Non-exemption From the Payment of the Compensating Tax

March 31, 1960 BIR RULING NO. 169-60 G. Manlapit, Inc. 205 Maritima Bldg. Dasmarias, Manila Gentlemen : Reference is made to your letter dated December 28, 1959 inclosing therewith a photostat of the letter of Mr. Thos. I. Weeks, technical adviser to your client, Batong Buhay Gold Mines, Inc., wherein exemption from the payment of the compensating tax is invoked under section 183(b) of the National Internal Revenue Code which in part provides: ". . . The tax imposed in this section shall not apply to articles to be used by the importer himself in the manufacture or preparation of articles subject to specific tax . . . and are to form part thereof". Exemption from the payment of the compensating tax under the above-quoted section cannot be validly invoked because said section applies exclusively to imported articles intended for direct resale, hence are subject to the advance sales tax and not to the compensating tax. If at all, the proper provision of the Tax Code that may be invoked in order to exempt is section 190 in relation to section 186 the exempting clause of which, in substance, is a reiteration of the exemption clause under section 183(b) and we quote, ". . . And provided further, that the tax imposed in this section shall not apply to articles to be used by the importer himself in the manufacture or preparation of articles subject to specific tax . . . and are to form part thereof." However, exemption from the payment of the compensating tax under this section, also, will not lie in the instant case because: 1. Minerals and mineral products produced by gold mining companies are not subject to the specific tax under Title IV of the Tax Code but to mining taxes under the provisions of Title VII; and, 2. In order that the imported articles may be exempt from the compensating tax under this section, the imported raw materials must be used by the importer himself in the manufacture or preparation of articles subject to specific tax or those for consignment abroad and to form part thereof. Briefly stated, the following have been held not subject to the compensating tax, to wit: (1) Articles subject to the advance sales tax; (2) Articles subject to specific tax; and (3) Those articles which by act of Congress have been expressly made exempt therefrom. In this connection, section 5 of Republic Act No. 909, which granted exemption from the compensating tax on articles imported by gold mining companies for use exclusively in their mining industry subsisted only for a period of 3 years computed from June 20, 1953, and was never extended. For more clarification, this Office ruled in one case that the importation of dynamite by a mining company to be used in its mining operation is subject to the compensating tax (Ruling BIR 105.02, Nov. 14, 1956) Accordingly, the importation by the Batong Buhay Gold Mines, Inc., of a diesel locomotive and spare parts to be used in its mining operations is subject to the 7% compensating tax prescribed by section 190 in relation to section 186, both of the National Internal Revenue Code. casia Very truly yours, MELECIO R. DOMINGO Commissioner of Internal Revenue