Facts of the Case: Clyde Pumps Private Limited, a Delhi-based manufacturer of general-purpose machinery, was registered as an Input Service Distributor (ISD) under the GST regime and had accumulated CENVAT credit of Rs. 99,18,972/- as closing balance for the period March–June 2017, which ought to have transitioned as Input Tax Credit under Section 140 of the CGST Act, 2017 via Form TRAN-1. However, at the relevant time the GST portal did not permit an ISD to file TRAN-1, and even after the petitioner filed the form on 15.08.2017, the credit was never reflected in its Electronic Credit Ledger (ECL), leading to repeated unsuccessful representations. The petitioner approached the Delhi High Court seeking a direction to allow utilisation of this transitional credit, or a mechanism for its distribution to its sub-offices under Section 140 read with Rule 117.

Issues Involved:

  1. Whether an Input Service Distributor is entitled to transitional ITC under Section 140(7) despite Rule 39(1)(a) requiring distribution within the same month.
  2. Whether the Department's contention that no ECL is maintained for ISDs and that ISDs cannot file TRAN-1 defeats the substantive transitional entitlement.

Petitioner's Arguments:

  • The inability to distribute credit within a month was solely due to the GST portal's failure to permit ISD transition, an acknowledged difficulty faced by several ISDs, as recognised by the Bombay High Court in Siemens Ltd. v. Union of India.
  • Since no timeline had ever been prescribed for distribution as contemplated by Section 140(7), the technical default of Rule 39(1)(a) should not defeat a substantive statutory right.
  • Reliance was placed on Vision Distribution Pvt. Ltd. (Delhi HC) and Dell International Services (Madras HC), both holding that portal deficiencies during transition cannot be used to deny legitimate ITC.

Respondent's Arguments:

  • The Delhi GST Department contended that no Electronic Credit Ledger is maintained for ISD registrants and that filing of TRAN-1 by an ISD is neither contemplated nor permitted under the CGST Act and Rules.
  • It was argued that the only lawful route was for the ISD to distribute credit to its units before 01.07.2017, following which the transferee units alone could file TRAN-1; the present claim was accordingly said to lack merit.

Court Order / Findings:

  • The Court noted that Section 140(7) makes ITC on services received before the appointed day eligible for distribution "within such time and manner as may be prescribed", yet no such timeline had in fact been prescribed even years after the GST regime's introduction.
  • Following the Bombay High Court's orders in Siemens Ltd., which recognised that ISDs could not be denied the benefit envisaged under Section 140(7) merely for want of a procedural mechanism, the Court held that the Petitioner could not be deprived of legitimate ITC due to a technical glitch and transitional creases in the GST portal.
  • The Delhi GST Department was directed to reflect Rs. 99,18,972/- in the Petitioner's Electronic Credit Ledger within three months, with the Petitioner thereafter granted one month from intimation to distribute the credit to its sub-offices.

Important Clarification:

  • Where the GST portal itself lacked the functionality to permit timely transitional filing by an Input Service Distributor, the assessee cannot be made to forfeit legitimately accrued CENVAT credit — the software limitations of the Department cannot override substantive statutory entitlement under Section 140.

Sections Involved:

  • Section 140(7), CGST Act, 2017 — transitional ITC for services received by an ISD prior to the appointed day.
  • Section 20, CGST Act, 2017 — manner of distribution of credit by an ISD.
  • Rule 39(1)(a), CGST Rules, 2017 — monthly distribution requirement.

Decision – In Favour of: Assessee.

Case Details: High Court of Delhi at New Delhi; W.P.(C) 4400/2022; Coram: Justice Prathiba M. Singh and Justice Shail Jain; Date of Decision: 4th December, 2025.

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