Cinema VinesDharma Productions has won a significant tax victory after the Bombay High Court quashed a ₹12.11‑crore Goods and Services Tax (GST) demand that had been levied on the company’s licensing of cinematographic film rights. The court ruled that the electronic delivery of film content does not automatically classify the supply as “Information Technology Software,” and therefore the higher 18% GST rate applied to IT software is inapplicable.
The dispute spanned the financial years 2017‑18 to 2020‑21, during which Dharma, a major film production and financing house, entered into rights‑licence agreements covering theatrical, sound, satellite and digital rights. These agreements were filed under SAC 997332, a tax code that specifically covers the licensing of cinematographic films and similar works, and the company paid GST at the 12% rate. The tax authorities later re‑classified the transactions as licensing of IT software and demanded an additional 18% tax, citing a statement from Dharma’s Post‑Production Head about digital transmission.
In its ruling, the bench of Justice M.S. Karnik and Justice Sandesh D. Patil highlighted the distinction between the content itself and the mode of delivery. The court noted that a film is a “passive audio‑visual work” that lacks the execution, manipulation or interactivity characteristic of software. It also pointed out that the authorities failed to provide any technical evidence, such as executable programming or software architecture, to support their classification. The court therefore held that GST classification must be based on the essential nature of the supply, not on how it is transmitted.
Further, the bench criticised the tax authorities for relying on the Post‑Production Head’s statement without providing it to Dharma and for introducing an OIDAR‑services argument only at the reply stage instead of in the original show‑cause notices. The court concluded that the authorities had proceeded on an erroneous legal premise by treating the licensing of copyright in cinematographic films as IT software.
As a result, the court allowed the petitions filed by Dharma Productions and Dharmatic Entertainment, quashed the ₹9.99‑crore tax demand, ₹1.23‑crore interest and ₹99.99‑lakh penalty, and affirmed that the company’s licensing transactions remain subject to the 12% GST rate under SAC 997332.
