Request for Exemption from the Payment of Value-Added Tax on Importation of a Used Backhoe

August 18, 1998 BIR RULING NO. 122-98 103 [r]-000-00-122-98 Philippine Producers' Cooperative Marketing Assn., Inc. PHILPROCOM 434 Tabayog St. City of Mandaluyong Attention: Mr . Conrado A . Cruz Gentlemen : This refers to your letter dated January 16, 1997 requesting for exemption from the payment of value-added tax on your importation of one (1) unit of Backhoe (used), an agricultural equipment designed for digging and preparing drainage for irrigation of farms and plantation. dctai It is represented that PHILPROCOM is confirmed by the Cooperative Development Authority under the provisions of R.A. No. 6938, otherwise known as the Cooperative Code of the Philippines, as a cooperative in good standing with Certificate of Confirmation No. 1336 issued on May 24, 1991; that pursuant to DOF-CDA Joint Circular No. 1-90, which prescribes the procedural guidelines in the availment of tax exemption privileges under Article 62 (1) of R.A. 6938, such cooperatives shall be exempt from all national, city, provincial, municipal or barangay taxes of whatever nature and from customs duties, advance sales or compensating taxes on their importation of machineries, equipment and spare parts used by them and which are not available locally as certified by the Department of Trade and Industry; that on September 27, 1996 the Board of Investments certified that the aforesaid agricultural machinery is not locally available; that on January 17, 1997, the Department of Finance, through the Assistant Secretary, Revenue Operations Group, indorsed the aforesaid shipment consisting of one (1) unit used Backhoe, Model KATO 7006, 1978 year, Plate No. 700 0335, covered by B/L No. YMA-04 of the "Teresa Pristege" and Invoice No. TO-0101, valued at $8,000.00 inviting attention to the provisions of R.A. 8241, which took effect on January 1, 1997, and that documents consisting of copies of Bill of Lading, Shipment Invoice and others were submitted to this Office. In reply, please be informed that under Section 103 of the Tax Code, as amended by Republic Act No. 8241, which took effect on January 1, 1997 (now Section 109(r) of the Tax Code of 1997), viz, "SEC. 103. Exempt Transactions . The following shall be exempt from the value-added tax: xxx xxx xxx "[r] Sales by agricultural cooperatives duly registered with the Cooperative Development Authority to their members as well as sale of their produce, whether in its original state or processed form, to non-members; their importation of direct farm inputs, machineries and equipment, including spare parts thereof, to be used directly and exclusively in the production and/or processing of their produce." xxx xxx xxx the importation of a used "Backhoe", which was primarily imported for the purpose of preparing, tilling and irrigating the soil is not subject to value added tax pursuant to the aforequoted provision of the law. dctai On the matter of when the importation of the used "Backhoe" was made, a perusal of the documents submitted to this Office, i.e., Bill of Lading, Shipment Invoice No. TO-0101 dated December 3, 1996, likewise, had revealed that its shipment was made on December 12, 1996 but was loaded on board "SS Teresa Pristege" only on December 14, 1996 bound for Manila, Philippines from Yokohama, Japan. The vessel had arrived in Manila on December 22, 1996. It is likewise, conceded that regular procedure, including unloading of shipment by the Arrastre from the vessel, and documentation would require at least seven (7) working days to withdraw the shipment from the customs house. Thus, with the number of holidays and non-working days between the date of arrival of the vessel up to the payment of the corresponding taxes and duties, in all probability, it was only after January 1, 1997, which is the effectivity date of Republic Act No. 8241 (The IVAT Law), that the shipment was finally withdrawn from the customs house. Under Section 1202 of the Tariff and Customs Code, "importation begins when the carrying vessel or aircraft enters the jurisdiction of the Philippines with intention to unload therein"; and "it is deemed terminated upon payment of the duties, taxes and other charges due upon the articles or secured to be paid, at a port of entry and the legal permit for withdrawal shall have been granted, or in case said articles are free from duties, taxes and other charges, until they have legally left the jurisdiction of the customs". (Viduya vs. Berdiago 73 SCRA 553). The intention to unload, an essential element of importation, is manifested only at the time when the shipment is withdrawn from the customs house upon payment of the corresponding duties and taxes, or upon issuance of a permit to withdraw; otherwise, if the same are not paid, importation is illegal. It should be noted that Section (g) of the Transitory Provisions of Revenue Regulations 7-95, implementing R.A. 7716 (EVAT LAW), clearly states the effect of the new law on the importation of goods, viz: "(g) Importations . Importation of goods previously exempt but are now subject to VAT under RA 7716 shall, upon withdrawal from customs custody on or after January 1, 1996, not subject to VAT. On the other hand, importation of goods previously taxable but are now exempt under RA 7716 shall, upon withdrawal from customs custody on or after January 1, 1996, be exempt from VAT." Therefore, starting January 1, 1997, which is the effectivity date of R.A. No. 8241, the provisions of the IVAT Law shall apply to all importations being released/withdrawn from the customs house. Hence, the VAT exemption of agricultural cooperatives of their importations under the Old VAT Law, which was denied under R.A. 7716, and which was again restored under R.A. 8241, should be applied in this case. LLpr 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. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue