The Bombay High Court has set aside a ₹79.7 crore GST demand raised against filmmaker Karan Johar's production companies, Dharma Productions and Dharmatic Entertainment, in a dispute over the tax classification of cinematographic films.
A division bench of Justices M S Karnik and Sandesh Patil ruled that a cinematographic film cannot be classified as “information technology software” simply because the film is supplied through a digital link or on a hard disk. The judgment was passed on September 10 and was reported publicly on September 23.
Editorial Insight
Key Highlights
Important points readers should notice.
Issue/Event: Bombay High Court sets aside ₹79.7 crore GST demand.
Location: Mumbai, Maharashtra.
Authority/Organisation: Bombay High Court.
Action Taken: Court rejected classification of cinematographic films as IT software solely because of digital delivery.
Impact: GST demand raised against Dharma Productions and Dharmatic Entertainment was set aside.
The dispute relates to the copyright licensing of films during the financial years 2017-18 to 2020-21.
Tax authorities had treated the transactions as licensing of IT software under Services Accounting Code (SAC) 998340, attracting an 18% GST rate. The companies challenged this classification before the Bombay High Court.
Dharma Productions and Dharmatic Entertainment argued that the transactions involved licensing of intellectual property rights in cinematographic films under SAC 997332, which attracted a 12% GST rate during the relevant period.
Editorial Analysis
Why This Matters
The ruling addresses an important GST classification question involving the film and digital-content industry. It establishes that the method used to deliver a film does not by itself determine whether the underlying transaction qualifies as IT software for GST purposes. The judgment could also be relevant to how similar copyright-licensing transactions involving cinematographic films are evaluated under the GST framework, subject to the specific facts and applicable tax provisions.
The court found no statutory basis for treating a cinematographic film as IT software merely because it was delivered electronically or through physical storage media.
The bench noted that a film is a passive audio-visual work and does not possess the characteristics of software involving execution, manipulation or interactivity. The court also held that the mode of delivery cannot determine the tax classification of the underlying content.
The tax demand of approximately ₹79.7 crore covered the four financial years from 2017-18 through 2020-21.
The ruling therefore removes the disputed GST demand that had been raised on the basis that digital delivery of film content brought the transactions within the IT-software classification.
