Movie is not IT software even if delivered via digital link or hard disk: Bombay High Court

A cinematographic film is not information technology software under Goods and Services Tax (GST) law even if it is delivered via digital link or hard disk, the Bombay High Court recently held [Dharma Productions Pvt Ltd v. State of Maharashtra & Ors.].

Hence, it set aside a tax demand of over ₹79.7 crore levied on Dharma Productions Pvt. Ltd. and Dharmatic Entertainment Pvt. Ltd.

The judgment was passed by a division bench of Justice MS Karnik and Justice Sandesh D Patil on September 10.

The State Tax Department had raised tax demands for the period between FY 2017-18 and FY 2020-21. 

Tax authorities argued that delivering film content through digital links or hard disks brought the transaction under IT software services (SAC 998340). This attracted an 18 percent GST rate.

Dharma Productions countered that licensing film rights falls under Heading 9973 (SAC 997332), which was subject to a lower rate of 12 percent GST prior to the amendment notification on October 1, 2021.

The bench rejected the revenue department's position on digital delivery modes. It stressed that passive film content fails to meet the statutory definition of software under the Rate notification.

“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 order. 

The bench further emphasised that the mode of delivery remains irrelevant to tax 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. Equating “digital content” with “software”, the core error underlying the impugned orders, has no statutory basis,” the judgment said.

The State also raised a preliminary objection regarding the availability of an alternative remedy before the appellate tribunal. The High Court held that writ jurisdiction under Article 226 was maintainable due to a foundational jurisdictional error. 

The bench affirmed that an authority misconstruing statutory entries to assume taxing power acts without jurisdiction.

Hence, it quashed the assessment and appellate orders.

Senior advocate Darius Shroff with advocates Prasad Paranjape and Kevin Gogri briefed by Lumiere Law Partners appeared for Dharma. 

Additional government pleaders Jyoti Chavan and Amar Mishra appeared for the State. 

[Read order]