BIR Ruling

February 2, 1972 Mr. Democrito A. Jadol 4915 Valenzuela St. Sta. Mesa, Manila S i r : This refers to your letter dated December 26, 1971, requesting enlightenment on the following: (1) As to whether or not the sales tax is levied on the gross selling price of fish by a fishing operator; and (2) As to whether or not the sales tax is likewise levied on the gross selling price of lumbang oil by the manufacturing firm. In reply, I have the honor to inform you that the sale of fish by the fishermen himself or by the operator who catches the fish from the sea is exempt from the payment of the percentage tax pursuant to Section 188(B) of the Tax Code. Lumbang oil manufactured or extracted from lumbang nuts is subject to 7% sales tax prescribed in Section 186 of the Tax Code (BIR Rulings Nos. 67 s. 1959 and 62-049). Lumbang nut which is the raw material from which lumbang oil is manufactured is an agricultural product, hence, the sale thereof to the manufacturing firm (alluded to in your letter) by the producer is exempt from the sales tax pursuant to Section 188(b) of the Tax Code. Before B.I.R. Ruling No. 71-019, dated September 9, 1971, the cost of raw materials exempt from the sales tax under Section 188(b) of the Tax Code, was not deductible from the value of the finished products in the determination of the sales tax on the sales of the finished products. However, by virtue of the decision of the Supreme Court in the case of Republic Flour Mills, Inc. vs. Commissioner, G.R. No. L-25607, February 18, 1970, wherein it was held, among others, that the provision of Section 186-A of the Tax Code (whenever a tax-free product is utilized, etc.), all encompassing to comprehend tax-free materials even if imported, the value of the agricultural products which are tax-free under Section 188(b) of the Tax Code and used as raw material is now deductible from the value of the finished product in the determination of the sales tax on the sales of the finished products. Accordingly, the cost of lumbang nut is deductible from the value of the lumbang oil in the determination of the sales tax on the sales of lumbang oil. Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue