Organic Producers in the Island of Negros Multi-Purpose Cooperative

May 2, 2008 BIR RULING [DA-278-08] Sec. 109 (L) R.A. 9337; RR 20-2001; DA-030-2000; DA-112-2007; DA-143-2008 Organic Producers in the Island of Negros Multi-Purpose Cooperative Barangay Poblacion 2, Sagay City, Negros Occidental Attention: Mr. Exequiel J. Maranon Chief Executive Officer Gentlemen : This refers to your letter dated April 11, 2008 requesting for a ruling that your importation of accessories, spare parts, hardware and software of the centrifugal basket of a sugar factory set-up from Japan to be used in the production of organic raw and muscovado sugars is exempt from the payment of value-added tax pursuant to Section 109 (L) of the National Internal Revenue Code, as amended, and Revenue Regulations (RR) No. 20-2001. It is represented that Organic Producers in the Island of Negros Multi-Purpose Cooperative ("OPTION MPC" for brevity) is a duly organized agricultural cooperative dealing business with its members only. As such, it has been granted tax exemption by the BIR Regional Office in Bacolod City. From the Articles of Cooperation submitted, OPTION MPC is organized to engage in the business of manufacturing, production, subcontraction export, import, purchase, sale and distribution of any form of commodities, goods, or merchandise which may be the object of commerce, such as, but not limited to organic products. OPTION MPC received by way of donation a sugar factory set-up from Okinawa, Japan in 2006. The said set-up has been installed in Sagay City, Negros Occidental and ready to produce organic raw and muscovado sugars if not for the accessories, spare parts, hardware and software of the centrifugal basket. cACTaI Through importation, OPTION MPC has procured the said accessories, spare parts, hardware and software of the centrifugal basket which arrived in Bacolod City Port on April 10, 2008. Presently, the said items are being stored in the Customs Warehouse due to the cooperative's inability to pay the VAT. Prior to said importation, OPTION MPC obtained various endorsements for its tax and duty-free importation from the Cooperative Development Authority (CDA), Department of Trade and Industry (DTI) and Department of Finance (DOF). In reply, please be informed that Section 109 (L) of the Tax Code of 1997, as amended by Republic Act (R.A.) No. 9337, provides: "(L) Sales by agricultural cooperatives duly registered with the Cooperative Development Authority to their members as well as sale of their produce, whether in its original state or processed form, to non-members; their importation of direct farm inputs, machineries and equipment, including spare parts thereof, to be used directly and exclusively in the production and/or processing of their produce ." (Emphasis supplied) In relation thereto, Section 3.1 (b) of RR No. 20-2001 provides, viz. : "SEC. 3. Exemption from Taxes . 3.1 Duly registered cooperatives dealing/transacting business with members only shall be exempt from paying the following taxes for which they are directly liable, viz. : a. Income Tax on income from operations; b. Value-Added Tax (VAT) under Section 109 pars. (r), (s), (t) and (u) of the Tax Code of 1997;" From the afore-quoted provisions of R.A. No. 9337 and RR No. 20-2001, it is clear that agricultural cooperatives duly registered with the CDA is exempt from VAT on its importation of machineries and equipment, including spare parts thereof, to be used directly and exclusively in the production and/or processing of their produce. Since the imported accessories, spare parts, hardware and software of the centrifugal basket of a sugar factory set-up will be used to produce organic raw and muscovado sugars, which is one of the objectives and purposes of OPTION MPC, there is no doubt that said imported items will be used directly and exclusively in the production and/or processing of OPTION MPC's sugar produce. Thus, the importation thereof is exempt from value-added tax. (BIR Ruling Nos. DA 030-2000 dated January 12, 2000 and DA-143-2008 dated March 7, 2008.) CSAcTa This will therefore serve as your authority to secure Authority to Release Imported Goods (ATRIG) without paying the value-added tax on said importations. 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 null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service