Bureau of Customs

August 24, 2009 VAT RULING NO. 011-09 106 & 109 (B) Bureau of Customs Laguna Customs Office Sta. Rosa City, Laguna Attention: Mr. Hermogenes C. Caylan III Collector of Customs II, Port Collector Gentlemen : This refers to your letter dated February 17, 2009 requesting legal opinion on whether or not the sale of the by-product of a value-added tax (VAT) exempt material is likewise exempt from VAT. EHaASD It is represented that Universal Harvester Incorporated (UHI) is an economic zone locator at Carmelray Industrial Park II, Special Economic Zone, Calamba City, under the Philippine Economic Zone Authority (PEZA); that UHI is selling Hydrochloric Acid; that its local sale is controlled by Philippine Drug Enforcement Agency (PDEA); that on November 26, 2008, the Bureau of Internal Revenue (BIR) issued BIR Ruling No. DA-(VAT-047) 465-2008 to UHI which ruled that the local sale of Hydrochloric Acid is exempt from VAT, as follows: "In view of the foregoing and considering that Muriate of Potash had been issued a Certificate of Product Registration by the Fertilizer and Pesticide Authority, Universal Harvester, Inc.'s importation of such fertilizer and the sale to local markets of Hydrochloric Acid shall be exempt from VAT pursuant to the above-cited provision of the Tax Code of 1997, as amended. (VAT Ruling No. 017-04 dated June 02, 2004)." that according to the Bureau of Customs, Hydrochloric Acid is a controlled chemical used for industrial purposes and not a kind of fertilizer; that on February 13, 2009, a letter from UHI clarified that Hydrochloric Acid is used in the steel and semi-conductor industries as a corrosion inhibiter and that UHI is not producing Hydrochloric Acid per se but merely as a co-product resulting from the production of its main product, Sulfate of Potash; that the preceding facts were not available at the time the above-mentioned BIR Ruling was issued; and that taking into account the new information, you are now seeking clarification whether or not the by-product (Hydrochloric Acid) of a VAT exempt material, fertilizer, is likewise exempted. In reply, please be informed that BIR Ruling No. DA-(VAT-047) 465-2008 was issued on the basis of the facts as represented then. Thus, the collatilla "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 as represented are different, then this ruling shall be considered null and void" is appended thereto reflecting the reservation of the Bureau of Internal Revenue to revoke the same if during the course of investigation there appears to be any misrepresentation or misstatement of any kind. DICcTa Hydrochloric acid is the solution of hydrogen chloride in water. It is a highly corrosive, strong mineral acid and has major industrial uses. UHI admits that Hydrochloric Acid is a co-product which results from its production of Sulfate of Potash which is used in fertilizers. Section 109 (B) of the Tax Code of 1997, as amended, provides as follows: "SEC. 109. Exempt Transactions. (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from the value-added tax: xxx xxx xxx (B) Sale or importation of fertilizers ; seeds, seedlings and fingerlings; fish, prawn, livestock and poultry feeds, including ingredients, whether locally produced or imported, used in the manufacture of finished feeds (except specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals and other animals generally considered as pets);" (Emphasis supplied) Accordingly, sale of Hydrochloric Acid, which is only a co-product of a fertilizer material and not fertilizer per se, does not qualify for VAT exemption under Section 109 (B) of the Tax Code of 1997, as amended. As such, the sale of Hydrochloric Acid by UHI is subject to the 12% VAT imposed under Section 106 of the Tax Code of 1997, as amended. This ruling modifies BIR Ruling No. DA-(VAT-047) 465-2008 insofar as the treatment of the sale of Hydrochloric Acid by UHI is concerned. Very truly yours, Commissioner of Internal Revenue By: (SGD.) GREGORIO V. CABANTAC Deputy Commissioner