BIR Ruling No. 263-61

June 28, 1961 BIR RULING NO. 263-61 With reference to your letter . . . , I have the honor to inform you, in reply to the queries propounded therein, as follows: (1) The cost of raw materials purchased by a manufacturer (of plastic handbags) from tax-exempt industries, or from local dealers who bought said materials from tax-exempt industries, is deductible from the gross selling price of the articles manufactured therefrom. In this connection, however, the deductible cost of raw materials purchased from tax-exempt industries (Sec. 186-A, Tax Code) is limited to those purchased on or after June 22, 1957, the date of effectivity of Republic Act No. 2025. (BIR Gen. Cir. No. V-252, dated July 15, 1957; BIR Rulings dated Sept. 5 and 12, 1957) If the raw materials were imported by the local dealer the cost thereof is deductible provided that they were subjected to tax at 30%, the sales tax on handbags. (2) The cost of raw materials directly imported by the same manufacturer, on which the 7% advance sales tax has been paid, is not deductible from the gross selling price of the articles manufactured therefrom, because manufacturers of plastic handbags are subject to the sales tax of 30% prescribed in Section 185(a) of the Tax Code. Under this section, the cost of raw materials is deductible only when said raw materials have been subjected to tax under the same section to which the manufactured articles belong. (3) Under the same principle of law, the cost of locally manufactured materials purchased direct from the manufacturers thereof and used in the manufacture of plastic bags is deductible from the gross selling price of the latter, provided that said materials have been previously taxed at 30%. LLjur