Bombay High Court Rules in Favor of Dharma Productions in GST Tax Dispute

Court Ruling

Dharma Productions has won a legal battle in the Bombay High Court against a tax demand of Rs. 12.11 crores. The dispute involved Goods and Services Tax payments for licensing film copyrights.

The Financial Dispute

A bench of Justice M.S. Karnik and Justice Sandesh D. Patil heard petitions filed by Dharma Productions and Dharmatic Entertainment. The case covered the financial years from 2017-18 to 2020-21. During this time, licensing intellectual property rights for non-software goods had a GST rate of 12 percent. Meanwhile, IT software licensing was taxed at 18 percent. Tax authorities demanded Rs. 9.99 crores in unpaid tax, Rs. 1.23 crores in interest, and Rs. 99.99 lakhs as penalty from Dharma.

Rights and Classification

Dharma had signed Rights Licence Agreements for theatrical, sound, satellite, and digital rights. The company paid a 12 percent tax rate by classifying these under SAC code 997332, which applies to broadcasting and showing original films and sound recordings. Tax authorities later tried to charge the higher 18 percent software rate. They used a statement from Dharma's Post-Production Head about digital film transmission to support their claim.

Court's Decision

The High Court rejected the tax department's stance. It ruled that sending films electronically does not make them IT software. The court noted that a film is a passive audio-visual work that lacks the interactivity and execution features of software. Furthermore, the court criticized tax officials for using the Post-Production Head's statement without sharing it with Dharma, and for bringing up new arguments only at the reply stage.