Delhi High Court Grants Relief to ISD on Transitional ITC Amid GST Portal Glitches

In a significant ruling for businesses navigating the Goods and Services Tax (GST) regime, the Delhi High Court has directed authorities to allow the carry-forward of transitional Input Tax Credit (ITC) for an Input Service Distributor (ISD), overriding technical barriers on the GST portal. The decision underscores the judiciary's commitment to ensuring substantive rights under the GST law are not defeated by procedural or systemic shortcomings.

Case Overview

The petition, W.P.(C) 4400/2022, was filed by Clyde Pumps Private Limited, a Delhi-based manufacturer of general-purpose machinery, against the Union of India and other respondents including GST authorities. Registered as an ISD under the GST regime, the company sought to transfer and utilize Rs. 99,18,972 in CENVAT credit as ITC under Section 140 of the Central Goods and Services Tax (CGST) Act, 2017. This credit pertained to services received between March and June 2017, just before and after the GST rollout on July 1, 2017.

The core legal issue was the inability of ISDs to file Form TRAN-1 on the GST portal due to technical glitches, preventing the distribution of credit to the company's multiple business premises as mandated under Rule 39(1)(a) of the CGST Rules, 2017. Despite filing TRAN-1 on August 15, 2017, the credit did not reflect in the Electronic Credit Ledger (ECL), leading to repeated unsuccessful representations to the department.

The bench, comprising Justice Prathiba M. Singh and Justice Shail Jain, heard the matter in hybrid mode on December 4, 2025, with the judgment uploaded on December 10, 2025.

Arguments Presented

Petitioner's Submissions

Represented by Advocates Prabhat Kumar, A.K. Singh, and Rupali Singh, the petitioner argued that Section 140(7) of the CGST Act explicitly allows ISDs to distribute pre-GST ITC "within such time and in such manner as may be prescribed." No specific timeline was prescribed at the time, and portal limitations should not bar legitimate claims. They cited orders from the Bombay High Court in Siemens Ltd. v. Union of India (Writ Petition No. 986/2019), including those dated August 24, 2023, and February 29, 2024, which recognized similar hardships for ISDs and referred the issue to the GST Council for modalities. The petitioner emphasized that denying credit due to glitches causes severe prejudice, especially as other states had granted similar relief to the same entity.

Respondents' Counterarguments

The respondents, represented by Advocates Piyush Beriwal, Jyotsana Vyas, Ruchita Srivastava, Amisha P. Dashi for Respondents 2-5, and K.G. Gopalakrishnan and Girish Kaul for Respondent 6, contended that ISDs lack an ECL under the GST regime, as their role is limited to distributing credit monthly under Section 20 and Rule 39. Central GST officials deferred to the Delhi GST Department, arguing that TRAN-1 filing by ISDs is not contemplated, and any pre-GST credit should have been distributed before July 1, 2017, with recipient units filing TRAN-1. They cited a January 5, 2022, email response clarifying no ECL for ISDs and that policy matters like portal modifications fall under GSTN's jurisdiction, not theirs.

Legal Precedents and Principles Applied

The court drew on several precedents to affirm that technical glitches cannot override statutory entitlements:

• Siemens Ltd. v. Union of India (Bombay HC, 2023 & 2024) : The court noted prima facie observations that Section 140(7) entitles bona fide ISDs to transitional credit, urging a holistic revenue view to avoid defeating the Act's provisions. The February 2024 order referred the matter to the GST Council, highlighting the anomaly of credit lapsing due to procedural gaps. No GST Council decision was presented by respondents.

• Vision Distribution Pvt. Ltd. v. Commissioner, State GST (Delhi HC, 2019) : A coordinate bench ruled that exporters cannot suffer due to GST transition failures, directing partial refunds for unreflected ITC. The Supreme Court dismissed the SLP against this (SLP Diary No. 16998/2020, February 15, 2021), reinforcing that system limitations cannot justify denying legal rights.

• Dell International Services India Pvt. Ltd. v. Union of India (Madras HC, 2025) : The court observed that incomplete GST system rollout disadvantages taxpayers, preventing seamless ITC utilization under inverted duty structures.

Key principles invoked included Article 226 of the Constitution for mandamus relief, the definition of ISD under Section 2(61) CGST Act, and distribution norms under Section 20. The judgment clarified that unamended Rule 39(1)(a) required monthly distribution, but Section 140(7) prevails in transitional contexts without prescribed timelines.

Pivotal excerpt from the judgment: "The Petitioner cannot be deprived of the benefit of the ITC due to mere technical glitches or transitional creases which were ironed out subsequently... The legitimate ITC which the Petitioner is entitled to distribute to its sub-offices cannot be held back due to such technical objections."

Court's Decision and Implications

The Delhi High Court allowed the petition, directing the Delhi GST Department and GSTN to reflect Rs. 99,18,972 in the petitioner's ECL within three months. Upon reflection, the petitioner must distribute the credit to sub-offices within one month. Respondent counsel was tasked with communicating the order to GSTN.

This ruling has broad implications for ISDs nationwide facing similar portal issues post-GST implementation. It prioritizes substantive ITC rights over procedural hurdles, potentially influencing GST Council deliberations and portal upgrades. Businesses with legacy CENVAT credits may find renewed avenues for relief, emphasizing that "the software systems adopted by the Respondents have to be in tune with the law, and not vice versa."

The writ petition and pending applications stand disposed of in these terms, marking a taxpayer-friendly interpretation of transitional provisions.