VAT Ruling No. 110-88

April 27, 1988 VAT RULING NO. 110-88 103 (c)-000-00-110-88 Progressive Eggs Industry Progressive Sales and Agro-Vet Center Sta. Cruz, Laguna Gentlemen : This has reference to your letter dated March 7, 1988 stating that you produce "balut" as your main product and salted eggs and "penoy" as your by-product; and that as a VAT-registered entity, you are also engaged in general merchandising e.g. selling hardware, electrical supplies, poultry and livestock supplies, fertilizers and pesticides. cdta Based on the foregoing facts, you request for a ruling on the following questions: 1. Are "balut", salted eggs and "penoy" subject to value-added tax? Does the making thereof constitute manufacturing? 2. Are separate invoices to be issued for transactions that are subject and exempt from VAT? 3. Suppose your annual gross sales for VAT-exempt items under Section 103(c) of the Tax Code, as amended by E.O. 273 is P250,000.00; and your annual gross sales for non-exempt items under Section 103(w) of the same Code is P350,000.00, what are the consequences? In reply, please be informed as follows: 1. "Balut" and "penoy" which are unhatched eggs containing the fertilized embryo of poultry are agricultural food products still in their original state even if treated with salt solution to prepare or preserve them for the market. Accordingly, "balut' and "penoy" and salted eggs, which are treated with salt solution for preservation and preparation for the market are exempt from value-added tax pursuant to Section 103(b) of the Tax Code, as amended. In other words, change in the form or composition of the product resulting from biological process such as that which occurs in the making of "penoy" and "balut" does not constitute manufacturing for VAT purposes. This revokes unnumbered BIR Ruling dated November 3, 1967. 2. As a VAT-registered person engaged in both taxable and exempt operations, you should issue separate invoices or receipts for the taxable and exempt operations. The VAT invoice shall be issued only for sales of goods or services subject to the value-added tax imposed in Sections 100 and 102 of the Tax Code as amended. 3. Pursuant to Section 107(d) of the Tax Code, as amended, as amplified by Section 18(c) of Revenue Regulation No. 5-87, your VAT registration as a general merchandising store implies any of the following situations: a) that you have registered only your mandatorily taxable activity, e.g. sale of VAT taxable goods by checking the appropriate tax in Block B Column A in your application for VAT registration. b) that you have registered only one or all of the optionally VAT registrable exempt activity, e.g., sale of agriculture food products, sale of fertilizers, pesticides, sale of books, etc. by checking the appropriate box in Block B, Column B in your application for VAT registration. c) that you have registered both mandatorily taxable and VAT exempt but optionally registrable activity by checking the appropriate boxes in both columns A and B for activities in the preceding numbers 3(a) and 3(b). If your VAT registration is only for VAT taxable activity indicated in 3(a), your annual sales of P250,000.00 for VAT-exempt items shall remain VAT-exempt; whereas, your annual sales of P350,000.00 for non-exempt items shall be subject to VAT. You will issue non-VAT receipt for your sale of VAT-exempt items and VAT receipt for your VAT taxable items. If you have registered only VAT exempt but registrable activity as indicated in situation 3(b), your annual sale of P250,000.00 for VAT-exempt items shall be subject to VAT in the same way as your annual sales of P350,000.00 for VAT-taxable items. In both VAT-exempt registered activity and VAT-taxable and mandatorily registrable activity, VAT receipts should be used. If you have registered both mandatorily taxable activity and VAT-exempt but optionally registrable activity in accordance with no. 3(c) above, both your annual sales of P250,000.00 for VAT-exempt items and your annual sales of P350,000.00 for VAT-taxable items shall be subject to VAT . Accordingly, VAT receipts should be used in both transactions. cdtech Very truly yours, BIENVENIDO A. TAN, JR. Commissioner of Internal Revenue