Sunday, March 30, 2014


The Court of Tax Appeals (CTA) has ruled that an agricultural cooperative is deemed the producer of the crops and by-products of its members, and as such, is exempt from the value-added tax (VAT) imposed on the sale of such produce  to both the cooperative's members and non-members.

In the case Commissioner of Internal Revenue v. Negros Consolidated Farmers Multipurpose Cooperative, the CTA en banc affirmed a ruling that granted a respondent cooperative a refund for erroneously paid VAT in the amount of P7.29-million.

The Negros Consolidated Cooperative was issued a tax exemption in accordance with Republic Act 6938, or the Cooperative Code of the Philippines, as amended.

The said tax exemption had been honored only until February 2009 when the Bureau of Internal Revenue refused to issue an Authorization Allowing the Release of Refined Sugar without advanced payment of VAT.

The refusal was based on the BIR's stand that the cooperative did not comply with with Revenue Regulations (RR) 13-2008, that provided the guidelines for the payment of advanced VAT on the sale of refined sugar and the exemptions therefrom.

The BIR's argument is that sales by agricultural cooperatives of sugar to non-members are only exempt from VAT if the producer of the agricultural products sold is the cooperative itself.  This contention is based on RR 13-2008, which also defines a producer as "the tiller of the land it owns or leases, and incurs the cost of agricultural production of the sugar and produces the sugarcane to be refined".

But the CTA said the respondent cooperative, having already complied with the provisions of the Cooperative Code on claiming tax exemptions on certain transactions, is clearly entitled to the tax refund claimed.

Aside from the Cooperative Code, the National Internal Revenue Code (NIRC) also affirms the grant of tax exemption for the sale of sugar made  by the respondent cooperative.

The CTA cited Article 61 of the Cooperative Code, which provides that "cooperatives transacting business with both members and non-members shall not be subject to tax on their transactions with members..".

Also cited was Section 109 of the NIRC, which provides as an exempt transaction the "..sales by agricultural cooperatives duly registered with the Cooperative Development Authority (CDA) to their members, as well as sale of their produce, whether in its original state or processed form, to non-members..".

Plain from the foregoing that transactions such as sales by agricultural cooperatives duly registered with the CDA to their members as well as sales of their products, whether in its original state or processed form, to their members as well as sales of their produce ints original state or processed form, to non-members, are exempt from VAT.  

Jurisprudence has it that when the language of the law is clear and explicit, there is no room for interpretation, only application," the CTA said.

As to the applicability of RR 13-2008, the Court of Tax Appeals said, "..In cases of conflict between the law - in this case the NIRC and the Cooperative Code -and the rules and regulations implementing the law, the law shall always prevail.  Should Revenue Regulations deviate from the law they seek to implement, they will be struck down..".

Business Mirror
March 31, 2014, page B1-4.  

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