Case Digest

ABAKADA Guro Party List vs. Ermita

G.R. No. 168056 September 1, 2005
FACTS:
Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition
for prohibition on May 27, 2005 questioning 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 uniformp ro v is o authorizing the President, upon
recommendation of the Secretary of Finance, to raise the VAT rate to 12%, effective January 1,
2006, after specified conditions have been satisfied. Petitioners argue that the law is
unconstitutional.
ISSUES:
1. Whether or not there is a violation of Article VI, Section 24 of the Constitution.
2. Whether or not there is undue delegation of legislative power in violation of Article VI Sec 28(2)
of the Constitution.
3. Whether or not there is a violation of the due process and equal protection under Article III
Sec. 1 of the Constitution.
RULING:
1. 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, and excise and franchise taxes.
2. 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 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.
3. 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.

[G.R. No. 168056. July 5, 2005]

http://www.chanrobles.com/scresolutions/resolutions/2005/july/168056.php
ABAKADA GURO PARTY LIST vs. ERMITA
EN BANC
Sirs and Mesdames:
Quoted hereunder, for your information, is a resolution of this Court dated JUL 5 2005.
G.R. No. 168056 (ABAKADA Guro Party List [formerly AASJS] Officers Samson S. Alcantara, et al.
vs. Hon. Executive Secretary Eduardo Ermita, et al.)
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., etc., et al. vs. Cesar V. Purisima,
etc., et al.)
G.R. No. 168463 (Francis Joseph G. Escudero, et al. vs. Cesar V. Purisima, etc., et al.)
The Court Resolved to
(a) DENY for lack of merit the Motion to Intervene dated 31 May 2005 filed by counsel for
movant-intervenor Arturo M. De Castro;and
(b) NOTE WITHOUT ACTION (i) Comment-in-lntervention dated 31 May 2005 and (ii) Ex-Parte
Manifestation dated 1 June 2005, both filed by counsel for movant-intervenor De Castro, as well
as the Payment of Legal Fees made by the same movant-intervenor.
Acting on the Very Urgent Motion to Lift Temporary Restraining Order dated 4 July 2005 filed by
the Office of the Solicitor General for respondents Cesar V. Purisima, in his capacity as Secretary
of the Department of Finance, Guillermo L. Parayno, Jr., in his capacity as Commissioner of
Internal Revenue, and Eduardo R. Ermita, in his capacity as Executive Secretary, the Court
Resolved to require the petitioners to COMMENT on the motion within a NON-EXTENDIBLE period
of three (3) days from notice hereof.
Further, upon a vote of the majority, the Court Resolved to RESET the oral arguments on the
merits of these cases from 26 July 2005 to Thursday 14 July 2005 at 1:00 p.m. at the New
Session Hall, New Supreme Court Building.
Sandoval-Gutierrez, Carpio and Corona, JJ., abroad on official business.
Very truly yours,
(Sgd.) MA. LUISA D. VILLARAMA
Acting Clerk of Court

EN BANC
Agenda for October 18, 2005
Item No. 45
G.R. No. 168056 (ABAKADA Guro Party List Officer Samson S. Alcantara, et al. vs.
The Hon. Executive Secretary Eduardo R. Ermita); G.R. No. 168207 (Aquilino Q.
Pimentel, Jr., et al. vs. Executive Secretary Eduardo R. Ermita, et al.); G.R. No. 168461
(Association of Pilipinas Shell Dealers, Inc., et al. vs. Cesar V. Purisima, et al.); G.R. No.
168463 (Francis Joseph G. Escudero vs. Cesar V. Purisima, et al); and G.R. No. 168730
(Bataan Governor Enrique T. Garcia, Jr. vs. Hon. Eduardo R. Ermita, et al.)
RESOLUTION
For resolution are the following motions for reconsideration of the 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 pass-on provisions since there is no disagreement between House Bill Nos.
3705 and 3555 on the one hand, and Senate Bill No. 1950 on the other, with regard to the no
pass-on provision for the sale of service for power generation because both the Senate and the
House were in agreement that the VAT burden for the sale of such service shall not be passed on
to the end-consumer. As to the no pass-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 Finance[2] to act as safeguards against
possible abuse of authority by the House members of the bicameral conference committee. Even
assuming that the rule requiring the House panel to report back to the House if there are
substantial differences in the House and Senate bills had indeed been introduced after Tolentino,
the Court stands by its ruling that the issue of whether or not the House panel in the bicameral
conference committee complied with said internal rule cannot be inquired into by the Court. To
reiterate, mere failure to conform to parliamentary usage will not invalidate the action (taken by
a deliberative body) when the requisite number of members have agreed to a particular
measure.[3]
Escudero, et. al., also contend that Republic Act No. 9337 grossly violates the
constitutional imperative on exclusive origination of revenue bills under Section 24 of Article VI
of the Constitution when the Senate introduced amendments not connected with VAT.
The Court is not persuaded.
Article VI, Section 24 of the Constitution provides:
Sec. 24 All appropriation, revenue or tariff bills, bills authorizing
increase of the public debt, bills of local application, and private bills shall
originate exclusively in the House of Representatives, but the Senate may
propose or concur with amendments.
Section 24 speaks of origination of certain bills from the House of Representatives which
has been interpreted in the Tolentino case as follows:

 To begin with, it is not the law but the revenue bill which is
required by the Constitution to "originate exclusively" in the House of
Representatives. It is important to emphasize this, because a bill originating in the
House may undergo such extensive changes in the Senate that the result may be a
rewriting of the whole At this point, what is important to note is that, as a
result of the Senate action, a distinct bill may be produced. To insist that a revenue
statute and not only the bill which initiated the legislative process culminating
in the enactment of the law must substantially be the same as the House bill
would be to deny the Senate's power not only to "concur with amendments" but
also to " propose amendments." It would be to violate the coequality of legislative
power of the two houses of Congress and in fact make the House superior to the
Senate.
Given, then, the power of the Senate to propose amendments, the
Senate can propose its own version even with respect to bills which are required
by the Constitution to originate in the House.
...
Indeed, what the Constitution simply means is that the initiative for filing
revenue, tariff, or tax bills, bills authorizing an increase of the public debt, private
bills and bills of local application must come from the House of Representatives
on the theory that, elected as they are from the districts, the members of the House
can be expected to be more sensitive to the local needs and problems. On the
other hand, the senators, who are elected at large, are expected to approach the
same problems from the national perspective. Both views are thereby made to
bear on the enactment of such laws.[4]
Clearly, after the House bills as approved on third reading are duly transmitted to the
Senate, the Constitution states that the latter can propose or concur with amendments. The Court
finds that the subject provisions found in the Senate bill are within the purview of such
constitutional provision as declared in the Tolentinocase.
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 about P10.5 billion a year.
Moreover, since the objective of these house bills is to raise revenues, the increase in
corporate income taxes would be a great help and would also soften the impact of VAT measure
on the consumers by distributing the burden across all sectors instead of putting it entirely on the
shoulders of the consumers.

As to the other National Internal Revenue Code (NIRC) provisions found in Senate Bill
No. 1950, i.e., percentage taxes, franchise taxes, amusement and excise taxes, these provisions
are needed so as to cushion the effects of VAT on consumers. As we said in our decision, certain
goods and services which were subject to percentage tax and excise tax would no longer be VAT
exempt, thus, the consumer would be burdened more as they would be paying the VAT in
addition to these taxes. Thus, there is a need to amend these sections to soften the impact of
VAT. The Court finds no reason to reverse the earlier ruling that the Senate introduced
amendments that are germane to the subject matter and purposes of the house bills.
Petitioners Escudero, et al., also reiterate that R.A. No. 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 (24/5%) or the national government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1%). If either of these two instances has
occurred, the Secretary of Finance, by legislative mandate, must submit such information to the
President. Then the 12% VAT rate must be imposed by the President effective January 1,
2006. Congress does not abdicate its functions or unduly delegate power when it describes what
job must be done, who must do it, and what is the scope of his authority; in our complex
economy that is frequently the only way in which the legislative process can go forward. There is
no undue delegation of legislative power but only of the discretion as to the execution of a law.
This is constitutionally permissible. Congress did not delegate the power to tax but the mere
implementation of the law. The intent and will to increase the VAT rate to 12% came from
Congress and the task of the President is to simply execute the legislative policy. That Congress
chose to use the GDP as a benchmark to determine economic growth is not within the province
of the Court to inquire into, its task being to interpret the law.
With regard to petitioner 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 inCarmichael vs. Southern Coal & Coke Co.:
If the question were ours to decide, we could not say that the legislature, in
adopting the present scheme rather than another, had no basis for its choice, or
was arbitrary or unreasonable in its action. But, as the state is free to distribute
the burden of a tax without regard to the particular purpose for which it is to be
used, there is no warrant in the Constitution for setting the tax aside because a
court thinks that it could have distributed the burden more wisely. Those are
functions reserved for the legislature.[9]
WHEREFORE, the Motions for Reconsideration are hereby DENIED WITH
FINALITY. The temporary restraining order issued by the Court is LIFTED.

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