Supreme Court denies Muntinlupa tax claim on Meralco franchise

THE Supreme Court (SC) reversed the 2011 decision of the Court of Appeals (CA) that voided the 2003 decision of the Pasig Regional Trial Court ordering Manila Electric Co. (Meralco) to pay franchise tax to the Muntinlupa local government from 1992 to 1999.

In the High Court’s decision on Feb. 9 and published on March 3, it said the Muntinlupa local government init (LGU) had no power or authority to enact its franchise tax ordinance as “an ordinance which is incompatible with any existing law or statute is ultra vires.”

“[A]n ultra vires ordinance is null and void and produces no legal effect from its inception,” it added.

The Muntinlupa LGU earlier demanded Meralco to pay franchise tax for operating as a public utility from 1992 to 1999, pursuant to Section 25 of Municipal Ordinance 93-35 or the Revenue Code of then-Municipality of Muntinlupa.

The LGU also asked Meralco to submit its certified statement of gross sales or receipts from 1992 to 1999 for the computation of the franchise tax due.

As such, Meralco appealed to the regional trial court (RTC) of Pasig City, where its head office is located, in 2003 to review the said demand, to which the court decided that the electricity provider is not liable for franchise tax to Muntinlupa as it was still a municipality in 1992, and became a city only in 1995.

The Muntinlupa RTC then appealed to the CA in 2011, to which the court held that Meralco must pay the franchise tax from the date when Muntinlupa became a city in March 1995, as Section 56 of Republic Act 7926, which converted Muntinlupa into a city, adopted all existing municipal ordinances of the Muntinlupa municipality, which includes its collection of franchise tax.

Meralco again appealed to the SC, which affirmed the 2003 decision of the Pasig City RTC.

The High Court said pursuant to Section 142 of the Local Government Code of 1991 or Republic Act No. 7160, “the power and authority to impose and collect a franchise tax lies only with provinces and cities,” and Muntinlupa was still a municipality in 1992.

As for tax in the years when Muntinlupa was already a city, the SC ruled that the request of the Muntinlupa LGU was void from the beginning as its basis from municipality ordinances is illegal.

“A void ordinance cannot legally exist; it cannot have binding force and effect,” it added.

Meralco’s controlling stakeholder, Beacon Electric Asset Holdings, Inc., is partly owned by PLDT, Inc. Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has interest in BusinessWorld through the Philippine Star Group, which it controls. — Bianca Angelica D. Añago