BIR Ruling [DA-501-03]

December 12, 2003 BIR RULING [DA-501-03] Sec. 129; RMO 18-86; 201-99 San Miguel Corporation 40 San Miguel Avenue Mandaluyong City Attention: P. Clinton L. Laudencia, Jr. Tax Lawyer Gentlemen : This refers to your letter dated November 13, 2003 requesting for confirmation of your opinion that the transfer of beer in bulk from one brewery to another brewery for the purpose of packaging is not a removal subject to excise tax. It is represented that San Miguel Corporation (SMC) is a domestic corporation organized and existing under the laws of the Philippines. It is registered with the Bureau of Internal Revenue (BIR) as an excise taxpayer being a manufacturer, among others, of beer and root beer. SMB has five registered breweries registered with the BIR and they are supervised by the Bureau's Revenue Officers on Premise (ROOP). To achieve a better use of its resources the company, at times, resorts to transfer of bulk beer from one brewery to another. As it is, the first plant produces the beer while the second plant does the canning and packaging of the same beer before it is introduced to the market for sale. It is your contention that the transfer of bulk beer from the first plant where the beer is produced to the second plant where the canning or the packaging of the beer in bulk is done, is not a taxable removal as contemplated in the Tax Code. Hence, this request for confirmation. In reply, please be informed that Section 129 of the National Internal Revenue Code of 1997 provides: "SEC. 129. Goods Subject to Excise Taxes . 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 . The excise tax imposed herein shall be in addition to the value-added tax imposed under Title IV." (Emphasis supplied) It has to be understood under the foregoing provision that excise tax should be imposed only upon the removal of goods subject to excise tax if the removal is done purposely for domestic sale or consumption. This interpretation should not be confused with the phrase "or for any other disposition" which was interpreted to mean the final disposition of the manufactured goods for consumption by the end users and not merely for canning or packaging which is merely preparatory to its disposal or sale. In BIR Ruling No. 201-99 dated December 16, 1999, the Bureau clarified this same phrase in this manner. "It should be stressed that excise taxes, whether under the specific tax or the 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, 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 asseverated by Petron, may only be interpreted as a disposition of the manufactured goods in the course of the manufacturer's/importer's business, for consumption of the end consumers. SaHcAC As represented, the purpose of the transfer of bulk beer to another brewery is for canning and packaging. In other words, the processing of the beer for consumption by the end consumer is not yet complete. Consequently, the imposition of excise tax at this stage would mean a collection before maturity because the transfer is not yet for commercial purpose. In the case of Commissioner of Internal Revenue vs. Abad and the CTA (23 SCRA 1132), the Supreme Court said that "it does not matter to what use the article subject to excise tax is put; the tax attaches from the time the article is removed from the place of production to be put into the commerce or trade of the country." In addition, Revenue Memorandum Order No. 18-86 was issued to provide guidelines to Revenue Officers on Premise to check or supervise the production and removal of finished product from every unit of every establishments producing or manufacturing articles subject to excise tax. Again, it is very clear that the RMO speaks of removal of finished product. Since the beer in bulk removed from the first brewery is not yet a finished product considering that it still has to undergo the canning and packaging process in another brewery, said removal is not yet subject to excise tax. In view of all the foregoing, this Office hereby confirms your opinion that the excise tax of the manufactured beer should be imposed only on its final removal from the brewery for consumption and sale and not on the transfer from one brewery to another for canning and packaging. 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, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group