GST Update

 Desk of CA. Praveen Sharma – 1099  Series (CAPS) 

Bombay High Court IN THE CASE OF  Dharma Productions Pvt. Ltd. v. State of Maharashtra & Others

Connected petitioner: Dharmatic Entertainment Pvt. Ltd.

 In favour of the petitioners

The companies and period: The Court heard connected petitions by Dharma Productions Pvt. Ltd. and Dharmatic Entertainment Pvt. Ltd. The disputed transactions related to financial years 2017–18 to 2020–21, before the rate change on 1 October 2021.

The transaction: Dharma, as producer and original copyright holder, licensed rights in cinematographic films to distributors for commercial exploitation. Such agreements covered specified rights, territories and periods.

The rate dispute: Dharma paid 12% GST under Entry 17(i) of Notification No. 11/2017-Central Tax (Rate), treating the supply as licensing of intellectual property rights other than IT software. The Department sought 18%, treating it as IT software licensing.

The correct service category: The Court distinguished SAC 997331, concerning computer software and databases, from SAC 997332, which specifically covers licensing rights to broadcast and show original films.

A film is not IT software merely because it is digital: The Department had not shown how a cinematographic film met the notification’s definition of “information technology software”. It could not place film licensing in the software entry simply because the content was in digital form.

Delivery method did not change classification: Whether the film was supplied on an encrypted hard disk or electronically, classification depended on the essential character of the licensed right, rather than the means used to deliver the content.

The employee’s statement was insufficient: A statement by Dharma’s Post-Production Head concerned the mode of transmission. The Court found no technical evidence of software and noted that the statement had not been furnished to the petitioner.

The clarification could not be applied selectively: The Court considered the CBIC’s “as is where is” regularisation for pre-October 2021 theatrical rights. It rejected the authorities’ attempt to confine its benefit to distributor-to-exhibitor licensing while excluding the producer’s licensing in the same chain.

The orders lacked proper reasoning: The original and appellate orders did not adequately address the separate service codes, the statutory software definition or Dharma’s detailed submissions. The Court also declined to consider an OIDAR classification raised for the first time in the Department’s court affidavit.

Outcome and limit of the ruling: The High Court allowed both writ petitions, setting aside the challenged orders. Its 12% versus 18% finding concerns the pre-1 October 2021 period; the Court noted that the differential rate was subsequently harmonised to 18%.

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Regards
CAPS