Whether Sale of Roasted/Grinded Coffee Beans Is Sale of General Merchandise Subject to Graduated Annual Fixed Tax

April 7, 1986 BIR RULING NO. 039-86 161-(2) 000-00 039-86 S i r : This refers to your letter dated January 17 and February 4, 1986 requesting for and in behalf of your client, Y.S. COFFEE AND CANDLE FACTORY CORPORATION, information as to whether the sale of roasted and grinded coffee beans is considered sale of general merchandise subject to the graduated annual fixed tax under P.D. No. 2006. It is represented that your client is engaged in the business of buying coffee beans from local producers and traders which after being roasted are placed in a row of divided transparent glass boxes for sale; that there are four (4) kinds of coffee beans sold; namely: baraco, batangas, excelsa and arabica; and that some of your client's customers want their purchases grinded and the grinding is without additional cost. In reply, please be informed that the roasting and grinding of coffee beans do not constitute manufacturing, It has been held that roasting coffee or grinding spices does not constitute manufacture; and that application of labor to an article either by hand or by machinery does not make the article necessarily a manufactured article. (Castle Bros., WLF & Sons vs. McCoy, 21 Phil. 300) Accordingly, and since coffee beans are agricultural products, the sale of roasted and grounded coffee beans is considered a subsequent sale of agricultural products in their original state and therefore, not subject to the 1.5% sales tax. (Sec. 165(B), Tax Code as amended by P.D. No. 2006) However, your client shall be subject to the C-13 graduated annual fixed tax imposed by Section 161(2) of the Tax Code, (Revenue Memorandum Circular No. 2-86) aisadc Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner