EN BANC

ROMEO P. GEROCHI, KATULONG

NG BAYAN (KB) and
ENVIRONMENTALIST CONSUMERS
NETWORK, INC. (ECN),
Petitioners,

G.R. No. 159796

Present:
PUNO, C.J.,
QUISUMBING,
YNARES-SANTIAGO,
SANDOVAL-GUTIERREZ,
CARPIO,
AUSTRIA-MARTINEZ,
CORONA,
CARPIO MORALES,
AZCUNA,
TINGA,
CHICO-NAZARIO,
GARCIA,
VELASCO, JR. and
NACHURA, JJ.

-versusDEPARTMENT OF ENERGY (DOE),

ENERGY REGULATORY
COMMISSION (ERC), NATIONAL
POWER CORPORATION (NPC),
POWER SECTOR ASSETS AND
LIABILITIES MANAGEMENT
GROUP (PSALM Corp.),
STRATEGIC POWER UTILITIES
GROUP (SPUG),
and PANAYELECTRIC COMPANY
INC. (PECO),
Respondents.

Promulgated:

July 17, 2007

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
DECISION
NACHURA, J.:
Petitioners Romeo P. Gerochi, Katulong Ng Bayan (KB), and Environmentalist
Consumers Network, Inc. (ECN) (petitioners), come before this Court in this original
action praying that Section 34 of Republic Act (RA) 9136, otherwise known as the
Electric Power Industry Reform Act of 2001 (EPIRA), imposing the Universal Charge,
[1]
and Rule 18 of the Rules and Regulations (IRR) [2] which seeks to implement the
said imposition, be declared unconstitutional. Petitioners also pray that the
Universal Charge imposed upon the consumers be refunded and that a preliminary
injunction and/or temporary restraining order (TRO) be issued directing the
respondents to refrain from implementing, charging, and collecting the said charge.
[3]
The assailed provision of law reads:
SECTION 34. Universal Charge. Within one (1) year from the
effectivity of this Act, a universal charge to be determined, fixed and
approved by the ERC, shall be imposed on all electricity end-users for
the following purposes:
(a) Payment for the stranded debts[4] in excess of the amount assumed
by the National Government and stranded contract costs of
NPC[5] and as well as qualified stranded contract costs of
distribution utilities resulting from the restructuring of the industry;
(b) Missionary electrification;[6]
(c) The equalization of the taxes and royalties applied to indigenous or
renewable sources of energy vis--vis imported energy fuels;
(d) An environmental charge equivalent to one-fourth of one centavo
per kilowatt-hour (P0.0025/kWh), which shall accrue to an
environmental fund to be used solely for watershed rehabilitation
and management. Said fund shall be managed by NPC under
existing arrangements; and
1

(e) A charge to account for all forms of cross-subsidies for a period not
exceeding three (3) years.
The universal charge shall be a non-bypassable charge which shall be
passed on and collected from all end-users on a monthly basis by the
distribution utilities. Collections by the distribution utilities and the
TRANSCO in any given month shall be remitted to the PSALM Corp. on
or before the fifteenth (15th) of the succeeding month, net of any
amount due to the distribution utility. Any end-user or self-generating
entity not connected to a distribution utility shall remit its
corresponding universal charge directly to the TRANSCO. The PSALM
Corp., as administrator of the fund, shall create a Special Trust Fund
which shall be disbursed only for the purposes specified herein in an
open and transparent manner. All amount collected for the universal
charge shall be distributed to the respective beneficiaries within a
reasonable period to be provided by the ERC.
The Facts
Congress enacted the EPIRA on June 8, 2001; on June 26, 2001, it took effect.[7]
On April 5, 2002, respondent National Power Corporation-Strategic Power Utilities
Group[8](NPC-SPUG) filed with respondent Energy Regulatory Commission (ERC) a
petition for the availment from the Universal Charge of its share for Missionary
Electrification, docketed as ERC Case No. 2002-165. [9]
On May 7, 2002, NPC filed another petition with ERC, docketed as ERC Case No.
2002-194, praying that the proposed share from the Universal Charge for the
Environmental charge of P0.0025 per kilowatt-hour (/kWh), or a total
of P119,488,847.59,
be
approved
for
withdrawal
from
the
Special
Trust Fund (STF) managed by respondent Power Sector Assets and
Liabilities Management Group (PSALM) [10] for the rehabilitation and management of
watershed areas.[11]
On December 20, 2002, the ERC issued an Order [12] in ERC Case No. 2002-165
provisionally approving the computed amount of P0.0168/kWh as the share of the
NPC-SPUG from the Universal Charge for Missionary Electrification and authorizing
the National Transmission Corporation (TRANSCO) and Distribution Utilities to collect
the same from its end-users on a monthly basis.
On June 26, 2003, the ERC rendered its Decision [13] (for ERC Case No. 2002-165)
modifying its Order of December 20, 2002, thus:
WHEREFORE, the foregoing premises considered, the provisional
authority granted to petitioner National Power Corporation-Strategic
Power Utilities Group (NPC-SPUG) in the Order dated December 20,
2002 is hereby modified to the effect that an additional amount
of P0.0205 per kilowatt-hour should be added to the P0.0168 per
kilowatt-hour provisionally authorized by the Commission in the said
Order. Accordingly, a total amount of P0.0373 per kilowatt-hour is
hereby APPROVED for withdrawal from the Special Trust Fund managed
by PSALM as its share from the Universal Charge for Missionary
Electrification (UC-ME) effective on the following billing cycles:
(a) June 26-July 25, 2003 for National Transmission Corporation
(TRANSCO); and
(b) July 2003 for Distribution Utilities (Dus).
Relative thereto, TRANSCO and Dus are directed to collect the
UC-ME in the amount ofP0.0373 per kilowatt-hour and remit the same
to PSALM on or before the 15th day of the succeeding month.
2

In the meantime, NPC-SPUG is directed to submit, not later than

April 30, 2004, a detailed report to include Audited Financial
Statements and physical status (percentage of completion) of the
projects using the prescribed format.
Let copies of this Order be furnished petitioner NPC-SPUG and all
distribution utilities (Dus).
SO ORDERED.
On August 13, 2003, NPC-SPUG filed a Motion for Reconsideration asking the ERC,
among others,[14] to set aside the above-mentioned Decision, which the ERC granted
in its Order dated October 7, 2003, disposing:
WHEREFORE, the foregoing premises considered, the Motion for
Reconsideration filed by petitioner National Power Corporation-Small
Power Utilities Group (NPC-SPUG) is hereby GRANTED. Accordingly, the
Decision dated June 26, 2003 is hereby modified accordingly.
Relative thereto, NPC-SPUG is directed to submit a quarterly report on
the following:
1.
Projects for CY 2002 undertaken;
2.
Location
3.
Actual amount utilized to complete the project;
4.
Period of completion;
5.
Start of Operation; and
6.
Explanation of the reallocation of UC-ME funds, if
any.
SO ORDERED.[15]
Meanwhile, on April 2, 2003, ERC decided ERC Case No. 2002-194, authorizing the
NPC to draw up to P70,000,000.00 from PSALM for its 2003 Watershed
Rehabilitation Budget subject to the availability of funds for the Environmental Fund
component of the Universal Charge.[16]
On the basis of the said ERC decisions, respondent Panay Electric Company, Inc.
(PECO) chargedpetitioner Romeo P. Gerochi and all other
end-users with the Universal Charge as reflected in their respective electric bills
starting from the month of July 2003.[17]
Hence, this original action.
Petitioners submit that the assailed provision of law and its IRR which sought to
implement the same are unconstitutional on the following grounds:
1)

The universal charge provided for under Sec. 34 of the EPIRA and
sought to be implemented under Sec. 2, Rule 18 of the IRR of the
said law is a tax which is to be collected from all electric end-users
and self-generating entities. The power to tax is strictly a legislative
function and as such, the delegation of said power to any executive
or administrative agency like the ERC is unconstitutional, giving the
same unlimited authority. The assailed provision clearly provides
that the Universal Charge is to be determined, fixed and approved
by the ERC, hence leaving to the latter complete discretionary
legislative authority.

2)

The ERC is also empowered to approve and determine where the

funds collected should be used.

3)

The imposition of the Universal Charge on all end-users is

oppressive and confiscatory and amounts to taxation without
representation as the consumers were not given a chance to be
heard and represented.[18]

Petitioners contend that the Universal Charge has the characteristics of a tax
and is collected to fund the operations of the NPC. They argue that the
cases[19] invoked by the respondents clearly show the regulatory purpose of the
charges imposed therein, which is not so in the case at bench. In said cases, the
respective funds[20] were created in order to balance and stabilize the prices of oil
and sugar, and to act as buffer to counteract the changes and adjustments in
prices, peso devaluation, and other variables which cannot be adequately and
timely monitored by the legislature. Thus, there was a need to delegate powers to
administrative bodies.[21] Petitioners posit that the Universal Charge is imposed not
for a similar purpose.
On the other hand, respondent PSALM through the Office of the Government
Corporate Counsel (OGCC) contends that unlike a tax which is imposed to provide
income for public purposes, such as support of the government, administration of
the law, or payment of public expenses, the assailed Universal Charge is levied for a
specific regulatory purpose, which is to ensure the viability of the country's electric
power industry. Thus, it is exacted by the State in the exercise of its inherent police
power. On this premise, PSALM submits that there is no undue delegation of
legislative power to the ERC since the latter merely exercises a limited authority or
discretion as to the execution and implementation of the provisions of the EPIRA. [22]
Respondents Department of Energy (DOE), ERC, and NPC, through the Office of the
Solicitor General (OSG), share the same view that the Universal Charge is not a tax
because it is levied for a specific regulatory purpose, which is to ensure the viability
of the country's electric power industry, and is, therefore, an exaction in the
exercise of the State's police power. Respondents further contend that said
Universal Charge does not possess the essential characteristics of a tax, that its
imposition would redound to the benefit of the electric power industry and not to
the public, and that its rate is uniformly levied on electricity end-users, unlike a tax
which is imposed based on the individual taxpayer's ability to pay. Moreover,
respondents deny that there is undue delegation of legislative power to the ERC
since the EPIRA sets forth sufficient determinable standards which would guide the
ERC in the exercise of the powers granted to it. Lastly, respondents argue that the
imposition of the Universal Charge is not oppressive and confiscatory since it is an
exercise of the police power of the State and it complies with the requirements of
due process.[23]
On its part, respondent PECO argues that it is duty-bound to collect and remit the
amount pertaining to the Missionary Electrification and Environmental Fund
components of the Universal Charge, pursuant to Sec. 34 of the EPIRA and the
Decisions in ERC Case Nos. 2002-194 and 2002-165.Otherwise, PECO could be held
liable under Sec. 46[24] of the EPIRA, which imposes fines and penalties for any
violation of its provisions or its IRR.[25]

The Issues
The ultimate issues in the case at bar are:
1)

Whether or not, the Universal Charge imposed under Sec. 34 of

the EPIRA is a tax; and

2)

Whether or not there is undue delegation of legislative power to

tax on the part of the ERC.[26]

Before we discuss the issues, the Court shall first deal with an obvious
procedural lapse.

Petitioners filed before us an original action particularly denominated as a

Complaint assailing the constitutionality of Sec. 34 of the EPIRA imposing the
Universal Charge and Rule 18 of the EPIRA's IRR. No doubt, petitioners have locus
standi. They impugn the constitutionality of Sec. 34 of the EPIRA because they
sustained a direct injury as a result of the imposition of the Universal Charge as
reflected in their electric bills.
However, petitioners violated the doctrine of hierarchy of courts when they
filed this Complaint directly with us. Furthermore, the Complaint is bereft of any
allegation of grave abuse of discretion on the part of the ERC or any of the public
respondents, in order for the Court to consider it as a petition for certiorari or
prohibition.
Article VIII, Section 5(1) and (2) of the 1987 Constitution [27] categorically
provides that:

SECTION 5. The Supreme Court shall have the following powers:

1.

Exercise original jurisdiction over cases affecting ambassadors,

other public ministers and consuls, and over petitions for certiorari,
prohibition, mandamus, quo warranto, and habeas corpus.

2.

Review, revise, reverse, modify, or affirm on appeal or certiorari,

as the law or the rules of court may provide, final judgments and
orders of lower courts in:
(a) All cases in which the constitutionality or validity of
any treaty, international or executive agreement, law,
presidential decree, proclamation, order, instruction,
ordinance, or regulation is in question.

But this Court's jurisdiction to issue writs of certiorari, prohibition, mandamus, quo
warranto, andhabeas corpus, while concurrent with that of the regional trial courts
and the Court of Appeals, does not give litigants unrestrained freedom of choice of
forum from which to seek such relief.[28] It has long been established that this Court
will not entertain direct resort to it unless the redress desired cannot be obtained in
the appropriate courts, or where exceptional and compelling circumstances justify
availment of a remedy within and call for the exercise of our primary jurisdiction.
[29]
This circumstance alone warrants the outright dismissal of the present action.
This procedural infirmity notwithstanding, we opt to resolve the constitutional
issue raised herein. We are aware that if the constitutionality of Sec. 34 of the EPIRA
is not resolved now, the issue will certainly resurface in the near future, resulting in
a repeat of this litigation, and probably involving the same parties. In the public
interest and to avoid unnecessary delay, this Court renders its ruling now.
The instant complaint is bereft of merit.
The First Issue
To resolve the first issue, it is necessary to distinguish the States power of
taxation from the police power.
5

The power to tax is an incident of sovereignty and is unlimited in its range,

acknowledging in its very nature no limits, so that security against its abuse is to be
found only in the responsibility of the legislature which imposes the tax on the
constituency that is to pay it.[30] It is based on the principle that taxes are the
lifeblood of the government, and their prompt and certain availability is an
imperious need.[31] Thus, the theory behind the exercise of the power to tax
emanates from necessity; without taxes, government cannot fulfill its mandate of
promoting the general welfare and well-being of the people. [32]
On the other hand, police power is the power of the state to promote public welfare
by restraining and regulating the use of liberty and property. [33] It is the most
pervasive, the least limitable, and the most demanding of the three fundamental
powers of the State. The justification is found in the Latin maxims salus populi est
suprema lex (the welfare of the people is the supreme law) and sic utere tuo ut
alienum non laedas (so use your property as not to injure the property of others). As
an inherent attribute of sovereignty which virtually extends to all public needs,
police power grants a wide panoply of instruments through which the State,
as parens patriae, gives effect to a host of its regulatory powers. [34] We have held
that the power to "regulate" means the power to protect, foster, promote, preserve,
and control, with due regard for the interests, first and foremost, of the public, then
of the utility and of its patrons. [35]
The conservative and pivotal distinction between these two powers rests in
the purpose for which the charge is made. If generation of revenue is the primary
purpose and regulation is merely incidental, the imposition is a tax; but if regulation
is the primary purpose, the fact that revenue is incidentally raised does not make
the imposition a tax.[36]
In exacting the assailed Universal Charge through Sec. 34 of the EPIRA, the State's
police power, particularly its regulatory dimension, is invoked. Such can be deduced
from Sec. 34 which enumerates the purposes for which the Universal Charge is
imposed[37] and which can be amply discerned as regulatory in character. The EPIRA
resonates such regulatory purposes, thus:
SECTION 2. Declaration of Policy. It is hereby declared the policy of the
State:
(a) To ensure and accelerate the total electrification of the country;
(b) To ensure the quality, reliability, security and affordability of the
supply of electric power;
(c) To ensure transparent and reasonable prices of electricity in a
regime of free and fair competition and full public accountability to
achieve greater operational and economic efficiency and enhance
the competitiveness of Philippine products in the global market;
(d) To enhance the inflow of private capital and broaden the ownership
base of the power generation, transmission and distribution
sectors;
(e) To ensure fair and non-discriminatory treatment of public and
private sector entities in the process of restructuring the electric
power industry;
(f) To protect the public interest as it is affected by the rates and
services of electric utilities and other providers of electric power;
(g) To assure socially and environmentally compatible energy sources
and infrastructure;
(h) To promote the utilization of indigenous and new and renewable
energy resources in power generation in order to reduce
dependence on imported energy;
(i) To provide for an orderly and transparent privatization of the assets
and liabilities of the National Power Corporation (NPC);
(j) To establish a strong and purely independent regulatory body and
system to ensure consumer protection and enhance the
competitive operation of the electricity market; and
(k) To encourage the efficient use of energy and other modalities of
demand side management.

From the aforementioned purposes, it can be gleaned that the assailed Universal
Charge is not a tax, but an exaction in the exercise of the State's police power.
Public welfare is surely promoted.
Moreover, it is a well-established doctrine that the taxing power may be used as an
implement of police power.[38] In Valmonte v. Energy Regulatory Board, et al. [39] and
in Gaston v. Republic Planters Bank,[40] this Court held that the Oil Price Stabilization
Fund (OPSF) and the Sugar Stabilization Fund (SSF) were exactions made in the
exercise of the police power. The doctrine was reiterated in Osmea v. Orbos[41] with
respect to the OPSF. Thus, we disagree with petitioners that the instant case is
different from the aforementioned cases. With the Universal Charge, a Special Trust
Fund (STF) is also created under the administration of PSALM. [42] The STF has some
notable characteristics similar to the OPSF and the SSF, viz.:
1)

In the implementation of stranded cost recovery, the ERC shall

conduct a review to determine whether there is under-recovery or
over recovery and adjust (true-up) the level of the stranded cost
recovery charge. In case of an over-recovery, the ERC shall ensure
that any excess amount shall be remitted to the STF. A separate
account shall be created for these amounts which shall be held in
trust for any future claims of distribution utilities for stranded cost
recovery. At the end of the stranded cost recovery period, any
remaining amount in this account shall be used to reduce the
electricity rates to the end-users.[43]

2)

With respect to the assailed Universal Charge, if the total amount

collected for the same is greater than the actual availments against
it, the PSALM shall retain the balance within the STF to pay for
periods where a shortfall occurs.[44]

3)

Upon expiration of the term of PSALM, the administration of the

STF shall be transferred to the DOF or any of the DOF attached
agencies as designated by the DOF Secretary. [45]

The OSG is in point when it asseverates:

Evidently, the establishment and maintenance of the Special Trust
Fund, under the last paragraph of Section 34, R.A. No. 9136, is well
within the pervasive and non-waivable power and responsibility of the
government to secure the physical and economic survival and wellbeing of the community, that comprehensive sovereign authority we
designate as the police power of the State. [46]
This feature of the Universal Charge further boosts the position that the same is an
exaction imposed primarily in pursuit of the State's police objectives. The STF
reasonably serves and assures the attainment and perpetuity of the purposes for
which the Universal Charge is imposed, i.e., to ensure the viability of the country's
electric power industry.
The Second Issue
The principle of separation of powers ordains that each of the three 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 (what has been delegated
cannot be delegated). This is based on the ethical principle that such 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. [47]

In the face of the increasing complexity of modern life, delegation of legislative

power to various specialized administrative agencies is allowed as an exception to
this principle.[48] Given the volume and variety of interactions in today's society, it is
doubtful if the legislature can promulgate laws that will deal adequately with and
respond promptly to the minutiae of everyday life. Hence, the need to delegate to
administrative bodies - the principal agencies tasked to execute laws in their
specialized fields - the authority to promulgate rules and regulations to implement a
given statute and effectuate its policies. All that is required for the valid exercise of
this power of subordinate legislation is that the regulation be germane to the
objects and purposes of the law and that the regulation be not in contradiction to,
but in conformity with, the standards prescribed by the law. These requirements are
denominated as the completeness test and the sufficient standard test.
Under the first test, the law must be complete in all its terms and conditions when it
leaves the legislature such that when it reaches the delegate, the only thing he will
have to do is to enforce it. The second test mandates adequate guidelines or
limitations in the law to determine the boundaries of the delegate's authority and
prevent the delegation from running riot. [49]
The Court finds that the EPIRA, read and appreciated in its entirety, in relation to
Sec. 34 thereof, is complete in all its essential terms and conditions, and that it
contains sufficient standards.
Although Sec. 34 of the EPIRA merely provides that within one (1) year from the
effectivity thereof, a Universal Charge to be determined, fixed and approved by the
ERC, shall be imposed on all electricity end-users, and therefore, does not state the
specific amount to be paid as Universal Charge, the amount nevertheless is made
certain by the legislative parameters provided in the law itself. For one, Sec. 43(b)
(ii) of the EPIRA provides:
SECTION 43. Functions of the ERC. The ERC shall promote competition,
encourage market development, ensure customer choice and penalize
abuse of market power in the restructured electricity industry. In
appropriate cases, the ERC is authorized to issue cease and desist
order after due notice and hearing. Towards this end, it shall be
responsible for the following key functions in the restructured industry:
xxxx
(b) Within six (6) months from the effectivity of this Act, promulgate
and enforce, in accordance with law, a National Grid Code and a
Distribution Code which shall include, but not limited to the following:
xxxx
(ii) Financial capability standards for the generating companies, the
TRANSCO, distribution utilities and suppliers: Provided, That in the
formulation of the financial capability standards, the nature and
function of the entity shall be considered: Provided, further, That such
standards are set to ensure that the electric power industry
participants meet the minimum financial standards to protect the
public interest. Determine, fix, and approve, after due notice and
public hearings the universal charge, to be imposed on all electricity
end-users pursuant to Section 34 hereof;

Moreover, contrary to the petitioners contention, the ERC does not enjoy a wide
latitude of discretion in the determination of the Universal Charge. Sec. 51(d) and
(e) of the EPIRA[50] clearly provides:
SECTION 51. Powers. The PSALM Corp. shall, in the performance of its
functions and for the attainment of its objective, have the following
powers:
8

xxxx
(d) To calculate the amount of the stranded debts and stranded
contract costs of NPC which shall form the basis for ERC in the
determination of the universal charge;
(e) To liquidate the NPC stranded contract costs, utilizing the proceeds
from sales and other property contributed to it, including the
proceeds from the universal charge.
Thus, the law is complete and passes the first test for valid delegation of
legislative power.
As to the second test, this Court had, in the past, accepted as sufficient standards
the following: "interest of law and order;" [51] "adequate and efficient
instruction;"[52] "public interest;"[53]"justice and equity;"[54] "public convenience and
welfare;"[55] "simplicity, economy and efficiency;"[56] "standardization and regulation
of
medical
education;"[57] and
"fair
and
equitable
employment
[58]
practices."
Provisions of the EPIRA such as, among others, to ensure the total
electrification of the country and the quality, reliability, security and affordability of
the
supply
of
electric
power[59] and
watershed
rehabilitation
and
[60]
management
meet the requirements for valid delegation, as they provide the
limitations on the ERCs power to formulate the IRR. These are sufficient standards.
It may be noted that this is not the first time that the ERC's conferred powers were
challenged. InFreedom from Debt Coalition v. Energy Regulatory Commission,[61] the
Court had occasion to say:
In determining the extent of powers possessed by the ERC, the
provisions of the EPIRA must not be read in separate parts. Rather, the
law must be read in its entirety, because a statute is passed as a
whole, and is animated by one general purpose and intent. Its meaning
cannot to be extracted from any single part thereof but from a general
consideration of the statute as a whole. Considering the intent of
Congress in enacting the EPIRA and reading the statute in its entirety,
it is plain to see that the law has expanded the jurisdiction of the
regulatory body, the ERC in this case, to enable the latter to implement
the reforms sought to be accomplished by the EPIRA. When the
legislators decided to broaden the jurisdiction of the ERC, they did not
intend to abolish or reduce the powers already conferred upon ERC's
predecessors. To sustain the view that the ERC possesses only the
powers and functions listed under Section 43 of the EPIRA is to
frustrate the objectives of the law.
In his Concurring and Dissenting Opinion [62] in the same case, then Associate Justice,
now Chief Justice, Reynato S. Puno described the immensity of police power in
relation to the delegation of powers to the ERC and its regulatory functions over
electric power as a vital public utility, to wit:
Over the years, however, the range of police power was no
longer limited to the preservation of public health, safety and morals,
which used to be the primary social interests in earlier times.Police
power now requires the State to "assume an affirmative duty to
eliminate the excesses and injustices that are the concomitants of an
unrestrained industrial economy." Police power is now exerted "to
further the public welfare a concept as vast as the good of society
itself." Hence, "police power is but another name for the governmental
authority to further the welfare of society that is the basic end of all
government." When police power is delegated to administrative bodies
with regulatory functions, its exercise should be given a wide latitude.
Police power takes on an even broader dimension in developing
countries such as ours, where the State must take a more active role in
balancing the many conflicting interests in society. The Questioned
9

Order was issued by the ERC, acting as an agent of the State in the
exercise of police power. We should have exceptionally good grounds
to curtail its exercise. This approach is more compelling in the field of
rate-regulation of electric power rates. Electric power generation and
distribution is a traditional instrument of economic growth that affects
not only a few but the entire nation. It is an important factor in
encouraging investment and promoting business. The engines of
progress may come to a screeching halt if the delivery of electric
power is impaired. Billions of pesos would be lost as a result of power
outages or unreliable electric power services. The State thru the ERC
should be able to exercise its police power with great flexibility, when
the need arises.
This was reiterated in National Association of Electricity Consumers for Reforms v.
Energy Regulatory Commission[63] where the Court held that the ERC, as regulator,
should have sufficient power to respond in real time to changes wrought by
multifarious factors affecting public utilities.
From the foregoing disquisitions, we therefore hold that there is no undue
delegation of legislative power to the ERC.
Petitioners failed to pursue in their Memorandum the contention in the
Complaint that the imposition of the Universal Charge on all end-users is oppressive
and confiscatory, and amounts to taxation without representation. Hence, such
contention is deemed waived or abandoned per Resolution [64] of August 3, 2004.
[65]
Moreover, the determination of whether or not a tax is excessive, oppressive or
confiscatory is an issue which essentially involves questions of fact, and thus, this
Court is precluded from reviewing the same. [66]
As a penultimate statement, it may be well to recall what this Court said of EPIRA:
One of the landmark pieces of legislation enacted by Congress in
recent years is the EPIRA. It established a new policy, legal structure
and regulatory framework for the electric power industry. The new
thrust is to tap private capital for the expansion and improvement of
the industry as the large government debt and the highly capitalintensive character of the industry itself have long been acknowledged
as the critical constraints to the program. To attract private
investment, largely foreign, the jaded structure of the industry had to
be addressed. While the generation and transmission sectors were
centralized and monopolistic, the distribution side was fragmented
with over 130 utilities, mostly small and uneconomic. The pervasive
flaws have caused a low utilization of existing generation capacity;
extremely high and uncompetitive power rates; poor quality of service
to consumers; dismal to forgettable performance of the government
power sector; high system losses; and an inability to develop a clear
strategy for overcoming these shortcomings.
Thus, the EPIRA provides a framework for the restructuring of the
industry, including the privatization of the assets of the National Power
Corporation (NPC), the transition to a competitive structure, and the
delineation of the roles of various government agencies and the
private entities. The law ordains the division of the industry into four
(4)
distinct
sectors, namely: generation,transmission, distribution and supply.
Corollarily, the NPC generating plants have to privatized and its
transmission business spun off and privatized thereafter. [67]
Finally, every law has in its favor the presumption of constitutionality, and to justify
its nullification, there must be a clear and unequivocal breach of the Constitution
and not one that is doubtful, speculative, or argumentative. [68] Indubitably,
petitioners failed to overcome this presumption in favor of the EPIRA. We find no
clear violation of the Constitution which would warrant a pronouncement that Sec.
34 of the EPIRA and Rule 18 of its IRR are unconstitutional and void.
10

WHEREFORE, the instant case is hereby DISMISSED for lack of merit.

SO ORDERED.
ANTONIO EDUARDO B. NACHURA
Associate Justice
WE CONCUR:

REYNATO S. PUNO
Chief Justice

11

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 168584

October 15, 2007

REPUBLIC OF THE PHILIPPINES, represented by THE HONORABLE

SECRETARY OF FINANCE, THE HONORABLE COMMISSIONER OF BUREAU OF
INTERNAL REVENUE, THE HONORABLE COMMISSIONER OF CUSTOMS, and
THE COLLECTOR OF CUSTOMS OF THE PORT OF SUBIC, petitioners,
vs.
HON. RAMON S. CAGUIOA, Presiding Judge, Branch 74, RTC, Third Judicial
Region, Olongapo City, INDIGO DISTRIBUTION CORP., herein represented
by ARIEL G. CONSOLACION, W STAR TRADING AND WAREHOUSING CORP.,
herein represented by HIERYN R. ECLARINAL, FREEDOM BRANDS PHILS.,
CORP., herein represented by ANA LISA RAMAT, BRANDED WAREHOUSE,
INC., herein represented by MARY AILEEN S. GOZUN, ALTASIA INC., herein
represented by ALAN HARROW, TAINAN TRADE (TAIWAN), INC., herein
represented by ELENA RANULLO, SUBIC PARK N SHOP, herein represented
by NORMA MANGALINO DIZON, TRADING GATEWAYS INTERNATIONAL
PHILS., herein represented by MA. CHARINA FE C. RODOLFO, DUTY FREE
SUPERSTORE (DFS), herein represented by RAJESH R. SADHWANI, CHJIMES
TRADING INC., herein represented by ANGELO MARK M. PICARDAL,
PREMIER FREEPORT, INC., herein represented by ROMMEL P. GABALDON,
FUTURE TRADE SUBIC FREEPORT, INC., herein represented by WILLIE S.
VERIDIANO, GRAND COMTRADE INTERNATIONAL CORP., herein represented
by JULIUS MOLINDA, and FIRST PLATINUM INTERNATIONAL, INC., herein
represented by ISIDRO M. MUOZ,respondents.
DECISION
CARPIO MORALES, J.:
Petitioners seek via petition for certiorari and prohibition to annul (1) the May 4,
2005 Order1 issued by public respondent Judge Ramon S. Caguioa of the Regional
Trial Court (RTC), Branch 74, Olongapo City, granting private respondents
application for the issuance of a writ of preliminary injunction and (2) the Writ of
Preliminary Injunction2 that was issued pursuant to such Order, which stayed the
implementation of Republic Act (R.A.) No. 9334, AN ACT INCREASING THE EXCISE
TAX RATES IMPOSED ON ALCOHOL AND TOBACCO PRODUCTS, AMENDING FOR THE
PURPOSE SECTIONS 131, 141, 142, 143, 144, 145 AND 288 OF THE NATIONAL
INTERNAL REVENUE CODE OF 1997, AS AMENDED.
Petitioners likewise seek to enjoin, restrain and inhibit public respondent from
enforcing the impugned issuances and from further proceeding with the trial of Civil
Case No. 102-0-05.
The relevant facts are as follows:
In 1992, Congress enacted Republic Act (R.A) No. 7227 3 or the Bases Conversion
and Development Act of 1992 which, among other things, created the Subic Special
Economic and Freeport Zone (SBF4) and the Subic Bay Metropolitan Authority
(SBMA).

12

R.A. No. 7227 envisioned the SBF to be developed into a "self-sustaining, industrial,
commercial, financial and investment center to generate employment opportunities
in and around the zone and to attract and promote productive foreign
investments."5 In line with this vision, Section 12 of the law provided:
(b) The Subic Special Economic Zone shall be operated and managed
as a separate customs territory ensuring free flow or movement of
goods and capital within, into and exported out of the Subic Special
Economic Zone, as well as provide incentives such as tax and dutyfree importations of raw materials, capital and equipment. However,
exportation or removal of goods from the territory of the Subic
Special Economic Zone to the other parts of the Philippine territory
shall be subject to customs duties and taxes under the Customs and
Tariff Code and other relevant tax laws of the Philippines;
(c) The provisions of existing laws, rules and regulations to the
contrary notwithstanding, no taxes, local and national, shall be
imposed within the Subic Special Economic Zone. In lieu of paying
taxes, three percent (3%) of the gross income earned by all businesses and
enterprises within the Subic Special Economic Zone shall be remitted to the
National Government, one percent (1%) each to the local government units
affected by the declaration of the zone in proportion to their population area,
and other factors. In addition, there is hereby established a development fund
of one percent (1%) of the gross income earned by all businesses and
enterprises within the Subic Special Economic Zone to be utilized for the
development of municipalities outside the City of Olongapo and the
Municipality of Subic, and other municipalities contiguous to be base areas.
In case of conflict between national and local laws with respect to tax
exemption privileges in the Subic Special Economic Zone, the same shall be
resolved in favor of the latter;
(d) No exchange control policy shall be applied and free markets for foreign
exchange, gold, securities and future shall be allowed and maintained in the
Subic Special Economic Zone;
(e) The Central Bank, through the Monetary Board, shall supervise and
regulate the operations of banks and other financial institutions within the
Subic Special Economic Zone;
(f) Banking and finance shall be liberalized with the establishment of foreign
currency depository units of local commercial banks and offshore banking
units of foreign banks with minimum Central Bank regulation;
(g) Any investor within the Subic Special Economic Zone whose continuing
investment shall not be less than Two hundred fifty thousand dollars
($250,000), his/her spouse and dependent children under twenty-one (21)
years of age, shall be granted permanent resident status within the Subic
Special Economic Zone. They shall have freedom of ingress and egress to and
from the Subic Special Economic Zone without any need of special
authorization from the Bureau of Immigration and Deportation. The Subic Bay
Metropolitan Authority referred to in Section 13 of this Act may also issue
working visas renewal every two (2) years to foreign executives and other
aliens possessing highly-technical skills which no Filipino within the Subic
Special Economic Zone possesses, as certified by the Department of Labor
and Employment. The names of aliens granted permanent residence status
and working visas by the Subic Bay Metropolitan Authority shall be reported
13

to the Bureau of Immigration and Deportation within thirty (30) days after
issuance thereof;
x x x x. (Emphasis supplied)
Pursuant to the law, private respondents Indigo Distribution Corporation, W Star
Trading and Warehousing Corporation, Freedom Brands Philippines Corporation,
Branded Warehouse, Inc., Altasia, Inc., Tainan Trade (Taiwan) Inc., Subic Park N
Shop, Incorporated, Trading Gateways International Philipines, Inc., Duty Free
Superstore (DFS) Inc., Chijmes Trading, Inc., Premier Freeport, Inc., Future Trade
Subic Freeport, Inc., Grand Comtrade Intl., Corp., and First Platinum International,
Inc., which are all domestic corporations doing business at the SBF, applied for and
were granted Certificates of Registration and Tax Exemption 6 by the SBMA.
These certificates allowed them to engage in the business either of trading, retailing
or wholesaling, import and export, warehousing, distribution and/or transshipment
of general merchandise, including alcohol and tobacco products, and uniformly
granted them tax exemptions for such importations as contained in the following
provision of their respective Certificates:
ARTICLE IV. The Company shall be entitled to tax and duty-free
importation of raw materials, capital equipment, and household and
personal items for use solely within the Subic Bay Freeport
Zonepursuant to Sections 12(b) and 12(c) of the Act and Sections 43, 45, 46
and 49 of the Implementing Rules. All importations by the Company are
exempt from inspection by the Societe Generale de Surveillance if such
importations are delivered immediately to and for use solely within the Subic
Bay Freeport Zone. (Emphasis supplied)
Congress subsequently passed R.A. No. 9334, however, effective on January 1,
2005,7 Section 6 of which provides:
Sec. 6. Section 131 of the National Internal Revenue Code of 1977, as
amended, is hereby amended to read as follows:
Sec. 131. Payment of Excise Taxes on Imported Articles.
(A) Persons Liable. Excise taxes on imported articles shall be paid by the
owner or importer to the Customs Officers, conformably with the regulations
of the Department of Finance and before the release of such articles from the
customshouse or by the person who is found in possession of articles which
are exempt from excise taxes other than those legally entitled to exemption.
In the case of tax-free articles brought or imported into the Philippines by
persons, entities or agencies exempt from tax which are subsequently sold,
transferred or exchanged in the Philippines to non-exempt persons or entities,
the purchasers or recipients shall be considered the importers thereof, and
shall be liable for the duty and internal revenue tax due on such importation.
The provision of any special or general law to the contrary
notwithstanding, the importation of cigars and cigarettes, distilled
spirits, fermented liquors and wines into the Philippines, even if
destined for tax and duty free shops, shall be subject to all
applicable taxes, duties, charges, including excise taxes due
thereon. This shall apply to cigars and cigarettes, distilled spirits,
fermented liquors and wines brought directly into the duly chartered
or legislated freeports of the Subic Economic Freeport Zone, created
14

under Republic Act No. 7227; x x x and such other freeports as may
hereafter be established or created by law: Provided, further, That
importations of cigars and cigarettes, distilled spirits, fermented liquors and
wines made directly by a government-owned and operated duty-free shop,
like the Duty Free Philippines (DFP), shall be exempted from all applicable
duties only: x x x Provided, finally, That the removal and transfer of tax and
duty-free goods, products, machinery, equipment and other similar articles
other than cigars and cigarettes, distilled spirits, fermented liquors and wines,
from one Freeport to another Freeport, shall not be deemed an introduction
into the Philippine customs territory. x x x. (Emphasis and underscoring
supplied)
On the basis of Section 6 of R.A. No. 9334, SBMA issued on January 10, 2005 a
Memorandum8 declaring that effective January 1, 2005, all importations of cigars,
cigarettes, distilled spirits, fermented liquors and wines into the SBF, including those
intended to be transshipped to other free ports in the Philippines, shall be treated as
ordinary importations subject to all applicable taxes, duties and charges, including
excise taxes.
Meanwhile, on February 3, 2005, former Bureau of Internal Revenue (BIR)
Commissioner Guillermo L. Parayno, Jr. requested then Customs Commissioner
George M. Jereos to immediately collect the excise tax due on imported alcohol and
tobacco products brought to the Duty Free Philippines (DFP) and Freeport zones. 9
Accordingly, the Collector of Customs of the port of Subic directed the SBMA
Administrator to require payment of all appropriate duties and taxes on all
importations of cigars and cigarettes, distilled spirits, fermented liquors and wines;
and for all transactions involving the said items to be covered from then on by a
consumption entry and no longer by a warehousing entry. 10
On February 7, 2005, SBMA issued a Memorandum 11 directing the departments
concerned to require locators/importers in the SBF to pay the corresponding duties
and taxes on their importations of cigars, cigarettes, liquors and wines before said
items are cleared and released from the freeport. However, certain SBF locators
which were "exclusively engaged in the transshipment of cigarette products for
foreign destinations" were allowed by the SBMA to process their import documents
subject to their submission of an Undertaking with the Bureau of Customs. 12
On February 15, 2005, private respondents wrote the offices of respondent Collector
of Customs and the SBMA Administrator requesting for a reconsideration of the
directives on the imposition of duties and taxes, particularly excise taxes, on their
shipments of cigars, cigarettes, wines and liquors. 13 Despite these letters, however,
they were not allowed to file any warehousing entry for their shipments.
Thus, private respondent enterprises, through their representatives, brought before
the RTC of Olongapo City a special civil action for declaratory relief 14 to have certain
provisions of R.A. No. 9334 declared as unconstitutional, which case was docketed
as Civil Case No. 102-0-05.
In the main, private respondents submitted that (1) R.A. No. 9334 should not be
interpreted as altering, modifying or amending the provisions of R.A. No. 7227
because repeals by implication are not favored; (2) a general law like R.A. No. 9334
cannot amend R.A. No. 7727, which is a special law; and (3) the assailed law
violates the one bill-one subject rule embodied in Section 26(1), Article VI 15 of the
Constitution as well as the constitutional proscription against the impairment of the
obligation of contracts.16
15

Alleging that great and irreparable loss and injury would befall them as a
consequence of the imposition of taxes on alcohol and tobacco products brought
into the SBF, private respondents prayed for the issuance of a writ of preliminary
injunction and/or Temporary Restraining Order (TRO) and preliminary mandatory
injunction to enjoin the directives of herein petitioners.
Petitioners duly opposed the private respondents prayer for the issuance of a writ
of preliminary injunction and/or TRO, arguing that (1) tax exemptions are not
presumed and even when granted, are strictly construed against the grantee; (2) an
increase in business expense is not the injury contemplated by law, it being a case
of damnum absque injuria; and (3) the drawback mechanism established in the law
clearly negates the possibility of the feared injury. 17
Petitioners moreover pointed out that courts are enjoined from issuing a writ of
injunction and/or TRO on the grounds of an alleged nullity of a law, ordinance or
administrative regulation or circular or in a manner that would effectively dispose of
the main case. Taxes, they stressed, are the lifeblood of the government and their
prompt and certain availability is an imperious need. They maintained that greater
injury would be inflicted on the public should the writ be granted.
On May 4, 2005, the court a quo granted private respondents application for the
issuance of a writ of preliminary injunction, after it found that the essential
requisites for the issuance of a preliminary injunction were present.
As investors duly licensed to operate inside the SBF, the trial court declared that
private respondents were entitled to enjoy the benefits of tax incentives under R.A.
No. 7227, particularly the exemption from local and national taxes under Section
12(c); the aforecited provision of R.A. No. 7227, coupled with private respondents
Certificates of Registration and Tax Exemption from the SBMA, vested in them a
clear and unmistakable right or right in esse that would be violated should R.A. No.
9334 be implemented; and the invasion of such right is substantial and material as
private respondents would be compelled to pay more than what they should by way
of taxes to the national government.
The trial court thereafter ruled that the prima facie presumption of validity of R.A.
No. 9334 had been overcome by private respondents, it holding that as a partial
amendment of the National Internal Revenue Code (NIRC) of 1997, 18 as amended,
R.A. No. 9334 is a general law that could not prevail over a special statute like R.A.
No. 7227 notwithstanding the fact that the assailed law is of later effectivity.
The trial court went on to hold that the repealing provision of Section 10 of R.A. No.
9334 does not expressly mention the repeal of R. A. No. 7227, hence, its repeal can
only be an implied repeal, which is not favored; and since R.A. No. 9334 imposes
new tax burdens, whatever doubts arising therefrom should be resolved against the
taxing authority and in favor of the taxpayer.
The trial court furthermore held that R.A. No. 9334 violates the terms and conditions
of private respondents subsisting contracts with SBMA, which are embodied in their
Certificates of Registration and Exemptions in contravention of the constitutional
guarantee against the impairment of contractual obligations; that greater damage
would be inflicted on private respondents if the writ of injunction is not issued as
compared to the injury that the government and the general public would suffer
from its issuance; and that the damage that private respondents are bound to suffer
once the assailed statute is implemented including the loss of confidence of their
foreign principals, loss of business opportunity and unrealized income, and the
danger of closing down their businesses due to uncertainty of continued viability
cannot be measured accurately by any standard.
16

With regard to the rule that injunction is improper to restrain the collection of taxes
under Section 21819 of the NIRC, the trial court held that what is sought to be
enjoined is not per se the collection of taxes, but the implementation of a statute
that has been found preliminarily to be unconstitutional.
Additionally, the trial court pointed out that private respondents taxes have not yet
been assessed, as they have not filed consumption entries on all their imported
tobacco and alcohol products, hence, their duty to pay the corresponding excise
taxes and the concomitant right of the government to collect the same have not yet
materialized.
On May 11, 2005, the trial court issued a Writ of Preliminary Injunction directing
petitioners and the SBMA Administrator as well as all persons assisting or acting for
and in their behalf "1) to allow the operations of [private respondents] in
accordance with R.A. No. 7227; 2) to allow [them] to file warehousing entries
instead of consumption entries as regards their importation of tobacco and alcohol
products; and 3) to cease and desist from implementing the pertinent provisions of
R.A. No. 9334 by not compelling [private respondents] to immediately pay duties
and taxes on said alcohol and tobacco products as a condition to their removal from
the port area for transfer to the warehouses of [private respondents]." 20
The injunction bond was approved at One Million pesos (P1,000,000).21
Without moving for reconsideration, petitioners have come directly to this Court to
question the May 4, 2005 Order and the Writ of Preliminary Injunction which, they
submit, were issued by public respondent with grave abuse of discretion amounting
to lack or excess of jurisdiction.
In particular, petitioners contend that public respondent peremptorily and unjustly
issued the injunctive writ despite the absence of the legal requisites for its issuance,
resulting in heavy government revenue losses. 22 They emphatically argue that since
the tax exemption previously enjoyed by private respondents has clearly been
withdrawn by R.A. No. 9334, private respondents do not have any right in esse nor
can they invoke legal injury to stymie the enforcement of R.A. No. 9334.
Furthermore, petitioners maintain that in issuing the injunctive writ, public
respondent showed manifest bias and prejudice and prejudged the merits of the
case in utter disregard of the caveat issued by this Court in Searth Commodities
Corporation, et al. v. Court of Appeals 23 and Vera v. Arca.24
Regarding the P1 million injunction bond fixed by public respondent, petitioners
argue that the same is grossly disproportionate to the damages that have been and
continue to be sustained by the Republic.
In their Reply25 to private respondents Comment, petitioners additionally plead
public respondents bias and partiality in allowing the motions for intervention of a
number of corporations26 without notice to them and in disregard of their present
pending petition for certiorari and prohibition before this Court. The injunction bond
filed by private respondent Indigo Distribution Corporation, they stress, is not even
sufficient to cover all the original private respondents, much less, intervenorcorporations.
The petition is partly meritorious.
At the outset, it bears emphasis that only questions relating to the propriety of the
issuance of the May 4, 2005 Order and the Writ of Preliminary Injunction are
properly within the scope of the present petition and shall be so addressed in order
17

to determine if public respondent committed grave abuse of discretion. The

arguments raised by private respondents which pertain to the constitutionality of
R.A. No. 9334 subject matter of the case pending litigation before the trial court
have no bearing in resolving the present petition.
Section 3 of Rule 58 of the Revised Rules of Court provides:
SEC. 3. Grounds for issuance of preliminary injunction. A preliminary
injunction may be granted when it is established.
(a) That the applicant is entitled to the relief demanded, and the whole or
part of such relief consists in restraining the commission or continuance of
the act or acts complained of, or in requiring the performance of an act or
acts, either for a limited period or perpetually;
(b) That the commission, continuance or non-performance of the act or acts
complained of during the litigation would probably work injustice to the
applicant; or
(c) That a party, court, agency or a person is doing, threatening, or is
attempting to do, or is procuring or suffering to be done, some act or acts
probably in violation of the rights of the applicant respecting the subject of
the action or proceeding, and tending to render the judgment ineffectual.
For a writ of preliminary injunction to issue, the plaintiff must be able to establish
that (1) there is a clear and unmistakable right to be protected, (2) the invasion of
the right sought to be protected is material and substantial, and (3) there is an
urgent and paramount necessity for the writ to prevent serious damage. 27
Conversely, failure to establish either the existence of a clear and positive right
which should be judicially protected through the writ of injunction, or of the acts or
attempts to commit any act which endangers or tends to endanger the existence of
said right, or of the urgent need to prevent serious damage, is a sufficient ground
for denying the preliminary injunction.28
It is beyond cavil that R.A. No. 7227 granted private respondents exemption from
local and national taxes, including excise taxes, on their importations of general
merchandise, for which reason they enjoyed tax-exempt status until the effectivity
of R.A. No. 9334.
By subsequently enacting R.A. No. 9334, however, Congress expressed its intention
to withdraw private respondents tax exemption privilege on their importations of
cigars, cigarettes, distilled spirits, fermented liquors and wines. Juxtaposed to show
this intention are the respective provisions of Section 131 of the NIRC before and
after its amendment by R.A. No. 9334:
x x x x.
Sec. 131 of NIRC before R.A. No.
9334

Sec. 131, as amended by R.A. No.

9334

Sec. 131. Payment of Excise Taxes Sec. 131. Payment of Excise Taxes
on Imported Articles.
on Imported Articles.
(A) Persons Liable. Excise taxes (A) Persons Liable. Excise taxes
on imported articles shall be paid on imported articles shall be paid
by the owner or importer to the
by the owner or importer to the
18

Customs Officers, conformably

with the regulations of the
Department of Finance and before
the release of such articles from
the customs house or by the
person who is found in possession
of articles which are exempt from
excise taxes other than those
legally entitled to exemption.

Customs Officers, conformably

with the regulations of the
Department of Finance and before
the release of such articles from
the customs house or by the
person who is found in possession
of articles which are exempt from
excise taxes other than those
legally entitled to exemption.

In the case of tax-free articles

brought or imported into the
Philippines by persons, entities or
agencies exempt from tax which
are subsequently sold, transferred
or exchanged in the Philippines to
non-exempt persons or entities,
the purchasers or recipients shall
be considered the importers
thereof, and shall be liable for the
duty and internal revenue tax due
on such importation.

In the case of tax-free articles

brought or imported into the
Philippines by persons, entities or
agencies exempt from tax which
are subsequently sold, transferred
or exchanged in the Philippines to
non-exempt persons or entities,
the purchasers or recipients shall
be considered the importers
thereof, and shall be liable for the
duty and internal revenue tax due
on such importation.

The provision of any special or

The provision of any special or
general law to the contrary
general law to the contrary
notwithstanding, the importation notwithstanding, the
of cigars and cigarettes, distilled importation of cigars and
spirits, fermented liquors and
cigarettes, distilled spirits,
wines into the Philippines, even if fermented liquors and wines
destined for tax and duty free
into the Philippines, even if
shops, shall be subject to all
destined for tax and duty free
applicable taxes, duties, charges, shops, shall be subject to all
including excise taxes due
applicable taxes, duties,
thereon. Provided,
charges, including excise
however, Thatthis shall not
taxes due thereon. This
apply to cigars and cigarettes, shall applyto cigars and
fermented spirits and wines
cigarettes, distilled spirits,
brought directly into the duly fermented liquors and wines
chartered or legislated
brought directly into the duly
freeports of the Subic
chartered or legislated
Economic Freeport Zone,
freeports of the Subic
created under Republic Act
Economic Freeport Zone,
No. 7227; the Cagayan Special created under Republic Act
Economic Zone and Freeport, No. 7227; the Cagayan Special
created under Republic Act
Economic Zone and Freeport,
No. 7922; and the Zamboanga
created under Republic Act
City Special Economic Zone,
No. 7922; and the Zamboanga
created under Republic Act No.
City Special Economic Zone,
7903, and are not transshipped to created under Republic Act No.
any other port in the
7903, and such other freeports as
Philippines: Provided, further, That may hereafter be established or
importations of cigars and
created by law: Provided, further,
cigarettes, distilled spirits,
That importations of cigars and
fermented liquors and wines made cigarettes, distilled spirits,
directly by a government-owned fermented liquors and wines made
and operated duty-free shop, like directly by a government-owned
19

the Duty Free Philippines (DFP),

shall be exempted from all
applicable duties, charges,
including excise tax due
thereon; Provided still further,
That such articles directly
imported by a government-owned
and operated duty-free shop, like
the Duty-Free Philippines, shall be
labeled "tax and duty-free" and
"not for resale": Provided, still
further, That if such articles
brought into the duly chartered or
legislated freeports under
Republic Acts Nos. 7227, 7922
and 7903 are subsequently
introduced into the Philippine
customs territory, then such
articles shall, upon such
introduction, be deemed imported
into the Philippines and shall be
subject to all imposts and excise
taxes provided herein and other
statutes: Provided, finally, That
the removal and transfer of tax
and duty-free goods, products,
machinery, equipment and other
similar articles, from one freeport
to another freeport, shall not be
deemed an introduction into the
Philippine customs territory.

and operated duty-free shop, like

the Duty Free Philippines (DFP),
shall be exempted from all
applicable duties only: Provided
still further, That such articles
directly imported by a
government-owned and operated
duty-free shop, like the Duty-Free
Philippines, shall be labeled "tax
and duty-free" and "not for
resale":Provided, finally, That the
removal and transfer of tax and
duty-free goods, products,
machinery, equipment and other
similar articles other than cigars
and cigarettes, distilled spirits,
fermented liquors and wines, from
one Freeport to another Freeport,
shall not be deemed an
introduction into the Philippine
customs territory.
x x x x.

x x x x.
(Emphasis and underscoring supplied)
To note, the old Section 131 of the NIRC expressly provided that all taxes, duties,
charges, including excise taxes shall not apply to importations of cigars, cigarettes,
fermented spirits and wines brought directly into the duly chartered or legislated
freeports of the SBF.
On the other hand, Section 131, as amended by R.A. No. 9334, now provides that
such taxes, duties and charges, including excise taxes, shall apply to importation of
cigars and cigarettes, distilled spirits, fermented liquors and wines into the SBF.
Without necessarily passing upon the validity of the withdrawal of the tax
exemption privileges of private respondents, it behooves this Court to state certain
basic principles and observations that should throw light on the propriety of the
issuance of the writ of preliminary injunction in this case.
First. Every presumption must be indulged in favor of the constitutionality of a
statute.29 The burden of proving the unconstitutionality of a law rests on the party
assailing the law.30 In passing upon the validity of an act of a co-equal and
coordinate branch of the government, courts must ever be mindful of the timehonored principle that a statute is presumed to be valid.

20

Second. There is no vested right in a tax exemption, more so when the latest
expression of legislative intent renders its continuance doubtful. Being a mere
statutory privilege,31 a tax exemption may be modified or withdrawn at will by the
granting authority.32
To state otherwise is to limit the taxing power of the State, which is unlimited,
plenary, comprehensive and supreme. The power to impose taxes is one so
unlimited in force and so searching in extent, it is subject only to restrictions which
rest on the discretion of the authority exercising it. 33
Third. As a general rule, tax exemptions are construed strictissimi juris against the
taxpayer and liberally in favor of the taxing authority. 34 The burden of proof rests
upon the party claiming exemption to prove that it is in fact covered by the
exemption so claimed.35 In case of doubt, non-exemption is favored.36
Fourth. A tax exemption cannot be grounded upon the continued existence of a
statute which precludes its change or repeal. 37 Flowing from the basic precept of
constitutional law that no law is irrepealable, Congress, in the legitimate exercise of
its lawmaking powers, can enact a law withdrawing a tax exemption just as
efficaciously as it may grant the same under Section 28(4) of Article VI 38 of the
Constitution. There is no gainsaying therefore that Congress can amend Section 131
of the NIRC in a manner it sees fit, as it did when it passed R.A. No. 9334.
Fifth. The rights granted under the Certificates of Registration and Tax Exemption of
private respondents are not absolute and unconditional as to constitute rights in
esse those clearly founded on or granted by law or is enforceable as a matter of
law.39
These certificates granting private respondents a "permit to operate" their
respective businesses are in the nature of licenses, which the bulk of jurisprudence
considers as neither a property nor a property right. 40 The licensee takes his license
subject to such conditions as the grantor sees fit to impose, including its revocation
at pleasure.41 A license can thus be revoked at any time since it does not confer an
absolute right.42
While the tax exemption contained in the Certificates of Registration of private
respondents may have been part of the inducement for carrying on their businesses
in the SBF, this exemption, nevertheless, is far from being contractual in nature in
the sense that the non-impairment clause of the Constitution can rightly be
invoked.43
Sixth. Whatever right may have been acquired on the basis of the Certificates of
Registration and Tax Exemption must yield to the States valid exercise of police
power.44 It is well to remember that taxes may be made the implement of the police
power.45
It is not difficult to recognize that public welfare and necessity underlie the
enactment of R.A. No. 9334. As petitioners point out, the now assailed provision was
passed to curb the pernicious practice of some unscrupulous business enterprises
inside the SBF of using their tax exemption privileges for smuggling purposes.
Smuggling in whatever form is bad enough; it is worse when the same is allegedly
perpetrated, condoned or facilitated by enterprises hiding behind the cloak of their
tax exemption privileges.
Seventh. As a rule, courts should avoid issuing a writ of preliminary injunction which
would in effect dispose of the main case without trial. 46 This rule is intended to
preclude a prejudgment of the main case and a reversal of the rule on the burden of
21

proof since by issuing the injunctive writ, the court would assume the proposition
that petitioners are inceptively duty bound to prove. 47
Eighth. A court may issue a writ of preliminary injunction only when the petitioner
assailing a statute has made out a case of unconstitutionality or invalidity strong
enough, in the mind of the judge, to overcome the presumption of validity, in
addition to a showing of a clear legal right to the remedy sought. 48
Thus, it is not enough that petitioners make out a case of unconstitutionality or
invalidity to overcome the prima facie presumption of validity of a statute; they
must also be able to show a clear legal right that ought to be protected by the
court. The issuance of the writ is therefore not proper when the complainants right
is doubtful or disputed.49
Ninth. The feared injurious effects of the imposition of duties, charges and taxes on
imported cigars, cigarettes, distilled spirits, fermented liquors and wines on private
respondents businesses cannot possibly outweigh the dire consequences that the
non-collection of taxes, not to mention the unabated smuggling inside the SBF,
would wreak on the government. Whatever damage would befall private
respondents must perforce take a back seat to the pressing need to curb smuggling
and raise revenues for governmental functions.
All told, while the grant or denial of an injunction generally rests on the sound
discretion of the lower court, this Court may and should intervene in a clear case of
abuse.50
One such case of grave abuse obtained in this case when public respondent issued
his Order of May 4, 2005 and the Writ of Preliminary Injunction on May 11,
200551 despite the absence of a clear and unquestioned legal rightof private
respondents.
In holding that the presumption of constitutionality and validity of R.A. No. 9334 was
overcome by private respondents for the reasons public respondent cited in his May
4, 2005 Order, he disregarded the fact that as a condition sine qua non to the
issuance of a writ of preliminary injunction, private respondents needed also to
show a clear legal right that ought to be protected. That requirement is not satisfied
in this case.
To stress, the possibility of irreparable damage without proof of an actual existing
right would not justify an injunctive relief.52
Besides, private respondents are not altogether lacking an appropriate relief under
the law. As petitioners point out in their Petition 53 before this Court, private
respondents may avail themselves of a tax refund or tax credit should R.A. No. 9334
be finally declared invalid.
Indeed, Sections 20454 and 22955 of the NIRC provide for the recovery of erroneously
or illegally collected taxes which would be the nature of the excise taxes paid by
private respondents should Section 6 of R.A. No. 9334 be declared unconstitutional
or invalid.
It may not be amiss to add that private respondents can also opt not to import, or to
import less of, those items which no longer enjoy tax exemption under R.A. No.
9334 to avoid the payment of taxes thereon.
The Court finds that public respondent had also ventured into the delicate area
which courts are cautioned from taking when deciding applications for the issuance
22

of the writ of preliminary injunction. Having ruled preliminarily against the prima
facie validity of R.A. No. 9334, he assumed in effect the proposition that private
respondents in their petition for declaratory relief were duty bound to prove,
thereby shifting to petitioners the burden of proving that R.A. No. 9334 is not
unconstitutional or invalid.
In the same vein, the Court finds public respondent to have overstepped his
discretion when he arbitrarily fixed the injunction bond of the SBF enterprises at
only P1million.
The alleged sparseness of the testimony of Indigo Corporations representative 56 on
the injury to be suffered by private respondents may be excused because evidence
for a preliminary injunction need not be conclusive or complete. Nonetheless,
considering the number of private respondent enterprises and the volume of their
businesses, the injunction bond is undoubtedly not sufficient to answer for the
damages that the government was bound to suffer as a consequence of the
suspension of the implementation of the assailed provisions of R.A. No. 9334.
Rule 58, Section 4(b) provides that a bond is executed in favor of the party enjoined
to answer for all damages which it may sustain by reason of the injunction. The
purpose of the injunction bond is to protect the defendant against loss or damage
by reason of the injunction in case the court finally decides that the plaintiff was not
entitled to it, and the bond is usually conditioned accordingly. 57
Recalling this Courts pronouncements in Olalia v. Hizon58 that:
x x x [T]here is no power the exercise of which is more delicate, which
requires greater caution, deliberation and sound discretion, or more
dangerous in a doubtful case, than the issuance of an injunction. It is the
strong arm of equity that should never be extended unless to cases of great
injury, where courts of law cannot afford an adequate or commensurate
remedy in damages.
Every court should remember that an injunction is a limitation upon the
freedom of action of the defendant and should not be granted lightly or
precipitately. It should be granted only when the court is fully satisfied that
the law permits it and the emergency demands it,
it cannot be overemphasized that any injunction that restrains the collection of
taxes, which is the inevitable result of the suspension of the implementation of the
assailed Section 6 of R.A. No. 9334, is a limitation upon the right of the government
to its lifeline and wherewithal.
The power to tax emanates from necessity; without taxes, government cannot fulfill
its mandate of promoting the general welfare and well-being of the people. 59 That
the enforcement of tax laws and the collection of taxes are of paramount
importance for the sustenance of government has been repeatedly observed. Taxes
being the lifeblood of the government that should be collected without unnecessary
hindrance,60 every precaution must be taken not to unduly suppress it.
Whether this Court must issue the writ of prohibition, suffice it to stress that being
possessed of the power to act on the petition for declaratory relief, public
respondent can proceed to determine the merits of the main case. To halt the
proceedings at this point may be acting too prematurely and would not be in
keeping with the policy that courts must decide controversies on the merits.

23

Moreover, lacking the requisite proof of public respondents alleged partiality, this
Court has no ground to prohibit him from proceeding with the case for declaratory
relief. For these reasons, prohibition does not lie.
WHEREFORE, the Petition is PARTLY GRANTED. The writ of certiorari to nullify and
set aside the Order of May 4, 2005 as well as the Writ of Preliminary Injunction
issued by respondent Judge Caguioa on May 11, 2005 isGRANTED. The assailed
Order and Writ of Preliminary Injunction are hereby declared NULL AND VOID and
accordingly SET ASIDE. The writ of prohibition prayed for is, however, DENIED.
SO ORDERED.
Puno, (Chief Justice), Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Carpio,
Austria-Martinez, Corona, Azcuna, Tinga, Chico-Nazario, Garcia, Velasco, Jr.,
Nachura, Reyes, JJ., concur.

24

EN BANC

ABAKADA
GURO
PARTY
LIST
(Formerly
AASJAS)
OFFICERS
SAMSON S.
ALCANTARA and
ED
VINCENT S. ALBANO,

G.R. No. 168056

Petitioners,

Present:

DAVIDE, JR., C.J.,

PUNO,
PANGANIBAN,
QUISUMBING,
YNARES-SANTIAGO,
SANDOVAL-GUTIERREZ,
- versus -

CARPIO,
AUSTRIA-MARTINEZ,
CORONA,
CARPIO-MORALES,
CALLEJO, SR.,
AZCUNA,
TINGA,
CHICO-NAZARIO, and
GARCIA, JJ.

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.

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

AQUILINO Q. PIMENTEL, JR., LUISA P.

EJERCITO-ESTRADA,
JINGGOY
E.
ESTRADA, PANFILO M. LACSON,
ALFREDO
S.
LIM,
JAMBY
A.S.
MADRIGAL, AND SERGIO R. OSMEA
III,
25

G.R. No. 168207

Petitioners,

- versus -

EXECUTIVE SECRETARY EDUARDO R.

ERMITA,
CESAR
V.
PURISIMA,
SECRETARY
OF
FINANCE,
GUILLERMO
L.
PARAYNO,
JR.,
COMMISSIONER OF THE BUREAU OF
INTERNAL REVENUE,
Respondents.

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

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; BETHZAIDA TAN doing
business under the name and style
of
ADVANCE
SHELL
STATION;
REYNALDO
P.
MONTOYA
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 MAEBO doing business
under the name and style of CMA
MOTORISTS CENTER; SUSAN M.
ENTRATA doing business under the
name
and
style
of
LEONAS
GASOLINE STATION and SERVICE
26

G.R. No. 168461

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,

- versus -

CESAR V. PURISIMA, in his capacity

as Secretary of the Department of
Finance
and
GUILLERMO
L.
PARAYNO, JR., in his capacity as
Commissioner of Internal Revenue,
Respondents.

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

FRANCIS JOSEPH G. ESCUDERO,

VINCENT CRISOLOGO, EMMANUEL
JOEL J. VILLANUEVA, RODOLFO G.
PLAZA,
DARLENE
ANTONINOCUSTODIO, 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.
27

G.R. No. 168463

AGBAYANI and TEODORO A. CASIO,

Petitioners,

- versus -

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.

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

BATAAN GOVERNOR
GARCIA, JR.

ENRIQUE

T.

G.R. No. 168730

Petitioner,

- versus -

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,

Promulgated:
Respondents.

September 1, 2005

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

DECISION

28

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 coverage for full
value-added tax benefits these are the reasons why Republic Act No. 9337 (R.A. No.
9337)[1] 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.

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.

LEGISLATIVE HISTORY

R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill
Nos. 3555 and 3705, and Senate Bill No. 1950.

House Bill No. 3555[2] was introduced on first reading on January 7, 2005.
The House Committee on Ways and Means approved the bill, in substitution of
House Bill No. 1468, which Representative (Rep.) Eric D. Singson introduced
on August 8, 2004. The President certified the bill on January 7, 2005 for immediate
enactment. On January 27, 2005, the House of Representatives approved the bill on
second and third reading.

House Bill No. 3705[3] on the other hand, substituted House Bill No. 3105
introduced by Rep. Salacnib F. Baterina, and House Bill No. 3381 introduced by Rep.
Jacinto V. Paras. Its mother bill is House Bill No. 3555. The House Committee on
Ways and Means approved the bill on February 2, 2005. The President also certified
it as urgent on February 8, 2005. The House of Representatives approved the bill on
second and third reading on February 28, 2005.

Meanwhile, the Senate Committee on Ways and Means approved Senate Bill
No. 1950[4] on March 7, 2005, in substitution of Senate Bill Nos. 1337, 1838 and
1873, taking into consideration House Bill Nos. 3555 and 3705. Senator Ralph G.
Recto sponsored Senate Bill No. 1337, while Senate Bill Nos. 1838 and 1873 were
both sponsored by Sens. Franklin M. Drilon, Juan M. Flavier and Francis N.

29

Pangilinan. The President certified the bill on March 11, 2005, and was approved by
the Senate on second and third reading on April 13, 2005.

On the same date, April 13, 2005, the Senate agreed to the request of the
House of Representatives for a committee conference on the disagreeing provisions
of the proposed bills.

Before long, the Conference Committee on the Disagreeing Provisions of

House Bill No. 3555, House Bill No. 3705, and Senate Bill No. 1950, after having met
and discussed in full free and conference, recommended the approval of its report,
which the Senate did on May 10, 2005, and with the House of Representatives
agreeing thereto the next day, May 11, 2005.

On May 23, 2005, the enrolled copy of the consolidated House and Senate
version was transmitted to the President, who signed the same into law on May 24,
2005. Thus, came R.A. No. 9337.

July 1, 2005 is the effectivity date of R.A. No. 9337.[5] When said date came,
the Court issued a temporary restraining order, effective immediately and
continuing until further orders, enjoining respondents from enforcing and
implementing the law.

Oral arguments were held on July 14, 2005. Significantly, during the hearing,
the Court speaking through Mr. Justice Artemio V. Panganiban, voiced the rationale
for its issuance of the temporary restraining order on July 1, 2005, to wit:
J. PANGANIBAN : . . . But before I go into the details of your
presentation, let me just tell you a little
background. You know when the law took effect
on July 1, 2005, the Court issued a TRO at about 5
oclock in the afternoon. But before that, there was
a lot of complaints aired on television and on radio.
Some people in a gas station were complaining that
the gas prices went up by 10%. Some people were
complaining that their electric bill will go up by
10%. Other times people riding in domestic air
carrier were complaining that the prices that theyll
have to pay would have to go up by 10%. While all
that was being aired, per your presentation and per
our own understanding of the law, thats not true.
Its not true that the e-vat law necessarily increased
prices by 10% uniformly isnt it?

ATTY. BANIQUED : No, Your Honor.

J. PANGANIBAN : It is not?

ATTY. BANIQUED : Its not, because, Your Honor, there is an Executive

Order that granted the Petroleum companies some
subsidy . . . interrupted

30

J. PANGANIBAN : Thats correct . . .

ATTY. BANIQUED : . . . and therefore that was meant to temper the

impact . . . interrupted

J. PANGANIBAN : . . . mitigating measures . . .

ATTY. BANIQUED : Yes, Your Honor.

J. PANGANIBAN : As a matter of fact a part of the mitigating measures

would be the elimination of the Excise Tax and the
import duties. That is why, it is not correct to say
that the VAT as to petroleum dealers increased
prices by 10%.

ATTY. BANIQUED : Yes, Your Honor.

J. PANGANIBAN : And therefore, there is no justification for increasing

the retail price by 10% to cover the E-Vat tax. If you
consider the excise tax and the import duties, the
Net Tax would probably be in the neighborhood of
7%? We are not going into exact figures I am just
trying to deliver a point that different industries,
different products, different services are hit
differently. So its not correct to say that all prices
must go up by 10%.
ATTY. BANIQUED : Youre right, Your Honor.

J. PANGANIBAN : Now. For instance, Domestic Airline companies, Mr.

Counsel, are at present imposed a Sales Tax of 3%.
When this E-Vat law took effect the Sales Tax was
also removed as a mitigating measure. So,
therefore, there is no justification to increase the
fares by 10% at best 7%, correct?

ATTY. BANIQUED : I guess so, Your Honor, yes.

J. PANGANIBAN : There are other products that the people were

complaining on that first day, were being increased
arbitrarily by 10%. And thats one reason among
many others this Court had to issue TRO because of
the confusion in the implementation. Thats why we
added as an issue in this case, even if its
tangentially taken up by the pleadings of the
31

parties, the confusion in the implementation of the

E-vat. Our people were subjected to the mercy of
that confusion of an across the board increase of
10%, which you yourself now admit and I think
even the Government will admit is incorrect. In
some cases, it should be 3% only, in some cases it
should be 6% depending on these mitigating
measures and the location and situation of each
product, of each service, of each company, isnt it?

ATTY. BANIQUED : Yes, Your Honor.

J. PANGANIBAN : Alright. So thats one reason why we had to issue a

TRO pending the clarification of all these and we
wish the government will take time to clarify all
these by means of a more detailed implementing
rules, in case the law is upheld by this Court. . . . [6]

The Court also directed the parties to file their respective Memoranda.

G.R. No. 168056

Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al.,
filed a petition for prohibition on May 27, 2005. They question the constitutionality
of Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108,
respectively, of the National Internal Revenue Code (NIRC). Section 4 imposes a
10% VAT on sale of goods and properties, Section 5 imposes a 10% VAT on
importation of goods, and Section 6 imposes a 10% VAT on sale of services and use
or
lease
of
properties.
These
questioned
provisions
contain
a
uniform proviso authorizing the President, upon recommendation of the Secretary of
Finance, to raise the VAT rate to 12%, effective January 1, 2006, after any of the
following conditions have been satisfied, to wit:

. . . That the President, upon the recommendation of the

Secretary of Finance, shall, effective January 1, 2006, raise the rate of
value-added tax to twelve percent (12%), after any of the following
conditions has been satisfied:

(i) 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

(ii) National government deficit as a percentage of GDP of the

previous year exceeds one and one-half percent (1 %).

32

Petitioners argue that the law is unconstitutional, as it constitutes

abandonment by Congress of its exclusive authority to fix the rate of taxes under
Article VI, Section 28(2) of the 1987 Philippine Constitution.

G.R. No. 168207

On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a petition

for certiorari likewise assailing the constitutionality of Sections 4, 5 and 6 of R.A. No.
9337.
Aside from questioning the so-called stand-by authority of the President to
increase the VAT rate to 12%, on the ground that it amounts to an undue delegation
of legislative power, petitioners also contend that the increase in the VAT rate to
12% contingent on any of the two conditions being satisfied violates the due
process clause embodied in Article III, Section 1 of the Constitution, as it imposes an
unfair and additional tax burden on the people, in that: (1) the 12% increase is
ambiguous because it does not state if the rate would be returned to the original
10% if the conditions are no longer satisfied; (2) the rate is unfair and unreasonable,
as the people are unsure of the applicable VAT rate from year to year; and (3) the
increase in the VAT rate, which is supposed to be an incentive to the President to
raise the VAT collection to at least 2 4/5 of the GDP of the previous year, should only
be based on fiscal adequacy.

Petitioners further claim that the inclusion of a stand-by authority granted to

the President by the Bicameral Conference Committee is a violation of the noamendment rule upon last reading of a bill laid down in Article VI, Section 26(2) of
the Constitution.

G.R. No. 168461

Thereafter, a petition for prohibition was filed on June 29, 2005, by the
Association of Pilipinas Shell Dealers, Inc., et al., assailing the following provisions of
R.A. No. 9337:
1) Section 8, amending Section 110 (A)(2) of the NIRC, requiring that
the input tax on depreciable goods shall be amortized over a 60month period, if the acquisition, excluding the VAT components,
exceeds One Million Pesos (P1, 000,000.00);

2) Section 8, amending Section 110 (B) of the NIRC, imposing a 70%

limit on the amount of input tax to be credited against the
output tax; and

3) Section 12, amending Section 114 (c) of the NIRC, authorizing the
Government or any of its political subdivisions, instrumentalities
or agencies, including GOCCs, to deduct a 5% final withholding
tax on gross payments of goods and services, which are subject
to 10% VAT under Sections 106 (sale of goods and properties)
and 108 (sale of services and use or lease of properties) of the
NIRC.

33

Petitioners contend that these provisions are unconstitutional for being

arbitrary, oppressive, excessive, and confiscatory.

Petitioners argument is premised on the constitutional right of nondeprivation of life, liberty or property without due process of law under Article III,
Section 1 of the Constitution. According to petitioners, the contested sections
impose limitations on the amount of input tax that may be claimed. Petitioners also
argue that the input tax partakes the nature of a property that may not be
confiscated, appropriated, or limited without due process of law. Petitioners further
contend that like any other property or property right, the input tax credit may be
transferred or disposed of, and that by limiting the same, the government gets to
tax a profit or value-added even if there is no profit or value-added.

Petitioners also believe that these provisions violate the constitutional

guarantee of equal protection of the law under Article III, Section 1 of the
Constitution, as the limitation on the creditable input tax if: (1) the entity has a high
ratio of input tax; or (2) invests in capital equipment; or (3) has several transactions
with the government, is not based on real and substantial differences to meet a
valid classification.

Lastly, petitioners contend that the 70% limit is anything but progressive,
violative of Article VI, Section 28(1) of the Constitution, and that it is the smaller
businesses with higher input tax to output tax ratio that will suffer the
consequences thereof for it wipes out whatever meager margins the petitioners
make.

G.R. No. 168463

Several members of the House of Representatives led by Rep. Francis Joseph

G. Escudero filed this petition for certiorari on June 30, 2005. They question the
constitutionality of R.A. No. 9337 on the following grounds:

1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue delegation

of legislative power, in violation of Article VI, Section 28(2) of the
Constitution;

2) The Bicameral Conference Committee acted without jurisdiction in

deleting the no pass on provisions present in Senate Bill No.
1950 and House Bill No. 3705; and

3) Insertion by the Bicameral Conference Committee of Sections 27,

28, 34, 116, 117, 119, 121, 125, [7] 148, 151, 236, 237 and 288,
which were present in Senate Bill No. 1950, violates Article VI,
Section 24(1) of the Constitution, which provides that all
appropriation, revenue or tariff bills shall originate exclusively in
the House of Representatives

G.R. No. 168730

34

On the eleventh hour, Governor Enrique T. Garcia filed a petition

for certiorari and prohibition on July 20, 2005, alleging unconstitutionality of the law
on the ground that the limitation on the creditable input tax in effect allows VATregistered establishments to retain a portion of the taxes they collect, thus violating
the principle that tax collection and revenue should be solely allocated for public
purposes and expenditures. Petitioner Garcia further claims that allowing these
establishments to pass on the tax to the consumers is inequitable, in violation of
Article VI, Section 28(1) of the Constitution.

RESPONDENTS COMMENT

The Office of the Solicitor General (OSG) filed a Comment in behalf of

respondents. Preliminarily, respondents contend that R.A. No. 9337 enjoys the
presumption of constitutionality and petitioners failed to cast doubt on its validity.

Relying on the case of Tolentino vs. Secretary of Finance, 235 SCRA

630 (1994), respondents argue that the procedural issues raised by petitioners, i.e.,
legality of the bicameral proceedings, exclusive origination of revenue measures
and the power of the Senate concomitant thereto, have already been settled. With
regard to the issue of undue delegation of legislative power to the President,
respondents contend that the law is complete and leaves no discretion to the
President but to increase the rate to 12% once any of the two conditions provided
therein arise.

Respondents also refute petitioners argument that the increase to 12%, as

well as the 70% limitation on the creditable input tax, the 60-month amortization on
the purchase or importation of capital goods exceeding P1,000,000.00, and the 5%
final withholding tax by government agencies, is arbitrary, oppressive, and
confiscatory, and that it violates the constitutional principle on progressive taxation,
among others.

Finally, respondents manifest that R.A. No. 9337 is the anchor of the
governments fiscal reform agenda. A reform in the value-added system of taxation
is the core revenue measure that will tilt the balance towards a sustainable
macroeconomic environment necessary for economic growth.

ISSUES

The Court defined the issues, as follows:

PROCEDURAL ISSUE

Whether R.A. No. 9337 violates the following provisions of the

Constitution:

a. Article VI, Section 24, and

35

b. Article VI, Section 26(2)

SUBSTANTIVE ISSUES

1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections

106, 107 and 108 of the NIRC, violate the following provisions of the
Constitution:

a. Article VI, Section 28(1), and

b. Article VI, Section 28(2)

2. Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2)

and 110(B) of the NIRC; and Section 12 of R.A. No. 9337, amending
Section 114(C) of the NIRC, violate the following provisions of the
Constitution:

a. Article VI, Section 28(1), and

b. Article III, Section 1

RULING OF THE COURT

As a prelude, the Court deems it apt to restate the general principles and
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. [8] Being an indirect tax on
expenditure, the seller of goods or services may pass on the amount of tax paid to
the buyer,[9] with the seller acting merely as a tax collector. [10] 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.[11] Examples are individual and corporate income taxes, transfer taxes, and
residence taxes.[12]

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.[13] 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. [14]

36

It was only in 1987, when President Corazon C. Aquino issued Executive 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. [15]

E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT Law, [16] R.A.
No. 8241 or the Improved VAT Law, [17] R.A. No. 8424 or the Tax Reform Act of 1997,
[18]
and finally, the presently beleaguered R.A. No. 9337, also referred to by
respondents as the VAT Reform Act.

The Court will now discuss the issues in logical sequence.

PROCEDURAL ISSUE
I.
Whether R.A. No. 9337 violates the following provisions of the Constitution:

a. Article VI, Section 24, and

b. Article VI, Section 26(2)

A. The Bicameral Conference Committee

Petitioners Escudero, et al., and Pimentel, et al., allege that the Bicameral
Conference Committee exceeded its authority by:

1) Inserting the stand-by authority in favor of the President in Sections

4, 5, and 6 of R.A. No. 9337;

2) Deleting entirely the no pass-on provisions found in both the House

and Senate bills;

3) Inserting the provision imposing a 70% limit on the amount of input

tax to be credited against the output tax; and

4) Including the amendments introduced only by Senate Bill No. 1950

regarding other kinds of taxes in addition to the value-added tax.

Petitioners now beseech the Court to define the powers of the Bicameral
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,
37

and order.[19] Thus, Article VI, Section 16 (3) of the Constitution provides that each
House may determine the rules of its proceedings. 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.

Thus, Rule XIV, Sections 88 and 89 of the Rules of House of Representatives

provides as follows:

Sec. 88. Conference Committee. In the event that the House

does not agree with the Senate on the amendment to any bill or joint
resolution, the differences may be settled by the conference
committees of both chambers.

In resolving the differences with the Senate, the House panel

shall, as much as possible, adhere to and support the House Bill. If the
differences with the Senate are so substantial that they materially
impair the House Bill, the panel shall report such fact to the House for
the latters appropriate action.

Sec. 89. Conference Committee Reports. . . . Each report shall

contain a detailed, sufficiently explicit statement of the changes in or
amendments to the subject measure.

...

The Chairman of the House panel may be interpellated on the

Conference Committee Report prior to the voting thereon. The House
shall vote on the Conference Committee Report in the same manner
and procedure as it votes on a bill on third and final reading.

Rule XII, Section 35 of the Rules of the Senate states:

Sec. 35. In the event that the Senate does not agree with the
House of Representatives on the provision of any bill or joint resolution,
the differences shall be settled by a conference committee of both
Houses which shall meet within ten (10) days after their composition.
The President shall designate the members of the Senate Panel in the
conference committee with the approval of the Senate.

Each Conference Committee Report shall contain a detailed and

sufficiently explicit statement of the changes in, or amendments to the
subject measure, and shall be signed by a majority of the members of
each House panel, voting separately.

38

A comparative presentation of the conflicting House and Senate

provisions and a reconciled version thereof with the explanatory
statement of the conference committee shall be attached to the report.

The creation of such conference committee was apparently in response to a

problem, not addressed by any constitutional provision, where the two houses of
Congress find themselves in disagreement over changes or amendments introduced
by the other house in a legislative bill. Given that one of the most basic powers of
the legislative branch is to formulate and implement its own rules of proceedings
and to discipline its members, may the Court then delve into the details of how
Congress complies with its internal rules or how it conducts its business of passing
legislation? Note that in the present petitions, the issue is not whether provisions of
the rules of both houses creating the bicameral conference committee are
unconstitutional, but whether the bicameral conference committee has
strictly complied with the rules of both houses, thereby remaining within
the jurisdiction conferred upon it by Congress.

In the recent case of Farias vs. The Executive Secretary,[20] the Court En
Banc, unanimously reiterated and emphasized its adherence to the enrolled bill
doctrine, thus, declining therein petitioners plea for the Court to go behind the
enrolled copy of the bill. Assailed in said case was Congresss creation of two sets of
bicameral conference committees, the lack of records of said committees
proceedings, the alleged violation of said committees of the rules of both houses,
and the disappearance or deletion of one of the provisions in the compromise bill
submitted by the bicameral conference committee. It was argued that such
irregularities in the passage of the law nullified R.A. No. 9006, or the Fair Election
Act.

Striking down such argument, the Court held thus:

Under the enrolled bill doctrine, the signing of a bill by the

Speaker of the House and the Senate President and the certification of
the Secretaries of both Houses of Congress that it was passed are
conclusive of its due enactment. A review of cases reveals the Courts
consistent adherence to the rule. The Court finds no reason to
deviate from the salutary rule in this case where the
irregularities alleged by the petitioners mostly involved the
internal rules of Congress, e.g., creation of the 2nd or
3rd Bicameral Conference Committee by the House. This Court is
not the proper forum for the enforcement of these internal
rules of Congress, whether House or Senate. Parliamentary
rules are merely procedural and with their observance the
courts have no concern. Whatever doubts there may be as to
the formal validity of Rep. Act No. 9006 must be resolved in its
favor. The Court reiterates its ruling in Arroyo vs. De Venecia, viz.:

But the cases, both here and abroad, in

varying forms of expression, all deny to the courts
the power to inquire into allegations that, in
enacting a law, a House of Congress failed to
comply with its own rules, in the absence of
showing that there was a violation of a
constitutional provision or the rights of private
individuals. In Osmea v. Pendatun, it was held: At any
39

rate, courts have declared that the rules adopted by

deliberative bodies are subject to revocation, modification
or waiver at the pleasure of the body adopting them. And
it has been said that Parliamentary rules are
merely procedural, and with their observance, the
courts have no concern. They may be waived or
disregarded by the legislative body. Consequently,
mere failure to conform to parliamentary usage will
not invalidate the action (taken by a deliberative
body) when the requisite number of members have
agreed
to
a
particular
measure. [21] (Emphasis
supplied)

The foregoing declaration is exactly in point with the present cases, where
petitioners allege irregularities committed by the conference committee in
introducing changes or deleting provisions in the House and Senate bills. Akin to
the Farias case,[22] 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 government.

Moreover, as far back as 1994 or more than ten years ago, in the case
of Tolentino vs. Secretary of Finance,[23] 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. [24] 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.

Nevertheless, just to put minds at ease that no blatant irregularities tainted

the proceedings of the bicameral conference committees, the Court deems it
necessary to dwell on the issue. The Court observes that there was a necessity for a
conference committee because a comparison of the provisions of House Bill Nos.
3555 and 3705 on one hand, and Senate Bill No. 1950 on the other, reveals that
there were indeed disagreements. As pointed out in the petitions, said
disagreements were as follows:
House Bill No. 3555

House Bill No.3705

Senate Bill No. 1950

With regard to Stand-By Authority in favor of President

Provides for 12% VAT

on every sale of

Provides for 12% VAT in

general on sales of
40

Provides for a single rate

of 10% VAT on sale of

goods or properties
(amending Sec. 106
of NIRC); 12% VAT on
importation of goods
(amending Sec. 107
of NIRC); and 12%
VAT
on
sale
of
services and use or
lease of properties
(amending Sec. 108
of NIRC)

goods or properties and

reduced rates for sale of
certain
locally
manufactured goods and
petroleum products and
raw materials to be used
in
the
manufacture
thereof (amending Sec.
106 of NIRC); 12% VAT
on importation of goods
and reduced rates for
certain
imported
products
including
petroleum
products
(amending Sec. 107 of
NIRC); and 12% VAT on
sale of services and use
or lease of properties
and a reduced rate for
certain services including
power
generation
(amending Sec. 108 of
NIRC)

goods
or
properties
(amending Sec. 106 of
NIRC), 10% VAT on sale of
services including sale of
electricity by generation
companies, transmission
and
distribution
companies, and use or
lease
of
properties
(amending Sec. 108 of
NIRC)

With regard to the no pass-on provision

No similar provision

Provides that the VAT

imposed
on
power
generation and on the
sale
of
petroleum
products
shall
be
absorbed by generation
companies or sellers,
respectively, and shall
not be passed on to
consumers

Provides that the VAT

imposed on sales of
electricity by generation
companies and services
of
transmission
companies
and
distribution companies, as
well as those of franchise
grantees
of
electric
utilities shall not apply to
residential
end-users. VAT shall be
absorbed by generation,
transmission,
and
distribution companies.

With regard to 70% limit on input tax credit

Provides
that
the
input tax credit for
capital
goods
on
which a VAT has been
paid shall be equally
distributed over 5
years
or
the
depreciable life of
such capital goods;

No similar provision

41

Provides that the input

tax credit for capital
goods on which a VAT has
been paid shall be equally
distributed over 5 years
or the depreciable life of
such capital goods; the
input tax credit for goods
and services other than

the input tax credit

for
goods
and
services other than
capital goods shall
not exceed 5% of the
total amount of such
goods and services;
and
for
persons
engaged
in
retail
trading of goods, the
allowable input tax
credit
shall
not
exceed 11% of the
total amount of goods
purchased.

capital goods shall not

exceed 90% of the output
VAT.

With regard to amendments to be made to NIRC provisions regarding

income and excise taxes

No similar provision

No similar provision

Provided for amendments

to several NIRC provisions
regarding
corporate
income,
percentage,
franchise
and
excise
taxes

The disagreements between the provisions in the House bills and the Senate
bill were with regard to (1) what rate of VAT is to be imposed; (2) whether only the
VAT imposed on electricity generation, transmission and distribution companies
should not be passed on to consumers, as proposed in the Senate bill, or both the
VAT imposed on electricity generation, transmission and distribution companies and
the VAT imposed on sale of petroleum products should not be passed on to
consumers, as proposed in the House bill; (3) in what manner input tax credits
should be limited; (4) and whether the NIRC provisions on corporate income taxes,
percentage, franchise and excise taxes should be amended.

There being differences and/or disagreements on the foregoing provisions of

the House and Senate bills, the Bicameral Conference Committee was mandated by
the rules of both houses of Congress to act on the same by settling said differences
and/or disagreements. The Bicameral Conference Committee acted on the
disagreeing provisions by making the following changes:

1. With regard to the disagreement on the rate of VAT to be imposed, it would

appear from the Conference Committee Report that the Bicameral Conference
Committee tried to bridge the gap in the difference between the 10% VAT rate
proposed by the Senate, and the various rates with 12% as the highest VAT rate
proposed by the House, by striking a compromise whereby the present 10% VAT
rate would be retained until certain conditions arise, i.e., the value-added tax
42

collection as a percentage of gross domestic product (GDP) of the previous year

exceeds 2 4/5%, or National Government deficit as a percentage of GDP of the
previous year exceeds 1%, when the President, upon recommendation of the
Secretary of Finance shall raise the rate of VAT to 12% effective January 1, 2006.

2. With regard to the disagreement on whether only the VAT imposed on

electricity generation, transmission and distribution companies should not be
passed on to consumers or whether both the VAT imposed on electricity generation,
transmission and distribution companies and the VAT imposed on sale of petroleum
products may be passed on to consumers, the Bicameral Conference Committee
chose to settle such disagreement by altogether deleting from its Report any no
pass-onprovision.

3. With regard to the disagreement on whether input tax credits should be

limited or not, the Bicameral Conference Committee decided to adopt the position
of the House by putting a limitation on the amount of input tax that may be credited
against the output tax, although it crafted its own language as to the amount of the
limitation on input tax credits and the manner of computing the same by providing
thus:

(A) Creditable Input Tax. . . .

Provided, The input tax on goods purchased or imported

in a calendar month for use in trade or business for which
deduction for depreciation is allowed under this Code,
shall be spread evenly over the month of acquisition and
the fifty-nine (59) succeeding months if the aggregate
acquisition cost for such goods, excluding the VAT
component
thereof,
exceeds
one
million
Pesos
(P1,000,000.00): PROVIDED, however, that if the
estimated useful life of the capital good is less than five
(5) years, as used for depreciation purposes, then the
input VAT shall be spread over such shorter period: . . .

(B) Excess Output or Input Tax. If at the end of any

taxable quarter the output tax exceeds the input tax, the
excess shall be paid by the VAT-registered person. If the
input tax exceeds the output tax, the excess shall be
carried over to the succeeding quarter or quarters:
PROVIDED that the input tax inclusive of 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: PROVIDED, HOWEVER, THAT any input tax
attributable to zero-rated sales by a VAT-registered person
may at his option be refunded or credited against other
internal revenue taxes,

4. With regard to the amendments to other provisions of the NIRC on

corporate income tax, franchise, percentage and excise taxes, the conference
committee decided to include such amendments and basically adopted the
43

provisions found in Senate Bill No. 1950, with some changes as to the rate of the
tax to be imposed.

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. [25] 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.
In the present case, 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.

The so-called stand-by authority in favor of the President, whereby the rate of
10% VAT wanted by the Senate is retained until such time that certain conditions
arise when the 12% VAT wanted by the House shall be imposed, appears to be a
compromise to try to bridge the difference in the rate of VAT proposed by the two
houses of Congress. Nevertheless, such compromise is still totally within the subject
of what rate of VAT should be imposed on taxpayers.

The no pass-on provision was deleted altogether. In the transcripts of the

proceedings of the Bicameral Conference Committee held on May 10, 2005, Sen.
Ralph Recto, Chairman of the Senate Panel, explained the reason for deleting the no
pass-on provision in this wise:

. . . the thinking was just to keep the VAT law or the VAT bill
simple. And we were thinking that no sector should be a beneficiary of
legislative grace, neither should any sector be discriminated on. The
VAT is an indirect tax. It is a pass on-tax. And lets keep it plain and
simple. Lets not confuse the bill and put a no pass-on provision. Twothirds of the world have a VAT system and in this two-thirds of the
globe, I have yet to see a VAT with a no pass-though provision. So, the
thinking of the Senate is basically simple, lets keep the VAT simple.
[26]
(Emphasis supplied)
Rep. Teodoro Locsin further made the manifestation that the no passon provision never really enjoyed the support of either House. [27]

With regard to the amount of input tax to be credited against output tax, the
Bicameral Conference Committee came to a compromise on the percentage rate of
the limitation or cap on such input tax credit, but again, the change introduced by
the Bicameral Conference Committee was totally within the intent of both houses
toput a cap on input tax that may be
credited against the output tax. From the inception of the subject revenue bill in the
House of Representatives, one of the major objectives was to plug a glaring
loophole in the tax policy and administration by creating vital restrictions on the
claiming of input VAT tax credits . . . and [b]y introducing limitations on the claiming

44

of tax credit, we are capping a major leakage that has placed our collection efforts
at an apparent disadvantage.[28]

As to the amendments to NIRC provisions on taxes other than the valueadded tax proposed in Senate Bill No. 1950, since said provisions were among those
referred to it, the conference committee had to act on the same and it basically
adopted the version of the Senate.

Thus, 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 jurisdiction committed by the Bicameral
Conference Committee. In the earlier cases of Philippine Judges Association vs.
Prado[29] and Tolentino vs. Secretary of Finance,[30] 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. [31] (Emphasis
supplied)

B. R.A. No. 9337 Does Not Violate Article VI, Section 26(2)
of the Constitution on the No-Amendment Rule

Article VI, Sec. 26 (2) of the Constitution, states:

No bill passed by either House shall become a law unless it has

passed three readings on separate days, and printed copies thereof in
its final form have been distributed to its Members three days before
its passage, except when the President certifies to the necessity of its
immediate enactment to meet a public calamity or emergency. Upon
the last reading of a bill, no amendment thereto shall be allowed, and
the vote thereon shall be taken immediately thereafter, and the yeas
and nays entered in the Journal.

Petitioners argument that the practice where a bicameral conference

committee is allowed to add or delete provisions in the House bill and the Senate
bill after these had passed three readings is in effect a circumvention of the no
amendment rule (Sec. 26 (2), Art. VI of the 1987 Constitution), fails to convince the
Court to deviate from its ruling in the Tolentino case that:

45

Nor is there any reason for requiring that the Committees Report
in these cases must have undergone three readings in each of the two
houses. If that be the case, there would be no end to negotiation since
each house may seek modification of the compromise bill. . . .

Art. VI. 26 (2) must, therefore, be construed as referring

only to bills introduced for the first time in either house of
Congress, not to the conference committee report. [32] (Emphasis
supplied)

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.

C. R.A. No. 9337 Does Not Violate Article VI, Section 24 of

the Constitution on Exclusive Origination of
Revenue Bills

Coming to the issue of the validity of the amendments made regarding the
NIRC provisions on corporate income taxes and percentage, excise taxes. Petitioners
refer to the following provisions, to wit:

Section
27
Rates
of
Income
Corporation

Tax

on

Domestic

28(A)(1)

Tax on Resident Foreign Corporation

28(B)(1)

Inter-corporate Dividends

34(B)(1)

Inter-corporate Dividends

116

Tax on Persons Exempt from VAT

117

Percentage Tax on domestic carriers and

46

keepers of Garage

119

Tax on franchises

121

Tax on banks
Intermediaries

148

Excise Tax on manufactured oils and other

fuels

151

Excise Tax on mineral products

236

Registration requirements

237

Issuance of receipts or sales or commercial

invoices

288

Disposition of Incremental Revenue

and

Non-Bank

Financial

Petitioners claim that the amendments to these provisions of the NIRC did not
at all originate from the House. They aver that House Bill No. 3555 proposed
amendments only regarding Sections 106, 107, 108, 110 and 114 of the NIRC, while
House Bill No. 3705 proposed amendments only to Sections 106, 107,108, 109, 110
and 111 of the NIRC; thus, the other sections of the NIRC which the Senate
amended but which amendments were not found in the House bills are not intended
to be amended by the House of Representatives. Hence, they argue that since the
proposed amendments did not originate from the House, such amendments are a
violation of Article VI, Section 24 of the Constitution.

The argument does not hold water.

Article VI, Section 24 of the Constitution reads:

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.

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
47

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?

The foregoing question had been squarely answered in the Tolentino case,
wherein the Court held, thus:

. . . To begin with, it is not the law but the revenue bill which is
required by the Constitution to originate exclusively in the House of
Representatives. It is important to emphasize this, because a bill
originating in the House may undergo such extensive changes in the
Senate that the result may be a rewriting of the whole. . . . At this
point, what is important to note is that, as a result of the Senate
action, a distinct bill may be produced. To insist that a revenue
statute and not only the bill which initiated the legislative
process culminating in the enactment of the law must
substantially be the same as the House bill would be to deny
the Senates power not only to concur with amendmentsbut
also to propose amendments. It would be to violate the coequality
of legislative power of the two houses of Congress and in fact make the
House superior to the Senate.

Given, then, the power of the Senate to propose

amendments, the Senate can propose its own version even
with respect to bills which are required by the Constitution to
originate in the House.
Indeed, what the Constitution simply means is that the initiative
for filing revenue, tariff or tax bills, bills authorizing an increase of the
public debt, private bills and bills of local application must come from
the House of Representatives on the theory that, elected as they are
from the districts, the members of the House can be expected to
be more sensitive to the local needs and problems. On the
other hand, the senators, who are elected at large, are
expected to approach the same problems from the national
perspective. Both views are thereby made to bear on the
enactment of such laws.[33] (Emphasis supplied)

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.

Furthermore, the amendments introduced by the Senate to the NIRC

provisions that had not been touched in the House bills are still in furtherance of the
intent of the House in initiating the subject revenue bills. The Explanatory Note of
House Bill No. 1468, the very first House bill introduced on the floor, which was later
substituted by House Bill No. 3555, stated:

48

One of the challenges faced by the present administration is the

urgent and daunting task of solving the countrys serious financial
problems. To do this, government expenditures must be strictly
monitored and controlled and revenues must be significantly
increased. This may be easier said than done, but our fiscal authorities
are still optimistic the government will be operating on a balanced
budget by the year 2009. In fact, several measures that will result to
significant expenditure savings have been identified by the
administration. It is supported with a credible package of
revenue measures that include measures to improve tax
administration and control the leakages in revenues from
income taxes and the value-added tax (VAT). (Emphasis supplied)

Rep. Eric D. Singson, in his sponsorship speech for House Bill No. 3555,
declared that:

In the budget message of our President in the year 2005, she

reiterated that we all acknowledged that on top of our agenda must be
the restoration of the health of our fiscal system.

In order to considerably lower the consolidated public sector

deficit and eventually achieve a balanced budget by the year 2009, we
need to seize windows of opportunities which might seem
poignant in the beginning, but in the long run prove effective
and beneficial to the overall status of our economy. One such
opportunity is a review of existing tax rates, evaluating the
relevance given our present conditions.[34] (Emphasis supplied)

Notably therefore, the main purpose of the bills emanating from the House of
Representatives is to bring in sizeable revenues for the government
to supplement our countrys serious financial problems, and improve tax
administration and control of the leakages in revenues 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. The sponsorship speech of Sen. Ralph Recto on why the provisions on
income tax on corporation were included is worth quoting:

All in all, the proposal of the Senate Committee on Ways and

Means will raise P64.3 billion in additional revenues annually even
while by mitigating prices of power, services and petroleum products.

However, not all of this will be wrung out of VAT. In fact,

only P48.7 billion amount is from the VAT on twelve goods and
services. The rest of the tab P10.5 billion- will be picked by
corporations.

What we therefore prescribe is a burden sharing between

corporate Philippines and the consumer. Why should the latter bear all
49

the pain? Why should the fiscal salvation be only on the burden of the
consumer?

The corporate worlds equity is in form of the increase in the

corporate income tax from 32 to 35 percent, but up to 2008 only. This
will raise P10.5 billion a year. After that, the rate will slide back, not to
its old rate of 32 percent, but two notches lower, to 30 percent.

Clearly, we are telling those with the capacity to pay,

corporations, to bear with this emergency provision that will be in
effect for 1,200 days, while we put our fiscal house in order. This fiscal
medicine will have an expiry date.

For their assistance, a reward of tax reduction awaits them. We

intend to keep the length of their sacrifice brief. We would like to
assure them that not because there is a light at the end of the tunnel,
this government will keep on making the tunnel long.

The responsibility will not rest solely on the weary shoulders of

the small man. Big business will be there to share the burden. [35]

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. Again, in his sponsorship speech, Sen. Recto said:

However, for power plants that run on oil, we will reduce to zero
the present excise tax on bunker fuel, to lessen the effect of a VAT on
this product.

For electric utilities like Meralco, we will wipe out the franchise
tax in exchange for a VAT.

And in the case of petroleum, while we will levy the VAT on oil
products, so as not to destroy the VAT chain, we will however bring
down the excise tax on socially sensitive products such as diesel,
bunker, fuel and kerosene.

What do all these exercises point to? These are not contortions
of giving to the left hand what was taken from the right. Rather, these
sprang from our concern of softening the impact of VAT, so that the
50

people can cushion the blow of higher prices they will have to pay as a
result of VAT.[36]

The other sections amended by the Senate pertained to matters of tax

administration which are necessary for the implementation of the changes in the
VAT system.

To reiterate, the sections introduced by the Senate are germane to the

subject matter and purposes of the house bills, which is to supplement our countrys
fiscal deficit, among others. Thus, the Senate acted within its power to propose
those amendments.

SUBSTANTIVE ISSUES
I.
Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108
of the NIRC, violate the following provisions of the Constitution:

a. Article VI, Section 28(1), and

b. Article VI, Section 28(2)
A. No Undue Delegation of Legislative Power

Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et al., and
Escudero, et al. contend in common that Sections 4, 5 and 6 of R.A. No. 9337,
amending Sections 106, 107 and 108, respectively, of the NIRC giving the President
the stand-by authority to raise the VAT rate from 10% to 12% when a certain
condition is met, constitutes undue delegation of the legislative power to tax.

The assailed provisions read as follows:

SEC. 4. Sec. 106 of the same Code, as amended, is hereby

further amended to read as follows:

SEC. 106. Value-Added Tax on Sale of Goods or Properties.

(A) Rate and Base of Tax. There shall be levied, assessed

and collected on every sale, barter or exchange of goods
or properties, a value-added tax equivalent to ten percent
(10%) of the gross selling price or gross value in money of
the goods or properties sold, bartered or exchanged, such
tax to be paid by the seller or transferor: provided,
that the President, upon the recommendation of
the Secretary of Finance, shall, effective January 1,
2006, raise the rate of value-added tax to twelve

51

percent (12%), after any of the following conditions

has been satisfied.

(i)

value-added
tax
collection
as
a
percentage of Gross Domestic Product (GDP)
of the previous year exceeds two and fourfifth percent (2 4/5%) or

(ii) national government deficit as a percentage of

GDP of the previous year exceeds one and
one-half percent (1 %).

SEC. 5. Section 107 of the same Code, as amended, is hereby

further amended to read as follows:

SEC. 107. Value-Added Tax on Importation of Goods.

(A) In General. There shall be levied, assessed and
collected on every importation of goods a value-added tax
equivalent to ten percent (10%) based on the total value
used by the Bureau of Customs in determining tariff and
customs duties, plus customs duties, excise taxes, if any,
and other charges, such tax to be paid by the importer
prior to the release of such goods from customs custody:
Provided, That where the customs duties are determined
on the basis of the quantity or volume of the goods, the
value-added tax shall be based on the landed cost plus
excise taxes, if any: provided, further, that the
President, upon the recommendation of the
Secretary of Finance, shall, effective January 1,
2006, raise the rate of value-added tax to twelve
percent (12%) after any of the following conditions
has been satisfied.

(i) 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
(ii) national government deficit as a percentage of
GDP of the previous year exceeds one and
one-half percent (1 %).

SEC. 6. Section 108 of the same Code, as amended, is hereby

further amended to read as follows:

SEC. 108. Value-added Tax on Sale of Services and Use or

Lease of Properties

52

(A) Rate and Base of Tax. There shall be levied, assessed

and collected, a value-added tax equivalent to ten
percent (10%) of gross receipts derived from the sale or
exchange of services: provided, that the President,
upon the recommendation of the Secretary of
Finance, shall, effective January 1, 2006, raise the
rate of value-added tax to twelve percent (12%),
after any of the following conditions has been
satisfied.

(i) 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
(ii) national government deficit as a percentage of
GDP of the previous year exceeds one and
one-half percent (1 %). (Emphasis supplied)

Petitioners allege that the grant of the stand-by authority to the President to
increase the VAT rate is a virtual abdication by Congress of its exclusive power to
tax because such delegation is not within the purview of Section 28 (2), Article VI of
the Constitution, which provides:

The Congress may, by law, authorize the President to fix within

specified limits, and may impose, tariff rates, import and export
quotas, tonnage and wharfage dues, and other duties or imposts within
the framework of the national development program of the
government.

They argue that the VAT is a tax levied on the sale, barter or exchange of
goods and properties as well as on the sale or exchange of services, which cannot
be included within the purview of tariffs under the exempted delegation as the
latter refers to customs duties, tolls or tribute payable upon merchandise to the
government and usually imposed on goods or merchandise imported or exported.

Petitioners ABAKADA GURO Party List, et al., further contend that delegating
to the President the legislative power to tax is contrary to republicanism. They insist
that accountability, responsibility and transparency should dictate the actions of
Congress and they should not pass to the President the decision to impose taxes.
They also argue that the law also effectively nullified the Presidents power of
control, which includes the authority to set aside and nullify the acts of her
subordinates like the Secretary of Finance, by mandating the fixing of the tax rate
by the President upon the recommendation of the Secretary of Finance.

Petitioners Pimentel, et al. aver that the President has ample powers to
cause, influence or create the conditions provided by the law to bring about either
or both the conditions precedent.

On the other hand, petitioners Escudero, et al. find bizarre and revolting the
situation that the imposition of the 12% rate would be subject to the whim of the
53

Secretary of Finance, an unelected bureaucrat, contrary to the principle of no

taxation without representation. They submit that the Secretary of Finance is not
mandated to give a favorable recommendation and he may not even give his
recommendation. Moreover, they allege that no guiding standards are provided in
the law on what basis and as to how he will make his recommendation. They claim,
nonetheless, that any recommendation of the Secretary of Finance can easily be
brushed aside by the President since the former is a mere alter ego of the latter,
such that, ultimately, it is the President who decides whether to impose the
increased tax rate or not.

A brief discourse on the principle of non-delegation of powers is instructive.

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. [37] 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
[38]
delegari potestwhich 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
instrumentality of his own judgment and not through the intervening mind of
another.[39]

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 Philippineswhich 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.[40] 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.

54

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;[41] 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.[42] 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.
[43]
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.[44]

In People vs. Vera,[45] the Court, through eminent Justice Jose P. Laurel,
expounded on the concept and extent of delegation of power in this wise:

In testing whether a statute constitutes an undue delegation of

legislative power or not, it is usual to inquire whether the statute was
complete in all its terms and provisions when it left the hands of the
legislature so that nothing was left to the judgment of any other
appointee or delegate of the legislature.

...

The true distinction, says Judge Ranney, is between the

delegation of power to make the law, which necessarily
involves a discretion as to what it shall be, and conferring an
authority or discretion as to its execution, to be exercised
under and in pursuance of the law. The first cannot be done; to
the latter no valid objection can be made.

It is contended, however, that a legislative act may be made to

the effect as law after it leaves the hands of the legislature. It is true
that laws may be made effective on certain contingencies, as by
proclamation of the executive or the adoption by the people of a
particular community. In Wayman vs. Southard, the Supreme Court of
the United States ruled that the legislature may delegate a power not
legislative which it may itself rightfully exercise. The power to
ascertain facts is such a power which may be delegated. There
is nothing essentially legislative in ascertaining the existence
of facts or conditions as the basis of the taking into effect of a
law. That is a mental process common to all branches of the
government. Notwithstanding the apparent tendency, however, to
relax the rule prohibiting delegation of legislative authority on account
of the complexity arising from social and economic forces at work in
this modern industrial age, the orthodox pronouncement of Judge
Cooley in his work on Constitutional Limitations finds restatement in
Prof. Willoughby's treatise on the Constitution of the United States in
the following language speaking of declaration of legislative power to
administrative agencies: The principle which permits the
legislature to provide that the administrative agent may
determine when the circumstances are such as require the
application of a law is defended upon the ground that at the
time this authority is granted, the rule of public policy, which
is the essence of the legislative act, is determined by the
legislature. In other words, the legislature, as it is its duty to
55

do, determines that, under given circumstances, certain

executive or administrative action is to be taken, and that,
under other circumstances, different or no action at all is to be
taken. What is thus left to the administrative official is not the
legislative determination of what public policy demands, but
simply the ascertainment of what the facts of the case require
to be done according to the terms of the law by which he is
governed. The efficiency of an Act as a declaration of
legislative will must, of course, come from Congress, but the
ascertainment of the contingency upon which the Act shall
take effect may be left to such agencies as it may designate.
The legislature, then, may provide that a law shall take effect
upon the happening of future specified contingencies leaving
to some other person or body the power to determine when
the specified contingency has arisen. (Emphasis supplied).[46]

In Edu vs. Ericta,[47] the Court reiterated:

What cannot be delegated is the authority under the

Constitution to make laws and to alter and repeal them; the test is the
completeness of the statute in all its terms and provisions when it
leaves the hands of the legislature. To determine whether or not there
is an undue delegation of legislative power, the inquiry must be
directed to the scope and definiteness of the measure enacted. The
legislative does not abdicate its functions when it describes
what job must be done, who is to do it, and what is the scope
of his authority. For a complex economy, that may be the only way in
which the legislative process can go forward. A distinction has
rightfully been made between delegation of power to make the
laws which necessarily involves a discretion as to what it shall
be, which constitutionally may not be done, and delegation of
authority or discretion as to its execution to be exercised
under and in pursuance of the law, to which no valid objection
can be made. The Constitution is thus not to be regarded as denying
the legislature the necessary resources of flexibility and practicability.
(Emphasis supplied).[48]

Clearly, the legislature may delegate to executive 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.[49]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.[50]

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 information 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. [51] The Constitution as a
continuously operative charter of government does not require that Congress find
for itself

56

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.[52]

In the present case, the challenged section of R.A. No. 9337 is the
common proviso in Sections 4, 5 and 6 which reads as follows:

That the President, upon the recommendation of the Secretary

of Finance, shall, effective January 1, 2006, raise the rate of valueadded tax to twelve percent (12%), after any of the following
conditions has been satisfied:

(i) 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

(ii) National government deficit as a percentage of

GDP of the previous year exceeds one and one-half
percent (1 %).

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. [53] 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. [54]

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 the ascertainment of certain
facts or conditions by a person or body other than the legislature itself.

The Court finds no merit to the contention of petitioners ABAKADA

GURO Party List, et al. that the law effectively nullified the Presidents power of
control over the Secretary of Finance by mandating the fixing of the tax rate by the
President upon the recommendation of the Secretary of Finance. The Court cannot
also subscribe to the position of petitioners
57

Pimentel, et al. that the word shall should be interpreted to mean may in view of the
phrase upon the recommendation of the Secretary of Finance. Neither does the
Court find persuasive the submission of petitioners Escudero, et al. that any
recommendation by the Secretary of Finance can easily be brushed aside by the
President since the former is a mere alter ego of the latter.

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."[55]

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. [56] The Secretary of Finance becomes the means
or tool by which legislative policy is determined and implemented, considering that
he possesses all the facilities to gather data and information and has a much
broader perspective to properly evaluate them. His function is to gather and collate
statistical data and other pertinent information and verify if any of the two
conditions laid out by Congress is present. 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.

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%). 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.[57] 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.[58]

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 implementation of the law. The intent and will to
increase the VAT rate to 12% came from Congress and the task of the President is to
simply execute the legislative policy. That Congress chose to do so in such a manner
58

is not within the province of the Court to inquire into, its task being to interpret the
law.[59]

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.

B. The 12% Increase VAT Rate Does Not Impose an Unfair

and Unnecessary Additional Tax Burden

Petitioners Pimentel, et al. argue that the 12% increase in the VAT rate
imposes an unfair and additional tax burden on the people. Petitioners also argue
that the 12% increase, dependent on any of the 2 conditions set forth in the
contested provisions, is ambiguous because it does not state if the VAT rate would
be returned to the original 10% if the rates are no longer satisfied. Petitioners also
argue that such rate is unfair and unreasonable, as the people are unsure of the
applicable VAT rate from year to year.

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%.

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. [60]

Thus, in the absence of any provision providing for a return to the 10% rate,
which in this case the Court finds none, petitioners argument is, at best, purely
speculative. There is no basis for petitioners fear of a fluctuating VAT rate because
the law itself does not provide that the rate should go back to 10% if the conditions
provided in Sections 4, 5 and 6 are no longer present. The rule is that where the
provision of the law is clear and unambiguous, so that there is no occasion for the
court's seeking the legislative intent, the law must be taken as it is, devoid of
judicial addition or subtraction.[61]

Petitioners also contend that the increase in the VAT rate, which was allegedly
an incentive to the President to raise the VAT collection to at least 2 4/5 of the GDP of
the previous year, should be based on fiscal adequacy.

Petitioners obviously overlooked that increase in VAT collection is not

the only condition. There is another condition, i.e., the national government deficit
59

as a percentage of GDP of the previous year exceeds one and one-half percent (1
%).

Respondents explained the philosophy behind these alternative conditions:

1.

VAT/GDP Ratio > 2.8%

The condition set for increasing VAT rate to 12% have economic
or fiscal meaning. If VAT/GDP is less than 2.8%, it means that
government has weak or no capability of implementing the VAT or that
VAT is not effective in the function of the tax collection. Therefore,
there is no value to increase it to 12% because such action will also be
ineffectual.

2.

Natl Govt Deficit/GDP >1.5%

The condition set for increasing VAT when deficit/GDP is 1.5% or

less means the fiscal condition of government has reached a relatively
sound position or is towards the direction of a balanced budget
position. Therefore, there is no need to increase the VAT rate since the
fiscal house is in a relatively healthy position. Otherwise stated, if the
ratio is more than 1.5%, there is indeed a need to increase the VAT
rate.[62]

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, 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. [63]

It simply means that sources of revenues must be adequate to meet

government expenditures and their variations.[64]

The dire need for revenue cannot be ignored. Our country is in a quagmire of
financial woe. During the Bicameral Conference Committee hearing, then Finance
Secretary Purisima bluntly depicted the countrys gloomy state of economic affairs,
thus:

First, let me explain the position that the Philippines finds itself
in right now. We are in a position where 90 percent of our revenue is
60

used for debt service. So, for every peso of revenue that we currently
raise, 90 goes to debt service. Thats interest plus amortization of our
debt. So clearly, this is not a sustainable situation. Thats the first fact.

The second fact is that our debt to GDP level is way out of line
compared to other peer countries that borrow money from that
international financial markets. Our debt to GDP is approximately equal
to our GDP. Again, that shows you that this is not a sustainable
situation.

The third thing that Id like to point out is the environment that
we are presently operating in is not as benign as what it used to be the
past five years.

What do I mean by that?

In the past five years, weve been lucky because we were

operating in a period of basically global growth and low interest rates.
The past few months, we have seen an inching up, in fact, a rapid
increase in the interest rates in the leading economies of the world.
And, therefore, our ability to borrow at reasonable prices is going to be
challenged. In fact, ultimately, the question is our ability to access the
financial markets.

When the President made her speech in July last year, the
environment was not as bad as it is now, at least based on the forecast
of most financial institutions. So, we were assuming that raising 80
billion would put us in a position where we can then convince them to
improve our ability to borrow at lower rates. But conditions have
changed on us because the interest rates have gone up. In fact, just
within this room, we tried to access the market for a billion dollars
because for this year alone, the Philippines will have to borrow 4 billion
dollars. Of that amount, we have borrowed 1.5 billion. We issued last
January a 25-year bond at 9.7 percent cost. We were trying to access
last week and the market was not as favorable and up to now we have
not accessed and we might pull back because the conditions are not
very good.

So given this situation, we at the Department of Finance believe

that we really need to front-end our deficit reduction. Because it is
deficit that is causing the increase of the debt and we are in what we
call a debt spiral. The more debt you have, the more deficit you have
because interest and debt service eats and eats more of your revenue.
We need to get out of this debt spiral. And the only way, I think, we can
get out of this debt spiral is really have a front-end adjustment in our
revenue base.[65]

The image portrayed is chilling. Congress passed the law hoping for rescue
from an inevitable catastrophe. Whether the law is indeed sufficient to answer the
states economic dilemma is not for the Court to judge. In the Farias case, the Court
refused to consider the various arguments raised therein that dwelt on the wisdom
of Section 14 of R.A. No. 9006 (The Fair Election Act), pronouncing that:
61

. . . policy matters are not the concern of the Court. Government

policy is within the exclusive dominion of the political branches of the
government. It is not for this Court to look into the wisdom or propriety
of legislative determination. Indeed, whether an enactment is wise or
unwise, whether it is based on sound economic theory, whether it is
the best means to achieve the desired results, whether, in short, the
legislative discretion within its prescribed limits should be exercised in
a particular manner are matters for the judgment of the legislature,
and the serious conflict of opinions does not suffice to bring them
within the range of judicial cognizance. [66]

In the same vein, the Court in this case will not dawdle on the purpose of
Congress or the executive policy, given that it is not for the judiciary to "pass upon
questions of wisdom, justice or expediency of legislation. [67]

II.
Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the
NIRC; and Section 12 of R.A. No. 9337, amending Section 114(C) of the NIRC, violate
the following provisions of the Constitution:

a. Article VI, Section 28(1), and

b. Article III, Section 1

A. Due Process and Equal Protection Clauses

Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue that Section
8 of R.A. No. 9337, amending Sections 110 (A)(2), 110 (B), and Section 12 of R.A.
No. 9337, amending Section 114 (C) of the NIRC are arbitrary, oppressive, excessive
and confiscatory. Their argument is premised on the constitutional right against
deprivation of life, liberty of property without due process of law, as embodied in
Article III, Section 1 of the Constitution.

Petitioners also contend that these provisions violate the constitutional

guarantee of equal protection of the law.
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. [68]

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
62

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.

Petitioners claim that the contested sections impose limitations on the

amount of input tax that may be claimed. In effect, a portion of the input tax that
has already been paid cannot now be credited against the output tax.

Petitioners argument is not absolute. It assumes that the input tax exceeds
70% of the output tax, and therefore, the input tax in excess of 70% remains
uncredited. However, to the extent that the input tax is less than 70% of the output
tax, then 100% of such input tax is still creditable.

More importantly, the excess input tax, if any, is retained in a businesss

books of accounts and remains creditable in the succeeding quarter/s. This is
explicitly allowed by Section 110(B), which provides that if the input tax exceeds the
output tax, the excess shall be carried over to the succeeding quarter or quarters. In
addition, Section 112(B) allows a VAT-registered person to apply for the issuance of
a tax credit certificate or refund for any unused input taxes, to the extent that such
input taxes have not been applied against the output taxes. Such unused input tax
may be used in payment of his other internal revenue taxes.

The non-application of the unutilized input tax in a given quarter is not ad

infinitum, as petitioners exaggeratedly contend. Their analysis of the effect of the
70% limitation is incomplete and one-sided. It ends at the net effect that there will
be unapplied/unutilized inputs VAT for a given quarter. It does not proceed further to
the fact that such unapplied/unutilized input tax may be credited in the subsequent
periods as allowed by the carry-over provision of Section 110(B) or that it may later
on be refunded through a tax credit certificate under Section 112(B).

Therefore, petitioners argument must be rejected.

On the other hand, it appears that petitioner Garcia failed to comprehend the
operation of the 70% limitation on the input tax. According to petitioner, the
limitation on the creditable input tax in effect allows VAT-registered establishments
to retain a portion of the taxes they collect, which violates the principle that tax
collection and revenue should be for public purposes and expenditures

As earlier stated, the input tax is the tax paid by a person, passed on to him
by the seller, when he buys goods. Output tax meanwhile is the tax due to the
person when he sells goods. In computing the VAT payable, three possible scenarios
may arise:

63

First, if at the end of a taxable quarter the output taxes charged by the seller
are equal to the input taxes that he paid and passed on by the suppliers, then no
payment is required;

Second, when the output taxes exceed the input taxes, the person shall be
liable for the excess, which has to be paid to the Bureau of Internal Revenue (BIR);
[69]
and

Third, if the input taxes exceed the output taxes, the excess shall be carried
over to the succeeding quarter or quarters. Should the input taxes result from zerorated or effectively zero-rated transactions, any excess over the output taxes shall
instead be refunded to the taxpayer or credited against other internal revenue
taxes, at the taxpayers option.[70]

Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input
tax. Thus, a person can credit his input tax only up to the extent of 70% of the
output tax. In laymans term, the value-added taxes that a person/taxpayer paid and
passed on to him by a seller can only be credited up to 70% of the value-added
taxes that is due to him on a taxable transaction. There is no retention of any tax
collection because the person/taxpayer has already previously paid the input tax to
a seller, and the seller will subsequently remit such input tax to the BIR. The party
directly liable for the payment of the tax is the seller. [71] What only needs to be done
is for the person/taxpayer to apply or credit these input taxes, as evidenced by
receipts, against his output taxes.

Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also argue that
the input tax partakes the nature of a property that may not be confiscated,
appropriated, or limited without due process of law.

The input tax is not a property or a property right within the constitutional
purview of the due process clause. A VAT-registered persons 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. [72]

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. [73] This was adopted
by the Expanded VAT Law (R.A. No. 7716), [74] and The Tax Reform Act of 1997 (R.A.
No. 8424).[75] 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.

Petitioners also contest as arbitrary, oppressive, excessive and confiscatory,

Section 8 of R.A. No. 9337, amending Section 110(A) of the NIRC, which provides:

64

SEC. 110. Tax Credits.

(A) Creditable Input Tax.

Provided, That the input tax on goods purchased or imported in a

calendar month for use in trade or business for which deduction for
depreciation is allowed under this Code, shall be spread evenly over
the month of acquisition and the fifty-nine (59) succeeding months if
the aggregate acquisition cost for such goods, excluding the VAT
component
thereof,
exceeds
One
million
pesos
(P1,000,000.00): Provided, however, That if the estimated useful life of
the capital goods is less than five (5) years, as used for depreciation
purposes, then the input VAT shall be spread over such a shorter
period: Provided, finally, That in the case of purchase of services, lease
or use of properties, the input tax shall be creditable to the purchaser,
lessee or license upon payment of the compensation, rental, royalty or
fee.

The foregoing section imposes a 60-month period within which to amortize

the creditable input tax on purchase or importation of capital goods with acquisition
cost of P1 Million pesos, exclusive of the VAT component. Such spread out only
poses a delay in the crediting of the input tax. Petitioners argument is without basis
because the taxpayer is not permanently deprived of his privilege to credit the input
tax.

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.[76] 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. [77] 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 deterred. [78] Again, for whatever is the purpose of the 60month amortization, this involves executive economic policy and legislative wisdom
in which the Court cannot intervene.

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:

SEC. 114. Return and Payment of Value-added Tax.

(C) Withholding of 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 and services
which are subject to the value-added tax imposed in Sections 106 and
108 of this Code, deduct and withhold a final value-added tax at the
rate of five percent (5%) of the gross payment thereof: Provided, That
the payment for lease or use of properties or property rights to
65

nonresident owners shall be subject to ten percent (10%) withholding

tax at the time of payment. For purposes of this Section, the payor or
person in control of the payment shall be considered as the
withholding agent.

The value-added tax withheld under this Section shall be

remitted within ten (10) days following the end of the month the
withholding was made.

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 valueadded 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.

The Court observes, however, that the law the 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 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.

66

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. [79]

The Court need not explore the rationale behind the provision. It is clear that
Congress intended to treat differently taxable transactions with the government.
[80]
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
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 Congresss 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.

Moreover, the actual input tax is not totally lost or uncreditable, as petitioners
believe. Revenue Regulations No. 14-2005 or the Consolidated Value-Added Tax
Regulations 2005 issued by the BIR, provides that should the actual input tax
exceed 5% of gross payments, the excess may form part of the cost. Equally, should
the actual input tax be less than 5%, the difference is treated as income. [81]
67

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, onesided. 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,[82] full of sound and
fury, signifying nothing.

Whats 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.

The equal protection clause under the Constitution means that no person or
class of persons shall be deprived of the same protection of laws which is enjoyed
by other persons or other classes in the same place and in like circumstances. [83]

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 States 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. [84]

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 ones 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. [85]

Petitioners brought to the Courts attention the introduction of Senate Bill No.
2038 by Sens. S.R. Osmea III and Ma. Ana Consuelo A.S. Madrigal on June 6, 2005,
and House Bill No. 4493 by Rep. Eric D. Singson. The proposed legislation seeks to
amend the 70% limitation by increasing the same to 90%. This, according to
68

petitioners, supports their stance that the 70% limitation is arbitrary and
confiscatory. On this score, suffice it to say that these are still proposed legislations.
Until Congress amends the law, and absent any unequivocal basis for its
unconstitutionality, the 70% limitation stays.

B. Uniformity and Equitability of Taxation

Article VI, Section 28(1) of the Constitution reads:

The rule of taxation shall be uniform and equitable. The

Congress shall evolve a progressive system of taxation.

Uniformity in taxation means that all taxable articles or 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.[86]

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.[87]

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.[88] Also, basic
marine and agricultural food products in their original state are still not subject to
the tax,[89] 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:[90]

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
exceedingP200,000.00.
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.
69

It is admitted that R.A. No. 9337 puts a premium on businesses with low profit
margins, and unduly favors those with high profit margins. Congress was not
oblivious to this. Thus, to equalize the weighty burden the law entails, the law,
under Section 116, imposed a 3% percentage tax on VAT-exempt persons under
Section 109(v), i.e., transactions with gross annual sales and/or receipts not
exceeding P1.5 Million. This acts as a equalizer because in effect, bigger businesses
that qualify for VAT coverage and VAT-exempt taxpayers stand on equal-footing.

Moreover, Congress provided mitigating measures to cushion the impact of

the imposition of the tax on those previously exempt. Excise taxes on petroleum
products

70

FIRST DIVISION

SILKAIR (SINGAPORE) PTE. LTD.,

G.R. No. 166482

Petitioner,
Present:

CORONA, C.J.,
- versus -

Chairperson,
LEONARDO-DE CASTRO,
BERSAMIN,
DEL CASTILLO, and
VILLARAMA, JR., JJ.

COMMISSIONER OF INTERNAL
REVENUE, Respondent.

Promulgated:

January 25, 2012

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

DECISION

VILLARAMA, JR., J.:

Assailed in this Rule 45 Petition is the Decision1 dated September 13, 2004 and
Resolution2 dated December 21, 2004 of the Court of Appeals (CA) in CA-G.R. SP No.
82902.
Petitioner Silkair (Singapore) Pte. Ltd. is a foreign corporation duly licensed by the
Securities and Exchange Commission (SEC) to do business in the Philippines as an
on-line international carrier operating the Cebu-Singapore-Cebu and DavaoSingapore-Davao routes. In the course of its international flight operations,
petitioner purchased aviation fuel from Petron Corporation (Petron) from July 1,
1998 to December 31, 1998, paying the excise taxes thereon in the sum
of P5,007,043.39. The payment was advanced by Singapore Airlines, Ltd. on behalf
of petitioner.

71

On October 20, 1999, petitioner filed an administrative claim for refund in the
amount of P5,007,043.39 representing excise taxes on the purchase of jet fuel from
Petron, which it alleged to have been erroneously paid. The claim is based on
Section 135 (a) and (b) of the 1997 Tax Code, which provides:
SEC. 135. Petroleum Products Sold to International Carriers and
Exempt Entities or Agencies. Petroleum products sold to the following
are exempt from excise tax:
(a) International carriers of Philippine or foreign
registry on their use or consumption outside the
Philippines: Provided, That the petroleum products sold to these
international carriers shall be stored in a bonded storage tank and
may be disposed of only in accordance with the rules and regulations
to be prescribed by the Secretary of Finance, upon recommendation of
the Commissioner;
(b) Exempt entities or agencies covered by tax treaties,
conventions and other international agreements for their use or
consumption: Provided, however, That the country of said foreign
international carrier or exempt entities or agencies exempts from
similar taxes petroleum products sold to Philippine carriers, entities or
agencies; and
x x x x (Emphasis supplied.)
Petitioner also invoked Article 4(2) of the Air Transport Agreement between the
Government of the Republic of the Philippines and the Government of the Republic
of Singapore3 (Air Transport Agreement between RP and Singapore) which reads:
ART. 4
xxxx
2. Fuel, lubricants, spare parts, regular equipment and aircraft
stores introduced into, or taken on board aircraft in the territory of one
Contracting Party by, or on behalf of, a designated airline of the other
Contracting Party and intended solely for use in the operation of the
agreed services shall, with the exception of charges corresponding to
the service performed, be exempt from the same customs duties,
inspection fees and other duties or taxes imposed in the territory of the
first Contracting Party, even when these supplies are to be used on the
parts of the journey performed over the territory of the Contracting
Party in which they are introduced into or taken on board. The
materials referred to above may be required to be kept under customs
supervision and control.4
Due to the inaction by respondent Commissioner of Internal Revenue,
petitioner filed a petition for review with the Court of Tax Appeals (CTA) on June 30,
2000.
On July 28, 2003, the CTA rendered its decision 5 denying petitioners claim for
refund. Said court ruled that while petitioners country indeed exempts from similar
taxes petroleum products sold to Philippine carriers, petitioner nevertheless failed to
comply with the second requirement under Section 135 (a) of the 1997 Tax Code as
it failed to prove that the jet fuel delivered by Petron came from the latters bonded
storage tank. Presiding Justice Ernesto D. Acosta dissented from the majority view
72

that petitioners claim should be denied, stating that even if the bonded storage
tank is required under Section 135 (a), the claim can still be justified under Section
135 (b) in view of our countrys existing Air Transport Agreement with the Republic
of Singapore which shows the reciprocal enjoyment of the privilege of the
designated airline of the contracting parties.
Its motion for reconsideration having been denied by the CTA, petitioner elevated
the case to the CA. Petitioner assailed the CTA in not holding that there are distinct
and separate instances of exemptions provided in paragraphs (a), (b) and (c) of
Section 135, and therefore the proviso found in paragraph (a) should not have been
applied to the exemption granted under paragraph (b).
The CA affirmed the denial of the claim for tax refund and dismissed the petition. It
ruled that while petitioner is exempt from paying excise taxes on petroleum
products purchased in the Philippines by virtue of Section 135 (b), petitioner is not
the proper party to seek for the refund of the excise taxes paid. Petitioners motion
for reconsideration was likewise denied by the appellate court.
In this appeal, petitioner argues that it is the proper party to file the claim for
refund, being the entity granted the tax exemption under the Air Transport
Agreement between RP and Singapore. It disagrees with respondents reasoning
that since excise tax is an indirect tax it is the direct liability of the manufacturer,
Petron, and not the petitioner, because this puts to naught whatever exemption was
granted to petitioner by Article 4 of the Air Transport Agreement.
Petitioner further contends that respondent is estopped from questioning the
right of petitioner to claim a refund of the excise taxes paid after issuing BIR Ruling
No. 339-92 which already settled the matter. It further points out that the CTA has
consistently ruled in a number of decisions involving the same parties that
petitioner is the proper party to seek the refund of excise taxes paid on its
purchases of petroleum products. Finally, it emphasizes that respondent never
raised in issue petitioners legal personality to seek a tax refund in the
administrative level. Citing this Courts ruling in the case of Commissioner of
Internal Revenue v. Court of Tax Appeals, et al. 6petitioner asserts that respondent is
in estoppel to question petitioners standing to file the claim for refund for its failure
to timely raise the issue in the administrative level, as well as before the CTA.
On the other hand, the Solicitor General on behalf of respondent, maintains
that the excise tax passed on to the petitioner by Petron being in the nature of an
indirect tax, it cannot be the subject matter of an administrative claim for
refund/tax credit, following the ruling in Contex Corporation v. Commissioner of
Internal Revenue.7Moreover, assuming arguendo that petitioner falls under any of
the enumerated transactions/persons entitled to tax exemption under Section 135
of the 1997 Tax Code, what the law merely contemplates is exemption from the
payment of excise tax to the seller/manufacturer, in this case Petron, but not an
exemption from payment of excise tax to the BIR, much more an entitlement to a
refund from the BIR. Being the buyer, petitioner is not the person required by law
nor the person statutorily liable to pay the excise tax but the seller, following the
provision of Section 130 (A) (1) (2).
The Solicitor General also asserts that contrary to petitioners argument that
respondent never raised in the administrative level the issue of whether petitioner
is the proper party to file the claim for refund, records would show that respondent
actually raised the matter of whether petitioner is entitled to the tax refund being
claimed in his Answer dated August 8, 2000, in the Joint Stipulation of Facts, and in
his Memorandum submitted before the CTA where respondent categorically averred
73

that petitioner x x x is not the entity directly liable for the payment of the tax,
hence, not the proper party who should claim the refund of the excise taxes paid. 8
We rule for the respondent.
The core issue presented is the legal personality of petitioner to file an
administrative claim for refund of excise taxes alleged to have been erroneously
paid to its supplier of aviation fuel here in the Philippines.
In three previous cases involving the same parties, this Court has already settled
the issue of whether petitioner is the proper party to seek the refund of excise taxes
paid on its purchase of aviation fuel from a local manufacturer/seller. Following the
principle of stare decisis, the present petition must therefore be denied.
Excise taxes, which apply to articles manufactured or produced in the Philippines for
domestic sale or consumption or for any other disposition and to things imported
into the Philippines,9 is basically an indirect tax. While the tax is directly levied upon
the manufacturer/importer upon removal of the taxable goods from its place of
production or from the customs custody, the tax, in reality, is actually passed on to
the end consumer as part of the transfer value or selling price of the goods, sold,
bartered or exchanged.10 In early cases, we have ruled that for indirect taxes (such
as valued-added tax or VAT), the proper party to question or seek a refund of the
tax is the statutory taxpayer, the person on whom the tax is imposed by law and
who paid the same even when he shifts the burden thereof to another. 11 Thus,
in Contex Corporation v. Commissioner of Internal Revenue, 12 we held that while it is
true that petitioner corporation should not have been liable for the VAT
inadvertently passed on to it by its supplier since their transaction is a zero-rated
sale on the part of the supplier, the petitioner is not the proper party to claim such
VAT refund. Rather, it is the petitioners suppliers who are the proper parties to
claim the tax credit and accordingly refund the petitioner of the VAT erroneously
passed on to the latter.13
In the first Silkair case14 decided on February 6, 2008, this Court categorically
declared:
The proper party to question, or seek a refund of, an indirect tax
is the statutory taxpayer, the person on whom the tax is imposed by
law and who paid the same even if he shifts the burden thereof to
another. Section 130 (A) (2) of the NIRC provides that [u]nless
otherwise specifically allowed, the return shall be filed and the excise
tax paid by the manufacturer or producer before removal of domestic
products from place of production. Thus, Petron Corporation, not
Silkair, is the statutory taxpayer which is entitled to claim a
refund based on Section 135 of the NIRC of 1997 and Article
4(2) of the Air Transport Agreement between RP and
Singapore.
Even if Petron Corporation passed on to Silkair the burden of the
tax, the additional amount billed to Silkair for jet fuel is not a tax but
part of the price which Silkair had to pay as a purchaser. 15 (Emphasis
supplied.)
Just a few months later, the decision in the second Silkair case16 was promulgated,
reiterating the rule that in the refund of indirect taxes such as excise taxes, the
statutory taxpayer is the proper party who can claim the refund. We also clarified
that petitioner Silkair, as the purchaser and end-consumer, ultimately bears the tax
burden, but this does not transform its status into a statutory taxpayer.
74

The person entitled to claim a tax refund is the statutory

taxpayer. Section 22(N) of the NIRC defines a taxpayer as any person
subject to tax. In Commissioner of Internal Revenue v. Procter and
Gamble Phil. Mfg. Corp., the Court ruled that:
A person liable for tax has been held to be a
person subject to tax and properly considered a
taxpayer. The terms liable for tax and subject to tax
both connote a legal obligation or duty to pay a tax.
The excise tax is due from the manufacturers of the petroleum
products and is paid upon removal of the products from their refineries.
Even before the aviation jet fuel is purchased from Petron, the excise
tax is already paid by Petron. Petron, being the manufacturer, is the
person subject to tax. In this case, Petron, which paid the excise tax
upon removal of the products from its Bataan refinery, is the person
liable for tax. Petitioner is neither a person liable for tax nor a
person subject to tax. There is also no legal duty on the part of
petitioner to pay the excise tax; hence, petitioner cannot be
considered the taxpayer.
Even if the tax is shifted by Petron to its customers and even if
the tax is billed as a separate item in the aviation delivery receipts and
invoices issued to its customers,Petron remains the taxpayer
because the excise tax is imposed directly on Petron as the
manufacturer. Hence, Petron, as the statutory taxpayer, is the
proper party that can claim the refund of the excise taxes paid
to the BIR.17 (Emphasis supplied.)
Petitioners contention that the CTA and CA rulings would put to naught the
exemption granted under Section 135 (b) of the 1997 Tax Code and Article 4 of
the Air Transport Agreement is not well-taken. Since the supplier herein involved is
also Petron, our pronouncement in the second Silkair case, relative to the
contractual undertaking of petitioner to submit a valid exemption certificate for the
purpose, is relevant. We thus noted:
The General Terms & Conditions for Aviation Fuel Supply (Supply
Contract) signed between petitioner (buyer) and Petron (seller)
provide:
11.3 If Buyer is entitled to purchase any Fuel sold
pursuant to the Agreement free of any taxes, duties or
charges, Buyer shall timely deliver to Seller a valid
exemption certificate for such purchase. (Emphasis
supplied)
This provision instructs petitioner to timely submit a valid
exemption certificate to Petron in order that Petron will not pass on the
excise tax to petitioner. As correctly suggested by the CTA, petitioner
should invoke its tax exemption to Petron before buying the aviation jet
fuel. Petron, however, remains the statutory taxpayer on those excise
taxes.
Revenue Regulations No. 3-2008 (RR 3-2008) provides that
subject to the subsequent filing of a claim for excise tax credit/refund
or product replenishment, all manufacturers of articles subject to
excise tax under Title VI of the NIRC of 1997, as amended, shall pay
75

the excise tax that is otherwise due on every removal thereof from the
place of production that is intended for exportation or sale/delivery to
international carriers or to tax-exempt entities/agencies. The
Department of Finance and the BIR recognize the tax exemption
granted to international carriers but they consistently adhere to the
view that manufacturers of articles subject to excise tax are the
statutory taxpayers that are liable to pay the tax, thus, the proper
party to claim any tax refunds.18
The above observation remains pertinent to this case because the very same
provision in the General Terms and Conditions for Aviation Fuel Supply Contract also
appears in the documentary evidence submitted by petitioner before the
CTA.19 Except for its bare allegation of being placed in a very complicated situation
because Petron, for fear of being assessed by Respondent, will not allow the
withdrawal and delivery of the petroleum products without Petitioners pre-payment
of the excise taxes, petitioner has not demonstrated that it dutifully complied with
its contractual undertaking to timely submit to Petron a valid certificate of
exemption so that Petron may subsequently file a claim for excise tax credit/refund
pursuant to Revenue Regulations No. 3-2008 (RR 3-2008). It was indeed premature
for petitioner to assert that the denial of its claim for tax refund nullifies the tax
exemption granted to it under Section 135 (b) of the 1997 Tax Code and Article 4 of
the Air Transport Agreement.
In the third Silkair case20 decided last year, the Court called the attention to the
consistent rulings in the previous two Silkair cases that petitioner as the purchaser
and end-consumer of the aviation fuel is not the proper party to claim for refund of
excise taxes paid thereon. The situation clearly called for the application of the
doctrine, stare decisis et non quieta movere. Follow past precedents and do not
disturb what has been settled. Once a case has been decided one way, any other
case involving exactly the same point at issue, as in the case at bar, should be
decided in the same manner. 21 The Court thus finds no cogent reason to deviate
from those previous rulings on the same issues herein raised.
WHEREFORE, the petition for review on certiorari is DENIED. The Decision dated
September 13, 2004 and Resolution dated December 21, 2004 of the Court of
Appeals in CA-G.R. SP No. 82902 are AFFIRMED.
With costs against the petitioner.
SO ORDERED.

76