Tax on the Purchase of Steel Drums by Standard Vacuum Oil Co.

May 19, 1958 BIR RULING NO. 289-58 1st Indorsement Respectfully returned to the Regional Director, BIR Regional District No. 3, Manila, the within papers bearing on the case of the Standard Vacuum Oil Company involving its purchase of steel drums from the Clark Air Force Base. cdll The Standard Vacuum Oil Company maintains that it should be exempted from the advance sales or compensating tax on its purchase of steel drums from the Clark Air Force Base because this Office has granted them exemption on the particular transaction. The exemption, however, is subject to the condition that the drums are not to remain the company's property. It appears that in the sale of petroleum products, the company bills the buyer for the cost of the steel drums at P10.00 and a depreciation charge of P1.00. The invoice invariably contains a notation reading "Please return your empty drums promptly." For every empty drum returned, the company refunds P10.00. But the depreciation charge is retained by the company. Under this business arrangement, it is obvious that the company never intended to have the steel drums sold as part of the products contained therein. The amount of P10.00 billed by the company to the buyer may at most be considered as a deposit to guarantee the return of the drum. And when the buyer fails to return the drum, the company cannot be considered to have sold the drum because it never intended to sell the same, as in fact it is not engaged in the business of selling steel drums. In the ultimate analysis, it appears quite clear that the company is utilizing the steel drums primarily for delivery purposes. In view of the foregoing, this Office is of the opinion that the purchase of the steel drums by the Standard Vacuum Oil Company from the Clark Air Force Base is subject only to the compensating tax. He is, therefore, advised to take action accordingly. llcd (SGD.) JOSE ARAAS Commissioner of Internal Revenue