BIR Ruling No. 260-82

October 14, 1982 BIR RULING NO. 260-82 295 108-80 260-82 National Steel Corporation 377 Buendia Avenue Extension Makati, Metro Manila Attention: Mr . Rogelio G . Chan Manager Accounting Dept . S i r : This refers to your letter dated March 9, 1982, requesting opinion on your claim for tax credit of excess advance sales tax. It is represented that you are a government-owned and controlled Corporation registered with the Board of Investments under the Investment Incentives Act (R.A. 5186) as a preferred pioneer enterprise; hence, you are exempt from all national internal revenue taxes, except income tax; that as a preferred pioneer enterprise, you manufacture various steel products, for which you enjoy full exemption from manufacturer's sales tax but pay the 5% advance sales tax, pursuant to P.D. No. 1395; that you also manufacture certain products which are not registered with the Board of Investments for which you pay 10% manufacturer's sales tax and 10% advance sales tax on raw materials used in the manufacture of said non-pioneer products. You also represented that you claim as tax credit the 5% advance sales tax on raw materials used in preferred pioneer products, and the 10% advance sales tax on raw materials used in non-pioneer products; that since you manufactured pioneer products are fully exempt from the sales tax, you will always have excess advance sales tax which cannot be credited. You now request that said excess be credited against the sales taxes due from your non-pioneer products. In reply, I have the honor to inform you that your request cannot be granted. Section 5(a) of Revenue Regulations No. 8-78 reads as follows: "(c) Tax Credit . When the manufacturer pays the sales tax computed above after the end of the quarter, he is given a tax credit for any percentage, specific or mining tax paid under Title IV, V or VII of the National Internal Revenue Code on domestically manufactured, processed or produced or imported raw materials, parts, accessory or other article forming part of the finished products he sold. In case the sales tax paid on the raw materials, part, accessory or other article exceeds the amount of the sales tax due on the finished product, the excess shall be credited against the sales tax liabilities of the manufacturer for the succeeding taxable quarter or quarters." (Emphasis ours) cdti Under the foregoing provision, it is clear that the excess advance sales tax paid on the raw materials can be credited only against the sales tax due on the finished product of which the raw materials form part. In your case, the excess advance sales tax was paid on raw materials which did not form part of the non-pioneer products. Consequently, the said excess cannot be credited against the sales tax due from the latter. However, said excess advance sales tax can be claimed as tax credit upon proper application therefor, under the provision of Section 295 of the Tax Code. This Office has already ruled that in the case of finished product sold tax-free to a tax-exempt entity, the sales tax paid on the raw materials used in the manufacture of said finished product may be claimed as a tax credit. (BIR Ruling No. 108-80 dated July 24, 1980) Very truly yours, RUBEN B. ANCHETA Acting Commissioner