Tax on the Business of Buying Large Pieces of Paper and Cutting Them into Small or Standard Sizes

March 19, 1958 BIR RULING NO. 192-58 Mr. Lorenzo Ching 255-C Int., Libertad Quezon City S i r : In answer to the queries contained in your letter dated May 22, 1957, I have the honor to inform you as follows: cdt The business of buying large pieces of paper and cutting them into small or standard sizes prior to the sale thereof constitutes manufacturing within the meaning of Section 194(x) of the National Internal Revenue Code, as by such cutting the manufacturer "by physical process alters the exterior form of a manufactured product (the paper) in such manner as to prepare it for a special use to which it could not have been put in its original condition". Accordingly, said business is subject to the fixed and percentage taxes prescribed in Sections 182(A-1) and 186 of said Code. Prior to June 22, 1957, the date Republic Act No. 2025 took effect, the cost of raw materials purchased from industries exempt from taxes in accordance with Republic Act No. 35, or Republic Act No. 901, was not deductible from the gross selling price of the products manufactured out of such raw materials. On and after said date, the cost of such raw materials became deductible, for sales tax purposes, by express provision of Republic Act No. 2025. However, only the cost of raw materials purchased on or after June 22, 1957 is deductible. In other words, raw materials purchased before said date, even if used on or after that date, are not embraced within the aforesaid law. This modifies the ruling contained in the letter to you dated November 21, 1957 of the Regional Director, Regional District No. 4, Quezon City. LLjur Very truly yours, (SGD.) JOSE ARAAS Commissioner of Internal Revenue