Jimenez Gonzales Bello Valdez Caluya & Fernandez

February 3, 2010 BIR RULING [DA-(VAT-006) 022-10] Section 109 (A); BIR Ruling No. VAT-049-92 Jimenez Gonzales Bello Valdez Caluya & Fernandez SOL Building, 112 Amorsolo St. Legaspi Village, Makati City Attention: Atty. Benigno G. Par, Jr. Atty. Jennifer A. Tiu Gentlemen : This refers to your letter dated June 1, 2009 requesting on behalf of your client, Mabuhay Vinyl Corporation ("MVC" for brevity) for confirmation of your opinion that 1. The importation of salt, which is neither iodized nor refined nor subjected to recrystallization process, is exempt from VAT; and 2. The subsequent sale of the above-mentioned salt in its original state is likewise exempt from VAT. As represented, MVC is a domestic corporation duly organized and existing under Philippine laws with SEC Registration No. PW216. It is primarily engaged in the manufacture, buying, selling and dealing of electrochemical products, particularly calcium carbide, caustic soda, hydrochloric acid, liquid chlorine, chlorinated organic and inorganic chemicals, hydrogen peroxide, vinyl resins and specialties, and other products derived from chemicals and PVC resins and compounds herein enumerated. As part of its raw materials, MVC imports salts from abroad for the manufacture of caustic/chlorine chemicals. These salts are neither iodized (enriched with iodine) nor refined (underwent refining/purification process) nor subjected to recrystallization process but are simply gathered, harvested from their natural salt beds, washed and sold in their original state. These salts are exactly the same as the industrial salts being imported by other traders which are now enjoying VAT-free sale. In fact the supplier of these VAT-free industrial salts is also the same supplier of the salts imported by MVC which it uses in its chlori-alkali productions. Both of these salts are sometimes shipped here in the Philippines on board the same vessel. CcAITa In the course of manufacturing its products, MVC has excess imported salts that have not been used. These are sold in their original state by MVC to its clients for the production of feeds, fertilizers and other various food products. In reply, please be advised that Section 109 (A) of the National Internal Revenue Code of 1997, as amended (NIRC), and as implemented by Section 4.109-1 of Revenue Regulations No. 16-05 provides: "SEC. 109. Exempt Transactions. . . . 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, salting, broiling, roasting, smoking or stripping. Polished and/or husked rice, corn grits, raw cane sugar and molasses, and ordinary salt, and copra shall be considered in their original state;" What would be outside 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 manner as to prepare it for special use to which it could not have been put in its original form or condition (cited from VAT Ruling No. 007-2001 dated February 16, 2001). Salt may fall under the definition of mineral products which is defined to mean things produced and prepared in a marketable state by simple treatment processes such as washing or drying, but without undergoing any chemical change or process or manufacturing (Sec. 151 (B) (3), NIRC). In VAT Ruling No. 049-92 April 1, 1992, this Office had occasion to rule as follows: ". . . pursuant to Section 103(b) of the National Internal Revenue Code (NIRC), as amended, agricultural and marine food products, e.g., salt and fish, are exempt from the 10% value-added tax in all stages of production and distribution if sold in its original state. Marine salt produced from sea water and industrial salt produced from salt mines are considered still in their original state if they have not yet undergone recrystallization process; . . ." TAacCE Considering that the salts are neither iodized nor refined nor subjected to recrystallization process but are simply gathered, harvested from their natural salt beds, washed and sold in their original state, the same remain food products in their original state. In view of the foregoing, this Office confirms your opinion that pursuant to Section 190 (A) of the NIRC, your importation of the salts described above and your subsequent sale thereof, which are within the purview of the definition of a food product in its original state, are not subject to VAT under Sections 106 and 107 (A), both of the NIRC. 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. Very truly yours, Commissioner of Internal Revenue By: (SGD.) GREGORIO V. CABANTAC Deputy Commissioner