Excise Tax on Importation of Diesel, Naphtha, Gasoline and Other Yields as Direct and Base Raw Materials

October 15, 2002 BIR RULING NO. 037-02 R.A. # 7459 Sec. 148 & 131, NIRC; RR 19-93 BIR Ruling # 155-98; DA 280-98, 281-98 & 037-98 Nila N. Mendiola & Associates Unit 2106 21st Floor Cityland 10 Tower I H.V. dela Costa Streets, Salcedo Village Makati City Attention: Ms. Nila N. Mendiola Certified Public Accountant Gentlemen : This refers to your letter dated March 18, 2002 requesting on behalf of your client, Mr. Rudy L. Lantano, for confirmation of your opinion that the importation of diesel, naphtha, gasoline and other yields, as direct and base raw materials in the manufacture, sale and commercialization of ALCO-DIESEL, LAN-GAS and SUPERBUNKER FORMULA-L, is exempt from excise tax imposed under Section 148 of the Tax Code of 1997. It is represented that your client, Mr. Rudy Lantano, is an inventor duly certified by the Filipino Inventor's Society and confirmed by the Filipino Inventor's Screening Committee; that he is a patent holder of various environment friendly petroleum-based fuels, particularly ALCO-DIESEL covered by Patent No. 28424 dated August 31, 1994, LAN-GAS covered by Patent No. 13594 dated July 30, 1980 and SUPERBUNKER FORMULA-L covered by Patent No. 29089 dated September 7, 1995, all issued by the Philippine Patents' Office; that he has been issued a tax exemption certificate by the Bureau of Internal Revenue under BIR Ruling No. DA-37-02-04-98; that in relation to the manufacture, sale and commercialization of the aforementioned invention products, your client intends to import diesel, naphtha, gasoline and other yields to be used as direct raw materials; that it is your position that the said importation is exempt from excise taxes imposed under Section 148 of the 1997 Tax Code, pursuant to Section 6 of Republic Act No. 7459, otherwise known as the "Inventions and Inventors Incentives Act of the Philippines", which provides, viz : "Section 6. Tax Exemption . To promote, encourage, develop and accelerate commercialization of technologies developed by local researchers or adapted locally from foreign sources including inventions, any income derived from these technologies shall be exempted from all kinds of taxes during the first ten (10) years from the date of the first sale, subject to the rules and regulations of the Department of Finance: Provided, that this tax exemption privilege pertaining to invention shall be extended to the legal heir or assignee upon the death of the inventor. The technologies, their manufacture and sale, shall also be exempt from payment of license, permit fees, customs duties and charges on imports." In reply, please be informed that your request cannot be granted by this Office for lack of legal basis. Section 3 of Revenue Regulations No. 19-93 which implemented the aforequoted provisions of RA No. 7459 provides that "3. The inventor shall be exempt from the following taxes for which otherwise he shall have been directly liable: "xxx xxx xxx (c) Excise taxes directly payable in connection with the sale of invention products. " The aforequoted provision itself will readily show that the exemption of Mr. Lantano from the excise tax imposed under Section 148 of the 1997 Tax Code covers only the sale of his invented ALCO-DIESEL, LAN-GAS and SUPERBUNKER FORMULA L. We cannot agree that Section 3 of RR 19-93 intends to grant excise tax exemption to Mr. Lantano on his importation of raw materials directly needed in the manufacture of his invented products. Tax exemption cannot be created by implication because exemptions from taxation are highly disfavored in law and one who claims exemption from tax must be able to justify his claim by clearest grant of organic or statute law. An exemption from the common burden cannot be permitted to exist on vague implication. ( Collector vs. Manila Jockey Club, Inc., L-875, March 23, 1956; Petroleum Co. vs. Llanes , 49 Phil. 466) To be exempted from payment of taxes, it is the taxpayer's duty to justify the exemption "by words too plain to be mistaken and too categorical to be misinterpreted. Laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. The burden of proof rests upon the party claiming exemption to prove that it is in fact covered by the exemption so claimed. ( Commissioner of Internal Revenue vs. Mitsubishi Metal Corporation , G.R. 80041, Jan. 22, 1990) Section 129 of the 1997 Tax Code provides that excise taxes apply to goods manufactured in the Philippines for domestic sale or consumption or for any other disposition and to things imported which shall be in addition to the value-added tax imposed under Title IV thereof. As importer of the raw materials needed in the manufacture and commercialization of his products, Mr. Lantano shall pay the excise taxes due on his imported articles prior to the release of the same from customshouse, pursuant to Section 131(A) of the same Code. This constitutes our final decision on the matter. Very truly yours, (SGD.) GUILLERMO L. PARAYNO, JR. Commissioner of Internal Revenue