Bombay HC Rules Cinema is Not Software for GST Purposes

The Bombay High Court has ruled that films, even when delivered digitally, cannot be classified as Information Technology (IT) software for Goods and Services Tax (GST) purposes. The judgment, delivered on September 10, quashed GST orders issued against Dharma Productions, a film production company partly owned by Karan Johar. The dispute involved potential tax liabilities exceeding Rs 12 crore, including penalties.

The core issue revolved around the tax treatment of digitally delivered cinema. GST officials argued that films, when transferred via software or applications, qualified as IT software, attracting an 18% tax rate. This contrasted with the 12% rate applicable to the transfer or licensing of intellectual property rights in goods other than IT software, a distinction that existed before October 2021.

However, the High Court found that a cinematographic film, being a passive audiovisual work, does not satisfy the definition of "information technology software." The court stated, "The impugned orders do not deal with the definition of ‘Information Technology Service’ at all. There is no finding, much less a finding, as to how a cinematographic film... could ever satisfy the statutory definition ‘information technology software.’" The court emphasized that IT software requires interactivity, a feature not inherent in film viewing.

The Maharashtra GST Department had argued that digital film delivery constituted an Online Information Database Access and Retrieval (OIDAR) service. They contended that the mode of delivery, whether via secure link or hard drive, rendered the film machine-readable data falling under IT software. They also invoked the "Aspect Theory," suggesting taxation should be based on the dominant aspect of the transaction, which they claimed was the IT/OIDAR service.

Dharma Productions maintained that films were delivered via physical hard drives, and any electronic delivery did not involve the transfer of software. While the court acknowledged a statement from a Dharma production head regarding a "software format" link, it ultimately ruled that the mode of delivery cannot determine the tax classification of content. This decision clarifies the tax treatment of films and distinguishes them from software services.