Tax Refund of Luzon Rattan Industries

June 9, 1958 BIR RULING NO. 309-58 6th Indorsement Respectfully returned to the Regional Director, Regional District No. 3, Manila, the within papers bearing on the refund case of the Luzon Rattan Industries. cdt It appears that the Luzon Rattan Industries, hereafter referred to as Luzon, entered into a contract with the United States Naval Supply Depot, hereafter referred to as the Depot, for the manufacture and supply of rattan furniture. In connection with the contract, Luzon made importations or raw materials, which importations were covered by tax-exemption certificates duly issued by the United States Military authorities. However, notwithstanding the Certificates of Exemption issued by the United States authorities. Luzon was required to pay, among others, the advance sales tax on the imported raw materials which it did under protest. Luzon is now requesting the refund of P5,522.11, representing the advance sales tax paid on the aforesaid raw materials. According to investigation, however, Luzon did not utilize all the imported raw materials in the manufacture of rattan furniture covered by its contract with the Depot. The investigating agent ascertained the amount of the advance sales tax corresponding to the raw materials used under the contract to be P3,136.24 only. The question now posed is: should this sum of P3,136.24 be refunded to Luzon? Under the provisions of the supplementary agreement of December 29, 1952 entered into between the Governments of the United States of America and this country implementing Articles V and XVIII of the Military Bases Agreement of 1947, the exemption enjoyed by the United States Military Agencies and their instrumentalities was extended to their duly authorized contractors which exemption included the contractor's 3% tax, the excise or compensating tax of 7% and upwards, the foreign exchange of 17%, and the import licensing formality and fee of 2% in respect of goods and services imported by such agencies and instrumentalities from abroad or procured locally from importers, manufacturers and producers either by said agencies or instrumentalities directly or through the agency or private contractors acting for and in their behalf provided that such goods and services are exclusively destined for and actually utilized in the construction, operation, maintenance and defense of the bases. (Emphasis supplied) From the above-cited provisions of the Supplementary Agreement, it is clear that importations made by private persons or entities of articles for and in behalf of by United States Military agency are exempt from the sales or compensating tax provided that the articles imported are exclusively destined for and actually utilized in the construction, operation, maintenance and defense of the bases. There is no question that Luzon imported the raw materials for and in behalf of the depot because the importations thereof were duly covered by tax-exemption certificates issued by the United States Military authorities, and according to said certificates, the articles imported thereunder were "exclusively destined for and actually utilized in the construction, operation, maintenance and defense of the bases. The two essential elements for exemption having been duly satisfied, the imported articles in question are necessarily exempt from tax. In view of all the foregoing, the refund of the sum of P3,136.24 to the Luzon Rattan Industries is hereby authorized. LLphil (SGD.) JOSE ARAAS Commissioner of Internal Revenue