10% Sales Tax — Carbon Dioxide

July 30, 1981 BIR RULING NO. 139-81 199-00 000-00 139-81 Central Azucarera De Tarlac Jose Cojuangco & Sons, Inc. P.O. Box 591, Makati Commercial Center 3117 Makati, Metro Manila Attention: Mr . Eduardo M . Fuentes Finance Manager Gentlemen : This refers to your letter dated February 8, 1979, requesting a ruling on the percentage tax you should pay on liquid carbon dioxide (CO2). Investigation conducted by this Office disclosed that you are a domestic corporation engaged in the milling of sugar cane into sugar and other by-products that you have modern facilities which enable you to process sugar cane into sugar and carbon dioxide in a single continuous process. It appears also that carbon dioxide is produced from carbon dioxide gas evolved from the fermentation of sugar from cane juice or molasses; and that brown sugar can also be used as a raw material for carbon dioxide production, but the production cost would be much higher than using either cane juice or molasses. In reply, I have the honor to inform you that by-product means that material which in the cultivation or manufacture of any given commodity remains over, and which possesses or can be brought to possess a market value of its own. (Philippine Manufacturing Co. v. Meer, 76 Phil. 439). Accordingly, an article is considered a by-product of sugar if, in the production of the latter, the former remains over. cdtech From the foregoing process, it appears that carbon dioxide does not remain over in the production of sugar. In fact, in the production of sugar out of sugar cane, cane juice and molasses remain over; and they are used as raw materials in the manufacture of alcohol and carbon dioxide through fermentation. Under the circumstances, carbon dioxide is not considered as a by-product of sugar cane from which sugar is produced. Hence, it cannot come within the purview of Section 203 of the Tax Code which provides that proprietors or operators of sugar centrals shall pay a tax equivalent to two (2) per centum of the gross value in money of all the sugar manufactured, processed or milled by them, including the by-products of the raw materials from which said articles are produced, processed or manufactured . In view thereof, carbon dioxide is subject to the 10% sales tax, under the said Section 199 of the Tax Code of 1977, as amended. Very truly yours, RUBEN B. ANCHETA Acting Commissioner