VAT Ruling No. 027-98

September 11, 1998 VAT RULING NO. 027-98 Sec. 109(c)-000-027-98 Pure & Rich Food International, Inc. 2/F CSP Bldg., 173 EDSA, Mandaluyong City Attention: Mr . Louie Chen General Manager Gentlemen : This refers to your letter dated May 6, 1998 requesting for a ruling to the effect that fruits and other agricultural products, such as mango, pineapple, guyabano, passion fruit, coconut water, ube, etc., which have been processed by your company into fruit purees and concentrates are considered in their original state, hence not subject to VAT. As detailed in the work flow chart you submitted, the fruit raw materials, once received at your plant, undergo the process of storing/ripening, washing, peeling/slicing, pulp finishing, and blending; afterwards, they are concentrated or evaporated to produce concentrates, or pasteurized to produce purees; and finally the finished products undergo the further process of chilling, filling, packaging, freezing and cold storing to maintain shelf life and quality; that in all these processes, no chemicals whatsoever are added; and that finally, the end products of said processes (purees and concentrates) are mere raw materials, similar to the solidified juice of sugar cane, which are further processed by your customers to produce consumer products such as juice drinks, ice cream, cakes with fillings, and the likes. In reply, please be informed that the transactions exempt from VAT are provided for under Section 109 of the Tax Code of 1997, to wit: "SEC. 109. Exempt Transactions . The following shall be exempt from the value-added tax: xxx xxx xxx "(c) 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. "Products classified under this paragraph and paragraph (a) 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 . Polished and/or husked rice, corn grits, raw cane sugar and molasses, and ordinary salt shall be considered in their original state." (Emphasis supplied) dctai Accordingly, agricultural food products which undergo the simple process of preparation or preservation shall still be considered in its primary state for purposes of exempting the same from the coverage of VAT. However, as represented, the processes involved in turning such products into purees or concentrate are by no means simple acts of preparation or preservation as the same already partake the nature of a full manufacturing process which transforms fruits, etc. into an entirely different form. Such being the case, your request for exemption from VAT is hereby denied. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue