Bombay High Court: In a writ petition challenging orders confirming goods and services tax (GST) demand by classifying licensing of copyright in cinematographic films as licensing of information technology software, the Division Bench of M.S. Karnik* and Sandesh D. Patil, JJ., held that licensing by the original copyright holder falls under Service Accounting Code (SAC) 997332, and that classification must be determined by the essential character of the supply, not the mode of transmission.
Background
The writ petitions concerned the GST classification of the licensing of copyright in cinematographic films for Financial Years 2017—2018 to 2020—2021, when Heading 9973 of the relevant Rate Notification contained separate entries for licensing of intellectual property rights in goods other than information technology software and licensing of information technology software, carrying GST at 12 per cent and 18 per cent respectively.
The petitioner, as producer and original copyright holder of cinematographic films, entered into rights license agreements with distributors for commercial exploitation of theatrical, sound, satellite, digital and other rights. The petitioner classified these transactions under SAC 997332, namely, “Licensing services for the right to broadcast and show original films, sound recordings, radio and television programmes and the like,” and discharged GST at 12 per cent.
Search and inspection proceedings were initiated, followed by proceedings proposing differential tax, interest and penalty. The adjudicating authority confirmed the demand, and subsequent rectification orders revised it. The statutory appeals were thereafter rejected, leading to the present writ petitions under Article 226 of the Constitution.
Issue
Whether licensing of copyright in cinematographic films by the petitioner, as producer and original copyright holder, was classifiable as:
1) licensing of intellectual property rights in goods other than information technology software, taxable at 12 per cent under Entry 17(i) of the Rate Notification; or
2) licensing of information technology software, taxable at 18 per cent under Entry 17(ii) of the Rate Notification.
Analysis and Findings
The Court first considered the objection based on the availability of an alternate statutory remedy. Referring to the principles governing the exercise of jurisdiction under Article 226, the Court noted that the availability of an alternative remedy does not, by itself, oust the jurisdiction of the High Court. The Court particularly noted the recognised exceptions where the challenge involves, inter alia, an order passed without jurisdiction and also referred to the distinction between maintainability and entertainability of a writ petition.
The Court further referred to decisions recognising that where the controversy is purely legal, does not involve disputed questions of fact and requires determination of a question of law, the High Court may exercise its writ jurisdiction notwithstanding an alternative remedy. The Court noted that, although the GST Appellate Tribunal had become functional by the time the petitions were heard, the present controversy did not involve disputed questions of fact and, according to the Court, involved an error of law going to the root of jurisdiction.
The Court then examined the relevant GST entries applicable before 1 October 2021. Entry 17(i) under Heading 9973 covered temporary or permanent transfer or permitting the use or enjoyment of intellectual property rights in respect of goods other than information technology software, while Entry 17(ii) separately dealt with information technology software. The notification defined “information technology software” as a representation of instructions, data, sound or image, including source code and object code, recorded in machine-readable form and capable of being manipulated or providing interactivity through a computer or other device.
The Scheme of Classification of Services separately placed licensing services for the right to use computer software and databases under SAC 997331 and licensing services for the right to broadcast and show original films, sound recordings, radio and television programmes and the like under SAC 997332. The Court also considered the explanatory notes to these entries and noted the distinction between licensing computer programmes and databases on the one hand and licensing rights concerning original films and similar entertainment content on the other.
The Court found that the impugned orders proceeded on the premise that licensing of intellectual property rights in cinematographic films was liable to GST at 18 per cent and relied, inter alia, on an assertion concerning the transmission of films in digital format. However, according to the Court, the impugned orders did not deal with the statutory definition of “information technology software” or explain how a cinematographic film satisfied that definition. The orders also did not analyse the distinct SACs 997331 and 997332 or explain why they were being treated as one. The Court therefore agreed that confirmation of the demand without identifying and applying the correct SAC and without explaining the treatment of the 2 distinct entries amounted to an error of law.
The Court observed that the explanatory note to SAC 997332 specifically covered licensing services for the right to reproduce, distribute or incorporate entertainment, including broadcasting and showing of original films, sound recordings, radio and television programmes. The Court found that this language corresponded to the transaction in question and did not refer to software.
The Court thereafter considered the subsequent GST Council recommendations and the CBIC Circulars concerning the competing classifications for the period prior to 1 October 2021. The Court noted that the earlier differential rates were subsequently harmonised at 18 per cent with effect from 1 October 2021 and that the later clarification regularised the relevant payment position on an “as is where is” basis for the earlier period. The Court held that this benefit could not be selectively withheld from 1 stage of the licensing chain while extended to another transaction involving the same competing entries.
The Court also referred to administrative material which supported SAC 997332 for licensing by the original copyright holder. The Court noted that the relevant clarification distinguished such licensing from distribution of films by a distributor to an exhibitor and held that, as the original copyright holder licensing rights to a distributor, the petitioner fell within the former classification.
The Court next considered the alleged statement of the petitioner’s Post-Production Head on which reliance had been placed by the adjudicating authority. The Court observed that, even taken at face value, the statement concerned only the mode of transmission. No technical material, expert evidence, executable programme or software architecture had been produced. The Court further noted that the statement had not been furnished to the petitioner and therefore could not have been relied upon by the adjudicating authority.
On the question of the mode of delivery, the Court held that whether the content was transmitted physically through encrypted hard disks or electronically could not determine the classification. Classification had to turn on the essential character of the supply. The Court identified the equation of “digital content” with “software” as the core error underlying the impugned orders and held that such an equation had no statutory basis.
The Court also considered the reliance placed on AGS Entertainment P. Ltd. v. Union of India, (2013) 65 VST 88. The Court noted that the issue in that case was whether, under the earlier value-added tax (VAT) and service tax regime, licensing of copyright in films constituted sale of goods or a service. According to the Court, the question whether such licensing amounted to licensing of “software” did not arise in that case.
A further contention that the transaction fell within “Online Information Database Access and Retrieval” services had been raised for the first time in the affidavit-in-reply. The Court noted that neither the show-cause notices nor the orders in original or orders in appeal contained any discussion or finding on that contention. Relying on Mohinder Singh Gill v. Chief Election Commr., (1978) 1 SCC 405, the Court held that an adjudicatory or appellate order could not be improved upon or supplemented by an affidavit before the writ court, and its validity had to be tested on the reasoning actually contained in the order.
The Court also rejected the reliance on the Aspect Theory for treating the mode of delivery as an independent classification criterion. The Court held that the Aspect Theory operates in the field of legislative competence and has no application to classification of a single supply under a single statute. According to the Court, the dominant nature and essential character of the supply, and not its mode of transmission, must govern classification.
Finally, the Court examined the manner in which the assessment and appellate orders had been made. The Court found that the orders in original substantially reproduced, almost verbatim, the allegations contained in the show-cause notices, without independent analysis or findings on the petitioner’s detailed submissions. The orders in appeal did not cure the defect and did not engage with the specific grounds concerning the correct tariff entry, the statutory definition of “information technology software” and the Scheme of Classification of Services. The Court observed that mere reproduction of facts, submissions or case law does not amount to reasoned adjudication.
Decision
The Court held that the impugned orders suffered from jurisdictional errors apparent on the face of the record and that determination of the petitions did not require adjudication of disputed questions of fact. The Court therefore allowed the petition.
[Dharma Productions (P) Ltd. v. State of Maharashtra, W.P. No. 2029 of 2025, decided on 10-9-2026]
*Judgment authored by: Justice M.S. Karnik.
Advocates who appeared in this case:
For the petitioner: Senior Advocate Darius Shroff, a/w Adv. Prasad Paranjape, Adv. Kevin Gogri i/b. Lumiere Law Partners
For the respondents: Jyoti Chavan, Addl. G.P. a/w Amar Mishra, AGP, for the respondent-State