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MERALCO appealed before the CA. The Ruling of the CA On whether the City of Pasig can legally assess and collect franchise tax from MERALCO for the period 1996 to 1999, the court ruled in the negative. The CA ratiocinated that the LGC authorizes cities to levy a franchise tax. However, the basis of the City of Pasig’s demand for payment of franchise tax was Section 32, Article 3 of Ordinance No. 25 which was enacted at a time when Pasig was still a municipality and had no authority to levy a franchise tax. From the time of its conversion into a city, Pasig has not enacted a new ordinance for the imposition of a franchise tax. The conversion of Pasig into a city, the CA explained, did not rectify the defect of the said ordinance. Citing San Miguel Corporation v. Municipal Council (SMC)8 and Arabay, Inc. v. Court of First Instance of Zamboanga del Norte (Arabay), 9 the CA ruled that the conversion of a municipality into a city does not remove the original infirmity of the ordinance. The dispositive portion of the decision reads: the foregoing premises considered, we resolve to REVERSE and SET ASIDE the decision appealed from.1âwphi1 In its stead, a new judgment is hereby entered declaring the demand for payment of franchise tax from [MERALCO] as invalid for being devoid of legal basis.10 The City of Pasig moved, but failed to obtain a reconsideration of the said decision. Thus, the instant appeal. The Present Petition for Review The City of Pasig relied on the following reasons to support its petition: I. THE COURT OF APPEALS COMMITTED GRAVE REVERSIBLE ERROR IN SETTING ASIDE THE DECISION OF THE TRIAL COURT AND IN DECLARING THAT THE CONVERSION OF THE MUNICIPALITY OF P ASIG INTO A CITY DID NOT VEST THE LATTER WITH AUTHORITY TO LEVY FRANCHISE TAXES AS THE ORDINANCE GRANTING SUCH POWER WAS NULL AND VOID. II. THE COURT OF APPEALS COMMITTED GRAVE REVERSIBLE ERROR IN SETTING ASIDE THE DECISION OF THE TRIAL COURT AND DECLARING THAT THERE IS NOTHING IN REPUBLIC ACT NO. 7892 WHICH INVESTS A CURATIVE EFFECT UPON ORDINANCE NO. 32. III. THE COURT OF APPEALS COMMITTED GRAVE REVERSIBLE ERROR IN SETTING ASIDE THE DECISION OF THE TRIAL COURT CONTRARY TO THE RULE THAT IN CASE OF DOUBT IN THE APPLICATION OF A STATUTE, AN APPLICATION GIVING EFFECT TO THE LEGISLATIVE INTENT AND THE PRINCIPLE OF LOCAL AUTONOMY ENSHRINED IN THE CONSTITUTION SHOULD BE FOLLOWED. For the Court’s consideration is the following: ISSUE Whether the CA was correct in ruling that the City of Pasig had no valid basis for its imposition of franchise tax for the period 1996 to 1999. OUR RULING We answer in the affirmative. I. Unlike a city, a municipality is bereft of authority to levy franchise tax, thus, the ordinance enacted for that purpose is void. The conversion of the municipality into a city does not lend validity to the void ordinance. Neither does it authorize the collection of the tax under said ordinance. The power to impose franchise tax belongs to the province by virtue of Section 137 of the LGC which states:
x x x x On the other hand, the municipalities are prohibited from levying the taxes specifically allocated to provinces, viz:
Section 151 empowers the cities to levy taxes, fees and charges allowed to both provinces and municipalities, thus -
x x x x The LGC further provides that the power to impose a tax, fee, or charge or to generate revenue shall be exercised by the Sanggunian of the local government unit concerned through an appropriate ordinance.11 This simply means that the local government unit cannot solely rely on the statutory provision (LGC) granting specific taxing powers, such as the authority to levy franchise tax. The enactment of an ordinance is indispensable for it is the legal basis of the imposition and collection of taxes upon covered taxpayers. Without the ordinance, there is nothing to enforce by way of assessment and collection. However, an ordinance must pass muster the test of constitutionality and the test of consistency with the prevailing laws.12 Otherwise, it shall be void. It is not disputed that at the time the ordinance in question was enacted in 1992, the local government of Pasig, then a municipality, had no authority to levy franchise tax. Article 5 of the Civil Code explicitly provides, "acts executed against the provisions of mandatory or prohibitory laws shall be void, except when the law itself authorizes their validity." Section 32 of Municipal Ordinance No. 25 is, thus, void for being in direct contravention with Section 142 of the LGC. Being void, it cannot be given any legal effect. An assessment and collection pursuant to the said ordinance is, perforce, legally infirm. Consequently, the CA was correct when it declared that the demand of the City of Pasig upon MERALCO for the payment of the disputed tax was devoid of legal basis. It bears emphasizing that the DOJ and the RTC of Pasig City13 had previously declared Section 32 of Municipal Ordinance No. 25 as void ab initio. 14 Even the City of Pasig, it seems, does not contest the invalidity of said ordinance.15 It is submitted, however, that when Pasig was converted into a city in 1995 by virtue of R.A. No. 7829 (the cityhood law) it was authorized to collect and impose a franchise tax. Demurring from the rulings in Arabay and SMC cited in the assailed CA decision, the City of Pasig insists that the demand for payment of franchise tax was justified for the period 1996 up to 1999, or when Pasig was already a city. Unlike the present case, the City of Pasig continues, Ara bay and SMC involved taxes paid prior to the respective municipalities' conversion into cities. We are not persuaded. The doctrinal rule on the matter still rings true to this day - that the conversion of the municipality into a city does not remove the original infirmity of the subject ordinance. Such doctrine, evoked in Arabay and SMC, is squarely relevant in the case at bar. In these two separate cases, the sales taxes were paid by the petitioners pursuant to ordinances enacted prior to the conversion of the respondents into cities, or at which time the latter were without authority to levy the said taxes. Finding the municipal ordinances to be void, the Court minced no words in declaring the payments of taxes under the ordinances to be without basis even if subsequently the respondents became cities. Fittingly, the Court ordered the refund of the said taxes to the petitioners. We find the instant case no different from Arabay and SMC. As in those cases, the cityhood law (R.A. No. 7829) of Pasig cannot breathe life into Section 32 of Municipal Ordinance No. 25, ostensibly by bringing it within the ambit of Section 151 of the LGC that authorizes cities to levy the franchise tax under Section 137 of the same law. It is beyond cavil that Section 32 of Municipal Ordinance No. 25 is an act that is null and void ab initio. It is even of little consequence that Pasig sought to collect only those taxes after its conversion into a city. A void ordinance, or provision thereof, is what it is - a nullity that produces no legal effect. It cannot be enforced; and no right could spring forth from it. The cityhood of Pasig notwithstanding, it has no right to collect franchise tax under the assailed ordinance. Besides, the City of Pasig had apparently misunderstood Arabay. In that case, the taxes subject of the refund claim included those paid after the conversion of Dipolog into a city. Thus, while the creation of the City of Dipolog was effective on 1 January 1970, the petitioner, Arabay, Inc., applied for the refund of taxes paid under the questioned ordinance for the period from December 1969 to July 1972.16 As previously noted, the Court granted the refund. II. The cityhood law of
of R.A. No. 7829 as legal basis that gave curative effect upon Section 32 of Municipal Ordinance No. 25. As we see it, the cited law does not lend any help to the City of Pasig's cause. It is crystal clear from the said law that what shall continue to be in force after the conversion of Pasig into a city are the municipal ordinances existing as of the time of the approval of R.A. No. 7829. The provision contemplates ordinances that are valid and legal from their inception; that upon the approval of R.A. No. 7829, their effectivity and enforcement shall continue. To 'continue' means (1) to be steadfast or constant in a course or activity; (2) to keep going: maintain a course, direction, or progress; or (3) to remain in a place or condition.17 It presupposes something already existing. A void ordinance cannot legally exist, it cannot have binding force and effect. Such is Section 32 of Municipal Ordinance No. 25 and, being so, is outside the comprehension of Section 45 of R.A. No. 7829 We are not in full accord with the explanation given by the City of Pasig - that Section 45 of R.A. No. 7829 intended to prevent the City of Pasig from becoming paralyzed in delivering basic services. We can concede that Section 45 of R.A. No. 7829 assures the City of Pasig continued collection of taxes under ordinances passed prior to its conversion. What the petitioner fails to realize is that Section 32, Municipal Ordinance No. 25 is not the singular source of its income or funds necessary for the performance of its essential functions. The argument of the City of Pasig is at best flimsy and insubstantial. The records, it should be noted, bear no evidence to demonstrate the resulting paralysis claimed by the City of Pasig. An unsupported allegation it is, no better than a mere conjecture and speculation. III. There is no ambiguity in As a last-ditch effort to persuade this Court, the City of Pasig calls out a latent ambiguity in Section 42 of R.A. No. 7829 in order to pave the way for the operation of the cardinal rule in statutory construction requiring courts to give effect to the legislative intent. It pounces on the same ambiguity so that it may be resolved in favor of promoting local autonomy. We disagree. We have already established that the provision is clear enough to dislodge any notion that it gives curative effect to the legal infirmity of Section 32 of Municipal Ordinance No. 25. The legislative intent behind Section 42 of R.A. No. 7829, as previously discussed, did not comprehend the affirmance of void or inexistent ordinances. Neither can the bare invocation of the principle of local autonomy provide succor to settle any ambiguity in Section 42 of R.A. No. 7829, if doubt as to its meaning may even be supposed. While we can agree that an ambiguity in the law concerning local taxing powers must be resolved in favor of fiscal autonomy,18 we are hampered by the nullity of Section 32 of Municipal Ordinance No. 25. At the risk of being repetitive, the said ordinance cannot be given legal effect. It must be borne in mind that the constitutionally ordained policy of local fiscal autonomy was not intended by the framers to be absolute. It does not provide unfettered authority to tax objects of any kind. The very source of local governments' authority to tax19 also empowered Congress to provide limitations on the exercise of such taxing powers. Precisely, Congress' act of withdrawing from municipalities the power to levy franchise tax by virtue of Section 142 of the LGC is a valid exercise of its constitutional authority In this case, the validity of the municipal ordinance imposing a franchise tax cannot be made to rest upon the ambiguity of a provision of law (Section 42, R.A. No. 7829) operating supposedly, albeit mistakenly, under the context of promoting local autonomy. Regard, too, must be made for the equally important doctrine that a doubt or ambiguity arising out of the term used in granting the power of taxation must be resolved against the local government unit.20 In fine, the City of Pasig cannot legally make a demand for the payment of taxes under the challenged ordinance, which is void, even after its conversion into a city. The CA, thus, committed no reversible error. WHEREFORE, the petition is DENIED for lack of merit. The 28 August 2007 Decision and the 8 February 2008 Resolution of the Court of Appeals in CA-G.R. CV No. 81255 are hereby AFFIRMED. SO ORDERED. SAMUEL R. MARTIRES WE CONCUR: PRESBITERO J. VELASCO, JR.
ALEXANDER G. GESMUNDO A T T E S T A T I O N I attest that the conclusions in the above Decisionhad been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division. PRESBITERO J. VELASCO, JR. C E R T I F I C A T I O N Pursuant to the Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division. ANTONIO T. CARPIO Footnotes 1 Local Government Code of 1991, Sections 13 7 and 151. 2 Rollo, pp. 28-35; penned by Associate Justice Apolinario D. Bruselas, Jr., and concurred in by Associate Justices Bievenido L. Reyes (former member of the Court) and Aurora Santiago-Lagman. 3 Id. at 36-37. 4 Under Act No. 484, as implemented by Ordinance No. 44 and extended by Republic Act Nos. 150 and 4159, MERALCO is authorized to construct, maintain and operate an electric light, heat and power system in the City of Manila and its suburbs including the City of Pasig. 5 Records, pp. 14-22. 6 Filed before Branch 70, RTC-Pasig City, docketed as Civil Case No. 68944. 7 Records, p. 367. 8 152 Phil. 30 (1973 ). 9 160-A Phil. 132 (1975). 10 Rollo, p. 35. 11 See LGC, Section 132 .. 12 Ferrer, Jr. v. Bautista, 762 Phil. 233, 263 (2015) citing City of Manila v. Hon. Laguio, Jr., 495 Phil. 289, 308 (2005). 13 Filed before Branch 266, RTC-Pasig City, docketed as Civil Case No. 64881. The decision of the RTC declaring Section 32 of Ordinance No. 25 was later affirmed by the CA in its Decision, dated 16 March 2001, in CA-GR CV No. 55611. See Rollo, p. 11 and records, p. 365. 14 Id. 15 Id. at 18-19. 16 The City of Dipolog had, however, previously refunded to plaintiff Arabay, Inc. the payments from April to July 1972. 17 Webster's Third New International Dictionary, page 493. 18 See Demaala v. Commission on Audit, 754 Phil. 28, 42 (2015). 19 Constitution, Article X, Section 5 which provides: Section 5 - Each Local Government unit shall have the power to create its own sources of revenue and to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to the Local Governments. 20 See Demaala v. Commission on Audit, supra note 18 at 39 citing Icard v. City Council of Baguio, 83 Phil. 870,873 (1949) The Lawphil Project - Arellano Law Foundation 
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