Bombay High Court to GST Department: A Film Is Not Software — Dharma Productions' Tax Case, Explained
Karan Johar's Dharma Productions just won a tax fight that had nothing to do with box office numbers, star salaries, or a controversial trailer — and everything to do with a question that sounds almost absurdly technical until you realize how much money hinged on the answer: is a movie, once it's transmitted digitally, legally the same thing as software? The Bombay High Court says no. In a ruling that quashed a multi-year GST demand against the studio, a division bench held that treating film-copyright licensing as an "Information Technology Software" service was a fundamental misreading of what a movie actually is. The case has been winding through tax authorities and courts since a 2020 search of Dharma's offices, and it just produced a decision that could matter well beyond one production house's tax bill.
The case, and who's involved
The ruling comes from a division bench of the Bombay High Court comprising Justice M.S. Karnik and Justice Sandesh D. Patil, in a case formally titled Dharma Productions Pvt. Ltd. v. State of Maharashtra & Ors., carrying the neutral citation 2026:BHC-OS:20584-DB. The judgment was delivered on September 10, 2026, and was widely reported in Indian media starting September 22 and 23.
The petitioners were Dharma Productions Pvt. Ltd. and Dharmatic Entertainment Pvt. Ltd. — both entities engaged in producing and financing cinematographic films and web series, with Dharmatic functioning as Dharma's more digital-and-streaming-oriented arm. The dispute covered four financial years: 2017-18 through 2020-21, spanning the early years of India's GST regime.
Where this actually started: a 2020 search and a loose comment about a password link
The origin of the case traces back to a search and investigation conducted at Dharma's premises on October 5, 2020. It was in the course of that investigation that revenue authorities began questioning how Dharma had been classifying its income from licensing film rights to distributors — and, according to reporting on the case, one detail from that search became a central plank of the department's argument: a statement from Dharma's Post-Production Head describing how some content had been "transferred through a password-secured digital link." To the tax department, that single operational detail about how files moved from one party to another became the hook for reclassifying an entire category of Dharma's revenue.
The actual tax dispute: two SAC codes, a six-point gap
Strip away the legal procedure and the dispute comes down to a classification fight under India's Services Accounting Code (SAC) system, which determines what GST rate applies to a given service.
Dharma had been classifying its licensing of film copyright to distributors under SAC 997332 — "licensing services for the right to use intellectual property in cinematographic films" — which carried a 12% GST rate. The GST authorities disagreed. They reclassified those same transactions under SAC 998340, the code for "Information Technology Software" services, which carried an 18% rate. That six-point gap, applied across four years of licensing revenue on major theatrical releases, is what generated the size of the demand at stake. Worth noting for context: this distinction became moot going forward, since India merged the separate 12% and 18% rates into a single 18% GST rate effective October 1, 2021 — but for the 2017-18 through 2020-21 period in dispute, the gap was very real and very contested.
The GST department's case for calling a film "software"
The tax authorities didn't argue this casually — they built a multi-pronged case for why a licensed film should be taxed as software rather than as intellectual property in a cinematographic work. Their arguments, as laid out in the case, included:
- That digitally delivered films are "machine-readable" in the same technical sense that software is, and should therefore be classified the same way.
- That the supply qualified as an Online Information Database Access and Retrieval (OIDAR) service — a category of digitally delivered service under GST law that carries its own classification implications.
- That the mode of delivery itself — a film sent via digital transmission and technology infrastructure, rather than handed over on a physical print or disc — should be what determines its tax classification.
- That "Aspect Theory," a legal doctrine allowing the same transaction to be viewed through different legal lenses depending on which aspect of it is relevant, justified taxing the transaction based on its technological delivery method rather than its underlying content.
Put together, the department's position was essentially: once a film exists as a digital file moving across servers and password-protected links, it has functionally become software, regardless of what's actually inside that file.
What the court actually said
The Bombay High Court rejected that reasoning point by point, and its core logic is worth sitting with because it's a genuinely clean piece of statutory reasoning rather than a technicality.
The court held that a cinematographic film is "a passive audio-visual work, incapable of execution, manipulation or inter-activity" — and that this passivity is precisely what disqualifies it from meeting the statutory definition of "information technology software." The bench treated interactivity as a core, defining feature of what software actually is: software can be executed, run, manipulated, and interacted with by a user in ways that change its output or behavior. A film, by contrast, plays the same way every time, for every viewer, regardless of what the viewer does. You can pause it, rewind it, or watch it on a different device — but you cannot execute, manipulate, or interact with it the way you can a piece of software. That distinction, the court found, is not a minor technical footnote; it's the entire basis on which the statutory categories diverge.
On the delivery-method argument specifically, the court held that how a film gets from producer to distributor — physical disc versus digital transmission — cannot be what determines its tax classification. The content is the same film either way; changing the courier doesn't change what's being licensed. A password-secured digital link is a delivery mechanism, not a transformation of the underlying work into a different category of product.
And on Aspect Theory, the court drew a sharp boundary: that doctrine, it held, applies to disputes over legislative competence — questions about which level of government or which law has the authority to tax a transaction in the first place — not to disputes over how a single transaction should be classified within one statute. Using Aspect Theory to justify picking whichever classification yields a higher tax rate, within the same GST framework, was not a legitimate application of the doctrine, in the court's view.
The outcome: the demand is gone, but the amount is disputed
The practical result is unambiguous: the Bombay High Court fully allowed Dharma's writ petitions and quashed both the original assessment order and the appellate order against it, wiping out the GST demand for the disputed period entirely. There's no reported qualification or partial relief here — the classification the tax department relied on was rejected outright, and the demand built on it went with it.
What's genuinely unresolved, though, is exactly how large that quashed demand was — and it's worth being upfront that different outlets are reporting materially different figures rather than pretending there's a single settled number. Bollywood Hungama reported the case as Dharma "winning a Rs. 12.11 crores GST case," breaking that figure down as roughly Rs. 9.99 crore in tax, Rs. 1.23 crore in interest, and Rs. 99.99 lakh in penalty. Free Press Journal, IBTimes India, and Verdictum, by contrast, reported a much larger figure — roughly ₹79.7 crore, with Verdictum specifying the amount as ₹79.72 crore. That's not a rounding difference; it's two entirely different orders of magnitude describing the same quashed order, and nothing in the available reporting reconciles the two. Readers should treat both figures as reported rather than assume either one is the definitive number until the underlying order clarifies it further.
Why this matters beyond one studio's tax bill
Dharma Productions is one of the largest and most consistently active production houses in Hindi cinema, but the significance of this ruling isn't really about Dharma specifically — it's about the classification question itself, which applies to every production house that licenses film rights to distributors in a digital-delivery world.
GST authorities have, per this case, been willing to treat the technical means of transmitting a film — a password-protected link rather than a courier with a hard drive — as grounds for taxing the underlying transaction as a software license rather than an IP license. If that theory had held, it would have created an incentive structure where the mode of file transfer, an operational detail with zero bearing on what's actually being licensed, could swing a production house's tax liability by several percentage points.
By rejecting that framework and anchoring the classification in what a film actually is — a passive audio-visual work — rather than how it happens to move between parties, the Bombay High Court has effectively set a precedent that other production houses facing similar reclassification demands from GST authorities can point to. It doesn't retroactively fix every past assessment industry-wide, since each case would need to be litigated or cited on its own facts, but it gives the industry a clearly reasoned appellate-level answer to a question that had apparently been live enough for tax authorities to pursue aggressively across at least one major studio's four-year filing history.
What's still open
As with most tax litigation, a High Court ruling isn't necessarily the final word. Nothing in current reporting indicates whether the state's revenue department intends to appeal the decision further, and given the amount of money reportedly at stake under either figure being cited, an appeal wouldn't be a surprising next step. It's also not yet clear from available reporting whether other production houses have similar GST reclassification demands pending against them that might now be argued, or resolved, with this ruling as precedent. For now, what's confirmed is narrower but still significant: the Bombay High Court has drawn a clear statutory line between a film and software, on the specific ground that interactivity — not the technology used to deliver a work — is what separates the two, and Dharma Productions' four years of disputed GST assessments have been wiped off the books as a result.
The bigger picture for the industry
There's a broader pattern worth naming here, even though it goes beyond what any single case can settle: as more of the Hindi film industry's actual commercial infrastructure — from OTT licensing to digital prints to online distribution — has moved onto technology rails, tax authorities have had more opportunities to argue that the technology itself, rather than the content it's carrying, should define how a transaction gets taxed. This case is a reminder that Indian courts, at least at the Bombay High Court level, are willing to push back hard on that framing when it's stretched too far — insisting that classification has to track what a thing actually is, not just the infrastructure it happens to travel through. For an industry that is only going to keep digitizing further, that's a meaningfully useful precedent to have on the books, regardless of which of the two disputed figures ends up being the accurate one.
Watch whether the tax department appeals to the Supreme Court, and whether other production houses facing similar GST reclassification demands cite this ruling.