The Bombay High Court has annulled a ₹79.7 crore GST demand against Karan Johar’s firms, ruling that cinematographic films do not qualify as information technology software, setting a significant precedent in tax classification disputes.
The Bombay High Court has struck down a Goods and Services Tax demand of more than ₹79.7 crore against Karan Johar’s Dharma Productions and Dharmatic Entertainment, ruling that cinematographic films do not become information technology software merely because they are supplied on a hard disk or through a digital link. The case arose from a dispute over how the companies’ film-rights licensing should be classified under GST, with tax officials seeking to apply the higher 18% rate reserved for IT software services.
According to the judgment delivered on September 10 by Justices M S Karnik and Sandesh Patil, the method used to hand over the content cannot decide the tax treatment. The court said a film is a passive audio-visual work and does not have the features of software, such as execution, manipulation or interactivity, that would bring it within the statutory definition. It also found no legal basis for equating digital delivery with software classification.
The tax department had argued that the companies’ supply of film content through digital links or physical media amounted to a service covered by the SAC code for IT software, while Dharma Productions and Dharmatic Entertainment maintained that they were licensing intellectual property in cinematographic films. On that basis, they said the relevant GST rate during the period from 2017-18 to 2020-21 was 12%, not 18%, because the transaction fell under a separate category for film-rights licensing.
The ruling adds to a run of recent Bombay High Court decisions that have examined how GST demands are calculated and what counts as final liability in tax disputes. In an unrelated August ruling involving IBM India, the same court ordered a refund of a portion of a GST pre-deposit after holding that a part of the underlying demand had already been set aside and had therefore attained finality.
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