Internal Revenue Case of Erlanger & Galinger, Inc.

August 18, 1960 BIR RULING NO. 377-60 2nd Indorsement Returned to the Chief, Business Tax Division, thru channels, the herein papers involving the internal revenue case of ERLANGER & GALINGER, Inc. with the following information: casia First Issue : whether or not "addressograph machines" and "off-set printing machines" may be classified within the phrase of "photostatic and/or contact copying machines and any similar machines" as used in Section 185(j) of the Tax Code. It appears that an addressograph machine, such as "Addressograph Model 30" found in the records, is a kind of printing machine, usually used in big business offices, which requires the use of embossed metal plates before it can actually print the information appearing in said plates on the paper or envelope placed underneath it. An off-set printing machine, such as the "Multigraph Duplicator Class 1250" found in the records, is a kind of printing machine used to produce carbonless business forms or letters in any given quantity. Unlike the addressograph which uses metal plates in printing, this type of machine uses a stenciled paper or "master". The desired form or letter is first typed into a "master" which will then be attached to a roller. Blank papers are then placed in the feeder magazine, usually sufficient in number to run the quantity required. By pressing a switch, the "master" will run through an inked roller in the machine. By this process, the ink in the roller will adhere to the "master". The roller will continue to rotate and will transfer the impressions caused by the ink in another roller. At this time, the papers will be ejected into the machine, coming in contact with the roller, and thus, transferring the impression, created on the roller by the master, to the papers. It has been noted these types of machines operate in similar manner, or following the same fundamental principle, as that of a mimeograph machine, such as the "Gestetner" and "Rex Rotaey Duplicators" brand, among others, which we ruled to be subject to 7% advance sales tax only (BIR Ruling No. 130, Series of 1958). A mimeograph machine uses a stenciled paper before it can print, just like the "Multigraph Duplicator" models found in the records. While the addressograph used metal plates, instead of stenciled paper or master, yet, it cannot be denied that the fundamental principles involved in its operation are almost the same, with minor mechanical modification of course. In view of the foregoing reasons, it is believed, as we hereby rule, that "addressograph machines" and "off-set printing machines" should not be classified under Section 185(j), but rather under Section 186, of the Tax Code. Second Issue : whether or not expenses incurred by an agency abroad are part of the total landed cost of merchandise imported by the main office in the Philippines. The pertinent portion of Section 183(b) of the Tax Code reads as follows: "(b) Sales tax on imported articles . When the articles are imported, the percentage taxes established in sections one hundred eighty-four, one hundred eighty-five, and one hundred eighty-six of this Code shall be paid in advance by the importer, in accordance with regulations promulgated by the Secretary of Finance and prior to the release of such articles from customs' custody, based on the import invoice value thereof, certified to as correct by the Philippine Consul at the port of origin if there is any, including freight, postages, insurance, commission, customs duty, and all similar charges, . . . " The Supreme Court, in interpreting the aforequoted provision of law, ruled in part as follows: "In other words, the law requires that it be included in the assessment not only the import invoice value of the merchandise, which includes freight, postage, insurance, commission, and customs duty, but all other similar charges which would necessarily increase the landed cost of the merchandise imported . . .." xxx xxx xxx ". . . Indeed, the intention of Congress in enacting the above-quoted provision is include in the measurement all charges, whether specified or otherwise, which an importer has to pay to complete his importation." (Genato Commercial Corporation vs. The Court of Tax Appeals, et. al, G.R. No. L-11727, decided on Sept. 29, 1958). It appears that the "New York Expenses" were incurred by the importer's representative abroad, such as office maintenance expenses, salaries of personnel and other incidental expenses of the office, which apparently is responsible in procuring their importations abroad. Unless we have evidence to show that these expenses are "charges" which would necessarily increase the landed cost of the articles imported (the record shows none), we are inclined to rule, as we hereby rule, that said "New York Expenses" should be excluded in the computation of the total landed cost of the merchandise so imported. LLjur Please be guided accordingly. MELECIO R. DOMINGO Commissioner of Internal Revenue