Constitution of Deductible Items of Atlas Consolidated Sales, as a Manufacturer

March 24, 1958 BIR RULING NO. 203-58 Mr. Angel M. Vecino Suites 314-315 Yuchengco Bldg. 484 Rosario, Manila S i r : Reference is made to your letter dated March 18, 1958 inquiring as to whether or not under the facts stated below, your client, the Atlas Consolidated Sales, is a manufacturer; and in the affirmative, what would constitute the deductible items for purposes of the sales tax. LLpr "1. HOUSEHOLD SPONGE : Out of locally purchased but of imported origin, big sheets of plastic sponge materials are cut into small sizes of 3" x 5" and to be sold for general household use and for the bath. "2. OFFICE SPONGE : Round pieces of 3" diameter are cut from big piece of plastic sponge materials, then each piece is placed in a plastic container. This is to be used in offices for wetting finger tips when counting money (paper), for placing stamps and sealing envelopes, and for whatever uses in the office or homes. "The big sheets of plastic sponge are also of imported origin but of local purchase. The plastic container is of local manufacture. "3. SEAT CUSHIONS, KNEELING PADS AND BABY PILLOS : Various appropriate sizes are cut from big pieces of plastic sponge materials (of imported origin but of local purchase) then covered either with soft plastic materials or cloth (either of imported materials or of locally manufactured). "4. BOTTLE CLEANER : Various appropriate sizes of sponges are clamped in between G.I. Wires and the wires are twisted to form a handle. Materials are also of imported origin and the G.I. Wires are either of imported origin or of local manufacture. cdta "5. FLOOR POLISHERS : Out of big sheets of plastic sponge materials (likewise of imported origin) are cut into various appropriate sizes and then they are clamped to a special designed wood block which has a handle made of wood." In reply thereto, I have the honor to inform you that, under the facts stated above, your client is a manufacturer. For purposes of the sales tax payable by your client on its sales of the manufactured products, the cost of all materials used by it in its manufacture and which form part of the manufactured articles, whether imported or locally purchased, is deductible from the gross selling price of the manufactured products, provided such materials were already previously taxed under the same section of the Tax Code under which the manufactured products are subject and the cost thereof is duly established. Accordingly, the cost of the plastic sponges, plastic containers, plastic or cloth coverings, wires and wood handles used by your client in its manufacture, be they imported or locally purchased, is deductible from the gross selling price of the manufactured articles provided that they have been previously taxed under the same section of the Tax Code under which the manufactured articles are subject and form part thereof. cdti Very truly yours, (SGD.) JOSE ARAAS Commissioner of Internal Revenue