BIR Ruling [DA-245-06]

April 12, 2006 BIR RULING [DA-245-06] Section 109 (B); DA-055-2004 Quiason Makalintal Barot Torres & Ibarra 21st Floor, Robinsons-Equitable Tower 4 ADB Avenue cor. Pedro Poveda St. Ortigas Center, Pasig City Attention: Atty. Ruelito Q. Soriano Gentlemen : This refers to your letter dated March 15, 2006 requesting on behalf of your client, Solid-One Mills, Inc. ("Solid") for a ruling that the activity of Solid as a producer of prepared animal feeds whether on its own or for and on behalf of San Miguel Foods, Inc. ("SMFI") or another entity is exempt from VAT. As represented, Solid is a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines, with office address at 68 Laurel Hi-Way, Barangay Darasa, Tanauan, Batangas. It is engaged in the business of producing prepared animal feeds as evidence by its Bureau of Animal Industry ("BAI") Registration Certificate No. M-535 and Bureau of Internal Revenue ("BIR") Certificate of Registration No. OCN 2002-059-0390. Solid is a producer of feeds for SMFI under the Toll Feedmilling Agreement whereby Solid will provide feedmill toll processing services to SMFI for its animal feeds B-Meg. SMFI is a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines, with office address at Malitlit, Sta. Rosa, Laguna 4026. SMFI is engaged in the business of producing and selling of prepared animal feeds as evidence by its BAI Registration Certificate No. 11-1 and BIR Certificate of Registration No. OCN IR00000082601. In support of your request, you submitted the following documents: 1. Certified true copy of the Articles of Incorporation and By Laws of Solid; 2. Copy of the BIR Certificate of Registration of Solid; 3. Copy of the BAI Certification issued to Solid; 4. Description of the Aquatic Feedmill Operation; 5. Certified true copy of the Article of Incorporation of SMFI; 6. Copy of the BIR Certificate of Registration of SMFI; 7. Copy of the BIR Certificate of Registration of SMFI; 8. Copy of the BAI Certification issued to SMFI; and 9. Toll Feedmilling Agreement between Solid and SMFI. In reply, please be informed that Section 109 (B) of the Tax Code of 1997, as amended by Republic Act (R.A.) No. 9337, sale or importation of fish, prawn, livestock and poultry feeds is exempt from VAT, viz : "Sec 109. Exempt Transactions . (1) Subject to the provisions of Subsection 2 hereof, the following transactions shall be exempt from the value-added tax: (A) 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 therefor. Products classified under this paragraph 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, solting, broiling, roasting, smoking or stripping. Polished and/or husked rice, corn grits, raw cane sugar and molasses, ordinary salt, and copra shall be considered in their original state; (B) Sale or importation of fertilizers, seeds, seedlings and fingerlings, fish, prawn, livestock and poultry feeds, including ingredients, whether locally produced or imported, used in the manufacture of finished feeds (except specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals and other animals generally considered as pets)" The foregoing provision refers to three (3) transactions as being exempted from VAT, namely: 1. Sale or importation of fertilizers, seeds, seedlings and fingerlings; 2. Sale or importation of fish, prawn, livestock and poultry fees; and 3. Sale or importation of feed ingredients used in the manufacture of fish, prawn, livestock and poultry feeds. In BIR Ruling No. DA-055-04 this office had occasion to rule as follows: ". . . the sale or importation of fertilizers, seeds, seedlings and fingerlings, fish, prawn, livestock and poultry feeds, including ingredients, whether locally produced or imported, used in the manufacture of finished feeds (except specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals and other animals generally considered as pets)" is exempt from VAT. (Section 109 (d) of the Tax Code of 1977). The word "ingredients" or "feed ingredients" is defined under Republic Act No. 1556, as amended by Presidential Decree No. 7, and implemented by Administrative Order No. 35 dated September 23, 1975 as 'any single article of food or feeding stuff which enters into the composition of a ration, concentrate, or supplement." Such being the case, your purchases of raw materials such as copra cake, soybean meal, cassava meal, corn meal, etc., from local VAT exempt or non-VAT suppliers and farmers and that these were dried or heated and later palletized to produce palatable diet for fish like bangus and tilapia, are therefore, exempt from VAT. (BIR VAT Ruling No. 029-00 dated August 25, 2000)." In VAT Ruling No. 044-03, the BIR ruled that the sale and importation of livestock, as well as livestock and poultry feeds by Hi-Grade Feeds Corporation, a corporation engaged in hog farming and producer of prepared animal feeds, is exempt from the payment of the 10% VAT imposed under Sections 106(A) and 107(B), both of the Tax Code of 1997. In view of the foregoing, the sale or importation of prepared animal feeds by Solid whether on its own or for and in behalf of SMFI or another entity is exempt from VAT. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered as null and void. EDcIAC Very truly yours, Commissioner of Internal Revenue By: (SGD.) PABLO M. BASTES, JR. OIC-Head Revenue Executive Assistant Legal Service