BIR Ruling [DA-073-04]

February 16, 2004 BIR RULING [DA-073-04] Section 109 (c) VAT 007-01; VAT-039-98 Department of Trade and Industry Regional Office No. 1 3rd and 4th Floors, Juanita Commercial Building Quezon Avenue, San Fernando City La Union Attention: Mr. Florante O. Leal Regional Director Gentlemen : This refers to your letter dated March 20, 2003 requesting for a clarification as to whether or not Deboned Marinated Bangus is VAT-exempt. In reply, please be informed that the "sale or importation of agricultural and marine food products in their original state, livestock and poultry of a kind generally used as, or yielding or producing foods for human consumption; and breeding stock and genetic materials therefore" is exempt from VAT. (Section 109(c) Tax Code of 1997) The term "original state" is amplified to mean as follows: cEHSTC "Meat, fruits, fish, vegetable and other agricultural and marine food products shall be considered in their original state even if they have undergone the simple processes of preparation or preservation for the market, such as freezing, drying, salting, broiling, roasting, smoking, or stripping, including those using advanced technological means of packaging, such as shrink wrapping in plastics, vacuum packing, tetra-pack, and other similar packaging method." (Section 4.103-1(B) RR 7-95) In a related ruling, pursuant to the above provisions of law and regulations, this Office had the occasion to hold that "ground beef, chopped and frozen, qualifies for exemption from VAT" as agricultural food product in its original state (VAT Ruling No. 064-88). Verily, deboning is a simple process which does not alter the substance of the thing, much less transform the meat into another distinct product altogether. What would be outside of the scope of the term "simple process" is the kind of physical or chemical process which would alter the exterior texture or form or inner substance of a product in such a manner as to prepare it for special use to which it could not have been put in its original form or condition. In the light of the forgoing, this Office is of the opinion and so holds that Deboned Marinated Bangus is within the purview of the definition of a food product in its original state, hence, exempt from the 10% Value Added Tax. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group