Case Summary (G.R. No. 193007)
Issues Presented
Procedural
- May a declaratory relief petition be treated as one for prohibition?
- Do petitioners have standing?
Substantive - Does Section 108 unlawfully extend VAT to tollway operations?
- Does VAT on toll fees
a. constitute a tax on tax?
b. impair contractual returns under TOAs?
c. lack administrative feasibility?
Court’s Rulings on Procedural Issues
- The petition was properly converted into a prohibition action due to its far-reaching impact on motorists and government revenue; technical non-compliance with Rule 65 and locus standi requirements was waived in the public interest.
- Petitioners possess sufficient interest to challenge an executive act affecting a broad class of taxpayers and users.
Interpretation of VAT Coverage
Section 108(A) VAT base includes “gross receipts from sale or exchange of services,” defined expansively to cover all service types and franchise grantees except those under Section 119. Tollway operators render services (use of expressway facilities for a fee) under P.D. 1112 and hold franchises evidenced by Toll Operation Certificates. The Court applied the plain-meaning rule: enumeration in Section 108 is illustrative, not exhaustive. No statutory exclusion for public or user-fee services exists; exemptions require explicit legislative grant.
Nature of Toll Fees vs Taxes
Toll fees are private reimbursements under a build-operate-transfer scheme, not sovereign exactions. They fund operator expenses and returns, not general government coffers. As an indirect tax, VAT liability rests on the operator, who may shift its burden to users; shifting does not transform VAT into a “tax on tax.” Output VAT is assessed on the operator’s gross receipts, and any pass-through simply increases the toll rate.
Non-Impairment of Contracts Claim
Petitioner Timbol cannot assert impairment of private investors’ TOAs. She lacks proprietary interest; alleged rate-of-return diminution is speculative. Activation of Material Adverse Grantor Action clauses is conjectural and insufficient to enjoin sovereign taxing power.
Administrative Feasibility
While VAT implementation may burden operators (e.g., invoicing, rounding procedures, input VAT credits), administrative inconvenience alone does n
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Facts and Procedural History
- Petitioners Renato V. Diaz and Aurora Ma. F. Timbol, both regular users of tollroads and former government tax or trade officials, sought declaratory relief to prevent the Bureau of Internal Revenue (BIR) from imposing value-added tax (VAT) on toll fees.
- They alleged that VAT on tolls would raise their costs, exceed Congress’s intent under the National Internal Revenue Code (NIRC) to tax “sale of services,” infringe on the non-impairment clause of existing toll operating agreements (TOAs), and improperly tax a “user’s tax.”
- In August 2010, the Court issued a temporary restraining order (TRO) enjoining VAT on toll collections and later treated the petition as one for prohibition. The government, through the Department of Finance and the BIR, was ordered to comment; it did so on August 23, 2010.
- Respondents argued that the NIRC’s Section 108 plainly covers all services of franchise grantees, including toll operators, and pointed to a series of BIR rulings (2003, 2005, 2009, 2010) affirming that coverage. They further contended that petitioners lack standing to invoke contract-impairment protections and that any adjustment to toll rates formula rests solely with Congress.
- Petitioners replied that toll operators are not “franchise grantees” under the Code, that the BIR’s rounding and escrow scheme is unlawful, and that Revenue Memorandum Circular 63-2010 denies them a 2% transitional input VAT under Section 111.
Issues Presented
- Procedural Issues:
• May the Court treat a petition for declaratory relief as one for prohibition?
• Do Diaz and Timbol have legal standing to file this action? - Substantive Issues:
• Did the government unlawfully expand VAT coverage by including tollway operations as “franchise grantees” and “sale of services” under Section 108 of the NIRC?
• Does VAT on toll operators (a) amount to a tax on tax? (b) impair operators’ right to a reasonable return under TOAs? (c) lack administrative feasibility and t