Sales Tax on the Sale of Waste from the Manufacture of Tin Cans

January 13, 1987 BIR RULING NO. 003-87 163, 166 (b) 168 000-00 003-87 Gentlemen : This refers to your letter dated September 30, 1986 stating that you, a tin can manufacturer, purchase your raw materials (tinplates) exclusively from National Steel Corporation, a BOI registered pioneer enterprise; that you sell your manufactured products (tin can containers) to various companies who are producers of coconut edible oil, food stuffs, lubricating oil and paint which use the same as containers of their finished products; and that you now pose the following questions: "a.) Sales tax "deemed paid" by National Steel Corporation 10% or 20%? "b.) Sales Tax applicable to tin cans sold to the following manufacturers. "1.) Coconut Edible Oil Producers "2.) Paint and Thinner Company "3.) Lubricating Oil Company "4.) Food Stuffs such as chocolate, milk, meat products, lard shortening and the like." You also want to know whether you are subject to the sales tax on your sale of waste from the manufacture of tin cans (scrap/strips) and the rate thereof. In reply, I have the honor to inform you as follows: a.) The provisions of Section 166(b) of the Tax Code, as amended by P.D. Nos. 1991, 2006 and 2031 to the effect that "whenever a tax-exempt product of a pioneer enterprise registered with the Board of Investments is used in the manufacture or production of any article sold domestically the sales or excise taxes otherwise due on such tax-exempt product shall be credited against the sales tax due on the manufactured article" were already abolished by Executive Order No. 36 which took effect on August 1, 1986. Accordingly, your purchases from National Steel Corporation on or after August 1, 1986 are no longer entitled to the deemed paid tax credit. However, purchases made prior to August 1, 1986 which have already been debited to the "Deferred Tax Credit" account are still allowed as tax credits to the sales tax payable. (Section 11, Rev. Regs. 11-86). b.) 1. Coconut edible oil is not subject to the original sales tax but to the 3% miller's tax imposed under Section 168 of the Tax Code, hence, the tin cans which you sell to coconut edible oil producers are subject to 20% sales tax. 2. Paint and thinner are classified as ordinary articles subject to 20% sales tax imposed under Section 163 (4) of the Tax Code while lubricating oil is subject to the specific tax imposed by Section 128 of the same Code hence, the tin cans which are used as raw materials thereof are also subject to the 20% sales tax. 3. Among the articles subject to 10% sales tax are processed meat, processed milk, creamers and dairy products, lard shortening and cooking oil (Section 163(2), Tax Code as amended by Executive Order No. 36). The tin cans which are exclusively used as containers of said essential articles are also subject to the same rate of sales tax, i.e., 10% provided that the purchasers shall certify that the same shall be used exclusively as containers of said essential articles. (Section 163 (2), Tax Code, Section 6.II, Revenue Regulations No. 11-86). If the purchasers fail to issue the certification, you will be subject to 20% sales tax on your sale of tin cans, pursuant to Section 163 (4) of the Tax Code. Finally, you are subject to income tax on the income derived from your sale of scrap/strips (waste from manufacture of tin cans) but not to the sales tax. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner