BIR Ruling No. 348-11

September 28, 2011 BIR RULING NO. 348-11 Sec. 109 (A) Century Canning Corporation Centerpoint Building, Julia Vargas Avenue Ortigas Center, Pasig City Attention: Ms. Rosemarie C. Legaspi Tax Manager Gentlemen : This refers to your letter dated November 26, 2010 relative to your letter dated April 19, 2010 stating that Century Canning Corporation is a domestic corporation duly registered with the Securities and Exchange Commission (SEC) under SEC Registration No. 83397 with 000-281-658-000; that it is primarily organized "To buy and sell on wholesale basis, process, preserve, can, pack, manufacture, produce, import and export and deal in all kinds of food products, cattle, hog, and other animals and animal products, fruits, vegetables and other agricultural crops and produce land, including by-products thereof, and for such purpose, to acquire, construct, own, lease, charter, establish, maintain and operate canneries, factories, plants, vessels, cold storage, refrigerators, refrigerated vehicles and vessels, warehouses, and other machineries, equipment, apparatus and appliances as may be required in the conduct of its business." that currently, apart from producing and selling of its manufactured canned tuna operations, it is also engaging in the growing, production and sale of marinated, frozen, vacuum packed boneless milkfish (bangus) and uses only simple ingredient to maintain the natural state of the fish, and that as of now, it is marketing the following milkfish products, to wit: 1) 1 pc and 2 pcs Marinated Deboned Bangus milkfish is washed, gutted, deboned, soaked in marinade (vinegar, salt, garlic and pepper) solution for 30 minutes, drip-dried, packed in cellophane, vacuum packed then blast frozen; 2) Bangus Belly/Marinated milkfish is washed, gutted, deboned, soaked in marinade (vinegar, salt, garlic and pepper) solution, drip-dried, cut out belly section, packed in cellophane, vacuum packed and blast frozen; 3) Bangus Belly Unseasoned milkfish is washed, gutted, deboned, drip-dried, cut out belly section, packed in cellophane, vacuum packed and blast frozen; 4) Frozen Deboned Sweetened Marinated Milkfish Sliced (Tocino) milkfish is split open to removed visceral organs, deboned, cutting out the belly portion, the remaining meat trimmings is scraped from the skin and mix in prepared marinating tocino solution composed of pineapple juice, sugar, water and prepared spice mix. Vacuum packed in low-density polyethylene pouch and subjected to blast freezing, carton packing prior to cold storage; 5) Frozen Bangus Hot and Spicy milkfish is washed, gutted, deboned, soaked in marinade (vinegar, salt, garlic and pepper) solution with chilli, drip-dried, packed in cellophane, vacuum packed then blast frozen; 6) Smoked Deboned Bangus milkfish is washed, gutted, deboned, soaked in brine (water and salt) solution, drip-dried, smoked in a smoking chamber, packed in cellophane, vacuum packed then blast frozen; 7) Frozen Bangus Relleno milkfish meat is skimmed then ground with a grinder into small particles then mixed with textures vegetable protein (TVP), salt, garlic and pepper placed inside the bangus shell skin, shrink wrap in plastic then blast frozen. Based on the foregoing representations, you now request for confirmation of your opinion that the sale of milkfish (bangus) and its by-products is exempt from the 12% value-added tax (VAT) pursuant to Section 109 of the Tax Code of 1997. In reply thereto, please be informed that the "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. (Section 109 (1) (A) Tax Code of 1997) The term "original state" is amplified to mean as follows: "Meat, fruits, fish, vegetable and other agricultural and marine food products shall be considered in their original state even if they have undergone the simple processes of preparation or preservation for the market, such as freezing, drying, salting, broiling, roasting, smoking, or stripping, including those using advanced technological means of packaging, such as shrink wrapping in plastics, vacuum packing, tetra-pack, and other similar packaging method." (Section 4.109-1(B)(1)(a) RR 16-2005) However, it has been held time and again that laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favour of the taxing power, and he would seek to be thus privileged must justify it by words too plain to be mistaken and too categorical to be misinterpreted ( Sea-Land Service, Inc. vs. Court of Appeals, et al., G.R. No. 122605, 30 April 2001). Otherwise stated, any exemption from the payment of a tax must be clearly stated in the language of the law; it cannot be merely implied therefrom. ( Davao Gulf Lumber Corp. vs. Commissioner of Internal Revenue, et al. , G.R. No. 117359, 23 July 1998) Foregoing considered, the bangus products of Century Canning Corporation which have been marinated and/or mixed with other ingredients can no longer be considered in its original state, accordingly, this Office holds that the sale of milkfish (bangus) and its by-products by Century Canning Corporation is NOT EXEMPT from the 12% 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. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue