A two-judge bench ruled that films delivered on hard disks or digital links are still films, not software, sparing Karan Johar's companies a four-year tax bill.
Karan Johar's Dharma Productions just won a fight most people didn't know it was fighting.
The Bombay High Court has quashed a GST demand of over ₹79.7 crore raised against Dharma Productions Pvt. Ltd. And Dharmatic Entertainment Pvt. Ltd., ruling on September 10 that a film does not turn into "information technology software" simply because a studio hands it over on an encrypted hard disk or through a digital link. Justices MS Karnik and Sandesh Patil delivered the order.
The money was never really about a movie. It was about a tax code.
GST authorities had assessed Dharma's copyright licensing deals for financial years 2017-18 through 2020-21 under Services Accounting Code 998340, the bracket for IT software, which draws 18% GST. Dharma's position was that it was licensing intellectual property in cinematographic films, which falls under SAC 997332 and carried 12% GST before the rate changed on October 1, 2021. Six percentage points on years of licensing revenue adds up fast, and that's how you get to a demand north of ₹79 crore.
The court sided entirely with Dharma. It went back to how the GST notification actually defines software, as instructions, data, sound or image recorded in a form a user can manipulate or interact with. A film, the bench said, is a passive audio-visual work. You can't execute it, manipulate it or interact with it the way you would a piece of code.
"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 bench observed.
The department's real fallback argument was about delivery mode, that pushing content through a digital pipe rather than physically shipping a disk somehow changed what was being sold. The court wasn't having it. Classification, it said, has to rest on the essential character of the supply, not on whether the file moved by cable or courier.
Tax authorities also tried to get the petitions thrown out on a technicality, arguing Dharma should have gone to the GST Appellate Tribunal instead of the High Court. The bench rejected that too, holding that when an authority taxes a transaction by getting the underlying legal definition wrong, it's acting outside its jurisdiction altogether, and that's exactly the kind of error a writ petition under Article 226 is built to fix.
With both the original assessment and the appellate orders now quashed, the ruling effectively closes this chapter for Dharma. But it's bigger than one production house. Every studio that licenses content digitally and has faced a similar 18% software-rate demand now has a Bombay High Court judgment to point to. Whether the tax department appeals to a larger bench is the next thing to watch.
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