Dharma Productions has recently won a significant legal battle in the Bombay High Court regarding a GST dispute amounting to ₹12.11 crores related to the licensing of copyright for its films. The court ruled in favor of Dharma Productions, stating that simply delivering film content electronically does not classify it as “Information Technology Software.”
A bench of Justice M.S. Karnik and Justice Sandesh D. Patil reviewed petitions from Dharma Productions and Dharmatic Entertainment, challenging the GST authorities’ classification of their licensing deals. The conflict dates back to the financial years between 2017 and 2021, during which licensing intellectual property rights in areas other than IT software was taxed at 12%, while IT software licensing was subjected to an 18% tax rate. The demand against Dharma included ₹9.99 crores in tax, ₹1.23 crores in interest, and ₹99.99 lakhs as a penalty.
Dharma Productions, known for developing and financing films, had set up Rights Licence Agreements covering several types of rights, including theatrical and digital. They classified these transactions under SAC 997332, which pertains specifically to licensing the rights to broadcast and show original films and similar content, and they paid the applicable GST at 12%.
However, tax authorities later claimed that these transactions should be seen as licensing of IT software, which brought about the higher tax rate. They based this claim partly on a statement by Dharma’s Post-Production Head which discussed the digital transmission of films.
The court clarified the difference between the content of the film itself and how it is delivered. It pointed out that SAC 997331 exclusively deals with licensing computer software, while SAC 997332 is focused on cinematographic films and related works.
Additionally, the court emphasized that a film is a “passive audio-visual work,” incapable of being manipulated or interacted with in the way software typically is. The authorities had failed to provide any technical evidence or programming details to support their position.
The bench also criticized the tax authorities for relying on the Post-Production Head’s statement without presenting it to Dharma and for introducing new arguments related to the classification of services at a later stage, rather than in their initial notices.
Ultimately, the High Court dismissed the tax demand, ruling that the licensing of copyright in films should not be treated as IT software, thus allowing the petitions filed by Dharma Productions.
