abakada guro - october

8/3/2019 Abakada Guro - October

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EN BANC

Agenda for October 18, 2005Item No. 45

G.R. No. 168056 (ABAKADA Guro Party List Officer Samson S. Alcantara, et al. vs. The Hon. ExecutivSecretary Eduardo R. Ermita); G.R. No. 168207 (Aquilino Q. Pimentel, Jr., et al. vs. Executive SecretarEduardo R. Ermita, et al.); G.R. No. 168461 (Association of Pilipinas Shell Dealers, Inc., et al. vs. Cesar VPurisima, et al.); G.R. No. 168463 (Francis Joseph G. Escudero vs. Cesar V. Purisima, et al); and G.R. No168730 (Bataan Governor Enrique T. Garcia, Jr. vs. Hon. Eduardo R. Ermita, et al.)

RESOLUTION

For resolution are the following motions for reconsideration of the Courts Decision dated September 1, 200upholding the constitutionality of Republic Act No. 9337 or the VAT Reform Act

[1]:

1) Motion for Reconsideration filed by petitioners in G.R. No. 168463, Escudero,et al., on the followinggrounds:

A. THE DELETION OF THE NO PASS ON PROVISIONS FOR THE SALE OF PETROLEUMPRODUCTS AND POWER GENERATION SERVICES CONSTITUTED GRAVE ABUSE OF DISCRETION

AMOUNTING TO LACK OR EXCESS OF JURISDICTION ON THE PART OF THE BICAMERALCONFERENCE COMMITTEE.

B. REPUBLIC ACT NO. 9337 GROSSLY VIOLATES THE CONSTITUTIONAL IMPERATIVE ONEXCLUSIVE ORIGINATION OF REVENUE BILLS UNDER 24, ARTICLE VI, 1987 PHILIPPINECONSTITUTION.

C. REPUBLIC ACT NO. 9337S STAND-BY AUTHORITY TO THE EXECUTIVE TO INCREASE THE VATRATE, ESPECIALLY ON ACCOUNT OF THE EFFECTIVE RECOMMENDATORY POWER GRANTED TOTHE SECRETARY OF FINANCE, CONSTITUTES UNDUE DELEGATION OF LEGISLATIVE AUTHORITY.

2) Motion for Reconsideration of petitioner in G.R. No. 168730, Bataan Governor Enrique T. Garcia, Jr., withthe argument that burdening the consumers with significantly higher prices under a VAT regime vis--vis a 3%

gross tax renders the law unconstitutional for being arbitrary, oppressive and inequitable.

and

3) Motion for Reconsideration by petitioners Association of Pilipinas Shell Dealers, Inc. in G.R. No. 168461,on the grounds that:

I. This Honorable Court erred in upholding the constitutionality of Section 110(A)(2) and Section 110(B) ofthe NIRC, as amended by the EVAT Law, imposing limitations on the amount of input VAT that may beclaimed as a credit against output VAT, as well as Section 114(C) of the NIRC, as amended by the EVATLaw, requiring the government or any of its instrumentalities to withhold a 5% final withholding VAT on their

gross payments on purchases of goods and services, and finding that the questioned provisions:

A. are not arbitrary, oppressive and consfiscatory as to amount to a deprivation of property without dueprocess of law in violation of Article III, Section 1 of the 1987 Philippine Constitution;

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

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

II. This Honorable Court erred in upholding the constitutionality of Section 110(B) of the NIRC, as amendedby the EVAT Law, imposing a limitation on the amount of input VAT that may be claimed as a credit against


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output VAT notwithstanding the finding that the tax is not progressive as exhorted by Article VI, Section28(1) of the 1987 Philippine Constitution.

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

Petitioners Escudero, et al., insist that the bicameral conference committee should not even have acted othe no pass-on provisions since there is no disagreement between House Bill Nos. 3705 and 3555 on the one han

and Senate Bill No. 1950 on the other, with regard to theno pass-on provision for the sale of service for powegeneration because both the Senate and the House were in agreement that the VAT burden for the sale of sucservice shall not be passed on to the end-consumer. As to theno pass-onprovision for sale of petroleum productspetitioners argue that the fact that the presence of such ano pass-on provision in the House version and theabsence thereof in the Senate Bill means there is no conflict because a House provision cannot be in conflict witsomething that does not exist.

Such argument is flawed. Note that the rules of both houses of Congress provide that a conferenccommittee shall settle the differences in the respective bills of each house. Verily, the fact that ano passon provision is present in one version but absent in the other, and one version intends two industries,i.e., powegeneration companies and petroleum sellers, to bear the burden of the tax, while the other version intended only thindustry of power generation, transmission and distribution to be saddled with such burden, clearly shows that theare indeed differences between the bills coming from each house, which differences should be acted upon by th

bicameral conference committee. It is incorrect to conclude that there is no clash between two opposing forces wiregard to the no pass-on provision for VAT on the sale of petroleum products merely because such provision existin the House version while it is absent in the Senate version. It is precisely the absence of such provision in thSenate bill and the presence thereof in the House bills that causes the conflict. The absence of the provision in tSenate bill shows the Senates disagreement to the intention of the House of Representatives make the sellers petroleum bear the burden of the VAT. Thus, there are indeed two opposing forces: on one side, the House Representatives which wants petroleum dealers to be saddled with the burden of paying VAT and on the other, thSenate which does not see it proper to make that particular industry bear said burden. Clearly, such conflicts andifferences between theno pass-on provisions in the Senate and House bills had to be acted upon by the bicamerconference committee as mandated by the rules of both houses of Congress.

Moreover, the deletion of theno pass-on provision made the present VAT law more in consonance with th

very nature of VAT which, as stated in the Decision promulgated on September 1, 2005, is a tax on spending oconsumption, thus, the burden thereof is ultimately borne by the end-consumer.

Escudero, et al., then claim that there had been changes introduced in the Rules of the House of Representativeregarding the conduct of the House panel in a bicameral conference committee, since the time ofTolentino vsSecretary of Finance

[2]to act as safeguards against possible abuse of authority by the House members of th

bicameral conference committee. Even assuming that the rule requiring the House panel to report back to thHouse if there are substantial differences in the House and Senate bills had indeed been introduced afterTolentinothe Court stands by its ruling that the issue of whether or not the House panel in the bicameral conferenccommittee complied with said internal rule cannot be inquired into by the Court. To reiterate, mere failure conform to parliamentary usage will not invalidate the action (taken by a deliberative body) when the requisitnumber of members have agreed to a particular measure.

[3]

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

The Court is not persuaded.

Article VI, Section 24 of the Constitution provides:


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

Section 24 speaks of origination of certain bills from the House of Representatives which has been interpreted the Tolentino case as follows:

To begin with, it is not the law but the revenue bill which is required by the Constitution to "originateexclusively" in the House of Representatives. It is important to emphasize this, because a bill originating inthe House may undergo such extensive changes in the Senate that the result may be a rewriting of thewhole At this point, what is important to note is that, as a result of the Senate action, a distinct bill maybe produced. To insist that a revenue statute and not only the bill which initiated the legislative processculminating in the enactment of the law must substantially be the same as the House bill would be todeny the Senate's power not only to "concur with amendments" but also to " propose amendments." Itwould be to violate the coequality of legislative power of the two houses of Congress and in fact make theHouse superior to the Senate.

Given, then, the power of the Senate to propose amendments, the Senate can propose its own versioneven with respect to bills which are required by the Constitution to originate in the House.

. . .Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff, or tax bills, billsauthorizing an increase of the public debt, private bills and bills of local application must come from theHouse of Representatives on the theory that, elected as they are from the districts, the members of theHouse can be expected to be more sensitive to the local needs and problems. On the other hand, thesenators, who are elected at large, are expected to approach the same problems from the nationalperspective. Both views are thereby made to bear on the enactment of such laws.

[4]

Clearly, after the House bills as approved on third reading are duly transmitted to the Senate, the Constitution statethat the latter can propose or concur with amendments. The Court finds that the subject provisions found in thSenate bill are within the purview of such constitutional provision as declared in theTolentino case.

The intent of the House of Representatives in initiating House Bill Nos. 3555 and 3705 was to solve the countryserious financial problems. It was stated in the respective explanatory notes that there is a need for the governmeto make significant expenditure savings and a credible package of revenue measures. These measures includimprovement of tax administration and control and leakages in revenues from income taxes and value added tax. is also stated that one opportunity that could be beneficial to the overall status of our economy is to review existintax rates, evaluating the relevance given our present conditions. Thus, with these purposes in mind and taccomplish these purposes for which the house bills were filed,i.e., to raise revenues for the government, theSenate introduced amendments on income taxes, which as admitted by Senator Ralph Recto, would yieabout P10.5 billion a year.

Moreover, since the objective of these house bills is to raise revenues, the increase in corporate income taxe

would be a great help and would also soften the impact of VAT measure on the consumers by distributing thburden across all sectors instead of putting it entirely on the shoulders of the consumers.

As to the other National Internal Revenue Code (NIRC) provisions found in Senate Bill No. 1950,i.e., percentagetaxes, franchise taxes, amusement and excise taxes, these provisions are needed so as to cushion the effects oVAT on consumers. As we said in our decision, certain goods and services which were subject to percentage taand excise tax would no longer be VAT exempt, thus, the consumer would be burdened more as they would bpaying the VAT in addition to these taxes. Thus, there is a need to amend these sections to soften the impact VAT. The Court finds no reason to reverse the earlier ruling that the Senate introduced amendments that agermane to the subject matter and purposes of the house bills.


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Petitioners Escudero, et al., also reiterate that R.A. No. 9337s stand- by authority to the Executive to increase thVAT rate, especially on account of the recommendatory power granted to the Secretary of Finance, constituteundue delegation of legislative power. They submit that the recommendatory power given to the Secretary Finance in regard to the occurrence of either of two events using the Gross Domestic Product (GDP) as benchmark necessarily and inherently required extended analysis and evaluation, as well as policy making.

There is no merit in this contention. The Court reiterates that in making his recommendation to the President on thexistence of either of the two conditions, the Secretary of Finance is not acting as the alter ego of the President even her subordinate. He is acting as the agent of the legislative department, to determine and declare the eve

upon which its expressed will is to take effect. The Secretary of Finance becomes the means or tool by whiclegislative policy is determined and implemented, considering that he possesses all the facilities to gather data aninformation and has a much broader perspective to properly evaluate them. His function is to gather and collastatistical data and other pertinent information and verify if any of the two conditions laid out by Congress present. Congress granted the Secretary of Finance the authority to ascertain the existence of a fact, namewhether by December 31, 2005, the value-added tax collection as a percentage of GDP of the previous yeaexceeds two and four-fifth percent (2

4/5%) or the national government deficit as a percentage of GDP of th

previous year exceeds one and one-half percent (1%). If either of these two instances has occurred, thSecretary of Finance, by legislative mandate, must submit such information to the President. Then the 12% VArate must be imposed by the President effective January 1, 2006. Congress does not abdicate its functions unduly delegate power when it describes what job must be done, who must do it, and what is the scope of hauthority; in our complex economy that is frequently the only way in which the legislative process can gforward.There is no undue delegation of legislative power but only of the discretion as to the execution of a law

This is constitutionally permissible. Congress did not delegate the power to tax but the mere implementation of thlaw. The intent and will to increase theVAT rate to 12% came from Congress and the task of the President is simply execute the legislative policy. That Congress chose to use the GDP as a benchmark to determine economgrowth is not within the province of the Court to inquire into, its task being to interpret the law.

With regard to petitioner Garcias arguments, the Court also finds the same to be without merit. As stated in thassailed Decision, the Court recognizes the burden that the consumers will be bearing with the passage of R.A. N9337. But as was also stated by the Court, it cannot strike down the law as unconstitutional simply because of iyokes. The legislature has spoken and the only role that the Court plays in the picture is to determine whether thlaw was passed with due regard to the mandates of the Constitution. Inasmuch as the Court finds that there are nconstitutional infirmities with its passage, the validity of the law must therefore be upheld.

Finally, petitioners Association of Pilipinas Shell Dealers, Inc. reiterated their arguments in the petition, citing thtime, the dissertation of Associate Justice Dante O. Tinga in his Dissenting Opinion.

The glitch in petitioners arguments is that it presents figures based on an event that is yet to happen. Theillustration of thepossible effects of the 70% limitation, while seemingly concrete, still remains theoretical. Theoriehave no place in this case asthe Court must only deal with an existing case or controversy that isappropriate or ripe for judicial determination, not one that is conjectural or merely anticipatory.

[5]The Cour

will not intervene absent an actual and substantial controversy admitting of specific relief through a decree conclusivin nature, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts.

[6]

The impact of the 70% limitation on the creditable input tax will ultimately depend on how one manages an

operates its business. Market forces, strategy and acumen will dictate their moves. With or without these VAprovisions, an entrepreneur who does not have the ken to adapt to economic variables will surely perish in thcompetition. The arguments posed are within the realm of business, and the solution lies also in business.

Petitioners also reiterate their argument that the input tax is a property or a property right. In the same breath, thCourt reiterates its finding that it is not a property or a property right, and a VAT-registered persons entitlement tthe creditable input tax is a mere statutory privilege.

Petitioners also contend that even if the right to credit the input VAT is merely a statutory privilege, it has alreadevolved into a vested right that the State cannot remove.


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As the Court stated in its Decision, the right to credit the input tax is a mere creation of law. Prior to the enactmeof multi-stage sales taxation, the sales taxes paid at every level of distribution are not recoverable from the taxepayable. With the advent of Executive Order No. 273 imposing a 10% multi-stage tax on all sales, it was only thethat the crediting of the input tax paid on purchase or importation of goods and services by VAT-registered personagainst the output tax was established. This continued with the Expanded VAT Law (R.A. No. 7716), and The TaReform Act of 1997 (R.A. No. 8424). The right to credit input tax as against the output tax is clearly a privilegcreated by law, a privilege that also the law can limit. It should be stressed that a person has no vested right statutory privileges.

[7]

The concept of vested right is a consequence of the constitutional guaranty of due process that expresses present fixed interest which in right reason and natural justice is protected against arbitrary state action; it includenot only legal or equitable title to the enforcement of a demand but also exemptions from new obligations createafter the right has become vested. Rights are considered vested when the right to enjoyment is a present interesabsolute, unconditional, and perfect or fixed and irrefutable.

[8]As adeptly stated by Associate Justice Minita V

Chico-Nazario in her Concurring Opinion, which the Court adopts, petitioners right to the input VAT credits has noyet vested, thus

It should be remembered that prior to Rep. Act No. 9337, the petroleum dealers input VAT credits wereinexistent they were unrecognized and disallowed by law. The petroleum dealers had no such propertycalled input VAT credits. It is only rational, therefore, that they cannot acquire vested rights to the use ofsuch 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 petroleumdealers right to use their input VAT as credit against their output VAT unlimitedly has not vested, being amere expectancy of a future benefit and being contingent on the continuance of Section 110 of the NationalInternal Revenue Code of 1997, prior to its amendment by Rep. Act No. 9337.

The elucidation of Associate Justice Artemio V. Panganiban is likewise worthy of note, to wit:

Moreover, there is no vested right in generally accepted accounting principles. These refer to accountingconcepts, measurement techniques, and standards of presentation in a companys financial statements,

and are not rooted in laws of nature, as are the laws of physical science, for these are merely developedand continually modified by local and international regulatory accounting bodies. To state otherwise andrecognize such asset account as a vested right is to limit the taxing power of the State. Unlimited, plenary,comprehensive and supreme, this power cannot be unduly restricted by mere creations of the State.

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

If the question were ours to decide, we could not say that the legislature, in adopting the present scheme

rather than another, had no basis for its choice, or was arbitrary or unreasonable in its action. But, as thestate is free to distribute the burden of a tax without regard to the particular purpose for which it is to beused, there is no warrant in the Constitution for setting the tax aside because a court thinks that it couldhave distributed the burden more wisely. Those are functions reserved for the legislature.

[9]

WHEREFORE, the Motions for Reconsideration are herebyDENIED WITH FINALITY. The temporary restraining

order issued by the Court is LIFTED.


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SO ORDERED.

abakada guro - october

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