Justice Dimaampao Cases on VAT and Remedies

8/19/2019 Justice Dimaampao Cases on VAT and Remedies

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G.R. No. 115455 October 30, 1995

ARTURO M. TOLENTINO, petitioner,

vs.

THE SECRETARY OF FINANCE !" THE COMMISSIONER

OF INTERNAL RE#ENUE, respondents.

MEN$O%A, J.:

The value-added tax (VAT) is levied on the sale, barter or exchange of goods and properties as well as on the sale or exchange of services. It is equivalent to !" of the gross sellingprice or gross value in #one$ of goods or properties sold,bartered or exchanged or of the gross receipts fro# the sale or exchange of services. %epublic Act &o. '' sees to widen thetax base of the existing VAT s$ste# and enhance its

ad#inistration b$ a#ending the &ational Internal %evenue*ode.

These are various suits for certiorari and prohibition, challengingthe constitutionalit$ of %epublic Act &o. '' on variousgrounds su##ari+ed in the resolution of ul$ , of this*ourt, as follows/

I. 0rocedural Issues/

A. 1oes %epublic Act &o. '' violate Art. VI, 2 3of the *onstitution4

5. 1oes it violate Art. VI, 2 3(3) of the*onstitution4

*. 6hat is the extent of the power of the5ica#eral *onference *o##ittee4

II. 7ubstantive Issues/

A. 1oes the law violate the following provisions inthe 5ill of %ights (Art. III)4

. 2

3. 2

8. 2 9

. 2 !

5. 1oes the law violate the following other provisions of the *onstitution4

. Art. VI, 2 3:()

3. Art. VI, 2 3:(8)

These questions will be dealt in the order the$ are stated above. As will presentl$ be explained not all of these questions are ;udiciall$ cogni+able, because not all provisions of the*onstitution are self executing and, therefore, ;udiciall$enforceable. The other depart#ents of the govern#ent areequall$ charged with the enforce#ent of the *onstitution,especiall$ the provisions relating to the#.

I. 0%%A? I77>=7

The contention of petitioners is that in enacting %epublic Act &o.'', or the =xpanded Value-Added Tax ?aw, *ongressviolated the *onstitution because, although @. &o. ' hadoriginated in the @ouse of %epresentatives, it was not passedb$ the 7enate but was si#pl$ consolidated with the 7enateversion (7. &o. 8!) in the *onference *o##ittee to producethe bill which the 0resident signed into law. The followingprovisions of the *onstitution are cited in support of theproposition that because %epublic Act &o. '' was passed in


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this #anner, it did not originate in the @ouse of %epresentativesand it has not thereb$ beco#e a law/

Art. VI, § 24/ All appropriation, revenue or tariff bills, bills authori+ing increase of the public debt,bills of local application, and private bills shalloriginate exclusivel$ in the @ouse of

%epresentatives, but the 7enate #a$ propose or concur with a#end#ents.

Id., § 26(2)/ &o bill passed b$ either @ouse shallbeco#e a law unless it has passed three readingson separate da$s, and printed copies thereof in itsfinal for# have been distributed to its e#bersthree da$s before its passage, except when the0resident certifies to the necessit$ of its i##ediateenact#ent to #eet a public cala#it$ or

e#ergenc$. >pon the last reading of a bill, noa#end#ent thereto shall be allowed, and the votethereon shall be taen i##ediatel$ thereafter, andthe yeasand nays entered in the ournal.

It appears that on various dates between ul$ 33, 3 and August 8, 8, several bills 1 were introduced in the @ouse of %epresentatives seeing to a#end certain provisions of the&ational Internal %evenue *ode relative to the value-added taxor VAT. These bills were referred to the @ouse 6a$s and eans

*o##ittee which reco##ended for approval a substitute#easure, @. &o. ', entitled

A& A*T %=7T%>*T>%I&B T@= VA?>=-A11=1TAC (VAT) 7D7T= T< 6I1=& IT7 TAC 5A7=

A&1 =&@A&*= IT7 A1I&I7T%ATI


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8!, be approved in accordance with the attached cop$ of thebill as reconciled and approved b$ the conferees.F

The *onference *o##ittee bill , entitled FA& A*T%=7T%>*T>%I&B T@= VA?>=-A11=1 TAC (VAT) 7D7T=,6I1=&I&B IT7 TAC 5A7= A&1 =&@A&*I&B IT7

A1I&I7T%ATI.7. 7enate had inserted in the Tariff Act of !, was upheldagainst the clai# that the provision was a revenue bill whichoriginated in the 7enate in contravention of Art. I, 2 ' of the >.7.*onstitution. ' &or is the power to a#end li#ited to adding a

provision or two in a revenue bill e#anating fro# the @ouse.The >.7. 7enate has gone so far as changing the whole of bills


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following the enacting clause and substituting its own versions.In ::8, for exa#ple, it struc out ever$thing after the enactingclause of a tariff bill and wrote in its place its own #easure, andthe @ouse subsequentl$ accepted the a#end#ent. The >.7.7enate liewise added :' a#end#ents to what later beca#ethe 0a$ne-Aldrich Tariff Act of ! it dictated the schedules of the Tariff Act of 3 it rewrote an extensive tax revision bill in

the sa#e $ear and recast #ost of the tariff bill of 33. ( Biven,then, the power of the 7enate to propose a#end#ents, the7enate can propose its own version even with respect to billswhich are required b$ the *onstitution to originate in the @ouse.

It is insisted, however, that 7. &o. 8! was passed not insubstitution of @. &o. ' but of another 7enate bill (7. &o.3) earlier filed and that what the 7enate did was #erel$ toFtae J@. &o. 'K into considerationF in enacting 7. &o. 8!.There is reall$ no difference between the 7enate preserving @.

&o. ' up to the enacting clause and then writing its ownversion following the enacting clause (which, it would see#,petitioners ad#it is an a#end#ent b$ substitution), and, on theother hand, separatel$ presenting a bill of its own on the sa#esub;ect #atter. In either case the result are two bills on thesa#e sub;ect.

Indeed, what the *onstitution si#pl$ #eans is that the initiativefor filing revenue, tariff, or tax bills, bills authori+ing an increaseof the public debt, private bills and bills of local application #ust

co#e fro# the @ouse of %epresentatives on the theor$ that,elected as the$ are fro# the districts, the #e#bers of the @ousecan be expected to be #ore sensitive to the local needs andproble#s.


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necessit$ of securing the i##ediate enact#ent of a bill which iscertified in order to #eet a public cala#it$ or e#ergenc$. Eor if itis onl$ the printing that is dispensed with b$ presidentialcertification, the ti#e saved would be so negligible as to be of an$ use in insuring i##ediate enact#ent. It #a$ well bedoubted whether doing awa$ with the necessit$ of printing anddistributing copies of the bill three da$s before the third reading

would insure speed$ enact#ent of a law in the face of ane#ergenc$ requiring the calling of a special election for 0resident and Vice-0resident. >nder the *onstitution such a lawis required to be #ade within seven da$s of the convening of *ongress in e#ergenc$ session. 11

That upon the certification of a bill b$ the 0resident therequire#ent of three readings on separate da$s and of printingand distribution can be dispensed with is supported b$ theweight of legislative practice. Eor exa#ple, the bill defining

the certiorari ;urisdiction of this *ourt which, in consolidationwith the 7enate version, beca#e %epublic Act &o. 9!, waspassed on second and third readings in the @ouse of %epresentatives on the sa#e da$ (a$ , :) after the billhad been certified b$ the 0resident as urgent. 1&

There is, therefore, no #erit in the contention that presidentialcertification dispenses onl$ with the require#ent for the printingof the bill and its distribution three da$s before its passage butnot with the require#ent of three readings on separate da$s,

also.

It is nonetheless urged that the certification of the bill in thiscase was invalid because there was no e#ergenc$, thecondition stated in the certification of a Fgrowing budget deficitFnot being an unusual condition in this countr$.

It is noteworth$ that no #e#ber of the 7enate saw fit tocontrovert the realit$ of the factual basis of the certification. Tothe contrar$, b$ passing 7. &o. 8! on second and third

readings on arch 3, , the 7enate accepted the0residentGs certification. 7hould such certification be now

reviewed b$ this *ourt, especiall$ when no evidence has beenshown that, because 7. &o. 8! was taen up on second andthird readings on the sa#e da$, the #e#bers of the 7enatewere deprived of the ti#e needed for the stud$ of a vital piece of legislation4

The sufficienc$ of the factual basis of the suspension of the writ

of habeas corps or declaration of #artial law under Art. VII, 2:, or the existence of a national e#ergenc$ ;ustif$ing thedelegation of extraordinar$ powers to the 0resident under Art.VI, 2 38(3), is sub;ect to ;udicial review because basic rights of individuals #a$ be at ha+ard. 5ut the factual basis of presidential certification of bills, which involves doing awa$ withprocedural require#ents designed to insure that bills are dul$considered b$ #e#bers of *ongress, certainl$ should elicit adifferent standard of review.

0etitioners also invite attention to the fact that the 0residentcertified 7. &o. 8! and not @. &o. '. That is because 7.&o. 8! was what the 7enate was considering. 6hen the#atter was before the @ouse, the 0resident liewise certified @.&o. 3! the pending in the @ouse.

!hird

. Einall$ it is contended that the bill which beca#e %epublic Act &o. '' is the bill which the *onference *o##itteeprepared b$ consolidating @. &o. ' and 7. &o. 8!. It isclai#ed that the *onference *o##ittee report included

provisions not found in either the @ouse bill or the 7enate billand that these provisions were Fsurreptitiousl$F inserted b$ the*onference *o##ittee. uch is #ade of the fact that in the lasttwo da$s of its session on April 3 and 39, the *o##ittee#et behind closed doors. 6e are not told, however, whether theprovisions were not the result of the give and tae that often#ar the proceedings of conference co##ittees.

&or is there an$thing unusual or extraordinar$ about the factthat the *onference *o##ittee #et in executive sessions.


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nited 7tates.

In an$ event, in the >nited 7tates conference co##ittees hadbeen custo#aril$ held in executive sessions with onl$ theconferees and their staffs in attendance. 13


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chanes in or amendments to the sbect measre, and shall be signed b$ the conferees.

The consideration of such report shall not be inorder unless the report has been filed with the7ecretar$ of the 7enate and copies thereof havebeen distributed to the e#bers.

(=#phasis added)

"les o# the $ose o# "epresentatives

%ule CIV/

2 :9. &on#erence &ommittee "eports. H In theevent that the @ouse does not agree with the7enate on the a#end#ents to an$ bill or ;oint

resolution, the di##erences may be settled by con#erence committees o# both &hambers.

The consideration of conference co##itteereports shall alwa$s be in order, except when the

;ournal is being read, while the roll is being calledor the @ouse is dividing on an$ question. =ach of the pages of such reports shall be signed b$ theconferees. %ach report shall contain a detailed,s##iciently e'plicit statement o# the chanes in or

amendments to the sbect measre.

The consideration of such report shall not be inorder unless copies thereof are distributed to thee#bers/ 0rovided, That in the last fifteen da$s of each session period it shall be dee#ed sufficientthat three copies of the report, signed as aboveprovided, are deposited in the office of the7ecretar$ Beneral.

(=#phasis added)

To be sure, nothing in the %ules li#its a conference co##itteeto a consideration of conflicting provisions. 5ut %ule C?IV, 2 3of the %ules of the 7enate is cited to the effect that FIf there isno %ule applicable to a specific case the precedents of the?egislative 1epart#ent of the 0hilippines shall be resorted to,and as a supple#ent of these, the %ules contained ineffersonGs anual.F The following is then quoted fro# the

effersonGs anual/

The #anagers of a conference #ust confinethe#selves to the differences co##itted to the#. .. and #a$ not include sub;ects not withindisagree#ents, even though ger#ane to aquestion in issue.

&ote that, according to %ule C?IC, 2 3, in case there is nospecific rule applicable, resort #ust be to the legislative

practice. The effersonGs anual is resorted to onl$ assupple#ent. It is co##on place in *ongress that conferenceco##ittee reports include new #atters which, though ger#ane,have not been co##itted to the co##ittee. This practice wasad#itted b$ 7enator %aul 7. %oco, petitioner in B.%. &o.998, during the oral argu#ent in these cases. 6hatever,then, #a$ be provided in the effersonGs anual #ust beconsidered to have been #odified b$ the legislative practice. If achange is desired in the practice it #ust be sought in *ongresssince this question is not covered b$ an$ constitutional provision

but is onl$ an internal rule of each house. Thus, Art. VI, 2 (8)of the *onstitution provides that F=ach @ouse #a$ deter#inethe rules of its proceedings. . . .F

This observation applies to the other contention that the %ulesof the two cha#bers were liewise disregarded in thepreparation of the *onference *o##ittee %eport because the%eport did not contain a Fdetailed and sufficientl$ explicitstate#ent of changes in, or a#end#ents to, the sub;ect#easure.F The %eport used bracets and capital letters to

indicate the changes. This is a standard practice in bill-drafting.6e cannot sa$ that in using these #ars and s$#bols the


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*o##ittee violated the %ules of the 7enate and the @ouse.oreover, this *ourt is not the proper foru# for the enforce#entof these internal %ules. To the contrar$, as we have alread$ruled, Fparlia#entar$ rules are #erel$ procedural and with their observance the courts have no concern.F 19


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of the VAT and that this was #ade onl$ in the *onference*o##ittee bill which beca#e %epublic Act &o. '' withoutreflecting this fact in its title.

The title of %epublic Act &o. '' is/

A& A*T %=7T%>*T>%I&B T@= VA?>=- A11=1

TAC (VAT) 7D7T=, 6I1=&I&B IT7 TAC 5A7= A&1 =&@A&*I&B IT7 A1I&I7T%ATI


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The trend in our cases is to construe the constitutionalrequire#ent in such a #anner that courts do not undul$ interferewith the enact#ent of necessar$ legislation and to consider itsufficient if the title expresses the general sub;ect of the statuteand all its provisions are ger#ane to the general sub;ect thusexpressed. &4

It is further contended that a#end#ent of petitionerGs franchise#a$ onl$ be #ade b$ special law, in view of 2 3 of 0.1. &o.9! which provides/

This franchise, as a#ended, or an$ section or provision hereof #a$ onl$ be #odified, a#ended,or repealed expressl$ b$ a special law or decreethat shall specificall$ #odif$, a#end, or repeal thisfranchise or an$ section or provision thereof.

This provision is evidentl$ intended to prevent the a#end#entof the franchise b$ #ere i#plication resulting fro# theenact#ent of a later inconsistent statute, in consideration of thefact that a franchise is a contract which can be altered onl$ b$consent of the parties. Thus in *anila "ailroad &o. v."a##erty , &5 it was held that an Act of the >.7. *ongress, whichprovided for the pa$#ent of tax on certain goods and articlesi#ported into the 0hilippines, did not a#end the franchise of plaintiff, which exe#pted it fro# all taxes except those#entioned in its franchise. It was held that a special law cannot

be a#ended b$ a general law.

In contrast, in the case at bar, %epublic Act &o. '' expressl$a#ends 0A?Gs franchise (0.1. &o. 9!) b$ specificall$excepting fro# the grant of exe#ptions fro# the VAT 0A?Gsexe#ption under 0.1. &o. 9!. This is within the power of *ongress to do under Art. CII, 2 of the *onstitution, whichprovides that the grant of a franchise for the operation of apublic utilit$ is sub;ect to a#end#ent, alteration or repeal b$*ongress when the co##on good so requires.

II. 7>57TA&TIV= I77>=7

A. &laims o# +ress Freedom, Freedom o# !hoht and "eliios Freedom

The 0hilippine 0ress Institute (00I), petitioner in B.%. &o.99, is a nonprofit organi+ation of newspaper publishersestablished for the i#prove#ent of ;ournalis# in the 0hilippines.


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all aspects of their operations. ?ater, however, based on a#e#orandu# of the 7ecretar$ of ustice, respondent 7ecretar$of Einance issued %evenue %egulations &o. -, dated une3', , exe#pting the Fcirculation inco#e of print #ediapursuant to 2 Article III of the :' 0hilippine *onstitutionguaranteeing against abridg#ent of freedo# of the press,a#ong others.F The exe#ption of Fcirculation inco#eF has left

inco#e fro# advertise#ents still sub;ect to the VAT.

It is unnecessar$ to pass upon the contention that theexe#ption granted is be$ond the authorit$ of the 7ecretar$ of Einance to give, in view of 00IGs contention that even with theexe#ption of the circulation revenue of print #edia there is stillan unconstitutional abridg#ent of press freedo# because of thei#position of the VAT on the gross receipts of newspapers fro#advertise#ents and on their acquisition of paper, in andservices for publication. =ven on the assu#ption that no

exe#ption has effectivel$ been granted to print #ediatransactions, we find no violation of press freedo# in thesecases.

To be sure, we are not dealing here with a statute that on its#ace operates in the area of press freedo#. The 00IGs clai# issi#pl$ that, as applied to newspapers, the law abridges pressfreedo#. =ven with due recognition of its high estate and itsi#portance in a de#ocratic societ$, however, the press is noti##une fro# general regulation b$ the 7tate. It has been held/

The publisher of a newspaper has no i##unit$fro# the application of general laws. @e has nospecial privilege to invade the rights and libertiesof others. @e #ust answer for libel. @e #a$ bepunished for conte#pt of court. . . . ?ie others, he#ust pa$ equitable and non discri#inator$ taxeson his business. . . . &(

The 00I does not dispute this point, either.

6hat it contends is that b$ withdrawing the exe#ptionpreviousl$ granted to print #edia transactions involving printing,publication, i#portation or sale of newspapers, %epublic Act &o.'' has singled out the press for discri#inator$ treat#ent andthat within the class of #ass #edia the law discri#inatesagainst print #edia b$ giving broadcast #edia favor treat#ent.6e have carefull$ exa#ined this argu#ent, but we are unable

to find a differential treat#ent of the press b$ the law, #uch lessan$ censorial #otivation for its enact#ent. If the press is nowrequired to pa$ a value-added tax on its transactions, it is notbecause it is being singled out, #uch less targeted, for specialtreat#ent but onl$ because of the re#oval of the exe#ptionpreviousl$ granted to it b$ law. The withdrawal of exe#ption isall that is involved in these cases.


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the tax was to curtail both their revenue and their circulation. Asthe >.7. 7upre#e *ourt noted, the tax was Fa deliberate andcalculated device in the guise of a tax to li#it the circulation of infor#ation to which the public is entitled in virtue of theconstitutional guaranties.F &9 The case is a classic illustration of the warning that the power to tax is the power to destro$.

In the other case 30 invoed b$ the 00I, the press was alsofound to have been singled out because ever$thing was exe#ptfro# the Fuse taxF on in and paper, except the press.innesota i#posed a tax on the sales of goods in that state. Toprotect the sales tax, it enacted a co#ple#entar$ tax on theprivilege of Fusing, storing or consu#ing in that state tangiblepersonal propert$F b$ eli#inating the residentsG incentive to getgoods fro# outside states where the sales tax #ight be lower.The *innesota Star !ribne was exe#pted fro# both taxesfro# ' to '. In ', however, the state legislature

a#ended the tax sche#e b$ i#posing the Fuse taxF on the costof paper and in used for publication. The law was held to havesingled out the press because () there was no reason for i#posing the Fuse taxF since the press was exe#pt fro# thesales tax and (3) the Fuse taxF was laid on an Finter#ediatetransaction rather than the ulti#ate retail sale.F innesota had aheav$ burden of ;ustif$ing the differential treat#ent and it failedto do so. In addition, the >.7. 7upre#e *ourt found the law tobe discri#inator$ because the legislature, b$ again a#endingthe law so as to exe#pt the first M!!,!!! of paper and in

used, further narrowed the coverage of the tax so that Fonl$ ahandful of publishers pa$ an$ tax at all and even fewer pa$ an$significant a#ount of tax.F 31 The discri#inator$ purpose wasthus ver$ clear.

ore recentl$, in Ar-ansas riters/ +roect, Inc. v. "aland , 3& itwas held that a law which taxed general interest #aga+ines butnot newspapers and religious, professional, trade and sports

;ournals was discri#inator$ because while the tax did not singleout the press as a whole, it targeted a s#all group within the

press. 6hat is #ore, b$ differentiating on the basis of contents(i.e., between general interest and special interests such as

religion or sports) the law beca#e Fentirel$ inco#patible with theEirst A#end#entGs guarantee of freedo# of the press.F

These cases co#e down to this/ that unless ;ustified, thedifferential treat#ent of the press creates riss of suppression of expression. In contrast, in the cases at bar, the statute appliesto a wide range of goods and services. The argu#ent that, b$

i#posing the VAT onl$ on print #edia whose gross salesexceeds 0:!,!!! but not #ore than 0'9!,!!!, the lawdiscri#inates 33 is without #erit since it has not been shown thatas a result the class sub;ect to tax has been unreasonabl$narrowed. The fact is that this li#itation does not appl$ to thepress along but to all sales. &or is i#per#issible #otive shownb$ the fact that print #edia and broadcast #edia are treateddifferentl$. The press is taxed on its transactions involvingprinting and publication, which are different fro# thetransactions of broadcast #edia. There is thus a reasonable

basis for the classification.

The cases canvassed, it #ust be stressed, eschew an$suggestion that Fowners of newspapers are i##une fro# an$for#s of ordinar$ taxation.F The license tax in the rosean casewas declared invalid because it was Fone single in ind, with along histor$ of hostile #isuse against the freedo# of thepress.F 34 .7. 7upre#e *ourtunani#ousl$ held in 0immy S1aart *inistries v. oard o# %3aliation, 3' the Eree =xercise of %eligion *lause does not

prohibit i#posing a generall$ applicable sales and use tax onthe sale of religious #aterials b$ a religious organi+ation.


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This brings us to the question whether the registration provisionof the law, 3( although of general applicabilit$, nonetheless isinvalid when applied to the press because it la$s a prior restrainton its essential freedo#. The case of American ible Society v.&ity o# *anila 3) is cited b$ both the 057 and the 00I in supportof their contention that the law i#poses censorship. There, this*ourt held that an ordinance of the *it$ of anila, which

i#posed a license fee on those engaged in the business of general #erchandise, could not be applied to the appellantGssale of bibles and other religious literature. This *ourt reliedon *rdoc- v. +ennsylvania, 39 in which it was held that, as alicense fee is fixed in a#ount and unrelated to the receipts of the taxpa$er, the license fee, when applied to a religious sect,was actuall$ being i#posed as a condition for the exercise of the sectGs right under the *onstitution. Eor that reason, it washeld, the license fee Frestrains in advance those constitutionalliberties of press and religion and inevitabl$ tends to suppress

their exercise.F40

5ut, in this case, the fee in 2 !', although a fixed a#ount(0,!!!), is not i#posed for the exercise of a privilege but onl$for the purpose of defra$ing part of the cost of registration. Theregistration require#ent is a central feature of the VAT s$ste#. Itis designed to provide a record of tax credits because an$person who is sub;ect to the pa$#ent of the VAT pa$s an inputtax, even as he collects an output tax on sales #ade or servicesrendered. The registration fee is thus a #ere ad#inistrative fee,

one not i#posed on the exercise of a privilege, #uch less aconstitutional right.

Eor the foregoing reasons, we find the attac on %epublic Act&o. '' on the ground that it offends the free speech, pressand freedo# of religion guarantees of the *onstitution to bewithout #erit. Eor the sa#e reasons, we find the clai# of the0hilippine =ducational 0ublishers Association (0=0A) in B.%.&o. 98 that the increase in the price of boos and other educational #aterials as a result of the VAT would violate the

constitutional #andate to the govern#ent to give priorit$ toeducation, science and technolog$ (Art. II, 2 ') to beuntenable.

5. &laims o# "eressivity, 5enial o# 5e +rocess, %3al +rotection, and Impairment o# &ontracts

There is basis for passing upon clai#s that on its face thestatute violates the guarantees of freedo# of speech, press and

religion. The possible Fchilling effectF which it #a$ have on theessential freedo# of the #ind and conscience and the need toassure that the channels of co##unication are open andoperating i#portunatel$ de#and the exercise of this *ourtGspower of review.

There is, however, no ;ustification for passing upon the clai#sthat the law also violates the rule that taxation #ust beprogressive and that it denies petitionersG right to due processand that equal protection of the laws. The reason for this

different treat#ent has been cogentl$ stated b$ an e#inentauthorit$ on constitutional law thus/ FJ6Khen freedo# of the#ind is i#periled b$ law, it is freedo# that co##ands a#o#entu# of respect when propert$ is i#periled it is thelaw#aersG ;udg#ent that co##ands respect. This dualstandard #a$ not precisel$ reverse the presu#ption of constitutionalit$ in civil liberties cases, but obviousl$ it does setup a hierarch$ of values within the due process clause.F 41

Indeed, the absence of threat of i##ediate har# #aes the

need for ;udicial intervention less evident and underscores theessential nature of petitionersG attac on the law on the grounds


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of regressivit$, denial of due process and equal protection andi#pair#ent of contracts as a #ere acade#ic discussion of the#erits of the law. Eor the fact is that there have even been nonotices of assess#ents issued to petitioners and nodeter#inations at the ad#inistrative levels of their clai#s so asto illu#inate the actual operation of the law and enable us toreach sound ;udg#ent regarding so funda#ental questions as

those raised in these suits.

Thus, the broad argu#ent against the VAT is that it is regressiveand that it violates the require#ent that FThe rule of taxationshall be unifor# and equitable JandK *ongress shall evolve aprogressive s$ste# of taxation.F 4&0etitioners in B.%. &o.9': quote fro# a paper, entitled FVAT 0olic$ Issues/7tructure, %egressivit$, Inflation and =xportsF b$ Alan A. Tait of the International onetar$ Eund, that FVAT pa$#ent b$ low-inco#e households will be a higher proportion of their inco#es

(and expenditures) than pa$#ents b$ higher-inco#ehouseholds. That is, the VAT will be regressive.F 0etitionerscontend that as a result of the unifor# !" VAT, the tax onconsu#ption goods of those who are in the higher-inco#ebracet, which before were taxed at a rate higher than !", hasbeen reduced, while basic co##odities, which before weretaxed at rates ranging fro# 8" to 9", are now taxed at a higher rate.

ust as vigorousl$ as it is asserted that the law is regressive, the

opposite clai# is pressed b$ respondents that in fact itdistributes the tax burden to as #an$ goods and services aspossible particularl$ to those which are within the reach of higher-inco#e groups, even as the law exe#pts basic goodsand services. It is thus equitable. The goods and propertiessub;ect to the VAT are those used or consu#ed b$ higher-inco#e groups. These include real properties held pri#aril$ for sale to custo#ers or held for lease in the ordinar$ course of business, the right or privilege to use industrial, co##ercial or scientific equip#ent, hotels, restaurants and si#ilar places,

tourist buses, and the lie. nion of the 0hilippines (*>0) clai#s in B.%. &o.9:'8, is largel$ an acade#ic exercise. 0Gs contention that *ongressG withdrawal of exe#ption of producers cooperatives, #areting cooperatives, and service

cooperatives, while #aintaining that granted to electriccooperatives, not onl$ goes against the constitutional polic$ topro#ote cooperatives as instru#ents of social ;ustice (Art. CII, 29) but also denies such cooperatives the equal protection of the law is actuall$ a polic$ argu#ent. The legislature is notrequired to adhere to a polic$ of Fall or noneF in choosing thesub;ect of taxation.44

&or is the contention of the *ha#ber of %eal =state and5uilders Association (*%=5A), petitioner in B.%. 9'9, that

the VAT will reduce the #ar up of its #e#bers b$ as #uch as:9" to !" an$ #ore concrete. It is a #ere allegation.


15/87

Indeed, regressivit$ is not a negative standard for courts toenforce. 6hat *ongress is required b$ the *onstitution to do isto Fevolve a progressive s$ste# of taxation.F This is a directiveto *ongress, ;ust lie the directive to it to give priorit$ to theenact#ent of laws for the enhance#ent of hu#an dignit$ andthe reduction of social, econo#ic and political inequalities (Art.CIII, 2 ), or for the pro#otion of the right to Fqualit$ educationF

(Art. CIV, 2 ). These provisions are put in the *onstitution as#oral incentives to legislation, not as ;udiciall$ enforceablerights.

At all events, our :: decision in apatiran 45 should have laidto rest the questions now raised against the VAT. There si#ilar argu#ents #ade against the original VAT ?aw (=xecutive


16/87

a#ounting to lac or excess of ;urisdiction on thepart of an$ branch or instru#entalit$ of theBovern#ent.

To view the ;udicial power of review as a dut$ is nothing new.*hief ustice arshall said so in :!8, to ;ustif$ the assertion of this power in *arbry v. *adison7

It is e#phaticall$ the province and dut$ of the ;udicial depart#ent to sa$ what the law is. Thosewho appl$ the rule to particular cases #ust of necessit$ expound and interpret that rule. If twolaws conflict with each other, the courts #ustdecide on the operation of each. 50

ustice ?aurel echoed this ;ustification in 8 in Anara v.%lectoral &ommission7

And when the ;udiciar$ #ediates to allocateconstitutional boundaries, it does not assert an$superiorit$ over the other depart#ents it does notin realit$ nullif$ or invalidate an act of thelegislature, but onl$ asserts the sole#n andsacred obligation assigned to it b$ the *onstitutionto deter#ine conflicting clai#s of authorit$ under the *onstitution and to establish for the parties inan actual controvers$ the rights which that

instru#ent secures and guarantees to the#.51

This conception of the ;udicial power has been affir#ed inseveralcases 5& of this *ourt following Anara.

It does not add an$thing, therefore, to invoe this Fdut$F to ;ustif$this *ourtGs intervention in what is essentiall$ a case that at bestis not ripe for ad;udication. That dut$ #ust still be perfor#ed in

the context of a concrete case or controvers$, as Art. VIII, 2 9(3)clearl$ defines our ;urisdiction in ter#s of Fcases,F and nothingbut Fcases.F That the other depart#ents of the govern#ent #a$have co##itted a grave abuse of discretion is not anindependent ground for exercising our power. 1isregard of theessential li#its i#posed b$ the case and controvers$require#ent can in the long run onl$ result in under#ining our

authorit$ as a court of law. Eor, as ;udges, what we are calledupon to render is ;udg#ent according to law, not according towhat #a$ appear to be the opinion of the da$

In the preceeding pages we have endeavored to discuss, withinli#its, the validit$ of %epublic Act &o. '' in its for#al andsubstantive aspects as this has been raised in the various casesbefore us. To su# up, we hold/

() That the procedural require#ents of the *onstitution have

been co#plied with b$ *ongress in the enact#ent of the statute

(3) That ;udicial inquir$ whether the for#al require#ents for theenact#ent of statutes H be$ond those prescribed b$ the*onstitution H have been observed is precluded b$ theprinciple of separation of powers

(8) That the law does not abridge freedo# of speech,expression or the press, nor interfere with the free exercise of religion, nor den$ to an$ of the parties the right to an education

and

() That, in view of the absence of a factual foundation of record, clai#s that the law is regressive, oppressive andconfiscator$ and that it violates vested rights protected under the *ontract *lause are pre#aturel$ raised and do not ;ustif$the grant of prospective relief b$ writ of prohibition.

6@=%=E


17/87

A-ATIRAN NG MGA NAGLILINGO$ SA -AMAHALAAN

NG -ILI-INAS, INC., HERMINIGIL$O C. $UMLAO,

GERONIMO . UA$RA, !" MARIO C.

#ILLANUE#A, petitioners,

vs.

HON. /IEN#ENI$O TAN, Co22o!er o I!ter!

Ree!+e, respondent.

-A$ILLA, J.:

These four () petitions, which have been consolidated because

of the si#ilarit$ of the #ain issues involved therein, see to

nullif$ =xecutive


18/87

The VAT is not entirel$ new. It was alread$ in force, in a

#odified for#, before =< 3'8 was issued. As pointed out b$ the

7olicitor Beneral, the 0hilippine sales tax s$ste#, prior to the

issuance of =< 3'8, was essentiall$ a single stage value added

tax s$ste# co#puted under the Fcost subtraction #ethodF or

Fcost deduction #ethodF and was i#posed onl$ on original sale,

barter or exchange of articles b$ #anufacturers, producers, ori#porters. 7ubsequent sales of such articles were not sub;ect to

sales tax. @owever, with the issuance of 01 on 8

ntil a legislature is elected and convened

under a new *onstitution, the 0resident shall

continue to exercise legislative powers.


19/87

defeat the purpose of the fra#ers of the :' *onstitutional and

render #eaningless so#e other provisions of said *onstitution.

Eor exa#ple, the provisions of Art. VI, sec. 9, requiring

*ongress to conveneonce ever$ $ear on the fourth onda$ of

ul$ for its regular session would be a contrariet$, since

*ongress would alread$ be dee#ed to be in session after the

individual #e#bers have taen their oath of office. A portion ofthe provisions of Art. VII, sec. !, requiring *ongress

to convene for the purpose of enacting a law calling for a special

election to elect a 0resident and Vice-0resident in case a

vacanc$ occurs in said offices, would also be a surplusage. The

portion of Art. VII, sec. , third paragraph, requiring *ongress

to convene, if not in session, to decide a conflict between the

0resident and the *abinet as to whether or not the 0resident

and the *abinet as to whether or not the 0resident can re-

assu#e the powers and duties of his office, would also beredundant. The sa#e is true with the portion of Art. VII, sec. :,

which requires *ongress to convene within twent$-four (3)

hours following the declaration of #artial law or the suspension

of the privilage of the writ of habeas corpus.

The :' *onstitution #entions a specific date when the

0resident loses her power to legislate. If the fra#ers of said

*onstitution had intended to ter#inate the exercise of legislative

powers b$ the 0resident at the beginning of the ter# of office ofthe #e#bers of *ongress, the$ should have so stated (but did

not) in clear and unequivocal ter#s. The *ourt has not power to

re-write the *onstitution and give it a #eaning different fro# that

intended.

The *ourt also finds no #erit in the petitionersG clai# that =<

3'8 was issued b$ the 0resident in grave abuse of discretion

a#ounting to lac or excess of ;urisdiction. FBrave abuse of

discretionF has been defined, as follows/

Brave abuse of discretionF i#plies such capricious

and whi#sical exercise of ;udg#ent as is

equivalent to lac of ;urisdiction (Abad 7antos vs.

0rovince of Tarlac, 8:


20/87

7ec. 3: () The rule of taxation shall be unifor#

and equitable. The *ongress shall evolve a

progressive s$ste# of taxation.

The petitionersF assertions in this regard are not supported b$

facts and circu#stances to warrant their conclusions. The$ have

failed to adequatel$ show that the VAT is oppressive,discri#inator$ or un;ust. 0etitioners #erel$ rel$ upon newspaper

articles which are actuall$ hearsa$ and have evidentiar$ value.

To ;ustif$ the nullification of a law. there #ust be a clear and

unequivocal breach of the *onstitution, not a doubtful and

argu#entative i#plication. 4

As the *ourt sees it, =< 3'8 satisfies all the require#ents of a

valid tax. It is unifor#. The court, in &ity o# aio vs. 5e

8eon,5

said/

... In 0hilippine Trust *o#pan$ v. Datco ( 0hil.

3!), ustice ?aurel, speaing for the *ourt,

stated/ FA tax is considered unifor# when it

operates with the sa#e force and effect in ever$

place where the sub;ect #a$ be found.F

There was no occasion in that case to consider

the possible effect on such a constitutionalrequire#ent where there is a classification. The

opportunit$ ca#e in =astern Theatrical *o. v.

Alfonso (:8 0hil. :93, :3). Thus/ F=qualit$ and

unifor#it$ in taxation #eans that all taxable

articles or inds of propert$ of the sa#e class shall

be taxed at the sa#e rate. The taxing power has

the authorit$ to #ae reasonable and natural

classifications for purposes of taxation . . .F About

two $ears later, ustice Tuason, speaing for this

*ourt in anila %ace @orses Trainers Assn. v. de

la Euente (:: 0hil. !, 9) incorporated the above

excerpt in his opinion and continued FTaing

ever$thing into account, the differentiation against

which the plaintiffs co#plain confor#s to the

practical dictates of ;ustice and equit$ and is not

discri#inator$ within the #eaning of the*onstitution.F

To satisf$ this require#ent then, all that is needed

as held in another case decided two $ears later,

(>$ atias v. *it$ of *ebu, 8 0hil. 8!!) is that the

statute or ordinance in question Fapplies equall$ to

all persons, fir#s and corporations placed in

si#ilar situation.F This *ourt is on record as

accepting the view in a leading A#erican case(*ar#ichael v. 7outhern *oal and *oe *o., 8!

>7 9) that Finequalities which result fro# a

singling out of one particular class for taxation or

exe#ption infringe no constitutional li#itation.F

(?ut+ v. Araneta, : 0hil. :, 98).

The sales tax adopted in =< 3'8 is applied si#ilarl$ on all

goods and services sold to the public, which are not exe#pt, at

the constant rate of !" or !".

The disputed sales tax is also equitable. It is i#posed onl$ on

sales of goods or services b$ persons engage in business with

an aggregate gross annual sales exceeding 03!!,!!!.!!. 7#all

corner sari9sari stores are consequentl$ exe#pt fro# its

application. ?iewise exe#pt fro# the tax are sales of far# and

#arine products, spared as the$ are fro# the incidence of the

VAT, are expected to be relativel$ lower and within the reach of

the general public. '


21/87

The *ourt liewise finds no #erit in the contention of the

petitioner Integrated *usto#s 5roers Association of the

0hilippines that =< 3'8, #ore particularl$ the new 7ec. !8 (r)

of the &ational Internal %evenue *ode, undul$ discri#inates

against custo#s broers. The contested provision states/

7ec. !8. %'empt transactions. H The followingshall be exe#pt fro# the value-added tax/

xxx xxx xxx

(r) 7ervice perfor#ed in the exercise of profession

or calling (except custo#s broers) sub;ect to the

occupation tax under the ?ocal Tax *ode, and

professional services perfor#ed b$ registered

general professional partnerships

The phrase Fexcept custo#s broersF is not #eant to

discri#inate against custo#s broers. It was inserted in 7ec.

!8(r) to co#ple#ent the provisions of 7ec. !3 of the *ode,

which #aes the services of custo#s broers sub;ect to the

pa$#ent of the VAT and to distinguish custo#s broers fro#

other professionals who are sub;ect to the pa$#ent of an

occupation tax under the ?ocal Tax *ode. 0ertinent provisions

of 7ec. !3 read/

7ec. !3. Vale9added ta' on sale o# services. H

There shall be levied, assessed and collected, a

value-added tax equivalent to !" percent of

gross receipts derived b$ an$ person engaged in

the sale of services. The phrase sale of servicesF

#eans the perfor#ance of all inds of services for

others for a fee, re#uneration or consideration,

including those perfor#ed or rendered b$

construction and service contractors stoc, real

estate, co##ercial, custo#s and i##igration

broers lessors of personal propert$ lessors or

distributors of cine#atographic fil#s persons

engaged in #illing, processing, #anufacturing or

repacing goods for others and si#ilar services

regardless of whether or not the perfor#ancethereof call for the exercise or use of the ph$sical

or #ental faculties/ ...

6ith the insertion of the clarificator$ phrase Fexcept custo#s

broersF in 7ec. !8(r), a potential conflict between the two

sections, (7ecs. !3 and !8), insofar as custo#s broers are

concerned, is averted.

At an$ rate, the distinction of the custo#s broers fro# the other professionals who are sub;ect to occupation tax under the ?ocal

Tax *ode is based upon #aterial differences, in that the

activities of custo#s broers (lie those of stoc, real estate and

i##igration broers) partae #ore of a business, rather than a

profession and were thus sub;ected to the percentage tax under

7ec. ' of the &ational Internal %evenue *ode prior to its

a#end#ent b$ =< 3'8. =< 3'8 abolished the percentage tax

and replaced it with the VAT. If the petitioner Association did not

protest the classification of custo#s broers then, the *ourtsees no reason wh$ it should protest now.

The *ourt taes note that =< 3'8 has been in effect for #ore

than five (9) #onths now, so that the fears expressed b$ the

petitioners that the adoption of the VAT will trigger s$roceting

of prices of basic co##odities and services, as well as #ass

actions and de#onstrations against the VAT should b$ now be

evident. The fact that nothing of the sort has happened shows

that the fears and apprehensions of the petitioners appear to be


22/87

#ore i#agined than real. It would see# that the VAT is not as

bad as we are #ade to believe.

In an$ event, if petitioners seriousl$ believe that the adoption

and continued application of the VAT are pre;udicial to the

general welfare or the interests of the #a;orit$ of the people,

the$ should see recourse and relief fro# the political branchesof the govern#ent. The *ourt, following the ti#e-honored

doctrine of separation of powers, cannot substitute its ;udg#ent

for that of the 0resident as to the wisdo#, ;ustice and

advisabilit$ of the adoption of the VAT. The *ourt can onl$ loo

into and deter#ine whether or not =< 3'8 was enacted and

#ade effective as law, in the #anner required b$, and consistent

with, the *onstitution, and to #ae sure that it was not issued in

grave abuse of discretion a#ounting to lac or excess of

;urisdiction and, in this regard, the *ourt finds no reason toi#pede its application or continued i#ple#entation.

EN /ANC

Ab6" G+ro . Er2t

$ E C I S I O N

AUSTRIA7MARTINE%, J .8

The expenses of govern#ent, having for their ob;ect the interest of all, should be borne b$

ever$one, and the #ore #an en;o$s theadvantages of societ$, the #ore he ought to holdhi#self honored in contributing to those expenses.

-Anne %obert acques Turgot ('3'-':)Erench states#an and econo#ist ounting budget deficit, revenue generation, inadequate

fiscal allocation for education, increased e#olu#ents for healthworers, and wider coverage for full value-added tax benefits

these are the reasons wh$ %epublic Act &o. 88' (%.A. &o.88')JK was enacted. %easons, the wisdo# of which, the *ourt

http://sc.judiciary.gov.ph/jurisprudence/2005/sep2005/168056.htm#_ftn1http://sc.judiciary.gov.ph/jurisprudence/2005/sep2005/168056.htm#_ftn1


23/87

even with its extensive constitutional power of review, cannotprobe. The petitioners in these cases, however, question notonl$ the wisdo# of the law, but also perceived constitutionalinfir#ities in its passage.

=ver$ law en;o$s in its favor the presu#ption of

constitutionalit$. Their argu#ents notwithstanding, petitioners

failed to ;ustif$ their call for the invalidit$ of the law. @ence, %.A.&o. 88' is not unconstitutional.

G.R. No. 1')05' 5efore %.A. &o. 88' too effect, petitioners AAA5A

:"; 0art$ ?ist, et al., filed a petition for prohibition on a$ 3',3!!9. The$ question the constitutionalit$ of 7ections , 9 and of %.A. &o. 88', a#ending 7ections !, !' and !:,respectivel$, of the &ational Internal %evenue *ode (&I%*).

7ection i#poses a !" VAT on sale of goods and properties,7ection 9 i#poses a !" VAT on i#portation of goods, and7ection i#poses a !" VAT on sale of services and use or lease of properties. These questioned provisions contain aunifor# proviso authori+ing the 0resident, uponreco##endation of the 7ecretar$ of Einance, to raise the VATrate to 3", effective anuar$ , 3!!, after an$ of the followingconditions have been satisfied, to wit/

. . . That the 0resident, upon the

reco##endation of the 7ecretar$ of Einance,shall, effective anuar$ , 3!!, raise the rate of value-added tax to twelve percent (3"), after an$of the following conditions has been satisfied/

(i) Value-added tax collection as a

percentage of Bross 1o#estic 0roduct (B10) of the previous $ear exceeds two and four-fifthpercent (3 N9") or

(ii) &ational govern#ent deficit as apercentage of B10 of the previous $ear exceedsone and one-half percent ( ").

0etitioners argue that the law is unconstitutional, as itconstitutes abandon#ent b$ *ongress of its exclusive authorit$

to fix the rate of taxes under Article VI, 7ection 3:(3) of the :'0hilippine *onstitution.

RES-ON$ENTS COMMENT

The


24/87

value-added s$ste# of taxation is the core revenue #easurethat will tilt the balance towards a sustainable #acroecono#icenviron#ent necessar$ for econo#ic growth.

ISSUES

The *ourt defined the issues, as follows/

-ROCE$URAL ISSUE

6hether %.A. &o. 88' violates thefollowing provisions of the *onstitution/

a. Article VI, 7ection 3, andb. Article VI, 7ection 3(3)

SU/STANTI#E ISSUES

. 6hether 7ections , 9 and of %.A. &o. 88',a#ending 7ections !, !' and !: of the &I%*,violate the following provisions of the *onstitution/

a. Article VI, 7ection 3:(), andb. Article VI, 7ection 3:(3)

3. 6hether 7ection : of %.A. &o. 88', a#ending7ections !(A)(3) and !(5) of the &I%* and

7ection 3 of %.A. &o. 88', a#ending 7ection(*) of the &I%*, violate the followingprovisions of the *onstitution/

a. Article VI, 7ection 3:(), andb. Article III, 7ection

RULING OF THE COURT

As a prelude, the *ourt dee#s it apt to restate thegeneral principles and concepts of value-added tax (VAT), as

the confusion and inevitabl$, litigation, breeds fro# a fallaciousnotion of its nature.

The VAT is a tax on spending or consu#ption. It is levied

on the sale, barter, exchange or lease of goods or propertiesand services.J:K 5eing an indirect tax on expenditure, the seller of goods or services #a$ pass on the a#ount of tax paid to the

bu$er,JK

with the seller acting #erel$ as a tax collector.J!K

Theburden of VAT is intended to fall on the i##ediate bu$ers andulti#atel$, the end-consu#ers.

In contrast, a direct tax is a tax for which a taxpa$er is

directl$ liable on the transaction or business it engages in,without transferring the burden to so#eone else. JK=xa#plesare individual and corporate inco#e taxes, transfer taxes, andresidence taxes.J3K

In the 0hilippines, the value-added s$ste# of salestaxation has long been in existence, albeit in a different #ode.0rior to ':, the s$ste# was a single-stage tax co#putedunder the cost deduction #ethod and was pa$able onl$ b$ theoriginal sellers. The single-stage s$ste# was subsequentl$#odified, and a #ixture of the cost deduction #ethod and taxcredit #ethod was used to deter#ine the value-added taxpa$able.J8K >nder the tax credit #ethod, an entit$ can creditagainst or subtract fro# the VAT charged on its sales or outputsthe VAT paid on its purchases, inputs and i#ports. JK

It was onl$ in :', when 0resident *ora+on *. Aquinoissued =xecutive


25/87

The *ourt will now discuss the issues in logical

sequence.

-ROCE$URAL ISSUEI.

6hether %.A. &o. 88' violates the following provisions of the

*onstitution/ a. Article VI, 7ection 3, and

b. Article VI, 7ection 3(3)

A. !he icameral &on#erence&ommittee

0etitioners =scudero, et al., and 0i#entel, et al., allege

that the 5ica#eral *onference *o##ittee exceeded its

authorit$ b$/ ) Inserting the stand9by athority in favor of the0resident in 7ections , 9, and of %.A. &o. 88' 3) 1eleting entirel$ the no pass9on provisionsfound in both the @ouse and 7enate bills 8) Inserting the provision i#posing a '!" li#it onthe a#ount of input tax to be credited against the

output tax and ) Including the a#end#ents introduced onl$ b$7enate 5ill &o. 9! regarding other inds of taxes in addition to the value-added tax.

0etitioners now beseech the *ourt to define the powersof the 5ica#eral *onference *o##ittee.

It should be borne in #ind that the power of internalregulation and discipline are intrinsic in an$ legislative bod$ for,

as unerringl$ elucidated b$ ustice 7tor$, 2: t;e 2t, 2t =o+" be +tter? 2


26/87

%ule CII, 7ection 89 of the %ules of the 7enate states/

7ec. 89. In the event that the 7enate doesnot agree with the @ouse of %epresentatives onthe provision of an$ bill or ;oint resolution, thedifferences shall be settled b$ a conference

co##ittee of both @ouses which shall #eet withinten (!) da$s after their co#position. The0resident shall designate the #e#bers of the7enate 0anel in the conference co##ittee withthe approval of the 7enate.

=ach *onference *o##ittee %eport shall

contain a detailed and sufficientl$ explicitstate#ent of the changes in, or a#end#ents tothe sub;ect #easure, and shall be signed b$ a

#a;orit$ of the #e#bers of each @ouse panel,voting separatel$.

A co#parative presentation of theconflicting @ouse and 7enate provisions and areconciled version thereof with the explanator$state#ent of the conference co##ittee shall beattached to the report.

The creation of such conference co##ittee was

apparentl$ in response to a proble#, not addressed b$ an$constitutional provision, where the two houses of *ongress findthe#selves in disagree#ent over changes or a#end#entsintroduced b$ the other house in a legislative bill. Biven that oneof the #ost basic powers of the legislative branch is to for#ulateand i#ple#ent its own rules of proceedings and to discipline its#e#bers, #a$ the *ourt then delve into the details of how*ongress co#plies with its internal rules or how it conducts itsbusiness of passing legislation4 &ote that in the presentpetitions, the issue is not whether provisions of the rules of bothhouses creating the bica#eral conference co##ittee areunconstitutional, b+t =;et;er t;e b2cer co!ere!ce

co2ttee ; tr2ct? co


27/87

be reoe" 2! 2t or. The *ourt reiterates itsruling in Arroyo vs. 5e Venecia, vi./

5ut the ce, bot; ;ere !" bro", 2! r?2!@or o e>


28/87

0rovides for 3" VAT onever$ sale of goods or properties(a#ending7ec. ! of

&I%*) 3"VAT oni#portation of goods(a#ending7ec. !' of &I%*) and3" VAT onsale of servicesand use or

lease of properties(a#ending7ec. !: of &I%*)

0rovides for 3"VAT in general onsales of goods or properties andreduced rates for sale of certainlocall$

#anufacturedgoods andpetroleu#products and raw#aterials to beused in the#anufacturethereof (a#ending7ec. ! of &I%*) 3" VAT

on i#portation of goods andreduced rates for certain i#portedproducts includingpetroleu#products(a#ending 7ec.!' of &I%*) and3" VAT on sale

of services anduse or lease of properties and areduced rate for certain servicesincluding power generation(a#ending 7ec.!: of &I%*)

0rovides for asingle rate of !"VAT on sale of goods or properties(a#ending 7ec.! of &I%*), !"

VAT on sale of services includingsale of electricit$b$ generationco#panies,trans#ission anddistributionco#panies, anduse or lease of properties

(a#ending 7ec.!: of &I%*)

With regard to the no pass-on provision

&o si#ilar provision

0rovides that theVAT i#posed onpower generationand on the sale of

petroleu#products shall beabsorbed b$generationco#panies or sellers,respectivel$, andshall not bepassed on toconsu#ers

0rovides that theVAT i#posed onsales of electricit$b$ generation

co#panies andservices of trans#issionco#panies anddistributionco#panies, aswell as those of franchise granteesof electric utilitiesshall not appl$ toresidentialend-users. VATshall be absorbedb$ generation,trans#ission, anddistributionco#panies.

With regard to 70% limit on input ta !redit

0rovides thatthe input taxcredit for capital goodson which a VAThas been paidshall be equall$distributed over 9 $ears or thedepreciable lifeof such capital

goods the


0rovides that theinput tax credit for capital goods onwhich a VAT hasbeen paid shall beequall$ distributedover 9 $ears or thedepreciable life of such capitalgoods the inputtax credit for

goods and


29/87

input tax creditfor goods andservices other than capitalgoods shall notexceed 9" of the total

a#ount of suchgoods andservices andfor personsengaged inretail trading of goods, theallowable inputtax credit shallnot exceed

" of the totala#ount of goodspurchased.

services other than capital goodsshall not exceed!" of the outputVAT.

With regard to amendments to "e made to #$& provisions regarding in!ome and e!ise taes

&o si#ilarprovision


0rovided for a#end#ents toseveral &I%*provisionsregardingcorporate inco#e,percentage,franchise andexcise taxes

The disagree#ents between the provisions in the @ousebills and the 7enate bill were with regard to () what rate of VATis to be i#posed (3) whether onl$ the VAT i#posed onelectricit$ generation, trans#ission and distribution co#paniesshould not be passed on to consu#ers, as proposed in the7enate bill, or both the VAT i#posed on electricit$ generation,trans#ission and distribution co#panies and the VAT i#posed

on sale of petroleu# products should not be passed on toconsu#ers, as proposed in the @ouse bill (8) in what #anner input tax credits should be li#ited () and whether the &I%*provisions on corporate inco#e taxes, percentage, franchiseand excise taxes should be a#ended.

There being differences andNor disagree#ents on the

foregoing provisions of the @ouse and 7enate bills, the5ica#eral *onference *o##ittee was #andated b$ the rules of both houses of *ongress to act on the sa#e b$ settling said

differences andNor disagree#ents. The 5ica#eral *onference*o##ittee acted on the disagreeing provisions b$ #aing thefollowing changes/

. 6ith regard to the disagree#ent on the rate of VAT to

be i#posed, it would appear fro# the *onference *o##ittee%eport that the 5ica#eral *onference *o##ittee tried to bridgethe gap in the difference between the !" VAT rate proposedb$ the 7enate, and the various rates with 3" as the highestVAT rate proposed b$ the @ouse, b$ striing a co#pro#ise

whereb$ the present !" VAT rate would be retained untilcertain conditions arise, i.e., the value-added tax collection as apercentage of gross do#estic product (B10) of the previous$ear exceeds 3 N9", or &ational Bovern#ent deficit as apercentage of B10 of the previous $ear exceeds ", when the0resident, upon reco##endation of the 7ecretar$ of Einanceshall raise the rate of VAT to 3" effective anuar$ , 3!!.

3. 6ith regard to the disagree#ent on whether onl$ theVAT i#posed on electricit$ generation, trans#ission and

distribution co#panies should not be passed on to consu#ers


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or whether both the VAT i#posed on electricit$ generation,trans#ission and distribution co#panies and the VAT i#posedon sale of petroleu# products #a$ be passed on to consu#ers,the 5ica#eral *onference *o##ittee chose to settle suchdisagree#ent b$ altogether deleting fro# its %eport an$ no pass9on provision.

8. 6ith regard to the disagree#ent on whether input taxcredits should be li#ited or not, the 5ica#eral *onference*o##ittee decided to adopt the position of the @ouse b$ puttinga li#itation on the a#ount of input tax that #a$ be creditedagainst the output tax, although it crafted its own language as tothe a#ount of the li#itation on input tax credits and the #anner of co#puting the sa#e b$ providing thus/

(A) *reditable Input Tax. . . .

. . . +rovided , The input tax on goodspurchased or i#ported in a calendar #onth for use in trade or businessfor which deduction for depreciationis allowed under this *ode, shall bespread evenl$ over the #onth of acquisition and the fift$-nine (9)succeeding #onths if the aggregate

acquisition cost for such goods,excluding the VAT co#ponentthereof, exceeds one #illion 0esos(0,!!!,!!!.!!)/ 0%


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neither provisions in the @ouse bill or the provisions in the7enate bill wouldbe carried into the final for# of the bill, andNor (c) tr$ to arrive ata co#pro#ise between the disagreeing provisions.

In the present case, the changes introduced b$ the

5ica#eral *onference *o##ittee on disagreeing provisions

were #eant onl$ to reconcile and har#oni+e the disagreeingprovisions for it did not in;ect an$ idea or intent that is wholl$foreign to the sub;ect e#braced b$ the original provisions.

The so-called stand9by athority in favor of the 0resident,

whereb$ the rate of !" VAT wanted b$ the 7enate is retaineduntil such ti#e that certain conditions arise when the 3" VATwanted b$ the @ouse shall be i#posed, appears to be aco#pro#ise to tr$ to bridge the difference in the rate of VATproposed b$ the two houses of *ongress. &evertheless, such

co#pro#ise is still totall$ within the sub;ect of what rate of VATshould be i#posed on taxpa$ers. The no pass9on provision was deleted altogether. In the

transcripts of the proceedings of the 5ica#eral *onference*o##ittee held on a$ !, 3!!9, 7en. %alph %ecto, *hair#anof the 7enate 0anel, explained the reason for deleting the no pass9on provision in this wise/

. . . the thining was ;ust to eep the VAT

law or the VAT bill si#ple. And we were thiningthat no sector should be a beneficiar$ of legislativegrace, neither should an$ sector be discri#inatedon. The VAT is an indirect tax. It 2 .

And lets eep it plain and si#ple. ?ets not confusethe bill and put a no pass-on provision. Two-thirdsof the world have a VAT s$ste# and in this two-thirds of the globe, I have $et to see a VAT with ano pass-though provision. 7o, the thining of the7enate is basicall$ si#ple, lets eep the VATsi#ple.J3K(=#phasis supplied)

%ep. Teodoro ?ocsin further #ade the #anifestation thatthe no pass9on provision never reall$ en;o$ed the support of either @ouse.J3'K

6ith regard to the a#ount of input tax to be credited

against output tax, the 5ica#eral *onference *o##ittee ca#eto a co#pro#ise on the percentage rate of the li#itation or cap

on such input tax credit, but again, the change introduced b$ the5ica#eral *onference *o##ittee was totall$ within the intent of both houses to put a cap on input tax that #a$ be creditedagainst the output tax. Ero# the inception of the sub;ectrevenue bill in the @ouse of %epresentatives, one of the #a;or ob;ectives was to plug a glaring loophole in the tax polic$ andad#inistration b$ creating vital restrictions on the clai#ing of input VAT tax credits . . . and JbK$ introducing li#itations on theclai#ing of tax credit, we are capping a #a;or leaage that hasplaced our collection efforts at an apparent disadvantage. J3:K

As to the a#end#ents to &I%* provisions on taxes other than the value-added tax proposed in 7enate 5ill &o. 9!,since said provisions were a#ong those referred to it, theconference co##ittee had to act on the sa#e and it basicall$adopted the version of the 7enate.

Thus, all the changes or #odifications #ade b$ the

5ica#eral *onference *o##ittee were ger#ane to sub;ects of the provisions referred

to it for reconciliation. 7uch being the case, the *ourt does notsee an$ grave abuse of discretion a#ounting to lac or excessof ;urisdiction co##itted b$ the 5ica#eral *onference*o##ittee. In the earlier cases of +hilippine 0des Association vs. +radoJ3K and !olentino vs. Secretary o# Finance,J8!K the *ourt recogni+ed the long-standing legislative practice of giving said conference co##ittee a#ple latitude for co#pro#ising differences between the 7enate and the @ouse.Thus, in the !olentino case, it was held that/

. . . it is within the power of a conference

co##ittee to include in its report an entirel$ new

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provision that is not found either in the @ouse billor in the 7enate bill. If the co##ittee can proposean a#end#ent consisting of one or twoprovisions, there is no reason wh$ it cannotpropose several provisions, collectivel$ consideredas an a#end#ent in the nature of a substitute, solong as such a#end#ent is ger#ane to the

sub;ect of the bills before the co##ittee. After all,its report was not final but needed the approval of both houses of *ongress to beco#e valid as anact of the legislative depart#ent. T;e c;r@e t;t2! t;2 ce t;e Co!ere!ce Co2ttee cte" t;2r" e@2t2e c;ber 2 t;+ =2t;o+t!? b2.J8K (=#phasis supplied)

. ".A. >? 5oes ? 5oes


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and percentage, excise taxes. 0etitioners refer to the followingprovisions, to wit/

7ection3'

%ates of Inco#e Taxon 1o#estic*orporation

3:(A)() Tax on %esidentEoreign *orporation

3:(5)() Inter-corporate1ividends

8(5)() Inter-corporate1ividends

Tax on 0ersons=xe#pt fro# VAT

' 0ercentage Tax ondo#estic carriers andeepers of Barage

Tax on franchises

3 Tax on bans and&on-5an EinancialInter#ediaries

: =xcise Tax on#anufactured oils andother fuels

9 =xcise Tax on #ineralproducts

38 %egistrationrequire#ents

38' Issuance of receipts or sales or co##ercialinvoices

3:: 1isposition of

Incre#ental %evenue

0etitioners clai# that the a#end#ents to theseprovisions of the &I%* did not at all originate fro# the @ouse.The$ aver that @ouse 5ill &o. 8999 proposed a#end#ents onl$regarding 7ections !, !', !:, ! and of the &I%*,

while @ouse 5ill &o. 8'!9 proposed a#end#ents onl$ to7ections !, !',!:, !, ! and of the &I%* thus, theother sections of the &I%* which the 7enate a#ended butwhich a#end#ents were not found in the @ouse bills are notintended to be a#ended b$ the @ouse of %epresentatives.@ence, the$ argue that since the proposed a#end#ents did notoriginate fro# the @ouse, such a#end#ents are a violation of

Article VI, 7ection 3 of the *onstitution. The argu#ent does not hold water.

Article VI, 7ection 3 of the *onstitution reads/

7ec. 3. All appropriation, revenue or tariff bills, bills authori+ing increase of the public debt,bills of local application, and private bills shalloriginate exclusivel$ in the @ouse of %epresentatives but the 7enate #a$ propose or concur with a#end#ents.

In the present cases, petitioners ad#it that it was indeed@ouse 5ill &os. 8999 and 8'!9 that initiated the #ove for a#ending provisions of the &I%* dealing #ainl$ with the value-added tax. >pon trans#ittal of said @ouse bills to the 7enate,the 7enate ca#e out with 7enate 5ill &o. 9! proposinga#end#ents not onl$ to &I%* provisions on the value-addedtax but also a#end#ents to &I%* provisions on other inds of taxes. Is the introduction b$ the 7enate of provisions not dealingdirectl$ with the value- added tax, which is the onl$ ind of tax

being a#ended in the @ouse bills, still within the purview of the


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constitutional provision authori+ing the 7enate to propose or concur with a#end#ents to a revenue bill that originated fro#the @ouse4

The foregoing question had been squarel$ answered in

the !olentino case, wherein the *ourt held, thus/

. . . To begin with, it is not the law but therevenue bill which is required b$ the *onstitutionto originate exclusivel$ in the @ouse of %epresentatives. It is i#portant to e#phasi+e this,because a bill originating in the @ouse #a$undergo such extensive changes in the 7enatethat the result #a$ be a rewriting of the whole. . . .

At this point, what is i#portant to note is that, as aresult of the 7enate action, a distinct bill #a$ beproduced. To 2!2t t;t ree!+e tt+te !"

!ot o!? t;e b2 =;2c; 2!2t2te" t;e e@2t2e


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savings have been identified b$ thead#inistration. It 2 +


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assure the# that not because there is a light at theend of the tunnel, this govern#ent will eep on#aing the tunnel long.

The responsibilit$ will not rest solel$ on the

wear$ shoulders of the s#all #an. 5ig businesswill be there to share the burden. J89K

As the *ourt has said, the 7enate can proposea#end#ents and in fact, the a#end#ents #ade on provisionsin the tax on inco#e of corporations are ger#ane to the purposeof the house bills which is to raise revenues for the govern#ent.

?iewise, the *ourt finds the sections referring to other percentage and excise taxes ger#ane to the refor#s to the VAT

s$ste#, as these sections would cushion the effects of VAT onconsu#ers. *onsidering that certain goods and services whichwere sub;ect to percentage tax and excise tax would no longer be VAT-exe#pt, the consu#er would be burdened #ore as the$would be pa$ing the VAT in addition to these taxes. Thus, thereis a need to a#end these sections to soften the i#pact of VAT.

Again, in his sponsorship speech, 7en. %ecto said/

@owever, for power plants that run on oil,we will reduce to +ero the present excise tax onbuner fuel, to lessen the effect of a VAT on thisproduct.

Eor electric utilities lie eralco, we will

wipe out the franchise tax in exchange for a VAT.

And in the case of petroleu#, while we willlev$ the VAT on oil products, so as not to destro$the VAT chain, we will however bring down theexcise tax on sociall$ sensitive products such as

diesel, buner, fuel and erosene.

6hat do all these exercises point to4 Theseare not contortions of giving to the left hand whatwas taen fro# the right. %ather, these sprangfro# our concern of softening the i#pact of VAT,so that the people can cushion the blow of higher

prices the$ will have to pa$ as a result of VAT.

J8K

The other sections a#ended b$ the 7enate pertained to

#atters of tax ad#inistration which are necessar$ for thei#ple#entation of the changes in the VAT s$ste#.

To reiterate, the sections introduced b$ the 7enate are

ger#ane to the sub;ect #atter and purposes of the house bills,which is to supple#ent our countr$s fiscal deficit, a#ong others.Thus, the 7enate acted within its power to propose those

a#end#ents. SU/STANTI#E ISSUES

I.6hether 7ections , 9 and of %.A. &o. 88', a#ending7ections !, !' and !: of the &I%*, violate the followingprovisions of the *onstitution/

a. Article VI, 7ection 3:(), andb. Article VI, 7ection 3:(3)

A.


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The assailed provisions read as follows/

7=*. . 7ec. ! of the sa#e *ode, asa#ended, is hereb$ further a#ended to read asfollows/

7=*. !. Value-Added Tax on 7ale of

Boods or 0roperties. (A) %ate and 5ase of Tax. Thereshall be levied, assessed andcollected on ever$ sale, barter or exchange of goods or properties, avalue-added tax equivalent to tenpercent (!") of the gross sellingprice or gross value in #one$ of thegoods or properties sold, bartered or

exchanged, such tax to be paid b$the seller or transferor/ coect2o!


38/87

D22 !t2o! @oer!e!t "e2c2t


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The principle of separation of powers ordains that each of

the three great branches of govern#ent has exclusivecogni+ance of and is supre#e in #atters falling within its ownconstitutionall$ allocated sphere.J8'K A logical corollar$ to thedoctrine of separation of powers is the principle of non-delegation of powers, as expressed in the ?atin

#axi#/ potestas deleata non deleari potest which #eanswhat has been delegated, cannot be delegated. J8:K This doctrineis based on the ethical principle that such as delegated power constitutes not onl$ a right but a dut$ to be perfor#ed b$ thedelegate through the instru#entalit$ of his own ;udg#ent andnot through the intervening #ind of another.J8K

6ith respect to the ?egislature, 7ection of Article VI of

the *onstitution provides that the 8eislative po1er shall bevested in the &onress o# the +hilippines 1hich shall consist o# a Senate and a $ose o# "epresentatives . The powers which*ongress is prohibited fro# delegating are those which arestrictl$, or inherentl$ and exclusivel$, legislative. 0urel$legislative power, which can never be delegated, has beendescribed as the +t;or2t? to 6e co


40/87

to =;t 2t ; be, !" co!err2!@ ! +t;or2t?or "2cret2o! to 2t e>ec+t2o!, to bee>erc2e" +!"er !" 2!


41/87

can go forward. A "2t2!ct2o! ; r2@;t+? bee!"e bet=ee! "ee@t2o! o


42/87

idea of discretion.J98K 6here the law is clear and una#biguous, it#ust be taen to #ean exactl$ what it sa$s, and courts have nochoice but to see to it that the #andate is obe$ed. J9K

Thus, it is the #inisterial dut$ of the 0resident to

i##ediatel$ i#pose the 3" rate upon the existence of an$ of the conditions specified b$ *ongress. This is a dut$ which

cannot be evaded b$ the 0resident. Inas#uch as the lawspecificall$ uses the word shall , the exercise of discretion b$ the0resident does not co#e into pla$. It is a clear directive toi#pose the 3" VAT rate when the specified conditions arepresent. The ti#e of taing into effect of the 3" VAT rate isbased on the happening of a certain specified contingenc$, or upon the ascertain#ent of certain facts or conditions b$ aperson or bod$ other than the legislature itself.

The *ourt finds no #erit to the contention of

petitioners AAA5A :"; 0art$ ?ist, et al. that the laweffectivel$ nullified the 0residents power of control over the7ecretar$ of Einance b$ #andating the fixing of the tax rate b$the 0resident upon the reco##endation of the 7ecretar$ of Einance. The *ourt cannot also subscribe to the position of petitioners 0i#entel, et al. that the word shall should beinterpreted to #ean may in view of the phrase upon thereco##endation of the 7ecretar$ of Einance. &either does the*ourt find persuasive the sub#ission of petitioners =scudero, et al. that an$ reco##endation b$ the 7ecretar$ of Einance caneasil$ be brushed aside b$ the 0resident since the for#er is a#ere alter ego of the latter.

6hen one speas of the 7ecretar$ of Einance as the

alter ego of the 0resident, it si#pl$ #eans that as head of the1epart#ent of Einance he is the assistant and agent of the*hief =xecutive. The #ultifarious executive and ad#inistrativefunctions of the *hief =xecutive are perfor#ed b$ and throughthe executive depart#ents, and the acts of the secretaries of such depart#ents, such as the 1epart#ent of Einance,perfor#ed and pro#ulgated in the regular course of business,are, unless disapproved or reprobated b$ the *hief =xecutive,

presu#ptivel$ the acts of the *hief =xecutive. The 7ecretar$ of Einance, as such, occupies a political position and holds officein an advisor$ capacit$, and, in the language of Tho#asefferson, Fshould be of the 0residentGs boso# confidenceF and,in the language of Attorne$-Beneral *ushing, is sub;ect to thedirection of the 0resident.FJ99K

In the present case, in #aing his reco##endation to the0resident on the existence of either of the two conditions, the7ecretar$ of Einance is not acting as the alter ego of the0resident or even her subordinate. In such instance, he is notsub;ect to the power of control and direction of the 0resident. @eis acting as the agent of the legislative depart#ent, to deter#ineand declare the event upon which its expressed will is to taeeffect.J9K The 7ecretar$ of Einance beco#es the #eans or toolb$ which legislative polic$ is deter#ined and i#ple#ented,considering that he possesses all the facilities to gather dataand infor#ation and has a #uch broader perspective to properl$evaluate the#. @is function is to gather and collate statisticaldata and other pertinent infor#ation and verif$ if an$ of the twoconditions laid out b$ *ongress is present. @is personalit$ insuch instance is in realit$ but a pro;ection of that of *ongress. Thus, being the agent of *ongress and not of the0resident, the 0resident cannot alter or #odif$ or nullif$, or setaside the findings of the 7ecretar$ of Einance and to substitutethe ;udg#ent of the for#er for that of the latter.

*ongress si#pl$ granted the 7ecretar$ of Einance the

authorit$ to ascertain the existence of a fact, na#el$, whether b$1ece#ber 8, 3!!9, the value-added tax collection as apercentage of Bross 1o#estic 0roduct (B10) of the previous$ear exceeds two and four-fifth percent (3N9") or the nationalgovern#ent deficit as a percentage of B10 of the previous $ear exceeds one and one-half percent ("). If either of these twoinstances has occurred, the 7ecretar$ of Einance, b$ legislative#andate, #ust sub#it such infor#ation to the 0resident. Thenthe 3" VAT rate #ust be i#posed b$ the 0residenteffective anuar$ , 3!!. T;ere 2 !o +!"+e "ee@t2o! o e@2t2e


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e>ec+t2o! o =. T;2 2 co!t2t+t2o!? nder the co##on provisos of 7ections , 9 and of

%.A. &o. 88', if an$ of the two conditions set forth therein aresatisfied, the 0resident shall increase the VAT rate to 3". Theprovisions of the law are clear. It does not provide for a return tothe !" rate nor does it e#power the 0resident to so revert if,

after the rate is increased to 3", the VAT collection goes below

the 3N9 of the B10 of the previous $ear or that the nationalgovern#ent deficit as a percentage of B10 of the previous $ear does not exceed ".

Therefore, no statutor$ construction or interpretation is

needed. &either can conditions or li#itations be introducedwhere none is provided for. %ewriting the law is a forbidden

ground that onl$ *ongress #a$ tread upon.

J!K

Thus, in the absence of an$ provision providing for a

return to the !" rate, which in this case the *ourt finds none,petitioners argu#ent is, at best, purel$ speculative. There is nobasis for petitioners fear of a fluctuating VAT rate because thelaw itself does not provide that the rate should go bac to !" if the conditions provided in 7ections , 9 and are no longer present. The rule is that where the provision of the law is clear and una#biguous, so that there is no occasion for the courtGsseeing the legislative intent, the law #ust be taen as it is,devoid of ;udicial addition or subtraction.JK

0etitioners also contend that the increase in the VAT rate,

which was allegedl$ an incentive to the 0resident to raise theVAT collection to at least 3 N9 of the B10 of the previous $ear,should be based on fiscal adequac$.

0etitioners obviousl$ overlooed that increase in VAT

collection is not the only condition. There is another condition, i.e., the national govern#ent deficit as a percentageof B10 of the previous $ear exceeds one and one-half percent( ").

%espondents explained the philosoph$ behind these

alternative conditions/ . VATNB10 %atio P 3.:"

The condition set for increasing VAT rate to3" have econo#ic or fiscal #eaning. If VATNB10

is less than 3.:", it #eans that govern#ent has

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wea or no capabilit$ of i#ple#enting the VAT or that VAT is not effective in the function of the taxcollection. Therefore, there is no value to increaseit to 3" because such action will also beineffectual.

3. &atl Bovt 1eficitNB10 P.9"

The condition set for increasing VAT whendeficitNB10 is .9" or less #eans the fiscalcondition of govern#ent has reached a relativel$sound position or is towards the direction of abalanced budget position. Therefore, there is noneed to increase the VAT rate since the fiscalhouse is in a relativel$ health$ position.


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6hen the 0resident #ade her speech inul$ last $ear, the environ#ent was not as bad asit is now, at least based on the forecast of #ostfinancial institutions. 7o, we were assu#ing thatraising :! billion would put us in a position wherewe can then convince the# to i#prove our abilit$to borrow at lower rates. 5ut conditions havechanged on us because the interest rates havegone up. In fact, ;ust within this roo#, we tried toaccess the #aret for a billion dollars because for this $ear alone, the 0hilippines will have to borrow billion dollars.


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constitutional right against deprivation of life, libert$ of propert$without due process of law, as e#bodied in Article III, 7ection of the *onstitution.

0etitioners 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 invoed, considering that the$ are notfixed rules but rather broad standards, there is a need for proof of such persuasive character as would lead to such aconclusion. Absent such a showing, the presu#ption of validit$#ust prevail.J:K

7ection : of %.A. &o. 88', a#ending 7ection !(5) of

the &I%* i#poses a li#itation on the a#ount of input tax that#a$ be credited against the output tax. It states, in part/J+ Krovided , that the input tax inclusive of the input VAT carriedover fro# the previous quarter that #a$ be credited in ever$quarter shall not exceed sevent$ percent ('!") of the outputVAT/

Inpt !a' is defined under 7ection !(A) of the &I%*, as

a#ended, as the value-added tax due #rom or paid b$ a VAT-registered person on the i#portation of goods or local purchaseof good and services, including lease or use of propert$, in thecourse of trade or business, fro# a VAT-registered person,and ;tpt !a' is the value-added taxde on the sale or leaseof taxable goods or properties or services b$ an$ personregistered or required to register under the law.

0etitioners clai# that the contested sections i#poseli#itations on the a#ount of input tax that #a$ be clai#ed. Ineffect, a portion of the input tax that has alread$ been paidcannot now be credited against the output tax.

0etitioners argu#ent is not absolute. It assu#es that the

input tax exceeds '!" of the output tax, and therefore, the input

tax in excess of '!" re#ains uncredited. @owever, to the extent

that the input tax is less than '!" of the output tax, then !!"of such input tax is still creditable.

ore i#portantl$, the excess input tax, if an$, is retained

in a businesss boos of accounts and re#ains creditable in thesucceeding quarterNs. This is explicitl$ allowed b$ 7ection!(5), which provides that if the input tax exceeds the outputtax, the excess shall be carried over to the succeeding quarter or quarters. In addition, 7ection 3(5) allows a VAT-registeredperson to appl$ for the issuance of a tax credit certificate or refund for an$ unused input taxes, to the extent that such inputtaxes have not been applied against the output taxes. 7uchunused input tax #a$ be used in pa$#ent of his other internalrevenue taxes.

The non-application of the unutili+ed input tax in a given

quarter is not ad in#initm, as petitioners exaggeratedl$ contend.Their anal$sis of the effect of the '!" li#itation is inco#pleteand one-sided. It ends at the net effect that there will beunappliedNunutili+ed inputs VAT for a given quarter. It does notproceed further to the fact that such unappliedNunutili+ed inputtax #a$ be credited in the subsequent periods as allowed b$ thecarr$-over provision of 7ection !(5) or that it #a$ later on berefunded through a tax credit certificate under 7ection 3(5).

Therefore, petitioners argu#ent #ust be re;ected.


47/87

Eirst, if at the end of a taxable quarter the output taxes

charged b$ the seller are equal to the input taxes that he paidand passed on b$ the suppliers, then no pa$#ent is required

7econd, when the output taxes exceed the input taxes,the person shall be liable for the excess, which has to be paid tothe 5ureau of Internal %evenue (5I%) JK and

Third, if the input taxes exceed the output taxes, theexcess shall be carried over to the succeeding quarter or quarters. 7hould the input taxes result fro# +ero-rated or effectivel$ +ero-rated transactions, an$ excess over the outputtaxes shall instead be refunded to the taxpa$er or creditedagainst other internal revenue taxes, at the taxpa$ers option.J'!K

7ection : of %.A. &o. 88' however, i#posed a '!"

li#itation on the input tax. Thus, a person can credit his inputtax onl$ up to the extent of '!" of the output tax. In la$#anster#, the val

Documents

Justice Dimaampao Cases on VAT and Remedies