BIR Ruling

March 21, 1975 The Commissioner Bureau of Customs Manila S i r : This refers to your letter dated October 1, 1974 requesting clarification of our ruling dated June 6, 1974 issued to Atty. Benjamin N. Tabios holding that the importation of his client, Asia Industries, Inc., and/or U.S.I. Philippines, Inc., of 12 crates of industrial refrigerating equipment is subject to the 7% advance sales tax with a 25% mark-up pursuant to Section 183(b) in relation to Section 186, both of the Tax Code. In your letter you stated that you are "at a loss to understand how Sections 183(b) and 186 could be applicable to the case at bar when Section 186 provides only for articles not enumerated under Section 184, 185, 185-A and 185-B which cover, among others refrigerators of all types and parts and accessories thereof". In other words, you doubt the applicability of Section 186 considering the fact that Section 185-A enumerates, among others, "refrigerators of all types" which you believe includes commercial or industrial refrigerators such as those imported by the herein taxpayer. acd In this connection, this Office believes that a brief history of the provisions of the Tax Code subjecting refrigerators to the sales tax will help clarify the matter. Originally, section 185 of Commonwealth Act No. 446, otherwise known as the National Internal Revenue Code prescribed a 5% sales tax of the articles therein enumerated. Sub-section (e) of said section originally provides as follows: "(e) Household type refrigerator (for single or multiple cabinet installations) operated with electricity, gas kerosene, or other means." Republic Act No. 41 which was approved on October 1, 1946, amended Section 185 of the Tax Code, among others, by increasing the rate of tax therein prescribed from 5% to 10% and sub-section (e), viz.: "(e) Refrigerators of more than seven cubic feet: Provided , that refrigerators of seven cubic feet or less shall be taxed at the rate of ten per centum of the selling price"; Republic Act No. 588 which was approved on September 22, 1950 temporarily increased the rate of sales tax imposed under Section 185 if the Tax Code from fifteen per centum to thirty per centum . So that the rate of sales tax under sub-section (c) was also increased as follows: "(e) Refrigerators of more than seven cubic feet: Provided, That refrigerators of seven cubic feet or less shall be taxes at the rate of twenty per centum of the selling price;" The foregoing rates were extended by Republic Act No. 726, 958, 1028, 1091 and made permanent by Republic Act No. 1280. The Republic Act No. 1612 which was approved on August 24, 1956, amended Section 185 of the Tax Code. Under the amendment effected by said Act, sub-section (e) reads as follows: "(e) Refrigerators of all types;" Paragraph 9(b)(4) of the Features of the Amendment, General Circular No. V-227 which published Republic Act No. 1612 states as follows: "(4) Refrigerators, regardless of size are now subject to the tax at 30%. Before those of 7 cubic feet or less are subject to 20% tax only." Finally, Republic Act No. 3029 which was approved on June 7, 1961 repealed sub-sections (e), (f) and (m) of Section 185 and inserted a new section, section 185-A which placed "Refrigerators of all types" under sub-section (a). The Amendments effected by Republic Act No. 6110 and Presidential Decree No. 69 did not disturb said sub-section (a). It will be noted that the foregoing amendment effected by Republic Act No. 1612 changed the previous classification according to size. However, beginning Republic Act No. 3029, inserting section 185-A, "refrigerators of all types" were classified into three categories, namely: (a) those manufactured by integrated enterprises which are subject to 7% sales tax, (b) those manufactured by non-integrated enterprises which are subject to 15% sales tax, and (c) those manufactured by enterprises which do not qualify as integrated or non-integrated manufacturers and/or those that are imported which are subject to the 40% sales tax. It is apparent that this classification was primarily intended to provide assistance or protection to the local manufacturers of refrigerators by establishing a separate sales tax category for locally manufactured refrigerators. This clearly proves that "R efrigerators of all types " taxable under Section 185-A are still confined to those of the household type . The industrial or commercial refrigerators were not and could not be included in Section 185-A because Philippine manufacturers did not and cannot still manufacture industrial or commercial refrigerators. In view thereof, this Office hereby reiterates its ruling of June 6, 1974 that the refrigerators in question imported by Asia Industries, Inc., which were represented to be of the industrial type, are subject to the 7% advance sales tax with a 25% mark-up, pursuant to Section 183(b) in relation to Section 186, both of the Tax Code. aisa dc Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue TAN 1601-593-5