Castelo Law Office

May 15, 2008 BIR RULING [DA-291-08] 109 (A); VAT Ruling No. 009-07 Castelo Law Office 4/F Rgc Bldg., 219 Apo St. Mandaluyong City Attention: Atty. Eduardo G. Castelo Gentlemen : This refers to your letter requesting on behalf of your client, TEJ Natural Products, Inc. for a ruling on whether its sale of roasted chicken is exempt from value-added tax (VAT). Documents submitted show that TEJ Natural Products Inc. with address at 103 J. Abad Santos St. cor. Lopez Jaena St., San Juan, Metro Manila is a domestic corporation duly registered with the Securities and Exchange Commission (SEC) under SEC Registration No. A199909283. The primary purpose for which it was formed is "to engage in the business of manufacturing goods such as PROCESSED FOOD and to trade the same on wholesale/retail basis." It is engaged in the business of selling roasted chicken. Its business operations consist merely of buying raw chicken, cleaning, marinating and roasting it before selling the same as roasted chicken to the consuming public. In reply, please be informed that in VAT Ruling No. 009-07 dated June 21, 2007 which is similar to your case, this Office ruled that Andok's Litson, a corporation engaged in the sale of roasted chicken is exempt from the VAT, viz.: "In reply, please be informed that Section 109 of the Tax Code of 1997, as amended by R.A. No. 9337, in pertinent part provides: HEASaC '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 material 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, salting, broiling, roasting, smoking or stripping . . . .' Likewise, the provisions of Revenue Regulations No. 16-2005 implementing the aforesaid provision of law provided, in clear and unmistakable language, under Section 4.109-1 (B) (a) thereof that: 'Meat, fruit, fish, vegetables and other agricultural and marine food 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, salting, broiling, roasting, smoking or stripping, including those using advance technological means of packaging, such as shrink wrapping in plastics, vacuum packing, tetra-pack, and other similar packaging methods.' Such being the case, the sale of roasted chicken is therefore exempt from the value-added tax as provided for under Section 109(A) of the Tax Code of 1997, as amended by R.A. No. 9337 and as implemented under Section 4.109(B)(1)(a) of RR No. 16-2005. The inclusion of the other processes of preparation and preservation for the market, i.e. broiling and roasting, was introduced by R.A. No. 8241 and the foregoing conclusion can be reached not only by considering the clear provisions of the law and its implementing regulations, but also the records of the Bicameral Conference Committee where the following deliberations were made, viz.: EAcHCI 'MR. DAMASING: More or less, your Honor, can you give us just few examples that would show that the House is more receptive to the cry of the poor people rather than the Senate. MR. JAVIER (E): Well, for example, your Honor, one is we were able to get a presumptive tax credit for certain items food items which are being purchased mostly by our workers. Like sardines, canned fish, milk, sugar and then cooking oil. Then another, would be we redefined the definition of agricultural products. For example, it now includes roasting and broiling. So, if our worker who goes home at night because of traffic stops at ANDOK'S LECHON, and buys roasted chicken on a take out basis NO VAT will be imposed on his purchase of that roasted chicken.' It is to be emphasized however, that the exemption applies only if the roasted chicken is purchased on a take out basis. Accordingly, should Andok's maintain a facility by which the roasted chicken will be offered as a menu to customers who would dine-in, then it will be subject to the VAT on sale of service which is similarly imposed on restaurants and other eateries." In view of the foregoing, the sale of roasted chicken by TEJ Natural Products Inc. on a wholesale/retail basis to the public is exempt from VAT. However, should it maintain a facility by which the roasted chicken will be offered as a menu to customers who would dine-in, then it will be subject to the VAT on sale of service which is similarly imposed on restaurants and other eateries. 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. HcaDTE Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service