Tax Liability of the Production of Printed Boxes and Labels

February 12, 1988 BIR RULING NO. 043-88 163 (2) (n) 105-87 043-88 Gentlemen : This refers to your letter dated November 23, 1987 in behalf of your client, Printwell, Inc. (PI) requesting opinion as to whether or not the production of printed boxes and labels are considered manufacturing activities wherein a 10% sales tax could be billed separately in the invoice. It is represented that Printwell, Inc. (PI), an export producer registered with the Board of Investments under P.D. 1789, as amended, is an industrial packaging printer engaged in the production of printed folding boxes, cartons and labels for various manufacturing entities; that the basic raw materials used in the production of said articles are paper and paperboard imported only upon previous orders and in accordance with the specific size, shape, grade and kind of material required; that said materials are taxed at the rate of 10% upon the certification of your client's customers addressed to the Bureau of the purpose for which said materials are used; that in the production of printed labels, the manufacturing process likewise varies depending on the technical specifications and aesthetic features desired by customers; and that due to the aforesaid circumstances, your client cannot indiscriminately engage in mass production. In reply, please be informed that in the light of the Supreme Court decision in the case of Celestino Co. & Co. vs. Commissioner of Internal Revenue, 99 Phil. 841, pertinent portion of which is quoted hereunder as follows: " MANUFACTURER: FILING ORDERS ACCORDING TO SPECIFICATIONS DOES NOT ALTER CHARACTER OF ESTABLISHMENT . A factory which habitually makes sash, windows and doors, and sells the goods for public is a manufacturer. The fact that the windows and doors are made by it only when customers place their orders and according to such form or combination as suit the fancy of the purchasers does not alter nature of the establishment." the fact that printed boxes and labels are specially designed for customers in accordance with the specifications they give your client does not divert the latter of its character as a manufacturer of printed boxes, and labels. (BIR Ruling No. 105-87) Accordingly, the tax that your client may bill separately in the invoice to customers is the manufacturers sales tax at the rate of 10% based on the certification of your client's customers that the same are used as packaging materials of essential articles pursuant to Section 163(2)(n) of the Tax Code, as amended by Executive Order No. 36. Pursuant to Section 100 of the Tax Code as amended by E.O. No. 273, effective January 1, 1988, there shall be levied, assessed and collected on every sale, barter or exchange of goods, a value-added tax equivalent to 10% of the gross selling price or gross value in money of the goods sold, bartered or exchanged, such tax to be paid by the seller or transferor . Accordingly, beginning said date, your client is subject to the 10% VAT. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner