Ethyl Alcohol Specially Denatured for the Manufacture of Vinegar and the Resultant Clear Vinegar Exempt from Excise Tax

March 20, 1998 BIR RULING NO. 031-98 106; 141-063-97-031-98 Lazatin Consolidated Corporation 252 Sto. Rosario Street San Jose, Angeles City Attention: Mr . Carmelo F . Lazatin President Gentlemen : This refers to your letter dated January 28, 1998 requesting for a ruling exempting from the payment of excise (specific) tax your specially denatured alcohol for use in the manufacture of vinegar. It appears that you have been previously granted a permit to denature alcohol specifically for the manufacture of vinegar in accordance with your approved formula; and that this Office had ruled that you are exempt from the excise (specific) tax on your purchase of alcohol to be specially denatured for use in the manufacture of vinegar, pursuant to BIR Ruling No. 058-96 dated May 21, 1996. LLphil You now request for another ruling in view of the proviso in Section 134 of the Tax Code of 1997 which is not provided for under then Section 131 of the Tax Code, which states, viz: "Provided, finally, That any alcohol, previously rendered unfit for oral intake, after denaturing but subsequently rendered fit for oral intake after undergoing fermentation, dilution, purification, mixture or any other similar process shall be taxed under Section 141 of this Code and such tax shall be paid by the person in possession of such reprocessed spirits". In reply, please be informed that the previous stand of this Office exempting you from the excise tax for your specially denatured alcohol is not in any way affected by the aforequoted provision of Section 134 of the Tax Code of 1997. Per report of our Laboratory Section the specially denatured alcohol although it has undergone fermentation, dilution, purification, or mixing process does not make it an alcoholic drink fit for oral intake. Certainly, the resultant vinegar after denaturing cannot be regarded as reprocessed spirit since it no longer contains ethyl alcohol, the same having been converted into acetic acid. Moreover, unlike wine, liquor or spirit, vinegar can not be taken orally in volumes but merely as condiment or as preservative. Accordingly, we reiterate our stand that the ethyl alcohol specially denatured for the manufacture of vinegar and the resultant clear vinegar are exempt from the excise tax imposed under Section 141 of the Tax Code of 1997. The sale however, of vinegar is subject to the 10% VAT imposed under Section 106 of the same Code. prLL Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue