BIR Ruling

September 8, 1967 Messrs. Meer, Meer & Meer Attorneys-at-Law Suite 302-307 Singson Bldg. Plaza Moraga, Manila Gentlemen : This refers to your letter dated July 15, 1967 stating the following: "In behalf of our client, Muller & Phipps (Manila) Ltd., we have the honor to request for a ruling from your Office based on the following frame of reference: LexLib "1. Our client is in the business of importing 'Camel' filter cigarettes from the United States. "2. On these importations, the internal revenue strip stamps are affixed to the cigarettes by the manufacturer, R. J. Reynolds Tobacco Company. These strip stamps are issued by the Philippine stamp agent in New York, under the authority of the Commissioner of Internal Revenue, upon our client's filing a surety bond for imported cigarettes with the Bureau of Internal Revenue. "3. Upon the arrival of the imported cigarettes in the Philippines, they are stored in bonded warehouse, and the import duty and specific taxes on the cigarettes are paid upon the withdrawal of the cigarettes from the bonded warehouse. "4. In the instant case, involving 150 cases of 'Camel' filter, king-sized cigarettes, the products are still stored in the bonded warehouses and it appears that this particular brand of cigarettes has no market in the Philippines, hence, there is no possibility of our client's being able to sell them in the local market. These 150 cases involve two shipments, the details of which are more particularly described in the statement attached hereto as Annex 'A'. "5. This being the case, our client has decided not to withdraw the cigarettes from the bonded warehouse and from customs custody, hence, its liability to pay the customs duties and specific taxes on the above shipments will not accrue under the surety bonds and the general warehousing bonds filed by our client, which condition the payment of such duties and taxes upon our client's withdrawing the cigarettes from customs custody. Under the facts and circumstances obtaining, our client proposes to dispose of the abovementioned shipments of cigarettes in either of two alternative, namely: to re-export the cigarettes to some other country where such cigarettes may have a consumer acceptance, or failing which, our client proposes to destroy them by burning or by any means satisfactory to the authorities in the bonded warehouses where the cigarettes are now stored. In either case, our client proposes to remove the strip stamps previously attached and to surrender and account for them to the Bureau of Internal Revenue. "Under these premises, a ruling is respectfully requested that our client and the surety and general warehousing bonds filed by it on account of the two shipments are not answerable for the payment of the customs duties and internal revenue taxes on the 150 cases of 'Camel' filter cigarettes above described, it appearing that the said shipments have never been removed from customs custody or entered for consumption into the Philippines, and the strip stamps issued by the Philippine stamp agent in New York have been duly accounted for with the proper authority. "We also request specific rules and regulations and a definition of the proper procedures to be adopted by our client in conjunction with the proper representatives of your Office in either the re-exporting or the destruction of the above shipments, to the end that your Office may be fully satisfied that the revenue of the national government is protected at all times." cdt In reply, I have the honor to inform you that should your client pursue the first alternative as hereinabove mentioned that is by re-exporting the imported cigarettes to some other country where such cigarettes may have a consumer acceptance, then the corresponding specific taxes due on the cigarettes shall be paid before the same are removed from the bonded warehouse where they are presently stored. Under Section 125 of the Tax Code, the domestic sale or consumption of imported articles subject to specific tax is not a condition precedent for the collection and payment of the tax. Moreover, under the uniform bond required by this Office of importers of cigarettes, "The principal (importer) guarantees reimbursement to the Philippine Government of the full value in pesos of the stamps in the event that they are misapplied, or are not introduced into the Philippines affixed to the cigarettes and the equivalent tax value paid at the time of such introduction, or are not duly authenticated to have been mutilated or destroyed and not replaced, or not returned to the Philippine Stamp Agent, intact." In other words, the importer of cigarettes is still liable to the specific tax even if the cigarettes are not actually released from customs' custody but reshipped to another country. This is for the reason that before a permit to import cigarettes is issued, the importer is required to post a bond which, among others, provides that the importer guarantees reimbursement to the Philippine Government of the full value in pesos of the stamps which are requisitioned from the stamp agent in the U.S.A. in the event that such stamps are misapplied, or are not introduced into the Philippines affixed to the cigarettes and the equivalent tax value paid at the time of such introduction. However, if your client pursues the second alternative that is by destroying the imported cigarettes by burning within the premises of the customs bonded warehouse, then the cigarettes will not be subject to specific tax nor the bond filed on account of the importation of the cigarettes be answerable for the specific taxes due thereon. Please be further informed that in order that this Office may send its representatives to supervise the disposition of the cigarettes in question, this Office should be informed of the date and time your client effects the re-exportation or destruction of the cigarettes. With regard to the effect of the foregoing alternative proposals on the customs duties due on the imported cigarettes, please refer the same to the Commissioner of Customs who has jurisdiction over the matter. cdtech Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue