CIR vs. Negros Consolidated Framers MPC, GR No. 212735.
December 5, 2018
DOCTRINE: transactions such as sales by agricultural cooperatives duly registered with the Cooperative
Development Authority (CDA) to their members, as well as sales of their produce, whether in its original
state or processed form, to non-members, are exempt from VAT.
FACTS: Respondent Negros Consolidated Farmers COFA is a multi-purpose agricultural cooperative
organized under Republic Act (RA) No. 6938. COFA's farmer-members deliver the sugarcane produce to
be milled and processed in COFA's name with the sugar mill/refinery. Before the refined sugar is
released by the sugar mill, however, an Authorization Allowing the Release of Refined Sugar (AARRS)
from the Bureau of Internal Revenue (BIR) is required from COFA. For several instances, upon COFA's
application, the BIR issued the AARRS without requiring COFA to pay advance VAT pursuant to COFA's
tax exemption under Section 61 of RA 6938 and Section 109(r) (now under Section 109[L]) of RA No.
8424, as amended by RA No. 9337. As such, COFA was issued Certificates of Tax Exemption dated May
24, 1999 and April 23, 2003 by the BIR. However, beginning February 3, 2009, the BIR, through the
Regional Director required as a condition for the issuance of the AARRS the payment of “advance VAT”
the BIR issued RR No. 13-2008 consolidating the regulations on the advance payment of VAT or"advance
VAT" on the sale of refined sugar on the premise that COFA, as an agricultural cooperative, does not fall
under the term "producer." According to the BIR, a "producer" is one who tills the land it owns or leases,
or who incurs cost for agricultural production of the sugarcane to be refined by the sugar refinery. As
bases for the required payment of advance VAT, the Regional Director pointed to Sections 3 and 4 of
Revenue Regulations (RR) No. 13-2008, 12 which, in part, respectively provide:
Sec. 3. Requirement to pay in Advance VAT Sale of Refined Sugar. - In general, the advance VAT on the sale of
refined sugar provided for under Sec. 8 hereof, shall be paid in advance by the owner/seller before the refined
sugar is withdrawn from any sugar refinery/mill. xxx
xx xx
Sec. 4. Exemption from the Payment of the Advance VAT. - xxx
xxxx
A cooperative is said to be the producer of the sugar if it is the tiller of the land it owns, or leases, incurs cost of
agricultural production of the sugar and produces the sugar cane to be refined.
xx xx
COFA paid the advance VAT under protest and seeked the legal opinion of the BIR, as to whether COFA
is considered the producer of the sugar product of its members. The BIR ruled that the sales of sugar
produced by COFA to its members and non-members are exempt from VAT pursuant to Section 109(L)
of RA 9337. COFA then filed with petitioner Commissioner of Internal Revenue (CIR) an administrative
claim for refund pursuant to Section 229 of RA 8424. Due to CIR's inaction, COFA filed a petition for
review before the CTA seeking the refund of the amount of P7,290,960.00 representing 71,480 LKG bags
of refined sugar at Pl02.00 VAT per bag for the period covering May 12, 2009 to July 22, 2009. CIR filed
an answer and raised that respondents alleged failure to comply with the requisites for recovery of tax
erroneously or illegally collected as spelled under Section 229 of RA 8424, specifically, the lack of a prior
claim for refund or credit with the CIR. Petitioner additionally argued that COF A is not entitled to refund
as it failed to present certain documents required under Sections 3 and 4 of RR No. 13-2008.
CTA Division rendered its decision finding COFA to be exempt from VAT and thus, ordered the refund of
the advance VAT it erroneously paid. A petition for review before the CTA En Banc was filed by
petitioner maintaining the same arguments. Wherein CTA En Banc affirmed COFA's status as an
agricultural cooperative entitled to VAT exemption. CIR pointed to COFA's failure to present
documentary evidence to prove that it is indeed the principal provider of the various production inputs
(fertilizers), capital, technology transfers and farm management, as well as documentary evidence to
show that COF A has sales transactions with its members and non-members.
The Issue:
whether or not COFA, at the time of the subject transactions, i.e., from May 12, 2009 to July 22, 2009, is
VAT exempt and therefore entitled to a tax refund for the advance VAT it paid.
Ruling:
COFA is a VAT-exempt agricultural cooperative. Exemption from the payment of VAT on sales made by
the agricultural cooperatives to members or to non-members necessarily includes exemption from the
payment of "advance VAT" upon the withdrawal of the refined sugar from the sugar mill. Section 7 of RA
9337 amending Section 109of RA 8424 provides that sale or importation of agricultural and
marine food products in their original state are exempt from VAT. However refined sugar is considered
to be included in VAT as refined sugar already underwent several refining processes and as such, is no
longer considered to be in its original state. However, if the sale of the sugar, whether raw or refined,
was made by an agricultural cooperative to its members or non-members, such transaction is still VAT-
exempt by virtue of Section 109 (L) of RA 8424. By way of exception, withdrawal of refined sugar is
exempted from advance VAT upon the concurrence of certain conditions which ultimately relate to a
two-pronged criteria: first, the character of the cooperative seeking the exemption; and second, the
kind of customers to whom the sale is made.
As for its character, for an agricultural cooperative to be exempted from the payment of advance VAT on
refined sugar, it must be (a) a cooperative in good standing duly accredited and registered with the CDA;
and ( b) the producer of the sugar. [ Section 4 of RR No. 13-2008]
(A cooperative shall be considered in good standing if it is a holder of a "Certificate of Good Standing" issued by the
CDA.
A cooperative is said to be the producer of the sugar if it is the tiller of the land it owns, or leases, incurs cost of
agricultural production of the sugar and produces the sugar cane to be refined.)
As for the second criteria, the sale of sugar in its original form is always exempt from VAT regardless of
who the seller is, On the other hand, sale of sugar, in its processed form, by a cooperative is exempt
from VAT if the sale is made to members of the cooperative. Whereas, if the sale of sugar in its
processed form is made by the cooperative to non-members, said sale is exempt from VAT only if the
cooperative is an agricultural producer of the sugar cane that has been converted into refined sugar.
In this case respondent met the two-pronged criteria for it was a cooperative in good standing as
indicated in the Certification of Good Standing previously issued and subsequently renewed by the CDA.
It was likewise established that COFA was duly accredited and registered with the CDA as evidenced by
the issuance of the CDA Certificate of Registration; Also it was also proven by the BIR that respondent is
a “producer” for COFA has direct participation in the sugarcane production of its farmers-member.
Having established that COFA is an agricultural cooperative in good standing and duly registered with
the CDA and is the producer of the sugar, its sale then of refined sugar whether sold to members or non-
members, following the express provisions of Section 109(L) of RA 8424, as amended, is exempt from
VAT. As a logical and necessary consequence then of its established VAT exemption, COFA is likewise
exempted from the payment of advance VAT required under RR No. 13-2008.
