VAT Ruling No. 024-03

March 19, 2003 VAT RULING NO. 024-03 Sec. 103 (b) Eco-Plastic Philippines, Inc. Teresita Drive, Sta. Maria Industrial Subdivision Bagong Tanyag, Taguig, Rizal, Metro Manila Attention: Mr. Vicente Lim President Gentlemen : This refers to your letter dated May 29, 2002 concerning your request for the reconsideration of BIR RULING No. DA-201-5-21-98 which held that sale of "deepwell water" is subject to the 10% value added tax (VAT). It is represented that Eco-Plastic Philippines, Inc. is a domestic corporation engaged in the business of selling "deep-well water," that, the water from its deep-wells is directly sold to customers without undergoing any treatment or any process of purification; that, the water is delivered to its customers free of charge; that, it is registered with the BIR as a Non-VAT taxpayer; that, as such, it issues to its customers Non-VAT sales invoices or receipts; that, it was registered as a Non-VAT taxpayer, pursuant to BIR RULING No. 017-88, where it was held that sale of water from deep wells was exempt from VAT; that, however, Revenue Memorandum Circular No. 07-94, dated February 18, 1994, revoked BIR RULING No. 017-88. It is your position that Revenue Memorandum Circular No. 07-94 is wrong in classifying sale of "deep-well" water as a sale of mineral product; that, the VAT is a tax imposed on the sale of goods which are produced or manufactured. Thus, sale of goods in their original state, like the sale of nonfood agricultural products, marine and forest products in their original state is exempt from VAT; that, by analogy, therefore, the sale of untreated water or deep-well water directly to the customers and without any preparation or bottling of the same, is not subject to VAT, the same being sold in its original state and cannot be considered as a mineral product. In reply, please be informed that the old BIR RULING No. 017-88, dated February 1, 1988, held that "fresh water is agricultural product," the dispositive portion of which reads: "In reply, please be informed that fresh water comes within the purview of agricultural food products ; hence, the sale thereof in all stages of distribution is exempt from the value-added tax pursuant to Section 103(b) of the Tax Code, as amended by Executive Order No. 273." The above quoted BIR Ruling was revoked by RMC No. 07-94 basically because "water" is not a product of agriculture; it is, instead, a mineral, hence, cannot be embraced by the VAT exemption covering "agricultural" food products in their original state. The dispositive portion of RMC No. 07-94 reads: TAIEcS "It is clear from the foregoing that the term agricultural product pertains to organic products through cultivation of the soil, whereas the term mineral product pertains to inorganic substances naturally occurring in nature. It follows that water, being a substance naturally occurring in nature, is mineral rather than agricultural product. Accordingly, water, may not legally be classified as agricultural food product within the purview of Section 103(b), 1 NIRC." Moreover, the meaning of "agricultural" products have already been clarified by the Supreme Court in the case of JACINTO MOLINA VS. JAMES J. RAFFERTY, 2 which reads: "Agriculture is the art and science of the production of plants and animals useful to man." It is very clear from the foregoing that "water" cannot possibly be treated a product of "agriculture." Thus, RMC No. 7-94 revoked BIR RULING No. 017-88 for lack of factual and legal basis. In view of the foregoing, your aforesaid request for reconsideration is hereby denied for lack of factual and legal basis. You are also hereby requested to register under the VAT law, file your VAT returns and pay your corresponding deficiency value added taxes with the least possible delay. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspections Group Footnotes 1. Now Sec. 109(c), NIRC, as amended and as renumbered by R.A. No. 8424. 2. JACINTO MOLINA, plaintiff-appellee, vs. JAMES J. RAFFERTY, as Collector of Internal Revenue, defendant-appellant. [G.R. No. L-11988. February 1, 1918.]