VAT Ruling No. 016-06

December 13, 2006 VAT RULING NO. 016-06 Sec. 109 (1) (A) VAT Ruling Nos. 16-88, 57-89, 23-96, & 22-2002 Chinsan Asia China Corp 168 Corazon de Jesus St. Brgy. Corazon de Jesus San Juan, Metro Manila Attention: Mr. Philip Chua Gentlemen : This refers to your letters dated September 21, 2006, and November 8, 2006 requesting for a ruling exempting from value-added tax your importation of dehydrated carrots, dehydrated cabbage, dehydrated chives, garlic powder, chili powder and crushed chilies. IEHScT It is represented that the said products that you are importing are processed through harvesting, dehydrating through sun drying or low temperature oven drying or freezing, then grounding and pulverizing, hence, still considered as agricultural food products in their original state since they have merely undergone a simple process of preservation and preparation for the market; that the said products come in industrial sacks and boxes with the following dimension and net weight: Dehydrated carrots 46 cm x 33 cm x 28 cm 20 kgs/box Dehydrated cabbage 46 cm x 33 cm x 28 cm 20 kgs/box Dehydrated chives 46 cm x 45.5 cm x 45.5 cm 10 kgs/box Garlic powder 48 cm x 34.5 cm x 29.5 cm 25 kgs/box Chili powder 79 cm x 45 cm x 17 cm 25 kgs/sack or woven bag Crushed chilies 68 cm x 45.5 cm x 13.5 cm 15 kgs/sack or woven bag In reply, please be informed that Section 4.109-1(B)(1)(a) of Revenue Regulations No. 16-2005, implementing Section 109(1)(A) of the Tax Code of 1997, as last amended by RA 9337, provides as follows: "Sec. 4.109-1. VAT Exempt Transactions . "xxx xxx xxx "(B) Exempt transactions. "(1) Subject to the provisions of subsection (2) hereof, the following transactions shall be exempt from VAT: "(a) Sale or importation of agricultural and marine food products in their original state, livestock and poultry of a kind generally used as, or yielding or producing foods for human consumption; and breeding stock and genetic materials therefor. "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." In relation to this, the Bureau had already ruled in several VAT Rulings and BIR Ruling as follows: " spices and dehydrated vegetables are agricultural food products in their original state exempt from the value-added tax" (BIR Ruling No. 235-88), "ground and/or roasted coffee, grounded peanuts, pure powdered cacao, pure grounded cacao, spice whole or grounded (not bottled or canned) are exempt from VAT" (VAT Ruling No. 16-88), HAEDIS "powdered coffee packed in bags crudely sealed by knotting the ends of the bag is exempt from VAT" (VAT Ruling No. 57-89), "ground carrots and bell pepper have undergone merely simple processes for preparation and/or preservation for the market and they remain food products still in their original state, hence, the sale thereof is exempt from VAT" (VAT Ruling No. 23-96), and " chili powder, garlic powder and onion powder which had been dehydrated and grounded without further processing nor any preservatives added remain food products in their original state since they had merely undergone a simple process of preservation and preparation for the market. What would be outside the scope of the term "simple process" is the kind of physical or chemical process which would alter the exterior texture or form, or inner substance of a product in such manner as to prepare it for special use to which it could not have been put in its original form or condition." (VAT Ruling No. 22-2002) In view thereof, your subject importation of dehydrated carrots, dehydrated cabbage, dehydrated chives, garlic powder, chili powder, and crushed chilies which are packed in industrial sacks and boxes (not bottled or canned), is within the purview of the definition of "food product in its original state", hence, exempt from the 12% value-added tax. This ruling is being issued based on your representations. However, if upon investigation, it will be revealed that the facts are different from what have been represented, then this ruling shall be rendered null and void from the date of issuance. Very truly yours, (SGD.) GREGORIO V. CABANTAC Deputy Commissioner