Imported Automobile Spare Parts; Rates of Tax Applicable

November 23, 1972 BIR RULING NO. 029-72 Imported automobile spare parts ; rates of tax applicable . Clarification was requested as to the rate of advance sales tax applicable to importations of automobile spare parts by importers who are not car assemblers or manufacturers in the light of the decision of the Supreme Court in the case entitled "Jose Zamora (Golden Taxicab vs. The Court of Tax Appeals and the Commissioner of Internal Revenue, G. R. No. L-23272, November 26, 1970" The last paragraph of the ruling of the Secretary of Finance dated May 11, 1967 states as follows: "In connection with 'replacement parts' which was one of the issues you raised with this Department, we quote hereunder a portion of the letter of the Bureau of Internal Revenue to this Department dated August 18, 1966, to which we concur: "The previous interpretation of replacement parts notwithstanding, this Office believes that the concept of replacement parts under Section 184(a) of the Code refers to replacement parts not only used in the assembly of automobiles but also in the replacement of worn-out parts of those automobiles that have already been used. Unless this theory is accepted, it will be very hard to tax replacement parts because not being complete automobile, it cannot be taxed at the graduated rates under Section 184 which depends on the selling price of the automobile. The only interpretation, therefore, that can be given to this phrase 'replacement parts' is that it is subject to 7% advance sales tax as an imported article, whether to replace lost parts of CKD automobiles or as 'replacements of worn-out parts of those automobiles already in use." It was in line with the foregoing that this Office has issued rulings holding that parts and accessories imported by importers who are not car assemblers or manufacturers are subject to 7% advance sales or compensating tax. However, on November 26, 1970, the Supreme Court promulgated its decision in the case entitled, Jose Zamora (Golden Taxicab vs. The Court of Tax Appeals and the Commissioner of Internal Revenue, G. R. No. L-23272, wherein it held, among others, the following: ". . . However, 'parts and accessories of automobiles' are subject to the 7% rate, under Section 186, by virtue only of the first proviso in subdivision (a) of section 184, which limits the application of said section 186 to 'parts and accessories of automobiles imported as replacements or as completely knocked down parts for the assembly of automobiles . . .' Indeed, this qualification is in consonance with the spirit and letter of section 186, which provides that the rate therein fixed shall be 'paid by the manufacturer or producer.' In other words, it is not intended for the end-users or consumer. There would have been no reason to insert the aforementioned qualification, and the same would not have been made, had the purpose of the proviso been to apply section 186 to the importation of parts and accessories of automobiles are completely knocked down parts, regardless of whether or not the importer was an automobile manufacturer or assembler. The view taken in the appealed decision is further bolstered up by the subsequent proviso, in section 184(a), to the effect that 'the total cost of such materials or parts on which tax has already been paid under section one hundred and eighty-six . . . shall be deducible from the gross selling price or gross value in money of the assembled or manufacture articles. . ." "Then, too, it is not difficult to understand why the application of the 7 per centum rate was limited only to importations made by those engaged in the manufacture and assembly of automobiles in the Philippines, to increase job opportunities for local laborers and mechanics and reduce the drain on our dollar reserve resulting from the purchase of foreign-made automobiles." From the foregoing decision of the Supreme Court, which ruled that the lower rate of 7% applies only to importations made by manufacturers or assemblers of automobiles, it is clear that the previous stand of this Bureau as concurred in by the Secretary of Finance, as heretofore stated, has already been superseded. In view thereof, all importations for resale of parts and accessories of automobiles by importers who are not car assemblers or manufacturers shall, henceforth, be subject to a uniform rate of 100% advance sales tax based on the landed cost thereof plus 100% advance sales tax based on the landed cost thereof plus 100% mark-up, pursuant to Section 183(b), in relation to Section 184(a), both of the Tax Code. All rulings inconsistent herewith are hereby superseded. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue