THIRD DIVISION
March 7, 2018
G.R. No. 181710
CITY OF PASIG and CRISPINA V. SALUMBRE, in her capacity as OIC-City Treasurer of Pasig City, Petitioners
vs.
MANILA ELECTRIC COMPANY, Respondent
D E C I S I O N
MARTIRES, J.:
Under the Local Government Code (LGC) of 1991, a municipality is bereft of authority to levy and impose franchise tax on franchise holders within its territorial jurisdiction. That authority belongs to provinces and cities only.1 A franchise tax levied by a municipality is, thus, null and void. The nullity is not cured by the subsequent conversion of the municipality into a city.
At bar is a petition for review under Rule 45 of the Rules of Court which seeks a reversal of the Decision2 dated 28 August 2007, and Resolution3 dated 8 February 2008 of the Court of Appeals (CA) in CA-G.R. CV No. 81255 entitled "The Manila Electric Company v. The City of Pasig, et al."
THE FACTS
On 26 December 1992, the Sangguniang Bayan of the Municipality of Pasig enacted Ordinance No. 25 which, under its Article 3, Section 32, imposed a franchise tax on all business venture operations carried out through a franchise within the municipality, as follows:
ARTICLE 3 -FRANCHISE TAX
Section 32. Imposition of Tax. - Any provision of laws or grant of exemption to the contrary notwithstanding, any person, corporation, partnership or association enjoying a franchise and doing business in the Municipality of Pasig, shall pay a franchise tax at the rate of fifty percent (50%) of one percent (1%) of its gross receipts derived from the operation of the business in Pasig during the preceding calendar year.
By virtue of Republic Act (R.A.) No. 7829, which took effect on 25 January 1995, the Municipality of Pasig was converted into a highly urbanized city to be known as the City of Pasig.
On 24 August 2001, the Treasurer’s Office of the City Government of Pasig informed the Manila Electric Company (MERALCO), a grantee of a legislative franchise,4 that it is liable to pay taxes for the period 1996 to 1999, pursuant to Municipal Ordinance No. 25. The city, thereafter, on two separate occasions, demanded payment of the said tax in the amount of ₱435,332, 196.00, exclusive of penalties.
On 8 February 2002, MERALCO protested5 the validity of the demand "claiming that the same be withdrawn and cancelled for the following reasons: (1) Ordinance No. 25 was declared void ab initio by the Department of Justice (DOJ) for being in contravention of law, which resolution was reiterated in another case that questioned the validity of the franchise tax, etc.; (2) The Regional Trial Court of Pasig City (RTC) ordered the Municipality of Pasig, now City of Pasig, to refund MERALCO the amount the latter paid as franchise tax because the former lacked legal foundation in collecting the same, as municipalities are not empowered by law to impose and collect franchise tax pursuant to Section 142 of the LGC; (3) The CA affirmed the RTC decision; and (4) The petition for certiorari filed by the then Municipality of Pasig before the Supreme Court, assailing the decision of the CA that sustained the RTC, was likewise dismissed and the motion for reconsideration of the Municipality of Pasig was denied with finality.
In view of the inaction by the Treasurer's Office, MERALCO instituted an action before the RTC for the annulment of the said demand with prayer for a temporary restraining order and a writ of preliminary injunction.6 The RTC ruled in favor of the City of Pasig, disposing as follows:
premises considered, judgment is hereby rendered in favor of the defendant City of Pasig, declaring as valid its demand for payment of franchise tax upon [MERALCO] for the years 1996 to 1999, inclusive, subject to revision of the computation of the amount of such tax pursuant to the guidelines above-mentioned.7WHEREFORE,