The Bombay High Court has allowed writ petitions filed by Dharma Productions Pvt. Ltd. and Dharmatic Entertainment Pvt. Ltd., setting aside the GST proceedings concerning the classification of licensing of copyright in cinematographic films for the period prior to October 1, 2021.
The Bench of Justice M. S. Karnik and Justice Sandesh D. Patil has observed that the authorities had proceeded on a fundamental error of law by treating licensing of cinematographic film copyrights as licensing of “Information Technology Software”.
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The bench found that the error went to the root of the authorities’ jurisdiction and therefore warranted interference under Article 226 of the Constitution despite the availability of an appellate remedy.
The dispute arose for FY 2017-18 to FY 2020-21, when the GST rate structure under Heading 9973 contained separate entries for intellectual property rights relating to goods other than IT software and those relating to IT software.
The principal question before the Court was whether licensing of copyright in cinematographic films by the producer and original copyright holder was taxable at 12% under Entry 17(i) as licensing of intellectual property rights in goods other than IT software, or at 18% under Entry 17(ii) as licensing of IT software.
The disputed tax amount in the Dharma Productions petition was stated to be ₹79,72,68,337, apart from interest and penalty.
Dharma Productions is engaged in producing, developing and financing cinematographic films, web series and other audio-visual content. As the producer, it owns the intellectual property rights, including copyrights in the films it produces. The rights include copyright in the script, dialogues, musical works, sound recordings and the film as a whole.
The company entered into Rights License Agreements with distributors, granting rights such as theatrical, sound, satellite and digital rights for specified periods and territories. In several transactions, the film content was supplied on hard disks to distributors, while in some cases the content was transferred electronically. The petitioner maintained that no software was supplied as part of these transactions.
The petitioner relied upon Entry 5(c) of Schedule II to the CGST Act, under which temporary transfer or permitting the use or enjoyment of intellectual property rights is treated as a supply of services.
It classified its transactions under SAC 997332, covering licensing services for the right to broadcast and show original films, sound recordings, radio and television programmes and similar content. It accordingly discharged GST at 12% under Heading 9973 during the disputed period. The rate was subsequently changed to a uniform 18% with effect from October 1, 2021.
The Maharashtra GST authorities initiated search and inspection proceedings under Section 67 of the MGST Act on October 5, 2020.
During the proceedings, the petitioner deposited ₹5 crore under protest, comprising ₹3 crore for FY 2018-19 and ₹2 crore for FY 2019-20, through Form DRC-03.
The department subsequently issued DRC-01A communications proposing differential tax, interest and penalty for FYs 2017-18 to 2020-21. Show cause notices were also issued under Section 74 of the CGST Act.
After considering the petitioner’s replies and providing a personal hearing, the adjudicating authority passed Orders-in-Original confirming the demand in April 2021. Rectification orders were subsequently issued in August 2021.
The petitioner filed appeals, but the appellate authority rejected them through orders passed in March 2025.
Before the High Court, the State argued that the transactions were correctly classifiable under SAC 998340 relating to Information Technology Software services, attracting 18% GST.
The department relied, among other things, upon a statement attributed to the petitioner’s Post-Production Head, according to which a link used to transfer films in digital format was created in software format.
The State also argued that digital film content represented data, sound or images recorded in machine-readable form and therefore fell within the statutory definition of “information technology software”. It further sought to rely upon the concept of OIDAR services and contended that digital content supplied through technological infrastructure should attract the higher rate.
The Court noted that Heading 9973 of the relevant rate notification, applicable between July 1, 2017 and September 30, 2021, consciously created two separate entries.
Entry 17(i) covered temporary or permanent transfer or permitting the use or enjoyment of intellectual property rights in goods other than IT software, while Entry 17(ii) covered corresponding rights in IT software.
The notification separately defined “information technology software” as a representation of instructions, data, sound or image, including source code and object code, recorded in machine-readable form and capable of being manipulated or providing interactivity to a user through a computer or other device.
The Court also examined the Scheme of Classification of Services. Significantly, SAC 997331 deals with licensing services for computer software and databases, whereas SAC 997332 specifically covers licensing services for the right to broadcast and show original films, sound recordings, radio and television programmes and similar content.
The Bench found a fundamental problem with the department’s reasoning.
According to the Court, a cinematographic film is a passive audio-visual work and the impugned orders did not explain how such a work, which is incapable of execution, manipulation or interactivity in the sense contemplated by the statutory definition, could qualify as information technology software.
The Court observed that the Scheme of Classification itself separately recognises licensing of computer software and databases and licensing of original films. The existence of the specific SAC for cinematographic films undermined the assumption that licensing of such films could simply be subsumed within software licensing.
The Court therefore held that confirmation of the demand without identifying and applying the correct tariff entry, and without explaining why the two distinct SACs were being treated as one, constituted a manifest and unreasoned error of law.
An important aspect of the judgment concerns the manner in which films are supplied.
The Court held that whether the content is transmitted physically through encrypted hard disks or electronically, the mode of delivery cannot by itself determine the classification of the supply.
Instead, classification has to be determined by the essential character of the transaction. The Court rejected the reasoning that merely because film content is supplied in digital form, it automatically becomes “software”.
The Bench also noted that the alleged statement of the Post-Production Head dealt only with the mode of transmission. No technical material, expert evidence, executable programme or software architecture had been produced to establish that the cinematographic content itself constituted software.
Importantly, the Court further observed that the statement had not been furnished to the petitioner, and therefore the adjudicating authority could not properly rely upon it against the petitioner.
The Court considered the GST Council’s recommendations and the CBIC circulars issued in October 2024 concerning the treatment of film-related transactions for the period before October 1, 2021.
The circulars addressed the competing GST entries and recommended regularisation on an “as is where is” basis for specified transactions between distributors and exhibitors. The Court noted that the GST Council had recognised the overlap between the relevant entries and that the rates were subsequently harmonised at 18% from October 1, 2021.
The Court rejected the attempt to restrict the benefit of the clarification solely to downstream distributor-exhibitor transactions. It observed that the classification of theatrical rights could not change merely because the rights moved from one link in the film exploitation chain to another.
The judgment records that there was no material difference, for classification purposes, between the licence granted by the rights holder to the distributor and the licence granted by the distributor to the exhibitor in the context considered by the Court.
The State had raised a preliminary objection that the writ petitions should not be entertained because an alternative statutory remedy was available before the GST Appellate Tribunal under Section 112 of the CGST Act read with the MGST Act.
The High Court considered the general rule that writ jurisdiction ordinarily should not be exercised where an effective alternative remedy is available.
However, relying upon Supreme Court precedents including Whirlpool Corporation and Godrej Sara Lee Ltd., the Court noted that the existence of an alternative remedy does not completely bar writ jurisdiction where the proceedings suffer from a jurisdictional error or other recognised exceptional circumstances.
The Court observed that although the GST Appellate Tribunal had become functional by the time the matter was heard, it would still entertain the writ petitions because the dispute did not involve disputed questions of fact requiring detailed adjudication.
Instead, the Court found an error of law going to the root of jurisdiction.
The Bench also criticised the manner in which the adjudication and appellate orders had been passed.
According to the judgment, the Orders-in-Original substantially reproduced the allegations contained in the show cause notices without independently analysing the detailed submissions made by the petitioner.
The appellate orders did not cure the defect because they failed to adequately deal with the petitioner’s submissions concerning the applicable tariff entry, the statutory definition of IT software and the Scheme of Classification of Services.
The Court emphasised that mere reproduction of facts, submissions or case law does not amount to reasoned adjudication.
Ultimately, the Bombay High Court held that the impugned orders suffered from jurisdictional errors apparent on the face of the record and that deciding the matter did not require adjudication of disputed questions of fact.
The Court therefore proceeded to exercise its writ jurisdiction rather than remitting the matter to the tax authorities.
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