BIR Ruling [DA-238-00]

May 19, 2000 BIR RULING [DA-238-00] Punongbayan & Araullo 20th Floor, Tower I The Enterprise Center 6766 Ayala Avenue Makati City Attention: Atty . Vic C . Mamalateo Gentlemen : This refers to your letter dated March 23, 2000 stating that your client, Caltex Philippines, Inc., (Caltex) is a domestic corporation engaged in the manufacture, distribution, trading and marketing of petroleum products, that it is currently maintaining a refinery in San Pascual, Batangas; that delivery of its imported crude oil to its refinery has often been delayed due to bad weather conditions; that to avoid possible shortages in its production, it resorted to buying finished products from its local competitors as well as from special economic zone (Ecozone) locators; that normally, the excise tax under the arrangement is either added to the purchase price or paid immediately by Caltex after removal of the petroleum product from the refinery/Ecozone, thus, the excise taxes are being paid for every local purchase that Caltex makes; that the local purchases of Caltex ordinarily ranges from 10,000 to 30,000 barrels; that at present, these purchases are delivered by barges to Caltex's Pandacan terminal and certain depots; that freight and delivery charges are for the account of Caltex; that in order to complete the delivery of such quantity, it would require three to four trips by a barge, thus, resulting in multiple charges; that consequently, this translates to an increase in freight charges; that it would be less expensive if a tanker is used instead in making the deliveries since the same may be completed on a single trip; that since the Pasig River is not navigable to allow the passage of tankers, it would not be possible to deliver the products to Pandacan and certain depots by suing a tanker; and that in order to minimize delivery and freight charges incurred, Caltex has decided that the local purchases be instead delivered to its refinery in Batangas, delivery to which can be undertaken by a tanker. Based on the foregoing, you now request on behalf of your client, Caltex, permission for the commingling of the previously taxes petroleum products with its (Caltex) own manufactured petroleum products not yet subjected to excise tax. In reply thereto, please be informed that Section 157 of the Tax Code of 1997 provides "Sec. 157. Removal of Articles After the Payment of Tax . When the tax has been paid on articles or products subject to excise tax, the same shall not thereafter be stored or permitted to remain in the distillery, distillery warehouse, bonded warehouse, or other factory or place where produced. However, upon prior permit from the Commissioner, oil refineries and or companies may store or deposit tax-paid petroleum products and commingle the same with its own manufactured products not yet subjected to excise tax. Imported petroleum products may be allowed to be withdrawn from customs custody without the prepayment of excise tax, which products may be commingled with the tax-paid or bonded products of the importer himself after securing a prior permit from the Commissioner; Provided, That withdrawals shall be taxed and accounted for on a first-in, first-out basis." The above-cited section is intended for the protection of the taxpayer; hence, tax-paid petroleum products should be properly separated. However, the rule allows oil refineries and or companies to commingle tax-paid petroleum products with its own manufactured products not yet subjected to excise tax provided that prior permit should be secured from the Commissioner of Internal Revenue. Considering that the commingling of tax-paid petroleum products with its own manufactured products by Caltex is in consonance with the objective of R.A. No. 8479, otherwise known as the "Act Deregulating the Downstream Oil Industry", i.e., to ensure a truly competitive market under a regime of fair prices, adequate and continuous supply of environmentally-clean and high quality petroleum products and likewise in compliance with the above-cited section of the Tax Code of 1997, the proposed commingling by Caltex of its own manufactured products not yet subjected to excise tax with the tax-paid petroleum products is allowed pursuant to Section 157 of the said Code. Such being the case, the request of your client for a permit to commingle the tax-paid petroleum products with its manufactured products is hereby granted. Very truly yours, (SGD.) ROMEO S. PANGANIBAN Acting Commissioner of Internal Revenue