June 11, 2004

BIR RULING [DA-320-04]

Section 109 (c)

VAT Ruling No. 007-2001

Anjo Farms, Inc.

1610-A Singalong St., Paco Manila

Attention: Mr. Apolonio S. Tanjangco

President

Gentlemen :

This refers to your letter dated October 1, 2003 requesting for a clari cation as
to whether or not your processed Bangus are VAT-exempt.
It is represented that you are an owner/operator of a bangus sh pond in San
Fabian, Pangasinan; that the proliferation of sh pens and sh cages has severely
depressed the price of fresh bangus while the cost of feeds, electricity and labor has
increased and continues to increase; that you are registered as a non-vat taxpayer; and
that the following is a list of your processed bangus products:
1. Plain Deboned Bangus — the bangus is washed, gutted, deboned, soaked
in brine (water and salt) solution for 30 minutes, drip-dried, packed in
cellophane, vacuum packed then last frozen;
2. Smoked Deboned Bangus — The bangus sh is washed, gutted, deboned,
soaked in brine (water and salt) solution for 30 minutes, drip-dried,
smoked in a smoking chamber, packed in cellophane, vacuum packed
then blast frozen;
3. Marinated Deboned Bangus — The bangus sh is washed, gutted,
deboned, soaked in marinade (vinegar, salt, garlic and pepper)
solution for 30 minutes, drip-dried, packed in cellophane, vacuum
packed then blast frozen;
4. Bangus Belly — the bangus is washed, gutted, deboned, soaked in brine
(water and salt) solution for 30 minutes, drip-dried, cut out belly
section, packed in cellophane, vacuum packed and blast frozen;
5. Boneless Bangus Fillet — the scrap bangus meat leftover after cutting out
belly section is packed in cellophane, vacuum packed and blast
frozen; EcTDCI

6. Whole Gutted Milk sh — the bangus sh is washed, gutted, drip-dried,

packed in cellophane, vacuum packed then blast frozen;
7. Bangus Longaniza — the scrap bangus meat leftover after cutting out the
belly section is skimmed then ground with a grinder into small
particles then mixed with textured vegetable protein (TVP), re ned
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 sugar, salt, garlic, pepper and erythorbate nitite then wrapped in
collagenic casing, shrink wrap in plastic then blast frozen;
8. Bangus Spring Roll — the scrap bangus meat leftover after cutting out the
belly section is skinned then ground with a grinder into small particles
then mixed with diced carrots, diced onions, pepper, soy sauce and
egg then wrapped with spring roll (lumpia) wrapper, shrink wrap in
plastic then blast frozen.
In reply, please be informed that the "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 therefore" is exempt from VAT. (Section 109(c) Tax Code of
1997) The term "original state" is amplified to mean as follows:
"Meat, fruits, sh, 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
O ce has the occasion to hold that "ground beef, chopped and frozen, quali es for
exemption from VAT" as agricultural food product in its original state. ( VAT Ruling No.
064-88). Verily, deboning 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 of 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 a 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 O ce is of the opinion and so holds that your
processed bangus products, namely Plain Deboned Bangus, Smoked Deboned Bangus,
Marinated Deboned Bangus, Bangus Belly, Boneless Bangus Fillet, Whole Gutted
Milk sh, Bangus Longaniza, and Bangus Spring Roll are within the purview of the
de nition 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.) JOSE MARIO C. BUÑAG

Deputy Commissioner
Legal and Inspection Group

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