Court holds that licensing of cinematographic films prior to October 2021 attracts 12% GST under SAC 997332, quashing tax demand of over Rs. 79 crores on Dharma Productions
In a landmark judgment delivered on September 10, 2026, the Bombay High Court (Division Bench comprising Justices M.S. Karnik and Sandesh D. Patil) clarified the Goods and Services Tax (GST) classification of licensing copyrights in cinematographic films. The case arose from writ petitions filed by Dharma Productions Pvt. Ltd. and Dharmatic Entertainment Pvt. Ltd. challenging orders passed by Maharashtra State Tax authorities demanding GST at 18% for licensing of film copyrights on the premise that such transactions fall under "Information Technology Software" licensing.
The dispute centered on the GST rate applicable to licensing of copyrights in cinematographic films by the original copyright holder or producer to distributors for theatrical exploitation prior to October 1, 2021. The Maharashtra tax authorities contended that such licensing constitutes supply of Information Technology (IT) software services taxable at 18% under Entry 17(ii) of Notification No.11/2017-Central Tax (Rate). The petitioners argued that licensing of cinematographic films is a distinct category of intellectual property rights (IPR) licensing, taxable at 12% under Entry 17(i) and classified under Service Accounting Code (SAC) 997332, specifically covering licensing for the right to broadcast and show original films.
The Court examined the statutory definitions, the Scheme of Classification of Services, and the mode of delivery of films (physical hard disk or digital link). Notably, the Court referred to Explanation 4(v) of the Rate Notification that defines "information technology software" as a representation of instructions, data, sound or image recorded in machine-readable form and capable of manipulation or interactivity. The Court held that a cinematographic film is a passive audio-visual work, incapable of manipulation or interactivity, and thus does not fall within the definition of IT software.
Further, the Court distinguished between SAC 997331 (licensing services for computer software and databases) and SAC 997332 (licensing services for the right to broadcast and show original films and related content). It emphasized that the tax authorities erred in collapsing these distinct service entries and imposing GST at 18% on film copyright licensing. The Court also rejected the reliance on a statement recorded from the petitioner's Post-Production Head regarding digital links, noting the absence of technical or expert evidence and non-supply of the statement to the petitioner.
The Court underscored that the mode of transmission-whether physical delivery or digital-cannot alter the essential character of the supply. Merely delivering film content digitally does not convert it into software. The Court further referred to administrative circulars and clarifications from the GST Council, which regularized GST payments on theatrical rights transactions between distributors and exhibitors on an "as is where is" basis at 12% for the relevant period, extending similar benefit to producers licensing films upstream.
Importantly, the Court held that the writ petitions were maintainable despite availability of statutory appeal remedies, as the impugned orders suffered from jurisdictional errors founded on erroneous statutory interpretation. The non-functionality of the GST Appellate Tribunal at the time of filing the petitions further supported this exercise of writ jurisdiction.
The tax demand confirmed against the petitioner aggregated to over Rs. 79 crore plus interest and penalty. The Court quashed all Orders in Original, Rectification Orders, and Orders in Appeal passed by Maharashtra GST authorities, thereby setting aside the GST demand and providing relief to Dharma Productions and Dharmatic Entertainment.
This judgment brings significant clarity to the film industry's GST compliance framework by affirming that licensing of copyrights in cinematographic films is not to be treated as IT software licensing for GST purposes prior to October 2021. The ruling is expected to have wide ramifications for intellectual property licensing and classification disputes under GST law.
Bottom Line:
GST - Licensing of copyright in cinematographic films by producer/original copyright holder for period prior to 01.10.2021 is not classifiable as licensing of "Information Technology Software" - Such supply falls under SAC 997332 / Entry 17(i) as licensing of intellectual property rights in respect of goods other than IT software taxable at 12% - Writ petition maintainable despite alternate remedy where impugned orders suffer from jurisdictional error founded on erroneous interpretation of statutory entry.
Statutory provision(s): Constitution of India Article 226, Central Goods and Services Tax Act, 2017 Sections 67, 73, 74, 112;.
Dharma Productions Pvt. Ltd. v. State of Maharashtra, (Bombay)(DB) : Law Finder Doc Id # 2982037
