BIR Ruling

October 25, 1976 Tax on Imported Feeds This pertains to the internal revenue cases of LIM KIEH TONG & CO. and MR' ANG E. BIO, 909 Benavides St. and 625 Elcano Binondo, Manila, involving the amounts of P301,899.24 and P28,855.00, both representing deficiency advance sales tax for the year 1974, covered by Demand Nos. IT-76-0102 and IT-76-0091 dated September 13 and August 10, 1976, respectively, the dockets of which are enclosed herewith. Records show that during the year in question, both taxpayers imported canned fish known as mackerel, and sardines, as well as canned squid and Alaska milk and paid the corresponding advance sales tax of 5% pursuant to section 186-B of the Tax Code, as amended. As recommended in both cases, however, by the Regional Director, Revenue Region No. 4-A, Manila, and on the basis of a letter of clarification of this Bureau dated February 24, 1976 addressed to the Commissioner of Customs, calling the attention of the Chief, Legal and Intelligence Division, which may be deemed as a revenue ruling, as quoted below ". . . processed meat, milk, fruits and vegetables, fish and other sea foods, wheat flour and poultry and animal feeds are subject to 5% sales tax provided in Section 186-B of the Tax Code. However, when such articles are imported, the same are subject to the 7% sales tax provided under Section 186 of the same Code . Accordingly, imported canned fish and canned milk, as well as products which do not undergo the process of manufacturing or processing are invariably subject to the 7% advance sales tax, with a 25% mark-up pursuant to Section 183(b), in relation to Section 186, both of the Tax Code." (Emphasis supplied). this Office issued the demands mentioned above assessing the taxpayers for deficiency advance sales tax under Section 186 of the Tax Code. The taxpayers referred the demands subject hereof to Mr. Ambrosio M. Lina as their consultant, who in turn, filed separate letters both dated October 22, 1976 contesting the aforesaid assessments on the grounds averred therein, the pertinent portions of which are reproduced hereunder. 1. "...that said ruling is contrary to the meaning, spirit and purpose of segregating the items of processed meat, milk, fruits and vegetables, fish and other sea foods, wheat flour; and poultry and animal feeds from its mother section 186 and putting them under separate section 186-B. The very purpose of culling these items from sec. 186 is because of their essentiality to human needs and because they are prime commodities they should be subject to 5% instead of 7%..." 2. "Section 183(b) is very clear that when articles falling under the categories of sections 184 to 186-B are imported the rates of tax prescribed on those sections shall be the rates of advance sales tax to be paid by the importer. .." 3. "Moreover, since the deficiency advance sales tax correspond to the year 1974 and that the new ruling was issued only on February 24, 1976, under section 338-A, any revocation, modification or reversal of any rulings by the Commissioner of Internal Revenue can not be given retroactive effect." With due respect to the revenue ruling heretofore mentioned, and taking into account the representations made by the taxpayers' counsel which are tenable, it is respectfully submitted that a reconsideration of the aforementioned ruling appears to be in order. As alleged, the undersigned share with the view of the taxpayers' counsel to the effect that the intention of sec. 186-B is to reduce the rate of tax on the articles enumerated thereunder which are all extra-ordinarily essential thus, in effect redounds to the benefit of poor families or the common tao. It is a public knowledge that wealthy and well-to-do families very seldom (if not at all buying) buy canned mackerel, sardines and squid for viand. Canned Alaska milk, although being purchased and consumed by both poor and well-to-do families is also included under section 186-B of the Tax Code taxable at the reduced rate of 5% for the reason that the great majority of Filipino families are poor. Even disregarding the reason adduced in the next preceding paragraph, under section 183(b) of the Tax Code, the same rate/rates of tax provided for in sections 184 to 186-B of the Tax Code apply to the same articles embraced within each section whether imported or locally manufactured/produced. Sec. 183(a) ... "(b) Sales tax on imported articles . When the articles are imported, the percentage taxes established in sections one hundred-eighty-four, one hundred eighty-four-A, one hundred eighty-five, one hundred eighty-five-A, one hundred eighty-five-B, one hundred eighty six and one hundred eighty-six-B of this Code shall be paid in advance by the importer, ...".(Emphasis supplied) As to the revenue ruling dated February 24, 1976 referred to and quoted above, it is respectfully submitted that even assuming that it is valid and binding, still it will not apply in the instant case for the reason that it shall not be given a retroactive effect. As provided for in section 338-A of the Tax Code, revenue rulings and regulations shall not be given retroactive effect unless the taxpayer deliberately misstates or omits material facts from his return or document, or where the facts subsequently gathered by the BIR are materially different from the facts on which the ruling is based, or where the taxpayer acted in bad faith. All the said three exceptions are not present in the case at bar. PREMISES considered, and by way of reiteration, that the presentations made by the taxpayers' counsel are all legally correct, it is respectfully recommended that the ruling mentioned and quoted above be reconsidered and that imported processed meat, milk, fruits, vegetables, fish and other sea foods, wheat flour and poultry and animal feeds be subjected to 5% advance sales tax as provided for in sec. 183(b), in relation to 186-B, both of the Tax Code, as amended, and that the demands subject hereof be countermanded and the instant cases considered closed and terminated. cdtech