BIR Ruling

September 13, 1971 5th Indorsement Returned to the Revenue Director (Attention of the Chief, Specific Tax Branch), Revenue Region No. 9, San Pablo City, thru the Revenue Operations Head (Specific Tax), the within papers relative to the internal revenue tax case of Canlubang Sugar Estate (Distillery A-1-785) of Canlubang, Laguna, involving the amount of P2,687.50 as deficiency fixed taxes inclusive of surcharges and compromise penalty for the period covering the second semester of 1969 to the first semester of 1971. cdt The record shows that Canlubang Sugar Estate (Distillery) is a registered alcohol plant and a manufacturer of alcohol (A-1-785; 0-143) located at Canlubang, Calamba, Laguna; that each distilling column (2 units) of said distillery has a rated capacity of 7,000 gauge liters on a 24-hour run basis, or capable of producing 14,000 gauge liters of rectified alcohol daily; and that upon verification of the official register book of subject taxpayer, it was revealed that the distillery actually stopped operation (production of alcohol only) in December, 1966. Notwithstanding the fact that it stopped operation, it continued to pay the maximum fixed tax of P600.00, for the years 1967, 1968 and 1969. However, in 1970 and 1971, it paid only the minimum fixed tax of P100.00 although said distillery did not produce rectified alcohol during the periods. On March 29, 1971 a letter of demand was issued against the taxpayer demanding from it the amount of P2,687.50 representing deficiency fixed tax covering the period from the 2nd semester of 1969 to the first semester of 1971 inclusive of surcharges and compromise penalty. By letter dated April 7, 1971 taxpayer, assailed the correctness of the assessment citing the provisions of Section 182(A)(3)(b) of the Tax Code, as amended. It appears that in assessing the deficiency fixed tax, that Office used as basis in its computation thereof the annual fixed tax of P1,000.00 if the annual production does not exceed 100,000 gauge liters; and that the Chief of the Specific Tax Branch of that region further recommended the imposition of a much higher amount of fixed tax for the 2nd semester of 1969 to the 1st semester of 1971 for the reason that since the taxpayer has been paying the maximum amount of P600.00 as annual fixed tax as distiller which amount was raised to P5,000.00 under Republic Act No. 6110, the taxpayer should be made to pay the deficiency fixed tax for the years in question. The only issue to be resolved here is the correct amount of annual fixed tax payable by the distillery which stopped production of distilled spirits but which has not retired from business as a distiller. Section 182(A)(3)(b) of the Tax Code, as amended by Republic Act No. 6110 which took effect on September 1, 1969, provides as follows: "(b) Distillers of spirits, one thousand pesos, if the annual production does not exceed one hundred thousand gauge liters; two thousand pesos, if the annual production exceeds one hundred thousand gauge liters but does not exceed two hundred thousand gauge liters; three thousand pesos, if the annual production exceeds two thousand gauge liters but does not exceed three hundred thousand gauge liters; four thousand pesos, if the annual production exceeds three hundred thousand gauge liters but does not exceed five hundred thousand gauge liters; Provided , That if the annual production does not exceed ten thousand gauge liters only one hundred pesos shall be collected." Prior to the amendment by Republic Act No. 6110, the maximum amount of fixed tax payable by distillers is P600.00 if the annual production exceeds 250,000 gauge liters while the minimum amount of fixed tax is also P100.00 if the annual production does not exceed 50,000 gauge liters. As correctly noted by the Legal Branch of that region, the fixed tax due on a distiller of spirits under the aforequoted provisions of the Tax Code is graduated on the basis of the annual production of the distillery during the preceding year. The fact that the distiller has been paying the maximum amount of fixed tax in the previous years although the distiller stopped producing distilled spirits is of no moment because in the imposition of the fixed tax, the criterion is not the amount of fixed tax previously paid by the distiller, but the annual production during the preceding year. Consequently, upon the effectivity of Republic Act No. 6110, on September 1, 1969, the taxpayer was subject only to the minimum fixed tax of P100.00, since its annual production did not exceed 10,000 gauge liters. In fact, taxpayer had no production. Such being the case, taxpayer is not liable to the deficiency fixed tax inclusive of surcharges and compromise penalty demanded of it. cdi From the foregoing, the Specific Tax Branch of that region would like to be clarified on the following: 1. What is the amount of fixed tax to be paid by a distiller who has no production, but sales of rectified alcohol were consummated during the year? 2. What is the amount of fixed tax to be paid by a distiller who has no production and sales of rectified alcohol during the year, but has filed a notice of temporary closure with the Bureau of Internal Revenue, and without intention of retiring from business? 3. What is the amount of fixed tax to be paid by small distillers (producing lambanog) under the same circumstances? As heretofore stated, the fixed tax due from a distiller of spirits is based on the actual production during the preceding year. Hence, if the distiller has no production during the preceding year, although he had sales of rectified alcohol, he may pay only the minimum fixed tax of P100.00. It will be noted that the graduated annual fixed tax under Section 182(A)(3)(b) of the Tax Code is not based on sales of rectified alcohol but on the basis of production of distilled spirits measured in gauge liters. Similarly a distiller who has no production and sales of rectified alcohol during a particular year and who has filed a notice of temporary closure with this Bureau but is not retiring from business as such distiller may pay only the minimum fixed tax of P100.00 in the succeeding year. A producer of lambanog is a distiller of spirits; hence, he is required to pay the annual fixed tax imposed in Section 182(A)(3)(b) of the Tax Code. It will be noted that the law does not distinguished a small and a big distillery. The amount of fixed tax depends on the actual production during the preceding year. In view of all the foregoing, he is instructed to countermand the herein abovementioned assessment. Be guided accordingly. MISAEL P. VERA Commissioner of Internal Revenue