DOJ Opinion No. 170, s. 1983

DOJ OPINION NO. 170 , s. 1983 November 10, 1983 The Administrator National Cottage Industries Development Authority Trade and Industry Centre Tordesillas St., Salcedo Village Makati, Metro Manila Sir : This refers to your request for opinion as to whether or not the "Bakery Industry is a Cottage Industry under paragraph F of Section 10 of P.D. 1788". You state that P.D. 1788 has provided a general classification of cottage industries but it is not clear as to the inclusion of product groupings in the general classification. To clarify Section 10 of said Decree, which is the provision that defines and classifies cottage industries, your Office issued "General Guidelines on Cottage Industries Product Classification" which identified the product groupings to be included in the general classification of cottage industries. Under said Guidelines, "Bakery Products" are listed as one of the 22 product groupings under the classification " Food Processing Industry ". In view, however, of the ruling of the Bureau of Internal Revenue (BIR) that the "manufacture of bread is not one of the economic activities including within the term 'cottage industries' "because "[w]hile food preservation in one of the economic activities in said law, the manufacture or baking of bread cannot be classified as food preservation", you seek the opinion of this Ministry as to whether or not the Bakery Industry may be considered a cottage industry within the meaning of section 10, paragraph F of P.D. No. 1788. Subject to the extended discussion hereinafter given, we answer your query in the negative. Section 10. of P.D. No. 1788 ("Cottage Industries Development Decree of 1981), as well as paragraph F thereof, provided, insofar as are pertinent, as follows: "Section 10. Cottage Industr y. The term 'Cottage Industry' shall mean a modest economic activity for profit using primarily indigenous raw materials in the production of various articles that generally involve craftsmanship, artistic skills and tradition of the country. . . . "For facility of implementation, coordination and statistical gathering, cottage industries shall be classified as follows: xxx xxx xxx "(f) Food Processing Industry That sector consisting of products and/or food items arising from processing activities requiring knowledge or expertise on food technology and food preservation. xxx xxx xxx It is clear from the aforequoted provision defining the term "cottage industry" that the use of " indigenous raw materials " in the manufacture of products or production of articles is the primary factor that will determine the qualification of a particular industry as a "cottage industry". The word "indigenous" is synonymous to "naive" and means originating in, growing or living naturally in a particular region or environment. (Webster's International Dictionary) Thus, to our mind, all the economic activities classified as "cottage industries" under the Decree, which includes the "Food Processing Industry" should primarily use "indigenous raw materials" in the manufacture of goods to properly fall within the coverage of the Decree. Viewed in this context, we do not think that the Bakery Industry may be properly classified as a "cottage industry". A bakery is a place used for mixing, compounding or baking, bread, cakes, buns, rolls and other food products of which flour or meal is a principal ingredient (Continental Baking Co. v. Campbell, 55 P. 2d 114-116, 176 Okl. Rep. 218 [1936]). The raw material for flour which is wheat, is an imported commodity not indigenous to the Philippines, although wheat is milled and processed in the country. It may be conceded that the Bakery Industry is properly a "food processing industry" in the sense that it is involved in the preparation of products for sale to the public. Nonetheless, since as aforestated, it cannot be considered as primarily utilizing" indigenous raw materials" in the manufacture of bakery products, said Industry does not comply with the basic requirement that qualifies an industry as a cottage industry" under Section 10 of P.D. No. 1788. LexLib Premises considered, we hereby reiterate our negative reply to your query. Very truly yours, (SGD.) JESUS N. BORROMEO Deputy Minister