BIR Ruling

April 25, 1975 Collector Augusto T. Africa Bureau of Customs Manila S i r : This is in reply to your letter dated April 4, 1975 requesting a ruling as to the correct rate of advance sales tax applicable on Tecumseh Compressor Model AJ5515 E which was imported by A.C. Assembly & Merchandising Center, 210 Marvel Bldg., Juan Luna, Manila. It is the opinion of that Office that being air-conditioning compressors, the same should be subject to sales tax of 40% with mark-up of 50%. In a letter to this Office dated April 8, 1975 and as a rejoinder to your foregoing opinion, the importer alleged that imported compressor of the AJ Model is an all purpose compressor, not limited to being an air-conditioning compressor; that it can be used as a compressor for dehumidifiers for industrial plants, textile manufacturing, pharmaceutical manufacturing, packing and packaging products; that the article in question can be used in other items, not only in air-conditioning units; that said articles will be sold, as is. Consequently, the importer concluded that the compressors in question are subject only to the 7% advance sales tax with a 25% mark-up. In the resolution of the foregoing conflict as to the correct rate of sales tax applicable to this particular importation, it is important to determine whether the article in question can be used on different appliances. From the brochures submitted, it appears that the Tecumseh compressor in question is the AJ5515E Model, 1 horse power, 1500 BTU/hr and weight 50 lbs; that it is an all purpose compressors unit as could be gleaned in the brochures submitted, such that it is used in dehumidifiers. A dehumidifier, as the contrivance appears in the brochures submitted, is to keep humidity down to protect valuable possessions; that it wrings moisture out of the air more efficiently and effectively; that it stops dripping pipes, damage to stored items, and that it eliminates sticky drawers and doors, prevents mildew on clothes, drapes and carpeting. From this description of the nature and use of a dehumidifiers it is an ordinary article subject to the 7% sales tax under Section 186 of the Tax Code. The rate of tax leviable on imported articles such as the compressor units in question, which are considered parts and accessories of both air-conditioning units and dehumidifiers shall depend upon the destination thereof. Where said articles are imported for the purpose of resale, as is, the same shall invariably be subject to the 7% sales tax. As shown above, the compressor unit in question is part and accessory of air-conditioning unit and dehumidifier. Imported air-conditioning units and parts and accessories thereof are subject to the 40% advance sales tax and dehumidifiers and parts and accessories thereof to the 7% tax, pursuant to Section 185-A and 186 of the Tax Code. Moreover, under Section 185-A refrigerators and air conditioning units which are manufactured by qualified manufacturers of integrated manufactured products are subject only to the 7% sales tax. In accordance with the provisions of same sections of the Tax Code, where the articles enumerated therein are manufactured out of materials subject to tax thereunder, the total cost of such materials, as duly established, is deductible from the gross selling price or gross value in money of such manufactured articles. In other words, the cost of raw materials is deductible, for purposes of the sales tax, only when they have been subjected to tax under the same section to which the manufactured articles belong. From the foregoing context of the law, where compressor units are imported by manufacturers of refrigerators and air conditioning units who are not qualified, as manufacturers of integrated manufactured products, the proper rate of tax necessarily follow the rate to which refrigerators and air-conditioning units are subject, that is 40%. Similarly, where they are imported by manufacturers of dehumidifiers, the rate of tax should be 7%. It being represented by the importer, that the imported compressor units are to be sold as is, then the same are subject only 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. cdta Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue TAN-1601-593-5