BIR Ruling

October 10, 1968 Atty. Abraham B. de Garcia 451 C. M. Recto Avenue Davao City S i r : This refers to your letter requesting a ruling on the following queries: "Firstly, in the sale of manufactured hollow blocks by the manufacturer himself, may the cost of materials used like ordinary cement and sand be allowed as deductible items? The cement is purchased from local dealers or hardware stores and the sand from the manufacturer's own concession. "Secondly, is a person who procures soil for filling, delivers the same to customers who order them and just leave the soil to the place where the customer wants it delivered without the taxpayer doing any job of levelling or any other job after delivery considered a filling contractor subject to contractor's fixed and percentage taxes or merely an ordinary merchant engaged in the buying and selling of locally purchased articles? "The taxpayer buys and soil as broken up and piled by the owner of the land where procured. The taxpayer merely loads the soil in his truck and delivers the same to the place where his customer wants the same delivered. The taxpayer does no other job after delivery." In reply thereto, I have the honor to inform you as follows: The rule is, only the cost of raw materials which is subject to tax under the same section to which the finished product is subject can be deducted from the gross selling price of the finished product. The cost of cement used in the manufacture of hollow blocks is, therefore, deductible from the gross selling price of the finished hollow blocks, both raw material and finished hollow blocks being subject to the same rate of tax, provide that such cost is duly established by the corresponding sales invoices of the sellers thereof, and provided further that the corresponding sales invoices indicate the rate of tax to which the raw material was subjected pursuant to Section 6 of Revenue Regulations No. 3-64, as amended by Revenue Regulations No. 5-65. The cost of sand is not deductible, it being represented by you that the sand used had been produced by the manufacturer himself from his concession. As regards a person who sells soil, he may either be a producer, dealer, or filling contractor, or all combined, depending on the nature of his operations. A categorical ruling cannot be formulated on your inquiry in this particular regard in view of insufficiency of details therein. Lastly, a taxpayer who buys soil and sells the same to customers is a dealer of soil subject to the annual graduated fixed tax imposed in Section 182(A)(2) of the Tax Code. cdta Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue