Request for a Reconsideration of the Deficiency VAT Assessment

March 3, 1992 BIR RULING NO. 075-92 100 (d) (1) & 134 260-88 075-92 Tarlac Distillery Corporation (Central Azucarera de Tarlac) JCS Building 119 dela Rosa corner Alvarado Sts. Makati, Metro Manila Attention: Mr . Benjamin C . Gutierrez Vice-President Gentlemen : This refers to your letter dated May 16, 1991 requesting for a reconsideration of the deficiency VAT assessment in the amount of P5,523,338.52, inclusive of increments, for the period from June 26 to December 31, 1991. It appears that the aforesaid assessment arose from the issuance of BIR Ruling No. 121-90 which ruled that the tax base upon which the VAT due on under bond alcohol shall be computed should include the excise tax even if the same has not yet been paid by the distiller. The main objection to this assessment is that since the excise tax on under bond alcohol was not included in the price invoiced by the seller-distiller, the purchaser cannot claim the corresponding input tax on the compounded liquor. From the end of the seller, since it did not include excise tax in the billing, it could not have passed on the 10% VAT to the purchaser; thus, the problem of treating/recording a "phantom element" in the selling price arises. After a re-study of the assessment issued against you, no revenue loss had actually resulted by observing previous BIR Ruling No. 260-88 holding that the gross selling price of under bond alcohol sold by the distiller to the rectifier should not include excise tax because the same is not paid by the distiller. Under the "catching-up" effect in the VAT system, where a raw material, which is untaxed, or not fully taxed, forms part of the finished product, the 10% VAT on the untaxed portion of the raw material will catch-up with the finished product upon sale thereof. This is so because no input tax credit (on the untaxed portion of the raw material) could be claimed against the output tax on the finished product. Based on the foregoing, the deficiency VAT assessment against you in the amount of P5,523,338.52, inclusive of increments, is hereby withdrawn, and the case against you considered closed and terminated. This revokes BIR Ruling No. 121-90 and reinstate BIR Ruling No. 260-88. atdc Very truly yours, JOSE U. ONG Commissioner of Internal Revenue