BIR Ruling [DA-320-04]

June 11, 2004 BIR RULING [DA-320-04] Section 109 (c) VAT Ruling No. 007-2001 Anjo Farms, Inc. 1610-A Singalong St., Paco Manila Attention: Mr. Apolonio S. Tanjangco President Gentlemen : This refers to your letter dated October 1, 2003 requesting for a clarification as to whether or not your processed Bangus are VAT-exempt. It is represented that you are an owner/operator of a bangus fish pond in San Fabian, Pangasinan; that the proliferation of fish pens and fish cages has severely depressed the price of fresh bangus while the cost of feeds, electricity and labor has increased and continues to increase; that you are registered as a non-vat taxpayer; and that the following is a list of your processed bangus products: 1. Plain Deboned Bangus the bangus is washed, gutted, deboned, soaked in brine (water and salt) solution for 30 minutes, drip-dried, packed in cellophane, vacuum packed then last frozen; 2. Smoked Deboned Bangus The bangus fish is washed, gutted, deboned, soaked in brine (water and salt) solution for 30 minutes, drip-dried, smoked in a smoking chamber, packed in cellophane, vacuum packed then blast frozen; 3. Marinated Deboned Bangus The bangus fish is washed, gutted, deboned, soaked in marinade (vinegar, salt, garlic and pepper) solution for 30 minutes, drip-dried, packed in cellophane, vacuum packed then blast frozen; 4. Bangus Belly the bangus is washed, gutted, deboned, soaked in brine (water and salt) solution for 30 minutes, drip-dried, cut out belly section, packed in cellophane, vacuum packed and blast frozen; 5. Boneless Bangus Fillet the scrap bangus meat leftover after cutting out belly section is packed in cellophane, vacuum packed and blast frozen; EcTDCI 6. Whole Gutted Milkfish the bangus fish is washed, gutted, drip-dried, packed in cellophane, vacuum packed then blast frozen; 7. Bangus Longaniza the scrap bangus meat leftover after cutting out the belly section is skimmed then ground with a grinder into small particles then mixed with textured vegetable protein (TVP),refined sugar, salt, garlic, pepper and erythorbate nitite then wrapped in collagenic casing, shrink wrap in plastic then blast frozen; 8. Bangus Spring Roll the scrap bangus meat leftover after cutting out the belly section is skinned then ground with a grinder into small particles then mixed with diced carrots, diced onions, pepper, soy sauce and egg then wrapped with spring roll ( lumpia ) wrapper, shrink wrap in plastic then blast frozen. 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: "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 has 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 foregoing, this Office is of the opinion and so holds that your processed bangus products, namely Plain Deboned Bangus ,Smoked Deboned Bangus ,Marinated Deboned Bangus , Bangus Belly, Boneless Bangus Fillet, Whole Gutted Milkfish, Bangus Longaniza, and Bangus Spring Roll are 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