BIR Ruling [DA-487-06]

August 9, 2006 BIR RULING [DA-487-06] Section 109 (c); VAT Ruling No. 024-2003 Ms. Merlyn D.V. Vicente OIC Revenue District Officer Revenue District No. 5, Alaminos City Pangasinan M a d a m : This refers to your undated letter requesting for a clarification on whether bagoong is subject to the Value Added Tax. It is represented that your Office is confronted with a conflict with the Assessment Division, Revenue Region No. 1, Calasiao, Pangasinan in the interpretation of BIR Ruling No. 88-70 which ruled that the manufacture and/or sale of bagoong is subject to VAT if placed in recycled cooking oil tin cans or recycled bottles. You opine that bagoong has undergone a simple process of salting only which is within the purview of Section 109 (c) of the Tax Code of 1997, hence, should be exempt from VAT. In reply, please be advised that Section 109(c) of the 1997 Tax Code provides: "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 and paragraph (a) 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. Polished and/or husked rice, corn grits, raw cane sugar and molasses, and ordinary salt shall be considered in their original state;" In fine, Section 109 (c) of the Tax Code of 1997, defines the phrase "simple process of preparation or preservation for the market" by way of enumerating certain chemical or natural processes determined to be simple and usually being done to preserve the food product. 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 bagoong is within the purview of the definition of a food product in its original state, hence, exempt from the 10% Value Added Tax even if contained or placed in recycled cooking oil tin cans or recycled bottles. CaDEAT This ruling is being issued on the basis of the foregoing facts as represented. If upon investigation, it will be discovered 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