G.R. No. 193007 - Diaz vs. Secretary of Fice

Renato V. Diaz and Aurora Ma. F. Timbol, regular users of tollways, filed a petition for declaratory relief (later treated as one for prohibition) against the Secretary of Finance and the Commissioner of Internal Revenue, seeking to enjoin the Bureau of Internal Revenue (BIR) from imposing value-added tax (VAT) on toll fees.
They contended that (a) Congress did not intend to include toll fees within “sale of services” under the National Internal Revenue Code (NIRC); (b) toll fees are a “user’s tax,” not a sale of services; (c) VAT on toll fees would constitute a tax on public service; and (d) because VAT was not factored into the approved toll-setting formula, its imposition violates the non-impairment clause of the Constitution.

On August 13, 2010, the Court issued a temporary restraining order (TRO) enjoining VAT implementation and required respondents to comment within ten days. The petition was subsequently treated as one for prohibition.
The Office of the Solicitor General, on behalf of the Department of Finance and the BIR, argued that Section 108 of the NIRC unambiguously subjects “all kinds of services” by franchise grantees—expressly including tollway operations—to VAT; that petitioners lacked standing to invoke non-impairment claims; and that the parametric formula’s exclusion of VAT was irrelevant to tax liability.
In their reply, petitioners disputed (a) the classification of tollway operators as franchise grantees; (b) the legality of BIR’s rounding-off scheme and escrow account for excess collections; and (c) BIR Revenue Memorandum Circular 63-2010’s directive to forgo the 2% transitional input VAT credit under Section 111 of the NIRC.
Respondents moved for reconsideration of the Court’s treatment of the petition as one for prohibition, asserting the action properly fell under declaratory relief and did not meet Rule 65 requirements.

May the Court treat a petition filed for declaratory relief as one for prohibition?
Do petitioners Diaz and Timbol have legal standing (locus standi) to challenge the BIR’s VAT imposition?

Whether the NIRC (Section 108) unlawfully expanded VAT coverage by including tollway operations as “sale of services” and classifying tollway operators as “franchise grantees.”
Whether VAT on tollway operations:

Amounts to a tax on tax (i.e., a user’s tax).
Impairs tollway operators’ right to a reasonable return under their Toll Operating Agreements (TOAs).
Is administratively infeasible or incapable of implementation.