Bombay High Court Scraps ₹79.7 Crore GST Notice Against Dharma Productions

22 Sep 2026, 13:51 by Vinay Kakkad · KalingaTV

Mumbai: In a major ruling for India’s media and entertainment industry, the Bombay High Court has struck down a tax demand of over ₹79.72 crore against Karan Johar’s Dharma Productions and its digital arm, Dharmatic Entertainment

The court ruled that licensing a feature film or web series does not become “Information Technology Software” merely because the studio handed over master video files using encrypted hard drives or secure digital download links.

The judgment, delivered by a Division Bench comprising Justice M.S. Karnik and Justice Sandesh D. Patil, brings an end to a high-stakes tax dispute spanning four financial years (2017–18 to 2020–21). At its core was an aggressive reclassification attempt by tax authorities that could have disrupted digital content distribution models across Bollywood and streaming platforms nationwide.

How the Dispute Began

Between July 2017 and March 2021, Dharma Productions licensed theatrical, satellite, and digital streaming rights for its films to various distributors and television networks.

Under the Goods and Services Tax (GST) framework in place during that period, the licensing of copyright in original films and television programs was classified under Services Accounting Code (SAC) 997332, which attracted a 12% GST rate. Dharma classified its deals under this entry and discharged 12% tax accordingly.

The origins of the dispute date back to October 5, 2020, when the Maharashtra State GST department initiated search and inspection proceedings under Section 67 of the MGST Act against Dharma Productions Pvt. Ltd. and Dharmatic Entertainment Pvt. Ltd. During their inquiry, tax officials examined the operational steps involved in delivering the movies.

Rather than sending physical film reels in metal canisters—an obsolete practice in modern filmmaking—the studio transferred master copies through password-protected external hard disks or sent high-speed, encrypted download links.

Seizing on this delivery method, the state tax department issued show-cause notices asserting that Dharma had misclassified its business. The authorities argued that transferring digital video files over internet servers or encrypted drives amounted to supplying “Information Technology Software” under SAC 998340, which carried an 18% GST rate.

The tax department demanded the 6% rate differential across four years of production revenue, issuing assessment orders that totaled ₹79.72 crore, excluding interest and penalties.

The Road to the High Court

Dharma challenged the assessment orders before departmental appellate authorities, but their pleas were rejected.

Typically, taxpayers facing an adverse appellate order must escalate the matter to the GST Appellate Tribunal (GSTAT). However, Dharma opted to file writ petitions directly before the Bombay High Court under Article 226 of the Constitution, arguing that the tax authorities had committed a foundational error of law that exceeded their legal jurisdiction.

Senior Advocate Darius Shroff, appearing for Dharma alongside advocates Prasad Paranjape and Kevin Gogri (briefed by Lumiere Law Partners), argued that the underlying transaction was strictly a copyright license for artistic audio-visual works. The delivery mechanism—whether a physical hard disk or a digital link—was merely logistical and could not change the nature of the product.

The State, represented by Additional Government Pleader Jyoti Chavan, raised preliminary objections. They argued that Dharma should wait for the tribunal process and maintained that machine-readable binary data transmitted electronically legally fit within the definition of IT software.

The High Court’s Findings

The Division Bench rejected the State’s arguments on both technical and jurisdictional grounds, quashing the assessment and appellate orders entirely.

1. A Film is a Passive Work, Not Software

The GST rate notification strictly defines “Information Technology Software” as a representation of instructions, data, sound, or image capable of being manipulated or providing interactivity to a user.

The court pointed out that the tax department failed to show how a movie could fit this definition. A cinematographic film is an entirely passive audio-visual piece of work. A viewer watches it; they cannot execute code, manipulate the data, or interact with its programmatic structure.

“Equating ‘digital content’ with ‘software’, the core error underlying the impugned orders, has no statutory basis,” the bench observed.

2. The Delivery Mode Does Not Decide the Tax Rate

The bench ruled that tax classification must always turn on the essential character of the supply, not the method used to transport it.

“Whether content is transmitted physically (encrypted hard disks) or electronically, the mode of delivery cannot determine classification, which must turn on the essential character of the supply,” the judges held.

The court further noted that the GST classification scheme deliberately created two distinct codes: SAC 997331 for licensing computer software, and SAC 997332 for licensing original films and shows. The tax authorities could not arbitrarily combine these separate statutory categories without evidence or legal backing.

3. Bypassing the Tribunal Was Justified

The court dismissed the state’s objection regarding the availability of an alternative remedy before the tribunal.

Citing established Supreme Court jurisprudence, the bench noted that when an administrative authority acts by fundamentally misinterpreting a statutory definition to manufacture taxing power, it acts without lawful jurisdiction. In such situations, the High Court’s constitutional writ jurisdiction under Article 226 is fully available to correct the injustice without forcing the taxpayer through prolonged administrative delays.

Industry Implications

While the GST Council eventually harmonized the tax rate for both entries to a uniform 18% starting October 1, 2021, the Bombay High Court’s ruling resolves past disputes and establishes an important legal principle.

Production houses, regional cinema studios, and Over-the-Top (OTT) platforms routinely share terabytes of raw and master footage over high-speed internet pipes and secure storage drives. The ruling establishes that adopting modern, paperless distribution pipelines does not open the door for revenue authorities to reclassify creative media as software.