A film does not turn into computer software simply because it reaches its recipient through a digital connection or an encrypted hard drive, the Bombay High Court has ruled.
The decision provides a clear distinction between digital content and information technology software for GST classification, while also setting aside a tax demand of more than ₹79.7 crore against Dharma Productions Pvt. Ltd. and Dharmatic Entertainment Pvt. Ltd.
The ruling was delivered by a division bench of Justice MS Karnik and Justice Sandesh D Patil in a dispute concerning tax assessments for the financial years 2017-18 to 2020-21.
The State Tax Department had treated the supply of film content as information technology software services under SAC 998340. That classification attracted GST at 18%.
The production companies took a different position. They argued that the transactions represented licensing of cinematographic film rights, falling under Heading 9973 and SAC 997332. Before a subsequent rate amendment took effect on October 1, 2021, supplies under that classification were taxed at 12%.
Digital format does not change the nature of a film
The tax department’s argument rested, in part, on how the content was supplied. Films transmitted electronically or delivered through encrypted hard drives, it argued, could be brought within the software classification.
The High Court rejected that approach.
The bench observed that a cinematographic film is essentially a passive audio-visual work. It does not execute instructions, operate as an interactive program or possess the characteristics ordinarily associated with software under the applicable statutory definition.
The Court consequently found no legal basis for treating a movie as IT software merely because its underlying file was digital.
The judges also stressed that GST classification must be determined by the essential character of the supply, rather than the technology used to transfer it.
In other words, changing the delivery mechanism—from a physical medium to an electronic transfer—does not by itself change what is being supplied.
High Court allows writ challenge
The State had also questioned the maintainability of the companies’ petitions, arguing that an alternative remedy was available before the appellate tribunal.
The High Court nevertheless held that the petitions could be entertained under Article 226 of the Constitution.
According to the bench, the dispute involved a fundamental error in the exercise of taxing jurisdiction because the authorities had relied on an incorrect interpretation of the relevant statutory classification.
The Court therefore quashed both the assessment and appellate orders, effectively setting aside the tax demand exceeding ₹79.7 crore.
The ruling underlines a broader point in GST classification disputes involving digital goods: the fact that something is delivered digitally does not, by itself, determine what the underlying supply legally is.
