BIR Ruling

January 28, 1976 Mr. Vicente B. Vasquez Certified Public Accountant Rm. 205-206 Don Jose Bldg. 361 Barbosa St., Quiapo Manila S i r : This refers to your letter dated November 3, 1975 requesting opinion as to the correct rate of sales tax applicable to your GROWERS peanuts; and the deductibility of the cost of peanuts used in the manufacture thereof. cdtech It is represented that your "GROWERS" peanut products are manufactured by undergoing certain preparation and processing procedures which consists mainly of the following: 1. The peanuts are removed from their husks and in their raw form are boiled at a specified time and temperature; 2. Thereafter, the peanuts are drained; 3. After draining, the peanuts are cooked into edible or vegetable oil; 4. After cooking the peanuts, several ingredients are added for preservative and good flavor purposes; 5. The peanuts are then taken out from the pan for drying and cooling process; and 6. Finally, the peanuts are packed in tin foils by machine. In reply, I have the honor to inform you that under Section 186-B of the Tax Code, "processed . . . fruits and vegetables . . ., which have undergone the process of curing, canning, bottling or similar processes," are subject to the 5% sales tax. Our study disclosed that among those that may be considered vegetables are the seeds and seed vessels of plants. There are what we call the leguminous plants, such as peas and beans, in which the seeds are contained in a legume, a pod consisting of two valves. A member of the pea and bean family is the peanut which is sometimes called the groundnut. (Book of Knowledge, the Children's Encyclopedia, Grolier, Inc., Vol. 17, pp. 6090-6092.) Accordingly, peanuts should be classified as a vegetable. Considering that peanut is a vegetable and considering further that said vegetable merely undergoes a certain process as defined in Section 186-B, your gross sales of GROWERS peanuts is subject to the 5% tax prescribed in the aforementioned law. You are further informed that the cost of the peanuts, an agricultural product, which you processed into GROWERS peanuts is deductible from your gross sales of the latter, pursuant to Section 186-A of the Tax Code. cdi Very truly yours, EFREN I. PLANA Acting Commissioner of Internal Revenue TAN-1456-040-3 "TAXPAYERS SHOULD INDICATE THEIR TAN IN ALL COMMUNICATIONS TO THE BIR."