BIR Ruling No. 206-83

November 23, 1983 BIR RULING NO. 206-83 Gentlemen : This refers to your letter dated May 24, 1983 requesting reconsideration of BIR Ruling No. 197-11-003-79-293-82 dated November 8, 1982 issued to your client, Dragon Enterprises Corporation, 44 Libertad Street, Pasay City, insofar as said ruling holds that the importation of refill ink, is subject to the 25% advance sales tax. Investigation disclosed that your client, started the venture of assembling ball pens only in 1982; that the raw materials used in the production of ball pens e.g., "ink", "tube" and "ballpoint" are imported from France, while the plastic holders are purchased from the local plastic manufacturers; that the imported "ink" is used exclusively in the assembly of ball pen and not for general use; and that the average selling price of a ball pen does not exceed P25.00. It is contended that the imported ink is not used for refill purposes but that it is intended for original filling of the tubes which is done at the assembly plant of your client, hence, it should not be regarded as an accessory or part or material of the ball pen, but as a separate finished product which may be considered as ordinary or essential item for general use in the ball pen industry and therefore, taxable only at 10%. In reply, I have the honor to inform you that your request cannot be granted. Imported raw materials to be used in the manufacture of finished articles enumerated in Section 197 of the Tax Code are subject to the advance sales tax at the rate of 25%. However, if said raw materials are of common or general use, the same are subject only to the advance sales tax at the rate of 10%. (Sec. 6, III. B, Revenue Regulations No. 8-78). Materials are of common or general use if they are multi-purpose, i, e. they can be used for the manufacture not only of commodities falling under one classification but also under other classification as well. For sales tax purposes, commodities are classified as non-essential under Section 198, ordinary under Section 199 and essential under Section 203.(Sec. 6, Revenue Regulations No. 8-78). In the instant case, the ball pen manufactured by your client is one of the semi-essential articles taxable in Section 197 of the Tax Code and subject to the rate of sales tax prescribed in paragraph I (A) thereof, depending on the selling price of the ball pen (BIR Ruling No. 187-000-00-065-83 dated April 15, 1983). The imported "ink" used in the manufacture of the ball pen, is not for common or general use since it is used only in the manufacture of ball pen classified as a semi-essential article under Section 197. cdt In a further attempt to justify the imposition of the 10% advance sales tax on the imported "ink" in question, it is contended that the ordinary ink used in fountain pens (also classified as a semi-essential article under Section 197) is subject to the said rate of 10%. It should be noted that when the fountain pen consumers the ordinary ink, the former is not rendered useless but is refilled with the ink in order that the fountain pen can be used. Hence, ordinary ink is neither a material, accessory or a part of the fountain pen, but is an article independent of the fountain pen, in which case, said ink is an ordinary commodity under Section 199. " Material " means any article, which when used in the manufacture of another article, becomes a homogenous part thereof, such that it can no longer be identified in its original state nor may it be removed therefrom without destroying or rendering useless the finished article to which it has been merged, mixed or dissolved. " Part or accessory " means any article adapted for use as a component part of another article or as a replacement part thereof, and not included in the definition of the term "material". (Sec. 2, Revenue Regulations No. 8078). This is not so in the case of the "ink" in question intended for ordinary filling of the tube of the ball pen which ink is considered a material because it cannot be removed without destroying or rendering useless the ball pen. Moreover, there is another distinction worthy of consideration between the ordinary ink and the imported "ink" in question resulting in the imposition of different rates. In the case of the ordinary ink, the sales tax paid thereon cannot be credited against the sales tax due on the fountain pen since the former is neither a material, part or accessory of the latter. On the other hand, since the imported ink in question is a material use in the manufacture of ball pen, the advance sales tax paid thereon can be credited against the sales tax due on the manufactured ball pen. cdtech In view thereof, the imported "ink" in question to be used in the manufacture of ball pen is subject to the 25% advance sales tax based on the landed cost thereof, plus 25% mark-up imposed by Section 193(b) in relation to Section 197, both of the Tax Code, as amended by Executive Order No. 883. Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner Bureau of Internal Revenue