BIR Ruling [DA-199-03]

June 24, 2003 BIR RULING [DA-199-03] Ms. Erlinda A. Simple Assistant Commissioner Inspection Service M a d a m : This refers to the letter dated January 15, 2002 (with attachments) of Mr. Jose Yap Bacolod, Jr. which you referred to this Office in your 1st Indorsement dated January 30, 2002 for a ruling as to whether monosodium glutamate is exempt from VAT so that you can act on the administrative aspect of the complaint of Mr. Bacolod against Regional Director Jaime B. Santiago of Revenue Region No. 13, Cebu City. Records show that on October 10, 2001, Director Santiago issued Authority to Release Imported Goods (ATRIG) No. R13-696-01 authorizing the Customs Collector of the Port of Cebu to effect the release of 2,400 bags of Monosodium Glutamate exempt from the payment of VAT in favor of Golden Mhea. On November 14, 2001, Director Santiago issued another ATRIG authorizing the Customs Collector of the Port of Cebu to effect the release of 4,000 bags of monosodium glutamate exempt from the payment of VAT, also in favor of Golden Mhea. In both instances, the reason for the issuance of the ATRIG is that "the aforesaid article/s as its stock in trade will be sold directly . . . to its customers. Accordingly, the aforesaid articles are EXEMPT from payment of the Value Added Tax, pursuant to the provisions of Section 109(c) of the Tax Code, as amended by RA No. 7716, otherwise known as the Expanded Value Added Tax." Taxpayer Jose Yap Bacolod, Jr. assailed the issuance of said ATRIGs on the ground that "monosodium glutamate" is classified as a finished product as opposed to a natural product since it has obviously undergone various manufacturing processes and several production stages and has been processed and converted from raw material such as cassava starch or sugarcane molasses to what it is now, a finished product , that is, monosodium glutamate." He then requested that an investigation be conducted on the matter and if warranted, appropriate charges be filed against Director Santiago and Golden Mhea. The findings of our Laboratory Unit show that: ". . . monosodium glutamate or sodium glutamate is the sodium salt of glutamic acid, one of the common naturally occurring amino acids. It is a white crystalline powder used as a flavoring agent that accentuates the hidden and little-known flavors of food in which it is used. Monosodium glutamate is derived from (a) hydrolysis of waste liquor from beet sugar refining, (b) a similar hydrolysis of wheat or corn gluten, or (c) organic synthesis based on acrylonitrile. Hydrolysis is a chemical reaction in which water reacts with another substance to form two or more substances. This involves ionization of the water molecules as well as the splitting of the compound or the substance hydrolyzed. IaEACT Production of monosodium glutamate is largely from fermentation. The raw material is frequently sugar or dextrose. Verily, monosodium glutamate is not embraced by the term "agricultural and marine food products in their original state" so as to be exempt from VAT under Section 109(c) of the 1997 Tax Code. On the contrary, the importation of said product is subject to VAT pursuant to Section 107(A) of the same Code; hence, the issuance of ATRIG by Director Santiago in connection with the importation of monosodium glutamate by Golden Mhea has no legal basis. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group