Cebu City Ordinance No. 279 (approved by the mayor on March 10, 1960) and also approved by the provincial board, because at that time, Cebu City ordinances were subject for review by the Provincial Board, mandates the "imposing a quarterly tax on gross sales or receipts of merchants, dealers, importers and manufacturers of any commodity doing business in Cebu City." It imposes a sales tax of one percent on the gross sales, receipts or value of commodities sold, bartered, exchanged or manufactured in the city in excess of P2,000 a quarter.
A section of the ordinance provides that all deliveries of goods or commodities stored in the City of Cebu, or if not stored are sold in Cebu City shall be considered as sales and shall be taxable. It means that even if the matches were sold outside of Cebu City as long as they take from the company's stock stored in Cebu City are taxable.
The Acting City Treasurer, Atty. Jesus Zabate enforced this ordinance against Philippine Match Co. Ltd., whose principal office was in Manila, it was engaged in the manufacture of matches. It ships cases of matches from Manila to its branch office in Cebu City for storage.
Philippine Match Co. did not question the tax on the matches consummated in Cebu City, what it assailed was the legality of the tax collected by the Cebu City Treasurer on its out of town deliveries of the matches. The company paid under protest of the out of town deliveries for the second quarter of 1961 up to the second quarter of 1963.
Philippine Match Co. sent a letter on April 15, 1961 to the City Treasurer seeking for the refund of the sales tax, which request was denied. On August 12, 1963 Philippine Match sued the City Treasurer before the Court of First Instance (today's Regional Trial Court). The Court of First Instance decided that the sales tax of the matches booked and paid in Cebu City although were shipped outside of Cebu City were valid, however it invalidated the tax matches sold outside of Cebu City to its provincial customers. It ordered the Cebu City Treasurer to refund Philippine Match Co.
The city government did not appeal the decision of the Court of First Instance, however Philippine Match appealed the portion of the decision upholding the tax on sales of matches to customers outside of the city but which were booked and paid in Cebu City.
When the case reached the Supreme Court, it upheld the decision of the Court of First Instance and considered that the sales of matches outside of Cebu City as long as these were booked and paid for in the company's branch in Cebu City.
The Supreme Court also in its decision dated January 18, 1978 absolved the City Treasurer of any liability as it acted within the scope of his authority and in consonance with his interpretation of the tax ordinance in good faith.
Atty. Jesus E. Zabate was represented by the City Attorneys Office led by Atty. Nazario Pacquiao, Metudio P. Belarmino, and Ceferino Jomuad.
Jesus E. Zabate became a lawyer on May 16, 1950. The Philippine Match Co. was just one of the many cases Atty. Zabate faced as Acting Cebu City Treasurer. One of the earlier case was the case filed by Pedro Arong, the owner of the Liberty Theater that challenged the validity of Ordinance No. 43 that required the payment of license fees.
Zabate was also made co-defendant of the case filed by the Cebu City Officials on a contract entered by City Mayor Carlos J. Cuizon with the Philippine National Bank on February 5, 1966 for the purchase of road construction equipment.