G.R. No.

L-54908 January 22, 1990

COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
MITSUBISHI METAL CORPORATION, ATLAS CONSOLIDATED MINING AND DEVELOPMENT
CORPORATION and the COURT OF TAX APPEALS, respondents.
G.R. No. 80041 January 22, 1990
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
MITSUBISHI METAL CORPORATION, ATLAS CONSOLIDATED MINING AND DEVELOPMENT
CORPORATION and the COURT OF TAX APPEALS, respondents.
Gadioma Law Offices for respondents.

REGALADO, J.:
These cases, involving the same issue being contested by the same parties and having originated from the same factual
antecedents generating the claims for tax credit of private respondents, the same were consolidated by resolution of
this Court dated May 31, 1989 and are jointly decided herein.
The records reflect that on April 17, 1970, Atlas Consolidated Mining and Development Corporation (hereinafter,
Atlas) entered into a Loan and Sales Contract with Mitsubishi Metal Corporation (Mitsubishi, for brevity), a Japanese
corporation licensed to engage in business in the Philippines, for purposes of the projected expansion of the
productive capacity of the former's mines in Toledo, Cebu. Under said contract, Mitsubishi agreed to extend a loan to
Atlas 'in the amount of $20,000,000.00, United States currency, for the installation of a new concentrator for copper
production. Atlas, in turn undertook to sell to Mitsubishi all the copper concentrates produced from said machine for a
period of fifteen (15) years. It was contemplated that $9,000,000.00 of said loan was to be used for the purchase of the
concentrator machinery from Japan. 1
Mitsubishi thereafter applied for a loan with the Export-Import Bank of Japan (Eximbank for short) obviously for
purposes of its obligation under said contract. Its loan application was approved on May 26, 1970 in the sum of
4,320,000,000.00, at about the same time as the approval of its loan for 2,880,000,000.00 from a consortium of
Japanese banks. The total amount of both loans is equivalent to $20,000,000.00 in United States currency at the then
prevailing exchange rate. The records in the Bureau of Internal Revenue show that the approval of the loan by
Eximbank to Mitsubishi was subject to the condition that Mitsubishi would use the amount as a loan to Atlas and as a
consideration for importing copper concentrates from Atlas, and that Mitsubishi had to pay back the total amount of
loan by September 30, 1981. 2
Pursuant to the contract between Atlas and Mitsubishi, interest payments were made by the former to the latter
totalling P13,143,966.79 for the years 1974 and 1975. The corresponding 15% tax thereon in the amount of
P1,971,595.01 was withheld pursuant to Section 24 (b) (1) and Section 53 (b) (2) of the National Internal Revenue
Code, as amended by Presidential Decree No. 131, and duly remitted to the Government. 3
On March 5, 1976, private respondents filed a claim for tax credit requesting that the sum of P1,971,595.01 be applied
against their existing and future tax liabilities. Parenthetically, it was later noted by respondent Court of Tax Appeals
in its decision that on August 27, 1976, Mitsubishi executed a waiver and disclaimer of its interest in the claim for tax
credit
in
favor
of
Atlas. 4

The petitioner not having acted on the claim for tax credit, on April 23, 1976 private respondents filed a petition for
review with respondent court, docketed therein as CTA Case No. 2801. 5 The petition was grounded on the claim that
Mitsubishi was a mere agent of Eximbank, which is a financing institution owned, controlled and financed by the Japanese
Government. Such governmental status of Eximbank, if it may be so called, is the basis for private repondents' claim for
exemption from paying the tax on the interest payments on the loan as earlier stated. It was further claimed that the interest
payments on the loan from the consortium of Japanese banks were likewise exempt because said loan supposedly came
from or were financed by Eximbank. The provision of the National Internal Revenue Code relied upon is Section 29 (b) (7)
(A), 6 which excludes from gross income:
(A) Income received from their investments in the Philippines in loans, stocks, bonds or other
domestic securities, or from interest on their deposits in banks in the Philippines by (1) foreign
governments, (2) financing institutions owned, controlled, or enjoying refinancing from them, and (3)
international or regional financing institutions established by governments.
Petitioner filed an answer on July 9, 1976. The case was set for hearing on April 6, 1977 but was later reset upon
manifestation of petitioner that the claim for tax credit of the alleged erroneous payment was still being reviewed by
the Appellate Division of the Bureau of Internal Revenue. The records show that on November 16, 1976, the said
division recommended to petitioner the approval of private respondent's claim. However, before action could be taken
thereon, respondent court scheduled the case for hearing on September 30, 1977, during which trial private
respondents presented their evidence while petitioner submitted his case on the basis of the records of the Bureau of
Internal Revenue and the pleadings. 7
On April 18, 1980, respondent court promulgated its decision ordering petitioner to grant a tax credit in favor of Atlas
in the amount of P1,971,595.01. Interestingly, the tax court held that petitioner admitted the material averments of
private respondents when he supposedly prayed "for judgment on the pleadings without off-spring proof as to the truth
of his allegations." 8 Furthermore, the court declared that all papers and documents pertaining to the loan of
4,320,000,000.00 obtained by Mitsubishi from Eximbank show that this was the same amount given to Atlas. It also
observed that the money for the loans from the consortium of private Japanese banks in the sum of 2,880,000,000.00
"originated" from Eximbank. From these, respondent court concluded that the ultimate creditor of Atlas was Eximbank with
Mitsubishi acting as a mere "arranger or conduit through which the loans flowed from the creditor Export-Import Bank of
Japan to the debtor Atlas Consolidated Mining & Development Corporation." 9
A motion for reconsideration having been denied on August 20, 1980, petitioner interposed an appeal to this Court,
docketed herein as G.R. No. 54908.
While CTA Case No. 2801 was still pending before the tax court, the corresponding 15% tax on the amount of
P439,167.95 on the P2,927,789.06 interest payments for the years 1977 and 1978 was withheld and remitted to the
Government. Atlas again filed a claim for tax credit with the petitioner, repeating the same basis for exemption.
On June 25, 1979, Mitsubishi and Atlas filed a petition for review with the Court of Tax Appeals docketed as CTA
Case No. 3015. Petitioner filed his answer thereto on August 14, 1979, and, in a letter to private respondents dated
November 12, 1979, denied said claim for tax credit for lack of factual or legal basis. 10
On January 15, 1981, relying on its prior ruling in CTA Case No. 2801, respondent court rendered judgment ordering
the petitioner to credit Atlas the aforesaid amount of tax paid. A motion for reconsideration, filed on March 10, 1981,
was denied by respondent court in a resolution dated September 7, 1987. A notice of appeal was filed on September
22, 1987 by petitioner with respondent court and a petition for review was filed with this Court on December 19,
1987. Said later case is now before us as G.R. No. 80041 and is consolidated with G.R. No. 54908.
The principal issue in both petitions is whether or not the interest income from the loans extended to Atlas by
Mitsubishi is excludible from gross income taxation pursuant to Section 29 b) (7) (A) of the tax code and, therefore,

exempt from withholding tax. Apropos thereto, the focal question is whether or not Mitsubishi is a mere conduit of
Eximbank which will then be considered as the creditor whose investments in the Philippines on loans are exempt
from taxes under the code.
Prefatorily, it must be noted that respondent court erred in holding in CTA Case No. 2801 that petitioner should be
deemed to have admitted the allegations of the private respondents when it submitted the case on the basis of the
pleadings and records of the bureau. There is nothing to indicate such admission on the part of petitioner nor can we
accept respondent court's pronouncement that petitioner did not offer to prove the truth of its allegations. The records
of the Bureau of Internal Revenue relevant to the case were duly submitted and admitted as petitioner's supporting
evidence. Additionally, a hearing was conducted, with presentation of evidence, and the findings of respondent court
were based not only on the pleadings but on the evidence adduced by the parties. There could, therefore, not have
been a judgment on the pleadings, with the theorized admissions imputed to petitioner, as mistakenly held by
respondent court.
Time and again, we have ruled that findings of fact of the Court of Tax Appeals are entitled to the highest respect and
can only be disturbed on appeal if they are not supported by substantial evidence or if there is a showing of gross error
or abuse on the part of the tax court. 11 Thus, ordinarily, we could give due consideration to the holding of respondent
court that Mitsubishi is a mere agent of Eximbank. Compelling circumstances obtaining and proven in these cases, however,
warrant a departure from said general rule since we are convinced that there is a misapprehension of facts on the part of the
tax court to the extent that its conclusions are speculative in nature.
The loan and sales contract between Mitsubishi and Atlas does not contain any direct or inferential reference to
Eximbank whatsoever. The agreement is strictly between Mitsubishi as creditor in the contract of loan and Atlas as the
seller of the copper concentrates. From the categorical language used in the document, one prestation was in
consideration of the other. The specific terms and the reciprocal nature of their obligations make it implausible, if not
vacuous to give credit to the cavalier assertion that Mitsubishi was a mere agent in said transaction.
Surely, Eximbank had nothing to do with the sale of the copper concentrates since all that Mitsubishi stated in its loan
application with the former was that the amount being procured would be used as a loan to and in consideration for
importing copper concentrates from Atlas. 12 Such an innocuous statement of purpose could not have been intended for,
nor could it legally constitute, a contract of agency. If that had been the purpose as respondent court believes, said
corporations would have specifically so stated, especially considering their experience and expertise in financial
transactions, not to speak of the amount involved and its purchasing value in 1970.
A thorough analysis of the factual and legal ambience of these cases impels us to give weight to the following
arguments of petitioner:
The nature of the above contract shows that the same is not just a simple contract of loan. It is not a
mere creditor-debtor relationship. It is more of a reciprocal obligation between ATLAS and
MITSUBISHI where the latter shall provide the funds in the installation of a new concentrator at the
former's Toledo mines in Cebu, while ATLAS in consideration of which, shall sell to MITSUBISHI,
for a term of 15 years, the entire copper concentrate that will be produced by the installed
concentrator.
Suffice it to say, the selling of the copper concentrate to MITSUBISHI within the specified term was
the consideration of the granting of the amount of $20 million to ATLAS. MITSUBISHI, in order to
fulfill its part of the contract, had to obtain funds. Hence, it had to secure a loan or loans from other
sources. And from what sources, it is immaterial as far as ATLAS in concerned. In this case,
MITSUBISHI obtained the $20 million from the EXIMBANK, of Japan and the consortium of
Japanese banks financed through the EXIMBANK, of Japan.

When MITSUBISHI therefore secured such loans, it was in its own independent capacity as a private
entity and not as a conduit of the consortium of Japanese banks or the EXIMBANK of Japan. While
the loans were secured by MITSUBISHI primarily "as a loan to and in consideration for importing
copper concentrates from ATLAS," the fact remains that it was a loan by EXIMBANK of Japan to
MITSUBISHI and not to ATLAS.
Thus, the transaction between MITSUBISHI and EXIMBANK of Japan was a distinct and separate
contract from that entered into by MITSUBISHI and ATLAS. Surely, in the latter contract, it is not
EXIMBANK, that was intended to be benefited. It is MITSUBISHI which stood to profit. Besides,
the Loan and Sales Contract cannot be any clearer. The only signatories to the same were
MITSUBISHI and ATLAS. Nowhere in the contract can it be inferred that MITSUBISHI acted for
and in behalf of EXIMBANK, of Japan nor of any entity, private or public, for that matter.
Corollary to this, it may well be stated that in this jurisdiction, well-settled is the rule that when a
contract of loan is completed, the money ceases to be the property of the former owner and becomes
the sole property of the obligor (Tolentino and Manio vs. Gonzales Sy, 50 Phil. 558).
In the case at bar, when MITSUBISHI obtained the loan of $20 million from EXIMBANK, of Japan,
said amount ceased to be the property of the bank and became the property of MITSUBISHI.
The conclusion is indubitable; MITSUBISHI, and NOT EXIMBANK, is the sole creditor of ATLAS,
the former being the owner of the $20 million upon completion of its loan contract with EXIMBANK
of Japan.
The interest income of the loan paid by ATLAS to MITSUBISHI is therefore entirely different from
the interest income paid by MITSUBISHI to EXIMBANK, of Japan. What was the subject of the
15% withholding tax is not the interest income paid by MITSUBISHI to EXIMBANK, but the
interest income earned by MITSUBISHI from the loan to ATLAS. . . . 13
To repeat, the contract between Eximbank and Mitsubishi is entirely different. It is complete in itself, does not appear
to be suppletory or collateral to another contract and is, therefore, not to be distorted by other considerations aliunde.
The application for the loan was approved on May 20, 1970, or more than a month after the contract between
Mitsubishi and Atlas was entered into on April 17, 1970. It is true that under the contract of loan with Eximbank,
Mitsubishi agreed to use the amount as a loan to and in consideration for importing copper concentrates from Atlas,
but all that this proves is the justification for the loan as represented by Mitsubishi, a standard banking practice for
evaluating the prospects of due repayment. There is nothing wrong with such stipulation as the parties in a contract are
free to agree on such lawful terms and conditions as they see fit. Limiting the disbursement of the amount borrowed to
a certain person or to a certain purpose is not unusual, especially in the case of Eximbank which, aside from protecting
its financial exposure, must see to it that the same are in line with the provisions and objectives of its charter.
Respondents postulate that Mitsubishi had to be a conduit because Eximbank's charter prevents it from making loans
except to Japanese individuals and corporations. We are not impressed. Not only is there a failure to establish such
submission by adequate evidence but it posits the unfair and unexplained imputation that, for reasons subject only of
surmise, said financing institution would deliberately circumvent its own charter to accommodate an alien borrower
through a manipulated subterfuge, but with it as a principal and the real obligee.
The allegation that the interest paid by Atlas was remitted in full by Mitsubishi to Eximbank, assuming the truth
thereof, is too tenuous and conjectural to support the proposition that Mitsubishi is a mere conduit. Furthermore, the
remittance of the interest payments may also be logically viewed as an arrangement in paying Mitsubishi's obligation
to Eximbank. Whatever arrangement was agreed upon by Eximbank and Mitsubishi as to the manner or procedure for
the payment of the latter's obligation is their own concern. It should also be noted that Eximbank's loan to Mitsubishi

imposes interest at the rate of 75% per annum, while Mitsubishis contract with Atlas merely states that the "interest on
the amount of the loan shall be the actual cost beginning from and including other dates of releases against loan." 14
It is too settled a rule in this jurisdiction, as to dispense with the need for citations, that laws granting exemption from
tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule
and exemption is the exception. The burden of proof rests upon the party claiming exemption to prove that it is in fact
covered by the exemption so claimed, which onus petitioners have failed to discharge. Significantly, private
respondents are not even among the entities which, under Section 29 (b) (7) (A) of the tax code, are entitled to
exemption and which should indispensably be the party in interest in this case.
Definitely, the taxability of a party cannot be blandly glossed over on the basis of a supposed "broad, pragmatic
analysis" alone without substantial supportive evidence, lest governmental operations suffer due to diminution of
much needed funds. Nor can we close this discussion without taking cognizance of petitioner's warning, of pervasive
relevance at this time, that while international comity is invoked in this case on the nebulous representation that the
funds involved in the loans are those of a foreign government, scrupulous care must be taken to avoid opening the
floodgates to the violation of our tax laws. Otherwise, the mere expedient of having a Philippine corporation enter into
a contract for loans or other domestic securities with private foreign entities, which in turn will negotiate
independently with their governments, could be availed of to take advantage of the tax exemption law under
discussion.
WHEREFORE, the decisions of the Court of Tax Appeals in CTA Cases Nos. 2801 and 3015, dated April 18, 1980
and January 15, 1981, respectively, are hereby REVERSED and SET ASIDE.
SO ORDERED.
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)
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 totothe 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;
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 10 petitioner
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
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 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.
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.

2Petitioner 3 as 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 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 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.
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.
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
BOOK-SELLERS, 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?
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
theyeas and nays entered in the Journal.
It appears that on various dates between July 22, 1992 and August 31, 1993, several bills 1were 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, 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.
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 9and 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 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.
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 bill22 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 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.
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 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.
TheMinnesota 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." 31The 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 Grosjeancase 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
of American 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
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." 42 Petitioners 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 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
cases 52 of this Court following Angara.

judicial

power

has

been

affirmed

in

several

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 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.
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 "VIOLAGOPTT SERVICE CENTER"; MOTORISTS HEART CORPORATION represented by its Vice-President for
Operations, JOSELITO F. FLORDELIZA; MOTORISTS HARVARD CORPORATION represented by its VicePresident 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.
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 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 uniform provisoauthorizing 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 PilipinasShell 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.
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
for certiorari 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 onprovisions 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 exceeding P1,000,000.00, 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:
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:
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."19 Thus,
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, unanimouslyreiterated 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.
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 3 rd 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,23 the
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

House Bill No.3705

Senate Bill No. 1950

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 (amending Sec. 107 of
NIRC); and 12% VAT on sale of
services and use or lease of
properties (amending Sec. 108 of
NIRC)

Provides for 12% VAT in general on

sales of goods or properties and
reduced rates for sale of certain locally
manufactured goods and petroleum
products and raw materials to be used
in the manufacture thereof (amending
Sec. 106 of NIRC); 12% VAT on
importation of goods and reduced
rates for certain imported products
including
petroleum
products
(amending Sec. 107 of NIRC); and
12% VAT on sale of services and use
or lease of properties and a reduced
rate for certain services including
power generation (amending Sec. 108
of NIRC)

Provides for a single rate of 10%

VAT on sale of goods or properties
(amending Sec. 106 of NIRC),
10% VAT on sale of services
including sale of electricity by
generation
companies,
transmission
and
distribution
companies, and use or lease of
properties (amending Sec. 108 of
NIRC)

With regard to the "no pass-on" provision

No similar provision

Provides that the VAT imposed on

power generation and on the sale of
petroleum products shall be absorbed
by generation companies or sellers,
respectively, and shall not be passed
on to consumers

Provides that the VAT imposed on

sales of electricity by generation
companies and services of
transmission
companies
and
distribution companies, as well as
those of franchise grantees of
electric utilities shall not apply to
residential
end-users. VAT shall be absorbed
by generation, transmission, and
distribution companies.

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
depreciable life of such capital
goods; the input tax credit for
goods and services other 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, the allowable input tax

No similar provision

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
depreciable life of such capital
goods; the input tax credit for
goods and services other than
capital goods shall not exceed 90%
of the output VAT.

credit shall not exceed 11% of

the total amount 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
fifty-nine (59) succeeding months if the aggregate acquisition cost for such goods, excluding the VAT component

thereof, exceeds one million Pesos (P1,000,000.00): 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, . . .
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
on-tax. 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:
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

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
value-added 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:
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.
...
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
%).
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 the authority 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:
(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 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
word shall 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 determine and declare the event upon which its expressed will is to take effect. 56 The Secretary of
Finance becomes the means or tool by which legislative policy is determined and implemented, considering that he
possesses all the facilities to 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%
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 adequacydictated 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 the Farias 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.
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 duefrom or paid by a
VAT-registered 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 VAT-registered 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
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 fifty-nine (59) succeeding months if the aggregate acquisition cost for such goods, excluding the VAT component
thereof, exceeds One million pesos (P1,000,000.00): 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
4-year 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%) 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 be creditable against the valueadded 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. 142005 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
Petitioners also argue that by imposing a limitation on the creditable input tax, the government gets to tax a profit or
value-added even if there is no profit or value-added.
Petitioners stance is purely hypothetical, argumentative, and again, one-sided. 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 exceeding P1,500,000.00.88 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
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 products 91 and natural gas92were 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
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.
G.R. No. 168056 October 18, 2005

Agenda for Item No. 45

G.R. No. 168056 (ABAKADA Guro Party List Officer Samson S. Alcantara, et al. vs. The Hon. Executive
Secretary Eduardo R. Ermita); G.R. No. 168207 (Aquilino Q. Pimentel, Jr., et al. vs. Executive Secretary
Eduardo R. Ermita, et al.); G.R. No. 168461 (Association of Pilipinas Shell Dealers, Inc., et al. vs. Cesar V.
Purisima, et al.); G.R. No. 168463 (Francis Joseph G. Escudero vs. Cesar V. Purisima, et al); and G.R. No.
168730 (Bataan Governor Enrique T. Garcia, Jr. vs. Hon. Eduardo R. Ermita, et al.)
RESOLUTION
For resolution are the following motions for reconsideration of the Courts Decision dated September 1, 2005
upholding the constitutionality of Republic Act No. 9337 or the VAT Reform Act 1:
1) Motion for Reconsideration filed by petitioners in G.R. No. 168463, Escudero, et al., on the following grounds:
A. THE DELETION OF THE "NO PASS ON PROVISIONS" FOR THE SALE OF PETROLEUM PRODUCTS
AND POWER GENERATION SERVICES CONSTITUTED GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK OR EXCESS OF JURISDICTION ON THE PART OF THE BICAMERAL CONFERENCE COMMITTEE.
B. REPUBLIC ACT NO. 9337 GROSSLY VIOLATES THE CONSTITUTIONAL IMPERATIVE ON EXCLUSIVE
ORIGINATION OF REVENUE BILLS UNDER 24, ARTICLE VI, 1987 PHILIPPINE CONSTITUTION.
C. REPUBLIC ACT NO. 9337S STAND-BY AUTHORITY TO THE EXECUTIVE TO INCREASE THE VAT
RATE, ESPECIALLY ON ACCOUNT OF THE EFFECTIVE RECOMMENDATORY POWER GRANTED TO THE
SECRETARY OF FINANCE, CONSTITUTES UNDUE DELEGATION OF LEGISLATIVE AUTHORITY.
2) Motion for Reconsideration of petitioner in G.R. No. 168730, Bataan Governor Enrique T. Garcia, Jr., with the
argument that burdening the consumers with significantly higher prices under a VAT regime vis--vis a 3% gross tax
renders the law unconstitutional for being arbitrary, oppressive and inequitable.
and

3) Motion for Reconsideration by petitioners Association of Pilipinas Shell Dealers, Inc. in G.R. No. 168461, on the
grounds that:
I. This Honorable Court erred in upholding the constitutionality of Section 110(A)(2) and Section 110(B) of the NIRC,
as amended by the EVAT Law, imposing limitations on the amount of input VAT that may be claimed as a credit
against output VAT, as well as Section 114(C) of the NIRC, as amended by the EVAT Law, requiring the government
or any of its instrumentalities to withhold a 5% final withholding VAT on their gross payments on purchases of goods
and services, and finding that the questioned provisions:
A. are not arbitrary, oppressive and consfiscatory as to amount to a deprivation of property without due process of law
in violation of Article III, Section 1 of the 1987 Philippine Constitution;
B. do not violate the equal protection clause prescribed under Article III, Section 1 of the 1987 Philippine
Constitution; and
C. apply uniformly to all those belonging to the same class and do not violate Article VI, Section 28(1) of the 1987
Philippine Constitution.
II. This Honorable Court erred in upholding the constitutionality of Section 110(B) of the NIRC, as amended by the
EVAT Law, imposing a limitation on the amount of input VAT that may be claimed as a credit against output VAT
notwithstanding the finding that the tax is not progressive as exhorted by Article VI, Section 28(1) of the 1987
Philippine Constitution.
Respondents filed their Consolidated Comment. Petitioner Garcia filed his Reply.
Petitioners Escudero, et al., insist that the bicameral conference committee should not even have acted on the no passon provisions since there is no disagreement between House Bill Nos. 3705 and 3555 on the one hand, and Senate Bill
No. 1950 on the other, with regard to the no pass-on provision for the sale of service for power generation because
both the Senate and the House were in agreement that the VAT burden for the sale of such service shall not be passed
on to the end-consumer. As to the no pass-on provision for sale of petroleum products, petitioners argue that the fact
that the presence of such a no pass-on provision in the House version and the absence thereof in the Senate Bill means
there is no conflict because "a House provision cannot be in conflict with something that does not exist."
Such argument is flawed. Note that the rules of both houses of Congress provide that a conference committee shall
settle the "differences" in the respective bills of each house. Verily, the fact that a no pass-on provision is present in
one version but absent in the other, and one version intends two industries, i.e., power generation companies and
petroleum sellers, to bear the burden of the tax, while the other version intended only the industry of power
generation, transmission and distribution to be saddled with such burden, clearly shows that there are indeed
differences between the bills coming from each house, which differences should be acted upon by the bicameral
conference committee. It is incorrect to conclude that there is no clash between two opposing forces with regard to
the no pass-onprovision for VAT on the sale of petroleum products merely because such provision exists in the House
version while it is absent in the Senate version. It is precisely the absence of such provision in the Senate bill and the
presence thereof in the House bills that causes the conflict. The absence of the provision in the Senate bill shows the
Senates disagreement to the intention of the House of Representatives make the sellers of petroleum bear the burden
of the VAT. Thus, there are indeed two opposing forces: on one side, the House of Representatives which wants
petroleum dealers to be saddled with the burden of paying VAT and on the other, the Senate which does not see it
proper to make that particular industry bear said burden. Clearly, such conflicts and differences between the no passon provisions in the Senate and House bills had to be acted upon by the bicameral conference committee as mandated
by the rules of both houses of Congress.

Moreover, the deletion of the no pass-on provision made the present VAT law more in consonance with the very
nature of VAT which, as stated in the Decision promulgated on September 1, 2005, is a tax on spending or
consumption, thus, the burden thereof is ultimately borne by the end-consumer.
Escudero, et al., then claim that there had been changes introduced in the Rules of the House of Representatives
regarding the conduct of the House panel in a bicameral conference committee, since the time of Tolentino vs.
Secretary of Finance2 to act as safeguards against possible abuse of authority by the House members of the bicameral
conference committee. Even assuming that the rule requiring the House panel to report back to the House if there are
substantial differences in the House and Senate bills had indeed been introduced afterTolentino, the Court stands by its
ruling that the issue of whether or not the House panel in the bicameral conference committee complied with said
internal rule cannot be inquired into by the Court. To reiterate, "mere failure to conform to parliamentary usage will
not invalidate the action (taken by a deliberative body) when the requisite number of members have agreed to a
particular measure."3
Escudero, et. al., also contend that Republic Act No. 9337 grossly violates the constitutional imperative on exclusive
origination of revenue bills under Section 24 of Article VI of the Constitution when the Senate introduced
amendments not connected with VAT.
The Court is not persuaded.
Article VI, Section 24 of the Constitution provides:
Sec. 24 All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application,
and private bills shall originate exclusively in the House of Representatives, but the Senate may propose or concur
with amendments.
Section 24 speaks of origination of certain bills from the House of Representatives which has been interpreted in
the Tolentino case as follows:

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

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

Clearly, after the House bills as approved on third reading are duly transmitted to the Senate, the Constitution states
that the latter can propose or concur with amendments. The Court finds that the subject provisions found in the Senate
bill are within the purview of such constitutional provision as declared in the Tolentino case.
The intent of the House of Representatives in initiating House Bill Nos. 3555 and 3705 was to solve the countrys
serious financial problems. It was stated in the respective explanatory notes that there is a need for the government to
make significant expenditure savings and a credible package of revenue measures. These measures include
improvement of tax administration and control and leakages in revenues from income taxes and value added tax. It is
also stated that one opportunity that could be beneficial to the overall status of our economy is to review existing tax
rates, evaluating the relevance given our present conditions. Thus, with these purposes in mind and to accomplish
these purposes for which the house bills were filed, i.e., to raise revenues for the government, the Senate introduced
amendments on income taxes, which as admitted by Senator Ralph Recto, would yield aboutP10.5 billion a year.
Moreover, since the objective of these house bills is to raise revenues, the increase in corporate income taxes would be
a great help and would also soften the impact of VAT measure on the consumers by distributing the burden across all
sectors instead of putting it entirely on the shoulders of the consumers.
As to the other National Internal Revenue Code (NIRC) provisions found in Senate Bill No. 1950, i.e., percentage
taxes, franchise taxes, amusement and excise taxes, these provisions are needed so as to cushion the effects of VAT on
consumers. As we said in our decision, certain goods and services which were subject to percentage tax and excise tax
would no longer be VAT exempt, thus, the consumer would be burdened more as they would be paying the VAT in
addition to these taxes. Thus, there is a need to amend these sections to soften the impact of VAT. The Court finds no
reason to reverse the earlier ruling that the Senate introduced amendments that are germane to the subject matter and
purposes of the house bills.
Petitioners Escudero, et al., also reiterate that R.A. No. 9337s stand- by authority to the Executive to increase the
VAT rate, especially on account of the recommendatory power granted to the Secretary of Finance, constitutes undue
delegation of legislative power. They submit that the recommendatory power given to the Secretary of Finance in
regard to the occurrence of either of two events using the Gross Domestic Product (GDP) as a benchmark necessarily
and inherently required extended analysis and evaluation, as well as policy making.
There is no merit in this contention. The Court reiterates that in making his recommendation to the President on the
existence of either of the two conditions, the Secretary of Finance is not acting as the alter ego of the President or even
her subordinate. He is acting as the agent of the legislative department, to determine and declare the event upon which
its expressed will is to take effect. The Secretary of Finance becomes the means or tool by which legislative policy is
determined and implemented, considering that he possesses all the facilities to gather data and information and has a
much broader perspective to properly evaluate them. His function is to gather and collate statistical data and other
pertinent information and verify if any of the two conditions laid out by Congress is present. Congress granted the
Secretary of Finance the authority to ascertain the existence of a fact, namely, whether by December 31, 2005, the
value-added tax collection as a percentage of GDP of the previous year exceeds two and four-fifth percent (2 4/5%) or
the national government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1%).
If either of these two instances has occurred, the Secretary of Finance, by legislative mandate, must submit such
information to the President. Then the 12% VAT rate must be imposed by the President effective January 1, 2006.
Congress does not abdicate its functions or unduly delegate power when it describes what job must be done, who must
do it, and what is the scope of his authority; in our complex economy that is frequently the only way in which the
legislative process can go forward. There is no undue delegation of legislative power but only of the discretion as to
the execution of a law. This is constitutionally permissible. Congress did not delegate the power to tax but the mere
implementation of the law. The intent and will to increase the VAT rate to 12% came from Congress and the task of

the President is to simply execute the legislative policy. That Congress chose to use the GDP as a benchmark to
determine economic growth is not within the province of the Court to inquire into, its task being to interpret the law.
With regard to petitioner Garcias arguments, the Court also finds the same to be without merit. As stated in the
assailed Decision, the Court recognizes the burden that the consumers will be bearing with the passage of R.A. No.
9337. But as was also stated by the Court, it cannot strike down the law as unconstitutional simply because of its
yokes. The legislature has spoken and the only role that the Court plays in the picture is to determine whether the law
was passed with due regard to the mandates of the Constitution. Inasmuch as the Court finds that there are no
constitutional infirmities with its passage, the validity of the law must therefore be upheld.
Finally, petitioners Association of Pilipinas Shell Dealers, Inc. reiterated their arguments in the petition, citing this
time, the dissertation of Associate Justice Dante O. Tinga in his Dissenting Opinion.
The glitch in petitioners arguments is that it presents figures based on an event that is yet to happen. Their illustration
of the possible effects of the 70% limitation, while seemingly concrete, still remains theoretical. Theories have no
place in this case as the Court must only deal with an existing case or controversy that is appropriate or ripe for
judicial determination, not one that is conjectural or merely anticipatory.5 The Court will not intervene absent an
actual and substantial controversy admitting of specific relief through a decree conclusive in nature, as distinguished
from an opinion advising what the law would be upon a hypothetical state of facts.6
The impact of the 70% limitation on the creditable input tax will ultimately depend on how one manages and operates
its business. Market forces, strategy and acumen will dictate their moves. With or without these VAT provisions, an
entrepreneur who does not have the ken to adapt to economic variables will surely perish in the competition. The
arguments posed are within the realm of business, and the solution lies also in business.
Petitioners also reiterate their argument that the input tax is a property or a property right. In the same breath, the
Court reiterates its finding that it is not a property or a property right, and a VAT-registered persons entitlement to the
creditable input tax is a mere statutory privilege.
Petitioners also contend that even if the right to credit the input VAT is merely a statutory privilege, it has already
evolved into a vested right that the State cannot remove.
As the Court stated in its Decision, the right to credit the input tax is a mere creation of law. Prior to the enactment of
multi-stage sales taxation, the sales taxes paid at every level of distribution are not recoverable from the taxes payable.
With the advent of Executive Order No. 273 imposing a 10% multi-stage tax on all sales, it was only then that the
crediting of the input tax paid on purchase or importation of goods and services by VAT-registered persons against the
output tax was established. This continued with the Expanded VAT Law (R.A. No. 7716), and The Tax Reform Act of
1997 (R.A. No. 8424). The right to credit input tax as against the output tax is clearly a privilege created by law, a
privilege that also the law can limit. It should be stressed that a person has no vested right in statutory privileges. 7
The concept of "vested right" is a consequence of the constitutional guaranty of due process that expresses a present
fixed interest which in right reason and natural justice is protected against arbitrary state action; it includes not only
legal or equitable title to the enforcement of a demand but also exemptions from new obligations created after the
right has become vested. Rights are considered vested when the right to enjoyment is a present interest, absolute,
unconditional, and perfect or fixed and irrefutable. 8 As adeptly stated by Associate Justice Minita V. Chico-Nazario in
her Concurring Opinion, which the Court adopts, petitioners right to the input VAT credits has not yet vested, thus
It should be remembered that prior to Rep. Act No. 9337, the petroleum dealers input VAT credits were inexistent
they were unrecognized and disallowed by law. The petroleum dealers had no such property called input VAT credits.
It is only rational, therefore, that they cannot acquire vested rights to the use of such input VAT credits when they were
never entitled to such credits in the first place, at least, not until Rep. Act No. 9337.

My view, at this point, when Rep. Act No. 9337 has not yet even been implemented, is that petroleum dealers right to
use their input VAT as credit against their output VAT unlimitedly has not vested, being a mere expectancy of a future
benefit and being contingent on the continuance of Section 110 of the National Internal Revenue Code of 1997, prior
to its amendment by Rep. Act No. 9337.
The elucidation of Associate Justice Artemio V. Panganiban is likewise worthy of note, to wit:
Moreover, there is no vested right in generally accepted accounting principles. These refer to accounting concepts,
measurement techniques, and standards of presentation in a 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. To state otherwise and recognize such asset account as a vested right is to
limit the taxing power of the State. Unlimited, plenary, comprehensive and supreme, this power cannot be unduly
restricted by mere creations of the State.
More importantly, the assailed provisions of R.A. No. 9337 already involve legislative policy and wisdom. So long as
there is a public end for which R.A. No. 9337 was passed, the means through which such end shall be accomplished is
for the legislature to choose so long as it is within constitutional bounds. As stated in Carmichael vs. Southern Coal &
Coke Co.:
If the question were ours to decide, we could not say that the legislature, in adopting the present scheme rather than
another, had no basis for its choice, or was arbitrary or unreasonable in its action. But, as the state is free to distribute
the burden of a tax without regard to the particular purpose for which it is to be used, there is no warrant in the
Constitution for setting the tax aside because a court thinks that it could have distributed the burden more wisely.
Those are functions reserved for the legislature.9
WHEREFORE, the Motions for Reconsideration are hereby DENIED WITH FINALITY. The temporary restraining
order issued by the Court is LIFTED.
SO ORDERED.