EN BANC
9337S STAND-BY
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.
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-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 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 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
(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 SO ORDERED.
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.