BIR Ruling [DA-381-05]

September 6, 2005 BIR RULING [DA-381-05] Sytengco Enterprises Corporation No. 10 Resthaven St., SFDM, Quezon City Attention: Mr. Esmer A. Tepace General Manager Gentlemen : This refers to your letter dated April 20, 2005 requesting exemption from excise tax of your importation of Magnesium Oxide Feed Grade. It is represented that you are engaged in the importation of Magnesium Oxide Feed Grade, which is a free flowing, easily handled magnesium oxide product from high purity calcined magnesia derived from the chemical reaction of magnesium chloride in pressurized clarified brine; that Magnesium Oxide Feed Grade is unique as it has the lowest level of impurities and offers the highest goal of magnesium from the magnesium oxide source; that it has undergone several chemical stages of chemical purification processes, including leaching to reduce the heavy iron and heavy metal content such as lead, mercury, and arsenic to make it suitable for feed applications; that it has undergone sterilization at high temperature, calcinations, cyclone drying and sizing to achieve the required particle size on a synthesized process; that this is intended for animal use; that a certification from the Bureau of Animal Industry bearing CIP No. 05-01735 dated February 16, 2005 is attached. In reply, please be informed that Section 151(A) and 151(4)(B)(3) of the Tax Code of 1997 provides: "SEC. 151. Mineral Products . (A) Rates of Tax . There shall be levied, assessed and collected on minerals, mineral products and quarry resources, excise tax as follows: (Emphasis ours) xxx xxx xxx (B) [Definition of Terms.] For purposes of this Section, the term (3) ' Mineral products ' shall mean things produced and prepared in a marketable state by simple treatment processes such as washing or drying, but without undergoing any chemical change or process or manufacturing by the lessee, concessionaire or owner of mineral lands." Based on the findings of the BIR Laboratory Section LT Assistance Division II, forwarded to this Office by way of a Memorandum dated May 20, 2005 of the Deputy Commissioner for Special Concerns, Magnesium Oxide Feed Grade as a feed additive/ingredient had undergone a process involving chemical conversion. The BIR Laboratory Section described certain processes by which Magnesium Oxide may be obtained, to wit: (a) by calcining magnesium carbonate or magnesium hydroxide (the term "magnesium carbonate" is generally reserved for the synthetic pure variety as distinguished from the naturally occurring material which is called magnesite), (b) by treating magnesium chloride with lime and heating or heating it in air, (c) from sea water via the hydroxide. Usually the preliminary product is magnesium hydroxide or magnesium chloride if magnesium oxide is to be obtained from sea water, sea water bitterns, or well brines. The magnesium hydroxide or chloride obtained is heated, or sometime treated with steam and heated in the case of the chloride, to obtain the oxide. The process as described involves the chemical reaction of magnesium chloride in pressurized clarified brine. As earlier mentioned, the magnesium chloride initially obtained from brines is treated with steam and heated to produce the oxide. This process involves the chemical conversion of magnesium chloride with the chemical formula, MgCl 2 , to magnesium oxide with the chemical formula, MgO. Accordingly, this Office opines that since the foregoing process is not a simple process as contemplated under the aforementioned Section 151(B)(3) of the Tax Code of 1997, Magnesium Oxide Feed Grade described herein as a feed additive is exempt from excise tax. ETISAc This ruling is being issued on the basis of foregoing facts as represented. However, if upon investigation it shall be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) JOSE MARIO C. BUAG OIC-Commissioner of Internal Revenue