CIR v. Negros Consolidated

*CIR v.
Negros Consolidated
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paid in advance by the owner/seller before the refined sugar is withdrawn from any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.
Sec. 4. Exemption from the Payment of the Advance VAT. - xxx
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.
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.

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*CIR v.

DOCTRINE: transactions such as sales by agricultural cooperatives duly registered

Respondent Negros Consolidated Farmers COFA is a multi-purpose agricultural

COFA is a VAT-exempt agricultural cooperative. Exemption from the payment of VAT

As for its character, for an agricultural cooperative to be exempted from the

(A cooperative shall be considered in good standing if it is a holder of a "Certificate

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