BIR Ruling No. 401-61

No date supplied BIR RULING NO. 401-61 Reference is made to your letter . . . , requesting information as follows: " Facts : X, a barter permittee, imports some raw materials and a set of machineries under his barter permit. Thereafter, he sells them to Y, the end-user of both the raw materials and the machineries, the former to be converted into finished products by the latter. LibLex Queries : (1) Will Y pay advance sales tax or compensating tax on the raw materials? (2) Will Y pay advance sales tax or compensating tax on the machineries? (3) Is there no analogy in the case of the government importing reparations goods to be sold to an applicant-buyer, where the latter pays the compensating tax on the said importation in the name of the former? (d) If advance sales tax is paid by X, may Y deduct the proportionate amount of it from the finished goods produced by Y (produced out of and by the imported merchandise) in the payment of sales tax on these finished goods?" In answer thereto, I have the honor to inform you that "Y" need not pay any tax on the raw materials and machineries, "X" being the one liable for the payment of the corresponding advance sales tax due thereon. As a rule, where the raw materials and the products manufactured therefrom are subject to the sales tax imposed in one and the same section of the National Internal Revenue Code, the total cost of the former is deductible from the gross selling price of the latter for purposes of computing the sales tax payable on the manufactured products. Under the facts furnished by you, the "total cost" of the raw materials is the purchase price paid therefor by "Y". Accordingly, if the raw materials and products in question are taxable under one and the same section of the Tax Code, in computing the sales tax due on said products the purchase price paid for said materials not the tax or a proportionate amount thereof can be deducted from the gross selling price of the products. prll However, if the sale in question was effected before the release of the raw materials and machineries from customs custody and the same were released on or after June 18, 1960, the date Republic Act No. 2704 took effect, "Y" and not "X" shall be liable for the advance sales tax due thereon. In that case, the "total cost" of raw materials deductible consists of the total landed cost thereof plus mark-up. There is no analogy between the present case and that of reparations goods imported by the government for sale to private individuals. cdtai