VAT Ruling No. 003-06

April 10, 2006 VAT RULING NO. 003-06 Sec. 4. 109-1; R.R. 16-2005 Belarmino Accounting Firm 7864 E. Progresso St. Guadalupe Viejo, Makati City Attention: Mr. Danilo G. Belarmino, C.P.A. Principal Gentlemen : This refers to your request for ruling, in behalf of your client, ABS GEN HERBS INTERNATIONAL CORP., exempting the said corporation from VAT on its sale of herbal products which, as per your representation, are basically agricultural products in their original state that undergo simple process of drying, pulverizing and encapsulation or tea bagging . In reply, please be informed that pursuant to Sec. 4. 109-1 of Revenue Regulations No. 16-2005 implementing Section 109 of the Tax Code of 1997, as amended by R.A. 9337, viz : "xxx xxx xxx " Meat, fruit, fish, vegetables and other agricultural and marine food products classified under this paragraph 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 methods ." Polished and/or husked rice, corn grits, raw cane sugar and molasses, ordinary salt and copra shall be considered as agricultural food products in their original state." It is very clear from the above-quoted paragraph that the " agricultural food products in its original state " referred to therein are those food products which people ordinarily eat in the form of food, and not in the form of medicine or "encapsulated" food supplement. As per your representation, the subject herbal products undergo the process of drying, pulverizing AND encapsulation or tea bagging . Unfortunately, the said process is not among the processes enumerated in the aforequoted Sec. 4. 109-1 of Revenue Regulations No. 16-2005, implementing Section 109 of the Tax Code of 1997, as amended by R.A. 9337. In view thereof, we regret to inform you that your request for a ruling requesting that the sale of your client of its encapsulated herbal products be exempt from VAT is hereby denied for lack of legal basis. CTSDAI Very truly yours, (SGD.) JOSE MARIO C. BUAG Commissioner of Internal Revenue