BIR Ruling No. 171-83

September 30, 1983 BIR RULING NO. 171-83 Gentlemen : This refers to your letter dated July 5, 1982 and January 12, 1983 claiming for a tax credit of P39,274,839.78 representing the 5% advance sales tax allegedly paid by you on your importation of raw materials used in the manufacture of preferred pioneer products and forming part thereof pursuant to B.I.R. Ruling No. 295-108-80-260-82 dated October 14, 1982 dispositive portion of which is quoted hereunder as follows: "Under the foregoing provision, it is clear that the excess advance sales tax paid on the raw materials can be credited only against the sale tax due on the finished product of which the raw materials form part. In your case, the excess advance sales tax was paid on raw materials which did not form part of the non-pioneer products. Consequently, the said excess cannot be credited against the sales tax due from the latter. "However, said excess advance sales tax can be claimed as tax credit upon proper application therefor, under the provision of Section 295 of the Tax Code. This Office has already ruled that in the case of finished product sold tax-free to a tax-exempt entity, the sales tax paid on the raw materials used in the manufacture of said finished product may be claimed as a tax credit. (BIR Ruling No. 108-80 dated July 24, 1980)" In reply, please be informed that after a restudy of the facts and pertinent laws in this case, this Office has finally decided that the last paragraph of said ruling has no basis in law and in fact. You have represented that as a preferred pioneer enterprise, you manufacture various steel products, for which you enjoy full exemption from the manufacturer's sales tax but that you pay the 5% advance sales tax pursuant to Presidential Decree No. 1595 on your importations of raw materials used in the manufacture, and therefore forming part of the finished pioneer products sold tax free during the period from January to December, 1981 and the first quarter of 1982. Consequently, since your payment of the said 5% advance sales tax on your importation of raw materials in the total amount of P39,274,839.78 are neither erroneous nor illegal, your claim for refund of tax credit thereof under Section 295 of the Tax Code cannot therefore be granted for lack of legal and factual bases . Likewise, B.I.R. Ruling No. 108-80 dated July 21, 1980 granting a local manufacturer tax credit for taxes paid on raw materials used in the manufacture of an article and forming part of said finished product or article sold tax free to the Armed Forces of the Philippines Commissary and Exchange Service (AFPCES) in accordance with Revenue Regulations No. 5-80 dated June 10, 1980, further amending Section 6 of Revenue Regulations No. 7-76, as amended by Revenue Regulations No. 2-80 and implementing Presidential Decree No. 83 as Letter of Instruction No. 31 finds no application to the instant claim for tax credit. cdtech In view of the foregoing, B.I.R. Ruling No. 295-108-80- 260-82 dated October 14, 1982 is hereby modified. Accordingly, the 5% (excess) advance sales tax paid pursuant to Presidential Decree No. 1395 on your importation of raw materials used in the manufacture of finished preferred pioneer products cannot be credited against the sales tax due from non-pioneer products; and cannot also be claimed as tax credit under the provisions of Section 295 of the Tax Code . Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner Bureau of Internal Revenue