BIR Ruling No. 226-61

July 12, 1961 BIR RULING NO. 226-61 International Steel Smelting & Refining Co., Inc. 218 Quirino Avenue Paraaque, Rizal Gentlemen : Reference is made to your letter dated July 5, 1961, requesting information as to the propriety of deducting the cost of raw materials purchased locally and used in the manufacture of finished article under the following circumstances: You are a manufacturer of steel bars and billets. As much manufacturer, you purchase from local dealers scrap irons which are used in the manufacture of the said articles. For purposes of the sales tax under Section 182 of the Tax Code, you believed that the cost of the said scrap iron is properly deductible in computing the sales tax due on the finished article. You further alleged that the imported articles on which the advance sales tax were paid and which were used in the manufacture of the finished articles are deducted from the gross sales for purposes of computing the sales tax. You stated likewise, that the local scrap iron purchased from local dealers consists of worn-out building and construction materials, trucks chassis and spare parts, and machinery accessories and parts and are duly supported by invoice, receipts and similar evidence. In reply thereto, I have the honor to inform you that under Section 186 of the National Internal Revenue Code, where the articles subject to tax under this section are manufacture out of materials likewise subject to tax under this section, the total cost of such materials shall be deductible from the gross selling price of such manufactured article. Accordingly, the cost of scrap iron purchased locally and used in the manufacture of steel bars and billets, is deductible from the gross selling price of the manufactured articles for purposes of the sales tax under Section 186 of the said Code. It is understood, however, that the cost of the said raw materials should be duly established before deduction thereof is allowed under the said section of the Code. aisadc Very truly yours, (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue