Tax Imposed on Process Oil and Its Base stock Component

July 21, 1988 BIR RULING NO. 349-88 100 (a) 145 (a) (1) 000-00 349-88 Gentlemen : This refers to your letter dated April 4, 1988, requesting a ruling that process oil and its base stock component are not subject to excise tax. You contended that process oil, which is used as a raw material in the manufacture of tires, tubes and similar products, is different from lubricating oil which is used for lubrication purposes; that under Section 128 (renumbered as Section 145 by Executive Order No. 273) of the Tax Code, the excise tax is applicable only to base stock component; that the supplier, Philippine Petroleum Corporation (PPC) applies the excise tax on all its base stock production without distinction as to whether the same shall eventually be used by oil companies in the manufacture of lubricating oil or of process oil; that as a consequence, oil companies have increased the price of lubricating oil and process oil in view of the added cost of base stock which is attributable to excise tax so much so that your unit cost of process oil has increased by 45% per liter; that since you do not want to pass on the added cost to the end-users of your tires, as part of the price of tires, you now request that process oil and its base stock component be exempt from the excise tax and that oil companies be allowed to recover through tax credit, the excise tax corresponding to the amount paid by PPC on the base stock that are later used by oil companies in the manufacture of process oil. In reply, I regret to inform you that your request cannot be granted for lack of legal basis. The report of the enforcement officers of this Bureau show that base stock used in the manufacture of process oil is one of the secondary base stock products known as 650 extracts produced by PPC. It is noted that Section 145(a)(1) of the Tax Code, as amended by Executive Order No. 273, subjects to specific tax at the rate of P4.50 per liter, lubricating oil and grease including but not limited to base stock for lube oils and greases, high vacuum distillates, aromatic extracts and other similar preparations, and additions for lubricating oils and greases whether such addictives (sic) are petroleum based or not. The phrase "including but not limited to base stock for lube oil, etc.", is broad enough to include not only lubricating oil but base stock in general. Such being the case, process oil and its base stock component are subject to excise tax at the rate of P4.50 per liter pursuant to said Section 145(a)(1) of the Tax Code, as amended, and to the value-added tax of 10% under Section 100(a) of the same Code. aisadc Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner