Regulations Governing the Denaturing, Taxation and Removal of Distilled Spirits or Alcohol

May 5, 1977 REVENUE REGULATIONS NO. 06-77 SUBJECT : Regulations Governing the Denaturing, Taxation and Removal of Distilled Spirits or Alcohol to be used for Blending with Gasoline or Other Motor Fuels for Motive Power in accordance with Presidential Decree No. 1089 TO : All Internal Revenue Officers and Others Concerned SECTION 1. Scope . Pursuant to Section 338 of the National Internal Revenue Code, as amended, the following regulations are hereby promulgated to govern the denaturing, taxation and removal of distilled spirits or alcohol, whether rectified or absolute, to be used for blending with motor gasoline or other motor fuels in accordance with Presidential Decree No. 1089. cd SECTION 2. Rate of specific tax on distilled spirits or alcohol, whether rectified or absolute, to be used for blending with gasoline or other motor fuels for motive power . Notwithstanding the provisions of Sections 128, 133 and 142(d) of the National Internal Revenue Code, as amended, distilled spirits or alcohol, whether rectified or absolute, and regardless of proof or alcoholic strength, to be used for blending with gasoline or other motor fuels for motive power shall be subject to specific tax at the same rate as the specific tax on automotive gasoline of the higher octane rating, more commonly known as "Premium", "Special", "Extra" or "Boron" gasoline or by some other name of similar meaning or descriptive intent. Illustrations : cdta Case I 10,000 liters of rectified alcohol at 189 proof to be used for blending with taxpaid gasoline for motive power. Since Presidential Decree No. 1089 requires the prior denaturing of said alcohol, the same was denatured using BIR-approved formula of "5 parts gasoline for every 100 parts alcohol." The specific tax due on said alcohol is computed as follows, without regard to the proof or alcoholic strength thereof and using the prevailing rate of P0.55 per liter of premium gasoline: 10,000 liters x P0.55 = P-5,500.00 specific tax due on alcohol Case II 10,000 liters of denatured alcohol previously denatured with taxpaid gasoline for motive power by using BIR-approved formula of "5 parts gasoline for every 100 parts alcohol" and hence, the resultant volume is increased to 10,500 liters. Since only the alcohol is subject to tax under Section 142(d),therefore, the tax is computed as follows, using the rate of tax on premium gasoline at P0.55 per liter: 10,000 liters x P0.55 = P5,500.00 specific tax due on alcohol The rate of tax at P0.01 per liter of denatured alcohol prescribed under Section 142(d) was not used in the above computation as Presidential Decree No. 1089 explicitly provides the tax due on such alcohol shall be at the same rate as the specific tax on gasoline of the higher octane rating. Case III 10,000 liters of alcohol were previously denatured with 500 liters of paid gasoline for motive power, using BIR-approved formula of "5 parts gasoline for every 100 parts alcohol", under the provisions of Section 142(d) of the National Internal Revenue Code, as amended.Said alcohol was taxpaid at P0.01 per liter in accordance with Section 142(d) aforecited. However, the denaturer later decided to sell the taxpaid denatured alcohol to duly authorized oil company for use in further blending with taxpaid gasoline to produce "Alcogas" for motive power under Presidential Decree No. 1089. In that case, there shall be a deficiency specific tax due and payable on that taxpaid denatured alcohol before removal thereof is allowed from the denaturer's premises, computed as follows: Total specific tax due on 10,000 liters at P0.55 per liter P5,500.00 Less: specific tax paid on 10,000 liters at P0.01 per liter (100.00) Net or deficiency specific tax due on 10,000 liters at P0.54 per liter P5,400.00 SECTION 3. Who may be allowed to remove alcohol and pay specific tax thereon at the same rate as the specific tax on automotive gasoline of the high octane rating as prescribed under Presidential Decree No . 1089 . Only persons or firms duly provided with necessary privilege tax receipts (PTR's) and authorized in writing by the Commissioner of Internal Revenue, upon application, to engage in business as distiller, rectifier and/or denaturer of distilled spirits or alcohol may be allowed to remove from their plants or premises denatured distilled spirits or alcohol to be used for blending with gasoline or other motor fuels for motive power and pay the specific tax thereon prescribed under Presidential Decree No. 1089. However, duly licensed and authorized persons or firms to engage in such business at the time of promulgation of these regulations, still require a special written permit or authority from the Commissioner of Internal Revenue, upon application, before they can remove from their plants and premises denatured distilled spirits or alcohol subject to tax at the same rate as specific tax on gasoline of the higher octane rating. In short, the mere fact that such persons or firms were already duly provided with necessary privilege tax receipt (PTR) and engaged in business as distiller, rectifier and/or denaturer does not automatically allow or authorize them to remove denatured distilled spirits or alcohol for blending with gasoline or other motor fuels for motive power in accordance with Presidential Decree No. 1089 and subject to the prior denaturing requirement thereunder provided. SECTION 4. Prior denaturing required before any distilled spirits or alcohol may be removed from distillery premises or place of production for blending with gasoline or other motor fuels for motive power in relation to Section 164 of the National Internal Revenue Code, as amended . Presidential Decree No. 1089 further provides that if rectified or ethyl alcohol regardless of proof or alcoholic strength is to be blended with motor gasoline or other motor fuels for motive power as authorized by said Decree, such alcohol must first be suitably denatured and rendered unfit for the manufacture of intoxicating beverages before removal from the distillery, rectifying plant, or place of production. Under that proviso, prior denaturing is required before any removal of distilled spirits or alcohol from the place of production within the purview of Presidential Decree No. 1089. The denaturing process, therefore, shall be governed by the statutory requirements under Section 164 of the National Internal Revenue Code, as amended, to wit: 1) The process of denaturing alcohol shall be effected only within the distillery premises where the alcohol to be denatured is produced; 2) The denaturing formula must first be duly approved by the Bureau of Internal Revenue; 3) The process of denaturing shall be done only in the presence of duly designated representative of this Bureau. The supplier of rectified or ethyl alcohol to be used for blending with gasoline and other fuels for motive power shall first apply in writing to the Revenue Service Chief (Specific Tax) for a permit to denature said alcohol in accordance with this Section. The letter-request or application must contain the following information and data, among other things: 1) Quantity and proof of alcohol to be denatured; 2) Quantity and kind of denaturant to be used; 3) A statement of the denaturing formula duly approved by the Bureau of Internal Revenue; 4) Place of denaturing to be done; 5) Name and address of purchaser/consignee of denatured alcohol for blending with gasoline or other motor fuels for motive power; and 6) Such other relevant information. Upon issuance of the required denaturing permit, the denaturing shall be done only in the presence of the BIR Denaturing Committee created for the purpose and only within the distillery premises where the alcohol to be denatured is produced, using the BIR-approved formula in accordance with Section 164 of the National Internal Revenue Code, as amended. After the denaturing shall have been completed, corresponding certificate thereof shall be prepared by the alcohol supplier or his authorized representative duly attested to by the members of the BIR Denaturing Committee present during the denaturing process. SECTION 5. Every removal of denatured alcohol for blending with gasoline or other motor fuels for motive power shall be authorized by a written permit issued by the Commissioner upon application in writing . For every removal of distilled spirits or alcohol, denatured in accordance with these regulations implementing Presidential Decree No. 1089, a prior written permit, on a case-to-case basis, issued by the Commissioner of Internal Revenue is required, upon application in writing by the distiller, rectifier or denaturer as the case may be. The written application or request for the necessary permit should contain the following data and information which shall likewise be indicated in the letter-permit issued therefor: a. Name and address of oil company-consignee, indicating the exact place or location where the alcohol thus denatured shall be delivered. b. Quantity and description of distilled spirits or alcohol, indicating also the quantity and description of denaturant and formula used. Illustrations : (1) Alcohol denatured : 10 drums at 200 liters each, rectified alcohol, 189 proof . Denaturant used : Gasoline BIR-approved denaturing formula used :" 5 parts gasoline for every 100 parts alcohol ". Total volume of denatured alcohol, denaturant included :______________________ liters. Is denaturant already taxpaid ? [ ] Yes [ ] No. Specific tax paid :P __________ per OR No.____ date ________________ issued at ___________. (2) Alcohol denatured : 1 tanker containing 9,000 liters, absolute alcohol, 200 proof . Denaturant used : Gasoline BIR-approved denaturing formula used :" 5 parts gasoline for every 100 parts alcohol ". Total volume of denatured alcohol, denaturant included :___________ liters. Is denaturant already taxpaid ? [ ] Yes [ ] No. Specific tax paid :P __________ per OR No. ______ date ____________ issued at _______________. (3) Alcohol denatured : 100,000 liters, rectified alcohol 189 proof , originally denatured for motive power under Section 142(d) of the National Internal Revenue Code, as amended. Denaturant used : Gasoline BIR-approved denaturing formula used :" 5 parts gasoline for every 100 parts alcohol ". Total volume of denatured alcohol, denaturant included :_________________ liters. Is denaturant already taxpaid ? [ ] Yes [ ] No. Specific tax paid :P ________ per OR No. _____ date __________ issued at ____________. c. The applicant's written request for permit herein required must invariably contain a brief statement or "conforme" of the oil company-consignee duly signed by an official or authorized representative and attesting to the correctness and verification of the data and information contained in the application letter. Every shipment should also be accompanied by an official tax receipt (OTR) duly accomplished by the shipper thereof while enroute from point of origin to final destination as required by existing alcohol tax regulations. SECTION 6. Who may purchase, receive, mix or blend denatured alcohol with gasoline or other motor fuels for motive power under Presidential Decree No . 1089 . No oil company operating in the country shall be allowed to purchase and receive any shipment of distilled spirits or alcohol denatured in accordance with these regulations and undertake the blending thereof with gasoline for motive power, until and unless the following requirements are met or complied with to the satisfaction of the Commissioner of Internal Revenue: a. Plat and plan of oil refinery or terminal/depot premises clearly indicating the portion thereof where the blending will be done to be submitted to and approved by the Commissioner; b. The plat and plan of the premises herein required to be submitted to the Commissioner for approval shall indicate the relative location of the tank or tanks to be used exclusively for the storage of denatured alcohol, gasoline or other motor fuels and the resultant admixture to be used for motive power; c. The tank or tanks mentioned in preceding item b, must be properly calibrated to determine the accurate capacity thereof; clearly marked for identification purposes; and each tank must be provided with a gauge glass or any suitable metering device to facilitate an accurate measurement of its contents. d. A surety bond must be filed in accordance with the provisions of Section 156 of the National Internal Revenue Code, as amended, to be approved by the Commissioner or Deputy Commissioner in accordance with existing BIR office policies. No shipment of denatured alcohol governed by these regulations shall be allowed to be delivered, received, stored, mixed, blended or processed with gasoline or other motor fuels outside of the duly approved premises of the oil refinery, terminal or depot as herein required except under justifiable circumstances and with the written authority issued therefor by the Commissioner of Internal Revenue upon application in writing. SECTION 7. Records to be kept by the oil company, terminal or depot authorized under these regulations to purchase, receive, store, mix, blend or process denatured alcohol with gasoline or other motor fuels for motive power . Pending the design, adoption and availability of new and suitable BIR forms for recording transactions governed by these regulations, oil company terminals or depots concerned shall make use of existing BIR Forms (Official Register Books) issued for their usual or regular transactions in oil products. However, separate records of accounts shall be kept for each of the following: (a) Denatured alcohol (b) Gasoline or other motor fuels (c) Finished products resulting from the blending of the above (a) and (b). At the end of each month, transcripts of the transactions recorded in each of the said register books shall be prepared and submitted on or before the 10th of the succeeding month to the following revenue offices: (a) If the establishment is located within Metro Manila and municipalities of Apalit, Pampanga ; and San Pedro, Laguna, under the direct supervision of the National Office . Original Gasoline and Miscellaneous Tax Division Duplicate Alcohol Tax Division Triplicate Taxpayer's copy (b) If located within the jurisdiction of a regional office outside of Metro Manila and municipalities aforementioned . Original Gasoline and Miscellaneous Tax Division Duplicate Alcohol Tax Division Triplicate Specific Tax Branch of Regional Office concerned. Quadruplicate Taxpayer's copy. On the part of distillers, rectifiers and denaturers covered by these regulations, every removal of denatured alcohol within the purview of Presidential Decree No. 1089 shall be duly recorded on the corresponding Official Register Book in accordance with existing revenue regulations, clearly indicating the oil company-consignee of the shipment, place of delivery thereof and the letter-permit issued by the Commissioner for each removal. SECTION 8. Penal Provisions . It shall be unlawful for any distiller, rectifier or denaturer to remove, transfer or ship distilled spirits or alcohol within the purview of Presidential Decree No. 1089, particularly on the rate of specific tax due thereon, without first denaturing the same in accordance with said Decree and these regulations. The violator in this case shall be held liable for the deficiency specific tax due on such removal, exclusive of penalties; his basic permit and the special permit granted under these regulations as distiller, rectifier or denaturer shall be summarily cancelled or withdrawn; and such offender shall be criminally prosecuted under the provisions of Section 174 of the National Internal Revenue Code, as amended, for failure to pay the correct amount of specific tax due and in the manner required by law. It shall be unlawful for any oil company to receive or take delivery of any shipment of distilled spirits or alcohol in violation of Presidential Decree No. 1089 and/or these regulations specifically requiring the prior denaturing of such distilled spirits or alcohol, the payment of the tax thereon and compliance with such other requirements thereunder prescribed. The offending party shall suffer the penalty of summary cancellation or revocation of its basic permit and special authority granted under these regulations and be criminally prosecuted under Section 174 of the same Code for unlawful possession of locally manufactured articles subject to specific tax, the tax on which has not been paid in accordance with law. Any person who knowingly aids or abets in the unlawful removal of distilled spirits or alcohol covered by these regulations or conceals the same after illegal removal shall likewise be criminally prosecuted under Section 174 of the same Code. Section 171 of the National Internal Revenue Code, as amended, provides that any person, who, for the purpose of manufacturing any beverage, uses denatured alcohol or alcohol withdrawn under bond for industrial uses, or who knowingly sells any beverages made in whole or in part from such alcohol, or who uses such alcohol for the manufacture of liquid medicinal purposes taken internally, or knowingly sells such preparations containing as an ingredient such alcohol, shall on conviction be fined not less than P1,000.00 and imprisoned for not more than one year. Said Section further provides that any person who shall unlawfully recover or attempt to recover by redistillation or other process any denatured alcohol or who knowingly uses, sells, conceals, or otherwise disposes of alcohol so recovered or redistilled shall be subject to the same penalty as provided for by Article 264 of the Revised Penal Code. Any violation of these regulations, for which no specific penalty is otherwise provided by law shall be subject to the penalties imposed under Section 352 of the Tax Code, as amended. SECTION 9. Repealing Clause . All regulations, rulings, or orders or portion thereof which are inconsistent with the provisions of these regulations are hereby revoked or repealed accordingly. SECTION 10. Effectivity . These regulations shall take effect upon approval hereof. aisa dc CESAR VIRATA Secretary of Finance Recommended by: EFREN I. PLANA Acting Commissioner of Internal Revenue TAN-1456-040-3