Tax Exemption on the Domestic Sales by Pineapples and Pineapple Products Grown and Canned

April 20,1960 BIR RULING NO. 179-60 THE PHILIPPINES FREE PRESS Free Press Building 708 Rizal Avenue, Manila Attention : Information Department Gentlemen : In reply to your letter dated February 25, 1960, I have the honor to inform you that in the case of the Philippine Packing Corporation vs. The Collector of Internal Revenue, G.R. No. L-9040, promulgated December 26, 1956, the Supreme Court clarified its stand on the issue why the domestic sales by pineapples and pineapple products grown and canned by said Corporation are exempted from tax under Sec. 188(b) of the National Internal Revenue Code. Section 188 of the said Revenue Code specify " transactions and persons not subject to percentage tax ." xxx xxx xxx "(b) Agricultural products and the ordinary salt when sold, bartered, or exchanged in this country by producer or owner of the land where produced, as well as fish and its by-products when sold, bartered or exchanged by the fisherman or fishing operator, whether in their original state or not ." (Emphasis supplied) Hence, although the canned products involve a manufacturing process, it is not taxable as manufactured goods because the text of law, in exempting "agricultural products whether in their original state or not" makes it clear that the exemption is not divested merely because the products themselves have undergone some kind of processing and preservation which are just to retain their qualities as the same fresh fruits or just to arrest deterioration to make them available and saleable at distant markets even though the harvest be bountiful during any season of the year. So therefore, the process of canning becomes an essential part of the said pineapples vast production and disposition. The main reason for Congress in enacting such a law is that the legislators intended to foster agriculture and encourage the utilization of idle lands in this country. In other words therefore, the Philippine Packing Corporation is not only a producer but at the same time a processor of its canned products. Whereas, in line with the said provision of the Tax Code, previously decided, is the case of eggs, where the Supreme Court ruled in the case of Ngo Siek vs. Collector of Internal Revenue, G.R. No. L-8989. October 18, 1956, that, "under said section 188 of Revenue Code, the sale of agricultural products (and eggs are undoubtedly such products ) whether in their original state or not" are exempt from the tax only when sold by the producer or owner of the land where produced . Inasmuch as Ngo Siek is not the producer of the fresh eggs converted into salted ones; he purchased the eggs from importers and producers, and consequently, being only an intermediary processor , he is not entitled to exemption under said section. Had the appellant been the owner of the poultry that laid the eggs subsequently by him, his claim for exemption would be more plausible." In addition thereto the Supreme Court said, "even granting that the processing of eggs into the salted ones does not amount to manufacturing in the ordinary parlance, it certainly involves the production, and makes of appellant a producer, of a distinct class of merchandise , with qualities and uses all its own and therefore taxable under section 186 of the Revenue Code." LLphil Very truly yours, (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue