Castelo Law Office

August 12, 2008 BIR RULING [DA-(VAT-017) 134-08] BIR Ruling No. 073-98 & 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 dated July 28, 2008 requesting on behalf of your client, TEJ Natural Products Inc . ("TEJ" for brevity) for a ruling on whether its sale of the following poultry and agricultural products are exempt from value-added tax (VAT): 1) Quartered Roast Chicken with Rice a chicken is roasted and chopped into quarters (4 pcs./chicken) and packed with a cup of steamed plain rice inside a covered styrofoam for take-out sale only; 2) Spring Chicken with Rice a chicken is cut into halves (2 pcs./chicken), fried, and packed with a cup of steamed plain rice inside a covered Styrofoam for take-out sale only; and 3) Steamed Rice a cup of steamed plain rice is wrapped in polywrap plastic for take-out sale only. AISHcD As represented, TEJ is a domestic corporation duly registered with the Securities and Exchange Commission (SEC) under SEC Registration No. A199909283 dated August 5, 1999. 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" . All the above-enumerated food products are for take-out sale only. In fact, TEJ does not engage in any dine-in sale of any of its poultry and agricultural food products. The aforesaid food products are so minimally priced to make them affordable to C and D consumer-classes. In reply, please be informed that in several rulings, this Office has held that the sale of roasted chicken is 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 deliberations made in the Bicameral Conference Committee. Moreover, the Commissioner of Internal Revenue in BIR Ruling No. 073-98 dated May 27, 1998 had occasion to rule, as follows: ". . . under Section 103(c) [now Section 109(A)] of the Tax Code, as amended, 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. Products classified under Section 103(a) and (c) shall be considered in their original state even if they have undergone the simple process of preparation or preservation for the market, such as frying, drying, salting, broiling, roasting, smoking and stripping. . . ." Like smoking, steaming may be considered a simple process of preparation. Steaming is a method which involves vapor when heated to a boiling point while smoking involves vapor when a substance is burned. In view of the foregoing, we now rule on the issues presented before us: 1. The sale of Quartered Roast Chicken with Steamed Rice for take-out sale only is exempt from VAT. 2. The sale of Fried Spring Chicken with Steamed Rice for take-out sale only is exempt from VAT. 3. The sale of Steamed Rice for take-out sale only is exempt from VAT. 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. CAaDTH Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service