BIR Ruling

November 23, 1972 The General Manager B.Y. Commercial 20-22 Maximo Viola St. Quezon City S i r : This refers to our letter to you dated September 4, 1972 wherein we held that your importation of used automobile frames is subject to the 7% advance sales tax with a 25% mark-up. The aforesaid ruling was predicated on the ruling of the Department of Finance dated May 11, 1967. However, after a study and analysis of the decision of the Supreme Court in the case of Jose Zamora (Golden Taxicab) vs. The Court of Tax Appeals and the Commissioner of Internal Revenue (G.R. No. L-23272, November 26, 1970), this Office has arrived at the conclusion that the ruling of the Supreme Court in the aforecited case applies even if the imported articles are used automobile frames and even if the importer thereof is not a taxicab operator. Thus, the Supreme Court said: cdti ". . . However, 'parts and accessories of automobiles' are subject to the 7% rate, under Section 186, by virtue only to the first proviso in subdivision (a) of section 184, which limits the application of said section 186 to 'parts and accessories of automobiles imported as replacements or as completely knocked down parts for the assembly of automobiles . . .' Indeed, this qualification is in consonance with the spirit and letter of section 186, which provides that the rate therein fixed shall be 'paid by the manufacturer or producer.' In other words, it is not intended for the end-users or consumer. There would have been no reason to insert the aforementioned qualification, and the same would not have been made, had the purpose of the proviso been to apply section 186 to the importation of parts and accessories of automobiles as completely knocked down parts, regardless of whether or not the importer was an automobile manufacturer or assembler. The view taken in the appealed decision is further bolstered up by the subsequent proviso, in section 184(a), to the effect that 'the total cost of such materials or parts on which tax has already been paid under section one hundred and eighty-six . . . shall be deductible from the gross selling price or gross value in money of the assembled or manufactured article. . . .' "Then, too, it is not difficult to understand why the application of the 7 per centum rate was limited only to importation made by those engaged in the manufacture and assembly of automobiles the Government wanted to encourage the establishment of factories or plants for the manufacture or assembly of automobiles in the Philippines, to increase job opportunities for local laborers and mechanics and reduce the drain on our dollar reserve resulting from the purchase of foreign-made automobiles." In view of the foregoing, the ruling issued to you dated September 4, 1972 is hereby revoked. Accordingly, all your importations of used automobile frames shall, henceforth, be subject to the 100% mark-up, pursuant to Section 183(b), in relation to Section 184(a), both of the Tax Code. Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue