BIR Ruling [DA-427-05]

October 14, 2005 BIR RULING [DA-427-05] Section 151; VAT Ruling No. 22-2002 Sytengco Enterprises Corporation No. 10 Resthaven Street, SFDM, Quezon City Philippines Attention: Mr. Necisto U. Sytengco President Gentlemen : This refers to your letter dated January 13, 2005 thru which you re-filed your earlier letter dated September 26, 2002, requesting for exemption from the payment of excise tax on specially processed Sodium Bentonites under the trade name "H.P.S.D. Syn Hydrogel" which you are planning to import from Falcon Services Ltd. of Canada. In support of your request, you cited the description of specially processed Sodium Bentonites by Falcon Services Ltd. of Canada, as follows: ". . . these products are first mined, field dried, and transported to their processing/manufacturing facilities. The materials are then submitted to a series of processing/treatment techniques and applications. These engineered conditioning and manufacturing processes enhance the fluid control properties and heighten/accelerate the viscosity controls of the products. All of these post-mining processes are the result of decades of product testing and qualitative research and development. . . ." You also submitted a more detailed description regarding the processing of bentonites, as supplied by your supplier, viz: 1. The topsoil of the bentonite bed, as well as the underlying material is carefully removed and stockpiled. The bentonite which is exposed during the process is the material that is mined; 2. The exposed bentonite is "field dried" from a high moisture level to around 18 20%; 3. The bentonite is hauled by trucks to the processing plant with front-end loaders; 4. The bentonite is dried in a long cylinder called a rotary dryer, which uses natural gas or coal as fuel. After drying, the moisture content is reduced to 5 to 10%; 5. The dried bentonite undergoes initial quality control to check the presence of other materials like Aluminum Oxide, Potassium Oxide, Magnesium Oxide, etc. as well as sand and silt; 6. The bentonite undergoes refinement/chemical purification from unwarranted mineral components which can negatively affect the intended purpose. (For instance, removal of iron/lead and other metallic impurities as well as the reduction of high chloride content will prevent corrosion of mud drilling tools.) DcIHSa 7. To produce specialty bentonites with enhanced fluid control properties, maximum swelling activity, and heightened viscosity, the crude bentonite undergoes the following engineering processes: a. centrifugation to remove the coarse components (sand, silt); b. passage through a linear vibrating screen with polyurethane and stainless steel welded-slot panels as screen decks; c. one-or two-stage hydrocloning to achieve optimum particle size distribution. 8. The purified bentonite undergoes rigid chemical, physical, and particle size distribution analyses before being released for packing. Depending on the application needs, the bentonite is pulverized to Mesh Sizes 80/200/325 or finer; 9. The Sodium Bentonite is packed ready for sale in 20 kgs/25 kgs/50 lbs/100 lbs/500 lbs/1000 lbs depending on the market needs. In reply, please be informed that as per letter dated June 20, 2005 by the Assistant Secretary, DENR and Concurrent Director of the Mines and Geosciences Bureau, it was found that Drilling Grade Sodium Bentonite, H.P.S.D. Syn Hyrogel may be considered a manufactured product and not a mere mineral product. Further, its Chief Metallurgist found that it is a formulated bentonite-based product. The initial process by which the raw solution bentonite has undergone before it is mixed with some additives to meet API standards may not be considered a simple treatment because " leaching to reduce iron and heavy metal content " is a chemical process. The above process runs counter to the definition of a mineral product as defined in the Section 151(B)(3) of the Tax Code of 1997 where 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. The hydrogel-form of drilling- grade sodium bentonite is a formulation wherein certain additives like polymers and sodium ash are mixed to improve swelling and other desirable properties. In this case, the said product may be considered a manufactured product because its chemical process are someway altered. However, based on the Implementing Rules and Regulations DAO-96-40, as amended) of the Mining Act of 1995 (R.A. No. 7942), the definition of mineral product included other processes such as calcinations, leaching and cyanidation as mineral processing methods to convert unmarketable run-of-mine ore to marketable products. Under this definition, the upgraded bentonite before it is mixed with some additives may be considered a mineral product. Further, the Chief, BIR Laboratory Section, in a Memorandum dated April 5, 2005 opined that H.P.S.D. Syn Hydrogel does not qualify as a mineral product as defined in Section 151(B)(3) of the Tax Code of 1997. Such conclusion was arrived at based on the Material Safety Data Sheet and product information submitted. In view of the foregoing, H.P.S.D. Syn Hydrogel is not classified as a mineral product hence, not subject to excise tax. Accordingly, this ruling shall serve as authority of the Bureau of Customs to release the above importation which shall be in lieu of the issuance of the Application to Release Imported Goods (ATRIG). This ruling is being issued on the basis of the 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. aDHCAE Very truly yours, (SGD.) JOSE MARIO C. BUAG OIC-Commissioner of Internal Revenue