BIR Ruling

August 30, 1968 Mr. Lincoln T. Yabut Suite 309 3rd Floor Manhattan Building 413 Nueva St., Manila S i r : This refers to your letter dated August 23, 1968 stating that your client is a manufacturer of steel products; that in the manufacture of steel washers the subject taxpayer use steel plates, G.I. sheets and scrap iron as raw materials which it procure from certain suppliers, like the Rheem of the Philippines Inc. and other factories having similar business of steel manufacturing. Under the foregoing facts, you now want to be informed whether or not the cost of the raw materials which have been previously subjected to the sales tax is deductible by your client for purposes of determining his sales tax. In reply thereto, I have the honor to inform you that under Section 186 of the Tax Code, where the articles subject to tax under said Section are manufactured out of materials likewise subject to tax under the same section, the total cost of such materials, as duly established, is deductible from the gross selling price of the manufactured articles. Accordingly, the cost of the steel plates, G.I. sheets and scrap iron used in the manufacture of steel washers is deductible from the gross selling price for sales tax purposes provided that the cost is supported by the corresponding invoices and that the invoices indicate the rate of tax to which the raw materials have been subjected pursuant to Revenue Regulations No. 5-65. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue