G.R. No.

168056 October 18, 2005

Agenda for Item No. 45

G.R. No. 168056 (ABAKADA Guro Party List Officer Samson S. Alcantara, et
al. vs. The Hon. Executive Secretary Eduardo R. Ermita); G.R. No. 168207
(Aquilino Q. Pimentel, Jr., et al. vs. Executive Secretary Eduardo R. Ermita,
et al.); G.R. No. 168461 (Association of Pilipinas Shell Dealers, Inc., et
al. vs. Cesar V. Purisima, et al.); G.R. No. 168463 (Francis Joseph G.
Escudero vs. Cesar V. Purisima, et al); and G.R. No. 168730 (Bataan
Governor Enrique T. Garcia, Jr. vs. Hon. Eduardo R. Ermita, et al.)

RESOLUTION

For resolution are the following motions for reconsideration of the Court’s Decision
dated September 1, 2005 upholding the constitutionality of Republic Act No. 9337
or the VAT Reform Act1:

1) Motion for Reconsideration filed by petitioners in G.R. No. 168463, Escudero, et

al., on the following grounds:

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. 9337’S STAND-BY AUTHORITY TO THE EXECUTIVE TO

INCREASE THE VAT RATE, ESPECIALLY ON ACCOUNT OF THE EFFECTIVE
RECOMMENDATORY POWER GRANTED TO THE SECRETARY OF FINANCE,
CONSTITUTES UNDUE DELEGATION OF LEGISLATIVE AUTHORITY.

2) Motion for Reconsideration of petitioner in G.R. No. 168730, Bataan Governor

Enrique T. Garcia, Jr., with the argument that burdening the consumers with
significantly higher prices under a VAT regime vis-à-vis a 3% gross tax renders the
law unconstitutional for being arbitrary, oppressive and inequitable.

and

3) Motion for Reconsideration by petitioners Association of Pilipinas Shell Dealers,

Inc. in G.R. No. 168461, on the grounds that:

I. This Honorable Court erred in upholding the constitutionality of Section 110(A)(2)

and Section 110(B) of the NIRC, as amended by the EVAT Law, imposing limitations
on the amount of input VAT that may be claimed as a credit against output VAT, as
well as Section 114(C) of the NIRC, as amended by the EVAT Law, requiring the
government or any of its instrumentalities to withhold a 5% final withholding VAT
on their gross payments on purchases of goods and services, and finding that the
questioned provisions:

A. are not arbitrary, oppressive and consfiscatory as to amount to a deprivation of

property without due process of law in violation of Article III, Section 1 of the 1987
Philippine Constitution;

B. do not violate the equal protection clause prescribed under Article III, Section 1
of the 1987 Philippine Constitution; and

C. apply uniformly to all those belonging to the same class and do not violate
Article VI, Section 28(1) of the 1987 Philippine Constitution.

II. This Honorable Court erred in upholding the constitutionality of Section 110(B)
of the NIRC, as amended by the EVAT Law, imposing a limitation on the amount of
input VAT that may be claimed as a credit against output VAT notwithstanding the
finding that the tax is not progressive as exhorted by Article VI, Section 28(1) of
the 1987 Philippine Constitution.

Respondents filed their Consolidated Comment. Petitioner Garcia filed his Reply.

Petitioners Escudero, et al., insist that the bicameral conference committee should
not even have acted on the no pass-on provisions since there is no disagreement
between House Bill Nos. 3705 and 3555 on the one hand, and Senate Bill No. 1950
on the other, with regard to the no pass-on provision for the sale of service for
power generation because both the Senate and the House were in agreement that
the VAT burden for the sale of such service shall not be passed on to the end-
consumer. As to the no pass-on provision for sale of petroleum products,
petitioners argue that the fact that the presence of such a no pass-on provision in
the House version and the absence thereof in the Senate Bill means there is no
conflict because "a House provision cannot be in conflict with something that does
not exist."

Such argument is flawed. Note that the rules of both houses of Congress provide
that a conference committee shall settle the "differences" in the respective bills of
each house. Verily, the fact that a no pass-on provision is present in one version
but absent in the other, and one version intends two industries, i.e., power
generation companies and petroleum sellers, to bear the burden of the tax, while
the other version intended only the industry of power generation, transmission and
distribution to be saddled with such burden, clearly shows that there are indeed
differences between the bills coming from each house, which differences should be
acted upon by the bicameral conference committee. It is incorrect to conclude that
there is no clash between two opposing forces with regard to the no pass-
on provision for VAT on the sale of petroleum products merely because such
provision exists in the House version while it is absent in the Senate version. It is
precisely the absence of such provision in the Senate bill and the presence thereof
in the House bills that causes the conflict. The absence of the provision in the
Senate bill shows the Senate’s 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
Finance2 to act as safeguards against possible abuse of authority by the House
members of the bicameral conference committee. Even assuming that the rule
requiring the House panel to report back to the House if there are substantial
differences in the House and Senate bills had indeed been introduced
after Tolentino, the Court stands by its ruling that the issue of whether or not the
House panel in the bicameral conference committee complied with said internal rule
cannot be inquired into by the Court. To reiterate, "mere failure to conform to
parliamentary usage will not invalidate the action (taken by a deliberative body)
when the requisite number of members have agreed to a particular measure."3

Escudero, et. al., also contend that Republic Act No. 9337 grossly violates the
constitutional imperative on exclusive origination of revenue bills under Section 24
of Article VI of the Constitution when the Senate introduced amendments not
connected with VAT.

The Court is not persuaded.

Article VI, Section 24 of the Constitution provides:

Sec. 24 All appropriation, revenue or tariff bills, bills authorizing increase of the
public debt, bills of local application, and private bills shall originate exclusively in
the House of Representatives, but the Senate may propose or concur with
amendments.

Section 24 speaks of origination of certain bills from the House of Representatives

which has been interpreted in the Tolentino case as 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 country’s serious financial problems. It was stated in the
respective explanatory notes that there is a need for the government to make
significant expenditure savings and a credible package of revenue measures. These
measures include improvement of tax administration and control and leakages in
revenues from income taxes and value added tax. It is also stated that one
opportunity that could be beneficial to the overall status of our economy is to
review existing tax rates, evaluating the relevance given our present conditions.
Thus, with these purposes in mind and to accomplish these purposes for which the
house bills were filed, i.e., to raise revenues for the government, the Senate
introduced amendments on income taxes, which as admitted by Senator Ralph
Recto, would yield about ₱10.5 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. 9337’s stand- by authority
to the Executive to increase the VAT rate, especially on account of the
recommendatory power granted to the Secretary of Finance, constitutes undue
delegation of legislative power. They submit that the recommendatory power given
to the Secretary of Finance in regard to the occurrence of either of two events using
the Gross Domestic Product (GDP) as a benchmark necessarily and inherently
required extended analysis and evaluation, as well as policy making.

There is no merit in this contention. The Court reiterates that in making his
recommendation to the President on the existence of either of the two conditions,
the Secretary of Finance is not acting as the alter ego of the President or even her
subordinate. He is acting as the agent of the legislative department, to determine
and declare the event upon which its expressed will is to take effect. The Secretary
of Finance becomes the means or tool by which legislative policy is determined and
implemented, considering that he possesses all the facilities to gather data and
information and has a much broader perspective to properly evaluate them. His
function is to gather and collate statistical data and other pertinent information and
verify if any of the two conditions laid out by Congress is present. Congress granted
the Secretary of Finance the authority to ascertain the existence of a fact, namely,
whether by December 31, 2005, the value-added tax collection as a percentage of
GDP of the previous year exceeds two and four-fifth percent (24/5%) or the national
government deficit as a percentage of GDP of the previous year exceeds one and
one-half percent (1½%). 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 Garcia’s arguments, the Court also finds the same to be
without merit. As stated in the assailed Decision, the Court recognizes the burden
that the consumers will be bearing with the passage of R.A. No. 9337. But as was
also stated by the Court, it cannot strike down the law as unconstitutional simply
because of its yokes. The legislature has spoken and the only role that the Court
plays in the picture is to determine whether the law was passed with due regard to
the mandates of the Constitution. Inasmuch as the Court finds that there are no
constitutional infirmities with its passage, the validity of the law must therefore be
upheld.

Finally, petitioners Association of Pilipinas Shell Dealers, Inc. reiterated their

arguments in the petition, citing this time, the dissertation of Associate Justice
Dante O. Tinga in his Dissenting Opinion.

The glitch in petitioners’ arguments is that it presents figures based on an event

that is yet to happen. Their illustration of the possible effects of the 70% limitation,
while seemingly concrete, still remains theoretical. Theories have no place in this
case as the Court must only deal with an existing case or controversy that
is appropriate or ripe for judicial determination, not one that is conjectural
or merely anticipatory.5 The Court will not intervene absent an actual and
substantial controversy admitting of specific relief through a decree conclusive in
nature, as distinguished from an opinion advising what the law would be upon a
hypothetical state of facts.6

The impact of the 70% limitation on the creditable input tax will ultimately depend
on how one manages and operates its business. Market forces, strategy and
acumen will dictate their moves. With or without these VAT provisions, an
entrepreneur who does not have the ken to adapt to economic variables will surely
perish in the competition. The arguments posed are within the realm of business,
and the solution lies also in business.

Petitioners also reiterate their argument that the input tax is a property or a
property right. In the same breath, the Court reiterates its finding that it is not a
property or a property right, and a VAT-registered person’s 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 company’s financial statements, and are not rooted in laws of
nature, as are the laws of physical science, for these are merely developed and
continually modified by local and international regulatory accounting bodies. To
state otherwise and recognize such asset account as a vested right is to limit the
taxing power of the State. Unlimited, plenary, comprehensive and supreme, this
power cannot be unduly restricted by mere creations of the State.

More importantly, the assailed provisions of R.A. No. 9337 already involve
legislative policy and wisdom. So long as there is a public end for which R.A. No.
9337 was passed, the means through which such end shall be accomplished is for
the legislature to choose so long as it is within constitutional bounds. As stated
in Carmichael vs. Southern Coal & Coke Co.:

If the question were ours to decide, we could not say that the legislature, in
adopting the present scheme rather than another, had no basis for its choice, or
was arbitrary or unreasonable in its action. But, as the state is free to distribute the
burden of a tax without regard to the particular purpose for which it is to be used,
there is no warrant in the Constitution for setting the tax aside because a court
thinks that it could have distributed the burden more wisely. Those are functions
reserved for the legislature.9

WHEREFORE, the Motions for Reconsideration are hereby DENIED WITH

FINALITY. The temporary restraining order issued by the Court is LIFTED.

SO ORDERED.