Pasig v. Manila Electric
REITERATIONFacts
The Antecedents: The Sangguniang Bayan of the Municipality of Pasig enacted Municipal Ordinance No. 25 on December 26, 1992, imposing a franchise tax on businesses enjoying a franchise within the municipality. Subsequently, on January 25, 1995, the Municipality of Pasig was converted into the City of Pasig by virtue of Republic Act No. 7829. On August 24, 2001, the City Treasurer's Office demanded payment from Manila Electric Company (MERALCO) for franchise taxes for the period 1996 to 1999, pursuant to Municipal Ordinance No. 25. Procedural History: MERALCO protested the demand, citing previous declarations by the Department of Justice (DOJ) and the Regional Trial Court (RTC) that Ordinance No. 25 was void ab initio, which were affirmed by the Court of Appeals (CA) and dismissed by the Supreme Court. MERALCO then filed an action for annulment of the demand with the RTC. The RTC ruled in favor of the City of Pasig, declaring the demand valid. MERALCO appealed to the CA, which reversed the RTC decision, declaring the demand invalid for being devoid of legal basis. The City of Pasig's motion for reconsideration was denied, leading to the present petition for review before the Supreme Court. The Petition: The City of Pasig sought to reverse the CA decision, arguing that the conversion of the municipality into a city vested it with the authority to levy franchise taxes, and that its cityhood law had a curative effect on the void ordinance.
Issue(s)
Whether the Court of Appeals (CA) erred in reversing the trial court's decision and declaring that the conversion of the Municipality of Pasig into a city did not vest the latter with the authority to levy franchise taxes under an ordinance that was void from its inception. Whether Republic Act No. 7892 (the cityhood law of Pasig) had a curative effect upon Municipal Ordinance No. 25. Whether the CA erred in setting aside the trial court's decision contrary to the rule that in case of doubt in the application of a statute, the legislative intent and the principle of local autonomy should be followed.
Ruling
The Supreme Court denied the petition for lack of merit and affirmed the Decision and Resolution of the Court of Appeals, declaring the demand for payment of franchise tax from MERALCO as invalid for being devoid of legal basis.
Ratio Decidendi
On the issue of whether the CA correctly ruled that the City of Pasig had no valid basis for its imposition of franchise tax for the period 1996 to 1999: The Court ruled in the affirmative. It reiterated that under the Local Government Code (LGC) of 1991, municipalities are bereft of the authority to levy franchise tax, which power belongs exclusively to provinces and cities. Section 137 of the LGC grants provinces the power to impose franchise tax, while Section 151 empowers cities to levy taxes that provinces or municipalities may impose. Municipalities, under Section 142, are prohibited from levying taxes specifically allocated to provinces. Therefore, Municipal Ordinance No. 25, enacted when Pasig was still a municipality, was void ab initio for contravening Section 142 of the LGC. The Court emphasized that a void ordinance cannot be given legal effect, and any assessment or collection based on it is legally infirm. The conversion of Pasig into a city did not rectify this fundamental defect. On the issue of whether the cityhood law of Pasig cured the defect of the questioned ordinance: The Court held that Republic Act No. 7829, the cityhood law of Pasig, did not cure the defect of Municipal Ordinance No. 25. Section 45 of R.A. No. 7829 states that municipal ordinances existing at the time of its approval shall continue to be in force until the Sangguniang Panlungsod provides otherwise. The Court clarified that this provision contemplates ordinances that are valid and legal from their inception. A void ordinance, being a nullity, cannot legally exist or have binding force and effect, and thus falls outside the comprehension of Section 45. The provision assures the continued effectivity of valid ordinances, not the revival or validation of void ones. On the issue of whether there is ambiguity in Section 45 of R.A. No. 7829 and the principle of local autonomy: The Court found no ambiguity in Section 45 of R.A. No. 7829, stating that it clearly does not grant curative effect to void ordinances. The invocation of local autonomy, while important, does not grant unfettered authority to tax. The Constitution empowers Congress to provide limitations on the exercise of taxing powers, and the withdrawal of the power to levy franchise tax from municipalities by Section 142 of the LGC is a valid exercise of this authority. Furthermore, any doubt or ambiguity in a law granting the power of taxation must be resolved against the local government unit. Therefore, the City of Pasig could not legally collect taxes under the void ordinance, even after its conversion into a city.
Main Doctrine
A municipal ordinance imposing a franchise tax, which is void ab initio for lack of authority at the time of its enactment, cannot be given validity or legal effect even after the municipality's conversion into a city. The cityhood law does not cure the defect of a void ordinance.