propose or
concur with amendments, as on other bills."
3 Art. VII, 21.
4 Art. VI, 1.
5 U.S. CONST., Art. II, 2, cl. 2.
6 Rainey v. United States, 232 U.S. 309, 58 L. Ed. 117 (1914).
7 F.A. OGG AND P.O. RAY, INTRODUCTION TO AMERICAN GOVERNMENT 309, n. 2 (1945).
8 Although the 1935 Constitution did not expressly require that bills must pass three readings in each House, this was clearly implied from its
Art. VI, 21(2) so that the two Houses by their rules prescribed three readings for the passage of bills. Later the requirement was expressly
provided in the 1973 Constitution from which Art. VI, 26(2) was taken. Art. VIII, 19(2) of the 1973 document provided:
No bill shall become a law unless it has passed three readings on separate days, and printed copies thereof in its final form have been
distributed to the Members three days before its passage, except when the Prime Minister certifies to the necessity of its immediate enactment
to meet a public calamity or emergency. Upon the last reading of a bill, no amendment thereto shall be allowed, and the vote thereon shall be
taken immediately thereafter, and theand entered in the Journal.
yeas nays
9 Respondents' Consolidated Reply, Annex 14.
10 Memorandum of Petitioner Arturo M. Tolentino, Supplement C.
11 Art. VII, 10 provides: "The Congress shall, at ten o'clock in the morning of the third day after the vacancy in the offices of the President
and Vice- President occurs, convene in accordance with its rules without need of a call and within seven days enact a law calling for a special
election to elect a President and a Vice- President to be held not earlier than forty-five days nor later than sixty days from the time of such call.
The bill calling such special election shall be deemed certified under paragraph 2, Section 26, Article VI of this Constitution and shall become
law upon its approval on third reading by the Congress. Appropriations for the special election shall be charged against any current
appropriations and shall be exempt from the requirements of paragraph 4, Section 25, Article VI of this Constitution. The convening of the
Congress cannot be suspended nor the special election postponed. No special election shall be called if the vacancy occurs within eighteen
months before the date of the next presidential election."
12 JOURNAL OF THE HOUSE OF REPRESENTATIVES, SIXTH CONGRESS, FOURTH SESSION 398-399 (1968).
13 Zinn, Conference Procedure in Congress, 38 ABAJ 864-865 (1952).
14 CONG. QUARTERLY 65 (1983); M. JEWELL, THE LEGISLATIVE PROCESS IN THE UNITED STATES 169 (1986); LEES AND SHAW,
COMMITTEES IN LEGISLATURES 163 (1979).
15 W. KEEFE AND M. OGUL, THE AMERICAN LEGISLATIVE PROCESS 149 (1985).
16 W. OLESZEK, CONGRESSIONAL PROCEDURES AND POLICY PROCESS 214 (1984).
17 Philippine Judges Association v. Prado, G.R. No. 105371, Nov. 11, 1993.
18 The charge is an old one. In the United States, the same charge, including claims that important provisions were being "surreptitiously
added" in the committee, was made in the 1940s. But no satisfactory alternative to the conference committee has been devised. And today,
given the bicameral nature of the U.S. Congress, the charge is no longer heard. Compare the following from a 1945 comment: "As a devise for
oiling the machinery of legislation, committees of conference are, under American conditions, useful, if not indispensable. Nevertheless, they
have shortcomings. Without exception, they work behind closed doors, hold no hearings, and give their proceedings no publicity. Doubtless it
would be difficult for them to make headway if they did otherwise. Nevertheless, in view of the power which they wield, strong objection can
be, and is, raised. For, while the committees are supposed to deal only with actual differences between the houses and to stay well within the
bounds set by the extreme positions which the houses have taken, they often work into measures, as reported, provisions of their own
devising, even going so far as to rewrite whole sections with the sole purpose of incorporating the views which the majority members happen
to hold. . . . In practice, this often results in the adoption of important provisions, more or less surreptitiously added, without consideration by
either house in other words, legislation nominally by Congress but actually by conference committee. Any remedy found will probably take
the form of reducing the need for using conference committees at all; and the principal suggestion to that end is that bills and resolutions be
referred, not, as now, to separate committees of the two houses, but to joint committees, which not only would hold single sets of hearings, but

Page 228 of 403

might deliberate and report back bills to the two houses in such agreed form that further significant differences would not be likely to develop.
Arrangements of this nature yield excellent results in the legislature of Massachusetts. But there are obstacles to adoption of the plan for
Congress, not the least of them being a natural aversion of House members to joint committees in which senators seem likely to dominate;
and, as below, the outlook for the reform is problematical." F.A. OGG AND P.O. RAY, note 7 at 310-311.
indicated supra
19 Osmea v. Pendatun, 109 Phil. 863, 871 (1960).
20 ., Mabanag v. Lopez Vito, 78 Phil. 1 (1947); Casco (Phil.) Inc. v. Gimenez, 7 SCRA 347 (1963); Morales v. Subido, 27 SCRA 131 (1969).
E.g
21 Mabanag v. Lopez Vito, note 20.
supra
22 Morales v. Subido, note 20.
supra
23 Astorga v. Villegas, 56 SCRA 714 (1974).
24 ., Alalayan v. National Power Corp., 24 SCRA 172 (1968); Cordero v. Cabatuando, 6 SCRA 418 (1962); Sumulong v. COMELEC, 73 Phil.
288 (1941).
See, e.g
25 40 Phil. 224 (1919).
26 Art. VI, 28(4) provides: "No law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of
the Congress."
27 Associated Press v. NLRB, 301 U.S. 103, 132, 81 L.Ed. 953, 961 (1937).
28 297 U.S. 233, 80 L.Ed. 660 (1936).
29 297 U.S. at 250, 80 L.Ed. at 669.
30 Minneapolis Star v. Minnesota Commissioner of Revenue, 460 U.S. 575, 75 L.Ed.2d 295 (1983).
31 460 U.S. at 591, 75 L.Ed. 2d at 308-9 (1983).
32 481 U.S. 221, 95 L.Ed. 2d 209 (1987).
33 103(t) of the NIRC exempts from the VAT "Sale or lease of goods or properties or the performance of services other than the transactions
mentioned in the preceeding paragraphs, the gross annual sales and/or receipts [of which] do not exceed the amount prescribed in regulations
to be promulgated by the President upon the recommendation by the Secretary of Finance which shall not be less than Four hundred eighty
thousand pesos (P480,000.00) or more than Seven hundred twenty thousand pesos (P720,000.00) subject to tax under Section 112 of this
Code."
34 297 U.S. at 250, 80 L.Ed. at 668.
35 460 U.S. at 581, 75 L.Ed. 2d at 302.
36 493 U.S. 378, 107 L.Ed. 2d 796 (1990).
37 107 of the NIRC provides: "Any person subject to a value-added tax under Sections 100 and 102 of this Code shall register with the
appropriate Revenue District Officer and pay an annual registration fee in the amount of One thousand pesos (P1,000.00) for every separate
or distinct establishment or place of business and every year thereafter on or before the last day of January. Any person just commencing a
business subject to the value-added tax must pay the fee before engaging therein. . . ."
38 101 Phil. 386 (1957).
39 319 U.S. 105, 113, 87 L.Ed. 1292 (1943).
40 319 U.S. at 114, 87 L.Ed. 1292 at 1298. For the same reason, in People v. Korins, 385 N.Y.S. 2d 474 (1976) a decision of the city court of
Utica, Oneida County held that to apply an ordinance requiring a business license to be obtained before a person could sell newspapers in the
streets would be to impose a prior restraint on press freedom because "a newspaper is not in the same category as pineapple or a soap
powder or a pair of shoes" whose sale may be conditioned on the possession of a business license.
41 P.A. FREUND, ON UNDERSTANDING THE SUPREME COURT 11 (1950), quoted in Ermita, Malate Hotel and Motel Operators Ass'n v.
City Mayor, 21 SCRA 449, 459 (1967).

Page 229 of 403

42 Art. VI, 28(1). Related to this argument is the claim that Republic Act No. 7716 likewise infringes the Due Process and Equal Protection
Clauses of the Bill of Rights, Art. III, 1(1).
43 Neri, "In Support of the Expanded Value-Added Tax," (CRC Economic Policy Papers No. 5, 1994) pp. 3-4.
44 Lutz v. Araneta, 98 Phil. 148, 153 (1955)
Cf.
45 Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas Inc. v. Tan, 163 SCRA 371.
46 Philippine American Life Ins. Co. v. Auditor General, 22 SCRA 135 (1968)
Cf.
47 E.M. FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 560-561 (2d Ed., 1977).
See
48 The term is Professor Jaffe's (JUDICIAL CONTROL OF ADMINISTRATIVE ACTION (1965)) adopted by Justice Harlan in his dissent in
Flast v. Cohen, 392 U.S. 83, 119-120, 20 L.Ed.2d 947, 973 (1968) to distinguish between the personal and proprietary interest of traditional
plaintiffs and the public interest of a citizen suing in a public action. The term was mentioned by some members of this Court in the Lotto case
(Kilosbayan, Inc. v. Guingona, G.R. No. 113375, May 5, 1994).
49 Compare Justice Laurel: "Even then, this power of judicial review is limited to actual cases and controversies to be exercised after full
opportunity of argument by the parties, and limited further to the constitutional question raised or the very presented. Any attempt at
abstraction could only lead to dialectics and barren legal questions and to sterile conclusions unrelated to actualities." Angara v. Electoral
Commission, 63 Phil. 139, 158 (1936).
lis mota
50 1 Cranch 137, 2 L.Ed. 60 (1803) (emphasis added).
51 note 49 (emphasis added).
Supra
52 People v. Vera, 65 Phil. 56, 94 (1937); Taada v. Cuenco, 103 Phil. 1051, 1061-2 (1957); Macias v. COMELEC, 3 SCRA 1, 7-8 (1961).
NARVASA, C.J., concurring:
1 Resolution "Urging the Senate Committee on Ways and Means to Study the Proposal to Exempt Local Movie Producers from the Payment
of the Value-Added Tax as an Incentive to the Production of Quality and Wholesome Filipino Movies Whenever they Feature an All-Filipino
Cast of Actors and Actresses"
2 Italics supplied
3 Giving "conclusive" character to copies of Acts of the Philippine Commission which have been signed by its presiding officers and
secretaries
PADILLA, J.: Separate Opinion:
1 G.R. No. 81311, 30 June 1988, 163 SCRA 371.
2 Bautista v. Salonga, G.R. No. 86439, 13 April 1989, 172 SCRA 160.
3 Kapatiran, at 385
supra
4 Sec. 1, Art. VIII.
5 G.R. No. 103371, 11 November 1993.
6 7 SCRA 347.
7 Mabanag v. Lopez Vito, 78 Phil. 1.
8 34 Phil. 729.
9 Executive Order No. 273, in Sec. 103(f), had exempted this kind of income from the VAT. Rep. Act. No. 7716 removed the exemption.
10 United States v. Bustos, 37 Phil. 731.

Page 230 of 403

11 297 U.S. 233.
12 372 U.S. 58.
13 American Bible Society v. City of Manila, 101 Phil. 386.
REGALADO, J.: Dissenting:
1 In substitution of H.B. Nos. 253, 771, 2450, 7033, 8086, 9030, 9210, 9297, 10012 and 10100 which were filed over the period from July 22,
1992 to August 3, 1993.
2 P.S. Res. No. 734 had earlier been filed in the Senate on September 10, 1992, while S.B. No. 1129 was filed on March 1, 1993.
3 220 U.S. 107, 55 L.Ed. 389 (1911).
4 Consolidated Comment 36-37.
5 Consolidated Memorandum for Respondents, 56-57.
6 Orquiola, H.M., Annotated Rules of the Senate and Procedure, Precedents and Practices of the Senate of the Republic of the Philippines
since 1946, 1991 Ed., 108.
7 Black's Law Dictionary, 4th Ed. (1951), 381, citing Fairview vs. Durham, 45 Iowa 56.
8 34 Phil. 729 (1916).
9 78 Phil. 1 (1947).
10 L-17931, February 28, 1963, 7 SCRA 347.
11 L-29658, February 27, 1969, 27 SCRA 131.
12 G.R. No. 105371, November 11, 1993, 227 SCRA 703.
13 103 Phil. 1051 (1957).
14 L-46640, October 12, 1976, 73 SCRA 333.
15 G.R. No. 86344, December 21, 1989, 180 SCRA 496.
16 Consolidated Memorandum for Respondents, 79-82.
17 Brailsford vs. Walker, 31 S.E. 2d 385, 387, 388, 205 S.C. 228.
18 110 So. 343, 346.
19 602 South Western Reporter, 2d Series, 402-425, jointly deciding Carrollton Wholesale Tobaccos, Inc. et al. vs. Department of Revenue, et
al., and Bluegrass Provisions Co., Inc., et al. vs. Department of Revenue, et al.
DAVIDE JR., J.: Dissenting:
1 1971 ed., 1592.
2 Sixth Edition (1990), 565, citing Standard Oil Co. of Texas vs. State, Tex. Civ. App., 142 S.W. 2d 519, 521, 522, 523.
3 21 SCRA 665, 673 [1967].
4 Section 52 and 53, Rule XXIII
5 Section 57, Rule XXV.
6 Section 26(2), Article VI, Constitution; paragraph (7), Section 57, Rule XXV.
7 Section 69, Rule XIV.
8 Section 77, .
Id
9 Section 82, Rule XIV.
10 Sections 77-81, .

Page 231 of 403

Id
11 Section 82, ., in relation to Section 26(2), Article VI, Constitution.
Id
12 Section 26(2), Article VI, Constitution.
13 Volume I, Eight Edition, Chapter VI, 267. See Miller vs. Mardo, 2 SCRA 539 [1961]; Everlasting Pictures, Inc. vs. Fuentes, 3 SCRA 539
[1961].
14 Consolidated Memorandum for Respondents, Annexes "2" to "12," inclusive.
15 Consolidated Memorandum for Respondents, 18.
16 ., Annex "9."
Id
17 ., Annex "1."
Id
18 ., 18.
Id
19 ., Annex "15." Entitled "An Act Restructuring the Value-Added Tax (VAT) System By Expanding Its Tax Base, Amending Sections 103, 113,
114, of the National Internal Revenue Code, as Amended."
Id
20 ., Annex "17."
Id
21 ., 20.
Id
22 Emphasis supplied.
23 Consolidated Memorandum for Respondents, 55-56.
24 Consolidated Memorandum for Respondent, Annex "17." Two signed with reservations and four signed subject to amendments.
25 And companion cases, 220 U.S. 107, 55 L.Ed. 389 [1911].
26 Page 56.
27 232 U.S. 309, 58 L ed. 117 [1914].
28 , 309, n. 2 [1945].
Introduction to American Government
29 At 317.
30 Consolidated Memorandum for Respondents, 20-21.
31 ., Annex "14."
Id
32 ., Annex "1."
Id
33 Consolidated Memorandum for Respondents, Annex "18."
34 Page 22.

Page 232 of 403

35 Consolidated Memorandum for Respondents, Annex "18."
36 ., Annex "19."
Id
37 ISAGANI A. CRUZ, , 1991 ed., 226; Daza vs. Singson, 180 SCRA 496 [1989]; Coseteng vs. Mitra, 187 SCRA 377 [1990]; Gonzales vs.
Macaraig, 191 SCRA 452 [1990]; Llamas vs. Orbos, 202 SCRA 844 [1991]; Bengzon vs. Senate Blue Ribbon Committee, 203 SCRA 767
[1991]; Oposa vs. Factoran, 224 SCRA 792 [1993].
Philippine Political Law
38 56 SCRA 714, 719, 723 [1974].
39 78 Phil. 1 [1947].
40 Mutoc vs. COMELEC, 36 SCRA 228 [1970].
ROMERO, J.: Dissenting:
1 Vitug, Jose C., COMPENDIUM OF TAX LAW AND JURISPRUDENCE, Third Revised Edition, 1993 at 201.
2.
Ibid
3.
Ibid
4 L-81311, June 30, 1988, 163 SCRA 371 with Justice Teodoro R. Padilla as .
ponente
5 at 378.
Ibid
6 at 385.
Ibid
7 Senate Resolution No. 734 filed on September 10, 1992 was entitled "Resolution Urging the House Committee on Ways and Means to
Study the Proposal to Exempt Local Movie Producers from the Payment of the Value-Added Tax as an Incentive to the Production of Quality
and Wholesome Filipino Movies, Whenever They Feature an All-Filipino Cast of Actors and Actresses."
8 SB No. 1129 sought to include under the VAT Law such items as lease of real properties, excluding agricultural lands and residential
properties with monthly rentals of less than P10,000.00; hotels; restaurants, eating places, caterers; services by persons in the exercise of
their professions; actors, actresses, talents, singers and professional athletes; and lawyers, accountants, doctors and other professionals
registered with the Philippine Regulatory Commission.
9 On June 1, 1993, President Fidel V. Ramos certified for immediate enactment House Bill No. 9210 entitled "An Act Amending Title IV and
Sections 237 and 238 of the National Internal Revenue Code, as amended, to meet a public emergency."
10 House Bill No. 11197 is entitled "An Act Restructuring the Value-Added Tax (VAT) System to Widen its Tax Base and Enhance Its
Administration, Amending for these Purposes Sections 99, 100, 102, 103, 104, 105, 106, 107, 108 and 110 of Title IV, 112, 115 and 116 of Title
V, and 236, 237, and 238 of Title IX and Repealing Sections 113 and 114 of Title V, all of the National Internal Revenue Code, as Amended."
11 Senate Bill No. 1630 is entitled "An Act Restructuring The Value-Added Tax (VAT) System to Widen its Tax Base and Enhance its
Administration, Amending for these Purposes Sections 99, 100, 102, 103, 104, 105, 107, 108 and 110 of Title IV, 112 of Title V, and 236, 237
and 238 of Title IX, and Repealing Sections 113, 114 and 116 of Title V, all of the National Internal Revenue Code, as Amended, and for other
Purposes."
12 Republic Act No. 7716 is entitled "An Act Restructuring The Value-Added Tax (VAT) System, Widening Its Tax Base and Enhancing Its
Administration, And For These Purposes Amending And Repealing The Relevant Provisions Of The National Internal Revenue Code, as
amended, and for other purposes."
13 Article VI, Section 24: "All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and
private bills shall originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments."
14 Article VI, Section 26, paragraph 2: "No bill passed by either House shall become a law unless it has passed three readings on separate
days, and printed copies thereof in its final form have been distributed to its Members 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 the last reading of a bill, no
amendment thereto shall be allowed, and the vote thereon shall be taken immediately thereafter, and the and entered in the Journal."
yeasnays

Page 233 of 403

15 Article III, Section 1: "No person shall be deprived of life, liberty, or property without due process of law, nor shall any person be denied the
equal protection of the laws."
16 Article III, Section 4: "No law shall be passed abridging the freedom of speech, of expression, or of the press, or the right of the people
peaceably to assemble and petition the government for redress of grievances."
17 Article III, Section 5: "No law shall be made respecting an establishment of religion, or prohibiting the free exercise and enjoyment of
religious profession and worship, without discrimination or preference, shall forever be allowed. No religious test shall be required for the
exercise of civil or political rights."
18 Article III, Section 10: "No law impairing the obligation of contracts shall be passed."
19 Article VI, Section 28, paragraph 1: "The rules of taxation shall be uniform and equitable. The Congress shall evolve a progressive system
of taxation."
20 Article VI, Section 28, paragraph 3: "Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit
cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or educational
purposes shall be exempt from taxation."
21 Constitution, Article VIII, Section 1.
22 Volume One, CONCOM RECORD, p. 436.
23 Luz Farms v. The Hon. Secretary of the Department of Agrarian Reform, G.R. No. 86889, December 4, 1990, 192 SCRA 51; Dumlao, et al.
v. Commission on Elections, G.R. No. 72245, January 22, 1980, 95 SCRA 392; People v. Vera, 65 Phil. 56 (1937).
24 328 P. 2d 644 (1958).
25 Aruego, Jose M., PHILIPPINE POLITICAL LAW, KNOW YOUR CONSTITUTION, University Publishing Co., 1950, pp. 65-66.
26 Sinco, Vicente G., PHILIPPINE POLITICAL LAW, Eleventh Edition, p. 196.
27 Remarks of Commissioner Eulogio Lerum: "At a time when we did not have a lawmaking body after martial law was declared, there were
tripartite conferences called by the President for the purpose of acting as a recommendatory body regarding settlement of labor and
management disputes. During the said conferences, labor had shown that it can act with maturity. As a result, in 1976, an amendment was
introduced in the Constitution providing for sectoral representation. In the Constitution that was approved, the number of sectors was not
indicated. However, in the Election Code of 1978, it provided for three sectors; namely, industrial labor, agricultural labor and the youth. The
agricultural labor was given four seats; two for Luzon, one for the Visayas and one for Mindanao. The same is true with the industrial labor
sector. As far as the youth are concerned, they were also given four seats: two for Luzon, one for Mindanao and one for the Visayas, with the
condition that there will be an additional two at large. And so, the youth had six representatives plus four from the agricultural labor sector and
four from the industrial labor sector we had 14 seats.
In 1981, the Constitution was again amended. In the course of the amendment, the labor representatives in the Batasang Pambansa
proposed that sectoral representation be included as a permanent addition to the lawmaking body.
Again, in that Constitution which was approved in 1981, the number and the name of the sectors were not indicated. However, in the Election
Code that was approved before the 1984 election, there was really a definition of who will constitute the sectors and how they will be
appointed. Let me quote from that law that was passed in 1984. Under Section 27 of Batas Pambansa Blg. 881, the scope of the sectors has
been defined as follows:
The agricultural labor sector covers all persons who personally and physically till the land as their principal occupation. It includes agricultural
tenants and lessees, rural workers and farm employees, owner-cultivators, settlers and small fishermen.
The industrial labor sector includes all nonagricultural workers and employees.
The youth sector embraces persons not more than twenty-five years of age." (Volume Two, CONCOM RECORD, p. 564).
28 City Mayor, et al. v. The Chief, Philippine Constabulary and Col. Nicanor Garcia, L-20346, October 31, 1967, 21 SCRA 673.
29 Transcript of the Stenographic Notes (TSN) on the Hearing Had on Thursday, July 7, 1994, pp. 18-19: JUSTICE FLERIDA RUTH P.
ROMERO:
Q Mr. Counsel, may I interrupt at this stage?
When you say that according to the Constitution such Revenue Bills should originate exclusively from the House. In this instance, did it not
originally originate exclusively from the House.?
The word used was not "solely"; if there were Bills later also introduced, let us say in the Senate, but the House Bill came ahead.
So, are you using the two (2) words originate "exclusively" and "solely" synonymously?
SENATOR TOLENTINO:
A The verb "originate" remains the same, Your Honor, but the word "exclusively", as I said, means "solely." . . .
30 H.B. 771 exempting the sale of copra from VAT coverage; H.B. 2450 exempting the lessors or distributors of cinematographic films
from paying the VAT; H.B. 7033 amending Sec. 103 of the National Internal Revenue Code, as amended by EO 273; H.B. 8086

Page 234 of 403

exempting packaging materials of export products from the VAT; H.B. 9030 amending Sec. 120 of the NIRC, as renumbered by EO 273;
H.B. 9210 amending Title IV and Section 237 and 238 of the NIRC; H.B. 9297 restructuring the VAT system by expanding its tax base,
and amending Sections 99, 100 (A), 102 (A), 103, 113, 114, 115 and 116 of the NIRC; H.B. 10012 reducing the rate of VAT imposed on sale
and importation of goods, and sale of services; H.B. 10100 amending certain provisions of the NIRC on VAT.
31 Explanatory Note of House Bill No. 9210.
32 Excerpts from the April 19, 1994 meeting of the Bicameral Conference Committee: "CHAIRMAN Javier. First of all, what would be the
basis, no, or framework para huwag naman mawala yung personality namin dito sa bicameral, no, because the bill originates from the House
because this is a revenue bill, so we would just want to ask, , and then everything will just be inserted?
we make the House Bill as the frame of reference
"HON. MACEDA. Yes, That's true for every revenue measure. There's no other way. . Of course, for the record, we know that this is an
administration bill; this is certified by the president and I was about to put into the records as I am saying now that your problem about the
impact on prices on the people was already decided when the President and the administration sent this to us and certified it. They have
already gotten over that political implication of this bill and the economic impact on prices.
The House Bill has got to be the base
"CHAIRMAN HERRERA. is something that we can just . . . .
Yung concern mo about the bill as the reference in this discussion
"CHAIRMAN JAVIER. We will just . . . ."
all the amendments will be coming from the Senate
33 Article VI, Section 1.
34 Transcript of the Stenographic Notes (TSN) on the Hearing Had on Thursday, July 7, 1994, pp. 45-46.
"Justice Romero: Q: Mr. Counsel, is it not a fact that in the Bicameral Conference Committee, you presented a Motion to return the Bill as it
was to the Lower House with also your proposal that this be referred to a Referendum for the entire nation to vote upon, then Senator
Wigberto Taada amended your Motion and convinced you to drop that portion about referral to a Referendum and you agreed.
So, that Motion of yours to return to the House was the one voted upon by the Bicameral Conference Committee and it lost.
What can you say to that?
Senator Tolentino: A: No, no, if Your Honor please. My Motion was voted upon by the Senate itself because I presented that said Motion in
order to recall the Bill from the Bicameral Conference Committee so that the Senate could go back to the period of amendment and see if we
could amend the House Bill itself, but that was defeated. So, it became academic. Thus, what we did we proceeded with the procedure
already being followed by the Senate.
I thought, as a matter of fact, that was the one way of correcting this procedural error, but I was only one (1), or two (2), or three (3) of us only,
then we were defeated in the voting, if Your Honor please.
Justice Romero: Q: You mean you were outvoted?
Senator Tolentino: A: Yes, Your Honor; we were actually slaughtered in the voting, so to speak, if Your Honor please."
35 The certification states: "This Act which is a consolidation of House Bill No. 11197 and Senate Bill No. 1630 was finally passed by the
House of Representatives and the Senate on April 7, 1994 and May 2, 1994, respectively."
36 BLACK'S LAW DICTIONARY, 5th Ed. (1979).
37 Field v. Clark, 143 U.S. 649, 36 L ed. 294.
38 Mason, Paul, MASON's MANUAL OF LEGISLATIVE PROCEDURE, 1953.
39 Cohn v. Kingsley, 49 P. 985 (1897).
40 Smith v. Thompson, 258 N.W. 190.
41 602 S.W. 2d 420 (1980).
42 34 Phil. 729 (1916).
43 at 733.
Ibid
44 at 733-734.

Page 235 of 403

Ibid
45 at 735.
Ibid
46 78 Phil. 1 (1947).
47 at 3.
Ibid
48 at 18.
Ibid
49 117 Phil. 363 (1963).
50 136 Phil. 405, 409 (1969).
51 at 412.
Ibid
52 G.R. No. 105371, November 11, 1993, 227 SCRA 703.
53 Davies, Jack, LEGISLATIVE LAW AND PROCESS, 2nd ed., 1986.
54 Petition in G.R. No. 115781, p. 18.
55 Petition in G.R. No. 115543, pp. 2-3.
56 Davies, Jack, at 90.
supra
57 Sutherland, J.G., STATUTES AND STATUTORY CONSTRUCTION, Vol. I, 4th ed., pp. 293-294.
58 Page 261.
59 Page 268.
60 Davies, , at 65.
supra
61 Sec. 764, p. 541.
62 Consolidated Memorandum for Respondents, p. 71.
63 Pages 404-405 and 407.
64 Davies, , at 81.
supra
65 : 18 Words and Phrases 482 citing Kennedy v. Truss, Del. Super., 13 A. 2nd 431, 435, 1 Terry 424 (1940).
See
66 United States Gypsum Co. v. State, Dept. of Revenue, 110 N.W. 2d 698, 71, 363 Mich. 548 (1961).
67 BLACK's DICTIONARY, 6th ed., p. 687 citing State Riley v. District Court of Second Judicial Dist. in and for Silver Bow County, 103 Mont.
576, 64 P. 2d 115, 119 (1937).
ex. rel.
68 CONGRESSIONAL RECORD, May 3, 1951, p. 885 cited in Orquiola, , 1991 ed., pp. 40-41.
Annotated Rules of the Senate

Page 236 of 403

69 Article III, Section 7. "The right of the people to information on matters of public concern shall be recognized. Access to official records, and
to documents, and papers pertaining to official acts, transactions, or decisions, as well as to government research data used as basis for
policy development, shall be afforded the citizen, subject to such limitations as may be provided by law."
70 Article II, Section 28. "Subject to reasonable conditions prescribed by law, the State adopts and implements a policy of full public disclosure
of all its transactions involving public interest."
71 Article VI, Section 1.
72 D & W Auto Supply v. Department of Revenue, .
supra
73 The Philippine Judges Association v. Hon. Pete Prado, G.R. No. 105371, November 11, 1993, 227 SCRA 703, 709.
74 In Osmea, Jr. v. Pendatun (109 Phil. 863 [1960]), the Court held that parliamentary rules are merely procedural and they may be waived
or disregarded by the legislative body. Hence, mere failure to conform to parliamentary usage will not invalidate the action taken by a
deliberative body when the requisite number of members have agreed to a particular measure.
75 State v. Essling, 128 N.W. 2d 307, 316 (1964).
76 Sarasola v. Trinidad, 40 Phil. 252, 262 (1919).
77 Sison, Jr. v. Ancheta, L-59431, July 25, 1984, 130 SCRA 654, 660.
78 McCullock v. Maryland, 4 Wheaton 316.
79 Quoted in Graves. v. New York, 306 U.S. 466, 490.
PUNO, J.: Dissenting:
1 April 13, 19, 20, 21, and 25, 1994.
2 See also Annex "A", Memorandum of Petitioner Kilosbayan in G.R. No. 115781; also the Petition in G.R. No. 115543, pp. 2-3.
3 See p. 66 of the Consolidated Memorandum for Respondents where they refer to certain statements from Canlan, Weightson and Beam but
without citing their specific book or article.
4 See Rule 49 of the Rules of the Senate.
5 See p. 22 Memorandum of Petitioners in G.R. No. 115781 citing Jefferson's Manual and Rules of the House of Representatives, by Lewis
Deschler, Parliamentarian, U.S. Government Printing Office, 1967, p. 264.
6 , citing Riddick, Senate Procedure: Precedents and Practices, US Senate, 1981, US Government Printing Office, pp. 383-384.
Ibid
7 Section 2, Article VI.
8 Section 5(1), Article VI.
9 Sutherland, Statutory Construction, 3rd ed., Vol. I, p. 151.
10 Legislative Procedure, 1922 ed., Riverside Press, p. 404.
11 Legislative Law and Process in a Nut Shell, West Publishing Co., 1986 ed., p. 81.
12 .
Ibid
13 Manual of Legislative Procedure for Legislative and other Governmental Bodies, McGraw Hill Co., Inc., 1953 ed., pp. 32-33.
14 82 CJS 136.
15 Statutory Construction, 3rd ed., Vol. I., p. 223.
16 ., pp. 224-225 citing Barndall Refining v. Welsh, 64 S.D. 647, 269 N.W. 853, 859 [1936]. Jones, Constitutional Provisions Regulating the
Mechanics of Enactment in Iowa (1935), 21 Iowa Law Rev. 79, Charlton, Constitutional Regulation of Legislative Procedure (1936), 21 Iowa
Law Rev. 538; Note (1936) 21 Iowa Law Rev. 573.
Op. cit

Page 237 of 403

17 See Mabanag v. Lopez Vito, 78 Phil. Rep. 1 [1947]; Casco Phil. Chemical Co. v. Gimenez, L-17931, February 28, 1963; Morales v. Subido,
No. L-29658, February 27, 1969 27 SCRA 131; Phil. Judges Association v. Prado, G.R. No. 105371, November 11, 1993.
18 Record, Constitutional Commission, Vol. I, p. 436; see also, Bernas, The Constitution of the Republic of the Philippines. A Commentary,
1988 ed., p. 255.
19 Citing Marbury v. Madison, 1 Cranch 137 L. ed [1803].
20 Article VIII, section 2.
21 Article VIII, section 3.
22 Article VIII, section 8.
23 Article VIII, section 9.
24 Article VIII, section 4(1).
25 Article VIII, section 9.
26 Article VIII, section 6.
27 Article VIII, section 12.
28 Article VII, section 18.
BELLOSILLO, J.: Dissenting:
1 See McGee v. Republic, 94 Phil. 821 (1954).
2 See Taada v. Cuenco, 103 Phil. 1051 (1957).
3 See Majority Opinion, p. 15, citing Rainey v. United States, 232 U.S., 309, 58 Law Ed. 617.
4 ., citing F.A. Ogg and P.O. Ray, Introduction to American Government, 302, n. 2 (1945).
Id
5 See Note 3.
6 22 U.S. 107.
7 11 Am. Jur., pp. 712-13, 713-715.
It is my submission that the power and authority to originate revenue bills under our Constitution is vested in the House of Representatives. Its members
being more numerous than those of the Senate, elected more frequently, and more directly represent the people, are therefore considered better aware
of the economic life of their individual constituencies. It is just proper that revenue bills originate from them.
exclusivelyexclusively
In this regard, we do not have to devote much time delving into American decisions and opinions and invoke them in the interpretation of our own
Constitution which is different from the American version, particularly on the enactment of revenue bills. We have our own Constitution couched in a
language our own legislators thought best. Insofar as revenue bills are concerned, our Constitution is not American; it is distinctively Filipino. And no
amplitude of legerdemain can detract from our constitutional requirement that all appropriation, revenue or tariff bills, bills authorizing increase of the
public debt, bills of local application, and private bills shall originate in the House of Representatives, although the Senate may propose or concur with
amendments.
exclusively
In this milieu, I am left no option but to vote to grant the petitions and strike down R.A. 7716 as unconstitutional.

#Footnotes

The Lawphil Project - Arellano Law Foundation

Page 238 of 403

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-59431 July 25, 1984
ANTERO M. SISON, JR., petitioner,
vs.
RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue; ROMULO VILLA, Deputy Commissioner,
Bureau of Internal Revenue; TOMAS TOLEDO Deputy Commissioner, Bureau of Internal Revenue; MANUEL
ALBA, Minister of Budget, FRANCISCO TANTUICO, Chairman, Commissioner on Audit, and CESAR E. A. VIRATA,
Minister of Finance, respondents.
Antero Sison for petitioner and for his own behalf.
The Solicitor General for respondents.
FERNANDO, C.J.:
The success of the challenge posed in this suit for declaratory relief or prohibition proceeding 1 on the validity of Section I
of Batas Pambansa Blg. 135 depends upon a showing of its constitutional infirmity. The assailed provision further amends
Section 21 of the National Internal Revenue Code of 1977, which provides for rates of tax on citizens or residents on (a)
taxable compensation income, (b) taxable net income, (c) royalties, prizes, and other winnings, (d) interest from bank
deposits and yield or any other monetary benefit from deposit substitutes and from trust fund and similar arrangements,
(e) dividends and share of individual partner in the net profits of taxable partnership, (f) adjusted gross
income. 2 Petitioner 3as taxpayer alleges that by virtue thereof, "he would be unduly discriminated against by the
imposition of higher rates of tax upon his income arising from the exercise of his profession vis-a-vis those which are
imposed upon fixed income or salaried individual taxpayers. 4 He characterizes the above sction as arbitrary amounting to
class legislation, oppressive and capricious in character 5 For petitioner, therefore, there is a transgression of both the
equal protection and due process clauses 6 of the Constitution as well as of the rule requiring uniformity in taxation. 7
The Court, in a resolution of January 26, 1982, required respondents to file an answer within 10 days from notice. Such an
answer, after two extensions were granted the Office of the Solicitor General, was filed on May 28, 1982. 8 The facts as
alleged were admitted but not the allegations which to their mind are "mere arguments, opinions or conclusions on the
part of the petitioner, the truth [for them] being those stated [in their] Special and Affirmative Defenses." 9 The answer then
affirmed: "Batas Pambansa Big. 135 is a valid exercise of the State's power to tax. The authorities and cases cited while
correctly quoted or paraghraph do not support petitioner's stand." 10 The prayer is for the dismissal of the petition for lack
of merit.
This Court finds such a plea more than justified. The petition must be dismissed.
1. It is manifest that the field of state activity has assumed a much wider scope, The reason was so clearly set forth by
retired Chief Justice Makalintal thus: "The areas which used to be left to private enterprise and initiative and which the
government was called upon to enter optionally, and only 'because it was better equipped to administer for the public
welfare than is any private individual or group of individuals,' continue to lose their well-defined boundaries and to be
absorbed within activities that the government must undertake in its sovereign capacity if it is to meet the increasing social
challenges of the times." 11 Hence the need for more revenues. The power to tax, an inherent prerogative, has to be
availed of to assure the performance of vital state functions. It is the source of the bulk of public funds. To praphrase a
recent decision, taxes being the lifeblood of the government, their prompt and certain availability is of the essence. 12
2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is the strongest of all the
powers of of government." 13 It is, of course, to be admitted that for all its plenitude 'the power to tax is not unconfined.
There are restrictions. The Constitution sets forth such limits . Adversely affecting as it does properly rights, both the due
process and equal protection clauses inay properly be invoked, all petitioner does, to invalidate in appropriate cases a
revenue measure. if it were otherwise, there would -be truth to the 1803 dictum of Chief Justice Marshall that "the power
to tax involves the power to destroy." 14 In a separate opinion in Graves v. New York, 15 Justice Frankfurter, after
referring to it as an 1, unfortunate remark characterized it as "a flourish of rhetoric [attributable to] the intellectual fashion

Page 239 of 403

of the times following] a free use of absolutes." 16 This is merely to emphasize that it is riot and there cannot be such a
constitutional mandate. Justice Frankfurter could rightfully conclude: "The web of unreality spun from Marshall's famous
dictum was brushed away by one stroke of Mr. Justice Holmess pen: 'The power to tax is not the power to destroy while
this Court sits." 17 So it is in the Philippines.
3. This Court then is left with no choice. The Constitution as the fundamental law overrides any legislative or executive,
act that runs counter to it. In any case therefore where it can be demonstrated that the challenged statutory provision
as petitioner here alleges fails to abide by its command, then this Court must so declare and adjudge it null. The injury
thus is centered on the question of whether the imposition of a higher tax rate on taxable net income derived from
business or profession than on compensation is constitutionally infirm.
4, The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation, as here. does not
suffice. There must be a factual foundation of such unconstitutional taint. Considering that petitioner here would condemn
such a provision as void or its face, he has not made out a case. This is merely to adhere to the authoritative doctrine that
were the due process and equal protection clauses are invoked, considering that they arc not fixed rules but rather broad
standards, there is a need for of such persuasive character as would lead to such a conclusion. Absent such a showing,
the presumption of validity must prevail. 18
5. It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary that it finds no support
in the Constitution. An obvious example is where it can be shown to amount to the confiscation of property. That would be
a clear abuse of power. It then becomes the duty of this Court to say that 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 held that where
the assailed tax measure is beyond the jurisdiction of the state, or is not for a public purpose, or, in case of a retroactive
statute is so harsh and unreasonable, it is subject to attack on due process grounds. 19
6. Now for equal protection. The applicable standard to avoid the charge that there is a denial of this constitutional
mandate whether the assailed act is in the exercise of the lice power or the power of eminent domain is to demonstrated
that the governmental act assailed, far from being inspired by the attainment of the common weal was prompted by the
spirit of hostility, or at the very least, discrimination that finds no support in reason. It suffices then that the laws operate
equally and uniformly on all persons under similar circumstances or that all persons must be treated in the same manner,
the conditions not being different, both in the privileges conferred and the liabilities imposed. Favoritism and undue
preference cannot be allowed. For the principle is that equal protection and security shall be given to every person under
circumtances which if not Identical are analogous. If law be looked upon in terms of burden or charges, those that fall
within a class should be treated in the same fashion, whatever restrictions cast on some in the group equally binding on
the rest." 20 That same formulation applies as well to taxation measures. The equal protection clause is, of course, inspired
by the noble concept of approximating the Ideal of the laws benefits being available to all and the affairs of men being
governed by that serene and impartial uniformity, which is of the very essence of the Idea of law. There is, however,
wisdom, as well as realism in these words of Justice Frankfurter: "The equality at which the 'equal protection' clause aims
is not a disembodied equality. The Fourteenth Amendment enjoins 'the equal protection of the laws,' and laws are not
abstract propositions. They do not relate to abstract units A, B and C, but are expressions of policy arising out of specific
difficulties, address to the attainment of specific ends by the use of specific remedies. The Constitution does not require
things which are different in fact or opinion to be treated in law as though they were the same." 21 Hence the constant
reiteration of the view that classification if rational in character is allowable. As a matter of fact, in a leading case of Lutz V.
Araneta, 22 this Court, through Justice J.B.L. Reyes, went so far as to hold "at any rate, it is inherent in the power to tax
that a state be free to select the subjects of taxation, and it has been repeatedly held that 'inequalities which result from a
singling out of one particular class for taxation, or exemption infringe no constitutional limitation.'" 23
7. Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution: "The rule of taxation shag
be uniform and equitable." 24 This requirement is met according to Justice Laurel in Philippine Trust Company v.
Yatco, 25 decided in 1940, when the tax "operates with the same force and effect in every place where the subject may be
found. " 26 He likewise added: "The rule of uniformity does not call for perfect uniformity or perfect equality, because this is
hardly attainable." 27 The problem of classification did not present itself in that case. It did not arise until nine years later,
when the Supreme Court held: "Equality and uniformity in taxation means that all taxable articles or kinds of property of
the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural
classifications for purposes of taxation, ... . 28 As clarified by Justice Tuason, where "the differentiation" complained of
"conforms to the practical dictates of justice and equity" it "is not discriminatory within the meaning of this clause and is
therefore uniform." 29 There is quite a similarity then to the standard of equal protection for all that is required is that the
tax "applies equally to all persons, firms and corporations placed in similar situation." 30
8. Further on this point. Apparently, what misled petitioner is his failure to take into consideration the distinction between a
tax rate and a tax base. There is no legal objection to a broader tax base or taxable income by eliminating all deductible
items and at the same time reducing the applicable tax rate. Taxpayers may be classified into different categories. To
repeat, it. is enough that the classification must rest upon substantial distinctions that make real differences. In the case of
the gross income taxation embodied in Batas Pambansa Blg. 135, the, discernible basis of classification is the
susceptibility of the income to the application of generalized rules removing all deductible items for all taxpayers within the
class and fixing a set of reduced tax rates to be applied to all of them. Taxpayers who are recipients of compensation
income are set apart as a class. As there is practically no overhead expense, these taxpayers are e not entitled to make
deductions for income tax purposes because they are in the same situation more or less. On the other hand, in the case
of professionals in the practice of their calling and businessmen, there is no uniformity in the costs or expenses necessary
to produce their income. It would not be just then to disregard the disparities by giving all of them zero deduction and
indiscriminately impose on all alike the same tax rates on the basis of gross income. There is ample justification then for

Page 240 of 403

the Batasang Pambansa to adopt the gross system of income taxation to compensation income, while continuing the
system of net income taxation as regards professional and business income.
9. Nothing can be clearer, therefore, than that the petition is without merit, considering the (1) lack of factual foundation to
show the arbitrary character of the assailed provision; 31 (2) the force of controlling doctrines on due process, equal
protection, and uniformity in taxation and (3) the reasonableness of the distinction between compensation and taxable net
income of professionals and businessman certainly not a suspect classification,
WHEREFORE, the petition is dismissed. Costs against petitioner.
Makasiar, Concepcion, Jr., Guerero, Melencio-Herrera, Escolin, Relova, Gutierrez, Jr., De la Fuente and Cuevas, JJ., concur.
Teehankee, J., concurs in the result.
Plana, J., took no part.
Separate Opinions
AQUINO, J., concurring:
I concur in the result. The petitioner has no cause of action for prohibition.
ABAD SANTOS, J., dissenting:
This is a frivolous suit. While the tax rates for compensation income are lower than those for net income such circumtance does not necessarily result in
lower tax payments for these receiving compensation income. In fact, the reverse will most likely be the case; those who file returns on the basis of net
income will pay less taxes because they claim all sort of deduction justified or not I vote for dismissal.
Separate Opinions
AQUINO, J., concurring:
I concur in the result. The petitioner has no cause of action for prohibition.
ABAD SANTOS, J., dissenting:
This is a frivolous suit. While the tax rates for compensation income are lower than those for net income such circumtance does not necessarily result in
lower tax payments for these receiving compensation income. In fact, the reverse will most likely be the case; those who file returns on the basis of net
income will pay less taxes because they claim all sort of deduction justified or not I vote for dismissal.
Footnotes
1 Petitioner must have realized that a suit for declaratory relief must be filed with Regional Trial Courts.
2 Batas Pambansa Blg. 135, Section 21 (1981).
3 The respondents are Ruben B. Ancheta, Acting Commissioner, Bureau of Internal Revenue; Romulo Villa, Deputy Commissioner,
Bureau of Internal Revenue; Tomas Toledo, Deputy Commissioner, Bureau of Internal Revenue; Manuel Alba, Minister of Budget;
Francisco Tantuico, Chairman, Commissioner on Audit; and Cesar E. A. Virata, Minister of Finance.
4 Petition, Parties, par. 1. The challenge is thus aimed at paragraphs (a) and (b) of Section 1 further Amending Section 21 of the
National Internal Revenue Code of 1977. Par. (a) reads: "(a) On taxable compensation income. A tax is hereby imposed upon the
taxable compensation income as determined in Section 28 (a) received during each taxable year from all sources by every
individual, whether a citizen of the Philippines, determined in accordance with the following schedule:

Not over P2,500

0%

Over P 2,500 but not over P 5,000

1%

Over P 5,000 but not over 10,000

P 25 + 3% of excess over P 5,000

Over P 10,000 but not over P 20,000

P 175 + 7 % of excess over P 10,000

Page 241 of 403

Over P 20,000 but not over P 40,000

P 875 + 11%, of excess over P 20,000

Over P 40.000 but not over P 60,000

P 3,075 + I 15% of excess over P 40,000

Over P 60,000 but not over P100,000

P 6,075 + 19% of excess over P 60,000

Over P100,000 but not over P250,000

P 13,675 + 24% excess over P100,000

Over P250,000 but not over P500,000

P 49,675 + 29% of excess over P250,000

Over P500,000

P 122,175 + 35% of excess over P500,000

Par. (b) reads: "(b) On taxable net income. A tax is hereby imposed upon the taxable net income as determined in Section 29 (a)
received during each taxable year from all sources by every individual, whether a citizen of the Philippines, or an alien residing in
the Philippines determined in accordance with the following schedule:

Not over P10,000

5%

Over P 10,000 but not over P 30,000

P 500 + 15% of excess over P 10,000

Over P 30,000 but not over P150,000

P 3,500 + 30% of excess over P 30,000

Over P150,000 but not over P500,000

P 39,500 + 45% of excess over P150,000

Over P500,000

P197,000 + 601% of excess over P500,000

5 Ibid Statement, par. 4.

6 Article IV, Section 1 of the Constitution reads: "No person shall be deprived of life, liberty or property without due process of law,
nor shall any person be denied the equal protection of the laws."
7 Article VII, Section 7. par. (1) of the Constitution reads: "The rule of taxation shall be uniform and equitable. The Batasang
Pambansa shall evolve a progressive system of taxation."
8 It was filed by Solicitor General Estelito P. Mendoza. He was assisted by Assistant Solicitor General Eduardo D. Montenegro and
Solicitor Erlinda B, Masakayan.
9 Answer, pars. 1-6.
10 Ibid, par. 6.
11 Agricultural Credit and Cooperative Financing Administration v. Consideration of Unions in Government Corporation and Offices,
L-21484, November 29, 1969, 30 SCRA 649, 662.
12 Cf, Vera v. Fernandez, L-31364, March 30, 1979, 89 SCRA 199, per Castro, J.
13 Sarasola v. Trinidad, 40 Phil. 252, 262 (1919).

Page 242 of 403

14 McColloch v. Maryland 4 Wheaton 316,
15 306 US 466 ( 938).
16 Ibid, 489
17 Ibid. 490.
18 Cf. Ermita-Malate Hotel and Motel Operator S Association v. Hon. City Mayor, 127 Phil. 306, 315 ( 1967); U.S. v. Salaveria, 39
Phil. 102,111 (1918) and Ebona v. Daet, 85 Phil, 369 (1950). Likewise referred to is O'Gorman and Young v. Hartford Fire Insurance
Co 282 US 251, 328 (1931).
19 Cf. Manila Gas Co. v. Collector of Internal Revenue, 62 Phil. 895 (1936); Wells Fargo Bank and Union Trust Co. v. Collector, 70
Phil. 325 (1940); Republic v. Oasan Vda. de Fernandez, 99 Phil. 934 (1956).
20 The excerpt is from the opinion in J.M. Tuason and Co. v. The Land Tenure Administration, L-21064, February 18, 1970, 31
SCRA 413, 435 and reiterated in Bautista v. Juinio, G.R. No. 50908, January 31, 1984, 127 SCRA 329, 339. The former deals with
an eminent domain proceeding and the latter with a suit contesting the validity of a police power measure.
21 Tigner v. Texas, 310 US 141, 147 (1940).
22 98 Phil. 148 (1955).
23 Ibid, 153.
24 Article VIII, Section 17, par. 1, first sentence of the Constitution
25 69 Phil. 420 (1940).
26 Ibid, 426.
27 Ibid, 424.
28 Eastern Theatrical Co. v. Alfonso, 83 Phil. 852, 862 (1949).
29 Manila Race Horse Trainers Asso. v. De la Fuente, 88 Phil. 60,65 (1951).
30 Uy Matias v. City of Cebu, 93 Phil. 300 (1953).
31 While petitioner cited figures to sustain in his assertion, public respondents refuted with other figures that argue against his
submission. One reason for requiring declaratory relief proceedings to start in regional trial courts is precisely to enable petitioner to
prove his allegation, absent an admission in the answer.

The Lawphil Project - Arellano Law Foundation

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 163583

April 15, 2009

BRITISH AMERICAN TOBACCO, Petitioner,

vs.
JOSE ISIDRO N. CAMACHO, in his capacity as Secretary of the Department of Finance and GUILLERMO L.
PARAYNO, JR., in his capacity as Commissioner of the Bureau of Internal Revenue, Respondents.
Philip Morris Philippines Manufacturing, Inc., fortune tobacco, corp., MIGHTY CORPOR.A.TION, and JT
InTERNATIONAL, S.A., Respondents-in-Intervention.
RESOLUTION
YNARES-SANTIAGO, J.:

Page 243 of 403

On August 20, 2008, the Court rendered a Decision partially granting the petition in this case, viz:
WHEREFORE, the petition is PARTIALLY GRANTED and the decision of the Regional Trial Court of Makati, Branch 61, in
Civil Case No. 03-1032, is AFFIRMED with MODIFICATION. As modified, this Court declares that:
(1) Section 145 of the NIRC, as amended by Republic Act No. 9334, is CONSTITUTIONAL; and that
(2) Section 4(B)(e)(c), 2nd paragraph of Revenue Regulations No. 1-97, as amended by Section 2 of Revenue
Regulations 9-2003, and Sections II(1)(b), II(4)(b), II(6), II(7), III (Large Tax Payers Assistance Division II) II(b) of
Revenue Memorandum Order No. 6-2003, insofar as pertinent to cigarettes packed by machine, are INVALID
insofar as they grant the BIR the power to reclassify or update the classification of new brands every two years or
earlier.
SO ORDERED.
In its Motion for Reconsideration, petitioner insists that the assailed provisions (1) violate the equal protection and
uniformity of taxation clauses of the Constitution, (2) contravene Section 19, 1 Article XII of the Constitution on unfair
competition, and (3) infringe the constitutional provisions on regressive and inequitable taxation. Petitioner further argues
that assuming the assailed provisions are constitutional, petitioner is entitled to a downward reclassification of Lucky
Strike from the premium-priced to the high-priced tax bracket.
The Court is not persuaded.
The assailed law does not violate the equal protection and uniformity of taxation clauses.
Petitioner argues that the classification freeze provision violates the equal protection and uniformity of taxation clauses
because Annex "D" brands are taxed based on their 1996 net retail prices while new brands are taxed based on their
present day net retail prices. Citing Ormoc Sugar Co. v. Treasurer of Ormoc City,2 petitioner asserts that the assailed
provisions accord a special or privileged status to Annex "D" brands while at the same time discriminate against other
brands.
These contentions are without merit and a rehash of petitioners previous arguments before this Court. As held in the
assailed Decision, the instant case neither involves a suspect classification nor impinges on a fundamental right.
Consequently, the rational basis test was properly applied to gauge the constitutionality of the assailed law in the face of
an equal protection challenge. It has been held that "in the areas of social and economic policy, a statutory classification
that neither proceeds along suspect lines nor infringes constitutional rights must be upheld against equal protection
challenge if there is any reasonably conceivable state of facts that could provide a rational basis for the
classification."3 Under the rational basis test, it is sufficient that the legislative classification is rationally related to
achieving some legitimate State interest. As the Court ruled in the assailed Decision, viz:
A legislative classification that is reasonable does not offend the constitutional guaranty of the equal protection of the laws.
The classification is considered valid and reasonable provided that: (1) it rests on substantial distinctions; (2) it is germane
to the purpose of the law; (3) it applies, all things being equal, to both present and future conditions; and (4) it applies
equally to all those belonging to the same class.
The first, third and fourth requisites are satisfied. The classification freeze provision was inserted in the law for reasons of
practicality and expediency. That is, since a new brand was not yet in existence at the time of the passage of RA 8240,
then Congress needed a uniform mechanism to fix the tax bracket of a new brand. The current net retail price, similar to
what was used to classify the brands under Annex "D" as of October 1, 1996, was thus the logical and practical choice.
Further, with the amendments introduced by RA 9334, the freezing of the tax classifications now expressly applies not just
to Annex "D" brands but to newer brands introduced after the effectivity of RA 8240 on January 1, 1997 and any new
brand that will be introduced in the future. (However, as will be discussed later, the intent to apply the freezing mechanism
to newer brands was already in place even prior to the amendments introduced by RA 9334 to RA 8240.) This does not
explain, however, why the classification is "frozen" after its determination based on current net retail price and how this is
germane to the purpose of the assailed law. An examination of the legislative history of RA 8240 provides interesting
answers to this question.
xxxx
From the foregoing, it is quite evident that the classification freeze provision could hardly be considered arbitrary, or
motivated by a hostile or oppressive attitude to unduly favor older brands over newer brands. Congress was unequivocal
in its unwillingness to delegate the power to periodically adjust the excise tax rate and tax brackets as well as to
periodically resurvey and reclassify the cigarette brands based on the increase in the consumer price index to the DOF
and the BIR. Congress doubted the constitutionality of such delegation of power, and likewise, considered the ethical
implications thereof. Curiously, the classification freeze provision was put in place of the periodic adjustment and
reclassification provision because of the belief that the latter would foster an anti-competitive atmosphere in the market.
Yet, as it is, this same criticism is being foisted by petitioner upon the classification freeze provision.

Page 244 of 403

To our mind, the classification freeze provision was in the main the result of Congresss earnest efforts to improve the
efficiency and effectivity of the tax administration over sin products while trying to balance the same with other State
interests. In particular, the questioned provision addressed Congresss administrative concerns regarding delegating too
much authority to the DOF and BIR as this will open the tax system to potential areas for abuse and corruption. Congress
may have reasonably conceived that a tax system which would give the least amount of discretion to the tax implementers
would address the problems of tax avoidance and tax evasion.
To elaborate a little, Congress could have reasonably foreseen that, under the DOF proposal and the Senate Version, the
periodic reclassification of brands would tempt the cigarette manufacturers to manipulate their price levels or bribe the tax
implementers in order to allow their brands to be classified at a lower tax bracket even if their net retail prices have
already migrated to a higher tax bracket after the adjustment of the tax brackets to the increase in the consumer price
index. Presumably, this could be done when a resurvey and reclassification is forthcoming. As briefly touched upon in the
Congressional deliberations, the difference of the excise tax rate between the medium-priced and the high-priced tax
brackets under RA 8240, prior to its amendment, was P3.36. For a moderately popular brand which sells around 100
million packs per year, this easily translates to P336,000,000. The incentive for tax avoidance, if not outright tax evasion,
would clearly be present. Then again, the tax implementers may use the power to periodically adjust the tax rate and
reclassify the brands as a tool to unduly oppress the taxpayer in order for the government to achieve its revenue targets
for a given year.
Thus, Congress sought to, among others, simplify the whole tax system for sin products to remove these potential areas
of abuse and corruption from both the side of the taxpayer and the government. Without doubt, the classification freeze
provision was an integral part of this overall plan. This is in line with one of the avowed objectives of the assailed law "to
simplify the tax administration and compliance with the tax laws that are about to unfold in order to minimize losses arising
from inefficiencies and tax avoidance scheme, if not outright tax evasion." RA 9334 did not alter this classification freeze
provision of RA 8240. On the contrary, Congress affirmed this freezing mechanism by clarifying the wording of the law. We
can thus reasonably conclude, as the deliberations on RA 9334 readily show, that the administrative concerns in tax
administration, which moved Congress to enact the classification freeze provision in RA 8240, were merely continued by
RA 9334. Indeed, administrative concerns may provide a legitimate, rational basis for legislative classification. In the case
at bar, these administrative concerns in the measurement and collection of excise taxes on sin products are readily
apparent as afore-discussed.
Aside from the major concern regarding the elimination of potential areas for abuse and corruption from the tax
administration of sin products, the legislative deliberations also show that the classification freeze provision was intended
to generate buoyant and stable revenues for government. With the frozen tax classifications, the revenue inflow would
remain stable and the government would be able to predict with a greater degree of certainty the amount of taxes that a
cigarette manufacturer would pay given the trend in its sales volume over time. The reason for this is that the previously
classified cigarette brands would be prevented from moving either upward or downward their tax brackets despite the
changes in their net retail prices in the future and, as a result, the amount of taxes due from them would remain
predictable. The classification freeze provision would, thus, aid in the revenue planning of the government.
All in all, the classification freeze provision addressed Congresss administrative concerns in the simplification of tax
administration of sin products, elimination of potential areas for abuse and corruption in tax collection, buoyant and stable
revenue generation, and ease of projection of revenues. Consequently, there can be no denial of the equal protection of
the laws since the rational-basis test is amply satisfied.
Moreover, petitioners contention that the assailed provisions violate the uniformity of taxation clause is similarly
unavailing. In Churchill v. Concepcion,4 we explained that a tax "is uniform when it operates with the same force and effect
in every place where the subject of it is found." 5 It does not signify an intrinsic but simply a geographical uniformity.6 A levy
of tax is not unconstitutional because it is not intrinsically equal and uniform in its operation. 7 The uniformity rule does not
prohibit classification for purposes of taxation.8 As ruled in Tan v. Del Rosario, Jr.:9
Uniformity of taxation, like the kindred concept of equal protection, merely requires that all subjects or objects of taxation,
similarly situated, are to be treated alike both in privileges and liabilities (citations omitted). Uniformity does not forfend
classification as long as: (1) the standards that are used therefor are substantial and not arbitrary, (2) the categorization is
germane to achieve the legislative purpose, (3) the law applies, all things being equal, to both present and future
conditions, and (4) the classification applies equally well to all those belonging to the same class (citations omitted). 10
In the instant case, there is no question that the classification freeze provision meets the geographical uniformity
requirement because the assailed law applies to all cigarette brands in the Philippines. And, for reasons already adverted
to in our August 20, 2008 Decision, the above four-fold test has been met in the present case.
Petitioners reliance on Ormoc Sugar Co. is misplaced. In said case, the controverted municipal ordinance specifically
named and taxed only the Ormoc Sugar Company, and excluded any subsequently established sugar central from its
coverage. Thus, the ordinance was found unconstitutional on equal protection grounds because its terms do not apply to
future conditions as well. This is not the case here. The classification freeze provision uniformly applies to all cigarette
brands whether existing or to be introduced in the market at some future time. It does not purport to exempt any brand
from its operation nor single out a brand for the purpose of imposition of excise taxes.
At any rate, petitioners real disagreement lies with the legitimate State interests. Although it concedes that the Court
utilized the rationality test and that the classification freeze provision was necessitated by several legitimate State

Page 245 of 403

interests, however, it refuses to accept the justifications given by Congress for the classification freeze provision. As we
elucidated in our August 20, 2008 Decision, this line of argumentation revolves around the wisdom and expediency of the
assailed law which we cannot inquire into, much less overrule. Equal protection is not a license for courts to judge the
wisdom, fairness, or logic of legislative choices.11 We reiterate, therefore, that petitioners remedy is with Congress and not
this Court.
The assailed provisions do not violate the constitutional prohibition on unfair competition.
Petitioner asserts that the Court erroneously applied the rational basis test allegedly because this test does not apply in a
constitutional challenge based on a violation of Section 19, Article XII of the Constitution on unfair competition. Citing
Tatad v. Secretary of the Department of Energy,12 it argues that the classification freeze provision gives the brands under
Annex "D" a decisive edge because it constitutes a substantial barrier to the entry of prospective players; that the Annex
"D" provision is no different from the 4% tariff differential which we invalidated in Tatad; that some of the new brands, like
Astro, Memphis, Capri, L&M, Bowling Green, Forbes, and Canon, which were introduced into the market after the
effectivity of the assailed law on January 1, 1997, were "killed" by Annex "D" brands because the former brands were
reclassified by the BIR to higher tax brackets; that the finding that price is not the only factor in the market as there are
other factors like consumer preference, active ingredients, etc. is contrary to the evidence presented and the deliberations
in Congress; that the classification freeze provision will encourage predatory pricing in contravention of the constitutional
prohibition on unfair competition; and that the cumulative effect of the operation of the classification freeze provision is to
perpetuate the oligopoly of intervenors Philip Morris and Fortune Tobacco in contravention of the constitutional edict for
the State to regulate or prohibit monopolies, and to disallow combinations in restraint of trade and unfair competition.
The argument lacks merit. While previously arguing that the rational basis test was not satisfied, petitioner now asserts
that this test does not apply in this case and that the proper matrix to evaluate the constitutionality of the assailed law is
the prohibition on unfair competition under Section 19, Article XII of the Constitution. It should be noted that during the trial
below, petitioner did not invoke said constitutional provision as it relied solely on the alleged violation of the equal
protection and uniformity of taxation clauses. Well-settled is the rule that points of law, theories, issues and arguments not
adequately brought to the attention of the lower court will not be ordinarily considered by a reviewing court as they cannot
be raised for the first time on appeal.13 At any rate, even if we were to relax this rule, as previously stated, the evidence
presented before the trial court is insufficient to establish the alleged violation of the constitutional proscription against
unfair competition.
Indeed, in Tatad we ruled that a law which imposes substantial barriers to the entry and exit of new players in our
downstream oil industry may be struck down for being violative of Section 19, Article XII of the Constitution. 14However, we
went on to say in that case that "if they are insignificant impediments, they need not be stricken down." 15 As we stated in
our August 20, 2008 Decision, petitioner failed to convincingly prove that there is a substantial barrier to the entry of new
brands in the cigarette market due to the classification freeze provision. We further observed that several new brands
were introduced in the market after the assailed law went into effect thus negating petitioners sweeping claim that the
classification freeze provision is an insurmountable barrier to the entry of new brands. We also noted that price is not the
only factor affecting competition in the market for there are other factors such as taste, brand loyalty, etc.
We see no reason to depart from these findings for the following reasons:
First, petitioner did not lay down the factual foundations, as supported by verifiable documentary proof, which would
establish, among others, the cigarette brands in competition with each other; the current net retail prices of Annex "D"
brands, as determined through a market survey, to provide a sufficient point of comparison with those covered by the
BIRs market survey of new brands; and the causal connection with as well as the extent of the impact on the competition
in the cigarette market of the classification freeze provision. Other than petitioners self-serving allegations and testimonial
evidence, no adequate documentary evidence was presented to substantiate its claims. Absent ample documentary proof,
we cannot accept petitioners claim that the classification freeze provision is an insurmountable barrier to the entry of new
players.
Second, we cannot lend credence to petitioners claim that it cannot produce cigarettes that can compete with Marlboro
and Philip Morris in the high-priced tax bracket. Except for its self-serving testimonial evidence, no sufficient documentary
evidence was presented to substantiate this claim. The current net retail price, which is the basis for determining the tax
bracket of a cigarette brand, more or less consists of the costs of raw materials, labor, advertising and profit margin. To a
large extent, these factors are controllable by the manufacturer, as such, the decision to enter which tax bracket will
depend on the pricing strategy adopted by the individual manufacturer. The same holds true for its claims that other new
brands, like Astro, Memphis, Capri, L&M, Bowling Green, Forbes, and Canon, were "killed" by Annex "D" brands due to
the effects of the operation of the classification freeze provision over time. The evidence that petitioner presented before
the trial court failed to substantiate the basis for these claims.
Essentially, petitioner would want us to accept its conclusions of law without first laying down the factual foundations of its
arguments. This Court, which is not a trier of facts, cannot take judicial notice of the factual premises of these arguments
as petitioner now seems to suggest. The evidence should have been presented before the trial court to allow it to examine
and determine for itself whether such factual premises, as supported by sufficient documentary evidence, provide
reasonable basis for petitioners conclusion that there arose an unconstitutional unfair competition due to the operation of
the classification freeze provision. Petitioner should be reminded that it appealed this case from the adverse ruling of the
trial court directly to this Court on pure questions of law instead of resorting to the Court of Appeals.

Page 246 of 403

Third, Tatad is not applicable to the instant case. In Tatad, we found that the 4% tariff differential between imported crude
oil and imported refined petroleum products erects a high barrier to the entry of new players because (1) it imposes an
undue burden on new players to spend billions of pesos to build refineries in order to compete with the old players, and
(2) new players, who opt not to build refineries, suffer from the huge disadvantage of increasing their product cost by
4%.16 The tariff was imposed on the raw materials uniformly used by the players in the oil industry. Thus, the adverse
effect on competition arising from this discriminatory treatment was readily apparent. In contrast, the excise tax under the
assailed law is imposed based on the current net retail price of a cigarette brand. As previously explained, the current net
retail price is determined by the pricing strategy of the manufacturer. This Court cannot simply speculate that the reason
why a new brand cannot enter a specific tax bracket and compete with the brands therein was because of the
classification freeze provision, rather than the manufacturers own pricing decision or some other factor solely attributable
to the manufacturer. Again, the burden of proof in this regard is on petitioner which it failed to muster.
Fourth, the finding in our August 20, 2008 Decision that price is not the only factor which affects consumer behavior in the
cigarette market is based on petitioners own evidence. On cross-examination, petitioners witness admitted that
notwithstanding the change in price, a cigarette smoker may prefer the old brand because of its addictive formulation. 17 As
a result, even if we were to assume that the classification freeze provision distorts the pricing scheme of the market
players, it is not clear whether a substantial barrier to the entry of new players would thereby be created because of these
other factors affecting consumer behavior.
Last, the claim that the assailed provisions encourage predatory pricing was never raised nor substantiated before the trial
court. It is merely an afterthought and cannot be given weight.
In sum, the totality of the evidence presented by petitioner before the trial court failed to convincingly establish the alleged
violation of the constitutional prohibition on unfair competition. It is a basic postulate that the one who challenges the
constitutionality of a law carries the heavy burden of proof for laws enjoy a strong presumption of constitutionality as it is
an act of a co-equal branch of government. Petitioner failed to carry this burden.
The assailed law does not transgress the constitutional provisions on regressive and inequitable taxation.
Petitioner argues that the classification freeze provision is a form of regressive and inequitable tax system which is
proscribed under Article VI, Section 28(1)18 of the Constitution. It claims that people in equal positions should be treated
alike. The use of different tax bases for brands under Annex "D" vis--vis new brands is discriminatory, and thus,
iniquitous. Petitioner further posits that the classification freeze provision is regressive in character. It asserts that the
harmonization of revenue flow projections and ease of tax administration cannot override this constitutional command.
We note that the points raised by petitioner with respect to alleged inequitable taxation perpetuated by the classification
freeze provision are a mere reformulation of its equal protection challenge. As stated earlier, the assailed provisions do
not infringe the equal protection clause because the four-fold test is satisfied. In particular, the classification freeze
provision has been found to rationally further legitimate State interests consistent with rationality review. Petitioners
repackaged argument has, therefore, no merit.
Anent the issue of regressivity, it may be conceded that the assailed law imposes an excise tax on cigarettes which is a
form of indirect tax, and thus, regressive in character. While there was an attempt to make the imposition of the excise tax
more equitable by creating a four-tiered taxation system where higher priced cigarettes are taxed at a higher rate, still,
every consumer, whether rich or poor, of a cigarette brand within a specific tax bracket pays the same tax rate. To this
extent, the tax does not take into account the persons ability to pay. Nevertheless, this does not mean that the assailed
law may be declared unconstitutional for being regressive in character because the Constitution does not prohibit the
imposition of indirect taxes but merely provides that Congress shall evolve a progressive system of taxation. As we
explained in Tolentino v. Secretary of Finance:191avvphi1.zw+
[R]egressivity is not a negative standard for courts to enforce. What Congress is required by the Constitution to do is to
"evolve a progressive system of taxation." This is a directive to Congress, just like the directive to it to give priority to the
enactment of laws for the enhancement of human dignity and the reduction of social, economic and political inequalities
[Art. XIII, Section 1] or for the promotion of the right to "quality education" [Art. XIV, Section 1]. These provisions are put in
the Constitution as moral incentives to legislation, not as judicially enforceable rights. 20
Petitioner is not entitled to a downward reclassification of Lucky Strike.
Petitioner alleges that assuming the assailed law is constitutional, its Lucky Strike brand should be reclassified from the
premium-priced to the high-priced tax bracket. Relying on BIR Ruling No. 018-2001 dated May 10, 2001, it claims that it
timely sought redress from the BIR to have the market survey conducted within three months from product launch, as
provided for under Section 4(B)21 of Revenue Regulations No. 1-97, in order to determine the actual current net retail price
of Lucky Strike, and thus, fix its tax classification. Further, the upward reclassification of Lucky Strike amounts to
deprivation of property right without due process of law. The conduct of the market survey after two years from product
launch constitutes gross neglect on the part of the BIR. Consequently, for failure of the BIR to conduct a timely market
survey, Lucky Strikes classification based on its suggested gross retail price should be deemed its official tax
classification. Finally, petitioner asserts that had the market survey been timely conducted sometime in 2001, the current
net retail price of Lucky Strike would have been found to be under the high-priced tax bracket.
These contentions are untenable and misleading.

Page 247 of 403

First, BIR Ruling No. 018-2001 was requested by petitioner for the purpose of fixing Lucky Strikes initial tax classification
based on its suggested gross retail price relative to its planned introduction of Lucky Strike in the market sometime in
2001 and not for the conduct of the market survey within three months from product launch. In fact, the said Ruling
contained an express reservation that the tax classification of Lucky Strike set therein "is without prejudice, however, to
the subsequent conduct of a survey x x x in order to determine if the actual gross retail price thereof is consistent with
[petitioners] suggested gross retail price."22 In short, petitioner acknowledged that the initial tax classification of Lucky
Strike may be modified depending on the outcome of the survey which will determine the actual current net retail price of
Lucky Strike in the market.
Second, there was no upward reclassification of Lucky Strike because it was taxed based on its suggested gross retail
price from the time of its introduction in the market in 2001 until the BIR market survey in 2003. We reiterate that Lucky
Strikes actual current net retail price was surveyed for the first time in 2003 and was found to be fromP10.34 to P11.53
per pack, which is within the premium-priced tax bracket. There was, thus, no prohibited upward reclassification of Lucky
Strike by the BIR based on its current net retail price.
Third, the failure of the BIR to conduct the market survey within the three-month period under the revenue regulations
then in force can in no way make the initial tax classification of Lucky Strike based on its suggested gross retail price
permanent. Otherwise, this would contravene the clear mandate of the law which provides that the basis for the tax
classification of a new brand shall be the current net retail price and not the suggested gross retail price. It is a basic
principle of law that the State cannot be estopped by the mistakes of its agents.
Last, the issue of timeliness of the market survey was never raised before the trial court because petitioners theory of the
case was wholly anchored on the alleged unconstitutionality of the classification freeze provision. As a consequence, no
documentary evidence as to the actual net retail price of Lucky Strike in 2001, based on a market survey at least
comparable to the one mandated by law, was presented before the trial court. Evidently, it cannot be assumed that had
the BIR conducted the market survey within three months from its product launch sometime in 2001, Lucky Strike would
have been found to fall under the high-priced tax bracket and not the premium-priced tax bracket. To so hold would run
roughshod over the States right to due process. Verily, petitioner prosecuted its case before the trial court solely on the
theory that the assailed law is unconstitutional instead of merely challenging the timeliness of the market survey. The rule
is that a party is bound by the theory he adopts and by the cause of action he stands on. He cannot be permitted after
having lost thereon to repudiate his theory and cause of action, and thereafter, adopt another and seek to re-litigate the
matter anew either in the same forum or on appeal.23 Having pursued one theory and lost thereon, petitioner may no
longer pursue another inconsistent theory without thereby trifling with court processes and burdening the courts with
endless litigation.
WHEREFORE, the motion for reconsideration is DENIED.
SO ORDERED.
CONSUELO YNARES-SANTIAGO
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Chief Justice

LEONARDO A. QUISUMBING
Associate Justice

ANTONIO T. CARPIO
Associate Justice

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice

RENATO C. CORONA
Associate Justice

CONCHITA CARPIO MORALES

Associate Justice

DANTE O. TINGA
Associate Justice

MINITA V. CHICO-NAZARIO
Associate Justice

PRESBITERO J. VELASCO, JR.

Associate Justice

ANTONIO EDUARDO B. NACHURA

Associate Justice

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

ARTURO D. BRION
Associate Justice

DIOSDADO M. PERALTA
Associate Justice

LUCAS P. BERSAMIN
Associate Justice
C E R TI F I CATI O N

Page 248 of 403

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Resolution were reached in consultation
before the case was assigned to the writer of the opinion of the Court.
REYNATO S. PUNO
Chief Justice
Footnotes
1

The State shall regulate or prohibit monopolies when the public interest so requires. No combinations in restraint of trade or unfair
competition shall be allowed.
2

G.R. No. L-23794, February 17, 1968, 22 SCRA 603.

Federal Communications Commission v. Beach Communications, Inc., 508 U.S. 307, 313 (1993).

34 Phil. 969, 976-977 (1916).

Id. at 976.

Id.

Bernas, The 1987 Constitution of the Republic of the Philippines: A Commentary (2003), p. 777.

Id.

G.R. No. 109289, October 3, 1994, 237 SCRA 324.

10

Id. at 331.

11

Supra note 3.

12

346 Phil. 321 (1997).

13

Natalia v. Court of Appeals, G.R. No. 116216, June 20, 1997, 274 SCRA 527, 538-539.

14

Supra note 12 at 368.

15

Id.

16

Id. at 369.

17

Q- In other words, Mr. Witness, you are also suggesting in your expert opinion that there is also a possibility that notwithstanding the change
in the price of the particular cigarette product considering that cigarette smoking is habit forming, and considering also that that cigarette
product won or satisfied the taste of the market, there is a tendency that notwithstanding the price, a particular consumer would still stick on
the particular product?
A- Yes, by your own word, you say that it is habit forming. So, it is loyalty to the brand. (Testimony of Dennis Belgira, TSN February
20, 2004, records, vol. II, pp. 679-680.)
18

Section 28(1). The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation.

19

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

20

Id. at 684-685.

21

Section 4. Classification and Manner of Taxation of Existing Brands, New Brands and Variant of Existing Brands.
xxxx
B. New Brand
New brands shall be classified according to their current net retail price. In the meantime that the current net retail price has not yet
been established, the suggested net retail price shall be used to determine the specific tax classification. Thereafter, a survey shall
be conducted in 20 major supermarkets or retail outlets in Metro Manila (for brands of cigarette marketed nationally) or in five (5)
major supermarkets or retail outlets in the region (for brands which are marketed only outside Metro Manila) at which the cigarette is
sold on retail in reams/carton, three (3) months after the initial removal of the new brand to determine the actual net retail price
excluding the excise tax and value added tax which shall then be the basis in determining the specific tax classification. In case the
current net retail price is higher than the suggested net retail price, the former shall prevail. Otherwise, the suggested net retail price
shall prevail. Any difference in the specific tax due shall be assessed and collected inclusive of increments as provided for by the
National Internal Revenue Code, as amended.
The survey contemplated herein to establish the current net retail price on locally manufactured and imported cigarettes shall be
conducted by the duly authorized representatives of the Commissioner of Internal Revenue together with a representative of the
Regional Director from each Regional Office having jurisdiction over the retail outlet within the Region being surveyed, and who
shall submit, without delay, their consolidated written report to the Commissioner of Internal Revenue.

Page 249 of 403

22

Records, vol. 1, p. 66.

23

Bashier v. Commission on Elections, G.R. No. L-33692, February 24, 1972, 43 SCRA 238, 266.

The Lawphil Project - Arellano Law Foundation

Republic of the Philippines

SUPREME COURT
EN BANC
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; HONORABLE SECRETARY OF THE
DEPARTMENT OF FINANCE CESAR PURISIMA; and HONORABLE COMMISSIONER OF INTERNAL REVENUE
GUILLERMO PARAYNO, JR., Respondent.
x-------------------------x
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, AND SERGIO R. OSMEA III, Petitioners,
vs.
EXECUTIVE SECRETARY EDUARDO R. ERMITA, CESAR V. PURISIMA, SECRETARY OF FINANCE, GUILLERMO L.
PARAYNO, JR., COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE, Respondent.
x-------------------------x
G.R. No. 168461
ASSOCIATION OF PILIPINAS SHELL DEALERS, INC. represented by its President, ROSARIO ANTONIO; PETRON
DEALERS ASSOCIATION represented by its President, RUTH E. BARBIBI; ASSOCIATION OF CALTEX DEALERS OF
THE PHILIPPINES represented by its President, MERCEDITAS A. GARCIA; ROSARIO ANTONIO doing business under
the name and style of "ANB NORTH SHELL SERVICE STATION"; LOURDES MARTINEZ doing business under the name
and style of "SHELL GATE N. DOMINGO"; BETHZAIDA TAN doing business under the name and style of "ADVANCE
SHELL STATION"; REYNALDO P. MONTOYA doing business under the name and style of "NEW LAMUAN SHELL
SERVICE STATION"; EFREN SOTTO doing business 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 STAR GASOLINE SERVICE STATION"; MARIAN SHEILA A. LEE doing business under the name and style of
"NTE GASOLINE & SERVICE STATION"; JULIAN CESAR P. POSADAS doing business under the name and style of
"STARCARGA ENTERPRISES"; ADORACION MAEBO doing business under the name and style of "CMA MOTORISTS
CENTER"; SUSAN M. ENTRATA doing business under the name and style of "LEONAS GASOLINE STATION and
SERVICE CENTER"; CARMELITA BALDONADO doing business under the name and style of "FIRST CHOICE SERVICE
CENTER"; MERCEDITAS A. GARCIA doing business under the name and style of "LORPED SERVICE CENTER";
RHEAMAR A. RAMOS doing business under the name and 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, JOSELITO F. FLORDELIZA; MOTORISTS HARVARD

Page 250 of 403

CORPORATION represented by its Vice-President for Operations, JOSELITO F. FLORDELIZA; MOTORISTS HERITAGE
CORPORATION 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
doing business under the name and style of "ROMMAN GASOLINE STATION"; ANTHONY ALBERT CRUZ III doing
business under the name and style of "TRUE SERVICE STATION", Petitioners,
vs.
CESAR V. PURISIMA, in his capacity as Secretary of the Department of Finance and GUILLERMO L. PARAYNO,
JR., in his capacity as Commissioner of Internal Revenue, Respondent.
x-------------------------x
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. CASIO, Petitioners,
vs.
CESAR V. PURISIMA, in his capacity as Secretary of Finance, GUILLERMO L. PARAYNO, JR., in his capacity as
Commissioner of Internal Revenue, and EDUARDO R. ERMITA, in his capacity as Executive
Secretary, Respondent.
x-------------------------x
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 MARIO BUNAG, 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 the Bureau of Customs,
Respondent.
DECISION
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 to hold 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 tax benefits these are the reasons why Republic Act No. 9337 (R.A.
No. 9337)1 was enacted. Reasons, the wisdom of which, the Court even with its extensive constitutional power of review,
cannot probe. The petitioners in these cases, however, question not only the wisdom of the law, but also perceived
constitutional infirmities in its passage.
Every law enjoys in its favor the presumption of constitutionality. Their arguments notwithstanding, 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. 3555 and 3705, and Senate Bill No.
1950.
House Bill No. 35552 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. The President 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.
House Bill No. 37053 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 and Means 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 and third reading on February 28, 2005.

Page 251 of 403

Meanwhile, the Senate Committee on Ways and Means approved Senate Bill No. 19504 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. Recto sponsored Senate Bill No. 1337, while Senate Bill Nos. 1838 and 1873 were both sponsored by Sens.
Franklin M. Drilon, Juan M. Flavier and Francis N. Pangilinan. The President certified the bill on March 11, 2005, and was
approved by the Senate on second and third reading on April 13, 2005.
On the same date, April 13, 2005, the Senate agreed to the request of the House of Representatives 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 discussed in full free and conference," recommended the approval of its
report, which the Senate did on May 10, 2005, and with the House of Representatives agreeing thereto the next day, May
11, 2005.
On May 23, 2005, the enrolled copy of the consolidated House and Senate version was transmitted 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 Court issued a temporary restraining
order, effective immediately and continuing until further orders, enjoining respondents from enforcing and implementing
the law.
Oral arguments were held on July 14, 2005. Significantly, during the hearing, the Court speaking through Mr. Justice
Artemio V. Panganiban, voiced the rationale for its issuance 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 just tell you a little background. You
know when the law took effect on July 1, 2005, the Court issued a TRO at about 5 oclock in the afternoon. But before
that, there was a lot of complaints aired on television and on radio. Some people in a gas station were complaining that
the gas prices went up by 10%. Some people were complaining that their electric bill will go up by 10%. Other times
people riding in domestic air carrier were complaining that the prices that theyll have to pay would have to go up by 10%.
While all that was being aired, per your presentation and per our own understanding of the law, thats not true. Its not true
that the e-vat law necessarily increased prices by 10% uniformly isnt it?
ATTY. BANIQUED : No, Your Honor.
J. PANGANIBAN : It is not?
ATTY. BANIQUED : Its not, because, Your Honor, there is an Executive Order that granted the Petroleum companies
some subsidy . . . interrupted
J. PANGANIBAN : Thats 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 the elimination of the Excise Tax and the
import duties. That is why, it is not correct to say that 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 price by 10% to cover the E-Vat tax. If
you consider the excise tax and the import duties, the Net 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 its not correct to say that all prices must go up by 10%.
ATTY. BANIQUED : Youre right, Your Honor.
J. PANGANIBAN : Now. For instance, Domestic Airline companies, Mr. Counsel, are at present imposed a Sales Tax of
3%. When this E-Vat law took effect the Sales Tax was also removed as a mitigating measure. So, therefore, there is no
justification to increase the 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 that first day, were being increased
arbitrarily by 10%. And thats one reason among many others this Court had to issue TRO because of the confusion in the
implementation. Thats why we added as an issue in this case, even if its tangentially taken up by the pleadings of the

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parties, the confusion in the implementation of the E-vat. Our people were 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.
In some cases, it should be 3% only, in some cases it should be 6% depending on these mitigating measures and the
location and situation of each product, of each service, of each company, isnt it?
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : Alright. So thats one reason why we had to issue a TRO pending the clarification of all these and we
wish the government will take time to clarify all these by 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 Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108,
respectively, of the National Internal Revenue Code (NIRC). Section 4 imposes a 10% VAT on sale of goods and
properties, Section 5 imposes a 10% VAT on importation of goods, and Section 6 imposes a 10% VAT on sale of services
and use or lease of properties. These questioned provisions contain a uniformproviso authorizing the President, upon
recommendation of the Secretary of Finance, to raise the VAT rate to 12%, effective January 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 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 year exceeds one and one-half percent (1 %).
Petitioners argue that the law is unconstitutional, as it constitutes abandonment by Congress 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 the VAT rate to 12%, on the ground
that it amounts to an undue delegation of legislative power, petitioners also contend that the increase in the VAT rate to
12% contingent on any 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 not state if the rate would be returned to the original 10% if the conditions are no longer
satisfied; (2) the rate is unfair and unreasonable, as the people are unsure of the applicable VAT rate from year to year;
and (3) the increase in the VAT rate, which is supposed 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 the President by the Bicameral Conference
Committee is a violation of the "no-amendment rule" 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 of Pilipinas 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 on depreciable 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 the amount of input tax to be credited
against the output tax; and
3) Section 12, amending Section 114 (c) of the NIRC, authorizing the Government or any of its political subdivisions,
instrumentalities or agencies, including GOCCs, to deduct a 5% final withholding tax on gross payments of goods and
services, which are subject to 10% VAT under Sections 106 (sale of goods and properties) and 108 (sale of services and
use or lease of properties) of the NIRC.

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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 the amount of input tax that may be claimed. Petitioners also argue that the input tax partakes the nature of
a property that may not be confiscated, appropriated, or limited without due process of law. Petitioners further contend
that like any other property or property right, the input tax credit may be transferred or disposed of, and that by limiting the
same, the government gets to tax a profit or value-added even if there is no profit or value-added.
Petitioners also believe that these provisions violate the constitutional guarantee of equal protection of the law under
Article III, Section 1 of the Constitution, as the limitation 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 not based 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 with higher input tax to output tax ratio that will suffer the consequences
thereof for it wipes out 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
forcertiorari on June 30, 2005. They question the constitutionality 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 legislative power, 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 all appropriation, 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 and prohibition 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
establishments to retain a portion of the taxes they collect, thus violating the principle that tax collection and revenue
should be solely allocated for public purposes and expenditures. Petitioner Garcia further claims that allowing these
establishments to pass on the tax to the consumers 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 to the issue of undue delegation of legislative power to the President, respondents contend that the law is
complete and leaves no discretion to the President but to increase 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 the 70% limitation on the creditable
input tax, the 60-month amortization on the purchase or importation of capital goods exceedingP1,000,000.00, and the
5% final withholding tax by government agencies, is arbitrary, oppressive, and confiscatory, and that it violates the
constitutional principle on progressive taxation, among others.
Finally, respondents manifest that R.A. No. 9337 is the anchor of the governments fiscal reform agenda. A reform in the
value-added system of taxation is the core revenue measure that will tilt the balance towards a sustainable
macroeconomic environment necessary for economic growth.
ISSUES
The Court defined the issues, as follows:

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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 108 of the NIRC, violate the following
provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article VI, Section 28(2)
2. Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and Section 12 of R.A. No.
9337, amending Section 114(C) of the NIRC, violate the following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article III, Section 1
RULING OF THE COURT
As a prelude, the Court deems it apt to restate the general principles and concepts of value-added tax (VAT), as the
confusion and inevitably, litigation, breeds from a fallacious notion of its nature.
The VAT is a tax on spending or consumption. It is levied on the sale, barter, exchange or lease of goods or properties
and services.8 Being an indirect tax on expenditure, the seller 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 the immediate buyers
and ultimately, the end-consumers.
In contrast, a direct tax is a tax for which a taxpayer is directly liable on the transaction or 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 computed under the "cost deduction method" and was payable only by the
original sellers. The single-stage system was subsequently modified, and a mixture of the "cost deduction method" 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 VAT charged 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% or 10% 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 and finally, the presently beleaguered R.A. No. 9337, also referred to by
respondents as the VAT 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
b. Article VI, Section 26(2)
A. The Bicameral Conference Committee
Petitioners Escudero, et al., and Pimentel, et al., allege that the Bicameral Conference Committee exceeded its authority
by:

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1) Inserting the stand-by authority in favor of the President in Sections 4, 5, and 6 of R.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 credited against the output tax; and
4) Including the amendments introduced only by Senate Bill No. 1950 regarding other kinds of taxes in addition to the
value-added tax.
Petitioners now beseech the Court to define the powers of the Bicameral Conference Committee.
It should be borne in mind that the power of internal regulation and discipline are intrinsic in any legislative body for, as
unerringly elucidated by Justice Story, "[i]f the power did not exist, it would be utterly impracticable to transact the
business of the nation, either at all, or at least with decency, deliberation, and order."19Thus, Article VI, Section 16
(3) of the Constitution provides that "each House may determine the rules of its proceedings." Pursuant to this inherent
constitutional power to promulgate 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 provides as follows:
Sec. 88. Conference Committee. In the event that the House does not agree with the Senate on the amendment to any
bill or joint resolution, the differences may be settled by the conference committees of both chambers.
In resolving the differences with the Senate, the House panel shall, as much as possible, 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 to the House for the latters 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 Committee Report 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 Representatives on the provision of any bill or joint
resolution, the differences shall be settled by a conference 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 the conference committee
with the approval of the Senate.
Each Conference Committee Report shall contain a detailed and sufficiently explicit statement 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.
A comparative presentation of the conflicting House and Senate provisions and a reconciled version thereof with the
explanatory statement of the conference committee shall 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 find themselves in disagreement over changes or amendments introduced
by the other house in a legislative bill. Given that one of the most basic powers of the legislative branch is to formulate
and implement its own rules of proceedings and to discipline its members, 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 the
present petitions, the issue is not whether provisions of the rules of both houses creating the bicameral conference
committee are unconstitutional, but whether the bicameral conference committee has strictly complied with the
rules of both houses, thereby remaining within the jurisdiction conferred upon it by Congress.
In the recent case of Farias 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 of the bill. Assailed in said case was Congresss creation of two sets of bicameral conference committees, the lack of
records of said committees proceedings, the alleged violation of said committees of the rules of both houses, and the
disappearance or deletion of one of the provisions in the compromise bill submitted by the bicameral conference
committee. It was argued that such irregularities in the passage of the law nullified R.A. No. 9006, or the Fair Election Act.

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Striking down such argument, the Court held thus:
Under the "enrolled bill doctrine," the signing of a bill by the Speaker of the House and the Senate President and the
certification of the Secretaries of both Houses of Congress that it was passed are conclusive of its due enactment. A
review of cases reveals the Courts consistent adherence to the rule. The Court finds no reason to deviate from the
salutary rule in this case where the irregularities alleged by the petitioners mostly involved the internal rules of
Congress, e.g., creation of the 2nd or 3rd Bicameral Conference Committee by the House. This Court is not the
proper forum for the enforcement of these 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 formal validity of Rep. Act No. 9006 must be resolved in its favor. The Court reiterates its ruling
in Arroyo vs. De Venecia, viz.:
But the cases, both here and abroad, in varying forms of expression, all deny to the courts the power to inquire
into allegations that, in enacting a law, a House of Congress failed to comply with its own rules, in the absence of
showing that there was a violation of a constitutional provision or the rights of private individuals. In Osmea v.
Pendatun, it was held: "At any rate, courts have declared that the rules adopted by deliberative bodies are subject to
revocation, modification or waiver at the pleasure of the 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 be waived or
disregarded by the legislative body." Consequently, "mere failure to conform to parliamentary usage will not
invalidate the action (taken by a deliberative body) when the requisite number of members have agreed to a
particular measure."21 (Emphasis supplied)
The foregoing declaration is exactly in point with the present cases, where petitioners allege irregularities committed by
the conference committee in introducing changes or deleting provisions in the House and Senate bills. Akin to
the Farias case,22 the present petitions also raise an issue regarding the actions taken by the conference committee on
matters regarding Congress compliance with its own internal rules. As stated earlier, one of the most basic and inherent
power of the legislature is the power to formulate rules for its proceedings and the discipline of its members. Congress is
the best judge of how it should conduct its own business expeditiously and in the most orderly manner. It is also the sole
concern of Congress to instill discipline among the members of its conference committee if it believes that said members
violated any of its rules of proceedings. Even the expanded jurisdiction of this Court cannot apply to questions regarding
only the internal 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,23the Court
already made the pronouncement that "[i]f a change is desired in the practice [of the Bicameral Conference
Committee] it must be sought in Congress since this question is not covered by any constitutional provision but
is only an internal rule of each house." 24 To date, Congress has not seen it fit to make such changes adverted to by the
Court. It seems, therefore, that Congress finds the practices of the bicameral conference committee to be very useful for
purposes of prompt and efficient legislative action.
Nevertheless, just to put minds at ease that no blatant irregularities tainted the proceedings of the bicameral conference
committees, the Court deems it necessary to dwell on the issue. The Court observes that there was a necessity for a
conference committee because a comparison of the provisions of House Bill Nos. 3555 and 3705 on one hand, and
Senate Bill No. 1950 on the other, reveals that there were indeed disagreements. As pointed out in the petitions, said
disagreements were as follows:

House Bill No. 3555

With regard to "Stand-By Authority" in favor of President

Provides for 12% VAT on every sale of goods or properties (amending Sec. 106 of NIRC); 12% VAT on importation of goods (amen
properties (amending Sec. 108 of NIRC)

With regard to the "no pass-on" provision

No similar provision

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With regard to 70% limit on input tax credit

Provides that the input tax credit for capital goods on which a VAT has been paid shall be equally distributed over 5 years or the dep
than capital goods shall not exceed 5% of the total amount of such goods and services; and for persons engaged in retail trading of
goods purchased.

With regard to amendments to be made to NIRC provisions regarding income and excise taxes

No similar provision

No similar provision

Provided for amendments to

several NIRC provisions
regarding corporate income,
percentage, franchise and
excise taxes

The disagreements between the provisions in the House bills and the Senate bill were with regard to (1) what rate of VAT
is to be imposed; (2) whether only the VAT imposed on 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 electricity generation,
transmission and distribution companies and the VAT imposed on sale of petroleum products should not be passed on to
consumers, as proposed in the House bill; (3) in what manner input tax credits should be limited; (4) and whether the
NIRC provisions on corporate income taxes, percentage, franchise and excise taxes should be amended.
There being differences and/or disagreements on the foregoing provisions of the House and Senate bills, the Bicameral
Conference Committee was mandated by the rules of both houses of Congress to act on the same by settling said
differences and/or disagreements. 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 appear from the Conference Committee
Report that the Bicameral Conference Committee tried to 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, by striking a
compromise whereby the present 10% VAT rate would be retained until certain 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
Government deficit as a percentage of GDP of the previous year exceeds 1%, 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 electricity generation, transmission and
distribution companies should not be passed on to consumers or whether both the VAT imposed on electricity generation,
transmission and distribution companies and the VAT imposed on sale of petroleum products may be passed on to
consumers, the Bicameral Conference Committee chose to settle such disagreement 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 by putting a limitation on the amount of input tax that may be
credited against the output tax, 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 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 fiftynine (59) succeeding months if the aggregate acquisition cost for such goods, excluding the VAT component thereof,
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 for depreciation 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 tax exceeds the input tax, the excess shall
be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess shall be carried over to the
succeeding quarter or quarters: PROVIDED that the input tax inclusive of input VAT carried over from the previous quarter
that may be credited in every quarter shall not exceed seventy 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 be refunded or credited
against other internal revenue taxes, . . .

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4. With regard to the amendments to other provisions of the NIRC on corporate income tax, franchise, percentage and
excise taxes, the conference committee decided to include 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 Senate Rules, 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 harmonize disagreeing provisions, the
Bicameral Conference Committee may then (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
be carried into the final form of the bill, and/or (c) try to arrive at a compromise between the disagreeing provisions.
In the present case, the changes introduced by the Bicameral Conference Committee on disagreeing provisions were
meant only to reconcile and harmonize the disagreeing provisions for it did not inject any idea or intent that is wholly
foreign to the subject embraced by the original provisions.
The so-called stand-by authority in favor of the President, whereby the rate of 10% VAT wanted 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 to bridge 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 VAT should be imposed on taxpayers.
The no pass-on provision was deleted altogether. In the transcripts of the proceedings of 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-on provision 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 any sector be discriminated on. The VAT is an indirect tax. It is a pass ontax. And lets keep it plain and simple. Lets 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 to see a VAT with a no pass-though provision. So, the
thinking of the Senate is basically simple, lets 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 limitation or cap on such input tax credit, but again, the change introduced by
the Bicameral Conference Committee was totally within the intent of both houses to put a cap on input tax that may be
credited against the output tax. From the inception of the subject revenue bill in the House of Representatives, one of the
major objectives was to "plug a glaring loophole in the 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 are capping a major
leakage that has placed our collection efforts at an apparent disadvantage." 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 of the Senate.
Thus, all the changes or modifications made by the Bicameral Conference Committee were germane to subjects of the
provisions referred
to it for reconciliation. Such being the case, the Court does not see any grave abuse of discretion amounting to lack or
excess of jurisdiction committed by the Bicameral Conference 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 for compromising differences between the Senate and the
House. Thus, in the Tolentino case, it was held that:
. . . it is within the power of a conference committee to include in its report an entirely new provision that is not found either
in the House bill or in the Senate bill. If the committee can propose an amendment consisting of one or two provisions,
there is no reason why it cannot propose several provisions, collectively considered as an "amendment in the nature of a
substitute," so long as such 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 to become valid as an act of the legislative department. The
charge that in this case the Conference Committee acted as a third 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:

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No bill passed by either House shall become a law unless it has passed three readings on separate days, and printed
copies thereof in its final form have been distributed to its Members 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 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 entered in the Journal.
Petitioners argument that the practice where a bicameral conference committee is allowed to add or delete provisions in
the House bill and the Senate bill after these had passed 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 ruling in
the Tolentino case that:
Nor is there any reason for requiring that the Committees Report in these cases must have 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 the compromise bill. . . .
Art. VI. 26 (2) must, therefore, be construed as referring only to bills introduced for the first time in either house
of Congress, not to the conference committee report.32 (Emphasis supplied)
The Court reiterates here that the "no-amendment rule" refers only to the procedure to be followed by each house
of Congress with regard to bills initiated in each of said respective houses, before said bill is transmitted to the
other house for its concurrence 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 as this would mean that the other house of
Congress would be deprived of its constitutional power to amend or introduce changes to said bill. Thus, Art. VI, Sec. 26
(2) of the Constitution cannot be taken to mean that the introduction by the Bicameral Conference Committee of
amendments and modifications to disagreeing provisions in bills that have been acted upon by both houses of Congress
is prohibited.
C. R.A. No. 9337 Does Not Violate Article VI, Section 24 of the Constitution on Exclusive 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 to the following provisions, to wit:

Section 27

Rates of Income Tax on Domestic Corporation

28(A)(1)

Tax on Resident Foreign Corporation

28(B)(1)

Inter-corporate Dividends

34(B)(1)

Inter-corporate Dividends

116

Tax on Persons Exempt from VAT

117

Percentage Tax on domestic carriers and keepers of Garage

119

Tax on franchises

121

Tax on banks and Non-Bank Financial Intermediaries

148

Excise Tax on manufactured oils and other fuels

151

Excise Tax on mineral products

236

Registration requirements

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237

Issuance of receipts or sales or commercial invoices

288

Disposition of Incremental Revenue

Petitioners claim that the amendments to these provisions of the NIRC did not at all originate from the House. They aver
that House Bill No. 3555 proposed amendments only 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 the NIRC; 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 the House of Representatives. Hence, they argue that since the proposed amendments did
not originate from the House, such amendments are a violation of Article VI, Section 24 of 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 public debt, bills of local application, and
private bills shall originate exclusively in the House of Representatives but the Senate may propose or concur with
amendments.
In the present cases, petitioners admit that it was indeed House Bill Nos. 3555 and 3705 that initiated the move for
amending provisions of the NIRC dealing mainly with the value-added tax. Upon transmittal of said House bills to the
Senate, the Senate came out with Senate Bill No. 1950 proposing amendments not only to NIRC provisions on the valueadded tax but also amendments to NIRC provisions on other kinds of taxes. 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
the purview of the constitutional provision authorizing the Senate to propose or concur with amendments to a revenue bill
that originated from the House?
The foregoing question had been squarely answered in the Tolentino case, wherein the Court held, thus:
. . . To begin with, it is not the law but the revenue bill which is required by the Constitution to "originate exclusively" in
the House of Representatives. It is important to emphasize this, because a bill originating in the House may undergo such
extensive changes in the Senate that the result may be a rewriting of the whole. . . . At this point, what is important to note
is that, as a result of the Senate action, a distinct bill may be produced. To insist that a revenue statute and not only
the bill which initiated the legislative process culminating in the enactment of the law must substantially be the
same as the House bill would be to deny the Senates power not only to "concur with amendments" but also to
"propose amendments." It would be to violate the coequality of legislative power of the two houses of Congress and in
fact make the House superior to the Senate.

Given, then, the power of the Senate to propose amendments, the Senate can propose its own version even
with respect to bills which are required by the Constitution to originate in the House.
...
Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff or tax bills, bills authorizing an
increase of the public debt, private bills and bills of local application must come from the House of Representatives on the
theory that, elected as they are from the districts, the members of the House can be expected to be more sensitive to
the local needs and problems. On the other hand, the senators, who are elected at large, are expected to
approach the same problems from the national perspective. Both views are thereby made to bear on the
enactment of such laws.33 (Emphasis supplied)
Since there is no question that the revenue bill exclusively originated in the House of Representatives, the Senate was
acting within its
constitutional power to introduce amendments to the House bill when it included provisions in Senate Bill No. 1950
amending corporate income taxes, percentage, excise and franchise taxes. Verily, Article VI, Section 24 of the Constitution
does not contain any prohibition or limitation on the extent of the amendments that may be introduced by the Senate to
the House revenue bill.
Furthermore, the amendments introduced by the Senate to the NIRC provisions that had not been touched in the House
bills are still in furtherance of the intent of the House in 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 Bill No. 3555, stated:

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One of the challenges faced by the present administration is the urgent and daunting task of solving the countrys serious
financial problems. To do this, government expenditures must be strictly monitored and controlled and revenues must be
significantly increased. This may be easier said than done, but our fiscal authorities are still 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 been identified by the administration. It is supported with a credible package of revenue measures that
include measures to improve tax administration and control the leakages 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 all acknowledged that on top of our
agenda must be the restoration of the health of our fiscal system.
In order to considerably lower the consolidated public sector deficit and eventually achieve a balanced budget by the year
2009, we need to seize windows of opportunities which might seem poignant in the beginning, but in the long run
prove effective and beneficial to the overall status of our economy. One such opportunity 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 of Representatives is to bring in sizeable
revenues for the government
to supplement our countrys serious financial problems, and improve tax administration and control of the leakages in
revenues from income taxes and value-added taxes. As these house bills were transmitted to the Senate, the latter,
approaching the measures from the point of national perspective, can introduce amendments within the purposes of those
bills. It can provide for ways that would soften the impact of the VAT measure on 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.
Ralph Recto on why the provisions on income tax on corporation were included is worth quoting:
All in all, the proposal of the Senate Committee on Ways and Means will raise P64.3 billion in additional revenues
annually even while by mitigating prices of power, services and petroleum products.
However, not all of this will be wrung out of VAT. In fact, only P48.7 billion amount is from the VAT on twelve goods and
services. The rest of the tab P10.5 billion- will be picked by corporations.
What we therefore prescribe is a burden sharing between corporate Philippines and the consumer. Why should the latter
bear all the pain? Why should the fiscal salvation be only on the burden of the consumer?
The corporate worlds equity is in form of the increase in the corporate income tax from 32 to 35 percent, but up to 2008
only. This will raise P10.5 billion a year. After that, the rate will slide back, not to its old rate of 32 percent, but two notches
lower, to 30 percent.
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 house in order. This fiscal medicine will have an expiry date.
For their assistance, a reward of tax reduction awaits them. We intend to keep the length of their sacrifice brief. We would
like to assure them that not because there is a light 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. Big business will be there to share the
burden.35
As the Court has said, the Senate can propose amendments and in fact, the amendments 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 taxes germane to the reforms to the VAT
system, as these sections would cushion the effects of VAT on consumers. Considering that certain goods and services
which were subject to percentage tax and excise tax would no longer be VAT-exempt, the consumer would be burdened
more as they would be paying the VAT in addition to these taxes. Thus, there is a need to amend these sections to soften
the impact of VAT. Again, in his sponsorship 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 a VAT.
And in the case of petroleum, while we will levy the VAT on oil products, so as not to destroy the VAT chain, we will
however bring down the excise tax on socially sensitive products such as diesel, bunker, fuel and kerosene.

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...
What do all these exercises point to? These are not contortions of giving to the left hand what was taken from the right.
Rather, these sprang from our concern of softening the impact of VAT, so that the people can cushion the blow of higher
prices they will have to pay as a result of VAT.36
The other sections amended by the Senate pertained to matters of tax administration which 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 matter and purposes of the house bills,
which is to supplement our countrys 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 of the NIRC, violate the following
provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article VI, Section 28(2)
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 to raise the VAT rate from 10% to 12% when a certain condition is met, constitutes undue
delegation 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 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 on every sale, barter or exchange of goods or
properties, a value-added tax equivalent to ten percent (10%) of the gross selling price or gross value in money of the
goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor:provided, 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 year exceeds one and one-half percent (1
%).
SEC. 5. Section 107 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 107. Value-Added Tax on Importation of Goods.
(A) In General. There shall be levied, assessed and collected on every importation of goods a value-added tax
equivalent to ten percent (10%) based on the total value used by 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 the
release 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 tax shall be based on the landed cost plus excise taxes, if
any: provided, further, 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 year exceeds one and one-half percent (1
%).

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SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to read as 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 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 year exceeds one and one-half percent (1
%). (Emphasis supplied)
Petitioners allege that the grant of the stand-by authority to the President to increase the VAT rate is a virtual abdication by
Congress of its exclusive power to tax because such delegation 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, and may impose, tariff rates, import and
export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development
program of the government.
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 included within the purview of tariffs under the exempted delegation as the latter
refers to customs duties, tolls or tribute payable upon merchandise to the government and usually imposed on goods or
merchandise imported or exported.
Petitioners ABAKADA GURO Party List, et al., further contend that delegating to the President the legislative power to tax
is contrary to republicanism. They insist that accountability, responsibility and transparency should dictate the actions of
Congress and they should not pass to the President the decision to impose taxes. They also argue that the law also
effectively nullified the Presidents power of control, which includes the authority to set aside and nullify the acts of her
subordinates like the Secretary of Finance, by mandating the fixing of the tax rate by the President upon the
recommendation of the Secretary of Finance.
Petitioners Pimentel, et al. aver that the President has ample powers to cause, influence or create the conditions provided
by the law to bring about either or both the conditions precedent.
On the other hand, petitioners Escudero, et al. find bizarre and revolting the situation that the imposition of the 12% rate
would be subject to the whim of the Secretary of Finance, an unelected bureaucrat, contrary to the principle of no taxation
without representation. They submit that the Secretary of Finance is not mandated to give a favorable 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 any recommendation of the
Secretary of Finance can easily be brushed aside by the President since the former is a mere alter ego of the latter, such
that, ultimately, it is the President 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 of government has exclusive
cognizance of and is supreme in matters falling within its own constitutionally allocated sphere. 37 A logical
corollary to the doctrine of separation of powers is the principle of non-delegation of powers, as expressed in the Latin
maxim: potestas delegata non delegari potest which means "what has been delegated, cannot be delegated." 38 This
doctrine is based on the ethical principle that such as delegated power constitutes not only a right but a duty to be
performed by the delegate through the instrumentality of his own judgment and not through 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 shall consist of a Senate and a House of Representatives." The powers
which Congress is prohibited from delegating are those which are strictly, or inherently and exclusively, legislative. Purely
legislative power, which can never be delegated, has been described as theauthority to make a complete law
complete as to the time when it shall take effect and as to whom it shall be applicable and to determine the
expediency 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 must appear that the power involved is purely legislative in nature
that is, one appertaining exclusively 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 its delegation.
Nonetheless, the general rule barring delegation of legislative powers is subject to the following recognized limitations or
exceptions:

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(1) Delegation of tariff powers to the President under Section 28 (2) of Article VI of the Constitution;
(2) Delegation of emergency powers to the President under Section 23 (2) of Article VI of 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 delegation itself is valid. It is valid only if the law
(a) is complete in itself, setting forth therein the policy to be executed, carried out, or implemented by the delegate; 41 and
(b) fixes a standard the limits of which are sufficiently determinate and determinable to which the delegate must
conform in the performance of his functions.42 A sufficient standard is one which defines legislative policy, marks its limits,
maps out its boundaries and specifies the public agency to apply it. It indicates the circumstances under which the
legislative command is to be effected.43 Both tests are intended to prevent a total transference 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 on the 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 provisions when it left the hands of the legislature so that nothing was left to the
judgment of any other appointee or delegate of the legislature.
...
The true distinction, says Judge Ranney, is between the delegation of power to make the law, which necessarily
involves a discretion as to what it shall be, and conferring an authority or discretion as to its execution, to be
exercised under and in pursuance of the law. The first cannot be done; to the latter no valid objection can be
made.
...
It is contended, however, that a legislative act may be made to the effect as law after it leaves the hands of the legislature.
It is true that laws may be made effective on certain contingencies, as by proclamation of the executive or the adoption by
the people of a particular community. In Wayman vs. Southard, the Supreme Court of the United States ruled 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 be delegated. There is nothing essentially legislative in ascertaining the existence of
facts or conditions as the basis of the taking into effect of a law. That is a mental process common to all
branches of the government. Notwithstanding the apparent tendency, however, to relax the rule prohibiting delegation of
legislative authority on account of the complexity arising from social and economic forces at work in this modern industrial
age, the orthodox pronouncement of Judge Cooley in his work on Constitutional Limitations finds restatement in Prof.
Willoughby's treatise on the Constitution of the United States in the following language speaking of declaration of
legislative power to administrative agencies: The principle which permits the legislature to provide that the
administrative agent may determine when the circumstances are such as require the application of a law is
defended upon the ground that at the time this authority is granted, the rule of public policy, which is the 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 other circumstances, different or no action at all is to be taken. What is thus left to the administrative
official is not the legislative determination of what public policy demands, but simply the ascertainment of what
the facts of the case require to be done according to the terms of the law by which he is governed. The efficiency
of an 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 effect may be left to such agencies as it may designate. The
legislature, then, may provide that a law shall take effect upon the happening of future specified contingencies
leaving to some other person or body the power to determine when 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 to alter and repeal them; the test is the
completeness of the statute in all its terms and provisions when it leaves the hands of the legislature. To determine
whether or not there is an undue delegation of legislative power, the inquiry must be directed to the scope and
definiteness of the measure enacted. The legislative does not abdicate its functions when it describes what job
must be done, who is to do it, and what is the scope of his authority. For a complex economy, that may be the only
way in which the legislative process can go forward. A distinction has rightfully been made between delegation of
power to make the laws which necessarily involves a discretion as to what it shall be, which constitutionally may
not be done, and delegation of authority or discretion as to its execution to be exercised under and in pursuance

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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 of flexibility and practicability. (Emphasis supplied). 48
Clearly, the legislature may delegate to executive officers or bodies the power to determine 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
must prescribe sufficient standards, policies or limitations on their authority.49 While the power to tax cannot be delegated
to executive agencies, details as to the enforcement and administration of an exercise of such power may be left to them,
including the power to determine the existence of facts on which its operation depends. 50
The rationale for this is that the preliminary ascertainment of facts as basis for the enactment of legislation is not of itself a
legislative function, but is simply ancillary to legislation. Thus, the duty of correlating information and making
recommendations is the kind of subsidiary activity which the legislature may perform through its members, or which 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 the part of the legislators, and any reasonable method of securing such information is
proper.51 The Constitution as a continuously operative charter of government does not require that Congress find for itself
every fact upon which it desires to base legislative action or that it make for itself detailed determinations which it has
declared to be prerequisite to application of legislative policy to particular facts and circumstances impossible for
Congress itself properly 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 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 year exceeds one and one-half percent (1 %).
The case before the Court is not a delegation of legislative power. It is simply a delegation of ascertainment of facts upon
which enforcement and administration of the increase rate under the law is contingent. The legislature has made the
operation of the 12% rate effective January 1, 2006, contingent upon a specified fact or condition. It leaves the entire
operation or non-operation of the 12% rate upon factual matters outside of the control of the executive.
No discretion would be exercised by the President. Highlighting the absence of discretion is the fact that the wordshall is
used in the common proviso. The use of the word shall connotes a mandatory order. Its use in a statute denotes an
imperative obligation and is inconsistent with the idea of discretion. 53 Where the law is clear and unambiguous, 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 upon the existence of any of the
conditions specified by Congress. This is a duty which cannot be evaded by the President. Inasmuch as the law
specifically uses the word shall, the exercise of discretion by the President does not come into play. It is a clear directive
to impose the 12% VAT rate when the specified conditions are present. The time of taking into effect of the 12% VAT rate
is based on the happening of a certain specified contingency, or upon the ascertainment of certain facts or conditions by a
person or body other than the legislature itself.
The Court finds no merit to the contention of petitioners ABAKADA GURO Party List, et al. that the law effectively nullified
the Presidents power of control over the Secretary of Finance by mandating the fixing of the tax rate by the President
upon the recommendation of the Secretary of Finance. The Court cannot also subscribe to the position of petitioners
Pimentel, et al. that the word shall should be interpreted to mean may in view of the phrase "upon the recommendation of
the Secretary of Finance." Neither does the Court find persuasive the submission of petitioners Escudero, et al. that any
recommendation by the Secretary of Finance can easily be brushed aside by the President since the former is a mere
alter ego of the latter.
When one speaks of the Secretary of Finance as the alter ego of the President, it simply means that as head of the
Department of Finance he is the assistant and agent of the Chief Executive. The multifarious executive and administrative
functions of the Chief Executive are performed by and through the executive departments, and the acts of the secretaries
of such departments, such as the Department of Finance, performed and promulgated in the regular course of business,
are, unless disapproved or reprobated by the Chief Executive, presumptively the acts of the Chief Executive. The
Secretary of Finance, 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 bosom confidence" and, in the language of Attorney-General Cushing,
is "subject to the direction of the President." 55
In the present case, in making his recommendation to the President on the existence of either of the two conditions, the
Secretary of Finance is not acting as the alter ego of the President or even her subordinate. In such instance, he is not
subject to the power of control and direction of the President. He is acting as the agent of the legislative department, to

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determine and declare the event upon which its expressed will is to take effect. 56The Secretary of Finance becomes the
means or tool by which legislative policy is determined and implemented, considering that he possesses all the facilities to
gather data and information and has a much broader perspective to properly evaluate them. His function is to gather and
collate statistical data and other pertinent information and verify if any of the two conditions laid out by Congress is
present. His personality in such 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 set aside the findings of the Secretary
of Finance and to substitute the judgment of the former for that of the latter.
Congress simply granted the Secretary of Finance the authority to ascertain the existence of a fact, namely, whether by
December 31, 2005, the value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous
year exceeds two and four-fifth percent (24/5%) or the national government deficit as a percentage of GDP of the previous
year exceeds one and one-half percent (1%). If either of these two instances has occurred, the Secretary of Finance, by
legislative mandate, must submit such information to the President. Then the 12% VAT rate must be imposed by the
President effective January 1, 2006. There is no undue delegation of legislative power but only of the discretion as
to the execution of a law. This is constitutionally permissible.57 Congress does not abdicate its functions or unduly
delegate power when it describes what job must be done, who must do it, and what is the scope of his authority; in our
complex economy that is frequently the only way in which the legislative process can go forward. 58
As to the argument of petitioners ABAKADA GURO Party List, et al. that delegating to the 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 but the mere implementation of the law. The intent and will to increase the VAT rate to 12% came from
Congress and the task of the President is to simply execute the legislative policy. That Congress chose to do so in such a
manner is not within the province of the Court to inquire into, its task being to interpret the law. 59
The insinuation by petitioners Pimentel, et al. that the President has ample powers to cause, influence or create the
conditions to bring about either or both the conditions precedent does not deserve any merit as this argument is highly
speculative. The Court does not rule on allegations which are manifestly conjectural, as these may not exist at all. The
Court deals with facts, not fancies; on realities, not appearances. When the Court 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 an unfair 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, is ambiguous because it does not state if the VAT rate would be returned to the original 10% 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 to year.
Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of the two conditions 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% rate nor does it empower the President to so revert if, after the rate is increased to 12%, the VAT
collection goes below the 24/5 of the GDP of the previous year or that the national government deficit as a percentage of
GDP of the previous year does not exceed 1%.
Therefore, no statutory construction or interpretation is needed. Neither can conditions or limitations be introduced where
none is provided for. Rewriting the law is a forbidden ground that only Congress may tread upon. 60
Thus, in the absence of any provision providing for a return to the 10% rate, which in this 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 itself does not provide that the rate should go back to 10% if the conditions provided in Sections 4, 5 and 6 are no
longer present. The rule is that where the provision of the law is clear and unambiguous, so that there is no occasion for
the court's seeking the legislative intent, the law must be taken as it is, devoid of judicial addition or subtraction. 61
Petitioners also contend that the increase in the VAT rate, which was allegedly an incentive to the President to raise the
VAT collection to at least 2 4/5 of the GDP of the previous 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 a percentage of GDP of the previous year exceeds one and one-half percent (1 %).
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. If VAT/GDP is less than 2.8%, it means
that government has weak or no capability of implementing 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 be ineffectual.
2. Natl Govt Deficit/GDP >1.5%

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The condition set for increasing VAT when deficit/GDP is 1.5% or less means the fiscal condition of government has
reached a relatively sound position or is towards the direction 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 ratio is 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 VAT collection 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, fiscal adequacy dictated the need for a raise in revenue.
The principle of fiscal adequacy as a characteristic of a sound tax system was originally stated 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 pockets of the people as little as possible
over and above what it brings into the public treasury of 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 financial woe. During the Bicameral
Conference Committee hearing, then Finance Secretary Purisima bluntly depicted the countrys gloomy state of economic
affairs, thus:
First, let me explain the position that the Philippines finds itself in right now. We are in a position where 90 percent of our
revenue is used for debt service. So, for every peso of revenue that we currently raise, 90 goes to debt service. Thats
interest plus amortization of our debt. So clearly, this is not a sustainable situation. Thats the first fact.
The second fact is that our debt to GDP level is way out of line compared to other peer countries that borrow money from
that international financial markets. Our debt to GDP is approximately equal to our GDP. Again, that shows you that this is
not a sustainable situation.
The third thing that Id like to point out is the environment that we are presently operating 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, weve been lucky because we were operating in a period of basically global growth and low interest
rates. The past few months, we have seen an inching up, in fact, a rapid increase in the interest rates in the leading
economies of the world. And, therefore, our ability to borrow at reasonable prices is going to be challenged. 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 bad as 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 convince them to improve our ability to borrow at lower rates. But conditions have changed on us because the
interest rates have gone up. In fact, just within this room, we tried to access the market for a billion dollars because for this
year alone, the Philippines will have 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 last week and the market was not as favorable
and up to now we have not accessed and we might pull back because the conditions are not very good.
So given this situation, we at the Department of Finance believe that we really need to front-end our deficit reduction.
Because it is deficit that is causing the increase of the debt and we are in what we call a debt spiral. The more debt you
have, the more deficit you have because interest and debt service eats and eats more of your revenue. We need to get
out of this debt spiral. And the only way, I think, we can get out of this debt spiral 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 an inevitable catastrophe. Whether the
law is indeed sufficient to answer the states economic dilemma is not for the Court to judge. In theFarias case, the Court
refused to consider the various arguments raised therein that dwelt on the wisdom of Section 14 of R.A. No. 9006 (The
Fair Election Act), pronouncing that:
. . . policy matters are not the concern of the Court. Government policy is within the exclusive dominion of the political
branches of the government. It is not for this Court to look into the wisdom or propriety of legislative determination.
Indeed, whether an enactment is wise or unwise, whether it is based on sound economic theory, whether it is 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 are matters for the judgment of the legislature, and the serious conflict of opinions does
not suffice 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 or the executive policy, given that it is
not for the judiciary to "pass upon questions of wisdom, justice or expediency of legislation." 67
II.

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Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and Section 12 of R.A. No.
9337, amending Section 114(C) of the NIRC, violate the following provisions of the Constitution:
a. Article VI, Section 28(1), and
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 and confiscatory. Their argument is premised on the constitutional right against deprivation of 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 of equal 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 for proof of such persuasive character as would lead to such a
conclusion. Absent such a showing, 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 previous quarter that may be credited in every quarter shall not exceed seventy percent (70%) of the 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 VATregistered person on the importation of goods or local purchase of good and services, including lease or use of property,
in the course of trade or business, from a VAT-registered person, and Output Tax is the value-added tax due on the sale
or lease of taxable goods or properties or services by any person registered or required to register under the law.
Petitioners claim that the contested sections impose limitations on the amount of input tax that may be claimed. In effect, a
portion of the input tax that has already been paid cannot now be credited against the output tax.
Petitioners argument is not absolute. It assumes that the input tax exceeds 70% of the output 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 such input tax is still creditable.
More importantly, the excess input tax, if any, is retained in a businesss books of accounts and remains creditable in the
succeeding quarter/s. This is explicitly allowed by Section 110(B), which provides that "if the input tax exceeds the output
tax, the excess shall be carried over to the succeeding quarter or quarters." In addition, Section 112(B) allows a VATregistered person to apply for the issuance of a tax credit certificate or refund for any unused input taxes, to the extent that
such input taxes have not been applied against the output taxes. Such unused input tax may be used in payment of his
other internal revenue taxes.
The non-application of the unutilized input tax in a given quarter is not ad infinitum, as petitioners exaggeratedly contend.
Their analysis of the effect of the 70% limitation is incomplete and one-sided. It ends at the net effect that there will be
unapplied/unutilized inputs VAT for a given quarter. It does not proceed further to the fact that such unapplied/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 a tax 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 operation of the 70% limitation on the input
tax. According to petitioner, the limitation on the creditable input tax in effect allows VAT-registered establishments to
retain a portion of the taxes they collect, which violates the principle that tax collection and revenue should be for public
purposes and expenditures
As earlier stated, the input tax is the tax paid by a person, passed on to him by the seller, when he buys goods. Output tax
meanwhile is the tax due to the person when he sells 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 equal to the input taxes that he paid and
passed on by the suppliers, then no payment is required;
Second, when the output taxes exceed the input taxes, the person shall be liable for the excess, which has to be paid to
the Bureau of Internal Revenue (BIR);69 and

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Third, if the input taxes exceed the output taxes, the excess shall be carried over to the succeeding quarter or quarters.
Should the input taxes result from zero-rated or effectively zero-rated transactions, any excess over the output taxes shall
instead be refunded to the taxpayer or credited against other internal revenue taxes, at the taxpayers option. 70
Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input tax. Thus, a person can credit his input tax
only up to the extent of 70% of the output tax. In laymans term, the value-added taxes that a person/taxpayer paid and
passed on to him by a seller can only be credited up to 70% of the value-added taxes that is due to him on 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 will subsequently remit such input tax to the BIR. The party directly liable for the payment of
the tax is the seller.71 What only needs to be done is for the person/taxpayer to apply or credit 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 tax partakes the nature of a property
that may not be confiscated, appropriated, or limited without due process of law.
The input tax is not a property or a property right within the constitutional purview of the due process clause. A VATregistered persons entitlement to the creditable input tax is a 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 take away rights, which were created by the law of the state, although it may
not take away property, which was vested by virtue of such rights. 72
Under the previous system of single-stage taxation, taxes paid at every level of distribution are not recoverable from the
taxes payable, although it becomes part of the cost, 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 the input tax paid on
purchase or importation of goods and services by VAT-registered persons against the output tax was introduced. 73 This
was adopted by the Expanded VAT 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, a privilege that also the law can remove, or in
this case, limit.
Petitioners also contest as arbitrary, oppressive, excessive and confiscatory, Section 8 of 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 fiftynine (59) succeeding months if the aggregate acquisition cost for such goods, excluding the VAT component thereof,
exceeds One million pesos (P1,000,000.00): Provided, however, That if the estimated useful life of the capital goods is
less than five (5) years, as used for depreciation 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 the compensation, 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 of P1 Million pesos, exclusive of the VAT component. Such spread out
only poses a delay in the crediting of the input tax. Petitioners argument is without basis because the taxpayer 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 input tax in this case amounts to a 4year interest-free loan to the government.76 In the same breath, 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 the
provision will fend off foreign investments, saying that foreign investors have other tax incentives 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 the purpose 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 the government for taxable transactions,
Section 12 of R.A. No. 9337, which amended Section 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 political subdivisions, instrumentalities or agencies,
including government-owned or controlled corporations (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 106 and 108 of this Code,
deduct and withhold a final value-added tax at the rate of five percent (5%) of the gross payment thereof: Provided, That
the payment for lease or use of properties or property rights to nonresident owners shall be subject to ten percent (10%)

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withholding tax at the time of payment. For purposes of this Section, the payor or person 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) days following 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 as a 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 taxes to be withheld -- 3% on gross
payments for purchases of goods; 6% on gross payments for services supplied by contractors other than by public works
contractors; 8.5% on gross payments for services supplied by public work contractors; or 10% on payment for the lease or
use of properties or property rights to nonresident owners. Under the present Section 114(C), these different rates, except
for the 10% on lease or property rights 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 Act of 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 of income tax withheld by the withholding
agent is constituted as full and final payment of the income tax due from the payee on the said income. The liability for
payment of the tax rests primarily on the payor as a withholding agent. Thus, in case of his failure to withhold 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, taxes withheld on certain income payments
are intended to equal or at least approximate the tax due of the payee on said income. Taxes withheld on income
payments covered by the expanded withholding tax (referred to in Sec. 2.57.2 of these regulations) and compensation
income (referred to in Sec. 2.78 also of these regulations) are creditable in nature.
As applied to value-added tax, this means that taxable transactions with the government are 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% effectively accounts for the standard input VAT (deemed input VAT), in lieu of the actual input VAT directly or
attributable to the taxable transaction.79
The Court need not explore the rationale behind the provision. It is clear that Congress intended to treat differently taxable
transactions with the government.80 This is supported by the fact that under the old provision, the 5% tax withheld by the
government 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 its political subdivisions, instrumentalities
or agencies, including government-owned or controlled corporations (GOCCs) shall, before making payment on account
of each purchase of goods from sellers and services rendered by contractors which are subject to the value-added tax
imposed in Sections 106 and 108 of this Code, deduct and withhold the value-added tax due at the rate of three percent
(3%) of the gross payment for the purchase of goods and six percent (6%) on gross receipts for services rendered by
contractors on every sale or installment payment which shall becreditable against the value-added tax liability of the
seller or contractor: Provided, however, That in the case of government public works contractors, the withholding rate
shall be eight and one-half percent (8.5%): Provided, further, That the payment for lease or use of properties 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 control of the payment shall be considered as the withholding agent.
The valued-added tax withheld under this Section shall be remitted within ten (10) days following 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 exhibits Congresss intention to treat
transactions with the government differently. Since it has not been shown that the class subject to the 5% final withholding
tax has been unreasonably narrowed, there is no reason to invalidate the provision. Petitioners, as petroleum 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 Regulations 2005 issued by the BIR, provides that should the actual input tax
exceed 5% of gross payments, the excess may form part of the cost. Equally, should the actual input tax be less than 5%,
the difference is treated as income.81

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Petitioners also argue that by imposing a limitation on the creditable input tax, the government gets to tax a profit or valueadded even if there is no profit or value-added.
Petitioners stance is purely hypothetical, argumentative, and again, one-sided. The Court 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."
Whats more, petitioners contention assumes the proposition that there is no profit or value-added. It need not take an
astute businessman to know that it is a matter of exception that a business will sell goods or services without profit or
value-added. It cannot 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 other persons 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 purposes of taxation has long been
established. Whether it relates to the subject of taxation, the kind of property, the rates to be levied, or the amounts to be
raised, the methods of assessment, valuation and collection, the States power is entitled to presumption of validity. As a
rule, the judiciary will not interfere with such power absent a clear showing of 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 the government, is not based on real and substantial differences to
meet a valid classification.
The argument is pedantic, if not outright baseless. The law does not make any classification in the subject of taxation, the
kind of property, the rates to be levied or the amounts to be raised, the methods of assessment, valuation and collection.
Petitioners alleged distinctions are based on variables that bear different consequences. While the implementation of the
law may yield varying end results depending on ones profit margin and value-added, the Court cannot go beyond what
the legislature has laid down and interfere with the affairs of business.
The equal protection clause does not require the universal application of the laws on all persons or things without
distinction. This might in fact sometimes result in unequal protection. What the clause requires is equality among equals
as determined according to a valid classification. By classification is meant the grouping of persons or things similar to
each other in certain particulars and different from all others in these same particulars. 85
Petitioners brought to the Courts attention the introduction of Senate Bill No. 2038 by Sens. S.R. Osmea III and Ma. Ana
Consuelo A.S. Madrigal on June 6, 2005, and House Bill No. 4493 by Rep. Eric D. Singson. The proposed legislation
seeks to amend the 70% limitation by increasing the same to 90%. This, according to petitioners, supports their stance
that the 70% limitation is arbitrary and confiscatory. On this score, suffice it to say that these are still proposed legislations.
Until Congress amends the law, and absent any unequivocal basis for its unconstitutionality, the 70% limitation stays.
B. Uniformity and Equitability of Taxation
Article VI, Section 28(1) of the Constitution reads:
The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation.
Uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate.
Different articles may be taxed at different amounts provided that the rate is uniform on the same class everywhere with
all people at all times.86
In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or 12%) on all goods and services.
Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the NIRC, provide for a rate
of 10% (or 12%) on sale of goods and properties, importation of goods, and sale of services and use or lease of
properties. These same sections also provide for a 0% rate on certain sales and transaction.
Neither does the law make any distinction as to the type of industry or trade that will bear the 70% limitation on the
creditable input tax, 5-year amortization of input tax paid on purchase of capital goods or the 5% final withholding tax by
the government. It must be stressed that the rule of uniform taxation does not deprive Congress of the power to classify
subjects of taxation, and only demands uniformity within the particular class. 87
R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The VAT rate of 0% or 10% (or 12%) does
not apply to sales of goods or services with gross annual sales or receipts not exceedingP1,500,000.00.88 Also, basic
marine and agricultural food products in their original state are still not subject to the tax, 89 thus ensuring 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

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The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons engaged in business
with an aggregate gross annual sales exceeding P200,000.00. Small corner sari-sari stores are consequently exempt
from its application. Likewise exempt from the tax are sales of farm and marine products, so that the costs of basic food
and other necessities, spared as they are from the incidence of the 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. This acts as a equalizer because in effect, bigger businesses that
qualify for VAT coverage and VAT-exempt taxpayers stand on equal-footing.
Moreover, Congress provided mitigating measures to cushion the impact of the imposition of the tax on those previously
exempt. Excise taxes on petroleum products91 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, in order to distribute the burden of
taxation. Domestic, foreign, and non-resident corporations 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 corporations domicile was increased to 20%. 96 The Philippine Amusement and Gaming
Corporation (PAGCOR) is not exempt from income taxes anymore. 97 Even the sale by an artist of his works or services
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, which would 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 but regressive. It is the smaller
business with higher input tax-output tax ratio that will suffer the consequences.
Progressive taxation is built on the principle of the taxpayers ability to pay. This principle was also lifted from Adam
Smiths Canons of Taxation, and it states:
I. The subjects of every state ought to contribute towards the support of the government, 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 the state.
Taxation is progressive when its rate goes up depending on the resources of the person affected. 98
The VAT is an antithesis of progressive taxation. By its very nature, it is regressive. The principle of progressive taxation
has no relation with the VAT system inasmuch as the VAT paid by the consumer or business for every goods bought or
services enjoyed is the 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 a business, such that the higher the income or profit margin, the smaller
the portion of the income 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 lower income 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 progressive system of taxation." The Court stated in the Tolentino case, thus:
The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive. What it simply
provides is that Congress shall evolve a progressive system of taxation. The constitutional provision has been interpreted
to mean simply that direct taxes are . . . to be preferred [and] as much as possible, indirect taxes should be minimized.
(E. FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221 (Second ed. 1977)) Indeed, the mandate to Congress
is not to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes, which perhaps are the oldest form of
indirect taxes, would have been prohibited with the proclamation 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 is difficult, if not impossible, to avoid them
by imposing such taxes according to the taxpayers' ability to pay. In the case of the VAT, the law minimizes the regressive
effects 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 other transactions. (R.A. No. 7716, 4 amending 103 of the NIRC) 99
CONCLUSION

Page 273 of 403

It has been said that taxes are the lifeblood of the government. In this case, it is just an enema, a first-aid measure to
resuscitate an economy in distress. The Court is neither blind nor is it turning a deaf ear on the plight of the masses. But it
does not have the panacea 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, and that the judiciary should stand
ready to afford relief. There are undoubtedly many wrongs 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 of remedies for all political or social
ills; We should not forget that the Constitution has judiciously allocated the powers of government to three distinct and
separate compartments; and that judicial interpretation has tended to the preservation of the independence 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, each may 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'tre 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 is LIFTED upon finality of herein decision.
SO ORDERED.
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
WE CONCUR:
HILARIO G. DAVIDE, JR.
Chief Justice

REYNATO S. PUNO

ARTEMIO V. PANGANIBAN

Associate Justice

Associate Justice

LEONARDO A. QUISUMBING

CONSUELO YNARES-SANTIAGO

Associate Justice

Associate Justice

ANGELINA SANDOVAL-GUTIERREZ

ANTONIO T. CARPIO
Associate Justice

Associate Justice

RENATO C. CORONA

CONCHITA CARPIO-MORALES

Associate Justice

Associate Justice

ROMEO J. CALLEJO, SR.

ADOLFO S. AZCUNA
Associate Justice

Associate Justice

DANTE O. TINGA

MINITA V. CHICO-NAZARIO
Associate Justice

Associate Justice

CANCIO C. GARCIA

Page 274 of 403

Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation
before the case was assigned 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 National Internal Revenue Code of 1997, As Amended and For Other Purposes."
2

Entitled, "An Act Restructuring the Value-Added Tax, Amending for the Purpose Sections 106, 107, 108, 110 and 114 of the National Internal
Revenue Code of 1997, As Amended, and For Other Purposes."
3

Entitled, "An Act Amending Sections 106, 107, 108, 109, 110 and 111 of the National Internal Revenue Code of 1997, As Amended, and For
Other Purposes."
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 Internal Revenue Code of 1997, As Amended, and For Other Purposes."
5

Section 26, R.A. No. 9337.

TSN, July 14, 2005.

Section 125 of the National Internal Revenue Code, as amended, was not amended 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.

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 the Philippines (First Edition 2000).

14

Commissioner of Internal Revenue vs. Seagate, G.R. No. 153866, February 11, 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, Widening its Tax Base and Enhancing its Administration, And for these
Purposes Amending and Repealing the Relevant Provisions of the National Internal Revenue Code, as amended, and for other Purposes."
17

Entitled, "An Act Amending Republic Act No. 7716, otherwise known as the Value-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

Westers Third New International Dictionary, p. 1897.

26

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

Page 275 of 403

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). Judge Cooley enunciates the doctrine in the
following oft-quoted language: "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 or authority. Where the sovereign power of the state has located the authority, there
it must remain; and by the constitutional agency alone the laws must be made until the Constitution itself is changed. The power to whose
judgment, wisdom, and patriotism this high prerogative has been intrusted cannot relieve itself of the responsibility by choosing
other agencies upon which the power shall be devolved, nor can it substitute the judgment, wisdom, and patriotism of any other
body for those to which alone the people 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. L9553, 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; Compaia General de Tabacos vs. Board of Public Utility, No. 11216, March 6, 1916, 34 Phil. 136 et seq.
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, 166 SCRA 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 Ops 220.

53

Province of Batangas vs. Romulo, G.R. No. 152774, May 27, 2004; Enriquez vs. 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

56

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

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).

Page 276 of 403

57

Compaia General de Tabacos de Filipinas vs. The Board of Public Utility Commissioners, 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 Ops 180.

59

United Residents of Dominican Hill, Inc. vs. Commission on the Settlement of Land Problems, G.R. No. 135945, March 7, 2001, 353 SCRA
782; Commissioner of 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 of Senate 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, 123 SCRA 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.

Page 277 of 403

91

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

92

Section 18, amending Section 151, NIRC.

93

Section 14, amending Section 117, NIRC.

94

Section 15, amending Section 119, 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, 249 SCRA 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. EXECUTIVE SECRETARY EDUARDO R. ERMITA, ET AL.
G.R. No. 168207 - AQUILINO PIMENTEL, JR., ET AL. V. EXECUTIVE SECRETARY EDUARDO 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 VAT cases,1 I partly yield to the application to the cases
at bar of the rule on "germaneness" therein enunciated. Thus, I concur with the ponenciaof my highly-esteemed colleague Mme. Justice
Ma. Alicia Austria-Martinez except as regards its ruling on the issue of whether 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 by broadening its base and raising the rate so as to
generate more revenues for the government 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 the amendment of Sections 106, 107, 108, 109, 110, and 111 of the National Internal Revenue Code (NIRC) as
amended; while the second (HB No. 3705) proposed amendments to Sections 106, 107, 108, 110, and 114 of the NIRC, as amended. It
is significant 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" of the NIRC, as amended. Among the provisions sought to be amended, only Sections 106, 108,
109, 110, 111, 112, 113, 114, and 116 pertain to VAT. And while Sections 236, 237, and 288 are administrative provisions pertaining to
registration requirements and issuance of receipts commercial invoices, the proposed amendments thereto are related to VAT. Hence,
the proposed amendments to these Sections were validly taken cognizance of and properly considered by the Bicameral Conference
Committee (BCC).
However, I am of the opinion that the inclusion into the law of the amendments proposed in SB No. 1950 to the following provisions
(with modifications on the rates of taxes) 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

Page 278 of 403

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 has the constitutional power to concur with the amendments to the VAT provisions introduced in the
House Bills or even to propose its own version of VAT measure. But that power does not extend to initiation of other tax measures, such
as introducing amendments to provisions on corporate income taxes, percentage taxes, franchise taxes, and excise taxes like what the
Senate did in these cases. It was beyond the ambit of the authority of the Senate to propose amendments to provisions not covered by
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 initiate revenue bills -- a power that exclusively pertains to the House of Representatives under Section 24,
Article VI of the Constitution, which provides:
Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills
shall originate exclusively in the House of Representatives but the Senate may propose or concur with amendments.
Moreover, Sections 121 (Percentage Tax on Banks and Non-Bank Financial Intermediaries) 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 in the 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 with the subject matter or it may be limited to resolving the precise differences between the two houses.
Even where the conference committee is not by rule limited in its jurisdiction, legislative custom severely limits the freedom with
which new subject matter can be inserted into the conference bill."
The limitation on the power of a conference committee to insert new provisions was laid down 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
is not found either in the House bill or in the Senate bill, held that the exercise of that power is subject to the condition that the said
provision is "germane to the subject of the House andSenate bills."
As pointed out by the petitioners, Tolentino differs from the present cases in the sense that in that case the amendments introduced in
the Senate bill were on the same subject matter treated in the House bill, which was VAT, and the new provision inserted by the
conference committee had relation to that subject matter. Specifically, HB No. 11197 called for the (1) amendment of Sections
99,100,102,103,104,105,106,107, 108, 110, 112,115, 116, 236,237, and 238 of the NIRC, 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 Sections
99,100,102,103,104,105,107, 108, 110, 112, 236, 237, and 238 of the NIRC, as amended; and (2) repeal of Sections 113, 114, and 116
of the NIRC, as amended. In short, 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 not found in either the House or Senate bills, they were germane to the
general subject of the 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 (Excise Tax on Mineral Products) of the NIRC, as amended, are undoubtedly germane to SB No. 1950, which
introduced amendments to the provisions on percentage and excise taxes -- but foreign to HB Nos. 3555 and 3705, which dealt with
VAT only. Since the proposed amendments in the Senate bill relating to percentage and excise taxes cannot themselves 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 the Constitution, the new provisions inserted by the BCC on percentage and excise taxes would have no leg to stand on.
I understand very well that the amendments of the Senate and the BCC relating to corporate income, percentage, franchise, and excise
taxes were designed to "soften the impact of VAT measure on the consumer, i.e., by distributing the burden across all sectors instead of
putting it entirely on the shoulders of the consumers" and to alleviate the countrys 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 of Representatives, not from the Senate. After all, these aims may still be realized
by means 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 amends provisions pertaining to VAT. However, I vote to
declare as unconstitutional Sections 1, 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 amendments deal 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 the Constitution.
HILARIO G. DAVIDE, JR.
Footnotes
1

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

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

Page 279 of 403

3

G.R. No. 105371, 11 November 1993, 27 SCRA 703, 708, citing Davies, Legislative Law and Process: In a Nutshell 81 (1986 ed.)

Supra note 1.

The Lawphil Project - Arellano Law Foundation

G.R. No. 168056 ABAKADA GURO PARTY LIST, ET AL. VS. EXECUTIVE SECRETARY EDUARDO ERMITA,ET AL.
G.R. No. 168207 AQUILINO PIMENTEL, JR., ET AL. VS. EXECUTIVE SECRETARY 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 numerous constitutional and legal issues raised by the
petitioners. Be that as it may, I wish to raise the 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:
(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 year exceeds one and one-half percent (1 %).
The power of judicial review under Article VIII, section 5(2) of the 1987 Constitution is limited to the review of "actual cases and
controversies."1 As rightly stressed by retired 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 to actual facts and thus enables it to reach sounder
judgment" and "enhances public acceptance of its role in our system of government."2 It also assures that the judiciary does not intrude
on areas committed to the other branches of government and is confined to its role as defined by the Constitution.3 Apposite thereto is
the doctrine of ripeness whose basic rationale is "to prevent the courts, through premature adjudication, from entangling themselves
in abstract disagreements."4 Central to the doctrine 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 The ripeness requirement must be satisfied for each
challenged legal provision and parts of a statute so that those which are "not immediately involved are not thereby thrown open for
a judicial determination of constitutionality."6
It is manifest that the constitutional challenge to sections 4 to 6 of R.A. No. 9337 cannot hurdle the requirement of ripeness. These
sections give the President the power to raise 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 know whether these conditions are certain to happen. The power
to adjust the tax rate given to the President is futuristic and may or may not be exercised. The Court is therefore beseeched to render a
conjectural judgment based on hypothetical facts. Such a supplication has to be rejected.
Second. With due respect, I submit that the most important constitutional issue posed by the petitions at bar relates to the parameters
of power of a Bicameral Conference Committee. Most of the issues in the petitions at bar arose because the Bicameral Conference
Committee concerned exercised powers that went beyond reconciling the differences 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 Conference Committee has limited
powers and cannot be allowed to act as if it were a "third house" of Congress. I further warned that unless its roving powersare
reigned in, a Bicameral Conference Committee can wreck the lawmaking process which is a cornerstone 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 this preeminent
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 the provision of any bill or joint resolution, the
differences shall be settled by a conference committee 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 be signed 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:

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In the event that the House does not agree with the Senate on the amendments to any bill or joint resolution, the differences may be
settled by a conference committee of both chambers.
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 Jeffersons Manual has been adopted as a supplement to our parliamentary rules and practice. Section 456 of Jeffersons Manual
similarly confines the powers of a conference committee, viz:
The managers of a conference must confine themselves to the differences committed to them and may not include subjects not
within the disagreements, even though germane 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 the United States Senate, viz:
Committees of conference are appointed for the sole purpose of compromising and adjusting the differing and conflicting opinions of
the two Houses and the committees of conference alone can grant compromises and modify propositions of either Houses within the
limits of the disagreement. Conferees are limited to the consideration of differences 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 which there is nothing in either the Senate or House passed versions of a bill may be included in the
conference report and actions to the contrary would subject the report to a point of order. (Emphasis ours)
In fine, there is neither a sound nor a syllable in the Rules of the Senate and the House of Representatives to support the thesis of the
respondents that a bicameral conference committee is clothed with an ex post veto power.
But the thesis that a Bicameral Conference Committee can wield ex post veto power does not only contravene the rules of both the
Senate and the House. It wages war against our settled ideals of representative democracy. For the inevitable, catastrophic effect of the
thesis is to install a Bicameral Conference Committee as the Third Chamber of our Congress, similarly vested with the power to make
laws but with the dissimilarity 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 as a Third Chamber will be a constitutional monstrosity.
It needs no omniscience to perceive that our Constitution did not provide for a Congress composed of three chambers. On the contrary,
section 1, Article VI of the Constitution provides in clear and certain language: "The legislative power shall be vested in the Congress of
the Philippines which shall consist of a Senate and a House of Representatives " Note that in vesting legislative power exclusively to
the Senate and the House, the Constitution used the word "shall." Its command for a Congress of two houses 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 the Philippines " Similarly, when the Constitution vested the legislative power to the House, it means
the House " composed of not more than two hundred and fifty members xxx who shall be elected from legislative districts xxx and
those who xxx shall be elected through a party-list system of registered national, regional, and sectoral parties or organizations." The
Constitution thus, did not vest on a Bicameral Conference Committee with an ad hoc membership the power to legislate for it
exclusively vested legislative power to the Senate and the House as co-equal bodies. To be sure, the Constitution does not mention the
Bicameral Conference Committees of Congress. No constitutional status is accorded to them. They are not even statutory creations.
They owe 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 Third Chamber of Congress and with ex post veto power at that.
The thesis that a Bicameral Conference Committee can exercise law making power with ex post veto power is freighted with mischief.
Law making is a power that can be used for good or for ill, hence, our Constitution carefully laid out a plan and a procedure for its
exercise. 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 is contemplated is the Senate acting as a full Senate and the House acting as a full House. It is only
when the Senate and the House act as whole bodies that they truly represent the people. And it is only when they represent the people
that they can legitimately pass laws. Laws that are not enacted by the peoples rightful representatives subvert the peoples sovereignty.
Bicameral Conference Committees, with their ad hoc character and limited membership, cannot pass laws for they do not represent 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 over the majority. Secondly, the Constitution delineated in deft strokes the steps to be followed in making laws.
The overriding purpose of these procedural rules is to assure that only bills that successfully survive the searching scrutiny of the
proper committees of 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 each House. In the case at bench, the additions and deletions made by the
Bicameral Conference Committee did not enjoy the enlightened studies of appropriate committees. It is meet to note that the
complexities of modern day legislations have made our committee system a significant part of the legislative process. Thomas Reed
called the committee 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 the United States as "a government by the Chairmen of the Standing Committees of
Congress " Neither did these additions and deletions of the Bicameral Conference Committee pass through the coils of collective
deliberation of the members of the two Houses acting separately. Due to this shortcircuiting of the constitutional procedure of making
laws, confusion shrouds the enactment of R.A. No. 7716. Who inserted the additions and deletions remains a mystery. Why they were
inserted is a riddle. To use a Churchillian phrase, lawmaking should not be a riddle wrapped in an enigma. It cannot be, for Article II,
section 28 of the Constitution mandates the State to adopt and implement a "policy of full public disclosure of all its transactions
involving public interest." The Constitution could not have contemplated a Congress of invisible and unaccountable John and Mary
Does. A law whose rationale is a riddle and whose authorship is obscure cannot bind the people.
All these notwithstanding, respondents resort to the legal cosmetology that these additions and deletions should govern the people as
laws because the Bicameral Conference Committee Report was anyway submitted to and approved by the Senate and the House of
Representatives. The submission may have some merit with respect to provisions agreed upon by the Committee in the process of
reconciling conflicts between S.B. No. 1630 and H.B. No. 11197. In these instances, the conflicting provisions had been previously

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screened by the proper committees, deliberated upon by both Houses and approved by them. It is, however, a different matter with
respect to additions and deletions which were entirely new and which were made not to reconcile inconsistencies between S.B. No.
1630 and H.B. No. 11197. The members of the Bicameral Conference Committee did not have any authority to add new provisions or
delete provisions already approved by both Houses as it was not necessary to discharge their limited task of reconciling differences in
bills. At that late stage of law making, the Conference Committee cannot add/delete provisions which can become laws without
undergoing the study and deliberation of both chambers given to bills on 1st, 2nd, and 3rd readings. Even the Senate and the House
cannot enact a law which will not undergo these mandatory three (3) readings required by the Constitution. If the Senate 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 approve or disapprove the said additions and deletions is
more of an optical illusion. These additions and deletions are not submitted separately for approval. They are tucked to the entire bill.
The vote is on the bill as a package, i.e., together with the insertions and deletions. And the vote is either "aye" or "nay," without any
further debate and deliberation. Quite often, legislators vote "yes" because they approve of the bill as a whole although they may object
to its amendments by the Conference Committee. This lack of real choice is well observed by Robert Luce:
Their power lies chiefly in the fact that reports of conference committees must be accepted without amendment or else rejected in toto.
The impulse is to get done with the matter and so the motion to accept has undue advantage, for some members are sure to prefer
swallowing unpalatable provisions rather than prolong controversy. This is the 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. At any time in the
session there is some risk of such a result following the rejection of a conference report, for it may not be possible to secure a second
conference, or delay may 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-itbasis, and the bodies are generally placed in the position that to leave-it is a practical impossibility." Thus, he concludes that
"conference committee action is the most undemocratic procedure in the legislative process."
The respondents also contend that the additions and deletions made by the Bicameral Conference Committee were in accord with
legislative customs and usages. The argument does not persuade for it misappreciates the value of customs and usages in the
hierarchy of sources of legislative rules of procedure. To be sure, every legislative assembly 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 determine the rules of its
proceedings x x x." But it is hornbook law that the sources of Rules of Procedure are many and hierarchical in character. Mason laid
them down as follows:
xxx
1. Rules of Procedure are derived from several sources. The principal sources are as follows:
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 except that 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, an
interpretation of a constitutional provision takes precedence over a statute.
3. Whenever there is conflict between rules from these sources the rule from the source listed earlier prevails over the rule from the
source listed later. Thus, where the Constitution requires three readings of bills, this provision controls over any provision of statute,
adopted rules, adopted manual, or of parliamentary law, and a rule of parliamentary law controls over a local usage but must give way
to any rule from a higher 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 of laws. It is reasonless for respondents therefore to justify these insertions as sanctioned by
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 the passage of R.A. No. 7716. The enrolled bill theory is a historical relic that should not continuously
rule us from the fossilized past. It should be immediately emphasized that the enrolled bill theory originated in England where there is
no written constitution and where Parliament is supreme. In this jurisdiction, we have a written constitution and the legislature 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 and unrealism of the conclusiveness of an enrolled bill. Prof. Sutherland observed:
xxx

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Where the failure of constitutional compliance in the enactment of statutes is not discoverable from the face of the act itself but may be
demonstrated by recourse to the legislative 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 sheriffs return
cannot be attacked; (2) that the enrolled bill isprima facie correct and only in case the legislative journal shows affirmative 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 is conclusive and the enrolled bills
is valid only if it accords with the recital in the journal and the constitutional procedure.
Various jurisdictions have adopted these alternative approaches in view of strong dissent and dissatisfaction against the philosophical
underpinnings of the conclusiveness 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 of conclusiveness was similar to the common law rule of the inviolability of the sheriffs return.
Indeed, they had the same origin, that is, the sheriff was an officer of the king and likewise the parliamentary act was a regal act and no
official might dispute the kings word. Transposed to our democratic system of government, courts held that as the legislature was an
official branch of government the court must indulge every presumption that the legislative act was valid. The doctrine of separation of
powers was advanced as a strong reason why the court should treat the acts of a co-ordinate branch of government with the same
respect as it treats the action of its own officers; indeed, it was thought that it was entitled to even greater respect, else the court might
be in the position of reviewing the work of a supposedly equal branch of government. When these arguments failed, as they frequently
did, the doctrine of convenience was advanced, 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 substantive issues.
Although many of these arguments are persuasive and are indeed the basis for the rule in many states today, they are not invulnerable
to attack. The rule most relied on the sheriffs return or sworn official rule did not in civil litigation deprive the injured party of an
action, for always he could sue the sheriff upon his official bond. Likewise, although collateral attack was not permitted, direct attack
permitted raising the issue of fraud, and at a later date attack in equity was also available; and that the evidence of the sheriff was not
of unusual weight was demonstrated by the fact that in an action against the sheriff no presumption of its authenticity prevailed.
The argument that the enrolled bill is a "record" and therefore unimpeachable is likewise misleading, for the correction of records is a
matter of established judicial procedure. Apparently, the justification is either the historical one that the kings word could not be
questioned or the separation of powers principle that one branch of the government must treat as valid the acts of another.
Persuasive as these arguments are, the tendency today is to avoid reaching results by artificial presumptions and thus it would seem
desirable to insist that the enrolled bill stand or fall on the basis of the relevant evidence which may be submitted for or against
it. (Emphasis ours)
Thus, as far back as the 1940s, Prof. Sutherland confirmed that "x x x the tendency seems to be toward the abandonment of the
conclusive presumption rule and the adoption of the third rule leaving only a prima faciepresumption of validity which may be attacked
by any authoritative source of information.
Third. I respectfully submit that it is only by strictly following the contours of powers of a Bicameral Conference Committee, as
delineated by the rules of the House and the Senate, that we can prevent said Committee from acting as a "third" chamber of
Congress. Under the clear rules of both the Senate and House, its power can go no further 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 the Senate on the amendment to any bill or joint
resolution, the differences may be settled by the conference committees of both chambers.
In resolving the differences with the Senate, the House panel shall, as much as possible, 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 to the House for
the latters 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 Committee Report 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 a conference 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 the conference committee with the approval of the Senate.
Each Conference Committee Report shall contain a detailed and sufficiently explicit statement 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.
The House rule brightlines the following: (1) the power of the Conference Committee is limited . . . it is only to settle differences with
the Senate; (2) if the differences are substantial, the Committee must report to the House for the latters appropriate action; and (3) the
Committee report has to be voted upon in the same manner and procedure as 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

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changes or amendments only in the discharge of this limited power to settle differences with the House; and (3) the changes or
amendments are merely recommendatory for they still have to be approved by the Senate.
Under both rules, it is obvious that a Bicameral Conference Committee is a mere agent of the House or the Senate with limited
powers. The House contingent in the Committee cannot, on its own, settle differences which are substantial in character. If it is
confronted with substantial differences, it has to go back to the chamber that created it "for the latters appropriate action." In other
words, it must take the proper instructions from the chambers that created it. It cannot exercise its unbridled discretion. Where there
is no differencebetween the bills, it cannot make any change. Where the difference is substantial, it has to return to the chamber of
its origin and ask for appropriate instructions. It ought to be indubitable that it cannot create a new law, i.e., that which has never been
discussed in either chamber of Congress. Its parameters of power are not porous, for they are hedged by the clear limitation that
its only power is to settle differences in bills and joint resolutions of the two chambers of Congress.
Fourth. Prescinding from these premises, I respectfully submit that the following acts of the Bicameral Conference Committee
constitute grave abuse of discretion amounting to lack 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 Senate Bill 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 hereby further amended to read as follows:
SEC. 106. Value-added Tax on Sale of Goods or Properties.
xxx
Provided, further, that notwithstanding the provision of the second paragraph of Section 105 of this Code, the Value-added Tax herein
levied on the sale of petroleum products under Subparagraph (1) hereof shall be paid and absorbed by the sellers of petroleum
products 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 and absorbed
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 hereby further 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 Section 105 of this Code, the Value-added Tax imposed
under this paragraph shall be paid and absorbed by the subject generation companies 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 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, and services of transmission companies and distribution
companies, as well as those of franchise grantees of electrical utilities shall not apply to residential end-users: Provided, that the Valueadded Tax herein levied shall be absorbed and paid by the generation, transmission and distribution companies concerned. The said
companies shall not pass on such tax payments to NAPOCOR or ultimately to the consumers, including but not limited to
residential end users, either as costs or in any other form whatsoever, directly or indirectly. x x x.
Even the faintest eye contact with the above provisions will reveal that: (a) both the House bill and the Senate bill prohibited the
passing on to consumers of the VAT on sales of electricity and (b) the House bill prohibited the passing on to consumers of the VAT 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 on the matter, the Bicameral Conference
Committee deleted the "no pass on provision" on both the sales of electricity and petroleum products. This action by the
Committee is not warranted by the rules of either the Senate or the House. As aforediscussed, the only power of a Bicameral
Conference Committee is to reconcile disagreeing 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 the VAT on sales of electricity. The Bicameral
Conference Committee cannot override this unequivocal decision of the Senate and the House. Nor is it clear that there is a
conflict between the House and Senate versions on the "no pass on provisions" of the VAT on sales of petroleum products. The
House version contained a "no pass on provision" but the Senate had none. Elementary logic will tell us that while there may be a
difference in the two versions, it does not necessarily mean that there is a disagreement or conflict between the Senate and
the House. The silence of the Senate on the issue cannot be interpreted as an outright opposition to the House decision prohibiting
the passing on of the VAT to the consumers on sales of petroleum products. Silence can even be conformity, albeit implicit in nature.
But granting for the nonce that there is conflict between the two versions, the conflict cannot escape the characterization as
a substantial difference. The seismic consequence of the deletion of the "no pass on provision" of the VAT on sales of petroleum
products on the ability of our consumers, especially on the roofless and the shirtless of our society, to survive the onslaught of
spiraling prices ought to be beyond quibble. The rules require that the Bicameral Conference Committee should not, on its own, act on
this substantial conflict. It has to seek guidance from the chamber that created it. It must receive proper instructions from its principal,
for it is the law of nature that no spring can rise higher than its source. The records of both the Senate and the House do not reveal that

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this step was taken by the members of the Bicameral Conference Committee. They bypassed their principal and ran riot with the
exercise of powers that the rules never bestowed on them.
b. Even more constitutionally obnoxious are the added restrictions on local governments use of incremental revenue from the
VAT in Section 21 of R.A. No. 9337 which were not present in the Senate or House Bills. Section 21 of R.A. No. 9337 provides:
Fifty percent of the local government units share from VAT shall be allocated and used exclusively for the following purposes:
1. Fifteen percent (15%) for public elementary and secondary education to finance the construction of buildings, purchases of school
furniture and in-service teacher trainings;
2. Ten percent (10%) for health insurance premiums of enrolled indigents as a counterpart contribution of the local government to
sustain the universal coverage of the national health insurance program;
3. Fifteen percent (15%) for environmental conservation to fully implement a comprehensive national reforestation program; and
4. Ten percent (10%) for agricultural modernization to finance the construction of farm-to-market roads and irrigation facilities.
Such allocations shall be segregated as separate trust funds by the national treasury and shall be over and above the annual
appropriation for similar purposes.
These amendments did not harmonize conflicting provisions between the constituent bills of R.A. No. 9337 but are entirely
new and extraneous concepts which fall beyond the median thereof. They transgress the limits of the Bicameral Conference
Committees authority and must be struck down.
I cannot therefore subscribe to the thesis of the majority that "the changes introduced by the Bicameral Conference Committee on
disagreeing provisions were meant only to reconcile and harmonize the disagreeing provisions for it did not inject any idea or intent
that is wholly foreign to the subject embraced by the original provisions."
Fifth. The majority further defends the constitutionality of the above provisions by holding that "all the changes or modifications
were germane to subjects of the provisions referred to it for reconciliation."
With due respect, it is high time to re-examine the test of germaneness proffered in Tolentino.
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 the House and the Senate when they are not even in disagreement. Worse still, it enables the
Committee to introduce amendments which are entirely new and have not previously passed through the coils of scrutiny of the
members of both houses. The Constitution 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 and the House. We cannot concede that super veto power without
wrecking the delicate architecture of legislative power so carefully laid down in our Constitution. The clear intent of our fundamental law
is to install a lawmaking structure composed only of two houses whose members wouldthoroughly debate proposed legislations in
representation of the will of their respective constituents. The institution of this lawmaking structure is unmistakable from the following
provisions: (1) requiring that legislative power shall be vested in a bicameral legislature;10 (2) providing for quorum requirements;11 (3)
requiring that appropriation, revenue or tariff bills, bills authorizing increase of public debt, bills of local application, and private bills
originate exclusively in the House of Representatives;12 (4) requiring
that bills embrace one subject expressed in the title thereof;13 and (5) mandating that bills undergo three readings on separate days in
each House prior to passage into law and prohibiting amendments on the last reading thereof.14 A Bicameral Conference Committee
with untrammeled powers will destroy this lawmaking structure. At the very least, it will diminish the free and open debate of proposed
legislations and facilitate the smuggling of what purports to be laws.
On this point, Mr. Robert Luces disconcerting observations are apropos:
"Their power lies chiefly in the fact that reports of conference committees must be accepted without amendment or else rejected in
toto. The impulse is to get done with the matters and so the motion to accept has undue advantage, for some members are
sure to prefer swallowing unpalatable provisions rather than prolong controversy. 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 the measure altogether. At
any time in the session there is some risk of such a result following the rejection of a conference report, for it may not be possible to
secure a second conference, or delay may give opposition to the main proposal chance to develop more strength.
xxx xxx xxx
Entangled in a network of rule and custom, the Representative who resents and would resist this theft of his rights, finds himself
helpless. Rarely can be vote, rarely can he voice his mind, in the matter of any fraction of the bill. Usually he cannot even record
himself 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 other branch 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 so much it in effect transfers the lawmaking power to small group of members who work out
in private a decision that almost always prevails. What is worse, these men are not chosen in a way to ensure the wisest choice. It
has become the practice to name as conferees the ranking members of the committee, so that the accident of seniority determines.
Exceptions are made, but in general it is not a question of who are most competent to serve. Chance governs, sometimes giving way to
favor, rarely to merit.
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Speaking broadly, the system of legislating by conference committee is unscientific and therefore defective.Usually it forfeits the
benefit of scrutiny and judgment by all the wisdom available. Uncontrolled, it is inferior to that process by which every
amendment is secured independent discussion and vote. . . ."15
It cannot be overemphasized that in a republican form of government, laws can only be enacted by all the duly elected representatives
of the people. It cuts against conventional wisdom in democracy to lodge this power in the hands of a few or in the claws of a
committee. It is for these reasons that the argument that we should overlook the excesses of the Bicameral Conference Committee
because its report is anyway approved by both houses is a futile attempt to square the circle for an unconstitutional act is void and
cannot be redeemed by any subsequent ratification.
Neither can we shut our eyes to the unconstitutional acts of the Bicameral Conference Committee by holding that the Court cannot
interpose its checking powers over mere violations of the internal rules of Congress. In Arroyo, et al. v. de Venecia, et al.,16 we ruled
that when the violations affect private rights or impair the Constitution,the Court 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 that arguments will be foisted for the Court to merely wink
at assaults
on the Constitution on the ground of some national interest, sometimes clear and at other times inchoate. To be sure, it cannot be
gainsaid that the country is in the vortex of 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. Experts underscore some factors that will further drive up the debt
service expenses such as the devaluation of the peso, credit downgrades and a spike in interest rates.17 But no doomsday scenario will
ever justify the thrashing of the Constitution. The Constitution is meant to be our rule both in good times as in bad times. It is the Courts
uncompromising obligation to defend the Constitution at all times lest it be condemned as 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 Conference Committee of the pro poor "no pass on provision" on
electricity to residential consumers 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 it contains 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, American Constitutional Law, pp. 311-314 (3rd ed.).

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

Id. at 87.

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

Texas v. United States, 523 U.S. 296 (1998); Thomas v. Union Carbide Agricultural Products Co., 473 U.S. 568 (1985); I Tribe, American
Constitutional Law, 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.); See also concurring opinion of Justice Brandeis in Ashwander v. Tennessee Valley Authority, 297 U.S. 288 (1936).
7

235 SCRA 630 (1994).

See Opinion in 235 SCRA 630, 805-825.

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

10

1 Sutherland Statutory Construction 6:2 (6th ed.): The provision requiring that legislative power shall be vested in a bicameral legislature
seeks to "assure sound judgment that comes from separate deliberations and actions in the respective bodies that check and balance each
other."
11

Const., Article VI, Section 16(2) (1987): "(2) A majority of each House shall constitute a quorum to do business, but a smaller number may
adjourn from day to day and may compel the attendance of absent Members in such manner, and under 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 is well studied as the lower house is "presumably more representative in character."
13

Const., Article VI, Section 26(1) (1987); I Cooley, A Treatise on Constitutional Limitations, p. 143; Central Capiz v. Ramirez, 40 Phil. 883
(1920): "In the construction and application of this constitutional restriction the courts have kept steadily in view the correction of the mischief
against which it was aimed. The object is to prevent the practice, which was common in all legislative bodies where no such restrictions

Page 286 of 403

existed of embracing in the same bill incongruous matters having no relation to each other or to the subject specified in the title, by which
measures were often adopted without attracting attention. Such distinct subjects represented diverse interests, and were combined in order to
unite the members of the legislature who favor either in support of all. These combinations were corruptive of the legislature and dangerous to
the State. Such omnibus bills sometimes 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 be accomplished by the legislation often resulted in members voting
ignorantly for measures which they would not knowingly have approved; and not only were legislators thus misled, but the public also; so that
legislative provisions were steadily pushed through in the closing hours of a session, which, having no merit to commend them, would have
been made odious by popular discussion and remonstrance if their pendency had been seasonably announced. The constitutional clause
under discussion is intended to correct these evils; to prevent such corrupting aggregations of incongruous measures, by confining each act to
one subject or object; to prevent surprise and inadvertence by requiring 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)
Constitutional Convention, pp. 436-437, 440-441 where the 1934 Constitutional Convention noted 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 this irregular procedure,
legislators were able to successfully insert matters into bills which would not otherwise stand scrutiny in leisurely debate; I Cooley, A Treatise
on the Constitutional Limitations, pp. 286-287(8th ed.); Smith v. Mitchell, 69 W.Va 481, 72 S.E. 755 (1911): "The purpose of this provision of
the Constitution is to inform legislators and people of legislation proposed by a bill, and to prevent hasty 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 a practical impossibility." Thus, he concludes that "conference committee action is the most undemocratic procedure
in the legislative process."
16

268 SCRA 269, 289 (1997).

17

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

The Lawphil Project - Arellano Law Foundation

EN BANC
GR No. 168056 -- ABAKADA GURO PARTY LIST, etc. et al. v. HON. EXECUTIVE SECRETARY EDUARDO R. ERMITA et al.
GR No. 168207 -- AQUILINO Q. PIMENTEL JR. et al. v. EXECUTIVE SECRETARY EDUARDO 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. PURISIMA etc., 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-Martinez declares that the enrolled bill doctrine has been
historically and uniformly upheld in our country. Cited as recent reiterations of this doctrine are the two Tolentino v. Secretary of
Finance judgments1 and Farias v. Executive Secretary.2
Precedence of Mandatory
Constitutional Provisions
Over the Enrolled Bill Doctrine
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, it must yield to mandatory provisions of our 1987 Constitution. The Court can take judicial notice 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 our Constitution.
In fine, the enrolled bill doctrine applies mainly to the internal rules and processes followed by Congress in its principal duty of
lawmaking. However, when the Constitution imposes certain conditions, restrictions or limitations on the exercise of congressional
prerogatives, the judiciary has both the power and the duty to strike down congressional actions that are done in plain contravention of
such conditions, restrictions or limitations.8 Insofar as the present case is concerned, the three most important restrictions 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 by the expanded9 constitutional mandate of the
judiciary "to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part

Page 287 of 403

of any branch or instrumentality of the government."10 Even the ponenteof Tolentino,11 the learned Mr. Justice Vicente V. Mendoza,
concedes in another decision that each house "may not by its rules ignore constitutional restraints or violate fundamental rights, and
there should be a reasonable relation between the mode or method of proceeding established by the rule and the result which is sought
to be attained."12
The Bicameral Conference Committee (BCC) created by Congress to iron out differences 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 this Court may
exercise certiorari review to determine whether or not grave abuse of discretion has been committed; and, specifically, to find out
whether the constitutional conditions, restrictions and limitations on law-making have been violated.
In general, the BCC has at least five options in performing its functions: (1) adopt the House version in part or in toto, (2) adopt the
Senate version in part or in toto, (3) consolidate the two versions, (4) reject non-conflictingprovisions, and (5) adopt completely new
provisions not found in either version. This, therefore, is the simple question: In the performance of its function of reconciling conflicting
provisions, has the Committee 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.
Adopting 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-reading requirement14 under the Constitution,15 it readily becomes apparent that no procedural impediment would
arise. There would also be no question as to their origination,16because 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 bills in part or in toto. Therefore, this option was not
taken by the BCC.
Adopting the Senate
Version in Part or in Toto
Second, the BCC may choose to adopt the Senate version either
in 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 shall originate exclusively in the House of Representatives, but the Senate may propose or concur with
amendments."17
If the revenue bill originates exclusively from the Senate, then obviously the origination provision18 of the Constitution would be violated.
If, however, it originates exclusively from the House and presumably passes the three-reading requirement there, then the question 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 that such 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" all the time. The "germane" principle requires a legal -not necessarily an economic22 or political -- 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 legal sense. Otherwise, any provision in the Senate version that is
entirely new and extraneous, or that is remotely or even slightly connected, to the vast and perplexing subject of taxation, would always
be germane. Under this interpretation, the origination principle 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 by saying that "the Constitution does not prohibit the filing in the Senate of a substitute bill in
anticipation of its receipt of the bill from the House, so long as action by the Senate as a body is withheld pending receipt of the House
bill."25 After all, the initiative for filing a revenue bill must come from the House26 on the theory that, elected as its members are from
their respective districts, the House is more sensitive to local needs and problems. By contrast, the Senate whose members are elected
at large approaches the matter from a national perspective,27 with a broader and more circumspect outlook.28
Even if I have some reservations on the foregoing sweeping pronouncements in Tolentino, I shall not comment any further, because the
BCC, in reconciling conflicting provisions, also did not take the second option of ignoring the House bills completely and of adopting
only the Senate version in part or in toto. Instead, the BCC used or applied the third option as will be discussed below.
Compromising
by Consolidating
As a third option, the BCC may reach a compromise by
consolidating both the Senate and the House versions. It can adopt some parts and reject other parts of both bills, and craft new
provisions or even a substitute bill. I believe this 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 BCC will not become a final valid act of the Legislative
Department until the BCC obtains the approval of both houses of Congress.29
Standby Authority. 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 House imposed a 12 percent VAT rate,30 while the bill from the Senate retained the

Page 288 of 403

original 10 percent.31 The BCC opted to initially use the 10 percent Senate provision and 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 previous year exceeds two and four-fifth percent (2 4/5%)
or
(ii) National Government Deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 1/2%)."32
In the computation of the percentage requirements in the alternative conditions under the law, the amounts of the VAT collection,
National Deficit,33 and GDP34 -- as well as the interrelationship among them -- can easily be derived by the finance secretary from the
proper government bodies charged with their determination. The law is complete and standards have been fixed.35 Only the fact-finding
mathematical computation for its implementation on January 1, 2006, is necessary.
Once either of the factual and mathematical events provided in the law takes place, the President 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 President and 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 public respondents:
"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 actual figures[?]
"Usec. Bonoan: I understand that[,] traditionally[,] we can come in March, but there is 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, its just estimate to get the figures in January.
"Usec. Bonoan: Yes, Your Honor (pp. 661-662); and
xxx
"Justice Panganiban: My only point is, I raised this earlier and I promised counsel for the petitioner 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. Elaborate on it in your memorandum.
"Usec. Bonoan: Yes, Your Honor.
"Justice Panganiban: Because it is important. The administrative regulations are important[,] 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 same manner that even now the various consumers of various
products and services must be able 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 in the 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 the agent 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 the secretarys 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. The mandate given by RA 9337 to the secretary is not
equipollent to an authority to make laws. 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 recommendation from the Presidents alter ego in finance matters, to determine the factual bases for making the increase in VAT
rate operative.39 Indeed, as I have mentioned earlier, the fact-finding condition is a mere administrative, notlegislative, function.

Page 289 of 403

The ponencia states that Congress merely delegates the implementation of the law to the secretary of finance. How then can the latter
be its agent? Making a law is different from implementing it. While the first (the making of laws) may be delegated under certain
conditions and only in specific instances provided under the Constitution, the second (the implementation of laws) may not be done by
Congress. After all, the legislature does not have the power to implement laws. Therefore, congressional agency arises only in the first,
not in the second. The first is a legislative function; the second, 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 either economic growth or slowdown in transitional economies.40 Clearly, this matter is within the 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 latters internal
rules.42 Policy matters lie within the domain of the political branches of government,43 outside the range of judicial cognizance.44 "[T]he
right to select the measure and objects of taxation devolves upon the Congress, and not upon the courts, and such selections are valid
unless constitutional limitations are overstepped."45 Moreover, each house of Congress has the power and authority to determine the
rules of its proceedings.46 The contention that this case is not ripe for determination because there is no violation yet of the Constitution
regarding the exercise of the Presidents standby authority has no basis. The question raised is whether the BCC, in passing the law,
committed grave abuse of discretion, not whether the provision in question had been violated. Hence, this case is not premature and is,
in fact, subject to judicial determination.
Amendments on Income Taxes. I respectfully submit that the amendments made by the BCC (that were culled from the Senate
version) regarding income taxes47 are not legally germane to the subject matter of the House bills. Revising the income tax rates on
domestic, resident foreign and nonresident foreign corporations; increasing the tax credit against taxes due from nonresident foreign
corporations on intercorporate dividends; and reducing the allowable deduction for interest expense are legally unrelated and not
germane to the subject matter contained in the House bills; they violate the origination principle.48 The reasons are as follows:
One, an income tax is a direct tax imposed on actual or presumed income -- gross or net -- 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 its
nature 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 concept with the other. In like manner, it is inconceivable how the provisions that increase corporate
income taxes can be considered as mitigating measures for increasing the VAT and, as I will explain later, for effectively imposing a
maximum of 3 percent tax on gross sales or revenues because of the 70 percent cap. Even the argument that the corporate income tax
rates will be reduced to 30 percent does not hold water. This reduction 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 generally creditable. Under a finalwithholding tax system, the
amount of income tax that is withheld by a withholding agent is constituted as a full and final payment of the income tax due from the
payee on said income.52 The liability for the tax primarily rests upon the payor as a withholding agent.53 Under a creditable withholding
tax system, taxes withheld on certain payments are meant to approximate the tax that is due of the payee on said payments. 54 The
liability for the tax rests upon the payee who is mandated by law to still file a tax return, report the tax base, and pay the difference
between the tax withheld and the tax due.55
From this observation alone, it can already be seen that not only are dividends alien to the tax base upon which the VAT is imposed, but
their respective methods of withholding are totally different. VAT-registered persons may not always be nonresident foreign corporations
that declare and pay dividends, while intercorporate dividends are certainly not goods or properties for sale, barter, exchange, lease or
importation. Certainly, input VAT credits are different from tax credits on dividends received by nonresident foreign corporations.
Three, itemized deductions from gross income partake of the nature of a tax exemption.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 is paid or incurred
within a given taxable year on indebtedness in connection with a taxpayers trade, business or exercise of profession.58 In order to
reduce revenue losses, Congress enacted RA 842459 which reduces the amount of interest expense deductible by a taxpayer from
gross income, equal to the applicable percentage of interest income subject to final tax.60 To assert that reducing the allowable
deduction in interest expense is a matter that is legally related to the proposed VAT amendments is too 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 on income taxes, let me now proceed to the other
provisions that were attacked by petitioners.
No Pass-on Provisions. I agree with the ponencia that the BCC did not exceed its authority when it deleted the no pass-on provisions
found in the congressional bills. Its authority to make amendments not only implies the power to make insertions, but also deletions, in
order to resolve conflicting provisions.
The no pass-on provision in House Bill (HB) No. 3705 referred to the petroleum products subject to excise tax (and the raw materials
used in the manufacture of such products), the sellers of petroleum products, and the generation companies.61 The analogous provision
in Senate Bill (SB) No. 1950 dealt with electricity, businesses other than 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. Faced with such variances, the BCC
had the option of retaining or modifying the no pass-on provisions and determining their extent, or of deleting them altogether. In opting
for deletion to resolve the variances, it was merely acting within its discretion. No grave abuse may be imputed to the BCC.
The 70 Percent Cap on Input Tax and the 5 Percent Final Withholding VAT. Deciding on the 70 percent cap and the 5 percent final
withholding VAT in the consolidated bill is also within the power of the BCC. While HB 3555 included limits of 5 percent and 11 percent
on input tax,63 SB 1950 proposed an even spread over 60 months.64The 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 the sound discretion of the BCC.
In like manner, HB 3555 contained provisions on the withholding of creditable VAT at the rates of 5 percent, 8 percent, 10.5 percent,
and 12 percent.66 HB 3705 had no such equivalent amendment, and SB 1950 pegged the rates at only 5 percent and 10 percent.67 I
believe that the decision to impose a final (not creditable) VAT and to fix the rates at 5 percent and 10 percent, so as to harmonize the
apparent differences in all three versions, was also within the sound discretion of the BCC.

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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 in the eyes of Congress through the BCC, our country can neither deviate from this method nor modify its
application to suit our fiscal requirements. The VAT is usuallycollected through the tax credit method (and in the past, even through the
cost deduction method or a mixture of these two methods),68 but there is no hard and fast rule that 100 percent of the input taxes will
always be allowed as a tax credit.
In fact, it was Maurice Laur, a French engineer,69 who invented the VAT. In 1954, he had the idea of imposing an indirect tax on
consumption, called taxe sur la valeur ajoute,70 which was quickly adopted by the Direction Gnrale des Impost, the new French tax
authority of which he became joint director. Consequently, taxpayers at all levels in the production process, rather than retailers or tax
authorities, were forced to administer and account for the tax themselves.71
Since the unutilized input VAT can be carried over to succeeding quarters, there is no undue 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 the contention that the
law is arbitrary and oppressive.73 Laws that impose taxes are necessarily burdensome, compulsory, and involuntary.
The deferred input tax account -- which accumulates the unutilized input VAT -- remains an asset in the accounting records of a
business. It is not at all confiscated by the government. By deleting Section 112(B) of the Tax Code,74 Congress no longer made
available tax credit certificates for such asset account until retirement from or cessation of business, or changes in or cessation of VATregistered status.75 This is a matter of policy, not legality. The Court cannot step beyond the confines of its constitutional power, if there
is absolutely no clear showing of grave abuse of discretion in the enactment 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 a mere privilege. It may be written off or expensed outright; it may also be denied as a tax credit.
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 accounting
principles.79 These refer to accounting concepts, measurement techniques, and standards of presentation in a companys financial
statements, and are not rooted in laws of nature, as are the laws of physical science, for these are merely developed and continually
modified by local and international regulatory accounting bodies.80 To state otherwise and recognize such asset account as a vested
right is to limit the taxing power of the State. Unlimited, plenary, comprehensive and supreme, this power cannot be unduly restricted by
mere creations of the State.
That the unutilized input VAT would also have an unequal effect on businesses -- some with 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. The law
applies equally to all businesses; it is up to each of them to determine the best formula 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 percent cap would cause
an ad infinitum deferment of input taxes or an unequal effect upon different types of businesses with varying profit margins and capital
requirements, then the remedy would be an amendment of the law -- not an unwarranted and outright declaration of unconstitutionality.
The matter of business establishments shouldering 30 percent of output tax and remitting the amount, as computed, to the government
is in effect imposing a tax that is equivalent to a maximum of 3 percent of gross sales or revenues.81 This imposition is arguably another
tax on gross -- not net -- income and thus a deviation from the concept of VAT as a tax on consumption; it also assumes that sales or
revenues are on cash basis or, if on credit, given credit terms shorter than a quarter of a year. However, such additional imposition and
assumption are also arguably within the power of Congress to make. The State may in fact choose to impose an additional 3 percent
tax on gross income, 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 constitute double taxation,82 which is not constitutionally proscribed.83
Besides, prior to the amendments introduced by the BCC, already extant in the Tax Code was a 3 percentpercentage tax on the gross
quarterly sales or receipts of persons who were not VAT-registered, and whose sales or receipts were exempt from VAT.84 This is
another type of tax imposed by the Tax Code, in addition to the tax on their respective incomes. No question as to its validity was raised
before; none is being brought 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 coordinate departments of the Government a becoming courtesy for each others
acts."86
As to the argument that Section 8 of RA 9337 contravenes Section 1 of Article III and Section 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 interferes with the right to property of persons, natural or artificial. Those similarly situated are affected in the
same way and treated alike, "both as to privileges conferred and liabilities enforced."87
RA 9337 was enacted precisely to achieve the objective of raising revenues to defray the necessary expenses of government.88 The
means that this law employs are reasonably 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 is to 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 its enactment was followed;89 neither public notice nor public hearings
were denied.
Two, private enterprises are not discouraged. Tax burdens are never delightful, but with the imposition of the 70 percent cap, there will
be an assurance of a steady cash flow to the government, which can be translated to the production of improved goods, rendition of
better services, and construction of better facilities for the people, including all private enterprises. Perhaps, Congress deems it best to
make our economy depend more on businesses that are easier to monitor, so there will be a more efficient collection of taxes.
Whatever is expected of the outcome of the law, or its wisdom, should be the sole responsibility of the representatives chosen by the
electorate.

Page 291 of 403

The profit margin rates of various industries generally do not change. However, the profit margin figures do, because these are
obviously monetary variables that affect business, 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 the part of those who engage in business and those who
consume their output to adapt or adjust accordingly to any congressional modification of the VAT system.
In addition, it is contended that the VAT should be proportional in nature. I submit that this proportionality pertains to the rate imposable,
not the credit allowable. Private enterprises are subjected to a proportional VAT rate, but VAT credits need not be. The VAT is, after all,
a human concept that is neither immutable nor invariable. In fact, it has changed 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 suit modern fiscal demands. The
State, through the Legislative Department, may even choose to do away with it and revert to our previous system of turnover taxes,
sales taxes and compensating taxes, in which credits may be disallowed altogether.
Not expensed, but amortized over its useful life, is capital equipment, which is purchased or treated as capital leases by private
enterprises. Aimed at achieving the twin objectives of profitability and solvency, such purchase or lease is a matter of prudence 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 interfere with, absent a clear showing that constitutional provisions have been violated. Tax collection and
administrative feasibility are for the executive branch to focus on, again not for this Court to dwell upon.
The Transcript of the Oral Arguments on July 14, 2005 clearly point out in a long line of relevant questioning that, absent a violation of
constitutional provisions, the Court cannot 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: Isnt the solution to increase the price then?
"Atty. Baniqued: If you increase the price which you can very well do, Your Honor, then that [will] be deflationary and it [will] have a
cascading effect on all other basic commodities[, especially] because what is involved here is petroleum, Your Honor.
"Justice Panganiban: That may be true[,] but its not unconstitutional?
"Atty. Baniqued: That may be true, Your Honor, but the very limitation of the [seventy percent] input [VAT], when applied to the case of
the petroleum dealers[,] is oppressive[.] [I]ts unjust and its 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 Sales and 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: Its not 100 [percent] credi[ta]bility[,] unlike if it were applied against your [output VAT], you get to claim 100 [percent] of
it, Your Honor.
"Justice Panganiban: That might be true, but we are talking about whether that particular provision would be unconstitutional. You say
its oppressive, but you have a remedy, you just pass it on to the customer. I am not sayin[g] its good[.] [N]either am I saying its
wise[.] [A]ll Im talking about is, whether its constitutional or not.
"Atty. Baniqued: Yes, in fact we acknowledge, Your Honor, that that is a remedy available to the petroleum dealers, but considering
the impact of that limitation[,] and were just talking of the 70 [percent cap] on [input VAT] in the level of the petroleum dealers. Were not
even talking yet of the limitation on the [input VAT] available to the manufacturers, 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 in character. The mere fact that the government is
imposing that [seventy percent] cap does not make the law unconstitutional, isnt it?
"Atty. Baniqued: It does, Your Honor, if it can be shown. And as we have shown, it is oppressive and unreasonable, it is excessive, Your
Honor interrupted
"Justice Panganiban: If you have no way of recouping it. If you have no way of recouping that amount, then it will be oppressive, but
you have a business way of recouping it[.] I am saying that, not advising that its good. All I am saying is, is it constitutional or not[?]
Were not here to determine the wisdom of the law, thats up for Congress. As pointed out earlier, if the law is not wise, the law makers
will be changed by the people[.] [T]hat is their solution t[o] the lack of wisdom of a law. If the law is unconstitutional[,] then the Supreme

Page 292 of 403

Court will declare it unconstitutional and void it, but[,] in this case[,] there seems to be a business remedy in the same manner that
Congress may just impose that tax straight without saying its [VAT]. If Congress will just say all petroleum will pay 3 [percent] of their
Gross Sales, but you dont bear that, you pass that on, isnt it?
"Atty. Baniqued: We acknowledge your concern, Your Honor, but we should not forget that when the petroleum dealers pass these
financial burden or this tax differential to the 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, they themselves 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 of Congress 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, it burdens 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 prices were being changed upward, the [s]ecretary of [the] Department of Energy was going around[.] [H]e
was seen on TV going around just to check that prices dont go up. And as a matter of fact, he had pronouncements that, the increase
in petroleum price should only be limited to the effect of 10 [percent] E-VAT.
"Justice Panganiban: Its becaus[e] the implementing rules were not clear and were not extensive enough to cover how much really
should be the increase for various oil products, refined oil products. Its up for the dealers to guess, and the dealers were guessing to
their advantage by saying plus 10 [percent] anyway, right?
"Atty. Baniqued: In fact, the petroleum dealers, Your Honors, are not only faced with constitutional issues before this Court. They are
also faced with a possibility of the Department of Energy not allowing them to pass it on[,] because this would be an unreasonable price
increase. And so, they are being hit from both sidesinterrupted
"Justice Panganiban: Thats why I say, that there is need to refine the implementing rules 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 therell be no confusion
and therell be no undue taking advantage. There will be a smooth implementation[,] if the law were to be upheld by the Court. In your
case, as I said, it may 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], isnt 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 dont pass it on[;] but you or your 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 ability to 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 is unconstitutional.
"Atty. Baniqued: We realized that, Your Honor.
"Justice Panganiban: Alright. Lets talk about the 5 [percent] [d]epreciation rate, but that applies only to the capital equipment worth
over a million?
"Atty. Baniqued: Yes, Your Honor.
"Justice Panganiban: And that doesnt apply at all times, isnt it?
"Atty. Baniqued: Well
"Justice Panganiban: That doesnt 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].
"Atty. Baniqued: Yes, Your Honor.

Page 293 of 403

"Justice Panganiban: When you made your presentation on the balance sheet, it is as if every capital expenditure you made is subject
to the 5 [percent,] rather the [five year] depreciation schedule[.] [T]hats 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 this applies only to capital goods costing more than
one [million].
"Justice Panganiban: Yes, but you combined it later on with the 70 [percent] cap to show that the dealers are so disadvantaged. But you
didnt tell us that that will apply only when capital equipment or goods is one million or more. And in your case, what kind 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 would have[,] 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 thats a different profit center, thats not from the sale of
"Atty. Baniqued: No, they would form part of their [VATable] sale, Your Honor.
Justice Panganiban: Its a different profit center[;] its not in the sale of petroleum products. In fact the mode now is to put up super
stores in huge gas stations. I do not begrudge the gas station[.] [A]ll I am saying is it should be presented to us in perspective. Neither
am I siding with the government. All I am saying is, when I saw your 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 that that applies only to capital
equipment [-- ]not to any kind of goods [--] but to capital equipment 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 thats an added cost, isnt 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 I am not saying either that the remedy is wise or
should be done, because[,] as a consumer[,] I wouldnt want that to be done to me.
"Atty. Baniqued: We realiz[e] that, Your Honor, but the fact remain[s] that whether it is in the hands of the petroleum dealers or in the
hands of the consumers[,] if this imposition is unreasonable and oppressive, it will remain so, even after it is passed on, Your Honor.
"Justice Panganiban: Alright. Lets go to the third. The 5 [percent] withholding tax, [f]inal [w]ithholding [t]ax, but this applies to sales to
government?
"Atty. Baniqued: Yes, Your Honor.
"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 by way of increase[d] cost, Your Honor.
"Justice Panganiban: Okay, lets see. You sell, lets say[,] your petroleum products to the 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?
"Atty. Baniqued: Yes, Your Honor.
"Justice Panganiban: You will charge that[.] [T]herefore[,] the sales to the Supreme Court by that gas station will effectively be higher?
"Atty. Baniqued: Yes, Your Honor.
"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, thats of course we agree. Interrupted.
"Justice Panganiban: Not if, you can pass it on.
"Atty. Baniqued: Yes, we can. interrupted

Page 294 of 403

"Justice Panganiban: There is no prohibition to passing it on[.] [P]robably the gas station will simply pass it on to the Supreme Court
and say[,] well[,] there is this 5 [percent] final VAT on you so[,] therefore, for every tank full you buy[,] well 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, isnt it[?] So, how [will] you be affected?
"Atty. Baniqued: I hope the passing on of the burden, Your Honor, doesnt come back to party litigants by way of increase in docket
fees, Your Honor.
"Justice Panganiban: But thats quite another m[a]tter, though(laughs) [W]hat I am saying, Mr. [C]ounsel is, you still have to show to
us that your remedy is to declare the law unconstitutional[,] and its 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 remedy than 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. Its the customers 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 the Supreme Court to pass upon.
"Atty. Baniqued: It just so happens, Your Honor, that what is [involved] here is a commodity 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 economic foundation, Your Honor.
"Justice Panganiban: Yes, its inflationary[,] brings up the prices of everything
"Atty. Baniqued: And it is our submission that[,] if the petroleum dealers cannot absorb it and they pass it on to the customers, a lot of
consumers would neither be in a position to absorb it too and that[s] why we patronize, Your Honor.
"Justice Panganiban: There might be wisdom in what youre saying, but is that unconstitutional?
"Atty. Baniqued: Yes, because as I said, Your Honor, there are even constraints in the petroleum 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]hats something we probably have to take up with the
Department of Energy, lest [we may] be accused of ..
"Justice Panganiban: In other words, thats 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 this Court[,] both as businessmen and as consumers. And
as consumers, [were] also going to bear the burden of whatever they themselves pass on.
"Justice Panganiban: You know[,] as a consumer, I wish you can really show that the laws are unconstitutional, so I dont have to pay it.
But as a magistrate of this Court, I will have to pass upon judgment on the basis of [--] whether the law is unconstitutional or not. And I
hope you can in your memorandum show that.
"Atty. Baniqued: We recognized that, Your Honor." (boldface supplied, pp. 386-410).
Amendments on Other Taxes and Administrative Matters. Finally, the BCCs amendments regarding other taxes90 are both germane
in a legal sense and reasonably necessary in an economic sense. This fact is evident, considering that the proposed changes in the
VAT law will have inevitable implications and repercussions on such taxes, as well as on the procedural requirements and the
disposition of incremental revenues, in the Tax Code. Either mitigating measures91 have to be put in place or increased rates imposed,
in order to achieve the purpose of the law, cushion the impact of increased taxation, and still maintain the equitability desired of any

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other revenue law.92 Directly related to the proposed VAT changes, these amendments are expected also to have a salutary effect on
the national economy.
The no-amendment rule93 in the Constitution was not violated by the BCC, because no completely new provision was inserted in the
approved bill. The amendments may be unpopular or even work hardship upon everyone (this writer included). If so, the remedy cannot
be prescribed by this Court, but by Congress.
Rejecting Non-Conflicting
Provisions
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 those versions. In other words, despite the lack of conflict in them, such provisions are still eliminated
entirely from the consolidated bill. There may be a constitutional problem here.
The no pass-on provisions in the congressional bills are the only item raised by petitioners concerning deletion.94As I have already
mentioned earlier, these provisions were 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 in the process of reconciliation, to delete them. No other nonconflicting provision was deleted.
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.
Approving and Inserting
Completely New Provisions
Fifth, the BCC had the option of inserting completely new provisions not found in any of the provisions of the bills of either house of
Congress, or make and endorse an entirely new 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 mandatory provisions of the 1987 Constitution. Specifically, this Court has the duty of striking down
provisions of a law that in their enactment violate conditions, restrictions or limitations imposed by the Constitution. 96 The Bicameral
Conference Committee (BCC) is a mere creation of Congress. Hence, the BCC may resolve differences only in conflicting provisions of
congressional bills that are referred to it; and it may do so only on the condition that such resolution does not violate the origination, the
three-reading, and the no-amendment rules of the Constitution.
In crafting RA 9337, the BCC opted to reconcile the conflicting provisions of the Senate and House bills, particularly those on the 70
percent cap on input tax; the 5 percent final withholding tax; percentage taxes on domestic carriers, keepers of garages and
international carriers; franchise taxes; amusement taxes; excise taxes on manufactured oils and other fuels; registration requirements;
issuance of receipts or sales or commercial invoices; and disposition of incremental revenues. To my mind, these changes do not
violate the origination or the germaneness principles.
Neither is there undue delegation of legislative power in the standby authority given by Congress to the President. The law is complete,
and the standards are fixed. While I concur with the ponencias view that the President was given merely the power to ascertain the
facts to bring the law into operation -- clearly an administrative, not a legislative, function -- I stress that the finance secretary remains
the Chief Executives alter ego, not an agent of Congress.
The BCC exercised its prerogative to delete the no pass-on provisions, because these were 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 of the EVAT Law: (1) increasing the tax rates on domestic, resident foreign and nonresident foreign corporations; (2) increasing the tax credit
against taxes due from nonresident foreign corporations on intercorporate dividends; and (3) reducing the allowable deduction for
interest expense. Hence, I find these insertions unconstitutional.
Some have criticized the E-VAT Law as oppressive to our already suffering people. On the other hand, respondents have justified it by
comparing it to bitter medicine that patients must endure to be healed eventually of their maladies. The advantages and disadvantages
of the E-VAT Law, as well as its long-term effects on the economy, are beyond 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 three items on income taxes that I respectfully submit
are unconstitutional, I cannot otherwise attribute grave abuse of discretion to the BCC, or Congress for that matter, for passing the law.
"[T]he Court -- as a rule -- is deferential to the actions taken by the other branches of government that have primary responsibility for
the economic development of our country."97 Thus, in upholding the Philippine ratification of the treaty establishing the World Trade
Organization (WTO), Taada v. Angara held that "this Court never forgets that the Senate, whose act is under review, is one of two
sovereign houses of Congress and 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 in good faith. Unless convincing proof and persuasive arguments are

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presented to overthrow such presumption, this Court will resolve every doubt in its favor."98 As pointed our inCawaling Jr. v. Comelec,
the grounds for nullity of the law "must be beyond reasonable doubt, for to doubt is to sustain."99 Indeed, "there must be clear and
unequivocal 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, and 3 of Republic Act No. 9337 unconstitutional,
insofar as these sections (a) amend the rates of income tax on domestic, resident foreign, and nonresident foreign corporations;
(b) amend the tax credit against taxes due from nonresident foreign corporations on intercorporate 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 the first case.
2

417 SCRA 503, December 10, 2003.

"[I]t is well settled that the enrolled bill doctrine is conclusive upon the courts as regards the tenor of the measure passed by Congress and
approved by the President." 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 Concepcin, J., later CJ.). It is 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), such conclusiveness refers not only to the provisions of the law, but
also to its due enactment. 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 and the certification of the Secretaries of both [h]ouses of
Congress that it was passed are conclusive of its due enactment." Farias v. Executive Secretary, supra, p. 529, per Callejo Sr., J.
4

Mabanag v. Lopez Vito, supra, p. 12.

1 of Rule 129 of the Rules of Court.

The United Kingdom has an uncodified Constitution, consisting of both written and unwritten sources, capable of evolving to be responsive to
political and social change, and found partly in conventions and customs and partly in statute. Its Parliament has the power to change or
abolish any written or unwritten element of the Constitution. There is neither separation of powers nor formal checks 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 and becomes an Act
of Parliament. The House of Lords is the second chamber that complements the work of the Commons, whose members are elected to
represent their constituents. The first is the House of Commons that alone may start bills to raise taxes or authorize expenditures. Each bill
goes through several stages 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 are debated 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 to
passage of the whole bill. The House of Lords, however, may not amend a bill so as 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; and
http://encyclopedia.thefreedictionary.com/British+Parliament (Last visited August 4, 2005, 11:30am PST).
7

See Dissenting Opinion of Puno, J. in Tolentino v. Secretary of Finance, supra, p. 818.

Cf. Francisco Jr. v. House of Representatives, 415 SCRA 44, November 10, 2003.

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 to be two-fold: (1) to inform the members of Congress of what
they must vote on and (2) to give them notice that a measure is progressing through the enacting process, thus enabling them and others
interested in the measure to prepare their 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.

17

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 bill that 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.

Page 297 of 403

18

24 of Article VI of the 1987 Constitution.

19

Tolentino v. Secretary of Finance, supra, p. 661, August 25, 1994.

20

Garner (ed. in chief), Blacks Law Dictionary (8th ed., 2004), p. 708.

21

Statsky, Wests 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 of economic scrutiny. The burden or impact of any tax depends on the relative elasticities of supply and demand and is chiefly a
matter of policy confined within the august halls of Congress. See Pindyck and Rubinfeld, Microeconomics (5th ed., 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 the consolidated bill was not approved. In fact, both houses of
Congress voted separately 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, barter or exchange of goods or properties; importation of goods; and sale or exchange of services, including the use or lease of
properties.
1-3 of HB 3705, on the other, seek to amend 106, 107 & 108 the Tax Code by 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 every importation of certain goods; 6% on the sale, barter or exchange of certain locally manufactured
goods; and 4% on the sale, barter or exchange, as well as importation, of petroleum products subject to excise tax and raw materials to be
used in their manufacture (subject to subsequent increases of such reduced rates), and on the gross receipts derived from services rendered
on the sale of generated power.
The Tax Code referred to in this case is RA 8424, otherwise known as the "Tax Reform Act of 1997."
31

4-5 of Senate Bill (SB) No. 1950 seek to amend 106 & 108 of the Tax Code 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 use or lease of properties, and the sale of electricity
by generation, transmission, and distribution 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 the consolidated bill also appears in 4-6 of Republic Act (RA) No. 9337,
amending the 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 a budget deficit. Dornbusch, Fischer, and
Startz, Macroeconomics (9th ed., 2005), p. 231.
34

GDP refers to the value of all goods and services produced domestically; the sum 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 values of their outputs).
www.nscb.gov.ph/sna/default.asp (Last visited July 14, 2005 10am PST).
35

36

See Pelaez v. Auditor General, 122 Phil. 965, 974, December 24, 1965.

The acts of retroactively implementing the 12 percent VAT rate, should the finance secretary be able to make recommendation only weeks
or months after the end of fiscal year 2005, or reverting to 10 percent if both conditions are not met, are best addressed to the political
branches of government.

Page 298 of 403

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 Supreme Court Session Hall, are instructive on the position of petitioners:
"Atty. Gorospe: [Its] supposed to be 2005, Your Honor, but apparently, it [will] be impossible to determine GDP the first day of 2006, Your
Honor." (p. 57);
xxx
"Justice Panganiban: Now [lets see] when it is possible then to determine this formula. It cannot be on the first day of January 2006, because
the year [2005] ended just the midnight before, isnt it?
"Atty. Gorospe: Yes, Your Honor.
"Justice Panganiban: x x x if its only determined on March 1[,] then how can the law become effective January 1[.] In other words, how will the
[people be] able to pay the tax if ever that formula is exceeded x x x?" (pp. 59-60);
xxx
"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[:] the GDP, [VAT] collection?" (p. 192);
xxx
"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 if there is no discretion?
"Atty. Gana: Thats 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
xxx
"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." (boldface supplied; p. 194).
37

38

regulations how much they [would] be charged, how much should gasoline stations charge in addition to their correct prices, how much
carriers should charge[,] 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 been reached. VAT collection (in million pesos) for the first quarter
alone of 2004 is 83,542.83, 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 visited July 14, 2005, 10:45am PST).
[38] Besides, the use of the word "shall" in 106(A), 107(A) & 108(A) of the Tax Code, 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., in Southern Cross Cement Corp. v. Philippine Cement Manufacturers
Corp., GR No. 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 because they are not traded in the market, and government services are not directly priced by such market; (2) some activities
measured as additions to GDP in fact only represent the use of resources in order to avoid crime or risks to national security; and (3) it is
difficult to account correctly for improvements in the quality of goods. Dornbusch, Fischer, and Startz,Macroeconomics (9th ed., 2005), pp. 3536.
41

Farias v. Executive Secretary, 417 SCRA, 503, 530, December 10, 2003.

42

"Any meaningful change in the method and procedures of Congress or its committees must x x x be sought in that body itself." Tolentino v.
Secretary of Finance, supra, p. 650, October 30, 1995, per Mendoza, J.
43

The necessity, desirability or expediency of a law must be addressed to Congress as the body that is responsible to the electorate, for
"legislators are the ultimate guardians of the liberties and welfare of the people in quite as great a degree [as the] courts." Tolentino v.
Secretary of Finance, supra, p. 650, October 30, 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.)

Page 299 of 403

44

Farias 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.

46

16(3) of Article VI of the 1987 Constitution.

"Parliamentary rules are merely procedural, and with their observance, the courts have 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.; (citing Osmea Jr. v. Pendatun, 109 Phil 863, 870871, October 28, 1960, per Bengzon, J.).
47

HBs 3555 & 3705 do not contain any provision that seeks to revise non-VAT provisions of the Tax Code, but SB 1950 has 1-3 that seek to
amend the rates of income tax on domestic, resident foreign and nonresident foreign corporations at 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 taxation without representation. As I will discuss in the succeeding
paragraphs of this Opinion, 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 revenue bills 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.

52

Mamalateo, Philippine Income Tax (2004), p. 379.

53

Vitug, Tax Law and Jurisprudence (2nd ed., 2000), p. 188.

54

Mamalateo, Philippine Income Tax (2004), p. 380.

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, on February 11, 1941, XXXIX OG 18, 325.
58

Mamalateo, Philippine Income Tax (2004), p. 196.

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 the Tax Code, is derived by first subtracting the 20 percent tax
on interest income from the increased tax rate of 35 percent imposed on domestic, resident foreign, and nonresident foreign corporations, and
then dividing the difference obtained by 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 Conference Committee Report and the various pleadings before this Court.
While such report, attaching a copy of the bill as reconciled and approved by its conferees, as well as the report submitted by the Senates
Committee on Ways & Means to the Senate President on March 7, 2005, show that SB 1950 does not contain a no-pass on provision, the
petitioners and respondents show that it does (Pimentel Memorandum, Annex A showing a "Matrix on the Disagreeing Provisions of the [VAT]
Bills," pp. 9-11; Escudero Memorandum, p. 42; and Respondents Memorandum, pp. 109-110). Notably, the qualified dissent of Senator Joker
Arroyo to the Bicameral Conference Report states that the Senate version prohibits the power companies from passing on the VAT that they
will pay.
63

4 of HB 3555 seeks to amend 110(A) of the Tax Code by limiting to 5% and 11% of their respective total amounts the claim for input tax
credit of capital goods, through equal distribution of the amount of such claim over their depreciable lives; and of goods and services other
than capital goods, and goods purchased by persons engaged in retail trade.
64

7 of SB 1950 seeks to amend 110 of the Tax Code by also limiting the claim for 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 and the 59 succeeding months, if the aggregate
acquisition cost of such goods exceeds 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 August 16, 2005. Such spread-out recognizes
industries where capital assets are constructed or assembled.
65

66

No cap is found in HB 3705.

5 of HB 3555 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
political subdivisions, instrumentalities or agencies -- including government-owned-and-controlled corporations (GOCCs) -- before making any

Page 300 of 403

payment on account of each purchase of goods from sellers and services rendered by contractors. The VAT deducted and withheld shall be at
the rates of 5% of the gross payment for the purchase of goods and 8% of the gross receipts for services rendered by contractors on every
sale or installment payment. The VAT that is deducted and withheld shall be creditable against their respective VAT liabilities -- 10.5%, in case
of government public works contractors; and 12% of the payments for the lease 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
political subdivisions, instrumentalities or agencies -- including government-owned or -controlled corporations (GOCCs) -- before making any
payment on account of each purchase of goods from sellers and services rendered by contractors. The VAT deducted and withheld shall be at
the rates of 5% of the gross payment for the purchase of goods and on the gross receipts for services rendered by contractors, including
public works contractors. The VAT that is deducted and withheld shall be creditable against the VAT liability of the seller; and 10% of the gross
payment for the lease or use of properties or property rights to nonresident owners.
68

Deoferio Jr. & Mamalateo, The Value Added Tax in the Philippines (2000), pp. 34-35 & 44.

69

http://explanation-guide.info/meaning/Maurice-Laur.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-Laur (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 by counsel for petitioners in GR No.
168461:
"Justice Panganiban: So, the final consumer pays the tax?
"Atty. Baniqued: Yes, Your Honor.
"Justice Panganiban: The trade people in between the middlemen just take it as an input and then [collect] it as output, isnt it?
Atty. Baniqued: Yes, Your Honor.
"Justice Panganiban: Its 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 suppliers Cost 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 against other internal revenue taxes. The manner of application is determined though by the BIR through 4.112-1(b) of Revenue
Regulations No. 14-2005, otherwise known as the "Consolidated VAT Regulations of 2005," dated June 22, 2005.
76

That the unutilized input VAT can be considered an ordinary and necessary expense for which a corresponding deduction will be allowed
against gross income under 34(A)(1) of the Tax Code -- instead of a deferred asset -- is another 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, otherwise known as the "Philippine Accountancy Act of 2004."

79

These are based on pronouncements of recognized bodies involved in setting accounting principles. Greatest weight shall be given to their
pronouncements in the 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 of acceptance and usage.
If there appears to be a conflict between any of the bodies listed above, the pronouncements of the first listed body shall be applied.
SEC Securities Regulation 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) have been merely adopted by Philippine regulatory bodies and accredited professional organizations. The SEC, for instance,
complies with the agreement among co-members of the International Organization of Securities Commissions to adopt IAS in order to ensure
high-quality and transparent financial reporting, with full disclosure as a means to promote credibility and efficiency in the capital markets. In
implementing the General Agreement on Trade in Services, the Professional Regulatory Board of Accountancy (PRBOA) of the Professional
Regulatory Commission supports the adoption of IAS. The Philippine Institute of Certified Public Accountants, a member of the International
Accounting Standards Committee (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, 3:15pm PST).
80

Meigs & Meigs, Accounting: The Basis for Business Decisions (1981), pp. 28 & 515.

Page 301 of 403

Under 9(b) & (g) of RA 9298, the PRBOA shall supervise the practice of accountancy in the Philippines and adopt measures -- such as the
promulgation of 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 include international accounting and
auditing standards and generally accepted best practices.
81

The VAT is collected on each sale of goods or properties or upon the actual or constructive receipt of consideration for services, starting
from the production stage, followed by the intermediate stages in the distribution process, and culminating 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 tax credit, 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 the Tax Code. In effect, it is a tax computed by multiplying 30 percent to the 10 percent VAT that is imposed on gross sales,
receipts or revenues. It is not a tax on 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] twice when it should be taxed only once; that is, taxing the same
person twice by the same jurisdiction for the same thing." Commissioner of Internal Revenue v. Solidbank Corp., 416 SCRA 436, November
25, 2003, per Panganiban, J.; (citingAfisco Insurance Corp. v. CA, 361 Phil. 671, 687, January 25, 1999, per Panganiban, J.).
SeeCommissioner 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 against double 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[,] but also because the judiciary[,] in the determination of actual cases and controversies[,] must reflect the wisdom and justice of
the people as expressed through their representatives in the executive and legislative departments of the government." 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, per Sandoval-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 taxes on domestic carriers and keepers of garages in 117, and on
international carriers in 118; franchise taxes in 119; amusement taxes in 125; excise taxes on 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 sensitive products 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," by James 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, and 168207 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 measures would be the elimination of the [e]xcise [t]ax and the import duties.
That is [why] it is not correct to say that the [VAT] as to petroleum dealers increase to 10 [percent].
"Atty. Baniqued: Yes, Your Honor.
"Justice Panganiban: And[,] therefore, there is no justification for increasing the retail 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 point that different industries, different products, different services are hit differently. So its not correct to
say that all prices must go up by 10 [percent].
"Atty. Baniqued: Youre 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).
92

28(1) of Article VI of the 1987 Constitution.

93

26(2) of Article VI of the 1987 Constitution.

94

These bills refer to HB 3705 and SB 1950.

95

26(2), supra.

Page 302 of 403

96

"Each house may not by its rules ignore constitutional restraints or violate fundamental rights, and there should be a reasonable relation
between the mode or method of proceeding established by the rule and the result which is sought to be attained." US v. Ballin, 144 US 1, 5, 12
S.Ct. 507, 509, February 29, 1892, per Brewer, J.
97

Panganiban, Leveling the Playing Field (2004), PRINTTOWN Group of Companies, 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).

The Lawphil Project - Arellano Law Foundation

EN BANC
G.R. No. 168056 --- ABAKADA Guro Party List (Formerly AASJAS) Officers Samson S. Alcantara and Ed Vincent S. Albano,
Petitioners, versus The Honorable Executive Secretary Eduardo Ermita, et al.,Respondents.
G.R. No. 168207 --- Aquilino Q. Pimentel, Jr., et al., Petitioners, versus Executive Secretary 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 of Representatives and the Senate Rules, the Bicameral
Conference Committee is mandated to settle differences between the disagreeing provisions in the House bill and Senate bill. However,
the ponencia construed the term "settle" as synonymous to "reconcile" and "harmonize," and as such, the Bicameral Conference
Committee may either (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 be carried into the final form of the bill, and/or (c) try to arrive at a compromise
between the disagreeing provisions.
I beg to differ on the third proposition.
Indeed, Section 16(3), Article VI of the 1987 Constitution explicitly allows each House to determine the rules of its proceedings.
However, the rules must not contravene constitutional provisions. The rule-making power of Congress should take its bearings from the
Constitution. If in the exercise of this rule-making power, Congress failed to set parameters 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 without undergoing
the requisite three-reading and the so-called no-amendment rule, then the same amount to grave abuse of discretion which this Court
is empowered to correct under its expanded certiorari jurisdiction. Notwithstanding the doctrine of separation of powers, 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
constitutional forms or conditions have not been observed. 1 When the Court declares as unconstitutional a law or a specific
provision thereof because procedural requirements for its passage were not complied, the Court is by no means asserting its
ascendancy over the Legislature, but simply affirming the supremacy of the Constitution as repository 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 properly observed.
This is the very essence of judicial authority conferred upon the Court under Section 1, Article VII of the 1987 Constitution.
The Rules of the House of Representatives and the Rules of the Senate provide that in the 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 Chief Justice Hilario G. Davide, Jr. inTolentino v. Secretary
of Finance3 that the authority of the bicameral conference committee was limited to the reconciliation of disagreeing provisions 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 Senates amendments, or (c) by way of a compromise,
to agree that neither provisions in the House bill amended by the Senate nor the latters amendments thereto be carried into
the final form of the former.

Page 303 of 403

Otherwise stated, the Bicameral Conference Committee is authorized only to adopt either 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 not included in
either the House or Senate bill, as it would allow a mere ad hoc committee to 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 considering that the bills are passed presumably after study, deliberation
and debate in both houses. A lesser body like the Bicameral Conference Committee should not be allowed to substitute its judgment for
that of the entire Congress, whose will is expressed collectively through the passed bills.
When the Bicameral Conference Committee goes beyond its limited function by substituting its own judgment for that of either of the
two houses, it violates the internal rules of Congress and contravenes material restrictions imposed by the Constitution, particularly on
the passage of law. While concededly, the internal rules of both Houses do not explicitly limit the Bicameral Conference Committee to a
consideration only of conflicting provisions, it is understood that the provisions of the Constitution should be read into these rules as
imposing limits on what the committee can or cannot do. As such, it cannot perform its delegated function in violation of the threereading requirement 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 passed three readings on separate days, and printed
copies thereof in its final form have been distributed to its Members 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 the last reading of a bill, no amendment
hereto shall be allowed, and the vote thereon shall be taken immediately thereafter, and the yeas and nays entered in the Journal.
Thus, before a bill becomes a law, it must pass three readings. Hence, the ponencias submission that despite its limited authority, the
Bicameral Conference Committee could "compromise the disagreeing provisions" by substituting it with its own version clearly violate
the three-reading requirement, as the committees 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 of the 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 my mind,
the no-amendment rule should be construed as prohibiting the Bicameral Conference Committee from introducing amendments and
modifications to non-disagreeing provisions of the House and Senate bills. In sum, the committee could only either adopt the version of
the House bill or the Senate bill, or adopt neither. As Justice Reynato 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 Conference Committee possesses the power to
add/delete provisions in bills already approved on third reading by both Houses or an ex post veto power.
In view thereof, it is my submission that the amendments introduced by the Bicameral Conference Committee which are not found
either in the House or Senate versions of the VAT reform bills, but are inserted merely by the Bicameral Conference Committee and
thereafter included in Republic Act No. 9337, should be declared unconstitutional. The insertions and deletions made do not merely
settle conflicting provisions but materially 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.

Angara v. Electoral Commission, 63 Phil. 139, 158 [1936].

G.R. Nos. 115455, 115525, 115543, 115544, 115754, 115781, 115852, 115873, 115931, 25 August 1994, 235 SCRA 630, 750.

Supra, p. 811.

The Lawphil Project - Arellano Law Foundation

G.R. NO. 168056 ABAKADA GURO PARTY LIST (FORMERLY AASJAS) OFFICERS SAMSON S. ALCANTARA AND ED VINCENT
S. ALBANO, petitioners versus THE HONORABLE 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.

Page 304 of 403

Promulgated:
September 1, 2005
x----------------------------------------------------------------------------------------------x
CONCURRING AND DISSENTING OPINION
SANDOVAL GUTIERREZ, J.:
Adam Smith, the great 18th century political economist, enunciated the dictum that "the subjects 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 revenue which
they respectively enjoy under the protection of the state."1 At no other time this dictum becomes more urgent and obligatory as in the
present time, when the Philippines is in its most precarious fiscal position.
At this juncture, may I state that I join Mr. Senior Justice Reynato S. Puno in his Opinion, 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," "it cannot create a new law," and its deletion of the
"no pass on provision" common in both Senate 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 the issues 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 violate the principle of non-delegation of legislative power. These Sections authorize the
President, upon recommendation of the Secretary of Finance, to raise the VAT rate from
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 valueadded 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 fourfifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 %).
This proviso on the authority of the President is uniformly appended to Sections 4, 5 and 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 5
imposes a 10% VAT on importation of goods, and Section 6 imposes a 10% VAT on sale of services and use or lease of properties.
Petitioners in G.R. Nos. 168056,2 1682073 and 1684634 assail the constitutionality of the above provisions on the ground that
such stand-by authority granted to the President constitutes: (1) undue delegation of legislative power; (2) violation of due
process; 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 the Constitution.
I
Undue Delegation of Legislative Power
Taxation is an inherent attribute of sovereignty.5 It is a power that is purely legislative and which the central legislative body cannot
delegate either to the executive or judicial department 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 best interest of the people that such power be lodged only in the Legislature. Composed of the peoples
representatives, it is "closer to the pulse of the people and are therefore in a better position to determine both the extent of the legal
burden the people are capable of bearing and the benefits they need."7 Also, this set-up provides security against the abuse of power.
As Chief Justice Marshall said: "In imposing a tax, the legislature 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 "no taxation without representation" by providing that
"all revenue bills shall originate exclusively in the House of Representatives, but the Senate may propose or concur with
amendments." This provision generally confines the power of taxation to the Legislature.
R.A. No. 9337, in granting to the President the stand-by authority to increase the VAT rate from 10% to 12%, the Legislature
abdicated its power by delegating it to the President. This is constitutionally impermissible. The Legislature may not escape its duties
and responsibilities by delegating its power to any other body or authority. Any attempt to abdicate the power is unconstitutional and
void, on the principle that potestas delegata 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 or authority. Where the sovereign power of the state has located the authority, there it must
remain; and by the constitutional agency alone the laws must be made until the Constitution itself is changed. The power to
whose judgment, wisdom, and patriotism this high prerogative has been entrusted cannot relieve itself of the responsibility by choosing

Page 305 of 403

other agencies upon which the power shall be devolved, nor can it substitute the judgment, wisdom, and patriotism of any other body
for those to which 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 absolute and 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 local legislative
bodies thereof) or political subdivisions; (2) delegations allowed by the Constitution; and (3) delegations relating merely to
administrative implementation that may call for some degree of discretionary powers under a set of sufficient standards expressed by
law.10
Patently, the act of the Legislature in delegating its power to tax does not fall under any of the exceptions.
First, it does not involve a delegation of taxing power to the local government. It is a delegation to the President.
Second, it is not allowed by the Constitution. Section 28 (2), Article VI of the Constitution enumerates the charges or duties, the rates of
which may be fixed by the President 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 within the framework
of the national development program of the Government.
Noteworthy is the absence of tax rates or VAT rates in the enumeration. If the intention of 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 mere inclusion
of the term "tax rates" or "VAT rates" in the enumeration. It is a dictum in statutory 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 maxim express mention is implied
exclusion orexpressio unius est exclusio alterius. Considering that Section 28 (2), Article VI expressly speaks only of "tariff
rates,12 import13 and export
quotas,14 tonnage15 and wharfage dues16 and other duties and imposts,17" by no stretch of imagination can this enumeration be
extended to include the VAT.
And third, 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 provisions when it left the hands of the Legislature so that nothing was left to the judgment of any other
appointee or delegate of the legislature.18
In the present case, the President is the delegate of the Legislature, endowed with the power to raise the VAT rate from 10 % to 12% if
any of the following conditions, to reiterate, has been satisfied: (i) value-added tax collection as a percentage of gross domestic 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 year exceeds one and one-half percent (1 %).
At first glance, the two conditions may appear to be definite standards sufficient to guide the President. However, to my mind, they are
ineffectual and malleable as they give the President ample opportunity to exercise herauthority in arbitrary and discretionary fashion.
The two conditions set forth by law would have been sufficient had it not been for the fact that the President, being at the helm of the
entire officialdom, has more than enough 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 shall be increased or not at all. The fulfillment of the conditions is
entirely placed in her hands. If she wishes to increase the VAT rate, all she has to do is to strictly enforce the VAT collection so as to
exceed the 2 4/5% ceiling. The same holds true with the national government deficit. She will just limit government expenses so as not
to exceed the 1 % ceiling. On the other hand, if she does not wish to increase the VAT rate, she may discourage the Secretary of
Finance from making the recommendation.
That the Presidents exercise of an authority is practically within her control is tantamount to giving no conditions at all. I believe this
amounts to a virtual surrender of legislative power to her. It must be stressed that the validity of a law is not tested by what has been
done but by what may be done under its provisions.19
II
Violation of Due Process
The constitutional safeguard of due process is briefly worded in Section 1, Article III of the Constitution which states that, "no person
shall be deprived of life, liberty or property without due process of law."20
Substantive due process requires the intrinsic validity of the law in interfering with the rights of the person to his property. The inquiry in
this regard is not whether or not the law 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 the public as distinguished from those of a particular
class, requires the intervention of the State. This objective must be pursued in a lawful manner, or in other words, the means
employed must be reasonably related to the accomplishment of the purpose and not unduly oppressive.
There is no doubt that R.A. No. 9337 was enacted pursuant to a valid governmental objective, i.e. to raise revenues for the
government. However, with respect to the means employed to accomplish such objective, I am convinced that R.A. No. 9337,
particularly Sections 4, 5 and 6 thereof, are arbitrary and unduly oppressive.

Page 306 of 403

A reading of the Senate deliberation reveals that the first condition constitutes a reward to the President for her effective collection of
VAT. Thus, the President may increase the VAT rate from 10% to 12% if her VAT collection during the previous year exceeds 2 4/5% 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 Chief Executive.
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.
xxxxxx
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 much higher than Now, if it is higher than 2.5%, in other words, because they collected more, we
will allow them to even tax more. Is that the meaning of this particular phrase?
Senator Recto. Yes, Mr. President, that is why it is as low as 2.8%. It is like if a person has a son and his son asks him for an
allowance, I do not think that he would 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 the analogy of this.
xxxxxx
Senator Osmena. So the gentleman is telling the President, If you collect more than 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 ko an allowance mo. Katulad ng sinabi natin
ditto. What we are saying here is you prove to me that you can collect it, then we will increase your rate, you can raise your
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 for performing a duty reposed upon her by law?
The rationale stated by Senator Recto is flawed. One of the principles of sound taxation is fiscal adequacy. The proceeds of tax
revenue should coincide with, and approximate the needs of, government expenditures. Neither an excess nor a deficiency of
revenue vis--vis the needs of government would be in keeping with the principle.22
Equating the grant of authority to the President to increase the VAT rate with the grant of 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 the people.
Unlike the additional allowance given to a studious son that comes from the pocket of the granting parent alone, the increase in the VAT
rate would be shouldered by the masses. Indeed, mandating them to pay the increased rate as an award to the President is arbitrary
and unduly oppressive. Taxation is not a power to be exercised at ones whim.
III
Exclusive Origination from the
House of Representatives
Section 24, Article VI of the Constitution provides:
SEC. 24. All appropriations, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills
shall originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments.
In Tolentino vs. Secretary of Finance,23 this Court expounded on the foregoing provision by holding that:
"x x x To begin with, it is not the law but the revenue bill which is required by the Constitution to originate exclusively in the House of
Representatives. It is important to emphasize this, because a bill originating 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 be produced. To insist that a revenue statute -- and not only the bill which initiated the legislative process
culminating in the enactment of the law must substantially be the same as the House Bill would be to deny the Senates power not
only to concur with amendments: but also to propose amendments. It would be to violate the co-equality of the legislative power of the
two houses of Congress and in fact, make the House superior to the Senate."
The case at bar gives us an opportunity to take a second hard look at the efficacy of the foregoing jurisprudence.

Page 307 of 403

Section 25, Article VI is a verbatim re-enactment of Section 18, Article VI of the 1935 Constitution. The latter provision was modeled
from Section 7 (1), Article I of the United States Constitution, which states:
"All bills for raising revenue shall originate in the House of Representatives, but the Senate may propose or concur with
amendments, as on other bills."
The American people, in entrusting what James Madison termed "the power of the purse" to their elected representatives, drew
inspiration from the British practice and experience with the House of Commons. As one commentator puts it:
"They knew the inestimable value of the House of Commons, as a component branch of the British parliament; and they believed that it
had at all times furnished the best security against the oppression of the crown and the aristocracy. While the power of taxation, 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, and prerogative must yield of that necessity which controlled at once the sword and the purse."
But while the fundamental principle underlying the vesting of the power to propose revenue bills solely in the House of Representatives
is present in both the Philippines and US Constitutions, stress must be laid on the differences between the two quoted provisions. For
one, the word "exclusively" appearing in Section 24, Article VI of our Constitution 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 US Constitution, is not written in
our Constitution.
The adverb "exclusively" means "in an exclusive manner."24 The term "exclusive" is defined 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 "possessed to the
exclusion of others; appertaining to the subject alone, not including, admitting, or pertaining to another or others."26
As for the term "originate," its meaning are "to cause the beginning of; to give rise to; 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 Section 24, Article VI provides that revenue bills
shall originate exclusively from the House of Representatives, what the Constitution mandates is that any revenue statute must begin
or start solely and only in the House. Not the Senate. Not both Chambers of Congress. But there is more to it than that. It also means
that "an act for taxation must pass the House first." It is no consequence what amendments the Senate adds.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. These Bills 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 consideration House 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 the NIRC.
Thereafter, on April 13, 2005, a Committee Conference was created to thresh out the disagreeing provisions of the three proposed bills.
In less than a month, the Conference Committee "after having met and discussed in full free and conference," came up with a report
and recommended the approval of the consolidated version of the bills. The Senate and the House of Representatives approved it.
On May 23, 2005, the enrolled copy of the consolidated version of the bills was transmitted 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 Internal Revenue 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 from House Bills No. 3555 and 3705. Instead of concurring or proposing amendments, Senate Bill No. 1950 merely
"takes into consideration" the two House Bills. To take into consideration means "to take into account." Consideration, in this sense,
means "deliberation, attention, observation or contemplation.32 Simply put, the Senate in passing 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 House revenue 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 by the House of Representatives. In Tolentino, this was not
really an issue as both the House and Senate Bills in question had one subject the VAT.
The facts obtaining here is very much different from Tolentino. It is very apparent that House 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 other hand,
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 germaneness rule and the principle of "exclusive origination,"
propose tax matters not included in the House Bills.
WHEREFORE, I vote to CONCUR with the majority opinion except with respect to the points above-mentioned.
ANGELINA SANDOVAL-GUTIERREZ
Associate Justice

Page 308 of 403

Footnotes
1

Book V of The Wealth of Nations.

ABAKADA GURO Party List (Formerly AASJAS), Officers Samson S. Alcantara and Ed Vincent S. Albano.

Aquilino Q. Pimentel, Jr., Luisa P. Ejercito-Estrada, Jinggoy E. Estrada, Panfilo M. 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, 163 SCRA 647 cited in Vitug, Acosta, Tax Law and
Jurisprudence, Second Edition, at 7.
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 National Power 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, A Commentary, 1996 Edition, at 687.

People vs. Vera, 65 Phil. 56 (1937).

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 their importation, with the rates at which they are severally taxed, it is
also the custom or duty payable on such articles. (Blacks Law Dictionary [6th Edition], 1990, at 1456).
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 its determination that an imported article threatens serious injury to a domestic industry. (Id. at 755).
14

An export quota is an amount of specific goods which may be exported and are set by the government for purposes of national defense,
economic stability and price support. (Id. at 579).
15

Tonnage dues are duties laid upon vessels according to their tonnage or cubical capacity. (Id. at 1488).

16

Wharfage dues are generally understood to be the fees paid for landing goods upon 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 of goods, merchandise and other commodities, while imposts
are duties or impositions levied for various reasons. (Crew Levick Co. vs. Commonwealth of Pennsylvania, 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-Websters Third New International Dictionary (1993 Ed.), at 793.

25

Id.

26

City Mayor vs. The Chief of Philippine Constabulary, G.R. No. 20346, October 31, 1967, 21 SCRA 665, 673.

27

Merriam-Websters 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
Revenue Code of 1997, As amended, and For Other Purposes." Approved on January 27, 2005.

Page 309 of 403

30

Entitled "An Act Amending Sections 106, 107, 108, 109, 110 and 111 of the National Internal Revenue Code of 1997, As Amended, and For
Other Purposes." 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 Internal Revenue Code of 1997, As Amended, and For Other Purposes." Approved on April1 3, 2005.
32

Merriam-Websters Third New International Dictionary (1993 Ed.), at 484.

33

Supra.

The Lawphil Project - Arellano Law Foundation

G.R. No. 168056 (Abakada Guro Party List [Formerly AASJAS] Officers Samson S. Alcantara and Ed Vincent S. Albano v. The
Hon. Executive Secretary Eduardo Ermita, et al.)
G.R. No. 168207 (Aquilino Q. Pimentel, Jr., et al. v. Executive Secretary Eduardo R. Ermita, et al.)
G.R. No. 168461 (Association of Filipinas 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. v. Hon. Eduardo R. Ermita, et al.)
Promulgated:
September 1, 2005
X--------------------------------------------------X
CONCURRING AND DISSENTING OPINION
CALLEJO, SR., J.:
I join the concurring and dissenting opinion of Mr. Justice Reynato S. Puno as I concur with 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 (the constituent
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, theponencia relies mainly
on the Courts rulings in Tolentino 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. The procedural attacks against R.A. No. 9337 are substantially the
same as those leveled against 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 its rulings in Tolentinoparticularly with respect to the
scope of the powers of the Bicameral Conference Committee vis--vis Article VI, Section 26(2) of the Constitution.
The crucial issue posed by the present petitions is whether the Bicameral Conference Committee may validly introduce amendments
that were not contained in the respective bills of the Senate and the House of Representatives. As a corollary, whether it may validly
delete provisions uniformly contained in the respective bills of the Senate and the House of Representatives.
In Tolentino, the Court declared as valid amendments introduced by the Bicameral Conference 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, it has been explained:
Under congressional rules of procedures, conference committees are not expected to make any material change in the measure at
issue, either by deleting provisions to which both houses have already agreed or by inserting new provisions. But this is a difficult
provision to enforce. Note the problem when one house amends a proposal originating in either house by striking out everything
following the enacting clause and substituting provisions which make it an entirely new bill. The versions are now altogether different,
permitting a conference committee to draft essentially a new bill

Page 310 of 403

The result is a third version, which is considered an "amendment in the nature of a substitute," the only requirement for which being that
the third version be germane to the subject of the House and Senate bills.
Indeed, this Court recently held that it is within the power of a conference committee to include in its report an entirely new provision
that is not found either in the House bill or in the Senate Bill. If the committee can propose an amendment consisting of one or two
provisions, 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 to
become valid as an act of the legislative department. The charge that in this case the Conference 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 States legislature in making the foregoing disquisition. It
was held, in effect, that following the US Congress practice where a conference committee is permitted to draft a bill that is entirely
different from the bills of either the House of Representatives or Senate, the Bicameral Conference Committee is similarly empowered
to make amendments not found in either the House or Senate bills.
The ponencia upholds the acts of the Bicameral Conference Committee with respect to R.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 system ought to be re-examined. There are significant textual differences between the US
Federal Constitutions and our Constitutions prescribed congressional procedure for enacting laws. Accordingly, the degree of freedom
accorded by the US Federal Constitution to the US Congress markedly differ from that accorded by our Constitution to 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 the Senate 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 he approve he shall it, but if not he shall return it, with his Objections to the House in which it shall
have originated, who shall enter the Objections at large on their Journal, and proceed to reconsider it. If after such Reconsideration two
thirds of that House shall agree 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 be determined by yeas and Nays, and the Names of the Persons voting for and against the Bill shall be entered on the
Journal of each House respectively. If any Bill shall not be returned by the President within ten Days (Sundays excepted) after it shall
have been presented to him, the Same shall be a Law, in like Manner as if he had signed it, unless the Congress by their Adjournment
prevent its return in which Case it shall not be a Law.
[3] Every Order, Resolution, or Vote to Which the Concurrence of the Senate and House 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 two thirds of the Senate and House of Representatives, according
to the Rules and Limitations 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 shall be expressed in the title thereof.
(2) No bill passed by either House shall become a law unless it has passed three readings on separate days, and printed copies thereof
in its final form have been distributed to its Members 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 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 entered in the Journal.
Sec. 27. (1) Every bill passed by Congress shall, before it becomes a law, be presented to the President. If he approves the same, he
shall sign it; otherwise, he shall veto it and return the same with his objections to the House where it originated, which shall enter the
objections at large in its Journal and proceed to reconsider it. If, after such reconsideration, two-thirds of all the Members of such House
shall agree 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 all the Members of that House, it shall become a law. In all such cases, the votes of each House shall
be determined 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 the House where it originated within thirty days after the date of receipt thereof; otherwise, it
shall become a law as if he had signed it.
(2) The President shall have the power to veto any particular item or items in an appropriation, revenue, or tariff bill, but the veto shall
not affect the item or items to which 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 separate days 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.

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American constitutional experts have lamented that certain congressional procedures have not been entrenched in the US Federal
Constitution. According to a noted constitutional law professor, the absence of the "three-reading" requirement as well as similar
legislative-procedure rules from the US Federal Constitution is a "cause for regret."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 conference committee. Inherited from the English Constitution, the
conference committee system is an evolutionary product whose principal threads were woven on the loom of congressional practice
into a unified pattern by the middle of the nineteenth century. "By 1852," writes Ada McCown, historian of the origin and development of
the conference committee, "the customs of presenting identical reports from the committees of conference 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, of
keeping 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 three each, appointed by the presiding officers of both
houses, for the purpose of adjusting differences between bills they have passed. This device has been extensively used by every
Congress since 1789. Of the 1157 laws enacted by the 78th Congress, for example, 107 went through conference and, of these, 36
were appropriation bills on which the House had disagreed to Senate amendments. In practice, most important legislation 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 body of law and practice has been built up over the years governing conference procedure and reports.
Suffice it to say here that serious evils have marked the development of the conference committee system. In the first place, it is highly
prodigal of members time. McConachie calculated that the average time consumed in conference was 33 days per bill. Bills are sent to
conference without reading the amendments of the other chamber. Despite rules to the contrary, conferees do not confine themselves
to matters in dispute, but often initiate entirely new legislation and even strike out identical provisions previously approved by both
houses. This happened during the 78th Congress, for instance, when an important amendment to the surplus property bill, which had
been approved by both houses, 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 as managers on the part of the House and Senate, are not always the best informed on the
questions 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 upon without knowledge of their
contents. What happens in practice is that Congress surrenders its legislative function to irresponsible committees of conference. The
standing rules against including new and extraneous matter in conference reports have been gradually whittled away in recent years by
the decisions of presiding officers. Senate riders attached to appropriation bills enable conference committees to legislate and the
House usually accepts them rather than withhold supply, thus putting it, as Senator Hoar once declared, under a degrading duress.
It is also alleged that under this secret system lobbyist are able to kill legislation they dislike and that "jokers" designed to defeat the will
of Congress can be inserted without detection. Senator George W. Norris once characterized the conference committee as a third
house of Congress. "The members of this house, he said, "are not elected by the people. The people have no voice as to who these
members shall be ... This conference committee is many times, in very important matters of legislation, the most important branch 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 definite knowledge as to how members of this conference committee vote, and there is no record to prove the
attitude of any member of the conference committee ... As a practical proposition we have legislation, then, not by the voice of the
members of the Senate, not by the members of the House of Representatives, but we have legislation by the voice of five or six men.
And for practical purposes, in most cases, it is impossible to defeat the legislation proposed by this conference committee. Every
experienced legislator knows that it is the hardest thing in the world to defeat a conference 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. Some mechanism for reconciling differences under bicameral system is obviously indispensable. The remedy for
the defects of the device is not to abolish it, but to keep it under congressional control. This can be done by enforcing the rules which
prohibit the inclusion in conference reports of matter not committed to them by either house and forbid the deletion of items approved
by both bodies; by permitting conference managers to report necessary new matter separately and the houses to consider it apart from
the conference report; by fixing a deadline toward the close of a session after which no bills could be sent to conference, so as to
eliminate congestion at the end of the session a suggestion made by the elder Senator La Follete in 1919; by holding conferences 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 allow members 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 mechanisms instituted to remedy the "evils" inherent in a bicameral system of legislature, including the
conference committee system.
Sadly, the ponencias refusal to apply Article VI, Section 26(2) of the Constitution on the Bicameral Conference Committee and the
amendments it introduced to R.A. No. 9337 has "effectively dismantled" the "three-reading rule" and "no-amendment rule." As posited
by Fr. Joaquin Bernas, a member of the Constitutional Commission:
In a bicameral system, bills are independently processed by both House of Congress. It is not unusual that the final version approved
by one House differs from what has been approved by the other. The "conference committee," consisting of members nominated from
both Houses, is an extra-constitutional creation of Congress whose function is to propose to Congress ways of reconciling conflicting
provisions found in the Senate version and in the House version of a bill. It performs a necessary function in a bicameral system.
However, since conference committees have merely delegated authority from Congress, they should not perform functions that
Congress itself may not do. Moreover, their proposals need confirmation by both Houses of Congress.

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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 the consolidation of the House and Senate bills made by the conference committee contained provisions
which neither the Senate bill nor the House bill had. In her dissenting opinion, Justice Romero laid out in great detail the provisions that
had been inserted by the conference committee. These provisions, according to the petitioners had been introduced "surreptitiously"
during a closed door meeting of the committee.
The Courts answer to this was that in United States practice conference committees could be held in executive sessions and
amendments germane to the purpose of the bill could be introduced even if these were not in either original bill. But the Court did not
bother 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 American and Philippine legislators have. The only rule
that binds the Federal Congress is that it may formulate its own rules of procedure. For this reason, the Federal Congress is master of
its own procedures. It is different with the Philippine Congress. Our Congress indeed is also authorized to formulate its own rules of
procedure but within limits not found 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 during third reading. These limitations were introduced by the
1935 and 1973 Constitutions and confirmed by the 1987 Constitution as a defense against the inventiveness of the stealthy and
surreptitious. These, however, were disregarded by the Court in Tolentino in favor of contrary American practice.
This is not to say that conference committees should not be allowed. But an effort should be made to lay out the scope of what
conference committees may do according to the requirements and the reasons of the Philippine Constitution and not according to the
practice of the American Congress. For instance, if the two Houses are not allowed to introduce and debate amendments on third
reading, can they circumvent this rule by coursing new provisions through the instrumentality of a conference committee created by
Congress and meeting in secret? The effect of the Courts uncritical embrace of the practice of the American Congress and its
conference committees is to dismantle the no-amendment rule.5
The task at hand for the Court, but which the ponencia eschews, is to circumscribe the powers 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 the reconciliation of disagreeing provisions or the resolution of differences or inconsistencies. This proposition
still applies as can be gleaned from the following text of 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 the Senate on the amendments to any bill or joint
resolution, the differences may be settled by the conference committees of both chambers.
In resolving the differences with the Senate, the House panel shall, as much as possible, 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 to the House for
the latters 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 Committee report 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 Representatives on the provision of any bill or joint resolution,
the differences shall be settled by a conference 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 the conference committee with the approval of the Senate.
Each Conference Committee Report shall contain a detailed and sufficiently explicit statement 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 Bicameral Conference Committee could only (a) restore, wholly or
partly, the specific provisions of the House Bill amended by the Senate Bill; (b) sustain, wholly or partly, the Senates amendments, or
(c) by way of compromise, to agree that neither provisions in the House Bill amended by the Senate nor the latters amendments
thereto be carried into the final form of the former. Justice Romero, who also dissented in Tolentino, added that the conference
committee is not authorized to initiate or propose completely new matters although under certain legislative rules like the Jeffersons
Manual, a conference committee may introduce germane matters in a particular bill. However, such matters should be circumscribed by
the committees sole authority and function to reconcile differences.

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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 both House Bill (HB) No. 3705 and Senate Bill (SB) No. 1950. HB 3705 proposed to amend Sections 106 and
108 of the NIRC by expressly stating therein that sellers of petroleum products and power generation companies selling electricity are
prohibited from passing on the VAT to the consumers. SB 1950 proposed to amend Section 108 by likewise prohibiting 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 HB 3705 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
deleting the 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 on amendments upon the last reading is intended to subject all bills and their amendments to intensive
deliberation by the legislators and the ample ventilation of issues to afford the 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 allows the
legislature to guard against the consequences of its own future passions, myopia, or herd 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 by deliberative
pathologies."7 As Jeremy Bentham, a noted political analyst, put it: "[t]he more susceptible a people are of excitement and being led
astray, so much the more ought they to place themselves under the protection of forms which impose the necessity of reflection, and
prevent surprises."8
Reports of the Bicameral Conference Committee, especially in cases where substantial amendments, or in this case deletions, have
been made to the respective bills of either house of Congress, ought to undergo the "three-reading" requirement in order to give effect
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, in fact, bolsters the argument for the strict
compliance by Congress of the legislative procedure prescribed by the Constitution. As can be gleaned from the said Report, of the 9
Senators-Conferees,9 only 5 Senators10 unqualifiedly approved it. Senator Joker P. Arroyo expressed his qualified dissent while
Senators Sergio R. Osmea III and Juan Ponce 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 the same with reservations while three13 voted no. All
the reservations expressed by the conferees relate to the deletion of the "no pass on provision." Only eleven (11) unqualifiedly
approved it. In other words, even among themselves, the conferees were not unanimous on their Report. Nonetheless, Congress
approved it without even thoroughly discussing the reservations or qualifications expressed by the conferees therein.
This "take it or leave it" stance vis--vis conference committee reports opens the possibility of amendments, which are substantial and
not even germane to the original bills of either house, being introduced by the conference committees and voted upon by the legislators
without knowledge of their contents. This practice cannot be countenanced as it patently runs afoul of the essence of Article VI, Section
26(2) of the Constitution. Worse, it is tantamount to Congress surrendering its legislative functions to the 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 Bicameral Conference Committee Report which deleted the "no
pass on provision" did not cure the unconstitutional act of the said committee. As succinctly put by Chief Justice Davide in his dissent
in Tolentino, "[t]his doctrine of ratification may apply to minor procedural flaws or tolerable breaches of the parameters of the bicameral
conference committees limited powers but never to violations of the Constitution. Congress is not above the Constitution."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 to pass 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 and the Senate
President and the certification of the Secretaries of both houses of Congress that it was passed are conclusive of its due enactment. In
addition to Tolentino, the ponencia citesFarias v. Executive Secretary15 where the Court declined to go behind the enrolled bill vis--vis
the allegations of the petitioners therein that irregularities attended the passage of Republic Act No. 9006, otherwise known as the Fair
Election Act.
Reliance by the ponencia on Farias is quite misplaced. The Courts adherence to the enrolled 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 the irregularities 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 formal validity of Rep. Act No. 9006 must be resolved in its favor. The Court
reiterates its ruling in Arroyo v. De Venecia, viz.:
But the cases, both here and abroad, in varying forms of expression, all deny to the courts the power to inquire into the allegations that,
in enacting a law, a House of Congress failed to comply with its own rules, in the absence of showing that there was a violation of a
constitutional provision or the rights of private individuals. In Osmea v. Pendatun, it was held: "At any rate, courts have declared that
the rules adopted by deliberative bodies are subject to revocation, modification or waiver at the pleasure of the 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
be waived or disregarded by the legislative body. Consequently, mere failure to conform to parliamentary usage will not invalidate the
action (taken by a deliberative body) when the requisite number of members have agreed to a particular measure.16

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Thus, in Farias, the Courts refusal to go behind the enrolled bill was based on the fact that the alleged irregularities that attended the
passage of R.A. No. 9006 merely involved the internal rules of both houses of Congress. The procedural irregularities allegedly
committed by the conference committee therein did not amount to a violation of a provision of the Constitution.17
In contrast, the act of the Bicameral Conference Committee of deleting the "no pass on provision" 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 its
constitutionally-ordained power to strike down any act of a branch or instrumentality of government or any of its officials done with grave
abuse of discretion amounting to lack or 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 Section 21
thereof and the deletion of the "no pass on provision" contained in the constituent bills of Republic Act No. 9337.
ROMEO J. CALLEJO, SR.
Associate Justice
Footnotes
1

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

Tolentino v. Secretary of Finance, supra, at 667-668.

See, for example, Vermuele, A., The Constitutional Law of Congressional Procedure, 71 U. Chi. L. Rev. 361 (Spring 2004).

Galloway, G., Congress at the Crossroads, pp. 98-100.

Bernas SJ, J., The 1987 Constitution of the Republic of the Philippines, A Commentary, pp. 702-703 (1996 Ed.).

Dissenting Opinion of Justice Romero in Tolentino, supra.

Vermuele, supra.

Id. citing Bentham, J., Political Tactics.

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, Eric D. Singson, Junie E. Cua, Teodoro L. Locsin, Jr., Salacnib
Baterina, Edcel C. Lagman, Luis R. Villafuerte, Herminio G. Teves, Eduardo G. Gullas, Joey Sarte Salceda, 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 Farias 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 Congress shall 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 to R.A. No.
9006 in Farias allegedly violated the internal rules of either house of Congress, but it was not alleged therein that they amounted to a
violation of any constitutional provision on legislative procedure.
18

Article VIII, Section 1, CONSTITUTION.

The Lawphil Project - Arellano Law Foundation

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 Eduardo R. Ermita, et al.);

Page 315 of 403

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., et al.); 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
CONCURRING AND DISSENTING OPINION
AZCUNA, J.:
Republic Act No. 9337, the E-VAT law, is assailed as an unconstitutional abdication of Congress of its power to tax through its
delegation to the President of the decision to increase the rate of the tax from 10% to 12%, effective January 1, 2006, after any of two
conditions has been satisfied.1
The two conditions are:
(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 year exceeds one and one-half percent (1 %).2
A scrutiny of these "conditions" shows that one of them is certain to happen on January 1, 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 % of the GDP of the previous year.
Note that the law says that the rate shall be increased if any of the two conditions happens, i.e., if condition (i) orcondition (ii) occurs.
Now, in realistic terms, considering the short time-frame given, the only practicable way that the present deficit of the national
government can be reduced to 1 % 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 the extent needed to reduce the national deficit to 1 %
or less, will trigger the happening of condition (i) under the law. Thus, the happening of condition (i) or condition (ii) is in reality certain
and unavoidable, as of January 1, 2006.
This becomes all the more clear when we consider the figures provided during the oral arguments.
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 deficit remains over 1.5%.
What is the result of this? The result is that in reality, the law does not impose any condition, 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) is likewise uncertain, the combination of both makes the
occurrence of one of them certain.
Accordingly, there is here no abdication by Congress of its power to fix the rate of the tax since the rate increase provided under the
law, from 10% to 12%, is definite and certain to occur, effective January 1, 2006. All that the President will do is state which of the 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 be made 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 critical times to let our people know precisely what
burdens they are being asked to bear as the necessary means to recover from a crisis that calls for a heroic sacrifice by all.

Page 316 of 403

It is for this reason that the Court required respondents to submit a copy of the rules to implement the E-VAT, particularly as to the
impact of the tax on prices of affected commodities, specially oil and electricity. For the onset of the law last July 1, 2005 was confusing,
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 proper implementation of the E-VAT, therefore, should cause only the appropriate incremental increase in prices, reflecting
the net incremental effect of the tax, which is not necessarily 10%, but possibly less, depending on the products involved.
The introduction of the mitigating or cushioning measures through the Senate or through the Bicameral Conference Committee, is also
being questioned by petitioners as unconstitutional for violating the rule against amendments after third reading and the rule 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, the bill which
originated from the House of Representatives, and these are so, since these were precisely the mitigating measures that go hand-onhand with the E-VAT, and are, therefore, essential -- and hopefully sufficient -- means to enable our people to bear the sacrifices they
are being asked to make. Such an approach is in accordance with the Enrolled Bill Doctrine that is the prevailing rule in this jurisdiction.
(Tolentino v. Secretary of Finance, 249 SCRA 628 [1994]). The exceptions I find are the provisions on corporate 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 the following 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 corporations
Section 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 the following 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 foreign corporations; (b) amend the tax credit against taxes due from nonresident foreign corporations
on the intercorporate dividends; and (c) reduce the allowable deduction from interest expense."
Respondents should, in any case, now be able to implement the E-VAT law without confusion and thereby achieve its purpose.4
I vote to GRANT the petitions to the extent of declaring unconstitutional the provisions in Republic 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 may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties as imposts within the
framework of the national development program of the Government." (Art. VI, Sec. 28 [2], emphasis supplied.)
Petitioners claim that the power does not extend to fixing the rates of taxes, since taxes are not tariffs, import and export quotas, tonnage and
wharfage dues, or other 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 amended to 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 on every sale, barter or exchange of goods or properties, a valueadded tax equivalent to ten percent (10%) of the gross selling price or gross value in money of the goods or properties sold, bartered or
exchanged, such tax to be paid by the seller or transferor: Provided, 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

Page 317 of 403

"(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 %)."
3

Condition has been defined by Escriche as "every future and uncertain event upon which an obligation or provision is made to depend." It is
a future and uncertain event upon which the acquisition or resolution of rights is made to depend by those who execute the juridical act.
Futurity and uncertainty must concur as characteristics of the event.
...
An event which is not uncertain but must necessarily happen cannot be a condition; the obligation will be considered as one with a term. (IV
TOLENTINO, COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE OF THE PHILIPPINES, 144).
4

I voted for the issuance of the temporary restraining order to prevent the disorderly implementation of the law that would have defeated its
very purpose and disrupted the entire VAT system, resulting in less revenues. The rationale, therefore, of the rule against enjoining the
collection of taxes, that taxes are the lifeblood of Government, leaned in favor of the temporary restraining order.

The Lawphil Project - Arellano Law Foundation

GR No. 168056 - (ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S. ALCANTARA and ED VINCENT S. ALBANO v. THE
HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA; HONORABLE SECRETARY OF THE DEPARTMENT OF FINANCE CESAR
PURISIMA; and HONORABLE COMMISSIONER OF INTERNAL REVENUE GUILLERMO PARAYNO, JR.)
GR No. 168207 (AQUILINO Q. PIMENTEL, JR., LUISA P. EJERCITO-ESTRADA, JINGGOY E. ESTRADA, PANFILO M. LACSON, ALFREDO S.
LIM, JAMBY A.S. MADRIGAL, and SERGIO R. OSMEA III v. EXECUTIVE SECRETARY EDUARDO R. 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 President, RUTH E. BARBIBI; ASSOCIATION OF CALTEX DEALERS OF THE PHILIPPINES represented by
its President, MERCEDITAS A. GARCIA; ROSARIO ANTONIO doing business under the name and style of "ANB NORTH SHELL SERVICE
STATION"; LOURDES MARTINEZ doing business under the name and style of "SHELL GATE N. DOMINGO"; BETHZAIDA TAN doing
business under the name and style of "ADVANCED SHELL STATION"; REYNALDO P. MONTOYA doing business under the name and style of
"NEW LAMUAN SHELL SERVICE STATION"; EFREN SOTTO doing business under the name and style of "REDFIELD SHELL SERVICE
STATION"; DONICA CORPORATION represented by its President, DESI TOMACRUZ; RUTH E. MARBIBI doing business under the name and
style of "R&R PETRO STATION"; PETER M. UNGSON doing business under the name and style of "CLASSIC STAR GASOLINE SERVICE
STATION"; MARIAN SHEILA A. LEE doing business under the name and style "NTE GASOLINE & SERVICE STATION"; JULIAN CESAR P.
POSADAS doing business under the name and style of "STARCARGA ENTERPRISES"; ADORACION MAEBO doing business under the
name and style of "CMA MOTORISTS CENTER"; SUSAN M. ENTRATA doing business under the name and style of "LEONAS GASOLINE
STATION and SERVICE CENTER"; CARMELITA BALDONADO doing business under the name and style of "FIRST CHOICE SERVICE
CENTER: RHEAMAR A. RAMOS doing business under the name and style of "RJAM PTT GAS STATION"; MA. ISABEL VIOLAGO doing
business under the name and style of "VIOLAGO-PTT SERVICE CENTER"; MOTORISTS HEART CORPORATON represented by its VicePresident for Operations, JOSELITO F. FLORDELIZA; MOTORISTS HARVARD CORPORATION represented by its Vice-President for
Operations, JOSELITO F. FLORDELIZA; MOTORISTS HERITAGE CORPORATION 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 doing business under the name and style of "ROMMAN GASOLINE STATION"; ANTHONY ALBERT CRUZ III doing business
under the name and style of "TRUE SERVICE STATION" v. CESAR V. PURISIMA, in his capacity as Secretary of the Department of Finance and
GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of Internal Revenue.
GR No. 168463 FRANCIS JOSEPH G. ESCUDERO, VINCENT CRISOLOGO, EMMANUEL JOSEL J. VILLANUEVA, RODOLFO G. PLAZA,
DARLENE ANTONINO-CUSTODIO, OSCAR G. MALAPITAN, BENJAMIN C. AGARAO, JR., JUAN EDGARDO M. ANGARA, JUSTIN MARC SB.
CHIPECO, FLORENCIOI 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. CASIO, v. CESAR V. PURISIMA, in his capacity as Secretary of Finance,
GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of Internal Revenue, and EDUARDO R. ERMITA, in his capacity as Executive
Secretary.
GR. No. 168730 BATAAN GOVERNOR ENRIQUE T. GARCIA, JR. v. HON. EDUARDO R. ERMITA, in his capacity as the Executive Secretary;
HON. MARGARITO TEVES, in his capacity as Secretary of Finance; HON. JOSE MARIO BUNAG, in his capacity as the OIC Commissioner of
the Bureau of Customs.
x-------------------------------------------------------------------x

DISSENTING OPINION
Tinga, J.:
The E-VAT Law,1 as it stands, will exterminate our countrys small to medium enterprises. This will be the net effect of affirming
Section 8 of the law, which amends Sections 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 every quarter and a mandatory sixty (60) -month amortization period
on the input tax on goods purchased or imported in a calendar month if the acquisition cost of such goods exceeds One Million Pesos
(P1,000,000.00).
Taxes may be inherently punitive, but when the fine line between damage and destruction is crossed, the courts must step
forth and cut the hangmans noose. Justice Holmes once confidently asserted that "the power to tax is not the power to destroy while
this Court sits", and we should very well live up to this expectation not only of the revered Holmes, but of the Filipino people who rely on
this Court as the guardian of 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 the prerogative of the legislature to impose taxes, and of the
national government to chart economic 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 the challenges against the E-VAT law that are asserted in those petitions.

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In the final analysis, petitioners therein are unable to convincingly demonstrate the constitutional infirmity of the provisions they seek to
assail. The only exception is Section 21 of the law, 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 Section 114(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 crucial issue 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 Law constitutes an undue delegation of legislative power. In
appreciating the aspect of undue 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 the legislature.4 In tandem with Section 1, Article VI of the Constitution
which institutionalizes the law-making power of Congress, Section 24 under the same Article crystallizes 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 originate tax measures. Even if the President desires to
levy new taxes, the imposition cannot be done by mere executive fiat. In such an instance, the President would have to rely on
Congress to enact tax laws.
Moreover, this plenary power of taxation cannot be delegated by Congress to any other branch of government or private persons,
unless its delegation is authorized by the Constitution itself.6 In this regard, the situation stands different from that in the recent
case Southern Cross v. PHILCEMCOR,7 wherein I noted in my ponencia that the Tariff Commission and the DTI Secretary may be
regarded as agents of Congress for the purpose of imposing safeguard measures. That pronouncement was made in light of Section
28(2) Article VI, which allows Congress to delegate to the President through law the power to impose tariffs and imposts, subject to
limitations and restrictions as may be ordained 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 be delegated away by Congress.
However, as the majority correctly points out, the power to ascertain the facts or conditions 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 taxing power 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 warrant examination. The provisions read:
SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended to 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 on every sale, barter or exchange of goods or properties, a
value-added tax equivalent to ten percent (10%) of the gross selling price or gross value in money of the goods or properties sold,
bartered or exchanged, such tax to be paid by the seller or transferor;provided, 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 fourfifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-half percent 1 %).
Sec. 5. Section 107 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 107. Value-Added Tax on Importation of Goods.
(a) In General. There shall be levied, assessed and collected on every importation of goods a value-added tax equivalent to ten
percent (10%) based on the total value used by 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 the release 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 tax shall
be based on the landed cost plus excise taxes, if any: provided, further, 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) 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 one and one-half percent (1 %).
SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to read as follows:

Page 319 of 403

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, 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 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 year exceed same and on-half percent (1 %).
The petitioners deem as noxious the proviso common to these provisions 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 the satisfaction
of the twin conditions that 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 that the national government deficit as a percentage of GDP of the previous year exceed same
and on-half percent (1 %).
At first blush, it does seem that the assailed provisions are constitutionally deficient. It is Congress, 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 that this is
not exactly the operative effect of the law. The qualifier "shall" denotes a mandatory, rather than discretionary function on the part of the
President to raise the rate 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 the executive branch. The use of the word "shall" obviates any logical construction that would allow the
President leeway in not raising the tax rate. More so, it is accepted that the principle of constitutional construction that every
presumption should be indulged in favor of constitutionality and the court in considering the validity of the 'statute in question should
give it such reasonable construction as can be reached to bring it within the fundamental law.10 While all reasonable doubts should be
resolved in favor, of the constitutionality of a statute,11 it should necessarily follow that the construction upheld should 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 of the following
conditions has been satisfied xxx." This, after all is the operative effect of the provision as it stands. In relation to the operation of the tax
increase, the denominated role of the President and the Secretary of Finance may be regarded as a superfluity, as their imprimatur as a
precondition to the increase of the VAT rate must have no bearing.
Nonetheless, I cannot ignore the fact that both the President and the Secretary of Finance have designated roles in the implementation
of the tax increase. Considering that it is Congress, and not these officials, which properly have imposed the increase in the VAT rate,
how should these roles be construed?
The enactment of a law should be distinguished from its implementation. Even if it is Congress which exercises the plenary power of
taxation, it is not the body that administers the implementation of the tax. Under Section 2 of the National Internal Revenue Code
(NIRC), the assessment and collection of all national internal revenue taxes, and the enforcement of all forefeitures, penalties and fines
connected therewith had been previously delegated to the Bureau of Internal Revenue, under the supervision and control of the
Department of Finance.12
Moreover, as intimated earlier, Congress may delegate to other components of the government 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 conditions precedent for
the increase as stated in the law could very well be delegated to the President or the Secretary of Finance.13
Nonetheless, the apprehensions arise that the process of ascertainment of the listed conditions delegated to the Secretary of Finance
and the President effectively vest discretionary authority to raise the VAT rate on the President, through the subterfuges that may be
employed to delay the determination, or even to manipulate the factual premises. Assuming arguendo that these feared abuses may
arise, I think it possible to seek judicial enforcement of the increased VAT rate, even without the participation or consent 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 the VAT 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 the existence of either of the two conditions, the Secretary
of Finance is acting as the agent of the legislative branch, to determine and declare the event upon which its expressed will is to take
effect.14 This recognition of agency must be qualified. I do not doubt the ability of Congress to delegate to the Secretary of Finance
administrative functions in the implementation of tax laws, as it does under Section 2 of the NIRC. Yet it would be impermissible for
Congress to delegate to the Secretary of Finance the plenary function of enacting a tax law. As stated earlier, the situation stands
different from that in Southern Cross wherein the Constitution itself authorizes the delegation by Congress through a law to the
President of the discretion to impose tariff measures, subject to restrictions and limitations provided in the law.15 Herein, Congress
cannot delegate to either the President or the Secretary of Finance the discretion to raise the tax, as such power belongs exclusively to
the legislative branch.
Perhaps the term "agency" is not most suitable in describing the delegation exercised by Congress in this case, for agency implies that
the agent takes on attributes of the principal by reason of representative capacity. In this case, whatever "agency" that can be
appreciated would be of severely limited capacity, encompassing as it only could the administration, not enactment, of the tax measure.
I do not doubt the impression left by the provisions that it is the President, and not Congress, which is authorized to raise the VAT rate.
On paper at least, these imperfect provisions could be multiple sources of mischief. On the political front, whatever blame or scorn that
may be attended with the increase of the VAT rate would fall on the President, and not on Congress which actually increased the tax

Page 320 of 403

rate. On the legal front, a President averse to increasing the VAT rate despite the existence of the two listed conditions 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 the President who was, after all, "authorized" to increase the tax rate. It is critical for the Court 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 amendments to the final bill which were not contained in the House bill from which the E-VAT Law
originated. Most of the points addressed by the petitioners have been settled in our ruling in Tolentino v. Secretary of Finance,16 yet a
revisit of that precedent is urged upon this 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 the public debt, bills of local application, and private bills
shall originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments.
Section 26(2): No bill passed by either House shall become a law unless it has passed three readings on separate days, and printed
copies thereof in its final form have been distributed to its Members 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 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 entered in the Journal.
Section 24 is also known as the origination clause, which derives origin from British practice. From the assertion that the power to tax
the public at large must reside in the representatives of the people, the principle evolved that money bills must originate in the House of
Commons and may not be amended by the House of Lords.17 The principle was adopted across the shores in the United States, and
was famously described by James Madison inThe 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 the people, for obtaining a redress of every grievance, and for carrying into effect every just and salutary
measure.18
There is an eminent difference from the British system from which the principle emerged, and from our own polity. To this day, only
members of the British House of Commons are directly elected by the people, with the members of the House of Lords deriving 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, until the adoption of the Seventeenth Amendment in 1913. Hence, the rule assured the British and American
people that tax legislation arises with the consent of the sovereign people, through their directly elected representatives. In our country
though, both members 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 is provided in the Constitution. At the same time, its
proper interpretation is settled precedent, as enunciated in Tolentino:
To begin with, it is not the law but the revenue bill which is required by the Constitution to "originate exclusively" in the House of
Representatives. It is important to emphasize this, because a bill originating in the House may undergo such extensive changes in the
Senate that the result may be a rewriting of the whole. The possibility of a 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 be produced. To insist that a
revenue statute and not only the bill which initiated the legislative process culminating in the enactment of the law must
substantially be the same as the House bill would be to deny the Senate's power not only to "concur with amendments" but also to "
propose amendments." It would be to violate the coequality of legislative power of the two houses of Congress and in fact make the
House superior to the Senate.19
The vested power of the Senate to " propose or concur with amendments" necessarily implies the ability to adduce transformations
from the original House bill into the final law. 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 their respective bills.
In the present petitions, Tolentino comes under fire on two fronts. The first controversy arises from the adoption inTolentino of American
legislative practices relating to bicameral committees despite the difference in constitutional frameworks, particularly the limitation under
Section 26(2), Article VI which does not exist in the American Constitution.
The majority points out that the "no amendment rule" refers only to the procedure to be followed by each house of Congress with regard
to bills initiated in the house concerned, before said bills are transmitted to the other house for its concurrence or amendment. 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 the process undertaken afterwards in the Bicameral Conference Committee.
Indeed, Sections 26 and 27 of Article VI, which detail the procedure how a bill becomes a law, are silent as to what occurs between the
passage by both houses of their respective 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 the President for approval. There is obviously a need for joint concurrence by the House and Senate of a bill
before it is transmitted to the President, but the Constitution does not provide how such concurrence is acquired. This lacuna has to be
filled, otherwise no bill may be transmitted to the President.

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Even if the Bicameral Conference Committee is not a constitutionally organized body, it has existed as the necessary conclave for both
chambers of Congress to reconcile their respective versions of a prospective law. The members of the Bicameral Conference
Committee may possess in them the capacity to represent their particular chamber, yet the 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 undergoes deliberation and approval by both Houses. Only
one vote is taken to approve the reconciled 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 evades approval of either the House or Senate.
The second front concerns the scope and limitations of the Bicameral Conference Committee to amend, delete, or otherwise modify the
bills as approved by the House and the Senate.
Tolentino adduced the principle, adopted from American practice, that the version as approved by the Bicameral Conference Committee
need only be germane to the subject of the House and Senate bills in order to be valid.21The majority, in applying the test of
germaneness, upholds the contested provisions of the E-VAT Law. Even the members of the Court who prepared to strike down
provisions of the law applying germaneness nonetheless accept the basic premise that such test is controlling.
I agree that any amendment made by the Bicameral Conference Committee that is not germane to the subject matter of the House or
Senate Bills is not valid. It is the only valid ground by which an amendment introduced by the Bicameral Conference Committee may be
judicially stricken.
The germaneness standard which should guide Congress or the Bicameral Conference Committee should be appreciated in its normal
but total sense. In that regard, my views 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 just but 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 are expected to cast a pervasive influence on the legislative process
in the first place, and it is essential as well to allow such "non-legal" elements to be considered in ascertaining whether Congress has
complied with the criteria of germaneness.
Congress is a political body, and its rationale for legislating may be guided by factors other than established legal standards.
I deem it unduly restrictive on the plenary powers of Congress to legislate, to coerce the body to adhere to judge-made
standards, such as a standard of "legal germaneness". The Constitution is the only legal standard that Congress is required
to abide by in its enactment of laws.
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 to VAT should be stricken as unconstitutional. These would include, for example, the provisions
raising corporate income taxes. The Bicameral Conference Committee, in evaluating the proposed amendments, necessarily takes into
account not just the provisions 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 to offset the expanded coverage for the VAT, then such amendments are
germane to the purpose of the House and Senate Bills.
Moreover, it would be myopic to consider that the subject matter of the House Bill is solely the VAT system, rather than the generation
of revenue. The majority has sufficiently demonstrated that the legislative intent behind the bills that led to the E-VAT Law was the
generation of revenue to counter the countrys dire fiscal situation.
The mere fact that the law is popularly known as the E-VAT Law, or that most of its provisions pertain to the VAT, or indirect taxes, does
not mean that any and all amendments which are introduced by the Bicameral Conference Committee must pertain 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 the provision 17 of the Constitution requiring every law to
have only one subject which should be expressed in its title. We do not concur with this contention. As a policy, this Court has
adopted a liberal construction of the one title - one subject rule. We have consistently ruled that the title need not mirror, fully
index or catalogue all contents and minute details of a law. A law having a single general subject indicated in the title may
contain any number of provisions, no matter how diverse they may be, so long as they are not inconsistent with or foreign to
the general subject, and may be considered in furtherance of such subject by providing for the method and means of carrying
out the general subject. We hold that 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 supposed to sway prospective investors to put up refineries in our
country and make them rely less on imported petroleum.23
I submit that if the amendments are attuned to the goal of revenue generation, the stated purpose of the original House Bills, then the
test of germaneness is satisfied. It might seem that the goal of revenue generation, which is stated in virtually all tax or tariff bills, is so
encompassing in scope as to justify the inclusion by the Bicameral Conference 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 it comes 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 revenue from the VAT.
These restrictions are alien to the principal purposes of revenue generation, or the purposes of restructuring the VAT system. I could not
see how the provision, which relates to budgetary allocations, is germane to the E-VAT Law. Since it was introduced only in the
Bicameral Conference Committee, the test of germaneness is 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 and Senate Bills contained these provisions that would prohibit the seller/producer from passing on
the cost of the VAT payments to the consumers. However, an examination of the said bills reveal that the "no pass on" provisions in the
House Bill affects a different subject of taxation from that of the Senate Bill. In the House Bill No. 3705, the taxpayers who are
prohibited from passing on the VAT payments are the sellers of petroleum products and electricity/power generation companies. In

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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 and distribution companies.
I consider such deletions as valid, for the same reason that I deem the amendments valid. The deletion of the two disparate "no pass
on" provisions which were approved by the House in one instance, and only by the Senate in the other, remains in the sphere of
compromise that ultimately guides the approval of the final version. Again, I point out that even while the two provisions may have been
originally approved by the House and Senate respectively, their subsequent deletion by the Bicameral Conference Committee is still
subject to approval by both chambers of Congress when the final version is submitted for deliberation and voting.
Moreover, the fact that the nature of the "no pass on" provisions adopted by the House essentially differs from that of the Senate
necessarily required the corrective relief from the Bicameral Conference Committee. The Committee could have either insisted on the
House version, the Senate version, or both versions, and it is not difficult to divine that any of these steps would have obtained easy
approval. Hence, the deletion altogether of 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, and would not be constitutionally prohibited since the prohibition on amendments under Section 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 such pronouncement gained endorsement of a majority of the Court, it could not result in the ipso
facto restoration of the provision, the omission of which was ultimately approved in both the House and Senate. Moreover, since the
House version of the "no pass on" is quite different from that of the Senate, there would be a question as to whether the House 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 beyond the bounds of judicial power.
Indeed, to intimate that the Court may require Congress to reinstate a provision that failed 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 its legislation.
The Court cannot simply decree to Congress what laws or provisions to enact, but is limited to reviewing those enactments which are
actually ratified by the legislature.
II.
My earlier views, as are the submissions I am about to offer, are rooted in nothing more than constitutional interpretation. Perhaps my
preceding discussion may lead to an impression that I whole-heartedly welcome the passage of the E-VAT Law. Yet whatever relief I
may have over the enactment of a law designed to relieve our countrys financial woes are sadly obviated with the realization that a key
amendment introduced in 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 deprivation of life, liberty and property without due process of law. It becomes even
more impelling now 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 the Bill of Rights. This task is at the heart not only of
judicial review, but of the democratic system, for the fundamental guarantees in the Bill of Rights become merely hortatory if their
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 from striking it down notwithstanding any notion of deference to the executive or legislative branch on
questions of policy. Neither Congress nor the President has the right to enact or enforce unconstitutional laws.
The Bill of Rights is by no means the only constitutional yardstick by which the validity of a tax law can be measured. Nonetheless, it
stands as the most unyielding of constitutional standards, given its position of primacy in the fundamental law way above the articles on
governmental power.24 If the question lodged, for example, hinges on the proper exercise of legislative powers in the enactment of the
tax law, leeway can be appreciated in favor of affirming the legislatures inherent power to levy taxes. On the other hand, no quarter can
be ceded, no concession yielded, on the peoples fundamental rights as enshrined in the Bill of Rights, even if the sacrifice is ostensibly
made "in the national interest." It is my understanding that "the national interests," however comported, always subsumes in the first
place recognition and enforcement of the 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 be deprived of life, liberty or property without due
process of law".25 The purpose of the guaranty is to prevent governmental encroachment against the life, liberty and property of
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 judicial procedure; and to secure to all persons equal
and impartial justice and the benefit of the general law.26
In Magnano Co. v. Hamilton,27 the U.S. Supreme Court recognized that the due process clause may be utilized to strike down a taxation
statute, "if the act be so arbitrary as to compel the conclusion that it does not involve an exertion of the taxing power, but constitutes, in
substance and effect, the direct exertion of a different and forbidden power, as, for example, the confiscation of
property."28 Locally, Sison v. Ancheta29 has long provided sanctuary for persons assailing the constitutionality of taxing statutes. The oftquoted pronouncement of Justice Fernando follows:
2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is the strongest of all the powers of
government." It is, of course, to be admitted that for all its plenitude, the power to tax is not unconfined. There are restrictions.
The Constitution sets forth such limits. Adversely affecting as it does property rights, both the due process and equal
protection clauses may properly be invoked, as petitioner does, to invalidate in appropriate cases a revenue measure. If it
were otherwise, there would be truth to the 1803 dictum of Chief Justice Marshall that "the power to tax involves the power to destroy."
In a separate opinion in Graves 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 the times [allowing] a free use of absolutes." This is merely to emphasize
that it is not and there cannot be such a constitutional mandate. Justice Frankfurter could rightfully conclude: "The web of unreality spun

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from Marshall's famous dictum was brushed away by one stroke of Mr. Justice Holmes's pen: 'The power to tax is not the power to
destroy while this Court sits.'" So it is in the Philippines.
3. This Court then is left with no choice. The Constitution as the fundamental law overrides any legislative or executive act that
runs counter to it. In any case therefore where it can be demonstrated that the challenged statutory provision as petitioner
here alleges fails to abide by its command, then this Court must so 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 business or profession than on
compensation is constitutionally infirm.
4. The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation, as here, does not suffice. There
must be a factual foundation of such unconstitutional taint. Considering that petitioner here would condemn such a provision as void on
its face, he has not made out a case. This is merely to adhere to the authoritative doctrine 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 for proof of such
persuasive character as would lead to such a conclusion. Absent such a showing, the presumption of validity must prevail.
5. It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary that it finds no support in
the Constitution. An obvious example is where it can be shown to amount to the confiscation of property. That would be a
clear abuse of power. It then becomes the duty of this Court to say that 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 held that where the
assailed tax measure is beyond the jurisdiction of the state, or is not for a public purpose, or, in case of a retroactive statute
is so harsh and unreasonable, it is subject to attack on due process grounds.30
Sison pronounces more concretely how a tax statute may contravene the due process clause. Arbitrariness, confiscation, overstepping
the states jurisdiction, and lack of a public purpose are all grounds for nullity encompassed under the due process invocation.
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 pass muster. The majority cites Sison in asserting that due process and equal protection are broad
standards which need proof of such persuasive character to lead to such a conclusion.
It is difficult though to put into quantifiable terms how onerous a taxation statute must be before it contravenes the due process
clause.31 After all, the inherent nature of taxation is 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 traditions of absolute monarchs and the oppressed peasants they tax. Indeed, it is easier to jump to the
conclusion that a tax is oppressive and unfair if it is imposed by a tyrant or an authoritarian state.
But could an arbitrary, confiscatory or unreasonable tax actually be enacted by a democratic state such as ours? Of course it could, but
these would exist in more palatable guises. In a democratic society wherein statutes are enacted by a representative 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 the Court should go beyond a facial examination of
the statute, and seek to understand how exactly it would operate. The express terms of a statute, especially tax laws, are usually
inadequate in spelling out the practical effects of its implementation. The devil is usually in the details.
Admittedly, the degree of difficulty involved of judicial review of tax laws has increased with the growing complexities of business,
economic and accounting practices. These are sciences which laymen are not normally equipped by their general education to fully
grasp, hence the possible insecurity on their part when confronted with such questions on these fields.
However, we should not cede ground to those transgressions of the peoples fundamental rights simply because the mechanism
employed to violate constitutional guarantees is steeped in disciplines not normally associated with the legal profession. Venality cannot
be allowed to triumph simply due to its sophistication. This petition imputes in the E-VAT Law unconstitutional oppression of the fatal
variety, but in order to comprehend exactly how and why that is so, one has to delve into the complex milieu of the VAT system. The
party alleging the laws unconstitutionality of course has the burden to demonstrate the violations in understandable terms, but if such
proof is presented, the Courts 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 be implemented, 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 been
challenged on those grounds, and I see it fit to refute these preemptive allegations before delving into the operative aspect of the E-VAT
Law.
If there is cause to characterize my arguments as speculative, it is only because the 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 in G.R. No.
168461. Yet this should not mean that the Court is impotent from declaring a provision of law as violative of the due process clause if it
is clear that its implementation will cause the illegal deprivation of life, liberty or property without due process of

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law. This is especially so if, as in this case, the injury is of mathematical certainty, and the extent of the loss quantifiable through easy
reference to the most basic of business practices.
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 many others are not. Yet
just because the fear of mortality would be merely speculative, it does not mean that there should be less compulsion to avoid a
situation of getting shot in the head.
Indeed, the Court has long responded to strike down prospective actions, even if the injury has not yet even occurred. One of the most
significant legal principles of the last century, the "clear and present danger" doctrine in free speech cases, in fact emanates
from the prospectivity, and not the actuality of danger. The Court has not been hesitant to nullify acts which might cause injury,
owing to the presence of a clear and present danger of a substantive evil which the State has the right to prevent. It has even extended
the "clear and present danger rule" beyond the confines of freedom of 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 process clause: "The courts, as the decision states, cannot inquire into the wisdom, morality or
expediency of policies adopted by the political departments of government in areas which fall within their authority, except
only when such policies pose a clear and present danger to the life, liberty or property of the individual."
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 the Court from
inutility in the face of patently unconstitutional tax laws that have been 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 tax rate 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 would immediately nullify the offensive measures even before they
are actually imposed. Applying the clear and present danger test, the Court is empowered to strike down the noxious measures even
before they are implemented. Yet with this "bar on speculativeness" 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 first suffer before the Court can act.
In the same vein, the claim that my arguments strike at the wisdom, rather than the constitutionality 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 the
Constitution, especially the Bill of Rights, are similarly unwise, as they run inconsistent with the fundamental law of the land, the
enunciated state policies and the elemental guarantees assured by the State to its people. Not every unwise law is unconstitutional,
but every unconstitutional law is unwise, for an unconstitutional law 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 the implementation of an
unconstitutional law.
The Separate Opinion of Justice Panganiban notes that "[t]he Court cannot step beyond the confines of its constitutional power, if there
is absolutely no clear showing of grave abuse of discretion in the enactment of the law"33. This, I feel, is an unduly narrow view of
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 is implemented run counter to the Constitution, then the Court is empowered to strike down the law,
even if the legislative and executive branches act within their discretion in legislating and signing the law.
It is also asserted that if the implementation of the 70% cap imposes an unequal effect on 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 of legislative
amendment applies to even the most unconstitutional of laws. But if our society can take cold comfort in the ability of the legislature to
amend its enactments as the defense against unconstitutional laws, what remains then as the function of judicial review? This
legislative capacity to amend unconstitutional laws runs concurrently with the judicial capacity to strike down unconstitutional laws. In
fact, the long-standing tradition has been reliance on the judicial branch, and not the legislative branch, for salvation from
unconstitutional laws.
I do recognize that the Separate Opinion of Justice Panganiban ultimately proceeds from 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 assailed provisions of the E-VAT Law violate the due process clause of
the Constitution and must be stricken down.
The Nature of VAT
To understand why Sections 8 and 12 of the E-VAT law contravenes the due process clause, it is essential to understand the nature of
the value-added tax itself. Filipino consumers may comprehend VAT at its elemental form, having been accustomed for several years
now in paying an extra 10% of the listed selling price for a wide class of consumer goods. From the perspective of the end consumer,
such as the patron who purchases a meal from a fastfood restaurant, VAT is simply a tax on transactions involving the sale of goods.
The tax is shouldered by the buyer, and is based on a percentage of the purchase price. Since an excise or percentage tax shares the
same characteristics, 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 it is imposable not only on the final transaction
involving the end user, but on previous stages as well so long as there was a sale involved. Thus, VAT does not simply pertain to the
extra percentage paid by the buyer of a fast-food meal, but also that paid by restaurant itself to its suppliers of raw food products. This
multi-stage system is more acclimated to the vagaries of the modern industrial climate, which has long surpassed the stage when there

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was only one level of transfer between the farmer who harvests the crop and the person who eats the crop. Indeed, from the extraction
or production of the raw material to its final consumption by a user, several transactions or sales materialize. The VAT system assures
that the government shall reap income for every transaction 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 VAT system, provided the following definition of the tax
which I deem clear and comprehensive:
The principle of the common system of value added tax involves the application to goods and services of a general tax on
consumption exactly proportional to the price of the goods and services, whatever the number of transactions that take place
in the 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 services at the rate applicable to such goods or
services, shall be chargeable after deduction of the amount of value added tax borne directly by the various cost
components.35
The above definition alludes to a key characteristic of the VAT system, that the imposable tax remains proportional to the price of goods
and services no matter the number of transactions that takes place.
There is another key characteristic of the VAT that no matter how many the taxable transactions 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 be a tax on
value added, but rather as a tax on consumption. Hence, there is a mechanism in 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 goods and
services.36 Section 105 of the NIRC assures that "the amount of tax may be shifted or 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: the mode by which the tax is remitted to the
government. In simple theory, the VAT payable can be remitted to the government immediately upon the occurrence of the transaction,
but such a demand proves excessively unwieldy. The number of VAT covered transactions a modern enterprise may contract in a single
day, plus the recognized principle 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 the seller, who then collates the VAT received and
remits it to the government every quarter. The process may seem simple if cast in this manner, but there is a wrinkle, due to the
offsetting mechanism designed to ultimately make the end consumer bear the cost of the VAT.
The Concepts of Input and
Output VAT
This mechanism is employed through the introduction of two concepts, the input tax and the output tax. Section 110(A) of the National
Internal Revenue Code defines the input tax as the VAT due from or paid by a VAT-registered person on the importation of goods or
local purchase of goods and services in the course of trade or business, from a 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 produce consumer goods. The purchase of such raw materials and machineries is subject to VAT,
hence the enterprise pays an additional 10% of the purchase price to the supplier as VAT. This extra amount paid by the enterprise
constitutes its input VAT. The enterprise likewise pays input VAT when it purchases services covered by the tax, or rentals of property.
Since VAT is a final tax that is supposed to be ultimately shouldered by the end consumer, the VAT system allows for a mechanism by
which the business is able to recover the input VAT that it paid. This comes into play when the business, having transformed 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 the purchase price as VAT. As to the business, this VAT payments it collects from the consumer represents output
VAT, which is formally described under Section 110(A) of the NIRC as "the value-added tax due on the sale or lease of taxable goods or
properties or services by" by any VAT-registered person.
The output VAT collected by the business from the consumers accumulates, until the end of every quarter, when the enterprise is
obliged to remit the collected output VAT to the government. This is where the crediting mechanism comes into play. Since the business
is entitled to recover the prepaid input VAT, it does so in every quarter by applying the amount of prepaid input VAT against the collected
output VAT which is to be remitted. If the output VAT collected exceeds the prepaid input VAT, then the amount of input VAT is deducted
from the output VAT, and it is entitled to remit only the remainder as output VAT to the government. To illustrate, if Business X
collects P1,000,000.00 as output VAT and incurs P500,000.00 as input VAT, the P500,000.00 is deducted 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 the business need not remit any amount as output
VAT for the quarter. Moreover, the difference between the input VAT and the output VAT may be credited as input VAT by the business
in the succeeding quarter. Thus, if in the First Quarter of a year, Business X prepays P1,000,000.00 as input VAT, and collects
only P500,000.00 as output VAT, it need not remit any amount of output VAT to the government. Moreover, in the Second Quarter,
Business X can credit the remaining P500,000.00 as part of its input VAT for that quarter. Hence, if in the Second Quarter, X actually
prepays P400,000.00 as input VAT, 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 the total input VAT it could claim to P900,000.00. Since the input VAT
of P900,000.00 now exceeds the output VAT collected ofP500,000, then X need not remit any output VAT as well to the government for
the Second Quarter.
However, reality is far bleaker than that befaced by Business X. The VAT collected and remitted is not the most relevant statistic
evaluated by the business. The figure of primary concern of the enterprise would be the profit margin, which is simply the excess of

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revenue less expenditures. Revenue is derived from the gross sales of the business. Expenditures encompass all expenses incurred by
the business including overhead expenses, wages and purchases of capital goods. Crucially, expenditures would include the input VAT
prepaid by the business on its capital expenditures.
Since a significant amount of the capital outlay incurred by a business is subjected to the prepayment of input taxes, the necessity of
recovering these losses through the output VAT collected becomes more impelling. These output taxes are obviously proportional to the
volume of gross sales the higher the gross sales, the higher the output VAT collected. The output taxes collected on sales answer
for not only those 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 burden carried by the sales volume on the stability, if not survival of the business thus just
became 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 gross sales, 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 the volume 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 if any. It is quite common for retail and distribution
enterprises to incur profits of less than 1% of their gross revenues. Low profitability is not an automatic badge of poor business skills,
but a reality dictated by the laws of the marketplace. The probability of profit is lower than that of capital expenditures, and ultimately,
many business establishments end up with a higher input tax than output tax in a given quarter. This would be especially true for small
to medium enterprises who do not reap sufficient profits from its business 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 obtained usually spell the difference
between life and death of the business.
The possibility of profit is further diminished by the fact that businesses have to shoulder the input VAT in the purchase of their capital
expenses. Yet the erstwhile VAT system was not tainted by the label of oppressiveness and neither did it bear the confiscatory
mode. This was because of the immediate relief afforded from the input taxes paid by the crediting system. In theory, VAT is
not supposed to affect the profit margin. If such margin is affected, it is only because of the prepayment of the input taxes,
and this should be remedied by the immediate recovery through the crediting system of the settled input taxes.
The new E-VAT law changes all that, and puts in jeopardy the survival of small to medium 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 the 70% cap on the creditable input tax that may be
carried over into the next quarter is provided in Section 8 of the law, which amends Section 110(A) of the NIRC, among others.
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 tax exceeds the input tax, the excess shall be paid by
the VAT-registered person. If the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or
quarters. Provided, That the input tax inclusive of input VAT carried over from the previous quarter that may be credited in
every quarter shall not exceed seventy 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 be refunded or credited against other internal revenue taxes, subject to the
provisions of Section 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 to remit to the government every quarter at least 30% of the output VAT collected from
customers, or roughly 3% of the amount of gross sales. Thus, if a quarterly gross sales of Y Business totaled P1,000,000, and Y is
prudent enough to keep its capital expenses down toP980,000, 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 excess input VAT it prepaid for the next quarter, but the continuous operation of the 70% cap obviates
whatever benefits this may give, and cause the accumulation of the unutilized creditable input VAT which should be returned to the
business.
The difference is even more dramatic if seen how the unutilized creditable input VAT accumulates over a one year period. To illustrate,
Business Y prepays the following amounts 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 other hand, 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 input VAT to 70% in a quarter, the following results obtain, as
presented in tabular form:

Particulars

Output VAT

Input VAT (Actual)

+ Carry Over

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

60,000

60,000

100,000

50,000

100,000

100,000 [input]
+58,000

34,000

50,000

[input]

[input]

[excess creditable]

Page 327 of 403

158,000

+116,000

+80,000

[excess creditable] [excess creditable]

150,000

(60,000x70%) (100,000x70%)

130,000

DeclarableInput
VAT (70% of
output VAT)

(60,000x70%)

(50,000x70%)

42,000

42,000

70,000

35,000

Lower of actual
and 70% cap
allowable

(60,000 -42,000)

(60,000 -42,000)

(100,000-70,000)

(50,000- 35,000)

18,000

18,000

30,000

15,000

(100,000 42,000)

(158,000 42,000)

58,000

116,000

VAT
Payable

CreditableInput
VAT

(150,000- (130,000- 35,000)

70,000)

95,000

80,000

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 a declarable input VAT is obviated with the elimination of the 70% cap.

Particulars 1st Quarter

Output VAT

Input VAT
(Actual) + Carry
Over

2nd Quarter

3rd Quarter

4th Quarter

60,000

60,000

100,000

50,000

100,000

100,000 [input]

34,000

50,000

+40,000

[input]

[input]

[excess creditable]

+80,000

+ 14,000

140,000 [excess creditable]

(excess

114,000

creditable)
50,000

VAT Payable

Creditable

40,000

80,000

14,000

14,000

Input VAT

The difference is dramatic, as is the impact on the businesss profit margin and available cash on hand. Under normal conditions, small
to medium enterprises are already encumbered with the likelihood of obtaining only a minimal profit margin. Without the 70% cap, those
businesses would nonetheless be able to expect an immediate return on its input taxes earlier advanced, taxes which under the VAT
system it 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 from immediate recovery thereof. The inability to utilize these input taxes, which could
spell the difference between profit and loss, solvency and insolvency, will eventually impair, if not kill off the enterprise.

Page 328 of 403

The majority fails to consider one of the most important concepts in finance, time value for money.37 Simply put, the value of one peso is
worth more today than in 2006. Money that 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 would continue 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 time value of money.
Even assuming that the business eventually recovers the input VAT credit, the sum recovered would have decreased in practical value.
It would be sad, but fair, if a business ceases because of its inability to compete with other businesses. It would be utter
malevolence to condemn an enterprise to death solely through the employment of a deceptive accounting wizardry. For
the raison detre of this 70% cap is to make it appear on paper that the government is more solvent than it actually
is. Conceding for the nonce, there is a temporary advantage gained by the government by this 70% cap, as the steady remittance by
businesses of the 30% output VAT would assure a cash flow. Such collection may only momentarily resolve an endemic problem in our
local tax system, the problem of collection itself.
If the 70% cap was designed in order to enhance revenue collection, then I submit that the means employed stand beyond reason. If
sheer will proves insufficient in assuring that the State all taxes due it, there should be allowable discretion for the government to
formulate creative means to enhance collection. But to do so by depriving low profit enterprises of whatever meager income earned and
consequently assuring the death of these industries goes beyond any valid State purpose.
Only stable businesses with substantial cash flows, or extraordinarily successful enterprises will be able to remain in operation should
the 70% cap be retained. The effect 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 the profit margins of the retailing and distribution sectors typically amount to less than 1% of the gross revenues. A
taxpayer has to earn a margin of at least 3% on gross revenue in order to recoup the losses sustained due to the 70% cap. But as
stated earlier, profits are chancy, and the entrepreneur does not have full control of the conditions that lead to profit.
Even more galling is the fact that the 70% cap, oppressive as it already is to the business establishment, even limits the options of the
business to recover the unutilized input VAT credit. During the deliberations, the argument was raised that the problem presented by the
70% cap was a business problem, which can only be solved by business. 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 that increase the volume of the
goods sold could solve the problem, since for items with the same purchasing cost, the effect of the 70% cap remains constant
regardless of an increase in volume.
But the additional burden is not limited to the increase of prices by the retailer to the end consumer. 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 cascading
effect as the number of distribution levels increases since it will result in the collection of an 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 of physical 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 bare necessities such as food, water, shelter and clothing. There may be significant deprivation 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 and water 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 determinative necessity for the survival of a business.
It is easy to admonish both the consumer and the enterprise to cut back on expenditures to survive the new E-VAT Law. However, this
can be realistically expected only of the consumer. The small/medium enterprise cannot just cut back easily on expenditures in order to
survive the implementation of the E-VAT Law. For such businesses, expenditures do not normally contemplate unnecessary expenses
such as executive perks which can be dispensed with without injury to the enterprises. These expenditures pertain to expenses
necessary for the survival of the enterprise, such as wages, 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 business to operate on a daily basis.
And reduction of expenditures is not the exclusive antidote to these impositions under the E-VAT Law, as there must also be a
corresponding increase in the amount of gross sales. To do so though, would require an increase in the selling price, dampening
consumer enthusiasm, and further impairing the ability of the enterprise to recover from the E-VAT Law. This is your basic Catch2240 situation no matter which means the enterprise 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 to appreciate valid substantial distinctions between large
scale enterprises and small and medium enterprises. The latter group, owing to the limited capability for capital investment, subsists on
modest profit margins, whereas the former expects, by reason of its substantial capital investments, a high margin. In essentially
prohibiting the recovery of small profit margins, the E-VAT law effectively sends the message that only high margin
businesses are welcome to do business in the Philippines. It stifles any entrepreneurial ambitions of Filipinos unfortunate
enough to have been 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, Article II, 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 sufficient import and consequence such that in assessing the
constitutionality of the governmental action, these provisions should be considered and weighed as against the rationale for the
assailed State action.42 The incompatibility of the 70% cap with this provision is patent.
Pilipinas Shell Dealers, on whom the burden to establish the violation of due process and equal protection lies, offers the following chart
of the income statement of a typical petroleum dealer:

Page 329 of 403

QUARTERLY PROFIT AND LOSS STATEMENT
DEALER "A"

Price

VAT (without 70% cap)

Sales/Output

32,748,534

3,274,853.40

Cost of Sales

31,834,717

3,183,471.70

Gross Margin

Operating Expenses Nonvatable items

VAT (with 70% cap)

3,274,853.40

913,817

536,249

31,758.40

317,584
Vatable Items

Total Cost

853,833

Net Profit

59,984

Total Input Tax

VAT Payable

3,215,230.10

2,292,397.38

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 own observations 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 been shelled out if the 70%
cap were not in place. Considering that the net profit of the dealer is only P59,984.00, the consequences could very well be fatal,
especially if these state of events persist in succeeding quarters.
The burden of proof was on the Pilipinas Shell Dealers to prove their allegations, and accordingly, these figures have been duly
presented to the Court for appreciation and evaluation. 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 life of our nations enterprises. The majoritys
position would have been more credible had it faced the issue squarely, and endeavored to demonstrate in like numerical fashion why
the 70% cap is not oppressive, confiscatory, or otherwise violative of the due process clause.
Sadly, the majority refuses to confront the figures or engage in a meaningful demonstration of how these assailed provisions truly
operate. Instead, it counters with platitudes and bromides that do not intellectually satisfy. Considering that the very vitality, if not life of
our domestic economy is at stake, I think it derelict to our duty to block out these urgent concerns presented to the Court with blind faith
tinged with irrational Panglossian43optimism.
The obligation of the majority to refute on the merits the arguments of the Petroleum Dealers becomes even more grave considering
that the respondents have abjectly failed to convincingly dispute the claims. During oral arguments, respondents attempted to counter
the arguments that the 70% cap was oppressive and confiscatory by presenting the following illustration, which I fear is severely
misleading:
Slide 1
Item Cost VAT

Page 330 of 403

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 with 70% cap

Output VAT 100,000.00 Output VAT 100,000.00

Actual Input VAT (60% of output VAT) 60,000.00 Allowable Input VAT 60,000.00
Net VAT Payable 40,000.00 Net VAT Payable 40,000.00

Excess Input VAT 0

Carry-over to next quarter

Page 331 of 403

This presentation of the respondents is grossly deceptive, as it fails to account for the excess creditable input VAT that remains
unutilized due to the 70% cap. This excess or creditable input VAT is supposed to be carried over for the computation of the input VAT
of the next quarter. Instead, this excess or creditable input VAT magically disappears from the table of the respondents. In their
memorandum, the Pilipinas Shell Dealers counter with their own presentation using the same variables as respondents, but taking into
account the excess creditable input VAT and extending the situation over a one-year period. I cite with approval the following chart44 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
Output VAT 100,000.00
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
Net VAT Payable 30,000.00
=========
Total Available Input VAT 90,000.00
Allowable Input VAT 70,000.00
Excess Input VAT to be carried over to next
Quarter 20,000.00
=========
Quarter 3
Cost VAT

Page 332 of 403

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
Less: Input VAT
Excess Input VAT fr. 2nd Qtr. 20,000.00
Input VAT-Current Qtr. 80,000.00
Total Available Input VAT 100,000.00
Allowable Input VAT (100,000 x 70%) 70,000.00 70,000.00
Net VAT Payable 30,000.00
=========
Total Available Input VAT 100,000.00
Allowable Input VAT 70,000.00
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
Due BIR with 70% cap
Output VAT 100,000.00
Less: Input VAT
Excess Input VAT fr. 3rd Qtr. 30,000.00
Input VAT-Current Qtr. 80,000.00
Total Available Input VAT 110,000.00
Allowable Input VAT (100,000 x 70%) 70,000.00 70,000.00
Net VAT Payable 30,000.00
========
Total Available Input VAT 110,000.00
Allowable Input VAT 70,000.00
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, either through sheer heedlessness or cruel
calculation, to kill off the small and medium enterprises that are the soul, if not the heart, of our economy. It is not merely an
undue taking of property, but constitutes an unjustified taking of life as well.

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And what legitimate, germane purposes does this lethal 70% cap serve? It certainly does not increase the governments
revenue since the unutilized creditable input VAT should be entered in the government books as a debt payable as it is
supposed to be eventually repaid to the taxpayer, and so on the contrary it increases the governments 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 from everybody in the barrio in order to show off money and maintain the pretense of
prosperity to visiting city relatives. The illusion of wealth is hardly a legitimate state purpose, especially if projected at the
expense of the very business life of the country.
The majority, in an effort to belittle these concerns, points out that that the excess input tax remains creditable in succeeding quarters.
However, as seen in the above illustration, the actual application of the excess input tax will always be limited by the amount of output
taxes collected in a quarter, as a result of the 70% cap. Thus, it is entirely 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, but would be allowed to
actually credit only P70,000 if the output tax collected for that quarter were only P100,000.
The burden of the VAT may fall at first to the immediate buyers, but it is supposed to be eventually shifted to the end-consumer. The
70% cap effectively prevents this from happening, as it limits the ability of the business to recover the prepaid input taxes. This is
unconscionable, since in the first place, these intervening
players the manufacturers, producers, traders, retailers are not even supposed to sustain 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 pockets the
equivalent of 30% of the output taxes, no matter their own particular financial condition. Worst, this twin yoke on the taxpayer of having
to sustain a debit equivalent to 30% of output taxes, and having to await forever in order to recover the prepaid taxes would 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 out with the introduction of the 70% cap.
Nonetheless, the majority notes that the excess creditable input tax may be the subject of a tax credit certificate, which then could be
used in payment of internal revenue taxes, 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 not be done while the enterprise remains operational:
SEC. 10. Section 112 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 112. Refunds or Tax Credits of Input Tax.
xxx
"(B) Cancellation of VAT Registration. A person whose registration has been cancelled due to retirement from or cessation of
business or due to changes or cessation 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 for any 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 this amendment. Under the previous rule, a VATregistered person was entitled to apply for the tax credit certificate or refund paid on capital goods even while it remained in operation:
SEC. 112. Refunds or Tax Credits of Input Tax.
xxx
"(B) Capital Goods . A VAT-registered person may apply for the issuance of a tax credit 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 output taxes. 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 tax credit certificate may only be issued upon two instances: on zero-rated or effectively zero-rated sales,
and upon cancellation of VAT registration due to retirement from or cessation of business.46 This is the cruelest cut of all. Only after
the business ceases to be may the State be compelled to repay the entire amount of the unutilized input tax. It is like a
macabre form of sweepstakes wherein the winner is to be paid his fortune only when he is already dead. Aanhin pa ang damo
kung patay na ang kabayo.
Moreover, the inability to immediately credit or otherwise recover the unutilized input VAT could cause such prepaid amount to actually
be recognized in the accounting books as a loss. Under international accounting practices, the unutilized input VAT due to the 70% cap
would not even be recognized as a deferred asset. The same would not hold true if the 70% cap were eliminated. Under the
International Accounting Standards47, the unutilized input VAT credit is 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 unused tax credits can be utili[z]ed"48 Thus, if the
immediate accreditation of the input VAT credit can be obtained, as it would without the 70% cap, the asset could be recognized.
However, the same Standards hold that "[t]o the extent that it is not probable that taxable profit will be available against which the
unused tax losses or unused tax credits can be utilised, the deferred tax asset is not recognised".49 As demonstrated, the continuous
operation of the 70% cap precludes the recovery of input VAT prepaid months or years prior. Moreover, the inability to claim a refund or
tax credit certificate until after the business has already ceased virtually renders it improbable for the input VAT to be recovered. As
such, under the International Accounting Standards, it is with all likelihood that the prepaid input VAT, ostensibly creditable, would
actually be reflected 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 the 70% cap is ultimately confiscatory in nature.

Page 334 of 403

This leads to my next point. The majority asserts that the input tax is not a property or property 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 to the surviving corporation by operation of law.52Assets would fall under the purview of property
under the due process clause, and if the taxing arm of the State recognizes that such property belongs to the taxpayer and not to the
State, then due respect should be given to such expert opinion.
Even under the International Accounting Standards I adverted to above, the unutilized input 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 unused tax credits
can be utilised"53 If not probable, it would be recognized as a loss.54Since these international standards, duly recognized by the
Securities and Exchange Commission as controlling in this jurisdiction, attribute tangible gain or loss to the VAT credit, 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 if it is refunded or credited to output taxes. To
assert that the input VAT is merely a privilege 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 stated earlier, 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 Constitution also requires the State to recognize the right of enterprises to
reasonable returns on 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 the same 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 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) 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 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 licensee upon payment of the
compensation, rental, royalty or fee.
Again, this provision unreasonably severely limits the ability of an enterprise to recover its prepaid input VAT. On its face, it might
appear injurious primarily to high margin enterprises, whose purchase of capital goods in a given quarter would routinely
exceed P1,000,000.00. The amortization over a five-year period of the input VAT on these capital 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 alone
may not be sufficient to cause the invalidity of a taxing statute.
However, this amortization plan will prove especially fatal to start-ups and other new businesses, which need to purchase
capital goods in order to start up their new businesses. It is a known fact in the financial community that a majority of businesses
start earning profit only after the second or third year, and many enterprises do not even get to survive that long. The first few years of a
business are the most crucial to its survival, and any financial benefits it can obtain in those years, no matter how miniscule, may spell
the difference between life and death. For such emerging businesses, 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 are usually low. With this further
limitation, diminishing as it does any opportunity to have a sustainable cash flow, the ability of new businesses to survive the first three
years becomes even more endangered.
Even existing small to medium enterprises are imperiled by this 60 month amortization restriction, especially considering the application
of the 70% cap. The additional purchase of capital goods bears as a means of adding value to the consumer good, as a means to
justify the increased selling price. However, the purchase of capital goods in excess of P1,000,000.00 would impose another burden on
the small to medium enterprise by further restricting their ability to immediately recover the entire prepaid input VAT (which would
exceed at leastP100,000.00), as they would be compelled to wait for at least five years before they can do so. Another hurdle is
imposed for such small to medium enterprise to obtain the profit margin critical to survival. For some lucky 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
head wound.
Moreover, the increased administrative burden on the taxpayer should not be discounted, considering this Courts previous recognition
of the aims of the VAT system to "rationalize the system of taxes on goods and services, [and] simplify tax administration". 57 With the
amortization requirement, the taxpayer would be forced to segregate assets into several classes and strictly monitor the useful life of
assets so that proper classification can be made. The administrative requirements of the taxpayer in order to monitor the input VAT from
the purchase of capital assets thus has exponentially increased.
5% Withholding VAT on Sales

Page 335 of 403

Pilipinas Shell Dealers argue that Section 12 of the E-VAT law, which amends Section 114(C) of the NIRC, is also unconstitutional. The
provision is supremely unwise, oppressive and confiscatory in nature, and ruinous to private enterprise and even State
development. The provision reads:
SEC. 12. Section 114 of the same Code, as amended, is hereby further amended to read as follows:
"SEC. 114. Return and Payment of Value-Added Tax.
xxx
"(C) Withholding of Value-added Tax. The Government or any of its political subdivisions, instrumentalities or agencies, including
government-owned or controlled corporations (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 106 and 108 of this Code, deduct and withhold a final valueadded tax at the rate of five percent (5%) of the gross payment thereof: Provided, That the payment for lease or use of 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 or person 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 final value-added tax on its purchase of goods and
services is not new, as the NIRC had allowed such deduction and withholding at the rate of 3% of the gross payment for the purchase
of goods, and 6% of the gross receipts for services. However, the NIRC had also 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-VAT law. The deletion of
this credit apparatus effectively compels the private enterprise transacting with the government to shoulder the output VAT
that should have been paid by the government in excess of 5% of the gross selling price, and at the same time unduly
burdens the private enterprise by precluding it from applying any creditable input VAT on the same transaction.
Notably, the removal of the credit mechanism runs contrary to the essence of the VAT system, which characteristically allows the
crediting of input taxes against output taxes. Without such crediting mechanism, which allows the shifting of the VAT to only the
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 such transaction: the
regular personal or corporate income tax on such income, and this final withholding tax of 5%.
Granted that Congress is not bound to adopt with strict conformity the VAT system, and that it has to power to impose new taxes on
business income, this amendment to Section 114(C) of the NIRC still remains unconstitutional. It unfairly discriminates against
entities which contract with the government by imposing an additional tax on the income derived from such transactions. The
end result of such discrimination is double taxation on income that is both oppressive and confiscatory.
It is a legitimate purpose of a tax law to devise a manner by which the government could save money on its own transactions,
but it is another matter if a private enterprise is punished for doing business with the government. The erstwhile NIRC worked
towards such advantage, by allowing the government to reduce its cash outlay on purchases of goods and services by withholding the
payment of a percentage thereof. While the new E-VAT law retains this benefit to the government, at the same time it burdens the
private enterprise with an additional tax by refusing to allow the crediting of this tax withheld to the businesss 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 if concededly unwise, nonetheless fails to meet the standard of unconstitutionality, as it affects only
those persons or establishments that choose to do business with the government. However, it is an acknowledged fact that the
government and its subsidiaries rely on contracts with private enterprises in order to be able to carry out innumerable functions of the
State. This provision effectively discourages private enterprises to do business with the State, as it would impose on the
business a higher rate of tax if it were to transact with the State, as compared to transactions with other private entities.
Established industries with track records of quality performance could very well be dissuaded from doing further business with
government entities as the higher tax rate would 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 the marketplace, would bother seeking out government
contracts. The corresponding sacrifice in quality would eventually prove detrimental to the State. Our society can ill afford shoddy
infrastructures such as roads, bridges and buildings that would unnecessarily pose danger to the public at large simply because the
government wanted to skimp on expenses.
The provision squarely contradicts Section 20, Article II of the Constitution as it vacuously discourages private enterprise,
and provides disincentives to needed investments such as those expected by the State from private businesses. Whatever
advantages may be gained by the temporary increase in the government coffers would be overturned by the disadvantages of having a
reduced pool of private enterprises willing to do business with the government. Moreover, since government contracts with private
enterprises will still remain a necessary fact of life, the amendment 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 of character of tax.58 Double taxation is not expressly forbidden in our constitution, but the Court has
recognized it as obnoxious "where the taxpayer is taxed twice for the benefit of 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 both paid 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 following observation I submitapropos to the case at bar,
on double taxation in a case involving the attempt of the BIR to tax the commuted accumulated leave credits of a government lawyer
upon his retirement:
Section 284 of the Revised Administrative Code grants to a government employee 15 days vacation leave and 15 days sick leave for
every year of service. Hence, even if the government employee absents himself and exhausts his leave credits, he is still deemed to
have worked and to have rendered services. His leave benefits are already imputed in, and form part of, his salary which in turn

Page 336 of 403

is subject to withholding tax on income. He is taxed on the entirety of his salaries without any deductions for any leaves not
utilized. It follows then that the money values corresponding to these leave benefits both the used and unused have already
been taxed during the year that they were earned. To tax them again when the retiring employee receives their money value as
a form of government concern and appreciation plainly constitutes an attempt to tax the employee a second time. This is
tantamount to double taxation.61
Conclusions
The VAT system, in itself, is intelligently designed, and stands as a fair means to raise revenue. It has been adopted worldwide by
countries hoping to employ an efficient means of taxation. The concerns I have raised do not detract from my general approval of the
VAT system.
I do lament though that our governments wholehearted adoption of the VAT system is endemic of what I deem a flaw in our national tax
policy in the last few decades. The power 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 a woefully unsophisticated design. Intelligent tax policy should extend beyond the singular-minded goal of raising State funds
the old-time philosophy behind the taxing schemes of war-mongering monarchs and totalitarian states and should sincerely explore
the concept of taxation as a means of providing genuine incentives to private enterprise to spur economic growth; of promoting
egalitarian social justice that would allow everyone to their fair share of the nations wealth.
Instead, we are condemned by a national policy driven by the monomania for State revenue. It may be beyond my oath as a Justice to
compel the government to adopt an economic policy in consonance with my personal views, but I offer these observations since 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 tax on government transactions were selfishly designed to increase government revenue at the expense of the
survival of local industries.
I am not insensitive to the concerns raised by the respondents as to the dire consequences to the economy should the E-VAT law be
struck down. I am aware that the granting of the petition in G.R. No. 168461 will negatively affect the cash flow of the government. If
that were the only relevant concern at stake, I would have no problems denying the petition. Unfortunately, under the device
employed in the E-VAT law, the price to be paid for a more sustainable liquidity of the governments finances will be the death
of local business, and correspondingly, the demise of our society. It is a measure just as draconian as the standard issue
taxes of medieval tyrants.
I am not normally inclined towards the language of the overwrought, yet if the sky were indeed truly falling, how else could that fact be
communicated. The E-VAT Law is of multiple fatal consequences. How are we to survive as a nation without the bulwark of private
industries? Perhaps the larger scale, established businesses may ultimately remain standing, but they will be unable to sustain the void
left by the demise of small to medium enterprises. Or worse, domestic industry would be left in the absolute control of monopolies,
combines or cartels, whether dominated by foreigners or local oligarchs. The destruction of subsisting industries would be bad enough,
the destruction of opportunity and the entrepreneurial spirit would be even more grievous and tragic, as it would mark as well the end of
hope. Taxes may be the lifeblood of the state, but never at 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 the E-VAT Law as unconstitutional;
3) GRANT the Petition in G.R. No. 168461 and declare 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 Section 114(C) of the NIRC.
DANTE O. TINGA
Associate Justice
Footnotes
1

Republic Act No. 9337. Referred to intext as "E-VAT Law."

Except insofar as it prays that Section 21 of the E-VAT Law be declared unconstitutional. Infra.

J. Vitug and E. Acosta, Tax Law and Jurisprudence (2nd ed., 2000), at 7-8.

See National Power Corporation v. Province of Albay, G.R. No. 87479, 4 June 1990, 186 SCRA 198, 203.

See Section 24, Article VI, Constitution.

The recognized exceptions, both expressly provided by the Constitution, being the tariff clause under Section 28(2), Article VI, and the powers
of taxation of local government units under Section 5, Article X.
7

G.R. No. 158540, 8 July 2005, 434 SCRA 65.

See People v. Vera, 65 Phil. 56, 117 (1937).

Page 337 of 403

9

Decision, infra.

10

Carpio v. Executive Secretary, GR No. 96409 February 14,1992, 206 SCRA 290, 298; citing In re Guarina, 24 Phil. 37.

11

People v. Vera, supra note 8.

12

See Section 2, National Internal Revenue Code.

13

There are two eminent tests for valid delegation, the "completeness test" and the "sufficient standard test". The law must be complete in its
essential terms and conditions when it leaves the legislature so that there will be nothing left for the delegate 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 map out the boundaries of the
delegates 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 legislature to the delegate.
14

Decision, infra, citing Alunan v. Mirasol, G.R. No. 108399, 31 July 1997, 276 SCRA 501, 513-514.

15

Notwithstanding, the Court in Southern Cross did rule that Section 5 of the Safeguard Measures Act, which required a positive final
determination by the Tariff Commission before the DTI or Agriculture Secretaries could impose general safeguard measures, operated as a
valid restriction and limitation on the exercise by the executive branch of government of its tariff powers.
16

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

17

M. Evans, A Source of Frequent and Obstinate Altercations: The History and Application of the Origination Clause.

18

The Federalist No. 58, at 394 (J. Madison) (J.Cooke ed. 1961), cited in J. M. Medina, The Orignation Clause in the American Constitution: A
Comparative Survey, 23 Tulsa Law Journal 2, at 165.
19

Tolentino v. Secretary of Finance, supra note 16 at 661.

20

See Section 27(1), Article VI, Constitution.

21

Tolentino v. Secretary of Finance, supra note 16 at 668.

22

G.R. No. 124360, 5 November 1997, 281 SCRA 330.

23

Id. at 349-350.

24

People v. Tudtud, G.R. No. 144037, 26 September 2003, 412 SCRA 142, 168.

25

See Section 1, Article III, Constitution. Private corporations and partnerships are persons within the scope of the guaranty insofar as their
property is concerned. Smith Bell & Co. v. Natividad, 40 Phil. 136, 145 (1919).
26

16 C.J.S., at 1150-1151.

27

292 U.S. 40 (1934).

28

Id. at 44.

29

G.R. No. L-59431, 25 July 1984, 130 SCRA 654.

30

Id. at 660-662.

31

Justice Isagani Cruz offers the following examples of taxes that contravene the due process clause: "A tax, for example, that would claim 80
percent of a persons net income would clearly be oppressive and could unquestionably struck down as a deprivation of his property without
due process of law. A property tax retroacting to as long as fifty years back would by tyrannical and unrealistic, as the property might not yet
have been then in the possession of the taxpayer nor, presumably, would he have acquired it had he known of the tax to be imposed on it." I.
Cruz, Constitutional Law, p. 85.
32

"After defining religion, the Court, citing Tanada and Fernando, made this statement, viz:

The constitutional guaranty of the free exercise and enjoyment of religious profession and worship carries with it the right to disseminate
religious information. Any restraint of such right can only be justified like other restraints of freedom of expression on the grounds that there is
a clear and present danger of any substantive evil which the State has the right to prevent. (Tanada and Fernando on the Constitution of the
Philippines, vol. 1, 4th ed., p. 297) (emphasis supplied)
This was the Court's maiden unequivocal affirmation of the "clear and present danger" rule in the religious freedom area, and in Philippine
jurisprudence, for that matter." Estrada v. Escritor, A.M. No. P-02-1651, 4 August 2003, 408 SCRA 1.
33

Separate Opinion, infra.

34

Ibid.

35

Art. 2, European Commission First Council Directive 67/227 of 11 April 1967 on the Harmonization of Legislation of Member States
Concerning Turnover Taxes, 1971 O.J. (L 71) 1301.

Page 338 of 403

36

Liam & Ebrill, The Modern VAT.

37

"The most basic law in finance!" Understand the Time Value of Money. http://www.free-financial-advice.net/time-value-of-money.html. Last
visited, 30 August 2005.
38

Time Value of Money. http://www.jetobjects.com/components/finance/ TVM/concepts.html. Last visited, 30 August 2005.

39

There is also the option for the business to go underground and avoid VAT registration, and consequently avoid remitting VAT payments to
the government. It would be facetious though for a Justice of the Supreme Court to characterize this illegal option as "viable."
40

In Joseph Hellers Catch-22, Yossarian, a World War II pilot reasoned that if he feigned insanity, he would be necessarily exempt from
assignment to dangerous bombing runs in enemy territory. However, his superiors reasoned that if he were truly insane, he then would be
heedless enough to be sent on those dangerous bombing runs he had sought to avoid in the first place.
41

Section 20, Article II, Constitution.

42

The due process clause alone is sufficient to invalidate any contravening taxing statute. On the other hand, Section 20, Article II on its own
might not be similarly sufficient. 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 becomes even more compelling, so as to defeat the generalist invocation of the States inherent powers of
taxation.
43

Pangloss was a famed character ridiculed in Voltaires Candide, renowned for his absolute blind faith in optimism, no matter how dire the
circumstances.
44

Id. at 29-30.

45

Decision, infra.

46

This is confirmed by the BIR in its draft Revenue Memorandum Circular dated 12 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 be claimed for refund or issuance of TCC?
[A]: The only time application for refund/issuance of TCC is allowed for input taxes incurred on the purchase of domestic
goods/services is when the same are directly attributable to zero-rated or effectively zero-rated sales (of goods/services). xxx
For those engaged purely in domestic transactions, the only time that unapplied input taxes may be applied for the issuance of TCC
is when the VAT registration of the taxpayer is cancelled due to retirement or cessation of business or change in the status of the
taxpayer as a VAT registered taxpayer. As provided for in Section 112(B0, in case of cancellation of VAT registration due to cessation of
business or change in status of taxpayer, the only recourse 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 internal revenue 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 the Securities and Regulations Code.

48

Section 34, International Accounting Standards 12.

49

Section 36, id.

50

In his Separate Opinion, Justice Panganiban asserts that the deferred input tax credit is not really confiscated by the government, as it
remains an asset in the accounting records of a business. SeeSeparate Opinion, infra. By the same logic, 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 pass muster, since the
amount is "not really confiscated by the government as it remains an asset in the accounting records of a business."
51

Justice Panganiban cites United Paracale Mining Co. v. De la Rosa (cited as 221 SCRA 108, 115, April 7, 1993) to bolster his stated position
that ""[t]here is no 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 input taxes, but instead to "mining claims which according to [petitioners] is private property would constitute
impairment of vested rights since by shifting the forum of the petitioners case from the courts to the Bureau of Mines[the] substantive rights
to full protection of its property rights shall be greatly impaired." United Paracale Mining Co. v. Hon. Dela Rosa, G.R. Nos. 63786-87, 7 April
1993, 221 SCRA 108, `115. Clearly,United Paracale is not even a tax case, involving as it does, questions of the jurisdiction of the Bureau of
Mines.
52

See Part III, Paragraph 3, Revenue Memorandum Ruling No. 1-2002.

53

Section 32, International Accounting Standards 12.

54

Supra note 47.

55

Supra note 9.

56

Section 3, Article XIII, Constitution.

57

Kapatiran ng Mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. et al. v. Tan, G.R. No. L-81311, 30 June 1988.

58

J. Vitug and E. Acosta, supra note 3 at 41.

Page 339 of 403

59

Pepsi-Cola Bottling Co. of the Philippines, Inc. v. Municipality of Tanauan, G.R. No. L-31156, 27 February 1976, 69 SCRA 460, 46667; 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.

61

Id. at 856.

The Lawphil Project - Arellano Law Foundation

EN BANC
G.R. No. 168056 ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S. ALCANTARA and ED VINCENT S.
ALBANO v. THE HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA, ET AL.
G.R. No. 168207 AQUILINO Q. PIMENTEL, JR., ET AL. v. EXECUTIVE SECRETARY 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 National Internal Revenue Code of 1997,1 by essentially increasing the tax rates and expanding the 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 to raise the much-needed
revenue for the ailing Philippine economy. Taxation is the indispensable and inevitable price for a civilized society, and without taxes,
the government 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, assessed that "all economic scenarios point to the National Governments inability to sustain its precarious
fiscal position, resulting in severe erosion of investor confidence and economic stagnation."3
Finding Rep. Act No. 9337 as not unconstitutional, both in its procedural enactment and in its substance, I hereby concur in full in the
foregoing majority opinion, penned by my esteemed colleague, Justice Ma. Alicia Austria-Martinez.
According to petitioners, the enactment of Rep. Act No. 9337 by Congress was riddled with irregularities and violations of the
Constitution. In particular, they alleged that: (1) The Bicameral Conference Committee exceeded its authority to merely settle or
reconcile 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, or deleting from Rep. Act No. 9337 or amending provisions therein even though they were not in
conflict with the provisions of the other bills; (2) The amendments introduced by the Bicameral Conference Committee violated Article
VI, Section 26(2), of the Constitution 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 which prescribes that revenue bills should originate exclusively from the House of
Representatives.
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. 9337 by Congress and, consequently, to review the applicability of the enrolled bill doctrine in this
jurisdiction. Under the said doctrine, the enrolled bill, as signed by the Speaker of the House of Representatives and the Senate
President, and certified by the Secretaries of both Houses of Congress, shall be conclusive proof of its due enactment.4
Petitioners arguments failed to convince me of the wisdom of abandoning the enrolled bill doctrine. I believe that it is more prudent for
this Court to remain conservative and to continue its adherence to the enrolled bill doctrine, for to abandon the said doctrine would be
to open a Pandoras Box, giving rise to a situation more fraught with evil and mischief. Statutes enacted by Congress may not attain
finality or conclusiveness unless declared so by this Court. This would undermine the authority of our statutes because despite having
been signed and certified by the designated officers of Congress, their validity would still be in doubt and their implementation would be
greatly hampered by allegations of irregularities in their passage by the Legislature. Such an uncertainty in the statutes would
indubitably result in confusion and disorder. In all probability, it is the contemplation 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 statute through mistake, or even fraud, than, that every
Act, state and national, should at any and all times be liable to put in issue and impeached by the journals, loose papers of the
Legislature, and parol evidence. Such a state of uncertainty in the statute laws of the land would lead to mischiefs absolutely
intolerable. . . .5

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Moreover, this Court must attribute good faith and accord utmost respect to the acts of a co-equal branch of government. While it is true
that its jurisdiction has been expanded by the Constitution, the exercise thereof should not violate the basic principle of separation of
powers. The expanded jurisdiction does not contemplate judicial supremacy over the other branches of government. Thus, in resolving
the procedural issues raised by the petitioners, this Court should limit itself to a determination of compliance with, or conversely, the
violation of a specified procedure in the Constitution for the passage of laws by Congress, and not of a mere internal rule of
proceedings of its Houses.
It bears emphasis that most of the irregularities in the enactment of Rep. Act No. 9337 concern the amendments introduced by the
Bicameral Conference Committee. The Constitution is silent on such a committee, it neither prescribes the creation thereof nor does it
prohibit it. The creation of the Bicameral Conference Committee is authorized by the Rules of both Houses of Congress. That the Rules
of both Houses of Congress provide for the creation of a Bicameral Conference Committee is within the prerogative of each House
under the Constitution to determine its own rules of proceedings.
The Bicameral Conference Committee is a creation of necessity and practicality considering that our Congress is composed of two
Houses, and it is highly improbable that 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 appointed representatives of both Houses shall meet to reconcile or settle the
differences in their bills. The resulting bill from their meetings, embodied in the Bicameral Conference Report, 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 define and limit the powers of the Bicameral Conference
Committee when such committee is of their own creation. In a number of cases,6 this Court already made a determination of the extent
of the powers of the Bicameral Conference Committee after taking into account the existing Rules of both Houses of Congress. In gist,
the power of the Bicameral Conference Committee to reconcile or settle the differences in the two Houses respective bills is not limited
to the conflicting provisions of the bills; but may include matters not found in the original bills but germane to the purpose thereof. If both
Houses viewed the pronouncement made by this Court in such cases as extreme or beyond what they intended, they had the power to
amend their respective Rules to clarify or limit even further the scope of the authority which they grant to the Bicameral Conference
Committee. Petitioners grievance that, unfortunately, they cannot bring about such an amendment of the Rules on the Bicameral
Conference Committee because 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 Bicameral Conference Committee is an indication that it is still satisfied therewith. At
any rate, this is 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 this Court either to set aside a legislative action as void
because the Court thinks the house has disregarded its own rules of procedure, or to allow those defeated in the political arena to seek
a rematch in the judicial forum when petitioners can find remedy in that department. The Court has not been invested with a roving
commission to inquire into complaints, real or imagined, of legislative skullduggery. It would be acting in excess of its 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 thereon between the Senate and House versions, but only so far as said provisions are
germane to the purpose of the Bill.8 Now, there is a question as to whether the Bicameral Conference Committee, which produced Rep.
Act No. 9337, exceeded its authority when it included therein amendments of provisions of the National Internal Revenue Code of 1997
not related to VAT.
Although House Bills No. 3555 and 3705 were limited to the amendments of the provisions on VAT of the National Internal Revenue
Code of 1997, Senate Bill No. 1950 had a much wider scope and included amendments of other provisions of the said Code, 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 economic situation of the country. The
National Internal Revenue Code of 1997, as its title suggests, is the single Code that governs all our national internal revenue taxes.
While it does cover different taxes, all of them are imposed and collected by the national government to raise revenues. If we have one
Code for all our national internal revenue taxes, then there is no reason why we cannot have a single statute amending provisions
thereof even if they involve different taxes under separate titles. I hereby submit that the amendments introduced by the Bicameral
Conference Committee to non-VAT provisions of the National Internal Revenue Code of 1997 are not unconstitutional for they 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 addressed and resolved by this Court in Tolentino v.
Executive Secretary.9 Since petitioners failed to proffer novel factual or legal argument in support of their positions that were not
previously considered by this Court in the same case, then I am not compelled to depart from the conclusions made therein.
The majority opinion has already thoroughly discussed each of the substantial issues raised by the petitioners. I would just wish to
discuss additional matters pertaining to the petition 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 of taxation
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 VAT and 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 has vested rights. Input VAT consists of the VAT a
VAT-registered person had paid on his purchases 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 petroleum dealers, a property that the taxpayer acquired for valuable
consideration.10 A VAT-registered person incurs input VAT because he complied with the National Internal Revenue Code of 1997,
which imposed the VAT and made the payment thereof mandatory; and not because he paid for it or purchased it for a price.

Page 341 of 403

Generally, when one pays taxes to the government, he cannot expect any direct and concrete benefit to himself for such payment. The
benefit of payment of taxes shall redound to the society as a whole. However, by virtue of Section 110(A) of the National Internal
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 of goods, properties, and services or the VAT he passes
on to his buyers. Hence, the VAT-registered person selling the goods, properties, and services does not pay for the output VAT; said
output VAT is paid for by his consumers and he only collects and remits the same to the government.
The crediting of the input VAT against the output VAT is a statutory privilege, granted by Section 110 of the National Internal Revenue
Code of 1997. It gives the VAT-registered person the opportunity to recover the input VAT he had paid, so that, in effect, the input VAT
does not constitute an additional cost for him. While it is true that input VAT credits are reported as assets in a VAT-registered persons
financial statements and books of account, this accounting treatment is still based on the statutory provision recognizing the input VAT
as a credit. Without Section 110 of the National Internal Revenue Code of 1997, then the accounting treatment of any input VAT will
also change and may no longer be booked outright as an asset. Since the privilege of an input VAT credit is granted by law, then an
amendment of such law may limit the exercise of or may totally withdraw 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 exercise by Congress of its law-making power. To say that Congress may not trifle with Section 110 of
the National Internal Revenue Code of 1997 would be to violate a basic precept of 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 of crediting the input VAT against the output VAT. It
merely limits the amount of input VAT one may credit against his output VAT per quarter to an amount equivalent to 70% of the 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 system under Section 110 of the National Internal Revenue Code of 1997, but it is an innovation that 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: the changing requirements of government revenue; the social, economic and political vicissitudes of
the times; and the conflicting interests in our society. In the course of its evolution, it will be injected with some oddities and inevitably
transformed into a structure which its revisionists believe will be an improvement overtime.14
Second, assuming for the sake of argument, that the input VAT credit is indeed a property, the petroleum dealers right thereto has not
vested. A right is deemed vested and 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 of future
benefit, or a contingent interest in property founded on anticipated continuance of existing laws, does not constitute a vested right. So,
inchoate rights which have not been 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. Act No. 9337, the sale or importation of petroleum
products were exempt from VAT, and instead, were subject to excise tax.16 Petroleum dealers did not impose any output VAT on their
sales to consumers. Since they had no output VAT against which they could credit their input VAT, they shouldered the costs of the
input VAT that they paid on their purchases of goods, properties, and services. Their sales not being subject to VAT, the petroleum
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 become subject to VAT and only in its implementation
may they use their input VAT as credit against their output VAT. While eager to use their input VAT credit accorded to it by Rep. Act No.
9337, the petroleum dealers reject the limitation imposed by the very same law on such use.
It should be remembered that prior to Rep. Act No. 9337, the petroleum dealers input VAT credits were inexistent they were
unrecognized and disallowed by law. The petroleum dealers had no such property called input VAT credits. It is only rational, therefore,
that they cannot acquire vested rights to the use of such input VAT credits when they were never entitled to such credits in the first
place, at least, not until Rep. Act No. 9337.
My view, at this point, when Rep. Act No. 9337 has not yet even been implemented, is that petroleum dealers right to use their input
VAT as credit against their output VAT unlimitedly has not vested, being a mere expectancy of a future benefit and being contingent on
the continuance of Section 110 of the National Internal Revenue Code of 1997, prior to its amendment by Rep. Act No. 9337.
Third, although the petroleum dealers presented figures and computations to support their contention that the cap shall lead to the
demise of their businesses, I remain unconvinced.
Rep. Act No. 9337, while imposing the 70% cap on input VAT credits, allows the taxpayer to carry-over to the succeeding quarters any
excess input VAT. The petroleum dealers presented a situation wherein their input VAT would always exceed 70% of their output VAT,
and thus, their excess input VAT will be perennially carried-over and would remain unutilized. Even though they consistently questioned
the 70% cap on their input VAT credits, the petroleum dealers failed to establish what is the average ratio of their input VAT vis-vis their output VAT per quarter. Without such fact, I consider their objection 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 the said 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 a VAT-exempt taxpayer under Section 109(V) of the National
Internal Revenue Code, as amended by Rep. Act No. 9337.17 The latter taxpayer is exempt from VAT on the basis that 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 the VAT.18 If a taxpayer with presumably a smaller business is required to pay three percent (3%) gross receipts tax, a

Page 342 of 403

type of tax which does not even allow for any crediting, a VAT-taxpayer with a bigger business should be obligated, likewise, to pay a
minimum of 30% output VAT (which should be equivalent to 3% of the gross selling price per good or property or service sold). The cap
assures the government a collection of at least 30% 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 the sales by a VAT-taxpayer; it is paid by the purchasers
of the goods, properties, and services, 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 VAT collection.
Fourth, I give no weight to the figures and computations presented before this Court by the 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, I
would not know when there was no effort to explain the manner by which they were surveyed, collated, and averaged out. Without
establishing their source therefor, the figures and computations presented by the petroleum dealers are merely self-serving and
unsubstantiated, deserving scant consideration by this Court. Even assuming that these figures truly represent the financial standing of
petroleum dealers, the introduction and application thereto of the VAT factor, which forebode the collapse of said petroleum dealers
businesses, would be nothing more than an anticipated damage an injury that may or may not happen. To resolve their petition on this
basis would be premature and contrary to the established tenet of ripeness of a cause of action before this Court could validly exercise
its power of judicial review.
Fifth, in response to the contention of the petroleum dealers during oral arguments before this Court that they cannot pass on to the
consumers the VAT burden and increase the prices of their goods, it is worthy to quote below this Courts ruling in Churchill v.
Concepcion,19 to wit
It will thus be seen that the contention that the rates charged for advertising cannot be raised is purely hypothetical, based entirely upon
the opinion of the plaintiffs, unsupported by actual test, and that the plaintiffs themselves admit that a number of other 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 taxing power of the Legislature
dependent upon and restricted by the opinion of two interested witnesses? There can be but one answer to these questions, especially
in view of the fact that others are paying the tax and presumably making reasonable profit from their business.
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 only increase the
burden of the Filipino people? Would it contribute to a revival of our economy or only contribute to the difficulties and eventual closure
of businesses? These are 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 petitioners objection to this Letter of Instruction is not premised on lack of power, the justification for a finding
of unconstitutionality, but on the pessimistic, not to say negative, view he entertains as to its wisdom. That approach, it put it at its
mildest, is distinguished, if that is the appropriate word, by its unorthodoxy. It bears 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 Justice Tuason: It is not the
province of the courts to supervise legislation and keep it within the bounds of propriety and common sense. That is primarily and
exclusively a legislative concern. There can be no possible objection then to the observation of Justice Montemayor: As long as laws
do not violate any Constitutional 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 policy and * * * never inquire into the wisdom
of the law. It is thus settled, to paraphrase Chief Justice Concepcion in Gonzales v. Commission on Elections, that only congressional
power or competence, not the wisdom of the action taken, may be the basis for declaring a statute invalid. This is as it ought to be. The
principle of separation of powers has in the main wisely allocated the respective authority of each department and confined its
jurisdiction to such sphere. There would then be intrusion not allowable under 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 there are provisions in Rep. Act No. 9337 which we
may believe as unwise or iniquitous, but not 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 they severely 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 Congress accountable 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 upholding of the constitutionality of Rep. Act No. 9337 in its
entirety.
MINITA V. CHICO-NAZARIO
Associate Justice
Footnotes
1

Presidential Decree No. 1158, as amended up to Rep. Act No. 8424.

Commissioner of Internal Revenue v. Algue, Inc., G.R. No. L-28896, 17 February 1988, 158 SCRA 9.

Paragraph 3.3 of the Verification and Affidavit of Merit, executed by the then Secretary of the Department of Finance, Cesar V. Purisima,
dated 04 July 2005, attached as Annex A of the Very Urgent Motion to Lift Temporary Restraining Order, filed by the Office of the Solicitor
General on 04 July 2005.
4

Farias v. Executive Secretary, G.R. No. 147387, 10 December 2003, 417 SCRA 503, 529.

Justice Sawyer, in Sherman v. Story, 30 Cal. 253, 256, as quoted in Marshall Field & Co. v. Clark, 143 U.S. 294, 304.

Page 343 of 403

6

Tolentino v. Secretary of Finance, G.R. No. 115544, 25 August 1994, 235 SCRA 630; Philippine Judges Association v. Prado, G.R. No.
105371, 11 November 1993, 227 SCRA 703.
7

G.R. No. 127255, 14 August 1997, 277 SCRA 268, 299.

Supra, note 6.

Supra, note 3.

10

Petition for Prohibition (Under Rule 65 with Prayer for the Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction)
in G.R. No. 168461 entitled, Association of Pilipinas Shell Dealers, Inc., et al. v. Purisima, et al., p. 17, paragraph 52.
11

Asociacion de Agricultores de Talisay-Silay, Inc. v. Talisay-Silay Milling Co., Inc., G.R. No. L-19937, 19 February 1979, 88 SCRA 294; Duarte
v. Dade, 32 Phil. 36 (1915).
12

Traux v. Corrigan, 257 U.S. 312, 66 L. Ed. 254, as quoted in Asociacion de Agricultores de Talisay-Silay, Inc. v. Talisay-Silay Milling Co.,
Inc., Id., p. 452.
13

Section 110(B) of the National Internal Revenue Code of 1997, as amended by Section 8 of Rep. Act No. 9337.

14

Victorio A. Deoferio, Jr. and Victorino C. Mamalateo, The Value Added Tax in the Philippines 48 (2000).

15

Benguet Consolidated Mining Co. v. Pineda, 98 Phil 711, 722 (1956).

16

Section 109(e) of the National Internal Revenue Code of 1997.

17

TSN, 18 April 2005, IV-2, p. 5.

18

Section 116 of the National Internal Revenue Code, as amended by Rep. Act No. 9337.

19

34 Phil. 969, 973 (1916).

20

G.R. No. L-49112, 02 February 1979, 88 SCRA 195.

21

Id., pp. 210-211.

The Lawphil Project - Arellano Law Foundation

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-29646 November 10, 1978

Page 344 of 403

MAYOR ANTONIO J. VILLEGAS, petitioner,
vs.
HIU CHIONG TSAI PAO HO and JUDGE FRANCISCO ARCA, respondents.
Angel C. Cruz, Gregorio A. Ejercito, Felix C. Chaves & Jose Laureta for petitioner.
Sotero H. Laurel for respondents.
FERNANDEZ, J.:
This is a petition for certiorari to review tile decision dated September 17, 1968 of respondent Judge Francisco Arca of the
Court of First Instance of Manila, Branch I, in Civil Case No. 72797, the dispositive portion of winch reads.
Wherefore, judgment is hereby rendered in favor of the petitioner and against the respondents, declaring
Ordinance No. 6 37 of the City of Manila null and void. The preliminary injunction is made permanent. No
pronouncement as to cost.
SO ORDERED.
Manila, Philippines, September 17, 1968.
(SGD.) FRANCISCO
ARCA
Judge 1
The controverted Ordinance No. 6537 was passed by the Municipal Board of Manila on February 22, 1968 and signed by
the herein petitioner Mayor Antonio J. Villegas of Manila on March 27, 1968. 2
City Ordinance No. 6537 is entitled:
AN ORDINANCE MAKING IT UNLAWFUL FOR ANY PERSON NOT A CITIZEN OF THE PHILIPPINES
TO BE EMPLOYED IN ANY PLACE OF EMPLOYMENT OR TO BE ENGAGED IN ANY KIND OF
TRADE, BUSINESS OR OCCUPATION WITHIN THE CITY OF MANILA WITHOUT FIRST SECURING
AN EMPLOYMENT PERMIT FROM THE MAYOR OF MANILA; AND FOR OTHER PURPOSES. 3
Section 1 of said Ordinance No. 6537 4 prohibits aliens from being employed or to engage or participate in any position or
occupation or business enumerated therein, whether permanent, temporary or casual, without first securing an
employment permit from the Mayor of Manila and paying the permit fee of P50.00 except persons employed in the
diplomatic or consular missions of foreign countries, or in the technical assistance programs of both the Philippine
Government and any foreign government, and those working in their respective households, and members of religious
orders or congregations, sect or denomination, who are not paid monetarily or in kind.
Violations of this ordinance is punishable by an imprisonment of not less than three (3) months to six (6) months or fine of
not less than P100.00 but not more than P200.00 or both such fine and imprisonment, upon conviction. 5
On May 4, 1968, private respondent Hiu Chiong Tsai Pao Ho who was employed in Manila, filed a petition with the Court
of First Instance of Manila, Branch I, denominated as Civil Case No. 72797, praying for the issuance of the writ of
preliminary injunction and restraining order to stop the enforcement of Ordinance No. 6537 as well as for a judgment
declaring said Ordinance No. 6537 null and void. 6
In this petition, Hiu Chiong Tsai Pao Ho assigned the following as his grounds for wanting the ordinance declared null and
void:
1) As a revenue measure imposed on aliens employed in the City of Manila, Ordinance No. 6537 is
discriminatory and violative of the rule of the uniformity in taxation;
2) As a police power measure, it makes no distinction between useful and non-useful occupations,
imposing a fixed P50.00 employment permit, which is out of proportion to the cost of registration and that
it fails to prescribe any standard to guide and/or limit the action of the Mayor, thus, violating the
fundamental principle on illegal delegation of legislative powers:

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3) It is arbitrary, oppressive and unreasonable, being applied only to aliens who are thus, deprived of their
rights to life, liberty and property and therefore, violates the due process and equal protection clauses of
the Constitution. 7
On May 24, 1968, respondent Judge issued the writ of preliminary injunction and on September 17, 1968 rendered
judgment declaring Ordinance No. 6537 null and void and making permanent the writ of preliminary injunction. 8
Contesting the aforecited decision of respondent Judge, then Mayor Antonio J. Villegas filed the present petition on March
27, 1969. Petitioner assigned the following as errors allegedly committed by respondent Judge in the latter's decision of
September 17,1968: 9
I
THE RESPONDENT JUDGE COMMITTED A SERIOUS AND PATENT ERROR OF LAW IN RULING
THAT ORDINANCE NO. 6537 VIOLATED THE CARDINAL RULE OF UNIFORMITY OF TAXATION.
II
RESPONDENT JUDGE LIKEWISE COMMITTED A GRAVE AND PATENT ERROR OF LAW IN RULING
THAT ORDINANCE NO. 6537 VIOLATED THE PRINCIPLE AGAINST UNDUE DESIGNATION OF
LEGISLATIVE POWER.
III
RESPONDENT JUDGE FURTHER COMMITTED A SERIOUS AND PATENT ERROR OF LAW IN
RULING THAT ORDINANCE NO. 6537 VIOLATED THE DUE PROCESS AND EQUAL PROTECTION
CLAUSES OF THE CONSTITUTION.
Petitioner Mayor Villegas argues that Ordinance No. 6537 cannot be declared null and void on the ground that it violated
the rule on uniformity of taxation because the rule on uniformity of taxation applies only to purely tax or revenue measures
and that Ordinance No. 6537 is not a tax or revenue measure but is an exercise of the police power of the state, it being
principally a regulatory measure in nature.
The contention that Ordinance No. 6537 is not a purely tax or revenue measure because its principal purpose is
regulatory in nature has no merit. While it is true that the first part which requires that the alien shall secure an
employment permit from the Mayor involves the exercise of discretion and judgment in the processing and approval or
disapproval of applications for employment permits and therefore is regulatory in character the second part which requires
the payment of P50.00 as employee's fee is not regulatory but a revenue measure. There is no logic or justification in
exacting P50.00 from aliens who have been cleared for employment. It is obvious that the purpose of the ordinance is to
raise money under the guise of regulation.
The P50.00 fee is unreasonable not only because it is excessive but because it fails to consider valid substantial
differences in situation among individual aliens who are required to pay it. Although the equal protection clause of the
Constitution does not forbid classification, it is imperative that the classification should be based on real and substantial
differences having a reasonable relation to the subject of the particular legislation. The same amount of P50.00 is being
collected from every employed alien whether he is casual or permanent, part time or full time or whether he is a lowly
employee or a highly paid executive
Ordinance No. 6537 does not lay down any criterion or standard to guide the Mayor in the exercise of his discretion. It has
been held that where an ordinance of a municipality fails to state any policy or to set up any standard to guide or limit the
mayor's action, expresses no purpose to be attained by requiring a permit, enumerates no conditions for its grant or
refusal, and entirely lacks standard, thus conferring upon the Mayor arbitrary and unrestricted power to grant or deny the
issuance of building permits, such ordinance is invalid, being an undefined and unlimited delegation of power to allow or
prevent an activity per se lawful. 10
In Chinese Flour Importers Association vs. Price Stabilization Board, 11 where a law granted a government agency power
to determine the allocation of wheat flour among importers, the Supreme Court ruled against the interpretation of
uncontrolled power as it vested in the administrative officer an arbitrary discretion to be exercised without a policy, rule, or
standard from which it can be measured or controlled.

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It was also held in Primicias vs. Fugoso 12 that the authority and discretion to grant and refuse permits of all classes
conferred upon the Mayor of Manila by the Revised Charter of Manila is not uncontrolled discretion but legal discretion to
be exercised within the limits of the law.
Ordinance No. 6537 is void because it does not contain or suggest any standard or criterion to guide the mayor in the
exercise of the power which has been granted to him by the ordinance.
The ordinance in question violates the due process of law and equal protection rule of the Constitution.
Requiring a person before he can be employed to get a permit from the City Mayor of Manila who may withhold or refuse
it at will is tantamount to denying him the basic right of the people in the Philippines to engage in a means of livelihood.
While it is true that the Philippines as a State is not obliged to admit aliens within its territory, once an alien is admitted, he
cannot be deprived of life without due process of law. This guarantee includes the means of livelihood. The shelter of
protection under the due process and equal protection clause is given to all persons, both aliens and citizens. 13
The trial court did not commit the errors assigned.
WHEREFORE, the decision appealed from is hereby affirmed, without pronouncement as to costs.
SO ORDERED.
Barredo, Makasiar, Muoz Palma, Santos and Guerrero, JJ., concur.
Castro, C.J., Antonio and Aquino, Fernando, JJ., concur in the result.
Concepcion, Jr., J., took no part.
Separate Opinions
TEEHANKEE, J., concurring:
I concur in the decision penned by Mr. Justice Fernandez which affirms the lower court's judgment declaring Ordinance No. 6537 of the
City of Manila null and void for the reason that the employment of aliens within the country is a matter of national policy and regulation,
which properly pertain to the national government officials and agencies concerned and not to local governments, such as the City of
Manila, which after all are mere creations of the national government.
The national policy on the matter has been determined in the statutes enacted by the legislature, viz, the various Philippine
nationalization laws which on the whole recognize the right of aliens to obtain gainful employment in the country with the exception of
certain specific fields and areas. Such national policies may not be interfered with, thwarted or in any manner negated by any local
government or its officials since they are not separate from and independent of the national government.
As stated by the Court in the early case of Phil. Coop. Livestock Ass'n. vs. Earnshaw, 59 Phil. 129: "The City of Manila is a subordinate
body to the Insular (National Government ...). When the Insular (National) Government adopts a policy, a municipality is without legal
authority to nullify and set at naught the action of the superior authority." Indeed, "not only must all municipal powers be exercised
within the limits of the organic laws, but they must be consistent with the general law and public policy of the particular state ..." (I
McQuillin, Municipal Corporations, 2nd sec. 367, P. 1011).
With more reason are such national policies binding on local governments when they involve our foreign relations with other countries
and their nationals who have been lawfully admitted here, since in such matters the views and decisions of the Chief of State and of the
legislature must prevail over those of subordinate and local governments and officials who have no authority whatever to take official
acts to the contrary.
Separate Opinions
TEEHANKEE, J., concurring:
I concur in the decision penned by Mr. Justice Fernandez which affirms the lower court's judgment declaring Ordinance No. 6537 of the
City of Manila null and void for the reason that the employment of aliens within the country is a matter of national policy and regulation,
which properly pertain to the national government officials and agencies concerned and not to local governments, such as the City of
Manila, which after all are mere creations of the national government.
The national policy on the matter has been determined in the statutes enacted by the legislature, viz, the various Philippine
nationalization laws which on the whole recognize the right of aliens to obtain gainful employment in the country with the exception of
certain specific fields and areas. Such national policies may not be interfered with, thwarted or in any manner negated by any local
government or its officials since they are not separate from and independent of the national government.

Page 347 of 403

As stated by the Court in the early case of Phil. Coop. Livestock Ass'n. vs. Earnshaw, 59 Phil. 129: "The City of Manila is a subordinate
body to the Insular (National Government ...). When the Insular (National) Government adopts a policy, a municipality is without legal
authority to nullify and set at naught the action of the superior authority." Indeed, "not only must all municipal powers be exercised
within the limits of the organic laws, but they must be consistent with the general law and public policy of the particular state ..." (I
McQuillin, Municipal Corporations, 2nd sec. 367, P. 1011).
With more reason are such national policies binding on local governments when they involve our foreign relations with other countries
and their nationals who have been lawfully admitted here, since in such matters the views and decisions of the Chief of State and of the
legislature must prevail over those of subordinate and local governments and officials who have no authority whatever to take official
acts to the contrary.
Footnotes
1 Annex "F", Petition, Rollo, p. 64.
2 Petition, Rollo, p. 28.
3 Annex "A", of Petition, Rollo, p. 37-38.
4 Section 1. It shall he unlawful for any person not a citizen of the Philippines to be employed in any kind of position or occupation or
allowed directly or indirectly to participate in the functions, administration or management in any office, corporation, store,
restaurant, factory, business firm, or any other place of employment either as consultant, adviser, clerk, employee, technician,
teacher, actor, actress, acrobat, singer or other theatrical performer, laborer, cook, etc., whether temporary, casual, permanent or
otherwise and irrespective of the source or origin of his compensation or number of hours spent in said office, store, restaurant,
factory, corporation or any other place of employment, or to engage in any kind of business and trade within the City of Manila,
without first securing an employment permit from the Mayor of Manila, and paying the necessary fee therefor to the City the City
Treasurer: PROVIDED, HOWEVER, That persons employed in diplomatic and consular missions of foreign countries and in
technical assistance programs agreed upon by the Philippine Government and any foreign government, and those working in their
respective households, and members of different congregations or religious orders of any religion, sect or denomination, who are
not paid either monetarily or in kind shag be exempted from the provisions of this Ordinance.
5 Section 4. Any violation of this Ordinance shall upon conviction, be punished by imprisonment of not less than three (3) months
but not more than six (6) months or by a fine of not less than one hundred pesos (P100.00) but not more than two hundred pesos
(P200.00), or by both such fine and imprisonment, in the discretion of the Court: PROVIDED, HOWEVER, That in case of juridical
persons, the President, the Vice-President or the person in charge shall be liable.
6 Annex "B", Petition, Rollo, p. 39.
7 Ibid
8 Annex "F", Petition, Rollo, pp. 75-83.
9 Petition, Rollo, p. 31.
10 People vs. Fajardo, 104 Phil. 443, 446.
11 89 Phil. 439, 459-460.
12 80 Phil. 86.
13 Kwong Sing vs. City of Manila, 41 Phil, 103.

The Lawphil Project - Arellano Law Foundation

Page 348 of 403

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-49336 August 31, 1981
THE PROVINCE OF ABRA, represented by LADISLAO ANCHETA, Provincial Assessor, petitioner,
vs.
HONORABLE HAROLD M. HERNANDO, in his capacity as Presiding Judge of Branch I, Court of First Instance
Abra; THE ROMAN CATHOLIC BISHOP OF BANGUED, INC., represented by Bishop Odilo etspueler and Reverend
Felipe Flores, respondents.
FERNANDO, C.J.:
On the face of this certiorari and mandamus petition filed by the Province of Abra, 1 it clearly appears that the actuation of
respondent Judge Harold M. Hernando of the Court of First Instance of Abra left much to be desired. First, there was a
denial of a motion to dismiss 2 an action for declaratory relief by private respondent Roman Catholic Bishop of Bangued
desirous of being exempted from a real estate tax followed by a summary judgment 3 granting such exemption, without
even hearing the side of petitioner. In the rather vigorous language of the Acting Provincial Fiscal, as counsel for
petitioner, respondent Judge "virtually ignored the pertinent provisions of the Rules of Court; ... wantonly violated the
rights of petitioner to due process, by giving due course to the petition of private respondent for declaratory relief, and
thereafter without allowing petitioner to answer and without any hearing, adjudged the case; all in total disregard of basic
laws of procedure and basic provisions of due process in the constitution, thereby indicating a failure to grasp and
understand the law, which goes into the competence of the Honorable Presiding Judge." 4
It was the submission of counsel that an action for declaratory relief would be proper only before a breach or violation of
any statute, executive order or regulation. 5 Moreover, there being a tax assessment made by the Provincial Assessor on
the properties of respondent Roman Catholic Bishop, petitioner failed to exhaust the administrative remedies available
under Presidential Decree No. 464 before filing such court action. Further, it was pointed out to respondent Judge that he
failed to abide by the pertinent provision of such Presidential Decree which provides as follows: "No court shall entertain
any suit assailing the validity of a tax assessed under this Code until the taxpayer, shall have paid, under protest, the tax
assessed against him nor shall any court declare any tax invalid by reason of irregularities or informalities in the
proceedings of the officers charged with the assessment or collection of taxes, or of failure to perform their duties within
this time herein specified for their performance unless such irregularities, informalities or failure shall have impaired the
substantial rights of the taxpayer; nor shall any court declare any portion of the tax assessed under the provisions of this
Code invalid except upon condition that the taxpayer shall pay the just amount of the tax, as determined by the court in
the pending proceeding." 6
When asked to comment, respondent Judge began with the allegation that there "is no question that the real properties
sought to be taxed by the Province of Abra are properties of the respondent Roman Catholic Bishop of Bangued,
Inc." 7 The very next sentence assumed the very point it asked when he categorically stated: "Likewise, there is no dispute
that the properties including their procedure are actually, directly and exclusively used by the Roman Catholic Bishop of
Bangued, Inc. for religious or charitable purposes." 8 For him then: "The proper remedy of the petitioner is appeal and not
this special civil action." 9 A more exhaustive comment was submitted by private respondent Roman Catholic Bishop of
Bangued, Inc. It was, however, unable to lessen the force of the objection raised by petitioner Province of Abra, especially
the due process aspect. it is to be admitted that his opposition to the petition, pressed with vigor, ostensibly finds a

Page 349 of 403

semblance of support from the authorities cited. It is thus impressed with a scholarly aspect. It suffers, however, from the
grave infirmity of stating that only a pure question of law is presented when a claim for exemption is made.
The petition must be granted.
1. Respondent Judge would not have erred so grievously had he merely compared the provisions of the present
Constitution with that appearing in the 1935 Charter on the tax exemption of "lands, buildings, and improvements." There
is a marked difference. Under the 1935 Constitution: "Cemeteries, churches, and parsonages or convents appurtenant
thereto, and all lands, buildings, and improvements used exclusively for religious, charitable, or educational purposes
shall be exempt from taxation." 10 The present Constitution added "charitable institutions, mosques, and non-profit
cemeteries" and required that for the exemption of ":lands, buildings, and improvements," they should not only be
"exclusively" but also "actually and "directly" used for religious or charitable purposes. 11 The Constitution is worded
differently. The change should not be ignored. It must be duly taken into consideration. Reliance on past decisions would
have sufficed were the words "actually" as well as "directly" not added. There must be proof therefore of
the actual and direct use of the lands, buildings, and improvements for religious or charitable purposes to be exempt from
taxation. According to Commissioner of Internal Revenue v. Guerrero: 12 "From 1906, in Catholic Church v. Hastings to
1966, in Esso Standard Eastern, Inc. v. Acting Commissioner of Customs, it has been the constant and uniform holding
that exemption from taxation is not favored and is never presumed, so that if granted it must be strictly construed against
the taxpayer. Affirmatively put, the law frowns on exemption from taxation, hence, an exempting provision should be
construed strictissimi juris." 13 In Manila Electric Company v. Vera, 14 a 1975 decision, such principle was reiterated,
reference being made to Republic Flour Mills, Inc. v. Commissioner of Internal Revenue; 15Commissioner of Customs v.
Philippine Acetylene Co. & CTA; 16 and Davao Light and Power Co., Inc. v. Commissioner of Customs. 17
2. Petitioner Province of Abra is therefore fully justified in invoking the protection of procedural due process. If there is any
case where proof is necessary to demonstrate that there is compliance with the constitutional provision that allows an
exemption, this is it. Instead, respondent Judge accepted at its face the allegation of private respondent. All that was
alleged in the petition for declaratory relief filed by private respondents, after mentioning certain parcels of land owned by
it, are that they are used "actually, directly and exclusively" as sources of support of the parish priest and his helpers and
also of private respondent Bishop. 18 In the motion to dismiss filed on behalf of petitioner Province of Abra, the objection
was based primarily on the lack of jurisdiction, as the validity of a tax assessment may be questioned before the Local
Board of Assessment Appeals and not with a court. There was also mention of a lack of a cause of action, but only
because, in its view, declaratory relief is not proper, as there had been breach or violation of the right of government to
assess and collect taxes on such property. It clearly appears, therefore, that in failing to accord a hearing to petitioner
Province of Abra and deciding the case immediately in favor of private respondent, respondent Judge failed to abide by
the constitutional command of procedural due process.
WHEREFORE, the petition is granted and the resolution of June 19, 1978 is set aside. Respondent Judge, or who ever is
acting on his behalf, is ordered to hear the case on the merit. No costs.
Barredo, Concepcion, Jr., and De Castro, JJ., concur.
Aquino, J., concur in the result.
Abad Santos, J., is on leave.
Footnotes
1 In the suit it was represented by the Provincial Assessor, Ladislao Ancheta.
2 Petition, par. 7, Annex F.
3 Ibid, par. 10, Annex J.
4 Ibid, par. 13.
5 According to Rule 64, Section 1 of the Rules of Court: "Any person interested under a deed, will, contract or other written
instrument, or whose rights are affected by a statute, executive order or regulation, or ordinance, may, before breach or violation
thereof, bring an action to determine any question of construction or validity arising under the instrument or statute and for a
declaration of his rights or duties thereunder."
6 Section 64, Presidential Decree No. 464 (1974).
7 Comment, par. 1. He made mention of the fact that it was represented by Bishop Odilo Etspueler and Reverend Felipe Flores,
private respondents.

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8 Ibid, par. 2. (underlining by respondent Judge)
9 Ibid, 3.
10 Article VI, Section 22, par. (3) of the 1935 Constitution.
11 According to Article VIII, Section 17, par. (3) of the present Constitution: "Charitable institutions, churches, parsonages or
convents appurtenant thereto, mosques, and non-profit cemeteries, and all lands, buildings, and improvements actually, directly, and
exclusively used for religious or charitable purposes shall be exempt from taxation."
12 L-20812, September 22, 1967, 21 SCRA 180.
13 Ibid. 183. Catholic Church v. Hastings is reported in 5 Phil. 701 and Esso Standard Eastern, Inc. v. Acting Commissioner of
Customs, L-21841, October 28, 1966, in 18 SCRA 488. The footnote mentioned 8 additional cases.
14 L-29987, October 22, 1975, 67 SCRA 351.
15 L-25602, February 18, 1970, 31 SCRA 520.
16 L-22443, May 29, 1971, 39 SCRA 71.
17 L-28902, March 29, 1972, 44 SCRA 122.
18 Petition, Annex A, par. 7.

The Lawphil Project - Arellano Law Foundation

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-4817

May 26, 1954

SILVESTER M. PUNSALAN, ET AL., plaintiffs-appellants,

vs.
THE MUNICIPAL BOARD OF THE CITY OF MANILA, ET AL., defendants-appellants.
Calanog and Alafriz for plaintiffs-appellants.
City Fiscal Eugenio Angeles and Assistant Fiscal Eulogio S. Serreno for defendants-appellants.
REYES, J.:
This suit was commenced in the Court of First Instance of Manila by two lawyers, a medical practitioner, a public
accountant, a dental surgeon and a pharmacist, purportedly "in their own behalf and in behalf of other professionals
practising in the City of Manila who may desire to join it." Object of the suit is the annulment of Ordinance No. 3398 of the
City of Manila together with the provision of the Manila charter authorizing it and the refund of taxes collected under the
ordinance but paid under protest.
The ordinance in question, which was approved by the municipal board of the City of Manila on July 25, 1950, imposes a
municipal occupation tax on persons exercising various professions in the city and penalizes non-payment of the tax "by a
fine of not more than two hundred pesos or by imprisonment of not more than six months, or by both such fine and
imprisonment in the discretion of the court." Among the professions taxed were those to which plaintiffs belong. The
ordinance was enacted pursuant to paragraph (1) of section 18 of the Revised Charter of the City of Manila (as amended
by Republic Act No. 409), which empowers the Municipal Board of said city to impose a municipal occupation tax, not to
exceed P50 per annum, on persons engaged in the various professions above referred to.
Having already paid their occupation tax under section 201 of the National Internal Revenue Code, plaintiffs, upon being
required to pay the additional tax prescribed in the ordinance, paid the same under protest and then brought the present
suit for the purpose already stated. The lower court upheld the validity of the provision of law authorizing the enactment of
the ordinance but declared the ordinance itself illegal and void on the ground that the penalty there in provided for nonpayment of the tax was not legally authorized. From this decision both parties appealed to this Court, and the only
question they have presented for our determination is whether this ruling is correct or not, for though the decision is silent
on the refund of taxes paid plaintiffs make no assignment of error on this point.

Page 351 of 403

To begin with defendants' appeal, we find that the lower court was in error in saying that the imposition of the penalty
provided for in the ordinance was without the authority of law. The last paragraph (kk) of the very section that authorizes
the enactment of this tax ordinance (section 18 of the Manila Charter) in express terms also empowers the Municipal
Board "to fix penalties for the violation of ordinances which shall not exceed to(sic) two hundred pesos fine or six months"
imprisonment, or both such fine and imprisonment, for a single offense."Hence, the pronouncement below that the
ordinance in question is illegal and void because it imposes a penalty not authorized by law is clearly without basis.
As to plaintiffs' appeal, the contention in substance is that this ordinance and the law authorizing it constitute class
legislation, are unjust and oppressive, and authorize what amounts to double taxation.
In raising the hue and cry of "class legislation", the burden of plaintiffs' complaint is not that the professions to which they
respectively belong have been singled out for the imposition of this municipal occupation tax; and in any event, the
Legislature may, in its discretion, select what occupations shall be taxed, and in the exercise of that discretion it may tax
all, or it may select for taxation certain classes and leave the others untaxed. (Cooley on Taxation, Vol. 4, 4th ed., pp.
3393-3395.) Plaintiffs' complaint is that while the law has authorized the City of Manila to impose the said tax, it has
withheld that authority from other chartered cities, not to mention municipalities. We do not think it is for the courts to judge
what particular cities or municipalities should be empowered to impose occupation taxes in addition to those imposed by
the National Government. That matter is peculiarly within the domain of the political departments and the courts would do
well not to encroach upon it. Moreover, as the seat of the National Government and with a population and volume of trade
many times that of any other Philippine city or municipality, Manila, no doubt, offers a more lucrative field for the practice
of the professions, so that it is but fair that the professionals in Manila be made to pay a higher occupation tax than their
brethren in the provinces.
Plaintiffs brand the ordinance unjust and oppressive because they say that it creates discrimination within a class in that
while professionals with offices in Manila have to pay the tax, outsiders who have no offices in the city but practice their
profession therein are not subject to the tax. Plaintiffs make a distinction that is not found in the ordinance. The ordinance
imposes the tax upon every person "exercising" or "pursuing" in the City of Manila naturally any one of the
occupations named, but does not say that such person must have his office in Manila. What constitutes exercise or pursuit
of a profession in the city is a matter of judicial determination. The argument against double taxation may not be invoked
where one tax is imposed by the state and the other is imposed by the city (1 Cooley on Taxation, 4th ed., p. 492), it being
widely recognized that there is nothing inherently obnoxious in the requirement that license fees or taxes be exacted with
respect to the same occupation, calling or activity by both the state and the political subdivisions thereof. (51 Am. Jur.,
341.)
In view of the foregoing, the judgment appealed from is reversed in so far as it declares Ordinance No. 3398 of the City of
Manila illegal and void and affirmed in so far as it holds the validity of the provision of the Manila charter authorizing it.
With costs against plaintiffs-appellants.
Pablo, Bengzon, Montemayor, Jugo, Bautista Angelo, Labrador, and Concepcion, JJ., concur.
Separate Opinions
PARAS, C.J., dissenting:
I am constrained to dissent from the decision of the majority upon the ground that the Municipal Board of Manila cannot
outlaw what Congress of the Philippines has already authorized. The plaintiffs-appellants two lawyers, a physician, an
accountant, a dentist and a pharmacist had already paid the occupation tax under section 201 of the National Internal
Revenue Code and are thereby duly licensed to practice their respective professions throughout the Philippines; and yet
they had been required to pay another occupation tax under Ordinance No. 3398 for practising in the City of Manila. This
is a glaring example of contradiction the license granted by the National Government is in effect withdrawn by the City
in case of non-payment of the tax under the ordinance. I fit be argued that the national occupation tax is collected to allow
the professional residing in Manila to pursue his calling in other places in the Philippines, it should then be exacted only
from professionals practising simultaneously in and outside of Manila. At any rate, we are confronted with the following
situation: Whereas the professionals elsewhere pay only one occupation tax, in the City of Manila they have to pay two,
although all are on equal footing insofar as opportunities for earning money out of their pursuits are concerned. The
statement that practice in Manila is more lucrative than in the provinces, may be true perhaps with reference only to a
limited few, but certainly not to the general mass of practitioners in any field. Again, provincial residents who have
occasional or isolated practice in Manila may have to pay the city tax. This obvious discrimination or lack of uniformity
cannot be brushed aside or justified by any trite pronouncement that double taxation is legitimate or that legislation may
validly affect certain classes.
My position is that a professional who has paid the occupation tax under the National Internal Revenue Code should be
allowed to practice in Manila even without paying the similar tax imposed by Ordinance No. 3398. The City cannot give
what said professional already has. I would not say that this Ordinance, enacted by the Municipal Board pursuant to
paragraph 1 of section 18 of the Revised Charter of Manila, as amended by Republic Act No. 409, empowering the Board
to impose a municipal occupation tax not to exceed P50 per annum, is invalid; but that only one tax, either under the
Internal Revenue Code or under Ordinance No. 3398, should be imposed upon a practitioner in Manila.

The Lawphil Project - Arellano Law Foundation

Page 352 of 403

Republic of the Philippines

SUPREME COURT
EN BANC
G.R. No. 132527. July 29, 2005
COCONUT OIL REFINERS ASSOCIATION, INC. represented by its President, JESUS L. ARRANZA, PHILIPPINE
ASSOCIATION OF MEAT PROCESSORS, INC. (PAMPI), represented by its Secretary, ROMEO G. HIDALGO,
FEDERATION OF FREE FARMERS (FFF), represented by its President, JEREMIAS U. MONTEMAYOR, and
BUKLURAN NG MANGGAGAWANG PILIPINO (BMP), represented by its Chairperson, FELIMON C.
LAGMAN, Petitioners,
vs.
HON. RUBEN TORRES, in his capacity as Executive Secretary; BASES CONVERSION AND DEVELOPMENT
AUTHORITY, CLARK DEVELOPMENT CORPORATION, SUBIC BAY METROPOLITAN AUTHORITY, 88 MART DUTY
FREE, FREEPORT TRADERS, PX CLUB, AMERICAN HARDWARE, ROYAL DUTY FREE SHOPS, INC., DFS
SPORTS, ASIA PACIFIC, MCI DUTY FREE DISTRIBUTOR CORP. (formerly MCI RESOURCES, CORP.), PARK &
SHOP, DUTY FREE COMMODITIES, L. FURNISHING, SHAMBURGH, SUBIC DFS, ARGAN TRADING CORP.,
ASIPINE CORP., BEST BUY, INC., PX CLUB, CLARK TRADING, DEMAGUS TRADING CORP., D.F.S. SPORTS
UNLIMITED, INC., DUTY FREE FIRST SUPERSTORE, INC., FREEPORT, JC MALL DUTY FREE INC. (formerly 88
Mart [Clark] Duty Free Corp.), LILLY HILL CORP., MARSHALL, PUREGOLD DUTY FREE, INC., ROYAL DFS and
ZAXXON PHILIPPINES, INC., Respondents.
DECISION
AZCUNA, J.:
This is a Petition for Prohibition and Injunction seeking to enjoin and prohibit the Executive Branch, through the public
respondents Ruben Torres in his capacity as Executive Secretary, the Bases Conversion Development Authority (BCDA),
the Clark Development Corporation (CDC) and the Subic Bay Metropolitan Authority (SBMA), from allowing, and the
private respondents from continuing with, the operation of tax and duty-free shops located at the Subic Special Economic
Zone (SSEZ) and the Clark Special Economic Zone (CSEZ), and to declare the following issuances as unconstitutional,
illegal, and void:
1. Section 5 of Executive Order No. 80,1 dated April 3, 1993, regarding the CSEZ.
2. Executive Order No. 97-A, dated June 19, 1993, pertaining to the SSEZ.

Page 353 of 403

3. Section 4 of BCDA Board Resolution No. 93-05-034, 2 dated May 18, 1993, pertaining to the CSEZ.
Petitioners contend that the aforecited issuances are unconstitutional and void as they constitute executive lawmaking,
and that they are contrary to Republic Act No. 7227 3 and in violation of the Constitution, particularly Section 1, Article III
(equal protection clause), Section 19, Article XII (prohibition of unfair competition and combinations in restraint of trade),
and Section 12, Article XII (preferential use of Filipino labor, domestic materials and locally produced goods).
The facts are as follows:
On March 13, 1992, Republic Act No. 7227 was enacted, providing for, among other things, the sound and balanced
conversion of the Clark and Subic military reservations and their extensions into alternative productive uses in the form of
special economic zones in order to promote the economic and social development of Central Luzon in particular and the
country in general. Among the salient provisions are as follows:
SECTION 12. Subic Special Economic Zone.
...
The abovementioned zone shall be subject to the following policies:
(a) Within the framework and subject to the mandate and limitations of the Constitution and the pertinent provisions of the
Local Government Code, the Subic Special Economic Zone shall be developed into a self-sustaining, industrial,
commercial, financial and investment center to generate employment opportunities in and around the zone and to attract
and promote productive foreign investments;
(b) The Subic Special Economic Zone shall be operated and managed as a separate customs territory ensuringfree flow
or movement of goods and capital within, into and exported out of the Subic Special Economic Zone, as well as provide
incentives such as tax and duty-free importations of raw materials, capital and equipment. However, exportation or
removal of goods from the territory of the Subic Special Economic Zone to the other parts of the Philippine territory shall
be subject to customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the Philippines;4
(c) The provision of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national, shall
be imposed within the Subic Special Economic Zone. In lieu of paying taxes, three percent (3%) of the gross income
earned by all businesses and enterprises within the Subic Special Ecoomic Zone shall be remitted to the National
Government, one percent (1%) each to the local government units affected by the declaration of the zone in proportion to
their population area, and other factors. In addition, there is hereby established a development fund of one percent (1%)
of the gross income earned by all businesses and enterprises within the Subic Special Economic Zone to be utilized for
the development of municipalities outside the City of Olangapo and the Municipality of Subic, and other municipalities
contiguous to the base areas.
...
SECTION 15. Clark and Other Special Economic Zones. Subject to the concurrence by resolution of the local
government units directly affected, the President is hereby authorized to create by executive proclamation a Special
Economic Zone covering the lands occupied by the Clark military reservations and its contiguous extensions as
embraced, covered and defined by the 1947 Military Bases Agreement between the Philippines and the United States of
America, as amended, located within the territorial jurisdiction of Angeles City, Municipalities of Mabalacat and Porac,
Province of Pampanga and the Municipality of Capas, Province of Tarlac, in accordance with the policies as herein
provided insofar as applicable to the Clark military reservations.
The governing body of the Clark Special Economic Zone shall likewise be established by executive proclamation with
such powers and functions exercised by the Export Processing Zone Authority pursuant to Presidential Decree No. 66 as
amended.
The policies to govern and regulate the Clark Special Economic Zone shall be determined upon consultation with the
inhabitants of the local government units directly affected which shall be conducted within six (6) months upon approval of
this Act.
Similarly, subject to the concurrence by resolution of the local government units directly affected, the President shall
create other Special Economic Zones, in the base areas of Wallace Air Station in San Fernando, La Union (excluding
areas designated for communications, advance warning and radar requirements of the Philippine Air Force to be
determined by the Conversion Authority) and Camp John Hay in the City of Baguio.
Upon recommendation of the Conversion Authority, the President is likewise authorized to create Special Economic Zones
covering the Municipalities of Morong, Hermosa, Dinalupihan, Castillejos and San Marcelino.
On April 3, 1993, President Fidel V. Ramos issued Executive Order No. 80, which declared, among others, that Clark shall
have all the applicable incentives granted to the Subic Special Economic and Free Port Zone under Republic Act No.
7227. The pertinent provision assailed therein is as follows:

Page 354 of 403

SECTION 5. Investments Climate in the CSEZ. Pursuant to Section 5(m) and Section 15 of RA 7227, the BCDA shall
promulgate all necessary policies, rules and regulations governing the CSEZ, including investment incentives, in
consultation with the local government units and pertinent government departments for implementation by the CDC.
Among others, the CSEZ shall have all the applicable incentives in the Subic Special Economic and Free Port Zone under
RA 7227 and those applicable incentives granted in the Export Processing Zones, the Omnibus Investments Code of
1987, the Foreign Investments Act of 1991 and new investments laws which may hereinafter be enacted.
The CSEZ Main Zone covering the Clark Air Base proper shall have all the aforecited investment incentives, while the
CSEZ Sub-Zone covering the rest of the CSEZ shall have limited incentives. The full incentives in the Clark SEZ Main
Zone and the limited incentives in the Clark SEZ Sub-Zone shall be determined by the BCDA.
Pursuant to the directive under Executive Order No. 80, the BCDA passed Board Resolution No. 93-05-034 on May 18,
1993, allowing the tax and duty-free sale at retail of consumer goods imported via Clark for consumption outside the
CSEZ. The assailed provisions of said resolution read, as follows:
Section 4. SPECIFIC INCENTIVES IN THE CSEZ MAIN ZONE. The CSEZ-registered enterprises/businesses shall be
entitled to all the incentives available under R.A. No. 7227, E.O. No. 226 and R.A. No. 7042 which shall include, but not
limited to, the following:
I. As in Subic Economic and Free Port Zone:
A. Customs:
...
4. Tax and duty-free purchase and consumption of goods/articles (duty free shopping) within the CSEZ Main Zone.
5. For individuals, duty-free consumer goods may be brought out of the CSEZ Main Zone into the Philippine Customs
territory but not to exceed US$200.00 per month per CDC-registered person, similar to the limits imposed in the Subic
SEZ. This privilege shall be enjoyed only once a month. Any excess shall be levied taxes and duties by the Bureau of
Customs.
On June 10, 1993, the President issued Executive Order No. 97, "Clarifying the Tax and Duty Free Incentive Within the
Subic Special Economic Zone Pursuant to R.A. No. 7227." Said issuance in part states, thus:
SECTION 1. On Import Taxes and Duties Tax and duty-free importations shall apply only to raw materials, capital goods
and equipment brought in by business enterprises into the SSEZ. Except for these items, importations of other goods into
the SSEZ, whether by business enterprises or resident individuals, are subject to taxes and duties under relevant
Philippine laws.
The exportation or removal of tax and duty-free goods from the territory of the SSEZ to other parts of the Philippine
territory shall be subject to duties and taxes under relevant Philippine laws.
Nine days after, on June 19, 1993, Executive Order No. 97-A was issued, "Further Clarifying the Tax and Duty-Free
Privilege Within the Subic Special Economic and Free Port Zone." The relevant provisions read, as follows:
SECTION 1. The following guidelines shall govern the tax and duty-free privilege within the Secured Area of the Subic
Special Economic and Free Port Zone:
1.1 The Secured Area consisting of the presently fenced-in former Subic Naval Base shall be the only completely tax and
duty-free area in the SSEFPZ. Business enterprises and individuals (Filipinos and foreigners) residing within the Secured
Area are free to import raw materials, capital goods, equipment, and consumer items tax and duty-free. Consumption
items, however, must be consumed within the Secured Area. Removal of raw materials, capital goods, equipment and
consumer items out of the Secured Area for sale to non-SSEFPZ registered enterprises shall be subject to the usual taxes
and duties, except as may be provided herein.
1.2. Residents of the SSEFPZ living outside the Secured Area can enter the Secured Area and consume any quantity of
consumption items in hotels and restaurants within the Secured Area. However, these residents can purchase and bring
out of the Secured Area to other parts of the Philippine territory consumer items worth not exceeding US$100 per month
per person. Only residents age 15 and over are entitled to this privilege.
1.3. Filipinos not residing within the SSEFPZ can enter the Secured Area and consume any quantity of consumption items
in hotels and restaurants within the Secured Area. However, they can purchase and bring out [of] the Secured Area to
other parts of the Philippine territory consumer items worth not exceeding US$200 per year per person. Only Filipinos age
15 and over are entitled to this privilege.

Page 355 of 403

Petitioners assail the $100 monthly and $200 yearly tax-free shopping privileges granted by the aforecited provisions
respectively to SSEZ residents living outside the Secured Area of the SSEZ and to Filipinos aged 15 and over residing
outside the SSEZ.
On February 23, 1998, petitioners thus filed the instant petition, seeking the declaration of nullity of the assailed issuances
on the following grounds:
I.
EXECUTIVE ORDER NO. 97-A, SECTION 5 OF EXECUTIVE ORDER NO. 80, AND SECTION 4 OF BCDA BOARD
RESOLUTION NO. 93-05-034 ARE NULL AND VOID [FOR] BEING AN EXERCISE OF EXECUTIVE LAWMAKING.
II.
EXECUTIVE ORDER NO. 97-A, SECTION 5 OF EXECUTIVE ORDER NO. 80, AND SECTION 4 OF BCDA BOARD
RESOLUTION NO. 93-05-034 ARE UNCONSTITUTIONAL FOR BEING VIOLATIVE OF THE EQUAL PROTECTION
CLAUSE AND THE PROHIBITION AGAINST UNFAIR COMPETITION AND PRACTICES IN RESTRAINT OF TRADE.
III.
EXECUTIVE ORDER NO. 97-A, SECTION 5 OF EXECUTIVE ORDER NO. 80, AND SECTION 4 OF BCDA BOARD
RESOLUTION NO. 93-05-034 ARE NULL AND VOID [FOR] BEING VIOLATIVE OF REPUBLIC ACT NO. 7227.
IV.
THE CONTINUED IMPLEMENTATION OF THE CHALLENGED ISSUANCES IF NOT RESTRAINED WILL CONTINUE
TO CAUSE PETITIONERS TO SUFFER GRAVE AND IRREPARABLE INJURY.5
In their Comments, respondents point out procedural issues, alleging lack of petitioners legal standing, the unreasonable
delay in the filing of the petition, laches, and the propriety of the remedy of prohibition.
Anent the claim on lack of legal standing, respondents argue that petitioners, being mere suppliers of the local retailers
operating outside the special economic zones, do not stand to suffer direct injury in the enforcement of the issuances
being assailed herein. Assuming this is true, this Court has nevertheless held that in cases of paramount importance
where serious constitutional questions are involved, the standing requirements may be relaxed and a suit may be allowed
to prosper even where there is no direct injury to the party claiming the right of judicial review. 6
In the same vein, with respect to the other alleged procedural flaws, even assuming the existence of such defects, this
Court, in the exercise of its discretion, brushes aside these technicalities and takes cognizance of the petition considering
the importance to the public of the present case and in keeping with the duty to determine whether the other branches of
the government have kept themselves within the limits of the Constitution. 7
Now, on the constitutional arguments raised:
As this Court enters upon the task of passing on the validity of an act of a co-equal and coordinate branch of the
Government, it bears emphasis that deeply ingrained in our jurisprudence is the time-honored principle that a statute is
presumed to be valid.8 This presumption is rooted in the doctrine of separation of powers which enjoins upon the three
coordinate departments of the Government a becoming courtesy for each others acts. 9 Hence, to doubt is to sustain. The
theory is that before the act was done or the law was enacted, earnest studies were made by Congress, or the President,
or both, to insure that the Constitution would not be breached. 10 This Court, however, may declare a law, or portions
thereof, unconstitutional where a petitioner has shown a clear and unequivocal breach of the Constitution, not merely a
doubtful or argumentative one.11 In other words, before a statute or a portion thereof may be declared unconstitutional, it
must be shown that the statute or issuance violates the Constitution clearly, palpably and plainly, and in such a manner as
to leave no doubt or hesitation in the mind of the Court. 12
The Issue on Executive Legislation
Petitioners claim that the assailed issuances (Executive Order No. 97-A; Section 5 of Executive Order No. 80; and Section
4 of BCDA Board Resolution No. 93-05-034) constitute executive legislation, in violation of the rule on separation of
powers. Petitioners argue that the Executive Department, by allowing through the questioned issuances the setting up of
tax and duty-free shops and the removal of consumer goods and items from the zones without payment of corresponding
duties and taxes, arbitrarily provided additional exemptions to the limitations imposed by Republic Act No. 7227, which
limitations petitioners identify as follows:
(1) [Republic Act No. 7227] allowed only tax and duty-free importation of raw materials, capital and equipment.

Page 356 of 403

(2) It provides that any exportation or removal of goods from the territory of the Subic Special Economic Zone to other
parts of the Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff Code and other
relevant tax laws of the Philippines.
Anent the first alleged limitation, petitioners contend that the wording of Republic Act No. 7227 clearly limits the grant of
tax incentives to the importation of raw materials, capital and equipment only. Hence, they claim that the assailed
issuances constitute executive legislation for invalidly granting tax incentives in the importation of consumer goods such
as those being sold in the duty-free shops, in violation of the letter and intent of Republic Act No. 7227.
A careful reading of Section 12 of Republic Act No. 7227, which pertains to the SSEZ, would show that it does not restrict
the duty-free importation only to "raw materials, capital and equipment." Section 12 of the cited law is partly reproduced,
as follows:
SECTION 12. Subic Special Economic Zone.
...
The abovementioned zone shall be subject to the following policies:
...
(b) The Subic Special Economic Zone shall be operated and managed as a separate customs territory ensuring free flow
or movement of goods and capital within, into and exported out of the Subic Special Economic Zone, as well as
provide incentives such as tax and duty-free importations of raw materials, capital and equipment.However, exportation or
removal of goods from the territory of the Subic Special Economic Zone to the other parts of the Philippine territory shall
be subject to customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the Philippines. 13
While it is true that Section 12 (b) of Republic Act No. 7227 mentions only raw materials, capital and equipment, this does
not necessarily mean that the tax and duty-free buying privilege is limited to these types of articles to the exclusion of
consumer goods. It must be remembered that in construing statutes, the proper course is to start out and follow the true
intent of the Legislature and to adopt that sense which harmonizes best with the context and promotes in the fullest
manner the policy and objects of the Legislature.14
In the present case, there appears to be no logic in following the narrow interpretation petitioners urge. To limit the tax-free
importation privilege of enterprises located inside the special economic zone only to raw materials, capital and equipment
clearly runs counter to the intention of the Legislature to create a free port where the "free flow of goods or capital within,
into, and out of the zones" is insured.
The phrase "tax and duty-free importations of raw materials, capital and equipment" was merely cited as an example of
incentives that may be given to entities operating within the zone. Public respondent SBMA correctly argued that the
maxim expressio unius est exclusio alterius, on which petitioners impliedly rely to support their restrictive interpretation,
does not apply when words are mentioned by way of example. 15 It is obvious from the wording of Republic Act No. 7227,
particularly the use of the phrase "such as," that the enumeration only meant to illustrate incentives that the SSEZ is
authorized to grant, in line with its being a free port zone.
Furthermore, said legal maxim should be applied only as a means of discovering legislative intent which is not otherwise
manifest, and should not be permitted to defeat the plainly indicated purpose of the Legislature. 16
The records of the Senate containing the discussion of the concept of "special economic zone" in Section 12 (a) of
Republic Act No. 7227 show the legislative intent that consumer goods entering the SSEZ which satisfy the needs of
the zone and are consumed there are not subject to duties and taxes in accordance with Philippine laws, thus:
Senator Guingona. . . . The concept of Special Economic Zone is one that really includes the concept of a free port, but it
is broader. While a free port is necessarily included in the Special Economic Zone, the reverse is not true that a free port
would include a special economic zone.
Special Economic Zone, Mr. President, would include not only the incoming and outgoing of vessels, duty-free and taxfree, but it would involve also tourism, servicing, financing and all the appurtenances of an investment center. So, that is
the concept, Mr. President. It is broader. It includes the free port concept and would cater to the greater needs of
Olangapo City, Subic Bay and the surrounding municipalities.
Senator Enrile. May I know then if a factory located within the jurisdiction of Morong, Bataan that was originally a part of
the Subic Naval reservation, be entitled to a free port treatment or just a special economic zone treatment?
Senator Guingona. As far as the goods required for manufacture is concerned, Mr. President, it would have privileges of
duty-free and tax-free. But in addition, the Special Economic Zone could embrace the needs of tourism, could embrace
the needs of servicing, could embrace the needs of financing and other investment aspects.

Page 357 of 403

Senator Enrile. When a hotel is constructed, Mr. President, in this geographical unit which we call a special economic
zone, will the goods entering to be consumed by the customers or guests of the hotel be subject to duties?
Senator Guingona. That is the concept that we are crafting, Mr. President.
Senator Enrile. No. I am asking whether those goods will be duty-free, because it is constructed within a free port.
Senator Guingona. For as long as it services the needs of the Special Economic Zone, yes.
Senator Enrile. For as long as the goods remain within the zone, whether we call it an economic zone or a free port, for
as long as we say in this law that all goods entering this particular territory will be duty-free and tax-free, for as long as
they remain there, consumed there or reexported or destroyed in that place, then they are not subject to the duties and
taxes in accordance with the laws of the Philippines?
Senator Guingona. Yes.17
Petitioners rely on Committee Report No. 1206 submitted by the Ad Hoc Oversight Committee on Bases Conversion on
June 26, 1995. Petitioners put emphasis on the reports finding that the setting up of duty-free stores never figured in the
minds of the authors of Republic Act No. 7227 in attracting foreign investors to the former military baselands. They
maintain that said law aimed to attract manufacturing and service enterprises that will employ the dislocated former
military base workers, but not investors who would buy consumer goods from duty-free stores.
The Court is not persuaded. Indeed, it is well-established that opinions expressed in the debates and proceedings of the
Legislature, steps taken in the enactment of a law, or the history of the passage of the law through the Legislature, may be
resorted to as aids in the interpretation of a statute with a doubtful meaning. 18 Petitioners posture, however, overlooks the
fact that the 1995 Committee Report they are referring to came into being well after the enactment of Republic Act No.
7227 in 1993. Hence, as pointed out by respondent Executive Secretary Torres, the aforementioned report cannot be said
to form part of Republic Act No. 7227s legislative history.
Section 12 of Republic Act No. 7227, provides in part, thus:
SEC. 12. Subic Special Economic Zone. -- . . .
The abovementioned zone shall be subject to the following policies:
(a) Within the framework and subject to the mandate and limitations of the Constitution and the pertinent provisions of the
Local Government Code, the Subic Special Economic Zone shall be developed into a self-sustaining,
industrial, commercial, financial and investment center to generate employment opportunities in and around the zone and
to attract and promote productive foreign investments. 19
The aforecited policy was mentioned as a basis for the issuance of Executive Order No. 97-A, thus:
WHEREAS, Republic Act No. 7227 provides that within the framework and subject to the mandate and limitations of the
Constitution and the pertinent provisions of the Local Government Code, the Subic Special Economic and Free Port Zone
(SSEFPZ) shall be developed into a self-sustaining industrial, commercial, financial and investment center to generate
employment opportunities in and around the zone and to attract and promote productive foreign investments; and
WHEREAS, a special tax and duty-free privilege within a Secured Area in the SSEFPZ subject, to existing laws has been
determined necessary to attract local and foreign visitors to the zone.
Executive Order No. 97-A provides guidelines to govern the "tax and duty-free privileges within the Secured Area of the
Subic Special Economic and Free Port Zone." Paragraph 1.6 thereof states that "(t)he sale of tax and duty-free consumer
items in the Secured Area shall only be allowed in duly authorized duty-free shops."
The Court finds that the setting up of such commercial establishments which are the only ones duly authorized to sell
consumer items tax and duty-free is still well within the policy enunciated in Section 12 of Republic Act No. 7227 that
". . .the Subic Special Economic Zone shall be developed into a self-sustaining, industrial, commercial, financial
and investment center to generate employment opportunities in and around the zone and to attract and promote
productive foreign investments." (Emphasis supplied.)
However, the Court reiterates that the second sentences of paragraphs 1.2 and 1.3 of Executive Order No. 97-A,
allowing tax and duty-free removal of goods to certain individuals, even in a limited amount, from the Secured Area of
the SSEZ, are null and void for being contrary to Section 12 of Republic Act No. 7227. Said Section clearly provides
that "exportation or removal of goods from the territory of the Subic Special Economic Zone to the other parts of the
Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff Code and other relevant tax
laws of the Philippines."
On the other hand, insofar as the CSEZ is concerned, the case for an invalid exercise of executive legislation is tenable.

Page 358 of 403

In John Hay Peoples Alternative Coalition, et al. v. Victor Lim, et al.,20 this Court resolved an issue, very much like the one
herein, concerning the legality of the tax exemption benefits given to the John Hay Economic Zone under Presidential
Proclamation No. 420, Series of 1994, "CREATING AND DESIGNATING A PORTION OF THE AREA COVERED BY THE
FORMER CAMP JOHN AS THE JOHN HAY SPECIAL ECONOMIC ZONE PURSUANT TO REPUBLIC ACT NO. 7227."
In that case, among the arguments raised was that the granting of tax exemptions to John Hay was an invalid and illegal
exercise by the President of the powers granted only to the Legislature. Petitioners therein argued that Republic Act No.
7227 expressly granted tax exemption only to Subic and not to the other economic zones yet to be established. Thus, the
grant of tax exemption to John Hay by Presidential Proclamation contravenes the constitutional mandate that "[n]o law
granting any tax exemption shall be passed without the concurrence of a majority of all the members of Congress." 21
This Court sustained the argument and ruled that the incentives under Republic Act No. 7227 are exclusive only to the
SSEZ. The President, therefore, had no authority to extend their application to John Hay. To quote from the Decision:
More importantly, the nature of most of the assailed privileges is one of tax exemption. It is the legislature, unless limited
by a provision of a state constitution, that has full power to exempt any person or corporation or class of property from
taxation, its power to exempt being as broad as its power to tax. Other than Congress, the Constitution may itself provide
for specific tax exemptions, or local governments may pass ordinances on exemption only from local taxes.
The challenged grant of tax exemption would circumvent the Constitutions imposition that a law granting any tax
exemption must have the concurrence of a majority of all the members of Congress. In the same vein, the other kinds of
privileges extended to the John Hay SEZ are by tradition and usage for Congress to legislate upon.
Contrary to public respondents suggestions, the claimed statutory exemption of the John Hay SEZ from taxation should
be manifest and unmistakable from the language of the law on which it is based; it must be expressly granted in a statute
stated in a language too clear to be mistaken. Tax exemption cannot be implied as it must be categorically and
unmistakably expressed.
If it were the intent of the legislature to grant to John Hay SEZ the same tax exemption and incentives given to the Subic
SEZ, it would have so expressly provided in R.A. No. 7227. 22
In the present case, while Section 12 of Republic Act No. 7227 expressly provides for the grant of incentives to the SSEZ,
it fails to make any similar grant in favor of other economic zones, including the CSEZ. Tax and duty-free incentives being
in the nature of tax exemptions, the basis thereof should be categorically and unmistakably expressed from the language
of the statute. Consequently, in the absence of any express grant of tax and duty-free privileges to the CSEZ in Republic
Act No. 7227, there would be no legal basis to uphold the questioned portions of two issuances: Section 5 of Executive
Order No. 80 and Section 4 of BCDA Board Resolution No. 93-05-034, which both pertain to the CSEZ.
Petitioners also contend that the questioned issuances constitute executive legislation for allowing the removal of
consumer goods and items from the zones without payment of corresponding duties and taxes in violation of Republic Act
No. 7227 as Section 12 thereof provides for the taxation of goods that are exported or removed from the SSEZ to other
parts of the Philippine territory.
On September 26, 1997, Executive Order No. 444 was issued, curtailing the duty-free shopping privileges in the SSEZ
and the CSEZ "to prevent abuse of duty-free privilege and to protect local industries from unfair competition." The
pertinent provisions of said issuance state, as follows:
SECTION 3. Special Shopping Privileges Granted During the Year-round Centennial Anniversary Celebration in 1998.
Upon effectivity of this Order and up to the Centennial Year 1998, in addition to the permanent residents, locators and
employees of the fenced-in areas of the Subic Special Economic and Freeport Zone and the Clark Special Economic
Zone who are allowed unlimited duty free purchases, provided these are consumed within said fenced-in areas of the
Zones, the residents of the municipalities adjacent to Subic and Clark as respectively provided in R.A. 7227 (1992) and
E.O. 97-A s. 1993 shall continue to be allowed One Hundred US Dollars (US$100) monthly shopping privilege until 31
December 1998. Domestic tourists visiting Subic and Clark shall be allowed a shopping privilege of US$25 for
consumable goods which shall be consumed only in the fenced-in area during their visit therein.
SECTION 4. Grant of Duty Free Shopping Privileges Limited Only To Individuals Allowed by Law. Starting 1 January
1999, only the following persons shall continue to be eligible to shop in duty free shops/outlets with their corresponding
purchase limits:
a. Tourists and Filipinos traveling to or returning from foreign destinations under E.O. 97-A s. 1993 One Thousand US
Dollars (US$1,000) but not to exceed Ten Thousand US Dollars (US$10,000) in any given year;
b. Overseas Filipino Workers (OFWs) and Balikbayans defined under R.A. 6768 dated 3 November 1989 Two
Thousand US Dollars (US$2,000);
c. Residents, eighteen (18) years old and above, of the fenced-in areas of the freeports under R.A. 7227 (1992) and E.O.
97-A s. 1993 Unlimited purchase as long as these are for consumption within these freeports.

Page 359 of 403

The term "Residents" mentioned in item c above shall refer to individuals who, by virtue of domicile or employment, reside
on permanent basis within the freeport area. The term excludes (1) non-residents who have entered into short- or longterm property lease inside the freeport, (2) outsiders engaged in doing business within the freeport, and (3) members of
private clubs (e.g., yacht and golf clubs) based or located within the freeport. In this regard, duty free privileges granted to
any of the above individuals (e.g., unlimited shopping privilege, tax-free importation of cars, etc.) are hereby revoked. 23
A perusal of the above provisions indicates that effective January 1, 1999, the grant of duty-free shopping privileges to
domestic tourists and to residents living adjacent to SSEZ and the CSEZ had been revoked. Residents of the fenced-in
area of the free port are still allowed unlimited purchase of consumer goods, "as long as these are for consumption within
these freeports." Hence, the only individuals allowed by law to shop in the duty-free outlets and remove consumer goods
out of the free ports tax-free are tourists and Filipinos traveling to or returning from foreign destinations, and Overseas
Filipino Workers and Balikbayans as defined under Republic Act No. 6768. 24
Subsequently, on October 20, 2000, Executive Order No. 303 was issued, amending Executive Order No. 444. Pursuant
to the limited duration of the privileges granted under the preceding issuance, Section 2 of Executive Order No. 303
declared that "[a]ll special shopping privileges as granted under Section 3 of Executive Order 444, s. 1997, are hereby
deemed terminated. The grant of duty free shopping privileges shall be restricted to qualified individuals as provided by
law."
It bears noting at this point that the shopping privileges currently being enjoyed by Overseas Filipino Workers,
Balikbayans, and tourists traveling to and from foreign destinations, draw authority not from the issuances being assailed
herein, but from Executive Order No. 4625 and Republic Act No. 6768, both enacted prior to the promulgation of Republic
Act No. 7227.
From the foregoing, it appears that petitioners objection to the allowance of tax-free removal of goods from the special
economic zones as previously authorized by the questioned issuances has become moot and academic.
In any event, Republic Act No. 7227, specifically Section 12 (b) thereof, clearly provides that "exportation or removal of
goods from the territory of the Subic Special Economic Zone to the other parts of the Philippine territory shall be subject to
customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the Philippines."
Thus, the removal of goods from the SSEZ to other parts of the Philippine territory without payment of said customs duties
and taxes is not authorized by the Act. Consequently, the following italicized provisions found in the second sentences of
paragraphs 1.2 and 1.3, Section 1 of Executive Order No. 97-A are null and void:
1.2 Residents of the SSEFPZ living outside the Secured Area can enter and consume any quantity of consumption items
in hotels and restaurants within the Secured Area. However, these residents can purchase and bring out of the Secured
Area to other parts of the Philippine territory consumer items worth not exceeding US $100 per month per person. Only
residents age 15 and over are entitled to this privilege.
1.3 Filipinos not residing within the SSEFPZ can enter the Secured Area and consume any quantity of consumption items
in hotels and restaurants within the Secured Area. However, they can purchase and bring out of the Secured Area to other
parts of the Philippine territory consumer items worth not exceeding US $200 per year per person. Only Filipinos age 15
and over are entitled to this privilege.26
A similar provision found in paragraph 5, Section 4(A) of BCDA Board Resolution No. 93-05-034 is also null and void. Said
Resolution applied the incentives given to the SSEZ under Republic Act No. 7227 to the CSEZ, which, as aforestated, is
without legal basis.
Having concluded earlier that the CSEZ is excluded from the tax and duty-free incentives provided under Republic Act No.
7227, this Court will resolve the remaining arguments only with regard to the operations of the SSEZ. Thus, the assailed
issuance that will be discussed is solely Executive Order No. 97-A, since it is the only one among the three questioned
issuances which pertains to the SSEZ.
Equal Protection of the Laws
Petitioners argue that the assailed issuance (Executive Order No. 97-A) is violative of their right to equal protection of the
laws, as enshrined in Section 1, Article III of the Constitution. To support this argument, they assert that private
respondents operating inside the SSEZ are not different from the retail establishments located outside, the products sold
being essentially the same. The only distinction, they claim, lies in the products variety and source, and the fact that
private respondents import their items tax-free, to the prejudice of the retailers and manufacturers located outside the
zone.
Petitioners contention cannot be sustained. It is an established principle of constitutional law that the guaranty of the
equal protection of the laws is not violated by a legislation based on a reasonable classification. 27Classification, to be
valid, must (1) rest on substantial distinction, (2) be germane to the purpose of the law, (3) not be limited to existing
conditions only, and (4) apply equally to all members of the same class. 28

Page 360 of 403

Applying the foregoing test to the present case, this Court finds no violation of the right to equal protection of the
laws. First, contrary to petitioners claim, substantial distinctions lie between the establishments inside and outside the
zone, justifying the difference in their treatment. In Tiu v. Court of Appeals,29 the constitutionality of Executive Order No.
97-A was challenged for being violative of the equal protection clause. In that case, petitioners claimed that Executive
Order No. 97-A was discriminatory in confining the application of Republic Act No. 7227 within a secured area of the
SSEZ, to the exclusion of those outside but are, nevertheless, still within the economic zone.
Upholding the constitutionality of Executive Order No. 97-A, this Court therein found substantial differences between the
retailers inside and outside the secured area, thereby justifying a valid and reasonable classification:
Certainly, there are substantial differences between the big investors who are being lured to establish and operate their
industries in the so-called "secured area" and the present business operators outside the area. On the one hand, we are
talking of billion-peso investments and thousands of new jobs. On the other hand, definitely none of such magnitude. In
the first, the economic impact will be national; in the second, only local. Even more important, at this time the business
activities outside the "secured area" are not likely to have any impact in achieving the purpose of the law, which is to turn
the former military base to productive use for the benefit of the Philippine economy. There is, then, hardly any reasonable
basis to extend to them the benefits and incentives accorded in R.A. 7227. Additionally, as the Court of Appeals pointed
out, it will be easier to manage and monitor the activities within the "secured area," which is already fenced off, to prevent
"fraudulent importation of merchandise" or smuggling.
It is well-settled that the equal-protection guarantee does not require territorial uniformity of laws. As long as there are
actual and material differences between territories, there is no violation of the constitutional clause. And of course,
anyone, including the petitioners, possessing the requisite investment capital can always avail of the same benefits by
channeling his or her resources or business operations into the fenced-off free port zone. 30
The Court in Tiu found real and substantial distinctions between residents within the secured area and those living within
the economic zone but outside the fenced-off area. Similarly, real and substantial differences exist between the
establishments herein involved. A significant distinction between the two groups is that enterprises outside the zones
maintain their businesses within Philippine customs territory, while private respondents and the other duly-registered zone
enterprises operate within the so-called "separate customs territory." To grant the same tax incentives given to enterprises
within the zones to businesses operating outside the zones, as petitioners insist, would clearly defeat the statutes intent
to carve a territory out of the military reservations in Subic Bay where free flow of goods and capital is maintained.
The classification is germane to the purpose of Republic Act No. 7227. As held in Tiu, the real concern of Republic Act No.
7227 is to convert the lands formerly occupied by the US military bases into economic or industrial areas. In furtherance of
such objective, Congress deemed it necessary to extend economic incentives to the establishments within the zone to
attract and encourage foreign and local investors. This is the very rationale behind Republic Act No. 7227 and other
similar special economic zone laws which grant a complete package of tax incentives and other benefits.
The classification, moreover, is not limited to the existing conditions when the law was promulgated, but to future
conditions as well, inasmuch as the law envisioned the former military reservation to ultimately develop into a selfsustaining investment center.
And, lastly, the classification applies equally to all retailers found within the "secured area." As ruled in Tiu, the individuals
and businesses within the "secured area," being in like circumstances or contributing directly to the achievement of the
end purpose of the law, are not categorized further. They are all similarly treated, both in privileges granted and in
obligations required.
With all the four requisites for a reasonable classification present, there is no ground to invalidate Executive Order No. 97A for being violative of the equal protection clause.
Prohibition against Unfair Competition
and Practices in Restraint of Trade
Petitioners next argue that the grant of special tax exemptions and privileges gave the private respondents undue
advantage over local enterprises which do not operate inside the SSEZ, thereby creating unfair competition in violation of
the constitutional prohibition against unfair competition and practices in restraint of trade.
The argument is without merit. Just how the assailed issuance is violative of the prohibition against unfair competition and
practices in restraint of trade is not clearly explained in the petition. Republic Act No. 7227, and consequently Executive
Order No. 97-A, cannot be said to be distinctively arbitrary against the welfare of businesses outside the zones. The mere
fact that incentives and privileges are granted to certain enterprises to the exclusion of others does not render the
issuance unconstitutional for espousing unfair competition. Said constitutional prohibition cannot hinder the Legislature
from using tax incentives as a tool to pursue its policies.
Suffice it to say that Congress had justifiable reasons in granting incentives to the private respondents, in accordance with
Republic Act No. 7227s policy of developing the SSEZ into a self-sustaining entity that will generate employment and
attract foreign and local investment. If petitioners had wanted to avoid any alleged unfavorable consequences on their

Page 361 of 403

profits, they should upgrade their standards of quality so as to effectively compete in the market. In the alternative, if
petitioners really wanted the preferential treatment accorded to the private respondents, they could have opted to register
with SSEZ in order to operate within the special economic zone.
Preferential Use of Filipino Labor, Domestic Materials
and Locally Produced Goods
Lastly, petitioners claim that the questioned issuance (Executive Order No. 97-A) openly violated the State policy of
promoting the preferential use of Filipino labor, domestic materials and locally produced goods and adopting measures to
help make them competitive.
Again, the argument lacks merit. This Court notes that petitioners failed to substantiate their sweeping conclusion that the
issuance has violated the State policy of giving preference to Filipino goods and labor. The mere fact that said issuance
authorizes the importation and trade of foreign goods does not suffice to declare it unconstitutional on this ground.
Petitioners cite Manila Prince Hotel v. GSIS31 which, however, does not apply. That case dealt with the policy enunciated
under the second paragraph of Section 10, Article XII of the Constitution, 32 applicable to the grant of rights, privileges, and
concessions "covering the national economy and patrimony," which is different from the policy invoked in this petition,
specifically that of giving preference to Filipino materials and labor found under Section 12 of the same Article of the
Constitution. (Emphasis supplied).
In Taada v. Angara,33 this Court elaborated on the meaning of Section 12, Article XII of the Constitution in this wise:
[W]hile the Constitution indeed mandates a bias in favor of Filipino goods, services, labor and enterprises, at the same
time, it recognizes the need for business exchange with the rest of the world on the bases of equality and reciprocity and
limits protection of Filipino enterprises only against foreign competition and trade practices that are unfair. In other words,
the Constitution did not intend to pursue an isolationist policy. It did not shut out foreign investments, goods and services
in the development of the Philippine economy. While the Constitution does not encourage the unlimited entry of foreign
goods, services and investments into the country, it does not prohibit them either. In fact, it allows an exchange on the
basis of equality and reciprocity, frowning only on foreign competition that is unfair.34
This Court notes that the Executive Department, with its subsequent issuance of Executive Order Nos. 444 and 303, has
provided certain measures to prevent unfair competition. In particular, Executive Order Nos. 444 and 303 have restricted
the special shopping privileges to certain individuals.35 Executive Order No. 303 has limited the range of items that may be
sold in the duty-free outlets,36 and imposed sanctions to curb abuses of duty-free privileges. 37 With these measures, this
Court finds no reason to strike down Executive Order No. 97-A for allegedly being prejudicial to Filipino labor, domestic
materials and locally produced goods.
WHEREFORE, the petition is PARTLY GRANTED. Section 5 of Executive Order No. 80 and Section 4 of BCDA Board
Resolution No. 93-05-034 are hereby declared NULL and VOID and are accordingly declared of no legal force and effect.
Respondents are hereby enjoined from implementing the aforesaid void provisions. All portions of Executive Order No.
97-A are valid and effective, except the second sentences in paragraphs 1.2 and 1.3 of said Executive Order, which are
hereby declared INVALID.
No costs.
SO ORDERED.
Davide, Jr., C.J., Puno, Panganiban, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Austria-Martinez, Carpio-Morales, Callejo, Sr., Tinga, ChicoNazario, and Garcia, JJ., concur.
Carpio, J., no part.
Corona, J., on official leave.
Footnotes
1

Executive Order No. 80 is entitled, "Authorizing the Establishment of the Clark Development Corporation as the Implementing Arm of the
Bases Conversion and Development Authority for the Clark Special Economic Zone, and Directing all Heads of Departments, Bureaus,
Offices, Agencies and Instrumentalities of Government to Support the Program."
2

BCDA Board Resolution No. 93-05-034 is entitled, "Prescribing the Investment Climate in the Clark Special Economic Zone for
Implementation by the Clark Development Corporation."
3

Bases Conversion and Development Act of 1992.

Underscoring supplied.

Rollo, pp. 13, 15, 17, and 18.

Page 362 of 403

6

Bayan (Bagong Alyansang Makabayan) v. Zamora, G.R. No. 138570, October 10, 2000, 342 SCRA 449,citing Kilosbayan v. Guingona, Jr.,
G.R. No. 113375, May 5, 1994, 232 SCRA 110.
7

Osmea v. Commission on Elections, G.R. Nos. 100318, 100417, and 100420, July 30, 1991, 199 SCRA750.

Basco v. Phil. Amusements and Gaming Corporation, G.R. No. 91649, May 14, 1991, 197 SCRA 52.

Cawaling, Jr. v. Commission on Elections, G.R. Nos. 146319 and 146342, October 26, 2001, 368 SCRA 453.

10

Association of Small Landowners in the Philippines., Inc., v. Secretary of Agrarian Reform, G.R. No. 78742, July 14, 1989, 175 SCRA 343.

11

Cawaling, Jr., v. Commission on Elections, supra, note 9.

12

Misolas v. Panga, G.R. No. 83341, January 30, 1990, 181 SCRA 648.

13

Underscoring supplied.

14

Eugenio v. Drilon, G.R. No. 109404, January 22, 1996, 252 SCRA 106.

15

Gomez v. Ventura and Board of Medical Examiners, No. 32441, March 29, 1930, 54 Phil. 726.

16

Dimaporo v. Mitra, Jr., G.R. No. 96859, October 15, 1991, 202 SCRA 779; Primero v. Court of Appeals, G.R. Nos. 48468-69, November 22,
1989, 179 SCRA 542.
17

Emphasis supplied.

18

Esso Standard Eastern, Inc. v. Commissioner of Internal Revenue, G.R. No. 28508-9, July 7, 1989, 175 SCRA 149.

19

Emphasis supplied.

20

G.R. No. 119775, October 24, 2003, 414 SCRA 356.

21

Section 28(4), Article VI of the Constitution.

22

Supra, note 20, at 377.

23

Underscoring supplied.

24

Republic Act No. 6768 entitled, "AN ACT INSTITUTING A BALIKBAYAN PROGRAM."

25

E.O. No. 46, "GRANTING THE MINISTRY OF TOURISM, THROUGH THE PHILIPPINE TOURISM AUTHORITY (PTA), AUTHORITY TO
ESTABLISH AND OPERATE A DUTY AND TAX FREE MERCHANDISING SYSEM IN THE PHILIPPINES" . . . .
"SEC. 1. The Ministry of Tourism, through the Philippine Tourism Authority (PTA) is hereby authorized to establish a duty and tax free
merchandising system in the Philippines to augment the service facilities for tourists and to generate foreign exchange and revenue for the
government. Under this system, the Philippine Tourism Authority shall have the exclusive authority to operate stores and shops that would sell,
among others, tax and duty free merchandise, goods and articles, in international airports and sea ports throughout the country in accordance
with the rules and regulations issued by the Ministry of Tourism."
26

Italics supplied.

27

People v. Cayat, G.R. No. 45987, May 5, 1939, 68 Phil. 12.

28

Tiu v. Court of Appeals, G.R. No. 127410, January 20, 1999, 301 SCRA 278.

29

Ibid.

30

Id. at 291.

31

G.R. No. 122156, February 3, 1997, 267 SCRA 408.

32

Sec. 10, Art. XII, provides that:

...

In the grant of rights, privileges, and concessions covering the national economy and patrimony, the State shall give preference to qualified
Filipinos. . . .
33

G.R. No. 118295, May 2, 1997, 272 SCRA 18.

34

Id. at 58-59.

35

Executive Order No. 303, Section 3; Executive Order No. 444, Section 4.

Page 363 of 403

36

Executive Order No. 303, Section 3.

37

Executive Order No. 303, Section 5.

The Lawphil Project - Arellano Law Foundation

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-23794

February 17, 1968

ORMOC SUGAR COMPANY, INC., plaintiff-appellant,

vs.
THE TREASURER OF ORMOC CITY, THE MUNICIPAL BOARD OF ORMOC CITY, HON. ESTEBAN C. CONEJOS as
Mayor of Ormoc City and ORMOC CITY, defendants-appellees.
Ponce Enrile, Siguion Reyna, Montecillo & Belo and Teehankee, Carreon & Taada for plaintiff-appellant.
Ramon O. de Veyra for defendants-appellees.
BENGZON, J.P., J.:
On January 29, 1964, the Municipal Board of Ormoc City passed 1 Ordinance No. 4, Series of 1964, imposing "on
any and all productions of centrifugal sugar milled at the Ormoc Sugar Company, Inc., in Ormoc City a municipal tax
equivalent to one per centum (1%) per export sale to the United States of America and other foreign countries." 2
Payments for said tax were made, under protest, by Ormoc Sugar Company, Inc. on March 20, 1964 for P7,087.50
and on April 20, 1964 for P5,000, or a total of P12,087.50.
On June 1, 1964, Ormoc Sugar Company, Inc. filed before the Court of First Instance of Leyte, with service of a
copy upon the Solicitor General, a complaint 3 against the City of Ormoc as well as its Treasurer, Municipal Board and
Mayor, alleging that the afore-stated ordinance is unconstitutional for being violative of the equal protection clause (Sec.
1[1], Art. III, Constitution) and the rule of uniformity of taxation (Sec. 22[1]), Art. VI, Constitution), aside from being an
export tax forbidden under Section 2287 of the Revised Administrative Code. It further alleged that the tax is neither a
production nor a license tax which Ormoc City under Section 15-kk of its charter and under Section 2 of Republic Act
2264, otherwise known as the Local Autonomy Act, is authorized to impose; and that the tax amounts to a customs duty,

Page 364 of 403

fee or charge in violation of paragraph 1 of Section 2 of Republic Act 2264 because the tax is on both the sale and export
of sugar.
Answering, the defendants asserted that the tax ordinance was within defendant city's power to enact under the
Local Autonomy Act and that the same did not violate the afore-cited constitutional limitations. After pre-trial and
submission of the case on memoranda, the Court of First Instance, on August 6, 1964, rendered a decision that upheld
the constitutionality of the ordinance and declared the taxing power of defendant chartered city broadened by the Local
Autonomy Act to include all other forms of taxes, licenses or fees not excluded in its charter.
Appeal therefrom was directly taken to Us by plaintiff Ormoc Sugar Company, Inc. Appellant alleges the same
statutory and constitutional violations in the aforesaid taxing ordinance mentioned earlier.
Section 1 of the ordinance states: "There shall be paid to the City Treasurer on any and all productions of
centrifugal sugar milled at the Ormoc Sugar Company, Incorporated, in Ormoc City, a municipal tax equivalent to one per
centum (1%) per export sale to the United States of America and other foreign countries." Though referred to as a tax on
the export of centrifugal sugar produced at Ormoc Sugar Company, Inc. For production of sugar alone is not taxable; the
only time the tax applies is when the sugar produced is exported.
Appellant questions the authority of the defendant Municipal Board to levy such an export tax, in view of Section
2287 of the Revised Administrative Code which denies from municipal councils the power to impose an export tax.
Section 2287 in part states: "It shall not be in the power of the municipal council to impose a tax in any form whatever,
upon goods and merchandise carried into the municipality, or out of the same, and any attempt to impose an import or
export tax upon such goods in the guise of an unreasonable charge for wharfage use of bridges or otherwise, shall be
void."
Subsequently, however, Section 2 of Republic Act 2264 effective June 19, 1959, gave chartered cities,
municipalities and municipal districts authority to levy for public purposes just and uniform taxes, licenses or fees. Anent
the inconsistency between Section 2287 of the Revised Administrative Code and Section 2 of Republic Act 2264, this
Court, in Nin Bay Mining Co. v. Municipality of Roxas 4 held the former to have been repealed by the latter. And expressing
Our awareness of the transcendental effects that municipal export or import taxes or licenses will have on the national
economy, due to Section 2 of Republic Act 2264, We stated that there was no other alternative until Congress acts to
provide remedial measures to forestall any unfavorable results.
The point remains to be determined, however, whether constitutional limits on the power of taxation, specifically the
equal protection clause and rule of uniformity of taxation, were infringed.
The Constitution in the bill of rights provides: ". . . nor shall any person be denied the equal protection of the laws."
(Sec. 1 [1], Art. III) In Felwa vs. Salas, 5 We ruled that the equal protection clause applies only to persons or things
identically situated and does not bar a reasonable classification of the subject of legislation, and a classification is
reasonable where (1) it is based on substantial distinctions which make real differences; (2) these are germane to the
purpose of the law; (3) the classification applies not only to present conditions but also to future conditions which are
substantially identical to those of the present; (4) the classification applies only to those who belong to the same class.
A perusal of the requisites instantly shows that the questioned ordinance does not meet them, for it taxes only
centrifugal sugar produced and exported by the Ormoc Sugar Company, Inc. and none other. At the time of the taxing
ordinance's enactment, Ormoc Sugar Company, Inc., it is true, was the only sugar central in the city of Ormoc. Still, the
classification, to be reasonable, should be in terms applicable to future conditions as well. The taxing ordinance should not
be singular and exclusive as to exclude any subsequently established sugar central, of the same class as plaintiff, for the
coverage of the tax. As it is now, even if later a similar company is set up, it cannot be subject to the tax because the
ordinance expressly points only to Ormoc City Sugar Company, Inc. as the entity to be levied upon.
Appellant, however, is not entitled to interest; on the refund because the taxes were not arbitrarily collected
(Collector of Internal Revenue v. Binalbagan). 6 At the time of collection, the ordinance provided a sufficient basis to
preclude arbitrariness, the same being then presumed constitutional until declared otherwise.
WHEREFORE, the decision appealed from is hereby reversed, the challenged ordinance is declared
unconstitutional and the defendants-appellees are hereby ordered to refund the P12,087.50 plaintiff-appellant paid under
protest. No costs. So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.1wph1.t
Footnotes

Page 365 of 403

1

Resolution No. 30, Series of 1964.

Section 1, emphasis supplied.

An action for declaratory judgment was also filed on May 23, 1964 (Civil Case No. 665-0) but this and the present case were tried jointly.

L-20125, July 20, 1965.

L-26511, Oct. 29, 1966.

L-12752, Jan. 30, 1965.

The Lawphil Project - Arellano Law Foundation

NO FULL TEXT PUBLISHED

PAL v. Sec of Finance
GR No. 115852; 30 October 1995
F A C T S:
The Value-Added Tax [VAT] is levied on the sale, barter or exchange of goods and properties as well as on the sale or
exchange of services. It is equivalent to 10% of the gross selling price or gross value in money of goods or properties
sold, bartered or exchanged or of the gross receipts from the sale or exchange of services. Republic Act No. 7716 seeks
to widen the tax base of the existing VAT system and enhance its administration by amending the National Internal
Revenue Code.
These are various suits for certiorari and prohibition challenging the constitutionality of RA 7716:
In the case at bar, PAL attacks the formal validity of Republic Act No. 7716. PAL contends that it violates Art. VI, Section
26[1] which provides that "Every bill passed by Congress shall embrace only one subject which shall be expressed in the
title thereof." It is contended that neither H. No. 11197 nor S. No. 1630 provided for removal of exemption of PAL
transactions from the payment of the VAT and that this was made only in the Conference Committee bill which became
Republic Act No. 7716 without reflecting this fact in its title.
The title of Republic Act No. 7716 is:

Page 366 of 403

AN ACT RESTRUCTURING THE VALUE-ADDED TAX [VAT] SYSTEM, WIDENING ITS TAX BASE AND ENHANCING
ITS ADMINISTRATION, AND FOR THESE PURPOSES AMENDING AND REPEALING THE RELEVANT PROVISIONS
OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER PURPOSES.
Furthermore, section 103 of RA 7716 states the following:
Section 103. Exempt Transactions.- The following shall be exempt from the value-added tax:
[q] Transactions which are exempt under special laws, except those granted under Presidential Decree Nos. 66, 529, 972,
1491, 1590.
The effect of the amendment is to remove the exemption granted to PAL, as far as the VAT is concerned.
Philippine Airlines [PAL] claims that its franchise under P.D. No. 1590 which makes it liable for a franchise tax of only 2%
of gross revenues "in lieu of all the other fees and charges of any kind, nature or description, imposed, levied, established,
assessed or collected by any municipal, city, provincial, or national authority or government agency, now or in the future,"
cannot be amended by Rep. Act No. 7716 as to make it [PAL] liable for a 10% value-added tax on revenues, because
Sec. 24 of P.D. No. 1590 provides that PAL's franchise can only be amended, modified or repealed by a special law
specifically for that purpose.
I S S U E:
Whether or not this amendment of Section 103 of the NIRC is fairly embraced in the title of Republic Act No. 7716,
although no mention is made therein of P. D. No. 1590
H E L D:
The court ruled in in the affirmative. The title states that the purpose of the statute is to expand the VAT system, and one
way of doing this is to widen its base by withdrawing some of the exemptions granted before. To insist that P. D. No. 1590
be mentioned in the title of the law, in addition to Section 103 of the NIRC, in which it is specifically referred to, would be
to insist that the title of a bill should be a complete index of its content.
The constitutional requirement that every bill passed by Congress shall embrace only one subject which shall be
expressed in its title is intended to prevent surprise upon the members of Congress and to inform the people of pending
legislation so that, if they wish to, they can be heard regarding it. If, in the case at bar, petitioner did not know before that
its exemption had been withdrawn, it is not because of any defect in the title but perhaps for the same reason other
statutes, although published, pass unnoticed until some event somehow calls attention to their existence.
Republic Act No. 7716 expressly amends PAL's franchise [P. D. No. 1590] by specifically excepting from the grant of
exemptions from the VAT PAL's exemption under P. D. No. 1590. This is within the power of Congress to do under Art. XII,
Section 11 of the Constitution, which provides that the grant of a franchise for the operation of a public utility is subject to
amendment, alteration or repeal by Congress when the common good so requires.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-9637

April 30, 1957

AMERICAN BIBLE SOCIETY, plaintiff-appellant,

vs.
CITY OF MANILA, defendant-appellee.
City Fiscal Eugenio Angeles and Juan Nabong for appellant.
Assistant City Fiscal Arsenio Naawa for appellee.
FELIX, J.:
Plaintiff-appellant is a foreign, non-stock, non-profit, religious, missionary corporation duly registered and doing business in the
Philippines through its Philippine agency established in Manila in November, 1898, with its principal office at 636 Isaac Peral in said
City. The defendant appellee is a municipal corporation with powers that are to be exercised in conformity with the provisions of
Republic Act No. 409, known as the Revised Charter of the City of Manila.
In the course of its ministry, plaintiff's Philippine agency has been distributing and selling bibles and/or gospel portions thereof (except
during the Japanese occupation) throughout the Philippines and translating the same into several Philippine dialects. On May 29 1953,

Page 367 of 403

the acting City Treasurer of the City of Manila informed plaintiff that it was conducting the business of general merchandise since
November, 1945, without providing itself with the necessary Mayor's permit and municipal license, in violation of Ordinance No. 3000,
as amended, and Ordinances Nos. 2529, 3028 and 3364, and required plaintiff to secure, within three days, the corresponding permit
and license fees, together with compromise covering the period from the 4th quarter of 1945 to the 2nd quarter of 1953, in the total sum
of P5,821.45 (Annex A).
Plaintiff protested against this requirement, but the City Treasurer demanded that plaintiff deposit and pay under protest the sum of
P5,891.45, if suit was to be taken in court regarding the same (Annex B). To avoid the closing of its business as well as further fines
and penalties in the premises on October 24, 1953, plaintiff paid to the defendant under protest the said permit and license fees in the
aforementioned amount, giving at the same time notice to the City Treasurer that suit would be taken in court to question the legality of
the ordinances under which, the said fees were being collected (Annex C), which was done on the same date by filing the complaint
that gave rise to this action. In its complaint plaintiff prays that judgment be rendered declaring the said Municipal Ordinance No. 3000,
as amended, and Ordinances Nos. 2529, 3028 and 3364 illegal and unconstitutional, and that the defendant be ordered to refund to the
plaintiff the sum of P5,891.45 paid under protest, together with legal interest thereon, and the costs, plaintiff further praying for such
other relief and remedy as the court may deem just equitable.
Defendant answered the complaint, maintaining in turn that said ordinances were enacted by the Municipal Board of the City of Manila
by virtue of the power granted to it by section 2444, subsection (m-2) of the Revised Administrative Code, superseded on June 18,
1949, by section 18, subsection (1) of Republic Act No. 409, known as the Revised Charter of the City of Manila, and praying that the
complaint be dismissed, with costs against plaintiff. This answer was replied by the plaintiff reiterating the unconstitutionality of the
often-repeated ordinances.
Before trial the parties submitted the following stipulation of facts:
COME NOW the parties in the above-entitled case, thru their undersigned attorneys and respectfully submit the following
stipulation of facts:
1. That the plaintiff sold for the use of the purchasers at its principal office at 636 Isaac Peral, Manila, Bibles, New Testaments,
bible portions and bible concordance in English and other foreign languages imported by it from the United States as well as
Bibles, New Testaments and bible portions in the local dialects imported and/or purchased locally; that from the fourth quarter
of 1945 to the first quarter of 1953 inclusive the sales made by the plaintiff were as follows:

Quarter

Amount of Sales

4th quarter 1945

P1,244.21

1st quarter 1946

2,206.85

2nd quarter 1946

1,950.38

3rd quarter 1946

2,235.99

4th quarter 1946

3,256.04

1st quarter 1947

13,241.07

2nd quarter 1947

15,774.55

3rd quarter 1947

14,654.13

4th quarter 1947

12,590.94

Page 368 of 403

1st quarter 1948

11,143.90

2nd quarter 1948

14,715.26

3rd quarter 1948

38,333.83

4th quarter 1948

16,179.90

1st quarter 1949

23,975.10

2nd quarter 1949

17,802.08

3rd quarter 1949

16,640.79

4th quarter 1949

15,961.38

1st quarter 1950

18,562.46

2nd quarter 1950

21,816.32

3rd quarter 1950

25,004.55

4th quarter 1950

45,287.92

1st quarter 1951

37,841.21

2nd quarter 1951

29,103.98

3rd quarter 1951

20,181.10

4th quarter 1951

22,968.91

Page 369 of 403

1st quarter 1952

23,002.65

2nd quarter 1952

17,626.96

3rd quarter 1952

17,921.01

4th quarter 1952

24,180.72

1st quarter 1953

29,516.21

2. That the parties hereby reserve the right to present evidence of other facts not herein stipulated.
WHEREFORE, it is respectfully prayed that this case be set for hearing so that the parties may present further evidence on
their behalf. (Record on Appeal, pp. 15-16).
When the case was set for hearing, plaintiff proved, among other things, that it has been in existence in the Philippines since 1899, and
that its parent society is in New York, United States of America; that its, contiguous real properties located at Isaac Peral are exempt
from real estate taxes; and that it was never required to pay any municipal license fee or tax before the war, nor does the American
Bible Society in the United States pay any license fee or sales tax for the sale of bible therein. Plaintiff further tried to establish that it
never made any profit from the sale of its bibles, which are disposed of for as low as one third of the cost, and that in order to maintain
its operating cost it obtains substantial remittances from its New York office and voluntary contributions and gifts from certain churches,
both in the United States and in the Philippines, which are interested in its missionary work. Regarding plaintiff's contention of lack of
profit in the sale of bibles, defendant retorts that the admissions of plaintiff-appellant's lone witness who testified on cross-examination
that bibles bearing the price of 70 cents each from plaintiff-appellant's New York office are sold here by plaintiff-appellant at P1.30 each;
those bearing the price of $4.50 each are sold here at P10 each; those bearing the price of $7 each are sold here at P15 each; and
those bearing the price of $11 each are sold here at P22 each, clearly show that plaintiff's contention that it never makes any profit from
the sale of its bible, is evidently untenable.
After hearing the Court rendered judgment, the last part of which is as follows:
As may be seen from the repealed section (m-2) of the Revised Administrative Code and the repealing portions (o) of section
18 of Republic Act No. 409, although they seemingly differ in the way the legislative intent is expressed, yet their meaning is
practically the same for the purpose of taxing the merchandise mentioned in said legal provisions, and that the taxes to be
levied by said ordinances is in the nature of percentage graduated taxes (Sec. 3 of Ordinance No. 3000, as amended, and
Sec. 1, Group 2, of Ordinance No. 2529, as amended by Ordinance No. 3364).
IN VIEW OF THE FOREGOING CONSIDERATIONS, this Court is of the opinion and so holds that this case should be
dismissed, as it is hereby dismissed, for lack of merits, with costs against the plaintiff.
Not satisfied with this verdict plaintiff took up the matter to the Court of Appeals which certified the case to Us for the reason that the
errors assigned to the lower Court involved only questions of law.
Appellant contends that the lower Court erred:
1. In holding that Ordinances Nos. 2529 and 3000, as respectively amended, are not unconstitutional;
2. In holding that subsection m-2 of Section 2444 of the Revised Administrative Code under which Ordinances Nos. 2592 and
3000 were promulgated, was not repealed by Section 18 of Republic Act No. 409;
3. In not holding that an ordinance providing for taxes based on gross sales or receipts, in order to be valid under the new
Charter of the City of Manila, must first be approved by the President of the Philippines; and
4. In holding that, as the sales made by the plaintiff-appellant have assumed commercial proportions, it cannot escape from
the operation of said municipal ordinances under the cloak of religious privilege.
The issues. As may be seen from the proceeding statement of the case, the issues involved in the present controversy may be
reduced to the following: (1) whether or not the ordinances of the City of Manila, Nos. 3000, as amended, and 2529, 3028 and 3364,
are constitutional and valid; and (2) whether the provisions of said ordinances are applicable or not to the case at bar.
Section 1, subsection (7) of Article III of the Constitution of the Republic of the Philippines, provides that:

Page 370 of 403

(7) No law shall be made respecting an establishment of religion, or prohibiting the free exercise thereof, and the free exercise
and enjoyment of religious profession and worship, without discrimination or preference, shall forever be allowed. No religion
test shall be required for the exercise of civil or political rights.
Predicated on this constitutional mandate, plaintiff-appellant contends that Ordinances Nos. 2529 and 3000, as respectively amended,
are unconstitutional and illegal in so far as its society is concerned, because they provide for religious censorship and restrain the free
exercise and enjoyment of its religious profession, to wit: the distribution and sale of bibles and other religious literature to the people of
the Philippines.
Before entering into a discussion of the constitutional aspect of the case, We shall first consider the provisions of the questioned
ordinances in relation to their application to the sale of bibles, etc. by appellant. The records, show that by letter of May 29, 1953
(Annex A), the City Treasurer required plaintiff to secure a Mayor's permit in connection with the society's alleged business of
distributing and selling bibles, etc. and to pay permit dues in the sum of P35 for the period covered in this litigation, plus the sum of P35
for compromise on account of plaintiff's failure to secure the permit required by Ordinance No. 3000 of the City of Manila, as amended.
This Ordinance is of general application and not particularly directed against institutions like the plaintiff, and it does not contain any
provisions whatever prescribing religious censorship nor restraining the free exercise and enjoyment of any religious profession.
Section 1 of Ordinance No. 3000 reads as follows:
SEC. 1. PERMITS NECESSARY. It shall be unlawful for any person or entity to conduct or engage in any of the businesses,
trades, or occupations enumerated in Section 3 of this Ordinance or other businesses, trades, or occupations for which a
permit is required for the proper supervision and enforcement of existing laws and ordinances governing the sanitation,
security, and welfare of the public and the health of the employees engaged in the business specified in said section 3
hereof, WITHOUT FIRST HAVING OBTAINED A PERMIT THEREFOR FROM THE MAYOR AND THE NECESSARY
LICENSE FROM THE CITY TREASURER.
The business, trade or occupation of the plaintiff involved in this case is not particularly mentioned in Section 3 of the Ordinance, and
the record does not show that a permit is required therefor under existing laws and ordinances for the proper supervision and
enforcement of their provisions governing the sanitation, security and welfare of the public and the health of the employees engaged in
the business of the plaintiff. However, sections 3 of Ordinance 3000 contains item No. 79, which reads as follows:
79. All other businesses, trades or occupations not
mentioned in this Ordinance, except those upon which the
City is not empowered to license or to tax P5.00
Therefore, the necessity of the permit is made to depend upon the power of the City to license or tax said business, trade or
occupation.
As to the license fees that the Treasurer of the City of Manila required the society to pay from the 4th quarter of 1945 to the 1st quarter
of 1953 in the sum of P5,821.45, including the sum of P50 as compromise, Ordinance No. 2529, as amended by Ordinances Nos.
2779, 2821 and 3028 prescribes the following:
SEC. 1. FEES. Subject to the provisions of section 578 of the Revised Ordinances of the City of Manila, as amended, there
shall be paid to the City Treasurer for engaging in any of the businesses or occupations below enumerated, quarterly, license
fees based on gross sales or receipts realized during the preceding quarter in accordance with the rates herein prescribed:
PROVIDED, HOWEVER, That a person engaged in any businesses or occupation for the first time shall pay the initial license
fee based on the probable gross sales or receipts for the first quarter beginning from the date of the opening of the business
as indicated herein for the corresponding business or occupation.
xxx

xxx

xxx

GROUP 2. Retail dealers in new (not yet used) merchandise, which dealers are not yet subject to the payment of any
municipal tax, such as (1) retail dealers in general merchandise; (2) retail dealers exclusively engaged in the sale of . . . books,
including stationery.
xxx

xxx

xxx

As may be seen, the license fees required to be paid quarterly in Section 1 of said Ordinance No. 2529, as amended, are not imposed
directly upon any religious institution but upon those engaged in any of the business or occupations therein enumerated, such as retail
"dealers in general merchandise" which, it is alleged, cover the business or occupation of selling bibles, books, etc.
Chapter 60 of the Revised Administrative Code which includes section 2444, subsection (m-2) of said legal body, as amended by Act
No. 3659, approved on December 8, 1929, empowers the Municipal Board of the City of Manila:
(M-2) To tax and fix the license fee on (a) dealers in new automobiles or accessories or both, and (b) retail dealers in new (not
yet used) merchandise, which dealers are not yet subject to the payment of any municipal tax.
For the purpose of taxation, these retail dealers shall be classified as (1) retail dealers in general merchandise, and (2) retail
dealers exclusively engaged in the sale of (a) textiles . . . (e) books, including stationery, paper and office supplies, . . .:
PROVIDED, HOWEVER, That the combined total tax of any debtor or manufacturer, or both, enumerated under these
subsections (m-1) and (m-2), whether dealing in one or all of the articles mentioned herein, SHALL NOT BE IN EXCESS OF
FIVE HUNDRED PESOS PER ANNUM.
and appellee's counsel maintains that City Ordinances Nos. 2529 and 3000, as amended, were enacted in virtue of the power that said
Act No. 3669 conferred upon the City of Manila. Appellant, however, contends that said ordinances are longer in force and effect as the

Page 371 of 403

law under which they were promulgated has been expressly repealed by Section 102 of Republic Act No. 409 passed on June 18,
1949, known as the Revised Manila Charter.
Passing upon this point the lower Court categorically stated that Republic Act No. 409 expressly repealed the provisions of Chapter 60
of the Revised Administrative Code but in the opinion of the trial Judge, although Section 2444 (m-2) of the former Manila Charter and
section 18 (o) of the new seemingly differ in the way the legislative intent was expressed, yet their meaning is practically the same for
the purpose of taxing the merchandise mentioned in both legal provisions and, consequently, Ordinances Nos. 2529 and 3000, as
amended, are to be considered as still in full force and effect uninterruptedly up to the present.
Often the legislature, instead of simply amending the pre-existing statute, will repeal the old statute in its entirety and by the
same enactment re-enact all or certain portions of the preexisting law. Of course, the problem created by this sort of legislative
action involves mainly the effect of the repeal upon rights and liabilities which accrued under the original statute. Are those
rights and liabilities destroyed or preserved? The authorities are divided as to the effect of simultaneous repeals and reenactments. Some adhere to the view that the rights and liabilities accrued under the repealed act are destroyed, since the
statutes from which they sprang are actually terminated, even though for only a very short period of time. Others, and they
seem to be in the majority, refuse to accept this view of the situation, and consequently maintain that all rights an liabilities
which have accrued under the original statute are preserved and may be enforced, since the re-enactment neutralizes the
repeal, therefore, continuing the law in force without interruption. (Crawford-Statutory Construction, Sec. 322).
Appellant's counsel states that section 18 (o) of Republic Act No, 409 introduces a new and wider concept of taxation and is different
from the provisions of Section 2444(m-2) that the former cannot be considered as a substantial re-enactment of the provisions of the
latter. We have quoted above the provisions of section 2444(m-2) of the Revised Administrative Code and We shall now copy
hereunder the provisions of Section 18, subdivision (o) of Republic Act No. 409, which reads as follows:
(o) To tax and fix the license fee on dealers in general merchandise, including importers and indentors, except those dealers
who may be expressly subject to the payment of some other municipal tax under the provisions of this section.
Dealers in general merchandise shall be classified as (a) wholesale dealers and (b) retail dealers. For purposes of the tax on
retail dealers, general merchandise shall be classified into four main classes: namely (1) luxury articles, (2) semi-luxury
articles, (3) essential commodities, and (4) miscellaneous articles. A separate license shall be prescribed for each class but
where commodities of different classes are sold in the same establishment, it shall not be compulsory for the owner to secure
more than one license if he pays the higher or highest rate of tax prescribed by ordinance. Wholesale dealers shall pay the
license tax as such, as may be provided by ordinance.
For purposes of this section, the term "General merchandise" shall include poultry and livestock, agricultural products, fish and
other allied products.
The only essential difference that We find between these two provisions that may have any bearing on the case at bar, is that, while
subsection (m-2) prescribes that the combined total tax of any dealer or manufacturer, or both, enumerated under subsections (m-1)
and (m-2), whether dealing in one or all of the articles mentioned therein,shall not be in excess of P500 per annum, the corresponding
section 18, subsection (o) of Republic Act No. 409, does not contain any limitation as to the amount of tax or license fee that the retail
dealer has to pay per annum. Hence, and in accordance with the weight of the authorities above referred to that maintain that "all rights
and liabilities which have accrued under the original statute are preserved and may be enforced, since the reenactment neutralizes the
repeal, therefore continuing the law in force without interruption", We hold that the questioned ordinances of the City of Manila are still
in force and effect.
Plaintiff, however, argues that the questioned ordinances, to be valid, must first be approved by the President of the Philippines as per
section 18, subsection (ii) of Republic Act No. 409, which reads as follows:
(ii) To tax, license and regulate any business, trade or occupation being conducted within the City of Manila, not otherwise
enumerated in the preceding subsections, including percentage taxes based on gross sales or receipts, subject to the
approval of the PRESIDENT, except amusement taxes.
but this requirement of the President's approval was not contained in section 2444 of the former Charter of the City of Manila under
which Ordinance No. 2529 was promulgated. Anyway, as stated by appellee's counsel, the business of "retail dealers in general
merchandise" is expressly enumerated in subsection (o), section 18 of Republic Act No. 409; hence, an ordinance prescribing a
municipal tax on said business does not have to be approved by the President to be effective, as it is not among those referred to in
said subsection (ii). Moreover, the questioned ordinances are still in force, having been promulgated by the Municipal Board of the City
of Manila under the authority granted to it by law.
The question that now remains to be determined is whether said ordinances are inapplicable, invalid or unconstitutional if applied to the
alleged business of distribution and sale of bibles to the people of the Philippines by a religious corporation like the American Bible
Society, plaintiff herein.
With regard to Ordinance No. 2529, as amended by Ordinances Nos. 2779, 2821 and 3028, appellant contends that it is
unconstitutional and illegal because it restrains the free exercise and enjoyment of the religious profession and worship of appellant.
Article III, section 1, clause (7) of the Constitution of the Philippines aforequoted, guarantees the freedom of religious profession and
worship. "Religion has been spoken of as a profession of faith to an active power that binds and elevates man to its Creator"
(Aglipay vs. Ruiz, 64 Phil., 201).It has reference to one's views of his relations to His Creator and to the obligations they impose of
reverence to His being and character, and obedience to His Will (Davis vs. Beason, 133 U.S., 342). The constitutional guaranty of the
free exercise and enjoyment of religious profession and worship carries with it the right to disseminate religious information. Any
restraints of such right can only be justified like other restraints of freedom of expression on the grounds that there is a clear and
present danger of any substantive evil which the State has the right to prevent". (Taada and Fernando on the Constitution of the
Philippines, Vol. 1, 4th ed., p. 297). In the case at bar the license fee herein involved is imposed upon appellant for its distribution and
sale of bibles and other religious literature:

Page 372 of 403

In the case of Murdock vs. Pennsylvania, it was held that an ordinance requiring that a license be obtained before a person
could canvass or solicit orders for goods, paintings, pictures, wares or merchandise cannot be made to apply to members of
Jehovah's Witnesses who went about from door to door distributing literature and soliciting people to "purchase" certain
religious books and pamphlets, all published by the Watch Tower Bible & Tract Society. The "price" of the books was twentyfive cents each, the "price" of the pamphlets five cents each. It was shown that in making the solicitations there was a request
for additional "contribution" of twenty-five cents each for the books and five cents each for the pamphlets. Lesser sum were
accepted, however, and books were even donated in case interested persons were without funds.
On the above facts the Supreme Court held that it could not be said that petitioners were engaged in commercial rather than a
religious venture. Their activities could not be described as embraced in the occupation of selling books and pamphlets. Then
the Court continued:
"We do not mean to say that religious groups and the press are free from all financial burdens of government. See Grosjean
vs. American Press Co., 297 U.S., 233, 250, 80 L. ed. 660, 668, 56 S. Ct. 444. We have here something quite different, for
example, from a tax on the income of one who engages in religious activities or a tax on property used or employed in
connection with activities. It is one thing to impose a tax on the income or property of a preacher. It is quite another to exact a
tax from him for the privilege of delivering a sermon. The tax imposed by the City of Jeannette is a flat license tax, payment of
which is a condition of the exercise of these constitutional privileges. The power to tax the exercise of a privilege is the power
to control or suppress its enjoyment. . . . Those who can tax the exercise of this religious practice can make its exercise so
costly as to deprive it of the resources necessary for its maintenance. Those who can tax the privilege of engaging in this form
of missionary evangelism can close all its doors to all those who do not have a full purse. Spreading religious beliefs in this
ancient and honorable manner would thus be denied the needy. . . .
It is contended however that the fact that the license tax can suppress or control this activity is unimportant if it does not do so.
But that is to disregard the nature of this tax. It is a license tax a flat tax imposed on the exercise of a privilege granted by
the Bill of Rights . . . The power to impose a license tax on the exercise of these freedom is indeed as potent as the power of
censorship which this Court has repeatedly struck down. . . . It is not a nominal fee imposed as a regulatory measure to defray
the expenses of policing the activities in question. It is in no way apportioned. It is flat license tax levied and collected as a
condition to the pursuit of activities whose enjoyment is guaranteed by the constitutional liberties of press and religion and
inevitably tends to suppress their exercise. That is almost uniformly recognized as the inherent vice and evil of this flat license
tax."
Nor could dissemination of religious information be conditioned upon the approval of an official or manager even if the town
were owned by a corporation as held in the case of Marsh vs. State of Alabama (326 U.S. 501), or by the United States itself
as held in the case of Tucker vs. Texas (326 U.S. 517). In the former case the Supreme Court expressed the opinion that the
right to enjoy freedom of the press and religion occupies a preferred position as against the constitutional right of property
owners.
"When we balance the constitutional rights of owners of property against those of the people to enjoy freedom of press and
religion, as we must here, we remain mindful of the fact that the latter occupy a preferred position. . . . In our view the
circumstance that the property rights to the premises where the deprivation of property here involved, took place, were held by
others than the public, is not sufficient to justify the State's permitting a corporation to govern a community of citizens so as to
restrict their fundamental liberties and the enforcement of such restraint by the application of a State statute." (Taada and
Fernando on the Constitution of the Philippines, Vol. 1, 4th ed., p. 304-306).
Section 27 of Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code, provides:
SEC. 27. EXEMPTIONS FROM TAX ON CORPORATIONS. The following organizations shall not be taxed under this Title
in respect to income received by them as such
(e) Corporations or associations organized and operated exclusively for religious, charitable, . . . or educational purposes, . . .:
Provided, however, That the income of whatever kind and character from any of its properties, real or personal, or from any
activity conducted for profit, regardless of the disposition made of such income, shall be liable to the tax imposed under this
Code;
Appellant's counsel claims that the Collector of Internal Revenue has exempted the plaintiff from this tax and says that such exemption
clearly indicates that the act of distributing and selling bibles, etc. is purely religious and does not fall under the above legal provisions.
It may be true that in the case at bar the price asked for the bibles and other religious pamphlets was in some instances a little bit
higher than the actual cost of the same but this cannot mean that appellant was engaged in the business or occupation of selling said
"merchandise" for profit. For this reason We believe that the provisions of City of Manila Ordinance No. 2529, as amended, cannot be
applied to appellant, for in doing so it would impair its free exercise and enjoyment of its religious profession and worship as well as its
rights of dissemination of religious beliefs.
With respect to Ordinance No. 3000, as amended, which requires the obtention the Mayor's permit before any person can engage in
any of the businesses, trades or occupations enumerated therein, We do not find that it imposes any charge upon the enjoyment of a
right granted by the Constitution, nor tax the exercise of religious practices. In the case of Coleman vs. City of Griffin, 189 S.E. 427, this
point was elucidated as follows:
An ordinance by the City of Griffin, declaring that the practice of distributing either by hand or otherwise, circulars, handbooks,
advertising, or literature of any kind, whether said articles are being delivered free, or whether same are being sold within the
city limits of the City of Griffin, without first obtaining written permission from the city manager of the City of Griffin, shall be
deemed a nuisance and punishable as an offense against the City of Griffin, does not deprive defendant of his constitutional
right of the free exercise and enjoyment of religious profession and worship, even though it prohibits him from introducing and
carrying out a scheme or purpose which he sees fit to claim as a part of his religious system.

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It seems clear, therefore, that Ordinance No. 3000 cannot be considered unconstitutional, even if applied to plaintiff Society. But as
Ordinance No. 2529 of the City of Manila, as amended, is not applicable to plaintiff-appellant and defendant-appellee is powerless to
license or tax the business of plaintiff Society involved herein for, as stated before, it would impair plaintiff's right to the free exercise
and enjoyment of its religious profession and worship, as well as its rights of dissemination of religious beliefs, We find that Ordinance
No. 3000, as amended is also inapplicable to said business, trade or occupation of the plaintiff.
Wherefore, and on the strength of the foregoing considerations, We hereby reverse the decision appealed from, sentencing defendant
return to plaintiff the sum of P5,891.45 unduly collected from it. Without pronouncement as to costs. It is so ordered.
Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion and Endencia, JJ., concur.

The Lawphil Project - Arellano Law Foundation

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-60126 September 25, 1985
CAGAYAN ELECTRIC POWER & LIGHT CO., INC., petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF APPEALS, respondents.
Quasha, De Guzman Makalintal & Barot for petitioner.
AQUINO, J.:
This is about the liability of petitioner Cagayan Electric Power & Light Co., Inc. for income tax amounting to P75,149.73 for
the more than seven-month period of the year 1969 in addition to franchise tax.

Page 374 of 403

The petitioner is the holder of a legislative franchise, Republic Act No. 3247, under which its payment of 3% tax on its
gross earnings from the sale of electric current is "in lieu of all taxes and assessments of whatever authority upon
privileges, earnings, income, franchise, and poles, wires, transformers, and insulators of the grantee, from which taxes
and assessments the grantee is hereby expressly exempted" (Sec. 3).
On June 27, 1968, Republic Act No. 5431 amended section 24 of the Tax Code by making liable for income tax all
corporate taxpayers not specifically exempt under paragraph (c) (1) of said section and section 27 of the Tax Code
notwithstanding the "provisions of existing special or general laws to the contrary". Thus, franchise companies were
subjected to income tax in addition to franchise tax.
However, in petitioner's case, its franchise was amended by Republic Act No. 6020, effective August 4, 1969, by
authorizing the petitioner to furnish electricity to the municipalities of Villanueva and Jasaan, Misamis Oriental in addition
to Cagayan de Oro City and the municipalities of Tagoloan and Opol. The amendment reenacted the tax exemption in its
original charter or neutralized the modification made by Republic Act No. 5431 more than a year before.
By reason of the amendment to section 24 of the Tax Code, the Commissioner of Internal Revenue in a demand letter
dated February 15, 1973 required the petitioner to pay deficiency income taxes for 1968-to 1971. The petitioner contested
the assessments. The Commissioner cancelled the assessments for 1970 and 1971 but insisted on those for 1968 and
1969.
The petitioner filed a petition for review with the Tax Court, which on February 26, 1982 held the petitioner liable only for
the income tax for the period from January 1 to August 3, 1969 or before the passage of Republic Act No. 6020 which
reiterated its tax exemption. The petitioner appealed to this Court.
It contends that the Tax Court erred (1) in not holding that the franchise tax paid by the petitioner is a commutative tax
which already includes the income tax; (2) in holding that Republic Act No. 5431 as amended, altered or repealed
petitioner's franchise; (3) in holding that petitioner's franchise is a contract which can be impaired by an implied repeal and
(4) in not holding that section 24(d) of the Tax Code should be construed strictly against the Government.
We hold that Congress could impair petitioner's legislative franchise by making it liable for income tax from which
heretofore it was exempted by virtue of the exemption provided for in section 3 of its franchise.
The Constitution provides that a franchise is subject to amendment, alteration or repeal by the Congress when the public
interest so requires (Sec. 8, Art. XIV, 1935 Constitution; Sec. 5, Art. XIV, 1973 Constitution),
Section 1 of petitioner's franchise, Republic Act No. 3247, provides that it is subject to the provisions of the Constitution
and to the terms and conditions established in Act No. 3636 whose section 12 provides that the franchise is subject to
amendment, alteration or repeal by Congress.
Republic Act No. 5431, in amending section 24 of the Tax Code by subjecting to income tax all corporate taxpayers not
expressly exempted therein and in section 27 of the Code, had the effect of withdrawing petitioner's exemption from
income tax.
The Tax Court acted correctly in holding that the exemption was restored by the subsequent enactment on August 4, 1969
of Republic Act No. 6020 which reenacted the said tax exemption. Hence, the petitioner is liable only for the income tax
for the period from January 1 to August 3, 1969 when its tax exemption was modified by Republic Act No. 5431.
It is relevant to note that franchise companies, like the Philippine Long Distance Telephone Company, have been paying
income tax in addition to the franchise tax.
However, it cannot be denied that the said 1969 assessment appears to be highly controversial. The Commissioner at the
outset was not certain as to petitioner's income tax liability. It had reason not to pay income tax because of the tax
exemption in its franchise.
For this reason, it should be liable only for tax proper and should not be held liable for the surcharge and interest.
(Advertising Associates, Inc. vs. Commissioner of Internal Revenue and Court of Tax Appeals, G. R. No. 59758,
December 26, 1984,133 SCRA 765; Imus Electric Co., Inc. vs. Commissioner of Internal Revenue, 125 Phil. 1024; C.M.
Hoskins & Co., Inc. vs. Commissioner of Internal Revenue, L-28383, June 22, 1976, 71 SCRA 511.)
WHEREFORE, the judgment of the Tax Court is affirmed with the modification that the petitioner is liable only for the tax
proper and that it should not pay the delinquency penalties. No costs.
SO ORDERED.
Concepcion, Jr., Abad Santos, Escolin, Cuevas and Alampay, JJ., concur.

The Lawphil Project - Arellano Law Foundation

Page 375 of 403

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-39086 June 15, 1988
ABRA VALLEY COLLEGE, INC., represented by PEDRO V. BORGONIA, petitioner,
vs.
HON. JUAN P. AQUINO, Judge, Court of First Instance, Abra; ARMIN M. CARIAGA, Provincial Treasurer, Abra;
GASPAR V. BOSQUE, Municipal Treasurer, Bangued, Abra; HEIRS OF PATERNO MILLARE,respondents.
PARAS, J.:
This is a petition for review on certiorari of the decision * of the defunct Court of First Instance of Abra, Branch I, dated
June 14, 1974, rendered in Civil Case No. 656, entitled "Abra Valley Junior College, Inc., represented by Pedro V.

Page 376 of 403

Borgonia, plaintiff vs. Armin M. Cariaga as Provincial Treasurer of Abra, Gaspar V. Bosque as Municipal Treasurer of
Bangued, Abra and Paterno Millare, defendants," the decretal portion of which reads:
IN VIEW OF ALL THE FOREGOING, the Court hereby declares:
That the distraint seizure and sale by the Municipal Treasurer of Bangued, Abra, the Provincial Treasurer
of said province against the lot and building of the Abra Valley Junior College, Inc., represented by
Director Pedro Borgonia located at Bangued, Abra, is valid;
That since the school is not exempt from paying taxes, it should therefore pay all back taxes in the
amount of P5,140.31 and back taxes and penalties from the promulgation of this decision;
That the amount deposited by the plaintaff him the sum of P60,000.00 before the trial, be confiscated to
apply for the payment of the back taxes and for the redemption of the property in question, if the amount
is less than P6,000.00, the remainder must be returned to the Director of Pedro Borgonia, who represents
the plaintiff herein;
That the deposit of the Municipal Treasurer in the amount of P6,000.00 also before the trial must be
returned to said Municipal Treasurer of Bangued, Abra;
And finally the case is hereby ordered dismissed with costs against the plaintiff.
SO ORDERED. (Rollo, pp. 22-23)
Petitioner, an educational corporation and institution of higher learning duly incorporated with the Securities and Exchange
Commission in 1948, filed a complaint (Annex "1" of Answer by the respondents Heirs of Paterno Millare; Rollo, pp. 95-97)
on July 10, 1972 in the court a quo to annul and declare void the "Notice of Seizure' and the "Notice of Sale" of its lot and
building located at Bangued, Abra, for non-payment of real estate taxes and penalties amounting to P5,140.31. Said
"Notice of Seizure" of the college lot and building covered by Original Certificate of Title No. Q-83 duly registered in the
name of petitioner, plaintiff below, on July 6, 1972, by respondents Municipal Treasurer and Provincial Treasurer,
defendants below, was issued for the satisfaction of the said taxes thereon. The "Notice of Sale" was caused to be served
upon the petitioner by the respondent treasurers on July 8, 1972 for the sale at public auction of said college lot and
building, which sale was held on the same date. Dr. Paterno Millare, then Municipal Mayor of Bangued, Abra, offered the
highest bid of P6,000.00 which was duly accepted. The certificate of sale was correspondingly issued to him.
On August 10, 1972, the respondent Paterno Millare (now deceased) filed through counstel a motion to dismiss the
complaint.
On August 23, 1972, the respondent Provincial Treasurer and Municipal Treasurer, through then Provincial Fiscal Loreto
C. Roldan, filed their answer (Annex "2" of Answer by the respondents Heirs of Patemo Millare; Rollo, pp. 98-100) to the
complaint. This was followed by an amended answer (Annex "3," ibid, Rollo, pp. 101-103) on August 31, 1972.
On September 1, 1972 the respondent Paterno Millare filed his answer (Annex "5," ibid; Rollo, pp. 106-108).
On October 12, 1972, with the aforesaid sale of the school premises at public auction, the respondent Judge, Hon. Juan
P. Aquino of the Court of First Instance of Abra, Branch I, ordered (Annex "6," ibid; Rollo, pp. 109-110) the respondents
provincial and municipal treasurers to deliver to the Clerk of Court the proceeds of the auction sale. Hence, on December
14, 1972, petitioner, through Director Borgonia, deposited with the trial court the sum of P6,000.00 evidenced by PNB
Check No. 904369.
On April 12, 1973, the parties entered into a stipulation of facts adopted and embodied by the trial court in its questioned
decision. Said Stipulations reads:
STIPULATION OF FACTS
COME NOW the parties, assisted by counsels, and to this Honorable Court respectfully enter into the
following agreed stipulation of facts:
1. That the personal circumstances of the parties as stated in paragraph 1 of the complaint is admitted;
but the particular person of Mr. Armin M. Cariaga is to be substituted, however, by anyone who is actually
holding the position of Provincial Treasurer of the Province of Abra;
2. That the plaintiff Abra Valley Junior College, Inc. is the owner of the lot and buildings thereon located in
Bangued, Abra under Original Certificate of Title No. 0-83;
3. That the defendant Gaspar V. Bosque, as Municipal treasurer of Bangued, Abra caused to be served
upon the Abra Valley Junior College, Inc. a Notice of Seizure on the property of said school under Original

Page 377 of 403

Certificate of Title No. 0-83 for the satisfaction of real property taxes thereon, amounting to P5,140.31; the
Notice of Seizure being the one attached to the complaint as Exhibit A;
4. That on June 8, 1972 the above properties of the Abra Valley Junior College, Inc. was sold at public
auction for the satisfaction of the unpaid real property taxes thereon and the same was sold to defendant
Paterno Millare who offered the highest bid of P6,000.00 and a Certificate of Sale in his favor was issued
by the defendant Municipal Treasurer.
5. That all other matters not particularly and specially covered by this stipulation of facts will be the
subject of evidence by the parties.
WHEREFORE, it is respectfully prayed of the Honorable Court to consider and admit this stipulation of
facts on the point agreed upon by the parties.
Bangued, Abra, April 12, 1973.
Sgd. Agripino Brillantes
Typ AGRIPINO
BRILLANTES
Attorney for Plaintiff
Sgd. Loreto Roldan
Typ LORETO ROLDAN
Provincial Fiscal
Counsel for Defendants
Provincial Treasurer of
Abra and the Municipal
Treasurer of Bangued,
Abra
Sgd. Demetrio V. Pre
Typ. DEMETRIO V.
PRE
Attorney for Defendant
Paterno Millare (Rollo,
pp. 17-18)
Aside from the Stipulation of Facts, the trial court among others, found the following: (a) that the school is recognized by
the government and is offering Primary, High School and College Courses, and has a school population of more than one
thousand students all in all; (b) that it is located right in the heart of the town of Bangued, a few meters from the plaza and
about 120 meters from the Court of First Instance building; (c) that the elementary pupils are housed in a two-storey
building across the street; (d) that the high school and college students are housed in the main building; (e) that the
Director with his family is in the second floor of the main building; and (f) that the annual gross income of the school
reaches more than one hundred thousand pesos.
From all the foregoing, the only issue left for the Court to determine and as agreed by the parties, is whether or not the lot
and building in question are used exclusively for educational purposes. (Rollo, p. 20)
The succeeding Provincial Fiscal, Hon. Jose A. Solomon and his Assistant, Hon. Eustaquio Z. Montero, filed a
Memorandum for the Government on March 25, 1974, and a Supplemental Memorandum on May 7, 1974, wherein they
opined "that based on the evidence, the laws applicable, court decisions and jurisprudence, the school building and
school lot used for educational purposes of the Abra Valley College, Inc., are exempted from the payment of taxes."
(Annexes "B," "B-1" of Petition; Rollo, pp. 24-49; 44 and 49).
Nonetheless, the trial court disagreed because of the use of the second floor by the Director of petitioner school for
residential purposes. He thus ruled for the government and rendered the assailed decision.
After having been granted by the trial court ten (10) days from August 6, 1974 within which to perfect its appeal (Per Order
dated August 6, 1974; Annex "G" of Petition; Rollo, p. 57) petitioner instead availed of the instant petition for review
on certiorari with prayer for preliminary injunction before this Court, which petition was filed on August 17, 1974 (Rollo,
p.2).
In the resolution dated August 16, 1974, this Court resolved to give DUE COURSE to the petition (Rollo, p. 58).
Respondents were required to answer said petition (Rollo, p. 74).
Petitioner raised the following assignments of error:
I

Page 378 of 403

THE COURT A QUO ERRED IN SUSTAINING AS VALID THE SEIZURE AND SALE OF THE COLLEGE LOT AND
BUILDING USED FOR EDUCATIONAL PURPOSES OF THE PETITIONER.
II
THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND BUILDING OF THE PETITIONER ARE
NOT USED EXCLUSIVELY FOR EDUCATIONAL PURPOSES MERELY BECAUSE THE COLLEGE PRESIDENT
RESIDES IN ONE ROOM OF THE COLLEGE BUILDING.
III
THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND BUILDING OF THE PETITIONER ARE
NOT EXEMPT FROM PROPERTY TAXES AND IN ORDERING PETITIONER TO PAY P5,140.31 AS REALTY TAXES.
IV
THE COURT A QUO ERRED IN ORDERING THE CONFISCATION OF THE P6,000.00 DEPOSIT MADE IN THE COURT
BY PETITIONER AS PAYMENT OF THE P5,140.31 REALTY TAXES. (See Brief for the Petitioner, pp. 1-2)
The main issue in this case is the proper interpretation of the phrase "used exclusively for educational purposes."
Petitioner contends that the primary use of the lot and building for educational purposes, and not the incidental use
thereof, determines and exemption from property taxes under Section 22 (3), Article VI of the 1935 Constitution. Hence,
the seizure and sale of subject college lot and building, which are contrary thereto as well as to the provision of
Commonwealth Act No. 470, otherwise known as the Assessment Law, are without legal basis and therefore void.
On the other hand, private respondents maintain that the college lot and building in question which were subjected to
seizure and sale to answer for the unpaid tax are used: (1) for the educational purposes of the college; (2) as the
permanent residence of the President and Director thereof, Mr. Pedro V. Borgonia, and his family including the in-laws and
grandchildren; and (3) for commercial purposes because the ground floor of the college building is being used and rented
by a commercial establishment, the Northern Marketing Corporation (See photograph attached as Annex "8" (Comment;
Rollo, p. 90]).
Due to its time frame, the constitutional provision which finds application in the case at bar is Section 22, paragraph 3,
Article VI, of the then 1935 Philippine Constitution, which expressly grants exemption from realty taxes for "Cemeteries,
churches and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used
exclusively for religious, charitable or educational purposes ...
Relative thereto, Section 54, paragraph c, Commonwealth Act No. 470 as amended by Republic Act No. 409, otherwise
known as the Assessment Law, provides:
The following are exempted from real property tax under the Assessment Law:
xxx xxx xxx
(c) churches and parsonages or convents appurtenant thereto, and all lands, buildings, and
improvements used exclusively for religious, charitable, scientific or educational purposes.
xxx xxx xxx
In this regard petitioner argues that the primary use of the school lot and building is the basic and controlling guide, norm
and standard to determine tax exemption, and not the mere incidental use thereof.
As early as 1916 in YMCA of Manila vs. Collector of lnternal Revenue, 33 Phil. 217 [1916], this Court ruled that while it
may be true that the YMCA keeps a lodging and a boarding house and maintains a restaurant for its members, still these
do not constitute business in the ordinary acceptance of the word, but an institution used exclusively for religious,
charitable and educational purposes, and as such, it is entitled to be exempted from taxation.
In the case of Bishop of Nueva Segovia v. Provincial Board of Ilocos Norte, 51 Phil. 352 [1972], this Court included in the
exemption a vegetable garden in an adjacent lot and another lot formerly used as a cemetery. It was clarified that the term
"used exclusively" considers incidental use also. Thus, the exemption from payment of land tax in favor of the convent
includes, not only the land actually occupied by the building but also the adjacent garden devoted to the incidental use of
the parish priest. The lot which is not used for commercial purposes but serves solely as a sort of lodging place, also
qualifies for exemption because this constitutes incidental use in religious functions.
The phrase "exclusively used for educational purposes" was further clarified by this Court in the cases of Herrera vs.
Quezon City Board of assessment Appeals, 3 SCRA 186 [1961] and Commissioner of Internal Revenue vs. Bishop of the
Missionary District, 14 SCRA 991 [1965], thus

Page 379 of 403

Moreover, the exemption in favor of property used exclusively for charitable or educational purposes is
'not limited to property actually indispensable' therefor (Cooley on Taxation, Vol. 2, p. 1430), but extends
to facilities which are incidental to and reasonably necessary for the accomplishment of said purposes,
such as in the case of hospitals, "a school for training nurses, a nurses' home, property use to provide
housing facilities for interns, resident doctors, superintendents, and other members of the hospital staff,
and recreational facilities for student nurses, interns, and residents' (84 CJS 6621), such as "Athletic
fields" including "a firm used for the inmates of the institution. (Cooley on Taxation, Vol. 2, p. 1430).
The test of exemption from taxation is the use of the property for purposes mentioned in the Constitution (Apostolic
Prefect v. City Treasurer of Baguio, 71 Phil, 547 [1941]).
It must be stressed however, that while this Court allows a more liberal and non-restrictive interpretation of the phrase
"exclusively used for educational purposes" as provided for in Article VI, Section 22, paragraph 3 of the 1935 Philippine
Constitution, reasonable emphasis has always been made that exemption extends to facilities which are incidental to and
reasonably necessary for the accomplishment of the main purposes. Otherwise stated, the use of the school building or
lot for commercial purposes is neither contemplated by law, nor by jurisprudence. Thus, while the use of the second floor
of the main building in the case at bar for residential purposes of the Director and his family, may find justification under
the concept of incidental use, which is complimentary to the main or primary purposeeducational, the lease of the first
floor thereof to the Northern Marketing Corporation cannot by any stretch of the imagination be considered incidental to
the purpose of education.
It will be noted however that the aforementioned lease appears to have been raised for the first time in this Court. That the
matter was not taken up in the to court is really apparent in the decision of respondent Judge. No mention thereof was
made in the stipulation of facts, not even in the description of the school building by the trial judge, both embodied in the
decision nor as one of the issues to resolve in order to determine whether or not said properly may be exempted from
payment of real estate taxes (Rollo, pp. 17-23). On the other hand, it is noteworthy that such fact was not disputed even
after it was raised in this Court.
Indeed, it is axiomatic that facts not raised in the lower court cannot be taken up for the first time on appeal. Nonetheless,
as an exception to the rule, this Court has held that although a factual issue is not squarely raised below, still in the
interest of substantial justice, this Court is not prevented from considering a pivotal factual matter. "The Supreme Court is
clothed with ample authority to review palpable errors not assigned as such if it finds that their consideration is necessary
in arriving at a just decision." (Perez vs. Court of Appeals, 127 SCRA 645 [1984]).
Under the 1935 Constitution, the trial court correctly arrived at the conclusion that the school building as well as the lot
where it is built, should be taxed, not because the second floor of the same is being used by the Director and his family for
residential purposes, but because the first floor thereof is being used for commercial purposes. However, since only a
portion is used for purposes of commerce, it is only fair that half of the assessed tax be returned to the school involved.
PREMISES CONSIDERED, the decision of the Court of First Instance of Abra, Branch I, is hereby AFFIRMED subject to
the modification that half of the assessed tax be returned to the petitioner.
SO ORDERED.
Yap, C.J., Melencio-Herrera, Padilla and Sarmiento, JJ., concur.
Footnotes
* Penned by the respondent Judge, Hon. Judge P. Aquino.
The Lawphil Project - Arellano Law Foundation

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-27588 December 31, 1927
THE ROMAN CATHOLIC BISHOP OF NUEVA SEGOVIA, as representative of the Roman Catholic Apostolic
Church, plaintiff-appellant,
vs.
THE PROVINCIAL BOARD OF ILOCOS NORTE, ET AL., defendants-appellants.
Vicente Llanes and Proceso Coloma for plaintiff-appellant.
Provincial Fiscal Santos for defendant-appellants.
AVANCEA, J.:

Page 380 of 403

The plaintiff, the Roman Catholic Apostolic Church, represented by the Bishop of Nueva Segovia, possesses and is the
owner of a parcel of land in the municipality of San Nicolas, Ilocos Norte, all four sides of which face on public streets. On
the south side is a part of the churchyard, the convent and an adjacent lot used for a vegetable garden, containing an
area off 1,624 square meters, in which there is a stable and a well for the use of the convent. In the center is the
remainder of the churchyard and the church. On the north is an old cemetery with two of its walls still standing, and a
portion where formerly stood a tower, the base of which still be seen, containing a total area of 8,955 square meters.
As required by the defendants, on July 3, 1925 the plaintiff paid, under protest, the land tax on the lot adjoining the
convent and the lot which formerly was the cemetery with the portion where the tower stood.
The plaintiff filed this action for the recovery of the sum paid by to the defendants by way of land tax, alleging that the
collection of this tax is illegal. The lower court absolved the defendants from the complaint in regard to the lot adjoining
convent and declared that the tax collected on the lot, which formerly was the cemetery and on the portion where the
lower stood, was illegal. Both parties appealed from this judgment.
The exemption in favor of the convent in the payment of the land tax (sec. 344 [c] Administrative Code) refers to the home
of the parties who presides over the church and who has to take care of himself in order to discharge his duties. In
therefore must, in the sense, include not only the land actually occupied by the church, but also the adjacent ground
destined to the ordinary incidental uses of man. Except in large cities where the density of the population and the
development of commerce require the use of larger tracts of land for buildings, a vegetable garden belongs to a house
and, in the case of a convent, it use is limited to the necessities of the priest, which comes under the
exemption.lawphi1.net
In regard to the lot which formerly was the cemetery, while it is no longer used as such, neither is it used for commercial
purposes and, according to the evidence, is now being used as a lodging house by the people who participate in religious
festivities, which constitutes an incidental use in religious functions, which also comes within the exemption.
The judgment appealed from is reversed in all it parts and it is held that both lots are exempt from land tax and the
defendants are ordered to refund to plaintiff whatever was paid as such tax, without any special pronouncement as to
costs. So ordered.
Johnson, Street, Villamor, Ostrand, Johns and Villa-Real, JJ., concur.
Separate Opinions
MALCOLM, J., dissenting:
The Assessment Law exempts from taxation "Cemeteries or burial grounds . . . and all lands, buildings, and improvements use exclusively for
religious . . . purposes, but this exemption shall not extend to property held for investment, or which produces income, even though the income be
devoted to some one or more of the purposes above specified." (Administrative Code, sec. 344; Act No. 2749, sec. 1.) That is the applicable law. The
facts may be taken as found by the judge of First Instance, who made his findings more certain by an ocular inspection of the property under
consideration. The testimony and the inspection disclosed that the lot Known as "huerta" was not devoted to religious purposes, and that the old
cemetery had long since leased to be used as such and had been planted to corn. Those are the facts. The test to be applied to the combined law and
facts must be the actual use of the property. The property legally exempt from the payment of taxes must be devoted to some purpose specified in the
law. A "huerta" not needed or used exclusively for religious purposes is not thus exempt. A cemetery or burial ground no longer a cemetery or a burial
ground is not thus exempt. Accordingly, I prefer to vote for the affirmance of Judge Mariano's decision.

The Lawphil Project - Arellano Law Foundation

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-19445

August 31, 1965

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
BISHOP OF THE MISSIONARY DISTRICT OF THE PHILIPPINE ISLANDS OF THE PROTESTANT EPISCOPAL
CHURCH IN THE U.S.A. and THE COURT OF TAX APPEALS, respondents.

Page 381 of 403

Office of the Solicitor General for petitioner.
Ross, Selph and Carrascoso for respondents.
REGALA, J.:
This is an appeal taken from the Commissioner of Internal Revenue from a decision of the Court of Tax Appeals ordering
him to refund to the Bishop of the Missionary District of the Philippines Islands of the Protestant Episcopal in the U.S.A.
the sum of P118,847 which the latter had paid by way of compensating tax.
Respondent Bishop of the Missionary District of the Philippines Islands of the Protestant, Episcopal Church in the U.S.A.
is a corporation sole duly registered with the Securities and Exchange Commission. He is in charge of the administration
of the temporalities and the management of the estates and properties in the Philippines of the Domestic and Foreign
Missionary Society of the Protestant Episcopal Church in the United States (hereinafter referred to as Missionary Society).
On the other hand, the Missionary District of the Philippine Islands of the Protestant Episcopal Church the U.S.A.
(hereinafter referred to as Missionary District) is a duly incorporated and established religious society. It owns and
operates the St. Luke's Hospital in Quezon City, the Brent Hospital in Zamboanga City and the St. Stephen's High School
in Manila.
On different dates in 1957, 1958 and 1959, the Missionary District in the Philippines received from the Missionary Society
in the United States various shipments of materials, supplies, equipment and other articles intended for use in the
construction and operation of the new St. Luke's Hospital in Quezon City and the Brent Hospital and St. Stephen's High
School. The Missionary District also received from a certain William Minnis of Canada a stove for the use of the Brent
Hospital.
On these shipments, the Commissioner of Internal Revenue levied and collected the total amount of P118,847 as
compensating tax.
The Bishop of the Missionary District filed claims for refund of the amount he had paid on the ground that under Republic
Act No. 1916, the materials and articles received by him were exempt from the payment of compensating tax. As the twoyear period for recovery of tax was about to expire, the Bishop of the Missionary District filed a petition for review in the
Court of Tax Appeals, without awaiting action on his claim for refund. Subsequently, he also filed two supplemental
petitions for review covering other shipments received by him and on which he had paid compensating taxes.
On August 21, 1959, the petitioner, the Commissioner of Internal Revenue denied respondent's claim for refund on the
ground that St. Luke's Hospital was not a charitable institution and, therefore, was not exempt under the law. This is also
the position he maintained in his answer to the first supplemental petition for review in the Tax Court.
After trial, the Tax Court rendered a decision holding the shipments exempt from taxation ordering the petitioner to refund
to the respondent the amount of P118,847. It denied a motion for reconsideration of its decision, prompting petitioner to
interpose this appeal.
Petitioner makes the following assignment of errors:
1. The shipments cannot be considered donations because the Missionary District is merely a branch of the Missionary
Society. The two hold identical interests.
2. The Tax Court's holding that the real donors are the people who contributed money to the Missionary Society in
America is based on the uncorroborated testimony of Robert Meyer, Treasurer of the Missionary District in the Philippines,
who did not have personal knowledge of the alleged contribution. The alleged contributors were not even identified.
3. The St. Luke's Hospital is not a charitable institution and, therefore, is not exempt from taxation because its admits pay
patients. The Secretary of Finance states in his Dept. Order No. 18 that hospitals admitting pay patients and charity
patients are not charitable institutions.
This order was issued pursuant to the power given him by the last proviso of Republic Act No. 1916 which provides:
SECTION 1. The provisions of existing laws to the contrary notwithstanding, all donations in any form and all
articles imported into the Philippines, consigned to a duly incorporated or established international civic
organization, religious or charitable society or institution for civic, religious or charitable purposes shall be exempt
from the payment of all taxes and duties upon proof satisfactory to the Commissioner of Customs and/or Collector
of Internal Revenue that such donations in any form and articles so imported are donations for its use or for free
distribution and not for barter, sale or hire: Provided, however, That in case such are subsequently conveyed or

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transferred to other parties for a consideration, taxes and duties shall be collected thereon at double the rate
provided under existing laws payable by the transferor: Provided, further, That rules and regulation, shall be
promulgated by the Department of Finance for the implementation of this Act.
This Court has already held that the following requisites must concur in order that a taxpayer may claim exemption under
the law (1) the imported articles must have been donated; (2) the donee must be a duly incorporated or established
international civic organization, religious or charitable society, or institution for civic religious or charitable purposes; and
(3) the articles so imported must have been donated for the use of the organization, society or institution or for free
distribution and not for barter, sale or hire. (Commissioner v. Church of Jesus Christ "New Jerusalem," G.R. No. L-15772,
Oct. 31, 1961)
In this appeal, the petitioner contends that the importations in question cannot be considered "donations" because the
Missionary Society, which made the shipments, and the Missionary District in the Philippines are not different persons but
rather are one and the same, the latter being a mere branch of the former.
It should be enough to point out that by stipulation of the parties, the respondent Bishop is admitted to be a corporation
sole duly registered with the Securities and Exchange Commission and that the Missionary District is a "duly incorporated
and established religious society." They are, therefore, entities separate and distinct from the Missionary Society whose
address is at 281 Fourth South, New York 10, N.Y., U.S.A. The fact that the Missionary District, of which respondent is the
Bishop, is a branch of the Missionary Society is of no moment. For that matter, so is the Roman Catholic Church in the
Philippines a branch of the Universal Roman Catholic Apostolic Church, but it is a branch only in religious matters, in
matters of faith and dogma. In other respects, it is independent. (Roman Catholic Apostolic Administrator v. Land
Registration Commissioner, G.R. No. L-8451, December 20, 1957)
The Tax Court's finding that the materials and supplies were purchased by the Missionary Society with money obtained
from contributions from other people who should be considered the real donors is also assailed as being based on the
uncorroborated testimony of Robert Meyer, Treasurer of the Missionary District, who it is said, did not have personal
knowledge of the matter testified to by him. This is not so. As respondent points out, the various deeds of donation state in
paragraph 3 that the "Missionary Society is a non-profit organization and derives its support from voluntary contributions."
Petitioner's other point is that St. Luke's Hospital is not a charitable institution considering that it admits paying patients.
Indeed, it was on this ground that petitioner denied respondent's claim for refund. It is argued that pursuant to the last
proviso of Republic Act No. 1916, the Secretary of Finance issued Department Order No. 18 on October 20, 1958, stating
that
Hospitals that admit pay patients and charity patients ... are not charitable institutions for purposes of Republic Act
No 1916.
Again, it should be enough to point out that the admission of pay patients does not detract from the charitable character of
a hospital, if, as in the case of St. Luke's Hospital, its funds are devoted exclusively to the Maintenance of the institution
(Cf., e.g., Herrera v. Quezon City Board of Assessment Appeals, G.R. No. 15270, September 30, 1961). The Secretary of
Finance cannot limit or otherwise qualify the enjoyment of this exemption granted under Republic Act No. 1916 in
implementing the law.
WHEREFORE, the decision appealed from is hereby affirmed with costs.
Bengzon, C.J., Concepcion, Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., and Zaldivar, JJ., concur.
Bautista Angelo, J., took no part.

The Lawphil Project - Arellano Law Foundation

Page 383 of 403

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 124043 October 14, 1998
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
COURT OF APPEALS, COURT OF TAX APPEALS and YOUNG MEN'S CHRISTIAN ASSOCIATION OF THE
PHILIPPINES, INC., respondents.
PANGANIBAN, J.:
Is the income derived from rentals of real property owned by the Young Men's Christian Association of the Philippines, Inc.
(YMCA) established as "a welfare, educational and charitable non-profit corporation" subject to income tax under the
National Internal Revenue Code (NIRC) and the Constitution?
The Case
This is the main question raised before us in this petition for review on certiorari challenging two Resolutions issued by the
Court of Appeals 1 on September 28, 1995 2 and February 29, 1996 3 in CA-GR SP No. 32007. Both Resolutions affirmed
the Decision of the Court of Tax Appeals (CTA) allowing the YMCA to claim tax exemption on the latter's income from the
lease of its real property.
The Facts
The facts are undisputed. 4 Private Respondent YMCA is a non-stock, non-profit institution, which conducts various
programs and activities that are beneficial to the public, especially the young people, pursuant to its religious, educational
and charitable objectives.
In 1980, private respondent earned, among others, an income of P676,829.80 from leasing out a portion of its premises to
small shop owners, like restaurants and canteen operators, and P44,259.00 from parking fees collected from nonmembers. On July 2, 1984, the commissioner of internal revenue (CIR) issued an assessment to private respondent, in
the total amount of P415,615.01 including surcharge and interest, for deficiency income tax, deficiency expanded
withholding taxes on rentals and professional fees and deficiency withholding tax on wages. Private respondent formally
protested the assessment and, as a supplement to its basic protest, filed a letter dated October 8, 1985. In reply, the CIR
denied the claims of YMCA.
Contesting the denial of its protest, the YMCA filed a petition for review at the Court of Tax Appeals (CTA) on March 14,
1989. In due course, the CTA issued this ruling in favor of the YMCA:
. . . [T]he leasing of [private respondent's] facilities to small shop owners, to restaurant and canteen
operators and the operation of the parking lot are reasonably incidental to and reasonably necessary for
the accomplishment of the objectives of the [private respondents]. It appears from the testimonies of the
witnesses for the [private respondent] particularly Mr. James C. Delote, former accountant of YMCA, that
these facilities were leased to members and that they have to service the needs of its members and their
guests. The rentals were minimal as for example, the barbershop was only charged P300 per month. He
also testified that there was actually no lot devoted for parking space but the parking was done at the
sides of the building. The parking was primarily for members with stickers on the windshields of their cars
and they charged P.50 for non-members. The rentals and parking fees were just enough to cover the
costs of operation and maintenance only. The earning[s] from these rentals and parking charges including
those from lodging and other charges for the use of the recreational facilities constitute [the] bulk of its
income which [is] channeled to support its many activities and attainment of its objectives. As pointed out
earlier, the membership dues are very insufficient to support its program. We find it reasonably necessary
therefore for [private respondent] to make [the] most out [of] its existing facilities to earn some income. It
would have been different if under the circumstances, [private respondent] will purchase a lot and convert
it to a parking lot to cater to the needs of the general public for a fee, or construct a building and lease it
out to the highest bidder or at the market rate for commercial purposes, or should it invest its funds in the
buy and sell of properties, real or personal. Under these circumstances, we could conclude that the
activities are already profit oriented, not incidental and reasonably necessary to the pursuit of the

Page 384 of 403

objectives of the association and therefore, will fall under the last paragraph of Section 27 of the Tax Code
and any income derived therefrom shall be taxable.
Considering our findings that [private respondent] was not engaged in the business of operating or
contracting [a] parking lot, we find no legal basis also for the imposition of [a] deficiency fixed tax and [a]
contractor's tax in the amount[s] of P353.15 and P3,129.73, respectively.
xxx xxx xxx
WHEREFORE, in view of all the foregoing, the following assessments are hereby dismissed for lack of
merit:
1980 Deficiency Fixed Tax P353,15;
1980 Deficiency Contractor's Tax P3,129.23;
1980 Deficiency Income Tax P372,578.20.
While the following assessments are hereby sustained:
1980 Deficiency Expanded Withholding Tax P1,798.93;
1980 Deficiency Withholding Tax on Wages P33,058.82
plus 10% surcharge and 20% interest per annum from July 2, 1984 until fully paid but not to exceed three
(3) years pursuant to Section 51(e)(2) & (3) of the National Internal Revenue Code effective as of 1984. 5
Dissatisfied with the CTA ruling, the CIR elevated the case to the Court of Appeals (CA). In its Decision of February 16,
1994, the CA 6 initially decided in favor of the CIR and disposed of the appeal in the following manner:
Following the ruling in the afore-cited cases of Province of Abra vs. Hernando and Abra Valley College
Inc. vs. Aquino, the ruling of the respondent Court of Tax Appeals that "the leasing of petitioner's (herein
respondent's) facilities to small shop owners, to restaurant and canteen operators and the operation of
the parking lot are reasonably incidental to and reasonably necessary for the accomplishment of the
objectives of the petitioners, and the income derived therefrom are tax exempt, must be reversed.
WHEREFORE, the appealed decision is hereby REVERSED in so far as it dismissed the assessment for:
1980 Deficiency Income Tax P 353.15
1980 Deficiency Contractor's Tax P 3,129.23, &
1980 Deficiency Income Tax P 372,578.20
but the same is AFFIRMED in all other respect.

Aggrieved, the YMCA asked for reconsideration based on the following grounds:
I
The findings of facts of the Public Respondent Court of Tax Appeals being supported by substantial
evidence [are] final and conclusive.
II
The conclusions of law of [p]ublic [r]espondent exempting [p]rivate [r]espondent from the income on
rentals of small shops and parking fees [are] in accord with the applicable law and jurisprudence. 8
Finding merit in the Motion for Reconsideration filed by the YMCA, the CA reversed itself and promulgated on September
28, 1995 its first assailed Resolution which, in part, reads:

Page 385 of 403

The Court cannot depart from the CTA's findings of fact, as they are supported by evidence beyond what
is considered as substantial.
xxx xxx xxx
The second ground raised is that the respondent CTA did not err in saying that the rental from small
shops and parking fees do not result in the loss of the exemption. Not even the petitioner would hazard
the suggestion that YMCA is designed for profit. Consequently, the little income from small shops and
parking fees help[s] to keep its head above the water, so to speak, and allow it to continue with its
laudable work.
The Court, therefore, finds the second ground of the motion to be meritorious and in accord with law and
jurisprudence.
WHEREFORE, the motion for reconsideration is GRANTED; the respondent CTA's decision is
AFFIRMED in toto. 9
The internal revenue commissioner's own Motion for Reconsideration was denied by Respondent Court in its second
assailed Resolution of February 29, 1996. Hence, this petition for review under Rule 45 of the Rules of Court. 10
The Issues
Before us, petitioner imputes to the Court of Appeals the following errors:
I
In holding that it had departed from the findings of fact of Respondent Court of Tax Appeals when it
rendered its Decision dated February 16, 1994; and
II
In affirming the conclusion of Respondent Court of Tax Appeals that the income of private respondent
from rentals of small shops and parking fees [is] exempt from taxation. 11
This Court's Ruling
The petition is meritorious.
First Issue:
Factual Findings of the CTA
Private respondent contends that the February 16, 1994 CA Decision reversed the factual findings of the CTA. On the
other hand, petitioner argues that the CA merely reversed the "ruling of the CTA that the leasing of private respondent's
facilities to small shop owners, to restaurant and canteen operators and the operation of parking lots are reasonably
incidental to and reasonably necessary for the accomplishment of the objectives of the private respondent and that the
income derived therefrom are tax exempt." 12 Petitioner insists that what the appellate court reversed was the legal
conclusion, not the factual finding, of the CTA. 13 The commissioner has a point.
Indeed, it is a basic rule in taxation that the factual findings of the CTA, when supported by substantial evidence, will be
disturbed on appeal unless it is shown that the said court committed gross error in the appreciation of facts. 14 In the
present case, this Court finds that the February 16, 1994 Decision of the CA did not deviate from this rule. The latter
merely applied the law to the facts as found by the CTA and ruled on the issue raised by the CIR: "Whether or not the
collection or earnings of rental income from the lease of certain premises and income earned from parking fees shall fall
under the last paragraph of Section 27 of the National Internal Revenue Code of 1977, as amended." 15
Clearly, the CA did not alter any fact or evidence. It merely resolved the aforementioned issue, as indeed it was expected
to. That it did so in a manner different from that of the CTA did not necessarily imply a reversal of factual findings.
The distinction between a question of law and a question of fact is clear-cut. It has been held that "[t]here is a question of
law in a given case when the doubt or difference arises as to what the law is on a certain state of facts; there is a question
of fact when the doubt or difference arises as to the truth or falsehood of alleged facts." 16 In the present case, the CA did

Page 386 of 403

not doubt, much less change, the facts narrated by the CTA. It merely applied the law to the facts. That its interpretation or
conclusion is different from that of the CTA is not irregular or abnormal.
Second Issue:
Is the Rental Income of the YMCA Taxable?
We now come to the crucial issue: Is the rental income of the YMCA from its real estate subject to tax? At the outset, we
set forth the relevant provision of the NIRC:
Sec. 27. Exemptions from tax on corporations. The following organizations shall not be taxed under
this Title in respect to income received by them as such
xxx xxx xxx
(g) Civic league or organization not organized for profit but operated exclusively for the promotion of
social welfare;
(h) Club organized and operated exclusively for pleasure, recreation, and other non-profitable purposes,
no part of the net income of which inures to the benefit of any private stockholder or member;
xxx xxx xxx
Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and character of
the foregoing organizations from any of their properties, real or personal, or from any of their activities
conducted for profit, regardless of the disposition made of such income, shall be subject to the tax
imposed under this Code. (as amended by Pres. Decree No. 1457)
Petitioner argues that while the income received by the organizations enumerated in Section 27 (now Section 26) of the
NIRC is, as a rule, exempted from the payment of tax "in respect to income received by them as such," the exemption
does not apply to income derived ". . . from any of their properties, real or personal, or from any of their activities
conducted for profit, regardless of the disposition made of such income . . . ."
Petitioner adds that "rental income derived by a tax-exempt organization from the lease of its properties, real or personal,
[is] not, therefore, exempt from income taxation, even if such income [is] exclusively used for the accomplishment of its
objectives." 17 We agree with the commissioner.
Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict in interpretation in
construing tax exemptions. 18 Furthermore, a claim of statutory exemption from taxation should be manifest. and
unmistakable from the language of the law on which it is based. Thus, the claimed exemption "must expressly be granted
in a statute stated in a language too clear to be mistaken." 19
In the instant case, the exemption claimed by the YMCA is expressly disallowed by the very wording of the last paragraph
of then Section 27 of the NIRC which mandates that the income of exempt organizations (such as the YMCA) from any of
their properties, real or personal, be subject to the tax imposed by the same Code. Because the last paragraph of said
section unequivocally subjects to tax the rent income of the YMCA from its real property, 20 the Court is duty-bound to
abide strictly by its literal meaning and to refrain from resorting to any convoluted attempt at construction.
It is axiomatic that where the language of the law is clear and unambiguous, its express terms must be
applied. 21Parenthetically, a consideration of the question of construction must not even begin, particularly when such
question is on whether to apply a strict construction or a liberal one on statutes that grant tax exemptions to "religious,
charitable and educational propert[ies] or institutions." 22
The last paragraph of Section 27, the YMCA argues, should be "subject to the qualification that the income from the
properties must arise from activities 'conducted for profit' before it may be considered taxable." 23 This argument is
erroneous. As previously stated, a reading of said paragraph ineludibly shows that the income from any property of
exempt organizations, as well as that arising from any activity it conducts for profit, is taxable. The phrase "any of their
activities conducted for profit" does not qualify the word "properties." This makes from the property of the organization
taxable, regardless of how that income is used whether for profit or for lofty non-profit purposes.
Verba legis non est recedendum. Hence, Respondent Court of Appeals committed reversible error when it allowed, on
reconsideration, the tax exemption claimed by YMCA on income it derived from renting out its real property, on the solitary
but unconvincing ground that the said income is not collected for profit but is merely incidental to its operation. The law

Page 387 of 403

does not make a distinction. The rental income is taxable regardless of whence such income is derived and how it is used
or disposed of. Where the law does not distinguish, neither should we.
Constitutional Provisions
On Taxation
Invoking not only the NIRC but also the fundamental law, private respondent submits that Article VI, Section 28 of par. 3 of
the 1987 Constitution, 24 exempts "charitable institutions" from the payment not only of property taxes but also of income
tax from any source. 25 In support of its novel theory, it compares the use of the words "charitable institutions," "actually"
and "directly" in the 1973 and the 1987 Constitutions, on the one hand; and in Article VI, Section 22, par. 3 of the 1935
Constitution, on the other hand. 26
Private respondent enunciates three points. First, the present provision is divisible into two categories: (1) "[c]haritable
institutions, churches and parsonages or convents appurtenant thereto, mosques and non-profit cemeteries," the incomes
of which are, from whatever source, all tax-exempt; 27 and (2) "[a]ll lands, buildings and improvements actually and directly
used for religious, charitable or educational purposes," which are exempt only from property taxes. 28 Second, Lladoc v.
Commissioner of Internal Revenue, 29 which limited the exemption only to the payment of property taxes, referred to the
provision of the 1935 Constitution and not to its counterparts in the 1973 and the 1987 Constitutions. 30 Third, the phrase
"actually, directly and exclusively used for religious, charitable or educational purposes" refers not only to "all lands,
buildings and improvements," but also to the above-quoted first category which includes charitable institutions like the
private respondent. 31
The Court is not persuaded. The debates, interpellations and expressions of opinion of the framers of the Constitution
reveal their intent which, in turn, may have guided the people in ratifying the Charter. 32 Such intent must be effectuated.
Accordingly, Justice Hilario G. Davide, Jr., a former constitutional commissioner, who is now a member of this Court,
stressed during the Concom debates that ". . . what is exempted is not the institution itself . . .; those exempted from real
estate taxes are lands, buildings and improvements actually, directly and exclusively used for religious, charitable or
educational
purposes." 33 Father Joaquin G. Bernas, an eminent authority on the Constitution and also a member of the Concom,
adhered to the same view that the exemption created by said provision pertained only to property taxes. 34
In his treatise on taxation, Mr. Justice Jose C. Vitug concurs, stating that "[t]he tax exemption covers propertytaxes
only." 35 Indeed, the income tax exemption claimed by private respondent finds no basis in Article VI, Section 26, par. 3 of
the Constitution.
Private respondent also invokes Article XIV, Section 4, par. 3 of the Character, 36 claiming that the YMCA "is a non-stock,
non-profit educational institution whose revenues and assets are used actually, directly and exclusively for educational
purposes so it is exempt from taxes on its properties and income." 37 We reiterate that private respondent is exempt from
the payment of property tax, but not income tax on the rentals from its property. The bare allegation alone that it is a nonstock, non-profit educational institution is insufficient to justify its exemption from the payment of income tax.
As previously discussed, laws allowing tax exemption are construed strictissimi juris. Hence, for the YMCA to be granted
the exemption it claims under the aforecited provision, it must prove with substantial evidence that (1) it falls under the
classification non-stock, non-profit educational institution; and (2) the income it seeks to be exempted from taxation is
used actually, directly, and exclusively for educational purposes. However, the Court notes that not a scintilla of evidence
was submitted by private respondent to prove that it met the said requisites.
Is the YMCA an educational institution within the purview of Article XIV, Section 4, par. 3 of the Constitution? We rule that
it is not. The term "educational institution" or "institution of learning" has acquired a well-known technical meaning, of
which the members of the Constitutional Commission are deemed cognizant. 38 Under the Education Act of 1982, such
term refers to schools. 39 The school system is synonymous with formal education, 40 which "refers to the hierarchically
structured and chronologically graded learnings organized and provided by the formal school system and for which
certification is required in order for the learner to progress through the grades or move to the higher levels." 41 The Court
has examined the "Amended Articles of Incorporation" and "By-Laws" 43 of the YMCA, but found nothing in them that even
hints that it is a school or an educational institution. 44
Furthermore, under the Education Act of 1982, even non-formal education is understood to be school-based and "private
auspices such as foundations and civic-spirited organizations" are ruled out. 45 It is settled that the term "educational
institution," when used in laws granting tax exemptions, refers to a ". . . school seminary, college or educational

Page 388 of 403

establishment . . . ." 46 Therefore, the private respondent cannot be deemed one of the educational institutions covered by
the constitutional provision under consideration.
. . . Words used in the Constitution are to be taken in their ordinary acceptation. While in its broadest and
best sense education embraces all forms and phases of instruction, improvement and development of
mind and body, and as well of religious and moral sentiments, yet in the common understanding and
application it means a place where systematic instruction in any or all of the useful branches of learning is
given by methods common to schools and institutions of learning. That we conceive to be the true intent
and scope of the term [educational institutions,] as used in the
Constitution. 47
Moreover, without conceding that Private Respondent YMCA is an educational institution, the Court also notes that the
former did not submit proof of the proportionate amount of the subject income that was actually, directly and exclusively
used for educational purposes. Article XIII, Section 5 of the YMCA by-laws, which formed part of the evidence submitted,
is patently insufficient, since the same merely signified that "[t]he net income derived from the rentals of the commercial
buildings shall be apportioned to the Federation and Member Associations as the National Board may decide." 48 In sum,
we find no basis for granting the YMCA exemption from income tax under the constitutional provision invoked.
Cases Cited by Private
Respondent Inapplicable
The cases 49 relied on by private respondent do not support its cause. YMCA of Manila v. Collector of Internal
Revenue 50and Abra Valley College, Inc. v. Aquino 51 are not applicable, because the controversy in both cases involved
exemption from the payment of property tax, not income tax. Hospital de San Juan de Dios, Inc. v. Pasay City 52 is not in
point either, because it involves a claim for exemption from the payment of regulatory fees, specifically electrical
inspection fees, imposed by an ordinance of Pasay City an issue not at all related to that involved in a claimed
exemption from the payment of income taxes imposed on property leases. In Jesus Sacred Heart College v. Com. of
Internal Revenue, 53 the party therein, which claimed an exemption from the payment of income tax, was an educational
institution which submitted substantial evidence that the income subject of the controversy had been devoted or used
solely for educational purposes. On the other hand, the private respondent in the present case has not given any proof
that it is an educational institution, or that part of its rent income is actually, directly and exclusively used for educational
purposes.
Epilogue
In deliberating on this petition, the Court expresses its sympathy with private respondent. It appreciates the nobility of its
cause. However, the Court's power and function are limited merely to applying the law fairly and objectively. It cannot
change the law or bend it to suit its sympathies and appreciations. Otherwise, it would be overspilling its role and invading
the realm of legislation.
We concede that private respondent deserves the help and the encouragement of the government. It needs laws that can
facilitate, and not frustrate, its humanitarian tasks. But the Court regrets that, given its limited constitutional authority, it
cannot rule on the wisdom or propriety of legislation. That prerogative belongs to the political departments of government.
Indeed, some of the members of the Court may even believe in the wisdom and prudence of granting more tax
exemptions to private respondent. But such belief, however well-meaning and sincere, cannot bestow upon the Court the
power to change or amend the law.
WHEREFORE, the petition is GRANTED. The Resolutions of the Court of Appeals dated September 28, 1995 and
February 29, 1996 are hereby REVERSED and SET ASIDE. The Decision of the Court of Appeals dated February 16,
1995 is REINSTATED, insofar as it ruled that the income derived by petitioner from rentals of its real property is subject to
income tax. No pronouncement as to costs.
SO ORDERED.
Davide, Jr., Vitug and Quisumbing, JJ., concur.
Bellosillo, J., Please see Dissenting Opinion.
Separate Opinions
BELLOSILLO, J., dissenting;

Page 389 of 403

I vote to deny the petition. The basic rule is that the factual findings of the Court of Tax Appeals when supported by substantial evidence
will not be disturbed on appeal unless it is shown that the court committed grave error in the appreciation of facts. 1 In the instant case,
there is no dispute as to the validity of the findings of the Court of Tax Appeals that private respondent Young Men's Christian
Association (YMCA) is an association organized and operated exclusively for the promotion of social welfare and other non-profitable
purposes, particularly the physical and character development of the youth. 2 The enduring objectives of respondent YMCA as reflected
in its Constitution and By-laws are:
(a) To develop well-balanced Christian personality, mission in life, usefulness of individuals, and the promotion of
unity among Christians and understanding among peoples of all faiths, to the end that the Brotherhood of Man under
the Fatherhood of God may be fostered in an atmosphere of mutual respect and understanding;
(b) To promote on equal basis the physical, mental, and spiritual welfare of the youth, with emphasis on reverence for
God, social discipline, responsibility for the common good, respect for human dignity, and the observance of the
Golden Rule;
(c) To encourage members of the Young Men's Christian Associations in the Philippines to participate loyally in the life
of their respective churches; to bring these churches closer together; and to participate in the effort to realize the
church Universal;
(d) To strengthen and coordinate the work of the Young Men's Christian Associations in the Philippines and to foster
the extension of the Youth Men's Christian Associations to new areas;
(e) To help its Member Associations develop and adopt their programs to the needs of the youth;
(f) To assist the Member Associations in developing and maintaining a high standard of management, operation and
practice; and
(g) To undertake and sponsor national and international programs and activities in pursuance of its purposes and
objectives. 3
Pursuant to these objectives, YMCA has continuously organized and undertaken throughout the country various programs for the youth
through actual workshops, seminars, training, sports and summer camps, conferences on the cultivation of Christian moral values, drug
addiction, out-of-school youth, those with handicap and physical defects and youth alcoholism. To fulfill these multifarious projects and
attain the laudable objectives of YMCA, fund raising has become an indispensable and integral part of the activities of the Association.
YMCA derives its funds from various sources such as membership dues, charges on the use of facilities like bowling and billiards,
lodging, interest income, parking fees, restaurant and canteen. Since the membership dues are very minimal, the Association derives
funds from rentals of small shops, restaurant, canteen and parking fees. For the taxable year ending December 1980, YMCA earned
gross rental income of P676,829.00 and P44,259.00 from parking fees which became the subject of the questioned assessment by
petitioner.
The majority of this Court upheld the findings of the Court of Tax Appeals that the leasing of petitioner's facilities to small shop owners
and to restaurant and canteen operators in addition to the operation of a parking lot are reasonably necessary for and incidental to the
accomplishment of the objectives of YMCA. 4 In fact, these facilities are leased to members in order to service their needs and those of
their guests. The rentals are minimal, such as, the rent of P300.00 for the barbershop. With regard to parking space, there is no lot
actually devoted therefor and the parking is done only along the sides of the building. The parking is primarily for members with car
stickers but to non-members, parking fee is P0.50 only. The rentals and parking fees are just enough to cover the operation and
maintenance costs of these facilities. The earnings which YMCA derives from these rentals and parking fees, together with the charges
for lodging and use of recreational facilities, constitute the bulk or majority of its income used to support its programs and activities.
In its decision of 16 February 1994, the Court of Appeals thus committed grave error in departing from the findings of the Court of Tax
Appeals by declaring that the leasing of YMCA's facilities to shop owners and restaurant operators and the operation of a parking lot
are used for commercial purposes or for profit, which fact takes YMCA outside the coverage of tax exemption. In later granting the
motion for reconsideration filed by respondent YMCA, the Court of Appeals correctly reversed its earlier decision and upheld the
findings of the Court of Tax Appeals by ruling that YMCA is not designed for profit and the little income it derives from rentals and
parking fees helps maintain its noble existence for the fulfillment of its goals for the Christian development of the youth.
Respondent YMCA is undoubtedly exempt from corporate income tax under the provisions of Sec. 27, pars. (g) and (h), of the National
Internal Revenue Code, to wit:
Sec. 27. Exemptions from tax on corporations. The following organizations shall not be taxed under this Title in
respect to income received by them as such . . . (g) civic league or organization not organized for profit but
operated exclusively for the promotion of social welfare; (h) club organized and operated exclusively for pleasure,
recreation and other non-profitable purposes, no part of the net income of which inures to the benefit of any private
stockholder or member . . . . Notwithstanding the provisions in the preceding paragraphs, the income of whatever
kind and character of the foregoing organizations from any of their properties, real or personal, or from any of their
activities conducted for profit, regardless of the disposition made of such income, shall be subject to tax imposed
under this Code.

Page 390 of 403

The majority of the Court accepted petitioner's view that while the income of organizations enumerated in Sec. 27 are exempt from
income tax, such exemption does not however extend to their income of whatever kind or character from any of their properties real or
personal regardless of the disposition made of such income; that based on the wording of the law which is plain and simple and does
not need any interpretation, any income of a tax exempt entity from any of its properties is a taxable income; hence, the rental income
derived by a tax exempt organization from the lease of its properties is not therefore exempt from income taxation even if such income
is exclusively used for the accomplishment of its objectives.
Income derived from its property by a tax exempt organization is not absolutely taxable. Taken in solitude, a word or phrase such as, in
this case, "the income of whatever kind and character . . . from any of their properties" might easily convey a meaning quite different
from the one actually intended and evident when a word or phrase is considered with those with which it is associated. 5 It is a rule in
statutory construction that every part of the statute must be interpreted with reference to the context, that every part of the statute must
be considered together with the other parts and kept subservient to the general intent of the whole enactment. 6 A close reading of the
last paragraph of Sec. 27 of the National Internal Revenue Code, in relation to the whole section on tax exemption of the organizations
enumerated therein, shows that the phrase "conducted for profit" in the last paragraph of Sec. 27 qualifies, limits and describes "the
income of whatever kind and character of the foregoing organizations from any of their properties, real or personal, or from any of their
activities" in order to make such income taxable. It is the exception to Sec. 27 pars. (g) and (h) providing for the tax exemptions of the
income of said organizations. Hence, if such income from property or any other property is not conducted for profit, then it is not
taxable.
Even taken alone and understood according to its plain, simple and literal meaning, the word "income" which is derived from property,
real or personal, provided in the last paragraph of Sec. 27 means the amount of money coming to a person or corporation within a
specified time as profit from investment; the return in money from one's business or capital invested. 7 Income from property also means
gains and profits derived from the sale or other disposition of capital assets; the money which any person or corporation periodically
receives either as profits from business, or as returns from investments 8 The word "income" as used in tax statutes is to be taken in its
ordinary sense as gain or profit. 9
Clearly, therefore, income derived from property whether real or personal connotes profit from business or from investment of the same.
If we are to apply the ordinary meaning of income from property as profit to the language of the last paragraph of Sec. 27 of the NIRC,
then only those profits arising from business and investment involving property are taxable. In the instant case, there is no question that
in leasing its facilities to small shop owners and in operating parking spaces, YMCA does not engage in any profit-making business.
Both the Court of Tax Appeals, and the Court of Appeals in its resolution of 25 September 1995, categorically found that these activities
conducted on YMCA's property were aimed not only at fulfilling the needs and requirements of its members as part of YMCA's youth
program but, more importantly, at raising funds to finance the multifarious projects of the Association.
As the Court has ruled in one case, the fact that an educational institution charges tuition fees and other fees for the different services it
renders to the students does not in itself make the school a profit-making enterprise that would place it beyond the purview of the law
exempting it from taxation. The mere realization of profits out of its operation does not automatically result in the loss of an educational
institution's exemption from income tax as long as no part of its profits inures to the benefit of any stockholder or individual. 10 In order to
claim exemption from income tax, a corporation or association must show that it is organized and operated exclusively for religious,
charitable, scientific, athletic, cultural or educational purposes or for the rehabilitation of veterans, and that no part of its income inures
to the benefit of any private stockholder or individual. 11 The main evidence of the purpose of a corporation should be its articles of
incorporation and by-laws, for such purpose is required by statute to be stated in the articles of incorporation, and the by-laws outline
the administrative organization of the corporation which, in turn, is supposed to insure or facilitate the accomplishment of said
purpose. 12
The foregoing principle applies to income derived by tax exempt corporations from their property. The criterion or test in order to make
such income taxable is when it arises from purely profit-making business. Otherwise, when the income derived from use of property is
reasonable and incidental to the charitable, benevolent, educational or religious purpose for which the corporation or association is
created, such income should be tax-exempt.
In Hospital de San Juan de Dios, Inc. v. Pasay City 13 we held
In this connection, it should be noted that respondent therein is a corporation organized for "charitable, educational
and religious purposes"; that no part of its net income inures to the benefit of any private individual; that it is exempt
from paying income tax; that it operates a hospital in which MEDICAL assistance is given to destitute persons free of
charge; that it maintains a pharmacy department within the premises of said hospital, to supply drugs and medicines
only to charity and paying patients confined therein; and that only the paying patients are required to pay the
medicines supplied to them, for which they are charged the cost of the medicines, plus an additional 10% thereof, to
partly offset the cost of medicines supplied free of charge to charity patients. Under these facts we are of the opinion
and so hold that the Hospital may not be regarded as engaged in "business" by reason of said sale of medicines to its
paying patients . . . (W)e held that the UST Hospital was not established for profit-making purposes, despite the fact
that it had 140 paying beds, because the same were maintained only to partly finance the expenses of the free wards
containing 203 beds for charity patients.
In YMCA of Manila v. Collector of Internal Revenue, 14 this Court explained
It is claimed however that the institution is run as a business in that it keeps a lodging and boarding house. It may be
admitted that there are 64 persons occupying rooms in the main building as lodgers or roomers and that they take

Page 391 of 403

their meals at the restaurant below. These facts however are far from constituting a business in the ordinary
acceptation of the word. In the first place, no profit is realized by the association in any sense. In the second place it
is undoubted, as it is undisputed, that the purpose of the association is not primarily to obtain the money which comes
from the lodgers and boarders. The real purpose is to keep the membership continually within the sphere of influence
of the institution; and thereby to prevent, as far as possible, the opportunities which vice presents to young men in
foreign countries who lack home or other similar influences.
The majority, if not all, of the income of the organizations covered by the exemption provided in Sec. 27, pars. (g) and (h), of the NIRC
are derived from their properties, real or personal. If we are to interpret the last paragraph of Sec. 27 to the effect that all income of
whatever kind from the properties of said organization, real or personal, are taxable, even if not conducted for profit, then Sec. 27, pars.
(g) and (h), would be rendered ineffective and nugatory. As this Court elucidated in Jesus Sacred Heart College v. Collector of Internal
Revenue, 15 every responsible organization must be so run as to at least insure its existence by operating within the limits of its own
resources, especially its regular income. It should always strive whenever possible to have a surplus. If the benefits of the exemption
would be limited to institutions which do not hope or propose to have such surplus, then the exemption would apply only to schools
which are on the verge of bankruptcy. Unlike the United States where a substantial number of institutions of learning are dependent
upon voluntary contributions and still enjoy economic stability, such as Harvard, the trust fund of which has been steadily increasing
with the years, there are and there have always been very few educational enterprises in the Philippines which are supported by
donations, and these organizations usually have a very precarious existence. 16
Finally, the non-taxability of all income and properties of educational institutions finds enduring support in Art. XIV, Sec. 4, par. 3, of the
1987 Constitution
(3) All revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively for
educational purposes shall be exempt from taxes and duties. Upon the dissolution or cessation of the corporate
existence of such institutions, their assets shall be disposed of in the manner provided by law.
In YMCA of Manila v. Collector of Internal Revenue 17 this Court categorically held and found YMCA to be an educational institution
exclusively devoted to educational and charitable purposes and not operated for profit. The purposes of the Association as set forth in
its charter and constitution are "to develop the Christian character and usefulness of its members, to improve the spiritual, intellectual,
social and physical condition of young men and to acquire, hold, mortgage and dispose of the necessary lands, buildings and personal
property for the use of said corporation exclusively for religious, charitable and educational purposes, and not for investment or profit."
YMCA has an educational department, the aim of which is to furnish, at much less than cost, instructions on subjects that will greatly
increase the mental efficiency and wage-earning capacity of young men, prepare them in special lines of business and offer them
special lines of study. We ruled therein that YMCA cannot be said to be an institution used exclusively for religious purposes or an
institution devoted exclusively for charitable purposes or an institution devoted exclusively to educational purposes, but it can be
truthfully said that it is an institution used exclusively for all three purposes and that, as such, it is entitled to be exempted from taxation.
Separate Opinions
BELLOSILLO, J., dissenting;
I vote to deny the petition. The basic rule is that the factual findings of the Court of Tax Appeals when supported by substantial evidence
will not be disturbed on appeal unless it is shown that the court committed grave error in the appreciation of facts. 1 In the instant case,
there is no dispute as to the validity of the findings of the Court of Tax Appeals that private respondent Young Men's Christian
Association (YMCA) is an association organized and operated exclusively for the promotion of social welfare and other non-profitable
purposes, particularly the physical and character development of the youth. 2 The enduring objectives of respondent YMCA as reflected
in its Constitution and By-laws are:
(a) To develop well-balanced Christian personality, mission in life, usefulness of individuals, and the promotion of
unity among Christians and understanding among peoples of all faiths, to the end that the Brotherhood of Man under
the Fatherhood of God may be fostered in an atmosphere of mutual respect and understanding;
(b) To promote on equal basis the physical, mental, and spiritual welfare of the youth, with emphasis on reverence for
God, social discipline, responsibility for the common good, respect for human dignity, and the observance of the
Golden Rule;
(c) To encourage members of the Young Men's Christian Associations in the Philippines to participate loyally in the life
of their respective churches; to bring these churches closer together; and to participate in the effort to realize the
church Universal;
(d) To strengthen and coordinate the work of the Young Men's Christian Associations in the Philippines and to foster
the extension of the Youth Men's Christian Associations to new areas;
(e) To help its Member Associations develop and adopt their programs to the needs of the youth;
(f) To assist the Member Associations in developing and maintaining a high standard of management, operation and
practice; and

Page 392 of 403

(g) To undertake and sponsor national and international programs and activities in pursuance of its purposes and
objectives. 3
Pursuant to these objectives, YMCA has continuously organized and undertaken throughout the country various programs for the youth
through actual workshops, seminars, training, sports and summer camps, conferences on the cultivation of Christian moral values, drug
addiction, out-of-school youth, those with handicap and physical defects and youth alcoholism. To fulfill these multifarious projects and
attain the laudable objectives of YMCA, fund raising has become an indispensable and integral part of the activities of the Association.
YMCA derives its funds from various sources such as membership dues, charges on the use of facilities like bowling and billiards,
lodging, interest income, parking fees, restaurant and canteen. Since the membership dues are very minimal, the Association derives
funds from rentals of small shops, restaurant, canteen and parking fees. For the taxable year ending December 1980, YMCA earned
gross rental income of P676,829.00 and P44,259.00 from parking fees which became the subject of the questioned assessment by
petitioner.
The majority of this Court upheld the findings of the Court of Tax Appeals that the leasing of petitioner's facilities to small shop owners
and to restaurant and canteen operators in addition to the operation of a parking lot are reasonably necessary for and incidental to the
accomplishment of the objectives of YMCA. 4 In fact, these facilities are leased to members in order to service their needs and those of
their guests. The rentals are minimal, such as, the rent of P300.00 for the barbershop. With regard to parking space, there is no lot
actually devoted therefor and the parking is done only along the sides of the building. The parking is primarily for members with car
stickers but to non-members, parking fee is P0.50 only. The rentals and parking fees are just enough to cover the operation and
maintenance costs of these facilities. The earnings which YMCA derives from these rentals and parking fees, together with the charges
for lodging and use of recreational facilities, constitute the bulk or majority of its income used to support its programs and activities.
In its decision of 16 February 1994, the Court of Appeals thus committed grave error in departing from the findings of the Court of Tax
Appeals by declaring that the leasing of YMCA's facilities to shop owners and restaurant operators and the operation of a parking lot
are used for commercial purposes or for profit, which fact takes YMCA outside the coverage of tax exemption. In later granting the
motion for reconsideration filed by respondent YMCA, the Court of Appeals correctly reversed its earlier decision and upheld the
findings of the Court of Tax Appeals by ruling that YMCA is not designed for profit and the little income it derives from rentals and
parking fees helps maintain its noble existence for the fulfillment of its goals for the Christian development of the youth.
Respondent YMCA is undoubtedly exempt from corporate income tax under the provisions of Sec. 27, pars. (g) and (h), of the National
Internal Revenue Code, to wit:
Sec. 27. Exemptions from tax on corporations. The following organizations shall not be taxed under this Title in
respect to income received by them as such . . . (g) civic league or organization not organized for profit but
operated exclusively for the promotion of social welfare; (h) club organized and operated exclusively for pleasure,
recreation and other non-profitable purposes, no part of the net income of which inures to the benefit of any private
stockholder or member . . . . Notwithstanding the provisions in the preceding paragraphs, the income of whatever
kind and character of the foregoing organizations from any of their properties, real or personal, or from any of their
activities conducted for profit, regardless of the disposition made of such income, shall be subject to tax imposed
under this Code.
The majority of the Court accepted petitioner's view that while the income of organizations enumerated in Sec. 27 are exempt from
income tax, such exemption does not however extend to their income of whatever kind or character from any of their properties real or
personal regardless of the disposition made of such income; that based on the wording of the law which is plain and simple and does
not need any interpretation, any income of a tax exempt entity from any of its properties is a taxable income; hence, the rental income
derived by a tax exempt organization from the lease of its properties is not therefore exempt from income taxation even if such income
is exclusively used for the accomplishment of its objectives.
Income derived from its property by a tax exempt organization is not absolutely taxable. Taken in solitude, a word or phrase such as, in
this case, "the income of whatever kind and character . . . from any of their properties" might easily convey a meaning quite different
from the one actually intended and evident when a word or phrase is considered with those with which it is associated. 5 It is a rule in
statutory construction that every part of the statute must be interpreted with reference to the context, that every part of the statute must
be considered together with the other parts and kept subservient to the general intent of the whole enactment. 6 A close reading of the
last paragraph of Sec. 27 of the National Internal Revenue Code, in relation to the whole section on tax exemption of the organizations
enumerated therein, shows that the phrase "conducted for profit" in the last paragraph of Sec. 27 qualifies, limits and describes "the
income of whatever kind and character of the foregoing organizations from any of their properties, real or personal, or from any of their
activities" in order to make such income taxable. It is the exception to Sec. 27 pars. (g) and (h) providing for the tax exemptions of the
income of said organizations. Hence, if such income from property or any other property is not conducted for profit, then it is not
taxable.
Even taken alone and understood according to its plain, simple and literal meaning, the word "income" which is derived from property,
real or personal, provided in the last paragraph of Sec. 27 means the amount of money coming to a person or corporation within a
specified time as profit from investment; the return in money from one's business or capital invested. 7 Income from property also means
gains and profits derived from the sale or other disposition of capital assets; the money which any person or corporation periodically
receives either as profits from business, or as returns from investments 8 The word "income" as used in tax statutes is to be taken in its
ordinary sense as gain or profit. 9

Page 393 of 403

Clearly, therefore, income derived from property whether real or personal connotes profit from business or from investment of the same.
If we are to apply the ordinary meaning of income from property as profit to the language of the last paragraph of Sec. 27 of the NIRC,
then only those profits arising from business and investment involving property are taxable. In the instant case, there is no question that
in leasing its facilities to small shop owners and in operating parking spaces, YMCA does not engage in any profit-making business.
Both the Court of Tax Appeals, and the Court of Appeals in its resolution of 25 September 1995, categorically found that these activities
conducted on YMCA's property were aimed not only at fulfilling the needs and requirements of its members as part of YMCA's youth
program but, more importantly, at raising funds to finance the multifarious projects of the Association.
As the Court has ruled in one case, the fact that an educational institution charges tuition fees and other fees for the different services it
renders to the students does not in itself make the school a profit-making enterprise that would place it beyond the purview of the law
exempting it from taxation. The mere realization of profits out of its operation does not automatically result in the loss of an educational
institution's exemption from income tax as long as no part of its profits inures to the benefit of any stockholder or individual. 10 In order to
claim exemption from income tax, a corporation or association must show that it is organized and operated exclusively for religious,
charitable, scientific, athletic, cultural or educational purposes or for the rehabilitation of veterans, and that no part of its income inures
to the benefit of any private stockholder or individual. 11 The main evidence of the purpose of a corporation should be its articles of
incorporation and by-laws, for such purpose is required by statute to be stated in the articles of incorporation, and the by-laws outline
the administrative organization of the corporation which, in turn, is supposed to insure or facilitate the accomplishment of said
purpose. 12
The foregoing principle applies to income derived by tax exempt corporations from their property. The criterion or test in order to make
such income taxable is when it arises from purely profit-making business. Otherwise, when the income derived from use of property is
reasonable and incidental to the charitable, benevolent, educational or religious purpose for which the corporation or association is
created, such income should be tax-exempt.
In Hospital de San Juan de Dios, Inc. v. Pasay City 13 we held
In this connection, it should be noted that respondent therein is a corporation organized for "charitable, educational
and religious purposes"; that no part of its net income inures to the benefit of any private individual; that it is exempt
from paying income tax; that it operates a hospital in which MEDICAL assistance is given to destitute persons free of
charge; that it maintains a pharmacy department within the premises of said hospital, to supply drugs and medicines
only to charity and paying patients confined therein; and that only the paying patients are required to pay the
medicines supplied to them, for which they are charged the cost of the medicines, plus an additional 10% thereof, to
partly offset the cost of medicines supplied free of charge to charity patients. Under these facts we are of the opinion
and so hold that the Hospital may not be regarded as engaged in "business" by reason of said sale of medicines to its
paying patients . . . (W)e held that the UST Hospital was not established for profit-making purposes, despite the fact
that it had 140 paying beds, because the same were maintained only to partly finance the expenses of the free wards
containing 203 beds for charity patients.
In YMCA of Manila v. Collector of Internal Revenue, 14 this Court explained
It is claimed however that the institution is run as a business in that it keeps a lodging and boarding house. It may be
admitted that there are 64 persons occupying rooms in the main building as lodgers or roomers and that they take
their meals at the restaurant below. These facts however are far from constituting a business in the ordinary
acceptation of the word. In the first place, no profit is realized by the association in any sense. In the second place it
is undoubted, as it is undisputed, that the purpose of the association is not primarily to obtain the money which comes
from the lodgers and boarders. The real purpose is to keep the membership continually within the sphere of influence
of the institution; and thereby to prevent, as far as possible, the opportunities which vice presents to young men in
foreign countries who lack home or other similar influences.
The majority, if not all, of the income of the organizations covered by the exemption provided in Sec. 27, pars. (g) and (h), of the NIRC
are derived from their properties, real or personal. If we are to interpret the last paragraph of Sec. 27 to the effect that all income of
whatever kind from the properties of said organization, real or personal, are taxable, even if not conducted for profit, then Sec. 27, pars.
(g) and (h), would be rendered ineffective and nugatory. As this Court elucidated in Jesus Sacred Heart College v. Collector of Internal
Revenue, 15 every responsible organization must be so run as to at least insure its existence by operating within the limits of its own
resources, especially its regular income. It should always strive whenever possible to have a surplus. If the benefits of the exemption
would be limited to institutions which do not hope or propose to have such surplus, then the exemption would apply only to schools
which are on the verge of bankruptcy. Unlike the United States where a substantial number of institutions of learning are dependent
upon voluntary contributions and still enjoy economic stability, such as Harvard, the trust fund of which has been steadily increasing
with the years, there are and there have always been very few educational enterprises in the Philippines which are supported by
donations, and these organizations usually have a very precarious existence. 16
Finally, the non-taxability of all income and properties of educational institutions finds enduring support in Art. XIV, Sec. 4, par. 3, of the
1987 Constitution
(3) All revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively for
educational purposes shall be exempt from taxes and duties. Upon the dissolution or cessation of the corporate
existence of such institutions, their assets shall be disposed of in the manner provided by law.

Page 394 of 403

In YMCA of Manila v. Collector of Internal Revenue 17 this Court categorically held and found YMCA to be an educational institution
exclusively devoted to educational and charitable purposes and not operated for profit. The purposes of the Association as set forth in
its charter and constitution are "to develop the Christian character and usefulness of its members, to improve the spiritual, intellectual,
social and physical condition of young men and to acquire, hold, mortgage and dispose of the necessary lands, buildings and personal
property for the use of said corporation exclusively for religious, charitable and educational purposes, and not for investment or profit."
YMCA has an educational department, the aim of which is to furnish, at much less than cost, instructions on subjects that will greatly
increase the mental efficiency and wage-earning capacity of young men, prepare them in special lines of business and offer them
special lines of study. We ruled therein that YMCA cannot be said to be an institution used exclusively for religious purposes or an
institution devoted exclusively for charitable purposes or an institution devoted exclusively to educational purposes, but it can be
truthfully said that it is an institution used exclusively for all three purposes and that, as such, it is entitled to be exempted from taxation.
Footnotes
1 Special Former Fourth Division composed of J. Nathanael P. de Pano, Jr., presiding justice andponente; and JJ. Fidel P. Purisima (now an associate
justice of the Supreme Court) and Corona Ibay-Somera, concurring.
2 Rollo, pp. 42-48.
3 Ibid., pp. 50-51.
4 See Memorandum of private respondent, pp. 1-10 and Memorandum of petitioner; pp. 3-10; rollo, pp. 149-158 and 192-199, respectively. See
also Decision of the CTA, pp. 1-21; rollo, pp. 69-89.
5 CTA Decision, pp. 16-18 and 2-21; rollo, pp. 84-86 and 88-89.
6 Penned by J. Asaali S. Isnani and concurred in by JJ. Nathanael P. De Pano, Jr., chairman, and Corona Ibay-Somera of the Fourth Division.
7 Rollo, pp. 39-40.
8 CA Resolution, p. 2; rollo, p. 43.
9 Ibid., pp. 2, 6-7; rollo, pp. 43, 47-48.
10 The case was submitted for resolution on April 27, 1998, upon receipt by this Court of private respondent's Reply Memorandum.
11 Petitioner's Memorandum, pp. 10-11; rollo, pp. 199-200.
12 Ibid., p. 16; rollo, p. 205.
13 Ibid., p. 17; rollo, p. 206.
14 Commissioner of Internal Revenue v. Mitsubishi Metal Corp., 181 SCRA 214, 220, January 22, 1990.
15 Rollo, p. 36.
16 Ramos et al. v. Pepsi Cola Bottling Co. of the P.I. et al., 19 SCRA 289, 292, February 9, 1967, per Bengzon, J.; citing II Martin, Rules of Court in the
Philippines, 255 and II Bouvier's Law Dictionary, 2784.
17 Memorandum for Petitioner, pp. 21-22; rollo, pp. 210-211.
18 See Commissioner of Internal Revenue v. Court of Appeals, 271 SCRA 605, 613, April 18, 1997.
19 Davao Gulf Lumber Corporation v. Commissioner of Internal Revenue and Court of Appeals, G.R. No. 117359, p. 15 July 23, 1998, per
Panganiban, J.
20 Justice Jose C. Vitug, Compendium of Tax Law and Jurisprudence, p. 75, 4th revised ed. (1989); and De Leon, Hector S., The National Internal
Revenue Code Annotated, p. 108, 5th ed. (1994),citing a BIR ruling dated May 6, 1975.
21 See Ramirez v. Court of Appeals, 248 SCRA 590, 596, September 28, 1995.
22 Cooley, Thomas M., The Law of Taxation, p. 1415, Vol. II, 4th ed. (1924).
23 Reply Memorandum of private respondent, p. 10; rollo, p. 234.
24 "Charitable institutions, churches and parsonages or convents appurtenant thereto,mosques, non-profit cemeteries, and all lands, buildings, and
improvements actually, directly, and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation." (Underlining
copied from Reply Memorandum of Private Respondent, p. 7; rollo, p. 231)
25 Reply Memorandum of private respondent, p. 7; rollo, p. 231.
26 "Cemeteries, churches, and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements actually, directly, and
exclusively used for religious, charitable, or educational purposes shall be exempt from taxation."
27 Reply Memorandum of private respondent, pp. 7-8; rollo, pp. 231-232.
28 Ibid., p. 8; rollo, p. 232.
29 14 SCRA 292, June 16, 1965.
30 Reply Memorandum of private respondent, pp. 6-7; rollo, pp. 230-231.
31 Ibid., p. 9; rollo, p. 233.
32 Nitafan v. Commissioner of Internal Revenue, 152 SCRA 284, 291-292, July 27, 1987.
33 Record of the Constitutional Commission, Vol. Two, p. 90.
34 Bernas, Joaquin G., The 1987 Constitution of the Republic of the Philippines: A Commentary, p. 720, 1996 ed; citing Lladoc v. Commissioner of
Internal Revenue, supra, p. 295.
35 Vitug, supra, p. 16.
36 "All revenue and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes shall b
exempt from taxes and duties. Upon the dissolution or cessation of the corporate existence of such institutions, their assets shall be disposed of in the
manner provided by law."
37 Reply Memorandum of private respondent, p. 20; rollo, p. 244.
38 See Krivenko v. Register of Deeds of Manila, 79 Phil 461, 468 (1947).
39 Sec. 36, Batas Pambansa Blg. 232.
40 Sec. 19, Batas Pambansa Blg. 232.
41 Sec. 20, Batas Pambansa Blg. 232.
42 Exh. B, BIR Records, pp. 54-56.
43 Exh. C, BIR Records, pp. 27-53.
44 This is in stark contrast to its predecessor, the YMCA of Manila. In YMCA of Manila v. Collector of Internal Revenue (33 Phil 217, 221 [1916]), cited by
private respondent, it was noted that the said institution had an educational department that taught courses in various subjects such as law, commerce,
social ethics, political economy and others.
45 Dizon, Amado C., Education Act of 1982 Annotated, Expanded and Updated, p. 71 (1990).
46 84 CJS 566.
47 Kesselring v. Bonnycastle Club, 186 SW2d 402, 404 (1945).
48 "By-Laws of the YMCA," p. 22; BIR Records, p. 31.
49 Reply Memorandum of private respondent, pp. 14-16; rollo, pp. 238-240.
50 Supra.
51 162 SCRA 106, June 15, 1988.
52 16 SCRA 226, February 28, 1966.
52 95 SCRA 16, May 24, 1954.
BELLOSILLO, J., dissenting;
1 Commissioner of Internal Revenue v. Mitsubishi Metal Corporation, G.R. No. 54908, 22 January 1995, 181 SCRA 2140.
2 Rollo, p. 76.
3 Rollo, pp. 76-77.
4 Rollo, p. 84.
5 Sajonas v. Court of Appeals, G.R. No. 102377, 5 July 1996, 258 SCRA 79.
6 Paras v. Commission on Elections, G.R. No. 123169, 4 November 1996, 264 SCRA 49.

Page 395 of 403

7 Moreno, Federico B., Philippine Law Dictionary, Third Edition.
8 Sibal Jose Agaton R., Philippine Legal Encyclopedia 1986 Edition.
9 Words and Phrases, Vol. 20A 1959 Ed. p. 1616.
10 Collector of Internal Revenue v. University of the Visayas, L-13554, 28 February 1961, 1 SCRA 669.
11 Ibid.
12 Jesus Sacred Heart College v. Collector of Internal Revenue, 95 Phil. 16 [1954].
13 No. L-19371, 28 February 1966, 16 SCRA 226.
14 33 Phil. 217 [1916].
15 See Note 11.
16 Ibid.
17 See Note 13.
The Lawphil Project - Arellano Law Foundation

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

SMART COMMUNICATIONS, INC.,

G.R. No. 155491

Petitioner,

Present:

- versus -

YNARES-SANTIAGO, J.,

THE CITY OF DAVAO, represented herein by its Mayor Chairperson,

HON. RODRIGO R. DUTERTE, and the
SANGGUNIANG PANLUNGSOD OF DAVAO CITY,
AUSTRIA-MARTINEZ,
Respondents.

CHICO-NAZARIO,
NACHURA, and
REYES, JJ.
Promulgated:
September 16, 2008

x------------------------------------------------------------------------------------x
DECISION
NACHURA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by Smart Communications,
Inc. (Smart) against the City of Davao, represented by its Mayor, Hon. Rodrigo R. Duterte, and the
Sangguniang Panlungsod of Davao City, to annul the Decision 1 dated July 19, 2002 of the Regional Trial
Court (RTC) and its Order2 dated September 26, 2002 in Sp. Civil Case No. 28,976-2002.
The Facts
On February 18, 2002, Smart filed a special civil action for declaratory relief 3 under Rule 63 of the Rules of
Court, for the ascertainment of its rights and obligations under the Tax Code of the City of Davao, 4 particularly
Section 1, Article 10 thereof, the pertinent portion of which reads:
Notwithstanding any exemption granted by any law or other special law, there is hereby imposed a tax on
businesses enjoying a franchise, at a rate of seventy-five percent (75%) of one percent (1%) of the gross
annual receipts for the preceding calendar year based on the income or receipts realized within the territorial
jurisdiction of Davao City.

Page 396 of 403

Smart contends that its telecenter in Davao City is exempt from payment of franchise tax to the City, on the
following grounds: (a) the issuance of its franchise under Republic Act (R.A.) No. 7294 5 subsequent to R.A.
No. 7160 shows the clear legislative intent to exempt it from the provisions of R.A. 7160; 6 (b) Section 137 of
R.A. No. 7160 can only apply to exemptions already existing at the time of its effectivity and not to future
exemptions; (c) the power of the City of Davao to impose a franchise tax is subject to statutory limitations
such as the "in lieu of all taxes" clause found in Section 9 of R.A. No. 7294; and (d) the imposition of
franchise tax by the City of Davao would amount to a violation of the constitutional provision against
impairment of contracts.7
On March 2, 2002, respondents filed their Answer 8 in which they contested the tax exemption claimed by
Smart. They invoked the power granted by the Constitution to local government units to create their own
sources of revenue.9
On May 17, 2002, a pre-trial conference was held. Inasmuch as only legal issues were involved in the case,
the RTC issued an order requiring the parties to submit their respective memoranda and, thereafter, the case
would be deemed submitted for resolution.10
On July 19, 2002, the RTC rendered its Decision11 denying the petition. The trial court noted that the
ambiguity of the "in lieu of all taxes" provision in R.A. No. 7294, on whether it covers both national and local
taxes, must be resolved against the taxpayer.12 The RTC ratiocinated that tax exemptions are construed in
strictissimi juris against the taxpayer and liberally in favor of the taxing authority and, thus, those who assert a
tax exemption must justify it with words too plain to be mistaken and too categorical not to be
misinterpreted.13 On the issue of violation of the non-impairment clause of the Constitution, the trial court cited
Mactan Cebu International Airport Authority v. Marcos,14 and declared that the citys power to tax is based not
merely on a valid delegation of legislative power but on the direct authority granted to it by the fundamental
law. It added that while such power may be subject to restrictions or conditions imposed by Congress, any
such legislated limitation must be consistent with the basic policy of local autonomy.15
Smart filed a motion for reconsideration which was denied by the trial court in an Order 16 dated September
26, 2002.
Thus, the instant case.
Smart assigns the following errors:
[a.] THE LOWER COURT ERRED IN NOT HOLDING THAT UNDER PETITIONERS FRANCHISE
(REPUBLIC ACT NO. 7294), WHICH CONTAINS THE "IN LIEU OF ALL TAXES" CLAUSE, AND WHICH IS A
SPECIAL LAW ENACTED SUBSEQUENT TO THE LOCAL GOVERNMENT CODE, NO FRANCHISE TAX
MAY BE IMPOSED ON PETITIONER BY RESPONDENT CITY.
[b.] THE LOWER COURT ERRED IN HOLDING THAT PETITIONERS FRANCHISE IS A GENERAL LAW
AND DID NOT REPEAL RELEVANT PROVISIONS REGARDING FRANCHISE TAX OF THE LOCAL
GOVERNMENT CODE, WHICH ACCORDING TO THE COURT IS A SPECIAL LAW.
[c.] THE LOWER COURT ERRED IN NOT HOLDING THAT SECTION 137 OF THE LOCAL GOVERNMENT
CODE, WHICH, IN RELATION TO SECTION 151 THEREOF, ALLOWS RESPONDENT CITY TO IMPOSE
THE FRANCHISE TAX, AND SECTION 193 OF THE CODE, WHICH PROVIDES FOR WITHDRAWAL OF
TAX EXEMPTION PRIVILEGES, ARE NOT APPLICABLE TO THIS CASE.
[d.] THE LOWER COURT ERRED IN NOT HOLDING THAT SECTIONS 137 AND 193 OF THE LOCAL
GOVERNMENT CODE REFER ONLY TO EXEMPTIONS ALREADY EXISTING AT THE TIME OF ITS
ENACTMENT BUT NOT TO FUTURE EXEMPTIONS.
[e.] THE LOWER COURT ERRED IN APPLYING THE RULE OF STATUTORY CONSTRUCTION THAT TAX
EXEMPTIONS ARE CONSTRUED STRICTLY AGAINST THE TAXPAYER.
[f.] THE LOWER COURT ERRED IN NOT HOLDING THAT PETITIONERS FRANCHISE (REPUBLIC ACT
NO. 7294) HAS BEEN AMENDED AND EXPANDED BY SECTION 23 OF REPUBLIC ACT NO. 7925, "THE
PUBLIC TELECOMMUNICATIONS POLICY ACT," TAKING INTO ACCOUNT THE FRANCHISE OF GLOBE
TELECOM, INC. (GLOBE) (REPUBLIC ACT NO. 7229), WHICH ARE SPECIAL PROVISIONS AND WERE
ENACTED SUBSEQUENT TO THE LOCAL GOVERNMENT CODE, THEREBY PROVIDING AN
ADDITIONAL GROUND WHY NO FRANCHISE TAX MAY BE IMPOSED ON PETITIONER BY
RESPONDENT CITY.
[g.] THE LOWER COURT ERRED IN DISREGARDING THE RULING OF THE DEPARTMENT OF FINANCE,
THROUGH ITS BUREAU OF LOCAL GOVERNMENT FINANCE, THAT PETITIONER IS EXEMPT FROM
THE PAYMENT OF THE FRANCHISE TAX IMPOSABLE BY LOCAL GOVERNMENT UNITS UNDER THE

Page 397 of 403

LOCAL GOVERNMENT CODE.

[h.] THE LOWER COURT ERRED IN NOT HOLDING THAT THE IMPOSITION OF THE LOCAL FRANCHISE
TAX ON PETITIONER WOULD VIOLATE THE CONSTITUTIONAL PROHIBITION AGAINST IMPAIRMENT
OF CONTRACTS.
[i.] THE LOWER COURT ERRED IN DENYING THE PETITION BELOW.17
The Issue
In sum, the pivotal issue in this case is whether Smart is liable to pay the franchise tax imposed by the City of
Davao.
The Ruling of the Court
We rule in the affirmative.
I. Prospective Effect of R.A. No. 7160
On March 27, 1992, Smarts legislative franchise (R.A. No. 7294) took effect. Section 9 thereof, quoted
hereunder, is at the heart of the present controversy:
Section 9. Tax provisions. The grantee, its successors or assigns shall be liable to pay the same taxes on
their real estate buildings and personal property, exclusive of' this franchise, as other persons or corporations
which are now or hereafter may be required by law to pay. In addition thereto, the grantee, its successors or
assigns shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of the business
transacted under this franchise by the grantee, its successors or assigns and the said percentage shall be in
lieu of all taxes on this franchise or earnings thereof: Provided, That the grantee, its successors or assigns
shall continue to be liable for income taxes payable under Title II of the National Internal Revenue Code
pursuant to Section 2 of Executive Order No. 72 unless the latter enactment is amended or repealed, in which
case the amendment or repeal shall be applicable thereto.
The grantee shall file the return with and pay the tax due thereon to the Commissioner of Internal Revenue or
his duly authorized representative in accordance with the National Internal Revenue Code and the return
shall be subject to audit by the Bureau of Internal Revenue. (Emphasis supplied.)
Smart alleges that the "in lieu of all taxes" clause in Section 9 of its franchise exempts it from all taxes, both
local and national, except the national franchise tax (now VAT), income tax, and real property tax. 18
On January 1, 1992, two months ahead of Smarts franchise, the Local Government Code (R.A. No. 7160)
took effect. Section 137, in relation to Section 151 of R.A. No. 7160, allowed the imposition of franchise tax by
the local government units; while Section 193 thereof provided for the withdrawal of tax exemption privileges
granted prior to the issuance of R.A. No. 7160 except for those expressly mentioned therein, viz.:
Section 137. Franchise Tax. Notwithstanding any exemption granted by any law or other special law, the
province may impose a tax on businesses enjoying a franchise, at the rate not exceeding fifty percent (50%)
of one percent (1%) of the gross annual receipts for the preceding calendar year based on the incoming
receipt, or realized, within its territorial jurisdiction.
In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one percent (1%) of
the capital investment. In the succeeding calendar year, regardless of when the business started to operate,
the tax shall be based on the gross receipts for the preceding calendar year, or any fraction thereon, as
provided herein.
Section 151. Scope of Taxing Powers. Except as otherwise provided in this Code, the city may levy the
taxes, fees, and charges which the province or municipality may impose: Provided, however, That the taxes,
fees and charges levied and collected by highly urbanized and independent component cities shall accrue to
them and distributed in accordance with the provisions of this Code.
The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or
municipality by not more than fifty percent (50%) except the rates of professional and amusement taxes.
Section 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical,
including government-owned or controlled corporations, except local water districts, cooperatives duly
registered under RA No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby

Page 398 of 403

withdrawn upon the effectivity of this Code. (Emphasis supplied.)

Smart argues that it is not covered by Section 137, in relation to Section 151 of R.A. No. 7160, because its
franchise was granted after the effectivity of the said law. We agree with Smarts contention on this matter.
The withdrawal of tax exemptions or incentives provided in R.A. No. 7160 can only affect those franchises
granted prior to the effectivity of the law. The intention of the legislature to remove all tax exemptions or
incentives granted prior to the said law is evident in the language of Section 193 of R.A. No. 7160. No
interpretation is necessary.
II. The "in lieu of all taxes" Clause in R.A. No. 7294
The "in lieu of all taxes" clause in Smarts franchise is put in issue before the Court. In order to ascertain its
meaning, consistent with fundamentals of statutory construction, all the words in the statute must be
considered. The grant of tax exemption by R.A. No. 7294 is not to be interpreted from a consideration of a
single portion or of isolated words or clauses, but from a general view of the act as a whole. Every part of the
statute must be construed with reference to the context. 19
Smart is of the view that the only taxes it may be made to bear under its franchise are the national franchise
tax (now VAT), income tax, and real property tax. 20 It claims exemption from the local franchise tax because
the "in lieu of taxes" clause in its franchise does not distinguish between national and local taxes. 21
We pay heed that R.A. No. 7294 is not definite in granting exemption to Smart from local taxation. Section 9
of R.A. No. 7294 imposes on Smart a franchise tax equivalent to three percent (3%) of all gross receipts of
the business transacted under the franchise and the said percentage shall be in lieu of all taxes on the
franchise or earnings thereof. R.A. No 7294 does not expressly provide what kind of taxes Smart is exempted
from. It is not clear whether the "in lieu of all taxes" provision in the franchise of Smart would include
exemption from local or national taxation. What is clear is that Smart shall pay franchise tax equivalent to
three percent (3%) of all gross receipts of the business transacted under its franchise. But whether the
franchise tax exemption would include exemption from exactions by both the local and the national
government is not unequivocal.
The uncertainty in the "in lieu of all taxes" clause in R.A. No. 7294 on whether Smart is exempted from both
local and national franchise tax must be construed strictly against Smart which claims the exemption. Smart
has the burden of proving that, aside from the imposed 3% franchise tax, Congress intended it to be exempt
from all kinds of franchise taxes whether local or national. However, Smart failed in this regard.
Tax exemptions are never presumed and are strictly construed against the taxpayer and liberally in favor of
the taxing authority.22 They can only be given force when the grant is clear and categorical. 23 The surrender of
the power to tax, when claimed, must be clearly shown by a language that will admit of no reasonable
construction consistent with the reservation of the power. If the intention of the legislature is open to doubt,
then the intention of the legislature must be resolved in favor of the State. 24
In this case, the doubt must be resolved in favor of the City of Davao. The "in lieu of all taxes" clause applies
only to national internal revenue taxes and not to local taxes. As appropriately pointed out in the separate
opinion of Justice Antonio T. Carpio in a similar case25 involving a demand for exemption from local franchise
taxes:
[T]he "in lieu of all taxes" clause in Smart's franchise refers only to taxes, other than income tax, imposed
under the National Internal Revenue Code. The "in lieu of all taxes" clause does not apply to local taxes. The
proviso in the first paragraph of Section 9 of Smart's franchise states that the grantee shall "continue to be
liable for income taxes payable under Title II of the National Internal Revenue Code." Also, the second
paragraph of Section 9 speaks of tax returns filed and taxes paid to the "Commissioner of Internal Revenue
or his duly authorized representative in accordance with the National Internal Revenue Code." Moreover, the
same paragraph declares that the tax returns "shall be subject to audit by the Bureau of Internal Revenue."
Nothing is mentioned in Section 9 about local taxes. The clear intent is for the "in lieu of all taxes" clause to
apply only to taxes under the National Internal Revenue Code and not to local taxes. Even with respect to
national internal revenue taxes, the "in lieu of all taxes" clause does not apply to income tax.
If Congress intended the "in lieu of all taxes" clause in Smart's franchise to also apply to local taxes,
Congress would have expressly mentioned the exemption from municipal and provincial taxes. Congress
could have used the language in Section 9(b) of Clavecilla's old franchise, as follows:
x x x in lieu of any and all taxes of any kind, nature or description levied, established or collected by any
authority whatsoever, municipal, provincial or national, from which the grantee is hereby expressly exempted,
x x x. (Emphasis supplied).
However, Congress did not expressly exempt Smart from local taxes. Congress used the "in lieu of all taxes"
clause only in reference to national internal revenue taxes. The only interpretation, under the rule on strict

Page 399 of 403

construction of tax exemptions, is that the "in lieu of all taxes" clause in Smart's franchise refers only to
national and not to local taxes.
It should be noted that the "in lieu of all taxes" clause in R.A. No. 7294 has become functus officio with the
abolition of the franchise tax on telecommunications companies. 26 As admitted by Smart in its pleadings, it is
no longer paying the 3% franchise tax mandated in its franchise. Currently, Smart along with other
telecommunications companies pays the uniform 10% value-added tax. 27
The VAT on sale of services of telephone franchise grantees is equivalent to 10% of gross receipts derived
from the sale or exchange of services.28 R.A. No. 7716, as amended by the Expanded Value Added Tax Law
(R.A. No. 8241), the pertinent portion of which is hereunder quoted, amended Section 9 of R.A. No. 7294:
SEC. 102. 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, including the use or lease of properties.
The phrase "sale or exchange of services" means the performance of all kinds of services in the Philippines
for others for a fee, remuneration or consideration, including those performed or rendered by construction
and service contractors; stock, real estate, commercial, customs and immigration brokers; lessors of property,
whether personal or real; warehousing services; lessors or distributors of cinematographic films; persons
engaged in milling, processing, manufacturing or repacking goods for others; proprietors, operators or
keepers of hotels, motels, rest houses, pension houses, inns, resorts; proprietors or operators of restaurants,
refreshment parlors, cafes and other eating places, including clubs and caterers; dealers in securities; lending
investors; transportation contractors on their transport of goods or cargoes, including persons who transport
goods or cargoes for hire and other domestic common carriers by land, air, and water relative to their
transport of goods or cargoes; services of franchise grantees of telephone and telegraph, radio and television
broadcasting and all other franchise grantees except those under Section 117 of this Code; services of banks,
non-bank financial intermediaries and finance companies; and non-life insurance companies (except their
crop insurances) including surety, fidelity, indemnity and bonding companies; and similar services regardless
of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties. x x
x.29
R.A. No. 7716, specifically Section 20 thereof, expressly repealed the provisions of all special laws relative to
the rate of franchise taxes. It also repealed, amended, or modified all other laws, orders, issuances, rules and
regulations, or parts thereof which are inconsistent with it. 30 In effect, the "in lieu of all taxes" clause in R.A.
No. 7294 was rendered ineffective by the advent of the VAT Law.31
However, the franchise tax that the City of Davao may impose must comply with Sections 137 and 151 of
R.A. No. 7160. Thus, the local franchise tax that may be imposed by the City must not exceed 50% of 1% of
the gross annual receipts for the preceding calendar year based on the income on receipts realized within the
territorial jurisdiction of Davao.
III. Opinion of the Bureau of Local Government Finance (BLGF)
In support of its argument that the "in lieu of all taxes" clause is to be construed as an exemption from local
franchise taxes, Smart submits the opinion of the Department of Finance, through the BLGF, dated August
13, 1998 and February 24, 1998, regarding the franchises of Smart and Globe, respectively.32 Smart presents
the same arguments as the Philippine Long Distance Telephone Company in the previous cases already
decided by this Court.33 As previously held by the Court, the findings of the BLGF are not conclusive on the
courts:
[T]he BLGF opined that 23 of R.A. No. 7925 amended the franchise of petitioner and in effect restored its
exemptions from local taxes. Petitioner contends that courts should not set aside conclusions reached by the
BLGF because its function is precisely the study of local tax problems and it has necessarily developed an
expertise on the subject.
To be sure, the BLGF is not an administrative agency whose findings on questions of fact are given weight
and deference in the courts. The authorities cited by petitioner pertain to the Court of Tax Appeals, a highly
specialized court which performs judicial functions as it was created for the review of tax cases. In contrast,
the BLGF was created merely to provide consultative services and technical assistance to local governments
and the general public on local taxation, real property assessment, and other related matters, among others.
The question raised by petitioner is a legal question, to wit, the interpretation of 23 of R.A. No. 7925. There
is, therefore, no basis for claiming expertise for the BLGF that administrative agencies are said to possess in
their respective fields.
Petitioner likewise argues that the BLGF enjoys the presumption of regularity in the performance of its duty. It
does enjoy this presumption, but this has nothing to do with the question in this case. This case does not
concern the regularity of performance of the BLGF in the exercise of its duties, but the correctness of its
interpretation of a provision of law.34

Page 400 of 403

IV. Tax Exclusion/Tax Exemption

Smart gives another perspective of the "in lieu of all taxes" clause in Section 9 of R.A. No. 7294 in order to
avoid the payment of local franchise tax. It says that, viewed from another angle, the "in lieu of all taxes"
clause partakes of the nature of a tax exclusion and not a tax exemption. A tax exemption means that the
taxpayer does not pay any tax at all. Smart pays VAT, income tax, and real property tax. Thus, what it enjoys
is more accurately a tax exclusion.35
However, as previously held by the Court, both in their nature and effect, there is no essential difference
between a tax exemption and a tax exclusion. An exemption is an immunity or a privilege; it is the freedom
from a charge or burden to which others are subjected. An exclusion, on the other hand, is the removal of
otherwise taxable items from the reach of taxation, e.g., exclusions from gross income and allowable
deductions. An exclusion is, thus, also an immunity or privilege which frees a taxpayer from a charge to which
others are subjected. Consequently, the rule that a tax exemption should be applied in strictissimi juris
against the taxpayer and liberally in favor of the government applies equally to tax exclusions. 36
V. Section 23 of R.A. No. 7925
To further its claim, Smart invokes Section 23 of the Public Telecommunications Policy Act (R.A. No. 7925):
SECTION 23. Equality of Treatment in the Telecommunications Industry. Any advantage, favor, privilege,
exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso facto
become part of previously granted telecommunications franchise and shall be accorded immediately and
unconditionally to the grantees of such franchises: Provided, however, That the foregoing shall neither apply
to nor affect provisions of telecommunications franchises concerning territory covered by the franchise, the
life span of the franchise, or the type of service authorized by the franchise. (Emphasis supplied.)
In sum, Smart wants us to interpret anew Section 23 of R.A. No. 7925, in connection with the franchise of
Globe (R.A. No. 7227),37 which was enacted on March 19, 1992.
Allegedly, by virtue of Section 23 of R.A. No. 7925, otherwise known as the "most favored treatment clause"
or the "equality clause," the provision in the franchise of Globe exempting it from local taxes is automatically
incorporated in the franchise of Smart.38 Smart posits that, since the franchise of Globe contains a provision
exempting it from municipal or local franchise tax, this provision should also benefit Smart by virtue of Section
23 of R.A. No. 7925. The provision in Globes franchise invoked by Smart reads:
(b) The grantee shall further pay to the Treasurer of the Philippines each year after the audit and approval of
the accounts as prescribed in this Act, one and one-half per centum of all gross receipts from business
transacted under this franchise by the said grantee in the Philippines, in lieu of any and all taxes of any kind,
nature or description levied, established or collected by any authority whatsoever, municipal, provincial or
national, from which the grantee is hereby expressly exempted, effective from the date of the approval of
Republic Act Numbered Sixteen hundred eighteen.39
We find no reason to disturb the previous pronouncements of this Court regarding the interpretation of
Section 23 of R.A. No. 7925. As aptly explained in the en banc decision of this Court in Philippine Long
Distance Telephone Company, Inc. v. City of Davao,40 and recently in Digital Telecommunications Philippines,
Inc. (Digitel) v. Province of Pangasinan,41 Congress, in approving Section 23 of R.A. No. 7925, did not intend
it to operate as a blanket tax exemption to all telecommunications entities. 42 The language of Section 23 of
R.A. No. 7925 and the proceedings of both Houses of Congress are bereft of anything that would signify the
grant of tax exemptions to all telecommunications entities, including those whose exemptions had been
withdrawn by R.A. No. 7160.43 The term "exemption" in Section 23 of R.A. No. 7925 does not mean tax
exemption. The term refers to exemption from certain regulations and requirements imposed by the National
Telecommunications Commission.44
Furthermore, in the franchise of Globe (R.A. No. 7229), the legislature incontrovertibly stated that it will be
liable for one and one-half per centum of all gross receipts from business transacted under the franchise, in
lieu of any and all taxes of any kind, nature, or description levied, established, or collected by any authority
whatsoever, municipal, provincial, or national, from which the grantee is hereby expressly exempted. 45 The
grant of exemption from municipal, provincial, or national is clear and categorical that aside from the
franchise tax collected by virtue of R.A. No. 7229, no other franchise tax may be collected from Globe
regardless of who the taxing power is. No such provision is found in the franchise of Smart; the kind of tax
from which it is exempted is not clearly specified.
As previously explained by the Court, the stance of Smart would lead to absurd consequences.
The acceptance of petitioner's theory would result in absurd consequences. To illustrate: In its franchise,
Globe is required to pay a franchise tax of only one and one-half percentum (1%) of all gross receipts from
its transactions while Smart is required to pay a tax of three percent (3%) on all gross receipts from business

Page 401 of 403

transacted. Petitioner's theory would require that, to level the playing field, any "advantage, favor, privilege,
exemption, or immunity" granted to Globe must be extended to all telecommunications companies, including
Smart. If, later, Congress again grants a franchise to another telecommunications company imposing, say,
one percent (1%) franchise tax, then all other telecommunications franchises will have to be adjusted to "level
the playing field" so to speak. This could not have been the intent of Congress in enacting 23 of Rep. Act
7925. Petitioner's theory will leave the Government with the burden of having to keep track of all granted
telecommunications franchises, lest some companies be treated unequally. It is different if Congress enacts a
law specifically granting uniform advantages, favor, privilege, exemption, or immunity to all
telecommunications entities.46
VI. Non-impairment Clause of the Constitution
Another argument of Smart is that the imposition of the local franchise tax by the City of Davao would violate
the constitutional prohibition against impairment of contracts. The franchise, according to petitioner, is in the
nature of a contract between the government and Smart. 47
However, we find that there is no violation of Article III, Section 10 of the 1987 Philippine Constitution. As
previously discussed, the franchise of Smart does not expressly provide for exemption from local taxes.
Absent the express provision on such exemption under the franchise, we are constrained to rule against it.
The "in lieu of all taxes" clause in Section 9 of R.A. No. 7294 leaves much room for interpretation. Due to this
ambiguity in the law, the doubt must be resolved against the grant of tax exemption.
Moreover, Smarts franchise was granted with the express condition that it is subject to amendment,
alteration, or repeal.48 As held in Tolentino v. Secretary of Finance: 49
It is enough to say that the parties to a contract cannot, through the exercise of prophetic discernment, fetter
the exercise of the taxing power of the State. For not only are existing laws read into contracts in order to fix
obligations as between parties, but the reservation of essential attributes of sovereign power is also read into
contracts as a basic postulate of the legal order. The policy of protecting contracts against impairment
presupposes the maintenance of a government which retains adequate authority to secure the peace and
good order of society.
In truth, the Contract Clause has never been thought as a limitation on the exercise of the States power of
taxation save only where a tax exemption has been granted for a valid consideration. x x x.
WHEREFORE, the instant petition is DENIED for lack of merit. Costs against petitioner.
SO ORDERED.
ANTONIO EDUARDO B. NACHURA
Associate Justice
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice

MINITA V. CHICO-NAZARIO
Associate Justice

RUBEN T. REYES
Associate Justice
ATTE S TATI O N
I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion
of the Courts Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division
C E R T I F I C AT I O N
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify that the conclusions in the
above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

Page 402 of 403

REYNATO S. PUNO
Chief Justice
1

Penned by Judge Renato A. Fuentes; rollo, pp. 101-108.

Id. at 121-123.

Records, pp. 2-11.

City Ordinance No. 519, series of 1992, amending Ordinance No. 230, series of 1991, otherwise known as the Tax Code of the City of
Davao.
5

An act granting Smart Information Technologies, Inc. (Smart) a franchise to establish, install, maintain, lease and operate integrated
telecommunications/computer/electronic services, and stations throughout the Philippines for public domestic and international
telecommunications, and for other purposes.
6

Smarts franchise lapsed into law on March 27, 1992 without the Presidents signature in accordance with Article VI, Section 27(1) of
the Constitution.
7

Records, pp. 7-8.

Id. at 21-26.

CONSTITUTION, Art. X, Sec. 5.

10

Records, p. 62.

11

Supra note 1.

12

Id. at 104.

13

Id. at 106.

14

G.R. No. 120082, September 11, 1996, 261 SCRA 667.

15

Rollo, p. 107.

16

Id. at 121-123.

17

Id. at 24-26.

18

Id. at 258.

19

Aquino v. Quezon City, G.R. No. 137534, August 3, 2006, 497 SCRA 497, 507.

20

Rollo, p. 258.

21

Id.

22

Commissioner of Internal Revenue v. Visayan Electric Company, 132 Phil. 203, 215 (1968).

23

Commissioner of Internal Revenue v. Rio Tuba Nickel Mining Corporation, G.R. Nos. 83583-84, September 30, 1991, 202 SCRA 137.

24

Philippine Long Distance Telephone Company, Inc. v. City of Davao, 415 Phil. 764, 775 (2001).

25

Philippine Long Distance Telephone Company, Inc. v. City of Davao, 447 Phil. 571, 594 (2003).

26

Id. at 593.

27

Rollo, p. 269.

28

Section 108, National Internal Revenue Code, as amended by the Tax Reform Act of 1997 (R.A. No. 8424).

29

Now Section 108, R.A. No. 8424, as amended. (Emphasis supplied.)

30

SECTION 20. Repealing Clauses. The provisions of any special law relative to the rate of franchise taxes are hereby expressly
repealed. Sections 113, 114 and 116 of the National Internal Revenue Code are hereby repealed.
Paragraphs (c), (d), and (e) of Article 39 of Executive Order No. 226, otherwise as the Omnibus Investment Code of 1987, are hereby
repealed: Provided, however, That the benefits and incentives under said paragraphs shall continue to be enjoyed by enterprises
registered with the Board of Investments before the effectivity of this Act.

Page 403 of 403

Unless otherwise excluded by the President pursuant to Section 17 hereof, Sections 19 and 20 of the National Internal Revenue Code
shall be repealed upon the expiration of two (2) years from the effectivity of this Act. During the period that the freight services rendered
by international cargo vessels are not covered by the value-added tax imposed under this Act, said services shall pay a tax at a rate of
three per centum (3%) of their quarterly gross receipts derived from outgoing cargoes.
All other laws, orders, issuances, rules and regulations of parts thereof inconsistent with this Act are hereby repealed, amended or
modified accordingly.
31

Philippine Long Distance Telephone Company, Inc. v. City of Davao, supra note 24.

32

Rollo, pp. 303-309.

33

Philippine Long Distance Telephone Company, Inc. v. Province of Cebu, G.R. No. 151208, October 16, 2006; Philippine Long Distance
Telephone Company, Inc. v. Province of Laguna, G.R. No. 151899, August 16, 2005, 467 SCRA 93; Philippine Long Distance Telephone
Company, Inc. v. City of Bacolod, G.R. No. 149179, July 15, 2005, 463 SCRA 528; Philippine Long Distance Telephone Company, Inc. v.
City of Davao, supra note 25; Philippine Long Distance Telephone Company, Inc. v. City of Davao, supra note 24.
34

Philippine Long Distance Telephone Company, Inc. v. City of Davao, supra note 24, at 779-780.

35

Rollo, pp. 276-277.

36

Philippine Long Distance Telephone Company, Inc. v. City of Davao, supra note 24, at 775.

37

An Act approving the merger between Globe Mackay Cable and Radio Corporation and Clavecilla Radio System and the consequent
transfer of the franchise of Clavecilla Radio System granted under Republic Act No. 402, as amended, to Globe Mackay Cable and
Radio Corporation, extending the life of said franchise and repealing certain sections of RA No. 402, as amended.
38

Rollo, p. 256.

39

Section 9 of R.A. No. 4540. (Emphasis supplied).

40

Philippine Long Distance Telephone Company, Inc. v. City of Davao, supra note 24.

41

G.R. No. 152534, February 23, 2007, 516 SCRA 541.

42

Id.

43

Id.

44

Philippine Long Distance Telephone Company, Inc. v. City of Davao, supra note 25.

45

Section 11 of R.A. No. 7229 provides: "All other provisions of Republic Act No. 402, as amended by Republic Act Nos. 1618 and 4540,
and the provisions of Batas Pambansa Blg. 95 which are not inconsistent with the provisions of this Act and are still unrepealed shall
continue to be in full force and effect."
In view of the above-mentioned provision, Section 3 of R.A. No. 4540, the pertinent portion of which is quoted herein, is incorporated into
R.A. No. 7229: "(b) The grantee shall further pay to the Treasurer of the Philippines each year after the audit and approval of the
accounts as prescribed in this Act, one and one-half per centum of all gross receipts from business transacted under this franchise by the
said grantee in the Philippines, in lieu of any and all taxes of any kind, nature or description levied, established or collected by an
authority whatsoever, municipal, provincial or national, from which the grantee is hereby expressly exempted, effective from the date of
the approval of Republic Act Numbered Sixteen hundred eighteen."
46

Philippine Long Distance Telephone Company, Inc. v. City of Davao, supra note 24, at 776.

47

Rollo, pp. 310-313.

48

CONSTITUTION, Art. XII, Sec. 11.

49

G. R. No. 115455, August 25, 1994, 235 SCRA 630, 685.

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