When using service dns forwarding system, dnsmasq will use system nameservers to resolve DNS instead of nameservers that statically configured with server= directive in /etc/dnsmasq.conf.
In this case resolv-file= directive in /etc/dnsmasq.conf must point to /etc/resolv.conf (or any separated resolveconf file like /etc/resolv.dnsmasq.conf), but not /etc/dnsmasq.conf itself