Formal Ruling on the Propriety of the Shifting or Passing Over of Fabar, Inc.

November 28, 1958 BIR RULING NO. 691-58 Messrs. Meer, Meer & Meer Attorneys-at-Law Suite 302-306 Singson Bldg. Gentlemen: Reference is made to your letter dated November 3, 1958 requesting that a formal ruling be issued as to the propriety of the shifting or passing over by your client, Fabar, Inc. of the advance sales tax paid by it on its importation of raw materials which were used in the manufacture of automobiles, by billing the tax as a separate item in the sales invoice issued to its customers. You further request that in case this Office revokes the ruling contained in its letter dated July 6, 1951 pursuant to which your client was allowed to shift or pass over the tax to its customers, the revoking ruling, for the reasons stated therein, be given only a prospective application. cdti In reply thereto, I have the honor to inform you as follows: We have studied very carefully the ruling contained in our letter of July 6, 1951. We believe that the shifting or passing over of the advance sales tax to the customer is not proper because the same is deemed included in the mark-up added to the landed cost of the imported raw materials. The only tax that can properly be shifted to your clients customers is the sales tax due on its sales of the finished automobiles because this tax is actually due and payable on its sales. Moreover, the advance sales tax, it must be observed, is a tax paid long before your client sells the finished automobiles and therefore, the transaction giving rise to said tax is a totally different transaction. It certainly did not arise by reason of your client's sales of its finished products. In view thereof, we are constrained to revoke the ruling in question. However, we are no unmindful of the fact that this Office in its letter to your client dated July 6 and 10, 1951 advised it of its tax position and directed it as to the manner its tax liability shall be computed and, finally, allowed it to bill to its customers the advance sales tax as a separate item in the sales invoice issued to its customers, thus sanctioning the deduction of said tax from your client's gross sales. We have also taken note of the fact that our ruling in the case of the Universal Motors Corporation which revokes the ruling stated in our letter to your client, dated July 6, 1951, was made part of the public records only on May 2, 1958, the date when the aforementioned Corporation filed with the Court of Tax Appeals its petition for review of the ruling of this Office holding that the advance sales tax is not deductible from the gross sales of manufacturers of automobiles. In view of the aforesaid circumstances, we are amenable to making the effective date of the new ruling as of May 2, 1958. Accordingly, it is requested that your client be duly advised that beginning May 2, 1958, it is no longer allowed to bill the advance sales tax a separate item in its sales invoices and that said tax shall be considered part of its gross sales subject to the sales tax. LLphil Very truly yours, (SGD.) MELECIO R. DOMINGO Acting Commissioner of Internal Revenue