VAT Ruling No. 028-98

September 15, 1998 VAT RULING NO. 028-98 Sec. 109 (d)-000-028-98 Bureau of Customs Collection District II Manila International Container Port Attention: Mr . Tomas J . Gloria COO III Gentlemen : This refers to your letter dated January 19, 1998 requesting for a ruling on the following queries: "1. Whether Lysine, Methionine, Zinc Acetate, Potassium Iodate/Iodide and many other similar articles defined in the "Hawley's Condensed Chemical Dictionary, 11 th Edition" as feed additives and/or feed supplements are included in the VAT exemption provided in Sec. 103(c) of the NIRC; and "2. Whether the VAT exempt provision of the same Section applies to Trading Companies that are not feed manufacturers which import and sell in the local market products like Phosphoric Acid, Polyethylene Glycol, Urea, Methionine Hydroxy-Analog Calcium and many other like products which aside from being feed ingredients can be used for other purposes such as Plasticizer, Detergent, Pharmaceutical, Medical Research, Laboratory Reagents, etc., which could be sold by the importers/traders not as feed ingredients but for the aforecited usages." It is represented that in your observation, feed additives and/or supplements are different from those stipulated in Sec. 103 (c) of the NIRC, as amended, (now Section 109(d) of the Tax Code of 1997) because they are not ingredients in the manufacture of animal feeds considering that they are not strictly necessary in the manufacturing process; that such additives are just added to the feeds to alter or improve the flavor, stability, cost and the like; that feeds can stand as such even in the absence of these feed additives and/or supplements; and that you are of the opinion that trading companies that import feed ingredients which could be traded for other purposes as above stated are not entitled to VAT exemption as they could sell the said products to pharmaceutical company, refineries and other manufacturers which are not covered by VAT exempt transactions under Sec. 103(c) of the NIRC, as amended (now Sec. 109(d) of the Tax Code of 1997). In reply, please be informed that Section 109(d) of the Tax Code of 1997 provides that sale or importation of fertilizers, seeds, seedlings and fingerlings; fish, prawn, livestock and poultry feeds, including ingredients , whether locally produced 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) shall be exempt from the value-added tax (VAT). The foregoing provision refers to three transactions as being exempted from VAT, namely: 1. Sale or importation of fertilizers, seeds, seedlings and fingerlings; 2. Sale or importation of fish, prawn, livestock and poultry feeds; and 3. Sale or importation of feed ingredients used in the manufacture of fish, prawn, livestock and poultry feeds. Item 3, in relation to your query no. 1, clearly refers to ingredients used in the manufacture of animal feeds. And the word 'ingredients' or 'feed ingredients' are defined under Republic Act No. 1556, as amended by Presidential Decree No. 7, and implemented by Administrative Order No. 35 dated September 23, 1975 as "any single article of feed or feeding stuff which enters into the composition of a ration, concentrate, or supplement." Such being the case, while the word 'feed additives' and 'feed supplements' were not expressly mentioned in the law they are within the purview of the term 'feed ingredients'. It is significant to note that since the manufacture, importation, sale or distribution of feeds or feeding stuff require a prior registration and permit from the Bureau of Animal Industry (BAI) under Republic Act No. 1556, as amended by Presidential Decree No. 7, the certification on the nature and composition of the commodities/items as stated in the registration and import permit issued by BAI will govern the classification of the said items for purposes of VAT under Section 109(d) of the tax Code of 1997. Hence, if BAI classified the products/commodities as feed ingredients, even if the same is susceptible of multiple usage, it shall be exempted from VAT under the aforecited section. All others not classified as feed ingredients will be subject to VAT on its sale or importation. As to your query no. 2, the cited section of the law does not distinguish the persons who are allowed to sell or import. The law merely concerns itself and is directed on the subject matter of the sale or of importation. So that regardless of whether or not the importers are trading companies or feed manufacturers, for as long as the subject of importation or sale consists of animal feeds and ingredients thereof, except specialty feeds as provided for in the law, the same shall be exempt from the imposition of VAT. LLpr Furthermore, it is required that in all cases of importation of goods/items referred to above, the same shall not be released from customs custody unless covered by an ATRIG to be issued by the Revenue District Officer of the place where the importer's/trader's principal place of business is located. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue