VAT Ruling No. 011-99

January 21, 1999 VAT RULING NO. 011-99 Sec. 4 & 109 (d)-000-00-011-99 Simon Enterprises, Inc. 820-834 Romualdez Street Ermita, Manila Attention: Ms . Jocelyn Nuez Gentlemen : This refers to your letter requesting for confirmation of your opinion that rulings issued by the Commissioner of Internal Revenue on the interpretation of the provisions of the Tax Code and other tax laws cannot be revoked/reversed/modified by the Bureau of Customs. It is represented that your company, Simon Enterprises , Inc . (SIMON) , is a domestic corporation duly registered with the Bureau of Animal Industry (BAI) as Feeds/Feedstuff Importer under Certificate of Registration No. IM-17 dated October 13, 1998; that on the basis of the import permit (BAI Import Permit No. IP-98-3967 dated October 13, 1998) issued by BAI to your company, it imported 100MT (4,000 bags) of tillamook non-hygroscopic whey powder; that such ingredient has been certified by BAI under CIP No. 98-4235 as a feed ingredient registered with its Office for livestock, poultry, agricultural feeds, hence, exempt from the imposition of value-added tax (VAT); that upon arrival of the shipment at the Port of Manila on November 11, 1998, the BIR Regional Director of Manila, Mr. Potenciano Pineda, has correspondingly issued Authority to Release Imported Goods No. VAT V11198-001859 to the Commissioner of Customs, Manila, classifying as animal feed ingredients the said whey powder which is exempt from the payment of 10% VAT pursuant to Section 109(d) of the Tax Code of 1997; that, notwithstanding however the documents submitted by SIMON proving the VAT exemption, the Bureau of Customs disregarded the aforesaid documents by subjecting the said importation to value-added tax on the ground that the whey powder so imported can also be eaten by human beings; that SIMON, in its desire to avoid payment of demurrage and other penalties for the delay in the release of said shipment from the Bureau of Customs and to meet the scheduled deliveries of said whey powder to its various customers, paid the VAT assessed by the Bureau of Customs amounting to P259,680 under protest. It is your view that such action of the Bureau of Customs has in effect revoked/reversed previous revenue rulings issued by the Bureau of Internal Revenue upholding the VAT exemption of such ingredients, thus, this revenue ruling is requested for clarification. In reply, please be informed that Section 4 of the Tax Code of 1997 vests upon the Commissioner of Internal Revenue the exclusive power to interpret the provisions of the Tax Code and other tax laws, subject to the review by the Secretary of Finance. Hence, in determining whether or not the importation of a particular commodity is exempt from the imposition of VAT, it is the opinion of the Commissioner of Internal Revenue which shall prevail over that of the Commissioner of Customs. With respect to the VAT exemption of feed ingredients, Section 109(d) of the Tax Code of 1997 provides that the " sale or importation of fertilizers ; seeds , seedling 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) ", is exempt from value-added tax (VAT). The foregoing provision refers to three transactions as being exempted from VAT, namely: 1. Sale or importation of fertilizers; 2. Sale or importation of seeds, seedling and fingerlings; 3. Sale or importation of 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, cocks, aquarium fish, zoo animals and other animals generally considered as pets). The word "ingredients" or "feed ingredients" is defined under Republic Act No. 1556, as amended by Presidential Decree No. 7, and implemented by Administrative Order No. 35 dated September 23, 1975 as "any single article of food or feeding stuff which enters into the composition of a ration, concentrate, or supplement." It is significant to note that since the manufacture, importation, sale or distribution of feeds or feeding stuff require a prior registration and permit from BAI under Republic Act No. 1556, as amended by Presidential Decree No. 7, the certification on the nature and composition of the commodities/items as stated in the registration and import permit issued by BAI will govern the classification of the said items for purposes of VAT under Section 109(d) of the 1997 Tax Code. Hence, if BAI classified the product/commodity as feed ingredient, even if the same is susceptible of multiple usage, it shall be exempted from VAT under the aforecited Section. All others not classified as feed ingredients by BAI will be subject to VAT on their sale or importation. Such being the case, the importation by your company of 100MT of tillamook non-hygroscopic whey powder certified by BAI as feed ingredient to be used for livestock, poultry and agricultural feeds is, therefore, exempt from imposition of the 10% VAT, even if the same as claimed by the Bureau of Customs can also be eaten by human beings. dctai This ruling is being issued on the basis of the facts as represented. However, if it is subsequently discovered that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal & Enforcement Group