VAT Ruling No. 073-01

October 16, 2001 VAT RULING NO. 073-01 Section 109 (c) VAT Ruling No. 007-2001 Gaviola Law Offices Roofdeck "D", Vernida I Condominium 120 Amorsolo St., Legaspi Village Makati City Attention: Atty. A.B.F. Gaviola Gentlemen : This refers to your letter dated October 10, 2000 in behalf of your client, Ms. Merlie L. Mangampo, requesting for a ruling as to whether the importation of meat and subsequent marketing of the same after it has undergone simple process is covered by or exempt from the Value Added Tax (VAT) under Section 109 (c) of the 1997 Tax Code. It is represented that Ms. Merlie L. Mangampo is doing business under the trade style of Good Shepherd Food Products, with address at 182 Shaw Boulevard, Bagong Ilog, Pasig City; that it is engaged in the business of meat processing; that the meat being processed is imported from the U.S.A. and other countries; that a brief description and flow in the imported meat process is as follows: 1. Thaw and wash the frozen meat; 2. Cut into estimated 4 x 4 x 8 blocks; 3. Boil on big "kawans" with clear plain water for about 45 minutes; 4. Chop boiled meat into cubes; 5. Pack on a clean polyethylene bags, seal and label; 6. Blast freeze the meat. that the imported meat products are being broiled and frozen for marketing thereafter; and that the products of your client for domestic marketing could be considered as meat products in their original state, the importation of which is considered as VAT exempt under Section 109 (c) of the 1997 Tax Code. In reply, please be informed that " 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" is exempt from VAT. (Section 109(c) 1997 Tax Code) The term "original state" is amplified to mean as follows: " Meat, fruit, fish, vegetable and other agricultural and marine food products 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, including those using advanced technological means of packaging, such as shrink wrapping in plastics, vacuum packing, tetra-pack, and other similar packaging method ." (Section 4.103-1(B) RR 7-95) In a related ruling pursuant to the above provisions of law and regulations, this Office has had the occasion to hold that "ground beef, chopped and frozen, qualifies exemption from VAT" as agricultural food product in its original state. (VAT Ruling No. 064-88) Verily, blast freezing is a simple process which does not alter the substance of the thing, much less transform the meat into another distinct product altogether. What would be outside the scope of the term "simple process" is the kind of physical or chemical process which would alter the exterior texture or form, or inner substance of a product in such manner as to prepare it for special use to which it could not have been put in its original form or condition. In the light of the foregoing, this Office is of the opinion and so holds that the importation of freeze dried meat products is within the purview of the definition of a food product in its original state, hence, exempt from the 10% Value-Added Tax. Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group