BIR Ruling No. 383-61

No date supplied BIR RULING NO. 383-61 This has reference to your letter . . . requesting opinion whether or not, under the following circumstances, X corporation is subject to the sales tax: cdta "X Corporation is the grantee of a certificate of tax exemption under Rep. Act 901, as amended, with respect to the manufacture of (1) aluminum sheets and circles, (2) aluminum foil and (3) aluminum foil mounted to paper. The manufacturing process consists in the melting of imported aluminum ingots, rolling of the melted aluminum to sheets and foil, cutting the sheets to standard lengths for construction and to circles for sale to pots and pans manufacturers, mounting of the foil to imported paper, and trimming of the mounted and unmounted foil to size. In the melting process, aluminum dress generated at the furnace. In the cutting process, trimmings of mounted and unmounted foil results, Likewise, foil, both mounted and unmounted, as well as paper, become damaged or spoiled in the course of the manufacturing process. These dross, trimmings and damages are unavoidable and results in a production less or reduction to X Corporation. cdti All the above-stated dross, trimmings and damaged or spoiled foil and papers were, until sometime ago, burned or thrown away as manufacturing wastes. If X Corporation now sells said dross, trimmings and damaged or spoiled foil and paper to P Corporation for used by the latter, with respect to dross and the foil, for remelting to recover some aluminum, and, with respect to the trimmings and damaged or spoiled paper, for packing, will the sale be subject to the sales or manufacturer's tax? If the answer is in the affirmative, is not X Corporation exempt therefrom as provided in Rep. Act No. 901, as amended?" Based on the aforequoted circumstances, X Corporation is not, for selling the dross, trimmings and damaged or spoiled foil and paper in question, subject to any sales tax, such sales being merely incidental to its business as manufacturer. For the same reason, it is neither subject to any fixed tax. However, income derived from said sales is, in proper cases, subject to the income and additional residence taxes. cdt In this connection, it may be mentioned that in the ruling you cited (BIR Ruling No. 181, s. 1961), we held that the income of the taxpayer was exempt from the income tax, because that ruling was issued based on facts which occurred in the years 1957 and 1958, or at a time when it was enjoying full exemption from the income tax in accordance with Republic Act No. 901. Pursuant to this Act as amended by Republic Act No. 2551, however, income received by tax-exempt industries beginning July 1, 1959 became subject to the full income tax. cdll