BIR Ruling

October 24, 1966 The General Manager Derby Manufacturing Co. 105 E. Rodriguez Sr. St. Quezon City S i r : This refers to your letter dated September 9, 1966 requesting clarification on the following: "We have been an established manufacturer of wearing apparel since 1960 and presently we are considering to engage in the manufacture of outerwear garments from acrylic or synthetic yarn which we recently imported from Japan. The process of manufacturing will involve the knitting of acrylic yarn into fabrics and converting the same into finished shirts. Being a manufacturer, the Collector of Customs has charged us an advance sales tax of 7% based on the landed cost of the yarn. "BIR Ruling No. 105.02 dated November 16, 1956 states that Manufactured ladies and girls dresses and other wearing apparel, irrespective of the kind of materials of which made, are subject to the 7% sales tax imposed under Section 186 of the Tax Code, based on the gross selling price thereof, minus the total cost of raw materials which has previous been taxed under the same section. "In view of the above ruling, we have received the following different opinion from our friends: (a) That we will be subject to 30% sales tax based on the gross selling price or gross value in money of the shirts sold; (b) That the cost of raw materials is not deductible and we will be subject to 7% sales tax based on the gross selling price or gross value in money of the shirts sold; (c) That the cost of raw materials will be deductible because the yarn is imported and an advance sales tax of 7% has already been paid on the landed cost of the yarn." In reply, I have the honor to inform you that as correctly stated in BIR Ruling No. 105.02 dated November 16, 1956, Manufacturing ladies and girls dresses and other wearing apparel, irrespective of the kind of materials of which made, are subject only to the 7% sales tax imposed under Section 186 of the Tax Code. Since an advance sales tax of 7% had been collected on the acrylic or synthetic yarn which you process to make the finished articles, the cost thereof, as duly established, is deductible for purposes of determining the sales tax due on the finished articles. cdta Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue