Cinematographic Film Not "IT Software"; Mode Of Delivery Cannot Determine Classification: Bombay High Court
The Court set aside a Rs.79.72 Crore demand against Dharma Productions, and noted that the licensing of film copyright by producer is taxable at 12% GST, not 18%.
The Bombay High Court has held that a cinematographic film, being a passive audio-visual work incapable of execution, manipulation or interactivity, can never satisfy the statutory definition of "Information Technology Software" under the GST rate notification, regardless of the technology used to transmit it to a distributor. Setting aside an erroneous tax demand of over ₹79 crore, the Court granted full relief to Karan Johar-led Dharma Productions and Dharmatic Entertainment.
The Court further held that the mode of delivery, whether through physical handover of a hard disk or electronic transfer via a digital link, cannot determine the classification of a supply, which must instead turn on the essential character of the transaction itself. Applying this, the Court ruled that licensing of copyright in cinematographic films by a producer, as original copyright holder, to distributors is classifiable under Service Accounting Code 997332 (licensing services for the right to broadcast and show original films) attracting 12% GST, and not under the entry for "Information Technology Software" attracting 18% GST.
A Division Bench of Justice M.S. Karnik and Justice Sandesh D. Patil observed, “…. 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 scheme of Classification of Services confirms the distinction…the existence of a separate, specific SAC for cinematographic films demolishes the respondents’ assumption that such licensing can be subsumed within ‘software’”.
“…In our opinion, 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. Equating ‘digital content’ with ‘software’, the core error underlying the impugned orders, has no statutory basis”, the Bench said.
Senior Advocate Darius Shroff appeared for the petitioners and Jyoti Chavan, Additional Government Pleader appeared for the respondent.
The petitioners, engaged in producing and financing cinematographic films and web series, licensed theatrical, satellite and digital rights in their films to distributors under Rights License Agreements, classifying the supply under SAC 997332 at 12% GST. The Revenue took the view that since content was, in some instances, transferred through a password-secured digital link, the transaction constituted licensing of "Information Technology Software" under Heading 9973(ii), taxable at 18%, relying principally on a statement of the petitioners' Post-Production Head recorded during investigation.
Following search and inspection under Section 67 of the MGST Act on October 05, 2020, Form GST DRC-01A and subsequent show cause notices under Sections 74 and 73 of the CGST Act culminated in Orders in Original dated April 2021, followed by Rectification Orders dated August 09, 2021. Appeals filed before the Deputy Commissioner of State Tax were rejected by Orders in Appeal dated March 17th and 19th, 2025, prompting the writ petitions under Article 226 of the Constitution of India.
The Court found that the impugned orders never examined the statutory definition of "information technology software" under Explanation 4(v) of the Rate Notification, and failed to explain why two distinct SACs, 997331 for computer software and 997332 for original films, stood collapsed into one.
The alleged statement of the Post-Production Head, the Court observed, spoke only to the mode of transmission and could not, without technical or expert evidence, establish that the transaction was one of software licensing; moreover, the statement had never been furnished to the petitioner. The Court also rejected the Revenue's reliance on the Aspect Theory to treat mode of delivery as an independent classification criterion, holding that the theory operates in the field of legislative competence and has no application to classification of a single supply under a single statute.
This was held to be a jurisdictional error of law, not a disputed question of fact, justifying interference under Article 226 despite the alternative remedy before the GST Appellate Tribunal.
The writ petitions were allowed in terms of prayer clause (a), quashing the impugned Orders in Original, Rectification Orders and Orders in Appeal. No order as to costs.
Cause Title: Dharma Productions Pvt. Ltd. v. State of Maharashtra & Ors. (Neutral Citation: 2026:BHC-OS:20584-DB)
Appearances:
Petitioners: Darius Shroff, Senior Advocate, Prasad Paranjape and Kevin Gogri, Advocates instructed by Lumiere Law Partners.
Respondents: Jyoti Chavan, Additional Government Pleader, Amar Mishra, AGP.