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

a no pass-on provision in the House version and the absence thereof

in the Senate Bill means there is no conflict because "a House
provision cannot be in conflict with something that does not exist.

Courts Ruling:

I. This Honorable Court erred in upholding the constitutionality of

Section 110(A)(2) and Section 110(B) of the NIRC, as amended
by the EVAT Law, imposing limitations on the amount of input
VAT that may be claimed as a credit against output VAT, as well
as Section 114(C) of the NIRC, as amended by the EVAT Law,
requiring the government or any of its instrumentalities to
withhold a 5% final withholding VAT on their gross payments on
purchases of goods and services, and finding that the questioned
A. are not arbitrary, oppressive and consfiscatory as to amount
to a deprivation of property without due process of law in
violation of Article III, Section 1 of the 1987 Philippine
B. do not violate the equal protection clause prescribed under
Article III, Section 1 of the 1987 Philippine Constitution; and
C. apply uniformly to all those belonging to the same class and
do not violate Article VI, Section 28(1) of the 1987 Philippine
II. This Honorable Court erred in upholding the constitutionality
of Section 110(B) of the NIRC, as amended by the EVAT Law,
imposing a limitation on the amount of input VAT that may be
claimed as a credit against output VAT notwithstanding the
finding that the tax is not progressive as exhorted by Article VI,
Section 28(1) of the 1987 Philippine Constitution.
Petitioner Garcia reply:

the no pass-on provision for the sale of service for power generation
because both the Senate and the House were in agreement that the
VAT burden for the sale of such service shall not be passed on to the
end-consumer. As to the no pass-on provision for sale of petroleum
products, petitioners argue that the fact that the presence of such

It is incorrect to conclude that there is no clash between

two opposing forces with regard to the no passon provision for VAT on the sale of petroleum products
merely because such provision exists in the House
version while it is absent in the Senate version. It is
precisely the absence of such provision in the Senate bill
and the presence thereof in the House bills that causes
the conflict. The absence of the provision in the Senate
bill shows the Senates disagreement to the intention of
the House of Representatives make the sellers of
petroleum bear the burden of the VAT. Thus, there are
indeed two opposing forces: on one side, the House of
Representatives which wants petroleum dealers to be
saddled with the burden of paying VAT and on the other,
the Senate which does not see it proper to make that
particular industry bear said burden. Clearly, such
conflicts and differences between the no passon provisions in the Senate and House bills had to be
acted upon by the bicameral conference committee as
mandated by the rules of both houses of Congress.
Moreover, the deletion of the no pass-on provision made
the present VAT law more in consonance with the very
nature of VAT which, as stated in the Decision
promulgated on September 1, 2005, is a tax on spending
or consumption, thus, the burden thereof is ultimately
borne by the end-consumer.


As to the other National Internal Revenue Code (NIRC)

provisions found in Senate Bill No. 1950, i.e., percentage
taxes, franchise taxes, amusement and excise taxes,
these provisions are needed so as to cushion the effects
of VAT on consumers. As we said in our decision, certain
goods and services which were subject to percentage tax
and excise tax would no longer be VAT exempt, thus, the
consumer would be burdened more as they would be

paying the VAT in addition to these taxes. Thus, there is

a need to amend these sections to soften the impact of
VAT. The Court finds no reason to reverse the earlier
ruling that the Senate introduced amendments that are
germane to the subject matter and purposes of the
house bills
Petitioners also reiterate their argument that the input
tax is a property or a property right. In the same breath,
the Court reiterates its finding that it is not a property or
a property right, and a VAT-registered persons
entitlement to the creditable input tax is a mere
statutory privilege.
The right to credit input tax as against the output tax is
clearly a privilege created by law, a privilege that also
the law can limit. It should be stressed that a person
has no vested right in statutory privileges.
But, as the state is free to distribute the burden of a tax
without regard to the particular purpose for which it is
to be used, there is no warrant in the Constitution for
setting the tax aside because a court thinks that it could
have distributed the burden more wisely. Those are
functions reserved for the legislature

even before the prospective violation takes place.

Hence, the evolution of the "clear and present
danger" doctrine and other analogous principles,
without which, the Court would be seen as inutile in
the face of constitutional violation.
o The majority fails to realize that even under the new
E-VAT Law, the State recognizes that the persons
who pre-pay that input VAT, usually the dealers or
retailers, are not the persons who are liable to pay
for the tax. The VAT system, as implemented
through the previous VAT law and the new E-VAT
Law, squarely holds the end consumer as the
taxpayer liable to shoulder the input VAT.
Nonetheless, under the mechanism foisted in the
new E-VAT Law, the dealer or retailer who pre-pays
the input VAT is virtually precluded from recovering
the pre-paid input VAT, since the law only allows
such recovery upon the cessation of the business.
Indeed, the only way said class of taxpayers can
recover this pre-paid input VAT was if it were to
cease operations at the end of every quarter.
It is not true then that the input VAT prepaid for the first
quarter can be recovered in the second, third or fourth
quarter of that year, or at any time in the next year for
that matter since the amount of prepaid input VAT
accumulates with every succeeding prepayment of input
VAT. Moreover, the accumulation of the prepaid input VAT
diminishes the actual value of the refundable amounts,
considering the established principle of "time-value of
money", as explained in my Dissenting Opinion.


Justice Tinga: The majority again dismisses the

arguments of the petitioners as "theoretical",
"conjectural" or merely "anticipatory," notwithstanding
that the injury to the taxpayers resulting from Section 8
and 12 of the E-VAT Law is ascertainable with
mathematical certainty.
o As I maintained in my Dissenting Opinion, a tax
measure may be validly challenged and stricken
down even before its implementation if it poses a
clear and present danger to the deprivation of life,
liberty or property of the taxpayer without due
process of law. This is the expectation of every
citizen who wishes to maintain trust in all the
branches of government. In the enforcement of the
commonsense expectation is that the Court, as
guardian of these rights, is empowered to step in





Business companies registered in and operating from

the Special Economic Zone in Naga, Cebu like herein
respondent are entities exempt from all internal
revenue taxes and the implementing rules relevant
thereto, including the value-added taxes or VAT.
exempt transactions, they are nonetheless zero-rated.
Hence, in the present case, the distinction between

exempt entities and

exempt transactions has
significance, because the net result is that the
taxpayer is not liable for the VAT. Respondent, a VATregistered enterprise, has complied with all requisites
for claiming a tax refund of or credit for the input VAT it
paid on capital goods it purchased. Thus, the Court of
Tax Appeals and the Court of Appeals did not err in
ruling that it is entitled to such refund or credit.
[Respondent] is a resident foreign corporation duly
registered with the Securities and
Commission to do business in the Philippines, with
principal office address at the new Cebu Township One,
Special Economic Zone, Barangay Cantao-an, Naga,
2. [Petitioner] is sued in his official capacity, having
been duly appointed and empowered to perform the
duties of his office, including, among others, the duty
to act and approve claims for refund or tax credit;
3. [Respondent] is registered with the Philippine Export
Zone Authority (PEZA) and has been issued PEZA
Certificate No. 97-044 pursuant to Presidential Decree
No. 66, as amended, to engage in the manufacture of
recording components primarily used in computers for
export. Such registration was made on 6 June 1997;

4. [Respondent] is VAT [(Value Added Tax)]-registered

entity as evidenced by VAT Registration Certification
No. 97-083-000600-V issued on 2 April 1997;

5. VAT returns for the period 1 April 1998 to 30 June

1999 have been filed by [respondent];

6. An administrative claim for refund of VAT input taxes

in the amount of P28,369,226.38 with supporting
documents (inclusive of the P12,267,981.04 VAT input
taxes subject of this Petition for Review), was filed on 4
October 1999 with Revenue District Office No. 83,
Talisay Cebu;

7. No final action has been received by [respondent]

from [petitioner] on [respondent's] claim for VAT

Claims for tax refund/tax credit are construed in

'strictissimi juris' against the taxpayer. This is due to
the fact that claims for refund/credit [partake of] the
nature of an exemption from tax. Thus, it is incumbent
upon the [respondent] to prove that it is indeed
entitled to the refund/credit sought. Failure on the part
of the [respondent] to prove the same is fatal to its
claim for tax credit. He who claims exemption must be
able to justify his claim by the clearest grant of organic
or statutory law. An exemption from the common
burden cannot be permitted to exist upon vague


The CA affirmed the Decision of the CTA granting

the claim for refund or issuance of a tax credit
certificate (TCC) in favor of respondent in the
reduced amount of P12,122,922.66
Respondent was, therefore, considered exempt only
from the payment of income tax when it opted for
the income tax holiday in lieu of the 5 percent
preferential tax on gross income earned. As a VATregistered entity, though, it was still subject to the
payment of other national internal revenue taxes,
like the VAT
Having paid the input VAT on the capital goods it
administrative and judicial claims for its refund
within the two-year prescriptive period. Such
payments were to the extent of the refundable
value duly supported by VAT invoices or official
receipts, and were not yet offset against any output
VAT liability.