Dharma Productions Triumphs in Rs. 12.11 Crore GST Case at Bombay High Court
Dharma Productions has received a significant legal victory from the Bombay High Court regarding a GST dispute amounting to Rs. 12.11 crores. The court quashed the tax demand after determining that the electronic delivery of film content does not classify it as “Information Technology Software.” This ruling comes as a relief for the production house, which has been embroiled in the matter concerning the licensing of copyright in its cinematographic films.
Court’s Ruling on GST Classification
A bench consisting of Justice M.S. Karnik and Justice Sandesh D. Patil reviewed petitions filed by Dharma Productions and Dharmatic Entertainment. They challenged the GST authorities’ classification of their film-rights licensing transactions. The dispute spans the financial years 2017-18 to 2020-21. During this period, licensing intellectual property rights in goods other than IT software was taxed at 12%, while IT software attracted an 18% tax rate. The demand against Dharma included Rs. 9.99 crores in tax, Rs. 1.23 crores in interest, and Rs. 99.99 lakhs as a penalty.
Dharma Productions, known for producing, developing, and financing films, had entered into Rights Licence Agreements covering various rights, including theatrical, sound, satellite, and digital. They classified these transactions under SAC 997332, which pertains specifically to licensing the right to broadcast and show original films and sound recordings, paying GST at the 12% rate.
Dispute Over Licensing Classification
The tax authorities later reclassified these transactions as licensing of IT software, applying the higher 18% tax rate. They based their argument on a statement from Dharma’s Post-Production Head regarding the digital transmission of films. However, the High Court made a clear distinction between the content itself and the method of delivery. The court noted that SAC 997331 pertains to licensing of computer software and databases, while SAC 997332 specifically addresses cinematographic films and similar works.
The court emphasized that a film is a “passive audio visual work” and does not possess the qualities of execution, manipulation, or interactivity as defined by software. Furthermore, the authorities failed to provide technical evidence, executable programming, or software architecture to support their claims. The bench also pointed out that the mode of transmission—whether through encrypted hard disks or electronically—should not dictate the GST classification. Instead, the classification must be based on the essential character of the supply.
Criticism of Tax Authorities’ Approach
The court criticized the tax authorities for relying on the statement from the Post-Production Head without sharing it with Dharma. Additionally, the introduction of an OIDAR-services argument at the reply stage, rather than in the original show cause notices, was deemed inappropriate.
Ultimately, the petitions were allowed, with the court concluding that the authorities had acted on an erroneous legal premise by treating the licensing of copyright in cinematographic films as IT software.
Observer Voice is the one stop site for National, International news, Sports, Editor’s Choice, Art/culture contents, Quotes and much more. We also cover historical contents. Historical contents includes World History, Indian History, and what happened today. The website also covers Entertainment across the India and World.
