BIR Ruling No. 117-65

October 7, 1965 BIR RULING NO. 117-65 Messrs. J. S. Zulueta & Co. Certified Public Accountants P. O. Box 2405, Manila Gentlemen : This refers to your letter of September 28, 1965 stating that you have a client who is a manufacturer of flour using as raw materials imported wheat and other materials on which it pays 7% advance sales tax thereon and that in the course of manufacture, by-products, such as bran and pollard are produced which it either exports or sells locally. You now ask information as to certain tax aspects of your client's operation. cdi In reply, I have the honor to inform you as follows: Your client's local sales of the by-products bran and pollard are subject to the 7% sales tax imposed by Section 186 of the Tax Code based on the gross selling price without the benefit of deduction of the cost of raw materials. This is for the reason that no raw materials are actually used in the production of bran and pollard, the latter being not exactly manufactured articles but mere by-products of the wheat used in the manufacture of flour. The exportation of said by-products are, however, exempt from the sales tax pursuant to Section 188(e) of the said Code. The sales tax on the manufactured flour sold locally is computed on the gross selling price less the cost of the imported wheat and other materials used in manufacture. The exportation of the manufactured flour is also exempt from the sales tax. For accounting purposes, the proceeds from the sales of bran and pollard should properly be treated as income and never as reduction of cost of raw materials for in truth and reality such proceeds were not treated as reduction of cost of raw materials in the computation of the sales tax on the manufactured flour. aisadc Very truly yours, (SGD.) MISAEL P. VERA Acting Commissioner of Internal Revenue