VAT Ruling No. 012-01

March 15, 2001 VAT RULING NO. 012-01 Sec. 109 (d) VAT Ruling No. 028-98 MEMORANDUM TO: Lucien E. Sayuno Acting Regional Director Revenue Region No. 6, Manila This refers to your letter dated April 10, 2000 requesting that VAT Ruling No. 028-98 which declared that "feed supplements and/or feed additives are within the purview of the term feed ingredients and as such, are exempt from VAT pursuant to Section 109(d) of the Tax Code of 1997" be reconsidered or set aside. In disagreeing with the above conclusion, you offered the following arguments: Since feed additives and feed supplements are not expressly mentioned in the law as feed ingredients, we should not qualify to include them, following the well-established maxim "expressio unius est exclusio alterius". The fact that said feed additives and or feed supplements were classified by the Bureau of Animal Industry as feed ingredients is not controlling insofar as imposition of VAT is concerned because, to say so, would be tantamount to abdication of BIR's primary authority to enforce internal revenue laws. These feed additives and/or feed supplements are not strictly necessary in the manufacturing or production of animal feeds, being merely treated as extra materials added or mixed to the feeds primarily to alter or improve the quality of already finished animal feeds. Even in the absence of said additives or supplements, animal feeds can still be manufactured or produced for as long as the essential agri-base ingredients or raw materials are present. In reply, please be advised that your concerns are duly noted and appreciated. However, after a second look on the subject ruling, this Office remains convinced that the said ruling is valid, being anchored on a clear basis under the Tax Code in relation to a provision of a contemporaneous law on the matter. The following observations are in point: 1. Executive Order 273, the original VAT Law, established for the first time that among the products exempt from the coverage of VAT are ''fish, animal and poultry feeds; and soya bean and fish meals" . Thus, prior to the implementation of the Expanded VAT Law (RA 7716) the only animal feed ingredients granted VAT exemption are soya beans and fish meal and all other feed ingredients added to the animal feeds were taxable. 2. However, under the Expanded Vat Law, which took effect on January 1, 1996, all ingredients of animal feeds (other than specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals and other animals considered as pets) were expressly declared exempt from VAT. 3. In BIR Ruling No. 083-96 dated July 30, 1996, this Office held that importation of feed ingredients, certified by the Bureau of Animal Industry as ingredients of regular animal feeds, are exempt from VAT effective January 1, 1996 and that without a written certification by said government office, the request for VAT exemption has to be denied for lack of basis . In effect, when feed ingredients were declared VAT exempt for the first time, this Office has recognized the need for the Bureau of Animal Industry to ascertain what constitute feed ingredients for purposes of VAT exemption. This is not an abdication of the BIR's primary authority to enforce internal revenue laws. Rather, this is in recognition of the authority of a co-equal government body to determine factual matters falling under its specialized area of concern. BAI is not expected to rule whether an item is taxable or not for this is the province of the BIR. In the same manner, neither can the BIR declare by itself that a particular article or commodity constitute an item of feed or an ingredient thereof for the authority to do so rests within the competence of BAI. 4. Precisely for the purpose of clarifying the relationship of feed ingredients vis-a-vis feed additives and/or supplements, a public discussion was held on October 6, 1998 at the instance of the Bureau of Animal Industry. This meeting was attended by representatives from the BIR and the private sector concerned. It was in this forum that BAI clarified that feed additives and supplements are feed ingredients in themselves as the term is defined by the law which BAI enforces, i.e., Republic Act No. 1556, otherwise known as "The Livestock and Poultry Feeds Act". 5. Thus, under Section 3 thereof, the following terms are statutorily defined, viz: xxx xxx xxx "(d) 'Feeds' or 'Feeding Stuff' shall include all such articles used for the purpose of feeding purporting to supply proteins, carbohydrates, fats, minerals, vitamins, antibiotics and/or correcting nutritional disorders . Such articles may be locally produced or imported, mixed or in the form of simple ingredients . " xxx xxx xxx "(l) 'Ingredients' means any single article of feed or feeding stuff which enters into the composition of a ration, concentrate, or supplement . SaDICE 6. This Office proceeded to interpret the extent of the exemption of feed ingredients under Section 109(d) of the Tax Code of 1997 in relation to R.A. 1556 as the issue does not anymore call for a determination of a factual matter but a resolution of a tax question which this Office is empowered to do. As thus defined, the term 'ingredients" is broad enough so as to include feed supplements and/or additives. It is merely required that these articles of feeds enter into the composition of a complete feed, ration, concentrate or supplement to be classified as ingredients. Since the law makes no further distinction, neither should we. It is therefore immaterial whether such supplements and/or additives merely serve as extra materials for as long as they enter into the composition of the feeds. And as you yourself observe, these materials are indeed "added or mixed to the feeds primarily to alter or improve the quality of already finished animal feeds . " Given the statutory meaning of "feed ingredients", it would not be proper to deny the VAT exemption of feed supplements and additives on the theory that animal feeds, as you claim, could still be manufactured even in the absence of such materials. What goes into the feed formulation is outside of our jurisdiction. This would be straying into a substantive matter of a specialized field of learning over which we neither have the competence nor authority to pass judgment upon. With the BAI opining that "feed additives and/or supplements" are feed ingredients, that opinion is entitled to great weight and credit. 7. In rejecting the constitutional challenge that the exemption granted under the VAT Law smacks of discrimination, the Supreme Court held that "the transactions which are subject to the VAT are those which involve goods and services which are used or availed of mainly by higher income groups" . It further opined that zero rating or exemptions are granted to certain transactions for varying reasons of public policy. Thus "such exemptions are granted, in some cases, to encourage agricultural production and, in other cases, for the personal benefit of the end-user rather than for profit" . It likewise declared that "exempt from the tax are sales of farm and marine products, so that the costs of basic food and other necessities, spared as they are from the incidence of the VAT, are expected to be relatively lower and within the reach of the general public . " (ARTURO M.TOLENTINO, petitioner, vs.THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, respondents, G . R . No . 115455 . October 30, 1995 . ) 8. By and large, the exemption accorded by law to "feed and feed ingredients" is closely intertwined to the policy of exempting basic food from the coverage of VAT related as they are to the exemption of "livestock and poultry of a kind generally used as, or yielding or producing foods for human consumption" under Section 109(c) of the Code. Simply put, if the law declared the end product to be exempt, so it is but logical that all inputs needed to produce the end product must necessarily be exempt. For the foregoing reasons, VAT Ruling No. 028-98 is hereby reaffirmed. Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal and Inspection Group