Taxability of Importation of Jumbo Bags of "CONCH" Portland Cement

January 8, 1998 BIR RULING NO. 002-98 151 (a) (2); 107(A)-000-00-002-98 Kultura Knitex Corporation 3rd West Crame, San Juan Metro Manila Attention: Mr . Napoleon C . Go Gentlemen : This refers to your letter dated December 20, 1997, in effect requesting for a ruling exempting from the 2% excise tax imposed under then Section 151(a)(2) of the Tax Code, as amended by R.A. No. 7729, your importation of 4,609.500 metric tons or 3,067 jumbo bags of "CONCH" Portland Cement which arrived on December 8, 1997 under Reg. No. ESL-001 with Entry No. 222793. It appears that the Bureau of Customs refused to release the said shipment unless the corresponding excise tax due thereon in the amount of P193,681.00 is paid, on the ground that cement falls under the definition of "minerals" and/or "mineral products". llcd In your letter, you contended that "cement" does not fall within the definition of the term "mineral"; and that while it is in fact a "mineral product", the same is not the mineral product contemplated by law, citing the decision of the Supreme Court in the case of " Cebu Portland Cement Co . vs . Commissioner of Internal Revenue " (13 SCRA 333) to the effect that "While cement is composed of 80% minerals, it is not merely an admixture or blending of raw materials, as lime, silica, shale and others. It is the result of a definite process the crushing of minerals, grinding, mixing, calcining, cooling, adding of retarder or raw gypsum. In short, before cement reaches its saleable form, the minerals had already undergone a chemical change through manufacturing process. This could not have been the state of "mineral products" that the law contemplates for purposes of imposing the ad valorem tax. While the selling price of cement may reflect the actual market value of cement, said selling price cannot be taken as the market value also of the minerals composing the cement. And it was not the cement that was mined, only the minerals composing the finished product." which was reiterated in the case of " Republic Cement Corporation vs . Commissioner of Internal Revenue (23 SCRA 967) as follows: "The ad valorem tax should be based on the actual market value of the quarried minerals used in producing cement. The law intended to impose the ad valorem tax upon the market value of the component mineral products in their original state before processing into cement. The law does not impose a tax on cement qua cement, but on mineral products, at least 80% of which must be minerals extracted by the lessee, concessionaire, or owner of mineral lands." In reply, please be informed that your contention is correct. Revenue Regulations No. 13-94 dated July 20, 1994 which governs the taxation of Minerals and Mineral Products includes in its coverage under the term "Other Non-Metal", cement materials, but not the finished product cement. Accordingly, not being a mineral product, cement is exempt from the 2% excise tax but subject to the 10% value-added tax imposed under Section 107(A) [formerly Section 101(a)] of the Tax Code of 1997. You may therefore, file with the Appellate Division, this Bureau, a written claim for refund/tax credit of the amount of P193,681.00 which you paid to the Bureau of Customs as 2% excise tax on your aforesaid importation of cement within two (2) years from the date of payment thereof, pursuant to Section 204(C) of the same Code. Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue