Taxability of Suppliers of Automobile Parts and Accessories

April 9, 1987 BIR RULING NO. 105-87 163 (2) (n) 000-00 105-87 Gentlemen : This refers to your letter dated January 15, 1987 requesting in effect, a ruling as to whether suppliers of automobile parts and accessories made out of your specifications are considered for tax purposes as "manufacturers" or "contractors". It is represented that your company, Pilipinas Nissan, Inc. is locally engaged in the assembly of automobiles; that many standard spare parts and accessories used therein are ordered from and produced by local suppliers to comply with the local content requirement of the Board of Investments; and that such parts and accessories are normally made out of your specifications due to the fact that in your said manufacture, car models and distinctive accessories are always designed. You alleged that your corporation has been disqualified by examiners of this Bureau from availing as tax credit the sales tax indicated separately in the sales invoice of your local suppliers of spare parts and accessories on the ground that the latter (suppliers) is subject to contractor's tax and not to the manufacturer's sales tax. 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: FILLING ORDERS ACCORDING TO SPECIFICATIONS DOES NOT ALTER CHARACTER OF ESTABLISHMENT ' A factory which habitually makes sash, windows and doors, and sells the goods to the 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 made the fancy of the purchasers does not alter the nature of the establishment." the fact that the spare parts and accessories are specially designed for you in accordance with the specifications you give to your local suppliers does not divest the latter of its character as a manufacturer of spare parts and accessories. Accordingly, the tax that may be passed on to you by the local suppliers of spare parts and accessories as in the manufacturer's sales tax at the rate of 10% pursuant to Section 163 (2)(n) of the Tax Code, as amended by Executive Order No. 36, which shall be credited against the sales tax on the original sale of the finished automobiles, provided that the amount of sales tax paid thereon is separately indicated in the sales invoice. (Sec. 166(a), Tax Code, as amended). Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner