Deductibility of Cost of Scrap Iron Used in the Manufacture of Our Products

May 20, 1960 BIR RULING NO. 241-60 Dong Tek Foundry Shop 699 Elcano Street M a n i l a Gentlemen : In your letter dated April 13, 1960, you state the following: cd "Re: Deductibility of cost of scrap iron used in the manufacture of our products . "We wish to call your attention to the above regarding deductibility of cost of scrap iron. In accordance to Section 184 and 186 of the Internal Revenue Code, the total cost of raw materials on which the sales tax had been previously paid is deductible from the gross selling price of the articles manufactured therefrom. Scrap iron is a raw material which largely forms part of our manufactured articles, namely cast iron soil pipes and fittings, water pumps, water closets, etc. These scrap iron originate from imported machinery and machine parts which were previously taxed when brought to this country. We, therefore, believe that its cost should be deducted from the gross selling price of our manufactured products for sales tax purposes, inasmuch as it meets the requirement of Section 184 and 186 of Internal Revenue Code." In this connection, I have the honor to inform you that if the machinery and machine parts from which the scrap iron came from had been previously subjected to advance sales tax, then the cost of the latter is deductible from the gross selling price of the manufactured cast iron soil pipes and fittings, water pumps, water closets etc. This ruling is premised on the assumption that you are a manufacturer. Very truly yours, (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue