Proposed Assessment Against the National Development Company

September 30, 1959 BIR RULING NO. 586-59 The Regional Director Regional District No. 3 M a n i l a S i r : There is returned herewith the papers bearing on the proposed assessment against the National Development Company of the sum of P1,190,002.40 as sales and contractors taxes, surcharge and compromise. cdll The records show that the National Development Company, was granted tax exemption under Republic Act No. 901 in respect to the manufacture of raw cotton into cotton yarn, cotton fabrics out of said yarn, and the finishing of cotton textiles from cotton fabrics. The said company is now being assessed on the following activities: (1) Manufacture of raw cotton into yarn, sold as yarn: (2) Manufacture of raw cotton into yarn, grey cloth out of the said yarn, sold as grey cloth; (3) Contracting jobs in the printing of textiles and the bleaching of textiles. (4) Sales of by-products, wastes, sweeping, and other miscellaneous items; on the ground that they are not covered by the grant of tax exemption. The investigating agent cited as basis for his assessment a ruling of the Secretary of Finance denying the request of the Roxas Kalaw Textile Mill for exemption form all taxes with respect to the grey goods imported by them and sold after bleaching and dyeing for the reason that under the terms of their exemption the tax-free operation of their finishing mills is limited to the finishing of grey cloth produced in their weaving mills and, therefore, the finishing of imported grey cloth is not included in the exemption. (Emphasis ours) The said ruling is not in point because the grey goods referred to which were sold by the Roxas Kalaw Textile Mill after bleaching and dyeing were imported by them and not woven in their mills, as required in their certificate of tax exemption which refers to the spinning of cotton yarn out of raw cotton, the weaving of the cotton yarn and the finishing of said woven fabrics. On the other hand, the yarn and grey cloth sold by the Nadeco were manufactured in their mills out of raw cotton and cotton yarn which activity is well within its grant of tax exemption, that is, the manufacture of raw cotton into cotton yarn, cotton fabrics out of said yarn. With respect to their sale of the by-products, wastes and sweepings, it is likewise covered by the certificate of tax exemption as the said articles are a necessary consequence of the manufacturing processes for which exemption has been granted. As regards its contract jobs for bleaching and printing of textiles, they are clearly not included in the grant of tax exemption and, therefore, the fees received therefrom are subject to the three percent (3%) contractors percentage tax. In view thereof, it is requested that a revised assessment be made in accordance with the foregoing observations. As the probable tax due will be below ten thousand (P10,000) pesos, appropriate action hereon should be taken by that Office. prcd Very truly yours, (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue