Imposition of VAT on Toll Processing Services Rendered by Agricultural Contract Growers

July 28, 2000 BIR RULING NO. 028-00 Vitarich Corporation Abangan Sur, McArthur Highway Marilao, Bulacan Attention: Mr . Armando B . Escobar President Gentlemen : This refers to your letter dated January 20, 2000 requesting reconsideration of BIR Ruling No. 151-99 dated October 5, 1999 subjecting to VAT the toll processing services being rendered by agricultural contract growers. You alleged that the abovementioned ruling is not only contrary to the spirit of the law granting exemption from VAT the sale of poultry products and the services of agricultural contract growers but also to both Revenue Regulations Nos. 5-87 and 6-97; that the purpose of the law in exempting basic commodities like poultry products and the services of agricultural contract growers from the coverage of VAT is to make the prices of those goods relatively low and within the reach of the general public; and that the questioned ruling is a reversal of BIR Ruling No. 127-95 and VAT Ruling No. 061-97 which held that "toll processing which is described as a package of services including killing, dressing, delivery and packaging for sale comes within the purview of services of agricultural contract growers which are exempt from VAT pursuant to Section 103(k) of the Tax Code, as amended, and as implemented by Section 9(ii) of Revenue Regulations No. 5-87, as amended". In reply, please be informed that after a careful re-study of BIR Ruling No. 151-99, this Office has finally arrived at the conclusion that the same has no factual and legal basis. It was issued in response to the query of the Chief, Tax Fraud Division as to whether or not the dressing of live chicken for Vitarich Corporation is subject to the 10% VAT on gross receipts. Without verifying the actual facts obtaining in the case, this Office issued the questioned BIR ruling to the effect that the business of dressing live chicken for a fee falls under the definition of the phrase "sale or exchange of service" as defined in Section 108 (A) of the Tax Code of 1997. However, based on your representation, it was ascertained that the business engaged in by 3J Food Corporation is similar in all aspects to the integrated operation of the toll processor of San Miguel Foods, Inc. which is exempt from VAT per said BIR Ruling No. 127-95 and VAT Ruling No. 061-97. We have found no cogent reason to depart from the principles enunciated in those rulings which are applicable insofar as the situation of 3J Food Corporation is concerned. Accordingly, BIR Ruling No. 151-99 is hereby revoked, This revocatory ruling is issued on the basis of your representation and shall be considered null and void if upon investigation, the facts are different from those as represented. HADTEC Very truly yours, (SGD.) DAKILA B. FONACIER Commissioner of Internal Revenue