BIR Ruling [DA-445-04]

August 23, 2004 BIR RULING [DA-445-04] 148; 093-91 Oilink International Corporation 2701-B West Tower Philippine Stock Exchange Centre Exchange Road, Ortigas Centre Pasig City Attention: Ms. Esther P. Magleo President Gentlemen : This refers to your letter dated April 14, 2004 requesting for a ruling as to whether or not Aromatic Hydrocarbon, which your company imports and sells as solvent and specifically being used in the manufacture of rubber and tires, should be classified and taxed as aromatic extract under Section 148 (a) of the Tax Code of 1997. ASETHC It is represented that Oilink International Corporation (OIC) is the importer of aromatic hydrocarbon. This imported article is thereafter sold to the customers of OIC to be used as raw materials either in the manufacture of rubber, tires or dyes, paints, thinners, adhesives, etc. Since Aromatic Hydrocarbon is not being used as gasoline blends nor an additive for other petroleum refined products but as solvent in the manufacture of the aforementioned products, you believe that its importation is not subject to excise tax under Section 131 (B) in relation to Section 148 (a), both of the Tax Code of 1997. In reply, please be informed that Section 148 (a) of the Tax Code of 1997 provides: "Sec. 148. Manufactured Oils and Other Fuels . there shall be collected on refined and manufactured mineral oils and motor fuels, the following excise taxes which shall attach to the goods hereunder enumerated as soon as they are in existence as such: (a) Lubricating oils and greases, including but not limited to base stock for lube oils and greases, high vacuum distillates, aromatic extracts and other similar preparations, and additives for lubricating oils and greases, whether such additives are petroleum based or not per liter and kilogram, respectively, of volume capacity or weight, Four pesos and fifty centavos (P4.50): Provided, however, That the excise taxes paid on the purchased feedstock (bunker) used in the manufacture of excisable articles and forming part thereof shall be credited against the excise tax due therefrom: Provided, further, That lubricating oils and greases produced from basestocks and additives on which the excise tax has already been paid shall no longer be subject to excise tax: Provided, finally, That locally produced or imported oils previously taxed as such but are subsequently reprocessed, rerefined or recycled shall likewise be subject to the tax imposed under this Section. . . . DcaSIH This Office takes into consideration the fact that Aromatic Hydrocarbon Compound, because of its molecular structure which is responsible for the high heating value of petroleum, may be used as solvent in the manufacture of tires/rubber, or dyes, paints, thinners, etc. This was confirmed by the BIR's Laboratory Section, LT Assistance Division II through its Chief, Ms. Clotilde M. Jose when the subject article was submitted for laboratory analysis, to wit: "In rubber compounding, the use of softeners and extenders which are solvent and lubricant type is deemed necessary to dissolve reinforcing agents and fillers (carbon black) to impart softness to the vulcanized mix, maximum resilience and reduction in hardness to the vulcazinates making rubber tires resistant to abrasion. Aromatic Hydrocarbon is among the solvent having these properties." Furthermore, as defined by Sec. 20 (f) Revenue Regulations 2-90 implementing then Section 145 of the 1977 Tax Code (now Sec. 148 of the 1997 Tax Code), "aromatic extracts" are basically derived from aromatic materials produced by solvent extraction using N-methylpyrrolidienone, phenol, or furfural which are common solvents and includes BTX (benzene, toluene, xylene) from naptha fractions used for chemical manufacture, upgrading middle distillates such as kerosene, diesel and jet fuel. It is thus noted that "aromatic extracts" for purposes of taxation, is one that is being used either on chemical manufacturing or in upgrading middle distillates such as kerosene, diesel and jet fuel. TAaEIc Finally, we also noted BIR Ruling No. 093-91 which ruled to the effect that while carbon black feedstock is petroleum based, considering that it is used in the production of non-excisable petroleum product, its importation is not subject to excise tax. In view of the foregoing and considering that the use of Aromatic Hydrocarbon as solvent in the manufacture of tires and rubber which are non-excisable products and not as a catalytic or motive power enhancer, in effect is not within the contemplation of Section 148 of the Tax Code, this Office holds that your importation and sale of Aromatic Hydrocarbon are not subject to excise tax. 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.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group