Exemption from Payment of Excise (Specific) Tax of Specially Denatured Alcohol for Use in the Manufacture of Vinegar

December 4, 1996 BIR RULING NO. 137-96 100; 131 138 000-00 137-96 Central Azucarera de Tarlac JGS Building 119 dela Rosa corner Palanca, Jr. Streets Legaspi Village, Makati City Attention: Mr . Bernardo R . Lahoz Asst . Vice President Gentlemen : This refers to your letter dated October 8, 1996 requesting for a ruling on the exemption from the payment of excise (specific) tax of your specially denatured alcohol for use in the manufacture of vinegar, using the formula approved by this Office on October 16, 1996, viz: LLjur "For every 100 gauge liters of ethyl alcohol of not less than 180 o proof, there shall be added 25 liters of vinegar (10% acetic acid)." It is represented that distillers of wines and liquors have refused to buy your present stock of rectified (ethyl) alcohol amounting to approximately 3,000,000 liters due to its high diacetyl content; that unless you can sell the same to manufacturers of vinegar who are the only willing buyers, the same will create serious storage problems by reason of the fact that the 1996-1997 milling season is approaching; that the longer the alcohol stock is held, the greater is the danger of losing it through evaporation. Per report of our Standard Classification and Laboratory Section on previous similar request, the vinegar (taken as 10 percent acetic acid by weight) used as denaturant is not the ordinary table vinegar that can be taken orally as food but one that destroys the character of ethyl alcohol as beverage and render it unfit for oral intake; that the resulting especially denatured alcohol undergoes aerobic bacterial oxidation converting it into vinegar or acetic acid solution; that the chemical change is brought about by the fermentation of the specially denatured alcohol with the aid of micro-organisms, their nutrient and other conditions; and that the final product is vinegar which is fit for oral intake but no longer contains ethyl alcohol as chief ingredient. Based on the foregoing, the rectified (ethyl) alcohol which you will denature for use in the manufacture of vinegar shall be exempt from the specific tax imposed under Section 138 of the Tax Code, as amended (Section 131, Tax Code, as amended). However, the same shall be subject to the 10% value-added tax under Section 100 of the same Code. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue