The document discusses several petitions challenging the constitutionality of the Expanded Value-Added Tax Law. It summarizes the arguments made by petitioners that the Senate did not have the power to propose amendments to revenue bills and must originate from the House of Representatives. The Supreme Court rejects these arguments, finding that the Senate has appropriately exercised its constitutional power to propose amendments to revenue bills in this case and in previous cases. It provides examples from previous Congresses where revenue laws were passed through the consolidation of House and Senate bills.

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Republicof the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 115455 October 30, 1995
ARTURO M. TOLENTINO, petitioner,
vs.
THE SECRETARY OF FINANCEand THE COMMISSIONEROF INTERNAL
REVENUE, respondents.
G.R. No. 115525 October 30, 1995
JUANT. DAVID, petitioner,
vs.
TEOFISTO T. GUINGONA,JR.,as Executive Secretary;ROBERTO DE OCAMPO,
as Secretary of Finance;LIWAYWAYVINZONS-CHATO,asCommissionerof
Internal Revenue;andtheir AUTHORIZED AGENTSOR
REPRESENTATIVES, respondents.
G.R. No. 115543 October 30, 1995
RAUL S. ROCO and the INTEGRATED BAR OF THE PHILIPPINES, petitioners,
vs.
THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE COMMISSIONERS
OF THE BUREAU OF INTERNAL REVENUE AND BUREAU OF
CUSTOMS,respondents.
G.R. No. 115544 October 30, 1995
PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO.,INC.; KAMAHALAN
PUBLISHING CORPORATION; PHILIPPINE JOURNALISTS,INC.; JOSE L. PAVIA;
and OFELIA L. DIMALANTA, petitioners,
vs.
HON. LIWAYWAYV.CHATO, in her capacity as CommissionerofInternal
Revenue;HON. TEOFISTO T. GUINGONA,JR.,in his capacity as Executive
Secretary; and HON. ROBERTO B. DE OCAMPO,in his capacity as Secretary
of Finance,respondents.

2. G.R. No. 115754 October 30, 1995
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC.,
(CREBA), petitioner,
vs.
THE COMMISSIONEROF INTERNAL REVENUE, respondent.
G.R. No. 115781 October 30, 1995
KILOSBAYAN,INC., JOVITO R. SALONGA,CIRILO A. RIGOS,ERME CAMBA,
EMILIO C. CAPULONG,JR., JOSE T. APOLO, EPHRAIM TENDERO, FERNANDO
SANTIAGO,JOSE ABCEDE, CHRISTINE TAN, FELIPE L. GOZON,RAFAEL G.
FERNANDO, RAOUL V. VICTORINO,JOSE CUNANAN,QUINTINS. DOROMAL,
MOVEMENT OF ATTORNEYS FOR BROTHERHOOD, INTEGRITY AND
NATIONALISM,INC. ("MABINI"),FREEDOMFROM DEBT COALITION, INC.,
and PHILIPPINE BIBLE SOCIETY, INC.and WIGBERTOTAÑADA,petitioners,
vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE,THE
COMMISSIONEROF INTERNAL REVENUE and THE COMMISSIONEROF
CUSTOMS,respondents.
G.R. No. 115852 October 30, 1995
PHILIPPINE AIRLINES, INC., petitioner,
vs.
THE SECRETARY OF FINANCEand COMMISSIONEROF INTERNAL
REVENUE, respondents.
G.R. No. 115873 October 30, 1995
COOPERATIVE UNIONOF THE PHILIPPINES, petitioner,
vs.
HON. LIWAYWAYV.CHATO, in her capacity as the CommissionerofInternal
Revenue,HON.TEOFISTO T. GUINGONA,JR.,in hiscapacity as Executive
Secretary, and HON. ROBERTO B. DE OCAMPO,in hiscapacity as Secretary
of Finance,respondents.
G.R. No. 115931 October 30, 1995
PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION,INC. and
ASSOCIATIONOF PHILIPPINE BOOK SELLERS, petitioners,
vs.
HON. ROBERTO B. DE OCAMPO,as the Secretary of Finance;HON.
LIWAYWAYV.CHATO, as the Commissionerof Internal Revenue;and HON.
GUILLERMO PARAYNO,JR., in hiscapacity as the Commissionerof
Customs,respondents.
R E S O L U T I O N
MENDOZA, J.:
These are motionsseekingreconsiderationof ourdecisiondismissingthe
petitionsfiledinthesecasesforthe declarationof unconstitutionalityof R.A.
No.7716, otherwise knownasthe ExpandedValue-AddedTax Law.The
motions,of whichthere are 10 inall,have beenfiledbythe several
petitionersinthese cases,withthe exceptionof the PhilippineEducational
PublishersAssociation,Inc.andthe Associationof Philippine Booksellers,
petitionersinG.R.No.115931.
The SolicitorGeneral,representingthe respondents,filedaconsolidated
comment,towhichthe Philippine Airlines,Inc.,petitionerinG.R.No.115852,
and the Philippine PressInstitute,Inc.,petitionerinG.R.No.115544, and Juan
T. David,petitionerinG.R.No.115525, eachfiledareply.Inturn the Solicitor
General filedonJune 1,1995 a rejoindertothe PPI'sreply.
On June 27, 1995 the matterwas submittedforresolution.
I. Powerof the Senateto proposeamendmentstorevenuebills.Some of the
petitioners(Tolentino,Kilosbayan,Inc.,Philippine Airlines(PAL),Roco,and
Chamberof Real Estate andBuildersAssociation(CREBA))reiterate previous
claimsmade bythemthat R.A. No.7716 didnot "originate exclusively"inthe
House of RepresentativesasrequiredbyArt.VI,§24 of the Constitution.

3. AlthoughtheyadmitthatH. No.11197 wasfiledinthe House of
Representativeswhere itpassedthreereadingsandthatafterwarditwas
sentto the Senate where afterfirstreadingitwasreferredtothe Senate
Ways and MeansCommittee,theycomplainthatthe Senate didnotpassiton
secondandthird readings.Insteadwhatthe Senate didwastopassitsown
version(S.No.1630) whichitapprovedonMay 24, 1994. PetitionerTolentino
adds thatwhat the Senate committee shouldhave done wastoamendH.No.
11197 bystrikingoutthe textof the bill andsubstitutingitwiththe textof S.
No.1630. That way,it issaid,"the bill remainsaHouse bill andthe Senate
versionjustbecomesthe text(only thetext) of the House bill."
The contentionhasno merit.
The enactmentof S. No.1630 is notthe onlyinstance inwhichthe Senate
proposedanamendmenttoa House revenue billbyenactingitsownversion
of a revenue bill.Onatleasttwooccasionsduringthe EighthCongress,the
Senate passeditsownversionof revenuebills,which,inconsolidationwith
House billsearlierpassed,became the enrolledbills.These were:
R.A.No.7369 (AN ACT TO AMEND THE OMNIBUS INVESTMENTSCODE OF
1987 BY EXTENDINGFROMFIVE(5) YEARS TO TEN YEARS THE PERIODFOR
TAX ANDDUTY EXEMPTION AND TAXCREDIT ON CAPITALEQUIPMENT) which
was approvedbythe PresidentonApril 10,1992. ThisAct isactuallya
consolidationof H.No.34254, whichwasapprovedbythe House on January
29, 1992, andS. No.1920, whichwasapprovedbythe Senate onFebruary3,
1992.
R.A.No.7549 (AN ACT GRANTINGTAX EXEMPTIONSTO WHOEVER SHALL
GIVE REWARD TO ANYFILIPINOATHLETE WINNINGA MEDAL IN OLYMPIC
GAMES) whichwasapprovedbythe PresidentonMay 22, 1992. This Act isa
consolidationof H.No.22232, whichwasapprovedbythe House of
RepresentativesonAugust2,1989, and S. No.807, which wasapprovedby
the Senate onOctober21, 1991.
On the otherhand,the Ninth Congress passedrevenue lawswhichwere also
the resultof the consolidationof House andSenate bills.These are the
following,withindicationsof the datesonwhichthe laws were approvedby
the Presidentanddatesthe separate billsof the twochambersof Congress
were respectivelypassed:
1. R.A. NO.7642
AN ACT INCREASINGTHE PENALTIESFOR TAXEVASION,AMENDINGFORTHIS
PURPOSETHE PERTINENTSECTIONSOF THE NATIONALINTERNALREVENUE
CODE (December28,1992).
House Bill No.2165, October5, 1992
Senate Bill No.32, December7,1992
2. R.A. NO.7643
AN ACT TO EMPOWER THE COMMISSIONEROFINTERNALREVENUE TO
REQUIRE THE PAYMENT OF THE VALUE-ADDEDTAXEVERY MONTH ANDTO
ALLOW LOCAL GOVERNMENTUNITS TO SHARE IN VAT REVENUE,AMENDING
FOR THIS PURPOSECERTAIN SECTIONSOF THE NATIONALINTERNAL
REVENUE CODE (December28,1992)
House Bill No.1503, September3,1992
Senate Bill No.968, December7, 1992
3. R.A. NO.7646
AN ACT AUTHORIZINGTHE COMMISSIONEROF INTERNALREVENUE TO
PRESCRIBETHE PLACE FORPAYMENT OF INTERNALREVENUE TAXESBY
LARGE TAXPAYERS,AMENDINGFOR THIS PURPOSECERTAIN PROVISIONSOF
THE NATIONALINTERNALREVENUECODE,AS AMENDED (February24, 1993)
House Bill No.1470, October20, 1992
Senate Bill No.35, November19,1992
4. R.A. NO.7649

4. AN ACT REQUIRING THE GOVERNMENTOR ANY OFITS POLITICAL
SUBDIVISIONS,INSTRUMENTALITIESORAGENCIESINCLUDING
GOVERNMENT-OWNEDORCONTROLLED CORPORATIONS(GOCCS) TO
DEDUCT ANDWITHHOLD THE VALUE-ADDED TAXDUE AT THE RATE OF THREE
PERCENT (3%) ON GROSS PAYMENT FOR THE PURCHASE OF GOODS ANDSIX
PERCENT (6%) ON GROSS RECEIPTS FORSERVICESRENDERED BY
CONTRACTORS(April 6,1993)
House Bill No.5260, January 26, 1993
Senate Bill No. 1141, March 30, 1993
5. R.A. NO.7656
AN ACT REQUIRING GOVERNMENT-OWNEDORCONTROLLED CORPORATIONS
TO DECLARE DIVIDENDSUNDER CERTAIN CONDITIONSTOTHE NATIONAL
GOVERNMENT,AND FOROTHER PURPOSES(November9,1993)
House Bill No.11024, November3,1993
Senate Bill No.1168, November3,1993
6. R.A. NO.7660
AN ACT RATIONALIZINGFURTHERTHE STRUCTURE AND ADMINISTRATION OF
THE DOCUMENTARY STAMP TAX,AMENDING FORTHE PURPOSE CERTAIN
PROVISIONSOFTHE NATIONALINTERNALREVENUECODE,AS AMENDED,
ALLOCATINGFUNDSFOR SPECIFICPROGRAMS,ANDFOR OTHER PURPOSES
(December23,1993)
House Bill No.7789, May 31, 1993
Senate Bill No.1330, November18,1993
7. R.A. NO.7717
AN ACT IMPOSINGA TAXON THE SALE,BARTER OR EXCHANGE OF SHARESOF
STOCKLISTED ANDTRADED THROUGH THE LOCAL STOCKEXCHANGEOR
THROUGH INITIALPUBLIC OFFERING,AMENDINGFOR THE PURPOSE THE
NATIONALINTERNALREVENUECODE, ASAMENDED, BY INSERTINGA NEW
SECTION ANDREPEALING CERTAIN SUBSECTIONSTHEREOF (May 5, 1994)
House Bill No.9187, November3,1993
Senate Bill No.1127, March 23, 1994
Thus,the enactmentof S.No.1630 is notthe onlyinstance inwhichthe
Senate,inthe exercise of itspowertopropose amendmentstobillsrequired
to originate inthe House,passeditsownversionof aHouse revenue
measure.Itisnoteworthythat,inthe particularcase of S. No.1630,
petitionersTolentinoandRoco,asmembersof the Senate,votedtoapprove
it onsecondand thirdreadings.
On the otherhand,amendmentbysubstitution,inthe mannerurgedby
petitionerTolentino,concernsamere matterof form.Petitionerhasnot
shownwhatsubstantial difference itwouldmake if,asthe Senate actuallydid
inthiscase, a separate bill like S.No.1630 isinsteadenactedasa substitute
measure,"takingintoConsideration ... H.B. 11197."
Indeed,sofaras pertinent,the Rulesof the Senate only provide:
RULE XXIX
AMENDMENTS
xxx xxx xxx
§68. Not more than one amendmenttothe original amendmentshall be
considered.
No amendmentby substitutionshallbeentertained unlessthe textthereof is
submittedin writing.
Anyof saidamendmentsmaybe withdrawnbefore avote istakenthereon.
§69. No amendmentwhichseeksthe inclusionof alegislative provision
foreigntothe subjectmatterof a bill (rider) shallbe entertained.

5. xxx xxx xxx
§70-A. A bill orresolutionshall notbe amendedbysubstitutingitwith
anotherwhichcoversa subjectdistinctfromthatproposedinthe original bill
or resolution.(emphasisadded).
Nor isthere meritinpetitioners'contentionthat, withregardtorevenue bills,
the Philippine Senate possesseslesspowerthanthe U.S.Senate because of
textual differencesbetweenconstitutional provisionsgivingthemthe power
to propose or concur withamendments.
Art. I,§7, cl. 1 of the U.S. Constitutionreads:
All BillsforraisingRevenueshall originateinthe House of Representatives;
but the Senate maypropose orconcur withamendmentsasonotherBills.
Art. VI,§24 of ourConstitutionreads:
All appropriation, revenueortariff bills,billsauthorizingincreaseof the public
debt,billsof local application,andprivate billsshall originateexclusivelyin
the House of Representatives,butthe Senate maypropose orconcurwith
amendments.
The additionof the word"exclusively"inthe Philippine Constitutionandthe
decisiontodropthe phrase "as on otherBills"inthe Americanversion,
accordingto petitioners,showsthe intentionof the framersof our
Constitutiontorestrictthe Senate'spowertopropose amendmentsto
revenue bills.PetitionerTolentinocontendsthatthe word"exclusively"was
insertedtomodify"originate"and"the words'as in any otherbills'(sic) were
eliminatedsoasto showthat these billswere nottobe like otherbillsbut
mustbe treatedasa special kind."
The historyof thisprovisiondoesnotsupportthiscontention.The
supposed indicia of constitutional intentare nothingbutthe relicsof an
unsuccessful attempttolimitthe powerof the Senate.Itwill be recalledthat
the 1935 Constitutionoriginallyprovided foraunicameral National Assembly.
Whenit wasdecidedin1939 to change to a bicameral legislature,itbecame
necessarytoprovide forthe procedure forlawmakingbythe Senate andthe
House of Representatives.The workof proposingamendmentstothe
Constitutionwasdone bythe National Assembly,actingasa constituent
assembly,some of whose members,jealousof preservingthe Assembly's
lawmakingpowers,soughttocurtail the powersof the proposedSenate.
Accordinglytheyproposedthe followingprovision:
All billsappropriatingpublicfunds,revenueortariff bills,billsof local
application,andprivate billsshall originateexclusivelyinthe Assembly,but
the Senate maypropose or concur withamendments.Incase of disapproval
by the Senate of anysuch bills,the Assemblymayrepassthe same bya two-
thirdsvote of all its members,andthereupon,the bill sorepassedshall be
deemedenactedandmaybe submittedtothe Presidentforcorresponding
action.In the eventthatthe Senate shouldfail to finallyactonany suchbills,
the Assemblymay,afterthirtydaysfromthe openingof the nextregular
sessionof the same legislativeterm,reapprovethe same withavote of two-
thirdsof all the membersof the Assembly.Anduponsuchreapproval,the bill
shall be deemedenactedandmaybe submittedtothe Presidentfor
correspondingaction.
The special committee onthe revisionof lawsof the SecondNational
Assemblyvetoedthe proposal.Itdeletedeverythingafterthe firstsentence.
As rewritten,the proposalwasapprovedbythe National Assemblyand
embodiedinResolutionNo.38,as amendedbyResolutionNo.73.(J.
ARUEGO, KNOWYOUR CONSTITUTION 65-66 (1950)). The proposed
amendmentwassubmittedtothe people andratifiedbytheminthe
electionsheldonJune 18, 1940.
Thisis the historyof Art. VI,§18 (2) of the 1935 Constitution,fromwhichArt.
VI,§24 of the presentConstitutionwasderived.Itexplainswhythe word
"exclusively"wasaddedtothe Americantextfromwhichthe framersof the
Philippine Constitutionborrowedandwhythe phrase "ason otherBills"was
not copied.Consideringthe defeatof the proposal,the powerof the Senate
to propose amendmentsmustbe understoodtobe full,plenaryandcomplete
"as on otherBills."Thus,because revenue billsare requiredtooriginate
exclusivelyinthe House of Representatives,the Senate cannotenactrevenue

6. measuresof itsownwithoutsuchbills.Afterarevenue bill ispassedandsent
overto it bythe House,however,the Senate certainlycan passitsown
versiononthe same subjectmatter.Thisfollowsfromthe coequalityof the
twochambersof Congress.
That thisis alsothe understandingof bookauthorsof the scope of the
Senate'spowertoconcur isclear fromthe followingcommentaries:
The powerof the Senate topropose or concur withamendmentsis
apparentlywithoutrestriction.Itwouldseemthatbyvirtue of thispower,the
Senate can practicallyre-writeabill requiredtocome fromthe House and
leave onlyatrace of the original bill.Forexample,ageneral revenue bill
passedbythe lowerhouse of the UnitedStatesCongresscontained
provisionsforthe impositionof aninheritancetax .Thiswas changedbythe
Senate intoa corporationtax.The amendingauthorityof the Senate was
declaredbythe UnitedStatesSupreme Courttobe sufficientlybroadto
enable ittomake the alteration.[Flintv.Stone TracyCompany,220 U.S. 107,
55 L. ed.389].
(L. TAÑADA ANDF.CARREON,POLITICALLAW OFTHE PHILIPPINES247
(1961))
The above-mentionedbillsare supposedtobe initiatedbythe House of
Representativesbecause itismore numerousinmembershipandtherefore
alsomore representativeof the people.Moreover,itsmembersare
presumedtobe more familiarwiththe needsof the countryinregardto the
enactmentof the legislationinvolved.
The Senate is,however,allowedmuchleewayinthe exerciseof itspowerto
propose or concur withamendmentstothe billsinitiatedbythe House of
Representatives.Thus,inone case,abill introducedin the U.S.House of
Representativeswaschangedbythe Senate tomake a proposedinheritance
tax a corporationtax.It isalso acceptedpractice forthe Senate to introduce
whatis knownas an amendmentbysubstitution,whichmayentirelyreplace
the bill initiatedinthe House of Representatives.
(I.CRUZ, PHILIPPINEPOLITICALLAW144-145 (1993)).
In sum,while Art.VI,§24 providesthatall appropriation,revenue ortariff
bills,billsauthorizingincreaseof the publicdebt,billsof local application,and
private billsmust"originateexclusivelyinthe House of Representatives,"it
alsoadds,"but theSenatemay proposeorconcur withamendments."Inthe
exercise of thispower,the Senatemaypropose anentirelynewbill asa
substitute measure.AspetitionerTolentinostatesinahighschool text,a
committee towhicha bill isreferredmaydoanyof the following:
(1) to endorse the bill withoutchanges;(2) tomake changesinthe bill
omittingoraddingsectionsoralteringitslanguage;(3) tomake and endorse
an entirelynewbill asasubstitute,inwhichcase itwill be knownas
a committee bill; or (4) to make no reportat all.
(A.TOLENTINO,THE GOVERNMENT OF THE PHILIPPINES258 (1950))
To exceptfromthisprocedure the amendmentof billswhichare requiredto
originate inthe House byprescribingthatthe numberof the House bill andits
otherparts up to the enactingclause mustbe preservedalthoughthe textof
the Senate amendmentmaybe incorporatedinplace of the original bodyof
the bill is to insistona mere technicality.Atanyrate there isnorule
prescribingthisform.S.No.1630, as a substitute measure,istherefore as
much an amendmentof H.No.11197 as anywhichthe Senate couldhave
made.
II.S. No.1630 a mere amendmentof H.No.11197. Petitioners'basicerroris
that theyassume thatS. No.1630 is an independentanddistinctbill. Hence
theirrepeatedreferencestoitscertificationthatitwaspassedbythe Senate
"insubstitutionof S.B.No.1129, takingintoconsideration P.S.Res.No.734
and H.B. No.11197," implyingthatthere issomethingsubstantiallydifferent
betweenthe referencetoS.No.1129 and the reference toH. No.11197.
From thispremise,theyconclude thatR.A.No.7716 originatedbothinthe
House and in the Senate andthat it isthe productof two"half-bakedbills
because neitherH.No.11197 nor S. No.1630 waspassedby bothhousesof
Congress."

7. In pointof fact, inseveral instancesthe provisionsof S.No.1630, clearly
appearto be mere amendmentsof the correspondingprovisionsof H.No.
11197. The verytabularcomparisonof the provisionsof H.No.11197 andS.
No.1630 attachedas SupplementA tothe basicpetitionof petitioner
Tolentino,while showingdifferencesbetweenthe twobills,atthe same time
indicatesthatthe provisionsof the Senate bill were preciselyintendedtobe
amendmentstothe House bill.
WithoutH. No.11197, the Senate couldnothave enactedS.No.1630.
Because the Senate bill wasamere amendmentof the House bill,H.No.
11197 initsoriginal formdidnothave to pass the Senate onsecondand
three readings.Itwasenoughthatafterit was passedonfirstreadingitwas
referredtothe Senate CommitteeonWaysand Means.Neitherwasit
requiredthatS.No. 1630 be passed bythe House of Representativesbefore
the two billscouldbe referredtothe Conference Committee.
There islegislative precedentforwhatwasdone inthe case of H. No.11197
and S. No.1630. Whenthe House bill andSenate bill,whichbecame R.A.No.
1405 (Actprohibitingthe disclosure of bankdeposits),were referredtoa
conference committee,the questionwasraisedwhetherthe twobillscould
be the subjectof suchconference,consideringthatthe bill fromone house
had notbeenpassedbythe otherand vice versa.AsCongressmanDuranput
the question:
MR. DURAN.Therefore,Iraise thisquestionof orderastoprocedure: If a
Housebill is passed by theHousebut notpassedby the Senate,andaSenate
bill of a similar natureis passedinthe Senatebutnever passedin theHouse,
can thetwo bills be the subjectof a conference,andcanalaw be enacted
fromthesetwo bills? I understandthatthe Senate bill inthisparticular
instance doesnotrefertoinvestmentsingovernmentsecurities,whereasthe
bill inthe House,whichwasintroducedbythe Speaker,coverstwosubject
matters:not onlyinvestigationof depositsinbanksbutalsoinvestigationof
investmentsingovernmentsecurities.Now,since the twobillsdifferintheir
subjectmatter,Ibelieve thatnolawcan be enacted.
Rulingonthe pointof orderraised,the chair(SpeakerJose B.Laurel,Jr.) said:
THE SPEAKER.The reportof the conference committee isinorder.Itis
preciselyincaseslike thiswhere aconference shouldbe had.If the House bill
had beenapprovedbythe Senate,there wouldhave beennoneedof a
conference;butpreciselybecausethe Senate passedanotherbill onthe same
subjectmatter,the conference committee hadtobe created,andwe are now
consideringthe reportof thatcommittee.
(2 CONG.REC. NO. 13, July27, 1955, pp.3841-42 (emphasisadded))
III.The President'scertification.The fallacyinthinkingthatH.No. 11197 and
S. No.1630 are distinctandunrelatedmeasuresalsoaccountsforthe
petitioners'(Kilosbayan'sandPAL's) contentionthatbecause the President
separatelycertifiedtothe needforthe immediate enactmentof these
measures,hiscertificationwasineffectual andvoid.The certificationhadto
be made of the versionof the same revenue billwhichatthemomentwas
beingconsidered.Otherwise,tofollowpetitioners'theory,itwouldbe
necessaryforthe Presidenttocertifyasmanybillsasare presentedina
house of Congresseventhoughthe billsare merelyversionsof the bill he has
alreadycertified.Itisenoughthathe certifiesthe bill which,atthe time he
makesthe certification,isunderconsideration.Since onMarch 22, 1994 the
Senate wasconsideringS.No.1630, itwas that bill whichhadto be certified.
For that matteron June 1, 1993 the PresidenthadearliercertifiedH.No.
9210 for immediateenactmentbecause itwasthe one whichatthat time was
beingconsideredbythe House.Thisbill waslatersubstituted,togetherwith
otherbills,byH.No. 11197.
As to whatPresidential certificationcanaccomplish,we have already
explainedinthe maindecisionthatthe phrase "exceptwhenthe President
certifiestothe necessityof itsimmediateenactment,etc."inArt.VI,§26 (2)
qualifiesnotonlythe requirementthat"printedcopies [of abill] initsfinal
form[mustbe] distributedtothe membersthree daysbefore itspassage"but
alsothe requirementthatbefore abill canbecome alawit musthave passed
"three readingsonseparate days."There isnotonlytextual supportforsuch
constructionbuthistorical basisaswell.
Art. VI,§21 (2) of the 1935 Constitutionoriginallyprovided:

8. (2) Nobill shall be passedbyeitherHouse unlessitshall have beenprinted
and copiesthereof initsfinal formfurnisheditsMembersatleastthree
calendardaysprior to itspassage,exceptwhenthe Presidentshall have
certifiedtothe necessityof itsimmediateenactment.Uponthe lastreading
of a bill,noamendmentthereof shallbe allowedandthe questionuponits
passage shall be takenimmediatelythereafter,andthe yeasandnaysentered
on the Journal.
Whenthe 1973 Constitutionwasadopted,itwasprovidedinArt.VIII,§19 (2):
(2) Nobill shall become alawunlessithaspassedthree readingsonseparate
days,and printedcopiesthereof initsfinal formhave beendistributedtothe
Membersthree daysbefore itspassage,exceptwhenthe Prime Minister
certifiestothe necessityof itsimmediateenactmenttomeetapublic
calamityor emergency.Uponthe lastreadingof a bill,noamendmentthereto
shall be allowed,andthe vote thereonshallbe takenimmediatelythereafter,
and the yeasand naysenteredinthe Journal.
Thisprovisionof the 1973 document,withslightmodification,wasadoptedin
Art. VI,§26 (2) of the present Constitution,thus:
(2) Nobill passedbyeitherHouse shall becomealawunlessithaspassed
three readingsonseparate days,andprintedcopiesthereofinitsfinal form
have beendistributedtoitsMembersthree daysbefore itspassage,except
whenthe Presidentcertifiestothe necessityof itsimmediate enactmentto
meeta publiccalamityoremergency.Uponthe lastreadingof a bill,no
amendmenttheretoshallbe allowed,andthe vote thereonshall be taken
immediatelythereafter,andthe yeasandnaysenteredinthe Journal.
The exceptionisbasedonthe prudential considerationthatif inall cases
three readingsonseparate daysare requiredanda bill hasto be printedin
final formbefore itcanbe passed,the needfora lawmaybe rendered
academicby the occurrence of the veryemergencyorpubliccalamitywhichit
ismeantto address.
Petitionersfurthercontendthata"growingbudgetdeficit"isnotan
emergency,especiallyinacountrylike the Philippineswherebudgetdeficitis
a chronic condition.Evenif thiswere the case,anenormousbudgetdeficit
doesnotmake the needforR.A.No.7716 any lessurgentor the situation
callingforitsenactmentanylessan emergency.
Apparently,the membersof the Senate (includingsome of the petitionersin
these cases) believedthatthere wasanurgentneedforconsiderationof S.
No.1630, because theyrespondedtothe call of the Presidentbyvotingon
the bill onsecondand thirdreadingsonthe same day.While the judicial
departmentisnotboundby the Senate'sacceptance of the President's
certification,the respectdue coequal departmentsof the governmentin
matterscommittedtothemby the Constitutionandthe absence of aclear
showingof grave abuse of discretioncautionastay of the judicial hand.
At anyrate, we are satisfiedthatS.No.1630 receivedthoroughconsideration
inthe Senate where itwasdiscussedforsix days.Onlyitsdistributionin
advance inits final printedformwasactuallydispensedwithbyholdingthe
votingonsecond and thirdreadingsonthe same day (March 24, 1994).
Otherwise,sufficienttime betweenthe submissionof the bill onFebruary8,
1994 on secondreadinganditsapproval on March 24, 1994 elapsedbefore it
was finallyvotedonbythe Senate onthirdreading.
The purpose forwhichthree readingsonseparate daysisrequiredissaidto
be two-fold:(1) toinformthe membersof Congressof whattheymustvote
on and (2) to give themnotice thata measure isprogressingthroughthe
enactingprocess,thusenablingthemandothersinterestedinthe measure to
prepare theirpositionswithreference toit.(1J. G. SUTHERLAND, STATUTES
ANDSTATUTORY CONSTRUCTION §10.04, p.282 (1972)). These purposes
were substantiallyachievedinthe case of R.A.No.7716.
IV. Powerof ConferenceCommittee.Itis contended(principallybyKilosbayan,
Inc. andthe Movementof AttorneysforBrotherhood,Integrityand
Nationalism,Inc.(MABINI)) thatinviolationof the constitutional policyof full
publicdisclosure andthe people'srighttoknow(Art.II,§28 and Art. III,§7)
the Conference Committeemetfortwodaysin executive sessionwithonly
the confereespresent.

9. As pointedoutinourmaindecision,eveninthe UnitedStatesitwas
customaryto holdsuch sessionswithonlythe confereesandtheirstaffsin
attendance andit wasonlyin1975 whena newrule wasadoptedrequiring
opensessions.Unlike itsAmericancounterpart,the Philippine Congresshas
not adoptedarule prescribingopenhearingsforconference committees.
It isneverthelessclaimedthatinthe UnitedStates,before the adoptionof the
rule in1975, at leaststaff memberswere present.These were staff members
of the SenatorsandCongressmen,however,whomaybe presumedtobe
theirconfidential men,notstenographersasinthiscase whoon the lasttwo
daysof the conference were excluded.There isnoshowingthatthe
confereesthemselvesdidnottake notesof theirproceedingssoasto give
petitionerKilosbayanbasisforclaimingthateveninsecretdiplomatic
negotiationsinvolvingstate interests,confereeskeepnotesof theirmeetings.
Above all,the public'srighttoknowwasfullyservedbecause the Conference
Committee inthiscase submittedareportshowingthe changesmade onthe
differingversionsof the House andthe Senate.
Petitionerscite the rulesof bothhouseswhichprovidethatconference
committee reportsmustcontain"adetailed,sufficientlyexplicitstatementof
the changesin or otheramendments."These changesare showninthe bill
attachedto the Conference CommitteeReport.The membersof bothhouses
couldthusascertainwhat changeshadbeenmade inthe original billswithout
the needof a statementdetailingthe changes.
The same questionnowpresentedwasraisedwhenthe bill whichbecame
R.A.No.1400 (Land ReformActof 1955) was reportedbythe Conference
Committee.CongressmanBengzonraisedapointof order.He said:
MR. BENGZON.My pointof order isthat itis out of orderto considerthe
reportof the conference committee regardingHouseBill No.2557 by reason
of the provisionof Section11,Article XII,of the Rulesof thisHouse which
providesspecificallythatthe conference reportmustbe accompaniedbya
detailedstatementof the effectsof the amendmentonthe bill of the House.
Thisconference committeereportisnotaccompaniedbythatdetailed
statement,Mr.Speaker.Therefore itisoutof orderto considerit.
PetitionerTolentino,thenthe MajorityFloorLeader,answered:
MR. TOLENTINO.Mr. Speaker,Ishouldjustlike tosaya fewwordsin
connectionwiththe pointof orderraisedbythe gentlemanfromPangasinan.
There isno questionaboutthe provisionof the Rule citedbythe gentleman
fromPangasinan,butthis provisionappliestothosecases whereonly portions
of the bill havebeenamended.Inthis casebeforeus anentire bill is
presented;therefore,it canbe easily seen fromthereadingof thebill what
the provisionsare.Besides, thisprocedurehasbeenanestablishedpractice.
Aftersome interruption,he continued:
MR. TOLENTINO.AsI wassaying,Mr. Speaker,we have tolookintothe
reasonfor the provisionsof the Rules,andthe reasonforthe requirementin
the provisioncitedbythe gentlemanfromPangasinaniswhenthere are only
certainwordsor phrases insertedinordeletedfromthe provisionsof the bill
includedinthe conferencereport,andwe cannotunderstandwhatthose
wordsand phrasesmeanandtheirrelationtothe bill. Inthatcase,it is
necessary tomakea detailed statementonhowthosewordsandphraseswill
affectthe bill asa whole;but whentheentire bill itself is copiedverbatimin
the conferencereport,thatis notnecessary.Sowhenthe reasonfor the Rule
doesnotexist,the Rule doesnotexist.
(2 CONG.REC. NO. 2, p. 4056. (emphasisadded))
CongressmanTolentinowassustainedbythe chair.The record showsthat
whenthe rulingwasappealed,itwasupheldby vivavoceandwhena division
of the House wascalled,itwassustainedbya vote of 48 to 5. (Id.,
p. 4058)
Nor isthere anydoubt aboutthe powerof a conference committee toinsert
newprovisionsaslongasthese are germane to the subjectof the conference.
As thisCourtheldin Philippine JudgesAssociationv.Prado,227SCRA 703
(1993), inan opinionwrittenbythenJustice Cruz,the jurisdictionof the
conference committee isnotlimitedtoresolvingdifferencesbetweenthe
Senate andthe House.It may propose anentirelynewprovision.Whatis

10. importantisthat itsreportis subsequentlyapprovedbythe respective houses
of Congress.ThisCourtruledthatit wouldnotentertainallegationsthat,
because newprovisionshadbeenaddedbythe conferencecommittee,there
was therebyaviolationof the constitutional injunctionthat"uponthe last
readingof a bill,noamendmenttheretoshall be allowed."
Applyingthese principles,we shall declinetolookintothe petitioners'
chargesthat an amendmentwasmadeuponthelastreadingof the bill that
eventuallybecame R.A.No.7354 and that copiesthereof initsfinal form were
notdistributed among the membersof eachHouse.Boththe enrolledbilland
the legislative journalscertifythatthe measure wasdulyenacted i.e.,in
accordance withArticle VI,Sec.26 (2) of the Constitution.We are boundby
such official assurances fromacoordinate departmentof the government,to
whichwe owe,at the veryleast,a becomingcourtesy.
(Id.at 710. (emphasisadded))
It isinterestingtonote the followingdescriptionof conference committeesin
the Philippinesina1979 study:
Conference committeesmaybe of twotypes:free or instructed.These
committeesmaybe giveninstructionsbytheirparentbodiesortheymaybe
leftwithoutinstructions.Normallythe conference committeesare without
instructions,andthisiswhytheyare oftencriticallyreferredtoas"the little
legislatures."Once billshave beensenttothem,the confereeshave almost
unlimitedauthoritytochange the clausesof the billsandinfactsometimes
introduce newmeasuresthatwere notinthe original legislation.Nominutes
are kept,andmembers'activitiesonconference committeesare difficultto
determine.One congressmanknownforhisidealismputitthisway:"I killeda
bill onexportincentivesformyinterestgroup[copra] inthe conference
committee butIcouldnot have done soanywhere else."The conference
committee submitsareporttoboth houses,andusuallyitisaccepted.If the
reportis notaccepted,thenthe committee isdischargedandnewmembers
are appointed.
(R.Jackson,Committeesinthe PhilippineCongress,inCOMMITTEES AND
LEGISLATURES: A COMPARATIVEANALYSIS163 (J. D. LEES ANDM. SHAW,
eds.)).
In citingthisstudy,we passno judgmentonthe methodsof conference
committees.We cite itonlytosay that conference committeeshere are no
differentfromtheircounterpartsinthe UnitedStateswhose vastpowerswe
notedinPhilippine JudgesAssociationv.Prado,supra.Atall events,under
Art. VI,§16(3) each house hasthe power"to determine the rulesof its
proceedings,"includingthose of itscommittees.Anymeaningfulchange in
the methodandproceduresof Congressorits committeesmusttherefore be
soughtinthat bodyitself.
V.The titles of S. No.1630 andH. No.11197. PAL maintainsthatR.A.No.
7716 violatesArt.VI,§26 (1) of the Constitutionwhichprovidesthat"Every
bill passedbyCongressshall embrace onlyone subjectwhichshall be
expressedinthe titlethereof."PALcontendsthatthe amendmentof its
franchise bythe withdrawal of itsexemptionfromthe VATisnotexpressedin
the title of the law.
Pursuantto §13 of P.D.No.1590, PAL paysa franchise tax of 2% on itsgross
revenue "inlieuof all othertaxes,duties,royalties,registration,licenseand
otherfeesandchargesof any kind,nature,ordescription,imposed,levied,
established,assessedorcollectedbyanymunicipal,city,provincialor
national authorityorgovernmentagency,noworinthe future."
PAL wasexemptedfromthe paymentof the VATalongwithotherentitiesby
§103 of the National Internal Revenue Code,whichprovidesasfollows:
§103. Exempttransactions.— The followingshall be exemptfromthe value-
addedtax:
xxx xxx xxx
(q) Transactionswhichare exemptunderspecial lawsorinternational
agreementstowhichthe Philippinesisasignatory.

11. R.A.No.7716 seeksto withdrawcertainexemptions,includingthatgranted
to PAL,by amending§103, as follows:
§103. Exempttransactions.— The followingshall be exemptfromthe value-
addedtax:
xxx xxx xxx
(q) Transactionswhichare exemptunderspecial laws,exceptthose granted
underPresidential DecreeNos.66,529, 972, 1491, 1590. . . .
The amendmentof §103 is expressedinthe title of R.A.No.7716 which
reads:
AN ACT RESTRUCTURING THE VALUE-ADDEDTAX (VAT) SYSTEM, WIDENING
ITS TAXBASE ANDENHANCINGITS ADMINISTRATION,ANDFORTHESE
PURPOSESAMENDING ANDREPEALINGTHE RELEVANTPROVISIONSOFTHE
NATIONALINTERNALREVENUECODE, ASAMENDED, ANDFOR OTHER
PURPOSES.
By statingthat R.A.No.7716 seeksto"[RESTRUCTURE] THE VALUE-ADDED
TAX (VAT) SYSTEM[BY] WIDENINGITS TAX BASEAND ENHANCINGITS
ADMINISTRATION,ANDFORTHESE PURPOSESAMENDING ANDREPEALING
THE RELEVANTPROVISIONSOFTHE NATIONALINTERNALREVENUECODE,AS
AMENDED AND FOROTHER PURPOSES,"Congresstherebyclearlyexpresses
itsintentiontoamendanyprovisionof the NIRCwhichstandsinthe wayof
accomplishingthe purpose of the law.
PAL assertsthatthe amendmentof itsfranchise mustbe reflectedinthe title
of the lawby specificreferencetoP.D.No.1590. It isunnecessarytodo this
inorder to complywiththe constitutional requirement,since itisalready
statedinthe title thatthe lawseekstoamendthe pertinentprovisionsof the
NIRC,amongwhichis §103(q), inorderto widenthe base of the VAT.
Actually,itisthe bill whichbecomesalawthatis requiredtoexpressinits
title the subjectof legislation.The titlesof H.No.11197 and S. No.1630 in
fact specificallyreferredto§103 of the NIRC as amongthe provisionssought
to be amended.We are satisfiedthatsufficientnotice hadbeengivenof the
pendencyof these billsinCongressbefore theywereenactedintowhatis
nowR.A.
No.7716.
In PhilippineJudgesAssociationv.Prado,supra,asimilarargumentasthat
nowmade by PAL wasrejected.R.A.No.7354 isentitledAN ACTCREATING
THE PHILIPPINEPOSTALCORPORATION,DEFININGITSPOWERS,FUNCTIONS
ANDRESPONSIBILITIES,PROVIDINGFORREGULATION OF THE INDUSTRY AND
FOR OTHER PURPOSESCONNECTED THEREWITH. It containedaprovision
repealingall frankingprivileges.It wascontendedthatthe withdrawal of
frankingprivilegeswasnotexpressedinthe title of the law.Inholdingthat
there wassufficientdescriptionof the subjectof the lawinitstitle,including
the repeal of frankingprivileges,thisCourtheld:
To require everyendandmeansnecessaryforthe accomplishmentof the
general objectivesof the statute tobe expressedinitstitle wouldnotonlybe
unreasonable butwouldactuallyrenderlegislationimpossible.[Cooley,
ConstitutionalLimitations,8thEd., p. 297] As has beencorrectlyexplained:
The detailsof a legislative actneednotbe specificallystatedinitstitle,but
mattergermane to the subjectasexpressedinthe title,andadoptedtothe
accomplishmentof the objectinview,mayproperlybe includedinthe act.
Thus,it isproperto create in the same act the machinerybywhichthe act is
to be enforced,toprescribe the penaltiesforitsinfraction,andtoremove
obstaclesinthe wayof itsexecution.If suchmattersare properlyconnected
withthe subjectas expressedinthe title,itisunnecessarythattheyshould
alsohave special mentioninthe title.(SouthernPac.Co.v.Bartine,170 Fed.
725)
(227 SCRA at 707-708)
VI. Claims of pressfreedomandreligious liberty.We have heldthat,as a
general proposition,the pressisnotexemptfromthe taxingpowerof the
State and that whatthe constitutionalguarantee of free pressprohibitsare
lawswhichsingle outthe pressortarget a group belongingtothe pressfor

12. special treatmentorwhich inanyway discriminate againstthe pressonthe
basisof the contentof the publication,andR.A.No.7716 is none of these.
Nowit iscontendedbythe PPIthat byremovingthe exemptionof the press
fromthe VATwhile maintainingthose grantedtoothers,the law
discriminatesagainstthe press.Atanyrate,it isaverred,"even
nondiscriminatorytaxationof constitutionallyguaranteedfreedomis
unconstitutional."
Withrespectto the firstcontention,itwouldsuffice tosaythat since the law
grantedthe pressa privilege,the lawcouldtake backthe privilege anytime
withoutoffensetothe Constitution.The reasonissimple:bygranting
exemptions,the State doesnotforeverwaive the exerciseof itssovereign
prerogative.
Indeed,inwithdrawingthe exemption,the lawmerelysubjectsthe pressto
the same tax burdento whichotherbusinesseshave longagobeensubject.It
isthus differentfromthe tax involvedinthe casesinvokedbythe PPI.The
license tax in Grosjeanv.AmericanPressCo.,297 U.S. 233, 80 L. Ed. 660
(1936) was foundtobe discriminatorybecause itwaslaidonthe gross
advertisingreceiptsonlyof newspaperswhose weeklycirculationwasover
20,000, withthe resultthatthe tax appliedonlyto13 outof 124 publishersin
Louisiana.These large paperswere critical of SenatorHueyLongwho
controlledthe state legislaturewhichenactedthe licensetax.The censorial
motivationforthe lawwasthus evident.
On the otherhand,in MinneapolisStar& TribuneCo.v. MinnesotaComm'rof
Revenue,460 U.S. 575, 75 L. Ed. 2d 295 (1983), the tax was foundtobe
discriminatorybecausealthoughitcouldhave beenmade liableforthe sales
tax or,in lieuthereof,forthe use tax on the privilegeof using,storingor
consumingtangible goods,the presswasnot.Instead,the presswas
exemptedfrombothtaxes.Itwas,however,latermade topaya special use
tax onthe cost of paperand inkwhichmade these items"the onlyitems
subjecttothe use tax that were componentof goodstobe soldat retail."The
U.S. Supreme Courtheldthatthe differentialtreatmentof the press"suggests
that the goal of regulationisnotrelatedtosuppressionof expression,and
such goal ispresumptivelyunconstitutional."Itwouldthereforeappearthat
evena lawthat favorsthe pressisconstitutionallysuspect.(See the dissentof
Rehnquist,J.inthatcase)
Nor isit true that onlytwoexemptionspreviouslygrantedbyE.O.No.273 are
withdrawn"absolutelyandunqualifiedly"byR.A.No.7716. Otherexemptions
fromthe VAT,suchas those previouslygrantedtoPAL,petroleum
concessionaires,enterprisesregisteredwiththe ExportProcessingZone
Authority,andmanymore are likewise totallywithdrawn,inadditionto
exemptionswhichare partiallywithdrawn,inanefforttobroadenthe base of
the tax.
The PPI saysthat the discriminatorytreatmentof the pressishighlightedby
the fact that transactions,whichare profitoriented,continue toenjoy
exemptionunderR.A.No.7716. An enumerationof some of these
transactionswill suffice toshowthatby andlarge thisis not soand that the
exemptionsare grantedfora purpose.Asthe SolicitorGeneral says,such
exemptionsare granted,insome cases,toencourage agricultural production
and,in othercases,for the personal benefitof the end-userratherthanfor
profit.The exempttransactionsare:
(a) Goods forconsumptionoruse whichare intheiroriginal state
(agricultural,marine andforestproducts,cottonseedsintheiroriginal state,
fertilizers,seeds,seedlings,fingerlings,fish,prawnlivestockandpoultry
feeds) andgoodsorservicestoenhance agriculture (millingof palay,corn,
sugar cane and raw sugar, livestock,poultryfeeds,fertilizer,ingredientsused
for the manufacture of feeds).
(b) Goodsused for personal consumptionoruse (householdandpersonal
effectsof citizensreturningtothe Philippines) orforprofessionaluse,like
professionalinstrumentsandimplements,bypersonscomingtothe
Philippinestosettle here.
(c) Goods subjecttoexcise tax suchas petroleumproductsorto be usedfor
manufacture of petroleumproductssubjecttoexcise tax andservicessubject
to percentage tax.

13. (d) Educational services,medical,dental,hospital andveterinaryservices,and
servicesrenderedunderemployer-employee relationship.
(e) Worksof art and similarcreationssoldbythe artisthimself.
(f) Transactionsexemptedunderspecial laws,orinternationalagreements.
(g) Export-salesbypersonsnotVAT-registered.
(h) Goodsor serviceswithgrossannual sale orreceiptnot
exceedingP500,000.00.
(Respondents'ConsolidatedCommentonthe MotionsforReconsideration,
pp.58-60)
The PPI assertsthatit doesnot reallymatterthatthe lawdoesnot
discriminate againstthe pressbecause"evennondiscriminatorytaxationon
constitutionallyguaranteedfreedomisunconstitutional."PPIcitesinsupport
of thisassertionthe followingstatementin Murdockv.Pennsylvania,319 U.S.
105, 87 L. Ed. 1292 (1943):
The fact that the ordinance is"nondiscriminatory"is immaterial.The
protectionaffordedbythe FirstAmendmentisnotsorestricted.A license tax
certainlydoesnotacquire constitutional validitybecause itclassifiesthe
privilegesprotectedbythe FirstAmendmentalongwiththe waresand
merchandise of huckstersandpeddlersandtreatsthemall alike.Such
equalityintreatmentdoesnotsave the ordinance.Freedomof press,
freedomof speech,freedomof religionare inpreferredposition.
The Court was speakinginthatcase of a license tax,which,unlikeanordinary
tax,is mainlyforregulation.Itsimpositiononthe pressisunconstitutional
because itlaysa prior restraintonthe exercise of itsright.Hence,althoughits
applicationtoothers,suchthose sellinggoods,isvalid,itsapplicationtothe
pressor to religiousgroups,suchasthe Jehovah'sWitnesses,inconnection
withthe latter'ssale of religiousbooksandpamphlets,isunconstitutional.As
the U.S. Supreme Courtputit, "itisone thingtoimpose a tax on income or
propertyof a preacher.It isquite anotherthingtoexacta tax on himfor
deliveringasermon."
A similarrulingwasmade bythisCourtin AmericanBible Society v.City of
Manila,101 Phil.386 (1957) whichinvalidatedacityordinance requiringa
businesslicense fee on those engagedinthe sale of general merchandise.It
was heldthatthe tax couldnotbe imposedonthe sale of biblesbythe
AmericanBible Societywithoutrestrainingthe free exercise of itsrightto
propagate.
The VAT is,however,different.Itisnot a license tax.Itisnot a tax onthe
exercise of aprivilege,muchlessaconstitutional right.Itisimposedonthe
sale,barter,lease orexchange of goodsorpropertiesorthe sale or exchange
of servicesandthe lease of propertiespurelyforrevenue purposes.To
subjectthe pressto itspaymentisnotto burdenthe exercise of itsrightany
more than to make the presspay income tax or subjectitto general
regulationisnotto violate itsfreedomunderthe Constitution.
Additionally,the PhilippineBibleSociety,Inc.claimsthatalthoughitsells
bibles,the proceedsderivedfromthe salesare usedtosubsidizethe costof
printingcopieswhichare givenfree tothose whocannotaffordtopay so that
to tax the saleswouldbe toincrease the price,while reducingthe volume of
sale.Grantingthat to be the case,the resultingburdenonthe exercise of
religiousfreedomissoincidental astomake it difficulttodifferentiate itfrom
any othereconomicimpositionthatmightmake the righttodisseminate
religiousdoctrinescostly.Otherwise,tofollowthe petitioner'sargument,to
increase the tax on the sale of vestmentswouldbe tolayan impermissible
burdenonthe rightof the preachertomake a sermon.
On the otherhand the registrationfee of P1,000.00 imposedby§107 of the
NIRC,as amendedby§7 of R.A.No. 7716, althoughfixedinamount,isreally
justto pay for the expensesof registrationandenforcementof provisions
such as those relatingtoaccountingin§108 of the NIRC.That the PBS
distributesfreebiblesandtherefore isnotliable topaythe VATdoesnot
excuse itfromthe paymentof thisfee because italsosellssome copies.At
any rate whetherthe PBSis liable forthe VATmustbe decidedinconcrete

14. cases,inthe eventitisassessedthistax bythe Commissionerof Internal
Revenue.
VII. Alleged violationsof the due process,equalprotectionandcontract
clausesand the rule on taxation.CREBA assertsthatR.A.No.7716 (1) impairs
the obligationsof contracts,(2) classifiestransactionsascoveredorexempt
withoutreasonable basisand(3) violatesthe rule thattaxesshouldbe
uniformandequitable andthatCongressshall "evolveaprogressive system
of taxation."
Withrespectto the firstcontention,itisclaimedthatthe applicationof the
tax to existingcontractsof the sale of real propertybyinstallmentoron
deferredpaymentbasiswouldresultinsubstantialincreasesinthe monthly
amortizationstobe paidbecause of the 10% VAT.The additional amount,itis
pointedout,issomethingthatthe buyerdidnotanticipate atthe time he
enteredintothe contract.
The short answerto thisisthe one givenbythisCourt inan earlycase:
"Authoritiesfromnumeroussourcesare citedbythe plaintiffs,butnone of
themshowthat a lawful tax ona newsubject,oran increasedtax onan old
one,interfereswithacontract or impairsitsobligation,withinthe meaningof
the Constitution.Eventhoughsuchtaxationmayaffectparticularcontracts,
as it mayincrease the debtof one personand lessenthe securityof another,
or may impose additional burdensuponone classandrelease the burdensof
another,still the tax mustbe paidunlessprohibitedbythe Constitution,nor
can it be saidthat it impairsthe obligationof anyexisting contractinitstrue
legal sense."(LaInsularv.Machuca Go-Tauco andNublaCo-Siong,39 Phil.
567, 574 (1919)). Indeednotonlyexistinglawsbutalso"thereservationof
the essentialattributesof sovereignty,is. . . readintocontracts as a postulate
of the legal order."(Philippine-AmericanLife Ins.Co.v.AuditorGeneral,22
SCRA 135, 147 (1968)) Contractsmust be understoodashavingbeenmade in
reference tothe possibleexerciseof the rightful authorityof the government
and no obligationof contractcan extendtothe defeatof thatauthority.
(Normanv.Baltimore andOhioR.R.,79 L. Ed. 885 (1935)).
It isnextpointedoutthatwhile §4 of R.A. No.7716 exemptssuch
transactionsas the sale of agricultural products,fooditems,petroleum,and
medical andveterinaryservices,itgrantsnoexemptiononthe sale of real
propertywhichisequallyessential.The sale of real propertyforsocialized
and low-costhousingisexemptedfromthe tax,butCREBA claimsthat real
estate transactionsof "the lesspoor,"i.e.,the middle class,whoare equally
homeless,shouldlikewise be exempted.
The sale of fooditems,petroleum,medical andveterinaryservices,etc.,
whichare essentialgoodsandserviceswasalreadyexemptunder§103, pars.
(b) (d) (1) of the NIRC before the enactmentof R.A.No.7716. Petitionerisin
error inclaimingthatR.A.No.7716 grantedexemptiontothese transactions,
while subjectingthose of petitionertothe paymentof the VAT.Moreover,
there isa difference betweenthe "homelesspoor"andthe "homelessless
poor" inthe example givenbypetitioner,because the secondgroupormiddle
classcan affordtorent housesinthe meantime thattheycannotyetbuytheir
ownhomes.The twosocial classesare thus differentlysituatedinlife."Itis
inherentinthe powertotax that the State be free to selectthe subjectsof
taxation,andithas beenrepeatedlyheldthat'inequalitieswhichresultfrom
a singlingoutof one particularclassfor taxation,orexemptioninfringe no
constitutional limitation.'"(Lutzv.Araneta,98 Phil.148, 153 (1955). Accord,
Cityof Baguiov.De Leon,134 Phil.912 (1968); Sison,Jr.v. Ancheta,130 SCRA
654, 663 (1984); Kapatiranng mga NaglilingkodsaPamahalaanngPilipinas,
Inc. v.Tan, 163 SCRA 371 (1988)).
Finally,itiscontended,forthe reasonsalreadynoted,thatR.A.No.7716 also
violatesArt.VI,§28(1) whichprovidesthat"The rule of taxationshall be
uniformandequitable.The Congressshall evolve aprogressivesystemof
taxation."
Equalityanduniformityof taxationmeansthatall taxable articlesorkindsof
propertyof the same class be taxedat the same rate. The taxingpowerhas
the authorityto make reasonable andnatural classificationsforpurposesof
taxation.Tosatisfythisrequirementitisenoughthatthe statute or ordinance
appliesequallytoall persons,formsandcorporationsplacedinsimilar
situation.(Cityof Baguiov.De Leon, supra;Sison,Jr.v.Ancheta, supra)

15. Indeed,the VATwasalreadyprovidedinE.O.No.273 long before R.A.No.
7716 was enacted.R.A.No.7716 merelyexpandsthe base of the tax.The
validityof the original VATLawwasquestionedin Kapatiran ngNaglilingkod
sa Pamahalaan ng Pilipinas,Inc.v.Tan,163 SCRA 383 (1988) on grounds
similartothose made inthese cases,namely,thatthe lawwas"oppressive,
discriminatory, unjustandregressive inviolationof Art.VI,§28(1) of the
Constitution."(At382) Rejectingthe challenge tothe law,thisCourtheld:
As the Courtseesit,EO 273 satisfiesall the requirementsof avalidtax.It is
uniform... .
The salestax adoptedinEO 273 is appliedsimilarlyonall goodsandservices
soldto the public,whichare notexempt,atthe constantrate of 0% or 10%.
The disputedsalestax isalsoequitable.It isimposedonlyonsalesof goodsor
servicesbypersonsengagedinbusinesswithanaggregate grossannual sales
exceedingP200,000.00. Small cornersari-sari storesare consequentlyexempt
fromits application.Likewise exemptfromthe tax are salesof farm and
marine products,sothat the costs of basic foodand othernecessities,spared
as theyare fromthe incidence of the VAT,are expectedtobe relativelylower
and withinthe reachof the general public.
(At382-383)
The CREBA claimsthat the VATis regressive.A similarclaimismade bythe
Cooperative Unionof the Philippines,Inc.(CUP),while petitionerJuanT.
Davidarguesthat the law contravenesthe mandate of Congresstoprovide
for a progressive systemof taxationbecause the lawimposesaflatrate of
10% andthus placesthe tax burdenon all taxpayerswithoutregardtotheir
abilitytopay.
The Constitutiondoesnotreallyprohibitthe impositionof indirecttaxes
which,like the VAT,are regressive.WhatitsimplyprovidesisthatCongress
shall "evolvea progressive systemof taxation."The constitutional provision
has beeninterpretedtomeansimplythat"directtaxesare .. . to be preferred
[and] as much as possible,indirecttaxesshouldbe minimized."(E.
FERNANDO,THE CONSTITUTION OF THE PHILIPPINES221 (Seconded.(1977)).
Indeed,the mandate toCongressisnotto prescribe,but to evolve,a
progressive tax system.Otherwise,salestaxes,whichperhapsare the oldest
formof indirecttaxes,wouldhave beenprohibitedwiththe proclamationof
Art. VIII,§17(1) of the 1973 Constitutionfromwhichthe presentArt.VI,
§28(1) wastaken.Salestaxesare alsoregressive.
Resortto indirecttaxesshouldbe minimized butnotavoided entirelybecause
it isdifficult,if notimpossible,to avoidthembyimposingsuchtaxes
accordingto the taxpayers'abilitytopay.Inthe case of the VAT,the law
minimizesthe regressiveeffectsof thisimpositionbyprovidingfor zero
rating of certaintransactions(R.A.No.7716, §3, amending§102 (b) of the
NIRC),while grantingexemptions toothertransactions.(R.A.No.7716, §4,
amending§103 of the NIRC).
Thus,the followingtransactionsinvolvingbasicandessential goodsand
servicesare exemptedfromthe VAT:
(a) Goods forconsumptionoruse which are intheiroriginal state
(agricultural,marine andforestproducts,cottonseedsintheiroriginal state,
fertilizers,seeds,seedlings,fingerlings,fish,prawnlivestockandpoultry
feeds) andgoodsorservicestoenhance agriculture (millingof palay,corn
sugar cane and raw sugar, livestock,poultryfeeds,fertilizer,ingredientsused
for the manufacture of feeds).
(b) Goodsusedfor personal consumptionoruse (householdandpersonal
effectsof citizensreturningtothe Philippines) andorprofessionaluse,like
professionalinstrumentsandimplements,bypersonscomingtothe
Philippinestosettle here.
(c) Goods subjecttoexcise tax suchas petroleumproductsorto be usedfor
manufacture of petroleumproductssubjecttoexcise tax andservicessubject
to percentage tax.
(d) Educational services,medical,dental,hospital andveterinaryservices,and
servicesrenderedunderemployer-employee relationship.
(e) Worksof art and similarcreationssoldbythe artisthimself.

16. (f) Transactionsexemptedunderspecial laws,orinternationalagreements.
(g) Export-salesbypersonsnotVAT-registered.
(h) Goodsor serviceswithgrossannual sale orreceiptnot
exceedingP500,000.00.
(Respondents'ConsolidatedCommentonthe MotionsforReconsideration,
pp.58-60)
On the otherhand,the transactionswhichare subjecttothe VATare those
whichinvolve goodsandserviceswhichare usedoravailedof mainlyby
higherincome groups.These include real propertiesheldprimarilyforsale to
customersor forlease in the ordinarycourse of trade or business,the rightor
privilegetouse patent,copyright,andothersimilarpropertyorright,the
rightor privilege touse industrial,commercial orscientificequipment,motion
picture films,tapesanddiscs,radio,television,satellite transmissionand
cable televisiontime,hotels,restaurantsandsimilarplaces,securities,
lendinginvestments,taxicabs,utilitycarsforrent,touristbuses,andother
commoncarriers,servicesof franchise granteesof telephone andtelegraph.
The problemwithCREBA'spetitionisthatitpresentsbroadclaimsof
constitutional violationsbytenderingissuesnotatretail butat wholesaleand
inthe abstract.There is nofullydevelopedrecordwhichcanimpartto
adjudicationthe impact of actuality.There isnofactual foundationtoshowin
the concrete the applicationof the lawto actual contracts andexemplifyits
effectonpropertyrights.Forthe fact is that petitioner'smembershave not
evenbeenassessedthe VAT.Petitioner'scase isnotmade concrete bya
seriesof hypothetical questionsaskedwhichare nodifferentfromthose dealt
withinadvisoryopinions.
The difficultyconfrontingpetitioneristhusapparent.He allegesarbitrariness.
A mere allegation,ashere,doesnotsuffice.Theremustbe a factual
foundationof suchunconstitutional taint.Consideringthatpetitionerhere
wouldcondemnsucha provisionasvoidonitsface,he has not made out a
case.This ismerelytoadhere tothe authoritative doctrine thatwhere the
due processand equal protectionclausesare invoked,consideringthatthey
are notfixedrulesbutratherbroadstandards,there isa needforproof of
such persuasive characteraswouldleadtosucha conclusion.Absentsucha
showing,the presumptionof validitymustprevail.
(Sison,Jr.v.Ancheta,130 SCRA at 661)
Adjudicationof these broadclaimsmustawaitthe developmentof aconcrete
case.It may be that postponementof adjudicationwouldresultina
multiplicityof suits.Thisneednotbe the case,however.Enforcementof the
lawmay give rise tosuch a case. A test case,provideditisanactual case and
not an abstract or hypothetical one,maythusbe presented.
Nor ishardshiptotaxpayersalone anadequate justificationforadjudicating
abstract issues.Otherwise,adjudicationwouldbe nodifferentfromthe giving
of advisoryopinionthatdoesnotreallysettle legal issues.
We are toldthat it isour duty underArt.VIII,§1, ¶2 to decide whenevera
claimismade that"there has beenagrave abuse of discretionamountingto
lack or excessof jurisdictiononthe partof anybranch or instrumentalityof
the government."Thisdutycanonlyarise if an actual case or controversyis
before us.UnderArt . VIII,§5 our jurisdictionisdefinedintermsof "cases"
and all that Art.VIII,§1, ¶2 can plausiblymeanisthatinthe exercise of
that jurisdiction we have the judicial powerto determinequestionsof grave
abuse of discretionbyanybranch or instrumentalityof the government.
Put inanotherway,whatis grantedinArt. VIII,§1, ¶2 is "judicial power,"
whichis"the powerof a court to hearand decide casespendingbetween
partieswhohave the rightto sue and be suedin the courts of lawand equity"
(Lambv. Phipps,22 Phil.456, 559 (1912)), as distinguishedfromlegislative
and executivepower.Thispowercannotbe directlyappropriateduntil itis
apportionedamongseveral courtseitherbythe Constitution,asinthe case of
Art. VIII,§5, or by statute,asinthe case of the JudiciaryAct of 1948 (R.A.No.
296) and the JudiciaryReorganizationActof 1980 (B.P.Blg.129). The power
thusapportionedconstitutesthe court's"jurisdiction,"definedas"the power
conferredbylawupona court or judge totake cognizance of a case, to the
exclusionof all others."(UnitedStatesv.Arceo,6Phil.29 (1906)) Withoutan

17. actual case comingwithinitsjurisdiction,thisCourtcannotinquire intoany
allegationof grave abuse of discretionbythe otherdepartmentsof the
government.
VIII. Alleged violationof policy towardscooperatives.Onthe otherhand,the
Cooperative Unionof the Philippines(CUP),afterbrieflysurveyingthe course
of legislation,arguesthatitwas toadopt a definite policyof grantingtax
exemptiontocooperativesthatthe presentConstitutionembodiesprovisions
on cooperatives.Tosubjectcooperativestothe VATwouldthereforebe to
infringe aconstitutionalpolicy.Petitionerclaimsthatin1973, P.D.No.175
was promulgatedexemptingcooperativesfromthe paymentof income taxes
and salestaxesbutin1984, because of the crisiswhichmenacedthe national
economy,thisexemptionwaswithdrawnbyP.D.No.1955; that in1986, P.D.
No.2008 again grantedcooperativesexemptionfromincome andsalestaxes
until December31,1991, but,in the same year,E.O. No.93 revokedthe
exemption;andthatfinallyin1987 the framersof the Constitution
"repudiatedthe previousactionsof the governmentadversetothe interests
of the cooperatives, thatis,therepeatedrevocationof thetax exemptionto
cooperatives andinsteadupheldthe policyof strengtheningthe
cooperatives by way of thegrantof tax exemptions,"byprovidingthe
followinginArt.XII:
§1. The goalsof the national economyare a more equitable distributionof
opportunities,income,andwealth;asustainedincrease inthe amountof
goodsand servicesproducedbythe nationforthe benefitof the people;and
an expandingproductivityasthe keytoraisingthe qualityof life forall,
especiallythe underprivileged.
The State shall promote industrializationandfull employmentbasedon
soundagricultural developmentandagrarianreform,throughindustriesthat
make full andefficientuse of humanandnatural resources,andwhichare
competitiveinbothdomesticand foreignmarkets.However,the State shall
protectFilipinoenterprisesagainstunfairforeigncompetitionandtrade
practices.
In the pursuitof these goals,all sectorsof the economyandall regionsof the
countryshall be givenoptimumopportunitytodevelop.Privateenterprises,
includingcorporations,cooperatives,andsimilarcollective organizations,
shall be encouragedtobroadenthe base of theirownership.
§15. The Congressshall create anagencyto promote the viabilityandgrowth
of cooperativesasinstrumentsforsocial justiceandeconomicdevelopment.
Petitioner'scontentionhasnomerit.Inthe firstplace,itis nottrue that P.D.
No.1955 singledoutcooperativesbywithdrawingtheirexemptionfrom
income andsalestaxesunderP.D.No.175, §5. What P.D.No.1955, §1 did
was to withdraw theexemptionsandpreferentialtreatmentstheretofore
grantedtoprivatebusinessenterprisesin general,in viewof the economic
crisiswhichthenbesetthe nation.Itistrue that afterP.D. No.2008, §2 had
restoredthe tax exemptionsof cooperativesin1986, the exemptionwas
againrepealedbyE.O.No.93, §1, butthenagain cooperativeswere notthe
onlyoneswhose exemptionswere withdrawn. Thewithdrawalof tax
incentivesapplied toall, includinggovernmentandprivateentities.Inthe
secondplace,the Constitutiondoesnotreallyrequire thatcooperativesbe
grantedtax exemptionsinordertopromote theirgrowthandviability.Hence,
there isno basisforpetitioner'sassertionthatthe government'spolicy
towardcooperativeshadbeenone of vacillation,asfaras the grant of tax
privilegeswasconcerned,andthatitwasto put an endto thisindecisionthat
the constitutional provisionscitedwereadopted.Perhapsasa matterof
policycooperativesshouldbe grantedtax exemptions,butthatislefttothe
discretionof Congress.If Congressdoesnotgrantexemptionandthere isno
discriminationtocooperatives,noviolationof anyconstitutional policycanbe
charged.
Indeed,petitioner's theory amountstosayingthatundertheConstitution
cooperativesareexemptfromtaxation.Suchtheoryiscontraryto the
Constitutionunderwhichonlythe followingare exemptfromtaxation:
charitable institutions,churchesandparsonages,byreasonof Art.VI, §28 (3),
and non-stock,non-profiteducationalinstitutionsbyreasonof Art.XIV,§4
(3).

18. CUP's furthergroundfor seekingthe invalidationof R.A.No.7716 is that it
deniescooperativesthe equal protectionof the lawbecause electric
cooperativesare exemptedfromthe VAT.The classificationbetweenelectric
and othercooperatives(farmerscooperatives,producerscooperatives,
marketingcooperatives,etc.) apparentlyrestsonacongressional
determinationthatthere isgreaterneedtoprovide cheaperelectricpowerto
as many people aspossible,especiallythose livinginthe rural areas,than
there isto provide themwithothernecessitiesinlife.We cannotsaythat
such classificationisunreasonable.
We have carefullyreadthe variousargumentsraisedagainstthe
constitutional validityof R.A.No.7716. We have in fact takenthe
extraordinarystepof enjoiningitsenforcementpendingresolutionof these
cases.We have nowcome to the conclusionthatthe law suffersfromnone of
the infirmitiesattributedtoitbypetitionersandthatitsenactmentbythe
otherbranchesof the governmentdoesnotconstituteagrave abuse of
discretion.Anyquestionastoitsnecessity,desirabilityorexpediencymustbe
addressedtoCongressasthe bodywhichis electorallyresponsible,
rememberingthat,asJustice Holmeshassaid,"legislatorsare the ultimate
guardiansof the libertiesandwelfare of the peopleinquite asgreata degree
as are the courts."(Missouri,Kansas& TexasRy.Co. v.May, 194 U.S. 267,
270, 48 L. Ed. 971, 973 (1904)). It isnot right,as petitionerinG.R.No.115543
doesinarguingthat we shouldenforce the publicaccountabilityof legislators,
that those whotookpart in passingthe lawinquestionbyvotingforitin
Congressshouldlaterthrusttothe courts the burdenof reviewingmeasures
inthe flushof enactment.ThisCourtdoesnotsitas a third branchof the
legislature,muchlessexerciseavetopoweroverlegislation.
WHEREFORE, the motionsforreconsiderationare deniedwithfinalityandthe
temporaryrestrainingorderpreviouslyissuedisherebylifted.
SO ORDERED.
Narvasa,C.J.,Feliciano,Melo,Kapunan,Francisco andHermosisima,Jr.,JJ.,
concur.
Padilla andVitug,JJ.,maintainedtheirseparateopinion.
Regalado,Davide, Jr.,Romero,Bellosillo andPuno,JJ,maintainedtheir
dissentingopinion.
Panganiban,J.,tookno part.
[G.R. No. 149073. February 16, 2005]
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. CEBU TOYO
CORPORATION, respondent.
D E C I S I O N
QUISUMBING, J.:
In its Decision[1]
dated July 6, 2001, the Court of Appeals, in CA-G.R. SP
No. 60304, affirmed the Resolutions dated May 31, 2000[2]
and August 2,
2000,[3]
of the Court of Tax Appeals (CTA) ordering the Commissioner of
Internal Revenue(CIR) toallowapartial refundor,alternatively,toissue a tax
credit certificate in favor of Cebu Toyo Corporation in the sum
of P2,158,714.46, representing the unutilized input value-added tax (VAT)
payments.
The facts, as culled from the records, are as follows:
RespondentCebuToyoCorporationisadomesticcorporationengagedin
the manufacture of lensesandvariousoptical components used in television
sets,cameras, compact discs and other similar devices. Its principal office is
located at the Mactan Export Processing Zone (MEPZ) in Lapu-Lapu City,
Cebu. It isa subsidiaryof ToyoLens Corporation, a non-resident corporation
organized under the laws of Japan. Respondent is a zone export enterprise
registered with the Philippine Economic Zone Authority (PEZA), pursuant to
the provisions of Presidential Decree No. 66.[4]
It is also registered with the
Bureau of Internal Revenue (BIR) as a VAT taxpayer.[5]
As an export enterprise, respondent sells 80% of its products to its
mother corporation, the Japan-based Toyo Lens Corporation, pursuant to an

19. Agreement of Offsetting. The rest are sold to various enterprises doing
business in the MEPZ. Inasmuch as both sales are considered export sales
subject to Value-Added Tax (VAT) at 0% rate under Section 106(A)(2)(a)[6]
of
the National Internal Revenue Code, as amended, respondent filed its
quarterly VAT returns from April 1, 1996 to December 31, 1997 showing a
total input VAT of P4,462,412.63.
On March 30, 1998, respondentfiledwiththe Tax andRevenue Group of
the One-Stop Inter-Agency Tax Credit and Duty Drawback Center of the
Department of Finance, an application for tax credit/refund of VAT paid for
the period April 1, 1996 to December 31, 1997 amounting toP4,439,827.21
representing excess VAT input payments.
Respondent, however, did not bother to wait for the Resolution of its
claimby the CIR. Instead,onJune 26, 1998, itfiledaPetitionfor Review with
the CTA to toll the running of the two-year prescriptive period pursuant to
Section 230[7]
of the Tax Code.
Before the CTA,the respondentpositsthatas a VAT-registered exporter
of goods, it is subject to VAT at the rate of 0% on its export sales that do not
result in any output tax. Hence, the unutilized VAT input taxes on its
purchases of goods and services related to such zero-rated activities are
available as tax credits or refunds.
The petitioner’spositionisthatrespondent was not entitled to a refund
or tax credit since: (1) it failed to show that the tax was erroneously or
illegallycollected;(2) the taxespaidandcollectedare presumedtohave been
made inaccordance withlaw; and (3) claims for refund are strictly construed
against the claimant as these partake of the nature of tax exemption.
Initially,the CTA deniedthe petitionfor insufficiency of evidence.[8]
The
tax court sustained respondent’s argument that it was a VAT-registered
entity. It also found that the petition was timely, as it was filed within the
prescription period. The CTA also ruled that the respondent’s sales to Toyo
Lens Corporation and to certain establishments in the Mactan Export
Processing Zone were export sales subject to VAT at 0% rate. It found that
the input VAT covered by respondent’s claim was not applied against any
output VAT. However, the tax court decreed that the petition should
nonetheless be denied because of the respondent’s failure to present
documentary evidence to show that there were foreign currency exchange
proceeds fromitsexportsales. The CTA alsoobservedthatrespondentfailed
to submitthe approval byBangko Sentral ng Pilipinas (BSP) of its Agreement
of OffsettingwithToyoLensCorporationandthe certification of constructive
inward remittance.
Undaunted, respondent filed on February 21, 2000, a Motion for
Reconsideration arguing that: (1) proof of its inward remittance was not
required by law; (2) BSP and BIR regulations do not require BSP approval on
its Agreement of Offsetting nor do they require certification on the amount
constructively remitted; (3) it was not legally required to prove foreign
currencypaymentsonthe remainingsalestoMEPZ enterprises;and (4) it had
compliedwiththe substantiationrequirementsunder Section 106(A)(2)(a) of
the Tax Code. Hence, it was entitled to a refund of unutilized VAT input tax.
On May 31, 2000, the tax court partly granted the motion for
reconsideration in a Resolution, to wit:
WHEREFORE, findingthe motionof petitionertobe meritorious,the same is
herebypartiallygranted. Accordingly,the CourtherebyMODIFIESitsdecision
inthe above-entitledcase,the dispositive portionof whichshall nowreadas
follows:
WHEREFORE, findingthe petitionforreviewpartiallymeritorious,respondent
isherebyORDERED to REFUND or, inthe alternative,toISSUEa TAX CREDIT
CERTIFICATEin favorof Petitionerinthe amountof P2,158,714.46
representingunutilizedinputtax payments.
SO ORDERED.[9]
In grantingpartial reconsideration,the tax courtfoundthatthere was no
needforBSP approval of the Agreementof Offsetting since the same may be
categorized as an inter-company open account offset arrangement. Hence,
the respondent need not present proof of foreign currency exchange
proceeds from its sales to MEPZ enterprises pursuant to Section
106(A)(2)(a)[10]
of the Tax Code. However, the CTA stressed that respondent
must still prove that there was an actual offsetting of accounts to prove that
constructive foreigncurrency exchange proceeds were inwardly remitted as
required under Section 106(A)(2)(a).
The CTA found that only the amount of Y274,043,858.00 covering
respondent’ssalestoToyoLensCorporationandpurchases from said mother
company for the period August 7, 1996 to August 26, 1997 were actually
offsetagainstrespondent’srelatedaccountsreceivable andaccounts payable

20. as shown by the Agreement for Offsetting dated August 30, 1997. Resort to
the respondent’s Accounts Receivable and Accounts Payable subsidiary
ledgers corroborated the amount. The tax court also found that out of the
total export sales for the period April 1, 1996 to December 31, 1997
amounting to Y700,654,606.15, respondent’s sales to MEPZ enterprises
amounted only to Y136,473,908.05 of said total. Thus, allocating the input
taxessupportedbyreceiptstothe exportsales, the CTA determined that the
refund/credit amounted to onlyP2,158,714.46,[11]
computed as follows:
Total Input Taxes Claimed by respondent P4,439,827.21
Less: Exceptions made by SGV
a.) 1996 P651,256.17
b.) 1997 104,129.13 755,385.30
Validly Supported Input Taxes P3,684,441.91
Allocation:
Verified Zero-Rated Sales
a.) Toyo Lens Corporation Y274,043,858.00
b.) MEPZ Enterprises 136,473,908.05 Y410,517,766.05
Divided by Total Zero-Rated Sales Y700,654,606.15
Quotient 0.5859
Multiply by Allowable Input Tax P3,684,441.91
Amount Refundable P2,158,714.[52][12]
On June 21, 2000, petitioner Commissioner filed a Motion for
Reconsideration arguing that respondent was not entitled to a refund
because as a PEZA-registered enterprise, it was not subject to VAT pursuant
to Section 24[13]
of Republic Act No. 7916,[14]
as amended by Rep. Act No.
8748.[15]
Thus, since respondent was not subject to VAT, the Commissioner
contended that the capital goods it purchased must be deemed not used in
VAT taxable business and therefore it was not entitled to refund of input
taxes on such capital goods pursuant to Section 4.106-1 of Revenue
Regulations No. 7-95.[16]
Petitionerfileda Motion for Reconsideration on June 21, 2000 based on
the followingtheories:(1) thatrespondentbeing registered with the PEZA as
an ecozone enterprise is not subject to VAT pursuant to Sec. 24 of Rep. Act
No. 7916; and (2) since respondent’s business is not subject to VAT, the
capital goodsit purchasedare considerednot used in a VAT taxable business
and therefore is not entitled to a refund of input taxes.[17]
The respondent opposed the Commissioner’s Motion for
Reconsideration and prayed that the CTA resolution be modified so as to
grant it the entire amount of tax refund or credit it was seeking.
On August 2, 2000, the Court of Tax Appeals denied the petitioner’s
motion for reconsideration. It held that the grounds relied upon were only
raised for the first time and that Section 24 of Rep. Act No. 7916 was not
applicable since respondent has availed of the income tax holiday incentive
under Executive Order No. 226 or the Omnibus Investment Code of 1987
pursuant to Section 23[18]
of Rep. Act No. 7916. The tax court pointed out
that E.O. No. 226 granted PEZA-registered enterprises an exemption from
payment of income taxes for 4 or 6 years depending on whether the
registration was as a pioneer or as a non-pioneer enterprise, but subject to
other national taxes including VAT.
The petitionerthenfiledaPetitionforReviewwiththe Court of Appeals
(CA), docketed as CA-G.R. SP No. 60304, praying for the reversal of the CTA
Resolutions dated May 31, 2000 and August 2, 2000, and reiterating its claim
that respondent is not entitled to a refund of input taxes since it is VAT-
exempt.
On July 6, 2001, the appellate court decided CA-G.R. SP No. 60304 in
respondent’s favor, thus:
WHEREFORE, findingnomeritinthe petition,thisCourtDISMISSESitand
AFFIRMSthe ResolutionsdatedMay31, 2000 andAugust2, 2000 . . . of the
Court of Tax Appeals.
SO ORDERED.[19]
The Court of Appealsfoundnoreasontosetaside the conclusions of the
Court of Tax Appeals. The appellate court held as untenable herein
petitioner’sargumentthatrespondentisnotentitledtoarefundbecause it is
VAT-exemptsince the evidence showedthatit is a VAT-registered enterprise
subject to VAT at the rate of 0%. It agreed with the ruling of the tax court
that respondent had two options under Section 23 of Rep. Act No. 7916,
namely: (1) to avail of an income tax holiday under E.O. No. 226 and be
subject to VAT at the rate of 0%; or (2) to avail of the 5% preferential tax
underP.D.No.66 andenjoyVATexemption. Since respondentavailed of the
incentivesunderE.O.No.226, thenthe 0% VATrate wouldbe applicable to it

21. and anyunutilizedinputVATshouldbe refunded to respondent upon proper
application with and substantiation by the BIR.
Hence, the instant petition for review now before us, with herein
petitioner alleging that:
I. RESPONDENT BEING REGISTERED WITH THE PHILIPPINE
ECONOMIC ZONE AUTHORITY (PEZA) AS AN ECOZONE EXPORT
ENTERPRISE, ITS BUSINESS IS NOT SUBJECT TO VAT PURSUANT
TO SECTION 24 OF REPUBLIC ACT NO. 7916 IN RELATION TO
SECTION 103 OF THE TAX CODE, AS AMENDED BY RA NO. 7716.
II. SINCE RESPONDENT’S BUSINESS IS NOT SUBJECT TO VAT, IT IS
NOT ENTITLED TO REFUND OF INPUT TAXES PURSUANT TO
SECTION 4.103-1 OF REVENUE REGULATIONS NO. 7-95.[20]
In our view, the main issue for our resolution is whether the Court of
Appeals erred in affirming the Court of Tax Appeals resolution granting a
refund in the amount of P2,158,714.46 representing unutilized input VAT on
goods and services for the period April 1, 1996 to December 31, 1997.
Both the Commissioner of Internal Revenue and the Office of the
Solicitor General argue that respondent Cebu Toyo Corporation, as a PEZA-
registeredenterprise,isexemptfromnational andlocal taxes, including VAT,
under Section 24 of Rep. Act No. 7916 and Section 109[21]
of the NIRC. Thus,
they contend that respondent Cebu Toyo Corporation is not entitled to any
refund or credit on input taxes it previously paid as provided under Section
4.103-1[22]
of Revenue Regulations No. 7-95, notwithstanding its registration
as a VAT taxpayer. Forpetitionerclaimsthat said registration was erroneous
and didnot conferuponthe respondent any right to claim recognition of the
input tax credit.
The respondentcountersthatitavailedof the income tax holiday under
E.O. No. 226 for four years from August 7, 1995 making it exempt from
income tax but not from other taxes such as VAT. Hence, according to
respondent,itsexportsalesare notexemptfromVAT,contrarytopetitioner’s
claim, but its export sales is subject to 0% VAT. Moreover, it argues that it
was able to establish through a report certified by an independent Certified
Public Accountant that the input taxes it incurred from April 1, 1996 to
December31, 1997 were directlyattributable to its export sales. Since it did
not have any output tax against which said input taxes may be offset, it had
the option to file a claim for refund/tax credit of its unutilized input taxes.
Considering the submission of the parties and the evidence on record,
we find the petition bereft of merit.
Petitioner’s contention that respondent is not entitled to refund for
beingexemptfromVATisuntenable. This argument turns a blind eye to the
fiscal incentives granted to PEZA-registered enterprises under Section 23 of
Rep. Act No. 7916. Note that under said statute, the respondent had two
optionswithrespecttoitstax burden. Itcould avail of an income tax holiday
pursuantto provisionsof E.O.No.226, thusexemptitfromincome taxesfora
numberof yearsbut not from other internal revenue taxes such as VAT; or it
couldavail of the tax exemptionsonall taxes,includingVATunderP.D.No. 66
and pay only the preferential tax rate of 5% under Rep. Act No. 7916. Both
the Court of Appeals and the Court of Tax Appeals found that respondent
availed of the income tax holiday for four (4) years starting from August 7,
1995, as clearly reflected in its 1996 and 1997 Annual Corporate Income Tax
Returns, where respondent specified that it was availing of the tax relief
under E.O. No. 226. Hence, respondent is not exempt from VAT and it
correctly registered itself as a VAT taxpayer. In fine, it is engaged in taxable
rather than exempt transactions.
Taxable transactions are those transactions which are subject to value-
added tax either at the rate of ten percent (10%) or zero percent (0%). In
taxable transactions, the seller shall be entitled to tax credit for the value-
added tax paid on purchases and leases of goods, properties or services.[23]
An exemption means that the sale of goods, properties or services and
the use or lease of propertiesisnotsubjecttoVAT(output tax) and the seller
is not allowed any tax credit on VAT (input tax) previously paid. The person
making the exempt sale of goods, properties or services shall not bill any
output tax to his customers because the said transaction is not subject to
VAT. Thus, a VAT-registered purchaser of goods, properties or services that
are VAT-exempt, is not entitled to any input tax on such purchases despite
the issuance of a VAT invoice or receipt.[24]
Now, having determined that respondent is engaged in taxable
transactions subject to VAT, let us then proceed to determine whether it is
subject to 10% or zero (0%) rate of VAT. To begin with, it must be recalled
that generally, sale of goods and supply of services performed in the
Philippines are taxable at the rate of 10%. However, export sales, or sales
outside the Philippines,shallbe subjecttovalue-addedtax at 0% if made by a
VAT-registered person.[25]
Under the value-added tax system, a zero-rated
sale by a VAT-registered person, which is a taxable transaction for VAT

22. purposes, shall not result in any output tax. However, the input tax on his
purchase of goods,propertiesorservicesrelatedtosuchzero-rated sale shall
be available as tax credit or refund.[26]
In principle, the purpose of applying a zero percent (0%) rate on a
taxable transaction is to exempt the transaction completely from VAT
previously collected on inputs. It is thus the only true way to ensure that
goodsare providedfree of VAT. While the zeroratingandthe exemption are
computationally the same, they actually differ in several aspects, to wit:
(a) A zero-ratedsale isataxable transactionbutdoesnotresultinan output
tax while anexemptedtransactionisnotsubjecttothe outputtax;
(b) The inputVATon the purchasesof a VAT-registeredpersonwithzero-
ratedsalesmay be allowedastax creditsor refundedwhile the sellerinan
exempttransactionisnotentitledtoanyinputtax on hispurchasesdespite
the issuance of a VAT invoice orreceipt.
(c) Personsengagedintransactionswhichare zero-rated,beingsubjectto
VAT,are requiredtoregisterwhile registration isoptional forVAT-exempt
persons.
In this case, it is undisputed that respondent is engaged in the export
businessandisregisteredasaVATtaxpayer per Certificate of Registration of
the BIR.[27]
Further,the recordsshowthat the respondentis subject to VAT as
it availedof the income tax holidayunderE.O.No.226. Perforce,respondent
is subject to VAT at 0% rate and is entitled to a refund or credit of the
unutilized input taxes, which the Court of Tax Appeals computed
at P2,158,714.46, but which we find—after recomputation—should
be P2,158,714.52.
The Supreme Court will not set aside lightly the conclusions reached by
the Court of Tax Appeals which, by the very nature of its functions, is
dedicated exclusively to the resolution of tax problems and has accordingly
developed an expertise on the subject, unless there has been an abuse or
improvidentexercise of authority.[28]
Inthiscase,we find no cogent reason to
deviate from this well-entrenched principle. Thus, we are persuaded that
indeed the Court of Appeals committed no reversible error in affirming the
assailed ruling of the Court of Tax Appeals.
WHEREFORE, the petition is DENIED for lack of merit. The assailed
DecisiondatedJuly6,2001 of the Courtof Appeals,inCA-G.R.SP No. 60304 is
AFFIRMED with very slight modification. Petitioner is hereby ORDERED to
REFUND or, in the alternative, to ISSUE a TAX CREDIT CERTIFICATE in favor of
respondentinthe amountof P2,158,714.52 representingunutilized input tax
payments. No pronouncement as to costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna,
JJ., concur.