8/31/2016 G.R.No.

81311

TodayisWednesday,August31,2016

RepublicofthePhilippines
SUPREMECOURT
Manila

ENBANC

G.R.No.81311June30,1988

KAPATIRANNGMGANAGLILINGKODSAPAMAHALAANNGPILIPINAS,INC.,HERMINIGILDOC.DUMLAO,
GERONIMOQ.QUADRA,andMARIOC.VILLANUEVA,petitioners,
vs.
HON.BIENVENIDOTAN,asCommissionerofInternalRevenue,respondent.

G.R.No.81820June30,1988

KILUSANGMAYOUNOLABORCENTER(KMU),itsofficersandaffiliatedlaborfederationsandalliances,
petitioners,
vs.
THEEXECUTIVESECRETARY,SECRETARYOFFINANCE,THECOMMISSIONEROFINTERNALREVENUE,
andSECRETARYOFBUDGET,respondents.

G.R.No.81921June30,1988

INTEGRATEDCUSTOMSBROKERSASSOCIATIONOFTHEPHILIPPINESandJESUSB.BANAL,petitioners,
vs.
TheHON.COMMISSIONER,BUREAUOFINTERNALREVENUE,respondent.

G.R.No.82152June30,1988

RICARDOC.VALMONTE,petitioner,
vs.
THEEXECUTIVESECRETARY,SECRETARYOFFINANCE,COMMISSIONEROFINTERNALREVENUEand
SECRETARYOFBUDGET,respondent.

FranklinS.FarolanforpetitionerKapatiraninG.R.No.81311.

JaimeC.OpinionforindividualpetitionersinG.R.No.81311.

Banzuela,Flores,Miralles,Raeses,Sy,TaquioandAssociatesforpetitionersinG.R.No81820.

UnionofLawyersandAdvocatesforPeoplesRightcollaboratingcounselforpetitionersinG.R.No81820.

JoseC.LeabresandJoselitoR.EnriquezforpetitionersinG.R.No.81921.

PADILLA,J.:

These four (4) petitions, which have been consolidated because of the similarity of the main issues involved
therein,seektonullifyExecutiveOrderNo.273(EO273,forshort),issuedbythePresidentofthePhilippineson
25 July 1987, to take effect on 1 January 1988, and which amended certain sections of the National Internal
RevenueCodeandadoptedthevalueaddedtax(VAT,forshort),forbeingunconstitutionalinthatitsenactment
is not alledgedly within the powers of the President that the VAT is oppressive, discriminatory, regressive, and
violatesthedueprocessandequalprotectionclausesandotherprovisionsofthe1987Constitution.

TheSolicitorGeneralpraysforthedismissalofthepetitionsonthegroundthatthepetitionershavefailedtoshow
justification for the exercise of its judicial powers, viz. (1) the existence of an appropriate case (2) an interest,
personalandsubstantial,ofthepartyraisingtheconstitutionalquestions(3)theconstitutionalquestionshouldbe
raisedattheearliestopportunityand(4)thequestionofconstitutionalityisdirectlyandnecessarilyinvolvedina
justiciablecontroversyanditsresolutionisessentialtotheprotectionoftherightsoftheparties.Accordingtothe
Solicitor General, only the third requisite that the constitutional question should be raised at the earliest
opportunityhasbeencompliedwith.Healsoquestionsthelegalstandingofthepetitionerswho,hecontends,
aremerelyaskingforanadvisoryopinionfromtheCourt,therebeingnojusticiablecontroversyforresolution.

Objections to taxpayers' suit for lack of sufficient personality standing, or interest are, however, in the main
proceduralmatters.Consideringtheimportancetothepublicofthecasesatbar,andinkeepingwiththeCourt's
duty, under the 1987 Constitution, to determine wether or not the other branches of government have kept
themselveswithinthelimitsoftheConstitutionandthelawsandthattheyhavenotabusedthediscretiongivento
them,theCourthasbrushedasidetechnicalitiesofprocedureandhastakencognizanceofthesepetitions.

But,beforeresolvingtheissuesraised,abrieflookintothetaxlawinquestionisinorder.

TheVATisataxleviedonawiderangeofgoodsandservices.Itisataxonthevalue,addedbyeveryseller,with
aggregate gross annual sales of articles and/or services, exceeding P200,00.00, to his purchase of goods and
services,unlessexempt.VATiscomputedattherateof0%or10%ofthegrosssellingpriceofgoodsorgross
receiptsrealizedfromthesaleofservices.

The VAT is said to have eliminated privilege taxes, multiple rated sales tax on manufacturers and producers,
advancesalestax,andcompensatingtaxonimportations.TheframersofEO273thatitisprincipallyaimedto

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rationalize the system of taxing goods and services simplify tax administration and make the tax system more
equitable,toenablethecountrytoattaineconomicrecovery.

TheVATisnotentirelynew.Itwasalreadyinforce,inamodifiedform,beforeEO273wasissued.Aspointedout
bytheSolicitorGeneral,thePhilippinesalestaxsystem,priortotheissuanceofEO273,wasessentiallyasingle
stagevalueaddedtaxsystemcomputedunderthe"costsubtractionmethod"or"costdeductionmethod"andwas
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
2006on31December1985,totakeeffect1January1986.Reducedsalestaxeswereimposednotonlyonthe
second sale, but on everysubsequent sale, as well. EO 273 merely increased the VAT on every sale to 10%,
unlesszeroratedorexempt.

PetitionersfirstcontendthatEO273isunconstitutionalontheGroundthatthePresidenthadnoauthoritytoissue
EO273on25July1987.

Thecontentioniswithoutmerit.

It should be recalled that under Proclamation No. 3, which decreed a Provisional Constitution, sole legislative
authoritywasvesteduponthePresident.Art.II,sec.1oftheProvisionalConstitutionstates:

Sec. 1. Until a legislature is elected and convened under a new Constitution, the President shall
continuetoexerciselegislativepowers.

On15October1986,theConstitutionalCommissionof1986adoptedanewConstitutionfortheRepublicofthe
Philippines which was ratified in a plebiscite conducted on 2 February 1987. Article XVIII, sec. 6 of said
Constitution,hereafterreferredtoasthe1987Constitution,provides:

Sec.6.TheincumbentPresidentshallcontinuetoexerciselegislativepowersuntilthefirstCongress
isconvened.

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
electedunderthe1987Constitution,wasconvenedon27July1987.Hence,theenactmentofEO273on25July
1987,two(2)daysbeforeCongressconvenedon27July1987,waswithinthePresident'sconstitutionalpower
andauthoritytolegislate.

PetitionerValmonteclaims,additionally,thatCongresswasreallyconvenedon30June1987(not27July1987).
He contends that the word "convene" is synonymous with "the date when the elected members of Congress
assumedoffice."

Thecontentioniswithoutmerit.Theword"convene"whichhasbeeninterpretedtomean"tocalltogether,cause
toassemble,orconvoke," 1isclearlydifferentfromassumptionofofficebytheindividualmembersof Congress or their
takingtheoathofoffice.Asanexample,wecalltomindtheinterimNationalAssemblycreatedunderthe1973Constitution,
whichhadnotbeen"convened"butsomemembersofthebody,moreparticularlythedelegatestothe1971Constitutional
ConventionwhohadoptedtoservethereinbyvotingaffirmativelyfortheapprovalofsaidConstitution,hadtakentheiroath
ofoffice.

ToupholdthesubmissionofpetitionerValmontewouldstretchthedefinitionoftheword"convene"abittoofar.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 convene
onceeveryyearonthefourthMondayofJulyforitsregularsessionwouldbeacontrariety,sinceCongresswould
alreadybedeemedtobeinsessionaftertheindividualmembershavetakentheiroathofoffice.Aportionofthe
provisions of Art. VII, sec. 10, requiring Congress to convene for the purpose of enacting a law calling for a
specialelectiontoelectaPresidentandVicePresidentincaseavacancyoccursinsaidoffices,wouldalsobea
surplusage.TheportionofArt.VII,sec.11,thirdparagraph,requiringCongresstoconvene,ifnotinsession,to
decideaconflictbetweenthePresidentandtheCabinetastowhetherornotthePresidentandtheCabinetasto
whether or not the President can reassume the powers and duties of his office, would also be redundant. The
sameistruewiththeportionofArt.VII,sec.18,whichrequiresCongresstoconvenewithintwentyfour(24)hours
followingthedeclarationofmartiallaworthesuspensionoftheprivilageofthewritofhabeascorpus.

The1987ConstitutionmentionsaspecificdatewhenthePresidentlosesherpowertolegislate.Iftheframersof
saidConstitutionhadintendedtoterminatetheexerciseoflegislativepowersbythePresidentatthebeginningof
thetermofofficeofthemembersofCongress,theyshouldhavesostated(butdidnot)inclearandunequivocal
terms.TheCourthasnotpowertorewritetheConstitutionandgiveitameaningdifferentfromthatintended.

TheCourtalsofindsnomeritinthepetitioners'claimthatEO273wasissuedbythePresidentingraveabuseof
discretionamountingtolackorexcessofjurisdiction."Graveabuseofdiscretion"hasbeendefined,asfollows:

Grave abuse of discretion" implies such capricious and whimsical exercise of judgment as is
equivalenttolackofjurisdiction(AbadSantosvs.ProvinceofTarlac,38Off.Gaz.834),or,inother
words, where the power is exercised in an arbitrary or despotic manner by reason of passion or
personalhostility,anditmustbesopatentandgrossastoamounttoanevasionofpositivedutyor
toavirtualrefusaltoperformthedutyenjoinedortoactatallincontemplationoflaw.(TaveraLuna,
Inc.vs.Nable,38Off.Gaz.62).2

PetitionershavefailedtoshowthatEO273wasissuedcapriciouslyandwhimsicallyorinanarbitraryordespotic
manner by reason of passion or personal hostility. It appears that a comprehensive study of the VAT had been
extensivelydiscussedbythisframersandothergovernmentagenciesinvolvedinitsimplementation,evenunder
the past administration. As the Solicitor General correctly sated. "The signing of E.O. 273 was merely the last
stageintheexerciseofherlegislativepowers.Thelegislativeprocessstartedlongbeforethesigningwhenthe
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
beforeitconvened."3

Next, the petitioners claim that EO 273 is oppressive, discriminatory, unjust and regressive, in violation of the
provisionsofArt.VI,sec.28(1)ofthe1987Constitution,whichstates:
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Sec. 28 (1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressivesystemoftaxation.

The petitioners" assertions in this regard are not supported by facts and circumstances to warrant their
conclusions.TheyhavefailedtoadequatelyshowthattheVATisoppressive,discriminatoryorunjust.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
argumentativeimplication.4

AstheCourtseesit,EO273satisfiesalltherequirementsofavalidtax.Itisuniform.Thecourt,inCityofBaguio
vs.DeLeon,5said:

...InPhilippineTrustCompanyv.Yatco(69Phil.420),JusticeLaurel,speakingfortheCourt,stated:
"Ataxisconsidereduniformwhenitoperateswiththesameforceandeffectineveryplacewherethe
subjectmaybefound."

There was no occasion in that case to consider the possible effect on such a constitutional
requirementwherethereisaclassification.TheopportunitycameinEasternTheatricalCo.v.Alfonso
(83Phil.852,862).Thus:"Equalityanduniformityintaxationmeansthatalltaxablearticlesorkinds
ofpropertyofthesameclassshallbetaxedatthesamerate.Thetaxingpowerhastheauthorityto
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,thedifferentiationagainstwhichtheplaintiffscomplainconformstothepracticaldictatesof
justiceandequityandisnotdiscriminatorywithinthemeaningoftheConstitution."

Tosatisfythisrequirementthen,allthatisneededasheldinanothercasedecidedtwoyearslater,
(UyMatiasv.CityofCebu,93Phil.300)isthatthestatuteorordinanceinquestion"appliesequally
toallpersons,firmsandcorporationsplacedinsimilarsituation."ThisCourtisonrecordasaccepting
theviewinaleadingAmericancase(Carmichaelv.SouthernCoalandCokeCo.,301US495)that
"inequalitieswhichresultfromasinglingoutofoneparticularclassfortaxationorexemptioninfringe
noconstitutionallimitation."(Lutzv.Araneta,98Phil.148,153).

ThesalestaxadoptedinEO273isappliedsimilarlyonallgoodsandservicessoldtothepublic,whicharenot
exempt,attheconstantrateof0%or10%.

Thedisputedsalestaxisalsoequitable.Itisimposedonlyonsalesofgoodsorservicesbypersonsengagein
business with an aggregate gross annual sales exceeding P200,000.00. Small corner sarisari stores are
consequentlyexemptfromitsapplication.Likewiseexemptfromthetaxaresalesoffarmandmarineproducts,
sparedastheyarefromtheincidenceoftheVAT,areexpectedtoberelativelylowerandwithinthereachofthe
generalpublic.6

TheCourtlikewisefindsnomeritinthecontentionofthepetitionerIntegratedCustomsBrokersAssociationofthe
Philippines that EO 273, more particularly the new Sec. 103 (r) of the National Internal Revenue Code, unduly
discriminatesagainstcustomsbrokers.Thecontestedprovisionstates:

Sec.103.Exempttransactions.Thefollowingshallbeexemptfromthevalueaddedtax:

xxxxxxxxx

(r)Serviceperformedintheexerciseofprofessionorcalling(exceptcustomsbrokers)subjecttothe
occupationtaxundertheLocalTaxCode,andprofessionalservicesperformedbyregisteredgeneral
professionalpartnerships

The phrase "except customs brokers" is not meant to discriminate against customs brokers. It was inserted in
Sec.103(r)tocomplementtheprovisionsofSec.102oftheCode,whichmakestheservicesofcustomsbrokers
subjecttothepaymentoftheVATandtodistinguishcustomsbrokersfromotherprofessionalswhoaresubjectto
thepaymentofanoccupationtaxundertheLocalTaxCode.PertinentprovisionsofSec.102read:

Sec.102.Valueaddedtaxonsaleofservices. There shall be levied, assessed and collected, a

valueaddedtaxequivalentto10%percentofgrossreceiptsderivedbyanypersonengagedinthe
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
regardlessofwhetherornottheperformancethereofcallfortheexerciseoruseofthephysicalor
mentalfaculties:...

Withtheinsertionoftheclarificatoryphrase"exceptcustomsbrokers"inSec.103(r),apotentialconflictbetween
thetwosections,(Secs.102and103),insofarascustomsbrokersareconcerned,isaverted.

Atanyrate,thedistinctionofthecustomsbrokersfromtheotherprofessionalswhoaresubjecttooccupationtax
undertheLocalTaxCodeisbaseduponmaterialdifferences,inthattheactivitiesofcustomsbrokers(likethose
ofstock,realestateandimmigrationbrokers)partakemoreofabusiness,ratherthanaprofessionandwerethus
subjectedtothepercentagetaxunderSec.174oftheNationalInternalRevenueCodepriortoitsamendmentby
EO273.EO273abolishedthepercentagetaxandreplaceditwiththeVAT.IfthepetitionerAssociationdidnot
protesttheclassificationofcustomsbrokersthen,theCourtseesnoreasonwhyitshouldprotestnow.

The Court takes note that EO 273 has been in effect for more than five (5) months now, so that the fears
expressedbythepetitionersthattheadoptionoftheVATwilltriggerskyrocketingofpricesofbasiccommodities
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
moreimaginedthanreal.ItwouldseemthattheVATisnotasbadaswearemadetobelieve.

Inanyevent,ifpetitionersseriouslybelievethattheadoptionandcontinuedapplicationoftheVATareprejudicial
tothegeneralwelfareortheinterestsofthemajorityofthepeople,theyshouldseekrecourseandrelieffromthe
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political branches of the government. The Court, following the timehonored doctrine of separation of powers,
cannotsubstituteitsjudgmentforthatofthePresidentastothewisdom,justiceandadvisabilityoftheadoptionof
theVAT.TheCourtcanonlylookintoanddeterminewhetherornotEO273wasenactedandmadeeffectiveas
law,inthemannerrequiredby,andconsistentwith,theConstitution,andtomakesurethatitwasnotissuedin
graveabuseofdiscretionamountingtolackorexcessofjurisdictionand,inthisregard,theCourtfindsnoreason
toimpedeitsapplicationorcontinuedimplementation.

WHEREFORE,thepetitionsareDISMISSED.Withoutpronouncementastocosts.

SOORDERED.

Yap, C.J., Fernan, Narvasa, MelencioHerrera, Cruz, Paras, Feliciano, Gancayco, Bidin, Sarmiento, Cortes and
GrioAquino,JJ.,concur.

Gutierrez,Jr.andMedialdea,JJ.,areonleave.

Footnotes

1ApplicationofLamb,169A2d822,830,67N.J.Super.29,affd.170A2d34,34n.J.448,citing18
C.J.S.Convenep.37.

2Alafrizvs.Nable,72Phil.278,280.

3Commentonpetition,G.R.No.82152,p.18.

4Peraltavs.Comelec,L47771andothers,March11,1978,82SCRA30,55.

5134Phil.912,919920.

6EO273enumeratesinitssec.102zeroratedsalesandinitssec.103transactionsexemptfrom
theVAT.

TheLawphilProjectArellanoLawFoundation

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