VAT Ruling No. 035-99

March 23, 1999 VAT RULING NO. 035-99 109 (k) 109 (d) 000-00 035-99 Sycip, Gorres, Velayo & Co . Ayala Avenue, Makati City Gentlemen : Attention: Atty . C . P . Noel Tax Division This refers to your letter dated September 12, 1996 requesting for a ruling regarding the taxability of the activity of your client, FARM SERVICE AND DEVELOPMENT CORPORATION (FASEDECO) particularly, the contract growing of "green chops", and of the sale of its product, calcite or agricultural lime, under the provisions of the Expanded Value-Added Tax Law as amended by Republic Act No. 8424. It is represented that FASEDECO is a domestic corporation engaged in various agricultural and related businesses; that in 1992, FASEDECO entered into an agreement with Dole Philippines (DOLE) to start production of corn to be used as cattle feeds, the same to be called "green chops",which process involves the farming and growing of corn, which, prior to maturity is harvested and chopped; that DOLE allowed use of its lands, preparing the same for planting and providing the seeds while FASEDECO was responsible for the planting, harvesting and sidedressing of the green chops; that as to the present agreement, FASEDECO is paid on a per hectare basis for the planting and sidedressing, and on a per kilo basis for the harvesting, while the collection of the "green chop" from the production area and the marketing is now being done by DOLE; that FASEDECO is also engaged in the production and sale of calcite or agricultural lime, which is used-as a soil additive or conditioner to control soil acidity; that the same is recognized, classified and registered as a fertilizer in the list of fully registered fertilizers on the Fertilizer and Pesticide Authority or FPA. You now request for a ruling on whether or not the contract growing of "green chops" by FASEDECO and of the sale of its product, particularly calcite or agricultural lime are exempt from the value-added tax. In reply, please be informed that Section 109(k) of the Tax Code of 1997 provides: "Section 109. Exempt Transactions . The following shall be exempt from the value-added tax: xxx xxx xxx (k) Services by agricultural contract growers and milling for others of palay into rice, corn into corn grits and sugar cane into raw sugar." FASEDECO, in the case at bar, renders service as an agricultural contract grower, producing green chops for Dole Philippines. In this contract, DOLE herein merely allowed use of its lands, preparing the same for planting and providing the seeds while FASEDECO was responsible for the planting, harvesting, and sidedressing of the said green chops. Since agricultural contract growing services are VAT exempt transactions under the law, the services rendered herein by FASEDECO are hereby confirmed as exempt from the value-added tax. With respect to the sale of calcite or agricultural lime, the provisions of Sec. 109(d) of R.A. 8424 exempts fertilizers from the coverage of the value-added tax. Since calcite or agricultural lime has been satisfactorily shown to be a fertilizer recognized by the Fertilizer and Pesticide Authority, the sale of the said products are hereby confirmed to be exempt from the value-added tax. This ruling is issued based on the foregoing facts as represented. However, if upon investigation it will be disclosed that the facts are different, then this ruling shall be considered null and void. llcd Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal & Enforcement Group