BIR Ruling [DA-176-00]

March 24, 2000 BIR RULING [DA-176-00] Belo Gozon Parel Asuncion & Lucila Attorneys-at-Law (BGE Law) 15th Floor, Sagittarius Condominium H.V. dela Costa St., Salcedo Village Makati City Attention: Atty . Felipe L . Gozon Gentlemen : This refers to your letter dated February 28, 2000 requesting on behalf of your client, PETRON CORPORATION, for a confirmation of your opinion that no excise (specific) tax shall be imposed on the diesel oil and diesel fuel oil that are used as raw materials in the production of fuel oils in Petron's refinery (upon which the excise tax is paid upon removal from the refinery) as the diesel oil and diesel fuel oil used as raw materials are never removed from the place of production. As per representation, the facts of the case are outlined as follows: 1. Petron manufactures or produces bunker fuel oil and diesel fuel oil in its refinery (i.e., place of production); 2. Fuel oils removed from its refinery are classified according to the specification of the PNS, and the excise tax on such fuel oils are paid upon their removal from the place of production, depending on their classification; 3. At the refinery, raw diesel which cannot commercially be sold in this form is blended or mixed with fuel oil at certain ratios and the resultant products are various grades of fuel oil having more or less the same generating power as bunker fuel oil (bunker-type fuel oil, for brevity) and diesel fuel oil; 4. Since the resulting products fall under the classification of bunker-type fuel oil and diesel fuel oil using the standards set out by the PNS, the excise taxes for bunker-type fuel oil and diesel fuel oil and on similar fuel oils having more or less the same generating power are paid, respectively, when they are removed from the refinery; 5. In the refinery, the diesel fuel oil produced is stored in tanks located within the refinery; that sometimes, diesel fuel oil from these tanks are taken out and used for further reprocessing with bunker fuel oil to produce higher grades of bunker fuel oil still falling under the classification of bunker fuel oil based on PNS standards; 6. The finished product of bunker fuel oil is removed from the refinery and the excise tax thereon is paid; that on the other hand, the diesel fuel oil used as raw material to produce the higher grade of bunker fuel oil is never removed from the refinery as such, but only as an integral and necessary component of the higher grade bunker fuel oil. cdlex In reply, please be informed that " excise taxes apply to goods manufactured or produced in the Philippines for domestic sale or consumption or for any other disposition and to things imported . . . ." (Sec. 129, NIRC of 1997) Additionally, ". . . the excise tax on locally manufactured petroleum products . . . shall be paid . . . before removal from the place of production of such products from January 1, 1999 and thereafter . . ." (Sec. 130(A)(2), NIRC of 1997). Thus, it has been held in BIR Ruling No. 201-99 dated December 16, 1999 that: "As is still the case in this taxing jurisdiction, excise taxes are only made to apply to certain class of goods manufactured or produced in the Philippines provided such products are "removed from its place of production." (Sec. 130, Tax Code of 1997) Such removal is intended to put the manufactured products "for domestic sale or consumption or for any other disposition." (Sec. 129, ibid ) Thus, if not so removed from its place of production, the tax shall not apply. "It should be stressed that excise taxes, whether under the specific tax or ad valorem tax system, is basically an indirect tax imposed on consumption of certain types or class of goods, whether locally manufactured or imported. While the tax is directly levied upon the manufacturer/importer upon removal of the taxable goods from its place of production (in case of locally manufactured goods) or from the Customs custody (in case of importation), the tax is, in reality, actually passed on to the end consumer as part of the transfer value or selling price of the goods sold, bartered or exchanged. This has been the premise of this tax from its inception until the present. Thus, the phrase "or for any other disposition," as correctly observed by Petron, may only be interpreted as a disposition of the manufactured goods in the course of the manufacturer/importer's business, for consumption of the end consumers." In view of the foregoing, your opinion that no excise (specific) tax may be imposed on the diesel and diesel fuel oil that are used as raw materials in the manufacture or production of fuel oils at your client's place of production , and which are not removed therefrom as such diesel and diesel fuel oil, is hereby confirmed. It is understood, however, that the removal of any manufactured petroleum product from your client's place of production shall be subject to the corresponding specific tax prescribed under Section 148 of the National Internal Revenue Code of 1997. llcd This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)