Refractory Bricks Used as a Raw Material in the Manufacture of Cement Shall be Subject to 10% Sales Tax

July 2, 1987 BIR RULING NO. 190-87 163 (2) 000-00 190-87 Gentlemen : This refers to your letter dated March 2, 1987 requesting, in behalf of your client, Refractories Corporation of the Philippines, a ruling to the effect that refractory bricks be subject only to 10% sales tax instead of 20%. You have represented that refractory firebricks which your client manufactures, are utilized as lining in cement kilns which are employed in the actual production of cement; that in the process of making cement, raw materials like limestone, shale, silica sand and pyrite sinter are fed into the cylindrical cement kilns and fired at temperatures around 1500 deg. C.; that at least 60% of the refractory firebricks gets intermixed with other raw materials to form cement clinker, that this cement clinker is ground into powder and mixed with gypsum and then packed and sold as cement. You have substantiated the foregoing representation with the technical report, together with illustration, prepared by the Philippine Cement Manufacturers Corporation attesting to the fact that refractory firebricks being a raw material in the manufacture of cement, form part of the finished product cement. In reply, please be informed that under Section 163(2) of the Tax Code as amended by EO No. 36, any article subject to the original sales tax, when used as a raw material in the manufacture or preparation of essential articles, shall, subject to certain conditions, be taxed at the same rate as the finished product except when such materials are taxed at a lower rate. Accordingly, since cement is classified as essential article subject to 10% sales tax, the refractory firebricks which are used as raw materials thereof are also subject to the same rate of 10% provided that the purchasers thereof shall certify to the Refractories Corporation of the Philippines, as manufacturer of refractory firebricks, that the same shall be used exclusively as raw material of said essential article. If the purchasers fail to issue the certification, your client will be subject to 20% sales tax pursuant to Section 163(4) of the same Code. On the other hand, the imported magnesium clinker which constitutes 70% of the raw material component of refractory firebricks and the domestic refractory chromite which constitute 30% of the raw material component thereof, will also be subject to the advance sales tax at the same rate of 10% provided that your client, as importer/manufacturer of refractory firebricks, shall certify to this Bureau that the imported magnesium clinker as well as the refractory chromite purchased locally shall be used exclusively in the manufacture of refractory firebricks. (Section 163(2), Tax Code) If your client fails to issue the certification, it will be subject to 20% advance sales tax. Lastly, cement manufacturers who are purchasers of refractory firebricks manufactured by the Refractories Corporation of the Philippines are entitled to credit against the sales tax on the original sale of cement the sales tax paid on the refractory firebricks, provided that the tax paid thereon is indicated as a separate item in the sales invoice, pursuant to Section 166 of the Tax Code, as amended. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner