BIR Ruling

November 16, 1971 United Metal Smelting & Manufacturing Company Balon-Bato, Balintawak Quezon City Attention: Mr . L . C . Young General Manager Gentlemen : This refers to your supplemental letter dated April 6, 1970 explaining further the process of recovering inggots from waste products (aluminum dross) mentioned in your letter of September 4, 1968, as follows: "The aluminum dross which are purchased from local aluminum foundries are placed in the specially designed oil furnace together with reagents or chemicals. Under an intense heat, a metallurgical reaction takes place which shifts the metallic aluminum from its chemical compound in the dross by fusion. As a result of the foregoing process, the reduction from the mechanical mixture occurs. The by-product are inggots which are sold to customers, while others are used as raw materials by the company in the manufacture of kettles, urns, caldrons and the like." You now desire to know whether the above process is manufacturing or smelting and what tax or taxes you are liable thereto. In reply, I have the honor to inform you that smelting has been defined as any metallurgical operation in which metal is separated by fusion from the impurities with which it may be chemically combined or physically mixed (as in ore). (The Making, Shaping and Treating of Steel by the United States Steel Corporation, edited by Harold E McGannon, chapter 6, page 210). It is also defined as the obtaining of metal from the ore by a process that includes fusion. (Words and Phrases, Vol. 39, p. 534). Accordingly, your business activity under which metallurgical process is involved is clearly smelting. As the proprietor or operator of the smelting plant you are subject to the annual fixed tax of P50.00 and to the 3% contractor's tax on the gross receipts derived from the sale of the by-products, the so-called inggots, pursuant to Section 182(A)(1) and 191(6), both of the Tax Code, as amended by Republic Act No. 6110. acd Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue