BIR Ruling

October 13, 1977 Columbia Tobacco Company, Inc. 305-307 Jose Rizal St. Mandaluyong, Rizal Attention: Mr . Juanito B. Pecaa . Jr . Office & Personnel Manager Gentlemen : This refers to your letter dated August 12, 1976 this Office that you intend to use machines in wrapping with cellophane the original containers/labels of your manufactured cigarettes (hand packed), which were manually affixed with internal revenue strip stamps. You now request for a ruling as to whether the cigarettes will be considered as mechanically wrapped so as to warrant the imposition of a higher rate of specific tax. Verification conducted by this Office disclosed that the purpose of wrapping the duly stamped packs of cigarettes with cellophane is to prevent the cigarettes from becoming stale or moldy within a short period of time, particularly in the use of Virginia-type cigarettes which contain various chemicals or tobacco flavorings. In reply, I have the honor to inform you that Section 149(b)(12) of the Tax Code of 1977 provides: "(12) If the cigarettes of local manufacture are mechanically wrapped or packed, the tax shall be increased by one hundred twenty per centum per thousand. Cigarettes shall be considered mechanically wrapped or packed when at any stage of the wrapping or packing thereof, a machine or any mechanical contrivance shall have been used." From the above-quoted provisions, it seems clear that the mechanical wrapping or packing of cigarettes by the use of a machine or mechanical contrivance refers to the enclosing or covering of the cigarettes by means of the original container which is the cigarette package itself. In such case, the rate of specific tax is increased by 120% and the payment of such tax shall be evidence by the affixture and cancellation of the corresponding internal revenue strip stamps to the original containers. (Sec. 5, Revenue Regulations No. V-39) After such affixture and cancellation of the stamps the cigarettes are ready for removal from the place of manufacture. (Sec. 124, Tax Code.) On the other hand, if the cigarettes were hand-packed in their original containers, as in the instant case, the cigarettes are subject to the normal rate of specific tax, which tax shall be paid by means of the manual affixture and cancellation of the stamps to the said original containers immediately before removal from the place of manufacture. However, if before such removal, the already hand packed cigarettes in original containers with stamps affixed thereon are wrapped with cellophane by the use of machines, such wrapping is not the wrapping envisaged in the above-quoted provisions of Section 149(b) of the Tax Code so as to increase the tax by 120%. In other words, the cigarettes are still subject to the lower rate of specific tax as denoted by the stamps already affixed thereon prior to the wrapping by cellophane. It may also be stated that under the present law, the specific tax on cigarettes is based on the maximum retail price. Very truly yours, CONRADO P. DIAZ Acting Commissioner of Internal Revenue TAN-D2567-D1025-A-2