The court ruled that licensing film copyrights cannot be treated as IT software, overturning a hefty tax demand spanning four financial years.
A win that hits the tax ledger hard
Dharma Productions walked out of the Bombay High Court with a clean sheet and a refund of more than Rs 12 crore. The bench, led by Justices M.S. Karnik and Sandesh D. Patil, threw out a demand that had piled up from the 2017‑18 to 2020‑21 financial years. The crux? The tax board had slapped an 18% GST rate on the studio’s film‑rights licences, classifying them as information‑technology software.
Why the classification mattered
Under Indian GST law, licensing of non‑software intellectual property attracts a 12% rate, while genuine software licences are taxed at 18%. Dharma had filed Rights Licence Agreements for theatrical, satellite, sound and digital streams, and paid the lower rate under SAC 997332 – a code that explicitly covers cinematographic works. The authorities, however, argued that because the content could be delivered electronically, it fell under the software bracket (SAC 997331).
The court’s dissection
The judges made a clear distinction between the nature of the product and the method of delivery. They noted that a film is a “passive audio‑visual work” and lacks the executable, interactive qualities that define software. The bench also pointed out that the tax department offered no technical proof – no code, no architecture – to back its claim. Merely sending a movie over encrypted drives or via the internet, the court said, cannot change its fundamental character.
What the judgment says for the industry
By rejecting the software label, the ruling safeguards a large swathe of film‑related transactions from higher GST. Studios that license movies for TV, OTT platforms or overseas broadcasters can now continue to rely on the 12% rate, provided they fall under the correct SAC code. Legal experts say this could curb future disputes where tax officials try to stretch definitions to capture more revenue.
The numbers behind the relief
The demand that was set aside comprised Rs 9.99 crore in tax, Rs 1.23 crore as interest and a penalty of Rs 99.99 lakh. All of it has now been nullified, giving Dharma a significant cash‑flow boost as it gears up for several releases slated for the end‑year slate.
A procedural footnote
The bench also criticised the tax department for introducing an OIDAR‑services argument only at the reply stage, and for relying on a statement from Dharma’s post‑production head without sharing it with the studio. Such procedural lapses, the judges observed, weakened the authorities’ case.
Looking ahead
While Dharma celebrates the win, the decision may prompt other production houses to revisit their GST filings. The tax board could appeal, but any reversal would have to grapple with the court’s emphasis on the ‘essential character’ of the supply. For now, the verdict is a reassuring signal that film copyrights remain distinct from software in the eyes of the law.
The industry will be watching how quickly the GST machinery adapts to this clarification, especially as digital distribution continues to expand.
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