University of the Philippines College of Law

EAG III, 1-D

Topic Separation of Powers; General Principles; Delegation of Powers

Case No. GR No. 168056; Sept 1, 2005 and Oct 18, 2005
Case Name Abakada Guro vs. Ermita
Ponente AUSTRIA-MARTINEZ, j.

FACTS

R.A. No. 9337 (VAT Reform Act) is a consolidation of three legislative bills namely, House Bill Nos. 3555 and 3705,
and Senate Bill No. 1950.
April 13, 2005 - the Senate agreed to the request of the HRep for a committee conference on the disagreeing
provisions of the proposed bills.
May 10-11, 2005 the Senate and the HRep approved the report of the Conference Committee on the Disagreeing
Provisions of House Bill No. 3555, House Bill No. 3705, and Senate Bill No. 1950, "after having met and discussed in
full free and conference"
May 23, 2005 - the enrolled copy of the consolidated House and Senate version was transmitted to the President,
who signed the same into law on May 24, 2005. Thus, came R.A. No. 9337.
July 1, 2005 Upon effectivity of R.A. No. 9337, the Court issued a temporary restraining order, effective immediately
and continuing until further orders, enjoining respondents from enforcing and implementing the law, because of the
confusion in its implementation.
May 27, 2005 - Before RA 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition for
prohibition arguing that the law is unconstitutional, specifically Sections 4, 5 and 6 of RA 9337, amending Sections
106, 107 and 108, respectively, of the National Internal Revenue Code (NIRC).
o Section 4 imposes a 10% VAT(Value-added Tax) on sale of goods and properties
o Section 5 imposes a 10% VAT on importation of goods, and
o Section 6 imposes a 10% VAT on sale of services and use or lease of properties.
These questioned provisions (Sec 4-6) contain a uniform proviso authorizing the President, upon recommendation
of the Secretary of Finance, to raise the VAT rate to 12% (which is an undue delegation of legislative power), effective
Jan 1, 2006, after any of the ff. conditions have been satisfied
o VAT collection as a percentage of GDP of the previous year exceeds 2 4/5% (two and four/fifths %) or
o National government deficit as a percentage of GDP of the previous year exceeds 1.5% (one and a half %)
Petitioners (ABAKADA GURO Party list) argued that this is unconstitutional as it constitutes abandonment by
Congress of its exclusive authority to fix the rate of taxes, granting stand-by authority to the President to increase
VAT rate, under Article VI, Section 28(2) of the Constitution.
Petitioners (HRep Francis Escudero) filed a petition for Certiorari on June 2005 and questions the constitutionality
of RA 9337 specifically in the Bicameral Conference Committee (BCC) that acted without jurisdiction in deleting the
no pass on provisions present in Senate Bill 1950 and 3705; BCCs insertion of several sections on the RA 9337
violates Article VI, Section 24(1) of the Constitution.
Respondents contend that RA 9337 enjoys the presumption of constitutionality and petitioners failed to cast doubt
on its validity.

ISSUE

Whether/not RA 9337 granting the standby authority to the executive to increase the rate of the VAT
upon recommendation of the Secretary of Finance constitutes undue delegation of legislative power.
 University of the Philippines College of Law
EAG III, 1-D

RATIO DECIDENDI

The powers which Congress is prohibited from delegating are those which are strictly, or inherently and exclusively,
legislative. Purely legislative power, which can never be delegated, has been described as the authority to make a
complete law complete as to the time when it shall take effect and as to whom it shall be applicable and to determine
the expediency of its enactment.It is the nature of the power, and not the liability of its use or the manner of its exercise,
which determines the validity of its delegation.
The limitations or exceptions are

(1) Delegation of tariff powers to the President under Section 28 (2) of Article VI of the Constitution;

(2) Delegation of emergency powers to the President under Section 23 (2) of Article VI of the
Constitution;

(3) Delegation to the people at large;

(4) Delegation to local governments; and

(5) Delegation to administrative bodies.

For the delegation to be valid the law, must be:

(a) complete in itself, setting forth therein the policy to be executed, carried out, or implemented by
the delegate; and

(b) fixes a sufficient standard which defines legislative policy, marks its limits, maps out its boundaries
and specifies the public agency to apply it. It indicates the circumstances under which the legislative command is
to be effected.

Both tests are intended to prevent a total transference of legislative authority to the delegate, who
is not allowed to step into the shoes of the legislature and exercise a power essentially legislative.

In Edu vs. Ericta, the Court reiterated:

The legislative does not abdicate its functions when it describes what job must be done,
who is to do it, and what is the scope of his authority. For a complex economy, that may be the only
way in which the legislative process can go forward. A distinction has rightfully been made between
delegation of power to make the laws which necessarily involves a discretion as to what it shall be,
which constitutionally may not be done, and delegation of authority or discretion as to its execution
to be exercised under and in pursuance of the law, to which no valid objection can be made

This case is not a delegation of legislative power. It is simply a delegation of ascertainment of facts upon which
enforcement and administration of the increase rate under the law is contingent. The legislature has made the operation of
the 12% rate effective January 1, 2006, contingent upon a specified fact or condition. It leaves the entire operation or non-
operation of the 12% rate upon factual matters outside of the control of the executive.

No discretion would be exercised by the President. Highlighting the absence of discretion is the fact
that the word shall is used in the common proviso. The use of the word shall connotes a mandatory order. Its
use in a statute denotes an imperative obligation and is inconsistent with the idea of discretion.

It is the ministerial duty of the President to immediately impose the 12% rate upon the existence of
any of the conditions specified by Congress. This is a duty which cannot be evaded by the President. It s a clear
directive to impose the 12% VAT rate when the specified conditions are present.

In the present case, in making his recommendation to the President on the existence of either of the
two conditions, the Secretary of Finance is not acting as the alter ego of the President or even her subordinate.
In such instance, he is not subject to the power of control and direction of the President. He is acting as the agent
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EAG III, 1-D

of the legislative department, to determine and declare the event upon which its expressed will is to take effect.

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

Congress does not abdicate its functions or unduly delegate power when it describes what job must
be done, who must do it, and what is the scope of his authority; in our complex economy that is frequently the
only way in which the legislative process can go forward. There is no undue delegation of legislative power but
only of the discretion as to the execution of a law. This is constitutionally permissible. What was delegated was
the mere implementation of the law but not the power to tax

RULING
WHEREFORE, Republic Act No. 9337 not being unconstitutional, the petitions in G.R. Nos. 168056, 168207, 168461, 168463,
and 168730, are hereby DISMISSED.

SEPARATE OPINIONS
DAVIDE, JR., C.J., CONCURRING AND DISSENTING:
Doubtless, the Senate has the constitutional power to concur with the amendments to the VAT provisions introduced in the
House Bills or even to propose its own version of VAT measure. But that power does not extend to initiation of other tax
measures, such as introducing amendments to provisions on corporate income taxes, percentage taxes, franchise taxes, and
excise taxes like what the Senate did in these cases. It was beyond the ambit of the authority of the Senate to propose
amendments to provisions not covered by the House Bills or not related to the subject matter of the House Bills, which is
VAT. To allow the Senate to do so would be tantamount to vesting in it the power to initiate revenue bills -- a power that
exclusively pertains to the House of Representatives under Section 24, Article VI of the Constitution.

The provisions inserted by the Bicameral Conference Committee (BCC), namely, Sections 121 (Percentage Tax on Banks and
Non-Bank Financial Intermediaries) and 151 (Excise Tax on Mineral Products) of the NIRC, as amended, are undoubtedly
germane to SB No. 1950, which introduced amendments to the provisions on percentage and excise taxes -- but foreign to
HB Nos. 3555 and 3705, which dealt with VAT only. Since the proposed amendments in the Senate bill relating to percentage
and excise taxes cannot themselves be sustained because they did not take their root from, or are not related to the subject
of, HB Nos. 3705 and 3555, in violation of Section 24, Article VI of the Constitution, the new provisions inserted by the BCC
on percentage and excise taxes would have no leg to stand on.

I vote to declare R.A. No. 9337 as constitutional insofar as it amends provisions pertaining to VAT. However,
I vote to declare as unconstitutional the amendments that deal with subject matters which were not touched or covered by
the bills emanating from the House of Representatives, thereby violating Section
24 of Article VI of the Constitution.

PUNO, J. CONCURRING AND DISSENTING:

The Bicameral Conference Committee exercised powers that went beyond reconciling the differences between Senate Bill
No. 1950 and House Bill Nos. 3705 and 3555. A Bicameral Conference Committee has limited powers and cannot be allowed
to act as if it were a "third house" of Congress.

Committees of conference are appointed for the sole purpose of compromising and adjusting the differing and conflicting
opinions of the two Houses and the committees of conference alone can grant compromises and modify propositions of
either Houses within the limits of the disagreement. Conferees are limited to the consideration of differences between the
two Houses.

Congress shall not insert in their report matters not committed to them by either House, nor shall they strike from the bill
matters agreed to by both Houses. No matter on which there is nothing in either the Senate or House passed versions of a
bill may be included in the conference report and actions to the contrary would subject the report to a point of order.
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EAG III, 1-D

I respectfully submit that the acts of the Bicameral Conference Committee constitute grave abuse of discretion amounting to
lack or excess of jurisdiction and should be struck down as unconstitutional nullities.

PANGANIBAN, J., CONCURRING AND DISSENTING:

The Bicameral Conference Committee (BCC) is a mere creation of Congress. Hence, the BCC may resolve differences only in
conflicting provisions of congressional bills that are referred to it; and it may do so only on the condition that such resolution
does not violate the origination, the three-reading, and the no-amendment rules of the Constitution.

The BCC blatantly violated the origination and the germaneness principles when it inserted provisions not found in the House
versions of the E-VAT Law: (1) increasing the tax rates on domestic, resident foreign and nonresident foreign corporations;
(2) increasing the tax credit against taxes due from nonresident foreign corporations on intercorporate dividends; and (3)
reducing the allowable deduction for interest expense. Hence, I find these insertions unconstitutional.

YNARES-SANTIAGO, J., CONCURRING AND DISSENTING:

The amendments introduced by the Bicameral Conference Committee which are not found either in the House or Senate
versions of the VAT reform bills, but are inserted merely by the Bicameral Conference Committee and thereafter included in
Republic Act No. 9337, should be declared unconstitutional. The insertions and deletions made do not merely settle
conflicting provisions but materially altered the bill, thus giving rise to the instant petitions.

SANDOVAL GUTIERREZ, J., CONCURRING AND DISSENTING:

The Senate could not, without violating the germaneness rule and the principle of "exclusive origination," propose tax matters
not included in the House Bills.

CALLEJO, SR., J., CONCURRING AND DISSENTING:

Suffice it to say here that serious evils have marked the development of the conference committee system. Despite rules to
the contrary, conferees do not confine themselves to matters in dispute, but often initiate entirely new legislation and even
strike out identical provisions previously approved by both houses.

What happens in practice is that Congress surrenders its legislative function to irresponsible committees of conference. The
standing rules against including new and extraneous matter in conference reports have been gradually whittled away in
recent years by the decisions of presiding officers. Senate riders attached to appropriation bills enable conference
committees to legislate and the House usually accepts them rather than withhold supply.

As a practical proposition we have legislation, then, not by the voice of the members of the Senate, not by the members of
the House of Representatives, but we have legislation by the voice of five or six men.

AZCUNA, J. CONCURRING AND DISSENTING:

I vote to GRANT the petitions to the extent of declaring unconstitutional the provisions in Republic Act. No. 9337 that are not
germane to the subject matter and DENY said petitions as to the rest of the law, which are constitutional.

Tinga, J., DISSENTING:

I agree that any amendment made by the Bicameral Conference Committee that is not germane to the subject matter of the
House or Senate Bills is not valid. It is the only valid ground by which an amendment introduced by the Bicameral Conference
Committee may be judicially stricken.