Bombay High Court sets aside Rs 79.7 crore GST demand on film rights

MUMBAI: In this tax tale, the format may have changed, but the film stayed a film. The Bombay High Court has ruled that a cinematographic film cannot be classified as information technology software under GST merely because it is delivered digitally or through a hard disk.

The September 10 judgment, delivered by a bench of Justices M S Karnik and Sandesh Patil, came in petitions filed by Dharma Productions and Dharmatic Entertainment challenging GST demands relating to financial years 2017-18 to 2020-21.

The court set aside tax demands exceeding Rs 79.7 crore against the two companies, ruling that the method used to deliver a film does not, by itself, determine its classification under GST.

The dispute centred on the licensing of copyright in cinematographic films. Tax authorities had classified the transactions as licensing of information technology software under Services Accounting Code (SAC) 998340, which attracted 18 per cent GST during the relevant period.

The state tax department argued that delivering film content through digital links or hard disks brought the transactions within the scope of IT software services.

Dharma Productions and Dharmatic Entertainment, however, maintained that the transactions involved licensing intellectual property rights in cinematographic films. They argued that these fell under SAC 997332, which attracted 12 per cent GST during the period in question.

The High Court rejected the approach that the delivery mechanism could determine whether the underlying content was software.

According to the court, a cinematographic film is a passive audio-visual work and does not possess the characteristics associated with software, such as being capable of execution, manipulation or interactive operation.

The judgment also found no statutory basis for treating digital content as software simply because it is supplied electronically.

That distinction is at the heart of the ruling: the court separated what the product actually is from how it reaches the customer. A film sent through a digital link does not become software simply because there is no physical disc or print involved.

The court therefore held that whether a cinematographic film is transmitted electronically or supplied physically through a hard disk cannot, by itself, change its GST classification. The disputed tax demand was consequently set aside.

The ruling relates specifically to the classification of film-rights licensing transactions during FY18 to FY21, a period that coincided with the rapid expansion of digital distribution.

For film producers and rights holders, the judgment brings the tax treatment of these particular transactions into sharper focus, while underscoring the court’s distinction between the nature of copyrighted content and the technology used to deliver it.