Abakada Guru Party

SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita

*
G.R. No. 168056. September 1, 2005.
ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S. ALCANTARA and
ED VINCENT S. ALBANO, petitioners, vs. THE HONORABLE EXECUTIVE SECRETARY
EDUARDO ERMITA; HONORABLE SECRETARY OF THE DEPARTMENT OF FINANCE
CESAR PURISIMA; and HONORABLE COMMISSIONER OF INTERNAL REVENUE
GUILLERMO PARAYNO, JR., respondents.
*
G.R. No. 168207. September 1, 2005.
AQUILINO Q. PIMENTEL, JR., LUISA P. EJERCITO-ESTRADA, JINGGOY E. ESTRADA,

PANFILO M. LACSON, ALFREDO S. LIM, JAMBY A.S. MADRIGAL, AND SERGIO R.
OSMEÑA III, petitioners, vs. EXECUTIVE SECRETARY EDUARDO R. ERMITA, CESAR V.
PURISIMA, SECRETARY OF FINANCE, GUILLERMO L. PARAYNO, JR., COMMISSIONER
OF THE BUREAU OF INTERNAL REVENUE, respondents.
*
G.R. No. 168461. September 1, 2005.
ASSOCIATION OF PILIPINAS SHELL DEALERS, INC. represented by its President, ROSARIO

ANTONIO; PETRON DEALERS’ ASSOCIATION represented by its President, RUTH E.
BARBIBI; ASSOCIATION OF CALTEX DEALERS’ OF THE PHILIPPINES represented by its
President, MERCEDITAS A. GARCIA; ROSARIO ANTONIO doing business under the name and
style of “ANB NORTH SHELL SERVICE STATION”; LOURDES MARTINEZ doing business
under the name and style of “SHELL GATE—N. DOMINGO”; BETH-ZAIDA TAN doing business
under the name and style of “ADVANCE SHELL STATION”; REYNALDO P. MONTOYA
_______________
* EN BANC.
15
VOL. 469, SEPTEMBER 1, 2005 15

doing business under the name and style of “NEW LAMUAN SHELL SERVICE STATION”;
EFREN SOTTO doing business under the name and style of “RED FIELD SHELL SERVICE
STATION”; DONICA CORPORATION represented by its President, DESI TOMACRUZ; RUTH
E. MARBIBI doing business under the name and style of “R&R PETRON STATION”; PETER M.
UNGSON doing business under the name and style of “CLASSIC STAR GASOLINE SERVICE
STATION”; MARIAN SHEILA A. LEE doing business under the name and style of “NTE
GASOLINE & SERVICE STATION”; JULIAN CESAR P. POSADAS doing business under the
name and style of “STARCARGA ENTERPRISES”; ADORACION MAÑEBO doing business
under the name and style of “CMA MOTORISTS CENTER”; SUSAN M. ENTRATA doing
business under the name and style of “LEONA’S GASOLINE STATION and SERVICE
CENTER”; CARMELITA BALDONADO doing business under the name and style of “FIRST
CHOICE SERVICE CENTER”; MERCEDITAS A. GARCIA doing business under the name and
style of “LORPED SERVICE CENTER”; RHEAMAR A. RAMOS doing business under the name
and style of “RJRAM PTT GAS STATION”; MA. ISABEL VIOLAGO doing business under the
name and style of “VIOLAGO-PTT SERVICE CENTER”; MOTORISTS’ HEART CORPORATION
represented by its Vice-President for Operations, JOSELITO F. FLORDELIZA; MOTORISTS’
HARVARD CORPORATION represented by its Vice-President for Operations, JOSELITO F.
FLORDELIZA; MOTORISTS’ HERITAGE CORPORATION represented by its Vice-President for
Operations, JOSELITO F. FLORDELIZA; PHILIPPINE STANDARD OIL CORPORATION
represented by its Vice-President for Operations, JOSELITO F. FLORDELIZA; ROMEO
MANUEL doing business under the name and style of “ROMMAN GASOLINE STATION”;
ANTHONY ALBERT CRUZ III doing business under the name and style of “TRUE SERVICE
STATION”, petitioners, vs. CESAR V. PURISIMA, in his capacity as Secretary of the Department
of
16
16 SUPREME COURT REPORTS ANNOTATED

Finance and GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of Internal

Revenue, respondents.
G.R. No. 168463. September 1, 2005.*
FRANCIS JOSEPH G. ESCUDERO, VINCENT CRISOLOGO, EMMANUEL JOEL J.

VILLANUEVA, RODOLFO G. PLAZA, DARLENE ANTONINO-CUSTODIO, OSCAR G.
MALAPITAN, BENJAMIN C. AGARAO, JR. JUAN EDGARDO M. ANGARA, JUSTIN MARC
SB. CHIPECO, FLORENCIO G. NOEL, MUJIV S. HATAMAN, RENATO B. MAGTUBO,
JOSEPH A. SANTIAGO, TEOFISTO DL. GUINGONA III, RUY ELIAS C. LOPEZ, RODOLFO Q.
AGBAYANI and TEODORO A. CASIÑO, petitioners, vs. CESAR V. PURISIMA, in his capacity
as Secretary of Finance, GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of
Internal Revenue, and EDUARDO R. ERMITA, in his capacity as Executive Secretary,
respondents.
G.R. No. 168730. September 1, 2005.*
BATAAN GOVERNOR ENRIQUE T. GARCIA, JR., petitioner, vs. HON. EDUARDO R. ERMITA,

in his capacity as the Executive Secretary; HON. MARGARITO TEVES, in his capacity as
Secretary of Finance; HON. JOSE MARIO BUNAG, in his capacity as the OIC Commissioner of
the Bureau of Internal Revenue; and HON. ALEXANDER AREVALO, in his capacity as the OIC
Commissioner of the Bureau of Customs, respondents.
Taxation; Value-Added Tax (VAT); Words and Phrases; The VAT is a tax on spending or consumption—

it is levied on the sale, barter, exchange or lease of goods or properties and services; Being an indirect tax on
expenditure, the seller of goods or services may pass on the amount of tax paid to the buyer; In contrast, a
direct tax is a tax for which a taxpayer is directly liable on the transaction or business it engages in, without
transferring the burden to someone else.—As a prelude, the Court deems it apt to restate the general
principles and
17
concepts of value-added tax (VAT), as the confusion and inevitably, litigation, breeds from a fallacious
notion of its nature. The VAT is a tax on spending or consumption. It is levied on the sale, barter, exchange
or lease of goods or properties and services. Being an indirect tax on expenditure, the seller of goods or
services may pass on the amount of tax paid to the buyer, with the seller acting merely as a tax collector.
The burden of VAT is intended to fall on the immediate buyers and ultimately, the end-consumers. In
contrast, a direct tax is a tax for which a taxpayer is directly liable on the transaction or business it engages
in, without transferring the burden to someone else. Examples are individual and corporate income taxes,
transfer taxes, and residence taxes.
Same; Same; Same; In the Philippines, the value-added system of sales taxation has long been in
existence, albeit in a different mode—prior to 1978, the system was a single-stage tax computed under the
“cost deduction method” and was payable only by the original sellers, then the single-stage system was
subsequently modified, and a mixture of the “cost deduction method” and “tax credit method” was used to
determine the value-added tax payable; Under the “tax credit method,” an entity can credit against or
subtract from the VAT charged on its sales or outputs the VAT paid on its purchases, inputs and imports.—In
the Philippines, the value-added system of sales taxation has long been in existence, albeit in a different
mode. Prior to 1978, the system was a single-stage tax computed under the “cost deduction method” and was
payable only by the original sellers. The single-stage system was subsequently modified, and a mixture of
the “cost deduction method” and “tax credit method” was used to determine the value-added tax payable.
Under the “tax credit method,” an entity can credit against or subtract from the VAT charged on its sales or
outputs the VAT paid on its purchases, inputs and imports. It was only in 1987, when President Corazon C.
Aquino issued Ex-ecutive Order No. 273, that the VAT system was rationalized by imposing a multi-stage
tax rate of 0% or 10% on all sales using the “tax credit method.” E.O. No. 273 was followed by R.A. No. 7716
or the Expanded VAT Law, R.A. No. 8241 or the Improved VAT Law, R.A. No. 8424 or the Tax Reform Act of
1997, and finally, the presently beleaguered R.A. No. 9337, also referred to by respondents as the VAT
Reform Act.
18
18 SUPREME COURT REPORTS

ANNOTATED
Congress; Bicameral Conference Committee; Legislative Rules; It should be borne in mind that the power
of internal regulation and discipline are intrinsic in any legislative body, and pursuant to this inherent
constitutional power to promulgate and implement its own rules of procedure, the respective rules of each
house of Congress provided for the creation of a Bicameral Conference Committee.— Petitioners now beseech
the Court to define the powers of the Bi-cameral Conference Committee. It should be borne in mind that the
power of internal regulation and discipline are intrinsic in any legislative body for, as unerringly elucidated
by Justice Story, “[i]f the power did not exist, it would be utterly impracticable to transact the business of the
nation, either at all, or at least with decency, deliberation, and order.” Thus, Article VI, Section 16 (3) of the
Constitution provides that “each House may determine the rules of its proceed-ings.” Pursuant to this
inherent constitutional power to promulgate and implement its own rules of procedure, the respective rules
of each house of Congress provided for the creation of a Bicameral Conference Committee.
Same; Same; Same; Separation of Powers; Judicial Review; Congress is the best judge of how it should
conduct its own business expeditiously and in the most orderly manner; If a change is desired in the practice
[of the Bicameral Conference Committee] it must be sought in Congress since this question is not covered by
any constitutional provision but is only an internal rule of each house; Even the expanded jurisdiction of the
Supreme Court cannot apply to questions regarding only the internal operation of Congress, thus, the Court is
wont to deny a review of the internal proceedings of a co-equal branch of government.—Akin to
the Fariñas case, the present petitions also raise an issue regarding the actions taken by the conference
committee on matters regarding Congress’ compliance with its own internal rules. As stated earlier, one of
the most basic and inherent power of the legislature is the power to formulate rules for its proceedings and
the discipline of its members. Congress is the best judge of how it should conduct its own business
expeditiously and in the most orderly manner. It is also the sole concern of Congress to instill discipline
among the members of its conference committee if it believes that said members violated any of its rules of
proceedings. Even the expanded jurisdiction of this Court cannot apply to questions regarding only the
internal operation of Congress, thus, the Court is wont to deny a review of the internal proceedings of a co-
equal branch of
19
government. Moreover, as far back as 1994 or more than ten years ago, in the case of Tolentino vs.
Secretary of Finance, the Court already made the pronouncement that “[i]f a change is desired in the practice
[of the Bicameral Conference Committee] it must be sought in Congress since this question is not covered by
any constitutional provision but is only an internal rule of each house.”To date, Congress has not seen it fit to
make such changes adverted to by the Court. It seems, therefore, that Congress finds the practices of the
bicameral conference committee to be very useful for purposes of prompt and efficient legislative action.
Same; Same; Same; Words and Phrases; The term “settle” is synonymous to “reconcile” and “harmonize”;
To reconcile or harmonize disagreeing provisions, the Bicameral Conference Committee may then (a) adopt
the specific provisions of either the House bill or Senate bill, (b) decide that neither provisions in the House
bill or the provisions in the Senate bill would be carried into the final form of the bill, and/or (c) try to arrive
at a compromise between the disagreeing provisions.—Under the provisions of both the Rules of the House of
Representatives and Senate Rules, the Bicameral Conference Committee is mandated to settle the
differences between the disagreeing provisions in the House bill and the Senate bill. The term “settle” is
synonymous to “reconcile” and “harmonize.” To reconcile or harmonize disagreeing provisions, the Bicameral
Conference Committee may then (a) adopt the specific provisions of either the House bill or Senate bill, (b)
decide that neither provisions in the House bill or the provisions in the Senate bill would be carried into the
final form of the bill, and/or (c) try to arrive at a compromise between the disagreeing provisions.
Same; Same; Same; It is within the power of a conference committee to include in its report an entirely
new provision that is not found either in the House bill or in the Senate bill—if the committee can propose an
amendment consisting of one or two provisions, there is no reason why it cannot propose several provisions,
collectively considered as an “amendment in the nature of a substitute,” so long as such amendment is
germane to the subject of the bills before the committee.—All the changes or modifications made by the
Bicameral Conference Committee were germane to subjects of the provisions referred to it for reconciliation.
Such being the case, the Court does not see any grave abuse of discretion amounting to lack or excess of
20

ANNOTATED
jurisdiction committed by the Bicameral Conference Committee. In the earlier cases of Philippine
Judges Association vs. Prado and Tolentino vs. Secretary of Finance, the Court recognized the longstanding
legislative practice of giving said conference committee ample latitude for compromising differences between
the Senate and the House. Thus, in the Tolentino case, it was held that: . . . it is within the power of a
conference committee to include in its report an entirely new provision that is not found either in the House
bill or in the Senate bill. If the committee can propose an amendment consisting of one or two provisions,
there is no reason why it cannot propose several provisions, collectively considered as an “amendment in the
nature of a substitute,” so long as such amendment is germane to the subject of the bills before the
committee. After all, its report was not final but needed the approval of both houses of Congress to become
valid as an act of the legislative department. The charge that in this case the Conference Committee
acted as a third legislative chamber is thus without any basis.
Same; Same; Same; “No Amendment” Rule; The “no-amend-ment rule” refers only to the procedure to be
followed by each house of Congress with regard to bills initiated in each of said respective houses, before said
bill is transmitted to the other house for its concurrence or amendment—Art. VI, Sec. 26 (2) of the
Constitution cannot be taken to mean that the introduction by the Bicameral Conference Committee of
amendments and modifications to disagreeing provisions in bills that have been acted upon by both houses of
Congress is prohibited.—The Court reiterates here that the “no-amendment rule” refers only to the procedure
to be followed by each house of Congress with regard to bills initiated in each of said respective houses, before
said bill is transmitted to the other house for its concurrence or amendment. Verily, to construe said provision
in a way as to proscribe any further changes to a bill after one house has voted on it would lead to absurdity
as this would mean that the other house of Congress would be deprived of its constitutional power to amend
or introduce changes to said bill. Thus, Art. VI, Sec. 26 (2) of the Constitution cannot be taken to mean that
the introduction by the Bicameral Conference Committee of amendments and modifications to disagreeing
provisions in bills that have been acted upon by both houses of Congress is prohibited.
21
Same; Origin of Bills; Revenue Bills; Since there is no question that the revenue bill originated in the
House of Representatives, the Senate was acting within its constitutional power to introduce amendments to
the House bill when it included provisions in Senate Bill No. 1950 amending corporate income taxes,
percentage, excise and franchise taxes—Article VI, Section 24 of the Constitution does not contain any
prohibition or limitation on the extent of the amendments that may be introduced by the Senate to the House
revenue bill.—In the present cases, petitioners admit that it was indeed House Bill Nos. 3555 and 3705 that
initiated the move for amending provisions of the NIRC dealing mainly with the value-added tax. Upon
transmittal of said House bills to the Senate, the Senate came out with Senate Bill No. 1950 proposing
amendments not only to NIRC provisions on the value-added tax but also amendments to NIRC provisions
on other kinds of taxes. Is the introduction by the Senate of provisions not dealing directly with the value-
added tax, which is the only kind of tax being amended in the House bills, still within the purview of the
constitutional provision authorizing the Senate to propose or concur with amendments to a revenue bill that
originated from the House? * * * Since there is no question that the revenue bill exclusively originated in the
House of Representatives, the Senate was acting within its constitutional power to introduce amendments to
the House bill when it included provisions in Senate Bill No. 1950 amending corporate income taxes,
percentage, excise and franchise taxes. Verily, Article VI, Section 24 of the Constitution does not contain any
prohibition or limitation on the extent of the amendments that may be introduced by the Senate to the
House revenue bill.
Same; Same; Same; The main purpose of the bills emanating from the House of Representatives is to
bring in sizeable revenues for the government to supplement our country’s serious financial problems, and
improve tax administration and control of the leakages in revenues from income taxes and value-added taxes,
and the Senate, approaching the measures from the point of national perspective, can introduce amendments
within the purposes of those bills, like providing ways that would soften the impact of the VAT measure on
the consumer.—The main purpose of the bills emanating from the House of Representatives is to bring in
sizeable revenues for the government to supplement our country’s serious financial problems, and improve
tax administration and control of the leakages in revenues
22

ANNOTATED
from income taxes and value-added taxes. As these house bills were transmitted to the Senate, the
latter, approaching the measures from the point of national perspective, can introduce amendments within
the purposes of those bills. It can provide for ways that would soften the impact of the VAT measure on the
consumer, i.e., by distributing the burden across all sectors instead of putting it entirely on the shoulders of
the consumers.
Same; Same; Same; Germaneness Rule; The amendments made on provisions in the tax on income of
corporations are germane to the purpose of the house bills which is to raise revenues for the government, and
the sections referring to other percentage and excise taxes are germane to the reforms to the VAT system, as
these sections would cushion the effects of VAT on consumers.—As the Court has said, the Senate can
propose amendments and in fact, the amendments made on provisions in the tax on income of corporations
are germane to the purpose of the house bills which is to raise revenues for the government. Likewise, the
Court finds the sections referring to other percentage and excise taxes germane to the reforms to the VAT
system, as these sections would cushion the effects of VAT on consumers. Considering that certain goods
and services which were subject to percentage tax and excise tax would no longer be VAT-exempt, 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.
Separation of Powers; Delegation of Powers; A logical corollary to the doctrine of separation of powers is
the principle of non-delegation of powers, a doctrine based on the ethical principle that such as delegated
power constitutes not only a right but a duty to be performed by the delegate through the instrumentality of
his own judgment and not through the intervening mind of another.—The principle of separation of powers
ordains that each of the three great branches of government has exclusive cognizance of and is supreme in
matters falling within its own constitutionally allocated sphere. A logical corollary to the doctrine of
separation of powers is the principle of non-delegation of powers, as expressed in the Latin maxim: potestas
delegata non delegari potest which means “what has been delegated, cannot be delegated.” This doctrine is
based on the ethical principle that such as delegated power constitutes not only a right but a duty to be
performed by the delegate through the instrumen-
23
tality of his own judgment and not through the intervening mind of another.
Same; Same; Exception to the Non-Delegation of Legislative Powers; Words and Phrases; The powers
which Congress is prohibited from delegating are those which are strictly, or inherently and exclusively,
legislative—appertaining exclusively to the legislative department; Purely legislative power has been
described as the authority to make a complete law—complete as to the time when it shall take effect and as to
whom it shall be applicable—and to determine the expediency of its enactment; It is the nature of the power,
and not the liability of its use or the manner of its exercise, which determines the validity of its delegation.—
With respect to the Legislature, Section 1 of Article VI of the Constitution provides that “the Legislative
power shall be vested in the Congress of the Philippines which shall consist of a Senate and a House of
Representatives.” The powers which Congress is prohibited from delegating are those which are strictly, or
inherently and exclusively, legislative. Purely legislative power, which can never be delegated, has been
described as the authority to make a complete law—complete as to the time when it shall take effect and as to
whom it shall be applicable—and to determine the expediency of its enactment. Thus, the rule is that in order
that a court may be justified in holding a statute unconstitutional as a delegation of legislative power, it
must appear that the power involved is purely legislative in nature—that is, one appertaining exclusively to
the legislative department. It is the nature of the power, and not the liability of its use or the manner of its
exercise, which determines the validity of its delegation. Nonetheless, the general rule barring delegation of
legislative powers is subject to the following recognized limitations or exceptions: (1) Delegation of tariff
powers to the President under Section 28 (2) of Article VI of the Constitution; (2) Delegation of emergency
powers to the President under Section 23 (2) of Article VI of the Constitution; (3) Delegation to the people at
large; (4) Delegation to local governments; and (5) Delegation to administrative bodies.
Same; Same; Same; Tests of Valid Delegation; A delegation is valid only if the law (a) is complete in
itself, setting forth therein the policy to be executed, carried out, or implemented by the delegate, and (b) fixes
a standard—the limits of which are sufficiently determinate and determinable—to which the delegate must
conform in the per-
24

ANNOTATED
formance of his functions; A sufficient standard is one which defines legislative policy, marks its limits,
maps out its boundaries and specifies the public agency to apply it.—In every case of permissible delegation,
there must be a showing that the delegation itself is valid. It is valid only if the law (a) is complete in itself,
setting forth therein the policy to be executed, carried out, or implemented by the delegate; and (b) fixes a
standard—the limits of which are sufficiently determinate and determinable—to which the delegate must
conform in the performance of his functions. A sufficient standard is one which defines legislative policy,
marks its limits, maps out its boundaries and specifies the public agency to apply it. It indicates the
circumstances under which the legislative command is to be effected. Both tests are intended to prevent a
total transference of legislative authority to the delegate, who is not allowed to step into the shoes of the
legislature and exercise a power essentially legislative.
Same; Same; Taxation; While the power to tax cannot be delegated to executive agencies, details as to the
enforcement and administration of an exercise of such power may be left to them, including the power to
determine the existence of facts on which its operation depends, the rationale being that the preliminary
ascertainment of facts as basis for the enactment of legislation is not of itself a legislative function but is
simply ancillary to legislation; The Constitution as a continuously operative charter of government does not
require that Congress find for itself every fact upon which it desires to base legislative action or that it make
for itself detailed determinations which it has declared to be prerequisite to application of legislative policy to
particular facts and circumstances impossible for Congress itself properly to investigate.—The legislature
may delegate to execu-tive officers or bodies the power to determine certain facts or conditions, or the
happening of contingencies, on which the operation of a statute is, by its terms, made to depend, but the
legislature must prescribe sufficient standards, policies or limitations on their authority. While the power to
tax cannot be delegated to executive agencies, details as to the enforcement and administration of an
exercise of such power may be left to them, including the power to determine the existence of facts on which
its operation depends. The rationale for this is that the preliminary ascertainment of facts as basis for the
enactment of legislation is not of itself a legislative function, but is simply ancillary to legislation. Thus, the
duty of correlating informa-
25
tion and making recommendations is the kind of subsidiary activity which the legislature may perform
through its members, or which it may delegate to others to perform. Intelligent legislation on the
complicated problems of modern society is impossible in the absence of accurate information on the part of
the legislators, and any reasonable method of securing such information is proper. The Constitution as a
continuously operative charter of government does not require that Congress find for itself every fact upon
which it desires to base legislative action or that it make for itself detailed determinations which it has
declared to be prerequisite to application of legislative policy to particular facts and circumstances
impossible for Congress itself properly to investigate.
Same; Same; Same; Statutory Construction; The case before the Court is not a delegation of legislative
power—it is simply a delegation of ascertainment of facts upon which enforcement and administration of the
increase rate under the law is contingent; No discretion would be exercised by the President; The use of the
word “shall” connotes a mandatory order.—The case before the Court is not a delegation of legislative power.
It is simply a delegation of ascertainment of facts upon which enforcement and administration of the
increase rate under the law is contingent. The legislature has made the operation of the 12% rate effective
January 1, 2006, contingent upon a specified fact or condition. It leaves the entire operation or non-
operation of the 12% rate upon factual matters outside of the control of the executive. No discretion would be
exercised by the President. Highlighting the absence of discretion is the fact that the word shall is used in
the common proviso. The use of the word shall connotes a mandatory order. Its use in a statute denotes an
imperative obligation and is inconsistent with the idea of discretion. Where the law is clear and
unambiguous, it must be taken to mean exactly what it says, and courts have no choice but to see to it that
the mandate is obeyed. Thus, it is the ministerial duty of the President to immediately impose the 12% rate
upon the existence of any of the conditions specified by Congress. This is a duty which cannot be evaded by
the President. Inasmuch as the law specifically uses the word shall, the exercise of discretion by the
President does not come into play. It is a clear directive to impose the 12% VAT rate when the specified
conditions are present. The time of taking into effect of the 12% VAT rate is based on the happening of a
certain specified contingency, or upon
26
ANNOTATED
the ascertainment of certain facts or conditions by a person or body other than the legislature itself.
Same; Same; Presidency; Control Power; Doctrine of Qualified Political Agency; When one speaks of the
Secretary of Finance as the alter ego of the President, it simply means that as head of the Department of
Finance he is the assistant and agent of the Chief Executive—as such, he occupies a political position and
holds office in an advisory capacity, and, in the language of Thomas Jefferson, “should be of the President's
bosom confidence” and, in the language of Attorney-General Cushing, is “subject to the direction of the
President.”— When one speaks of the Secretary of Finance as the alter ego of the President, it simply means
that as head of the Department of Finance he is the assistant and agent of the Chief Executive. The
multifarious executive and administrative functions of the Chief Executive are performed by and through
the executive departments, and the acts of the secretaries of such departments, such as the Department of
Finance, performed and promulgated in the regular course of business, are, unless disapproved or
reprobated by the Chief Executive, presumptively the acts of the Chief Executive. The Secretary of Finance,
as such, occupies a political position and holds office in an advisory capacity, and, in the language of Thomas
Jefferson, “should be of the President’s bosom confidence” and, in the language of Attorney-General
Cushing, is “subject to the direction of the President.”
Same; Same; Same; Same; Same; In the present case, 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, and he is not subject to the power of control and direction of the President
—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, becoming the means or tool by which legislative policy is determined and
implemented.—In the present case, 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. In such instance, he is not subject to the power of control and direction of the President. 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
27
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. His personality in such instance is in
reality but a projection of that of Congress. Thus, being the agent of Congress and not of the President, the
President cannot alter or modify or nullify, or set aside the findings of the Secretary of Finance and to
substitute the judgment of the former for that of the latter.
Same; Same; 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.—Congress simply 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 Gross Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%) or the national government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1 1/2%). 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. 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 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.
Same; Same; Taxation; Value-Added Tax; 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.—As to the argument of
petitioners ABAKADA GURO Party List, et al. that delegating to the President the legislative power to tax
is contrary to the principle of republicanism, the same deserves scant consideration. Congress did not
delegate the power to tax but the mere im-
28

ANNOTATED
plementation 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 do so in such a
manner is not within the province of the Court to inquire into, its task being to interpret the law.
Judicial Review; The Court does not rule on allegations which are manifestly conjectural, as these may
not exist at all—the Court deals with facts, not fancies, on realities, not appearances.—The insinuation by
petitioners Pimentel, et al. that the President has ample powers to cause, influence or create the conditions
to bring about either or both the conditions precedent does not deserve any merit as this argument is highly
speculative. The Court does not rule on allegations which are manifestly conjectural, as these may not exist
at all. The Court deals with facts, not fancies; on realities, not appearances. When the Court acts on
appearances instead of realities, justice and law will be short-lived.
Same; Separation of Powers; Statutory Construction; Rewriting the law is a forbidden ground that only
Congress may tread upon.— Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of the
two conditions set forth therein are satisfied, the President shall increase the VAT rate to 12%. The
provisions of the law are clear. It does not provide for a return to the 10% rate nor does it empower the
President to so revert if, after the rate is increased to 12%, the VAT collection goes below the 2 4/5 of the
GDP of the previous year or that the national government deficit as a percentage of GDP of the previous
year does not exceed 1 1/2%. Therefore, no statutory construction or interpretation is needed. Neither can
conditions or limitations be introduced where none is provided for. Rewriting the law is a forbidden ground
that only Congress may tread upon.
Taxation; Value-Added Tax; Fiscal Adequacy; Words and Phrases; The principle of fiscal adequacy as a
characteristic of a sound tax system, which was originally stated by Adam Smith in his Canons of Taxation,
simply means that sources of revenues must be adequate to meet government expenditures and their
variations.— That the first condition amounts to an incentive to the President to increase the VAT collection
does not render it unconstitutional so long as there is a public purpose for which the law was passed,
29

which in this case, is mainly to raise revenue. In fact, fiscal adequacy dictated the need for a raise in
revenue. The principle of fiscal adequacy as a characteristic of a sound tax system was originally stated by
Adam Smith in his Canons of Taxation (1776), as: IV. Every tax ought to be so contrived as both to take out
and to keep out of the pockets of the people as little as possible over and above what it brings into the public
treasury of the state. It simply means that sources of revenues must be adequate to meet government
expenditures and their variations.
Same; Same; Due Process; Equal Protection; 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.—The doctrine is 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.
Same; Same; Words and Phrases; Input Tax is defined under Section 110(A) of the NIRC, as amended,
as the value-added tax due from or paid by a VAT-registered person on the importation of goods or local
purchase of good and services, including lease or use of property, in the course of trade or business, from a
VAT-registered person, and Output Tax is the value-added tax due on the sale or lease of taxable goods or
properties or services by any person registered or required to register under the law.—Section 8 of R.A. No.
9337, amending Section 110(B) of the NIRC imposes a limitation on the amount of input tax that may be
credited against the output tax. It states, in part: “[P]rovided, that the input tax inclusive of the input VAT
carried over from the previous quarter that may be credited in every quarter shall not exceed seventy
percent (70%) of the output VAT: …”” Input Tax is defined under Section 110(A) of the NIRC, as amended,
as the value-added tax due from or paid by a VAT-registered person on the importation of goods or local
purchase of good and services, including lease or use of property, in the course of trade or business, from a
VAT-registered person, and Output Tax is the value-added tax due on the sale or lease of taxable goods or
properties or services by any person registered or required to register under the law.
30

ANNOTATED
Same; Same; Due Process; Vested Rights; The input tax is not a property or a property right within the
constitutional purview of the due process clause—a VAT-registered person’s entitlement to the creditable
input tax is a mere statutory privilege; 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 remove or limit; The distinction between statutory
privileges and vested rights must be borne in mind for persons have no vested rights in statutory privileges.—
The input tax is not a property or a property right within the constitutional purview of the due process
clause. A VAT-registered person’s entitlement to the creditable input tax is a mere statutory privilege. The
distinction between statutory privileges and vested rights must be borne in mind for persons have no vested
rights in statutory privileges. The state may change or take away rights, which were created by the law of
the state, although it may not take away property, which was vested by virtue of such rights. Under the
previous system of single-stage taxation, taxes paid at every level of distribution are not recoverable from
the taxes payable, although it becomes part of the cost, which is deductible from the gross revenue. When
Pres. Aquino issued E.O. No. 273 imposing a 10% multi-stage tax on all sales, it was 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 introduced. This was adopted by 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 remove, or in this case, limit.
Same; Same; Congress admitted that the spread-out of the creditable input tax in this case amounts to a
4-year interest-free loan to the government; For whatever is the purpose of the 60-month amortization, this
involves executive economic policy and legislative wisdom in which the Court cannot intervene.—It is worth
mentioning that Congress admitted that the spread-out of the creditable input tax in this case amounts to a
4-year interest-free loan to the government. In the same breath, Congress also justified its move by saying
that the provision was designed to raise an annual revenue of 22.6 billion. The legislature also dispelled the
fear that the provision will fend off foreign investments, saying that foreign investors have other tax
incentives provided by law, and citing the case of China, where despite a 17.5% non-creditable VAT, foreign
investments were not
31
deterred. Again, for whatever is the purpose of the 60-month amortization, this involves executive
economic policy and legislative wisdom in which the Court cannot intervene.
Same; Same; With regard to the 5% creditable withholding tax imposed on payments made by the
government for taxable transactions, Section 114 (C) of the National Internal Revenue Code merely provides a
method of collection, or as stated by respondents, a more simplified VAT withholding system—the government
in this case is constituted as a withholding agent with respect to their payments for goods and services.—With
regard to the 5% creditable withholding tax imposed on payments made by the government for taxable
transactions, Section 12 of R.A. No. 9337, which amended Section 114 of the NIRC, reads: * * * Section
114(C) merely provides a method of collection, or as stated by respondents, a more simplified VAT
withholding system. The government in this case is constituted as a withholding agent with respect to their
payments for goods and services. Prior to its amendment, Section 114(C) provided for different rates of
value-added taxes to be withheld—3% on gross payments for purchases of goods; 6% on gross payments for
services supplied by contractors other than by public works contractors; 8.5% on gross payments for services
supplied by public work contractors; or 10% on payment for the lease or use of properties or property rights
to nonresident owners. Under the present Section 114(C), these different rates, except for the 10% on lease
or property rights payment to nonresidents, were deleted, and a uniform rate of 5% is applied.
Same; Same; Words and Phrases; In tax usage, “final,” as opposed to creditable, means full; As applied
to value-added tax, taxable transactions with the government are subject to a 5% tax rate, which constitutes
as full payment of the tax payable on the transaction.—The Court observes, however, that the law used the
word final. In tax usage, final, as opposed to creditable, means full. Thus, it is provided in Section 114(C):
“final value-added tax at the rate of five percent (5%).” In Revenue Regulations No. 02-98, implementing
R.A. No. 8424 (The Tax Reform Act of 1997), the concept of final withholding tax on income was explained,
to wit: SECTION 2.57. Withholding of Tax at Source. (A) Final Withholding Tax.—Under the final
withholding tax system the amount of income tax withheld by the withholding agent is constituted as full
and final payment
32

ANNOTATED

of the income tax due from the payee on the said income. The liability for payment of the tax rests
primarily on the payor as a withholding agent. Thus, in case of his failure to withhold the tax or in case of
underwithholding, the deficiency tax shall be collected from the payor/withholding agent. . . . (B) Creditable
Withholding Tax.—Under the creditable withholding tax system, taxes withheld on certain income
payments are intended to equal or at least approximate the tax due of the payee on said income. . . . Taxes
withheld on income payments covered by the expanded withholding tax (referred to in Sec. 2.57.2 of these
regulations) and compensation income (referred to in Sec. 2.78 also of these regulations) are creditable in
nature. As applied to value-added tax, this means that taxable transactions with the government are subject
to a 5% rate, which constitutes as full payment of the tax payable on the transaction. This represents the
net VAT payable of the seller. The other 5% effectively accounts for the standard input VAT (deemed input
VAT), in lieu of the actual input VAT directly or attributable to the taxable transaction.
Same; Same; It is clear that Congress intended to treat differently transactions with the government;
Since it has not been shown that the class subject to the final 5% final withholding tax has been unreasonably
narrowed, there is no reason to invalidate the provision.—The Court need not explore the rationale behind
the provision. It is clear that Congress intended to treat differently taxable transactions with the
government. This is supported by the fact that under the old provision, the 5% tax withheld by the
government remains creditable against the tax liability of the seller or contractor, to wit: SEC. 114. Return
and Payment of Value-added Tax.—(C) Withholding of Creditable Value-added Tax.—The Government
or any of its political subdivisions, instrumentalities or agencies, including government-owned or controlled
corporations (GOCCs) shall, before making payment on account of each purchase of goods from sellers and
services rendered by contractors which are subject to the value-added tax imposed in Sections 106 and 108
of this Code, deduct and withhold the value-added tax due at the rate of three percent (3%) of the gross
payment for the purchase of goods and six percent (6%) on gross receipts for services rendered by contractors
on every sale or installment payment which shall be creditable against the value-added tax liability of
the seller or contractor: Provided, however, That in the case of government public works
33
contractors, the withholding rate shall be eight and one-half percent (8.5%): Provided, further, That the
payment for lease or use of properties or property rights to nonresident owners shall be subject to ten
percent (10%) withholding tax at the time of payment. For this purpose, the payor or person in control of the
payment shall be considered as the withholding agent. The valued-added tax withheld under this Section
shall be remitted within ten (10) days following the end of the month the withholding was made. (Emphasis
supplied) As amended, the use of the word final and the deletion of the word creditable exhibits Congress’s
intention to treat transactions with the government differently. Since it has not been shown that the class
subject to the 5% final withholding tax has been unreasonably narrowed, there is no reason to invalidate the
provision. Petitioners, as petroleum dealers, are not the only ones subjected to the 5% final withholding tax.
It applies to all those who deal with the government.
Same; Same; Judicial Review; The Court will not engage in a legal joust where premises are what ifs,
arguments, theoretical and facts, uncertain—any disquisition by the Court on this point will only be, as
Shakespeare describes life in Macbeth, “full of sound and fury, signifying nothing”; It need not take an astute
businessman to know that it is a matter of exception that a business will sell goods or services without profit
or value-added.—Petitioners also argue that by imposing a limitation on the creditable input tax, the
government gets to tax a profit or value-added even if there is no profit or value-added. Petitioners’ stance is
purely hypothetical, argumentative, and again, one-sided. The Court will not engage in a legal joust where
premises are what ifs, arguments, theoretical and facts, uncertain. Any disquisition by the Court on this
point will only be, as Shake-speare describes life in Macbeth, “full of sound and fury, signifying nothing.”
What’s more, petitioners’ contention assumes the proposition that there is no profit or value-added. It need
not take an astute businessman to know that it is a matter of exception that a business will sell goods or
services without profit or value-added. It cannot be overstressed that a business is created precisely for
profit.
Same; Same; Equal Protection; The power of the State to make reasonable and natural classifications for
the purposes of taxation has long been established.—The equal protection clause under the Constitution
means that “no person or class of persons shall be de-
34

ANNOTATED
prived of the same protection of laws which is enjoyed by other persons or other classes in the same
place and in like circumstances.” The power of the State to make reasonable and natural classifications for
the purposes of taxation has long been established. Whether it relates to the subject of taxation, the kind of
property, the rates to be levied, or the amounts to be raised, the methods of assessment, valuation and
collection, the State’s power is entitled to presumption of validity. As a rule, the judiciary will not interfere
with such power absent a clear showing of unreasonableness, discrimination, or arbitrariness.
Same; Same; Same; The equal protection clause does not require the universal application of the laws on
all persons or things without distinction; While the implementation of the law may yield varying end results
depending on one’s profit margin and value-added, the Court cannot go beyond what the legislature has laid
down and interfere with the affairs of business.—Petitioners point out that the limitation on the creditable
input tax if the entity has a high ratio of input tax, or invests in capital equipment, or has several
transactions with the government, is not based on real and substantial differences to meet a valid
classification. The argument is pedantic, if not outright baseless. The law does not make any classification in
the subject of taxation, the kind of property, the rates to be levied or the amounts to be raised, the methods
of assessment, valuation and collection. Petitioners’ alleged distinctions are based on variables that bear
different consequences. While the implementation of the law may yield varying end results depending on
one’s profit margin and value-added, the Court cannot go beyond what the legislature has laid down and
interfere with the affairs of business. The equal protection clause does not require the universal application
of the laws on all persons or things without distinction. This might in fact sometimes result in unequal
protection. What the clause requires is equality among equals as determined according to a valid
classification. By classification is meant the grouping of persons or things similar to each other in certain
particulars and different from all others in these same particulars.
Same; Same; Same; Uniformity of Taxation; The rule of uniform taxation does not deprive Congress of
the power to classify subjects of taxation, and only demands uniformity within the particular class.—
Uniformity in taxation means that all taxable articles or
35
kinds of property of the same class shall be taxed at the same rate. Different articles may be taxed at
different amounts provided that the rate is uniform on the same class everywhere with all people at all
times. In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or 12%) on all goods
and services. Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the
NIRC, provide for a rate of 10% (or 12%) on sale of goods and properties, importation of goods, and sale of
services and use or lease of properties. These same sections also provide for a 0% rate on certain sales and
transaction. Neither does the law make any distinction as to the type of industry or trade that will bear the
70% limitation on the creditable input tax, 5-year amortization of input tax paid on purchase of capital
goods or the 5% final withholding tax by the government. It must be stressed that the rule of uniform
taxation does not deprive Congress of the power to classify subjects of taxation, and only demands
uniformity within the particular class.
Same; Same; Equitable Taxation; R.A. No. 9337 is equitable.— R.A. No. 9337 is also equitable. The law
is equipped with a threshold margin. The VAT rate of 0% or 10% (or 12%) does not apply to sales of goods or
services with gross annual sales or receipts not exceeding P1,500,000.00. Also, basic marine and agricultural
food products in their original state are still not subject to the tax, thus ensuring that prices at the
grassroots level will remain accessible. As was stated in Kapatiran ng mga Naglilingkod sa Pamahalaan ng
Pilipinas, Inc. vs. Tan: 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.
Same; Same; Progressive Taxation; Progressive taxation is built on the principle of the taxpayer’s ability
to pay—taxation is progressive when its rate goes up depending on the resources of the person affected.—
Petitioners contend that the limitation on the creditable input tax is anything but regressive. It is the
smaller business with higher input tax-output tax ratio that will suffer the consequences. Progressive
taxation is built on the principle of the taxpayer’s ability
36

ANNOTATED
to pay. This principle was also lifted from Adam Smith’s Canons of Taxation, and it states: I. The
subjects of every state ought to contribute towards the support of the government, as nearly as possible, in
proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy
under the protection of the state. Taxation is progressive when its rate goes up depending on the resources
of the person affected.
Same; Same; Same; The VAT is an antithesis of progressive taxation—by its very nature, it is regressive;
The principle of progressive taxation has no relation with the VAT system inasmuch as the VAT paid by the
consumer or business for every goods bought or services enjoyed is the same regardless of income.—The VAT
is an antithesis of progressive taxation. By its very nature, it is regressive. The principle of progressive
taxation has no relation with the VAT system inasmuch as the VAT paid by the consumer or business for
every goods bought or services enjoyed is the same regardless of income. In other words, the VAT paid eats
the same portion of an income, whether big or small. The disparity lies in the income earned by a person or
profit margin marked by a business, such that the higher the income or profit margin, the smaller the
portion of the income or profit that is eaten by VAT. A converso, the lower the income or profit margin, the
bigger the part that the VAT eats away. At the end of the day, it is really the lower income group or
businesses with low-profit margins that is always hardest hit.
Same; Same; Same; The Constitution does not really prohibit the imposition of indirect taxes, like the
VAT.—The Constitution does not really prohibit the imposition of indirect taxes, like the VAT. What it
simply provides is that Congress shall “evolve a progressive system of taxation.” The Court stated in
the Tolentino case, thus: 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 procla-
37
mation 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)
Same; Same; Judicial Review; The Court cannot strike down a law as unconstitutional simply because of
its yokes.—It has been said that taxes are the lifeblood of the government. In this case, it is just an enema, a
first-aid measure to resuscitate an economy in distress. The Court is neither blind nor is it turning a deaf
ear on the plight of the masses. But it does not have the panacea for the malady that the law seeks to
remedy. As in other cases, the Court cannot strike down a law as unconstitutional simply because of its
yokes. Let us not be overly influenced by the plea that for every wrong there is a remedy, and that the
judiciary should stand ready to afford relief. There are undoubtedly many wrongs the judicature may not
correct, for instance, those involving political questions. . . . Let us likewise disabuse our minds from the
notion that the judiciary is the repository of remedies for all political or social ills; We should not forget that
the Constitution has judiciously allocated the powers of government to three distinct and separate
compartments; and that judicial interpretation has tended to the preservation of the independence of the
three, and a zealous regard of the prerogatives of each, knowing full well that one is not the guardian of the
others and that, for official wrong-doing, each may be brought to account, either by impeachment, trial or by
the ballot box.
DAVIDE, JR., C.J., Separate Concurring and Dissenting Opinion:
Congress; Origin of Bills; Revenue Bills; Taxation; Value-Added Tax; It was beyond the ambit of the authority of the
Senate to propose amendments to provisions not covered by the House Bills or not related to the subject matter of the
House Bills, which is VAT.— Obviously, these provisions do not deal with VAT. It must be noted that the House Bills
initiated amendments to provisions pertaining to VAT only. Doubtless, the Senate has the constitutional power to
38

ANNOTATED

concur with the amendments to the VAT provisions introduced in the House Bills or even to propose its own version
of VAT measure. But that power does not extend to initiation of other tax measures, such as introducing amendments to
provisions on corporate income taxes, percentage taxes, franchise taxes, and excise taxes like what the Senate did in
these cases. It was beyond the ambit of the authority of the Senate to propose amendments to provisions not covered by
the House Bills or not related to the subject matter of the House Bills, which is VAT. To allow the Senate to do so would
be tantamount to vesting in it the power to initiate revenue bills—a power that exclusively pertains to the House of
Representatives under Section 24, Article VI of the Constitution, which 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.
PUNO, J., Concurring and Dissenting Opinion:
Judicial Review; Requisites; Ripeness Doctrine; The power of judicial review under Article VIII, Section 5(2) of the
1987 Constitution is limited to the review of “actual cases and controversies;” The basic rationale of the doctrine of
ripeness is “to prevent the courts, through premature adjudication, from entangling themselves in abstract
disagreements.”—The power of judicial review under Article VIII, section 5(2) of the 1987 Constitution is limited to the
review of “actual cases and controversies.” As rightly stressed by retired Justice Vicente V. Mendoza, this requirement
gives the judiciary “the opportunity, denied to the legislature, of seeing the actual operation of the statute as it is applied
to actual facts and thus enables it to reach sounder judgment” and “enhances public acceptance of its role in our system
of government.” It also assures that the judiciary does not intrude on areas committed to the other branches of
government and is confined to its role as defined by the Constitution. Apposite thereto is the doctrine of ripeness whose
basic rationale is “to prevent the courts, through premature adjudication, from entangling themselves in abstract
disagreements.” Central to the doctrine is the determination of “whether the case involves uncertain or contingent future
events that may not occur as anticipated, or indeed may not occur at all.” The ripeness requirement must be satisfied
for each challenged legal provision and parts of a statute so that those which
39
are “not immediately involved are not thereby thrown open for a judicial determination of constitutionality.”
Same; Same; Same; Taxation; The power to adjust the tax rate given to the President is futuristic and may or may
not be exercised—the Court is therefore beseeched to render a conjectural judgment based on hypothetical facts.—It is
manifest that the constitutional challenge to sections 4 to 6 of R.A. No. 9337 cannot hurdle the requirement of
ripeness. These sections give the President the power to raise the VAT rate to 12% on January 1, 2006 upon satisfaction of
certain fact-based conditions. We are not endowed with the infallible gift of prophesy to know whether these conditions
are certain to happen. The power to adjust the tax rate given to the President is futuristic and may or may not be
exercised. The Court is therefore beseeched to render a conjectural judgment based on hypothetical facts. Such a
supplication has to be rejected.
Congress; Bicameral Conference Committee; A Bicameral Conference Committee has limited powers and cannot be
allowed to act as if it were a “third house” of Congress.—With due respect, I submit that the most important
constitutional issue posed by the petitions at bar relates to the parameters of power of a Bicameral Conference
Committee. Most of the issues in the petitions at bar arose because the Bicameral Conference Committee concerned
exercised powers that went beyond reconciling the differences between Senate Bill No. 1950 and House Bill Nos. 3705
and 3555. In Tolentino v. Secretary of Finance, I ventured the view that a Bicameral Conference Committee has limited
powers and cannot be allowed to act as if it were a “third house” of Congress. I further warned that unless its roving
powers are reigned in, a Bicameral Conference Committee can wreck the lawmaking process which is a cornerstone of
the democratic, republican regime established in our Constitution. The passage of time fortifies my faith that there
ought to be no legal u-turn on this preeminent principle.
Same; Same; It is only by strictly following the contours of powers of a Bicameral Conference Committee, as
delineated by the rules of the House and the Senate, that we can prevent said Committee from acting as a “third” chamber
of Congress.—I respectfully submit that it is only by strictly following the contours of powers of a Bicameral Conference
Committee, as delineated by the rules of the House and the Senate, that we can prevent said Committee from acting as a
40

ANNOTATED
“third” chamber of Congress. Under the clear rules of both the Senate and House, its power can go no further than
settling differences in their bills or joint resolutions. Sections 88 and 89, Rule XIV of the Rules of the House of
Representatives provide as follows: * * * Under both rules, it is obvious that a Bicameral Conference Committee is a
mere agent of the House or the Senate with limited powers. The House contingent in the Committee cannot, on its own,
settle differences which are substantial in character. If it is confronted with substantial differences, it has to go back to
the chamber that created it “for the latter’s appropriate action.” In other words, it must take the proper instructions from
the chambers that created it. It cannot exercise its unbridled discretion. Where there is no difference between the bills, it
cannot make any change. Where the difference is substantial, it has to return to the chamber of its origin and ask for
appropriate instructions. It ought to be indubitable that it cannot create a new law, i.e., that which has never been
discussed in either chamber of Congress. Its parameters of power are not porous, for they are hedged by the clear
limitation that its only power is to settle differences in bills and joint resolutions of the two chambers of Congress.
Same; Same; Amendments which did not harmonize conflicting provisions between the constituent bills of R.A. No.
9337 but are entirely new and extraneous concepts which fall beyond the median thereof transgress the limits of the
Bicameral Conference Committee’s authority and must be struck down.—These amendments did not harmonize
conflicting provisions between the constituent bills of R.A. No. 9337 but are entirely new and extraneous concepts which
fall beyond the median thereof. They transgress the limits of the Bicameral Conference Committee’s authority and must
be struck down. I cannot therefore subscribe to the thesis of the majority that “the changes introduced by the Bicameral
Conference Committee on disagreeing provisions were meant only to reconcile and harmonize the disagreeing
provisions for it did not inject any idea or intent that is wholly foreign to the subject embraced by the original
provisions.” Same; Same; Germaneness Rule; It is high time to re-examine the test of germaneness proffered in Tolentino
v. Secretary of Finance, 235 SCRA 630 (1994)—the test of germaneness is overly broad and is the fountainhead of
mischief for it allows the Bicameral Conference Committee to change provisions in the bills of the House and the
41
Senate when they are not even in disagreement; The Constitution did not establish a Bicameral Conference
Committee that can act as a “third house” of Congress with super veto power over bills passed by the Senate and the
House.—The majority further defends the constitutionality of the above provisions by holding that “all the changes or
modifications were germane to subjects of the provisions referred to it for reconciliation.” With due respect, it is high
time to re-examine the test of germaneness proffered in Tolentino. The test of germaneness is overly broad and is
the fountainhead of mischief for it allows the Bicameral Conference Committee to change provisions in the bills of the
House and the Senate when they are not even in disagreement. Worse still, it enables the Committee to introduce
amendments which are entirely new and have not previously passed through the coils of scrutiny of the members of both
houses. The Constitution did not establish a Bicameral Conference Committee that can act as a “third house” of
Congress with super veto power over bills passed by the Senate and the House. We cannot concede that super veto
power without wrecking the delicate architecture of legislative power so carefully laid down in our Constitution. The
clear intent of our fundamental law is to install a lawmaking structure composed only of two houses whose members
would thoroughly debate proposed legislations in representation of the will of their respective constituents. The
institution of this lawmaking structure is unmistakable from the following provisions: (1) requiring that legislative
power shall be vested in a bicameral legislature; (2) providing for quorum requirements; (3) requiring that
appropriation, revenue or tariff bills, bills authorizing increase of public debt, bills of local application, and private bills
originate exclusively in the House of Representatives; (4) requiring that bills embrace one subject expressed in the title
thereof; and (5) mandating that bills undergo three readings on separate days in each House prior to passage into law
and prohibiting amendments on the last reading thereof. A Bicameral Conference Committee with untrammeled powers
will destroy this lawmaking structure. At the very least, it will diminish the free and open debate of proposed
legislations and facilitate the smuggling of what purports to be laws.
Same; Same; Republicanism; It cannot be overemphasized that in a republican form of government, laws can only be
enacted by all the duly elected representatives of the people—it cuts against conventional wisdom in democracy to lodge
this power in the hands of a few
42

ANNOTATED
or in the claws of a committee.—It cannot be overemphasized that in a republican form of government, laws can only
be enacted by all the duly elected representatives of the people. It cuts against conventional wisdom in democracy to
lodge this power in the hands of a few or in the claws of a committee. It is for these reasons that the argument that we
should overlook the excesses of the Bicameral Conference Committee because its report is anyway approved by both
houses is a futile attempt to square the circle for an unconstitutional act is void and cannot be redeemed by any
subsequent ratification.
Same; Same; Same; No doomsday scenario will ever justify the thrashing of the Constitution—the Constitution is
meant to be our rule both in good times as in bad times.—In conclusion, I wish to stress that this is not the first time nor
will it be last that arguments will be foisted for the Court to merely wink at assaults on the Constitution on the ground
of some national interest, sometimes clear and at other times inchoate. To be sure, it cannot be gainsaid that the country
is in the vortex of a financial crisis. The broadsheets scream the disconcerting news that our debt payments for the year
2006 will exceed Pph1 billion daily for interest alone. Experts underscore some factors that will further drive up the debt
service expenses such as the devaluation of the peso, credit downgrades and a spike in interest rates. But no doomsday
scenario will ever justify the thrashing of the Constitution. The Constitution is meant to be our rule both in good times
as in bad times. It is the Court’s uncompromising obligation to defend the Constitution at all times lest it be condemned
as an irrelevant relic.
PANGANIBAN, J., Separate Opinion:
Congress; Enrolled Bill Doctrine; The enrolled bill doctrine may be all-encompassing in some countries like Great
Britain, but as applied to our jurisdiction, it must yield to mandatory provisions of our 1987 Constitution.—I believe,
however, that the enrolled bill doctrine is not absolute. It may be all-encompassing in some countries like Great Britain,
but as applied to our jurisdiction, it must yield to mandatory provisions of our 1987 Constitution. The Court can take
judicial notice of the form of government in Great Britain. It is unlike that in our country and, therefore, the doctrine
from which it originated could be modified accordingly by our Constitution. In fine, the enrolled bill doctrine applies
mainly to the internal
43
rules and processes followed by Congress in its principal duty of lawmaking. However, when the Constitution
imposes certain conditions, restrictions or limitations on the exercise of congressional prerogatives, the judiciary has
both the power and the duty to strike down congressional actions that are done in plain contravention of such
conditions, restrictions or limitations. Insofar as the present case is concerned, the three most important restrictions or
limitations to the enrolled bill doctrine are the “origination,” “no-amend-ment” and “three-reading” rules which I will
discuss later.
Same; Bicameral Conference Committee (BCC); The Bicameral Conference Committee created by Congress to iron out
differences between the Senate and the House of Representatives versions of the E-VAT bills is one such “branch or
instrumentality of the govern-ment,” over which this Court may exercise certiorari review to determine whether or not
grave abuse of discretion has been committed; and, specifically, to find out whether the constitutional conditions,
restrictions and limitations on law-making have been violated.—The Bicameral Conference Committee (BCC) created by
Congress to iron out differences between the Senate and the House of Representatives versions of the E-VAT bills is one
such “branch or instrumentality of the government,” over which this Court may exercise certiorari review to determine
whether or not grave abuse of discretion has been committed; and, specifically, to find out whether the constitutional
conditions, restrictions and limitations on law-making have been violated. In general, the BCC has at least five options
in performing its functions: (1) adopt the House version in part or in toto, (2) adopt the Senate version in part or in toto,
(3) consolidate the two versions, (4) reject non-conflicting provisions, and (5) adopt completely new provisions not found
in either version. This, therefore, is the simple question: In the performance of its function of reconciling conflicting
provisions, has the Committee blatantly violated the Constitution?
Same; Presidency; Separation of Powers; Control Power; Doctrine of Qualified Political Agency; I respectfully
disagree with the statements that, first, the Secretary of Finance is “acting as the agent of the legislative department” or
an “agent of Congress” in determining and declaring the event upon which its expressed will is to take effect; and, second,
that the Secretary’s personality “is in reality but a projection of that of Congress”—the Secretary of Finance is not an
44

ANNOTATED
alter ego of Congress, but of the President.—I concur with the ponencia in that there was no undue delegation
of legislative power in the increase from 10 percent to 12 percent of the VAT rate. I respectfully disagree, however, with
the statements therein that, first, the secretary of finance is “acting as the agent of the legislative department” or an
“agent of Congress” in determining and declaring the event upon which its expressed will is to take effect; and, second,
that the secretary’s personality “is in reality but a projection of that of Con-gress.” The secretary of finance is not an
alter ego of Congress, but of the President. The mandate given by RA 9337 to the secretary is not equipollent to an
authority to make laws. In passing this law, Congress did not restrict or curtail the constitutional power of the President
to retain control and supervision over the entire Executive Department. The law should be construed to be merely
asking the President, with a recommendation from the President’s alter ego in finance matters, to determine the factual
bases for making the increase in VAT rate operative. Indeed, as I have mentioned earlier, the fact-finding condition is a
mere administrative, not legislative, function.
Same; Bicameral Conference Committee; I respectfully submit that the amendments made by the BCC (that were
culled from the Senate version) regarding income taxes are not legally germane to the subject matter of the House bills.—I
respectfully submit that the amendments made by the BCC (that were culled from the Senate version) regarding income
taxes are not legally germane to the subject matter of the House bills. Revising the income tax rates on domestic,
resident foreign and nonresident foreign corporations; increasing the tax credit against taxes due from nonresident
foreign corporations on intercorporate dividends; and reducing the allowable deduction for interest expense are legally
unrelated and not germane to the subject matter contained in the House bills; they violate the origination principle.
Taxation; Value-Added Tax (VAT); It was Maurice Lauré, a French engineer, who invented the VAT.—It was
Maurice Lauré, a French engineer, who invented the VAT. In 1954, he had the idea of imposing an indirect tax on
consumption, called taxe sur la valeur ajoutée, which was quickly adopted by the Direction Générale des Impost, the new
French tax authority of which he became joint director. Consequently, taxpayers at all levels in the production process,
45
rather than retailers or tax authorities, were forced to administer and account for the tax themselves.
Same; Same; Due Process; Vested Rights; There is no vested right in a deferred input tax—it is a mere statutory
privilege which the State may modify or withdraw, being merely an asset granted by operation of law.—There is no
vested right in a deferred input tax account; it is a mere statutory privilege. The State may modify or withdraw such
privilege, which is merely an asset granted by operation of law. 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.
Same; Same; Same; Same; In the exercise of its inherent power to tax, the State validly interferes with the right to
property of persons, natural or artificial; The reduction of tax credits is a question of economic policy, not of legal
perlustration.—Petitioners have not been denied due process or, as I have illustrated earlier, equal protection. In the
exercise of its inherent power to tax, the State validly interferes with the right to property of persons, natural or
artificial. Those similarly situated are affected in the same way and treated alike, “both as to privileges conferred and
liabilities enforced.” RA 9337 was enacted precisely to achieve the objective of raising revenues to defray the necessary
expenses of government. The means that this law employs are reasonably related to the accomplishment of such
objective, and not unduly oppressive. The reduction of tax credits is a question of economic policy, not of legal
perlustration. Its determination is vested in Congress, not in this Court. Since the purpose of the law is to raise
revenues, it cannot be denied that the means employed is reasonably related to the achievement of that purpose.
Moreover, the proper congressional procedure for its enactment was followed; neither public notice nor public hearings
were denied.
46

ANNOTATED
Same; Same; Unlike the laws of physical science, the VAT system can always be modified to suit modern fiscal
demands.—It is contended that the VAT should be proportional in nature. I submit that this proportionality pertains to
the rate imposable, not the credit allowable. Private enterprises are subjected to a proportional VAT rate, but VAT
credits need not be. The VAT is, after all, a human concept that is neither immutable nor invariable. In fact, it has
changed after it was adopted as a system of indirect taxation by other countries. Again unlike the laws of physical
science, the VAT system can always be modified to suit modern fiscal demands. The State, through the Legislative
Department, may even choose to do away with it and revert to our previous system of turnover taxes, sales taxes and
compensating taxes, in which credits may be disallowed altogether.
YNARES-SANTIAGO, J., Concurring and Dissenting Opinion:
Congress; Bicameral Conference Committee; Judicial Review; If in the exercise of this rule-making power, Congress
failed to set parameters in the functions of the Bicameral Conference Committee and allowed the latter unbridled
authority to perform acts which Congress itself is prohibited, like the passage of a law without undergoing the requisite
three-reading and the so-called no-amendment rule, then the same amount to grave abuse of discretion which this Court
is empowered to correct under its expanded certiorari jurisdiction.— Section 16(3), Article VI of the 1987 Constitution
explicitly allows each House to determine the rules of its proceedings. However, the rules must not contravene
constitutional provisions. The rule-making power of Congress should take its bearings from the Constitution. If in the
exercise of this rule-making power, Congress failed to set parameters in the functions of the committee and allowed the
latter unbridled authority to perform acts which Congress itself is prohibited, like the passage of a law without
undergoing the requisite three-reading and the so-called no-amendment rule, then the same amount to grave abuse of
discretion which this Court is empowered to correct under its expanded certiorari jurisdiction. Notwithstanding the
doctrine of separation of powers, therefore, it is the duty of the Court to declare as void a legislative enactment, either
from want of constitutional power to enact or because the constitutional forms or conditions have not been observed.
47
Same; Same; I fully subscribe to the theory advanced in the Dissenting Opinion of Chief Justice Hilario G. Davide,
Jr. in Tolentino v. Secretary of Finance that the authority of the bicameral conference committee was limited to the
reconciliation of disagreeing provisions or the resolution of differences or inconsistencies—the Bicameral Conference
Committee is authorized only to adopt either the version of the House bill or the Senate bill, or adopt neither.—The Rules
of the House of Representatives and the Rules of the Senate provide that in the event there is disagreement between the
provisions of the House and Senate bills, the differences shall be settled by a bicameral conference committee. By this, I
fully subscribe to the theory advanced in the Dissenting Opinion of Chief Justice Hilario G. Davide, Jr. in Tolentino v.
Secretary of Finance that the authority of the bicameral conference committee was limited to the reconciliation of
disagreeing provisions or the resolution of differences or inconsistencies. Thus, it could only either (a) restore, wholly or
partly, the specific provisions of the House bill amended by the Senate bill, (b) sustain, wholly or partly, the Senate’s
amendments, or (c) by way of a compromise, to agree that neither provisions in the House bill amended by the Senate nor
the latter’s amendments thereto be carried into the final form of the former. Otherwise stated, the Bicameral Conference
Committee is authorized only to adopt either the version of the House bill or the Senate bill, or adopt neither. It cannot,
as the ponencia proposed, “try to arrive at a compromise,” such as introducing provisions not included in either the
House or Senate bill, as it would allow a mere ad hoc committee to substitute the will of the entire Congress and without
undergoing the requisite three-reading, which are both constitutionally proscribed. To allow the committee unbridled
discretion to overturn the collective will of the whole Congress defies logic considering that the bills are passed
presumably after study, deliberation and debate in both houses. A lesser body like the Bicameral Conference Committee
should not be allowed to substitute its judgment for that of the entire Congress, whose will is expressed collectively
through the passed bills.
Same; Same; No-Amendment Rule; The ponencia’s submission that despite its limited authority, the Bicameral
Conference Committee could “compromise the disagreeing provisions” by substituting it with its own version clearly
violates the three-reading requirement, as the committee’s version would no longer undergo the same since it would be
immediately put into vote by the respective houses.—Before
48

ANNOTATED
a bill becomes a law, it must pass three readings. Hence, the ponencia’s submission that despite its limited
authority, the Bicameral Conference Committee could “compromise the disagreeing provisions” by substituting it with
its own version—clearly violate the three-reading requirement, as the committee’s version would no longer undergo the
same since it would be immediately put into vote by the respective houses. In effect, it is not a bill that was passed by
the entire Congress but by the members of the ad hoc committee only, which of course is constitutionally infirm. I
disagree that the no-amendment rule referred only to “the procedure to be followed by each house of Congress with
regard to bills initiated in each of said respective houses” because it would relegate the no-amendment rule to a mere
rule of procedure. To my mind, the no-amendment rule should be construed as prohibiting the Bicameral Conference
Committee from introducing amendments and modifications to non-disagreeing provisions of the House and Senate bills.
In sum, the committee could only either adopt the version of the House bill or the Senate bill, or adopt neither. As
Justice Reynato S. Puno said in his Dissenting Opinion in Tolentino v. Secretary of Finance, there is absolutely no legal
warrant for the bold submission that a Bicameral Conference Committee possesses the power to add/delete provisions in
bills already approved on third reading by both Houses or an ex post veto power.
SANDOVAL-GUTIERREZ, J., Concurring and Dissenting Opinion:
Congress; Taxation; Separation of Powers; Delegation of Powers; Taxation is a power that is purely legislative and

which the central legislative body cannot delegate either to the executive or judicial department of government without
infringing upon the theory of separation of powers.—Taxation is an inherent attribute of sovereignty. It is a power that is
purely legislative and which the central legislative body cannot delegate either to the executive or judicial department of
government without infringing upon the theory of separation of powers. The rationale of this doctrine may be traced
from the democratic principle of “no taxation without representation.” The power of taxation being so pervasive, it is in
the best interest of the people that such power be lodged only in the Legislature. Composed of the people’s
representatives, it is “closer to the pulse of the people and . . . are therefore in a better position to determine both the
extent of the legal burden the people are capable of
49
bearing and the benefits they need.” Also, this set-up provides security against the abuse of power. As Chief Justice
Marshall said: “In imposing a tax, the legislature acts upon its constituents. The power may be abused; but the interest,
wisdom, and justice of the representative body, and its relations with its constituents, furnish a sufficient security.”
Consequently, Section 24, Article VI of our Constitution enshrined the principle of “no taxation without representation”
by providing that “all . . . revenue bills . . . shall originate exclusively in the House of Representatives, but the Senate
may propose or concur with amendments.” This provision generally confines the power of taxation to the Legislature.
Same; Same; Same; Same; Value-Added Tax; R.A. No. 9337, in granting to the President the stand-by authority to
increase the VAT rate from 10% to 12%, the Legislature abdicated its power by delegating it to the President.—R.A. No.
9337, in granting to the President the stand-by authority to increase the VAT rate from 10% to 12%, the Legislature
abdicated its power by delegating it to the President. This is constitutionally impermissible. The Legislature may not
escape its duties and responsibilities by delegating its power to any other body or authority. Any attempt to abdicate the
power is unconstitutional and void, on the principle that potestas delegata non delegare potest. As Judge Cooley
enunciated: “One of the settled maxims in constitutional law is, that the power conferred upon the legislature to make
laws cannot be delegated by that department to any other body or authority. Where the sovereign power of the state has
located the authority, there it must remain; and by the constitutional agency alone the laws must be made until the
Constitution itself is changed. The power to whose judgment, wisdom, and patriotism this high prerogative has been
entrusted cannot relieve itself of the responsibility by choosing other agencies upon which the power shall be devolved,
nor can it substitute the judgment, wisdom, and patriotism of any other body for those to which alone the people have
seen fit to confide this sovereign trust.”
Same; Same; Same; Same; Same; Tariff Powers; If the intention of the Framers of the Constitution is to permit the
delegation of the power to fix tax rates or VAT rates to the President, such could have been easily achieved by the mere
inclusion of the term “tax rates” or “VAT rates” in the enumeration.—Noteworthy is the absence of tax rates or VAT
rates in the enumeration. If the intention of the Fram-
50

ANNOTATED

ers of the Constitution is to permit the delegation of the power to fix tax rates or VAT rates to the President, such
could have been easily achieved by the mere inclusion of the term “tax rates” or “VAT rates” in the enumeration. It is
a dictum in statutory construction that what is expressed puts an end to what is implied. Expressium facit cessare
tacitum. This is a derivative of the more familiar maxim express mention is implied exclusion or expressio unius est
exclusio alterius. Considering that Section 28 (2), Article VI expressly speaks only of “tariff rates, import and export
quotas, tonnage and wharfage dues and other duties and imposts,” by no stretch of imagination can this enumeration be
extended to include the VAT.
Same; Same; Same; Same; Same; Control Power; The two conditions set forth by law would have been sufficient had
it not been for the fact that the President, being at the helm of the entire officialdom, has more than enough power of
control to bring about the existence of such conditions—that the President’s exercise of an authority is practically within
her control is tantamount to giving no conditions at all.—At first glance, the two conditions may appear to be definite
standards sufficient to guide the President. However, to my mind, they are ineffectual and malleable as they give the
President ample opportunity to exercise her authority in arbitrary and discretionary fashion. The two conditions set
forth by law would have been sufficient had it not been for the fact that the President, being at the helm of the entire
officialdom, has more than enough power of control to bring about the existence of such conditions. Obviously, R.A. No.
9337 allows the President to determine for herself whether the VAT rate shall be increased or not at all. The fulfillment
of the conditions is entirely placed in her hands. If she wishes to increase the VAT rate, all she has to do is to strictly
enforce the VAT collection so as to exceed the 2 4/5% ceiling. The same holds true with the national government deficit.
She will just limit government expenses so as not to exceed the 1 1/2% ceiling. On the other hand, if she does not wish to
increase the VAT rate, she may discourage the Secretary of Finance from making the recommendation. That the
President’s exercise of an authority is practically within her control is tantamount to giving no conditions at all. I believe
this amounts to a virtual surrender of legislative power to her. It must be stressed that the validity of a law is not tested
by what has been done but by what may be done under its provisions.
51
Same; Taxation; One of the principles of sound taxation is fiscal adequacy—neither an excess nor a deficiency of
revenue vis-à-vis the needs of government would be in keeping with the principle; Our Senators must have forgotten that
for every increase of taxes, the burden always redounds to the people; Taxation is not a power to be exercised at one’s
whim.—Why authorize the President to increase the VAT rate on the premise alone that she deserves an “incentive” or
“reward”? Indeed, why should she be rewarded for performing a duty reposed upon her by law? The rationale stated by
Senator Recto is flawed. One of the principles of sound taxation is fiscal adequacy. The proceeds of tax revenue should
coincide with, and approximate the needs of, government expenditures. Neither an excess nor a deficiency of revenue
vis-à–-vis the needs of government would be in keeping with the principle. Equating the grant of authority to the
President to increase the VAT rate with the grant of additional allowance to a studious son is highly inappropriate. Our
Senators must have forgotten that for every increase of taxes, the burden always redounds to the people. Unlike the
additional allowance given to a studious son that comes from the pocket of the granting parent alone, the increase in the
VAT rate would be shouldered by the masses. Indeed, mandating them to pay the increased rate as an award to the
President is arbitrary and unduly oppressive. Taxation is not a power to be exercised at one’s whim.
Same; Origination Rule; Words and Phrases; It can be reasonably concluded that when Section 24, Article VI
provides that revenue bills shall originate exclusively from the House of Representatives, what the Constitution mandates
is that any revenue statute must begin or start solely and only in the House.—The adverb “exclusively” means “in an
exclusive manner.” The term “exclusive” is defined as “excluding or having power to exclude; limiting to or limited to;
single, sole, undivided, whole.” In one case, this Court define the term “exclusive” as “possessed to the exclusion of
others; appertaining to the subject alone, not including, admitting, or pertaining to another or others.” As for the term
“originate,” its meaning are “to cause the beginning of; to give rise to; to initiate; to start on a course or journey; to take or
have origin; to be deprived; arise; begin or start.” With the foregoing definitions in mind, it can be reasonably concluded
that when Section 24, Article VI provides that revenue bills shall originate exclusively from the House of
Representatives, what the Constitution mandates is that any revenue statute must
52
ANNOTATED
begin or start solely and only in the House. Not the Senate. Not both Chambers of Congress. But there is more to it
than that. It also means that “an act for taxation must pass the House first.” It is no consequence what amendments the
Senate adds. A perusal of the legislative history of R.A. No. 9337 shows that it did not “exclusively originate” from the
House of Representatives.
Same; Same; The Senate in passing Senate Bill No. 1950, a tax measure, merely took into account House Bills No.
3555 and 3705, but did not concur with or amend either or both bills.—Senate Bill No. 1950 is not based on any bill
passed by the House of Representatives. It has a legislative identity and existence separate and apart from House Bills
No. 3555 and 3705. Instead of concurring or proposing amendments, Senate Bill No. 1950 merely “takes into
consideration” the two House Bills. To take into consideration means “to take into account.” Consideration, in this sense,
means “deliberation, attention, observation or contemplation. Simply put, the Senate in passing Senate Bill No. 1950, a
tax measure, merely took into account House Bills No. 3555 and 3705, but did not concur with or amend either or both
bills. As a matter of fact, it did not even take these two House Bills as a frame of reference. In Tolentino, the majority
subscribed to the view that Senate may amend the House revenue bill by substitution or by presenting its own version of
the bill. In either case, the result is “two bills on the same subject.” This is the source of the “germaneness” rule which
states that the Senate bill must be germane to the bill originally passed by the House of Representatives. In Tolentino,
this was not really an issue as both the House and Senate Bills in question had one subject—the VAT.
Same; Same; Germaneness Rule; The Senate could not, without violating the germaneness rule and the principle of
“exclusive origination,” propose tax matters not included in the House Bills.—The facts obtaining here is very much
different from Tolentino. It is very apparent that House Bills No. 3555 and 3705 merely intended to amend Sections 106,
107, 108, 109, 110, 111 and 114 of the NIRC of 1997, pertaining to the VAT provisions. On the other hand, Senate Bill
No. 1950 intended to amend Sections 27, 28, 34, 106, 108, 109, 110, 112, 113, 114, 116, 117, 119, 121, 125, 148, 151, 236,
237 and 288 of the NIRC, pertaining to matters outside of VAT, such as income tax, percentage tax, franchise tax, taxes
on banks and other financial intermediaries, excise taxes, etc. Thus, I am of the position
53
that the Senate could not, without violating the germaneness rule and the principle of “exclusive origination,”
propose tax matters not included in the House Bills.
CALLEJO, SR., J., Concurring and Dissenting Opinion:
Congress; Bicameral Conference Committee; Foreign Jurisprudence; There are significant textual differences between

the US Federal Constitution’s and our Constitution’s prescribed congressional procedure for enacting laws—the degree of
freedom accorded by the US Federal Constitution to the US Congress markedly differ from that accorded by our
Constitution to the Philippine Congress.—To my mind, this unqualified adherence by the majority opinion in Tolentino,
and now by the ponencia, to the practice of the US Congress and its conference committee system ought to be re-
examined. There are significant textual differences between the US Federal Constitution’s and our Constitution’s
prescribed congressional procedure for enacting laws. Accordingly, the degree of freedom accorded by the US Federal
Constitution to the US Congress markedly differ from that accorded by our Constitution to the Philippine Congress.
Same; Three-Reading Rule; No-Amendment Rule; The “three-reading” and “no-amendment” rules, absent in the US
Federal Constitution, but expressly mandated by Article VI, Section 26(2) of our Constitution are mechanisms instituted
to remedy the “evils” inherent in a bicameral system of legislature, including the conference committee system.—The
“three-reading” and “no-amendment” rules, absent in the US Federal Constitution, but expressly mandated by Article
VI, Section 26(2) of our Constitution are mechanisms instituted to remedy the “evils” inherent in a bicameral system of
legislature, including the conference committee system. Sadly, the ponencia’s refusal to apply Article VI, Section 26(2) of
the Constitution on the Bicameral Conference Committee and the amendments it introduced to R.A. No. 9337 has
“effectively dismantled” the “three-reading rule” and “no-amendment rule.”
Same; Same; Same; The proscription on amendments upon the last reading is intended to subject all bills and their
amendments to intensive deliberation by the legislators and the ample ventilation of issues to afford the public an
opportunity to express their opinions or objections thereon; Analogously, it is said that the “three-reading rule” operates
“as a self-binding mechanism that allows the legisla-
54

ANNOTATED
ture to guard against the consequences of its own future passions, myopia, or herd behavior.—It is well to recall the
rationale for the “no-amendment rule” and the “three-reading rule” in Article VI, Section 26(2) of the Constitution. The
proscription on amendments upon the last reading is intended to subject all bills and their amendments to intensive
deliberation by the legislators and the ample ventilation of issues to afford the public an opportunity to express their
opinions or objections thereon. Analogously, it is said that the “three-reading rule” operates “as a self-binding
mechanism that allows the legislature to guard against the consequences of its own future passions, myopia, or herd
behavior. By requiring that bills be read and debated on successive days, legislature may anticipate and forestall future
occasions on which it will be seized by deliberative pathologies.” As Jeremy Bentham, a noted political analyst, put it:
“[t]he more susceptible a people are of excitement and being led astray, so much the more ought they to place themselves
under the protection of forms which impose the necessity of reflection, and prevent surprises.”
AZCUNA, J., Concurring and Dissenting Opinion:
Congress; Separation of Powers; Delegation of Powers; There is here no abdication by Congress of its power to fix the
rate of the tax since the rate increase provided under the law, from 10% to 12%, is definite and certain to occur, effective 1
January 2006.—The Gross Domestic Product for 2005 is estimated at P5.3 Trillion pesos. The tax effort of the present
VAT is now at 1.5%. The national budgetary deficit against the GDP is now at 3%. So to reduce the deficit to 1.5% from
3%, one has to increase the tax effort from VAT, now at 1.5%, to at least 3%, thereby exceeding the 2 4/5 percent ceiling
in condition (i), making condition (i) happen. If, on the other hand, this is not done, then condition (ii) happens—the
budget deficit remains over 1.5%. What is the result of this? The result is that in reality, the law does not impose any
condition, or the rate increase thereunder, from 10% to 12%, effective January 1, 2006, is unconditional. For a condition
is an event that may or may not happen, or one whose occurrence is uncertain. Now while condition (i) is indeed
uncertain and condition (ii) is likewise uncertain, the combination of both makes the occurrence of one of them certain.
Accordingly, there is here no abdication by Congress of its power to fix the rate of the tax since the rate increase
provided under the law, from 10% to 12%, is definite
55
and certain to occur, effective January 1, 2006. All that the President will do is state which of the two conditions
occurred and thereupon implement the rate increase.
Same; Germaneness Rule; I would rather give the necessary leeway to Congress, as long as the changes are germane
to the bill being changed, the bill which originated from the House of Representatives, and these are so, since these were
precisely the mitigating measures that go hand-on-hand with E-VAT, and are, therefore, essential—and hopefully
sufficient—means to enable our people to bear the sacrifices they are being asked to make; The provisions on corporate
income taxes, which are not germane to the E-VAT law, are not found in the Senate and House bills.—The introduction of
the mitigating or cushioning measures through the Senate or through the Bicameral Conference Committee, is also
being questioned by petitioners as unconstitutional for violating the rule against amendments after third reading and
the rule that tax measures must originate exclusively in the House of Representatives (Art. VI, Secs. 24 and 26 [2],
Constitution). For my part, I would rather give the necessary leeway to Congress, as long as the changes are germane to
the bill being changed, the bill which originated from the House of Representatives, and these are so, since these were
precisely the mitigating measures that go hand-on-hand with the E-VAT, and are, therefore, essential—and hopefully
sufficient—means to enable our people to bear the sacrifices they are being asked to make. Such an approach is in
accordance with the Enrolled Bill Doctrine that is the prevailing rule in this jurisdiction. (Tolentino v. Secretary of
Finance, 249 SCRA 628 [1994]). The exceptions I find are the provisions on corporate income taxes, which are not
germane to the E-VAT law, and are not found in the Senate and House bills.
TINGA, J., Dissenting and Concurring Opinion:
Taxation; Value-Added Tax; Judicial Review; Due Process; Taxes may be inherently punitive, but when the fine line
between damage and destruction is crossed, the courts must step forth and cut the hangman’s noose.—The E-VAT Law, as
it stands, will exterminate our country’s small to medium enterprises. This will be the net effect of affirming Section 8 of
the law, which amends Sections 110 of the National Internal Revenue Code (NIRC) by imposing a seventy percent (70%)
cap on the creditable input tax a VAT-registered person may apply every quarter and a mandatory sixty (60)-month
56

ANNOTATED
amortization period on the input tax on goods purchased or imported in a calendar month if the acquisition cost of
such goods exceeds One Million Pesos (P1,000,000.00). Taxes may be inherently punitive, but when the fine line between
damage and destruction is crossed, the courts must step forth and cut the hangman’s noose. Justice Holmes once
confidently asserted that “the power to tax is not the power to destroy while this Court sits,” and we should very well
live up to this expectation not only of the revered Holmes, but of the Filipino people who rely on this Court as the
guardian of their rights. At stake is the right to exist and subsist despite taxes, which is encompassed in the due process
clause.
Same; Same; Origination Rule; Article VI, Section 24 of the Constitution, also known as the origination clause,
derives origin from British practice—from the assertion that the power to tax the public at large must reside in the
representatives of the people, the principle evolved that money bills must originate in the House of Commons and may not
be amended by the House of Lords; In our country though, both members of the House and Senate are directly elected by
the people, hence the vitality of the original conception of the rule has somewhat lost luster.—Section 24 is also known as
the origination clause, which derives origin from British practice. From the assertion that the power to tax the public at
large must reside in the representatives of the people, the principle evolved that money bills must originate in the House
of Commons and may not be amended by the House of Lords. The principle was adopted across the shores in the United
States, and was famously described by James Madison in The Federalist Papers as follows: This power over the purse,
may in fact be regarded as the most complete and effectual weapon with which any constitution can arm the immediate
representatives of the people, for obtaining a redress of every grievance, and for carrying into effect every just and
salutary measure. There is an eminent difference from the British system from which the principle emerged, and from
our own polity. To this day, only members of the British House of Commons are directly elected by the people, with the
members of the House of Lords deriving their seats from hereditary peerage. Even in the United States, members of the
Senate were not directly elected by the people, but chosen by state legislatures, until the adoption of the Seventeenth
Amendment in 1913. Hence, the rule assured the British and American people that tax legislation arises with the
consent of the sovereign people,
57
through their directly elected representatives. In our country though, both members of the House and Senate are
directly elected by the people, hence the vitality of the original conception of the rule has somewhat lost luster.
Same; Same; Bicameral Conference Committee; Germaneness Rule; I agree that any amendment made by the
Bicameral Conference Committee that is not germane to the subject matter of the House or Senate Bills is not valid.—
Tolentino adduced the principle, adopted from American practice, that the version as approved by the Bicameral
Conference Committee need only be germane to the subject of the House and Senate bills in order to be valid. The
majority, in applying the test of germaneness, upholds the contested provisions of the E-VAT Law. Even the members of
the Court who prepared to strike down provisions of the law applying germaneness nonetheless accept the basic premise
that such test is controlling. I agree that any amendment made by the Bicameral Conference Committee that is not
germane to the subject matter of the House or Senate Bills is not valid. It is the only valid ground by which an
amendment introduced by the Bicameral Conference Committee may be judicially stricken.
Same; Same; Same; Same; I deem it unduly restrictive on the plenary powers of Congress to legislate, to coerce the
body to adhere to judge-made standards, such as a standard of “legal germaneness.”— The germaneness standard which
should guide Congress or the Bicameral Conference Committee should be appreciated in its normal but total sense. In
that regard, my views contrast with that of Justice Panganiban, who asserts that provisions that are not “legally
germane” should be stricken down. The legal notion of germaneness is just but one component, along with other factors
such as economics and politics, which guides the Bicameral Conference Committee, or the legislature for that matter, in
the enactment of laws. After all, factors such as economics or politics are expected to cast a pervasive influence on the
legislative process in the first place, and it is essential as well to allow such “non-legal” elements to be considered in
ascertaining whether Congress has complied with the criteria of germaneness. Congress is a political body, and its
rationale for legislating may be guided by factors other than established legal standards. I deem it unduly restrictive on
the plenary powers of Congress to legislate, to coerce the body to adhere to judge-made standards,
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ANNOTATED
such as a standard of “legal germaneness.” The Constitution is the only legal standard that Congress is required to
abide by in its enactment of laws.
Same; Same; Same; Same; It would be myopic to consider that the subject matter of the House Bill is solely the VAT
system, rather than the generation of revenue—the mere fact that the law is popularly known as the E-VAT Law, or that
most of its provisions pertain to the VAT, or indirect taxes, does not mean that any and all amendments which are
introduced by the Bicameral Conference Committee must pertain to the VAT system.—I cannot agree with the position
maintained by the Chief Justice, Justices Panganiban and Azcuna that the provisions of the law that do not pertain to
VAT should be stricken as unconstitutional. These would include, for example, the provisions raising corporate income
taxes. The Bicameral Conference Committee, in evaluating the proposed amendments, necessarily takes into account
not just the provisions relating to the VAT, but the entire revenue generating mechanism in place. If, for example,
amendments to non-VAT related provisions of the NIRC were intended to offset the expanded coverage for the VAT,
then such amendments are germane to the purpose of the House and Senate Bills. Moreover, it would be myopic to
consider that the subject matter of the House Bill is solely the VAT system, rather than the generation of revenue. The
majority has sufficiently demonstrated that the legislative intent behind the bills that led to the E-VAT Law was the
generation of revenue to counter the country’s dire fiscal situation. The mere fact that the law is popularly known as the
E-VAT Law, or that most of its provisions pertain to the VAT, or indirect taxes, does not mean that any and all
amendments which are introduced by the Bicameral Conference Committee must pertain to the VAT system.
Same; Same; Same; Same; Municipal Corporations; Local Government Units; Section 21 of the law, which was not
contained in either the House or Senate Bills, imposes restrictions on the use by local government units of their
incremental revenue from the VAT—these restrictions are alien to the principal purposes of revenue generation, or the
purposes of restructuring the VAT system.—I do believe that the test of germaneness was violated by the E-VAT Law in
one regard. Section 21 of the law, which was not contained in either the House or Senate Bills, imposes restrictions on
the use by local
59
government units of their incremental revenue from the VAT. These restrictions are alien to the principal purposes
of revenue generation, or the purposes of restructuring the VAT system. I could not see how the provision, which relates
to budgetary allocations, is germane to the E-VAT Law. Since it was introduced only in the Bicam-eral Conference
Committee, the test of germaneness is essential, and the provision does not pass muster. I join Justice Puno and the
Chief Justice in voting to declare Section 21 as unconstitutional.
Same; Same; Same; The deletion of the two disparate “no pass on” provisions which were approved by the House in
one instance, and only by the Senate in the other, remains in the sphere of compromise that ultimately guides the
approval of the final version.—I also offer this brief comment regarding the deletion of the so-called “no pass on”
provisions, which several of my colleagues deem unconstitutional. Both the House and Senate Bills contained these
provisions that would prohibit the seller/producer from passing on the cost of the VAT payments to the consumers.
However, an examination of the said bills reveal that the “no pass on” provisions in the House Bill affects a different
subject of taxation from that of the Senate Bill. In the House Bill No. 3705, the taxpayers who are prohibited from
passing on the VAT payments are the sellers of petroleum products and electricity/power generation companies. In
Senate Bill No. 1950, no prohibition was adopted as to sellers of petroleum products, but enjoined therein are
electricity/power generation companies but also transmission and distribution companies. I consider such deletions as
valid, for the same reason that I deem the amendments valid. The deletion of the two disparate “no pass on” provisions
which were approved by the House in one instance, and only by the Senate in the other, remains in the sphere of
compromise that ultimately guides the approval of the final version. Again, I point out that even while the two
provisions may have been originally approved by the House and Senate respectively, their subsequent deletion by the
Bicameral Conference Committee is still subject to approval by both chambers of Congress when the final version is
submitted for deliberation and voting.
Same; Same; Same; An outright declaration that the deletion of the two elementally different “no-pass on” provisions
is unconstitutional, is of dubious efficacy in this case.—An outright declaration that the deletion of the two elementally
different “no-pass on” provi-
60

ANNOTATED
sions is unconstitutional, is of dubious efficacy in this case. Had such pronouncement gained endorsement of a
majority of the Court, it could not result in the ipso facto restoration of the provision, the omission of which was
ultimately approved in both the House and Senate. Moreover, since the House version of the “no pass on” is quite
different from that of the Senate, there would be a question as to whether the House version, the Senate version, or both
versions would be reinstated. And of course, if it were the Court which would be called upon to choose, such would be
way beyond the bounds of judicial power. Indeed, to intimate that the Court may require Congress to reinstate a
provision that failed to meet legislative approval would result in a blatant violation of the principle of separation of
powers, with the Court effectively dictating to Congress the content of its legislation. The Court cannot simply decree to
Congress what laws or provisions to enact, but is limited to reviewing those enactments which are actually ratified by
the legislature.
Same; Same; Due Process; It is difficult though to put into quantifiable terms how onerous a taxation statute must be
before it contravenes the due process clause.—Sison pronounces more concretely how a tax statute may contravene the
due process clause. Arbitrariness, confiscation, overstepping the state’s jurisdiction, and lack of a public purpose are all
grounds for nullity encompassed under the due process invocation. Yet even these more particular standards as
enunciated in Sison are quite exacting, and difficult to reach. Even the constitutional challenge posed in Sison failed to
pass muster. The majority cites Sison in asserting that due process and equal protection are broad standards which
need proof of such persuasive character to lead to such a conclusion. It is difficult though to put into quantifiable terms
how onerous a taxation statute must be before it contravenes the due process clause. After all, the inherent nature of
taxation is to cause pain and injury to the taxpayer, albeit for the greater good of society. Perhaps whatever collective
notion there may be of what constitutes an arbitrary, confiscatory, and unreasonable tax might draw more from the
fairy tale/legend traditions of absolute monarchs and the oppressed peasants they tax. Indeed, it is easier to jump to the
conclusion that a tax is oppressive and unfair if it is imposed by a tyrant or an authoritarian state.
61
Same; Same; Same; In testing the validity of a tax statute as against the due process clause, the Court should go
beyond a facial examination of the statute, and seek to understand how exactly it would operate.—Could an arbitrary,
confiscatory or unreasonable tax actually be enacted by a democratic state such as ours? Of course it could, but these
would exist in more palatable guises. In a democratic society wherein statutes are enacted by a representative
legislature only after debate and deliberation, tax statutes will most likely, on their face, seem fair and even-handed.
After all, if Congress passes a tax law that on facial examination is obviously harsh and unfair, it faces the wrath of the
voting public, to say nothing of the media. In testing the validity of a tax statute as against the due process clause, I
think that the Court should go beyond a facial examination of the statute, and seek to understand how exactly it would
operate. The express terms of a statute, especially tax laws, are usually inadequate in spelling out the practical effects of
its implementation. The devil is usually in the details.
Same; Same; Same; We should not cede ground to those transgressions of the people’s fundamental rights simply
because the mechanism employed to violate constitutional guarantees is steeped in disciplines not normally associated
with the legal profession.—The degree of difficulty involved of judicial review of tax laws has increased with the growing
complexities of business, economic and accounting practices. These are sciences which laymen are not normally
equipped by their general education to fully grasp, hence the possible insecurity on their part when confronted with such
questions on these fields. However, we should not cede ground to those transgressions of the people’s fundamental rights
simply because the mechanism employed to violate constitutional guarantees is steeped in disciplines not normally
associated with the legal profession. Venality cannot be allowed to triumph simply due to its sophistication. This petition
imputes in the E-VAT Law unconstitutional oppression of the fatal variety, but in order to comprehend exactly how and
why that is so, one has to delve into the complex milieu of the VAT system. The party alleging the law’s
unconstitutionality of course has the burden to demonstrate the violations in understandable terms, but if such proof is
presented, the Court’s duty is to engage accordingly.
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ANNOTATED
Same; Same; Same; Judicial Review; I do not see as an impediment to the annulment of a tax law the fact that it has
yet to be implemented, or the fear that doing so constitutes an undue attack on the wisdom, rather than the legality of a
statute.—I do not see as an impediment to the annulment of a tax law the fact that it has yet to be implemented, or the
fear that doing so constitutes an undue attack on the wisdom, rather than the legality of a statute. However, my position
in this petition has been challenged on those grounds, and I see it fit to refute these preemptive allegations before
delving into the operative aspect of the E-VAT Law. If there is cause to characterize my arguments as speculative, it is
only because the E-VAT Law has yet to be implemented. No person as of yet can claim to have sustained actual injury by
reason of the implementation of the assailed provisions in G.R. No. 168461. Yet this should not mean that the Court is
impotent from declaring a provision of law as violative of the due process clause if it is clear that its implementation will
cause the illegal deprivation of life, liberty or property without due process of law. This is especially so if, as in this case,
the injury is of mathematical certainty, and the extent of the loss quantifiable through easy reference to the most basic
of business practices. These arguments are conjectural for the same reason that the bare statement “firing a gunshot into
the head will cause a fatal wound” would be conjectural. Some people are lucky enough to survive gunshot wounds to the
head, while many others are not. Yet just because the fear of mortality would be merely speculative, it does not mean
that there should be less compulsion to avoid a situation of getting shot in the head.
Same; Same; Same; Clear and Present Danger Doctrine; One of the most significant legal principles of the last
century, the “clear and present danger” doctrine in free speech cases, in fact emanates from the prospectivity, and not the
actuality of danger.—The Court has long responded to strike down prospective actions, even if the injury has not yet
even occurred. One of the most significant legal principles of the last century, the “clear and present danger” doctrine in
free speech cases, in fact emanates from the prospectivity, and not the actuality of danger. The Court has not been
hesitant to nullify acts which might cause injury, owing to the presence of a clear and present danger of a substantive
evil which the State has the right to prevent. It has even extended the “clear and present danger rule” beyond the
confines of freedom of expression to the realm of freedom
63
of religion, as noted by Justice Puno in his ponencia in Estrada v. Escritor.

Same; Same; Same; Same; Not every unwise law is unconstitutional, but every unconstitutional law is unwise, for an
unconstitutional law contravenes a primordial principle or guarantee on which our polity is founded.—In the same vein,
the claim that my arguments strike at the wisdom, rather than the constitutionality of the law are misplaced.
Concededly, the assailed provisions of the E-VAT law are basically unwise. But any provision of law that directly
contradicts the Constitution, especially the Bill of Rights, are similarly unwise, as they run inconsistent with the
fundamental law of the land, the enunciated state policies and the elemental guarantees assured by the State to its
people. Not every unwise law is unconstitutional, but every unconstitutional law is unwise, for an unconstitutional law
contravenes a primordial principle or guarantee on which our polity is founded.
Same; Same; Same; Same; If our society can take cold comfort in the ability of the legislature to amend its
enactments as the defense against unconstitutional laws, what remains then as the function of judicial review? The long-
standing tradition has been reliance on the judicial branch, and not the legislative branch, for salvation from
unconstitutional laws.—It is also asserted that if the implementation of the 70% cap imposes an unequal effect on
different types of businesses with varying profit margins and capital requirements, then the remedy would be an
amendment of the law. Of course, the remedy of legislative amendment applies to even the most unconstitutional of
laws. But if our society can take cold comfort in the ability of the legislature to amend its enactments as the defense
against unconstitutional laws, what remains then as the function of judicial review? This legislative capacity to amend
unconstitutional laws runs concurrently with the judicial capacity to strike down unconstitutional laws. In fact, the
long-standing tradition has been reliance on the judicial branch, and not the legislative branch, for salvation from
unconstitutional laws.
Same; Same; VAT is distinguishable from the standard excise or percentage taxes in that it is imposable not only on
the final transaction involving the end user, but on previous stages as well so long as there was a sale involved.—VAT is
distinguishable from the standard excise or percentage taxes in that it is imposable not only on
64
ANNOTATED
the final transaction involving the end user, but on previous stages as well so long as there was a sale involved.
Thus, VAT does not simply pertain to the extra percentage paid by the buyer of a fast-food meal, but also that paid by
restaurant itself to its suppliers of raw food products. This multi-stage system is more acclimated to the vagaries of the
modern industrial climate, which has long surpassed the stage when there was only one level of transfer between the
farmer who harvests the crop and the person who eats the crop. Indeed, from the extraction or production of the raw
material to its final consumption by a user, several transactions or sales materialize. The VAT system assures that the
government shall reap income for every transaction that is had, and not just on the final sale or transfer.
Same; Same; There is another key characteristic of the VAT—that no matter how many the taxable transactions that
precede the final purchase or sale, it is the end-user, or the consumer, that ultimately shoulders the tax—despite its name,
VAT is generally not intended to be a tax on value added, but rather as a tax on consumption.—There is another key
characteristic of the VAT—that no matter how many the taxable transactions that precede the final purchase or sale, it
is the end-user, or the consumer, that ultimately shoulders the tax. Despite its name, VAT is generally not intended to
be a tax on value added, but rather as a tax on consumption. Hence, there is a mechanism in the VAT system that
enables firms to offset the tax they have paid on their own purchases of goods and services against the tax they charge
on their sales of goods and services. Section 105 of the NIRC assures that “the amount of tax may be shifted or passed on
to the buyer, transferee or lessee of the goods, properties or services.” The assailed provisions of the E-VAT law strike at
the heart of this accepted principle.
Same; Same; In theory, VAT is not supposed to affect the profit margin—if such margin is affected, it is only because
of the prepayment of the input taxes, and this should be remedied by the immediate recovery through the crediting system
of the settled input taxes; The new E-VAT law changes all that, and puts in jeopardy the survival of small to medium
enterprises.—Profit is a chancy matter, and in cases of small to medium enterprises, usually small if any. It is quite
common for retail and distribution enterprises to incur profits of less than 1% of their gross revenues. Low profitability
is not an
65
automatic badge of poor business skills, but a reality dictated by the laws of the marketplace. The probability of
profit is lower than that of capital expenditures, and ultimately, many business establishments end up with a higher
input tax than output tax in a given quarter. This would be especially true for small to medium enterprises who do not
reap sufficient profits from its business in the first place, and for those firms that opt to also invest in capital expenses
in addition to the overhead. Whatever miniscule profit margins that can be obtained usually spell the difference between
life and death of the business. The possibility of profit is further diminished by the fact that businesses have to shoulder
the input VAT in the purchase of their capital expenses. Yet the erstwhile VAT system was not tainted by the label of
oppressiveness and neither did it bear the confiscatory mode. This was because of the immediate relief afforded from the
input taxes paid by the crediting system. In theory, VAT is not supposed to affect the profit margin. If such margin is
affected, it is only because of the prepayment of the input taxes, and this should be remedied by the immediate recovery
through the crediting system of the settled input taxes. The new E-VAT law changes all that, and puts in jeopardy the
survival of small to medium enterprises.
Same; Same; The majority fails to consider one of the most important concepts in finance, time value for money—the
longer the amount remains unutilized, the higher the degree of its depreciation in value, in accordance with the concept of
time value of money.—The majority fails to consider one of the most important concepts in finance, time value for money.
Simply put, the value of one peso is worth more today than in 2006. Money that you hold today is worth more because
you can invest it and earn interest. By reason of the 70% cap, the amount of input VAT credit that remains unutilized
would continue accumulate for months and years. The longer the amount remains unutilized, the higher the degree of
its depreciation in value, in accordance with the concept of time value of money. Even assuming that the business
eventually recovers the input VAT credit, the sum recovered would have decreased in practical value.
Same; Same; The raison d’etre of this 70% cap is to make it appear on paper that the government is more solvent than
it actually is; If the 70% cap was designed in order to enhance revenue collection, then I submit that the means employed
stand beyond reason.—It would be sad, but fair, if a business ceases because of its inability to
66

ANNOTATED
compete with other businesses. It would be utter malevolence to condemn an enterprise to death solely through the
employment of a deceptive accounting wizardry. For the raison d’etre of this 70% cap is to make it appear on paper that
the government is more solvent than it actually is. Conceding for the nonce, there is a temporary advantage gained by the
government by this 70% cap, as the steady remittance by businesses of the 30% output VAT would assure a cash flow.
Such collection may only momentarily resolve an endemic problem in our local tax system, the problem of collection
itself. If the 70% cap was designed in order to enhance revenue collection, then I submit that the means employed stand
beyond reason. If sheer will proves insufficient in assuring that the State all taxes due it, there should be allowable
discretion for the government to formulate creative means to enhance collection. But to do so by depriving low profit
enterprises of whatever meager income earned and consequently assuring the death of these industries goes beyond any
valid State purpose.
Same; Same; The effect of the 70% cap is to effectively impose a tax amounting to 3% of gross revenue.—Only stable
businesses with substantial cash flows, or extraordinarily successful enterprises will be able to remain in operation
should the 70% cap be retained. The effect of the 70% cap is to effectively impose a tax amounting to 3% of gross
revenue. The amount may seem insignificant to those without working knowledge of the ways of business, but anybody
who is actually familiar with business would be well aware the profit margins of the retailing and distribution sectors
typically amount to less than 1% of the gross revenues. A taxpayer has to earn a margin of at least 3% on gross revenue
in order to recoup the losses sustained due to the 70% cap. But as stated earlier, profits are chancy, and the
entrepreneur does not have full control of the conditions that lead to profit.
Same; Same; Due Process; The standard of “deprivation of life” of juridical persons employs different variables than
that of natural persons.—In analyzing the effects of the 70% cap, and appreciating how it violates the due process clause,
we should not focus solely on the end consumers. Undoubtedly, consumers will face hardships due to the increased
prices, but their threshold of physical survival, as individual people, is significantly less than that of enterprises.
Somehow, I do not think the new E-VAT would generally deprive
67
consumers of the bare necessities such as food, water, shelter and clothing. There may be significant deprivation of
comfort as a result, but not of life. The same does not hold true for businesses. The standard of “deprivation of life” of
juridical persons employs different variables than that of natural persons. What food and water may be for persons,
profit is for an enterprise—the bare necessity for survival. For businesses, the implementation of the same law, with the
70% cap and 60-month amortization period, would mean the deprivation of profit, which is the determinative necessity
for the survival of a business.
Same; Same; Same; Catch-22; This is your basic Catch-22 situation—no matter which means the enterprise employs
to recover from the E-VAT Law, it will still go down in flames.—Reduction of expenditures is not the exclusive antidote
to these impositions under the E-VAT Law, as there must also be a corresponding increase in the amount of gross sales.
To do so though, would require an increase in the selling price, dampening consumer enthusiasm, and further impairing
the ability of the enterprise to recover from the E-VAT Law. This is your basic Catch-22 situation—no matter which
means the enterprise employs to recover from the E-VAT Law, it will still go down in flames.
Same; Same; In essentially prohibiting the recovery of small profit margins, the E-VAT law effectively sends the
message that only high margin businesses are welcome to do business in the Philip-pines—it stifles any entrepreneurial
ambitions of Filipinos unfortunate enough to have been born poor yet seek a better life by sacrificing all to start a small
business.—Section 8 of the E-VAT law, while ostensibly even-handed in application, fails to appreciate valid substantial
distinctions between large scale enterprises and small and medium enterprises. The latter group, owing to the limited
capability for capital investment, subsists on modest profit margins, whereas the former expects, by reason of its
substantial capital investments, a high margin. In essentially prohibiting the recovery of small profit margins, the E-VAT
law effectively sends the message that only high margin businesses are welcome to do business in the Philippines. It stifles
any entrepreneurial ambitions of Filipinos unfortunate enough to have been born poor yet seek a better life by sacrificing
all to start a small business.
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ANNOTATED
Same; Same; Sadly, the majority refuses to confront the figures or engage in a meaningful demonstration of how
these assailed provisions truly operate—instead, it counters with platitudes and bromides that do not intellectually
satisfy.—The burden of proof was on the Pilipinas Shell Dealers’ to prove their allegations, and accordingly, these
figures have been duly presented to the Court for appreciation and evaluation. Instead, the majority has shunted aside
these presentations as being merely theoretical, despite the fact that they present a clear and present danger to the very
life of our nation’s enterprises. The majority’s position would have been more credible had it faced the issue squarely,
and endeavored to demonstrate in like numerical fashion why the 70% cap is not oppressive, confiscatory, or otherwise
violative of the due process clause. Sadly, the majority refuses to confront the figures or engage in a meaningful
demonstration of how these assailed provisions truly operate. Instead, it counters with platitudes and bromides that do
not intellectually satisfy. Considering that the very vitality, if not life of our domestic economy is at stake, I think it
derelict to our duty to block out these urgent concerns presented to the Court with blind faith tinged with
irrational Panglossian optimism.
Same; Same; The 70% cap is not merely an unwise imposition—it is a burden designed, either through sheer
heedlessness or cruel calculation, to kill off the small and medium enterprises that are the soul, if not the heart, of our
economy, and it is not merely an undue taking of property, but constitutes an unjustified taking of life as well; The
illusion of wealth is hardly a legitimate state purpose, especially if projected at the expense of the very business life of the
country.— The 70% cap is not merely an unwise imposition. It is a burden designed, either through sheer heedlessness
or cruel calculation, to kill off the small and medium enterprises that are the soul, if not the heart, of our economy. It is
not merely an undue taking of property, but constitutes an unjustified taking of life as well. And what legitimate,
germane purposes does this lethal 70% cap serve? It certainly does not increase the government’s revenue since the
unutilized creditable input VAT should be entered in the government books as a debt payable as it is supposed to be
eventually repaid to the taxpayer, and so on the contrary it increases the government’s debts. I do see that the 70% cap
temporarily allows the government to brag to the world of an increased cash flow. But this situation would be akin to the
provincial man who borrows from everybody in the barrio
69

in order to show off money and maintain the pretense of prosperity to visiting city relatives. The illusion of wealth is
hardly a legitimate state purpose, especially if projected at the expense of the very business life of the country.
Same; Same; What the majority fails to mention is that under Section 10 of the E-VAT Law, which amends Section
112 of the NIRC, the tax credit or refund may not be done while the enterprise remains operational.—Nonetheless, the
majority notes that the excess creditable input tax may be the subject of a tax credit certificate, which then could be
used in payment of internal revenue taxes, or a refund to the extent that such input taxes have not been applied against
output taxes. What the majority fails to mention is that under Section 10 of the E-VAT Law, which amends Section 112 of
the NIRC, such credit or refund may not be done while the enterprise remains operational.
Same; Same; The inability to immediately credit or otherwise recover the unutilized input VAT could cause such
prepaid amount to actually be recognized in the accounting books as a loss; What heretofore was recognized as an asset
would now, with the imposition of the 70% cap, be now considered as a loss, enhancing the view that the 70% cap is
ultimately confiscatory in nature.—The inability to immediately credit or otherwise recover the unutilized input VAT
could cause such prepaid amount to actually be recognized in the accounting books as a loss. Under international
accounting practices, the unutilized input VAT due to the 70% cap would not even be recognized as a deferred asset. The
same would not hold true if the 70% cap were eliminated. Under the International Accounting Standards, the unutilized
input VAT credit is recognized as an asset “to the extent that it is probable that future taxable profit will be available
against which the unused tax losses and unused tax credits can be utili[z]ed” Thus, if the immediate accreditation of the
input VAT credit can be obtained, as it would without the 70% cap, the asset could be recognized. However, the same
Standards hold that “[t]o the extent that it is not probable that taxable profit will be available against which the unused
tax losses or unused tax credits can be utilised, the deferred tax asset is not recognised.” As demonstrated, the
continuous operation of the 70% cap precludes the recovery of input VAT prepaid months or years prior. Moreover, the
inability to claim a refund or tax credit certificate until after the business has
70

ANNOTATED
already ceased virtually renders it improbable for the input VAT to be recovered. As such, under the International
Accounting Standards, it is with all likelihood that the prepaid input VAT, ostensibly creditable, would actually be
reflected as a loss. What heretofore was recognized as an asset would now, with the imposition of the 70% cap, be now
considered as a loss, enhancing the view that the 70% cap is ultimately confiscatory in nature.
Same; Same; Due Process; Assets would fall under the purview of property under the due process clause, and if the
taxing arm of the State recognizes that such property belongs to the taxpayer and not to the State, then due respect should
be given to such expert opinion.— The BIR itself has recognized that unutilized input VAT is one of those assets,
corporate attributes or property rights that, in the event of a merger, are transferred to the surviving corporation by
operation of law. Assets would fall under the purview of property under the due process clause, and if the taxing arm of
the State recognizes that such property belongs to the taxpayer and not to the State, then due respect should be given to
such expert opinion. Even under the International Accounting Standards I adverted to above, the unutilized input VAT
credit may be recognized as an asset “to the extent that it is probable that future taxable profit will be available against
which the unused tax losses and unused tax credits can be utilised” If not probable, it would be recognized as a loss.
Since these international standards, duly recognized by the Securities and Exchange Commission as controlling in this
jurisdiction, attribute tangible gain or loss to the VAT credit, it necessarily follows that there is proprietary value
attached to such gain or loss.
Same; Same; Same; To assert that the input VAT is merely a privilege is to correspondingly claim that the business
profit is similarly a mere privilege.—The prepaid input tax represents unutilized profit, which can only be utilized if it is
refunded or credited to output taxes. To assert that the input VAT is merely a privilege is to correspondingly claim that
the business profit is similarly a mere privilege. The Constitution itself recognizes the right to profit by private
enterprises. As I stated earlier, one of the enunciated State policies under the Constitution is the recognition of the
indispensable role of the private sector, the encouragement of private enterprise, and the provision of incentives to
needed investments. Moreover, the Constitution also requires the State to recognize the right of
71
enterprises to reasonable returns on investments, and to expansion and growth. This, I believe, encompasses profit.
Same; Same; The amortization over a five-year period of the input VAT on these capital goods would definitely eat up
into the profit margin of enterprises.—Again, this provision unreasonably severely limits the ability of an enterprise to
recover its prepaid input VAT. On its face, it might appear injurious primarily to high margin enterprises, whose
purchase of capital goods in a given quarter would routinely exceed P1,000,000.00. The amortization over a five-year
period of the input VAT on these capital goods would definitely eat up into their profit margin. But it is still possible for
such big businesses to survive despite this new restriction, and their financial pain alone may not be sufficient to cause
the invalidity of a taxing statute. However, this amortization plan will prove especially fatal to start-ups and other new
businesses, which need to purchase capital goods in order to start up their new businesses. It is a known fact in the
financial community that a majority of businesses start earning profit only after the second or third year, and many
enterprises do not even get to survive that long. The first few years of a business are the most crucial to its survival, and
any financial benefits it can obtain in those years, no matter how miniscule, may spell the difference between life and
death. For such emerging businesses, it is already difficult under the present system to recover the prepaid input VAT
from the output VAT collected from customers because initial sales volumes are usually low. With this further
limitation, diminishing as it does any opportunity to have a sustainable cash flow, the ability of new businesses to
survive the first three years becomes even more endangered.
Same; Same; For some lucky enterprises who may be able to survive the injury brought about by the 70% cap, this 60
month amortization period might instead provide the mortal head wound.—Even existing small to medium enterprises
are imperiled by this 60 month amortization restriction, especially considering the application of the 70% cap. The
additional purchase of capital goods bears as a means of adding value to the consumer good, as a means to justify the
increased selling price. However, the purchase of capital goods in excess of P1,000,000.00 would impose another burden
on the small to medium enterprise by further restricting their ability to immediately recover the entire prepaid input
VAT (which would exceed at least
72

ANNOTATED
P100,000.00), as they would be compelled to wait for at least five years before they can do so. Another hurdle is
imposed for such small to medium enterprise to obtain the profit margin critical to survival. For some lucky enterprises
who may be able to survive the injury brought about by the 70% cap, this 60 month amortization period might instead
provide the mortal head wound.
Same; Same; The deletion of the credit apparatus—where tax withheld would also be creditable against the VAT
liability of the seller or contractor—effectively compels the private enterprise transacting with the government to shoulder
the output VAT that should have been paid by the government in excess of 5% of the gross selling price, and at the same
time unduly burdens the private enterprise by precluding it from applying any creditable input VAT on the same
transaction.—The principle that the Government and its subsidiaries may deduct and withhold a final value-added tax
on its purchase of goods and services is not new, as the NIRC had allowed such deduction and withholding at the rate of
3% of the gross payment for the purchase of goods, and 6% of the gross receipts for services. However, the NIRC had also
provided that this tax withheld would also be creditable against the VAT liability of the seller or contractor, a mechanism
that was deleted by the E-VAT law. The deletion of this credit apparatus effectively compels the private enterprise
transacting with the government to shoulder the output VAT that should have been paid by the government in excess of
5% of the gross selling price, and at the same time unduly burdens the private enterprise by precluding it from applying
any creditable input VAT on the same transaction. Notably, the removal of the credit mechanism runs contrary to the
essence of the VAT system, which characteristically allows the crediting of input taxes against output taxes. Without
such crediting mechanism, which allows the shifting of the VAT to only the final end user, the tax becomes a
straightforward tax on business or income. The effect on the enterprise doing business with the government would be that
two taxes would be imposed on the income by the business derived on such transaction: the regular personal or corporate
income tax on such income, and this final withholding tax of 5%.
Same; Same; It is a legitimate purpose of a tax law to devise a manner by which the government could save money on
its own transactions, but it is another matter if a private enterprise is punished for doing business with the government.—
Granted that Congress is not
73
bound to adopt with strict conformity the VAT system, and that it has to power to impose new taxes on business
income, this amendment to Section 114(C) of the NIRC still remains unconstitutional. It unfairly discriminates against
entities which contract with the government by imposing an additional tax on the income derived from such transactions.
The end result of such discrimination is double taxation on income that is both oppressive and confiscatory. It is a
legitimate purpose of a tax law to devise a manner by which the government could save money on its own transactions,
but it is another matter if a private enterprise is punished for doing business with the government. The erstwhile NIRC
worked towards such advantage, by allowing the government to reduce its cash outlay on purchases of goods and
services by withholding the payment of a percentage thereof. While the new E-VAT law retains this benefit to the
government, at the same time it burdens the private enterprise with an additional tax by refusing to allow the crediting
of this tax withheld to the business’s input VAT.
Same; Same; Section 114(C) of the NIRC squarely contradicts Section 20, Article II of the Constitution as it
vacuously discourages private enterprise, and provides disincentives to needed investments such as those expected by the
State from private businesses.—The provision squarely contradicts Section 20, Article II of the Constitution as it
vacuously discourages private enterprise, and provides disincentives to needed investments such as those expected by the
State from private businesses. Whatever advantages may be gained by the temporary increase in the government coffers
would be overturned by the disadvantages of having a reduced pool of private enterprises willing to do business with the
government. Moreover, since government contracts with private enterprises will still remain a necessary fact of life, the
amendment to Section 114(C) of the NIRC introduced by the E-VAT Law.
Same; Same; Double Taxation; Words and Phrases; Double taxation means taxing for the same tax period the same
thing or activity twice, when it should be taxed but once, for the same purpose and with the same kind of character of tax;
Double taxation is not expressly forbidden in our constitution, but the Court has recognized it as obnoxious “where the
taxpayer is taxed twice for the benefit of the same governmental entity or by the same jurisdiction for the same purpose.”—
Double taxation means taxing for the same tax period the
74

ANNOTATED
same thing or activity twice, when it should be taxed but once, for the same purpose and with the same kind of
character of tax. Double taxation is not expressly forbidden in our constitution, but the Court has recognized it as
obnoxious “where the taxpayer is taxed twice for the benefit of the same governmental entity or by the same jurisdiction
for the same purpose.” Certainly, both the 5% final tax withheld and the general corporate income tax are both paid for
the benefit of the national government, and for the same incidence of taxation, the sale/lease of goods and services to the
government.
Same; Same; Intelligent tax policy should extend beyond the singular-minded goal of raising State funds—the old-
time philosophy behind the taxing schemes of war-mongering monarchs and totalitarian states—and should sincerely
explore the concept of taxation as a means of providing genuine incentives to private enterprise to spur economic growth,
of promoting egalitarian social justice that would allow everyone to their fair share of the nation’s wealth.—The VAT
system, in itself, is intelligently designed, and stands as a fair means to raise revenue. It has been adopted worldwide by
countries hoping to employ an efficient means of taxation. The concerns I have raised do not detract from my general
approval of the VAT system. I do lament though that our government’s wholehearted adoption of the VAT system is
endemic of what I deem a flaw in our national tax policy in the last few decades. The power of taxation, inherent in the
State and ever so powerful, has been generally employed by our financial planners for a solitary purpose: the raising of
revenue. Revenue generation is a legitimate purpose of taxation, but standing alone, it is a woefully unsophisticated
design. Intelligent tax policy should extend beyond the singular-minded goal of raising State funds—the old-time
philosophy behind the taxing schemes of war-mongering monarchs and totalitarian states—and should sincerely explore
the concept of taxation as a means of providing genuine incentives to private enterprise to spur economic growth; of
promoting egalitarian social justice that would allow everyone to their fair share of the nation’s wealth. Instead, we are
condemned by a national policy driven by the monomania for State revenue. It may be beyond my oath as a Justice to
compel the government to adopt an economic policy in consonance with my personal views, but I offer these observations
since they lie at the very heart of the noxiousness of the assailed provisions of the E-VAT law. The 70% cap, the 60-
month amortization period and the 5% withholding tax on govern-
75
ment transactions were selfishly designed to increase government revenue at the expense of the survival of local
industries.
Same; Same; Under the device employed in the E-VAT law, the price to be paid for a more sustainable liquidity of the
government’s finances will be the death of local business, and correspondingly, the demise of our society.—I am not
insensitive to the concerns raised by the respondents as to the dire consequences to the economy should the E-VAT law
be struck down. I am aware that the granting of the petition in G.R. No. 168461 will negatively affect the cash flow of
the government. If that were the only relevant concern at stake, I would have no problems denying the
petition. Unfortunately, under the device employed in the E-VAT law, the price to be paid for a more sustainable liquidity
of the government’s finances will be the death of local business, and correspondingly, the demise of our society. It is a
measure just as draconian as the standard issue taxes of medieval tyrants.
Same; Same; Taxes may be the lifeblood of the state, but never at the expense of the life of its subjects.—I am not
normally inclined towards the language of the overwrought, yet if the sky were indeed truly falling, how else could that
fact be communicated. The E-VAT Law is of multiple fatal consequences. How are we to survive as a nation without the
bulwark of private industries? Perhaps the larger scale, established businesses may ultimately remain standing, but
they will be unable to sustain the void left by the demise of small to medium enterprises. Or worse, domestic industry
would be left in the absolute control of monopolies, combines or cartels, whether dominated by foreigners or local
oligarchs. The destruction of subsisting industries would be bad enough, the destruction of opportunity and the
entrepreneurial spirit would be even more grievous and tragic, as it would mark as well the end of hope. Taxes may be
the lifeblood of the state, but never at the expense of the life of its subjects.
CHICO-NAZARIO, J., Concurring Opinion:
Congress; Enrolled Bill Doctrine; I believe that it is more prudent for this Court to remain conservative and to
continue its adherence to the enrolled bill doctrine, for to abandon the said doctrine would be to open a Pandora’s Box,
giving rise to a situation more fraught with evil and mischief.—Petitioners’ arguments failed to
76
ANNOTATED
convince me of the wisdom of abandoning the enrolled bill doctrine. I believe that it is more prudent for this Court to
remain conservative and to continue its adherence to the enrolled bill doctrine, for to abandon the said doctrine would be
to open a Pandora’s Box, giving rise to a situation more fraught with evil and mischief. Statutes enacted by Congress
may not attain finality or conclusiveness unless declared so by this Court. This would undermine the authority of our
statutes because despite having been signed and certified by the designated officers of Congress, their validity would
still be in doubt and their implementation would be greatly hampered by allegations of irregularities in their passage by
the Legislature. Such an uncertainty in the statutes would indubitably result in confusion and disorder. In all
probability, it is the contemplation of such a scenario that led an American judge to proclaim, thus—. . . Better, far
better, that a provision should occasionally find its way into the statute through mistake, or even fraud, than, that every
Act, state and national, should at any and all times be liable to put in issue and impeached by the journals, loose papers
of the Legislature, and parol evidence. Such a state of uncertainty in the statute laws of the land would lead to mischiefs
absolutely intolerable. . . .
Same; Bicameral Conference Committee; It does perplex me that members of both Houses would again ask the Court
to define and limit the powers of the Bicameral Conference Committee when such committee is of their own creation; That
the majority of the members of both Houses refuses to amend the Rules on the Bicameral Conference Committee is an
indication that it is still satisfied therewith.—It does perplex me that members of both Houses would again ask the
Court to define and limit the powers of the Bicameral Conference Committee when such committee is of their own
creation. In a number of cases, this Court already made a determination of the extent of the powers of the Bicameral
Conference Committee after taking into account the existing Rules of both Houses of Congress. In gist, the power of the
Bicameral Conference Committee to reconcile or settle the differences in the two Houses’ respective bills is not limited to
the conflicting provisions of the bills; but may include matters not found in the original bills but germane to the purpose
thereof. If both Houses viewed the pronouncement made by this Court in such cases as extreme or beyond what they
intended, they had the power to amend their respective Rules to clarify or limit even further the scope of the authority
which they grant to the Bicameral Conference
77
Committee. Petitioners’ grievance that, unfortunately, they cannot bring about such an amendment of the Rules on
the Bicameral Conference Committee because they are members of the minority, deserves scant consideration. That the
majority of the members of both Houses refuses to amend the Rules on the Bicameral Conference Committee is an
indication that it is still satisfied therewith. At any rate, this is how democracy works—the will of the majority shall be
controlling.
Taxation; Germaneness Rule; If we have one Code for all our national internal revenue taxes, then there is no reason
why we cannot have a single statute amending provisions thereof even if they involve different taxes under separate titles.
—Although House Bills No. 3555 and 3705 were limited to the amendments of the provisions on VAT of the National
Internal Revenue Code of 1997, Senate Bill No. 1950 had a much wider scope and included amendments of other
provisions of the said Code, such as those on income, percentage, and excise taxes. It should be borne in mind that the
very purpose of these three Bills and, subsequently, of Rep. Act No. 9337, was to raise additional revenues for the
government to address the dire economic situation of the country. The National Internal Revenue Code of 1997, as its
title suggests, is the single Code that governs all our national internal revenue taxes. While it does cover different taxes,
all of them are imposed and collected by the national government to raise revenues. If we have one Code for all our
national internal revenue taxes, then there is no reason why we cannot have a single statute amending provisions
thereof even if they involve different taxes under separate titles. I hereby submit that the amendments introduced by
the Bicameral Conference Committee to non-VAT provisions of the National Internal Revenue Code of 1997 are not
unconstitutional for they are germane to the purpose of House Bills No. 3555 and 3705 and Senate Bill No. 1950, which
is to raise national revenues.
Same; Value-Added Tax; Since the privilege of an input VAT credit is granted by law, then an amendment of such
law may limit the exercise of or may totally withdraw the privilege.—The crediting of the input VAT against the output
VAT is a statutory privilege, granted by Section 110 of the National Internal Revenue Code of 1997. It gives the VAT-
registered person the opportunity to recover the input VAT he had paid, so that, in effect, the input VAT does not
78

ANNOTATED
constitute an additional cost for him. While it is true that input VAT credits are reported as assets in a VAT-
registered person’s financial statements and books of account, this accounting treatment is still based on the statutory
provision recognizing the input VAT as a credit. Without Section 110 of the National Internal Revenue Code of 1997,
then the accounting treatment of any input VAT will also change and may no longer be booked outright as an asset.
Since the privilege of an input VAT credit is granted by law, then an amendment of such law may limit the exercise of or
may totally withdraw the privilege.
Same; Same; To say that Congress may not trifle with Section 110 of the National Internal Revenue Code of 1997
would be to violate a basic precept of constitutional law—that no law is irrepealable; There can be no vested right to the
continued existence of a statute, which precludes its change or repeal.—The amendment of Section 110 of the National
Internal Revenue Code of 1997 by Rep. Act No. 9337, which imposed the 70% cap on input VAT credits, is a legitimate
exercise by Congress of its law-making power. To say that Congress may not trifle with Section 110 of the National
Internal Revenue Code of 1997 would be to violate a basic precept of constitutional law—that no law is irrepealable.
There can be no vested right to the continued existence of a statute, which precludes its change or repeal.
Same; Same; 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.—Under the National Internal Revenue Code of 1997, before it was amended by Rep. Act No. 9337, the sale or
importation of petroleum products were exempt from VAT, and instead, were subject to excise tax. Petroleum dealers
did not impose any output VAT on their sales to consumers. Since they had no output VAT against which they could
credit their input VAT, they shouldered the costs of the input VAT that they paid on their purchases of goods,
properties, and services. Their sales not being subject to VAT, the petroleum dealers had no input VAT credits to speak
of. It is only under Rep. Act No. 9337 that the sales by the petroleum dealers have become subject to VAT and only in its
implementation may they use their input VAT as credit against their output VAT. While eager to use their input VAT
credit
79
accorded to it by Rep. Act No. 9337, the petroleum dealers reject the limitation imposed by the very same law on
such use. 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.
Same; Same; The 70% cap on input VAT credits was not imposed by Congress arbitrarily—members of the Bicameral
Conference Committee settled on the said percentage so as to ensure that the government can collect a minimum of 30%
output VAT per taxpayer, to put a VAT-taxpayer, at least, on equal footing with a VAT-exempt taxpayer under Section
109(V) of the National Internal Revenue Code, as amended by Rep. Act No. 9337.—I find that the 70% cap on input VAT
credits was not imposed by Congress arbitrarily. Members of the Bicameral Conference Committee settled on the said
percentage so as to ensure that the government can collect a minimum of 30% output VAT per taxpayer. This is to put a
VAT-taxpayer, at least, on equal footing with a VAT-exempt taxpayer under Section 109(V) of the National Internal
Revenue Code, as amended by Rep. Act No. 9337. The latter taxpayer is exempt from VAT on the basis that his sale or
lease of goods or properties or services do not exceed P1,500,000; instead, he is subject to pay a three percent (3%) tax on
his gross receipts in lieu of the VAT. If a taxpayer with presumably a smaller business is required to pay three percent
(3%) gross receipts tax, a type of tax which does not even allow for any crediting, a VAT-taxpayer with a bigger business
should be obligated, likewise, to pay a minimum of 30% output VAT (which should be equivalent to 3% of the gross
selling price per good or property or service sold). The cap assures the government a collection of at least 30% output
VAT, contributing to an improved cash flow for the government.
80

ANNOTATED
SPECIAL CIVIL ACTION in the Supreme Court.
The facts are stated in the opinion of the Court.

Carlos G. Baniqued and Laura Victoria Yuson-Layug for petitioners in G.R. No. 168461.
Eugenio H. Villareal, Dionisio B. Marasigan, Ma. Rosa-lie Taguian, Agustin C. Bacungan
III and Roland Allan C. Abarquez for petitioners in G.R. No. 168463.
Samson S. Alcantara, Ed Vincent S. Albano and Rene B. Gorospe for petitioners in G.R. No. 168056.
Luis Ma. Gil L. Gana for petitioners in G.R. No. 168207.
The Solicitor General for public respondents.
AUSTRIA-MARTINEZ, J.:
The expenses of government, having for their object the interest of all, should be borne by everyone, and the more
man enjoys the advantages of society, the more he ought to hold himself honored in contributing to those expenses.
—Anne Robert Jacques Turgot (1727-1781)
French statesman and economist
Mounting budget deficit, revenue generation, inadequate fiscal allocation for education, increased
emoluments for health workers, and wider coverage1 for full value-added tax benefits . . . these are the
reasons why Republic Act No. 9337 (R.A. No. 9337) was enacted. Reasons, the wisdom of which, the Court
even with its extensive constitutional power of review, cannot probe. The petitioners in these cases,
however, question not only the wisdom of the law, but also perceived constitutional infirmities in its
passage.
_______________
1 Entitled “An Act Amending Sections 27, 28, 34, 106, 107, 108, 109, 110, 111, 112, 113, 114, 116, 117, 119, 121, 148, 151, 236, 237,
and 288 of the National Internal Revenue Code of 1997, As Amended and For Other Purposes.”
81
Every law enjoys in its favor the presumption of constitutionality. Their arguments notwithstanding,
petitioners failed to justify their call for the invalidity of the law. Hence, R.A. No. 9337 is not
unconstitutional.

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SUPREME COURT REPORTS ANNOTATED

Abakada Guro Party List vs. Ermita

G.R. No. 168056. September 1, 2005.

G.R. No. 168207. September 1, 2005.

AQUILINO Q. PIMENTEL, JR., LUISA P. EJERCITO-ESTRADA, JINGGOY E. ESTRADA,

G.R. No. 168461. September 1, 2005.

ASSOCIATION OF PILIPINAS SHELL DEALERS, INC. represented by its President, ROSARIO

VOL. 469, SEPTEMBER 1, 2005 15

16 SUPREME COURT REPORTS ANNOTATED

Finance and GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of Internal

G.R. No. 168463. September 1, 2005.*

FRANCIS JOSEPH G. ESCUDERO, VINCENT CRISOLOGO, EMMANUEL JOEL J.

G.R. No. 168730. September 1, 2005.*

BATAAN GOVERNOR ENRIQUE T. GARCIA, JR., petitioner, vs. HON. EDUARDO R. ERMITA,

Taxation; Value-Added Tax (VAT); Words and Phrases; The VAT is a tax on spending or consumption—

VOL. 469, SEPTEMBER 1, 2005 17

Abakada Guro Party List vs. Ermita

18 SUPREME COURT REPORTS

Abakada Guro Party List vs. Ermita

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Abakada Guro Party List vs. Ermita

20 SUPREME COURT REPORTS

Abakada Guro Party List vs. Ermita

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Abakada Guro Party List vs. Ermita

22 SUPREME COURT REPORTS

Abakada Guro Party List vs. Ermita

Abakada Guro Party List vs. Ermita

24 SUPREME COURT REPORTS

Abakada Guro Party List vs. Ermita

VOL. 469, SEPTEMBER 1, 2005 25

Abakada Guro Party List vs. Ermita

Abakada Guro Party List vs. Ermita

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Abakada Guro Party List vs. Ermita

28 SUPREME COURT REPORTS

Abakada Guro Party List vs. Ermita

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30 SUPREME COURT REPORTS

Abakada Guro Party List vs. Ermita

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Abakada Guro Party List vs. Ermita

32 SUPREME COURT REPORTS

Abakada Guro Party List vs. Ermita

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Abakada Guro Party List vs. Ermita

34 SUPREME COURT REPORTS

Abakada Guro Party List vs. Ermita

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Abakada Guro Party List vs. Ermita

36 SUPREME COURT REPORTS

Abakada Guro Party List vs. Ermita

VOL. 469, SEPTEMBER 1, 2005 37

Abakada Guro Party List vs. Ermita

DAVIDE, JR., C.J., Separate Concurring and Dissenting Opinion:

38 SUPREME COURT REPORTS

Abakada Guro Party List vs. Ermita

PUNO, J., Concurring and Dissenting Opinion:

VOL. 469, SEPTEMBER 1, 2005 39