G.R. No. 168056 - ABAKADA GURO PARTY LIST, ET AL. V.

EXECUTIVE
SECRETARY EDUARDO R. ERMITA, ET AL.

G.R. No. 168207 - AQUILINO PIMENTEL, JR., ET AL. V. EXECUTIVE SECRETARY

EDUARDO ERMITA, ET AL.

G.R. No. 168461 - ASSOCIATION OF PILIPINAS SHELL DEALERS, INC, ET AL. V.

CESAR V. PURISIMA, ET AL.

G.R. No. 168463 - FRANCIS JOSEPH G. ESCUDERO, ET AL. V. CESAR V. PURISIMA,

ET AL.

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SEPARATE CONCURRING

AND DISSENTING OPINION

DAVIDE, JR., C.J.:

While I still hold on to my position expressed in my dissenting opinion in the first VAT cases,1 I
partly yield to the application to the cases at bar of the rule on "germaneness" therein enunciated.
Thus, I concur with the ponencia of my highly-esteemed colleague Mme. Justice Ma. Alicia
Austria-Martinez except as regards its ruling on the issue of whether Republic Act No. 9337
violates Section 24, Article VI of the Constitution.

R.A. No. 9337 primarily aims to restructure the value-added tax (VAT) system by broadening its
base and raising the rate so as to generate more revenues for the government that can assuage the
economic predicament that our country is now facing. This recently enacted law stemmed from
three legislative bills: House Bill (HB) No. 3555, HB No. 3705, and Senate Bill (SB) 1950. The
first (HB No. 3555) called for the amendment of Sections 106, 107, 108, 109, 110, and 111 of
the National Internal Revenue Code (NIRC) as amended; while the second (HB No. 3705)
proposed amendments to Sections 106, 107, 108, 110, and 114 of the NIRC, as amended. It is
significant to note that all these Sections specifically deal with VAT. And indubitably, these bills
are revenue bills in that they are intended to levy taxes and raise funds for the government.2

On the other hand, SB No. 1950 introduced amendments to "Sections 27, 28, 34, 106, 108, 109,
110, 111, 112, 113, 114, 116, 117, 118, 119, 125, 148, 236, 237, and 288" of the NIRC, as
amended. Among the provisions sought to be amended, only Sections 106, 108, 109, 110, 111,
112, 113, 114, and 116 pertain to VAT. And while Sections 236, 237, and 288 are administrative
provisions pertaining to registration requirements and issuance of receipts commercial invoices,
the proposed amendments thereto are related to VAT. Hence, the proposed amendments to these
Sections were validly taken cognizance of and properly considered by the Bicameral Conference
Committee (BCC).
However, I am of the opinion that the inclusion into the law of the amendments proposed in SB
No. 1950 to the following provisions (with modifications on the rates of taxes) is invalid.

Provision Subject matter

Section 27 Rate of income tax on domestic corporations

Section 28(A)(1) Rate of income tax on resident foreign corporation

Section 28(B)(1) Rate of income tax on non-resident foreign corporation

Section 28(B)(5-b) Rate of income tax on intra-corporate dividends received by non-resident

foreign corporation

Section 34(B)(1) Deductions from gross income

Section 117 Percentage tax on domestic carriers and keepers of garages

Section 119 Tax on franchises

Section 148 Excise tax on manufactured oils and other fuels

Obviously, these provisions do not deal with VAT. It must be noted that the House Bills initiated
amendments to provisions pertaining to VAT only. 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, which provides:

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

Moreover, Sections 121 (Percentage Tax on Banks and Non-Bank Financial Intermediaries) and
151 (Excise Tax on Mineral Products) of the NIRC, as amended, have been included by the BCC
in R.A. N0. 9337 even though they were not found in the Senate and House Bills.

In Philippine Judges Association v. Prado,3 the Court described the function of a conference
committee in this wise: "A conference committee may deal generally with the subject matter or it
may be limited to resolving the precise differences between the two houses. Even where the
conference committee is not by rule limited in its jurisdiction, legislative custom severely limits
the freedom with which new subject matter can be inserted into the conference bill."

The limitation on the power of a conference committee to insert new provisions was laid down in
Tolentino v. Secretary of Finance.4 There, the Court, while recognizing the power of a
conference committee to include in its report an entirely new provision that is not found either in
the House bill or in the Senate bill, held that the exercise of that power is subject to the condition
that the said provision is "germane to the subject of the House and Senate bills."

As pointed out by the petitioners, Tolentino differs from the present cases in the sense that in that
case the amendments introduced in the Senate bill were on the same subject matter treated in
the House bill, which was VAT, and the new provision inserted by the conference committee had
relation to that subject matter. Specifically, HB No. 11197 called for the (1) amendment of
Sections 99,100,102,103,104,105,106,107, 108, 110, 112,115, 116, 236,237, and 238 of the
NIRC, as amended; and (2) repeal of Sections 113 and 114 of the NIRC, as amended. SB No.
1630, on the other hand, proposed the (1) amendment of Sections 99,100,102,103,104,105,107,
108, 110, 112, 236, 237, and 238 of the NIRC, as amended; and (2) repeal of Sections 113, 114,
and 116 of the NIRC, as amended. In short, all the provisions sought to be changed in the Senate
bill were covered in the House bill. Although the new provisions inserted by the conference
committee were not found in either the House or Senate bills, they were germane to the general
subject of the bills.

In the present cases, the provisions inserted by the 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 understand very well that the amendments of the Senate and the BCC relating to corporate
income, percentage, franchise, and excise taxes were designed to "soften the impact of VAT
measure on the consumer, i.e., by distributing the burden across all sectors instead of putting it
entirely on the shoulders of the consumers" and to alleviate the country’s financial problems by
bringing more revenues for the government. However, these commendable intentions do not
justify a deviation from the Constitution, which mandates that the initiative for filing revenue
bills should come from the House of Representatives, not from the Senate. After all, these aims
may still be realized by means of another bill that may later be initiated by the House of
Representatives.

Therefore, 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 Sections 1, 2, 3, 14, 15, 16,
17, and 18 thereof which, respectively, amend Sections 27, 28, 34, 117, 119, 121, 148, and 151
of the NIRC, as amended because these amendments 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.

HILARIO G. DAVIDE, JR.

Footnotes
1
Tolentino v. Secretary of Finance, G.R. No. 115455, 25 August 1994, 235 SCRA 630,
and companion cases.
2
ISAGANI A. CRUZ, POLITICAL LAW 154 (2002 ed.) citing U.S. v. Nortorn, 91 U.S.
566.
3
G.R. No. 105371, 11 November 1993, 27 SCRA 703, 708, citing Davies, Legislative
Law and Process: In a Nutshell 81 (1986 ed.)
4
Supra note 1.

The Lawphil Project - Arellano Law Foundation

G.R. No. 168056 – ABAKADA GURO PARTY LIST, ET AL. VS. EXECUTIVE
SECRETARY EDUARDO ERMITA, ET AL.

G.R. No. 168207 – AQUILINO PIMENTEL, JR., ET AL. VS. EXECUTIVE SECRETARY
EDUARDO ERMITA, ET AL.

G.R. No. 168461 – ASSOCIATION OF PILIPINAS SHELL DEALERS, INC., ET AL. VS.
CESAR V. PURISIMA, ET AL.

G.R. No. 168463 – FRANCIS JOSEPH G. ESCUDERO, ET AL. VS. CESAR V.

PURISIMA, ET AL.

Promulgated: September 1, 2005

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CONCURRING AND

DISSENTING OPINION

PUNO, J.:
The main opinion of Madam Justice Martinez exhaustively discusses the numerous constitutional
and legal issues raised by the petitioners. Be that as it may, I wish to raise the following points,
viz:

First. Petitioners assail sections 4 to 6 of Republic Act No. 9337 as violative of the principle of
non-delegation of legislative power. These sections authorize the President, upon
recommendation of the Secretary of Finance, to raise the value-added tax (VAT) rate to 12%
effective January 1, 2006, upon satisfaction of the following conditions: viz:

(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous
year exceeds two and four-fifth percent (2 4/5%); or

(ii) National government deficit as a percentage of GDP of the previous year exceeds one and
one-half percent (1 ½%).

The power of judicial review under Article VIII, section 5(2) of the 1987 Constitution is limited
to the review of "actual cases and controversies."1 As rightly stressed by retired Justice Vicente
V. Mendoza, this requirement gives the judiciary "the opportunity, denied to the legislature, of
seeing the actual operation of the statute as it is applied to actual facts and thus enables it to
reach sounder judgment" and "enhances public acceptance of its role in our system of
government."2 It also assures that the judiciary does not intrude on areas committed to the other
branches of government and is confined to its role as defined by the Constitution.3 Apposite
thereto is the doctrine of ripeness whose basic rationale is "to prevent the courts, through
premature adjudication, from entangling themselves in abstract disagreements."4 Central to the
doctrine is the determination of "whether the case involves uncertain or contingent future
events that may not occur as anticipated, or indeed may not occur at all."5 The ripeness
requirement must be satisfied for each challenged legal provision and parts of a statute so that
those which are "not immediately involved are not thereby thrown open for a judicial
determination of constitutionality."6

It is manifest that the constitutional challenge to sections 4 to 6 of R.A. No. 9337 cannot hurdle
the requirement of ripeness. These sections give the President the power to raise the VAT
rate to 12% on January 1, 2006 upon satisfaction of certain fact-based conditions. We are
not endowed with the infallible gift of prophesy to know whether these conditions are certain to
happen. The power to adjust the tax rate given to the President is futuristic and may or may not
be exercised. The Court is therefore beseeched to render a conjectural judgment based on
hypothetical facts. Such a supplication has to be rejected.

Second. With due respect, I submit that the most important constitutional issue posed by the
petitions at bar relates to the parameters of power of a Bicameral Conference Committee.
Most of the issues in the petitions at bar arose because the Bicameral Conference Committee
concerned exercised powers that went beyond reconciling the differences between Senate Bill
No. 1950 and House Bill Nos. 3705 and 3555. In Tolentino v. Secretary of Finance,7 I ventured
the view that a Bicameral Conference Committee has limited powers and cannot be allowed to
act as if it were a "third house" of Congress. I further warned that unless its roving powers are
reigned in, a Bicameral Conference Committee can wreck the lawmaking process which is a
cornerstone of the democratic, republican regime established in our Constitution. The passage of
time fortifies my faith that there ought to be no legal u-turn on this preeminent principle. I wish,
therefore, to reiterate my reasons for this unbending view, viz:8

Section 209, Rule XII of the Rules of the Senate provides:

In the event that the Senate does not agree with the House of Representatives on the provision of
any bill or joint resolution, the differences shall be settled by a conference committee of both
Houses which shall meet within ten days after their composition.

Each Conference Committee Report shall contain a detailed and sufficiently explicit statement of
the changes in or amendments to the subject measure, and shall be signed by the conferees.
(Emphasis supplied)

The counterpart rule of the House of Representatives is cast in near identical language. Section
85 of the Rules of the House of Representatives pertinently provides:

In the event that the House does not agree with the Senate on the amendments to any bill or joint
resolution, the differences may be settled by a conference committee of both chambers.

x x x. Each report shall contain a detailed, sufficiently explicit statement of the changes in or
amendments to the subject measure. (Emphasis supplied)

The Jefferson’s Manual has been adopted as a supplement to our parliamentary rules and
practice. Section 456 of Jefferson’s Manual similarly confines the powers of a conference
committee, viz:

The managers of a conference must confine themselves to the differences committed to them …
and may not include subjects not within the disagreements, even though germane to a question in
issue.

This rule of antiquity has been honed and honored in practice by the Congress of the United
States. Thus, it is chronicled by Floyd Biddick, Parliamentarian Emeritus of the United States
Senate, viz:

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. (Emphasis ours)
In fine, there is neither a sound nor a syllable in the Rules of the Senate and the House of
Representatives to support the thesis of the respondents that a bicameral conference committee is
clothed with an ex post veto power.

But the thesis that a Bicameral Conference Committee can wield ex post veto power does not
only contravene the rules of both the Senate and the House. It wages war against our settled
ideals of representative democracy. For the inevitable, catastrophic effect of the thesis is to
install a Bicameral Conference Committee as the Third Chamber of our Congress, similarly
vested with the power to make laws but with the dissimilarity that its laws are not the subject of a
free and full discussion of both Houses of Congress. With such a vagrant power, a Bicameral
Conference Committee acting as a Third Chamber will be a constitutional monstrosity.

It needs no omniscience to perceive that our Constitution did not provide for a Congress
composed of three chambers. On the contrary, section 1, Article VI of the Constitution provides
in clear and certain language: "The legislative power shall be vested in the Congress of the
Philippines which shall consist of a Senate and a House of Representatives …" Note that in
vesting legislative power exclusively to the Senate and the House, the Constitution used the word
"shall." Its command for a Congress of two houses is mandatory. It is not mandatory sometimes.

In vesting legislative power to the Senate, the Constitution means the Senate "… composed of
twenty-four Senators xxx elected at large by the qualified voters of the Philippines …" Similarly,
when the Constitution vested the legislative power to the House, it means the House "…
composed of not more than two hundred and fifty members xxx who shall be elected from
legislative districts xxx and those who xxx shall be elected through a party-list system of
registered national, regional, and sectoral parties or organizations." The Constitution thus, did
not vest on a Bicameral Conference Committee with an ad hoc membership the power to
legislate for it exclusively vested legislative power to the Senate and the House as co-equal
bodies. To be sure, the Constitution does not mention the Bicameral Conference Committees of
Congress. No constitutional status is accorded to them. They are not even statutory creations.
They owe their existence from the internal rules of the two Houses of Congress. Yet, respondents
peddle the disconcerting idea that they should be recognized as a Third Chamber of Congress
and with ex post veto power at that.

The thesis that a Bicameral Conference Committee can exercise law making power with ex post
veto power is freighted with mischief. Law making is a power that can be used for good or for
ill, hence, our Constitution carefully laid out a plan and a procedure for its exercise. Firstly, it
vouchsafed that the power to make laws should be exercised by no other body except the Senate
and the House. It ought to be indubitable that what is contemplated is the Senate acting as a full
Senate and the House acting as a full House. It is only when the Senate and the House act as
whole bodies that they truly represent the people. And it is only when they represent the people
that they can legitimately pass laws. Laws that are not enacted by the people’s rightful
representatives subvert the people’s sovereignty. Bicameral Conference Committees, with their
ad hoc character and limited membership, cannot pass laws for they do not represent the people.
The Constitution does not allow the tyranny of the majority. Yet, the respondents will impose the
worst kind of tyranny – the tyranny of the minority over the majority. Secondly, the Constitution
delineated in deft strokes the steps to be followed in making laws. The overriding purpose of
these procedural rules is to assure that only bills that successfully survive the searching scrutiny
of the proper committees of Congress and the full and unfettered deliberations of both Houses
can become laws. For this reason, a bill has to undergo three (3) mandatory separate readings in
each House. In the case at bench, the additions and deletions made by the Bicameral Conference
Committee did not enjoy the enlightened studies of appropriate committees. It is meet to note
that the complexities of modern day legislations have made our committee system a significant
part of the legislative process. Thomas Reed called the committee system as "the eye, the ear, the
hand, and very often the brain of the house." President Woodrow Wilson of the United States
once referred to the government of the United States as "a government by the Chairmen of the
Standing Committees of Congress …" Neither did these additions and deletions of the Bicameral
Conference Committee pass through the coils of collective deliberation of the members of the
two Houses acting separately. Due to this shortcircuiting of the constitutional procedure of
making laws, confusion shrouds the enactment of R.A. No. 7716. Who inserted the additions and
deletions remains a mystery. Why they were inserted is a riddle. To use a Churchillian phrase,
lawmaking should not be a riddle wrapped in an enigma. It cannot be, for Article II, section 28 of
the Constitution mandates the State to adopt and implement a "policy of full public disclosure of
all its transactions involving public interest." The Constitution could not have contemplated a
Congress of invisible and unaccountable John and Mary Does. A law whose rationale is a riddle
and whose authorship is obscure cannot bind the people.

All these notwithstanding, respondents resort to the legal cosmetology that these additions and
deletions should govern the people as laws because the Bicameral Conference Committee Report
was anyway submitted to and approved by the Senate and the House of Representatives. The
submission may have some merit with respect to provisions agreed upon by the Committee in the
process of reconciling conflicts between S.B. No. 1630 and H.B. No. 11197. In these instances,
the conflicting provisions had been previously screened by the proper committees, deliberated
upon by both Houses and approved by them. It is, however, a different matter with respect to
additions and deletions which were entirely new and which were made not to reconcile
inconsistencies between S.B. No. 1630 and H.B. No. 11197. The members of the Bicameral
Conference Committee did not have any authority to add new provisions or delete provisions
already approved by both Houses as it was not necessary to discharge their limited task of
reconciling differences in bills. At that late stage of law making, the Conference Committee
cannot add/delete provisions which can become laws without undergoing the study and
deliberation of both chambers given to bills on 1st, 2nd, and 3rd readings. Even the Senate and
the House cannot enact a law which will not undergo these mandatory three (3) readings required
by the Constitution. If the Senate and the House cannot enact such a law, neither can the lesser
Bicameral Conference Committee.

Moreover, the so-called choice given to the members of both Houses to either approve or
disapprove the said additions and deletions is more of an optical illusion. These additions and
deletions are not submitted separately for approval. They are tucked to the entire bill. The vote is
on the bill as a package, i.e., together with the insertions and deletions. And the vote is either
"aye" or "nay," without any further debate and deliberation. Quite often, legislators vote "yes"
because they approve of the bill as a whole although they may object to its amendments by the
Conference Committee. This lack of real choice is well observed by Robert Luce:
Their power lies chiefly in the fact that reports of conference committees must be accepted
without amendment or else rejected in toto. The impulse is to get done with the matter and so the
motion to accept has undue advantage, for some members are sure to prefer swallowing
unpalatable provisions rather than prolong controversy. This is the more likely if the report
comes in the rush of business toward the end of a session, when to seek further conference might
result in the loss of the measure altogether. At any time in the session there is some risk of such a
result following the rejection of a conference report, for it may not be possible to secure a second
conference, or delay may give opposition to the main proposal chance to develop more strength.

In a similar vein, Prof. Jack Davies commented that "conference reports are returned to assembly
and Senate on a take-it or leave-it-basis, and the bodies are generally placed in the position that
to leave-it is a practical impossibility." Thus, he concludes that "conference committee action is
the most undemocratic procedure in the legislative process."

The respondents also contend that the additions and deletions made by the Bicameral Conference
Committee were in accord with legislative customs and usages. The argument does not persuade
for it misappreciates the value of customs and usages in the hierarchy of sources of legislative
rules of procedure. To be sure, every legislative assembly has the inherent right to promulgate its
own internal rules. In our jurisdiction, Article VI, section 16(3) of the Constitution provides that
"Each House may determine the rules of its proceedings x x x." But it is hornbook law that the
sources of Rules of Procedure are many and hierarchical in character. Mason laid them down as
follows:

xxx

1. Rules of Procedure are derived from several sources. The principal sources are as follows:

a. Constitutional rules.

b. Statutory rules or charter provisions.

c. Adopted rules.

d. Judicial decisions.

e. Adopted parliamentary authority.

f. Parliamentary law.

g. Customs and usages.

2. The rules from the different sources take precedence in the order listed above except that
judicial decisions, since they are interpretations of rules from one of the other sources, take the
same precedence as the source interpreted. Thus, for example, an interpretation of a
constitutional provision takes precedence over a statute.
3. Whenever there is conflict between rules from these sources the rule from the source listed
earlier prevails over the rule from the source listed later. Thus, where the Constitution requires
three readings of bills, this provision controls over any provision of statute, adopted rules,
adopted manual, or of parliamentary law, and a rule of parliamentary law controls over a local
usage but must give way to any rule from a higher source of authority. (Emphasis ours)

As discussed above, the unauthorized additions and deletions made by the Bicameral Conference
Committee violated the procedure fixed by the Constitution in the making of laws. It is
reasonless for respondents therefore to justify these insertions as sanctioned by customs and
usages.

Finally, respondents seek sanctuary in the conclusiveness of an enrolled bill to bar any judicial
inquiry on whether Congress observed our constitutional procedure in the passage of R.A. No.
7716. The enrolled bill theory is a historical relic that should not continuously rule us from the
fossilized past. It should be immediately emphasized that the enrolled bill theory originated in
England where there is no written constitution and where Parliament is supreme. In this
jurisdiction, we have a written constitution and the legislature is a body of limited powers.
Likewise, it must be pointed out that starting from the decade of the 40s, even American courts
have veered away from the rigidity and unrealism of the conclusiveness of an enrolled bill. Prof.
Sutherland observed:

xxx

Where the failure of constitutional compliance in the enactment of statutes is not discoverable
from the face of the act itself but may be demonstrated by recourse to the legislative journals,
debates, committee reports or papers of the governor, courts have used several conflicting
theories with which to dispose of the issue. They have held: (1) that the enrolled bill is
conclusive and like the sheriff’s return cannot be attacked; (2) that the enrolled bill is prima facie
correct and only in case the legislative journal shows affirmative contradiction of the
constitutional requirement will the bill be held invalid; (3) that although the enrolled bill is prima
facie correct, evidence from the journals, or other extrinsic sources is admissible to strike the bill
down; (4) that the legislative journal is conclusive and the enrolled bills is valid only if it accords
with the recital in the journal and the constitutional procedure.

Various jurisdictions have adopted these alternative approaches in view of strong dissent and
dissatisfaction against the philosophical underpinnings of the conclusiveness of an enrolled bill.
Prof. Sutherland further observed:

x x x. Numerous reasons have been given for this rule. Traditionally, an enrolled bill was "a
record" and as such was not subject to attack at common law. Likewise, the rule of
conclusiveness was similar to the common law rule of the inviolability of the sheriff’s return.
Indeed, they had the same origin, that is, the sheriff was an officer of the king and likewise the
parliamentary act was a regal act and no official might dispute the king’s word. Transposed to
our democratic system of government, courts held that as the legislature was an official branch of
government the court must indulge every presumption that the legislative act was valid. The
doctrine of separation of powers was advanced as a strong reason why the court should treat the
acts of a co-ordinate branch of government with the same respect as it treats the action of its own
officers; indeed, it was thought that it was entitled to even greater respect, else the court might be
in the position of reviewing the work of a supposedly equal branch of government. When these
arguments failed, as they frequently did, the doctrine of convenience was advanced, that is, that
it was not only an undue burden upon the legislature to preserve its records to meet the attack of
persons not affected by the procedure of enactment, but also that it unnecessarily complicated
litigation and confused the trial of substantive issues.

Although many of these arguments are persuasive and are indeed the basis for the rule in many
states today, they are not invulnerable to attack. The rule most relied on – the sheriff’s return or
sworn official rule – did not in civil litigation deprive the injured party of an action, for always
he could sue the sheriff upon his official bond. Likewise, although collateral attack was not
permitted, direct attack permitted raising the issue of fraud, and at a later date attack in equity
was also available; and that the evidence of the sheriff was not of unusual weight was
demonstrated by the fact that in an action against the sheriff no presumption of its authenticity
prevailed.

The argument that the enrolled bill is a "record" and therefore unimpeachable is likewise
misleading, for the correction of records is a matter of established judicial procedure.
Apparently, the justification is either the historical one that the king’s word could not be
questioned or the separation of powers principle that one branch of the government must treat as
valid the acts of another.

Persuasive as these arguments are, the tendency today is to avoid reaching results by artificial
presumptions and thus it would seem desirable to insist that the enrolled bill stand or fall on the
basis of the relevant evidence which may be submitted for or against it. (Emphasis ours)

Thus, as far back as the 1940s, Prof. Sutherland confirmed that "x x x the tendency seems to be
toward the abandonment of the conclusive presumption rule and the adoption of the third rule
leaving only a prima facie presumption of validity which may be attacked by any authoritative
source of information.

Third. I respectfully submit that it is only by strictly following the contours of powers of a
Bicameral Conference Committee, as delineated by the rules of the House and the Senate, that
we can prevent said Committee from acting as a "third" chamber of Congress. Under the clear
rules of both the Senate and House, its power can go no further than settling differences in
their bills or joint resolutions. Sections 88 and 89, Rule XIV of the Rules of the House of
Representatives provide as follows:

Sec. 88. Conference Committee. – In the event that the House does not agree with the Senate on
the amendment to any bill or joint resolution, the differences may be settled by the conference
committees of both chambers.

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

Sec. 89. Conference Committee Reports. - . . . Each report shall contain a detailed, sufficiently
explicit statement of the changes in or amendments to the subject measure.

...

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

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

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

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

The House rule brightlines the following: (1) the power of the Conference Committee is limited
. . . it is only to settle differences with the Senate; (2) if the differences are substantial, the
Committee must report to the House for the latter’s appropriate action; and (3) the Committee
report has to be voted upon in the same manner and procedure as a bill on third and final reading.
Similarly, the Senate rule underscores in crimson that (1) the power of the Committee is limited
- - - to settle differences with the House; (2) it can make changes or amendments only in the
discharge of this limited power to settle differences with the House; and (3) the changes or
amendments are merely recommendatory for they still have to be approved by the Senate.

Under both rules, it is obvious that a Bicameral Conference Committee is a mere agent of the
House or the Senate with limited powers. The House contingent in the Committee cannot, on
its own, settle differences which are substantial in character. If it is confronted with
substantial differences, it has to go back to the chamber that created it "for the latter’s
appropriate action." In other words, it must take the proper instructions from the chambers that
created it. It cannot exercise its unbridled discretion. Where there is no difference between
the bills, it cannot make any change. Where the difference is substantial, it has to return to the
chamber of its origin and ask for appropriate instructions. It ought to be indubitable that it
cannot create a new law, i.e., that which has never been discussed in either chamber of
Congress. Its parameters of power are not porous, for they are hedged by the clear limitation
that its only power is to settle differences in bills and joint resolutions of the two chambers of
Congress.
Fourth. Prescinding from these premises, I respectfully submit that the following 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, viz:

a. Its deletion of the pro poor "no pass on provision" which is common in both Senate Bill No.
1950 and House Bill No. 3705.

Sec. 1 of House Bill No. 37059 provides:

Section 106 of the National Internal Revenue Code of 1997, as amended, is hereby further
amended to read as follows:

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

xxx

Provided, further, that notwithstanding the provision of the second paragraph of Section 105 of
this Code, the Value-added Tax herein levied on the sale of petroleum products under
Subparagraph (1) hereof shall be paid and absorbed by the sellers of petroleum products who
shall be prohibited from passing on the cost of such tax payments, either directly or
indirectly[,] to any consumer in whatever form or manner, it being the express intent of this
act that the Value-added Tax shall be borne and absorbed exclusively by the sellers of petroleum
products x x x.

Sec. 3 of the same House bill provides:

Section 108 of the National Internal Revenue Code of 1997, as amended, is hereby further
amended to read as follows:

Sec. 108. Value-added Tax on Sale of Goods or Properties. –

Provided, further, that notwithstanding the provision of the second paragraph of Section 105 of
this Code, the Value-added Tax imposed under this paragraph shall be paid and absorbed by the
subject generation companies who shall be prohibited from passing on the cost of such tax
payments, either directly or indirectly[,] to any consumer in whatever form or manner, it
being the express intent of this act that the Value-added Tax shall be borne and absorbed
exclusively [by] the power-generating companies.

In contrast and comparison, Sec. 5 of Senate Bill No. 1950 provides:

Value-added Tax on sale of Services and Use or Lease of Properties. –

x x x Provided, that the VAT on sales of electricity by generation companies, and services of
transmission companies and distribution companies, as well as those of franchise grantees of
electrical utilities shall not apply to residential end-users: Provided, that the Value-added Tax
herein levied shall be absorbed and paid by the generation, transmission and distribution
companies concerned. The said companies shall not pass on such tax payments to
NAPOCOR or ultimately to the consumers, including but not limited to residential end users,
either as costs or in any other form whatsoever, directly or indirectly. x x x.

Even the faintest eye contact with the above provisions will reveal that: (a) both the House bill
and the Senate bill prohibited the passing on to consumers of the VAT on sales of electricity
and (b) the House bill prohibited the passing on to consumers of the VAT on sales of petroleum
products while the Senate bill is silent on the prohibition.

In the guise of reconciling disagreeing provisions of the House and the Senate bills on the matter,
the Bicameral Conference Committee deleted the "no pass on provision" on both the sales
of electricity and petroleum products. This action by the Committee is not warranted by the
rules of either the Senate or the House. As aforediscussed, the only power of a Bicameral
Conference Committee is to reconcile disagreeing provisions in the bills or joint resolutions of
the two houses of Congress. The House and the Senate bills both prohibited the passing on to
consumers of the VAT on sales of electricity. The Bicameral Conference Committee cannot
override this unequivocal decision of the Senate and the House. Nor is it clear that there is a
conflict between the House and Senate versions on the "no pass on provisions" of the VAT on
sales of petroleum products. The House version contained a "no pass on provision" but the
Senate had none. Elementary logic will tell us that while there may be a difference in the two
versions, it does not necessarily mean that there is a disagreement or conflict between the
Senate and the House. The silence of the Senate on the issue cannot be interpreted as an
outright opposition to the House decision prohibiting the passing on of the VAT to the
consumers on sales of petroleum products. Silence can even be conformity, albeit implicit in
nature. But granting for the nonce that there is conflict between the two versions, the conflict
cannot escape the characterization as a substantial difference. The seismic consequence of the
deletion of the "no pass on provision" of the VAT on sales of petroleum products on the ability
of our consumers, especially on the roofless and the shirtless of our society, to survive the
onslaught of spiraling prices ought to be beyond quibble. The rules require that the Bicameral
Conference Committee should not, on its own, act on this substantial conflict. It has to seek
guidance from the chamber that created it. It must receive proper instructions from its principal,
for it is the law of nature that no spring can rise higher than its source. The records of both the
Senate and the House do not reveal that this step was taken by the members of the Bicameral
Conference Committee. They bypassed their principal and ran riot with the exercise of powers
that the rules never bestowed on them.

b. Even more constitutionally obnoxious are the added restrictions on local government’s
use of incremental revenue from the VAT in Section 21 of R.A. No. 9337 which were not
present in the Senate or House Bills. Section 21 of R.A. No. 9337 provides:

Fifty percent of the local government unit’s share from VAT shall be allocated and used
exclusively for the following purposes:

1. Fifteen percent (15%) for public elementary and secondary education to finance the
construction of buildings, purchases of school furniture and in-service teacher trainings;
2. Ten percent (10%) for health insurance premiums of enrolled indigents as a counterpart
contribution of the local government to sustain the universal coverage of the national health
insurance program;

3. Fifteen percent (15%) for environmental conservation to fully implement a comprehensive

national reforestation program; and

4. Ten percent (10%) for agricultural modernization to finance the construction of farm-to-
market roads and irrigation facilities.

Such allocations shall be segregated as separate trust funds by the national treasury and shall be
over and above the annual appropriation for similar purposes.

These amendments did not harmonize conflicting provisions between the constituent bills of
R.A. No. 9337 but are entirely new and extraneous concepts which fall beyond the median
thereof. They transgress the limits of the Bicameral Conference Committee’s authority and must
be struck down.

I cannot therefore subscribe to the thesis of the majority that "the changes introduced by the
Bicameral Conference Committee on disagreeing provisions were meant only to reconcile and
harmonize the disagreeing provisions for it did not inject any idea or intent that is wholly
foreign to the subject embraced by the original provisions."

Fifth. The majority further defends the constitutionality of the above provisions by holding that
"all the changes or modifications were germane to subjects of the provisions referred to it for
reconciliation."

With due respect, it is high time to re-examine the test of germaneness proffered in Tolentino.

The test of germaneness is overly broad and is the fountainhead of mischief for it allows the
Bicameral Conference Committee to change provisions in the bills of the House and the Senate
when they are not even in disagreement. Worse still, it enables the Committee to introduce
amendments which are entirely new and have not previously passed through the coils of scrutiny
of the members of both houses. The Constitution did not establish a Bicameral Conference
Committee that can act as a "third house" of Congress with super veto power over bills passed
by the Senate and the House. We cannot concede that super veto power without wrecking the
delicate architecture of legislative power so carefully laid down in our Constitution. The clear
intent of our fundamental law is to install a lawmaking structure composed only of two houses
whose members would thoroughly debate proposed legislations in representation of the will of
their respective constituents. The institution of this lawmaking structure is unmistakable from
the following provisions: (1) requiring that legislative power shall be vested in a bicameral
legislature;10 (2) providing for quorum requirements;11 (3) requiring that appropriation, revenue
or tariff bills, bills authorizing increase of public debt, bills of local application, and private bills
originate exclusively in the House of Representatives;12 (4) requiring
that bills embrace one subject expressed in the title thereof;13 and (5) mandating that bills
undergo three readings on separate days in each House prior to passage into law and prohibiting
amendments on the last reading thereof.14 A Bicameral Conference Committee with
untrammeled powers will destroy this lawmaking structure. At the very least, it will diminish the
free and open debate of proposed legislations and facilitate the smuggling of what purports to
be laws.

On this point, Mr. Robert Luce’s disconcerting observations are apropos:

"Their power lies chiefly in the fact that reports of conference committees must be accepted
without amendment or else rejected in toto. The impulse is to get done with the matters and so
the motion to accept has undue advantage, for some members are sure to prefer swallowing
unpalatable provisions rather than prolong controversy. This is more likely if the report
comes in the rush of business toward the end of the session, when to seek further conference
might result in the loss of the measure altogether. At any time in the session there is some risk of
such a result following the rejection of a conference report, for it may not be possible to secure a
second conference, or delay may give opposition to the main proposal chance to develop more
strength.

xxx xxx xxx

Entangled in a network of rule and custom, the Representative who resents and would resist this
theft of his rights, finds himself helpless. Rarely can be vote, rarely can he voice his mind, in the
matter of any fraction of the bill. Usually he cannot even record himself as protesting against
some one feature while accepting the measure as whole. Worst of all, he cannot by argument or
suggested change, try to improve what the other branch has done.

This means more than the subversion of individual rights. It means to a degree the
abandonment of whatever advantage the bicameral system may have. By so much it in
effect transfers the lawmaking power to small group of members who work out in private a
decision that almost always prevails. What is worse, these men are not chosen in a way to
ensure the wisest choice. It has become the practice to name as conferees the ranking members
of the committee, so that the accident of seniority determines. Exceptions are made, but in
general it is not a question of who are most competent to serve. Chance governs, sometimes
giving way to favor, rarely to merit.

xxx xxx xxx

Speaking broadly, the system of legislating by conference committee is unscientific and

therefore defective. Usually it forfeits the benefit of scrutiny and judgment by all the wisdom
available. Uncontrolled, it is inferior to that process by which every amendment is secured
independent discussion and vote. . . ."15

It cannot be overemphasized that in a republican form of government, laws can only be enacted
by all the duly elected representatives of the people. It cuts against conventional wisdom in
democracy to lodge this power in the hands of a few or in the claws of a committee. It is for
these reasons that the argument that we should overlook the excesses of the Bicameral
Conference Committee because its report is anyway approved by both houses is a futile attempt
to square the circle for an unconstitutional act is void and cannot be redeemed by any subsequent
ratification.

Neither can we shut our eyes to the unconstitutional acts of the Bicameral Conference
Committee by holding that the Court cannot interpose its checking powers over mere violations
of the internal rules of Congress. In Arroyo, et al. v. de Venecia, et al.,16 we ruled that when the
violations affect private rights or impair the Constitution, the Court has all the power, nay,
the duty to strike them down.

In conclusion, I wish to stress that this is not the first time nor will it be last that arguments will
be foisted for the Court to merely wink at assaults
on the Constitution on the ground of some national interest, sometimes clear and at other times
inchoate. To be sure, it cannot be gainsaid that the country is in the vortex of a financial crisis.
The broadsheets scream the disconcerting news that our debt payments for the year 2006 will
exceed Pph1 billion daily for interest alone. Experts underscore some factors that will further
drive up the debt service expenses such as the devaluation of the peso, credit downgrades and a
spike in interest rates.17 But no doomsday scenario will ever justify the thrashing of the
Constitution. The Constitution is meant to be our rule both in good times as in bad times. It is the
Court’s uncompromising obligation to defend the Constitution at all times lest it be condemned
as an irrelevant relic.

WHEREFORE, I concur with the majority but dissent on the following points:

a) I vote to withhold judgment on the constitutionality of the "standby authority" in Sections 4 to

6 of Republic Act No. 9337 as this issue is not ripe for adjudication.;

b) I vote to declare unconstitutional the deletion by the Bicameral Conference Committee of the
pro poor "no pass on provision" on electricity to residential consumers as it contravened the
unequivocal intent of both Houses of Congress; and

c) I vote to declare Section 21 of Republic Act No. 9337 as unconstitutional as it contains

extraneous provisions not found in its constituent bills.

REYNATO S. PUNO

Associate Justice

Footnotes
1
Angara v. Electoral Commission, 63 Phil. 139 (1936); See also Tribe, American
Constitutional Law, pp. 311-314 (3rd ed.).
2
Mendoza, Judicial Review of Constitutional Questions: Cases and Materials, p. 86
(2004).
3
Id. at 87.
4
Abbott Laboratories v. Gardner, 387 U.S. 136 (1967); I Tribe, American Constitutional
Law, p. 334 (3rd ed.).
5
Texas v. United States, 523 U.S. 296 (1998); Thomas v. Union Carbide Agricultural
Products Co., 473 U.S. 568 (1985); I Tribe, American Constitutional Law, pp. 335-336
(3rd ed.).
6
Communist Party of the United States v. Subversive Activities Control Bd., 367 U.S. 1,
71 (1961); I Tribe, American Constitutional Law, p. 336 (3rd ed.); See also concurring
opinion of Justice Brandeis in Ashwander v. Tennessee Valley Authority, 297 U.S. 288
(1936).
7
235 SCRA 630 (1994).
8
See Opinion in 235 SCRA 630, 805-825.
9
H.B. No. 3555 has no "no pass on provision." House Bill No. 3705 expresses the latest
intent of the House on the matter.
10
1 Sutherland Statutory Construction § 6:2 (6th ed.): The provision requiring that
legislative power shall be vested in a bicameral legislature seeks to "assure sound
judgment that comes from separate deliberations and actions in the respective bodies that
check and balance each other."
11
Const., Article VI, Section 16(2) (1987): "(2) A majority of each House shall constitute
a quorum to do business, but a smaller number may adjourn from day to day and may
compel the attendance of absent Members in such manner, and under such penalties, as
such House may provide."
12
Const., Article VI, Section 24 (1987); 1 Sutherland Statutory Construction § 9:6 (6th
ed.): The provision helps guarantee that the exercise of the taxing power is well studied
as the lower house is "presumably more representative in character."
13
Const., Article VI, Section 26(1) (1987); I Cooley, A Treatise on Constitutional
Limitations, p. 143; Central Capiz v. Ramirez, 40 Phil. 883 (1920): "In the construction
and application of this constitutional restriction the courts have kept steadily in view the
correction of the mischief against which it was aimed. The object is to prevent the
practice, which was common in all legislative bodies where no such restrictions existed
of embracing in the same bill incongruous matters having no relation to each other or to
the subject specified in the title, by which measures were often adopted without attracting
attention. Such distinct subjects represented diverse interests, and were combined in order
to unite the members of the legislature who favor either in support of all. These
combinations were corruptive of the legislature and dangerous to the State. Such omnibus
 bills sometimes included more than a hundred sections on as many different subjects,
with a title appropriate to the first section, and for other purposes."

"The failure to indicate in the title of the bill the object intended to be accomplished by
the legislation often resulted in members voting ignorantly for measures which they
would not knowingly have approved; and not only were legislators thus misled, but the
public also; so that legislative provisions were steadily pushed through in the closing
hours of a session, which, having no merit to commend them, would have been made
odious by popular discussion and remonstrance if their pendency had been seasonably
announced. The constitutional clause under discussion is intended to correct these evils;
to prevent such corrupting aggregations of incongruous measures, by confining each act
to one subject or object; to prevent surprise and inadvertence by requiring that subject or
object to be expressed in the title."
14
Const., Article VI, Section 26(2) (1987); 1 Sutherland Statutory Construction § 10:4
(6th ed.); See also IV Laurel, Journal of the (1935) Constitutional Convention, pp. 436-
437, 440-441 where the 1934 Constitutional Convention noted the anomalous legislative
practice of railroading bills on the last day of the legislative year when members of
Congress were eager to go home. By this irregular procedure, legislators were able to
successfully insert matters into bills which would not otherwise stand scrutiny in leisurely
debate; I Cooley, A Treatise on the Constitutional Limitations, pp. 286-287(8th ed.);
Smith v. Mitchell, 69 W.Va 481, 72 S.E. 755 (1911): "The purpose of this provision of
the Constitution is to inform legislators and people of legislation proposed by a bill, and
to prevent hasty legislation."
15
235 SCRA 630, 783-784 citing Luce, Legislative Procedure, pp. 404-405, 407 (1922);
See also Davies, Legislative Law and Process, p. 81 (2nd ed.): "conference reports are
returned to assembly and Senate on a take-it or leave-it-basis, and the bodies are
generally placed in the position that to leave-it is a practical impossibility." Thus, he
concludes that "conference committee action is the most undemocratic procedure in the
legislative process."
16
268 SCRA 269, 289 (1997).
17
The Manila Standard Today, August 26, 2005, p. 1.

The Lawphil Project - Arellano Law Foundation

EN BANC

GR No. 168056 -- ABAKADA GURO PARTY LIST, etc. et al. v. HON. EXECUTIVE
SECRETARY EDUARDO R. ERMITA et al.
GR No. 168207 -- AQUILINO Q. PIMENTEL JR. et al. v. EXECUTIVE SECRETARY
EDUARDO R. ERMITA et al.

GR No. 168461 -- ASSOCIATION OF PILIPINAS SHELL DEALERS, INC., etc. et al. v.

CESAR V. PURISIMA, etc. et al.

GR No. 168463 -- FRANCIS JOSEPH G. ESCUDERO et al. v. CESAR V. PURISIMA etc.,

et al.

GR No. 168730 -- BATAAN GOVERNOR ENRIQUE T. GARCIA JR. v. HON.

EDUARDO R. ERMITA, etc. et al.

Promulgated: September 1, 2005

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

SEPARATE OPINION

PANGANIBAN, J.:

The ponencia written by the esteemed Madame Justice Ma. Alicia Austria-Martinez declares that
the enrolled bill doctrine has been historically and uniformly upheld in our country. Cited as
recent reiterations of this doctrine are the two Tolentino v. Secretary of Finance judgments1 and
Fariñas v. Executive Secretary.2

Precedence of Mandatory

Constitutional Provisions

Over the Enrolled Bill Doctrine

I believe, however, that the enrolled bill doctrine3 is not absolute. It may be all-encompassing in
some countries like Great Britain,4 but as applied to our jurisdiction, it must yield to mandatory
provisions of our 1987 Constitution. The Court can take judicial notice of the form of
government5 in Great Britain.6 It is unlike that in our country and, therefore, the doctrine from
which it originated7 could be modified accordingly by our Constitution.

In fine, the enrolled bill doctrine applies mainly to the internal rules and processes followed by
Congress in its principal duty of lawmaking. However, when the Constitution imposes certain
conditions, restrictions or limitations on the exercise of congressional prerogatives, the judiciary
has both the power and the duty to strike down congressional actions that are done in plain
contravention of such conditions, restrictions or limitations.8 Insofar as the present case is
concerned, the three most important restrictions or limitations to the enrolled bill doctrine are the
"origination," "no-amendment" and "three-reading" rules which I will discuss later.
Verily, these restrictions or limitations to the enrolled bill doctrine are safeguarded by the
expanded9 constitutional mandate of the judiciary "to determine whether or not there has been a
grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the government."10 Even the ponente of Tolentino,11 the learned Mr. Justice
Vicente V. Mendoza, concedes in another decision that each house "may not by its rules ignore
constitutional restraints or violate fundamental rights, and there should be a reasonable relation
between the mode or method of proceeding established by the rule and the result which is sought
to be attained."12

The Bicameral Conference Committee (BCC) created by Congress to iron out differences
between the Senate and the House of Representatives versions of the E-VAT bills13 is one such
"branch or instrumentality of the government," over which this Court may exercise certiorari
review to determine whether or not grave abuse of discretion has been committed; and,
specifically, to find out whether the constitutional conditions, restrictions and limitations on law-
making have been violated.

In general, the BCC has at least five options in performing its functions: (1) adopt the House
version in part or in toto, (2) adopt the Senate version in part or in toto, (3) consolidate the two
versions, (4) reject non-conflicting provisions, and (5) adopt completely new provisions not
found in either version. This, therefore, is the simple question: In the performance of its function
of reconciling conflicting provisions, has the Committee blatantly violated the Constitution?

My short answer is: No, except those relating to income taxes referred to in Sections 1, 2 and 3
of Republic Act (RA) No. 9337. Let me explain.

Adopting the House

Version in Part or in Toto

First, the BCC had the option of adopting the House bills either in part or in toto, endorsing them
without changes. Since these bills had passed the three-reading requirement14 under the
Constitution,15 it readily becomes apparent that no procedural impediment would arise. There
would also be no question as to their origination,16 because the bills originated exclusively from
the House of Representatives itself.

In the present case, the BCC did not ignore the Senate and adopt any of the House bills in part or
in toto. Therefore, this option was not taken by the BCC.

Adopting the Senate

Version in Part or in Toto

Second, the BCC may choose to adopt the Senate version either
in part or in toto, endorsing it also without changes. In so doing, the question of origination
arises. Under the 1987 Constitution, all "revenue x x x bills x x x shall originate exclusively in
the House of Representatives, but the Senate may propose or concur with amendments."17
If the revenue bill originates exclusively from the Senate, then obviously the origination
provision18 of the Constitution would be violated. If, however, it originates exclusively from the
House and presumably passes the three-reading requirement there, then the question to contend
with is whether the Senate amendments complied with the "germane" principle.

While in the Senate, the House version may, per Tolentino, undergo extensive changes, such that
the Senate may rewrite not only portions of it but even all of it.19 I believe that such rewriting is
limited by the "germane" principle: although "relevant"20 or "related"21 to the general subject of
taxation, the Senate version is not necessarily "germane" all the time. The "germane" principle
requires a legal -- not necessarily an economic22 or political -- interpretation. There must be an
"inherent logical connection."23 What may be germane in an economic or political sense is not
necessarily germane in the legal sense. Otherwise, any provision in the Senate version that is
entirely new and extraneous, or that is remotely or even slightly connected, to the vast and
perplexing subject of taxation, would always be germane. Under this interpretation, the
origination principle would surely be rendered inutile.

To repeat, in Tolentino, the Court said that the Senate may even write its own version, which in
effect would be an amendment by substitution.24 The Court went further by saying that "the
Constitution does not prohibit the filing in the Senate of a substitute bill in anticipation of its
receipt of the bill from the House, so long as action by the Senate as a body is withheld pending
receipt of the House bill."25 After all, the initiative for filing a revenue bill must come from the
House26 on the theory that, elected as its members are from their respective districts, the House is
more sensitive to local needs and problems. By contrast, the Senate whose members are elected
at large approaches the matter from a national perspective,27 with a broader and more
circumspect outlook.28

Even if I have some reservations on the foregoing sweeping pronouncements in Tolentino, I shall
not comment any further, because the BCC, in reconciling conflicting provisions, also did not
take the second option of ignoring the House bills completely and of adopting only the Senate
version in part or in toto. Instead, the BCC used or applied the third option as will be discussed
below.

Compromising

by Consolidating

As a third option, the BCC may reach a compromise by

consolidating both the Senate and the House versions. It can adopt some parts and reject other
parts of both bills, and craft new provisions or even a substitute bill. I believe this option is
viable, provided that there is no violation of the origination and germane principles, as well as
the three-reading rule. After all, the report generated by the BCC will not become a final valid
act of the Legislative Department until the BCC obtains the approval of both houses of
Congress.29

Standby Authority. I believe that the BCC did not exceed its authority when it crafted the so-
called "standby authority" of the President. The originating bills from the House imposed a 12
percent VAT rate,30 while the bill from the Senate retained the
original 10 percent.31 The BCC opted to initially use the 10 percent Senate provision and to
increase this rate to the 12 percent House provision, effective January 1, 2006, upon the
occurrence of a predetermined factual scenario as follows:

"(i) [VAT] collection as a percentage of Gross Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%) or

(ii) National Government Deficit as a percentage of GDP of the previous year exceeds one and
one-half percent (1 1/2%)."32

In the computation of the percentage requirements in the alternative conditions under the law, the
amounts of the VAT collection, National Deficit,33 and GDP34 -- as well as the interrelationship
among them -- can easily be derived by the finance secretary from the proper government bodies
charged with their determination. The law is complete and standards have been fixed.35 Only the
fact-finding mathematical computation for its implementation on January 1, 2006, is necessary.

Once either of the factual and mathematical events provided in the law takes place, the President
has no choice but to implement the increase of the VAT rate to 12 percent.36 This eventuality has
been predetermined by Congress.37

The taxing power has not been delegated by Congress to either or both the President and the
finance secretary. What was delegated

was only the power to ascertain the facts in order to bring the law into operation. In fact, there
was really no "delegation’ to speak of;

__________________

Culled from the same record, the following excerpts show the position of public respondents:

"Justice Panganiban: It will be based on actual figures?

"Usec. Bonoan: It will be based on actual figures.

"Justice Panganiban: That creates a problem[,] because where do you get the actual figures[?]

"Usec. Bonoan: I understand that[,] traditionally[,] we can come in March, but there is no
impediment to speeding up the gathering.

"Justice Panganiban: Speed it up. February 15?

"Usec. Bonoan: Even within January, Your Honor, I think this can be….

"Justice Panganiban: Alright at the end of January, it’s just estimate to get the figures in
January.
"Usec. Bonoan: Yes, Your Honor (pp. 661-662); and

xxx

"Justice Panganiban: My only point is, I raised this earlier and I promised counsel for the
petitioner whom I was questionin[g] that I will raise it with you, whether the date January 1,
2006 would present an impossibility of a condition happening.

"Usec. Bonoan: It will not, Your Honor.

"Justice Panganiban: So, your position [is] it will not present an impossibility. Elaborate on it in
your memorandum.

"Usec. Bonoan: Yes, Your Honor.

"Justice Panganiban: Because it is important. The administrative regulations are important[,]

because they clarify the law and it will guide taxpayers. So[,] by January 1[,] [taxpayers]
would not be wondering. Do we charge the end consumers 10 [percent] or 12 [percent]? The
regulations should be able to spell that out [i]n the same manner that even now the various
consumers of various products and services must be able to get from your

there was merely a declaration of an administrative, not a legislative, function.38

I concur with the ponencia in that there was no undue delegation of legislative power in the
increase from 10 percent to 12 percent of the VAT rate. I respectfully disagree, however, with
the statements therein that, first, the secretary of finance is "acting as the agent of the legislative
department" or an "agent of Congress" in determining and declaring the event upon which its
expressed will is to take effect; and, second, that the secretary’s personality "is in reality but a
projection of that of Congress."

The secretary of finance is not an alter ego of Congress, but of the President. The mandate given
by RA 9337 to the secretary is not equipollent to an authority to make laws. In passing this law,
Congress did not restrict or curtail the constitutional power of the President to retain control and
supervision over the entire Executive Department. The law should be construed to be merely
asking the President, with a recommendation from the President’s alter ego in finance matters, to
determine the factual bases for making the increase in VAT rate operative.39 Indeed, as I have
mentioned earlier, the fact-finding condition is a mere administrative, not legislative, function.

The ponencia states that Congress merely delegates the implementation of the law to the
secretary of finance. How then can the latter be its agent? Making a law is different from
implementing it. While the first (the making of laws) may be delegated under certain conditions
and only in specific instances provided under the Constitution, the second (the implementation of
laws) may not be done by Congress. After all, the legislature does not have the power to
implement laws. Therefore, congressional agency arises only in the first, not in the second. The
first is a legislative function; the second, an executive one.

Petitioners’ argument is that because the GDP does not account for the economic effects of so-
called underground businesses, it is an inaccurate indicator of either economic growth or
slowdown in transitional economies.40 Clearly, this matter is within the confines of lawmaking.
This Court is neither a substitute for the wisdom, or lack of it, in Congress,41 nor an arbiter of
flaws within the latter’s internal rules.42 Policy matters lie within the domain of the political
branches of government,43 outside the range of judicial cognizance.44 "[T]he right to select the
measure and objects of taxation devolves upon the Congress, and not upon the courts, and such
selections are valid unless constitutional limitations are overstepped."45 Moreover, each house of
Congress has the power and authority to determine the rules of its proceedings.46 The contention
that this case is not ripe for determination because there is no violation yet of the Constitution
regarding the exercise of the President’s standby authority has no basis. The question raised is
whether the BCC, in passing the law, committed grave abuse of discretion, not whether the
provision in question had been violated. Hence, this case is not premature and is, in fact, subject
to judicial determination.

Amendments on Income Taxes. I respectfully submit that the amendments made by the BCC
(that were culled from the Senate version) regarding income taxes47 are not legally germane to
the subject matter of the House bills. Revising the income tax rates on domestic, resident foreign
and nonresident foreign corporations; increasing the tax credit against taxes due from
nonresident foreign corporations on intercorporate dividends; and reducing the allowable
deduction for interest expense are legally unrelated and not germane to the subject matter
contained in the House bills; they violate the origination principle.48 The reasons are as follows:

One, an income tax is a direct tax imposed on actual or presumed income -- gross or net --
realized by a taxpayer during a given taxable year,49 while a VAT is an indirect tax not in the
context of who is directly and legally liable for its payment, but in terms of its nature as "a tax on
consumption."50 The former cannot be passed on to the consumer, but the latter can.51 It is too
wide a stretch of the imagination to even relate one concept with the other. In like manner, it is
inconceivable how the provisions that increase corporate income taxes can be considered as
mitigating measures for increasing the VAT and, as I will explain later, for effectively imposing
a maximum of 3 percent tax on gross sales or revenues because of the 70 percent cap. Even the
argument that the corporate income tax rates will be reduced to 30 percent does not hold water.
This reduction will take effect only in 2009, not 2006 when the 12 percent VAT rate will have
been implemented.

Two, taxes on intercorporate dividends are final, but the input VAT is generally creditable.
Under a final withholding tax system, the amount of income tax that is withheld by a
withholding agent is constituted as a full and final payment of the income tax due from the payee
on said income.52 The liability for the tax primarily rests upon the payor as a withholding agent.53
Under a creditable withholding tax system, taxes withheld on certain payments are meant to
approximate the tax that is due of the payee on said payments.54 The liability for the tax rests
upon the payee who is mandated by law to still file a tax return, report the tax base, and pay the
difference between the tax withheld and the tax due.55
From this observation alone, it can already be seen that not only are dividends alien to the tax
base upon which the VAT is imposed, but their respective methods of withholding are totally
different. VAT-registered persons may not always be nonresident foreign corporations that
declare and pay dividends, while intercorporate dividends are certainly not goods or properties
for sale, barter, exchange, lease or importation. Certainly, input VAT credits are different from
tax credits on dividends received by nonresident foreign corporations.

Three, itemized deductions from gross income partake of the nature of a tax exemption.56 Interest
-- which is among such deductions -- refers to the amount paid by a debtor to a creditor for the
use or forbearance of money.57 It is an expense item that is paid or incurred within a given
taxable year on indebtedness in connection with a taxpayer’s trade, business or exercise of
profession.58 In order to reduce revenue losses, Congress enacted RA 842459 which reduces the
amount of interest expense deductible by a taxpayer from gross income, equal to the applicable
percentage of interest income subject to final tax.60 To assert that reducing the allowable
deduction in interest expense is a matter that is legally related to the proposed VAT amendments
is too far-fetched. Interest expenses are not allowed as credits against output VAT. Neither are
VAT-registered persons always liable for interest.

Having argued on the unconstitutionality (non-germaneness) of the BCC insertions on income

taxes, let me now proceed to the other provisions that were attacked by petitioners.

No Pass-on Provisions. I agree with the ponencia that the BCC did not exceed its authority
when it deleted the no pass-on provisions found in the congressional bills. Its authority to make
amendments not only implies the power to make insertions, but also deletions, in order to resolve
conflicting provisions.

The no pass-on provision in House Bill (HB) No. 3705 referred to the petroleum products subject
to excise tax (and the raw materials used in the manufacture of such products), the sellers of
petroleum products, and the generation companies.61 The analogous provision in Senate Bill
(SB) No. 1950 dealt with electricity, businesses other than generation companies, and services of
franchise grantees of electric utilities.62 In contrast, there was a marked absence of the no pass-on
provision in HB 3555. Faced with such variances, the BCC had the option of retaining or
modifying the no pass-on provisions and determining their extent, or of deleting them altogether.
In opting for deletion to resolve the variances, it was merely acting within its discretion. No
grave abuse may be imputed to the BCC.

The 70 Percent Cap on Input Tax and the 5 Percent Final Withholding VAT. Deciding on the
70 percent cap and the 5 percent final withholding VAT in the consolidated bill is also within the
power of the BCC. While HB 3555 included limits of 5 percent and 11 percent on input tax,63 SB
1950 proposed an even spread over 60 months.64 The decision to put a cap and fix its rate, so as
to harmonize or to find a compromise in settling the apparent differences in these versions,65 was
within the sound discretion of the BCC.

In like manner, HB 3555 contained provisions on the withholding of creditable VAT at the rates
of 5 percent, 8 percent, 10.5 percent, and 12 percent.66 HB 3705 had no such equivalent
amendment, and SB 1950 pegged the rates at only 5 percent and 10 percent.67 I believe that the
decision to impose a final (not creditable) VAT and to fix the rates at 5 percent and 10 percent,
so as to harmonize the apparent differences in all three versions, was also within the sound
discretion of the BCC.

Indeed, the tax credit method under our VAT system is not only practical, but also principally
used in almost all taxing jurisdictions. This does not mean, however, that in the eyes of Congress
through the BCC, our country can neither deviate from this method nor modify its application to
suit our fiscal requirements. The VAT is usually collected through the tax credit method (and in
the past, even through the cost deduction method or a mixture of these two methods),68 but there
is no hard and fast rule that 100 percent of the input taxes will always be allowed as a tax credit.

In fact, it was Maurice Lauré, a French engineer,69 who invented the VAT. In 1954, he had the
idea of imposing an indirect tax on consumption, called taxe sur la valeur ajoutée,70 which was
quickly adopted by the Direction Générale des Impost, the new French tax authority of which he
became joint director. Consequently, taxpayers at all levels in the production process, rather than
retailers or tax authorities, were forced to administer and account for the tax themselves.71

Since the unutilized input VAT can be carried over to succeeding quarters, there is no undue
deprivation of property. Alternatively, it can be passed on to the consumers;72 there is no law
prohibiting that. Merely speculative and unproven, therefore, is the contention that the law is
arbitrary and oppressive.73 Laws that impose taxes are necessarily burdensome, compulsory, and
involuntary.

The deferred input tax account -- which accumulates the unutilized input VAT -- remains an
asset in the accounting records of a business. It is not at all confiscated by the government. By
deleting Section 112(B) of the Tax Code,74 Congress no longer made available tax credit
certificates for such asset account until retirement from or cessation of business, or changes in or
cessation of VAT-registered status.75 This is a matter of policy, not legality. The Court cannot
step beyond the confines of its constitutional power, if there is absolutely no clear showing of
grave abuse of discretion in the enactment of the law.

That the unutilized input VAT would be rendered useless is merely speculative.76 Although it is
recorded as a deferred asset in the books of a company, it remains to be a mere privilege. It may
be written off or expensed outright; it may also be denied as a tax credit.

There is no vested right in a deferred input tax account; it is a mere statutory privilege.77 The
State may modify or withdraw such privilege, which is merely an asset granted by operation of
law.78 Moreover, there is no vested right in generally accepted accounting principles.79 These
refer to accounting concepts, measurement techniques, and standards of presentation in a
company’s financial statements, and are not rooted in laws of nature, as are the laws of physical
science, for these are merely developed and continually modified by local and international
regulatory accounting bodies.80 To state otherwise and recognize such asset account as a vested
right is to limit the taxing power of the State. Unlimited, plenary, comprehensive and supreme,
this power cannot be unduly restricted by mere creations of the State.
That the unutilized input VAT would also have an unequal effect on businesses -- some with
low, others with high, input-output ratio -- is not a legal ground for invalidating the law. Profit
margins are a variable of sound business judgment, not of legal doctrine. The law applies equally
to all businesses; it is up to each of them to determine the best formula for selling their goods or
services in the face of stiffer competition. There is, thus, no violation of the equal protection
clause. If the implementation of the 70 percent cap would cause an ad infinitum deferment of
input taxes or an unequal effect upon different types of businesses with varying profit margins
and capital requirements, then the remedy would be an amendment of the law -- not an
unwarranted and outright declaration of unconstitutionality.

The matter of business establishments shouldering 30 percent of output tax and remitting the
amount, as computed, to the government is in effect imposing a tax that is equivalent to a
maximum of 3 percent of gross sales or revenues.81 This imposition is arguably another tax on
gross -- not net -- income and thus a deviation from the concept of VAT as a tax on
consumption; it also assumes that sales or revenues are on cash basis or, if on credit, given credit
terms shorter than a quarter of a year. However, such additional imposition and assumption are
also arguably within the power of Congress to make. The State may in fact choose to impose an
additional 3 percent tax on gross income, in lieu of the 70 percent cap, and thus subject the
income of businesses to two types of taxes -- one on gross, the other on net. These impositions
may constitute double taxation,82 which is not constitutionally proscribed.83

Besides, prior to the amendments introduced by the BCC, already extant in the Tax Code was a 3
percent percentage tax on the gross quarterly sales or receipts of persons who were not VAT-
registered, and whose sales or receipts were exempt from VAT.84 This is another type of tax
imposed by the Tax Code, in addition to the tax on their respective incomes. No question as to its
validity was raised before; none is being brought now. More important, there is a presumption in
favor of constitutionality,85 "rooted in the doctrine of separation of powers which enjoins upon
the three coordinate departments of the Government a becoming courtesy for each other’s
acts."86

As to the argument that Section 8 of RA 9337 contravenes Section 1 of Article III and Section 20
of Article II of the 1987 Constitution, I respectfully disagree.

One, petitioners have not been denied due process or, as I have illustrated earlier, equal
protection. In the exercise of its inherent power to tax, the State validly interferes with the right
to property of persons, natural or artificial. Those similarly situated are affected in the same way
and treated alike, "both as to privileges conferred and liabilities enforced."87

RA 9337 was enacted precisely to achieve the objective of raising revenues to defray the
necessary expenses of government.88 The means that this law employs are reasonably related to
the accomplishment of such objective, and not unduly oppressive. The reduction of tax credits is
a question of economic policy, not of legal perlustration. Its determination is vested in Congress,
not in this Court. Since the purpose of the law is to raise revenues, it cannot be denied that the
means employed is reasonably related to the achievement of that purpose. Moreover, the proper
congressional procedure for its enactment was followed;89 neither public notice nor public
hearings were denied.
Two, private enterprises are not discouraged. Tax burdens are never delightful, but with the
imposition of the 70 percent cap, there will be an assurance of a steady cash flow to the
government, which can be translated to the production of improved goods, rendition of better
services, and construction of better facilities for the people, including all private enterprises.
Perhaps, Congress deems it best to make our economy depend more on businesses that are easier
to monitor, so there will be a more efficient collection of taxes. Whatever is expected of the
outcome of the law, or its wisdom, should be the sole responsibility of the representatives chosen
by the electorate.

The profit margin rates of various industries generally do not change. However, the profit
margin figures do, because these are obviously monetary variables that affect business, along
with the level of competition, the quality of goods and services offered, and the cost of their
production. And there will inevitably be a conscious desire on the part of those who engage in
business and those who consume their output to adapt or adjust accordingly to any congressional
modification of the VAT system.

In addition, it is contended that the VAT should be proportional in nature. I submit that this
proportionality pertains to the rate imposable, not the credit allowable. Private enterprises are
subjected to a proportional VAT rate, but VAT credits need not be. The VAT is, after all, a
human concept that is neither immutable nor invariable. In fact, it has changed after it was
adopted as a system of indirect taxation by other countries. Again unlike the laws of physical
science, the VAT system can always be modified to suit modern fiscal demands. The State,
through the Legislative Department, may even choose to do away with it and revert to our
previous system of turnover taxes, sales taxes and compensating taxes, in which credits may be
disallowed altogether.

Not expensed, but amortized over its useful life, is capital equipment, which is purchased or
treated as capital leases by private enterprises. Aimed at achieving the twin objectives of
profitability and solvency, such purchase or lease is a matter of prudence in business decision-
making.

Hence, business judgments, sales volume, and their effect on competition are for businesses to
determine and for Congress to regulate -- not for this Court to interfere with, absent a clear
showing that constitutional provisions have been violated. Tax collection and administrative
feasibility are for the executive branch to focus on, again not for this Court to dwell upon.

The Transcript of the Oral Arguments on July 14, 2005 clearly point out in a long line of relevant
questioning that, absent a violation of constitutional provisions, the Court cannot interfere with
the 70 percent cap, the 5 percent final withholding tax, and the 60-month amortization, there
being other extra-judicial remedies available to petitioners, thus:

"Atty. Baniqued: But if your profit margin is low as i[n] the case of the petroleum dealers, x x x
then we would have a serious problem, Your Honor.

"Justice Panganiban: Isn’t the solution to increase the price then?

"Atty. Baniqued: If you increase the price which you can very well do, Your Honor, then that
[will] be deflationary and it [will] have a cascading effect on all other basic commodities[,
especially] because what is involved here is petroleum, Your Honor.

"Justice Panganiban: That may be true[,] but it’s not unconstitutional?

"Atty. Baniqued: That may be true, Your Honor, but the very limitation of the [seventy percent]
input [VAT], when applied to the case of the petroleum dealers[,] is oppressive[.] [I]t’s unjust
and it’s unreasonable, Your Honor.

"Justice Panganiban: But it can be passed as a part of sales, sales costs rather.

"Atty. Baniqued: But the petroleum dealers here themselves…… interrupted

"Justice Panganiban: In your [b]alance [s]heet, it could be reflected as Cost of Sales and
therefore the price will go up?

"Atty. Baniqued: Even if it were to be reflected as part of the Cost of Sales, Your Honor, the
[input VAT] that you cannot claim, the benefit to you is only to the extent of the corporate tax
rate which is 32 now 35 [percent].

"Justice Panganiban: Yes.

"Atty. Baniqued: It’s not 100 [percent] credi[ta]bility[,] unlike if it were applied against your
[output VAT], you get to claim 100 [percent] of it, Your Honor.

"Justice Panganiban: That might be true, but we are talking about whether that particular
provision would be unconstitutional. You say it’s oppressive, but you have a remedy, you just
pass it on to the customer. I am not sayin[g] it’s good[.] [N]either am I saying it’s wise[.] [A]ll
I’m talking about is, whether it’s constitutional or not.

"Atty. Baniqued: Yes, in fact we acknowledge, Your Honor, that that is a remedy available to
the petroleum dealers, but considering the impact of that limitation[,] and were just talking of the
70 [percent cap] on [input VAT] in the level of the petroleum dealers. Were not even talking yet
of the limitation on the [input VAT] available to the manufacturers, so, what if they pass that on
as well?

"Justice Panganiban: Yes.

"Atty. Baniqued: Then, it would complicate… interrupted

"Justice Panganiban: What I am saying is, there is a remedy, which is business in character. The
mere fact that the government is imposing that [seventy percent] cap does not make the law
unconstitutional, isn’t it?
"Atty. Baniqued: It does, Your Honor, if it can be shown. And as we have shown, it is oppressive
and unreasonable, it is excessive, Your Honor… interrupted

"Justice Panganiban: If you have no way of recouping it. If you have no way of recouping that
amount, then it will be oppressive, but you have a business way of recouping it[.] I am saying
that, not advising that it’s good. All I am saying is, is it constitutional or not[?] We’re not here to
determine the wisdom of the law, that’s up for Congress. As pointed out earlier, if the law is not
wise, the law makers will be changed by the people[.] [T]hat is their solution t[o] the lack of
wisdom of a law. If the law is unconstitutional[,] then the Supreme Court will declare it
unconstitutional and void it, but[,] in this case[,] there seems to be a business remedy in the same
manner that Congress may just impose that tax straight without saying it’s [VAT]. If Congress
will just say all petroleum will pay 3 [percent] of their Gross Sales, but you don’t bear that, you
pass that on, isn’t it?

"Atty. Baniqued: We acknowledge your concern, Your Honor, but we should not forget that
when the petroleum dealers pass these financial burden or this tax differential to the consumers,
they themselves are consumers in their own right. As a matter of fact, they filed this case both as
petroleum dealer[s] and as taxpayers. If they pass if on, they themselves would ultimately bear
the burden[, especially] in increase[d] cost of electricity, land transport, food, everything, Your
Honor.

"Justice Panganiban: Yes, but the issue here in this Court, is whether that act of Congress is
unconstitutional.

"Atty. Baniqued: Yes, we believe it is unconstitutional, Your Honor.

"Justice Panganiban: You have a right to complain that it is oppressive, it is excessive, it burdens
the people too much, but is it unconstitutional?

"Atty. Baniqued: Besides, passing it on, Your Honor, may not be as simple as it may seem. As a
matter of fact, at the strike of midnight on June 30, when petroleum prices were being changed
upward, the [s]ecretary of [the] Department of Energy was going around[.] [H]e was seen on TV
going around just to check that prices don’t go up. And as a matter of fact, he had
pronouncements that, the increase in petroleum price should only be limited to the effect of 10
[percent] E-VAT.

"Justice Panganiban: It’s becaus[e] the implementing rules were not clear and were not extensive
enough to cover how much really should be the increase for various oil products, refined oil
products. It’s up for the dealers to guess, and the dealers were guessing to their advantage by
saying plus 10 [percent] anyway, right?

"Atty. Baniqued: In fact, the petroleum dealers, Your Honors, are not only faced with
constitutional issues before this Court. They are also faced with a possibility of the Department
of Energy not allowing them to pass it on[,] because this would be an unreasonable price
increase. And so, they are being hit from both sides…interrupted
"Justice Panganiban: That’s why I say, that there is need to refine the implementing rules so that
everyone will know, the customers will know how much to pay for gasoline, not only gasoline,
gasoline, and so on, diesel and all kinds of products, so there’ll be no confusion and there’ll be
no undue taking advantage. There will be a smooth implementation[,] if the law were to be
upheld by the Court. In your case, as I said, it may be unwise to pass that on to the customers,
but definitely, the dealers will not bear that [--] to suffer the loss that you mentioned in your
consolidated balance sheets. Certainly, the dealers will not bear that [cost], isn’t it?

"Atty. Baniqued: It will be a very hard decision to make, Your Honor.

"Justice Panganiban: Why, you will not pass it on?

"Atty. Baniqued: I cannot speak for the dealers…. interrupted.

"Justice Panganiban: As a consumer, I will thank you if you don’t pass it on[;] but you or your
clients as businessm[e]n, I know, will pass it on.

"Atty. Baniqued: As I have said, Your Honor, there are many constraints on their ability to do
that[,] and that is why the first step that we are seeking is to seek redress from this Honorable
Court[,] because we feel that the imposition is excessive and oppressive….. interrupted

"Justice Panganiban: You can find redress here, only if you can show that the law is
unconstitutional.

"Atty. Baniqued: We realized that, Your Honor.

"Justice Panganiban: Alright. Let’s talk about the 5 [percent] [d]epreciation rate, but that
applies only to the capital equipment worth over a million?

"Atty. Baniqued: Yes, Your Honor.

"Justice Panganiban: And that doesn’t apply at all times, isn’t it?

"Atty. Baniqued: Well……

"Justice Panganiban: That doesn’t at all times?

"Atty. Baniqued: For capital goods costing less than 1 million, Your Honor, then….

"Justice Panganiban: That will not apply?

"Atty. Baniqued: That will not apply, but you will have the 70 [percent] cap on input [VAT],
Your Honor.

"Justice Panganiban: Yes, but we talked already about the 70 [percent].

"Atty. Baniqued: Yes, Your Honor.

"Justice Panganiban: When you made your presentation on the balance sheet, it is as if every
capital expenditure you made is subject to the 5 [percent,] rather the [five year] depreciation
schedule[.] [T]hat’s not so. So, the presentation you made is a little inaccurate and misleading.

"Atty. Baniqued: At the start of our presentation, Your Honor[,] we stated clearly that this
applies only to capital goods costing more than one [million].

"Justice Panganiban: Yes, but you combined it later on with the 70 [percent] cap to show that the
dealers are so disadvantaged. But you didn’t tell us that that will apply only when capital
equipment or goods is one million or more. And in your case, what kind of capital goods will be
worth one million or more in your existing gas stations?

"Atty. Baniqued: Well, you would have petroleum dealers, Your Honor, who would have[,] aside
from sale of petroleum[,] they would have their service centers[,] like[…] to service cars and
they would have those equipments, they are, Your Honor.

"Justice Panganiban: But that’s a different profit center, that’s not from the sale of…

"Atty. Baniqued: No, they would form part of their [VATable] sale, Your Honor.

Justice Panganiban: It’s a different profit center[;] it’s not in the sale of petroleum products. In
fact the mode now is to put up super stores in huge gas stations. I do not begrudge the gas
station[.] [A]ll I am saying is it should be presented to us in perspective. Neither am I siding with
the government. All I am saying is, when I saw your complicated balance sheet and mathematics,
I saw that you were to put in all the time the depreciation that should be spread over [five] years.
But we have agreed that that applies only to capital equipment [-- ]not to any kind of goods [--]
but to capital equipment costing over 1 million pesos.

"Atty. Baniqued: Yes, Your Honor, we apologize if it has caused a little confusion….

"Justice Panganiban: Again the solution could b[e] to pass that on, because that’s an added
cost, isn’t it?

"Atty. Baniqued: Well, yes, you can pass it on….

"Justice Panganiban: I am not teaching you, I am just saying that you have a remedy… I am not
saying either that the remedy is wise or should be done, because[,] as a consumer[,] I wouldn’t
want that to be done to me.

"Atty. Baniqued: We realiz[e] that, Your Honor, but the fact remain[s] that whether it is in the
hands of the petroleum dealers or in the hands of the consumers[,] if this imposition is
unreasonable and oppressive, it will remain so, even after it is passed on, Your Honor.
"Justice Panganiban: Alright. Let’s go to the third. The 5 [percent] withholding tax, [f]inal
[w]ithholding [t]ax, but this applies to sales to government?

"Atty. Baniqued: Yes, Your Honor.

"Justice Panganiban: So, you can pass on this 5 [percent] to the [g]overnment. After all, that 5
[percent] will still go back to the government.

"Atty. Baniqued: Then it will come back to haunt us, Your Honor…..

"Justice Panganiban: Why?

"Atty. Baniqued: By way of, for example sales to NAPOCOR or NTC…. interrupted

"Justice Panganiban: Sales of petroleum products….

"Atty. Baniqued: ………… in the case of NTC, Your Honor, it would come back to us by way of
increase[d] cost, Your Honor.

"Justice Panganiban: Okay, let’s see. You sell, let’s say[,] your petroleum products to the
Supreme Court, as a gas station that sells gasoline to us here. Under this law, the 5 [percent]
withholding tax will have to be charged, right?

"Atty. Baniqued: Yes, Your Honor.

"Justice Panganiban: You will charge that[.] [T]herefore[,] the sales to the Supreme Court by that
gas station will effectively be higher?

"Atty. Baniqued: Yes, Your Honor.

"Justice Panganiban: So, the Supreme Court will pay more, you will not [be] going to [absorb]
that 5 [percent], will you?

"Atty. Baniqued; If it is passed on, Your Honor, that’s of course we agree…. Interrupted.

"Justice Panganiban: Not if, you can pass it on….

"Atty. Baniqued: Yes, we can…. interrupted

"Justice Panganiban: There is no prohibition to passing it on[.] [P]robably the gas station will
simply pass it on to the Supreme Court and say[,] well[,] there is this 5 [percent] final VAT on
you so[,] therefore, for every tank full you buy[,] we’ll just have to [charge] you 5 [percent]
more. Well, the Supreme Court will probably say, well, anyway, that 5 [percent] that we will pay
the gas dealer, will be paid back to the government, isn’t it[?] So, how [will] you be affected?
"Atty. Baniqued: I hope the passing on of the burden, Your Honor, doesn’t come back to party
litigants by way of increase in docket fees, Your Honor.

"Justice Panganiban: But that’s quite another m[a]tter, though…(laughs) [W]hat I am saying, Mr.
[C]ounsel is, you still have to show to us that your remedy is to declare the law
unconstitutional[,] and it’s not business in character.

"Atty. Baniqued: Yes, Your Honor, it is our submission that this limitation in the input [VAT]
credit as well as the amortization…….

"Justice Panganiban: All you talk about is equal protection clause, about due process,
depreciation of property without observance of due process[,] could really be a remedy than a
business way.

"Atty. Baniqued: Business in the level of the petroleum dealers, Your Honor, or in the level of
Congress, Your Honor.

"Justice Panganiban: Yes, you can pass them on to customers[,] in other words. It’s the
customers who should [complain].

"Atty. Baniqued: Yes, Your Honor… interrupted

"Justice Panganiban: And perhaps will not elect their representatives anymore[.]

"Atty. Baniqued: Yes, Your Honor…..

"Justice Panganiban: For agreeing to it, because the wisdom of a law is not for the Supreme
Court to pass upon.

"Atty. Baniqued: It just so happens, Your Honor, that what is [involved] here is a commodity
that when it goes up, it affects everybody….

"Justice Panganiban: Yes, inflationary and inflammatory….

"Atty. Baniqued: …just like what Justice Puno says it shakes the entire economic foundation,
Your Honor.

"Justice Panganiban: Yes, it’s inflationary[,] brings up the prices of everything…

"Atty. Baniqued: And it is our submission that[,] if the petroleum dealers cannot absorb it and
they pass it on to the customers, a lot of consumers would neither be in a position to absorb it too
and that[’s] why we patronize, Your Honor.

"Justice Panganiban: There might be wisdom in what you’re saying, but is that unconstitutional?
"Atty. Baniqued: Yes, because as I said, Your Honor, there are even constraints in the petroleum
dealers to pass it on, and we[‘]re not even sure whether….interrupted

"Justice Panganiban: Are these constraints [--] legal constraints?

"Atty. Baniqued: Well, it would be a different story, Your Honor[.] [T]hat’s something we
probably have to take up with the Department of Energy, lest [we may] be accused of …..

"Justice Panganiban: In other words, that’s your remedy

[--] to take it up with the Department of Energy

"Atty. Baniqued: …..unreasonable price increases, Your Honor.

"Justice Panganiban: Not for us to declare those provisions unconstitutional.

"Atty. Baniqued: We, again, wish to stress that the petroleum dealers went to this Court[,] both
as businessmen and as consumers. And as consumers, [we’re] also going to bear the burden of
whatever they themselves pass on.

"Justice Panganiban: You know[,] as a consumer, I wish you can really show that the laws are
unconstitutional, so I don’t have to pay it. But as a magistrate of this Court, I will have to pass
upon judgment on the basis of [--] whether the law is unconstitutional or not. And I hope you can
in your memorandum show that.

"Atty. Baniqued: We recognized that, Your Honor." (boldface supplied, pp. 386-410).

Amendments on Other Taxes and Administrative Matters. Finally, the BCC’s amendments
regarding other taxes90 are both germane in a legal sense and reasonably necessary in an
economic sense. This fact is evident, considering that the proposed changes in the VAT law will
have inevitable implications and repercussions on such taxes, as well as on the procedural
requirements and the disposition of incremental revenues, in the Tax Code. Either mitigating
measures91 have to be put in place or increased rates imposed, in order to achieve the purpose of
the law, cushion the impact of increased taxation, and still maintain the equitability desired of
any other revenue law.92 Directly related to the proposed VAT changes, these amendments are
expected also to have a salutary effect on the national economy.

The no-amendment rule93 in the Constitution was not violated by the BCC, because no
completely new provision was inserted in the approved bill. The amendments may be unpopular
or even work hardship upon everyone (this writer included). If so, the remedy cannot be
prescribed by this Court, but by Congress.

Rejecting Non-Conflicting

Provisions
Fourth, the BCC may choose neither to adopt nor to consolidate the versions presented to it by
both houses of Congress, but instead to reject non-conflicting provisions in those versions. In
other words, despite the lack of conflict in them, such provisions are still eliminated entirely
from the consolidated bill. There may be a constitutional problem here.

The no pass-on provisions in the congressional bills are the only item raised by petitioners
concerning deletion.94 As I have already mentioned earlier, these provisions were in conflict.
Thus, the BCC exercised its prerogative to remove them. In fact, congressional rules give the
BCC the power to reconcile disagreeing provisions, and in the process of reconciliation, to delete
them. No other non-conflicting provision was deleted.

At this point, and after the extensive discussion above, it can readily be seen no non-conflicting
provisions of the E-VAT bills were rejected indiscriminately by the BCC.

Approving and Inserting

Completely New Provisions

Fifth, the BCC had the option of inserting completely new provisions not found in any of the
provisions of the bills of either house of Congress, or make and endorse an entirely new bill as a
substitute. Taking this option may be a blatant violation of the Constitution, for not only will the
surreptitious insertion or unwarranted creation contravene the "origination" principle; it may
likewise desecrate the three-reading requirement and the no-amendment rule.95

Fortunately, however, the BCC did not approve or insert completely new provisions. Thus, no
violation of the Constitution was committed in this regard.

Summary

The enrolled bill doctrine is said to be conclusive not only as to the provisions of a law, but also
to its due enactment. It is not absolute, however, and must yield to mandatory provisions of the
1987 Constitution. Specifically, this Court has the duty of striking down provisions of a law that
in their enactment violate conditions, restrictions or limitations imposed by the Constitution.96
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.

In crafting RA 9337, the BCC opted to reconcile the conflicting provisions of the Senate and
House bills, particularly those on the 70 percent cap on input tax; the 5 percent final withholding
tax; percentage taxes on domestic carriers, keepers of garages and international carriers;
franchise taxes; amusement taxes; excise taxes on manufactured oils and other fuels; registration
requirements; issuance of receipts or sales or commercial invoices; and disposition of
incremental revenues. To my mind, these changes do not violate the origination or the
germaneness principles.
Neither is there undue delegation of legislative power in the standby authority given by Congress
to the President. The law is complete, and the standards are fixed. While I concur with the
ponencia’s view that the President was given merely the power to ascertain the facts to bring the
law into operation -- clearly an administrative, not a legislative, function -- I stress that the
finance secretary remains the Chief Executive’s alter ego, not an agent of Congress.

The BCC exercised its prerogative to delete the no pass-on provisions, because these were in
conflict. I believe, however, that it 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.

Some have criticized the E-VAT Law as oppressive to our already suffering people. On the other
hand, respondents have justified it by comparing it to bitter medicine that patients must endure to
be healed eventually of their maladies. The advantages and disadvantages of the E-VAT Law, as
well as its long-term effects on the economy, are beyond the reach of judicial review. The
economic repercussions of the statute are policy in nature and are beyond the power of the courts
to pass upon.

I have combed through the specific points raised in the Petitions. Other than the three items on
income taxes that I respectfully submit are unconstitutional, I cannot otherwise attribute grave
abuse of discretion to the BCC, or Congress for that matter, for passing the law.

"[T]he Court -- as a rule -- is deferential to the actions taken by the other branches of government
that have primary responsibility for the economic development of our country."97 Thus, in
upholding the Philippine ratification of the treaty establishing the World Trade Organization
(WTO), Tañada v. Angara held that "this Court never forgets that the Senate, whose act is under
review, is one of two sovereign houses of Congress and is thus entitled to great respect in its
actions. It is itself a constitutional body, independent and coordinate, and thus its actions are
presumed regular and done in good faith. Unless convincing proof and persuasive arguments are
presented to overthrow such presumption, this Court will resolve every doubt in its favor."98 As
pointed our in Cawaling Jr. v. Comelec, the grounds for nullity of the law "must be beyond
reasonable doubt, for to doubt is to sustain."99 Indeed, "there must be clear and unequivocal
showing that what the Constitutions prohibits, the statute permits."100

WHEREFORE, I vote to GRANT the Petitions in part and to declare Sections 1, 2, and 3 of
Republic Act No. 9337 unconstitutional, insofar as these sections (a) amend the rates of income
tax on domestic, resident foreign, and nonresident foreign corporations; (b) amend the tax credit
against taxes due from nonresident foreign corporations on intercorporate dividends; and (c)
reduce the allowable deduction for interest expense. The other provisions are constitutional, and
as to these I vote to DISMISS the Petitions.

ARTEMIO V. PANGANIBAN
 CONCURRING AND DISSENTING OPINION

YNARES-SANTIAGO, J.:

The ponencia states that under the provisions of the Rules of the House of Representatives and
the Senate Rules, the Bicameral Conference Committee is mandated to settle differences
between the disagreeing provisions in the House bill and Senate bill. However, the ponencia
construed the term "settle" as synonymous to "reconcile" and "harmonize," and as such, the
Bicameral Conference Committee may either (a) adopt the specific provisions of either the
House bill or Senate bill, (b) decide that neither provisions in the House bill or the provisions in
the Senate bill would be carried into the final form of the bill, and/or (c) try to arrive at a
compromise between the disagreeing provisions.

I beg to differ on the third proposition.

Indeed, Section 16(3), Article VI of the 1987 Constitution explicitly allows each House to
determine the rules of its proceedings. However, the rules must not contravene constitutional
provisions. The rule-making power of Congress should take its bearings from the Constitution. If
in the exercise of this rule-making power, Congress failed to set parameters in the functions of
the committee and allowed the latter unbridled authority to perform acts which Congress itself is
prohibited, like the passage of a law without undergoing the requisite three-reading and the so-
called no-amendment rule, then the same amount to grave abuse of discretion which this Court is
empowered to correct under its expanded certiorari jurisdiction. Notwithstanding the doctrine of
separation of powers, therefore, it is the duty of the Court to declare as void a legislative
enactment, either from want of constitutional power to enact or because the constitutional
forms or conditions have not been observed.1 When the Court declares as unconstitutional a
law or a specific provision thereof because procedural requirements for its passage were not
complied, the Court is by no means asserting its ascendancy over the Legislature, but simply
affirming the supremacy of the Constitution as repository of the sovereign will.2 The judicial
branch must ensure that constitutional norms for the exercise of powers vested upon the two
other branches are properly observed. This is the very essence of judicial authority conferred
upon the Court under Section 1, Article VII of the 1987 Constitution.

The Rules of the House of Representatives and the Rules of the Senate provide that in the event
there is disagreement between the provisions of the House and Senate bills, the differences shall
be settled by a bicameral conference committee.

By this, I fully subscribe to the theory advanced in the Dissenting Opinion of Chief Justice
Hilario G. Davide, Jr. in Tolentino v. Secretary of Finance3 that the authority of the bicameral
conference committee was limited to the reconciliation of disagreeing provisions or the
resolution of differences or inconsistencies. Thus, it could only either (a) restore, wholly or
partly, the specific provisions of the House bill amended by the Senate bill, (b) sustain,
wholly or partly, the Senate’s amendments, or (c) by way of a compromise, to agree that
neither provisions in the House bill amended by the Senate nor the latter’s amendments
thereto be carried into the final form of the former.
Otherwise stated, the Bicameral Conference Committee is authorized only to adopt either the
version of the House bill or the Senate bill, or adopt neither. It cannot, as the ponencia proposed,
"try to arrive at a compromise", such as introducing provisions not included in either the House
or Senate bill, as it would allow a mere ad hoc committee to substitute the will of the entire
Congress and without undergoing the requisite three-reading, which are both constitutionally
proscribed. To allow the committee unbridled discretion to overturn the collective will of the
whole Congress defies logic considering that the bills are passed presumably after study,
deliberation and debate in both houses. A lesser body like the Bicameral Conference Committee
should not be allowed to substitute its judgment for that of the entire Congress, whose will is
expressed collectively through the passed bills.

When the Bicameral Conference Committee goes beyond its limited function by substituting its
own judgment for that of either of the two houses, it violates the internal rules of Congress and
contravenes material restrictions imposed by the Constitution, particularly on the passage of law.
While concededly, the internal rules of both Houses do not explicitly limit the Bicameral
Conference Committee to a consideration only of conflicting provisions, it is understood that the
provisions of the Constitution should be read into these rules as imposing limits on what the
committee can or cannot do. As such, it cannot perform its delegated function in violation of the
three-reading requirement and the no-amendment rule.

Section 26(2) of Article VI of the 1987 Constitution provides that:

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

Thus, before a bill becomes a law, it must pass three readings. Hence, the ponencia’s submission
that despite its limited authority, the Bicameral Conference Committee could "compromise the
disagreeing provisions" by substituting it with its own version – clearly violate the three-reading
requirement, as the committee’s version would no longer undergo the same since it would be
immediately put into vote by the respective houses. In effect, it is not a bill that was passed by
the entire Congress but by the members of the ad hoc committee only, which of course is
constitutionally infirm.

I disagree that the no-amendment rule referred only to "the procedure to be followed by each
house of Congress with regard to bills initiated in each of said respective houses" because it
would relegate the no-amendment rule to a mere rule of procedure. To my mind, the no-
amendment rule should be construed as prohibiting the Bicameral Conference Committee from
introducing amendments and modifications to non-disagreeing provisions of the House and
Senate bills. In sum, the committee could only either adopt the version of the House bill or the
Senate bill, or adopt neither. As Justice Reynato S. Puno said in his Dissenting Opinion in
Tolentino v. Secretary of Finance,4 there is absolutely no legal warrant for the bold submission
that a Bicameral Conference Committee possesses the power to add/delete provisions in bills
already approved on third reading by both Houses or an ex post veto power.

In view thereof, it is my submission that 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.

I, therefore, join the concurring and dissenting opinion of Mr. Justice Reynato S. Puno.

CONSUELO YNARES-SANTIAGO

Associate Justice

Footnotes
1
Cooley on Constitutional Limitations, 8th Ed., Vol. I, p. 332.
2
Angara v. Electoral Commission, 63 Phil. 139, 158 [1936].
3
G.R. Nos. 115455, 115525, 115543, 115544, 115754, 115781, 115852, 115873,
115931, 25 August 1994, 235 SCRA 630, 750.
4
Supra, p. 811.

The Lawphil Project - Arellano Law Foundation

G.R. NO. 168056 – ABAKADA GURO PARTY LIST (FORMERLY AASJAS) OFFICERS
SAMSON S. ALCANTARA AND ED VINCENT S. ALBANO, petitioners – versus – THE
HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA, ET AL., respondents.

G.R. NO. 168207 – AQUILINO Q. PIMENTEL, JR., ET AL., petitioners – versus – THE
HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA, ET AL., respondents.

G.R. NO. 168461 – ASSOCIATION OF PILIPINAS SHELL DEALERS, INC., ET AL.,

petitioners – versus – CESAR V. PURISIMA, ET AL., respondents.

G.R. NO. 168463 – FRANCIS JOSEPH G. ESCUDERO, ET AL., petitioners – versus –

CESAR V. PURISIMA, ET AL., respondents.
G.R. NO. 168730 – BATAAN GOVERNOR ENRIQUE T. GARCIA, JR., ET AL., petitioners –
versus – HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA, ET AL.,
respondents.

Promulgated:

September 1, 2005

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

CONCURRING AND DISSENTING OPINION

SANDOVAL – GUTIERREZ, J.:

Adam Smith, the great 18th – century political economist, enunciated the dictum that "the
subjects of every state ought to contribute to the support of government, as nearly as possible, in
proportion to their respective abilities; that is, in proportion to the revenue which they
respectively enjoy under the protection of the state."1 At no other time this dictum becomes more
urgent and obligatory as in the present time, when the Philippines is in its most precarious fiscal
position.

At this juncture, may I state that I join Mr. Senior Justice Reynato S. Puno in his Opinion,
specifically on the following points:

1. It is "high time to re-examine the test of germaneness proffered in Tolentino;"

2. The Bicameral Conference Committee "cannot exercise its unbridled discretion," "it cannot
create a new law," and its deletion of the "no pass on provision" common in both Senate Bill No.
1950 and House Bill No. 3705 is "unconstitutional."

In addition to the above points raised by Mr. Senior Justice Puno, may I expound on the issues
specified hereunder:

There is no reason to rush and stamp the imprimatur of validity to a tax law, R.A. 9337, that
contains patently unconstitutional provisions. I refer to Sections 4 to 6 which violate the
principle of non-delegation of legislative power. These Sections authorize the President, upon
recommendation of the Secretary of Finance, to raise the VAT rate from
10% to 12% effective January 1, 2006, if the conditions specified therein are met, thus:

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

(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the
previous year exceeds two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one
and one-half percent (1 ½%).

This proviso on the authority of the President is uniformly appended to Sections 4, 5 and 6 of
R.A. No. 9337, provisions amending Sections 106, 107 and 108 of the NIRC, respectively.
Section 4 imposes a 10% VAT on sales of goods and properties, Section 5 imposes a 10% VAT
on importation of goods, and Section 6 imposes a 10% VAT on sale of services and use or lease
of properties.

Petitioners in G.R. Nos. 168056,2 1682073 and 1684634 assail the constitutionality of the above
provisions on the ground that such stand-by authority granted to the President constitutes: (1)
undue delegation of legislative power; (2) violation of due process; and (3) violation of the
principle of "exclusive origination." They cited as their basis Article VI, Section 28 (2); Article
III, Section 1; and Article VI, Section 24 of the Constitution.

Undue Delegation of Legislative Power

Taxation is an inherent attribute of sovereignty.5 It is a power that is purely legislative and which
the central legislative body cannot delegate either to the executive or judicial department of
government without infringing upon the theory of separation of powers.6 The rationale of this
doctrine may be traced from the democratic principle of "no taxation without representation."
The power of taxation being so pervasive, it is in the best interest of the people that such power
be lodged only in the Legislature. Composed of the people’s representatives, it is "closer to the
pulse of the people and… are therefore in a better position to determine both the extent of the
legal burden the people are capable of bearing and the benefits they need."7 Also, this set-up
provides security against the abuse of power. As Chief Justice Marshall said: "In imposing a tax,
the legislature acts upon its constituents. The power may be abused; but the interest, wisdom, and
justice of the representative body, and its relations with its constituents, furnish a sufficient
security."

Consequently, Section 24, Article VI of our Constitution enshrined the principle of "no taxation
without representation" by providing that "all… revenue bills… shall originate exclusively in the
House of Representatives, but the Senate may propose or concur with amendments." This
provision generally confines the power of taxation to the Legislature.

R.A. No. 9337, in granting to the President the stand-by authority to increase the VAT rate from
10% to 12%, the Legislature abdicated its power by delegating it to the President. This is
constitutionally impermissible. The Legislature may not escape its duties and responsibilities by
delegating its power to any other body or authority. Any attempt to abdicate the power is
unconstitutional and void, on the principle that potestas delegata non delegare potest.8 As Judge
Cooley enunciated:

"One of the settled maxims in constitutional law is, that the power conferred upon the legislature
to make laws cannot be delegated by that department to any other body or authority. Where the
sovereign power of the state has located the authority, there it must remain; and by the
constitutional agency alone the laws must be made until the Constitution itself is changed.
The power to whose judgment, wisdom, and patriotism this high prerogative has been entrusted
cannot relieve itself of the responsibility by choosing other agencies upon which the power shall
be devolved, nor can it substitute the judgment, wisdom, and patriotism of any other body for
those to which alone the people have seen fit to confide this sovereign trust."9

Of course, the rule which forbids the delegation of the power of taxation is not absolute and
inflexible. It admits of exceptions. Retired Justice Jose C. Vitug enumerated such exceptions, to
wit: (1) delegations to local governments (to be exercised by the local legislative bodies thereof)
or political subdivisions; (2) delegations allowed by the Constitution; and (3) delegations relating
merely to administrative implementation that may call for some degree of discretionary powers
under a set of sufficient standards expressed by law.10

Patently, the act of the Legislature in delegating its power to tax does not fall under any of the
exceptions.

First, it does not involve a delegation of taxing power to the local government. It is a delegation
to the President.

Second, it is not allowed by the Constitution. Section 28 (2), Article VI of the Constitution
enumerates the charges or duties, the rates of which may be fixed by the President pursuant to a
law passed by Congress, thus:

The Congress may, by law, authorize the President to fix within specified limits, and subject
to such limitations and restrictions as it may impose, tariff rates, import and export quotas,
tonnage and wharfage dues, and other duties or imposts within the framework of the national
development program of the Government.

Noteworthy is the absence of tax rates or VAT rates in the enumeration. If the intention of the
Framers of the Constitution is to permit the delegation of the power to fix tax rates or VAT
rates to the President, such could have been easily achieved by the mere inclusion of the term
"tax rates" or "VAT rates" in the enumeration. It is a dictum in statutory construction that what
is expressed puts an end to what is implied. Expressium facit cessare tacitum.11 This is a
derivative of the more familiar maxim express mention is implied exclusion or expressio unius
est exclusio alterius. Considering that Section 28 (2), Article VI expressly speaks only of "tariff
rates,12 import13 and export
quotas,14 tonnage15 and wharfage dues16 and other duties and imposts,17" by no stretch of
imagination can this enumeration be extended to include the VAT.

And third, it does not relate merely to the administrative implementation of R.A. No. 9337.

In testing whether a statute constitutes an undue delegation of legislative power or not, it is usual
to inquire whether the statute was complete in all its terms and provisions when it left the hands
of the Legislature so that nothing was left to the judgment of any other appointee or delegate of
the legislature.18
In the present case, the President is the delegate of the Legislature, endowed with the power to
raise the VAT rate from 10 % to 12% if any of the following conditions, to reiterate, has been
satisfied: (i) value-added tax collection as a percentage of gross domestic product (GDP) of the
previous year exceeds two and four-fifths percent (2 4/5%) or (ii) National Government deficit as
a percentage of GDP of the previous year exceeds one and one-half percent (1 ½%).

At first glance, the two conditions may appear to be definite standards sufficient to guide the
President. However, to my mind, they are ineffectual and malleable as they give the President
ample opportunity to exercise her authority in arbitrary and discretionary fashion.

The two conditions set forth by law would have been sufficient had it not been for the fact that
the President, being at the helm of the entire officialdom, has more than enough power of control
to bring about the existence of such conditions. Obviously, R.A. No. 9337 allows the President to
determine for herself whether the VAT rate shall be increased or not at all. The fulfillment of the
conditions is entirely placed in her hands. If she wishes to increase the VAT rate, all she has to
do is to strictly enforce the VAT collection so as to exceed the 2 4/5% ceiling. The same holds
true with the national government deficit. She will just limit government expenses so as not to
exceed the 1 ½% ceiling. On the other hand, if she does not wish to increase the VAT rate, she
may discourage the Secretary of Finance from making the recommendation.

That the President’s exercise of an authority is practically within her control is tantamount to
giving no conditions at all. I believe this amounts to a virtual surrender of legislative power to
her. It must be stressed that the validity of a law is not tested by what has been done but by what
may be done under its provisions.19

II

Violation of Due Process

The constitutional safeguard of due process is briefly worded in Section 1, Article III of the
Constitution which states that, "no person shall be deprived of life, liberty or property without
due process of law."20

Substantive due process requires the intrinsic validity of the law in interfering with the rights of
the person to his property. The inquiry in this regard is not whether or not the law is being
enforced in accordance with the prescribed manner but whether or not, to begin with, it is a
proper exercise of legislative power.

To be so, the law must have a valid governmental objective, i.e., the interest of the public as
distinguished from those of a particular class, requires the intervention of the State. This
objective must be pursued in a lawful manner, or in other words, the means employed must be
reasonably related to the accomplishment of the purpose and not unduly oppressive.

There is no doubt that R.A. No. 9337 was enacted pursuant to a valid governmental objective,
i.e. to raise revenues for the government. However, with respect to the means employed to
accomplish such objective, I am convinced that R.A. No. 9337, particularly Sections 4, 5 and 6
thereof, are arbitrary and unduly oppressive.

A reading of the Senate deliberation reveals that the first condition constitutes a reward to the
President for her effective collection of VAT. Thus, the President may increase the VAT rate
from 10% to 12% if her VAT collection during the previous year exceeds 2 4/5% of the Gross
Domestic Product. I quote the deliberation:

Senator Lacson. Thank you, Mr. President. Now, I will go back to my original question, my first
question. Who are we threatening to punish on the imposed condition No. 1 – the public or the
President?

Senator Recto. That is not a punishment, that is supposed to be a reward system.

Senator Lacson. Yes, an incentive. So we are offering an incentive to the Chief Executive.

Senator Recto. That is right.

Senator Lacson. – in order for her to be able to raise the VAT to 12 %.

Senator Recto. That is right. That is the intention, yes.

xxxxxx

Senator Osmena. All right. Therefore, with the lifting of exemptions it stands to reason that
Value-added tax collections as a percentage of GDP will be much higher than… Now, if it is
higher than 2.5%, in other words, because they collected more, we will allow them to even
tax more. Is that the meaning of this particular phrase?

Senator Recto. Yes, Mr. President, that is why it is as low as 2.8%. It is like if a person has
a son and his son asks him for an allowance, I do not think that he would immediately give
his son an increase in allowance unless he tells his son, You better improve your grades and
I will give you an allowance. That is the analogy of this.

xxxxxx

Senator Osmena. So the gentleman is telling the President, If you collect more than 138
billion, I will give you additional powers to tax the people.

Senator Recto. x x x We are saying, kung mataas and grade mo, dadagdagan ko an
allowance mo. Katulad ng sinabi natin ditto. What we are saying here is you prove to me
that you can collect it, then we will increase your rate, you can raise your rate. It is an
incentive.21
Why authorize the President to increase the VAT rate on the premise alone that she deserves an
"incentive" or "reward"? Indeed, why should she be rewarded for performing a duty reposed
upon her by law?

The rationale stated by Senator Recto is flawed. One of the principles of sound taxation is fiscal
adequacy. The proceeds of tax revenue should coincide with, and approximate the needs of,
government expenditures. Neither an excess nor a deficiency of revenue vis-à-vis the needs of
government would be in keeping with the principle.22

Equating the grant of authority to the President to increase the VAT rate with the grant of
additional allowance to a studious son is highly inappropriate. Our Senators must have forgotten
that for every increase of taxes, the burden always redounds to the people. Unlike the additional
allowance given to a studious son that comes from the pocket of the granting parent alone, the
increase in the VAT rate would be shouldered by the masses. Indeed, mandating them to pay the
increased rate as an award to the President is arbitrary and unduly oppressive. Taxation is not a
power to be exercised at one’s whim.

III

Exclusive Origination from the

House of Representatives

Section 24, Article VI of the Constitution provides:

SEC. 24. All appropriations, revenue or tariff bills, bills authorizing increase of the public debt,
bills of local application, and private bills shall originate exclusively in the House of
Representatives, but the Senate may propose or concur with amendments.

In Tolentino vs. Secretary of Finance,23 this Court expounded on the foregoing provision by
holding that:

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

The case at bar gives us an opportunity to take a second hard look at the efficacy of the foregoing
jurisprudence.
Section 25, Article VI is a verbatim re-enactment of Section 18, Article VI of the 1935
Constitution. The latter provision was modeled from Section 7 (1), Article I of the United States
Constitution, which states:

"All bills for raising revenue shall originate in the House of Representatives, but the Senate may
propose or concur with amendments, as on other bills."

The American people, in entrusting what James Madison termed "the power of the purse" to their
elected representatives, drew inspiration from the British practice and experience with the House
of Commons. As one commentator puts it:

"They knew the inestimable value of the House of Commons, as a component branch of the
British parliament; and they believed that it had at all times furnished the best security against
the oppression of the crown and the aristocracy. While the power of taxation, of revenue, and
of supplies remained in the hands of a popular branch, it was difficult for usurpation to
exist for any length of time without check, and prerogative must yield of that necessity
which controlled at once the sword and the purse."

But while the fundamental principle underlying the vesting of the power to propose revenue bills
solely in the House of Representatives is present in both the Philippines and US Constitutions,
stress must be laid on the differences between the two quoted provisions. For one, the word
"exclusively" appearing in Section 24, Article VI of our Constitution is nowhere to be found in
Section 7 (1), Article I of the US Constitution. For another, the phrase "as on other bills,"
present in the same provision of the US Constitution, is not written in our Constitution.

The adverb "exclusively" means "in an exclusive manner."24 The term "exclusive" is defined as
"excluding or having power to exclude; limiting to or limited to; single, sole, undivided,
whole."25 In one case, this Court define the term "exclusive" as "possessed to the exclusion of
others; appertaining to the subject alone, not including, admitting, or pertaining to another or
others."26

As for the term "originate," its meaning are "to cause the beginning of; to give rise to; to
initiate; to start on a course or journey; to take or have origin; to be deprived; arise; begin
or start."27

With the foregoing definitions in mind, it can be reasonably concluded that when Section 24,
Article VI provides that revenue bills shall originate exclusively from the House of
Representatives, what the Constitution mandates is that any revenue statute must begin or start
solely and only in the House. Not the Senate. Not both Chambers of Congress. But there is more
to it than that. It also means that "an act for taxation must pass the House first." It is no
consequence what amendments the Senate adds.28

A perusal of the legislative history of R.A. No. 9337 shows that it did not "exclusively
originate" from the House of Representatives.
The House of Representatives approved House Bill Nos. 355529 and 370530. These Bills
intended to amend Sections 106, 107, 108, 109, 110, 111 and 114 of the NIRC. For its part, the
Senate approved Senate Bill No. 1950,31 taking into consideration House Bill Nos. 3555 and
3705. It intended to amend Sections 27, 28, 34, 106, 108, 109, 110, 112, 113, 114, 116, 117, 119,
121, 125, 148, 151, 236, 237 and 288 of the NIRC.

Thereafter, on April 13, 2005, a Committee Conference was created to thresh out the disagreeing
provisions of the three proposed bills.

In less than a month, the Conference Committee "after having met and discussed in full free and
conference," came up with a report and recommended the approval of the consolidated version of
the bills. The Senate and the House of Representatives approved it.

On May 23, 2005, the enrolled copy of the consolidated version of the bills was transmitted to
President Arroyo, who signed it into law. Thus, the enactment of R.A. No. 9337, entitled "An Act
Amending Sections 27, 28, 34, 106, 107, 108, 109, 110, 111, 112, 113, 114, 116, 117, 119, 121,
148, 151, 236, 237 and 288 of the National Internal Revenue Code of 1997, As Amended and For
Other Purposes."

Clearly, Senate Bill No. 1950 is not based on any bill passed by the House of Representatives. It
has a legislative identity and existence separate and apart from House Bills No. 3555 and 3705.
Instead of concurring or proposing amendments, Senate Bill No. 1950 merely "takes into
consideration" the two House Bills. To take into consideration means "to take into account."
Consideration, in this sense, means "deliberation, attention, observation or contemplation.32
Simply put, the Senate in passing Senate Bill No. 1950, a tax measure, merely took into account
House Bills No. 3555 and 3705, but did not concur with or amend either or both bills. As a
matter of fact, it did not even take these two House Bills as a frame of reference.

In Tolentino, the majority subscribed to the view that Senate may amend the House revenue bill
by substitution or by presenting its own version of the bill. In either case, the result is "two bills
on the same subject."33 This is the source of the "germaneness" rule which states that the Senate
bill must be germane to the bill originally passed by the House of Representatives. In Tolentino,
this was not really an issue as both the House and Senate Bills in question had one subject – the
VAT.

The facts obtaining here is very much different from Tolentino. It is very apparent that House
Bills No. 3555 and 3705 merely intended to amend Sections 106, 107, 108, 109, 110, 111 and
114 of the NIRC of 1997, pertaining to the VAT provisions. On the other hand, Senate Bill No.
1950 intended to amend Sections 27, 28, 34, 106, 108, 109, 110, 112, 113, 114, 116, 117, 119,
121, 125, 148, 151, 236, 237 and 288 of the NIRC, pertaining to matters outside of VAT, such as
income tax, percentage tax, franchise tax, taxes on banks and other financial intermediaries,
excise taxes, etc.

Thus, I am of the position that the Senate could not, without violating the germaneness rule and
the principle of "exclusive origination," propose tax matters not included in the House Bills.
WHEREFORE, I vote to CONCUR with the majority opinion except with respect to the points
above-mentioned.
 CONCURRING AND DISSENTING OPINION

CALLEJO, SR., J.:

I join the concurring and dissenting opinion of Mr. Justice Reynato S. Puno as I concur with the
majority opinion but vote to declare as unconstitutional the deletion of the "no-pass on
provision" contained in Senate Bill No. 1950 and House Bill No. 3705 (the constituent bills of
Republic Act No. 9337).

The present petitions provide an opportune

occasion for the Court to re-examine

Tolentino v. Secretary of Finance

In ruling that Congress, in enacting R.A. No. 9337, complied with the formal requirements of the
Constitution, the ponencia relies mainly on the Court’s rulings in Tolentino v. Secretary of
Finance.1 To recall, Tolentino involved Republic Act No. 7716, which similarly amended the
NIRC by widening the tax base of the VAT system. The procedural attacks against R.A. No.
9337 are substantially the same as those leveled against R.A. No. 7716, e.g., violation of the
"Origination Clause" (Article VI, Section 24) and the "Three-Reading Rule" and the "No-
Amendment Rule" (Article VI, Section 26[2]) of the Constitution.

The present petitions provide an opportune occasion for the Court to re-examine its rulings in
Tolentino particularly with respect to the scope of the powers of the Bicameral Conference
Committee vis-à-vis Article VI, Section 26(2) of the Constitution.

The crucial issue posed by the present petitions is whether the Bicameral Conference Committee
may validly introduce amendments that were not contained in the respective bills of the Senate
and the House of Representatives. As a corollary, whether it may validly delete provisions
uniformly contained in the respective bills of the Senate and the House of Representatives.

In Tolentino, the Court declared as valid amendments introduced by the Bicameral Conference
Committee even if these were not contained in the Senate and House bills. The majority opinion
therein held:

As to the possibility of an entirely new bill emerging out of a Conference Committee, it has been
explained:

Under congressional rules of procedures, conference committees are not expected to make any
material change in the measure at issue, either by deleting provisions to which both houses have
already agreed or by inserting new provisions. But this is a difficult provision to enforce. Note
the problem when one house amends a proposal originating in either house by striking out
everything following the enacting clause and substituting provisions which make it an entirely
new bill. The versions are now altogether different, permitting a conference committee to draft
essentially a new bill …
The result is a third version, which is considered an "amendment in the nature of a substitute,"
the only requirement for which being that the third version be germane to the subject of the
House and Senate bills.

Indeed, this Court recently held that it is within the power of a conference committee to include
in its report an entirely new provision that is not found either in the House bill or in the Senate
Bill. If the committee can propose an amendment consisting of one or two provisions,
collectively considered as an "amendment in the nature of a substitute," so long as such an
amendment is germane to the subject of the bills before the committee. After all, its report was
not final but needed the approval of both houses of Congress to become valid as an act of the
legislative department. The charge that in this case the Conference Committee acted a third
legislative chamber is thus without any basis.2

The majority opinion in Tolentino relied mainly on the practice of the United States legislature in
making the foregoing disquisition. It was held, in effect, that following the US Congress’
practice where a conference committee is permitted to draft a bill that is entirely different from
the bills of either the House of Representatives or Senate, the Bicameral Conference Committee
is similarly empowered to make amendments not found in either the House or Senate bills.

The ponencia upholds the acts of the Bicameral Conference Committee with respect to R.A. No.
9337, following the said ruling in Tolentino.

To my mind, this unqualified adherence by the majority opinion in Tolentino, and now by the
ponencia, to the practice of the US Congress and its conference committee system ought to be
re-examined. There are significant textual differences between the US Federal Constitution’s and
our Constitution’s prescribed congressional procedure for enacting laws. Accordingly, the degree
of freedom accorded by the US Federal Constitution to the US Congress markedly differ from
that accorded by our Constitution to the Philippine Congress.

Section 7, Article I of the US Federal Constitution reads:

[1] All Bills for raising Revenue shall originate in the House of Representatives; but the Senate
may propose or concur with Amendments as on other Bills.

[2] Every Bill which shall have passed the House of Representatives and the Senate, shall, before
it become a Law, be presented to the President of the United States; If he approve he shall it, but
if not he shall return it, with his Objections to the House in which it shall have originated, who
shall enter the Objections at large on their Journal, and proceed to reconsider it. If after such
Reconsideration two thirds of that House shall agree to pass the Bill, it shall be sent together with
the Objections, to the other House, by which it shall, likewise, be reconsidered, and if approved
by two thirds of that House, it shall become a Law. But in all such Cases the Votes of both
Houses shall be determined by yeas and Nays, and the Names of the Persons voting for and
against the Bill shall be entered on the Journal of each House respectively. If any Bill shall not
be returned by the President within ten Days (Sundays excepted) after it shall have been
presented to him, the Same shall be a Law, in like Manner as if he had signed it, unless the
Congress by their Adjournment prevent its return in which Case it shall not be a Law.
[3] Every Order, Resolution, or Vote to Which the Concurrence of the Senate and House of
Representatives may be necessary (except on a question of Adjournment) shall be presented to
the President of the United States; and before the Same shall take Effect, shall be approved by
him, or being disapproved by him, shall be repassed by two thirds of the Senate and House of
Representatives, according to the Rules and Limitations prescribed in the Case of a Bill.

On the other hand, Article VI of our Constitution prescribes for the following procedure for
enacting a law:

Sec. 26. (1) Every bill passed by Congress shall embrace only one subject which shall be
expressed in the title thereof.

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

Sec. 27. (1) Every bill passed by Congress shall, before it becomes a law, be presented to the
President. If he approves the same, he shall sign it; otherwise, he shall veto it and return the same
with his objections to the House where it originated, which shall enter the objections at large in
its Journal and proceed to reconsider it. If, after such reconsideration, two-thirds of all the
Members of such House shall agree to pass the bill, it shall be sent, together with the objections,
to the other House by which it shall likewise be reconsidered, and if approved by two-thirds of
all the Members of that House, it shall become a law. In all such cases, the votes of each House
shall be determined by yeas and nays, and the names of the Members voting for or against shall
be entered in its Journal. The President shall communicate his veto of any bill to the House
where it originated within thirty days after the date of receipt thereof; otherwise, it shall become
a law as if he had signed it.

(2) The President shall have the power to veto any particular item or items in an appropriation,
revenue, or tariff bill, but the veto shall not affect the item or items to which he does not object.

Two distinctions are readily apparent between the two procedures:

1. Unlike the US Federal Constitution, our Constitution prescribes the "three-reading" rule or
that no bill shall become a law unless it shall have been read on three separate days in each house
except when its urgency is certified by the President; and

2. Unlike the US Federal Constitution, our Constitution prescribes the "no-amendment" rule or
that no amendments shall be allowed upon the last reading of the bill.

American constitutional experts have lamented that certain congressional procedures have not
been entrenched in the US Federal Constitution. According to a noted constitutional law
professor, the absence of the "three-reading" requirement as well as similar legislative-procedure
rules from the US Federal Constitution is a "cause for regret."3

In this connection, it is interesting to note that the conference committee system in the US
Congress has been described in this wise:

Conference Committees

Another main mechanism of joint House and Senate action is the conference committee.
Inherited from the English Constitution, the conference committee system is an evolutionary
product whose principal threads were woven on the loom of congressional practice into a unified
pattern by the middle of the nineteenth century. "By 1852," writes Ada McCown, historian of the
origin and development of the conference committee, "the customs of presenting identical
reports from the committees of conference in both houses, of granting high privilege to these
conference reports, of voting upon the conference report as a whole and permitting no
amendment of it, of keeping secret the discussions carried on in the meetings of the conference
committee, had become established in American parliamentary practice."

Conference committees are composed of Senators and Representatives, usually three each,
appointed by the presiding officers of both houses, for the purpose of adjusting differences
between bills they have passed. This device has been extensively used by every Congress since
1789. Of the 1157 laws enacted by the 78th Congress, for example, 107 went through conference
and, of these, 36 were appropriation bills on which the House had disagreed to Senate
amendments. In practice, most important legislation goes through the conference closet and is
there revised, sometimes beyond recognition, by the all-powerful conferees or managers, as they
are styled. A large body of law and practice has been built up over the years governing
conference procedure and reports.

Suffice it to say here that serious evils have marked the development of the conference
committee system. In the first place, it is highly prodigal of members’ time. McConachie
calculated that the average time consumed in conference was 33 days per bill. Bills are sent to
conference without reading the amendments of the other chamber. 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. This
happened during the 78th Congress, for instance, when an important amendment to the surplus
property bill, which had been approved by both houses, was deleted in conference.

Conference committees, moreover, suffer like other committees from the seniority rule. The
senior members of the committees concerned, who are customarily appointed as managers on the
part of the House and Senate, are not always the best informed on the questions at issue, nor do
they always reflect the majority sentiment of their houses. Furthermore, conference reports must
be accepted or rejected in toto without amendment and they are often so complex and obscure
that they are voted upon without knowledge of their contents. 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, thus putting it, as Senator Hoar once declared, under a
degrading duress.

It is also alleged that under this secret system lobbyist are able to kill legislation they dislike and
that "jokers" designed to defeat the will of Congress can be inserted without detection. Senator
George W. Norris once characterized the conference committee as a third house of Congress.
"The members of this ‘house,’ he said, "are not elected by the people. The people have no voice
as to who these members shall be ... This conference committee is many times, in very important
matters of legislation, the most important branch of our legislature. There is no record kept of the
workings of the conference committee. Its work is performed, in the main, in secret. No
constituent has any definite knowledge as to how members of this conference committee vote,
and there is no record to prove the attitude of any member of the conference committee ... 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. And for practical purposes, in most cases, it is impossible to defeat the legislation
proposed by this conference committee. Every experienced legislator knows that it is the hardest
thing in the world to defeat a conference report."

Despite these admitted evils, impartial students of the conference committee system defend it on
net balance as an essential part of the legislative process. Some mechanism for reconciling
differences under bicameral system is obviously indispensable. The remedy for the defects of the
device is not to abolish it, but to keep it under congressional control. This can be done by
enforcing the rules which prohibit the inclusion in conference reports of matter not committed to
them by either house and forbid the deletion of items approved by both bodies; by permitting
conference managers to report necessary new matter separately and the houses to consider it
apart from the conference report; by fixing a deadline toward the close of a session after which
no bills could be sent to conference, so as to eliminate congestion at the end of the session – a
suggestion made by the elder Senator La Follete in 1919; by holding conferences in sessions
open to the public, letting conference reports lie over longer, and printing them in bill form (with
conference changes in italics) so as to allow members more time to examine them and discover
"jokers."4

The "three-reading" and "no-amendment" rules, absent in the US Federal Constitution, but
expressly mandated by Article VI, Section 26(2) of our Constitution are mechanisms instituted to
remedy the "evils" inherent in a bicameral system of legislature, including the conference
committee system.

Sadly, the ponencia’s refusal to apply Article VI, Section 26(2) of the Constitution on the
Bicameral Conference Committee and the amendments it introduced to R.A. No. 9337 has
"effectively dismantled" the "three-reading rule" and "no-amendment rule." As posited by Fr.
Joaquin Bernas, a member of the Constitutional Commission:

In a bicameral system, bills are independently processed by both House of Congress. It is not
unusual that the final version approved by one House differs from what has been approved by the
other. The "conference committee," consisting of members nominated from both Houses, is an
extra-constitutional creation of Congress whose function is to propose to Congress ways of
reconciling conflicting provisions found in the Senate version and in the House version of a bill.
It performs a necessary function in a bicameral system. However, since conference committees
have merely delegated authority from Congress, they should not perform functions that Congress
itself may not do. Moreover, their proposals need confirmation by both Houses of Congress.

In Tolentino v. Secretary of Finance, the Court had the opportunity to delve into the limits of
what conference committees may do. The petitioners contended that the consolidation of the
House and Senate bills made by the conference committee contained provisions which neither
the Senate bill nor the House bill had. In her dissenting opinion, Justice Romero laid out in great
detail the provisions that had been inserted by the conference committee. These provisions,
according to the petitioners had been introduced "surreptitiously" during a closed door meeting
of the committee.

The Court’s answer to this was that in United States practice conference committees could be
held in executive sessions and amendments germane to the purpose of the bill could be
introduced even if these were not in either original bill. But the Court did not bother to check
whether perhaps the American practice was based on a constitutional text different from that of
the Philippine Constitution.

There are as a matter of fact significant differences in the degree of freedom American and
Philippine legislators have. The only rule that binds the Federal Congress is that it may formulate
its own rules of procedure. For this reason, the Federal Congress is master of its own procedures.
It is different with the Philippine Congress. Our Congress indeed is also authorized to formulate
its own rules of procedure – but within limits not found in American law. For instance, there is
the "three readings on separate days" rule. Another important rule is that no amendments may be
introduced by either house during third reading. These limitations were introduced by the 1935
and 1973 Constitutions and confirmed by the 1987 Constitution as a defense against the
inventiveness of the stealthy and surreptitious. These, however, were disregarded by the Court in
Tolentino in favor of contrary American practice.

This is not to say that conference committees should not be allowed. But an effort should be
made to lay out the scope of what conference committees may do according to the requirements
and the reasons of the Philippine Constitution and not according to the practice of the American
Congress. For instance, if the two Houses are not allowed to introduce and debate amendments
on third reading, can they circumvent this rule by coursing new provisions through the
instrumentality of a conference committee created by Congress and meeting in secret? The effect
of the Court’s uncritical embrace of the practice of the American Congress and its conference
committees is to dismantle the no-amendment rule.5

The task at hand for the Court, but which the ponencia eschews, is to circumscribe the powers of
the Bicameral Conference Committee in light of the "three-reading" and "no-amendment" rules
in Article VI, Section 26(2) of the Constitution.

The Bicameral Conference Committee, in

deleting the "no pass on provision" contained in

Senate Bill No. 1950 and House Bill No. 3705,

violated Article VI , Section 26(2) of the Constitution

Pertinently, in his dissenting opinion in Tolentino, Justice Davide (now Chief Justice) opined that
the duty of the Bicameral Conference Committee was limited to the reconciliation of disagreeing
provisions or the resolution of differences or inconsistencies. This proposition still applies as can
be gleaned from the following text of Sections 88 and 89, Rule XIV of the Rules of the House of
Representatives:

Sec. 88. Conference Committee. – In the event that the House does not agree with the Senate on
the amendments to any bill or joint resolution, the differences may be settled by the conference
committees of both chambers.

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

Sec. 89. Conference Committee Reports. - …Each report shall contain a detailed, sufficiently
explicit statement of the changes in or amendments to the subject measure.

The Chairman of the House panel may be interpellated on the Conference Committee Report
prior to the voting thereon. The House shall vote on the Conference Committee report in the
same manner and procedure as it votes on a bill on third and final reading.

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

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

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

Justice Davide further explained that under its limited authority, the Bicameral Conference
Committee could only (a) restore, wholly or partly, the specific provisions of the House Bill
amended by the Senate Bill; (b) sustain, wholly or partly, the Senate’s amendments, or (c) by
way of compromise, to agree that neither provisions in the House Bill amended by the Senate nor
the latter’s amendments thereto be carried into the final form of the former. Justice Romero, who
also dissented in Tolentino, added that the conference committee is not authorized to initiate or
propose completely new matters although under certain legislative rules like the Jefferson’s
Manual, a conference committee may introduce germane matters in a particular bill. However,
such matters should be circumscribed by the committee’s sole authority and function to reconcile
differences.

In the case of R.A. No. 9337, the Bicameral Conference Committee made an "amendment by
deletion" with respect to the "no pass on provision" contained in both House Bill (HB) No. 3705
and Senate Bill (SB) No. 1950. HB 3705 proposed to amend Sections 106 and 108 of the NIRC
by expressly stating therein that sellers of petroleum products and power generation companies
selling electricity are prohibited from passing on the VAT to the consumers. SB 1950 proposed
to amend Section 108 by likewise prohibiting power generation companies from passing on the
VAT to the consumers. However, these "no pass on provisions" were altogether deleted by the
Bicameral Conference Committee. At the least, since there was no disagreement between HB
3705 and SB 1950 with respect to the "no pass on provision" on the sale of electricity, the
Bicameral Conference Committee acted beyond the scope of its authority in deleting the
pertinent proviso.

At this point, it is well to recall the rationale for the "no-amendment rule" and the "three-reading
rule" in Article VI, Section 26(2) of the Constitution. The proscription on amendments upon the
last reading is intended to subject all bills and their amendments to intensive deliberation by the
legislators and the ample ventilation of issues to afford the public an opportunity to express their
opinions or objections thereon.6 Analogously, it is said that the "three-reading rule" operates "as
a self-binding mechanism that allows the legislature to guard against the consequences of its own
future passions, myopia, or herd behavior. By requiring that bills be read and debated on
successive days, legislature may anticipate and forestall future occasions on which it will be
seized by deliberative pathologies."7 As Jeremy Bentham, a noted political analyst, put it: "[t]he
more susceptible a people are of excitement and being led astray, so much the more ought they to
place themselves under the protection of forms which impose the necessity of reflection, and
prevent surprises."8

Reports of the Bicameral Conference Committee, especially in cases where substantial

amendments, or in this case deletions, have been made to the respective bills of either house of
Congress, ought to undergo the "three-reading" requirement in order to give effect to the letter
and spirit of Article VI, Section 26(2) of the Constitution.

The Bicameral Conference Committee Report that eventually became R.A. No. 9337, in fact,
bolsters the argument for the strict compliance by Congress of the legislative procedure
prescribed by the Constitution. As can be gleaned from the said Report, of the 9 Senators-
Conferees,9 only 5 Senators10 unqualifiedly approved it. Senator Joker P. Arroyo expressed his
qualified dissent while Senators Sergio R. Osmeña III and Juan Ponce Enrile approved it with
reservations. On the other hand, of the twenty-eight (28) Members of the House of
Representatives-Conferees,11 fourteen (14)12 approved the same with reservations while three13
voted no. All the reservations expressed by the conferees relate to the deletion of the "no pass on
provision." Only eleven (11) unqualifiedly approved it. In other words, even among themselves,
the conferees were not unanimous on their Report. Nonetheless, Congress approved it without
even thoroughly discussing the reservations or qualifications expressed by the conferees therein.

This "take it or leave it" stance vis-à-vis conference committee reports opens the possibility of
amendments, which are substantial and not even germane to the original bills of either house,
being introduced by the conference committees and voted upon by the legislators without
knowledge of their contents. This practice cannot be countenanced as it patently runs afoul of the
essence of Article VI, Section 26(2) of the Constitution. Worse, it is tantamount to Congress
surrendering its legislative functions to the conference committees.

Ratification by Congress did not cure the

unconstitutional act of the Bicameral Conference

Committee of deleting the "no pass on provision"

That both the Senate and the House of Representatives approved the Bicameral Conference
Committee Report which deleted the "no pass on provision" did not cure the unconstitutional act
of the said committee. As succinctly put by Chief Justice Davide in his dissent in Tolentino,
"[t]his doctrine of ratification may apply to minor procedural flaws or tolerable breaches of the
parameters of the bicameral conference committee’s limited powers but never to violations of the
Constitution. Congress is not above the Constitution."14

Enrolled Bill Doctrine is not applicable where, as in

this case, there is grave violation of the Constitution

As expected, the ponencia invokes the enrolled bill doctrine to buttress its refusal to pass upon
the validity of the assailed acts of the Bicameral Conference Committee. Under the "enrolled bill
doctrine," the signing of a bill by the Speaker of the House and the Senate President and the
certification of the Secretaries of both houses of Congress that it was passed are conclusive of its
due enactment. In addition to Tolentino, the ponencia cites Fariñas v. Executive Secretary15
where the Court declined to go behind the enrolled bill vis-à-vis the allegations of the petitioners
therein that irregularities attended the passage of Republic Act No. 9006, otherwise known as the
Fair Election Act.

Reliance by the ponencia on Fariñas is quite misplaced. The Court’s adherence to the enrolled
bill doctrine in the said case was justified for the following reasons:

The Court finds no reason to deviate from the salutary in this case where the irregularities
alleged by the petitioners mostly involved the internal rules of Congress, whether House or
Senate. Parliamentary rules are merely procedural and with their observance the courts have no
concern. Whatever doubts there may be as to the formal validity of Rep. Act No. 9006 must be
resolved in its favor. The Court reiterates its ruling in Arroyo v. De Venecia, viz.:
But the cases, both here and abroad, in varying forms of expression, all deny to the courts the
power to inquire into the allegations that, in enacting a law, a House of Congress failed to
comply with its own rules, in the absence of showing that there was a violation of a
constitutional provision or the rights of private individuals. In Osmeña v. Pendatun, it was held:
"At any rate, courts have declared that ‘the rules adopted by deliberative bodies are subject to
revocation, modification or waiver at the pleasure of the body adopting them.’ And it has been
said that ‘Parliamentary rules are merely procedural, and with their observance, the courts have
no concern. They may be waived or disregarded by the legislative body.’ Consequently, ‘mere
failure to conform to parliamentary usage will not invalidate the action (taken by a deliberative
body) when the requisite number of members have agreed to a particular measure.16

Thus, in Fariñas, the Court’s refusal to go behind the enrolled bill was based on the fact that the
alleged irregularities that attended the passage of R.A. No. 9006 merely involved the internal
rules of both houses of Congress. The procedural irregularities allegedly committed by the
conference committee therein did not amount to a violation of a provision of the Constitution.17

In contrast, the act of the Bicameral Conference Committee of deleting the "no pass on
provision" of SB 1950 and HB 3705 infringe Article VI, Section 26(2) of the Constitution. The
violation of this constitutional provision warrants the exercise by the Court of its
constitutionally-ordained power to strike down any act of a branch or instrumentality of
government or any of its officials done with grave abuse of discretion amounting to lack or
excess of jurisdiction.18

ACCORDINGLY, I join the concurring and dissenting opinion of Mr. Justice Reynato S. Puno
and vote to dismiss the petitions with respect to Sections 4, 5 and 6 of Republic Act No. 9337 for
being premature. Further, I vote to declare as unconstitutional Section 21 thereof and the deletion
of the "no pass on provision" contained in the constituent bills of Republic Act No. 9337.
 CONCURRING AND DISSENTING OPINION

AZCUNA, J.:

Republic Act No. 9337, the E-VAT law, is assailed as an unconstitutional abdication of Congress
of its power to tax through its delegation to the President of the decision to increase the rate of
the tax from 10% to 12%, effective January 1, 2006, after any of two conditions has been
satisfied.1

The two conditions are:

(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous
year exceeds two and four-fifth percent (2 4/5%); or

(ii) National government deficit as a percentage of GDP of the previous year exceeds one and
one-half percent (1 ½%).2

A scrutiny of these "conditions" shows that one of them is certain to happen on January 1, 2006.

The first condition is that the collection from the E-VAT exceeds 2 4/5% of the Gross Domestic
Product (GDP) of the previous year, a ratio that is known as the tax effort.

The second condition is that the national government deficit exceeds 1 ½% of the GDP of the
previous year.

Note that the law says that the rate shall be increased if any of the two conditions happens, i.e., if
condition (i) or condition (ii) occurs.

Now, in realistic terms, considering the short time-frame given, the only practicable way that the
present deficit of the national government can be reduced to 1 ½% or lower, thus preventing
condition (ii) from happening, is to increase the tax effort, which mainly has to come from the E-
VAT. But increasing the tax effort through the E-VAT, to the extent needed to reduce the
national deficit to 1 ½% or less, will trigger the happening of condition (i) under the law. Thus,
the happening of condition (i) or condition (ii) is in reality certain and unavoidable, as of January
1, 2006.

This becomes all the more clear when we consider the figures provided during the oral
arguments.

The Gross Domestic Product for 2005 is estimated at ₱5.3 Trillion pesos.

The tax effort of the present VAT is now at 1.5%.

The national budgetary deficit against the GDP is now at 3%.

So to reduce the deficit to 1.5% from 3%, one has to increase the tax effort from VAT, now at
1.5%, to at least 3%, thereby exceeding the 2 4/5 percent ceiling in condition (i), making
condition (i) happen.

If, on the other hand, this is not done, then condition (ii) happens – the budget deficit remains
over 1.5%.

What is the result of this? The result is that in reality, the law does not impose any condition, or
the rate increase thereunder, from 10% to 12%, effective January 1, 2006, is unconditional. For a
condition is an event that may or may not happen, or one whose occurrence is uncertain.3 Now
while condition (i) is indeed uncertain and condition (ii) is likewise uncertain, the combination of
both makes the occurrence of one of them certain.

Accordingly, there is here no abdication by Congress of its power to fix the rate of the tax since
the rate increase provided under the law, from 10% to 12%, is definite and certain to occur,
effective January 1, 2006. All that the President will do is state which of the two conditions
occurred and thereupon implement the rate increase.

At first glance, therefore, it would appear that the decision to increase the rate is to be made by
the President, or that the increase is still uncertain, as it is subject to the happening of any of two
conditions.

Nevertheless, the contrary is true and thus it would be best in these difficult and critical times to
let our people know precisely what burdens they are being asked to bear as the necessary means
to recover from a crisis that calls for a heroic sacrifice by all.

It is for this reason that the Court required respondents to submit a copy of the rules to
implement the E-VAT, particularly as to the impact of the tax on prices of affected commodities,
specially oil and electricity. For the onset of the law last July 1, 2005 was confusing, resulting in
across-the-board increases of 10% in the prices of commodities. This is not supposed to be the
effect of the law, as was made clear during the oral arguments, because the law also contains
provisions that mitigate the impact of the E-VAT through reduction of other kinds of taxes and
duties, and other similar measures, specially as to goods that go into the supply chain of the
affected products. A proper implementation of the E-VAT, therefore, should cause only the
appropriate incremental increase in prices, reflecting the net incremental effect of the tax, which
is not necessarily 10%, but possibly less, depending on the products involved.

The introduction of the mitigating or cushioning measures through the Senate or through the
Bicameral Conference Committee, is also being questioned by petitioners as unconstitutional for
violating the rule against amendments after third reading and the rule that tax measures must
originate exclusively in the House of Representatives (Art. VI, Secs. 24 and 26 [2],
Constitution). For my part, I would rather give the necessary leeway to Congress, as long as the
changes are germane to the bill being changed, the bill which

originated from the House of Representatives, and these are so, since these were precisely the
mitigating measures that go hand-on-hand with the E-VAT, and are, therefore, essential -- and
hopefully sufficient -- means to enable our people to bear the sacrifices they are being asked to
make. Such an approach is in accordance with the Enrolled Bill Doctrine that is the prevailing
rule in this jurisdiction. (Tolentino v. Secretary of Finance, 249 SCRA 628 [1994]). The
exceptions I find are the provisions on corporate income taxes, which are not germane to the E-
VAT law, and are not found in the Senate and House bills.

I thus agree with Chief Justice Hilario G. Davide, Jr. in his separate opinion that the following
are not germane to the E-VAT legislation:

Amended TAX

CODE Provision Subject Matter

Section 27 Rate of income tax on domestic corporations

Section 28(A)(1) Rate of income tax on resident foreign corporations

Section 28(B)(1) Rate of income tax on non-resident foreign corporations

Section 28(B)(5-b) Rate of income tax on intercorporate dividends received by non-resident

foreign corporations

Section 34(B)(1) Deduction from gross income

Similarly, I agree with Justice Artemio V. Panganiban in his separate opinion that the following
are not germane to the E-VAT law:

"Sections 1, 2, and 3 of the Republic Act No. 9337…, in so far as these sections (a) amend the
rates of income tax on domestic, resident foreign, and nonresident foreign corporations; (b)
amend the tax credit against taxes due from nonresident foreign corporations on the
intercorporate dividends; and (c) reduce the allowable deduction from interest expense."

Respondents should, in any case, now be able to implement the E-VAT law without confusion
and thereby achieve its purpose.4

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.
 DISSENTING OPINION

Tinga, J.:

The E-VAT Law,1 as it stands, will exterminate our country’s small to medium enterprises.
This will be the net effect of affirming Section 8 of the law, which amends Sections 110 of the
National Internal Revenue Code (NIRC) by imposing a seventy percent (70%) cap on the
creditable input tax a VAT-registered person may apply every quarter and a mandatory sixty (60)
-month amortization period on the input tax on goods purchased or imported in a calendar month
if the acquisition cost of such goods exceeds One Million Pesos (₱1,000,000.00).

Taxes may be inherently punitive, but when the fine line between damage and destruction
is crossed, the courts must step forth and cut the hangman’s noose. Justice Holmes once
confidently asserted that "the power to tax is not the power to destroy while this Court sits", and
we should very well live up to this expectation not only of the revered Holmes, but of the
Filipino people who rely on this Court as the guardian of their rights. At stake is the right to
exist and subsist despite taxes, which is encompassed in the due process clause.

I respectfully submit these views while maintaining the deepest respect for the prerogative of the
legislature to impose taxes, and of the national government to chart economic policy. Such
respect impels me to vote to deny the petitions in G.R. Nos. 168056, 168207, 168463,2 and
168730, even as I acknowledge certain merit in the challenges against the E-VAT law that are
asserted in those petitions. In the final analysis, petitioners therein are unable to convincingly
demonstrate the constitutional infirmity of the provisions they seek to assail. The only exception
is Section 21 of the law, which I consider unconstitutional, for reasons I shall later elaborate.

However, I see the petition in G.R. No. 168461 as meritorious and would vote to grant it.
Accordingly, I dissent and hold as unconstitutional Section 8 of Republic Act No. 9337, insofar
as it amends Section 110(A) and (B) of the National Internal Revenue Code (NIRC) as well as
Section 12 of the same law, with respect to its amendment of Section 114(C) of the NIRC.

The first part of my discussion pertains to the petitions in G.R. Nos. 168056, 168207, 168463,
and 168730, while the second part is devoted to what I deem the most crucial issue before the
Court, the petition in G.R. No. 168461.

I.

Undue Delegation and the Increase

Of the VAT Rate

My first point pertains to whether or not Sections 4, 5 and 6 of the E-VAT Law constitutes an
undue delegation of legislative power. In appreciating the aspect of undue delegation as regards
taxation statutes, the fundamental point remains that the power of taxation is inherently
legislative,3 and may be imposed or revoked only by the legislature.4 In tandem with Section 1,
Article VI of the Constitution which institutionalizes the law-making power of Congress, Section
24 under the same Article crystallizes this principle, as it provides that "[a]ll appropriation,
revenue or tariff bills … shall originate exclusively in the House of Representatives."5

Consequently, neither the executive nor judicial branches of government may originate tax
measures. Even if the President desires to levy new taxes, the imposition cannot be done by mere
executive fiat. In such an instance, the President would have to rely on Congress to enact tax
laws.

Moreover, this plenary power of taxation cannot be delegated by Congress to any other branch of
government or private persons, unless its delegation is authorized by the Constitution itself.6 In
this regard, the situation stands different from that in the recent case Southern Cross v.
PHILCEMCOR,7 wherein I noted in my ponencia that the Tariff Commission and the DTI
Secretary may be regarded as agents of Congress for the purpose of imposing safeguard
measures. That pronouncement was made in light of Section 28(2) Article VI, which allows
Congress to delegate to the President through law the power to impose tariffs and imposts,
subject to limitations and restrictions as may be ordained by Congress. In the case of taxes, no
such constitutional authorization exists, and the discretion to ascertain the rates, subjects, and
conditions of taxation may not be delegated away by Congress.

However, as the majority correctly points out, the power to ascertain the facts or conditions as
the basis of the taking into effect of a law may be delegated by Congress,8 and that the details as
to the enforcement and administration of an exercise of taxing power may be delegated to
executive agencies, including the power to determine the existence of facts on which its
operation depends.9

Proceeding from these principles, Sections 4, 5, and 6 of the E-VAT Law warrant examination.
The provisions read:

SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended to read as follows:

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

(A) Rate and Base of Tax. — There shall be levied, assessed and collected on every sale, barter
or exchange of goods or properties, a value-added tax equivalent to ten percent (10%) of the
gross selling price or gross value in money of the goods or properties sold, bartered or
exchanged, such tax to be paid by the seller or transferor; provided, that the President, upon
the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the
rate of value-added tax to twelve percent (12%), after any of the following conditions has
been satisfied.

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

(ii) national government deficit as a percentage of GDP of the previous year exceeds one
and one-half percent 1 ½%).
Sec. 5. Section 107 of the same Code, as amended, is hereby further amended to read as follows:

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

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

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

(ii) government deficit as a percentage of GDP of the previous year exceeds one and one-
half percent (1 ½%).

SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to read as
follows:

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

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

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

(ii) national government deficit as a percentage of GDP of the previous year exceed same and
on-half percent (1 ½%).

The petitioners deem as noxious the proviso common to these provisions that "the President,
upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the
rate of value-added tax to twelve percent (12%)," after the satisfaction of the twin conditions that
value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous
year exceeds two and four-fifth percent (2 4/5%); or that the national government deficit as a
percentage of GDP of the previous year exceed same and on-half percent (1 ½%).

At first blush, it does seem that the assailed provisions are constitutionally deficient. It is
Congress, and not the President, which is authorized to raise the rate of VAT from 10% to 12%,
no matter the circumstance. Yet a closer analysis of the proviso reveals that this is not exactly the
operative effect of the law. The qualifier "shall" denotes a mandatory, rather than discretionary
function on the part of the President to raise the rate of VAT to 12% upon the existence of any of
the two listed conditions.

Since the President is not given any discretion in refusing to raise the VAT rate to 12%, there is
clearly no delegation of the legislative power to tax by Congress to the executive branch. The use
of the word "shall" obviates any logical construction that would allow the President leeway in
not raising the tax rate. More so, it is accepted that the principle of constitutional construction
that every presumption should be indulged in favor of constitutionality and the court in
considering the validity of the 'statute in question should give it such reasonable construction as
can be reached to bring it within the fundamental law.10 While all reasonable doubts should be
resolved in favor, of the constitutionality of a statute,11 it should necessarily follow that the
construction upheld should be one that is not itself noxious to the Constitution.

Congress should be taken to task for imperfect draftsmanship at least. Much trouble would have
been avoided had the provisos instead read: "that effective January 1, 2006, the rate of value-
added tax shall be raised to twelve percent (12%), after any of the following conditions has been
satisfied xxx." This, after all is the operative effect of the provision as it stands. In relation to the
operation of the tax increase, the denominated role of the President and the Secretary of Finance
may be regarded as a superfluity, as their imprimatur as a precondition to the increase of the
VAT rate must have no bearing.

Nonetheless, I cannot ignore the fact that both the President and the Secretary of Finance have
designated roles in the implementation of the tax increase. Considering that it is Congress, and
not these officials, which properly have imposed the increase in the VAT rate, how should these
roles be construed?

The enactment of a law should be distinguished from its implementation. Even if it is Congress
which exercises the plenary power of taxation, it is not the body that administers the
implementation of the tax. Under Section 2 of the National Internal Revenue Code (NIRC), the
assessment and collection of all national internal revenue taxes, and the enforcement of all
forefeitures, penalties and fines connected therewith had been previously delegated to the Bureau
of Internal Revenue, under the supervision and control of the Department of Finance.12

Moreover, as intimated earlier, Congress may delegate to other components of the government
the power to ascertain the facts or conditions as the basis of the taking into effect of a law. It
follows that ascertainment of the existence of the two conditions precedent for the increase as
stated in the law could very well be delegated to the President or the Secretary of Finance.13

Nonetheless, the apprehensions arise that the process of ascertainment of the listed conditions
delegated to the Secretary of Finance and the President effectively vest discretionary authority to
raise the VAT rate on the President, through the subterfuges that may be employed to delay the
determination, or even to manipulate the factual premises. Assuming arguendo that these feared
abuses may arise, I think it possible to seek judicial enforcement of the increased VAT rate, even
without the participation or consent of the President or Secretary of Finance, upon indubitable
showing that any of the two listed conditions do exist. After all, the Court is ruling that the
increase in the VAT rate is mandatory and beyond the discretion of the President to impose or
delay.

The majority states that in making the recommendation to the President on the existence of either
of the two conditions, the Secretary of Finance is acting as the agent of the legislative branch, to
determine and declare the event upon which its expressed will is to take effect.14 This recognition
of agency must be qualified. I do not doubt the ability of Congress to delegate to the Secretary of
Finance administrative functions in the implementation of tax laws, as it does under Section 2 of
the NIRC. Yet it would be impermissible for Congress to delegate to the Secretary of Finance the
plenary function of enacting a tax law. As stated earlier, the situation stands different from that in
Southern Cross wherein the Constitution itself authorizes the delegation by Congress through a
law to the President of the discretion to impose tariff measures, subject to restrictions and
limitations provided in the law.15 Herein, Congress cannot delegate to either the President or the
Secretary of Finance the discretion to raise the tax, as such power belongs exclusively to the
legislative branch.

Perhaps the term "agency" is not most suitable in describing the delegation exercised by
Congress in this case, for agency implies that the agent takes on attributes of the principal by
reason of representative capacity. In this case, whatever "agency" that can be appreciated would
be of severely limited capacity, encompassing as it only could the administration, not enactment,
of the tax measure.

I do not doubt the impression left by the provisions that it is the President, and not Congress,
which is authorized to raise the VAT rate. On paper at least, these imperfect provisions could be
multiple sources of mischief. On the political front, whatever blame or scorn that may be
attended with the increase of the VAT rate would fall on the President, and not on Congress
which actually increased the tax rate. On the legal front, a President averse to increasing the
VAT rate despite the existence of the two listed conditions may take refuge in the infelicities of
the provision, and refuse to do so on the ground that the law, as written, implies some form of
discretion on the part of the President who was, after all, "authorized" to increase the tax rate. It
is critical for the Court to disabuse this notion right now.

The Continued Viability of

Tolentino v. Secretary of Finance

One of the more crucial issues now before us, one that has seriously divided the Court, pertains
to the ability of the Bicameral Conference Committee to introduce amendments to the final bill
which were not contained in the House bill from which the E-VAT Law originated. Most of the
points addressed by the petitioners have been settled in our ruling in Tolentino v. Secretary of
Finance,16 yet a revisit of that precedent is urged upon this Court. On this score, I offer my
qualified concurrence with the ponencia.

Two key provisions of the Constitution come into play: Sections 24 and 26(2), Article VI of the
Constitution. They read:
Section 24: All appropriation, revenue or tariff bills, bills authorizing increase of the public debt,
bills of local application, and private bills shall originate exclusively in the House of
Representatives, but the Senate may propose or concur with amendments.

Section 26(2): No bill passed by either House shall become a law unless it has passed three
readings on separate days, and printed copies thereof in its final form have been distributed to its
Members three days before its passage, except when the President certifies to the necessity of its
immediate enactment to meet a public calamity or emergency. Upon the last reading of a bill, no
amendment thereto shall be allowed, and the vote thereon shall be taken immediately thereafter,
and the yeas and nays entered in the Journal.

Section 24 is also known as the origination clause, which derives origin from British practice.
From the assertion that the power to tax the public at large must reside in the representatives of
the people, the principle evolved that money bills must originate in the House of Commons and
may not be amended by the House of Lords.17 The principle was adopted across the shores in the
United States, and was famously described by James Madison in The Federalist Papers as
follows:

This power over the purse, may in fact be regarded as the most compleat and effectual weapon
with which any constitution can arm the immediate representatives of the people, for obtaining a
redress of every grievance, and for carrying into effect every just and salutary measure.18

There is an eminent difference from the British system from which the principle emerged, and
from our own polity. To this day, only members of the British House of Commons are directly
elected by the people, with the members of the House of Lords deriving their seats from
hereditary peerage. Even in the United States, members of the Senate were not directly elected
by the people, but chosen by state legislatures, until the adoption of the Seventeenth Amendment
in 1913. Hence, the rule assured the British and American people that tax legislation arises with
the consent of the sovereign people, through their directly elected representatives. In our country
though, both members of the House and Senate are directly elected by the people, hence the
vitality of the original conception of the rule has somewhat lost luster.

Still, the origination clause deserves obeisance in this jurisdiction, simply because it is provided
in the Constitution. At the same time, its proper interpretation is settled precedent, as enunciated
in Tolentino:

To begin with, it is not the law — but the revenue bill — which is required by the Constitution to
"originate exclusively" in the House of Representatives. It is important to emphasize this,
because a bill originating in the House may undergo such extensive changes in the Senate that
the result may be a rewriting of the whole. The possibility of a third version by the conference
committee will be discussed later. At this point, what is important to note is that, as a result of
the Senate action, a distinct bill may be produced. To insist that a revenue statute — and not only
the bill which initiated the legislative process culminating in the enactment of the law — must
substantially be the same as the House bill would be to deny the Senate's power not only to
"concur with amendments" but also to " propose amendments." It would be to violate the
coequality of legislative power of the two houses of Congress and in fact make the House
superior to the Senate.19

The vested power of the Senate to " propose or concur with amendments" necessarily implies the
ability to adduce transformations from the original House bill into the final law. Since the House
and Senate sit separately in sessions, the only opportunity for the Senate to introduce its
amendments would be in the Bicameral Conference Committee, which emerges only after both
the House and the Senate have approved their respective bills.

In the present petitions, Tolentino comes under fire on two fronts. The first controversy arises
from the adoption in Tolentino of American legislative practices relating to bicameral
committees despite the difference in constitutional frameworks, particularly the limitation under
Section 26(2), Article VI which does not exist in the American Constitution.

The majority points out that the "no amendment rule" refers only to the procedure to be followed
by each house of Congress with regard to bills initiated in the house concerned, before said bills
are transmitted to the other house for its concurrence or amendment. I agree with this statement.
Clearly, the procedure under Section 26(2), Article VI only relates to the passage of a bill before
the House and Senate, and not the process undertaken afterwards in the Bicameral Conference
Committee.

Indeed, Sections 26 and 27 of Article VI, which detail the procedure how a bill becomes a law,
are silent as to what occurs between the passage by both houses of their respective bills, and the
presentation to the President of

"every bill passed by the Congress".20 Evidently, "Congress" means both Houses, such that a bill
approved by the Senate but not by the House is not presented to the President for approval. There
is obviously a need for joint concurrence by the House and Senate of a bill before it is
transmitted to the President, but the Constitution does not provide how such concurrence is
acquired. This lacuna has to be filled, otherwise no bill may be transmitted to the President.

Even if the Bicameral Conference Committee is not a constitutionally organized body, it has
existed as the necessary conclave for both chambers of Congress to reconcile their respective
versions of a prospective law. The members of the Bicameral Conference Committee may
possess in them the capacity to represent their particular chamber, yet the collective is neither the
House nor the Senate. Hence, the procedure contained in Section 26(2), Article VI cannot apply
to the Bicameral Conference Committee.

Tellingly, the version approved by the Bicameral Conference Committee still undergoes
deliberation and approval by both Houses. Only one vote is taken to approve the reconciled bill,
just as only one vote is taken in order to approve the original bill. Certainly, it could not be
contended that this final version surreptitiously evades approval of either the House or Senate.

The second front concerns the scope and limitations of the Bicameral Conference Committee to
amend, delete, or otherwise modify the bills as approved by the House and the Senate.
Tolentino adduced the principle, adopted from American practice, that the version as approved
by the Bicameral Conference Committee need only be germane to the subject of the House and
Senate bills in order to be valid.21 The majority, in applying the test of germaneness, upholds the
contested provisions of the E-VAT Law. Even the members of the Court who prepared to strike
down provisions of the law applying germaneness nonetheless accept the basic premise that such
test is controlling.

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.

The germaneness standard which should guide Congress or the Bicameral Conference
Committee should be appreciated in its normal but total sense. In that regard, my views
contrast with that of Justice Panganiban, who asserts that provisions that are not "legally
germane" should be stricken down. The legal notion of germaneness is just but one
component, along with other factors such as economics and politics, which guides the
Bicameral Conference Committee, or the legislature for that matter, in the enactment of
laws. After all, factors such as economics or politics are expected to cast a pervasive influence
on the legislative process in the first place, and it is essential as well to allow such "non-legal"
elements to be considered in ascertaining whether Congress has complied with the criteria of
germaneness.

Congress is a political body, and its rationale for legislating may be guided by factors other
than established legal standards. I deem it unduly restrictive on the plenary powers of
Congress to legislate, to coerce the body to adhere to judge-made standards, such as a
standard of "legal germaneness". The Constitution is the only legal standard that Congress
is required to abide by in its enactment of laws.

Following these views, I cannot agree with the position maintained by the Chief Justice, Justices
Panganiban and Azcuna that the provisions of the law that do not pertain to VAT should be
stricken as unconstitutional. These would include, for example, the provisions raising corporate
income taxes. The Bicameral Conference Committee, in evaluating the proposed amendments,
necessarily takes into account not just the provisions relating to the VAT, but the entire revenue
generating mechanism in place. If, for example, amendments to non-VAT related provisions of
the NIRC were intended to offset the expanded coverage for the VAT, then such amendments are
germane to the purpose of the House and Senate Bills.

Moreover, it would be myopic to consider that the subject matter of the House Bill is solely the
VAT system, rather than the generation of revenue. The majority has sufficiently demonstrated
that the legislative intent behind the bills that led to the E-VAT Law was the generation of
revenue to counter the country’s dire fiscal situation.

The mere fact that the law is popularly known as the E-VAT Law, or that most of its provisions
pertain to the VAT, or indirect taxes, does not mean that any and all amendments which are
introduced by the Bicameral Conference Committee must pertain to the VAT system. As the
Court noted in Tatad v. Secretary of Energy:22

[I]t is contended that section 5(b) of R.A. No. 8180 on tariff differential violates the provision 17
of the Constitution requiring every law to have only one subject which should be expressed in its
title. We do not concur with this contention. As a policy, this Court has adopted a liberal
construction of the one title - one subject rule. We have consistently ruled that the title need
not mirror, fully index or catalogue all contents and minute details of a law. A law having a
single general subject indicated in the title may contain any number of provisions, no
matter how diverse they may be, so long as they are not inconsistent with or foreign to the
general subject, and may be considered in furtherance of such subject by providing for the
method and means of carrying out the general subject. We hold that section 5(b) providing
for tariff differential is germane to the subject of R.A. No. 8180 which is the deregulation of the
downstream oil industry. The section is supposed to sway prospective investors to put up
refineries in our country and make them rely less on imported petroleum.23

I submit that if the amendments are attuned to the goal of revenue generation, the stated purpose
of the original House Bills, then the test of germaneness is satisfied. It might seem that the goal
of revenue generation, which is stated in virtually all tax or tariff bills, is so encompassing in
scope as to justify the inclusion by the Bicameral Conference Committee of just about any
revenue generation measure. This may be so, but it does not mean that the test of germaneness
would be rendered inutile when it comes to revenue laws.

I do believe that the test of germaneness was violated by the E-VAT Law in one regard. Section
21 of the law, which was not contained in either the House or Senate Bills, imposes restrictions
on the use by local government units of their incremental revenue from the VAT. These
restrictions are alien to the principal purposes of revenue generation, or the purposes of
restructuring the VAT system. I could not see how the provision, which relates to budgetary
allocations, is germane to the E-VAT Law. Since it was introduced only in the Bicameral
Conference Committee, the test of germaneness is essential, and the provision does not pass
muster. I join Justice Puno and the Chief Justice in voting to declare Section 21 as
unconstitutional.

I also offer this brief comment regarding the deletion of the so-called "no pass on" provisions,
which several of my colleagues deem unconstitutional. Both the House and Senate Bills
contained these provisions that would prohibit the seller/producer from passing on the cost of the
VAT payments to the consumers. However, an examination of the said bills reveal that the "no
pass on" provisions in the House Bill affects a different subject of taxation from that of the
Senate Bill. In the House Bill No. 3705, the taxpayers who are prohibited from passing on the
VAT payments are the sellers of petroleum products and electricity/power generation companies.
In Senate Bill No. 1950, no prohibition was adopted as to sellers of petroleum products, but
enjoined therein are electricity/power generation companies but also transmission and
distribution companies.

I consider such deletions as valid, for the same reason that I deem the amendments valid. The
deletion of the two disparate "no pass on" provisions which were approved by the House in one
instance, and only by the Senate in the other, remains in the sphere of compromise that
ultimately guides the approval of the final version. Again, I point out that even while the two
provisions may have been originally approved by the House and Senate respectively, their
subsequent deletion by the Bicameral Conference Committee is still subject to approval by both
chambers of Congress when the final version is submitted for deliberation and voting.

Moreover, the fact that the nature of the "no pass on" provisions adopted by the House
essentially differs from that of the Senate necessarily required the corrective relief from the
Bicameral Conference Committee. The Committee could have either insisted on the House
version, the Senate version, or both versions, and it is not difficult to divine that any of these
steps would have obtained easy approval. Hence, the deletion altogether of the "no pass on"
provisions existed as a tangible solution to the possible impasse, and the Committee should be
accorded leeway to implement such a compromise, especially considering that the deletion
would have remained germane to the law, and would not be constitutionally prohibited since the
prohibition on amendments under Section 26(2), Article VI does not apply to the Committee.

An outright declaration that the deletion of the two elementally different "no-pass on" provisions
is unconstitutional, is of dubious efficacy in this case. Had such pronouncement gained
endorsement of a majority of the Court, it could not result in the ipso facto restoration of the
provision, the omission of which was ultimately approved in both the House and Senate.
Moreover, since the House version of the "no pass on" is quite different from that of the Senate,
there would be a question as to whether the House version, the Senate version, or both versions
would be reinstated. And of course, if it were the Court which would be called upon to choose,
such would be way beyond the bounds of judicial power.

Indeed, to intimate that the Court may require Congress to reinstate a provision that failed to
meet legislative approval would result in a blatant violation of the principle of separation of
powers, with the Court effectively dictating to Congress the content of its legislation. The Court
cannot simply decree to Congress what laws or provisions to enact, but is limited to reviewing
those enactments which are actually ratified by the legislature.

II.

My earlier views, as are the submissions I am about to offer, are rooted in nothing more than
constitutional interpretation. Perhaps my preceding discussion may lead to an impression that I
whole-heartedly welcome the passage of the E-VAT Law. Yet whatever relief I may have over
the enactment of a law designed to relieve our country’s financial woes are sadly obviated with
the realization that a key amendment introduced in the law is not only unconstitutional, but of
fatal consequences. The clarion call of judicial review is most critical when it stands as the sole
barrier against the deprivation of life, liberty and property without due process of law. It
becomes even more impelling now as we are faced with provisions of the E-VAT Law which,
though in bland disguise, would operate as the most destructive of tax measures enacted in
generations.

Tax Statutes and the Due Process Clause

It is the duty of the courts to nullify laws that contravene the due process clause of the Bill of
Rights. This task is at the heart not only of judicial review, but of the democratic system, for the
fundamental guarantees in the Bill of Rights become merely hortatory if their judicial
enforcement is unavailing. Even if the void law in question is a tax statute, or one that
encompasses national economic policy, the courts should not shirk from striking it down
notwithstanding any notion of deference to the executive or legislative branch on questions of
policy. Neither Congress nor the President has the right to enact or enforce unconstitutional laws.

The Bill of Rights is by no means the only constitutional yardstick by which the validity of a tax
law can be measured. Nonetheless, it stands as the most unyielding of constitutional standards,
given its position of primacy in the fundamental law way above the articles on governmental
power.24 If the question lodged, for example, hinges on the proper exercise of legislative powers
in the enactment of the tax law, leeway can be appreciated in favor of affirming the legislature’s
inherent power to levy taxes. On the other hand, no quarter can be ceded, no concession yielded,
on the people’s fundamental rights as enshrined in the Bill of Rights, even if the sacrifice is
ostensibly made "in the national interest." It is my understanding that "the national interests,"
however comported, always subsumes in the first place recognition and enforcement of the Bill
of Rights, which manifests where we stand as a democratic society.

The constitutional safeguard of due process is embodied in the fiat "No person shall be deprived
of life, liberty or property without due process of law".25 The purpose of the guaranty is to
prevent governmental encroachment against the life, liberty and property of individuals; to
secure the individual from the arbitrary exercise of the powers of the government, unrestrained
by the established principles of private rights and distributive justice; to protect property from
confiscation by legislative enactments, from seizure, forfeiture, and destruction without a trial
and conviction by the ordinary mode of judicial procedure; and to secure to all persons equal and
impartial justice and the benefit of the general law.26

In Magnano Co. v. Hamilton,27 the U.S. Supreme Court recognized that the due process clause
may be utilized to strike down a taxation statute, "if the act be so arbitrary as to compel the
conclusion that it does not involve an exertion of the taxing power, but constitutes, in substance
and effect, the direct exertion of a different and forbidden power, as, for example, the
confiscation of property."28 Locally, Sison v. Ancheta29 has long provided sanctuary for persons
assailing the constitutionality of taxing statutes. The oft-quoted pronouncement of Justice
Fernando follows:

2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It
is the strongest of all the powers of government." It is, of course, to be admitted that for all its
plenitude, the power to tax is not unconfined. There are restrictions. The Constitution sets
forth such limits. Adversely affecting as it does property rights, both the due process and
equal protection clauses may properly be invoked, as petitioner does, to invalidate in
appropriate cases a revenue measure. If it were otherwise, there would be truth to the 1803
dictum of Chief Justice Marshall that "the power to tax involves the power to destroy." In a
separate opinion in Graves v. New York, Justice Frankfurter, after referring to it as an
"unfortunate remark," characterized it as "a flourish of rhetoric [attributable to] the intellectual
fashion of the times [allowing] a free use of absolutes." This is merely to emphasize that it is not
and there cannot be such a constitutional mandate. Justice Frankfurter could rightfully conclude:
"The web of unreality spun from Marshall's famous dictum was brushed away by one stroke of
Mr. Justice Holmes's pen: 'The power to tax is not the power to destroy while this Court sits.'" So
it is in the Philippines.

3. This Court then is left with no choice. The Constitution as the fundamental law overrides
any legislative or executive act that runs counter to it. In any case therefore where it can be
demonstrated that the challenged statutory provision — as petitioner here alleges — fails
to abide by its command, then this Court must so declared and adjudge it null. The inquiry
thus is centered on the question of whether the imposition of a higher tax rate on taxable net
income derived from business or profession than on compensation is constitutionally infirm.

4. The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere

allegation, as here, does not suffice. There must be a factual foundation of such unconstitutional
taint. Considering that petitioner here would condemn such a provision as void on its face, he has
not made out a case. This is merely to adhere to the authoritative doctrine that where the due
process and equal protection clauses are invoked, considering that they are not fixed rules but
rather broad standards, there is a need for proof of such persuasive character as would lead to
such a conclusion. Absent such a showing, the presumption of validity must prevail.

5. It is undoubted that the due process clause may be invoked where a taxing statute is so
arbitrary that it finds no support in the Constitution. An obvious example is where it can
be shown to amount to the confiscation of property. That would be a clear abuse of power.
It then becomes the duty of this Court to say that such an arbitrary act amounted to the
exercise of an authority not conferred. That properly calls for the application of the
Holmes dictum. It has also been held that where the assailed tax measure is beyond the
jurisdiction of the state, or is not for a public purpose, or, in case of a retroactive statute is
so harsh and unreasonable, it is subject to attack on due process grounds.30

Sison pronounces more concretely how a tax statute may contravene the due process clause.
Arbitrariness, confiscation, overstepping the state’s jurisdiction, and lack of a public purpose are
all grounds for nullity encompassed under the due process invocation.

Yet even these more particular standards as enunciated in Sison are quite exacting, and difficult
to reach. Even the constitutional challenge posed in Sison failed to pass muster. The majority
cites Sison in asserting that due process and equal protection are broad standards which need
proof of such persuasive character to lead to such a conclusion.

It is difficult though to put into quantifiable terms how onerous a taxation statute must be before
it contravenes the due process clause.31 After all, the inherent nature of taxation is to cause pain
and injury to the taxpayer, albeit for the greater good of society. Perhaps whatever collective
notion there may be of what constitutes an arbitrary, confiscatory, and unreasonable tax might
draw more from the fairy tale/legend traditions of absolute monarchs and the oppressed peasants
they tax. Indeed, it is easier to jump to the conclusion that a tax is oppressive and unfair if it is
imposed by a tyrant or an authoritarian state.
But could an arbitrary, confiscatory or unreasonable tax actually be enacted by a democratic state
such as ours? Of course it could, but these would exist in more palatable guises. In a democratic
society wherein statutes are enacted by a representative legislature only after debate and
deliberation, tax statutes will most likely, on their face, seem fair and even-handed. After all, if
Congress passes a tax law that on facial examination is obviously harsh and unfair, it faces the
wrath of the voting public, to say nothing of the media.

In testing the validity of a tax statute as against the due process clause, I think that the Court
should go beyond a facial examination of the statute, and seek to understand how exactly it
would operate. The express terms of a statute, especially tax laws, are usually inadequate in
spelling out the practical effects of its implementation. The devil is usually in the details.

Admittedly, the degree of difficulty involved of judicial review of tax laws has increased with
the growing complexities of business, economic and accounting practices. These are sciences
which laymen are not normally equipped by their general education to fully grasp, hence the
possible insecurity on their part when confronted with such questions on these fields.

However, we should not cede ground to those transgressions of the people’s fundamental rights
simply because the mechanism employed to violate constitutional guarantees is steeped in
disciplines not normally associated with the legal profession. Venality cannot be allowed to
triumph simply due to its sophistication. This petition imputes in the E-VAT Law
unconstitutional oppression of the fatal variety, but in order to comprehend exactly how and why
that is so, one has to delve into the complex milieu of the VAT system. The party alleging the
law’s unconstitutionality of course has the burden to demonstrate the violations in
understandable terms, but if such proof is presented, the Court’s duty is to engage accordingly.

The Viability of the Clear and Present

Danger Doctrine as Counterweight

To the Shibboleths of Speculation

and Wisdom

I do not see as an impediment to the annulment of a tax law the fact that it has yet to be
implemented, or the fear that doing so constitutes an undue attack on the wisdom, rather than the
legality of a statute. However, my position in this petition has been challenged on those grounds,
and I see it fit to refute these preemptive allegations before delving into the operative aspect of
the E-VAT Law.

If there is cause to characterize my arguments as speculative, it is only because the E-VAT

Law has yet to be implemented. No person as of yet can claim to have sustained actual injury
by reason of the implementation of the assailed provisions in G.R. No. 168461. Yet this should
not mean that the Court is impotent from declaring a provision of law as violative of the due
process clause if it is clear that its implementation will cause the illegal deprivation of life,
liberty or property without due process of
law. This is especially so if, as in this case, the injury is of mathematical certainty, and the extent
of the loss quantifiable through easy reference to the most basic of business practices.

These arguments are conjectural for the same reason that the bare statement "firing a
gunshot into the head will cause a fatal wound" would be conjectural. Some people are
lucky enough to survive gunshot wounds to the head, while many others are not. Yet just because
the fear of mortality would be merely speculative, it does not mean that there should be less
compulsion to avoid a situation of getting shot in the head.

Indeed, the Court has long responded to strike down prospective actions, even if the injury has
not yet even occurred. One of the most significant legal principles of the last century, the
"clear and present danger" doctrine in free speech cases, in fact emanates from the
prospectivity, and not the actuality of danger. The Court has not been hesitant to nullify acts
which might cause injury, owing to the presence of a clear and present danger of a substantive
evil which the State has the right to prevent. It has even extended the "clear and present danger
rule" beyond the confines of freedom of expression to the

realm of freedom of religion, as noted by Justice Puno in his ponencia in Estrada v. Escritor.32

Justice Teodoro Padilla goes further in his concurring opinion in Basco v. PAGCOR, and asserts
that the clear and present danger test squarely applies to the due process clause: "The courts, as
the decision states, cannot inquire into the wisdom, morality or expediency of policies
adopted by the political departments of government in areas which fall within their
authority, except only when such policies pose a clear and present danger to the life, liberty
or property of the individual."

I see no reason why the clear and present danger test cannot apply in this case, or any case
wherein a taxing statute poses a clear and present danger to the life, liberty or property of
the individual. The application of this standard frees the Court from inutility in the face of
patently unconstitutional tax laws that have been enacted but are yet to be fully
operational.

If for example, Congress deems it wise to impose the most draconian of tax measures ─ such as
trebling the income taxes of all persons over 40, raising the gross sales tax rate to 50%, or
penalizing delinquent taxpayers with 50 lashes of the whip ─ there certainly would be a massive
public outcry, and an expectation that the Court would immediately nullify the offensive
measures even before they are actually imposed. Applying the clear and present danger test, the
Court is empowered to strike down the noxious measures even before they are implemented. Yet
with this "bar on speculativeness" as argued by the majority, the Court could easily refuse to pay
heed to the prayers for injunctive relief, and instead demand that the taxing subjects must first
suffer before the Court can act.

In the same vein, the claim that my arguments strike at the wisdom, rather than the
constitutionality of the law are misplaced. Concededly, the assailed provisions of the E-VAT law
are basically unwise. But any provision of law that directly contradicts the Constitution,
especially the Bill of Rights, are similarly unwise, as they run inconsistent with the fundamental
law of the land, the enunciated state policies and the elemental guarantees assured by the State to
its people. Not every unwise law is unconstitutional, but every unconstitutional law is
unwise, for an unconstitutional law contravenes a primordial principle or guarantee on
which our polity is founded.

If it can be shown that the E-VAT Law violates these provisions of the Constitution, especially
the due process clause, then the Court should accordingly act and nullify. Such is the essence of
judicial review, which stands as the sole barrier to the implementation of an unconstitutional law.

The Separate Opinion of Justice Panganiban notes that "[t]he Court cannot step beyond the
confines of its constitutional power, if there is absolutely no clear showing of grave abuse of
discretion in the enactment of the law"33. This, I feel, is an unduly narrow view of judicial
review, implying that such merely encompasses the procedural aspect by which a law is enacted.
If the policy of the law, and/or the means by which such policy is implemented run counter to the
Constitution, then the Court is empowered to strike down the law, even if the legislative and
executive branches act within their discretion in legislating and signing the law.

It is also asserted that if the implementation of the 70% cap imposes an unequal effect on
different types of businesses with varying profit margins and capital requirements, then the
remedy would be an amendment of the law.34 Of course, the remedy of legislative amendment
applies to even the most unconstitutional of laws. But if our society can take cold comfort in the
ability of the legislature to amend its enactments as the defense against unconstitutional laws,
what remains then as the function of judicial review? This legislative capacity to amend
unconstitutional laws runs concurrently with the judicial capacity to strike down unconstitutional
laws. In fact, the long-standing tradition has been reliance on the judicial branch, and not the
legislative branch, for salvation from unconstitutional laws.

I do recognize that the Separate Opinion of Justice Panganiban ultimately proceeds from the
premise that the assailed provisions of the E-VAT Law may be merely unwise, but not
unconstitutional. Hence, its preference to rely on Congress to amend the offending provisions
rather than judicial nullification. But I maintain that the assailed provisions of the E-VAT Law
violate the due process clause of the Constitution and must be stricken down.

The Nature of VAT

To understand why Sections 8 and 12 of the E-VAT law contravenes the due process clause, it is
essential to understand the nature of the value-added tax itself. Filipino consumers may
comprehend VAT at its elemental form, having been accustomed for several years now in paying
an extra 10% of the listed selling price for a wide class of consumer goods. From the perspective
of the end consumer, such as the patron who purchases a meal from a fastfood restaurant, VAT is
simply a tax on transactions involving the sale of goods. The tax is shouldered by the buyer, and
is based on a percentage of the purchase price. Since an excise or percentage tax shares the same
characteristics, there could be some confusion as between such taxes and the VAT.

However, VAT is distinguishable from the standard excise or percentage taxes in that it is
imposable not only on the final transaction involving the end user, but on previous stages as well
so long as there was a sale involved. Thus, VAT does not simply pertain to the extra percentage
paid by the buyer of a fast-food meal, but also that paid by restaurant itself to its suppliers of raw
food products. This multi-stage system is more acclimated to the vagaries of the modern
industrial climate, which has long surpassed the stage when there was only one level of transfer
between the farmer who harvests the crop and the person who eats the crop. Indeed, from the
extraction or production of the raw material to its final consumption by a user, several
transactions or sales materialize. The VAT system assures that the government shall reap income
for every transaction that is had, and not just on the final sale or transfer.

The European Union, which has long required its member states to apply the VAT system,
provided the following definition of the tax which I deem clear and comprehensive:

The principle of the common system of value added tax involves the application to goods and
services of a general tax on consumption exactly proportional to the price of the goods and
services, whatever the number of transactions that take place in the production and
distribution process before the stage at which tax is charged.

On each transaction, value added tax, calculated on the price of the goods or services at the rate
applicable to such goods or services, shall be chargeable after deduction of the amount of
value added tax borne directly by the various cost components.35

The above definition alludes to a key characteristic of the VAT system, that the imposable tax
remains proportional to the price of goods and services no matter the number of transactions that
takes place.

There is another key characteristic of the VAT ─ that no matter how many the taxable
transactions that precede the final purchase or sale, it is the end-user, or the consumer, that
ultimately shoulders the tax. Despite its name, VAT is generally not intended to be a tax on value
added, but rather as a tax on consumption. Hence, there is a mechanism in the VAT system that
enables firms to offset the tax they have paid on their own purchases of goods and services
against the tax they charge on their sales of goods and services.36 Section 105 of the NIRC
assures that "the amount of tax may be shifted or passed on to the buyer, transferee or lessee of
the goods, properties or services." The assailed provisions of the E-VAT law strike at the heart of
this accepted principle.

And there is one final basic element of the VAT system integral to this disquisition: the mode by
which the tax is remitted to the government. In simple theory, the VAT payable can be remitted
to the government immediately upon the occurrence of the transaction, but such a demand proves
excessively unwieldy. The number of VAT covered transactions a modern enterprise may
contract in a single day, plus the recognized principle that it is the final end user who ultimately
shoulders the tax; render the remittance of the tax on a per transaction basis impossible.

Thus, the VAT is delivered by the purchaser not directly to the government but to the seller, who
then collates the VAT received and remits it to the government every quarter. The process may
seem simple if cast in this manner, but there is a wrinkle, due to the offsetting mechanism
designed to ultimately make the end consumer bear the cost of the VAT.
The Concepts of Input and

Output VAT

This mechanism is employed through the introduction of two concepts, the input tax and the
output tax. Section 110(A) of the National Internal Revenue Code defines the input tax as the
VAT due from or paid by a VAT-registered person on the importation of goods or local purchase
of goods and services in the course of trade or business, from a VAT registered person.

Let us put this in operational terms. A VAT registered person, engaged in an enterprise,
necessarily purchases goods such as raw materials and machinery in order to produce consumer
goods. The purchase of such raw materials and machineries is subject to VAT, hence the
enterprise pays an additional 10% of the purchase price to the supplier as VAT. This extra
amount paid by the enterprise constitutes its input VAT. The enterprise likewise pays input VAT
when it purchases services covered by the tax, or rentals of property.

Since VAT is a final tax that is supposed to be ultimately shouldered by the end consumer, the
VAT system allows for a mechanism by which the business is able to recover the input VAT that
it paid. This comes into play when the business, having transformed the raw materials into
consumer goods, sells these goods to the public. As widely known, the consumer pays to the
business an additional amount of 10% of the purchase price as VAT. As to the business, this
VAT payments it collects from the consumer represents output VAT, which is formally
described under Section 110(A) of the NIRC as "the value-added tax due on the sale or lease of
taxable goods or properties or services by" by any VAT-registered person.

The output VAT collected by the business from the consumers accumulates, until the end of
every quarter, when the enterprise is obliged to remit the collected output VAT to the
government. This is where the crediting mechanism comes into play. Since the business is
entitled to recover the prepaid input VAT, it does so in every quarter by applying the amount of
prepaid input VAT against the collected output VAT which is to be remitted. If the output VAT
collected exceeds the prepaid input VAT, then the amount of input VAT is deducted from the
output VAT, and it is entitled to remit only the remainder as output VAT to the government. To
illustrate, if Business X collects ₱1,000,000.00 as output VAT and incurs ₱500,000.00 as input
VAT, the ₱500,000.00 is deducted from the ₱1,000,000.00 output VAT, and X is required to
remit only ₱500,000.00 of the output VAT it collected from customers.

On the other hand, if the input VAT prepaid exceeds the output VAT collected, then the business
need not remit any amount as output VAT for the quarter. Moreover, the difference between the
input VAT and the output VAT may be credited as input VAT by the business in the succeeding
quarter. Thus, if in the First Quarter of a year, Business X prepays ₱1,000,000.00 as input VAT,
and collects only ₱500,000.00 as output VAT, it need not remit any amount of output VAT to the
government. Moreover, in the Second Quarter, Business X can credit the remaining ₱500,000.00
as part of its input VAT for that quarter. Hence, if in the Second Quarter, X actually prepays
₱400,000.00 as input VAT, and collects ₱500,000.00 as output VAT, it may add the ₱500,000.00
input VAT from the previous quarter to the ₱400,000.00 prepaid in the current quarter, bringing
the total input VAT it could claim to ₱900,000.00. Since the input VAT of ₱900,000.00 now
exceeds the output VAT collected of ₱500,000, then X need not remit any output VAT as well to
the government for the Second Quarter.

However, reality is far bleaker than that befaced by Business X. The VAT collected and remitted
is not the most relevant statistic evaluated by the business. The figure of primary concern of the
enterprise would be the profit margin, which is simply the excess of revenue less expenditures.
Revenue is derived from the gross sales of the business. Expenditures encompass all expenses
incurred by the business including overhead expenses, wages and purchases of capital goods.
Crucially, expenditures would include the input VAT prepaid by the business on its capital
expenditures.

Since a significant amount of the capital outlay incurred by a business is subjected to the
prepayment of input taxes, the necessity of recovering these losses through the output VAT
collected becomes more impelling. These output taxes are obviously proportional to the volume
of gross sales ― the higher the gross sales, the higher the output VAT collected. The output
taxes collected on sales answer for not only those input taxes paid on the purchase of the
raw materials, but also for the input taxes paid on the multifarious overhead expenses
covered by VAT. The burden carried by the sales volume on the stability, if not survival of the
business thus just became more crucial. The maintenance of the proper equilibrium is not an easy
matter. Increasing the selling price of the goods sold does not necessarily increase the gross
sales, as it could have the counter-effect of repelling the consumer and diminishing the number
of goods sold. At the same time, keeping the selling price low may increase the volume of goods
sold, but not necessarily the amount of gross sales.

Profit is a chancy matter, and in cases of small to medium enterprises, usually small if any. It is
quite common for retail and distribution enterprises to incur profits of less than 1% of their gross
revenues. Low profitability is not an automatic badge of poor business skills, but a reality
dictated by the laws of the marketplace. The probability of profit is lower than that of capital
expenditures, and ultimately, many business establishments end up with a higher input tax than
output tax in a given quarter. This would be especially true for small to medium enterprises who
do not reap sufficient profits from its business in the first place, and for those firms that opt to
also invest in capital expenses in addition to the overhead. Whatever miniscule profit margins
that can be obtained usually spell the difference between life and death of the business.

The possibility of profit is further diminished by the fact that businesses have to shoulder the
input VAT in the purchase of their capital expenses. Yet the erstwhile VAT system was not
tainted by the label of oppressiveness and neither did it bear the confiscatory mode. This
was because of the immediate relief afforded from the input taxes paid by the crediting
system. In theory, VAT is not supposed to affect the profit margin. If such margin is
affected, it is only because of the prepayment of the input taxes, and this should be
remedied by the immediate recovery through the crediting system of the settled input taxes.

The new E-VAT law changes all that, and puts in jeopardy the survival of small to medium
enterprises.

The Effects of the 70% Cap on Creditable Input VAT

The first radical shift introduced by the E-VAT law to the creditable input system ─ the 70% cap
on the creditable input tax that may be carried over into the next quarter ─ is provided in Section
8 of the law, which amends Section 110(A) of the NIRC, among others. Section 110(A) as
amended would now read:

Sec. 110. Tax Credits. –

(B) Excess Output or Input Tax. – If at the end of any taxable quarter the output tax exceeds the
input tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the
output tax, the excess shall be carried over to the succeeding quarter or quarters. Provided, That
the input tax inclusive of input VAT carried over from the previous quarter that may be
credited in every quarter shall not exceed seventy percent (70%) of the output VAT:
Provided, however, That any input tax attributable to zero rated sales by a VAT-registered
person may at his option be refunded or credited against other internal revenue taxes, subject to
the provisions of Section 112. (emphasis supplied)

All hope for entrepreneurial stability is dashed with the imposition of the 70% cap. Under the E-
VAT Law, the business, regardless of stability or financial capability, is obliged to remit to the
government every quarter at least 30% of the output VAT collected from customers, or roughly
3% of the amount of gross sales. Thus, if a quarterly gross sales of Y Business totaled
₱1,000,000, and Y is prudent enough to keep its capital expenses down to ₱980,000, it would
then appear on paper that Y incurred a profit of ₱20,000. However, with the 70% cap, Y would
be obliged to remit to the government ₱30,000, thus wiping out the profit margin for the quarter.
Y would be entitled to credit the excess input VAT it prepaid for the next quarter, but the
continuous operation of the 70% cap obviates whatever benefits this may give, and cause the
accumulation of the unutilized creditable input VAT which should be returned to the business.

The difference is even more dramatic if seen how the unutilized creditable input VAT
accumulates over a one year period. To illustrate, Business Y prepays the following amounts of
input VAT over a one-year period: ₱100,000.00 - First Quarter; ₱100,000.00 – 2nd Quarter;
₱34,000.00 – 3rd Quarter; and ₱50,000.00 – 4th Quarter. On the other hand, Y collects the
following amounts of output VAT from consumers: ₱60,000.00 - First Quarter; ₱60,000.00 –
2nd Quarter; ₱100,000.00 – 3rd Quarter; and ₱50,000.00 – 4th Quarter. Applying the 70% cap,
which would limit the amount of the declarable input VAT to 70% in a quarter, the following
results obtain, as presented in tabular form:

Particulars 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Output VAT 60,000 60,000 100,000 50,000
Input VAT 100,000 100,000 [input] 34,000 50,000
(Actual) + +58,000
Carry Over [input] [input]
[excess creditable]
+116,000 +80,000
158,000
 [excess [excess
creditable] creditable]

150,000 130,000
Declarable (60,000x70%) (60,000x70%) (100,000x70%) (50,000x70%)
Input VAT
(70% of 42,000 42,000 70,000 35,000
output VAT)
Lower of (60,000 -42,000) (60,000 -42,000) (100,000- (50,000-
actual and 70,000) 35,000)
70% cap – 18,000 18,000
allowable 30,000 15,000

VAT

Payable
Creditable (100,000 – (158,000 – 42,000) (150,000- (130,000-
Input VAT 42,000) 35,000)
116,000 70,000)
58,000 95,000
80,000

This stands in contrast to same business VAT accountability under the present system, using the
same variables of output VAT and input VAT. The need to distinguish a declarable input VAT
is obviated with the elimination of the 70% cap.

Particulars 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Output VAT 60,000 60,000 100,000 50,000
Input VAT 100,000 100,000 [input] 34,000 50,000
(Actual) +
Carry Over +40,000 [input] [input]

[excess +80,000 + 14,000

creditable]
[excess (excess
140,000 creditable]
creditable)
114,000
50,000
VAT Payable 0 0 0 0
Creditable 40,000 80,000 14,000 14,000

Input VAT
The difference is dramatic, as is the impact on the business’s profit margin and available cash on
hand. Under normal conditions, small to medium enterprises are already encumbered with the
likelihood of obtaining only a minimal profit margin. Without the 70% cap, those businesses
would nonetheless be able to expect an immediate return on its input taxes earlier advanced,
taxes which under the VAT system it is not supposed to shoulder in the first place. However,
with the 70% cap in place, the unutilized input taxes would continue to accumulate, and the
enterprise precluded from immediate recovery thereof. The inability to utilize these input
taxes, which could spell the difference between profit and loss, solvency and insolvency, will
eventually impair, if not kill off the enterprise.

The majority fails to consider one of the most important concepts in finance, time value for
money.37 Simply put, the value of one peso is worth more today than in 2006. Money that you
hold today is worth more because you can invest it and earn interest.38 By reason of the 70% cap,
the amount of input VAT credit that remains unutilized would continue accumulate for months
and years. The longer the amount remains unutilized, the higher the degree of its depreciation in
value, in accordance with the concept of time value of money. Even assuming that the business
eventually recovers the input VAT credit, the sum recovered would have decreased in practical
value.

It would be sad, but fair, if a business ceases because of its inability to compete with other
businesses. It would be utter malevolence to condemn an enterprise to death solely through
the employment of a deceptive accounting wizardry. For the raison d’etre of this 70% cap is
to make it appear on paper that the government is more solvent than it actually is.
Conceding for the nonce, there is a temporary advantage gained by the government by this 70%
cap, as the steady remittance by businesses of the 30% output VAT would assure a cash flow.
Such collection may only momentarily resolve an endemic problem in our local tax system, the
problem of collection itself.

If the 70% cap was designed in order to enhance revenue collection, then I submit that the means
employed stand beyond reason. If sheer will proves insufficient in assuring that the State all
taxes due it, there should be allowable discretion for the government to formulate creative means
to enhance collection. But to do so by depriving low profit enterprises of whatever meager
income earned and consequently assuring the death of these industries goes beyond any valid
State purpose.

Only stable businesses with substantial cash flows, or extraordinarily successful enterprises will
be able to remain in operation should the 70% cap be retained. The effect of the 70% cap is to
effectively impose a tax amounting to 3% of gross revenue. The amount may seem insignificant
to those without working knowledge of the ways of business, but anybody who is actually
familiar with business would be well aware the profit margins of the retailing and distribution
sectors typically amount to less than 1% of the gross revenues. A taxpayer has to earn a margin
of at least 3% on gross revenue in order to recoup the losses sustained due to the 70% cap. But as
stated earlier, profits are chancy, and the entrepreneur does not have full control of the conditions
that lead to profit.
Even more galling is the fact that the 70% cap, oppressive as it already is to the business
establishment, even limits the options of the business to recover the unutilized input VAT credit.
During the deliberations, the argument was raised that the problem presented by the 70% cap
was a business problem, which can only be solved by business. Yet there is only one viable
option for the enterprise to resolve the problem, and that is to increase the selling price of
goods.39 It would be incorrect to assume that increase the volume of the goods sold could solve
the problem, since for items with the same purchasing cost, the effect of the 70% cap remains
constant regardless of an increase in volume.

But the additional burden is not limited to the increase of prices by the retailer to the end
consumer. Since VAT is a transaction tax, every level of distribution becomes subject not only to
the VAT, but also to the 70% cap. The problem increases due to a cascading effect as the number
of distribution levels increases since it will result in the collection of an effective 3% percentage
tax at every distribution level.

In analyzing the effects of the 70% cap, and appreciating how it violates the due process clause,
we should not focus solely on the end consumers. Undoubtedly, consumers will face hardships
due to the increased prices, but their threshold of physical survival, as individual people, is
significantly less than that of enterprises. Somehow, I do not think the new E-VAT would
generally deprive consumers of the bare necessities such as food, water, shelter and clothing.
There may be significant deprivation of comfort as a result, but not of life.

The same does not hold true for businesses. The standard of "deprivation of life" of juridical
persons employs different variables than that of natural persons. What food and water may be for
persons, profit is for an enterprise ―― the bare necessity for survival. For businesses, the
implementation of the same law, with the 70% cap and 60-month amortization period, would
mean the deprivation of profit, which is the determinative necessity for the survival of a
business.

It is easy to admonish both the consumer and the enterprise to cut back on expenditures to
survive the new E-VAT Law. However, this can be realistically expected only of the consumer.
The small/medium enterprise cannot just cut back easily on expenditures in order to survive the
implementation of the E-VAT Law. For such businesses, expenditures do not normally
contemplate unnecessary expenses such as executive perks which can be dispensed with without
injury to the enterprises. These expenditures pertain to expenses necessary for the survival of the
enterprise, such as wages, overhead and purchase of raw materials. Those three basic items of
expenditure cannot simply be reduced, as to do so with impair the ability of the business to
operate on a daily basis.

And reduction of expenditures is not the exclusive antidote to these impositions under the E-
VAT Law, as there must also be a corresponding increase in the amount of gross sales. To do so
though, would require an increase in the selling price, dampening consumer enthusiasm, and
further impairing the ability of the enterprise to recover from the E-VAT Law. This is your basic
Catch-2240 situation — no matter which means the enterprise employs to recover from the E-
VAT Law, it will still go down in flames.
Section 8 of the E-VAT law, while ostensibly even-handed in application, fails to appreciate
valid substantial distinctions between large scale enterprises and small and medium enterprises.
The latter group, owing to the limited capability for capital investment, subsists on modest profit
margins, whereas the former expects, by reason of its substantial capital investments, a high
margin. In essentially prohibiting the recovery of small profit margins, the E-VAT law
effectively sends the message that only high margin businesses are welcome to do business
in the Philippines. It stifles any entrepreneurial ambitions of Filipinos unfortunate enough
to have been born poor yet seek a better life by sacrificing all to start a small business.

Among the enunciated State policies in the Constitution, as stated in Section 20, Article II, is that
"the State recognizes the indispensable role of the private sector, encourages private
enterprise, and provides incentives to needed investments."41 The provision, as with other
declared State policies in the Constitution, have sufficient import and consequence such that in
assessing the constitutionality of the governmental action, these provisions should be considered
and weighed as against the rationale for the assailed State action.42 The incompatibility of the
70% cap with this provision is patent.

Pilipinas Shell Dealers, on whom the burden to establish the violation of due process and equal
protection lies, offers the following chart of the income statement of a typical petroleum dealer:

QUARTERLY PROFIT AND LOSS STATEMENT

DEALER "A"

Price VAT (without 70% VAT (with 70%

cap) cap)
Sales/Output 32,748,534 3,274,853.40 3,274,853.40
Cost of Sales 31,834,717 3,183,471.70
Gross Margin 913,817
Operating Expenses 536,249 31,758.40
Non-vatable items
317,584
Vatable Items
Total Cost 853,833
Net Profit 59,984
Total Input Tax 3,215,230.10 2,292,397.38
VAT Payable 59,623.30 982,456.02

Unutilized Input VAT 922,832.72

*computed by multiplying output VAT by 70% [3,274,853.40 x 70% = 2,292.397.38]

The presentation of the Pilipinas Shell Dealers more or less jibes with my own observations on
the impact of the 70% cap. The dealer whose income is illustrated above has to outlay a cash
amount of ₱922,832.72 more than what would have been shelled out if the 70% cap were not in
place. Considering that the net profit of the dealer is only ₱59,984.00, the consequences could
very well be fatal, especially if these state of events persist in succeeding quarters.

The burden of proof was on the Pilipinas Shell Dealers’ to prove their allegations, and
accordingly, these figures have been duly presented to the Court for appreciation and evaluation.
Instead, the majority has shunted aside these presentations as being merely theoretical, despite
the fact that they present a clear and present danger to the very life of our nation’s enterprises.
The majority’s position would have been more credible had it faced the issue squarely, and
endeavored to demonstrate in like numerical fashion why the 70% cap is not oppressive,
confiscatory, or otherwise violative of the due process clause.

Sadly, the majority refuses to confront the figures or engage in a meaningful demonstration of
how these assailed provisions truly operate. Instead, it counters with platitudes and bromides that
do not intellectually satisfy. Considering that the very vitality, if not life of our domestic
economy is at stake, I think it derelict to our duty to block out these urgent concerns presented to
the Court with blind faith tinged with irrational Panglossian43 optimism.

The obligation of the majority to refute on the merits the arguments of the Petroleum Dealers
becomes even more grave considering that the respondents have abjectly failed to convincingly
dispute the claims. During oral arguments, respondents attempted to counter the arguments that
the 70% cap was oppressive and confiscatory by presenting the following illustration, which I
fear is severely misleading:

Slide 1

Item Cost VAT

Sales 1,000,000.00 100,000.00

Purchases 800,000.00 80,000.00

Due BIR without cap Due BIR with 70% cap

Output VAT 100,000.00 Output VAT 100,000.00

Actual Input VAT 80,000.00 Allowable Input VAT 70,000.00

Net VAT Payable 20,000.00 Net VAT Payable 30,000.00

Excess Input VAT 10,000.00

Carry-over to next quarter

Slide 2

___________________________________________
Item Cost VAT

Sales 1,000,000.00 100,000.00

Purchases 600,000.00 60,000.00

Due BIR without cap Due BIR with 70%

cap

Output VAT 100,000.00

Output VAT 100,000.00

Actual Input VAT (60% of

output VAT) 60,000.00
Allowable Input VAT
60,000.00

Net VAT Payable 40,000.00 Net VAT Payable 40,000.00

Excess Input VAT 0

Carry-over to next quarter

This presentation of the respondents is grossly deceptive, as it fails to account for the excess
creditable input VAT that remains unutilized due to the 70% cap. This excess or creditable input
VAT is supposed to be carried over for the computation of the input VAT of the next quarter.
Instead, this excess or creditable input VAT magically disappears from the table of the
respondents. In their memorandum, the Pilipinas Shell Dealers counter with their own
presentation using the same variables as respondents’, but taking into account the excess
creditable input VAT and extending the situation over a one-year period. I cite with approval the
following chart44 of the Pilipinas Shell Dealers:

Slide 1
Quarter 1

Item No. Cost VAT

Sales 1,000,000.00 100,000.00

Purchases 800,000.00 80,000.00

Due BIR with 70% cap

Output VAT 100,000.00

Allowable Input VAT 70,000.00

Net VAT Payable 30,000.00

Excess Input Vat

Carry-over to next quarter 10,000.00

Quarter 2

Cost VAT

Sales 1,000,000.00 100,000.00

Purchases 800,000.00 80,000.00

Due BIR with 7-% cap

Output VAT 100,000.00

Less: Input VAT

Excess Input VAT fr. 1st Quarter 10,000.00

Input VAT-Current Qtr. 80,000.00

Total Available Input VAT 90,000.00

Allowable Input VAT (100,000 x 70%) 70,000.00 70,000.00

Net VAT Payable 30,000.00

=========
Total Available Input VAT 90,000.00

Allowable Input VAT 70,000.00

Excess Input VAT to be carried over to next

Quarter 20,000.00

=========

Quarter 3

Cost VAT

Sales 1,000,000.00 100,000.00

Purchases 800,000.00 80,000.00

Due BIR with 70% cap

Output VAT 100,000.00

Less: Input VAT

Excess Input VAT fr. 2nd Qtr. 20,000.00

Input VAT-Current Qtr. 80,000.00

Total Available Input VAT 100,000.00

Allowable Input VAT (100,000 x 70%) 70,000.00 70,000.00

Net VAT Payable 30,000.00

=========

Total Available Input VAT 100,000.00

Allowable Input VAT 70,000.00

Excess Input VAT to be carried over to next quarter 30,000.00

==========

Quarter 4
Cost VAT

Sales 1,000,000.00 100,000.00

Purchases 800,000.00 80,000.00

Due BIR with 70% cap

Output VAT 100,000.00

Less: Input VAT

Excess Input VAT fr. 3rd Qtr. 30,000.00

Input VAT-Current Qtr. 80,000.00

Total Available Input VAT 110,000.00

Allowable Input VAT (100,000 x 70%) 70,000.00 70,000.00

Net VAT Payable 30,000.00

========

Total Available Input VAT 110,000.00

Allowable Input VAT 70,000.00

Excess Input VAT to be carried over to next quarter 40,000.00

==========

The 70% cap is not merely an unwise imposition. It is a burden designed, either through
sheer heedlessness or cruel calculation, to kill off the small and medium enterprises that
are the soul, if not the heart, of our economy. It is not merely an undue taking of property,
but constitutes an unjustified taking of life as well.

And what legitimate, germane purposes does this lethal 70% cap serve? It certainly does
not increase the government’s revenue since the unutilized creditable input VAT should be
entered in the government books as a debt payable as it is supposed to be eventually repaid
to the taxpayer, and so on the contrary it increases the government’s debts. I do see that
the 70% cap temporarily allows the government to brag to the world of an increased cash
flow. But this situation would be akin to the provincial man who borrows from everybody
in the barrio in order to show off money and maintain the pretense of prosperity to visiting
city relatives. The illusion of wealth is hardly a legitimate state purpose, especially if
projected at the expense of the very business life of the country.
The majority, in an effort to belittle these concerns, points out that that the excess input tax
remains creditable in succeeding quarters. However, as seen in the above illustration, the actual
application of the excess input tax will always be limited by the amount of output taxes collected
in a quarter, as a result of the 70% cap. Thus, it is entirely possible that a VAT-registered person,
through the accumulation of unutilized input taxes, would have in a quarter an express creditable
input tax of ₱50,000,000, but would be allowed to actually credit only ₱70,000 if the output tax
collected for that quarter were only ₱100,000.

The burden of the VAT may fall at first to the immediate buyers, but it is supposed to be
eventually shifted to the end-consumer. The 70% cap effectively prevents this from happening,
as it limits the ability of the business to recover the prepaid input taxes. This is unconscionable,
since in the first place, these intervening

players ─ the manufacturers, producers, traders, retailers ─ are not even supposed to sustain the
losses incurred by reason of the prepayment of the input taxes. Worse, they would be obliged
every quarter to pay to the government from out of their own pockets the equivalent of 30% of
the output taxes, no matter their own particular financial condition. Worst, this twin yoke on the
taxpayer of having to sustain a debit equivalent to 30% of output taxes, and having to await
forever in order to recover the prepaid taxes would impair the cash flow and prove fatal for a
shocking number of businesses which, as they now stand, have to make do with a minimum
profit that stands to be wiped out with the introduction of the 70% cap.

Nonetheless, the majority notes that the excess creditable input tax may be the subject of a tax
credit certificate, which then could be used in payment of internal revenue taxes, or a refund to
the extent that such input taxes have not been applied against output taxes.45 What the majority
fails to mention is that under Section 10 of the E-VAT Law, which amends Section 112 of
the NIRC, such credit or refund may not be done while the enterprise remains operational:

SEC. 10. Section 112 of the same Code, as amended, is hereby further amended to read as
follows:

SEC. 112. Refunds or Tax Credits of Input Tax.—

xxx

"(B) Cancellation of VAT Registration.— A person whose registration has been cancelled due
to retirement from or cessation of business or due to changes or cessation of status under
Section 106(C) of this Code may, within two (2) years from the date of cancellation, apply
for the issuance of a tax credit certificate for any unused input tax which may be used in
payment of his other internal revenue taxes.

xxx

This stands in marked contrast to Section 112(B) of the NIRC as it read prior to this amendment.
Under the previous rule, a VAT-registered person was entitled to apply for the tax credit
certificate or refund paid on capital goods even while it remained in operation:
SEC. 112. Refunds or Tax Credits of Input Tax.—

xxx

"(B) Capital Goods .— A VAT-registered person may apply for the issuance of a tax credit
certificate or refund of input taxes paid on capital goods imported or locally purchased, to the
extent that such input taxes have not been applied against output taxes. The application may be
made only within two (2) years after the close of the taxable quarter when the importation or
purchase was made.

This provision, which could have provided foreseeable and useful relief to the VAT-registered
person, was deleted under the new E-VAT Law. At present, the refund or tax credit certificate
may only be issued upon two instances: on zero-rated or effectively zero-rated sales, and upon
cancellation of VAT registration due to retirement from or cessation of business.46 This is the
cruelest cut of all. Only after the business ceases to be may the State be compelled to repay
the entire amount of the unutilized input tax. It is like a macabre form of sweepstakes
wherein the winner is to be paid his fortune only when he is already dead. Aanhin pa ang
damo kung patay na ang kabayo.

Moreover, the inability to immediately credit or otherwise recover the unutilized input VAT
could cause such prepaid amount to actually be recognized in the accounting books as a loss.
Under international accounting practices, the unutilized input VAT due to the 70% cap would
not even be recognized as a deferred asset. The same would not hold true if the 70% cap were
eliminated. Under the International Accounting Standards47, the unutilized input VAT credit is
recognized as an asset "to the extent that it is probable that future taxable profit will be available
against which the unused tax losses and unused tax credits can be utili[z]ed"48 Thus, if the
immediate accreditation of the input VAT credit can be obtained, as it would without the 70%
cap, the asset could be recognized.

However, the same Standards hold that "[t]o the extent that it is not probable that taxable profit
will be available against which the unused tax losses or unused tax credits can be utilised, the
deferred tax asset is not recognised".49 As demonstrated, the continuous operation of the 70%
cap precludes the recovery of input VAT prepaid months or years prior. Moreover, the inability
to claim a refund or tax credit certificate until after the business has already ceased virtually
renders it improbable for the input VAT to be recovered. As such, under the International
Accounting Standards, it is with all likelihood that the prepaid input VAT, ostensibly creditable,
would actually be reflected as a loss.50 What heretofore was recognized as an asset would now,
with the imposition of the 70% cap, be now considered as a loss, enhancing the view that the
70% cap is ultimately confiscatory in nature.

This leads to my next point. The majority asserts that the input tax is not a property or property
right within the purview of the due process clause.51 I respectfully but strongly disagree.

Tellingly, the BIR itself has recognized that unutilized input VAT is one of those assets,
corporate attributes or property rights that, in the event of a merger, are transferred to the
surviving corporation by operation of law.52 Assets would fall under the purview of property
under the due process clause, and if the taxing arm of the State recognizes that such property
belongs to the taxpayer and not to the State, then due respect should be given to such expert
opinion.

Even under the International Accounting Standards I adverted to above, the unutilized input
VAT credit may be recognized as an asset "to the extent that it is probable that future taxable
profit will be available against which the unused tax losses and unused tax credits can be
utilised"53 If not probable, it would be recognized as a loss.54 Since these international standards,
duly recognized by the Securities and Exchange Commission as controlling in this jurisdiction,
attribute tangible gain or loss to the VAT credit, it necessarily follows that there is proprietary
value attached to such gain or loss.

Moreover, the prepaid input tax represents unutilized profit, which can only be utilized if it is
refunded or credited to output taxes. To assert that the input VAT is merely a privilege is to
correspondingly claim that the business profit is similarly a mere privilege. The Constitution
itself recognizes the right to profit by private enterprises. As I stated earlier, one of the
enunciated State policies under the Constitution is the recognition of the indispensable role of the
private sector, the encouragement of private enterprise, and the provision of incentives to needed
investments.55 Moreover, the Constitution also requires the State to recognize the right of
enterprises to reasonable returns on investments, and to expansion and growth.56 This, I
believe, encompasses profit.

60-Month Amortization Period

Another portion of Section 8 of the E-VAT Law is unconstitutional, essentially for the same
reasons as above. The relevant portion reads:

SEC. 8. Section 110 of the same Code, as amended, is hereby further amended to read as
follows:

"SEC. 110. Tax Credits. –

(A) Creditable Input Tax. –

....

Provided, That the input tax on goods purchased or imported in a calendar month for use
in trade or business for which deduction for depreciation is allowed under this Code, shall
be spread evenly over the month of acquisition and the fifty-nine (59) succeeding months if
the aggregate acquisition cost for such goods, excluding the VAT component thereof,
exceeds One million pesos (₱1,000,000): Provided, however, That if the estimated useful life of
the capital good is less than five (5) years, as used for depreciation purposes, then the input VAT
shall be spread over such a shorter period: Provided, finally, that in the case of purchase of
services, lease or use of properties, the input tax shall be creditable to the purchaser, lessee or
licensee upon payment of the compensation, rental, royalty or fee.
Again, this provision unreasonably severely limits the ability of an enterprise to recover its
prepaid input VAT. On its face, it might appear injurious primarily to high margin enterprises,
whose purchase of capital goods in a given quarter would routinely exceed ₱1,000,000.00. The
amortization over a five-year period of the input VAT on these capital goods would definitely eat
up into their profit margin. But it is still possible for such big businesses to survive despite this
new restriction, and their financial pain alone may not be sufficient to cause the invalidity of a
taxing statute.

However, this amortization plan will prove especially fatal to start-ups and other new
businesses, which need to purchase capital goods in order to start up their new businesses.
It is a known fact in the financial community that a majority of businesses start earning profit
only after the second or third year, and many enterprises do not even get to survive that long. The
first few years of a business are the most crucial to its survival, and any financial benefits it can
obtain in those years, no matter how miniscule, may spell the difference between life and death.
For such emerging businesses, it is already difficult under the present system to recover the
prepaid input VAT from the output VAT collected from customers because initial sales volumes
are usually low. With this further limitation, diminishing as it does any opportunity to have a
sustainable cash flow, the ability of new businesses to survive the first three years becomes even
more endangered.

Even existing small to medium enterprises are imperiled by this 60 month amortization
restriction, especially considering the application of the 70% cap. The additional purchase of
capital goods bears as a means of adding value to the consumer good, as a means to justify the
increased selling price. However, the purchase of capital goods in excess of ₱1,000,000.00
would impose another burden on the small to medium enterprise by further restricting their
ability to immediately recover the entire prepaid input VAT (which would exceed at least
₱100,000.00), as they would be compelled to wait for at least five years before they can do so.
Another hurdle is imposed for such small to medium enterprise to obtain the profit margin
critical to survival. For some lucky enterprises who may be able to survive the injury
brought about by the 70% cap, this 60 month amortization period might instead provide
the mortal head wound.

Moreover, the increased administrative burden on the taxpayer should not be discounted,
considering this Court’s previous recognition of the aims of the VAT system to "rationalize the
system of taxes on goods and services, [and] simplify tax administration".57 With the
amortization requirement, the taxpayer would be forced to segregate assets into several classes
and strictly monitor the useful life of assets so that proper classification can be made. The
administrative requirements of the taxpayer in order to monitor the input VAT from the purchase
of capital assets thus has exponentially increased.

5% Withholding VAT on Sales

Pilipinas Shell Dealers argue that Section 12 of the E-VAT law, which amends Section 114(C) of
the NIRC, is also unconstitutional. The provision is supremely unwise, oppressive and
confiscatory in nature, and ruinous to private enterprise and even State development. The
provision reads:
SEC. 12. Section 114 of the same Code, as amended, is hereby further amended to read as
follows:

"SEC. 114. Return and Payment of Value-Added Tax. –

xxx

"(C) Withholding of Value-added Tax. – The Government or any of its political subdivisions,
instrumentalities or agencies, including government-owned or –controlled corporations (GOCCs)
shall, before making payment on account of each purchase of goods and services which are
subject to the value-added tax imposed in Sections 106 and 108 of this Code, deduct and
withhold a final value-added tax at the rate of five percent (5%) of the gross payment thereof:
Provided, That the payment for lease or use of properties or property rights to nonresident
owners shall be subject to ten percent (10%) withholding tax at the time of payment. For
purposes of this Section, the payor or person in control of the payment shall be considered as the
withholding payment. xxx

The principle that the Government and its subsidiaries may deduct and withhold a final value-
added tax on its purchase of goods and services is not new, as the NIRC had allowed such
deduction and withholding at the rate of 3% of the gross payment for the purchase of goods, and
6% of the gross receipts for services. However, the NIRC had also provided that this tax
withheld would also be creditable against the VAT liability of the seller or contractor, a
mechanism that was deleted by the E-VAT law. The deletion of this credit apparatus
effectively compels the private enterprise transacting with the government to shoulder the
output VAT that should have been paid by the government in excess of 5% of the gross
selling price, and at the same time unduly burdens the private enterprise by precluding it
from applying any creditable input VAT on the same transaction.

Notably, the removal of the credit mechanism runs contrary to the essence of the VAT system,
which characteristically allows the crediting of input taxes against output taxes. Without such
crediting mechanism, which allows the shifting of the VAT to only the final end user, the
tax becomes a straightforward tax on business or income. The effect on the enterprise
doing business with the government would be that two taxes would be imposed on the
income by the business derived on such transaction: the regular personal or corporate
income tax on such income, and this final withholding tax of 5%.

Granted that Congress is not bound to adopt with strict conformity the VAT system, and that it
has to power to impose new taxes on business income, this amendment to Section 114(C) of the
NIRC still remains unconstitutional. It unfairly discriminates against entities which contract
with the government by imposing an additional tax on the income derived from such
transactions. The end result of such discrimination is double taxation on income that is
both oppressive and confiscatory.

It is a legitimate purpose of a tax law to devise a manner by which the government could
save money on its own transactions, but it is another matter if a private enterprise is
punished for doing business with the government. The erstwhile NIRC worked towards such
advantage, by allowing the government to reduce its cash outlay on purchases of goods and
services by withholding the payment of a percentage thereof. While the new E-VAT law retains
this benefit to the government, at the same time it burdens the private enterprise with an
additional tax by refusing to allow the crediting of this tax withheld to the business’s input VAT.

This imposition would be grossly unfair for private entities that transact with the government,
especially on a regular basis. It might be argued that the provision, even if concededly unwise,
nonetheless fails to meet the standard of unconstitutionality, as it affects only those persons or
establishments that choose to do business with the government. However, it is an acknowledged
fact that the government and its subsidiaries rely on contracts with private enterprises in order to
be able to carry out innumerable functions of the State. This provision effectively discourages
private enterprises to do business with the State, as it would impose on the business a
higher rate of tax if it were to transact with the State, as compared to transactions with
other private entities.

Established industries with track records of quality performance could very well be dissuaded
from doing further business with government entities as the higher tax rate would make no
economic sense. Only those enterprises which really need the money, such as those with
substandard track records that have affected their viability in the marketplace, would bother
seeking out government contracts. The corresponding sacrifice in quality would eventually prove
detrimental to the State. Our society can ill afford shoddy infrastructures such as roads, bridges
and buildings that would unnecessarily pose danger to the public at large simply because the
government wanted to skimp on expenses.

The provision squarely contradicts Section 20, Article II of the Constitution as it vacuously
discourages private enterprise, and provides disincentives to needed investments such as
those expected by the State from private businesses. Whatever advantages may be gained by
the temporary increase in the government coffers would be overturned by the disadvantages of
having a reduced pool of private enterprises willing to do business with the government.
Moreover, since government contracts with private enterprises will still remain a necessary fact
of life, the amendment to Section 114(C) of the NIRC introduced by the E-VAT Law.

Double taxation means taxing for the same tax period the same thing or activity twice, when it
should be taxed but once, for the same purpose and with the same kind of character of tax.58
Double taxation is not expressly forbidden in our constitution, but the Court has recognized it as
obnoxious "where the taxpayer is taxed twice for the benefit of the same governmental entity or
by the same jurisdiction for the same purpose."59 Certainly, both the 5% final tax withheld and
the general corporate income tax are both paid for the benefit of the national government, and for
the same incidence of taxation, the sale/lease of goods and services to the government.

The Court, in Re: Request of Atty. Bernardo Zialcita60 had cause to make the following
observation I submit apropos to the case at bar, on double taxation in a case involving the
attempt of the BIR to tax the commuted accumulated leave credits of a government lawyer upon
his retirement:
Section 284 of the Revised Administrative Code grants to a government employee 15 days
vacation leave and 15 days sick leave for every year of service. Hence, even if the government
employee absents himself and exhausts his leave credits, he is still deemed to have worked and
to have rendered services. His leave benefits are already imputed in, and form part of, his
salary which in turn is subject to withholding tax on income. He is taxed on the entirety of
his salaries without any deductions for any leaves not utilized. It follows then that the
money values corresponding to these leave benefits both the used and unused have already
been taxed during the year that they were earned. To tax them again when the retiring
employee receives their money value as a form of government concern and appreciation
plainly constitutes an attempt to tax the employee a second time. This is tantamount to
double taxation.61

Conclusions

The VAT system, in itself, is intelligently designed, and stands as a fair means to raise revenue.
It has been adopted worldwide by countries hoping to employ an efficient means of taxation. The
concerns I have raised do not detract from my general approval of the VAT system.

I do lament though that our government’s wholehearted adoption of the VAT system is endemic
of what I deem a flaw in our national tax policy in the last few decades. The power of taxation,
inherent in the State and ever so powerful, has been generally employed by our financial
planners for a solitary purpose: the raising of revenue. Revenue generation is a legitimate
purpose of taxation, but standing alone, it is a woefully unsophisticated design. Intelligent tax
policy should extend beyond the singular-minded goal of raising State funds ─ the old-time
philosophy behind the taxing schemes of war-mongering monarchs and totalitarian states ─ and
should sincerely explore the concept of taxation as a means of providing genuine incentives to
private enterprise to spur economic growth; of promoting egalitarian social justice that would
allow everyone to their fair share of the nation’s wealth.

Instead, we are condemned by a national policy driven by the monomania for State revenue. It
may be beyond my oath as a Justice to compel the government to adopt an economic policy in
consonance with my personal views, but I offer these observations since they lie at the very heart
of the noxiousness of the assailed provisions of the E-VAT law. The 70% cap, the 60-month
amortization period and the 5% withholding tax on government transactions were selfishly
designed to increase government revenue at the expense of the survival of local industries.

I am not insensitive to the concerns raised by the respondents as to the dire consequences to the
economy should the E-VAT law be struck down. I am aware that the granting of the petition in
G.R. No. 168461 will negatively affect the cash flow of the government. If that were the only
relevant concern at stake, I would have no problems denying the petition. Unfortunately, under
the device employed in the E-VAT law, the price to be paid for a more sustainable liquidity
of the government’s finances will be the death of local business, and correspondingly, the
demise of our society. It is a measure just as draconian as the standard issue taxes of
medieval tyrants.
I am not normally inclined towards the language of the overwrought, yet if the sky were indeed
truly falling, how else could that fact be communicated. The E-VAT Law is of multiple fatal
consequences. How are we to survive as a nation without the bulwark of private industries?
Perhaps the larger scale, established businesses may ultimately remain standing, but they will be
unable to sustain the void left by the demise of small to medium enterprises. Or worse, domestic
industry would be left in the absolute control of monopolies, combines or cartels, whether
dominated by foreigners or local oligarchs. The destruction of subsisting industries would be bad
enough, the destruction of opportunity and the entrepreneurial spirit would be even more
grievous and tragic, as it would mark as well the end of hope. Taxes may be the lifeblood of the
state, but never at the expense of the life of its subjects.

Accordingly, I VOTE to:

1) DENY the Petitions in G.R. Nos. 168056, 168207, and 168730 for lack of merit;

2) PARTIALLY GRANT the Petition in G.R. Nos. 168463 and declare Section 21 of the E-VAT
Law as unconstitutional;

3) GRANT the Petition in G.R. No. 168461 and declare as unconstitutional Section 8 of
Republic Act No. 9337, insofar as it amends Section 110(A) and (B) of the National Internal
Revenue Code (NIRC) as well as Section 12 of the same law, with respect to its amendment of
Section 114(C) of the NIRC.

DANTE O. TINGA
 CONCURRING OPINION

CHICO-NAZARIO, J.:

Five petitions were filed before this Court questioning the constitutionality of Republic Act No.
9337. Rep. Act No. 9337, which amended certain provisions of the National Internal Revenue
Code of 1997,1 by essentially increasing the tax rates and expanding the coverage of the Value-
Added Tax (VAT). Undoubtedly, during these financially difficult times, more taxes would be
additionally burdensome to the citizenry. However, like a bitter pill, all Filipino citizens must
bear the burden of these new taxes so as to raise the much-needed revenue for the ailing
Philippine economy. Taxation is the indispensable and inevitable price for a civilized society,
and without taxes, the government would be paralyzed.2 Without the tax reforms introduced by
Rep. Act No. 9337, the then Secretary of the Department of Finance, Cesar V. Purisima, assessed
that "all economic scenarios point to the National Government’s inability to sustain its precarious
fiscal position, resulting in severe erosion of investor confidence and economic stagnation."3

Finding Rep. Act No. 9337 as not unconstitutional, both in its procedural enactment and in its
substance, I hereby concur in full in the foregoing majority opinion, penned by my esteemed
colleague, Justice Ma. Alicia Austria-Martinez.

According to petitioners, the enactment of Rep. Act No. 9337 by Congress was riddled with
irregularities and violations of the Constitution. In particular, they alleged that: (1) The
Bicameral Conference Committee exceeded its authority to merely settle or reconcile the
differences among House Bills No. 3555 and 3705 and Senate Bill No. 1950, by including in
Rep. Act No. 9337 provisions not found in any of the said bills, or deleting from Rep. Act No.
9337 or amending provisions therein even though they were not in conflict with the provisions of
the other bills; (2) The amendments introduced by the Bicameral Conference Committee violated
Article VI, Section 26(2), of the Constitution which forbids the amendment of a bill after it had
passed third reading; and (3) Rep. Act No. 9337 contravened Article VI, Section 24, of the
Constitution which prescribes that revenue bills should originate exclusively from the House of
Representatives.

Invoking the expanded power of judicial review granted to it by the Constitution of 1987,
petitioners are calling upon this Court to look into the enactment of Rep. Act No. 9337 by
Congress and, consequently, to review the applicability of the enrolled bill doctrine in this
jurisdiction. Under the said doctrine, the enrolled bill, as signed by the Speaker of the House of
Representatives and the Senate President, and certified by the Secretaries of both Houses of
Congress, shall be conclusive proof of its due enactment.4

Petitioners’ arguments failed to convince me of the wisdom of abandoning the enrolled bill
doctrine. I believe that it is more prudent for this Court to remain conservative and to continue its
adherence to the enrolled bill doctrine, for to abandon the said doctrine would be to open a
Pandora’s Box, giving rise to a situation more fraught with evil and mischief. Statutes enacted by
Congress may not attain finality or conclusiveness unless declared so by this Court. This would
undermine the authority of our statutes because despite having been signed and certified by the
designated officers of Congress, their validity would still be in doubt and their implementation
would be greatly hampered by allegations of irregularities in their passage by the Legislature.
Such an uncertainty in the statutes would indubitably result in confusion and disorder. In all
probability, it is the contemplation of such a scenario that led an American judge to proclaim,
thus –

. . . Better, far better, that a provision should occasionally find its way into the statute through
mistake, or even fraud, than, that every Act, state and national, should at any and all times be
liable to put in issue and impeached by the journals, loose papers of the Legislature, and parol
evidence. Such a state of uncertainty in the statute laws of the land would lead to mischiefs
absolutely intolerable. . . .5

Moreover, this Court must attribute good faith and accord utmost respect to the acts of a co-equal
branch of government. While it is true that its jurisdiction has been expanded by the
Constitution, the exercise thereof should not violate the basic principle of separation of powers.
The expanded jurisdiction does not contemplate judicial supremacy over the other branches of
government. Thus, in resolving the procedural issues raised by the petitioners, this Court should
limit itself to a determination of compliance with, or conversely, the violation of a specified
procedure in the Constitution for the passage of laws by Congress, and not of a mere internal rule
of proceedings of its Houses.

It bears emphasis that most of the irregularities in the enactment of Rep. Act No. 9337 concern
the amendments introduced by the Bicameral Conference Committee. The Constitution is silent
on such a committee, it neither prescribes the creation thereof nor does it prohibit it. The creation
of the Bicameral Conference Committee is authorized by the Rules of both Houses of Congress.
That the Rules of both Houses of Congress provide for the creation of a Bicameral Conference
Committee is within the prerogative of each House under the Constitution to determine its own
rules of proceedings.

The Bicameral Conference Committee is a creation of necessity and practicality considering that
our Congress is composed of two Houses, and it is highly improbable that their respective bills
on the same subject matter shall always be in accord and consistent with each other. Instead of
all their members, only the appointed representatives of both Houses shall meet to reconcile or
settle the differences in their bills. The resulting bill from their meetings, embodied in the
Bicameral Conference Report, shall be subject to approval and ratification by both Houses,
voting separately.

It does perplex me that members of both Houses would again ask the Court to define and limit
the powers of the Bicameral Conference Committee when such committee is of their own
creation. In a number of cases,6 this Court already made a determination of the extent of the
powers of the Bicameral Conference Committee after taking into account the existing Rules of
both Houses of Congress. In gist, the power of the Bicameral Conference Committee to reconcile
or settle the differences in the two Houses’ respective bills is not limited to the conflicting
provisions of the bills; but may include matters not found in the original bills but germane to the
purpose thereof. If both Houses viewed the pronouncement made by this Court in such cases as
extreme or beyond what they intended, they had the power to amend their respective Rules to
clarify or limit even further the scope of the authority which they grant to the Bicameral
Conference Committee. Petitioners’ grievance that, unfortunately, they cannot bring about such
an amendment of the Rules on the Bicameral Conference Committee because they are members
of the minority, deserves scant consideration. That the majority of the members of both Houses
refuses to amend the Rules on the Bicameral Conference Committee is an indication that it is still
satisfied therewith. At any rate, this is how democracy works – the will of the majority shall be
controlling.

Worth reiterating herein is the concluding paragraph in Arroyo v. De Venecia,7 which reads –

It would be unwarranted invasion of the prerogative of a coequal department for this Court either
to set aside a legislative action as void because the Court thinks the house has disregarded its
own rules of procedure, or to allow those defeated in the political arena to seek a rematch in the
judicial forum when petitioners can find remedy in that department. The Court has not been
invested with a roving commission to inquire into complaints, real or imagined, of legislative
skullduggery. It would be acting in excess of its power and would itself be guilty of grave abuse
of its discretion were it to do so. . . .

Present jurisprudence allows the Bicameral Conference Committee to amend, add, and delete
provisions of the Bill under consideration, even in the absence of conflict thereon between the
Senate and House versions, but only so far as said provisions are germane to the purpose of the
Bill.8 Now, there is a question as to whether the Bicameral Conference Committee, which
produced Rep. Act No. 9337, exceeded its authority when it included therein amendments of
provisions of the National Internal Revenue Code of 1997 not related to VAT.

Although House Bills No. 3555 and 3705 were limited to the amendments of the provisions on
VAT of the National Internal Revenue Code of 1997, Senate Bill No. 1950 had a much wider
scope and included amendments of other provisions of the said Code, such as those on income,
percentage, and excise taxes. It should be borne in mind that the very purpose of these three Bills
and, subsequently, of Rep. Act No. 9337, was to raise additional revenues for the government to
address the dire economic situation of the country. The National Internal Revenue Code of 1997,
as its title suggests, is the single Code that governs all our national internal revenue taxes. While
it does cover different taxes, all of them are imposed and collected by the national government to
raise revenues. If we have one Code for all our national internal revenue taxes, then there is no
reason why we cannot have a single statute amending provisions thereof even if they involve
different taxes under separate titles. I hereby submit that the amendments introduced by the
Bicameral Conference Committee to non-VAT provisions of the National Internal Revenue Code
of 1997 are not unconstitutional for they are germane to the purpose of House Bills No. 3555 and
3705 and Senate Bill No. 1950, which is to raise national revenues.

Furthermore, the procedural issues raised by the petitioners were already addressed and resolved
by this Court in Tolentino v. Executive Secretary.9 Since petitioners failed to proffer novel
factual or legal argument in support of their positions that were not previously considered by this
Court in the same case, then I am not compelled to depart from the conclusions made therein.
The majority opinion has already thoroughly discussed each of the substantial issues raised by
the petitioners. I would just wish to discuss additional matters pertaining to the petition of the
petroleum dealers in G.R. No. 168461.

They claim that the provision of Rep. Act No. 9337 limiting their input VAT credit to only 70%
of their output VAT deprives them of their property without due process of law. They argue
further that such 70% cap violates the equal protection and uniformity of taxation clauses under
Article III, Section 1, and Article VI, Section 28(1), respectively, of the Constitution, because it
will unduly prejudice taxpayers who have high input VAT and who, because of the cap, cannot
fully utilize their input VAT as credit.

I cannot sustain the petroleum dealers’ position for the following reasons –

First, I adhere to the view that the input VAT is not a property to which the taxpayer has vested
rights. Input VAT consists of the VAT a VAT-registered person had paid on his purchases or
importation of goods, properties, and services from a VAT-registered supplier; more simply, it is
VAT paid. It is not, as averred by petitioner petroleum dealers, a property that the taxpayer
acquired for valuable consideration.10 A VAT-registered person incurs input VAT because he
complied with the National Internal Revenue Code of 1997, which imposed the VAT and made
the payment thereof mandatory; and not because he paid for it or purchased it for a price.

Generally, when one pays taxes to the government, he cannot expect any direct and concrete
benefit to himself for such payment. The benefit of payment of taxes shall redound to the society
as a whole. However, by virtue of Section 110(A) of the National Internal Revenue Code of
1997, prior to its amendment by Rep. Act No. 9337, a VAT-registered person is allowed, subject
to certain substantiation requirements, to credit his input VAT against his output VAT.

Output VAT is the VAT imposed by the VAT-registered person on his own sales of goods,
properties, and services or the VAT he passes on to his buyers. Hence, the VAT-registered
person selling the goods, properties, and services does not pay for the output VAT; said output
VAT is paid for by his consumers and he only collects and remits the same to the government.

The crediting of the input VAT against the output VAT is a statutory privilege, granted by
Section 110 of the National Internal Revenue Code of 1997. It gives the VAT-registered person
the opportunity to recover the input VAT he had paid, so that, in effect, the input VAT does not
constitute an additional cost for him. While it is true that input VAT credits are reported as assets
in a VAT-registered person’s financial statements and books of account, this accounting
treatment is still based on the statutory provision recognizing the input VAT as a credit. Without
Section 110 of the National Internal Revenue Code of 1997, then the accounting treatment of any
input VAT will also change and may no longer be booked outright as an asset. Since the
privilege of an input VAT credit is granted by law, then an amendment of such law may limit the
exercise of or may totally withdraw the privilege.

The amendment of Section 110 of the National Internal Revenue Code of 1997 by Rep. Act No.
9337, which imposed the 70% cap on input VAT credits, is a legitimate exercise by Congress of
its law-making power. To say that Congress may not trifle with Section 110 of the National
Internal Revenue Code of 1997 would be to violate a basic precept of constitutional law – that no
law is irrepealable.11 There can be no vested right to the continued existence of a statute, which
precludes its change or repeal.12

It bears to emphasize that Rep. Act No. 9337 does not totally remove the privilege of crediting
the input VAT against the output VAT. It merely limits the amount of input VAT one may credit
against his output VAT per quarter to an amount equivalent to 70% of the output VAT. What is
more, any input VAT in excess of the 70% cap may be carried-over to the next quarter.13 It is
certainly a departure from the VAT crediting system under Section 110 of the National Internal
Revenue Code of 1997, but it is an innovation that Congress may very well introduce, because –

VAT will continue to evolve from its pioneering original structure. Dynamically, it will be
subjected to reforms that will make it conform to many factors, among which are: the changing
requirements of government revenue; the social, economic and political vicissitudes of the times;
and the conflicting interests in our society. In the course of its evolution, it will be injected with
some oddities and inevitably transformed into a structure which its revisionists believe will be an
improvement overtime.14

Second, assuming for the sake of argument, that the input VAT credit is indeed a property, the
petroleum dealers’ right thereto has not vested. A right is deemed vested and subject to
constitutional protection when –

". . . [T]he right to enjoyment, present or prospective, has become the property of some particular
person or persons as a present interest. The right must be absolute, complete, and unconditional,
independent of a contingency, and a mere expectancy of future benefit, or a contingent interest in
property founded on anticipated continuance of existing laws, does not constitute a vested right.
So, inchoate rights which have not been acted on are not vested." (16 C. J. S. 214-215)15

Under the National Internal Revenue Code of 1997, before it was amended by Rep. Act No.
9337, the sale or importation of petroleum products were exempt from VAT, and instead, were
subject to excise tax.16 Petroleum dealers did not impose any output VAT on their sales to
consumers. Since they had no output VAT against which they could credit their input VAT, they
shouldered the costs of the input VAT that they paid on their purchases of goods, properties, and
services. Their sales not being subject to VAT, the petroleum dealers had no input VAT credits
to speak of.

It is only under Rep. Act No. 9337 that the sales by the petroleum dealers have become subject to
VAT and only in its implementation may they use their input VAT as credit against their output
VAT. While eager to use their input VAT credit accorded to it by Rep. Act No. 9337, the
petroleum dealers reject the limitation imposed by the very same law on such use.

It should be remembered that prior to Rep. Act No. 9337, the petroleum dealers’ input VAT
credits were inexistent – they were unrecognized and disallowed by law. The petroleum dealers
had no such property called input VAT credits. It is only rational, therefore, that they cannot
acquire vested rights to the use of such input VAT credits when they were never entitled to such
credits in the first place, at least, not until Rep. Act No. 9337.
My view, at this point, when Rep. Act No. 9337 has not yet even been implemented, is that
petroleum dealers’ right to use their input VAT as credit against their output VAT unlimitedly
has not vested, being a mere expectancy of a future benefit and being contingent on the
continuance of Section 110 of the National Internal Revenue Code of 1997, prior to its
amendment by Rep. Act No. 9337.

Third, although the petroleum dealers presented figures and computations to support their
contention that the cap shall lead to the demise of their businesses, I remain unconvinced.

Rep. Act No. 9337, while imposing the 70% cap on input VAT credits, allows the taxpayer to
carry-over to the succeeding quarters any excess input VAT. The petroleum dealers presented a
situation wherein their input VAT would always exceed 70% of their output VAT, and thus, their
excess input VAT will be perennially carried-over and would remain unutilized. Even though
they consistently questioned the 70% cap on their input VAT credits, the petroleum dealers
failed to establish what is the average ratio of their input VAT vis-à-vis their output VAT per
quarter. Without such fact, I consider their objection to the 70% cap arbitrary because there is no
basis therefor.

On the other, I find that the 70% cap on input VAT credits was not imposed by Congress
arbitrarily. Members of the Bicameral Conference Committee settled on the said percentage so as
to ensure that the government can collect a minimum of 30% output VAT per taxpayer. This is to
put a VAT-taxpayer, at least, on equal footing with a VAT-exempt taxpayer under Section
109(V) of the National Internal Revenue Code, as amended by Rep. Act No. 9337.17 The latter
taxpayer is exempt from VAT on the basis that his sale or lease of goods or properties or services
do not exceed ₱1,500,000; instead, he is subject to pay a three percent (3%) tax on his gross
receipts in lieu of the VAT.18 If a taxpayer with presumably a smaller business is required to pay
three percent (3%) gross receipts tax, a type of tax which does not even allow for any crediting, a
VAT-taxpayer with a bigger business should be obligated, likewise, to pay a minimum of 30%
output VAT (which should be equivalent to 3% of the gross selling price per good or property or
service sold). The cap assures the government a collection of at least 30% output VAT,
contributing to an improved cash flow for the government.

Attention is further called to the fact that the output VAT is the VAT imposed on the sales by a
VAT-taxpayer; it is paid by the purchasers of the goods, properties, and services, and merely
collected through the VAT-registered seller. The latter, therefore, serves as a collecting agent for
the government. The VAT-registered seller is merely being required to remit to the government a
minimum of 30% of his output VAT collection.

Fourth, I give no weight to the figures and computations presented before this Court by the
petroleum dealers, particularly the supposed quarterly profit and loss statement of a "typical
dealer." How these data represent the financial status of a typical dealer, I would not know when
there was no effort to explain the manner by which they were surveyed, collated, and averaged
out. Without establishing their source therefor, the figures and computations presented by the
petroleum dealers are merely self-serving and unsubstantiated, deserving scant consideration by
this Court. Even assuming that these figures truly represent the financial standing of petroleum
dealers, the introduction and application thereto of the VAT factor, which forebode the collapse
of said petroleum dealers’ businesses, would be nothing more than an anticipated damage – an
injury that may or may not happen. To resolve their petition on this basis would be premature
and contrary to the established tenet of ripeness of a cause of action before this Court could
validly exercise its power of judicial review.

Fifth, in response to the contention of the petroleum dealers during oral arguments before this
Court that they cannot pass on to the consumers the VAT burden and increase the prices of their
goods, it is worthy to quote below this Court’s ruling in Churchill v. Concepcion,19 to wit –

It will thus be seen that the contention that the rates charged for advertising cannot be raised is
purely hypothetical, based entirely upon the opinion of the plaintiffs, unsupported by actual test,
and that the plaintiffs themselves admit that a number of other persons have voluntarily and
without protest paid the tax herein complained of. Under these circumstances, can it be held as a
matter of fact that the tax is confiscatory or that, as a matter of law, the tax is unconstitutional? Is
the exercise of the taxing power of the Legislature dependent upon and restricted by the opinion
of two interested witnesses? There can be but one answer to these questions, especially in view
of the fact that others are paying the tax and presumably making reasonable profit from their
business.

As a final observation, I perceive that what truly underlies the opposition to Rep. Act No. 9337 is
not the question of its constitutionality, but rather the wisdom of its enactment. Would it truly
raise national revenue and benefit the entire country, or would it only increase the burden of the
Filipino people? Would it contribute to a revival of our economy or only contribute to the
difficulties and eventual closure of businesses? These are issues that we cannot resolve as the
Supreme Court. As this Court explained in Agustin v. Edu,20 to wit –

It does appear clearly that petitioner’s objection to this Letter of Instruction is not premised on
lack of power, the justification for a finding of unconstitutionality, but on the pessimistic, not to
say negative, view he entertains as to its wisdom. That approach, it put it at its mildest, is
distinguished, if that is the appropriate word, by its unorthodoxy. It bears repeating "that this
Court, in the language of Justice Laurel, ‘does not pass upon questions of wisdom, justice or
expediency of legislation.’ As expressed by Justice Tuason: ‘It is not the province of the courts
to supervise legislation and keep it within the bounds of propriety and common sense. That is
primarily and exclusively a legislative concern.’ There can be no possible objection then to the
observation of Justice Montemayor: ‘As long as laws do not violate any Constitutional provision,
the Courts merely interpret and apply them regardless of whether or not they are wise or
salutary.’ For they, according to Justice Labrador, ‘are not supposed to override legitimate policy
and * * * never inquire into the wisdom of the law.’ It is thus settled, to paraphrase Chief Justice
Concepcion in Gonzales v. Commission on Elections, that only congressional power or
competence, not the wisdom of the action taken, may be the basis for declaring a statute invalid.
This is as it ought to be. The principle of separation of powers has in the main wisely allocated
the respective authority of each department and confined its jurisdiction to such sphere. There
would then be intrusion not allowable under the Constitution if on a matter left to the discretion
of a coordinate branch, the judiciary would substitute its own…"21
To reiterate, we cannot substitute our discretion for Congress, and even though there are
provisions in Rep. Act No. 9337 which we may believe as unwise or iniquitous, but not
unconstitutional, we cannot strike them off by invoking our power of judicial review. In such a
situation, the recourse of the people is not judicial, but rather political. If they severely doubt the
wisdom of the present Congress for passing a statute such as Rep. Act No. 9337, then they have
the power to hold the members of said Congress accountable by using their voting power in the
next elections.

In view of the foregoing, I vote for the denial of the present petitions and the upholding of the
constitutionality of Rep. Act No. 9337 in its entirety.

MINITA V. CHICO-NAZARIO