In a significant ruling, the Bombay High Court determined that cinematographic films do not qualify as information technology software under the Goods and Services Tax (GST) framework, even when delivered through digital links or hard disks. This judgment, delivered in the case of Dharma Productions Pvt Ltd v. State of Maharashtra & Ors., led to the setting aside of a substantial tax demand exceeding ₹79.7 crore against Dharma Productions Pvt. Ltd. and Dharmatic Entertainment Pvt. Ltd.
The decision was rendered by a division bench consisting of Justice MS Karnik and Justice Sandesh D Patil on September 10. The controversy revolved around tax demands for the fiscal years 2017-18 to 2020-21, issued by the State Tax Department, which argued that the digital delivery of film content qualified as IT software services under SAC 998340, thus incurring an 18 percent GST rate.
Dharma Productions contended that the licensing of film rights should be categorized under Heading 9973 (SAC 997332), which attracted a reduced GST rate of 12 percent before the amendment notification on October 1, 2021. The court sided with Dharma Productions, rejecting the revenue department’s argument concerning digital delivery modes, emphasizing that passive film content cannot constitute software as per the statutory definition.
Justice MS Karnik and Justice Sandesh Patil highlighted that a cinematographic film, as a passive audiovisual product, does not meet the criteria of being executable, manipulable, or interactive, which are essential characteristics of information technology software. Therefore, the court found the tax department’s classification unfounded.
The bench further clarified that the method of content delivery, whether via encrypted hard disks or electronic transmission, should not dictate tax classification. The court stated, “Whether content is transmitted physically 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 State raised a preliminary argument regarding the availability of an alternative remedy through the appellate tribunal. However, the High Court maintained that its writ jurisdiction under Article 226 was justified due to a fundamental jurisdictional error. The bench concluded that when an authority misinterprets statutory entries to assume taxing power, it acts beyond its jurisdiction.
Consequently, the court annulled the assessment and appellate orders. Representing Dharma Productions were Senior Advocate Darius Shroff, along with advocates Prasad Paranjape and Kevin Gogri, briefed by Lumiere Law Partners. Additional government pleaders Jyoti Chavan and Amar Mishra represented the State.
