BIR Ruling

January 6, 1975 Bethlehem Machine Works Corporation 201 Del Monte Ave., Frisco Quezon City Attention: Mr . Erdulfo S . Sison Vice-President-Treasure r Gentlemen : This refers to your letter dated October 25, 1974 requesting information whether or not you are liable to pay contractor's tax on items you fabricate for duly registered companies with the Board of Investments with a pioneer and/or non-pioneer status. It is stated in your letter that Purefoods Corporation, California Manufacturing Co., Liberty Flour Mills-Food Division, Ford Phils., I. H. Macleod are some of your BOI registered companies clients for whom you have fabricated and are still fabricating locally parts, tools and equipment, and that they refused to pay any contractor's tax on items you have fabricated for them. In reply, I have the honor to inform you that under the foregoing facts, you are not a contractor for internal revenue purposes. You are a manufacturer of parts, tools and equipment. For although you manufacture the aforesaid articles only upon previous orders of your customers, such fact does not divest you of your character as a manufacturer. The rule is, unless an activity is covered by Section 191 of the Tax Code, one who manufacture articles, although upon a previous order and subject to the specification of the buyer, constitutes the maker, nonetheless, a manufacturer. (See Celestino Co. and Company vs. Collector G.R. No. L-8506, August 31, 1956). Accordingly, your sales of parts, tools and equipment to the BOI registered enterprises under the foregoing circumstances is subject to the 7% sales tax prescribed in Section 186 of the Tax Code. Moreover, the fact that your buyers are BOI registered enterprises which are exempt from taxes, does not make your sales to them exempt from the sales tax in accordance with the rule that a sales tax is a tax on the seller and not on the purchaser. (Philippine Acetylene Co., Inc. vs. Commissioner of Internal Revenue, G.R. No. L-19707, August 17, 1967). aisa dc Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue TAN-1601-593-5