CIR v. Negros Consolidated (Case Digest. G.R. No. 212735)


FACTS: Negros Consolidated Farmers Multi-Purpose Cooperative (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 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, from February 3, 2009, the BIR, through the Regional Director of Region 12-Bacolod City, required as a condition for the issuance of the AARRS the payment of "advance VAT" 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.

COFA was thus constrained to pay advance VAT under protest and to seek the legal opinion of the BIR Legal Division, as to whether COFA is considered the producer of the sugar product of its members.

In a Ruling dated January 11, 2008, the BIR stated that the sales of sugar produce by COFA to its members and non-members are exempt from VAT pursuant to Section 109(L) of RA 9337, as implemented by Revenue Regulations (RR) No. 4-2007.

COFA filed with the CIR an administrative claim for refund at P11,172,570.00 for the advance VAT it paid on the 109,535 LKG bags of refined sugar computed at P102.00 VAT per bag for the period covering February 3, 2009 to July 22, 2009. CIR's inaction, COFA filed a petition for review before the CTA Division, but this time seeking the refund at P7,290,960.00 representing 71,480 LKG bags of refined sugar at P102.00 VAT per bag for the period covering May 12, 2009 to July 22, 2009.In its Answer, the CIR raised as sole point COFA's 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.

Trial on the merits thereafter ensued where only COFA presented evidence. The CIR, on the other hand, waived the presentation of evidence. However, the CIR additionally argued that COFA is not entitled to refund as it failed to present certain documents required under Sections 3 and 4 of RR No. 13-2008.

CTA-D found COFA to be exempt from VAT based on Certificates of Tax Exemption and the BIR Ruling with COFA's status as a tax-exempt agricultural cooperative. Also found COFA as "as the actual producer of the members' sugarcane production because it primarily provided the various production inputs (fertilizers), capital, technology transfer and farm management." Ordered refund based on receipts and documents.

The CIR argues: lack of proof of COFA as producer; failure to present quedan of raw sugar as fatal to refund claim.

COFA argues that this case is about advance VAT assessed on its withdrawal of sugar from the refinery/mill, and not on its sale of sugar to members or non-members. Thus, COFA argued that the payment in advance of VAT for the withdrawal of sugar from the refinery/mill was without basis.

CTA En Banc ruled for COFA. Ruled that COFA was exempt from VAT for transactions with non-members, provided that the goods subject of the transaction were produced by the members of the cooperative; that the processed goods were sold in the name and for the account of the cooperative; and, that at least 25% of the net income of the cooperatives was returned to the members in the form of interest and/or patronage refunds.

  1. What the requisites are when an agricultural cooperative is considered exempt from the payment of advance VAT for the withdrawal of the refined sugar from the sugar refinery/mill;
  2. Whether COFA complies with those requisites;
  3. Whether COFA's sales are exempt from VAT and advance VAT;
  4. Whether VAT exemption to cooperative extends only to the sale of the sugar but not to the withdrawal of the sugar from the refinery; and
  5. Whether there is fatal failure to submit complete documentary requirements to COFA's claim for tax refund.
HELD: PETITION DENIED. Negros Consolidated Farmers Multi-Purpose Cooperative exempt from VAT and entitled to refund at P7,290,960.00 for the withdrawal of the refined sugar it made from May 12, 2009 to July 22, 2009.

FIRST ISSUE: There are certain transactions exempt from VAT such as the sale of agricultural products in their original state, including those which underwent simple processes of preparation or preservation for the market, such as raw cane sugar.

While the sale of raw sugar, by express provision of law, is exempt from VAT, the sale of refined sugar, on the other hand, is not so exempted 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. Section 7 of RA 9337 amending Section 109 (L) of RA 8424, the law applicable at the time material to the claimed tax refund.

Thus, by express provisions of the law under Section 109 (L) of RA 8424, as amended by RA 9337, and Article 61 of RA 6938 as amended by RA 9520, the sale itself by agricultural cooperatives duly registered with the CDA to their members as well as the sale of their produce, whether in its original state or processed form, to non-members are exempt from VAT.

RR No. 13-2008 consolidates the regulations on the advance payment of VAT or "advance VAT" on the sale of refined sugar. Generally, the advance VAT on the sale of the refined sugar is required to be paid in advance by the owner/seller before the refined sugar is withdrawn from the sugar refinery/mill. The "sugar owners" refer to those persons having legal title over the refined sugar and may include, among others, the cooperatives.

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.

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 says:
A cooperative shall be considered in good standing if it is a holder of a "Certificate of Good Standing" issued by the CDA. x x x

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.
RR No. 13-2008 clarifies that the withdrawal of refined sugar by the agricultural cooperative for sale to its members is not subject to advance VAT, while sale to non-members of refined sugar is not subject to advance VAT only if the cooperative is the agricultural producer of the sugar cane. Thus, it appears that the requirement as to the character of the cooperative being the producer of the sugar is relevant only when the sale of the refined sugar is likewise made to non-members.

SECOND ISSUE: The findings of the CTA, the certificates shown and the lack of objection from the CIR on said certificates must be regarded as conclusive proof of COFA's good standing and due registration with the CDA.

COFA was found by the CTA as the producer of the sugar. This is affirmed no other than the BIR itself when it issued its Ruling on the matter.

The BIR ruling operates as an equitable estoppel precluding the CIR from unilaterally revoking its pronouncement.

THIRD ISSUE: Having established that COFA is a cooperative in good standing and duly registered with the CDA and)s 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.

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.

FOURTH ISSUE: The CIR argues that the VAT exemption given to cooperatives under the laws pertain only to the sale of the sugar but not to the withdrawal of the sugar from the refinery. The CIR is wrong.

To recall, VAT is a transaction tax - it is imposed on sales, barters, exchanges of goods or property, and on the performance of services. The withdrawal from the sugar refinery by the cooperative is not the incident which gives rise to the imposition of VAT, but the subsequent sale of the sugar. If at all, the withdrawal of the refined sugar gives rise to the obligation to pay the VAT on the would-be sale. In other words, the advance VAT which is imposed upon the withdrawal of the refined sugar is the very same VAT which would be imposed on the sale of refined sugar following its withdrawal from the refinery, hence, the term "advance." It is thus wrong to say the withdrawal of the refined sugar as a tax incident different from or in addition to the sale itself.

FIFTH ISSUE: COFA was a previous recipient and holder of certificates of tax exemption issued by the BIR. The issuance of the certificate of tax exemption presupposes that the cooperative submitted to the BIR the complete documentary requirements. In the same manner, COFA's entitlement to tax exemption cannot be made dependent upon the submission of the monthly VAT declarations and quarterly VAT returns, as the CIR suggests. Here, it was established that COFA satisfied the requirements under Section 109(L) of RA 8424, as amended, to enjoy the exemption from VAT on its sale of refined sugar; its exemption from the payment of advance VAT for the withdrawal it made from May 12, 2009 to July 22, 2009 follows, as a matter of course.


[1] Section 61. Tax Treatment of Cooperatives. - Duly registered cooperatives under this Code which do not transact any business with non-members or the general public shall not be subject to any government taxes and fees imposed under the Internal Revenue Laws and other tax laws. Cooperatives not falling under this article shall be governed by the succeeding section.

[2] Sec. 109 Exempt Transactions. - Subject to the provisions •of Subsection (2) hereof, the following transactions shall be exempt from the value-added tax:

x x x x

(L) Sales by agricultural cooperatives duly registered with the Cooperative Development Authority to their members as well as sale of their produce, whether in its original state or processed form, to non-members; their importation of direct farm inputs, machineries and equipment, including spare parts thereof, to be used directly and exclusively in the production and/or processing of their produce;

[3] SEC. 229. Recovery of Tax Erroneously or Illegally Collected. - No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected x x x, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be filed after 1he expiration of two (2) years from the date of payment of the tax x x x.

[4] x x x In case of inaction of the Commissioner of Internal Revenue on claims for refund of internal revenue taxes erroneously or illegally collected, the taxpayer must file a petition for review within the two year period prescribed by law from payment or collection of the taxes. x x x.

[5] Commissioner of Internal Revenue v. Court of Appeals, 385 Phil. 875 (2000).

[6] Exempt transaction is defined as one involving goods or services which, by their nature, are specifically listed in and expressly exempted from the VAT under the Tax Code, without regard to the tax status of the party in the transaction. (Commissioner of Internal Revenue v. Philippine Health Care Providers, Inc., 550 Phil. 304, 311-312 [2007]).

[7] Section 2(a) of RR No. 13-2008 defines "refined sugar" as sugar whose sucrose content by weight, in the dry state corresponds to a polarimeter reading of 99.5° and above.

[8] Section 2(d) of RR No. 13-2008.

[9] Commissioner of Internal Revenue v. United Cadiz Sugar Farmers Association Multi­ Purpose Cooperative, 802 Phil. 636 (2016).

[10] BIR Ruling ECCEP-002-2008 dated January 11, 2008.

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