Change of Johnson's Baby Cologne's Ingredients from Ethyl Alcohol to Denatured Alcohol in the Manufacture of the Same Exempt from Excise Tax; However, the Same Shall be Subject to 10% Value-Added Tax

December 10, 1997 BIR RULING NO. 128-97 100 (a)131 000-00 128-97 A.M. Sison, Jr. & Associates LAW OFFICE Suite 2002-A 6776 Ayala Avenue Condominium 6776 Ayala Avenue, Makati City Attention: Atty . Antonio L . Cardio Gentlemen : This refers to your letter dated July 16, 1997 stating that your client, Johnson & Johnson Philippines, Inc., is planning to change the principal ingredient of Johnson's baby cologne from ethyl alcohol to denatured alcohol; that the formula to denature alcohol has been submitted to this Office laboratory for approval; that on July 11, 1997, this Office, through the Assistant Commissioner, Intelligence & Investigation Service, approved Johnson's formula for Specially Denatured Alcohol for use in the manufacture of the Johnson's Baby Cologne, viz.: "For every 100 liters of alcohol of not less than 180 degree proof, add 1.5 grams denatonium benzoate N.F.(BITREX)." that is, however, understood that the samples of ethyl alcohol to be denatured and the denaturant (BITREX) shall be tested and approved by this Office through the Laboratory Section, Tax Fraud Division, and the denatured alcohol shall be used exclusively in the manufacture of Johnson's Baby Cologne; and that under BIR Rulings Nos. 51-81 and 535-88, the aforesaid product, i.e., Johnson's baby cologne, was considered other preparation which is subject to 10% value-added tax under Section 100(a) of the Tax Code; hence, this request for confirmation of your opinion that Johnson's baby cologne will still be subject to 10% value added tax inspite of the change in formulation, and on the other hand, it is not subject to excise tax since its principal ingredient, i.e., denatured alcohol is exempt from excise tax pursuant to Section 131 of the Tax Code, as amended. In reply, please be informed that pursuant to Section 100(a) of the Tax Code, as amended, viz.: "Sec. 100. Value-added tax on sale of goods or properties . (a) Rate and base of tax. There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value-added tax equivalent to 10% of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor. xxx xxx xxx The finished product Johnson's baby cologne is included in the term "goods" subject to VAT. On the other hand, Section 131 of the same Code provides as follows: "SEC. 131. Domestic denatured alcohol . Domestic alcohol of not less than one hundred eighty degrees proof (ninety percent absolute alcohol) shall when suitably denatured and rendered unfit for oral intake, be exempt from the excise tax prescribed in Section 138: Provided, however, That such alcohol shall be subject to tax under Section 100(a) of this Code. Provided, further, That if such alcohol is to be used for motive power, it shall be taxed under Section 145 (a)(4) of this Code. Based on the foregoing, we hereby confirm your opinion that the change of Johnson's Baby Cologne's ingredients from ethyl alcohol to denatured alcohol in the manufacture of the same shall be exempt from the excise tax imposed under Section 138 of the Tax Code, as amended. However, the same shall be subject to the 10% value-added tax under Section 100 of the same Code. (BIR Ruling No. 137-96 dated December 4, 1996) Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue