Effectivity of BIR Ruling No. 132-85 Regarding the 25% Sales Tax Imposed on Sales of Carpets and Rugs

October 14, 1986 BIR RULING NO. 217-86 278 000-00 217-86 Gentlemen : This refers to your letter dated August 19, 1986 requesting, in effect, confirmation of your opinion that BIR Ruling No. 132-85 dated August 22, 1985 shall take effect only upon your receipt thereof on September 5, 1985. Said ruling holds that your sales of carpets and rugs shall be subject to the 25% sales tax, pursuant to Section 190(g) of the Tax Code then in force. cdt It appears that in a letter dated July 1, 1966, Sycip, Gorres, Velayo & Co., in behalf of one of its clients, requested the opinion of this Office on the proper rate of sales tax imposable on its production of hand-woven rugs and carpets; that the materials and supplies to be used in the manufacturing process consist of woolen yarns, chemicals and dyestuffs, canvass, mesh cloth and latex; that the woolen yarns and chemicals and dyestuffs will all be imported, and all other raw materials to be used will be purchased locally; that in response to said query, this Office in a ruling dated January 19, 1967, held that carpets and rugs not being enumerated under then Section 185(p) of the Tax Code, may be considered ordinary articles subject to only 7% sales tax pursuant to then Section 186 of the same Code; that under letter dated March 7, 1967, SGV & Co. sent to you a xerox copy of said BIR Ruling dated January 19, 1967, and that on August 22, 1985 this Office issued the above BIR Ruling No. 132-85. It is pointed out in this connection, that prior to BIR Ruling No. 132-85, you had relied on the said ruling of January 19, 1967 and acted in good faith in paying on the basis thereof, the 7% sales tax (increased to 10%) due on your manufactured carpets. In reply, please be informed that there is no question that since under said BIR Ruling No. 132-85, carpets and rugs are subjects to the 25% sales tax, the same revoked our ruling of January 19, 1967. There is also no question that said BIR Ruling No. 132-85 is prejudicial to you because under our former ruling, carpets and rugs were subject only to a lower rate of sales tax. However, you contend that said 1967 ruling was revoked on September 5, 1985 when you received BIR Ruling No. 132-85; hence, the carpets and rugs should be subject to 25% sales tax only as of said date. In other words, it is your stand that the revoking ruling should take effect prospectively, i.e., as of the date of receipt thereof on September 5, 1985. It should be noted that prior to BIR Ruling No. 132-85, this Office had issued BIR Ruling No. 132-84 dated July 31, 1984 holding that carpets and rugs are subject to the 25% sales tax. Under Section 278 of the Tax Code, it is provided that " any revocation, modification, or reversal of . . . any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation, modification, or reversal will be prejudicial to the taxpayer . . .". Accordingly, this Office believes that its ruling of January 19, 1967 had already been revoked as of July 31, 1984 when it issued BIR Ruling No. 132-84 and not on September 5, 1985 when you received BIR Ruling No. 132-85. Hence, you became liable to the sales tax at the higher rate of 25% as of July 31, 1984. This modifies BIR Ruling No. 132-85 insofar as it holds that the former ruling of January 19, 1967 is considered as effective only up to April 21, 1978 when P.D. No. 1358 took effect. cdtech Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner of Internal Revenue