The Bombay High Court quashed a GST demand of over ₹79.7 crore against Dharma Productions and Dharmatic Entertainment, ruling that cinematographic films do not become information technology software through digital delivery. The court held that film copyright licensing should be classified by the nature of supply, not the method of transmission, and set aside tax orders.

Bombay High Court Quashes ₹79.7 Crore GST Demand Against Dharma Productions, Says Films Are Not IT Software | AI

Mumbai: The Bombay High Court has held that a cinematographic film does not become “information technology software” under GST merely because it is delivered through a digital link or on a hard disk, quashing a tax demand of over Rs 79.7 crore against Dharma Productions Pvt. Ltd. and Dharmatic Entertainment Pvt. Ltd.

A bench of Justices MS Karnik and Sandesh Patil passed the judgment on September 10 while dealing with the companies’ challenge to GST demands for the financial years 2017-18 to 2020-21.

The dispute concerned the classification of copyright licensing of films. The tax authorities treated the transactions as licensing of information technology software under Services Accounting Code (SAC) 998340, attracting 18% GST. The companies argued that they were licensing intellectual property rights in cinematographic films under SAC 997332, which attracted 12% GST during the relevant period, before the rate was revised from October 1, 2021.

The court rejected the department’s argument that the digital mode of delivery changed the classification of the transaction.

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It noted that the GST notification defines “information technology software” as a representation of instructions, data, sound or image recorded in machine-readable form and capable of being manipulated or providing interactivity to a user.

“There is no finding, much less a finding, as to how a cinematographic film, a passive audio visual work, incapable of execution, manipulation or inter-activity could ever satisfy the statutory definition ‘information technology software’,” the court said.

The bench also held that the manner in which the film content is delivered cannot determine its GST classification.

“Whether content is transmitted physically (encrypted hard disks) or electronically, the mode of delivery cannot determine classification, which must turn on the essential character of the supply,” it said.

The court further observed that equating digital content with software had no statutory basis.

The department opposed the petitions on the ground that the companies had an alternative remedy before the GST Appellate Tribunal. The court held that the petitions were maintainable under Article 226 as the case involved a clear error of law going to the root of the authorities’ jurisdiction.

“The authority that assumes the power to tax a transaction by misconstruing the governing statutory entry and definition, acts without jurisdiction,” the bench held.

It consequently quashed the assessment and appellate orders.

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