Removal of Cigarettes Without the Pre-Payment of the Ad Valorem Tax

December 18, 1990 BIR RULING NO. 235-90 127:142 000-00 235-90 Gentlemen : This refers to your letter dated November 9, 1990 stating that Alhambra Industries, Inc. and its sister company, Sterling Tobacco Corporation, are duly registered manufacturers of cigarettes; that upon indorsement of the Philippine International Trading Corporation (PITC), Sterling Tobacco Corporation was able to obtain for Alhambra Industries, Inc. an export order from ICECOOP of Bucharest, Romania for the following Alhambra products: aisadc Quantity Brand Packing Price/Case Amount 200 cases Las Vegas Filter Kings 20's $60.00 $12,000.00 100 cases Win Filter Kings 20's 60.00 6,000.00 100 cases Alhambra Filter Kings 20's 60.00 6,000.00 TOTAL $24,000.00 ======== that under arrangements made with the Romanian importer, the above quantities of cigarettes will be produced by Alhambra and delivered to the premises of Sterling Tobacco Corporation for consolidation with the latter's own cigarette products for exportation to Romania in payment of the Philippine Government's debt totalling US$8.8 million; that payments for the cigarettes exported will be made in accordance with the Operating Procedures Governing Private Sector Participation in the Supply of Philippine Goods under the US$8.8 million Romania-RP Government Debt Against Goods Arrangements; that to give effect to the said arrangements with the importer; P.I.T.C. issued a purchase order to Sterling Tobacco Corporation for the cigarette products of both Alhambra and Sterling; that it is the understanding between the sister companies that: 1. Sterling will ship Alhambra's products together with its own products under one bill of lading showing Sterling as the shipper of the goods. 2. Sterling shall receive in Alhambra's behalf the payment for Alhambra's products. 3. Sterling shall remit to Alhambra the entire amount it will receive for Alhambra's products without deduction, it being the intention of both parties that Sterling shall not profit from the exportation of Alhambra's products. On the basis of the foregoing, you are requesting a ruling as to whether or not the ad valorem tax imposed under Section 142 of the Tax Code will apply to the cigarette products of Alhambra when they are removed from its factory for delivery to the premises of Sterling Tobacco Corporation where they will be consolidated with the latter's own cigarettes products for exportation to Romania. In reply, please be informed that Section 127 of the Tax Code provides that unless otherwise especially allowed, excise taxes on domestic products shall be paid by the manufacturer or producer before removal from the place of production. The underlined portion of the said provision authorizes this Office to allow a manufacturer or producer to remove from his place of production domestic products without pre-payment of the excise tax. Such being the case and it appearing that the cigarettes in question will be exported to Romania in accordance with Memorandum of Understanding dated May 2, 1990 between the two governments, this Office hereby allows you to remove from your place of production the aforesaid quantity of cigarettes to the premises of Sterling Tobacco Corporation without the pre-payment of the ad valorem tax required by Section 142 of the Tax Code. At any rate, your Exporter's Bond No. 6690 in the amount of P150,000.00 in connection with the aforesaid exportation has been approved by this Office. cdt Very truly yours, (SGD.) VICTOR A. DEOFERIO, JR. Deputy Commissioner