GST Portal Glitches Blocking TRAN‑1 Filing cannot Defeat Transitional ITC Claim: Delhi HC Orders ₹99 Lakh Credit to be Reflected in ECL [Read Order]

The Delhi High Court held that transitional Central Value Added Tax ( CENVAT ) credit cannot be denied merely because the Goods and Service Tax ( GST ) portal did not permit TRAN‑1 filing by Input Service Distributors ( ISDs ) during the transition period.

The Court found that Section 140(7) of the CGST Act expressly protects pre‑GST credit of ISDs and that procedural gaps or system limitations cannot extinguish a vested statutory right. The Court directed authorities to reflect Clyde Pumps’ ₹99 lakh transitional ITC in its Electronic Credit Ledger.

The petitioner, Clyde Pumps Pvt. Ltd., an ISD with multiple business units across India, had accumulated CENVAT credit of ₹99,18,972 for the period March to June 2017. After the GST regime commenced on 1 July 2017, the petitioner attempted to transition this credit through TRAN‑1.

Although TRAN‑1 was filed on 15 August 2017 and the credit was duly reflected therein, the GST portal did not permit ISDs to distribute or utilize the credit because the system did not maintain an Electronic Credit Ledger (ECL) for ISDs. Repeated representations to the authorities yielded no relief, prompting the present writ petition.

The Delhi GST Department argued that ISDs are not permitted to file TRAN‑1 under the CGST Act and Rules, and that Rule 39(1)(a) requires ISDs to distribute credit within the same month, leaving no scope for carry‑forward.

The Department maintained that the GST framework does not contemplate an ECL for ISDs and therefore the petitioner’s claim was legally untenable.

The Court rejected this position, grounding its reasoning in the statutory scheme of Section 140(7), which explicitly allows ISDs to distribute pre‑GST credit “within such time and in such manner as may be prescribed.”

The Division Bench of Justice Prathiba M Singh and Justice Shail Jain noted that no such time or manner has been prescribed to date, and therefore the absence of a procedural mechanism cannot defeat a substantive statutory right. The Court highlighted that the petitioner had filed TRAN‑1 within time and the credit was duly reflected, but the system’s inability to process ISD credit could not be used to extinguish the petitioner’s entitlement.

The Court drew heavily from the Bombay High Court’s orders in Siemens Ltd. v. Union of India, where the Court observed that ISDs cannot be denied transitional credit when Section 140(7) expressly recognises their entitlement.

The Bombay High Court had also referred the issue to the GST Council, noting that the GST portal’s failure to enable ISD credit transition created an anomalous and discriminatory situation across States.

The Delhi High Court noted that despite the Bombay High Court’s referral, no decision had been taken by the GST Council, and the authorities had not addressed the systemic gap.

The Court also relied on its own earlier decision in Vision Distribution Pvt. Ltd. v. Commissioner, SGST, where it held that taxpayers cannot be penalised for the Government’s failure to ensure a smooth transition to GST.

In that case, the Court directed a refund of ITC that could not be utilised due to portal limitations, observing that system inefficiencies cannot override statutory entitlements. The Supreme Court had dismissed the SLP against that decision.

Further support came from the Madras High Court’s ruling in Dell International Services India Pvt. Ltd., where the Court held that taxpayers cannot be burdened with loss of ITC merely because the GST system was not fully operational at the time of transition.

The Madras High Court observed that the inability to transition credit due to system constraints cannot result in permanent loss of vested rights.

Applying these principles, the Delhi High Court held that Clyde Pumps’ transitional credit, already acknowledged in TRAN‑1, must be reflected in its Electronic Credit Ledger.

It was held that ,

“Under these circumstances, the Court is of the opinion that the legitimate ITC which the Petitioner is entitled to distribute to its sub-offices cannot be held back due to such technical objections. The ITC, which is clearly reflected in TRAN-1 would be liable to be reflected on the Electronic Credit Ledger (hereinafter, ‘ECL’) of the Petitioner for distribution within a period of three months.”

The Court observed that the petitioner cannot be deprived of credit due to “technical glitches or transitional creases” and directed the authorities to give effect to the credit.