Implementation of Republic Act (R.A.) No. 11523, Otherwise Known as the "Financial Institutions Strategic Transfer (FIST) Act"

May 6, 1994 BIR RULING [UN-149-94] MEMORANDUM FOR : The Chief Field Operations Division This refers to your request for a ruling on the various claims for tax credit filed by Caltex (Philippines), Inc. now pending with that Division for processing. The issue to be resolved herein is whether or not Caltex (Philippines), Inc. (Caltex) is entitled to the refund, by way of tax credit, of the specific taxes on the basestocks which it purchased from the Philippine Petroleum Corporation (PPC) which were used as raw materials or ingredients in the manufacture of lubes and greases which are subsequently and actually exported by the former. This query has arisen in view of the unnumbered ruling of this Office dated June 7, 1989 issued to Shell Gas Philippines, Inc. (Shell Gas) involving Section 127(d) of the Tax Code, as amended. Pertinent portion of said ruling is hereby quoted, viz: cdtech "A reading of the provision of the law cited by you (Section 127(d) of the Tax Code), however, limits the creditability and/or refundability of the taxes paid on the exported articles only to those actually produced or manufactured by the exporter-taxpayer and does not extend to and include local sales. "When the law (Section 127(d) says: "When goods locally manufactured are removed and exported . . .", it means that the removal should be followed by exportation. In other words, to be exempt form the payment of specific and ad valorem taxes, the exporter should be the manufacturer of the goods exported". Thereafter, on May 22, 1990, another ruling was issued to Zippy Commercial Corporation (Zippy) denying the latter's claim for refund of the ad valorem taxes which it (Zippy) paid on its purchases and exportation of Marlboro King cigarettes. The ruling in the Zippy case merely affirmed the Shell Gas ruling and in fact cited the aforequoted portion. The positions of Zippy Commercial Corporation and herein claimant Caltex (Philippines), Inc. are materially different and would not warrant their similar treatment. Zippy is not the manufacturer of the Marlboro King cigarettes it exported. On the other hand, Caltex is the manufacturer of the grease and lubricating oil it subsequently exported. Hence, the Shell Gas ruling applies exactly to Caltex where the exporter, Caltex is at the same time the manufacturer of the exported goods. Consequently, the Shell Gas and Zippy rulings, far from weakening Caltex's refund claim, further strengthened its legal basis for the same. It is worthy to note that even the Court of Tax Appeals (CTA) gave a liberal interpretation of Section 127(d) of the Tax Code. In Zippy Commercial's appeal to the CTA (CTA Cases Nos. 4476 & 4477), the court rendered a decision pertinent portions of which are hereby quoted: "Nowhere in the provision of the applicable law is there any express mention that the manufacturer of the exported goods on which excise tax has been paid should be the exporter; nor is it stated that removal should immediately be followed by exportation . xxx xxx xxx "Please note that prior to the amendment, there was an outright exemption from excise tax of exported goods. When Executive Order No. 22 was promulgated, two significant changes were introduced, namely (1) excise tax has to be paid first (2) tax refund or credit shall be granted upon proof of actual exportation and receipt of foreign exchange payment. Obviously, the intention is to ensure that the foreign exchange payment for the export is inwardly remitted as a means of discouraging salting of foreign exchange on export proceeds. Nowhere in the amendments introduced by the said Executive Order can we infer that the tax incentive is only restricted to manufacturer or producer . Considering the continuing policy of the government which is to encourage exportation, the more correct way of interpretation will be that the incentive will be extended to every exporter subject only to the conditions aforementioned ." (Emphasis Supplied) A motion for reconsideration was filed by our Office but the same was likewise denied by the CTA in its Resolution of February 7, 1992, with the following pronouncements: " Contrary to the argument of respondent, Section 127(d) of the Tax Code could not be said to have unequivocably provided that only manufacturers or producers could avail of the exemption from excise tax . What can be said is that Section 127(d) provides only for two requisites in a claim for tax credit or refund for excise tax paid (a) submission of the proof of actual exportation and (b) receipt of the corresponding foreign exchange payment . Petitioner complied with these requisites and that should be enough to entitle it to the tax credit or refund. This same interpretation could have led respondent to issue its initial ruling No. 127(d)-000-87-442-88 which favored the refund of excise-tax paid even if the exporter need not be the manufacturer or producer. xxx xxx xxx " We see no reason why the benefit of tax credit or refund of excise tax paid cannot be extended to exporters not manufacturers or producers when the same objective, that is, to boost export transactions and consequently, foreign exchange, is achieved . Respondent, for that matter, could not be prejudiced if instead of the manufacturers or producers, other persons export the locally manufactured products and claim the exemption under Section 127(d)". (Emphasis Supplied) Clearly, the ratio decidendi in the aforecited case of Zippy Commercial Corporation is applicable to the instant case: that under Section 127(d) of the Tax Code, any excise tax paid on goods that are locally produced or manufactured and subsequently removed and actually exported, whether exported in their original state or as ingredients or parts of manufactured goods or products, shall be credited or refunded subject to the submission of proof of actual exportation and receipt of the corresponding foreign exchange payment . Of course, our Office has since then taken the matter to the Supreme Court where the case is still pending. However, it can be logically inferred that whether or not the Supreme Court decides in favor of Zippy, claimant Caltex is still entitled to a refund, by way of tax credit, of specific taxes paid by PPC on the basestocks which the former manufactured into grease and lubricating oils and later exported. Such conclusion is justified by a material fact Caltex is both the manufacturer and exporter of its products. Accordingly, you can now start processing the various claims of Caltex (Philippines), Inc. for tax credit of the specific taxes billed to it by Philippines Petroleum Corporation on its purchase of basestocks manufactured into lubricants and greases and subsequently exported. casia Very truly yours, VICTOR A. DEOFERIO, JR. Acting Commissioner