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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
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 Act1:
1) Motion for Reconsideration filed by petitioners in G.R. No. 168463, Escudero, et al., on the following grounds:
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.
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-on provision for VAT on the sale of
petroleum products merely because such provision exists in the House version while it is absent in the Senate version. 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 pass-on provisions in the Senate and House bills had to be acted upon by
the bicameral conference committee as mandated by the rules of both houses of Congress.
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
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 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
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 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 (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
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
(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.)