Tax on the Denatured Alcohol Submitted by Everest Chemicals (Phil.)

March 6, 1958 BIR RULING NO. 172-58 MEMORANDUM FOR The Chief, Alcohol and Prohibited Drugs Division (Thru the Revenue Operations Executive, Assessment) This is in connection with your request for a ruling as to whether or not the specially denatured alcohol pro-formulas Nos. 2, 3 and 4 submitted by the Everest Chemicals (Phil.) is subject to specific tax. LLpr It appears that the specially denatured alcohol produced under the aforesaid special formulas will be used by the Everest Chemicals (Phil.) as ingredient in the manufacture of various preparations listed in its letter dated January 23, 1956. Consequently, on the assumption that such preparation using the said specially denatured alcohol contains more than 50% ethyl alcohol by volume, excluding spirit, pursuant to Section 127 of the National Internal Revenue Code. It should be noted that this provision mentions not only medicinal preparations, flavoring extracts, but also all other preparations . There is no doubt that the products manufactured by Everest Chemicals (Phil.) using the specially denatured alcohol in question are preparations. Hence, before the specially denatured alcohol destined for said use are to be removed from the place of production, the ethyl alcohol content thereof should be subjected to the specific tax prescribed in Section 133 of the Tax Code. It may be argued that the said specially denatured alcohol is considered as having been used in industries and, therefore, exempt from the specific tax, prescribed in Section 128 of the Tax Code. This argument is untenable in the light of the decision in C.T.A Case No. 182, entitled "La Tondea Inc. vs. Collector of Internal Revenue," where the Court of Tax Appeals said the following: "The petitioner also maintains that the alcohol in question was used for industries and is therefore, exempt from specific tax under Section 128 of the Tax Code which reads as follows: 'Sec. 128. Exemption in favor of domestic denatured alcohol . Domestic alcohol of not less than one hundred eighty degrees proof (ninety per centum absolute alcohol) may, when denatured, be withdrawn from a registered distillery or bonded warehouse of the distiller or of the Government without the payment of the specific tax prescribed in Section 133, for the purpose of being used for fuel, or light, or for use generally in the arts and industries." " We find petitioner's contention untenable and without merit, and on the contrary, we believe that the exemption under Section 128 of the Tax Code refers to domestic denatured alcohol used in the operation of industries and not to denatured alcohol to be used merely as an ingredient in the manufacture of another product . To hold otherwise would render nugatory and without effect Section 127 of the Tax Code for it is undeniable that the manufacture of medicinal, toilet and other preparations are industries . Congress in enacting Sections 127 and 128 could not have intended to impose a tax in one section, only to exempt in the following section. It is a cardinal rule of interpretation that provisions of law should be interpreted in such a manner as to harmonize the same with other provisions. Moreover, exemption from taxation are highly disfavored in law and must be strictly construed. He who claims exemption must be able to justify his claim by the clearest grant of organic or statute law, (Collector vs. Manila Jockey Club, Inc., 53 O.G. 3762; Panay Electric Co. vs. Collector, G. R. No. L-6753, July 30, 1955.)" (Emphasis ours.) Under this ruling, in order to enjoy exemption pursuant to Section 128 of the Tax Code, the domestic denatured alcohol must be the substance itself which is used in the operation of the industries. Consequently, if the domestic denatured alcohol is used as ingredient in the manufacture of another product, exemption under Section 128 of the Tax Code may not be invoked. (SGD.) JOSE ARAAS Commissioner of Internal Revenue