The Bombay High Court has said that under the GST law, a cinematographic film is not IT software even if it is delivered through a digital link or hard disk, and quashed a tax demand of more than Rs 79.7 crore from Karan Johar’s two production companies.
In a judgment passed on September 10, a Division Bench of the Bombay High Court (comprising Justices M.S. Karnik and Sandesh D. Patil) ruled that the mode of delivery, whether physical or electronic, is irrelevant to tax classification under GST law. The ruling came in a petition filed by Karan Johar’s Dharma Productions and Dharmatic Entertainment.
There is no evidence to prove how a cinematographic film, which is a passive audio-visual work incapable of execution, manipulation, or interactivity, can fulfil the statutory definition of information technology software.
The High Court stated that the mode of distribution, whether the content is transmitted physically (via hard disk) or electronically, cannot determine its classification. The Court further observed that no legal basis exists to equate digital content with software.
The issue is related to the classification of copyright licensing of films.
Read Also: Bombay HC Cancels GST DGGI Seizure, Orders ₹1 Cr Cash Refund
Under Services Accounting Code (SAC) 998340, tax authorities treated the transactions as licensing of IT software. It thus attracts 18% GST.
For the period covering FY 2017-18 through FY 2020-21, the State Tax Department raised a total GST demand of ₹79.7 crore against the petitioners.
Revenue authorities contended that distributing cinematographic film content via encrypted hard disks or digital links reclassified the underlying transactions as “Information Technology Software Services” (taxable at 18% GST), rather than copyright licensing of audio-visual works.
Recommended: GST Impact on the Indian IT Industry
Subsequently, Dharma Productions and Dharmatic Entertainment filed a petition in the High Court challenging this demand. They argued that they were licensing intellectual property rights for cinematographic films under SAC 997332, which attracted 12% GST at the time.
News Source: www.economictimes.indiatimes.com
