BIR Ruling [UN-053-95]

February 8, 1995 BIR RULING [UN-053-95] 2nd Indorsement Returned to Deputy Commissioner Beethoven L. Rualo, Attn.: Officer-in-Charge, VAT Division, the entire docket bearing on the internal revenue tax case of Checkered Farms, Inc., PWEA, Panabo, Davao del Norte, involving the proposed 1991 deficiency value-added tax assessment in the amount of 12,701,744.51, inclusive of increments. Investigation conducted in this case disclosed that the taxpayer is a domestic corporation duly registered with the Securities and Exchange Commission and the Board of Investments as a producer and exporter of bananas; that it is also registered as a VAT taxpayer with VAT Registration No. 88-9-000357; that its total sales consist of direct export sales to a foreign trading company and indirect export to another BOI-registered exporter; and that for the period covered, the total sales at its farms in Davao and General Santos City is 137,722,818.59 broken down as follows: CFI Davao Direct export sales 59,159,908.13 Theoretical boxes 3,206,719.11 Indirect export sales 15,785,530.68 CFI General Santos City Indirect export sales 59,570,660.67 Total 137,722,818.59 =========== Indirect export sales i.e., sale by a BOI-registered producer to another BOI-registered enterprise are, in fact, local sales in accordance with the ruling of the Chairman, VAT Review Committee, in his 1st Indorsement dated December 23, 1992. The taxpayer had indirect export sales in the aggregate amount of 75,356,191.35; thus, the taxpayer's output tax liability should have been 7,535,619.14. Based thereon, the VAT Division recommended the issuance of a deficiency VAT assessment as follows: Amount of Claim P734,707.39 Less: Disallowances for non-compliance with invoicing requirement 133,367.36 Allowable input tax P601,340.03 Less: Output tax: Indirect export sale P7,535,619.14 Taxable sale 141,113.20 P7,676,732.31 Deficiency tax 7,075,392.31 Add: 25% surcharge 1,768,848.07 20% interest (2/20/92-4/20/94) 3,832,504.15 Compromise penalty 25,000.00 Amount due and collectible 12,701,744.53 ============= It is contended that the above-proposed assessment is in conflict with Revenue Regulations No. 2-88 which provides that sales of raw materials to export-oriented BOI-registered enterprises shall be subject to zero-rate. In the instant case, the transaction will not qualify for zero rating because the bananas produced by the taxpayer were not used as raw materials in the manufacture of finished products for export. In other words, sale of bananas to a BOI-registered and export-oriented exporter is taxable as a local sale. cdtech In view of the foregoing, the proposed assessment should be given due course. LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue