G.R. No. L-30745 - Philippine Match Co., Ltd. vs. City of Cebu

Philippine Match Co., Ltd., with its principal office in Manila and factory located at Punta, Sta. Ana, Manila, is engaged in the manufacture of matches.
The company operates a branch office in Cebu City, which serves as a hub for storing, selling, and distributing matches not only within Cebu City but also throughout several districts in the Visayas-Mindanao region.
Cebu City is only one of the eleven districts covered by the company’s Cebu branch office.

Cebu City’s Ordinance No. 279, approved on March 10, 1960 (and also sanctioned by the provincial board), imposes a quarterly tax on the gross sales or receipts of merchants, dealers, importers, and manufacturers “doing business” in the city.
The ordinance levies a one percent (1%) sales tax on gross sales, receipts, or the value of commodities sold, bartered, exchanged, or manufactured in the city in excess of P2,000 per quarter.
Section 9 of the ordinance stipulates that for tax purposes “all deliveries of goods or commodities stored in the City of Cebu, or if not stored are sold” in the city, shall be considered as sales within the city and thus taxable.

Sales of matches booked and paid for in Cebu City, but shipped directly to customers outside of the city.

Customer orders are placed either in person or through telephone calls in Cebu City.
Sales invoices are issued in Cebu City, and the matches, stored in the company’s bodega in the city, are then delivered via bills of lading to customers outside the city.

Transfers of matches to salesmen assigned to various agencies outside of Cebu City.

Matches are shipped from the Cebu branch office to salesmen (who operate with panel cars) across Cebu province and other districts in the Visayas-Mindanao region.
No sales invoices are issued; the transactions are recorded as direct cash accountability by the salesmen, and the unsold matches form part of their stock liability.

Shipments of matches to provincial customers based on instructions provided by the salesmen.

Orders are received via letters or telegrams from salesmen stationed outside the city.
The matches are shipped from the Cebu City bodega, sales invoices are subsequently issued by the salesmen, and the proceeds are remitted back to the branch office.

The Philippine Match Co., Ltd. paid a sum of P12,844.61 under protest as one percent sales tax for out-of-town deliveries covering:

The company submitted comprehensive verified forms to the city treasurer’s office detailing:

The various classes of transactions.
Summaries of deliveries, sales figures, invoice numbers, customer names, and the computations of the tax.

The company’s position was that while it did not dispute the tax on sales consummated within Cebu City, it challenged the imposition of the tax on deliveries perfected outside the city.
Citing Shell Company of the Philippines, Ltd. vs. Municipality of Sipocot, Camarines Sur, the company contended that out-of-town deliveries should not be taxed since the consumption of the matches occurs outside the city.
On August 12, 1963, the company filed a complaint seeking:

A declaration that the ordinance is void insofar as it taxes out-of-town deliveries.
A refund of the excess sales tax paid.
Damages against the city treasurer.

Upheld the tax on sales booked and paid for in Cebu City (i.e., matches delivered to the carrier in Cebu City) on the basis that delivery to the carrier is tantamount to delivery to the customer.
Invalidated the tax on transfers to salesmen and shipments to provincial customers, characterizing those as “storage taxes” rather than sales taxes.
Ordered a refund of P8,923.55 with legal interest on the overtaxed transactions.

The City of Cebu, through its acting treasurer, maintained that pursuant to Section 9 of the ordinance, all deliveries of matches stored in Cebu City are taxable regardless of the ultimate destination.
The company further contended for exemplary damages and attorney’s fees, alleging that the city treasurer acted without just cause and against the advice of the city fiscal.

The legality of imposing the sales tax on out-of-town deliveries when the matches are stored, booked, and paid for in Cebu City.
The propriety of denying exemplary damages and attorney’s fees against the city treasurer.

Whether the City of Cebu possesses the authority to levy a sales tax on matches which are:

Whether the collection of such tax by the city treasurer, based solely on the delivery of matches to the carrier in Cebu City, places the transactions within the city’s taxing power.

Whether the city treasurer should be held liable for exemplary damages and attorney’s fees for enforcing the tax ordinance, particularly given his reliance on the provisions of the ordinance and adherence to his official duty.