BIR Ruling No. 041-64

May 27, 1964 BIR RULING NO. 041-64 Mr. Francisco T. Tria, Jr. Revenue Examiner II BIR Inspection District No. 19 Quezon City S i r : This is with reference to your letter dated April 21, 1964 requesting opinion of this Office on the question of whether the business hereinbelow described will be considered manufacturing or smelting: cdll "X company is buying and/or importing scrap aluminum as its raw materials. Said scrap materials undergo heating or melting process, resulting in the transformation of the same into aluminum inggots (sic) or bars. This (sic) inggots (sic) or bars are sold to Foundry shops and other manufacturing establishments needing it as its raw materials without any previous orders having been made. The company has no job order book required of any contractor, but use ordinary sales invoices when making sales. Furthermore, the establishment maintain big inventories of raw materials as well as finished products, which at any time could be sold and disposed to the buying public. "QUERY : Inasmuch as the establishment contends that they fall under the schedule C-4-29 (Smelting plant) and hence subject only to the 3% sales tax on its gross receipts, would it not be erroneous to assess subject X company as manufacturer and liable to the 7% sales tax? If the company could be assessed as manufacturer, can investigation likewise be extended to the last five years, taxes paid for the period being only 3%?" In reply thereto, I have the honor to inform you that, under the aforequoted facts, X company is engaged in manufacturing aluminum ingots or bars, subject to the fixed annual tax of P20.00 prescribed by Section 182(A)(1) of the National Internal Revenue Code. The sales of the aforesaid articles are subject to 7% sales tax under Section 186 of the same Code. llcd Said company cannot be considered a mere smelting plant within the purview of Section 191 of the Tax Code. The word "smelting" means "to melt or fuse, as ore, with an accompanying chemical change, usually to separate metal". (Webster's International Dictionary) It is understood as simply "melting or fusing, and sometimes, and more commonly, in its practical sense, to mean the reduction of ores by melting them in the presence of some agents which would react upon the compounds of the ore when fused, and thereby separate them", or "Obtaining a metal from the ore by a process that includes fusion". (39 Words & Phrases, 534) Another definition states that "When metallic ores are exposed to heat, and such reagents as develop the metal, we call it melting . . ." (Treatise on Metallurgy by Frederick Overman, Ballentine's Law Dictionary) It is clear from the foregoing definition of "smelting" that the transforming of scrap aluminum into ingots or bars is not mere smelting, for the results are new and different articles and are not mere metals separated from ore thru the process of melting and/or fusion. In other words, the ingots and bars are manufactured articles, and X company is the manufacturer thereof, within the purview of Section 194(x) of the Tax Code. As regards your other query, you are informed that the company can be investigated to ascertain its tax liabilities for the last five years, provided that an authority to conduct such an investigation is first secured from the superior officer concerned. LibLex Very truly yours, (SGD.) BENJAMIN N. TABIOS Acting Commissioner of Internal Revenue