Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 81311 June 30, 1988
KAPATIRAN NG MGA
NAGLILINGKOD SA PAMAHALAAN
NG PILIPINAS, INC.,
HERMINIGILDO C. DUMLAO,
GERONIMO Q. QUADRA, and
MARIO C. VILLANUEVA, petitioners,
vs.
HON. BIENVENIDO TAN, as
Commissioner of Internal
Revenue, respondent.
G.R. No. 81820 June 30, 1988
KILUSANG MAYO UNO LABOR
CENTER (KMU), its officers and
affiliated labor federations and
alliances,petitioners,
vs.
THE EXECUTIVE SECRETARY,
SECRETARY OF FINANCE, THE
COMMISSIONER OF INTERNAL
REVENUE, and SECRETARY OF
BUDGET, respondents.
G.R. No. 81921 June 30, 1988
INTEGRATED CUSTOMS BROKERS
ASSOCIATION OF THE PHILIPPINES
and JESUS B. BANAL, petitioners,
vs.
The HON. COMMISSIONER,
BUREAU OF INTERNAL
REVENUE, respondent.
G.R. No. 82152 June 30, 1988

RICARDO C. VALMONTE, petitioner,

vs.
THE EXECUTIVE SECRETARY,
SECRETARY OF FINANCE,
COMMISSIONER OF INTERNAL
REVENUE and SECRETARY OF
BUDGET, respondent.
Franklin S. Farolan for petitioner
Kapatiran in G.R. No. 81311.
Jaime C. Opinion for individual
petitioners in G.R. No. 81311.
Banzuela, Flores, Miralles, Raeses,
Sy, Taquio and Associates for
petitioners in G.R. No 81820.
Union of Lawyers and Advocates for
Peoples Right collaborating counsel
for petitioners in G.R. No 81820.
Jose C. Leabres and Joselito R.
Enriquez for petitioners in G.R. No.
81921.

PADILLA, J.:
These four (4) petitions, which have
been consolidated because of the
similarity of the main issues involved
therein, seek to nullify Executive Order
No. 273 (EO 273, for short), issued by
the President of the Philippines on 25
July 1987, to take effect on 1 January
1988, and which amended certain
sections of the National Internal
Revenue Code and adopted the valueadded tax (VAT, for short), for being
unconstitutional in that its enactment
is not alledgedly within the powers of
the President; that the VAT is

oppressive, discriminatory, regressive,

and violates the due process and
equal protection clauses and other
provisions of the 1987 Constitution.

given to them, the Court has brushed

aside technicalities of procedure and
has taken cognizance of these
petitions.

The Solicitor General prays for the

dismissal of the petitions on the
ground that the petitioners have failed
to show justification for the exercise of
its judicial powers, viz. (1) the
existence of an appropriate case; (2)
an interest, personal and substantial,
of the party raising the constitutional
questions; (3) the constitutional
question should be raised at the
earliest opportunity; and (4) the
question of constitutionality is directly
and necessarily involved in a
justiciable controversy and its
resolution is essential to the protection
of the rights of the parties. According
to the Solicitor General, only the third
requisite that the constitutional
question should be raised at the
earliest opportunity has been
complied with. He also questions the
legal standing of the petitioners who,
he contends, are merely asking for an
advisory opinion from the Court, there
being no justiciable controversy for
resolution.

But, before resolving the issues raised,

a brief look into the tax law in question
is in order.

Objections to taxpayers' suit for lack

of sufficient personality standing, or
interest are, however, in the main
procedural matters. Considering the
importance to the public of the cases
at bar, and in keeping with the Court's
duty, under the 1987 Constitution, to
determine wether or not the other
branches of government have kept
themselves within the limits of the
Constitution and the laws and that
they have not abused the discretion

The VAT is a tax levied on a wide

range of goods and services. It is a tax
on the value, added by every seller,
with aggregate gross annual sales of
articles and/or services, exceeding
P200,00.00, to his purchase of goods
and services, unless exempt. VAT is
computed at the rate of 0% or 10% of
the gross selling price of goods or
gross receipts realized from the sale of
services.
The VAT is said to have eliminated
privilege taxes, multiple rated sales
tax on manufacturers and producers,
advance sales tax, and compensating
tax on importations. The framers of EO
273 that it is principally aimed to
rationalize the system of taxing goods
and services; simplify tax
administration; and make the tax
system more equitable, to enable the
country to attain economic recovery.
The VAT is not entirely new. It was
already in force, in a modified form,
before EO 273 was issued. As pointed
out by the Solicitor General, the
Philippine sales tax system, prior to
the issuance of EO 273, was
essentially a single stage value added
tax system computed under the "cost
subtraction method" or "cost
deduction method" and was imposed
only on original sale, barter or

exchange of articles by manufacturers,

producers, or importers. Subsequent
sales of such articles were not subject
to sales tax. However, with the
issuance of PD 1991 on 31 October
1985, a 3% tax was imposed on a
second sale, which was reduced to
1.5% upon the issuance of PD 2006 on
31 December 1985, to take effect 1
January 1986. Reduced sales taxes
were imposed not only on the second
sale, but on every subsequent sale, as
well. EO 273 merely increased the VAT
on every sale to 10%, unless zerorated or exempt.
Petitioners first contend that EO 273 is
unconstitutional on the Ground that
the President had no authority to issue
EO 273 on 25 July 1987.
The contention is without merit.
It should be recalled that under
Proclamation No. 3, which decreed a
Provisional Constitution, sole
legislative authority was vested upon
the President. Art. II, sec. 1 of the
Provisional Constitution states:
Sec. 1. Until a legislature
is elected and convened
under a new Constitution,
the President shall
continue to exercise
legislative powers.
On 15 October 1986, the
Constitutional Commission of 1986
adopted a new Constitution for the
Republic of the Philippines which was
ratified in a plebiscite conducted on 2
February 1987. Article XVIII, sec. 6 of

said Constitution, hereafter referred to

as the 1987 Constitution, provides:
Sec. 6. The incumbent
President shall continue
to exercise legislative
powers until the first
Congress is convened.
It should be noted that, under both the
Provisional and the 1987
Constitutions, the President is vested
with legislative powers until a
legislature under a new Constitution
is convened. The first Congress,
created and elected under the 1987
Constitution, was convened on 27 July
1987. Hence, the enactment of EO 273
on 25 July 1987, two (2) days before
Congress convened on 27 July 1987,
was within the President's
constitutional power and authority to
legislate.
Petitioner Valmonte claims,
additionally, that Congress was really
convened on 30 June 1987 (not 27 July
1987). He contends that the word
"convene" is synonymous with "the
date when the elected members of
Congress assumed office."
The contention is without merit. The
word "convene" which has been
interpreted to mean "to call together,
cause to assemble, or convoke," 1 is
clearly different from assumption of
office by the individual members of
Congress or their taking the oath of
office. As an example, we call to mind
the interim National Assembly created
under the 1973 Constitution, which
had not been "convened" but some
members of the body, more

particularly the delegates to the 1971

Constitutional Convention who had
opted to serve therein by voting
affirmatively for the approval of said
Constitution, had taken their oath of
office.
To uphold the submission of petitioner
Valmonte would stretch the definition
of the word "convene" a bit too far. It
would also defeat the purpose of the
framers of the 1987 Constitutional and
render meaningless some other
provisions of said Constitution. For
example, the provisions of Art. VI, sec.
15, requiring Congress
to conveneonce every year on the
fourth Monday of July for its regular
session would be a contrariety, since
Congress would already be deemed to
be in session after the individual
members have taken their oath of
office. A portion of the provisions of
Art. VII, sec. 10, requiring Congress
to convene for the purpose of enacting
a law calling for a special election to
elect a President and Vice-President in
case a vacancy occurs in said offices,
would also be a surplusage. The
portion of Art. VII, sec. 11, third
paragraph, requiring Congress
to convene, if not in session, to decide
a conflict between the President and
the Cabinet as to whether or not the
President and the Cabinet as to
whether or not the President can reassume the powers and duties of his
office, would also be redundant. The
same is true with the portion of Art.
VII, sec. 18, which requires Congress
to convene within twenty-four (24)
hours following the declaration of
martial law or the suspension of the
privilage of the writ of habeas corpus.

The 1987 Constitution mentions a

specific date when the President loses
her power to legislate. If the framers
of said Constitution had intended to
terminate the exercise of legislative
powers by the President at the
beginning of the term of office of the
members of Congress, they should
have so stated (but did not) in clear
and unequivocal terms. The Court has
not power to re-write the Constitution
and give it a meaning different from
that intended.
The Court also finds no merit in the
petitioners' claim that EO 273 was
issued by the President in grave abuse
of discretion amounting to lack or
excess of jurisdiction. "Grave abuse of
discretion" has been defined, as
follows:
Grave abuse of
discretion" implies such
capricious and whimsical
exercise of judgment as
is equivalent to lack of
jurisdiction (Abad Santos
vs. Province of Tarlac, 38
Off. Gaz. 834), or, in
other words, where the
power is exercised in an
arbitrary or despotic
manner by reason of
passion or personal
hostility, and it must be
so patent and gross as to
amount to an evasion of
positive duty or to a
virtual refusal to perform
the duty enjoined or to
act at all in
contemplation of law.

(Tavera-Luna, Inc. vs.

Nable, 38 Off. Gaz. 62).

Petitioners have failed to show that EO

273 was issued capriciously and
whimsically or in an arbitrary or
despotic manner by reason of passion
or personal hostility. It appears that a
comprehensive study of the VAT had
been extensively discussed by this
framers and other government
agencies involved in its
implementation, even under the past
administration. As the Solicitor
General correctly sated. "The signing
of E.O. 273 was merely the last stage
in the exercise of her legislative
powers. The legislative process started
long before the signing when the data
were gathered, proposals were
weighed and the final wordings of the
measure were drafted, revised and
finalized. Certainly, it cannot be said
that the President made a jump, so to
speak, on the Congress, two days
before it convened." 3
Next, the petitioners claim that EO 273
is oppressive, discriminatory, unjust
and regressive, in violation of the
provisions of Art. VI, sec. 28(1) of the
1987 Constitution, which states:
Sec. 28 (1) The rule of
taxation shall be uniform
and equitable. The
Congress shall evolve a
progressive system of
taxation.
The petitioners" assertions in this
regard are not supported by facts and
circumstances to warrant their
conclusions. They have failed to

adequately show that the VAT is

oppressive, discriminatory or unjust.
Petitioners merely rely upon
newspaper articles which are actually
hearsay and have evidentiary value.
To justify the nullification of a law.
there must be a clear and unequivocal
breach of the Constitution, not a
doubtful and argumentative
implication. 4
As the Court sees it, EO 273 satisfies
all the requirements of a valid tax. It is
uniform. The court, in City of Baguio
vs. De Leon, 5 said:
... In Philippine Trust
Company v. Yatco (69
Phil. 420), Justice Laurel,
speaking for the Court,
stated: "A tax is
considered uniform when
it operates with the same
force and effect in every
place where the subject
may be found."
There was no occasion in
that case to consider the
possible effect on such a
constitutional
requirement where there
is a classification. The
opportunity came in
Eastern Theatrical Co. v.
Alfonso (83 Phil. 852,
862). Thus: "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; . . ."
About two years later,
Justice Tuason, speaking
for this Court in Manila
Race Horses Trainers
Assn. v. de la Fuente (88
Phil. 60, 65) incorporated
the above excerpt in his
opinion and continued;
"Taking everything into
account, the
differentiation against
which the plaintiffs
complain conforms to the
practical dictates of
justice and equity and is
not discriminatory within
the meaning of the
Constitution."
To satisfy this
requirement then, all that
is needed as held in
another case decided two
years later, (Uy Matias v.
City of Cebu, 93 Phil.
300) is that the statute or
ordinance in question
"applies equally to all
persons, firms and
corporations placed in
similar situation." This
Court is on record as
accepting the view in a
leading American case
(Carmichael v. Southern
Coal and Coke Co., 301
US 495) that "inequalities
which result from a
singling out of one
particular class for
taxation or exemption

infringe no constitutional
limitation." (Lutz v.
Araneta, 98 Phil. 148,
153).
The sales tax adopted in EO 273 is
applied similarly on all goods and
services sold to the public, which are
not exempt, at the constant rate of 0%
or 10%.
The disputed sales tax is also
equitable. It is imposed only on sales
of goods or services by persons
engage in business with an aggregate
gross annual sales exceeding
P200,000.00. Small corner sarisari stores are consequently exempt
from its application. Likewise exempt
from the tax are sales of farm and
marine products, spared as they are
from the incidence of the VAT, are
expected to be relatively lower and
within the reach of the general
public. 6
The Court likewise finds no merit in
the contention of the petitioner
Integrated Customs Brokers
Association of the Philippines that EO
273, more particularly the new Sec.
103 (r) of the National Internal
Revenue Code, unduly discriminates
against customs brokers. The
contested provision states:
Sec. 103. Exempt
transactions. The
following shall be exempt
from the value-added tax:
xxx xxx xxx

(r) Service performed in

the exercise of profession
or calling (except
customs brokers) subject
to the occupation tax
under the Local Tax Code,
and professional services
performed by registered
general professional
partnerships;
The phrase "except customs brokers"
is not meant to discriminate against
customs brokers. It was inserted in
Sec. 103(r) to complement the
provisions of Sec. 102 of the Code,
which makes the services of customs
brokers subject to the payment of the
VAT and to distinguish customs
brokers from other professionals who
are subject to the payment of an
occupation tax under the Local Tax
Code. Pertinent provisions of Sec. 102
read:
Sec. 102. Value-added
tax on sale of services.
There shall be levied,
assessed and collected, a
value-added tax
equivalent to 10%
percent of gross receipts
derived by any person
engaged in the sale of
services. The phrase sale
of services" means the
performance of all kinds
of services for others for
a fee, remuneration or
consideration, including
those performed or
rendered by construction
and service contractors;
stock, real estate,

commercial, customs and

immigration brokers;
lessors of personal
property; lessors or
distributors of
cinematographic films;
persons engaged in
milling, processing,
manufacturing or
repacking goods for
others; and similar
services regardless of
whether or not the
performance thereof call
for the exercise or use of
the physical or mental
faculties: ...
With the insertion of the clarificatory
phrase "except customs brokers" in
Sec. 103(r), a potential conflict
between the two sections, (Secs. 102
and 103), insofar as customs brokers
are concerned, is averted.
At any rate, the distinction of the
customs brokers from the other
professionals who are subject to
occupation tax under the Local Tax
Code is based upon material
differences, in that the activities of
customs brokers (like those of stock,
real estate and immigration brokers)
partake more of a business, rather
than a profession and were thus
subjected to the percentage tax under
Sec. 174 of the National Internal
Revenue Code prior to its amendment
by EO 273. EO 273 abolished the
percentage tax and replaced it with
the VAT. If the petitioner Association
did not protest the classification of
customs brokers then, the Court sees
no reason why it should protest now.

The Court takes note that EO 273 has

been in effect for more than five (5)
months now, so that the fears
expressed by the petitioners that the
adoption of the VAT will trigger
skyrocketing of prices of basic
commodities and services, as well as
mass actions and demonstrations
against the VAT should by now be
evident. The fact that nothing of the
sort has happened shows that the
fears and apprehensions of the
petitioners appear to be more
imagined than real. It would seem that
the VAT is not as bad as we are made
to believe.
In any event, if petitioners seriously
believe that the adoption and
continued application of the VAT are
prejudicial to the general welfare or
the interests of the majority of the
people, they should seek recourse and
relief from the political branches of the
government. The Court, following the
time-honored doctrine of separation of
powers, cannot substitute its
judgment for that of the President as
to the wisdom, justice and advisability
of the adoption of the VAT. The Court
can only look into and determine
whether or not EO 273 was enacted
and made effective as law, in the
manner required by, and consistent
with, the Constitution, and to make
sure that it was not issued in grave
abuse of discretion amounting to lack
or excess of jurisdiction; and, in this
regard, the Court finds no reason to
impede its application or continued
implementation.

WHEREFORE, the petitions are

DISMISSED. Without pronouncement
as to costs.
SO ORDERED.
Yap, C.J., Fernan, Narvasa, MelencioHerrera, Cruz, Paras, Feliciano,
Gancayco, Bidin, Sarmiento, Cortes
and Grio-Aquino, JJ., concur.
Gutierrez, Jr. and Medialdea, JJ., are on
leave.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. 115455 October 30, 1995

ARTURO M. TOLENTINO, petitioner,
vs.
THE SECRETARY OF FINANCE and
THE COMMISSIONER OF INTERNAL
REVENUE, respondents.
G.R. No. 115525 October 30, 1995
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 October 30, 1995

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 October 30, 1995
PHILIPPINE PRESS INSTITUTE,
INC.; EGP PUBLISHING CO., INC.;
KAMAHALAN 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.

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., and
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 October 30, 1995
PHILIPPINE AIRLINES,
INC., petitioner,
vs.
THE SECRETARY OF FINANCE and
COMMISSIONER OF INTERNAL
REVENUE, respondents.

G.R. No. 115754 October 30, 1995

G.R. No. 115873 October 30, 1995

CHAMBER OF REAL ESTATE AND

BUILDERS ASSOCIATIONS, INC.,
(CREBA), petitioner,
vs.
THE COMMISSIONER OF INTERNAL
REVENUE, respondent.

COOPERATIVE UNION OF THE

PHILIPPINES, petitioner,
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. 115781 October 30, 1995

KILOSBAYAN, INC., JOVITO R.
SALONGA, CIRILO A. RIGOS, ERME
CAMBA, EMILIO C. CAPULONG, JR.,
JOSE T. APOLO, EPHRAIM

G.R. No. 115931 October 30, 1995

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.
RESOLUTION

MENDOZA, J.:
These are motions seeking
reconsideration of our decision
dismissing the petitions filed in these
cases for the declaration of
unconstitutionality of R.A. No. 7716,
otherwise known as the Expanded
Value-Added Tax Law. The motions, of
which there are 10 in all, have been
filed by the several petitioners in
these cases, with the exception of the
Philippine Educational Publishers
Association, Inc. and the Association of
Philippine Booksellers, petitioners in
G.R. No. 115931.
The Solicitor General, representing the
respondents, filed a consolidated
comment, to which the Philippine
Airlines, Inc., petitioner in G.R. No.
115852, and the Philippine Press
Institute, Inc., petitioner in G.R. No.
115544, and Juan T. David, petitioner
in G.R. No. 115525, each filed a reply.
In turn the Solicitor General filed on

June 1, 1995 a rejoinder to the PPI's

reply.
On June 27, 1995 the matter was
submitted for resolution.
I. Power of the Senate to propose
amendments to revenue bills. Some of
the petitioners (Tolentino, Kilosbayan,
Inc., Philippine Airlines (PAL), Roco,
and Chamber of Real Estate and
Builders Association (CREBA)) reiterate
previous claims made by them that
R.A. No. 7716 did not "originate
exclusively" in the House of
Representatives as required by Art. VI,
24 of the Constitution. Although they
admit that H. No. 11197 was filed in
the House of Representatives where it
passed three readings and that
afterward it was sent to the Senate
where after first reading it was
referred to the Senate Ways and
Means Committee, they complain that
the Senate did not pass it on second
and third readings. Instead what the
Senate did was to pass its own version
(S. No. 1630) which it approved on
May 24, 1994. Petitioner Tolentino
adds that what the Senate committee
should have done was to amend H. No.
11197 by striking out the text of the
bill and substituting it with the text of
S. No. 1630. That way, it is said, "the
bill remains a House bill and the
Senate version just becomes the text
(only the text) of the House bill."
The contention has no merit.
The enactment of S. No. 1630 is not
the only instance in which the Senate
proposed an amendment to a House
revenue bill by enacting its own

version of a revenue bill. On at least

two occasions during the Eighth
Congress, the Senate passed its own
version of revenue bills, which, in
consolidation with House bills earlier
passed, became the enrolled bills.
These were:
R.A. No. 7369 (AN ACT TO AMEND THE
OMNIBUS INVESTMENTS CODE OF
1987 BY EXTENDING FROM FIVE (5)
YEARS TO TEN YEARS THE PERIOD
FOR TAX AND DUTY EXEMPTION AND
TAX CREDIT ON CAPITAL EQUIPMENT)
which was approved by the President
on April 10, 1992. This Act is actually a
consolidation of H. No. 34254, which
was approved by the House on January
29, 1992, and S. No. 1920, which was
approved by the Senate on February
3, 1992.
R.A. No. 7549 (AN ACT GRANTING TAX
EXEMPTIONS TO WHOEVER SHALL
GIVE REWARD TO ANY FILIPINO
ATHLETE WINNING A MEDAL IN
OLYMPIC GAMES) which was approved
by the President on May 22, 1992. This
Act is a consolidation of H. No. 22232,
which was approved by the House of
Representatives on August 2, 1989,
and S. No. 807, which was approved
by the Senate on October 21, 1991.
On the other hand, the Ninth
Congress passed revenue laws which
were also the result of the
consolidation of House and Senate
bills. These are the following, with
indications of the dates on which the
laws were approved by the President
and dates the separate bills of the two
chambers of Congress were
respectively passed:

1. R.A. NO. 7642

AN ACT INCREASING THE
PENALTIES FOR TAX
EVASION, AMENDING FOR
THIS PURPOSE THE
PERTINENT SECTIONS OF
THE NATIONAL INTERNAL
REVENUE CODE
(December 28, 1992).
House Bill No. 2165,
October 5, 1992
Senate Bill No. 32,
December 7, 1992
2. R.A. NO. 7643
AN ACT TO EMPOWER
THE COMMISSIONER OF
INTERNAL REVENUE TO
REQUIRE THE PAYMENT
OF THE VALUE-ADDED
TAX EVERY MONTH AND
TO ALLOW LOCAL
GOVERNMENT UNITS TO
SHARE IN VAT REVENUE,
AMENDING FOR THIS
PURPOSE CERTAIN
SECTIONS OF THE
NATIONAL INTERNAL
REVENUE CODE
(December 28, 1992)
House Bill No. 1503,
September 3, 1992
Senate Bill No. 968,
December 7, 1992
3. R.A. NO. 7646

AN ACT AUTHORIZING
THE COMMISSIONER OF
INTERNAL REVENUE TO
PRESCRIBE THE PLACE
FOR PAYMENT OF
INTERNAL REVENUE
TAXES BY LARGE
TAXPAYERS, AMENDING
FOR THIS PURPOSE
CERTAIN PROVISIONS OF
THE NATIONAL INTERNAL
REVENUE CODE, AS
AMENDED (February 24,
1993)
House Bill No. 1470,
October 20, 1992
Senate Bill No. 35,
November 19, 1992
4. R.A. NO. 7649
AN ACT REQUIRING THE
GOVERNMENT OR ANY OF
ITS POLITICAL
SUBDIVISIONS,
INSTRUMENTALITIES OR
AGENCIES INCLUDING
GOVERNMENT-OWNED
OR CONTROLLED
CORPORATIONS (GOCCS)
TO DEDUCT AND
WITHHOLD THE VALUEADDED TAX DUE AT THE
RATE OF THREE PERCENT
(3%) ON GROSS PAYMENT
FOR THE PURCHASE OF
GOODS AND SIX
PERCENT (6%) ON GROSS
RECEIPTS FOR SERVICES
RENDERED BY
CONTRACTORS (April 6,
1993)

House Bill No. 5260,

January 26, 1993
Senate Bill No. 1141,
March 30, 1993
5. R.A. NO. 7656
AN ACT REQUIRING
GOVERNMENT-OWNED
OR CONTROLLED
CORPORATIONS TO
DECLARE DIVIDENDS
UNDER CERTAIN
CONDITIONS TO THE
NATIONAL GOVERNMENT,
AND FOR OTHER
PURPOSES (November 9,
1993)
House Bill No. 11024,
November 3, 1993
Senate Bill No. 1168,
November 3, 1993
6. R.A. NO. 7660
AN ACT RATIONALIZING
FURTHER THE
STRUCTURE AND
ADMINISTRATION OF THE
DOCUMENTARY STAMP
TAX, AMENDING FOR THE
PURPOSE CERTAIN
PROVISIONS OF THE
NATIONAL INTERNAL
REVENUE CODE, AS
AMENDED, ALLOCATING
FUNDS FOR SPECIFIC
PROGRAMS, AND FOR
OTHER PURPOSES
(December 23, 1993)

House Bill No. 7789, May

31, 1993
Senate Bill No. 1330,
November 18, 1993
7. R.A. NO. 7717
AN ACT IMPOSING A TAX
ON THE SALE, BARTER OR
EXCHANGE OF SHARES
OF STOCK LISTED AND
TRADED THROUGH THE
LOCAL STOCK EXCHANGE
OR THROUGH INITIAL
PUBLIC OFFERING,
AMENDING FOR THE
PURPOSE THE NATIONAL
INTERNAL REVENUE
CODE, AS AMENDED, BY
INSERTING A NEW
SECTION AND REPEALING
CERTAIN SUBSECTIONS
THEREOF (May 5, 1994)
House Bill No. 9187,
November 3, 1993
Senate Bill No. 1127,
March 23, 1994
Thus, the enactment of S. No. 1630 is
not the only instance in which the
Senate, in the exercise of its power to
propose amendments to bills required
to originate in the House, passed its
own version of a House revenue
measure. It is noteworthy that, in the
particular case of S. No. 1630,
petitioners Tolentino and Roco, as
members of the Senate, voted to
approve it on second and third
readings.

On the other hand, amendment by

substitution, in the manner urged by
petitioner Tolentino, concerns a mere
matter of form. Petitioner has not
shown what substantial difference it
would make if, as the Senate actually
did in this case, a separate bill like S.
No. 1630 is instead enacted as a
substitute measure, "taking into
Consideration . . . H.B. 11197."
Indeed, so far as pertinent, the Rules
of the Senate only provide:
RULE XXIX
AMENDMENTS
xxx xxx xxx
68. Not more than one
amendment to the
original amendment shall
be considered.
No amendment by
substitution shall be
entertained unless the
text thereof is submitted
in writing.
Any of said amendments
may be withdrawn before
a vote is taken thereon.
69. No amendment
which seeks the inclusion
of a legislative provision
foreign to the subject
matter of a bill (rider)
shall be entertained.
xxx xxx xxx

70-A. A bill or resolution

shall not be amended by
substituting it with
another which covers a
subject distinct from that
proposed in the original
bill or resolution.
(emphasis added).
Nor is there merit in petitioners'
contention that, with regard to
revenue bills, the Philippine Senate
possesses less power than the U.S.
Senate because of textual differences
between constitutional provisions
giving them the power to propose or
concur with amendments.
Art. I, 7, cl. 1 of the U.S. Constitution
reads:
All Bills for raising
Revenue shall originate in
the House of
Representatives; but the
Senate may propose or
concur with amendments
as on other Bills.
Art. VI, 24 of our Constitution reads:
All appropriation, revenue
or tariff bills, bills
authorizing increase of
the public debt, bills of
local application, and
private bills shall
originate exclusively in
the House of
Representatives, but the
Senate may propose or
concur with amendments.

The addition of the word "exclusively"

in the Philippine Constitution and the
decision to drop the phrase "as on
other Bills" in the American version,
according to petitioners, shows the
intention of the framers of our
Constitution to restrict the Senate's
power to propose amendments to
revenue bills. Petitioner Tolentino
contends that the word "exclusively"
was inserted to modify "originate" and
"the words 'as in any other bills' (sic)
were eliminated so as to show that
these bills were not to be like other
bills but must be treated as a special
kind."
The history of this provision does not
support this contention. The
supposed indicia of constitutional
intent are nothing but the relics of an
unsuccessful attempt to limit the
power of the Senate. It will be recalled
that the 1935 Constitution originally
provided for a unicameral National
Assembly. When it was decided in
1939 to change to a bicameral
legislature, it became necessary to
provide for the procedure for
lawmaking by the Senate and the
House of Representatives. The work of
proposing amendments to the
Constitution was done by the National
Assembly, acting as a constituent
assembly, some of whose members,
jealous of preserving the Assembly's
lawmaking powers, sought to curtail
the powers of the proposed Senate.
Accordingly they proposed the
following provision:
All bills appropriating
public funds, revenue or
tariff bills, bills of local

application, and private

bills shall originate
exclusively in the
Assembly, but the Senate
may propose or concur
with amendments. In
case of disapproval by
the Senate of any such
bills, the Assembly may
repass the same by a
two-thirds vote of all its
members, and thereupon,
the bill so repassed shall
be deemed enacted and
may be submitted to the
President for
corresponding action. In
the event that the Senate
should fail to finally act
on any such bills, the
Assembly may, after
thirty days from the
opening of the next
regular session of the
same legislative term,
reapprove the same with
a vote of two-thirds of all
the members of the
Assembly. And upon such
reapproval, the bill shall
be deemed enacted and
may be submitted to the
President for
corresponding action.
The special committee on the revision
of laws of the Second National
Assembly vetoed the proposal. It
deleted everything after the first
sentence. As rewritten, the proposal
was approved by the National
Assembly and embodied in Resolution
No. 38, as amended by Resolution No.
73. (J. ARUEGO, KNOW YOUR

CONSTITUTION 65-66 (1950)). The

proposed amendment was submitted
to the people and ratified by them in
the elections held on June 18, 1940.
This is the history of Art. VI, 18 (2) of
the 1935 Constitution, from which Art.
VI, 24 of the present Constitution was
derived. It explains why the word
"exclusively" was added to the
American text from which the framers
of the Philippine Constitution borrowed
and why the phrase "as on other Bills"
was not copied. Considering the
defeat of the proposal, the power of
the Senate to propose amendments
must be understood to be full, plenary
and complete "as on other Bills." Thus,
because revenue bills are required to
originate exclusively in the House of
Representatives, the Senate cannot
enact revenue measures of its own
without such bills. After a revenue bill
is passed and sent over to it by the
House, however, the Senate certainly
can pass its own version on the same
subject matter. This follows from the
coequality of the two chambers of
Congress.
That this is also the understanding of
book authors of the scope of the
Senate's power to concur is clear from
the following commentaries:
The power of the Senate
to propose or concur with
amendments is
apparently without
restriction. It would seem
that by virtue of this
power, the Senate can
practically re-write a bill
required to come from

the House and leave only

a trace of the original bill.
For example, a general
revenue bill passed by
the lower house of the
United States Congress
contained provisions for
the imposition of an
inheritance tax . This was
changed by the Senate
into a corporation tax.
The amending authority
of the Senate was
declared by the United
States Supreme Court to
be sufficiently broad to
enable it to make the
alteration. [Flint v. Stone
Tracy Company, 220 U.S.
107, 55 L. ed. 389].

the exercise of its power

to propose or concur with
amendments to the bills
initiated by the House of
Representatives. Thus, in
one case, a bill
introduced in the U.S.
House of Representatives
was changed by the
Senate to make a
proposed inheritance tax
a corporation tax. It is
also accepted practice for
the Senate to introduce
what is known as an
amendment by
substitution, which may
entirely replace the bill
initiated in the House of
Representatives.

(L. TAADA AND F.

CARREON, POLITICAL
LAW OF THE PHILIPPINES
247 (1961))

(I. CRUZ, PHILIPPINE

POLITICAL LAW 144-145
(1993)).

The above-mentioned
bills are supposed to be
initiated by the House of
Representatives because
it is more numerous in
membership and
therefore also more
representative of the
people. Moreover, its
members are presumed
to be more familiar with
the needs of the country
in regard to the
enactment of the
legislation involved.
The Senate is, however,
allowed much leeway in

In sum, while Art. VI, 24 provides that

all appropriation, revenue or tariff bills,
bills authorizing increase of the public
debt, bills of local application, and
private bills must "originate
exclusively in the House of
Representatives," it also adds, "but
the Senate may propose or concur
with amendments." In the exercise of
this power, the Senate may propose
an entirely new bill as a substitute
measure. As petitioner Tolentino states
in a high school text, a committee to
which a bill is referred may do any of
the following:
(1) to endorse the bill
without changes; (2) to
make changes in the bill

omitting or adding
sections or altering its
language; (3) to make
and endorse an entirely
new bill as a substitute,
in which case it will be
known as a committee
bill; or (4) to make no
report at all.
(A. TOLENTINO, THE
GOVERNMENT OF THE
PHILIPPINES 258 (1950))
To except from this procedure the
amendment of bills which are required
to originate in the House by
prescribing that the number of the
House bill and its other parts up to the
enacting clause must be preserved
although the text of the Senate
amendment may be incorporated in
place of the original body of the bill is
to insist on a mere technicality. At any
rate there is no rule prescribing this
form. S. No. 1630, as a substitute
measure, is therefore as much an
amendment of H. No. 11197 as any
which the Senate could have made.
II. S. No. 1630 a mere amendment of
H. No. 11197. Petitioners' basic error is
that they assume that S. No. 1630 is
an independent and distinct bill.
Hence their repeated references to its
certification that it was passed by the
Senate "in substitution of
S.B. No. 1129, taking into
consideration P.S. Res. No. 734
and H.B. No. 11197," implying that
there is something substantially
different between the reference to S.
No. 1129 and the reference to H. No.
11197. From this premise, they

conclude that R.A. No. 7716 originated

both in the House and in the Senate
and that it is the product of two "halfbaked bills because neither H. No.
11197 nor S. No. 1630 was passed by
both houses of Congress."
In point of fact, in several instances
the provisions of S. No. 1630, clearly
appear to be mere amendments of the
corresponding provisions of H. No.
11197. The very tabular comparison of
the provisions of H. No. 11197 and S.
No. 1630 attached as Supplement A to
the basic petition of petitioner
Tolentino, while showing differences
between the two bills, at the same
time indicates that the provisions of
the Senate bill were precisely intended
to be amendments to the House bill.
Without H. No. 11197, the Senate
could not have enacted S. No. 1630.
Because the Senate bill was a mere
amendment of the House bill, H. No.
11197 in its original form did not have
to pass the Senate on second and
three readings. It was enough that
after it was passed on first reading it
was referred to the Senate Committee
on Ways and Means. Neither was it
required that S. No. 1630 be passed by
the House of Representatives before
the two bills could be referred to the
Conference Committee.
There is legislative precedent for what
was done in the case of H. No. 11197
and S. No. 1630. When the House bill
and Senate bill, which became R.A. No.
1405 (Act prohibiting the disclosure of
bank deposits), were referred to a
conference committee, the question
was raised whether the two bills could

be the subject of such conference,

considering that the bill from one
house had not been passed by the
other and vice versa. As Congressman
Duran put the question:
MR. DURAN. Therefore, I
raise this question of
order as to procedure: If
a House bill is passed by
the House but not passed
by the Senate, and a
Senate bill of a similar
nature is passed in the
Senate but never passed
in the House, can the two
bills be the subject of a
conference, and can a
law be enacted from
these two bills? I
understand that the
Senate bill in this
particular instance does
not refer to investments
in government securities,
whereas the bill in the
House, which was
introduced by the
Speaker, covers two
subject matters: not only
investigation of deposits
in banks but also
investigation of
investments in
government securities.
Now, since the two bills
differ in their subject
matter, I believe that no
law can be enacted.
Ruling on the point of order raised, the
chair (Speaker Jose B. Laurel, Jr.) said:

THE SPEAKER. The report

of the conference
committee is in order. It is
precisely in cases like this
where a conference
should be had. If the
House bill had been
approved by the Senate,
there would have been
no need of a conference;
but precisely because the
Senate passed another
bill on the same subject
matter, the conference
committee had to be
created, and we are now
considering the report of
that committee.
(2 CONG. REC. NO. 13,
July 27, 1955, pp. 384142 (emphasis added))
III. The President's certification. The
fallacy in thinking that H. No. 11197
and S. No. 1630 are distinct and
unrelated measures also accounts for
the petitioners' (Kilosbayan's and
PAL's) contention that because the
President separately certified to the
need for the immediate enactment of
these measures, his certification was
ineffectual and void. The certification
had to be made of the version of the
same revenue bill which at the
momentwas being considered.
Otherwise, to follow petitioners'
theory, it would be necessary for the
President to certify as many bills as
are presented in a house of Congress
even though the bills are merely
versions of the bill he has already
certified. It is enough that he certifies
the bill which, at the time he makes

the certification, is under

consideration. Since on March 22,
1994 the Senate was considering S.
No. 1630, it was that bill which had to
be certified. For that matter on June 1,
1993 the President had earlier
certified H. No. 9210 for immediate
enactment because it was the one
which at that time was being
considered by the House. This bill was
later substituted, together with other
bills, by H. No. 11197.
As to what Presidential certification
can accomplish, we have already
explained in the main decision that the
phrase "except when the President
certifies to the necessity of its
immediate enactment, etc." in Art. VI,
26 (2) qualifies not only the
requirement that "printed copies [of a
bill] in its final form [must be]
distributed to the members three days
before its passage" but also the
requirement that before a bill can
become a law it must have passed
"three readings on separate days."
There is not only textual support for
such construction but historical basis
as well.
Art. VI, 21 (2) of the 1935
Constitution originally provided:
(2) No bill shall be passed
by either House unless it
shall have been printed
and copies thereof in its
final form furnished its
Members at least three
calendar days prior to its
passage, except when
the President shall have
certified to the necessity

of its immediate
enactment. Upon the last
reading of a bill, no
amendment thereof shall
be allowed and the
question upon its
passage shall be taken
immediately thereafter,
and
the yeas and nays entere
d on the Journal.
When the 1973 Constitution was
adopted, it was provided in Art. VIII,
19 (2):
(2) No bill shall become a
law unless it has passed
three readings on
separate days, and
printed copies thereof in
its final form have been
distributed to the
Members three days
before its passage,
except when the Prime
Minister certifies to the
necessity of its
immediate enactment to
meet a public calamity or
emergency. Upon the last
reading of a bill, no
amendment thereto shall
be allowed, and the vote
thereon shall be taken
immediately thereafter,
and
the yeas and nays entere
d in the Journal.
This provision of the 1973 document,
with slight modification, was adopted
in Art. VI, 26 (2) of the present
Constitution, thus:

(2) No bill passed by

either House shall
become a law unless it
has passed three
readings on separate
days, and printed copies
thereof in its final form
have been distributed to
its Members three days
before its passage,
except when the
President certifies to the
necessity of its
immediate enactment to
meet a public calamity or
emergency. Upon the last
reading of a bill, no
amendment thereto shall
be allowed, and the vote
thereon shall be taken
immediately thereafter,
and
the yeasand nays entered
in the Journal.
The exception is based on the
prudential consideration that if in all
cases three readings on separate days
are required and a bill has to be
printed in final form before it can be
passed, the need for a law may be
rendered academic by the occurrence
of the very emergency or public
calamity which it is meant to address.
Petitioners further contend that a
"growing budget deficit" is not an
emergency, especially in a country like
the Philippines where budget deficit is
a chronic condition. Even if this were
the case, an enormous budget deficit
does not make the need for R.A. No.
7716 any less urgent or the situation

calling for its enactment any less an

emergency.
Apparently, the members of the
Senate (including some of the
petitioners in these cases) believed
that there was an urgent need for
consideration of S. No. 1630, because
they responded to the call of the
President by voting on the bill on
second and third readings on the same
day. While the judicial department is
not bound by the Senate's acceptance
of the President's certification, the
respect due coequal departments of
the government in matters committed
to them by the Constitution and the
absence of a clear showing of grave
abuse of discretion caution a stay of
the judicial hand.
At any rate, we are satisfied that S.
No. 1630 received thorough
consideration in the Senate where it
was discussed for six days. Only its
distribution in advance in its final
printed form was actually dispensed
with by holding the voting on second
and third readings on the same day
(March 24, 1994). Otherwise, sufficient
time between the submission of the
bill on February 8, 1994 on second
reading and its approval on March 24,
1994 elapsed before it was finally
voted on by the Senate on third
reading.
The purpose for which three readings
on separate days is required is said to
be two-fold: (1) to inform the members
of Congress of what they must vote on
and (2) to give them notice that a
measure is progressing through the
enacting process, thus enabling them

and others interested in the measure

to prepare their positions with
reference to it. (1 J. G. SUTHERLAND,
STATUTES AND STATUTORY
CONSTRUCTION 10.04, p. 282
(1972)). These purposes were
substantially achieved in the case of
R.A. No. 7716.
IV. Power of Conference Committee. It
is contended (principally by
Kilosbayan, Inc. and the Movement of
Attorneys for Brotherhood, Integrity
and Nationalism, Inc. (MABINI)) that in
violation of the constitutional policy of
full public disclosure and the people's
right to know (Art. II, 28 and Art. III,
7) the Conference Committee met for
two days in executive session with
only the conferees present.
As pointed out in our main decision,
even in the United States it was
customary to hold such sessions with
only the conferees and their staffs in
attendance and it was only in 1975
when a new rule was adopted
requiring open sessions. Unlike its
American counterpart, the Philippine
Congress has not adopted a rule
prescribing open hearings for
conference committees.
It is nevertheless claimed that in the
United States, before the adoption of
the rule in 1975, at least staff
members were present. These were
staff members of the Senators and
Congressmen, however, who may be
presumed to be their confidential men,
not stenographers as in this case who
on the last two days of the conference
were excluded. There is no showing
that the conferees themselves did not

take notes of their proceedings so as

to give petitioner Kilosbayan basis for
claiming that even in secret diplomatic
negotiations involving state interests,
conferees keep notes of their
meetings. Above all, the public's right
to know was fully served because the
Conference Committee in this case
submitted a report showing the
changes made on the differing
versions of the House and the Senate.
Petitioners cite the rules of both
houses which provide that conference
committee reports must contain "a
detailed, sufficiently explicit statement
of the changes in or other
amendments." These changes are
shown in the bill attached to the
Conference Committee Report. The
members of both houses could thus
ascertain what changes had been
made in the original bills without the
need of a statement detailing the
changes.
The same question now presented was
raised when the bill which became
R.A. No. 1400 (Land Reform Act of
1955) was reported by the Conference
Committee. Congressman Bengzon
raised a point of order. He said:
MR. BENGZON. My point
of order is that it is out of
order to consider the
report of the conference
committee
regarding House Bill No.
2557 by reason of the
provision of Section 11,
Article XII, of the Rules of
this House which
provides specifically that

the conference report

must be accompanied by
a detailed statement of
the effects of the
amendment on the bill of
the House. This
conference committee
report is not
accompanied by that
detailed statement, Mr.
Speaker. Therefore it is
out of order to consider
it.
Petitioner Tolentino, then the Majority
Floor Leader, answered:
MR. TOLENTINO. Mr.
Speaker, I should just like
to say a few words in
connection with the point
of order raised by the
gentleman from
Pangasinan.
There is no question
about the provision of the
Rule cited by the
gentleman from
Pangasinan, butthis
provision applies to those
cases where only
portions of the bill have
been amended. In this
case before us an entire
bill is
presented; therefore, it
can be easily seen from
the reading of the bill
what the provisions are.
Besides, this procedure
has been an established
practice.

After some interruption, he continued:

MR. TOLENTINO. As I was
saying, Mr. Speaker, we
have to look into the
reason for the provisions
of the Rules, and the
reason for the
requirement in the
provision cited by the
gentleman from
Pangasinan is when there
are only certain words or
phrases inserted in or
deleted from the
provisions of the bill
included in the
conference report, and
we cannot understand
what those words and
phrases mean and their
relation to the bill. In that
case, it is necessary to
make a detailed
statement on how those
words and phrases will
affect the bill as a
whole; but when the
entire bill itself is copied
verbatim in the
conference report, that is
not necessary. So when
the reason for the Rule
does not exist, the Rule
does not exist.
(2 CONG. REC. NO. 2, p.
4056. (emphasis added))
Congressman Tolentino was sustained
by the chair. The record shows that
when the ruling was appealed, it was
upheld by viva voce and when a
division of the House was called, it

was sustained by a vote of 48 to 5.

(Id.,
p. 4058)
Nor is there any doubt about the
power of a conference committee to
insert new provisions as long as these
are germane to the subject of the
conference. As this Court held
in Philippine Judges Association
v. Prado, 227 SCRA 703 (1993), in an
opinion written by then Justice Cruz,
the jurisdiction of the conference
committee is not limited to resolving
differences between the Senate and
the House. It may propose an entirely
new provision. What is important is
that its report is subsequently
approved by the respective houses of
Congress. This Court ruled that it
would not entertain allegations that,
because new provisions had been
added by the conference committee,
there was thereby a violation of the
constitutional injunction that "upon
the last reading of a bill, no
amendment thereto shall be allowed."
Applying these principles,
we shall decline to look
into the petitioners'
charges that an
amendment was made
upon the last reading of
the bill that eventually
became R.A. No. 7354
and that copiesthereof in
its final form were not
distributed among the
members of each House.
Both the enrolled bill and
the legislative journals
certify that the measure
was duly enacted i.e., in

accordance with Article

VI, Sec. 26 (2) of the
Constitution. We are
bound by such official
assurances from a
coordinate department of
the government, to which
we owe, at the very least,
a becoming courtesy.
(Id. at 710. (emphasis
added))
It is interesting to note the following
description of conference committees
in the Philippines in a 1979 study:
Conference committees
may be of two types: free
or instructed. These
committees may be given
instructions by their
parent bodies or they
may be left without
instructions. Normally the
conference committees
are without instructions,
and this is why they are
often critically referred to
as "the little legislatures."
Once bills have been sent
to them, the conferees
have almost unlimited
authority to change the
clauses of the bills and in
fact sometimes introduce
new measures that were
not in the original
legislation. No minutes
are kept, and members'
activities on conference
committees are difficult
to determine. One
congressman known for

his idealism put it this

way: "I killed a bill on
export incentives for my
interest group [copra] in
the conference
committee but I could not
have done so anywhere
else." The conference
committee submits a
report to both houses,
and usually it is
accepted. If the report is
not accepted, then the
committee is discharged
and new members are
appointed.
(R. Jackson, Committees
in the Philippine
Congress, in
COMMITTEES AND
LEGISLATURES: A
COMPARATIVE ANALYSIS
163 (J. D. LEES AND M.
SHAW, eds.)).
In citing this study, we pass no
judgment on the methods of
conference committees. We cite it only
to say that conference committees
here are no different from their
counterparts in the United States
whose vast powers we noted
in Philippine Judges Association
v. Prado, supra. At all events, under
Art. VI, 16(3) each house has the
power "to determine the rules of its
proceedings," including those of its
committees. Any meaningful change
in the method and procedures of
Congress or its committees must
therefore be sought in that body itself.

V. The titles of S. No. 1630 and

H. No. 11197. PAL maintains that R.A.
No. 7716 violates Art. VI, 26 (1) of the
Constitution which provides that
"Every bill passed by Congress shall
embrace only one subject which shall
be expressed in the title thereof." PAL
contends that the amendment of its
franchise by the withdrawal of its
exemption from the VAT is not
expressed in the title of the law.
Pursuant to 13 of P.D. No. 1590, PAL
pays a franchise tax of 2% on its gross
revenue "in lieu of all other taxes,
duties, royalties, registration, license
and other fees and charges of any
kind, nature, or description, imposed,
levied, established, assessed or
collected by any municipal, city,
provincial or national authority or
government agency, now or in the
future."
PAL was exempted from the payment
of the VAT along with other entities by
103 of the National Internal Revenue
Code, which provides as follows:
103. Exempt
transactions. The
following shall be exempt
from the value-added tax:
xxx xxx xxx
(q) Transactions which
are exempt under special
laws or international
agreements to which the
Philippines is a signatory.
R.A. No. 7716 seeks to withdraw
certain exemptions, including that

granted to PAL, by amending 103, as

follows:
103. Exempt
transactions. The
following shall be exempt
from the value-added tax:

THE RELEVANT PROVISIONS OF THE

NATIONAL INTERNAL REVENUE CODE,
AS AMENDED AND FOR OTHER
PURPOSES," Congress thereby clearly
expresses its intention to amend any
provision of the NIRC which stands in
the way of accomplishing the purpose
of the law.

xxx xxx xxx

(q) Transactions which
are exempt under special
laws, except those
granted under
Presidential Decree Nos.
66, 529, 972, 1491, 1590.
...
The amendment of 103 is expressed
in the title of R.A. No. 7716 which
reads:
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.
By stating that R.A. No. 7716 seeks to
"[RESTRUCTURE] THE VALUE-ADDED
TAX (VAT) SYSTEM [BY] WIDENING ITS
TAX BASE AND ENHANCING ITS
ADMINISTRATION, AND FOR THESE
PURPOSES AMENDING AND REPEALING

PAL asserts that the amendment of its

franchise must be reflected in the title
of the law by specific reference to P.D.
No. 1590. It is unnecessary to do this
in order to comply with the
constitutional requirement, since it is
already stated in the title that the law
seeks to amend the pertinent
provisions of the NIRC, among which is
103(q), in order to widen the base of
the VAT. Actually, it is the bill which
becomes a law that is required to
express in its title the subject of
legislation. The titles of H. No. 11197
and S. No. 1630 in fact specifically
referred to 103 of the NIRC as among
the provisions sought to be amended.
We are satisfied that sufficient notice
had been given of the pendency of
these bills in Congress before they
were enacted into what is now R.A.
No. 7716.
In Philippine Judges Association
v. Prado, supra, a similar argument as
that now made by PAL was rejected.
R.A. No. 7354 is entitled AN ACT
CREATING THE PHILIPPINE POSTAL
CORPORATION, DEFINING ITS POWERS,
FUNCTIONS AND RESPONSIBILITIES,
PROVIDING FOR REGULATION OF THE
INDUSTRY AND FOR OTHER PURPOSES
CONNECTED THEREWITH. It contained
a provision repealing all franking
privileges. It was contended that the

withdrawal of franking privileges was

not expressed in the title of the law. In
holding that there was sufficient
description of the subject of the law in
its title, including the repeal of
franking privileges, this Court held:
To require every end and
means necessary for the
accomplishment of the
general objectives of the
statute to be expressed
in its title would not only
be unreasonable but
would actually render
legislation impossible.
[Cooley, Constitutional
Limitations, 8th Ed., p.
297] As has been
correctly explained:
The details
of a
legislative
act need not
be
specifically
stated in its
title, but
matter
germane to
the subject
as
expressed in
the title, and
adopted to
the
accomplish
ment of the
object in
view, may
properly be
included in
the act.

Thus, it is
proper to
create in the
same act
the
machinery
by which the
act is to be
enforced, to
prescribe
the penalties
for its
infraction,
and to
remove
obstacles in
the way of
its
execution. If
such
matters are
properly
connected
with the
subject as
expressed in
the title, it is
unnecessary
that they
should also
have special
mention in
the title.
(Southern
Pac. Co. v.
Bartine, 170
Fed. 725)
(227 SCRA at 707-708)
VI. Claims of press freedom and
religious liberty. We have held that, as
a general proposition, the press is not
exempt from the taxing power of the

State and that what the constitutional

guarantee of free press prohibits are
laws which single out the press or
target a group belonging to the press
for special treatment or which in any
way discriminate against the press on
the basis of the content of the
publication, and R.A. No. 7716 is none
of these.
Now it is contended by the PPI that by
removing the exemption of the press
from the VAT while maintaining those
granted to others, the law
discriminates against the press. At any
rate, it is averred, "even
nondiscriminatory taxation of
constitutionally guaranteed freedom is
unconstitutional."
With respect to the first contention, it
would suffice to say that since the law
granted the press a privilege, the law
could take back the privilege anytime
without offense to the Constitution.
The reason is simple: by granting
exemptions, the State does not forever
waive the exercise of its sovereign
prerogative.
Indeed, in withdrawing the exemption,
the law merely subjects the press to
the same tax burden to which other
businesses have long ago been
subject. It is thus different from the
tax involved in the cases invoked by
the PPI. The license tax in Grosjean
v. American Press Co., 297 U.S. 233,
80 L. Ed. 660 (1936) was found to be
discriminatory because it was laid on
the gross advertising receipts only of
newspapers whose weekly circulation
was over 20,000, with the result that
the tax applied only to 13 out of 124

publishers in Louisiana. These large

papers were critical of Senator Huey
Long who controlled the state
legislature which enacted the license
tax. The censorial motivation for the
law was thus evident.
On the other hand, in Minneapolis Star
& Tribune Co. v. Minnesota Comm'r of
Revenue, 460 U.S. 575, 75 L. Ed. 2d
295 (1983), the tax was found to be
discriminatory because although it
could have been made liable for the
sales tax or, in lieu thereof, for the use
tax on the privilege of using, storing or
consuming tangible goods, the press
was not. Instead, the press was
exempted from both taxes. It was,
however, later made to pay
a specialuse tax on the cost of paper
and ink which made these items "the
only items subject to the use tax that
were component of goods to be sold at
retail." The U.S. Supreme Court held
that the differential treatment of the
press "suggests that the goal of
regulation is not related to
suppression of expression, and such
goal is presumptively
unconstitutional." It would therefore
appear that even a law that favors the
press is constitutionally suspect. (See
the dissent of Rehnquist, J. in that
case)
Nor is it true that only two exemptions
previously granted by E.O. No. 273 are
withdrawn "absolutely and
unqualifiedly" by R.A. No. 7716. Other
exemptions from the VAT, such as
those previously granted to PAL,
petroleum concessionaires,
enterprises registered with the Export
Processing Zone Authority, and many

more are likewise totally withdrawn, in

addition to exemptions which are
partially withdrawn, in an effort to
broaden the base of the tax.
The PPI says that the discriminatory
treatment of the press is highlighted
by the fact that transactions, which
are profit oriented, continue to enjoy
exemption under R.A. No. 7716. An
enumeration of some of these
transactions will suffice to show that
by and large this is not so and that the
exemptions are granted for a purpose.
As the Solicitor General says, such
exemptions are granted, in some
cases, to encourage agricultural
production and, in other cases, for the
personal benefit of the end-user rather
than for profit. The exempt
transactions are:
(a) Goods for
consumption or use
which are in their original
state (agricultural,
marine and forest
products, cotton seeds in
their original state,
fertilizers, seeds,
seedlings, fingerlings,
fish, prawn livestock and
poultry feeds) and goods
or services to enhance
agriculture (milling of
palay, corn, sugar cane
and raw sugar, livestock,
poultry feeds, fertilizer,
ingredients used for the
manufacture of feeds).
(b) Goods used for
personal consumption or
use (household and

personal effects of
citizens returning to the
Philippines) or for
professional use, like
professional instruments
and implements, by
persons coming to the
Philippines to settle here.
(c) Goods subject to
excise tax such as
petroleum products or to
be used for manufacture
of petroleum products
subject to excise tax and
services subject to
percentage tax.
(d) Educational services,
medical, dental, hospital
and veterinary services,
and services rendered
under employeremployee relationship.
(e) Works of art and
similar creations sold by
the artist himself.
(f) Transactions exempted
under special laws, or
international agreements.
(g) Export-sales by
persons not VATregistered.
(h) Goods or services
with gross annual sale or
receipt not
exceeding P500,000.00.
(Respondents'
Consolidated Comment

on the Motions for

Reconsideration, pp. 5860)
The PPI asserts that it does not really
matter that the law does not
discriminate against the press
because "even nondiscriminatory
taxation on constitutionally
guaranteed freedom is
unconstitutional." PPI cites in support
of this assertion the following
statement in Murdock v. Pennsylvania,
319 U.S. 105, 87 L. Ed. 1292 (1943):
The fact that the
ordinance is
"nondiscriminatory" is
immaterial. The
protection afforded by
the First Amendment is
not so restricted. A
license tax certainly does
not acquire constitutional
validity because it
classifies the privileges
protected by the First
Amendment along with
the wares and
merchandise of hucksters
and peddlers and treats
them all alike. Such
equality in treatment
does not save the
ordinance. Freedom of
press, freedom of speech,
freedom of religion are in
preferred position.
The Court was speaking in that case of
a license tax, which, unlike an ordinary
tax, is mainly for regulation. Its
imposition on the press is
unconstitutional because it lays a prior

restraint on the exercise of its right.

Hence, although its application to
others, such those selling goods, is
valid, its application to the press or to
religious groups, such as the Jehovah's
Witnesses, in connection with the
latter's sale of religious books and
pamphlets, is unconstitutional. As the
U.S. Supreme Court put it, "it is one
thing to impose a tax on income or
property of a preacher. It is quite
another thing to exact a tax on him for
delivering a sermon."
A similar ruling was made by this
Court in American Bible Society v. City
of Manila, 101 Phil. 386 (1957) which
invalidated a city ordinance requiring
a business license fee on those
engaged in the sale of general
merchandise. It was held that the tax
could not be imposed on the sale of
bibles by the American Bible Society
without restraining the free exercise of
its right to propagate.
The VAT is, however, different. It is not
a license tax. It is not a tax on the
exercise of a privilege, much less a
constitutional right. It is imposed on
the sale, barter, lease or exchange of
goods or properties or the sale or
exchange of services and the lease of
properties purely for revenue
purposes. To subject the press to its
payment is not to burden the exercise
of its right any more than to make the
press pay income tax or subject it to
general regulation is not to violate its
freedom under the Constitution.
Additionally, the Philippine Bible
Society, Inc. claims that although it
sells bibles, the proceeds derived from

the sales are used to subsidize the

cost of printing copies which are given
free to those who cannot afford to pay
so that to tax the sales would be to
increase the price, while reducing the
volume of sale. Granting that to be the
case, the resulting burden on the
exercise of religious freedom is so
incidental as to make it difficult to
differentiate it from any other
economic imposition that might make
the right to disseminate religious
doctrines costly. Otherwise, to follow
the petitioner's argument, to increase
the tax on the sale of vestments would
be to lay an impermissible burden on
the right of the preacher to make a
sermon.
On the other hand the registration fee
of P1,000.00 imposed by 107 of the
NIRC, as amended by 7 of R.A. No.
7716, although fixed in amount, is
really just to pay for the expenses of
registration and enforcement of
provisions such as those relating to
accounting in 108 of the NIRC. That
the PBS distributes free bibles and
therefore is not liable to pay the VAT
does not excuse it from the payment
of this fee because it also sells some
copies. At any rate whether the PBS is
liable for the VAT must be decided in
concrete cases, in the event it is
assessed this tax by the Commissioner
of Internal Revenue.
VII. Alleged violations of the due
process, equal protection and contract
clauses and the rule on taxation.
CREBA asserts that R.A. No. 7716 (1)
impairs the obligations of contracts,
(2) classifies transactions as covered
or exempt without reasonable basis

and (3) violates the rule that taxes

should be uniform and equitable and
that Congress shall "evolve a
progressive system of taxation."
With respect to the first contention, it
is claimed that the application of the
tax to existing contracts of the sale of
real property by installment or on
deferred payment basis would result in
substantial increases in the monthly
amortizations to be paid because of
the 10% VAT. The additional amount, it
is pointed out, is something that the
buyer did not anticipate at the time he
entered into the contract.
The short answer to this is the one
given by this Court in an early case:
"Authorities from numerous sources
are cited by the plaintiffs, but none of
them show that a lawful tax on a new
subject, or an increased tax on an old
one, interferes with a contract or
impairs its obligation, within the
meaning of the Constitution. Even
though such taxation may affect
particular contracts, as it may increase
the debt of one person and lessen the
security of another, or may impose
additional burdens upon one class and
release the burdens of another, still
the tax must be paid unless prohibited
by the Constitution, nor can it be said
that it impairs the obligation of any
existing contract in its true legal
sense." (La Insular v. Machuca GoTauco and Nubla Co-Siong, 39 Phil.
567, 574 (1919)). Indeed not only
existing laws but also "the reservation
of the essential attributes of
sovereignty, is . . . read into contracts
as a postulate of the legal order."
(Philippine-American Life Ins. Co. v.

Auditor General, 22 SCRA 135, 147

(1968)) Contracts must be understood
as having been made in reference to
the possible exercise of the rightful
authority of the government and no
obligation of contract can extend to
the defeat of that authority. (Norman
v. Baltimore and Ohio R.R., 79 L. Ed.
885 (1935)).
It is next pointed out that while 4 of
R.A. No. 7716 exempts such
transactions as the sale of agricultural
products, food items, petroleum, and
medical and veterinary services, it
grants no exemption on the sale of
real property which is equally
essential. The sale of real property for
socialized and low-cost housing is
exempted from the tax, but CREBA
claims that real estate transactions of
"the less poor," i.e., the middle class,
who are equally homeless, should
likewise be exempted.
The sale of food items, petroleum,
medical and veterinary services, etc.,
which are essential goods and services
was already exempt under 103, pars.
(b) (d) (1) of the NIRC before the
enactment of R.A. No. 7716. Petitioner
is in error in claiming that R.A. No.
7716 granted exemption to these
transactions, while subjecting those of
petitioner to the payment of the VAT.
Moreover, there is a difference
between the "homeless poor" and the
"homeless less poor" in the example
given by petitioner, because the
second group or middle class can
afford to rent houses in the meantime
that they cannot yet buy their own
homes. The two social classes are thus
differently situated in life. "It is

inherent in the power to tax that the

State be free to select the subjects of
taxation, and it has been repeatedly
held that 'inequalities which result
from a singling out of one particular
class for taxation, or exemption
infringe no constitutional limitation.'"
(Lutz v. Araneta, 98 Phil. 148, 153
(1955). Accord, City of Baguio v. De
Leon, 134 Phil. 912 (1968); Sison, Jr. v.
Ancheta, 130 SCRA 654, 663 (1984);
Kapatiran ng mga Naglilingkod sa
Pamahalaan ng Pilipinas, Inc. v. Tan,
163 SCRA 371 (1988)).
Finally, it is contended, for the reasons
already noted, that R.A. No. 7716 also
violates Art. VI, 28(1) which provides
that "The rule of taxation shall be
uniform and equitable. The Congress
shall evolve a progressive system of
taxation."
Equality and uniformity of taxation
means that all taxable articles or kinds
of property of the same class be taxed
at the same rate. The taxing power
has the authority to make reasonable
and natural classifications for
purposes of taxation. To satisfy this
requirement it is enough that the
statute or ordinance applies equally to
all persons, forms and corporations
placed in similar situation. (City of
Baguio v. De Leon, supra; Sison, Jr. v.
Ancheta, supra)
Indeed, the VAT was already provided
in E.O. No. 273 long before R.A. No.
7716 was enacted. R.A. No. 7716
merely expands the base of the tax.
The validity of the original VAT Law
was questioned in Kapatiran ng
Naglilingkod sa Pamahalaan ng

Pilipinas, Inc. v. Tan, 163 SCRA 383

(1988) on grounds similar to those
made in these cases, namely, that the
law was "oppressive, discriminatory,
unjust and regressive in violation of
Art. VI, 28(1) of the Constitution." (At
382) Rejecting the challenge to the
law, this Court held:
As the Court sees it, EO
273 satisfies all the
requirements of a valid
tax. It is uniform. . . .
The sales tax adopted in
EO 273 is applied
similarly on all goods and
services sold to the
public, which are not
exempt, at the constant
rate of 0% or 10%.
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.
(At 382-383)
The CREBA claims that the VAT is
regressive. A similar claim is made by
the Cooperative Union of the
Philippines, Inc. (CUP), while petitioner
Juan T. David argues that the law
contravenes the mandate of Congress
to provide for a progressive system of
taxation because the law imposes a
flat rate of 10% and thus places the
tax burden on all taxpayers without
regard to their ability to pay.
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).
Thus, the following transactions
involving basic and essential goods
and services are exempted from the
VAT:
(a) Goods for
consumption or use
which are in their original
state (agricultural,
marine and forest
products, cotton seeds in
their original state,
fertilizers, seeds,
seedlings, fingerlings,
fish, prawn livestock and
poultry feeds) and goods
or services to enhance
agriculture (milling of
palay, corn sugar cane
and raw sugar, livestock,
poultry feeds, fertilizer,
ingredients used for the
manufacture of feeds).
(b) Goods used for
personal consumption or
use (household and
personal effects of
citizens returning to the
Philippines) and or
professional use, like
professional instruments
and implements, by

persons coming to the

Philippines to settle here.
(c) Goods subject to
excise tax such as
petroleum products or to
be used for manufacture
of petroleum products
subject to excise tax and
services subject to
percentage tax.
(d) Educational services,
medical, dental, hospital
and veterinary services,
and services rendered
under employeremployee relationship.
(e) Works of art and
similar creations sold by
the artist himself.
(f) Transactions exempted
under special laws, or
international agreements.
(g) Export-sales by
persons not VATregistered.
(h) Goods or services
with gross annual sale or
receipt not
exceeding P500,000.00.
(Respondents'
Consolidated Comment
on the Motions for
Reconsideration, pp. 5860)
On the other hand, the transactions
which are subject to the VAT are those

which involve goods and services

which are used or availed of mainly by
higher income groups. These include
real properties held primarily for sale
to customers or for lease in the
ordinary course of trade or business,
the right or privilege to use patent,
copyright, and other similar property
or right, the right or privilege to use
industrial, commercial or scientific
equipment, motion picture films, tapes
and discs, radio, television, satellite
transmission and cable television time,
hotels, restaurants and similar places,
securities, lending investments,
taxicabs, utility cars for rent, tourist
buses, and other common carriers,
services of franchise grantees of
telephone and telegraph.
The problem with CREBA's petition is
that it presents broad claims of
constitutional violations by tendering
issues not at retail but at wholesale
and in the abstract. There is no fully
developed record which can impart to
adjudication the impact of actuality.
There is no factual foundation to show
in the concrete the application of the
law to actual contracts and exemplify
its effect on property rights. For the
fact is that petitioner's members have
not even been assessed the VAT.
Petitioner's case is not made concrete
by a series of hypothetical questions
asked which are no different from
those dealt with in advisory opinions.
The difficulty confronting
petitioner is thus
apparent. He alleges
arbitrariness. A mere
allegation, as here, does
not suffice. There must

be a factual foundation of
such unconstitutional
taint. Considering that
petitioner here would
condemn such a
provision as void on its
face, he has not made
out a case. This is merely
to adhere to the
authoritative doctrine
that where the due
process and equal
protection clauses are
invoked, considering that
they are not fixed rules
but rather broad
standards, there is a
need for proof of such
persuasive character as
would lead to such a
conclusion. Absent such a
showing, the presumption
of validity must prevail.
(Sison, Jr. v. Ancheta, 130
SCRA at 661)
Adjudication of these broad claims
must await the development of a
concrete case. It may be that
postponement of adjudication would
result in a multiplicity of suits. This
need not be the case, however.
Enforcement of the law may give rise
to such a case. A test case, provided it
is an actual case and not an abstract
or hypothetical one, may thus be
presented.
Nor is hardship to taxpayers alone an
adequate justification for adjudicating
abstract issues. Otherwise,
adjudication would be no different

from the giving of advisory opinion

that does not really settle legal issues.
We are told that it is our duty under
Art. VIII, 1, 2 to decide whenever a
claim is made that "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." This duty can only
arise if an actual case or controversy
is before us. Under Art . VIII, 5 our
jurisdiction is defined in terms of
"cases" and all that Art. VIII, 1, 2 can
plausibly mean is that in the exercise
of that jurisdiction we have the judicial
power to determine questions of grave
abuse of discretion by any branch or
instrumentality of the government.
Put in another way, what is granted in
Art. VIII, 1, 2 is "judicial power,"
which is "the power of a court to hear
and decide cases pending between
parties who have the right to sue and
be sued in the courts of law and
equity" (Lamb v. Phipps, 22 Phil. 456,
559 (1912)), as distinguished from
legislative and executive power. This
power cannot be directly appropriated
until it is apportioned among several
courts either by the Constitution, as in
the case of Art. VIII, 5, or by statute,
as in the case of the Judiciary Act of
1948 (R.A. No. 296) and the Judiciary
Reorganization Act of 1980 (B.P. Blg.
129). The power thus apportioned
constitutes the court's "jurisdiction,"
defined as "the power conferred by
law upon a court or judge to take
cognizance of a case, to the exclusion
of all others." (United States v. Arceo,
6 Phil. 29 (1906)) Without an actual
case coming within its jurisdiction, this

Court cannot inquire into any

allegation of grave abuse of discretion
by the other departments of the
government.
VIII. Alleged violation of policy towards
cooperatives. On the other hand, the
Cooperative Union of the Philippines
(CUP), after briefly surveying the
course of legislation, argues that it
was to adopt a definite policy of
granting tax exemption to
cooperatives that the present
Constitution embodies provisions on
cooperatives. To subject cooperatives
to the VAT would therefore be to
infringe a constitutional policy.
Petitioner claims that in 1973, P.D. No.
175 was promulgated exempting
cooperatives from the payment of
income taxes and sales taxes but in
1984, because of the crisis which
menaced the national economy, this
exemption was withdrawn by P.D. No.
1955; that in 1986, P.D. No. 2008
again granted cooperatives exemption
from income and sales taxes until
December 31, 1991, but, in the same
year, E.O. No. 93 revoked the
exemption; and that finally in 1987 the
framers of the Constitution
"repudiated the previous actions of the
government adverse to the interests
of the cooperatives, that is, the
repeated revocation of the tax
exemption to cooperatives and
instead upheld the policy of
strengthening the cooperatives by
way of the grant of tax exemptions,"
by providing the following in Art. XII:
1. The goals of the
national economy are a
more equitable

distribution of
opportunities, income,
and wealth; a sustained
increase in the amount of
goods and services
produced by the nation
for the benefit of the
people; and an expanding
productivity as the key to
raising the quality of life
for all, especially the
underprivileged.
The State shall promote
industrialization and full
employment based on
sound agricultural
development and
agrarian reform, through
industries that make full
and efficient use of
human and natural
resources, and which are
competitive in both
domestic and foreign
markets. However, the
State shall protect Filipino
enterprises against unfair
foreign competition and
trade practices.
In the pursuit of these
goals, all sectors of the
economy and all regions
of the country shall be
given optimum
opportunity to develop.
Private enterprises,
including corporations,
cooperatives, and similar
collective organizations,
shall be encouraged to
broaden the base of their
ownership.

15. The Congress shall

create an agency to
promote the viability and
growth of cooperatives as
instruments for social
justice and economic
development.
Petitioner's contention has no merit. In
the first place, it is not true that P.D.
No. 1955 singled out cooperatives by
withdrawing their exemption from
income and sales taxes under P.D. No.
175, 5. What P.D. No. 1955, 1 did
was to withdraw the exemptions and
preferential treatments theretofore
granted to private business
enterprises in general, in view of the
economic crisis which then beset the
nation. It is true that after P.D. No.
2008, 2 had restored the tax
exemptions of cooperatives in 1986,
the exemption was again repealed by
E.O. No. 93, 1, but then again
cooperatives were not the only ones
whose exemptions were
withdrawn. The withdrawal of tax
incentives applied to all, including
government and private entities. In
the second place, the Constitution
does not really require that
cooperatives be granted tax
exemptions in order to promote their
growth and viability. Hence, there is no
basis for petitioner's assertion that the
government's policy toward
cooperatives had been one of
vacillation, as far as the grant of tax
privileges was concerned, and that it
was to put an end to this indecision
that the constitutional provisions cited
were adopted. Perhaps as a matter of
policy cooperatives should be granted
tax exemptions, but that is left to the

discretion of Congress. If Congress

does not grant exemption and there is
no discrimination to cooperatives, no
violation of any constitutional policy
can be charged.
Indeed, petitioner's theory amounts to
saying that under the Constitution
cooperatives are exempt from
taxation. Such theory is contrary to
the Constitution under which only the
following are exempt from taxation:
charitable institutions, churches and
parsonages, by reason of Art. VI, 28
(3), and non-stock, non-profit
educational institutions by reason of
Art. XIV, 4 (3).
CUP's further ground for seeking the
invalidation of R.A. No. 7716 is that it
denies cooperatives the equal
protection of the law because electric
cooperatives are exempted from the
VAT. The classification between
electric and other cooperatives
(farmers cooperatives, producers
cooperatives, marketing cooperatives,
etc.) apparently rests on a
congressional determination that there
is greater need to provide cheaper
electric power to as many people as
possible, especially those living in the
rural areas, than there is to provide
them with other necessities in life. We
cannot say that such classification is
unreasonable.
We have carefully read the various
arguments raised against the
constitutional validity of R.A. No. 7716.
We have in fact taken the
extraordinary step of enjoining its
enforcement pending resolution of
these cases. We have now come to the

conclusion that the law suffers from

none of the infirmities attributed to it
by petitioners and that its enactment
by the other branches of the
government does not constitute a
grave abuse of discretion. Any
question as to its necessity,
desirability or expediency must be
addressed to Congress as the body
which is electorally responsible,
remembering that, as Justice Holmes
has said, "legislators are the ultimate
guardians of the liberties and welfare
of the people in quite as great a
degree as are the courts." (Missouri,
Kansas & Texas Ry. Co. v. May, 194
U.S. 267, 270, 48 L. Ed. 971, 973
(1904)). It is not right, as petitioner in
G.R. No. 115543 does in arguing that
we should enforce the public
accountability of legislators, that those
who took part in passing the law in
question by voting for it in Congress
should later thrust to the courts the
burden of reviewing measures in the
flush of enactment. This Court does
not sit as a third branch of the
legislature, much less exercise a veto
power over legislation.
WHEREFORE, the motions for
reconsideration are denied with finality
and the temporary restraining order
previously issued is hereby lifted.
SO ORDERED.
Narvasa, C.J., Feliciano, Melo,
Kapunan, Francisco and Hermosisima,
Jr., JJ., concur.
Padilla and Vitug, JJ., maintained their
separate opinion.

Regalado, Davide, Jr., Romero,

Bellosillo and Puno, JJ, maintained
their dissenting opinion.
Panganiban, J., took no part.
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 STANDBY 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-onprovisions
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 theTolentino 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 standby 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 thepossible 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.:

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.)
RENATO V. DIAZ
and
No. 193007

G.R.

AURORA MA. F. TIMBOL,

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]

Petitioners,
Present:

CORONA, C.J.,
CARPIO,
VELASCO, JR.,
LEONARDO-DE CASTRO,
BRION,

WHEREFORE, the Motions for

Reconsideration are hereby DENIED
WITH FINALITY. The temporary
restraining order issued by the Court
is LIFTED.

- versus
BERSAMIN,*
DEL CASTILLO,
ABAD,
VILLARAMA, JR.,

PERALTA,

PEREZ,
MENDOZA, and
SERENO,** JJ.
THE SECRETARY OF FINANCE
and THE COMMISSIONER
OF
Promulgated:
INTERNAL REVENUE,
Respondents.
July 19, 2011

x
--------------------------------------------------------------------------------------- x

DECISION

petition for declaratory

relief[1] assailing the validity of the
impending imposition of value-added
tax (VAT) by the Bureau of Internal
Revenue (BIR) on the collections of
tollway operators.

Petitioners claim that, since the VAT

would result in increased toll fees,
they have an interest as regular users
of tollways in stopping the BIR
action. Additionally, Diaz claims that
he sponsored the approval of Republic
Act 7716 (the 1994 Expanded VAT Law
or EVAT Law) and Republic Act 8424
(the 1997 National Internal Revenue
Code or the NIRC) at the House of
Representatives. Timbol, on the other
hand, claims that she served as
Assistant Secretary of the Department
of Trade and Industry and consultant
of the Toll Regulatory Board (TRB) in
the past administration.

ABAD, J.:

May toll fees collected by

tollway operators be subjected to
value- added tax?

The Facts and the Case

Petitioners Renato V. Diaz and Aurora

Ma. F. Timbol (petitioners) filed this

Petitioners allege that the BIR

attempted during the administration
of President Gloria Macapagal-Arroyo
to impose VAT on toll fees. The
imposition was deferred, however, in
view of the consistent opposition of
Diaz and other sectors to such move.
But, upon President Benigno C. Aquino
IIIs assumption of office in 2010, the
BIR revived the idea and would impose
the challenged tax on toll fees
beginning August 16, 2010 unless
judicially enjoined.

Petitioners hold the view that

Congress did not, when it enacted the

NIRC, intend to include toll fees within

the meaning of sale of services that
are subject to VAT; that a toll fee is a
users tax, not a sale of services;
that to impose VAT on toll fees would
amount to a tax on public service; and
that, since VAT was never factored into
the formula for computing toll fees, its
imposition would violate the nonimpairment clause of the constitution.

On August 13, 2010 the Court issued a

temporary restraining order (TRO),
enjoining the implementation of the
VAT. The Court required the
government, represented by
respondents Cesar V. Purisima,
Secretary of the Department of
Finance, and Kim S. Jacinto-Henares,
Commissioner of Internal Revenue, to
comment on the petition within 10
days from notice.[2] Later, the Court
issued another resolution treating the
petition as one for prohibition.[3]

On August 23, 2010 the Office

of the Solicitor General filed the
governments comment.[4] The
government avers that the NIRC
imposes VAT on all kinds of services of
franchise grantees, including tollway
operations, except where the law
provides otherwise; that the Court
should seek the meaning and intent of
the law from the words used in the
statute; and that the imposition of VAT
on tollway operations has been the
subject as early as 2003 of several BIR
rulings and circulars.[5]

The government also argues that

petitioners have no right to invoke the
non-impairment of contracts clause
since they clearly have no personal
interest in existing toll operating
agreements (TOAs) between the
government and tollway operators. At
any rate, the non-impairment clause
cannot limit the States sovereign
taxing power which is generally read
into contracts.

Finally, the government

contends that the non-inclusion of VAT
in the parametric formula for
computing toll rates cannot exempt
tollway operators from VAT. In any
event, it cannot be claimed that the
rights of tollway operators to a
reasonable rate of return will be
impaired by the VAT since this is
imposed on top of the toll
rate. Further, the imposition of VAT on
toll fees would have very minimal
effect on motorists using the tollways.

In their reply[6] to the governments

comment, petitioners point out that
tollway operators cannot be regarded
as franchise grantees under the NIRC
since they do not hold legislative
franchises. Further, the BIR intends to
collect the VAT by rounding off the toll
rate and putting any excess collection
in an escrow account. But this would
be illegal since only the Congress can
modify VAT rates and authorize its
disbursement. Finally, BIR Revenue
Memorandum Circular 63-2010 (BIR
RMC 63-2010), which directs toll
companies to record an accumulated

input VAT of zero balance in their

books as of August 16, 2010,
contravenes Section 111 of the NIRC
which grants entities that first become
liable to VAT a transitional input tax
credit of 2% on beginning
inventory. For this reason, the VAT on
toll fees cannot be implemented.

2.
Whether or not the imposition of
VAT on tollway operators a) amounts
to a tax on tax and not a tax on
services; b) will impair the tollway
operators right to a reasonable return
of investment under their TOAs; and c)
is not administratively feasible and
cannot be implemented.

The Issues Presented

The Courts Rulings

The case presents two procedural

issues:

A. On the Procedural Issues:

1.
Whether or not the Court may
treat the petition for declaratory relief
as one for prohibition; and

2.
Whether or not petitioners Diaz
and Timbol have legal standing to file
the action.

The case also presents two

substantive issues:

1.
Whether or not the government
is unlawfully expanding VAT coverage
by including tollway operators and
tollway operations in the terms
franchise grantees and sale of
services under Section 108 of the
Code; and

On August 24, 2010 the Court issued a

resolution, treating the petition as one
for prohibition rather than one for
declaratory relief, the characterization
that petitioners Diaz and Timbol gave
their action. The government has
sought reconsideration of the Courts
resolution,[7] however, arguing that
petitioners allegations clearly made
out a case for declaratory relief, an
action over which the Court has no
original jurisdiction. The government
adds, moreover, that the petition does
not meet the requirements of Rule 65
for actions for prohibition since the BIR
did not exercise judicial, quasi-judicial,
or ministerial functions when it sought
to impose VAT on toll fees. Besides,
petitioners Diaz and Timbol has a
plain, speedy, and adequate remedy
in the ordinary course of law against
the BIR action in the form of an appeal
to the Secretary of Finance.

But there are precedents for

treating a petition for declaratory relief
as one for prohibition if the case has
far-reaching implications and raises
questions that need to be resolved for
the public good.[8] The Court has also
held that a petition for prohibition is a
proper remedy to prohibit or nullify
acts of executive officials that amount
to usurpation of legislative authority.[9]

Here, the imposition of VAT on toll fees

has far-reaching implications. Its
imposition would impact, not only on
the more than half a million motorists
who use the tollways everyday, but
more so on the governments effort to
raise revenue for funding various
projects and for reducing budgetary
deficits.

To dismiss the petition and resolve the

issues later, after the challenged VAT
has been imposed, could cause more
mischief both to the tax-paying public
and the government. A belated
declaration of nullity of the BIR action
would make any attempt to refund to
the motorists what they paid an
administrative nightmare with no
solution. Consequently, it is not only
the right, but the duty of the Court to
take cognizance of and resolve the
issues that the petition raises.

Although the petition does not strictly

comply with the requirements of Rule
65, the Court has ample power to
waive such technical requirements
when the legal questions to be

resolved are of great importance to

the public. The same may be said of
the requirement of locus standi which
is a mere procedural requisite.[10]

B. On the Substantive Issues:

One. The relevant law in this case is

Section 108 of the NIRC, as
amended. VAT is levied, assessed,
and collected, according to Section
108, on the gross receipts derived
from the sale or exchange of services
as well as from the use or lease of
properties. The third paragraph of
Section 108 defines sale or exchange
of services as follows:

The phrase sale or exchange of

services means the performance
of all kinds of services in the
Philippines for others for a fee,
remuneration or consideration,
including those performed or
rendered by construction and
service contractors; stock, real
estate, commercial, customs and
immigration brokers; lessors of
property, whether personal or
real; warehousing services;
lessors or distributors of
cinematographic films; persons
engaged in milling, processing,
manufacturing or repacking goods
for others; proprietors, operators
or keepers of hotels, motels,
resthouses, pension houses, inns,
resorts; proprietors or operators
of restaurants, refreshment
parlors, cafes and other eating

places, including clubs and

caterers; dealers in securities;
lending investors; transportation
contractors on their transport of
goods or cargoes, including
persons who transport goods or
cargoes for hire and other
domestic common carriers by land
relative to their transport of
goods or cargoes; common
carriers by air and sea relative to
their transport of passengers,
goods or cargoes from one place
in the Philippines to another place
in the Philippines; sales of
electricity by generation
companies, transmission, and
distribution companies; services
of franchise grantees of electric
utilities, telephone and telegraph,
radio and television broadcasting
and all other franchise grantees
except those under Section 119 of
this Code and non-life insurance
companies (except their crop
insurances), including surety,
fidelity, indemnity and bonding
companies; and similar services
regardless of whether or not the
performance thereof calls for the
exercise or use of the physical or
mental faculties. (Underscoring
supplied)

It is plain from the above that the law

imposes VAT on all kinds of services
rendered in the Philippines for a fee,
including those specified in the
list. The enumeration of affected
services is not exclusive.[11] By
qualifying services with the words
all kinds, Congress has given the

term services an all-encompassing

meaning. The listing of specific
services are intended to illustrate how
pervasive and broad is the VATs reach
rather than establish concrete limits to
its application. Thus, every activity
that can be imagined as a form of
service rendered for a fee should be
deemed included unless some
provision of law especially excludes it.

Now, do tollway operators

render services for a fee? Presidential
Decree (P.D.) 1112 or the Toll
Operation Decree establishes the legal
basis for the services that tollway
operators render. Essentially, tollway
operators construct, maintain, and
operate expressways, also called
tollways, at the operators
expense. Tollways serve as
alternatives to regular public highways
that meander through populated areas
and branch out to local roads. Traffic
in the regular public highways is for
this reason slow-moving. In
consideration for constructing tollways
at their expense, the operators are
allowed to collect governmentapproved fees from motorists using
the tollways until such operators could
fully recover their expenses and earn
reasonable returns from their
investments.

When a tollway operator takes a

toll fee from a motorist, the fee is in
effect for the latters use of the tollway
facilities over which the operator
enjoys private proprietary
rights[12] that its contract and the law

recognize. In this sense, the tollway

operator is no different from the
following service providers under
Section 108 who allow others to use
their properties or facilities for a fee:

1.
Lessors of property, whether
personal or real;
2.

Warehousing service operators;

3.
Lessors or distributors of
cinematographic films;
4.
Proprietors, operators or
keepers of hotels, motels, resthouses,
pension houses, inns, resorts;
5.
Lending investors (for use of
money);
6.
Transportation contractors on
their transport of goods or cargoes,
including persons who transport goods
or cargoes for hire and other domestic
common carriers by land relative to
their transport of goods or cargoes;
and
7.
Common carriers by air and sea
relative to their transport of
passengers, goods or cargoes from
one place in the Philippines to another
place in the Philippines.

It does not help petitioners cause that

Section 108 subjects to VAT all kinds
of services rendered for a fee
regardless of whether or not the
performance thereof calls for the
exercise or use of the physical or
mental faculties. This means that
services to be subject to VAT need

not fall under the traditional concept

of services, the personal or
professional kinds that require the use
of human knowledge and skills.

And not only do tollway

operators come under the broad term
all kinds of services, they also come
under the specific class described in
Section 108 as all other franchise
grantees who are subject to VAT,
except those under Section 119 of
this Code.

Tollway operators are franchise

grantees and they do not belong to
exceptions (the low-income radio
and/or television broadcasting
companies with gross annual incomes
of less than P10 million and gas and
water utilities) that Section
119[13] spares from the payment of
VAT. The word franchise broadly
covers government grants of a special
right to do an act or series of acts of
public concern.[14]

Petitioners of course contend that

tollway operators cannot be
considered franchise grantees under
Section 108 since they do not hold
legislative franchises. But nothing in
Section 108 indicates that the
franchise grantees it speaks of are
those who hold legislative
franchises. Petitioners give no reason,
and the Court cannot surmise any, for
making a distinction between
franchises granted by Congress and
franchises granted by some other

government agency. The latter,

properly constituted, may grant
franchises. Indeed, franchises
conferred or granted by local
authorities, as agents of the state,
constitute as much a legislative
franchise as though the grant had
been made by Congress itself.[15] The
term franchise has been broadly
construed as referring, not only to
authorizations that Congress directly
issues in the form of a special law, but
also to those granted by
administrative agencies to which the
power to grant franchises has been
delegated by Congress.[16]

Tollway operators are, owing to the

nature and object of their business,
franchise grantees. The
construction, operation, and
maintenance of toll facilities on public
improvements are activities of public
consequence that necessarily require
a special grant of authority from the
state. Indeed, Congress granted
special franchise for the operation of
tollways to the Philippine National
Construction Company, the former
tollway concessionaire for the North
and South Luzon Expressways. Apart
from Congress, tollway franchises may
also be granted by the TRB, pursuant
to the exercise of its delegated powers
under P.D. 1112.[17] The franchise in
this case is evidenced by a Toll
Operation Certificate.[18]

Petitioners contend that the public

nature of the services rendered by
tollway operators excludes such

services from the term sale of

services under Section 108 of the
Code. But, again, nothing in Section
108 supports this contention. The
reverse is true. In specifically including
by way of example electric utilities,
telephone, telegraph, and
broadcasting companies in its list of
VAT-covered businesses, Section 108
opens other companies rendering
public service for a fee to the
imposition of VAT. Businesses of a
public nature such as public utilities
and the collection of tolls or charges
for its use or service is a franchise.[19]

Nor can petitioners cite as binding on

the Court statements made by certain
lawmakers in the course of
congressional deliberations of the
would-be law. As the Court said
in South African Airways v.
Commissioner of Internal Revenue,
[20]
statements made by individual
members of Congress in the
consideration of a bill do not
necessarily reflect the sense of that
body and are, consequently, not
controlling in the interpretation of
law. The congressional will is
ultimately determined by the language
of the law that the lawmakers voted
on. Consequently, the meaning and
intention of the law must first be
sought in the words of the statute
itself, read and considered in their
natural, ordinary, commonly accepted
and most obvious significations,
according to good and approved usage
and without resorting to forced or
subtle construction.

Two. Petitioners argue that a toll fee

is a users tax and to impose VAT on
toll fees is tantamount to taxing a tax.
[21]
Actually, petitioners base this
argument on the following discussion
in Manila International Airport
Authority (MIAA) v. Court of Appeals:[22]

No one can dispute that

properties of public dominion
mentioned in Article 420 of the
Civil Code, like roads, canals,
rivers, torrents, ports and bridges
constructed by the State, are
owned by the State. The term
ports includes seaports and
airports.
TheMIAA Airport Lands and
Buildings constitute a port
constructed by the State. Under
Article 420 of the Civil Code,
the MIAAAirport Lands and
Buildings are properties of public
dominion and thus owned by the
State or the Republic of
the Philippines.

x x x The operation by the

government of a tollway does not
change the character of the road
as one for public use. Someone
must pay for the maintenance of
the road, either the public
indirectly through the taxes they
pay the government, or only those
among the public who actually
use the road through the toll fees
they pay upon using the road. The
tollway system is even a more
efficient and equitable manner of

taxing the public for the

maintenance of public roads.

The charging of fees to the public

does not determine the character
of the property whether it is for
public dominion or not. Article 420
of the Civil Code defines property
of public dominion as one
intended for public use. Even if
the government collects toll fees,
the road is still intended for
public use if anyone can use the
road under the same terms and
conditions as the rest of the
public. The charging of fees, the
limitation on the kind of vehicles
that can use the road, the speed
restrictions and other conditions
for the use of the road do not
affect the public character of the
road.

The terminal fees MIAA charges to

passengers, as well as the landing
fees MIAA charges to airlines,
constitute the bulk of the income
that maintains the operations of
MIAA. The collection of such fees
does not change the character of
MIAA as an airport for public use.
Such fees are often termed users
tax. This means taxing those
among the public who actually
use a public facility instead of
taxing all the public including
those who never use the
particular public facility. A users
tax is more equitable a principle
of taxation mandated in the 1987

Constitution.[23] (Underscoring
supplied)

Petitioners assume that what the

Court said above, equating terminal
fees to a users tax must also
pertain to tollway fees. But the main
issue in the MIAA case was whether or
not Paraaque City could sell airport
lands and buildings under MIAA
administration at public auction to
satisfy unpaid real estate taxes. Since
local governments have no power to
tax the national government, the
Court held that the City could not
proceed with the auction sale. MIAA
forms part of the national government
although not integrated in the
department framework.[24] Thus, its
airport lands and buildings are
properties of public dominion beyond
the commerce of man under Article
420(1)[25] of the Civil Code and could
not be sold at public auction.

As can be seen, the discussion in

the MIAA case on toll roads and toll
fees was made, not to establish a rule
that tollway fees are users tax, but to
make the point that airport lands and
buildings are properties of public
dominion and that the collection of
terminal fees for their use does not
make them private properties. Tollway
fees are not taxes. Indeed, they are
not assessed and collected by the BIR
and do not go to the general coffers of
the government.

It would of course be another matter if

Congress enacts a law imposing a
users tax, collectible from motorists,
for the construction and maintenance
of certain roadways. The tax in such a
case goes directly to the government
for the replenishment of resources it
spends for the roadways. This is not
the case here. What the government
seeks to tax here are fees collected
from tollways that are constructed,
maintained, and operated by private
tollway operators at their own expense
under the build, operate, and transfer
scheme that the government has
adopted for expressways.[26] Except
for a fraction given to the government,
the toll fees essentially end up as
earnings of the tollway operators.

In sum, fees paid by the public

to tollway operators for use of the
tollways, are not taxes in any sense. A
tax is imposed under the taxing power
of the government principally for the
purpose of raising revenues to fund
public expenditures.[27] Toll fees, on the
other hand, are collected by private
tollway operators as reimbursement
for the costs and expenses incurred in
the construction, maintenance and
operation of the tollways, as well as to
assure them a reasonable margin of
income. Although toll fees are charged
for the use of public facilities,
therefore, they are not government
exactions that can be properly treated
as a tax. Taxes may be imposed only
by the government under its sovereign
authority, toll fees may be demanded
by either the government or private

individuals or entities, as an attribute

of ownership.[28]

burden of VAT to the tollway user as

part of the toll fees.

Parenthetically, VAT on tollway

operations cannot be deemed a tax on
tax due to the nature of VAT as an
indirect tax. In indirect taxation, a
distinction is made between the
liability for the tax and burden of the
tax. The seller who is liable for the VAT
may shift or pass on the amount of
VAT it paid on goods, properties or
services to the buyer. In such a case,
what is transferred is not the sellers
liability but merely the burden of the
VAT.[29]

For this reason, VAT on tollway

operations cannot be a tax on tax
even if toll fees were deemed as a
users tax. VAT is assessed against
the tollway operators gross receipts
and not necessarily on the toll fees.
Although the tollway operator may
shift the VAT burden to the tollway
user, it will not make the latter directly
liable for the VAT. The shifted VAT
burden simply becomes part of the toll
fees that one has to pay in order to
use the tollways.[32]

Thus, the seller remains directly and

legally liable for payment of the VAT,
but the buyer bears its burden since
the amount of VAT paid by the former
is added to the selling price. Once
shifted, the VAT ceases to be a
tax[30] and simply becomes part of the
cost that the buyer must pay in order
to purchase the good, property or
service.

Three. Petitioner Timbol has no

personality to invoke the nonimpairment of contract clause on
behalf of private investors in the
tollway projects. She will neither be
prejudiced by nor be affected by the
alleged diminution in return of
investments that may result from the
VAT imposition. She has no interest at
all in the profits to be earned under
the TOAs. The interest in and right to
recover investments solely belongs to
the private tollway investors.

Consequently, VAT on tollway

operations is not really a tax on the
tollway user, but on the tollway
operator. Under Section 105 of the
Code, [31] VAT is imposed on any person
who, in the course of trade or
business, sells or renders services for
a fee. In other words, the seller of
services, who in this case is the
tollway operator, is the person liable
for VAT. The latter merely shifts the

Besides, her allegation that the private

investors rate of recovery will be
adversely affected by imposing VAT on
tollway operations is purely
speculative. Equally presumptuous is
her assertion that a stipulation in the
TOAs known as the Material Adverse
Grantor Action will be activated if VAT
is thus imposed. The Court cannot rule

on matters that are manifestly

conjectural. Neither can it prohibit the
State from exercising its sovereign
taxing power based on uncertain,
prophetic grounds.

Four. Finally, petitioners assert that

the substantiation requirements for
claiming input VAT make the VAT on
tollway operations impractical and
incapable of implementation. They cite
the fact that, in order to claim input
VAT, the name, address and tax
identification number of the tollway
user must be indicated in the VAT
receipt or invoice. The manner by
which the BIR intends to implement
the VAT by rounding off the toll rate
and putting any excess collection in an
escrow account is also illegal, while
the alternative of giving change to
thousands of motorists in order to
meet the exact toll rate would be a
logistical nightmare. Thus, according
to them, the VAT on tollway operations
is not administratively feasible.[33]

Administrative feasibility is one of the

canons of a sound tax system. It
simply means that the tax system
should be capable of being effectively
administered and enforced with the
least inconvenience to the taxpayer.
Non-observance of the canon,
however, will not render a tax
imposition invalid except to the
extent that specific constitutional or
statutory limitations are
impaired.[34]Thus, even if the
imposition of VAT on tollway
operations may seem burdensome to

implement, it is not necessarily invalid

unless some aspect of it is shown to
violate any law or the Constitution.

Here, it remains to be seen how the

taxing authority will actually
implement the VAT on tollway
operations. Any declaration by the
Court that the manner of its
implementation is illegal or
unconstitutional would be premature.
Although the transcript of the August
12, 2010 Senate hearing provides
some clue as to how the BIR intends to
go about it,[35] the facts pertaining to
the matter are not sufficiently
established for the Court to pass
judgment on. Besides, any concern
about how the VAT on tollway
operations will be enforced must first
be addressed to the BIR on whom the
task of implementing tax laws
primarily and exclusively rests. The
Court cannot preempt the BIRs
discretion on the matter, absent any
clear violation of law or the
Constitution.

For the same reason, the Court cannot

prematurely declare as illegal, BIR
RMC 63-2010 which directs toll
companies to record an accumulated
input VAT of zero balance in their
books as of August 16, 2010, the date
when the VAT imposition was
supposed to take effect. The issuance
allegedly violates Section 111(A)[36] of
the Code which grants first time VAT
payers a transitional input VAT of 2%
on beginning inventory.

In this connection, the BIR explained

that BIR RMC 63-2010 is actually the
product of negotiations with tollway
operators who have been assessed
VAT as early as 2005, but failed to
charge VAT-inclusive toll fees which by
now can no longer be collected. The
tollway operators agreed to waive the
2% transitional input VAT, in exchange
for cancellation of their past due VAT
liabilities. Notably, the right to claim
the 2% transitional input VAT belongs
to the tollway operators who have not
questioned the circulars validity. They
are thus the ones who have a right to
challenge the circular in a direct and
proper action brought for the purpose.

Conclusion

In fine, the Commissioner of Internal

Revenue did not usurp legislative
prerogative or expand the VAT laws
coverage when she sought to impose
VAT on tollway operations. Section
108(A) of the Code clearly states that
services of all other franchise grantees
are subject to VAT, except as may be
provided under Section 119 of the
Code. Tollway operators are not
among the franchise grantees subject
to franchise tax under the latter
provision. Neither are their services
among the VAT-exempt transactions
under Section 109 of the Code.

If the legislative intent was to exempt

tollway operations from VAT, as

petitioners so strongly allege, then it

would have been well for the law to
clearly say so. Tax exemptions must
be justified by clear statutory grant
and based on language in the law too
plain to be mistaken.[37] But as the law
is written, no such exemption obtains
for tollway operators. The Court is
thus duty-bound to simply apply the
law as it is found.

Lastly, the grant of tax exemption is a

matter of legislative policy that is
within the exclusive prerogative of
Congress. The Courts role is to
merely uphold this legislative policy,
as reflected first and foremost in the
language of the tax statute. Thus, any
unwarranted burden that may be
perceived to result from enforcing
such policy must be properly referred
to Congress. The Court has no
discretion on the matter but simply
applies the law.

The VAT on franchise grantees has

been in the statute books since 1994
when R.A. 7716 or the Expanded
Value-Added Tax law was passed. It is
only now, however, that the executive
has earnestly pursued the VAT
imposition against tollway
operators. The executive exercises
exclusive discretion in matters
pertaining to the implementation and
execution of tax laws. Consequently,
the executive is more properly suited
to deal with the immediate and
practical consequences of the VAT
imposition.

WHEREFORE, the
Court DENIES respondents Secretary
of Finance and Commissioner of
Internal Revenues motion for
reconsideration of its August 24, 2010
resolution, DISMISSES the petitioners
Renato V. Diaz and Aurora Ma. F.
Timbols petition for lack of merit,
and SETS ASIDE the Courts
temporary restraining order dated
August 13, 2010.

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. Nos. 141104 & 148763
June 8, 2007
ATLAS CONSOLIDATED MINING
AND DEVELOPMENT
CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL
REVENUE, respondent.
DECISION
CHICO-NAZARIO, J.:
Before this Court are the consolidated
cases involving the unsuccessful
claims of herein petitioner Atlas
Consolidated Mining and Development
Corporation (petitioner corporation)
for the refund/credit of the input Value
Added Tax (VAT) on its purchases of
capital goods and on its zero-rated
sales in the taxable quarters of the
years 1990 and 1992, the denial of

which by the Court of Tax Appeals

(CTA), was affirmed by the Court of
Appeals.
Petitioner corporation is engaged in
the business of mining, production,
and sale of various mineral products,
such as gold, pyrite, and copper
concentrates. It is a VAT-registered
taxpayer. It was initially issued VAT
Registration No. 32-A-6-002224, dated
1 January 1988, but it had to register
anew with the appropriate revenue
district office (RDO) of the Bureau of
Internal Revenue (BIR) when it moved
its principal place of business, and it
was re-issued VAT Registration No. 320-004622, dated 15 August 1990.1
G.R. No. 141104
Petitioner corporation filed with the
BIR its VAT Return for the first quarter
of 1992.2 It alleged that it likewise filed
with the BIR the corresponding
application for the refund/credit of its
input VAT on its purchases of capital
goods and on its zero-rated sales in
the amount of P26,030,460.00.3 When
its application for refund/credit
remained unresolved by the BIR,
petitioner corporation filed on 20 April
1994 its Petition for Review with the
CTA, docketed as CTA Case No. 5102.
Asserting that it was a "zero-rated VAT
person," it prayed that the CTA order
herein respondent Commissioner of
Internal Revenue (respondent
Commissioner) to refund/credit
petitioner corporation with the amount
of P26,030,460.00, representing the
input VAT it had paid for the first
quarter of 1992. The respondent
Commissioner opposed and sought the
dismissal of the petition for review of
petitioner corporation for failure to
state a cause of action. After due trial,
the CTA promulgated its Decision4 on
24 November 1997 with the following
disposition

WHEREFORE, in view of the

foregoing, the instant claim for
refund is hereby DENIED on the
ground of prescription,
insufficiency of evidence and
failure to comply with Section
230 of the Tax Code, as
amended. Accordingly, the
petition at bar is
hereby DISMISSED for lack of
merit.
The CTA denied the motion for
reconsideration of petitioner
corporation in a Resolution5 dated 15
April 1998.
When the case was elevated to the
Court of Appeals as CA-G.R. SP No.
47607, the appellate court, in its
Decision,6 dated 6 July 1999,
dismissed the appeal of petitioner
corporation, finding no reversible error
in the CTA Decision, dated 24
November 1997. The subsequent
motion for reconsideration of
petitioner corporation was also denied
by the Court of Appeals in its
Resolution,7 dated 14 December 1999.
Thus, petitioner corporation comes
before this Court, via a Petition for
Review on Certiorari under Rule 45 of
the Revised Rules of Court, assigning
the following errors committed by the
Court of Appeals
I
THE COURT OF APPEALS ERRED
IN AFFIRMING THE
REQUIREMENT OF REVENUE
REGULATIONS NO. 2-88 THAT AT
LEAST 70% OF THE SALES OF
THE [BOARD OF INVESTMENTS
(BOI)]-REGISTERED FIRM MUST
CONSIST OF EXPORTS FOR
ZERO-RATING TO APPLY.
II

THE COURT OF APPEALS ERRED

IN AFFIRMING THAT PETITIONER
FAILED TO SUBMIT SUFFICIENT
EVIDENCE SINCE FAILURE TO
SUBMIT PHOTOCOPIES OF VAT
INVOICES AND RECEIPTS IS NOT
A FATAL DEFECT.
III
THE COURT OF APPEALS ERRED
IN RULING THAT THE JUDICIAL
CLAIM WAS FILED BEYOND THE
PRESCRIPTIVE PERIOD SINCE
THE JUDICIAL CLAIM WAS FILED
WITHIN TWO (2) YEARS FROM
THE FILING OF THE VAT
RETURN.
IV
THE COURT OF APPEALS ERRED
IN NOT ORDERING CTA TO
ALLOW THE RE-OPENING OF
THE CASE FOR PETITIONER TO
PRESENT ADDITIONAL
EVIDENCE.8
G.R. No. 148763
G.R. No. 148763 involves almost the
same set of facts as in G.R. No.
141104 presented above, except that
it relates to the claims of petitioner
corporation for refund/credit of input
VAT on its purchases of capital goods
and on its zero-rated sales made in
the last three taxable quarters of
1990.
Petitioner corporation filed with the
BIR its VAT Returns for the second,
third, and fourth quarters of 1990, on
20 July 1990, 18 October 1990, and 20
January 1991, respectively. It
submitted separate applications to the
BIR for the refund/credit of the input
VAT paid on its purchases of capital
goods and on its zero-rated sales, the

details of which are presented as

follows

Date of Application

21 August 1990

21 November 1990

19 February 1991

which were eventually consolidated.

The respondent Commissioner
contested the foregoing Petitions and
prayed for the dismissal thereof. The
CTA ruled in favor of respondent
Period CoveredCommissioner and in its
Decision,9 dated 30 October 1997,
dismissed the Petitions mainly on the
ground that the prescriptive periods
for filing the same had expired. In a
2nd Quarter,
Resolution,10 dated 15 January 1998,
1990
the CTA denied the motion for
reconsideration of petitioner
corporation since the latter presented
no new matter not already discussed
3rd Quarter,
in the court's prior Decision. In the
1990
same Resolution, the CTA also denied
the alternative prayer of petitioner
corporation for a new trial since it did
not fall under any of the grounds cited
4th Quarter,
under Section 1, Rule 37 of the
1990
Revised Rules of Court, and it was not
supported by affidavits of merits
required by Section 2 of the same
Rule.
its

When the BIR failed to act on

applications for refund/credit,
petitioner corporation filed with the
CTA the following petitions for review

Petitioner corporation appealed its

case to the Court of Appeals, where it
was docketed as CA-G.R. SP No.
46718. On 15 September 2000, the
Court of Appeals rendered its
Date Filed
Period CoveredDecision,11 finding that although
petitioner corporation timely filed its
Petitions for Review with the CTA, it
still failed to substantiate its claims for
20 July 1992
2nd Quarter,
the refund/credit of its input VAT for
1990
the last three quarters of 1990. In its
Resolution,12 dated 27 June 2001, the
appellate court denied the motion for
reconsideration of petitioner
9 October 1992
3rd Quarter,
corporation, finding no cogent reason
1990
to reverse its previous Decision.

14 January 1993

Aggrieved, petitioner corporation filed

with this Court another Petition for
4th Quarter,
Review on Certiorari under Rule 45 of
1990
the Revised Rules of Court, docketed
as G.R. No. 148763, raising the
following issues

A.
WHETHER OR NOT THE COURT
OF APPEALS ERRED IN HOLDING
THAT PETITIONER'S CLAIM IS
BARRED UNDER REVENUE
REGULATIONS NOS. 2-88 AND 388 I.E., FOR FAILURE TO PTOVE
[sic] THE 70% THRESHOLD FOR
ZERO-RATING TO APPLY AND
FOR FAILURE TO ESTABLISH THE
FACTUAL BASIS FOR THE
INSTANT CLAIM.
B.
WHETHER OR NOT THE COURT
OF APPEALS ERRED IN FINDING
THAT THERE IS NO BASIS TO
GRANT PETITIONER'S MOTION
FOR NEW TRIAL.
There being similarity of parties,
subject matter, and issues, G.R. Nos.
141104 and 148763 were consolidated
pursuant to a Resolution, dated 4
September 2006, issued by this Court.
The ruling of this Court in these cases
hinges on how it will resolve the
following key issues: (1) prescription of
the claims of petitioner corporation for
input VAT refund/credit; (2) validity
and applicability of Revenue
Regulations No. 2-88 imposing upon
petitioner corporation, as a
requirement for the VAT zero-rating of
its sales, the burden of proving that
the buyer companies were not just
BOI-registered but also exporting 70%
of their total annual production; (3)
sufficiency of evidence presented by
petitioner corporation to establish that
it is indeed entitled to input VAT
refund/credit; and (4) legal ground for
granting the motion of petitioner
corporation for re-opening of its cases
or holding of new trial before the CTA
so it could be given the opportunity to
present the required evidence.

Prescription
The prescriptive period for filing an
application for tax refund/credit of
input VAT on zero-rated sales made in
1990 and 1992 was governed by
Section 106(b) and (c) of the Tax Code
of 1977, as amended, which provided
that
SEC. 106. Refunds or tax credits
of input tax. x x x.
(b) Zero-rated or effectively
zero-rated sales. Any person,
except those covered by
paragraph (a) above, whose
sales are zero-rated may, within
two years after the close of the
quarter when such sales were
made, apply for the issuance of
a tax credit certificate or refund
of the input taxes attributable
to such sales to the extent that
such input tax has not been
applied against output tax.
xxxx
(e) Period within which refund
of input taxes may be made by
the Commissioner. The
Commissioner shall refund input
taxes within 60 days from the
date the application for refund
was filed with him or his duly
authorized representative. No
refund of input taxes shall be
allowed unless the VATregistered person files an
application for refund within the
period prescribed in paragraphs
(a), (b) and (c) as the case may
be.
By a plain reading of the foregoing
provision, the two-year prescriptive
period for filing the application for
refund/credit of input VAT on zerorated sales shall be determined from

the close of the quarter when such

sales were made.
Petitioner contends, however, that the
said two-year prescriptive period
should be counted, not from the close
of the quarter when the zero-rated
sales were made, but from the date of
filing of the quarterly VAT return and
payment of the tax due 20 days
thereafter, in accordance with Section
110(b) of the Tax Code of 1977, as
amended, quoted as follows
SEC. 110. Return and payment
of value-added tax. x x x.
(b) Time for filing of return and
payment of tax. The return
shall be filed and the tax paid
within 20 days following the end
of each quarter specifically
prescribed for a VAT-registered
person under regulations to be
promulgated by the Secretary of
Finance: Provided,
however, That any person
whose registration is cancelled
in accordance with paragraph
(e) of Section 107 shall file a
return within 20 days from the
cancellation of such
registration.
It is already well-settled that the twoyear prescriptive period for instituting
a suit or proceeding for recovery of
corporate income tax erroneously or
illegally paid under Section 23013 of
the Tax Code of 1977, as amended,
was to be counted from the filing of
the final adjustment return. This Court
already set out in ACCRA Investments
Corporation v. Court of Appeals, 14 the
rationale for such a rule, thus
Clearly, there is the need to file
a return first before a claim for
refund can prosper inasmuch as
the respondent Commissioner

by his own rules and regulations

mandates that the corporate
taxpayer opting to ask for a
refund must show in its final
adjustment return the income it
received from all sources and
the amount of withholding taxes
remitted by its withholding
agents to the Bureau of Internal
Revenue. The petitioner
corporation filed its final
adjustment return for its 1981
taxable year on April 15, 1982.
In our Resolution dated April 10,
1989 in the case
of Commissioner of Internal
Revenue v. Asia Australia
Express, Ltd. (G.R. No. 85956),
we ruled that the two-year
prescriptive period within which
to claim a refund commences to
run, at the earliest, on the date
of the filing of the adjusted final
tax return. Hence, the petitioner
corporation had until April 15,
1984 within which to file its
claim for refund.
Considering that ACCRAIN filed
its claim for refund as early as
December 29, 1983 with the
respondent Commissioner who
failed to take any action thereon
and considering further that the
non-resolution of its claim for
refund with the said
Commissioner prompted
ACCRAIN to reiterate its claim
before the Court of Tax Appeals
through a petition for review on
April 13, 1984, the respondent
appellate court manifestly
committed a reversible error in
affirming the holding of the tax
court that ACCRAIN's claim for
refund was barred by
prescription.
It bears emphasis at this point
that the rationale in computing

the two-year prescriptive period

with respect to the petitioner
corporation's claim for refund
from the time it filed its final
adjustment return is the fact
that it was only then that
ACCRAIN could ascertain
whether it made profits or
incurred losses in its business
operations. The "date of
payment", therefore, in
ACCRAIN's case was when its
tax liability, if any, fell due upon
its filing of its final adjustment
return on April 15, 1982.
In another case, Commissioner of
Internal Revenue v. TMX Sales,
Inc.,15 this Court further expounded on
the same matter
A re-examination of the
aforesaid minute resolution of
the Court in the Pacific
Procon case is warranted under
the circumstances to lay down a
categorical pronouncement on
the question as to when the
two-year prescriptive period in
cases of quarterly corporate
income tax commences to run.
A full-blown decision in this
regard is rendered more
imperative in the light of the
reversal by the Court of Tax
Appeals in the instant case of
its previous ruling in the Pacific
Procon case.
Section 292 (now Section 230)
of the National Internal Revenue
Code should be interpreted in
relation to the other provisions
of the Tax Code in order to give
effect the legislative intent and
to avoid an application of the
law which may lead to
inconvenience and absurdity. In
the case of People vs.
Rivera (59 Phil. 236 [1933]), this

Court stated that statutes

should receive a sensible
construction, such as will give
effect to the legislative intention
and so as to avoid an unjust or
an absurd
conclusion. INTERPRETATIO
TALIS IN AMBIGUIS SEMPER
FRIENDA EST, UT EVITATUR
INCONVENIENS ET ABSURDUM.
Where there is ambiguity, such
interpretation as will avoid
inconvenience and absurdity is
to be adopted. Furthermore,
courts must give effect to the
general legislative intent that
can be discovered from or is
unraveled by the four corners of
the statute, and in order to
discover said intent, the whole
statute, and not only a
particular provision thereof,
should be considered. (Manila
Lodge No. 761, et al. vs. Court
of Appeals, et al. 73 SCRA 162
[1976) Every section, provision
or clause of the statute must be
expounded by reference to each
other in order to arrive at the
effect contemplated by the
legislature. The intention of the
legislator must be ascertained
from the whole text of the law
and every part of the act is to
be taken into view. (Chartered
Bank vs. Imperial, 48 Phil. 931
[1921]; Lopez vs. El Hoger
Filipino, 47 Phil. 249, cited
in Aboitiz Shipping Corporation
vs. City of Cebu, 13 SCRA 449
[1965]).
Thus, in resolving the instant
case, it is necessary that we
consider not only Section 292
(now Section 230) of the
National Internal Revenue Code
but also the other provisions of
the Tax Code, particularly
Sections 84, 85 (now both

incorporated as Section 68),

Section 86 (now Section 70) and
Section 87 (now Section 69) on
Quarterly Corporate Income Tax
Payment and Section 321 (now
Section 232) on keeping of
books of accounts. All these
provisions of the Tax Code
should be harmonized with each
other.
xxxx
Therefore, the filing of a
quarterly income tax returns
required in Section 85 (now
Section 68) and implemented
per BIR Form 1702-Q and
payment of quarterly income
tax should only be considered
mere installments of the annual
tax due. These quarterly tax
payments which are computed
based on the cumulative figures
of gross receipts and deductions
in order to arrive at a net
taxable income, should be
treated as advances or portions
of the annual income tax due,
to be adjusted at the end of the
calendar or fiscal year. This is
reinforced by Section 87 (now
Section 69) which provides for
the filing of adjustment returns
and final payment of income
tax. Consequently, the two-year
prescriptive period provided in
Section 292 (now Section 230)
of the Tax Code should be
computed from the time of filing
the Adjustment Return or
Annual Income Tax Return and
final payment of income tax.
In the case of Collector of
Internal Revenue vs. Antonio
Prieto (2 SCRA 1007 [1961]),
this Court held that when a tax
is paid in installments, the
prescriptive period of two years

provided in Section 306 (Section

292) of the National Internal
Revenue Code should be
counted from the date of the
final payment. This ruling is
reiterated in Commissioner of
Internal Revenue vs. Carlos
Palanca (18 SCRA 496 [1966]),
wherein this Court stated that
where the tax account was paid
on installment, the computation
of the two-year prescriptive
period under Section 306
(Section 292) of the Tax Code,
should be from the date of the
last installment.
In the instant case, TMX Sales,
Inc. filed a suit for a refund on
March 14, 1984. Since the twoyear prescriptive period should
be counted from the filing of the
Adjustment Return on April
15,1982, TMX Sales, Inc. is not
yet barred by prescription.
The very same reasons set forth in the
afore-cited cases concerning the twoyear prescriptive period for claims for
refund of illegally or erroneously
collected income tax may also apply
to the Petitions at bar involving the
same prescriptive period for claims for
refund/credit of input VAT on zerorated sales.
It is true that unlike corporate income
tax, which is reported and paid on
installment every quarter, but is
eventually subjected to a final
adjustment at the end of the taxable
year, VAT is computed and paid on a
purely quarterly basis without need for
a final adjustment at the end of the
taxable year. However, it is also
equally true that until and unless the
VAT-registered taxpayer prepares and
submits to the BIR its quarterly VAT
return, there is no way of knowing with
certainty just how much input

VAT16 the taxpayer may apply against

its output VAT;17how much output VAT
it is due to pay for the quarter or how
much excess input VAT it may carryover to the following quarter; or how
much of its input VAT it may claim as
refund/credit. It should be recalled that
not only may a VAT-registered
taxpayer directly apply against his
output VAT due the input VAT it had
paid on its importation or local
purchases of goods and services
during the quarter; the taxpayer is
also given the option to either (1)
carry over any excess input VAT to the
succeeding quarters for application
against its future output VAT liabilities,
or (2) file an application for refund or
issuance of a tax credit certificate
covering the amount of such input
VAT.18 Hence, even in the absence of a
final adjustment return, the
determination of any output VAT
payable necessarily requires that the
VAT-registered taxpayer make
adjustments in its VAT return every
quarter, taking into consideration the
input VAT which are creditable for the
present quarter or had been carried
over from the previous quarters.
Moreover, when claiming
refund/credit, the VAT-registered
taxpayer must be able to establish
that it does have refundable or
creditable input VAT, and the same
has not been applied against its
output VAT liabilities information
which are supposed to be reflected in
the taxpayer's VAT returns. Thus, an
application for refund/credit must be
accompanied by copies of the
taxpayer's VAT return/s for the taxable
quarter/s concerned.
Lastly, although the taxpayer's
refundable or creditable input VAT may
not be considered as illegally or
erroneously collected, its refund/credit
is a privilege extended to qualified and

registered taxpayers by the very VAT

system adopted by the Legislature.
Such input VAT, the same as any
illegally or erroneously collected
national internal revenue tax, consists
of monetary amounts which are
currently in the hands of the
government but must rightfully be
returned to the taxpayer. Therefore,
whether claiming refund/credit of
illegally or erroneously collected
national internal revenue tax, or input
VAT, the taxpayer must be given equal
opportunity for filing and pursuing its
claim.
For the foregoing reasons, it is more
practical and reasonable to count the
two-year prescriptive period for filing a
claim for refund/credit of input VAT on
zero-rated sales from the date of filing
of the return and payment of the tax
due which, according to the law then
existing, should be made within 20
days from the end of each quarter.
Having established thus, the relevant
dates in the instant cases are
summarized and reproduced below

Period Covered

Date of
Filing(Return
w/ BIR)

Date
Filing(App
w/ BI

2nd Quarter,
1990

20 July 1990

3rd Quarter,
1990

18 October
1990

21 Novemb

4th Quarter,
1990

20 January
1991

19 Februa

21 Aug

1st Quarter,
1992

20 April 1992

The above table readily shows that the

administrative and judicial claims of
petitioner corporation for refund of its
input VAT on its zero-rated sales for
the last three quarters of 1990 were
all filed within the prescriptive period.
However, the same cannot be said for
the claim of petitioner corporation for
refund of its input VAT on its zerorated sales for the first quarter of
1992. Even though it may seem that
petitioner corporation filed in time its
judicial claim with the CTA, there is no
showing that it had previously filed an
administrative claim with the BIR.
Section 106(e) of the Tax Code of
1977, as amended, explicitly provided
that no refund of input VAT shall be
allowed unless the VAT-registered
taxpayer filed an application for refund
with respondent Commissioner within
the two-year prescriptive period. The
application of petitioner corporation
for refund/credit of its input VAT for
the first quarter of 1992 was not only
unsigned by its supposed authorized
representative, Ma. Paz R. Semilla,
Manager-Finance and Treasury, but it
was not dated, stamped, and initialed
by the BIR official who purportedly
received the same. The CTA, in its
Decision,19 dated 24 November 1997,
in CTA Case No. 5102, made the
following observations
This Court, likewise, rejects any
probative value of the
Application for Tax
Credit/Refund of VAT Paid (BIR
Form No. 2552) [Exhibit "B']
formally offered in evidence by
the petitioner on account of the
fact that it does not bear the

BIR stamp showing the date

when such application was filed
together with the signature or
initial of the receiving officer of
respondent's Bureau. Worse
still, it does not show the date
of application and the signature
of a certain Ma. Paz R. Semilla
indicated in the form who
appears to be petitioner's
authorized filer.
A review of the records reveal
that the original of the
aforecited application was lost
during the time petitioner
transferred its office (TSN, p. 6,
Hearing of December 9, 1994).
Attempt was made to prove that
petitioner exerted efforts to
recover the original copy, but to
no avail. Despite this, however,
We observe that petitioner
completely failed to establish
the missing dates and
signatures abovementioned. On
this score, said application has
no probative value in
demonstrating the fact of its
filing within two years after the
[filing of the VAT return for the
quarter] when petitioner's sales
of goods were made as
prescribed under Section 106(b)
of the Tax Code. We believe
thus that petitioner failed to file
an application for refund in due
form and within the legal period
set by law at the administrative
level. Hence, the case at bar
has failed to satisfy the
requirement on the prior filing
of an application for refund with
the respondent before the
commencement of a judicial
claim for refund, as prescribed
under Section 230 of the Tax
Code. This fact constitutes
another one of the many

reasons for not granting

petitioner's judicial claim.
As pointed out by the CTA, in serious
doubt is not only the fact of whether
petitioner corporation timely filed its
administrative claim for refund of its
input VAT for the first quarter of 1992,
but also whether petitioner
corporation actually filed such
administrative claim in the first place.
For failing to prove that it had earlier
filed with the BIR an application for
refund/credit of its input VAT for the
first quarter of 1992, within the period
prescribed by law, then the case
instituted by petitioner corporation
with the CTA for the refund/credit of
the very same tax cannot prosper.
Revenue Regulations No. 2-88 and
the 70% export requirement
Under Section 100(a) of the Tax Code
of 1977, as amended, a 10% VAT was
imposed on the gross selling price or
gross value in money of goods sold,
bartered or exchanged. Yet, the same
provision subjected the following sales
made by VAT-registered persons to 0%
VAT
(1) Export sales; and
(2) Sales to persons or entities
whose exemption under special
laws or international
agreements to which the
Philippines is a signatory
effectively subjects such sales
to zero-rate.
"Export Sales" means the sale
and shipment or exportation of
goods from the Philippines to a
foreign country, irrespective of
any shipping arrangement that
may be agreed upon which may
influence or determine the
transfer of ownership of the

goods so exported, or foreign

currency denominated sales.
"Foreign currency denominated
sales", means sales to
nonresidents of goods
assembled or manufactured in
the Philippines, for delivery to
residents in the Philippines and
paid for in convertible foreign
currency remitted through the
banking system in the
Philippines.
These are termed zero-rated sales. A
zero-rated sale is still considered a
taxable transaction for VAT purposes,
although the VAT rate applied is 0%. A
sale by a VAT-registered taxpayer of
goods and/or services taxed at 0%
shall not result in any output VAT,
while the input VAT on its purchases of
goods or services related to such zerorated sale shall be available as tax
credit or refund.20
Petitioner corporation questions the
validity of Revenue Regulations No. 288 averring that the said regulations
imposed additional requirements, not
found in the law itself, for the zerorating of its sales to Philippine
Smelting and Refining Corporation
(PASAR) and Philippine Phosphate, Inc.
(PHILPHOS), both of which are
registered not only with the BOI, but
also with the then Export Processing
Zone Authority (EPZA).21
The contentious provisions of Revenue
Regulations No. 2-88 read
SEC. 2. Zero-rating. (a) Sales
of raw materials to BOIregistered exporters. Sales of
raw materials to export-oriented
BOI-registered enterprises
whose export sales, under rules
and regulations of the Board of
Investments, exceed seventy
percent (70%) of total annual

production, shall be subject to

zero-rate under the following
conditions:
"(1) The seller shall file
an application with the
BIR, ATTN.: Division,
applying for zero-rating
for each and every
separate buyer, in
accordance with Section
8(d) of Revenue
Regulations No. 5-87. The
application should be
accompanied with a
favorable
recommendation from
the Board of
Investments."
"(2) The raw materials
sold are to be used
exclusively by the buyer
in the manufacture,
processing or repacking
of his own registered
export product;
"(3) The words "ZeroRated Sales" shall be
prominently indicated in
the sales invoice. The
exporter (buyer) can no
longer claim from the
Bureau of Internal
Revenue or any other
government office tax
credits on their zerorated purchases;
(b) Sales of raw materials to
foreign buyer. Sales of raw
materials to a nonresident
foreign buyer for delivery to a
resident local export-oriented
BOI-registered enterprise to be
used in manufacturing,
processing or repacking of the
said buyer's goods and paid for
in foreign currency, inwardly

remitted in accordance with

Central Bank rules and
regulations shall be subject to
zero-rate.
It is the position of the respondent
Commissioner, affirmed by the CTA
and the Court of Appeals, that Section
2 of Revenue Regulations No. 2-88
should be applied in the cases at bar;
and to be entitled to the zero-rating of
its sales to PASAR and PHILPHOS,
petitioner corporation, as a VATregistered seller, must be able to
prove not only that PASAR and
PHILPHOS are BOI-registered
corporations, but also that more than
70% of the total annual production of
these corporations are actually
exported. Revenue Regulations No. 288 merely echoed the requirement
imposed by the BOI on export-oriented
corporations registered with it.
While this Court is not prepared to
strike down the validity of Revenue
Regulations No. 2-88, it finds that its
application must be limited and placed
in the proper context. Note that
Section 2 of Revenue Regulations No.
2-88 referred only to the zero-rated
sales of raw materials to exportoriented BOI-registered
enterprises whose export sales, under
BOI rules and regulations, should
exceed seventy percent (70%) of their
total annual production.
Section 2 of Revenue Regulations No.
2-88, should not have been applied to
the zero-rating of the sales made by
petitioner corporation to PASAR and
PHILPHOS. At the onset, it must be
emphasized that PASAR and
PHILPHOS, in addition to being
registered with the BOI, were also
registered with the EPZA and located
within an export-processing zone.
Petitioner corporation does not claim
that its sales to PASAR and PHILPHOS

are zero-rated on the basis that said

sales were made to export-oriented
BOI-registered corporations, but
rather, on the basis that the sales
were made to EPZA-registered
enterprises operating within export
processing zones. Although sales to
export-oriented BOI-registered
enterprises and sales to EPZAregistered enterprises located within
export processing zones were both
deemed export sales, which, under
Section 100(a) of the Tax Code of
1977, as amended, shall be subject to
0% VAT distinction must be made
between these two types of sales
because each may have different
substantiation requirements.
The Tax Code of 1977, as amended,
gave a limited definition of export
sales, to wit: "The sale and shipment
or exportation of goods from the
Philippines to a foreign country,
irrespective of any shipping
arrangement that may be agreed upon
which may influence or determine the
transfer of ownership of the goods so
exported, or foreign currency
denominated sales." Executive Order
No. 226, otherwise known as the
Omnibus Investments Code of 1987 which, in the years concerned (i.e.,
1990 and 1992), governed enterprises
registered with both the BOI and EPZA,
provided a more comprehensive
definition of export sales, as quoted
below:
"ART. 23. "Export sales" shall
mean the Philippine port F.O.B.
value, determined from
invoices, bills of lading, inward
letters of credit, landing
certificates, and other
commercial documents, of
export products exported
directly by a registered export
producer or the net selling price
of export product sold by a

registered export producer or to

an export trader that
subsequently exports the same:
Provided, That sales of export
products to another producer or
to an export trader shall only be
deemed export sales
whenactually exported by the
latter, as evidenced by landing
certificates of similar
commercial documents:
Provided, further, That without
actual exportation the following
shall be
considered constructively
exportedfor purposes of this
provision: (1) sales to bonded
manufacturing warehouses of
export-oriented manufacturers;
(2) sales to export processing
zones; (3) sales to registered
export traders operating
bonded trading warehouses
supplying raw materials used in
the manufacture of export
products under guidelines to be
set by the Board in consultation
with the Bureau of Internal
Revenue and the Bureau of
Customs; (4) sales to foreign
military bases, diplomatic
missions and other agencies
and/or instrumentalities granted
tax immunities, of locally
manufactured, assembled or
repacked products whether paid
for in foreign currency or not:
Provided, further, That export
sales of registered export trader
may include commission
income; and Provided, finally,
That exportation of goods on
consignment shall not be
deemed export sales until the
export products consigned are
in fact sold by the consignee.
Sales of locally manufactured or
assembled goods for household
and personal use to Filipinos

abroad and other non-residents

of the Philippines as well as
returning Overseas Filipinos
under the Internal Export
Program of the government and
paid for in convertible foreign
currency inwardly remitted
through the Philippine banking
systems shall also be
considered export sales.
(Underscoring ours.)
The afore-cited provision of the
Omnibus Investments Code of 1987
recognizes as export sales the sales of
export products to another producer or
to an export trader, provided that the
export products are actually exported.
For purposes of VAT zero-rating, such
producer or export trader must be
registered with the BOI and is required
to actually export more than 70% of
its annual production.
Without actual exportation, Article 23
of the Omnibus Investments Code of
1987 also considers constructive
exportation as export sales. Among
other types of constructive exportation
specifically identified by the said
provision are sales to export
processing zones. Sales to export
processing zones are subjected to
special tax treatment. Article 77 of the
same Code establishes the tax
treatment of goods or merchandise
brought into the export processing
zones. Of particular relevance herein
is paragraph 2, which provides that
"Merchandise purchased by a
registered zone enterprise from the
customs territory and subsequently
brought into the zone, shall be
considered as export sales and the
exporter thereof shall be entitled to
the benefits allowed by law for such
transaction."
Such tax treatment of goods brought
into the export processing zones are

only consistent with the Destination

Principle and Cross Border Doctrine to
which the Philippine VAT system
adheres. According to the Destination
Principle,22 goods and services are
taxed only in the country where these
are consumed. In connection with the
said principle, the Cross Border
Doctrine23 mandates that no VAT shall
be imposed to form part of the cost of
the goods destined for consumption
outside the territorial border of the
taxing authority. Hence, actual export
of goods and services from the
Philippines to a foreign country must
be free of VAT, while those destined
for use or consumption within the
Philippines shall be imposed with 10%
VAT.24 Export processing zones25 are to
be managed as a separate customs
territory from the rest of the
Philippines and, thus, for tax purposes,
are effectively considered as foreign
territory. For this reason, sales by
persons from the Philippine customs
territory to those inside the export
processing zones are already taxed as
exports.
Plainly, sales to enterprises operating
within the export processing zones are
export sales, which, under the Tax
Code of 1977, as amended, were
subject to 0% VAT. It is on this ground
that petitioner corporation is claiming
refund/credit of the input VAT on its
zero-rated sales to PASAR and
PHILPHOS.
The distinction made by this Court in
the preceding paragraphs between the
zero-rated sales to export-oriented
BOI-registered enterprises and zerorated sales to EPZA-registered
enterprises operating within export
processing zones is actually supported
by subsequent development in tax
laws and regulations. In Revenue
Regulations No. 7-95, the Consolidated
VAT Regulations, as amended,26 the

BIR defined with more precision what

are zero-rated export sales
(1) The sale and actual
shipment of goods from the
Philippines to a foreign country,
irrespective of any shipping
arrangement that may be
agreed upon which may
influence or determine the
transfer of ownership of the
goods so exported paid for in
acceptable foreign currency or
its equivalent in goods or
services, and accounted for in
accordance with the rules and
regulations of the Bangko
Sentral ng Pilipinas(BSP);
(2) The sale of raw materials or
packaging materials to a nonresident buyer for delivery to a
resident local export-oriented
enterprise to be used in
manufacturing, processing,
packing or repacking in the
Philippines of the said buyer's
goods and paid for in
acceptable foreign currency and
accounted for in accordance
with the rules and regulations of
the Bangko Sentral ng
Pilipinas (BSP);
(3) The sale of raw materials or
packaging materials to an
export-oriented enterprise
whose export sales exceed
seventy percent (70%) of total
annual production;

Any enterprise whose export

sales exceed 70% of the total
annual production of the
preceding taxable year shall be
considered an export-oriented
enterprise upon accreditation as
such under the provisions of the
Export Development Act (R.A.
7844) and its implementing
rules and regulations;
(4) Sale of gold to the Bangko
Sentral ng Pilipinas (BSP); and
(5) Those considered export
sales under Articles 23 and 77
of Executive Order No. 226,
otherwise known as the
Omnibus Investments Code of
1987, and other special laws,
e.g. Republic Act No. 7227,
otherwise known as the Bases
Conversion and Development
Act of 1992.
The Tax Code of 1997, as
amended,27 later adopted the
foregoing definition of export sales,
which are subject to 0% VAT.
This Court then reiterates its
conclusion that Section 2 of Revenue
Regulations No. 2-88, which applied to
zero-rated export sales to exportoriented BOI-registered enterprises,
should not be applied to the
applications for refund/credit of input
VAT filed by petitioner corporation
since it based its applications on the
zero-rating of export sales to
enterprises registered with the EPZA
and located within export processing
zones.
Sufficiency of evidence
There can be no dispute that the
taxpayer-claimant has the burden of
proving the legal and factual bases of
its claim for tax credit or refund, but

once it has submitted all the required

documents, it is the function of the BIR
to assess these documents with
purposeful dispatch.28 It therefore falls
upon herein petitioner corporation to
first establish that its sales qualify for
VAT zero-rating under the existing
laws (legal basis), and then to present
sufficient evidence that said sales
were actually made and resulted in
refundable or creditable input VAT in
the amount being claimed (factual
basis).
It would initially appear that the
applications for refund/credit filed by
petitioner corporation cover only input
VAT on its purportedly zero-rated sales
to PASAR and PHILPHOS; however, a
more thorough perusal of its
applications, VAT returns, pleadings,
and other records of these cases
would reveal that it is also claiming
refund/credit of its input VAT on
purchases of capital goods and sales
of gold to the Central Bank of the
Philippines (CBP).
This Court finds that the claims for
refund/credit of input VAT of petitioner
corporation have sufficient legal
bases.
As has been extensively discussed
herein, Section 106(b)(2), in relation to
Section 100(a)(2) of the Tax Code of
1977, as amended, allowed the
refund/credit of input VAT on export
sales to enterprises operating within
export processing zones and
registered with the EPZA, since such
export sales were deemed to be
effectively zero-rated sales.29 The fact
that PASAR and PHILPHOS, to whom
petitioner corporation sold its
products, were operating inside an
export processing zone and duly
registered with EPZA, was never raised
as an issue herein. Moreover, the
same fact was already judicially

recognized in the case Atlas

Consolidated Mining & Development
Corporation v. Commissioner of
Internal Revenue.30 Section 106(c) of
the same Code likewise permitted a
VAT-registered taxpayer to apply for
refund/credit of the input VAT paid on
capital goods imported or locally
purchased to the extent that such
input VAT has not been applied against
its output VAT. Meanwhile, the
effective zero-rating of sales of gold to
the CBP from 1989 to 199131 was
already affirmed by this Court
in Commissioner of Internal Revenue
v. Benguet Corporation,32 wherein it
ruled that
At the time when the subject
transactions were
consummated, the prevailing
BIR regulations relied upon by
respondent ordained that gold
sales to the Central Bank were
zero-rated. The BIR interpreted
Sec. 100 of the NIRC in relation
to Sec. 2 of E.O. No. 581 s. 1980
which prescribed that gold sold
to the Central Bank shall be
considered export and therefore
shall be subject to the export
and premium duties. In coming
out with this interpretation, the
BIR also considered Sec. 169 of
Central Bank Circular No. 960
which states that all sales of
gold to the Central Bank are
considered constructive
exports. x x x.
This Court now comes to the question
of whether petitioner corporation has
sufficiently established the factual
bases for its applications for
refund/credit of input VAT. It is in this
regard that petitioner corporation has
failed, both in the administrative and
judicial level.

Applications for refund/credit of input

VAT with the BIR must comply with the
appropriate revenue regulations. As
this Court has already ruled, Revenue
Regulations No. 2-88 is not relevant to
the applications for refund/credit of
input VAT filed by petitioner
corporation; nonetheless, the said
applications must have been in
accordance with Revenue Regulations
No. 3-88, amending Section 16 of
Revenue Regulations No. 5-87, which
provided as follows
SECTION 16. Refunds or tax
credits of input tax.
xxxx
(c) Claims for tax
credits/refunds. Application for
Tax Credit/Refund of ValueAdded Tax Paid (BIR Form No.
2552) shall be filed with the
Revenue District Office of the
city or municipality where the
principal place of business of
the applicant is located or
directly with the Commissioner,
Attention: VAT Division.
A photocopy of the purchase
invoice or receipt evidencing
the value added tax paid shall
be submitted together with the
application. The original copy of
the said invoice/receipt,
however, shall be presented for
cancellation prior to the
issuance of the Tax Credit
Certificate or refund. In
addition, the following
documents shall be attached
whenever applicable:
xxxx
"3. Effectively zero-rated
sale of goods and
services.

"i) photo copy of

approved
application for
zero-rate if filing
for the first time.
"ii) sales invoice or
receipt showing
name of the
person or entity to
whom the sale of
goods or services
were delivered,
date of delivery,
amount of
consideration, and
description of
goods or services
delivered.
"iii) evidence of
actual receipt of
goods or services.
"4. Purchase of capital
goods.
"i) original copy of
invoice or receipt
showing the date
of purchase,
purchase price,
amount of valueadded tax paid and
description of the
capital equipment
locally purchased.
"ii) with respect to
capital equipment
imported, the
photo copy of
import entry
document for
internal revenue
tax purposes and
the confirmation
receipt issued by
the Bureau of
Customs for the

payment of the
value-added tax.
"5. In applicable cases,
where the applicant's zero-rated
transactions are regulated by
certain government agencies, a
statement therefrom showing
the amount and description of
sale of goods and services,
name of persons or entities
(except in case of exports) to
whom the goods or services
were sold, and date of
transaction shall also be
submitted.
In all cases, the amount of
refund or tax credit that may be
granted shall be limited to the
amount of the value-added tax
(VAT) paid directly and entirely
attributable to the zero-rated
transaction during the period
covered by the application for
credit or refund.
Where the applicant is engaged
in zero-rated and other taxable
and exempt sales of goods and
services, and the VAT paid
(inputs) on purchases of goods
and services cannot be directly
attributed to any of the
aforementioned transactions,
the following formula shall be
used to determine the
creditable or refundable input
tax for zero-rated sale:
Amount of Zero-rated Sale
Total Sales
X
Total Amount of Input Taxes
=
Amount Creditable/Refundable

In case the application for

refund/credit of input VAT was denied
or remained unacted upon by the BIR,
and before the lapse of the two-year
prescriptive period, the taxpayerapplicant may already file a Petition
for Review before the CTA. If the
taxpayer's claim is supported by
voluminous documents, such as
receipts, invoices, vouchers or long
accounts, their presentation before the
CTA shall be governed by CTA Circular
No. 1-95, as amended, reproduced in
full below
In the interest of speedy
administration of justice, the
Court hereby promulgates the
following rules governing the
presentation of voluminous
documents and/or long
accounts, such as receipts,
invoices and vouchers, as
evidence to establish certain
facts pursuant to Section 3(c),
Rule 130 of the Rules of Court
and the doctrine enunciated
in Compania Maritima vs. Allied
Free Workers Union (77 SCRA
24), as well as Section 8 of
Republic Act No. 1125:
1. The party who desires to
introduce as evidence such
voluminous documents must,
after motion and approval by
the Court, present:
(a) a Summary
containing, among
others, a chronological
listing of the numbers,
dates and amounts
covered by the invoices
or receipts and the
amount/s of tax paid; and
(b) a Certification of an
independent Certified
Public Accountant
attesting to the

correctness of the
contents of the summary
after making an
examination, evaluation
and audit of the
voluminous receipts and
invoices. The name of the
accountant or partner of
the firm in charge must
be stated in the motion
so that he/she can be
commissioned by the
Court to conduct the
audit and, thereafter,
testify in Court relative to
such summary and
certification pursuant to
Rule 32 of the Rules of
Court.
2. The method of individual
presentation of each and every
receipt, invoice or account for
marking, identification and
comparison with the originals
thereof need not be done before
the Court or Clerk of Court
anymore after the introduction
of the summary and CPA
certification. It is enough that
the receipts, invoices, vouchers
or other documents covering
the said accounts or payments
to be introduced in evidence
must be pre-marked by the
party concerned and submitted
to the Court in order to be made
accessible to the adverse party
who desires to check and verify
the correctness of the summary
and CPA certification. Likewise,
the originals of the voluminous
receipts, invoices or accounts
must be ready for verification
and comparison in case doubt
on the authenticity thereof is
raised during the hearing or
resolution of the formal offer of
evidence.

Since CTA Cases No. 4831, 4859,

4944,33 and 5102,34 were still pending
before the CTA when the said Circular
was issued, then petitioner
corporation must have complied
therewith during the course of the trial
of the said cases.
In Commissioner of Internal Revenue
v. Manila Mining Corporation,35 this
Court denied the claim of therein
respondent, Manila Mining
Corporation, for refund of the input
VAT on its supposed zero-rated sales
of gold to the CBP because it was
unable to substantiate its claim. In the
same case, this Court emphasized the
importance of complying with the
substantiation requirements for
claiming refund/credit of input VAT on
zero-rated sales, to wit
For a judicial claim for refund to
prosper, however, respondent
must not only prove that it is a
VAT registered entity and that it
filed its claims within the
prescriptive period. It
must substantiate the input
VAT paid by
purchase invoices or official
receipts.
This respondent failed to do.
Revenue Regulations No. 3-88
amending Revenue Regulations
No. 5-87 provides the
requirements in claiming tax
credits/refunds.
xxxx
Under Section 8 of RA1125, the
CTA is described as a court of
record. As cases filed before it
are litigatedde novo, party
litigants should prove every
minute aspect of their cases. No
evidentiary value can be given

the purchase invoices or

receipts submitted to the BIR as
the rules on documentary
evidence require that these
documents must be formally
offered before the CTA.
This Court thus notes with
approval the following findings
of the CTA:
x x x [S]ale of gold to the
Central Bank should not
be subject to the 10%
VAT-output tax but this
does not ipso fact mean
that [the seller] is entitled
to the amount of refund
sought as it is required
by law to present
evidence showing the
input taxes it paid during
the year in
question. What is being
claimed in the instant
petition is the refund of
the input taxes paid by
the herein petitioner on
its purchase of goods and
services. Hence, it is
necessary for the
Petitioner to show proof
that it had indeed paid
the input taxes during
the year 1991. In the
case at bar, Petitioner
failed to discharge this
duty. It did not adduce in
evidence the sales
invoice, receipts or other
documents showing the
input value added tax on
the purchase of goods
and services.
xxx
Section 8 of Republic Act 1125
(An Act Creating the Court of
Tax Appeals) provides

categorically that the Court of

Tax Appeals shall be a court
of record and as such it is
required to conduct a formal
trial (trial de novo) where
the parties must present
their evidence accordingly if
they desire the Court to take
such evidence into
consideration. (Emphasis and
italics supplied)
A "sales or commercial invoice"
is a written account of goods
sold or services rendered
indicating the prices charged
therefor or a list by whatever
name it is known which is used
in the ordinary course of
business evidencing sale and
transfer or agreement to sell or
transfer goods and services.
A "receipt" on the other hand is
a written acknowledgment of
the fact of payment in money or
other settlement between seller
and buyer of goods, debtor or
creditor, or person rendering
services and client or customer.
These sales invoices or receipts
issued by the supplier are
necessary to substantiate the
actual amount or quantity of
goods sold and their selling
price, and taken collectively are
the best means to prove the
input VAT payments.36
Although the foregoing decision
focused only on the proof required for
the applicant for refund/credit to
establish the input VAT payments it
had made on its purchases from
suppliers, Revenue Regulations No. 388 also required it to present evidence
proving actual zero-rated VAT sales to
qualified buyers, such as (1)
photocopy of the approved application

for zero-rate if filing for the first time;

(2) sales invoice or receipt showing
the name of the person or entity to
whom the goods or services were
delivered, date of delivery, amount of
consideration, and description of
goods or services delivered; and (3)
the evidence of actual receipt of goods
or services.
Also worth noting in the same decision
is the weight given by this Court to the
certification by the independent
certified public accountant (CPA), thus

Respondent contends, however,

that the certification of the
independent CPA attesting to
the correctness of the contents
of the summary of suppliers'
invoices or receipts which were
examined, evaluated and
audited by said CPA in
accordance with CTA Circular
No. 1-95 as amended by CTA
Circular No. 10-97 should
substantiate its claims.

its imperative task of premarking photocopies of sales

receipts and invoices
andsubmitting the same to the
court after the independent CPA
shall have examined and
compared them with the
originals. Without presenting
these pre-marked documents as
evidence from which the
summary and schedules were
based, the court cannot verify
the authenticity and veracity of
the independent auditor's
conclusions.
There is, moreover, a need to
subject these invoices or
receipts to examination by the
CTA in order to confirm whether
they are VAT invoices. Under
Section 21 of Revenue
Regulation, No. 5-87, all
purchases covered by invoices
other than a VAT invoice shall
not be entitled to a refund of
input VAT.
xxxx

There is nothing, however, in

CTA Circular No. 1-95, as
amended by CTA Circular No.
10-97, which either expressly or
impliedly suggests that
summaries and schedules of
input VAT payments, even if
certified by an independent
CPA, suffice as evidence of input
VAT payments.
xxxx
The circular, in the interest of
speedy administration of
justice, was promulgated to
avoid the time-consuming
procedure of presenting,
identifying and marking of
documents before the Court. It
does not relieve respondent of

While the CTA is not governed

strictly by technical rules of
evidence, as rules of procedure
are not ends in themselves but
are primarily intended as tools
in the administration of justice,
the presentation of the
purchase receipts and/or
invoices is not mere procedural
technicality which may be
disregarded considering that it
is the only means by which the
CTA may ascertain and verify
the truth of the respondent's
claims.
The records further show that
respondent miserably failed to
substantiate its claims for input
VAT refund for the first

semester of 1991. Except for

the summary and schedules of
input VAT payments prepared
by respondent itself, no other
evidence was adduced in
support of its claim.
As for respondent's claim for
input VAT refund for the second
semester of 1991, it employed
the services of Joaquin Cunanan
& Co. on account of which it
(Joaquin Cunanan & Co.)
executed a certification that:
We have examined the
information shown below
concerning the input tax
payments made by the
Makati Office of Manila
Mining Corporation for
the period from July 1 to
December 31, 1991. Our
examination included
inspection of the
pertinent suppliers'
invoices and official
receipts and such other
auditing procedures as
we considered necessary
in the circumstances. x x
x
As the certification merely
stated that it used "auditing
procedures considered
necessary" and not auditing
procedures which are in
accordance with generally
accepted auditing principles
and standards, and that the
examination was made on
"input tax payments by the
Manila Mining Corporation,"
without specifying that the said
input tax payments are
attributable to the sales of gold
to the Central Bank, this Court
cannot rely thereon and regard
it as sufficient proof of the

respondent's input VAT

payments for the second
semester.37
As for the Petition in G.R. No. 141104,
involving the input VAT of petitioner
corporation on its zero-rated sales in
the first quarter of 1992, this Court
already found that the petitioner
corporation failed to comply with
Section 106(b) of the Tax Code of
1977, as amended, imposing the twoyear prescriptive period for the filing
of the application for refund/credit
thereof. This bars the grant of the
application for refund/credit, whether
administratively or judicially, by
express mandate of Section 106(e) of
the same Code.
Granting arguendo that the application
of petitioner corporation for the
refund/credit of the input VAT on its
zero-rated sales in the first quarter of
1992 was actually and timely filed,
petitioner corporation still failed to
present together with its application
the required supporting documents,
whether before the BIR or the CTA. As
the Court of Appeals ruled
In actions involving claims for
refund of taxes assessed and
collected, the burden of proof
rests on the taxpayer. As clearly
discussed in the CTA's decision,
petitioner failed to substantiate
its claim for tax refunds. Thus:
"We note, however, that
in the cases at bar,
petitioner has relied
totally on Revenue
Regulations No. 2-88 in
determining compliance
with the documentary
requirements for a
successful refund or
issuance of tax credit.
Unmentioned is the

applicable and specific

amendment later
introduced by Revenue
Regulations No. 3-88
dated April 7, 1988
(issued barely after two
months from the
promulgation of Revenue
Regulations No. 2-88 on
February 15, 1988),
which amended Section
16 of Revenue
Regulations No. 5-87 on
refunds or tax credits of
input tax. x x x.
xxxx
"A thorough examination
of the evidence
submitted by the
petitioner before this
court reveals outright the
failure to satisfy
documentary
requirements laid down
under the above-cited
regulations. Specifically,
petitioner was not able to
present the following
documents, to wit:
"a) sales invoices
or receipts;
"b) purchase
invoices or
receipts;
"c) evidence of
actual receipt of
goods;
"d) BOI statement
showing the
amount and
description of sale
of goods, etc.

"e) original or
attested copies of
invoice or receipt
on capital
equipment locally
purchased; and
"f) photocopy of
import entry
document and
confirmation
receipt on
imported capital
equipment.
"There is the need to
examine the sales
invoices or receipts in
order to ascertain the
actual amount or quantity
of goods sold and their
selling price. Without
them, this Court cannot
verify the correctness of
petitioner's claim
inasmuch as the
regulations require that
the input taxes being
sought for refund should
be limited to the portion
that is directly and
entirely attributable to
the particular zero-rated
transaction. In this
instance, the best
evidence of such
transaction are the said
sales invoices or receipts.
"Also, even if sales
invoices are produced,
there is the further need
to submit evidence that
such goods were actually
received by the buyer, in
this case, by CBP,
Philp[h]os and PASAR.
xxxx

"Lastly, this Court cannot

determine whether there
were actual local and
imported purchase of
capital goods as well as
domestic purchase of
non-capital goods without
the required purchase
invoice or receipt, as the
case may be, and
confirmation receipts.
"There is, thus, the
imperative need to
submit before this Court
the original or attested
photocopies of
petitioner's invoices or
receipts, confirmation
receipts and import entry
documents in order that a
full ascertainment of the
claimed amount may be
achieved.
"Petitioner should
have taken the foresight
to introduce in evidence
all of the missing
documentsabovemention
ed. Cases filed before this
Court are litigated de
novo. This means that
party litigants should
endeavor to prove at the
first instance every
minute aspect of their
cases strictly in
accordance with the
Rules of Court, most
especially on
documentary evidence."
(pp. 37-42, Rollo)
Tax refunds are in the nature of
tax exemptions. It is regarded
as in derogation of the
sovereign authority, and should
be construed in strictissimi
juris against the person or

entity claiming the exemption.

The taxpayer who claims for
exemption must justify his claim
by the clearest grant of organic
or statute law and should not be
permitted to stand on vague
implications (Asiatic Petroleum
Co. v. Llanes, 49 Phil. 466;
Northern Phil. Tobacco Corp. v.
Mun. of Agoo, La Union, 31
SCRA 304; Reagan v.
Commissioner, 30 SCRA 968;
Asturias Sugar Central, Inc. v.
Commissioner of Customs, 29
SCRA 617; Davao Light and
Power Co., Inc. v. Commissioner
of Customs, 44 SCRA 122).
There is no cogent reason to
fault the CTA's conclusion that
the SGV's certificate is "selfdestructive", as it finds comfort
in the very SGV's stand, as
follows:
"It is our understanding
that the above procedure
are sufficient for the
purpose of the Company.
We make no presentation
regarding the sufficiency
of these procedures for
such purpose. We did not
compare the total of the
input tax claimed each
quarter against the
pertinent VAT returns and
books of accounts. The
above procedures do not
constitute an audit made
in accordance with
generally accepted
auditing standards.
Accordingly, we do not
express an opinion on the
company's claim for input
VAT refund or credit. Had
we performed additional
procedures, or had we
made an audit in

accordance with
generally accepted
auditing standards, other
matters might have come
to our attention that we
would have accordingly
reported on."
The SGV's "disclaimer of
opinion" carries much weight as
it is petitioner's independent
auditor. Indeed, SGV expressed
that it "did not compare the
total of the input tax claimed
each quarter against the VAT
returns and books of
accounts."38
Moving on to the Petition in G.R. No.
148763, concerning the input VAT of
petitioner corporation on its zero-rated
sales in the second, third, and fourth
quarters of 1990, the appellate court
likewise found that petitioner
corporation failed to sufficiently
establish its claims. Already
disregarding the declarations made by
the Court of Appeals on its erroneous
application of Revenue Regulations No.
2-88, quoted hereunder is the rest of
the findings of the appellate court
after evaluating the evidence
submitted in accordance with the
requirements under Revenue
Regulations No. 3-88
The Secretary of Finance validly
adopted Revenue Regulations
[No.] x x x 3-98 pursuant to Sec.
245 of the National Internal
Revenue Code, which
recognized his power to
"promulgate all needful rules
and regulations for the effective
enforcement of the provisions of
this Code." Thus, it is incumbent
upon a taxpayer intending to
file a claim for refund of input
VATs or the issuance of a tax
credit certificate with the BIR x

x x to prove sales to such

buyers as required by Revenue
Regulations No. 3-98. Logically,
the same evidence should be
presented in support of an
action to recover taxes which
have been paid.
x x x Neither has [herein
petitioner corporation]
presented sales invoices or
receipts showing sales of gold,
copper concentrates, and pyrite
to the CBP, [PASAR], and
[PHILPHOS], respectively, and
the dates and amounts of the
same, nor any evidence of
actual receipt by the said
buyers of the mineral products.
It merely presented receipts of
purchases from suppliers on
which input VATs were allegedly
paid. Thus, the Court of Tax
Appeals correctly denied the
claims for refund of input VATs
or the issuance of tax credit
certificates of petitioner
[corporation]. Significantly, in
the resolution, dated 7 June
2000, this Court directed the
parties to file memoranda
discussing, among others, the
submission of proof for "its
[petitioner's] sales of gold,
copper concentrates, and pyrite
to buyers." Nevertheless, the
parties, including the petitioner,
failed to address this issue,
thereby necessitating the
affirmance of the ruling of the
Court of Tax Appeals on this
point.39
This Court is, therefore, bound by the
foregoing facts, as found by the
appellate court, for well-settled is the
general rule that the jurisdiction of this
Court in cases brought before it from
the Court of Appeals, by way of a
Petition for Review on Certiorari under

Rule 45 of the Revised Rules of Court,

is limited to reviewing or revising
errors of law; findings of fact of the
latter are conclusive.40 This Court is
not a trier of facts. It is not its function
to review, examine and evaluate or
weigh the probative value of the
evidence presented.41
The distinction between a question of
law and a question of fact is clear-cut.
It has been held that "[t]here is a
question of law in a given case when
the doubt or difference arises as to
what the law is on a certain state of
facts; there is a question of fact when
the doubt or difference arises as to the
truth or falsehood of alleged facts."42
Whether petitioner corporation
actually made zero-rated sales;
whether it paid input VAT on these
sales in the amount it had declared in
its returns; whether all the input VAT
subject of its applications for
refund/credit can be attributed to its
zero-rated sales; and whether it had
not previously applied the input VAT
against its output VAT liabilities, are all
questions of fact which could only be
answered after reviewing, examining,
evaluating, or weighing the probative
value of the evidence it presented,
and which this Court does not have
the jurisdiction to do in the present
Petitions for Review
on Certiorari under Rule 45 of the
revised Rules of Court.
Granting that there are exceptions to
the general rule, when this Court
looked into questions of fact under
particular circumstances,43 none of
these exist in the instant cases. The
Court of Appeals, in both cases, found
a dearth of evidence to support the
claims for refund/credit of the input
VAT of petitioner corporation, and the
records bear out this finding. Petitioner
corporation itself cannot dispute its

non-compliance with the requirements

set forth in Revenue Regulations No. 388 and CTA Circular No. 1-95, as
amended. It concentrated its
arguments on its assertion that the
substantiation requirements under
Revenue Regulations No. 2-88 should
not have applied to it, while being
conspicuously silent on the evidentiary
requirements mandated by other
relevant regulations.
Re-opening of cases/holding of
new trial before the CTA
This Court now faces the final issue of
whether the prayer of petitioner
corporation for the re-opening of its
cases or holding of new trial before
the CTA for the reception of additional
evidence, may be granted. Petitioner
corporation prays that the Court
exercise its discretion on the matter in
its favor, consistent with the policy
that rules of procedure be liberally
construed in pursuance of substantive
justice.
This Court, however, cannot grant the
prayer of petitioner corporation.
An aggrieved party may file a motion
for new trial or reconsideration of a
judgment already rendered in
accordance with Section 1, Rule 37 of
the revised Rules of Court, which
provides
SECTION 1. Grounds of and
period for filing motion for new
trial or reconsideration. Within
the period for taking an appeal,
the aggrieved party may move
the trial court to set aside the
judgment or final order and
grant a new trial for one or
more of the following causes
materially affecting the
substantial rights of said party:

(a) Fraud, accident, mistake or

excusable negligence which
ordinary prudence could not
have guarded against and by
reason of which such aggrieved
party has probably been
impaired in his rights; or
(b) Newly discovered evidence,
which he could not, with
reasonable diligence, have
discovered and produced at the
trial, and which if presented
would probably alter the result.
Within the same period, the
aggrieved party may also move
fore reconsideration upon the
grounds that the damages
awarded are excessive, that the
evidence is insufficient to justify
the decision or final order, or
that the decision or final order is
contrary to law.
In G.R. No. 148763, petitioner
corporation attempts to justify its
motion for the re-opening of its cases
and/or holding of new trial before the
CTA by contending that the "[f]ailure
of its counsel to adduce the necessary
evidence should be construed as
excusable negligence or mistake
which should constitute basis for such
re-opening of trial as for a new trial, as
counsel was of the belief that such
evidence was rendered unnecessary
by the presentation of unrebutted
evidence indicating that respondent
[Commissioner] has acknowledged the
sale of [sic] PASAR and [PHILPHOS] to
be zero-rated." 44 The CTA denied such
motion on the ground that it was not
accompanied by an affidavit of merit
as required by Section 2, Rule 37 of
the revised Rules of Court. The Court
of Appeals affirmed the denial of the
motion, but apart from this technical
defect, it also found that there was no
justification to grant the same.

On the matter of the denial of the

motion of the petitioner corporation
for the re-opening of its cases and/or
holding of new trial based on the
technicality that said motion was
unaccompanied by an affidavit of
merit, this Court rules in favor of the
petitioner corporation. The facts which
should otherwise be set forth in a
separate affidavit of merit may, with
equal effect, be alleged and
incorporated in the motion itself; and
this will be deemed a substantial
compliance with the formal
requirements of the law, provided, of
course, that the movant, or other
individual with personal knowledge of
the facts, take oath as to the truth
thereof, in effect converting the entire
motion for new trial into an
affidavit.45 The motion of petitioner
corporation was prepared and verified
by its counsel, and since the ground
for the motion was premised on said
counsel's excusable negligence or
mistake, then the obvious conclusion
is that he had personal knowledge of
the facts relating to such negligence
or mistake. Hence, it can be said that
the motion of petitioner corporation
for the re-opening of its cases and/or
holding of new trial was in substantial
compliance with the formal
requirements of the revised Rules of
Court.
Even so, this Court finds no sufficient
ground for granting the motion of
petitioner corporation for the reopening of its cases and/or holding of
new trial.
In G.R. No. 141104, petitioner
corporation invokes the
Resolution,46 dated 20 July 1998, by
the CTA in another case, CTA Case No.
5296, involving the claim of petitioner
corporation for refund/credit of input
VAT for the third quarter of 1993. The
said Resolution allowed the re-opening

of CTA Case No. 5296, earlier

dismissed by the CTA, to give the
petitioner corporation the opportunity
to present the missing export
documents.
The rule that the grant or denial of
motions for new trial rests on the
discretion of the trial court,47 may
likewise be extended to the CTA. When
the denial of the motion rests upon the
discretion of a lower court, this Court
will not interfere with its exercise,
unless there is proof of grave abuse
thereof.48
That the CTA granted the motion for
re-opening of one case for the
presentation of additional evidence
and, yet, deny a similar motion in
another case filed by the same party,
does not necessarily demonstrate
grave abuse of discretion or
arbitrariness on the part of the CTA.
Although the cases involve identical
parties, the causes of action and the
evidence to support the same can
very well be different. As can be
gleaned from the Resolution, dated 20
July 1998, in CTA Case No. 5296,
petitioner corporation was claiming
refund/credit of the input VAT on its
zero-rated sales, consisting of actual
export sales, to Mitsubishi Metal
Corporation in Tokyo, Japan. The CTA
took into account the presentation by
petitioner corporation of inward
remittances of its export sales for the
quarter involved, its Supply Contract
with Mitsubishi Metal Corporation, its
1993 Annual Report showing its sales
to the said foreign corporation, and its
application for refund. In contrast, the
present Petitions involve the claims of
petitioner corporation for refund/credit
of the input VAT on its purchases of
capital goods and on its effectively
zero-rated sales to CBP and EPZAregistered enterprises PASAR and
PHILPHOS for the second, third, and

fourth quarters of 1990 and first

quarter of 1992. There being a
difference as to the bases of the
claims of petitioner corporation for
refund/credit of input VAT in CTA Case
No. 5926 and in the Petitions at bar,
then, there are resulting variances as
to the evidence required to support
them.
Moreover, the very same Resolution,
dated 20 July 1998, in CTA Case No.
5296, invoked by petitioner
corporation, emphasizes that the
decision of the CTA to allow petitioner
corporation to present evidence "is
applicable pro hac vice or in this
occasion only as it is the finding of
[the CTA] that petitioner [corporation]
has established a few of the
aforementioned material
points regarding the possible
existence of the export documents
together with the prior and succeeding
returns for the quarters involved, x x
x" [Emphasis supplied.] Therefore, the
CTA, in the present cases, cannot be
bound by its ruling in CTA Case No.
5296, when these cases do not involve
the exact same circumstances that
compelled it to grant the motion of
petitioner corporation for re-opening
of CTA Case No. 5296.
Finally, assuming for the sake of
argument that the non-presentation of
the required documents was due to
the fault of the counsel of petitioner
corporation, this Court finds that it
does not constitute excusable
negligence or mistake which would
warrant the re-opening of the cases
and/or holding of new trial.
Under Section 1, Rule 37 of the
Revised Rules of Court, the
"negligence" must be excusable and
generally imputable to the party
because if it is imputable to the
counsel, it is binding on the client. To

follow a contrary rule and allow a

party to disown his counsel's conduct
would render proceedings indefinite,
tentative, and subject to re-opening by
the mere subterfuge of replacing the
counsel. What the aggrieved litigant
should do is seek administrative
sanctions against the erring counsel
and not ask for the reversal of the
court's ruling.49
As elucidated by this Court in another
case,50 the general rule is that the
client is bound by the action of his
counsel in the conduct of his case and
he cannot therefore complain that the
result of the litigation might have been
otherwise had his counsel proceeded
differently. It has been held time and
again that blunders and mistakes
made in the conduct of the
proceedings in the trial court as a
result of the ignorance, inexperience
or incompetence of counsel do not
qualify as a ground for new trial. If
such were to be admitted as valid
reasons for re-opening cases, there
would never be an end to litigation so
long as a new counsel could be
employed to allege and show that the
prior counsel had not been sufficiently
diligent, experienced or learned.
Moreover, negligence, to be
"excusable," must be one which
ordinary diligence and prudence could
not have guarded against.51 Revenue
Regulations No. 3-88, which was
issued on 15 February 1988, had been
in effect more than two years prior to
the filing by petitioner corporation of
its earliest application for refund/credit
of input VAT involved herein on 21
August 1990. CTA Circular No. 1-95
was issued only on 25 January 1995,
after petitioner corporation had filed
its Petitions before the CTA, but still
during the pendency of the cases of
petitioner corporation before the tax
court. The counsel of petitioner

corporation does not allege ignorance

of the foregoing administrative
regulation and tax court circular, only
that he no longer deemed it necessary
to present the documents required
therein because of the presentation of
alleged unrebutted evidence of the
zero-rated sales of petitioner
corporation. It was a judgment call
made by the counsel as to which
evidence to present in support of his
client's cause, later proved to be
unwise, but not necessarily negligent.
Neither is there any merit in the
contention of petitioner corporation
that the non-presentation of the
required documentary evidence was
due to the excusable mistake of its
counsel, a ground under Section 1,
Rule 37 of the revised Rules of Court
for the grant of a new trial. "Mistake,"
as it is referred to in the said rule,
must be a mistake of fact, not of law,
which relates to the case.52 In the
present case, the supposed mistake
made by the counsel of petitioner
corporation is one of law, for it was
grounded on his interpretation and
evaluation that Revenue Regulations
No. 3-88 and CTA Circular No. 1-95, as
amended, did not apply to his client's
cases and that there was no need to
comply with the documentary
requirements set forth therein. And
although the counsel of petitioner
corporation advocated an erroneous
legal position, the effects thereof,
which did not amount to a deprivation
of his client's right to be heard, must
bind petitioner corporation. The
question is not whether petitioner
corporation succeeded in establishing
its interests, but whether it had the
opportunity to present its side.53
Besides, litigation is a not a "trial and
error" proceeding. A party who moves
for a new trial on the ground of
mistake must show that ordinary

prudence could not have guarded

against it. A new trial is not a refuge
for the obstinate.54 Ordinary prudence
in these cases would have dictated the
presentation of all available evidence
that would have supported the claims
for refund/credit of input VAT of
petitioner corporation. Without sound
legal basis, counsel for petitioner
corporation concluded that Revenue
Regulations No. 3-88, and later on,
CTA Circular No. 1-95, as amended,
did not apply to its client's claims. The
obstinacy of petitioner corporation and
its counsel is demonstrated in their
failure, nay, refusal, to comply with
the appropriate administrative
regulations and tax court circular in
pursuing the claims for refund/credit,
now subject of G.R. Nos. 141104 and
148763, even though these were
separately instituted in a span of more
than two years. It is also evident in the
failure of petitioner corporation to
address the issue and to present
additional evidence despite being
given the opportunity to do so by the
Court of Appeals. As pointed out by
the appellate court, in its Decision,
dated 15 September 2000, in CA-G.R.
SP No. 46718
x x x Significantly, in the
resolution, dated 7 June 2000,
this Court directed the parties
to file memoranda discussing,
among others, the submission
of proof for "its [petitioner's]
sales of gold, copper
concentrates, and pyrite to
buyers." Nevertheless, the
parties, including the petitioner,
failed to address this issue,
thereby necessitating the
affirmance of the ruling of the
Court of Tax Appeals on this
point.55
Summary

Hence, although this Court agreed

with the petitioner corporation that
the two-year prescriptive period for
the filing of claims for refund/credit of
input VAT must be counted from the
date of filing of the quarterly VAT
return, and that sales to EPZAregistered enterprises operating within
economic processing zones were
effectively zero-rated and were not
covered by Revenue Regulations No.
2-88, it still denies the claims of
petitioner corporation for refund of its
input VAT on its purchases of capital
goods and effectively zero-rated sales
during the second, third, and fourth
quarters of 1990 and the first quarter
of 1992, for not being established and
substantiated by appropriate and
sufficient evidence. Petitioner
corporation is also not entitled to the
re-opening of its cases and/or holding
of new trial since the non-presentation
of the required documentary evidence
before the BIR and the CTA by its
counsel does not constitute excusable
negligence or mistake as
contemplated in Section 1, Rule 37 of
the revised Rules of Court.
WHEREFORE, premises considered,
the instant Petitions for Review are
hereby DENIED, and the Decisions,
dated 6 July 1999 and 15 September
2000, of the Court of Appeals in CAG.R. SP Nos. 47607 and 46718,
respectively, are hereby AFFIRMED.
Costs against petitioner.
Ynares-Santiago, Chairperson, AustriaMartinez, Nachura, JJ., concur.
G.R. No. 173425 : January 22,
2013
FORT BONIFACIO DEVELOPMENT
CORPORATION, Petitioner, v. COMMI
SSIONER OF INTERNAL REVENUE
and REVENUE DISTRICT OFFICER,
REVENUE DISTRICT NO. 44, T

AGUIG and PATEROS, BUREAU OF

INTERNAL REVENUE, Respondents.
RESOLUTION
DEL CASTILLO, J.:
This resolves respondents' Motion for
Reconsideration.1 Respondents raise
the following arguments: "1) Prior
payment of tax is inherent in the
nature and payment of the 8%
transitional input tax;2 2) Revenue
Regulations No. 7-95 providing for 8%
transitional input tax based on the
value of the improvements on the real
properties is a valid legislative rule;3 3)
For failure to clearly prove its
entitlement to the transitional input
tax credit, petitioner's claim for tax
refund must fail in light of the basic
doctrine that tax refund partakes of
the nature of a tax exemption which
should be construed strictissimi juris
against the taxpayer."4?r?l1

public funds will be used to pay for the

refund which is for the exclusive
benefit of petitioner, a private
entity."5?r?l1
At the outset, it must be pointed out
that all these arguments have already
been extensively discussed and
argued, not only during the
deliberations but likewise in the
exchange of comments/opinions.
Nevertheless, we will discuss them
again for emphasis. First argument:
"Petitioner is not entitled to any refund
of input VAT since the sale by the
national government of the Global City
land to petitioner was not subject to
any input VAT."6?r?l1
Otherwise stated, it is argued that
prior payment of taxes is a
prerequisite before a taxpayer could
avail of the transitional input tax
credit.

We deny with finality the Motion for

Reconsideration filed by respondents;
the basic issues presented have
already been passed upon and no
substantial argument has been
adduced to warrant the
reconsideration sought.

This argument has long been settled.

To reiterate, prior payment of taxes is
not necessary before a taxpayer could
avail of the 8% transitional input tax
credit. This position is solidly
supported by law and jurisprudence,
viz:cralawlibrary

In his Dissent, Justice Carpio cites four

grounds as follows: "first, petitioner is
not entitled to any refund of input
[Value-added tax] VAT, since the sale
by the national government of the
Global City land to petitioner was not
subject to any input VAT; second, the
Tax Code does not allow any cash
refund of input VAT, only a tax credit;
third, even for zero-rated or effectively
zero-rated VAT-registered taxpayers,
the Tax Code does not allow any cash
refund or credit of transitional input
tax; and fourth, the cash refund, not
being supported by any prior actual
tax payment, is unconstitutional since

First. Section 105 of the old National

Internal Revenue Code (NIRC) clearly
provides that for a taxpayer to avail of
the 8% transitional input tax credit, all
that is required from the taxpayer is to
file a beginning inventory with the
Bureau of Internal Revenue (BIR). It
was never mentioned in Section 105
that prior payment of taxes is a
requirement. For clarity and reference,
Section 105 is reproduced
below:cralawlibrary
SEC. 105. Transitional input tax
credits. A person who becomes liable
to value-added tax or any person who

elects to be a VAT-registered person

shall, subject to the filing of an
inventory as prescribed by regulations,
be allowed input tax on his beginning
inventory of goods, materials and
supplies equivalent to 8% of the value
of such inventory or the actual valueadded tax paid onsuch goods,
materials and supplies, whichever is
higher, which shall be creditable
against the output tax. (Emphasis
supplied.) ???r?bl? ??r??l l?? l?br?r
Second. Since the law (Section 105 of
the NIRC) does not provide for prior
payment of taxes, to require it now
would be tantamount to judicial
legislation which, to state the obvious,
is not allowed.
Third. A transitional input tax credit is
not a tax refund per se but a tax
credit. Logically, prior payment of
taxes is not required before a taxpayer
could avail of transitional input tax
credit. As we have declared in our
September 4, 2012 Decision,7 "tax
credit is not synonymous to tax
refund. Tax refund is defined as the
money that a taxpayer overpaid and is
thus returned by the taxing authority.
Tax credit, on the other hand, is an
amount subtracted directly from ones
total tax liability. It is any amount
given to a taxpayer as a subsidy, a
refund, or an incentive to encourage
investment."8?r?l1
Fourth. The issue of whether prior
payment of taxes is necessary to avail
of transitional input tax credit is no
longer novel. It has long been settled
by jurisprudence. In fact, in the earlier
case of Fort Bonifacio Development
Corporation v. Commissioner of
Internal Revenue,9 this Court had
already ruled that
x x x. If the intent of the law were to
limit the input tax to cases where

actual VAT was paid, it could have

simply said that the tax base shall be
the actual value-added tax paid.
Instead, the law as framed
contemplates a situation where a
transitional input tax credit is claimed
even if there was no actual payment
of VAT in the underlying transaction. In
such cases, the tax base used shall be
the value of the beginning inventory of
goods, materials and supplies.10?r?l1
Fifth. Moreover, in Commissioner of
Internal Revenue v. Central Luzon
Drug Corp.,11this Court had already
declared that prior payment of taxes is
not required in order to avail of a tax
credit.12 Pertinent portions of the
Decision read:cralawlibrary ???r?bl?
??r??l l?? l?br?r
While a tax liability is essential to the
availment or use of any tax credit,
prior tax payments are not. On the
contrary, for the existence or grant
solely of such credit, neither a tax
liability nor a prior tax payment is
needed. The Tax Code is in fact replete
with provisions granting or allowing
tax credits, even though no taxes have
been previously paid.
For example, in computing the estate
tax due, Section 86(E) allows a tax
credit?subject to certain limitations?for
estate taxes paid to a foreign country.
Also found in Section 101(C) is a
similar provision for donors taxes?
again when paid to a foreign countryin
computing for the donors tax due. The
tax credits in both instances allude to
the prior payment of taxes, even if not
made to our government.
Under Section 110, a VAT (ValueAdded Tax)-registered person
engaging in transactionswhether or
not subject to the VATis also allowed a
tax credit that includes a ratable
portion of any input tax not directly

attributable to either activity. This

input tax may either be the VAT on the
purchase or importation of goods or
services that is merely due fromnot
necessarily paid bysuch VAT-registered
person in the course of trade or
business; or the transitional input tax
determined in accordance with Section
111(A). The latter type may in fact be
an amount equivalent to only eight
percent of the value of a VATregistered persons beginning
inventory of goods, materials and
supplies, when such amount?as
computed?is higher than the actual
VAT paid on the said items. Clearly
from this provision, the tax credit
refers to an input tax that is either due
only or given a value by mere
comparison with the VAT actually
paidthen later prorated. No tax is
actually paid prior to the availment of
such credit.

zero-rated sales and also in taxable or

exempt sales, the amount of
creditable input taxes due that are not
directly and entirely attributable to
any one of these transactions shall be
proportionately allocated on the basis
of the volume of sales. Indeed, in
availing of such tax credit for VAT
purposes, this provisionas well as the
one earlier mentionedshows that the
prior payment of taxes is not a
requisite.

In Section 111(B), a one and a half

percent input tax credit that is merely
presumptive is allowed. For the
purchase of primary agricultural
products used as inputseither in the
processing of sardines, mackerel and
milk, or in the manufacture of refined
sugar and cooking oiland for the
contract price of public works
contracts entered into with the
government, again, no prior tax
payments are needed for the use of
the tax credit.

It may be argued that Section 28(B)(5)

(b) of the Tax Code is another
illustration of a tax credit allowed,
even though no prior tax payments
are not required. Specifically, in this
provision, the imposition of a final
withholding tax rate on cash and/or
property dividends received by a
nonresident foreign corporation from a
domestic corporation is subjected to
the condition that a foreign tax credit
will be given by the domiciliary
country in an amount equivalent to
taxes that are merely deemed paid.
Although true, this provision actually
refers to the tax credit as a condition
only for the imposition of a lower tax
rate, not as a deduction from the
corresponding tax liability. Besides, it
is not our government but the
domiciliary country that credits
against the income tax payable to the
latter by the foreign corporation, the
tax to be foregone or spared.

More important, a VAT-registered

person whose sales are zero-rated or
effectively zero-rated may, under
Section 112(A), apply for the issuance
of a tax credit certificate for the
amount of creditable input taxes
merely dueagain not necessarily paid
tothe government and attributable to
such sales, to the extent that the input
taxes have not been applied against
output taxes. Where a taxpayer is
engaged in zero-rated or effectively

In contrast, Section 34(C)(3), in

relation to Section 34(C)(7)(b),
categorically allows as credits, against
the income tax imposable under Title
II, the amount of income taxes merely
incurrednot necessarily paidby a
domestic corporation during a taxable
year in any foreign country. Moreover,
Section 34(C)(5) provides that for such
taxes incurred but not paid, a tax
credit may be allowed, subject to the
condition precedent that the taxpayer

shall simply give a bond with sureties

satisfactory to and approved by
petitioner, in such sum as may be
required; and further conditioned upon
payment by the taxpayer of any tax
found due, upon petitioners
redetermination of it.
In addition to the above-cited
provisions in the Tax Code, there are
also tax treaties and special laws that
grant or allow tax credits, even though
no prior tax payments have been
made.
Under the treaties in which the tax
credit method is used as a relief to
avoid double taxation, income that is
taxed in the state of source is also
taxable in the state of residence, but
the tax paid in the former is merely
allowed as a credit against the tax
levied in the latter. Apparently,
payment is made to the state of
source, not the state of residence. No
tax, therefore, has been previously
paid to the latter.
Under special laws that particularly
affect businesses, there can also be
tax credit incentives. To illustrate, the
incentives provided for in Article 48 of
Presidential Decree No. (PD) 1789, as
amended by Batas Pambansa Blg. (BP)
391, include tax credits equivalent to
either five percent of the net value
earned, or five or ten percent of the
net local content of export. In order to
avail of such credits under the said law
and still achieve its objectives, no prior
tax payments are necessary.
From all the foregoing instances, it is
evident that prior tax payments are
not indispensable to the availment of
a tax credit. Thus, the CA correctly
held that the availment under RA 7432
did not require prior tax payments by
private establishments concerned.
However, we do not agree with its

finding that the carry-over of tax

credits under the said special law to
succeeding taxable periods, and even
their application against internal
revenue taxes, did not necessitate the
existence of a tax liability.
The examples above show that a tax
liability is certainly important in the
availment or use, not the existence or
grant, of a tax credit. Regarding this
matter, a private establishment
reporting a net loss in its financial
statements is no different from
another that presents a net income.
Both are entitled to the tax credit
provided for under RA 7432, since the
law itself accords that unconditional
benefit. However, for the losing
establishment to immediately apply
such credit, where no tax is due, will
be an improvident usance.13?r?l1
Second and third arguments: "The Tax
Code does not allow any cash refund
of input VAT, only a tax credit;" and
"even for zero-rated or effectively
zero-rated VAT-registered taxpayers,
the Tax Code does not allow any cash
refund or credit of transitional input
tax."14?r?l1
Citing Sections 110 and 112 of the Tax
Code, it is argued that the Tax Code
does not allow a cash refund, only a
tax credit.
This is inaccurate.
First. Section 112 of the Tax Code
speaks of zero-rated or effectively
zero-rated sales. Notably, the
transaction involved in this case is not
zero-rated or effectively zero-rated
sales.
Second. A careful reading of Section
112 of the Tax Code would show that it
allows either a cash refund or a tax
credit for input VAT on zero-rated or

effectively zero-rated sales. For

reference, Section 112 is herein
quoted, viz:cralawlibrary
Sec. 112. Refunds or Tax Credits of
Input Tax.
(A) Zero-rated or Effectively Zerorated Sales. Any VAT-registered
person, whose sales are zero-rated or
effectively zero-rated may, within two
(2) years after the close of the taxable
quarter when the sales were made,
apply for the issuance of a tax credit
certificate or refund of creditable input
tax due or paid attributable to such
sales, except transitional input tax, to
the extent that such input tax has not
been applied against output tax: x x x.
(Emphasis supplied.)
Third. Contrary to the Dissent, Section
112 of the Tax Code does not prohibit
cash refund or tax credit of transitional
input tax in the case of zero-rated or
effectively zero-rated VAT registered
taxpayers, who do not have any
output VAT. The phrase "except
transitional input tax" in Section 112
of the Tax Code was inserted to
distinguish creditable input tax from
transitional input tax credit.
Transitional input tax credits are input
taxes on a taxpayers beginning
inventory of goods, materials, and
supplies equivalent to 8% (then 2%) or
the actual VAT paid on such goods,
materials and supplies, whichever is
higher. It may only be availed of once
by first-time VAT taxpayers. Creditable
input taxes, on the other hand, are
input taxes of VAT taxpayers in the
course of their trade or business,
which should be applied within two
years after the close of the taxable
quarter when the sales were made.
Fourth. As regards Section 110, while
the law only provides for a tax credit,
a taxpayer who erroneously or

excessively pays his output tax is still

entitled to recover the payments he
made either as a tax credit or a tax
refund. In this case, since petitioner
still has available transitional input tax
credit, it filed a claim for refund to
recover the output VAT it erroneously
or excessively paid for the 1st quarter
of 1997. Thus, there is no reason for
denying its claim for tax refund/credit.
Fifth. Significantly, the dispositive
portion of our September 4, 2012
Decision15 directed the respondent
Commissioner of Internal Revenue
(CIR) to either refund the amount paid
as output VAT for the 1st quarter of
1997 or to issue a tax credit
certificate. We did not outrightly direct
the cash refund of the amount
claimed, thus:cralawlibrary
WHEREFORE, the petition is hereby
GRANTED. The assailed Decision dated
July 7, 2006 of the Court of Appeals in
CA-G.R. SP No. 61436 is REVERSED
and SET ASIDE. Respondent
Commissioner of Internal Revenue is
ordered to refund to petitioner Fort
Bonifacio Development Corporation
the amount ofP359,652,009.47 paid as
output VAT for the first quarter of 1997
in light of the transitional input tax
credit available to petitioner for the
said quarter, or in the alternative, to
issue a tax credit certificate
corresponding to such amount.
SO ORDERED.16?r?l1
Sixth. Notably, in the earlier case of
Fort Bonifacio, we likewise directed the
respondent to either refund or issue a
tax credit certificate. It bears
emphasis that this Decision already
became final and executory and entry
of judgment was made in due course.
The dispositive portion of our Decision
in said case reads:cralawlibrary

WHEREFORE, the petitions are

GRANTED. The assailed decisions of
the Court of Tax Appeals and the Court
of Appeals are REVERSED and SET
ASIDE. Respondents are hereby (1)
restrained from collecting from
petitioner the amount
of P28,413,783.00 representing the
transitional input tax credit due it for
the fourth quarter of 1996; and (2)
directed to refund to petitioner the
amount ofP347,741,695.74 paid as
output VAT for the third quarter of
1997 in light of the persisting
transitional input tax credit available
to petitioner for the said quarter, or to
issue a tax credit corresponding to
such amount. No pronouncement as to
costs.17?r?l1
Clearly, the CIR has the option to
return the amount claimed either in
the form of tax credit or refund.
Fourth argument. "The cash refund,
not being supported by any prior
actual tax payment, is unconstitutional
since public funds will be used to pay
for the refund which is for the
exclusive benefit of petitioner, a
private entity."18?r?l1 ???r?bl? ??r??
l l?? l?br?r
Otherwise stated, it is argued that the
refund or issuance of tax credit
certificate violates the mandate in
Section 4(2) of the Government
Auditing Code of the Philippines that
"Government funds or property shall
be spent or used solely for public
purposes." Again, this is inaccurate.
On the contrary, the grant of a refund
or issuance of tax credit certificate in
this case would not contravene the
above provision. The refund or tax
credit would not be unconstitutional
because it is precisely pursuant to
Section 105 of the old NIRC which
allows refund/tax credit.

Final Note
As earlier mentioned, the issues in this
case are not novel. These same issues
had been squarely ruled upon by this
Court in the earlier Fort Bonifacio case.
This earlier Fort Bonifacio case already
attained finality and entry of judgment
was already made in due course. To
reverse our Decision in this case would
logically affect our Decision in the
earlier Fort Bonifacio case. Once
again, this Court will become an easy
target for charges of "flip-flopping."
ACCORDINGLY, the Motion for
Reconsideration is DENIED with
FINALITY, the basic issues presented
having been passed upon and no
substantial argument having been
adduced to warrant the
reconsideration sought. No further
pleadings or motions shall be
entertained in this case. Let entry of
final judgment be made in due course.
SO ORDERED.

Endnotes:

On Official Leave.

Temporary rollo, unpaginated.

Motion for Reconsideration, p. 2;

temporary rollo, unpaginated.
3

Id. at 19; id.

Id. at 26; id.

Dissenting Opinion, pp. 1-2.

Id. at 1.

Rollo, pp. 763-779.

Id. at 771.

G.R. Nos. 158885 & 170680, April 2,

2009, 583 SCRA 168.
10

Id. at 201.

11

496 Phil. 307 (2005).

12

Id. at 322.

13

Id. at 322-325.

14

Dissenting Opinion, p. 1.

15

Rollo, pp. 763-779.

16

Id. at 777-778.

17

Fort Bonifacio Development

Corporation v. Commissioner of
Internal Revenue, supra note 9, at
198-199.
18

Dissenting Opinion, pp. 1-2.

DISSENTING OPINION
CARPIO, J.:
I vote to grant the motion for
reconsideration filed by the
Commissioner of Internal Revenue.

The Decision dated 4 September 2012

grants to petitioner a cash refund
of P359,652,009.47.1 This cash refund
is supposed to be reimbursement for
excess transitional input tax under
Section 105 of the old NIRC now
Section III (A).
I base my argument on four grounds:
first, petitioner is not entitled to any
refund of input VAT since the sale by
the National Government of the Global
City land to petitioner was not subject
to any input VAT; second, the Tax Code
does not allow any cash refund of
input VAT, only a tax credit; third, even
for zero-rated or effectively zero-rated
VAT-registered taxpayers, the Tax Code
does not allow any cash refund or
credit of transitional input tax; and
fourth, the cash refund, not being
supported by any prior actual tax
payment, is unconstitutional since
public funds will be used to pay for the
refund which is for the exclusive
benefit of petitioner, a private entity.
Petitioner has no input VAT
In the present case, the law never
imposed an input VAT on the sale of
the Global City land by the National
Government to petitioner. Not a single
centavo of input VAT was paid, or
could have been paid, by anyone in
the sale of the Global City land since
(1) the National Government is not
subject to any tax, including VAT,
when the law authorizes it to sell
government property like the Global
City land; and (2) in 1995, the old VAT
law did not yet impose VAT on the sale
of land and thus no VAT on the sale of
the Global City land could have been
paid by anyone.
Thus, since petitioner does not have
any input VAT from its purchase of the
Global City land, it cannot ask for

refund or credit of any input VAT from

the same transaction.
No tax refund or credit unless there is
actual or assumed tax payment
A tax refund or credit of input VAT
assumes a tax was previously paid, or
in the case of the transitional input
tax, that the tax is assumed to have
been paid, whether actually paid or
not. In either case, there must be a
law imposing the input VAT. This can
be inferred from the provision in
Section 105 that a taxpayer is
"allowed input tax on his beginning
inventory . . . equivalent to 8% . . ., or
the actual value-added tax paid . . .,
whichever is higher." The phrase
"actual value-added tax paid" means
there was a law imposing the VAT.
Thus, the 8% transitional input tax
credit in Section 105 assumes that a
previous tax was paid, which in turn
assumes there was a law imposing the
tax. Since there was still no VAT on the
sale of land at the time, indisputably
there could not have been any actual
tax payment of input VAT on the sale
of the Global City land. Without a law
imposing VAT on the sale of the Global
City land, there is no possibility of an
actual or even assumed tax payment
of input VAT on such sale. Hence,
there can be no refund or credit of
input VAT for no input VAT was, or
could have been, paid.
No cash refund of input VAT, only tax
credit
The Tax Code does not allow a cash
refund of input VAT, only a tax credit
of input VAT. Section 110 of the Tax
Code provides:cralawlibrary
Sec. 110. Tax Credits -

(A) Creditable Input Tax x x x

(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 VATregistered person. If the input tax
exceeds the output tax, the excess
shall be carried over to the succeeding
quarter or quarters: Provided,
however, that any input tax
attributable to zero-rated sales by a
VAT-registered person may at its
option be refunded or credited against
other internal revenue taxes, subject
to the provisions of Section 112.
(Emphasis supplied) ???r?bl? ??r??
l l?? l?br?r
Thus, any excess input tax can only be
carried over to the "succeeding
quarter or quarters." Unlike a tax
refund or credit under Section 229 of
the
Tax Code, the input tax under the VAT
system is not an erroneously, illegally
or improperly collected tax but a
correctly collected tax. Being a
correctly collected tax, the taxpayer
has no right to refund or credit unless
expressly allowed by law. Section
110(B) does not allow a cash refund,
but merely a credit of the input VAT
against output VAT, and any excess of
the input VAT can only be carried over
to succeeding quarters until totally
credited or used up. To repeat, the Tax
Code does not allow a cash refund of
excess input VAT, a cash refund that
the Decision of 4 September 2012
actually erroneously granted to
petitioner.
Transitional input tax expressly not
subject to refund or credit
The transitional input tax is a tax
assumed to have been paid, whether
actually paid or not. The Tax Code

always requires substantiation for any

refund or credit of a tax, that is, the
taxpayer must prove that he actually
paid the tax. The only exception is the
transitional input tax, which is
assumed to have been paid, whether
actually paid or not. The transitional
input tax is credited against output tax
in the concept of a reduction of tax
liability,2 either to minimize the tax
burden or as a tax incentive. However,
the transitional input tax cannot be
refunded in cash because such cash
refund will be a use of public funds for
a private purpose. If the taxpayer has
no output tax, the taxpayer cannot ask
a tax credit for the unused transitional
input tax because the transitional
input tax merely serves to reduce the
output tax, if there is any. Thus, the
Tax Code expressly prohibits any cash
refund or tax credit of transitional
input tax in the case of zero-rated or
effectively zero-rated VAT registered
taxpayers, who do not have any
output VAT. Section 112(A) of the Tax
Code:cralawlibrary

where the taxpayer has no output tax.

The reason is plain common sense. A
taxpayer who has not actually paid a
tax cannot ask for its refund or credit.
Likewise, a taxpayer who has no
output tax to offset a tax credit arising
from an assumed tax payment cannot
ask the government for a cash refund
or credit, for to do so will require the
government to actually pay out public
funds for a private purpose.
Public funds can only be used for a
public purpose
Without any previous tax payment as
source of the tax refund or credit, the
tax refund or credit will be an
expenditure of public funds for the
exclusive benefit of a specific private
individual or entity. As ruled by this
Court in several cases,3 this violates
the fundamental principle that public
funds can be used only for a public
purpose.

(A) Zero-rated or Effectively Zerorated Sales. Any VAT-registered

person, whose sales are zero-rated or
effectively zero-rated may, within two
(2) years after the close of the taxable
quarter when the sales were made,
apply for the issuance of a tax credit
certificate or refund of creditable input
tax due or paid attributable to such
sales, except transitional input tax, to
the extent that such input tax has not
been applied against output tax: x x x.
(Emphasis supplied)

Section 4(2) of the Government

Auditing Code of the Philippines
mandates that "Government funds or
property shall be spent or used solely
for public purposes." Any tax refund or
credit in favor of a specific taxpayer
for a tax that was never paid will have
to be sourced from government funds.
This is clearly an expenditure of public
funds for a private purpose. Congress
cannot validly enact a law transferring
government funds, raised through
taxation, to the pocket of a private
individual or entity. A well-recognized
inherent limitation on the
constitutional power of the State to
levy taxes is that taxes can only be
used for a public purpose.4?r?l1

The law is clear: a transitional input

tax, which is merely an assumed
payment of tax and not an actual
payment of tax, cannot give rise to a
cash refund, or even to a tax credit

Moreover, such refund or credit

without prior tax payment is an
expenditure of public funds without an
appropriation law. This violates Section
29(1), Article VI of the Constitution,

SEC. 112. Refunds or Tax Credits of

Input Tax.

which mandates that "No money shall

be paid out of the Treasury except in
pursuance of an appropriation made
by law." Without any previous tax
payment as source, a tax refund or
credit will be paid out of the general
funds of the government, a payment
that requires an appropriation law. The
Tax Code, particularly its provisions on
the VAT, is a revenue measure, not an
appropriation law.
In sum, the grant of cash refund in the
amount of P359,652,009.47 to
petitioner is not authorized by law
based on four grounds: first, petitioner
is not entitled to any refund or credit
of input VAT since the sale by the
National Government of the Global
City land to petitioner was not subject
to any input VAT; second, the Tax Code
does not allow a cash refund of excess
input VAT, only a tax credit; third, even
for zero-rated or effectively zero-rated
VAT-registered taxpayers, the Tax Code
does not allow any cash refund or
credit of transitional input tax; and
fourth, the cash refund, not being
supported by any prior actual tax
payment, is unconstitutional since
public funds will be used to pay for the
refund which is for the exclusive
benefit of petitioner, a private entity.
Accordingly, I vote to GRANT the
motion for reconsideration.

Endnotes:

The dispositive portion of the 4

September 2012 Decision
states:cralawlibrary

"WHEREFORE, the petition is hereby

GRANTED. The assailed Decision dated
July 7, 2006 of the Court of Appeals in
CA-G.R. SP No. 61436 is REVERSED
and SET ASIDE. Respondent
Commissioner of Internal Revenue is
ordered to refund to petitioner Fort
Bonifacio Development Corporation
the amount of P359,652,U09.47 paid
as output VAT for the first quarter of
1997 in light of !he transitional input
tax credit available to petitioner for
the said quarter. or in the alternative,
to issue a tax credit certificate
corresponding to such amount." ???r?
bl? ??r??l l?? l?br?r
2

This is akin to a tax credit for income

taxes paid to a foreign government.
The law allows the foreign income
taxes as tax credit against Philippine
income tax, but the taxpayer cannot
ask the Philippine government to
refund such unused or excess tax
credit. The Philippine government
never received the taxes paid to the
foreign government. See Section 34(c)
(3)(a) of the Tax Code.
3

Francisco Jr. v. Toll Regulatory Board,

G.R. No. 166910, 19 October 2010,
633 SCRA 470; Yap v. Commission on
Audit, G.R. No. 158562, 23 April 2010,
619 SCRA 154; Strategic Alliance
Development Corporation v. Radstock
Securities Limited, G.R. No. 178158, 4
December 2009, 607 SCRA 413;
Pascual v. Secretary of Public Works,
110 Phil. 331 (1960).
4

Planters Product, Inc. v. Fertiphil

Corporation, G.R. No. 166006, 14
March 2008, 548 SCRA 485; Pascual v.
Secretary of Public Works, supra.