BIR Ruling

April 15, 1969 Jewel Asbestos Corporation 112 A. P. Cruz Street Caloocan City Attention: Mr . Joven B . Joaquin General Manager Gentlemen : This refers to your letter dated March 5, 1969, requesting legal opinion as to the proper licenses and taxes which the Jewel Asbestos Corporation (hereinafter referred to as "Jewel") and Sanmar Mining Association (hereinafter referred to as "Sanmar") have to pay in connection with the business operations described therein. lexlib It appears from your letter and the papers submitted in connection therewith that "Jewel" entered into an operating or exploitation contract with "Sanmar" in respect to the mining claims covered by Mines Temporary Permit No. V-779, which was granted in favor of "Sanmar" to extract and dispose of asbestos ores for commercial purposes pending the approval of its Lease Application No. V-9598. The business operations of "Jewel" consist of the mining of the asbestos ores in the claims covered by "Sanmar's" temporary permit and the subsequent milling thereof into fibers. It shall be assumed for this purpose that your operating or exploitation contract with "Sanmar" had been approved by the Secretary of Agriculture and Natural Resources. In reply thereto, I have the honor to inform you that "Jewel" shall be considered as operator of a mine within the purview of Section 245 of the Tax Code subject to the payment of the rentals and royalties on mineral lands under lease prescribed by Section 242 of the said Code. The "Jewel", for milling the ores into fibers and selling the same as raw materials, is subject to the 7% sales tax prescribed by Section 186 of the Tax Code. Milling the ore into fiber constitutes a change or transformation thru manufacturing process. Consequently, the fiber that you produce is considered a manufactured product. (Cebu Portland Cement Company, Inc., G.R. No. L-18649, Decision dated February 27, 1965 and Resolution dated December 29, 1967 and G.R. No. L-22605, January 17, 1968) In connection with your operating or exploitation contract, "Sanmar" shall be subject only to income tax on the royalties you will pay it. However, if the operating or exploitation contract was not approved by the Secretary of Agriculture and Natural Resources, "Sanmar" can be held liable for the rental and royalties should you fail to effect payment thereof. prcd Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue