VAT Ruling No. 021-99

March 11, 1999 VAT RULING NO. 021-99 Sec. 106 & 109 (d)-000-00-021-99 SGV & Company 6760 Ayala Avenue Makati City Attention: Atty . E . C . Alcantara Tax Division Gentlemen : This refers to your letter dated August 26, 1996 requesting on behalf of your client, LEGASPI OIL COMPANY, INCORPORATED , a ruling confirming that the sales of coconut meal pellets and edible oil to farmers, hog raisers and feed dealers as ingredients in the manufacture of animal feeds are exempt from value-added tax. prcd It is represented that Legaspi Oil Company, Incorporated is a manufacturer of cooking oil which it extracts from copra in the form of crude coconut oil; that after the extraction process, a residue or by-product is left which is locally known as "sapal" or shredded coconut meat; that this shredded coconut meat is compressed into pellets and sold as animal feeds; that crude coconut itself is further deodorized and refined into edible oil; that both the pellets and edible oil are sold to farmers, hog raisers and feed dealers as ingredients of animal feeds in accordance with a certain formulation; that the pellets and edible oil cannot be considered specialty feeds, for "specialty feeds" refer to non-agricultural feeds or food for race horses, fighting cocks, aquarium fish, zoo animals and other animals generally considered as pets; and that the pellets and edible oil cannot be considered as "specialty feeds" even if they are fed to animals specified above because these pellets and edible oil are agricultural products, being a derivative of copra. while specialty feeds are defined as being non-agricultural. In reply, please be informed as follows: (1) Coconut meat pellets and edible oil, being derivatives of copra, are considered agricultural food products which are no longer in their original state. Pursuant to the provision of Section 109(d) of the Tax Code of 1997, domestic sales or importations of these articles are generally treated as taxable transactions except when these are used as ingredients 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) and provided further that the said items are duly registered and certified to as livestock or poultry feeds or ingredients thereof by the Bureau of Animal Industry (BAI). (2) The Bureau of Animal Industry (BAI) maintains a list of BAI-accredited feeds and feed stuffs suitable for livestock and poultry and such list includes coconut meat pellets, but not edible oil. (3) In accordance with the provisions of Section 4 of Republic Act No. 1556 otherwise known as the Livestock and Poultry Feeds Act, all persons desiring to engage in the manufacture, importation, sale or distribution of feeds or feeding stuffs in the form of complete mixture, concentrates, supplements or ingredients shall first be registered with the Bureau of Animal Industry. Accordingly, in order to be entitled to exemption from value-added tax, Legaspi Oil should be a BAI-registered supplier of feed stuffs and its feed products likewise registered and classified as livestock or poultry feeds or ingredients thereof. In view of the foregoing, the sale of edible oil to farmers, hog raisers, and feed dealers is subject to the 10% value-added tax pursuant to Section 106 of the Tax Code, as amended. However, the sale of coconut meat pellets to said farmers, hog raisers and feed dealers may be exempted from the imposition of the 10% value-added tax under Section 109(d) of the same Code, provided your client, Legaspi Oil Company, Inc., as the seller, and its feed products are registered with the Bureau of Animal Industry pursuant to the aforementioned provision of R.A. No. 1556. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue