Puerto de Oro Milling Corp.

November 16, 2009 VAT RULING NO. 015-09 Sec. 109 (B) & F; BIR Ruling Nos. 028-00; 127-95; VAT Ruling No. 061-97 Puerto de Oro Milling Corp. Mambatangan, Manolo Fortich Bukidnon Attention: Mr. Alex L. Co President Gentlemen : This refers to your letter dated February 4, 2009 requesting that your services of toll milling poultry feeds is exempt from the imposition of the value added tax pursuant to Section 108 of the 1997 National Internal Revenue Code, as amended. As represented, your company is engaged in the business of toll milling of poultry feeds; that your business operation involves Agricultural Poultry Integrators like Bounty Foods, San Miguel Foods, Vitarich, etc., providing you with inputs in the form of feed ingredients consisting of agricultural products in their original state like corn, cassava, soya, shells, fish meal, pollard, copra mill, rice bran, salt, molasses, etc.; that these feed ingredients delivered to you by Agricultural Poultry Integrators will be processed in your milling plant by simply grinding and mixing; however, from among the aforementioned ingredients only the corn ingredient is being milled from corn kernel to corn grits and the same shall be mixed with the rest of the feed ingredients that need no milling because they are already small in size; that for these services your company is being paid on per bag basis; and that this poultry feed is materially important and indispensable in the production of poultry products like chicken and eggs in their original state. In reply, please be informed that Sec. 4.108-3 (c) of Revenue Regulations No. 16-2005 (RR 16-2005) as amended by Revenue Regulations No. 4-2007 (RR 4-2007), subjects to the imposition of the value added tax services rendered by millers. As stated in the aforementioned section "A miller, who is a person engaged in the milling for others (except palay into rice, corn into corn grits, and sugarcane into raw sugar) is subject to VAT. . . ." . cCAIaD Corollarily, Sec. 4-109-1 (f) of the same Regulations exempts from the imposition of VAT, "Services by agricultural contract growers and milling for others of palay into rice, corn into grits and sugarcane into raw sugar; 'Agricultural contract growers' refers to those persons producing for others poultry, livestock or other agricultural and marine food products in their original state" . Based on the foregoing provisions, it is apparent that what is only being exempt from the imposition of VAT is the services of agricultural contract growers with respect to the production of poultry, livestock, other agricultural and marine food products in their original state such as in the cases contemplated in BIR Rulings No. 28-00 and 127-95 and VAT Ruling No. 061-97; as well as milling for others of palay into rice, corn into corn grits, sugarcane into raw sugar. Such exempt provision does not cover toll milling services in the production of poultry feeds. With respect to poultry feeds, only the sale or importation thereof, including ingredients, whether locally purchased 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 the imposition of VAT pursuant to Sec. 4.109-1 (b) of RR 16-2005 as amended by RR 4-2007. The services rendered in milling and mixing the feed ingredients, consisting of agricultural products in their original state, for the purpose of producing poultry feeds does not fall within the purview of this exempting provision. Such being the case, your company which happens to be engaged in the toll milling of poultry feeds is subject to the imposition of the twelve percent (12%) VAT imposed by Sec. 108 of the 1997 National Internal Revenue Code, as amended. 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 are different, then this ruling shall be considered as null and void. Very truly yours, (SGD.) GREGORIO V. CABANTAC Deputy Commissioner