G.r.no. 108524, Nov.

10, 1994

FACTS:

Petitioner is engaged in the buying and selling of copra in Misamis Oriental. The petitioner questions
Revenue Memorandum Circular 47-91 issued by the respondent, in which copra was classified as
agricultural non-food product effectively removing copra as one of the exemptions under Section 103
of the NIRC.

Section 103a of the NIRC states that the sale of agricultural non-food products in their original state
is exempt from VAT only if the sale is made by the primary producer or owner of the land from which
the same are produced and not by any other person or entity. Section 103b states the sale of
agricultural food products in their original state is exempt from VAT at all stages of production or
distribution regardless of who the seller is - which the petitioner enjoys. The reclassification had the
effect of denying to the petitioner this exemption when copra was classified as an agricultural food
product.

Petitioner filed a motion for prohibition.

ISSUE: Whether the Circular is valid.

RULING:

Yes. The Court first stated that the CIR gave the circular a strict construction consistent with the rule
that tax exemptions must be strictly construed against the taxpayer and liberally in favor of the state.

The Court also stated that the Circular is not discriminatory and in violation of the equal protection
clause. Petitioner likened copra farmers / producers, who are exempted from VAT and copra traders,
which the Court disagreed.

Lastly, petitioners argued that the Circular was counterproductive which the Court answers that it is a
question of wisdom or policy which should be addressed to respondent officials and to Congress.