BIR Ruling

February 20, 1970 3rd Indorsement Respectfully forwarded to the Honorable, the Secretary of Finance, Manila the within papers bearing on the proposal of Esso Standard Fertilizer and Agricultural Chemical Co., Inc. (Phil.) in obtaining tax exemption on imported raw materials and supplies used in the manufacture of the products intended for exportation. acd Esso proposes that its importations of raw materials which are used in its manufacture of fertilizer products intended for domestic consumption and for export shall be stored in a bonded warehouse; that the materials movement shall be under the direct supervision of customs officials and proper records shall be kept for the purpose; that the quantity of imported raw materials consumed for the manufacture of products exported, which raw materials are exempt from the payment of import duty and taxes shall be based on the usage factor determined in accordance with the formula of manufacturing developed by them which formula shall be subject to verification and approval by the appropriate government agency, e.g. National Institute of Science and Technology; that the quantity of finished products exported from the Philippines shall be based on the cargo outturn certificates prepared by the proper officials of the Bureau of Customs for each export shipment consistent with current procedure regarding exportation; and that the quantity of imported raw materials as hereinabove determined shall constitute a direct credit to their earliest accountable importation. Under Section 183(b) and 190(c) of the Tax Code, imported articles to be used by the importer himself in the manufacture or preparation of articles for consignment abroad are exempt from the advance sales or compensating tax. In the implementation of these provisions of the Tax Code, it has been the consistent stand of this Office that in order to be exempt, the imported raw materials must be earmarked for the manufacture or preparation of articles also earmarked for export. Imported raw materials not so earmarked for export are subject to the advance sales tax, and the subsequent exportation of the articles manufactured therefrom by the importer himself will not give rise to the refund or tax credit of the advance sales tax paid thereon. This Office finds no justifiable reason to depart from the foregoing stand. Consequently, and as the greater volume of the fertilizer products of Esso are for domestic consumption, it is respectfully recommended that its aforementioned proposals be rejected. cdta MISAEL P. VERA Commissioner of Internal Revenue