CESTAT sets aside ₹1.70 crore service tax demand on Indian Energy Exchange over mutual fund investments

February 03, 2026 : The Customs, Excise and Service Tax Appellate Tribunal, New Delhi, has quashed a service tax demand of ₹1.70 crore raised against Indian Energy Exchange Ltd., holding that subscription and redemption of mutual fund units do not amount to trading of goods or provision of an exempted service.

The appeal was decided by a bench comprising Justice Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member), which set aside the order passed by the Commissioner (Appeals) confirming the demand under Rule 6(3) of the CENVAT Credit Rules, 2004, along with penalties.

The dispute arose from a show cause notice dated October 18, 2018, through which the department sought to recover ₹1,70,88,148 from the appellant. The department alleged that while operating an energy exchange platform for trading in electricity and renewable energy certificates, the company was also engaged in trading mutual funds. This activity was treated as an exempted service, and on that basis, the department claimed that the appellant was required to reverse proportionate common input service credit.

The adjudicating authority confirmed the demand, and the Commissioner (Appeals) upheld it, leading the company to approach the Tribunal.

Before the Tribunal, the appellant argued that subscription and redemption of mutual fund units cannot be equated with trading of goods, as there is no transfer of title from one person to another. It was submitted that upon redemption, mutual fund units are cancelled or extinguished, and therefore the essential element of trading is absent. The appellant further contended that such transactions do not involve any service rendered by one person to another for consideration, which is a basic requirement under the definition of “service” in Section 65B(44) of the Finance Act, 1994.

The bench noted that the issue was no longer res integra and had already been settled by a series of earlier decisions of the Tribunal. Relying on precedents, the Tribunal observed that subscription and redemption of mutual fund units cannot be treated as trading of goods and do not fall within the scope of exempted services. It also held that investment in mutual funds does not involve the provision of any service by a service provider to a service recipient for consideration.

In view of this settled legal position, the Tribunal held that the requirement of proportionate reversal of CENVAT credit under Rule 6(3) does not arise. Accordingly, the impugned order was set aside and the appeal was allowed, granting consequential relief to the appellant from the service tax demand and penalties.

Case title: M/s Indian Energy Exchange Ltd. vs Commissioner
Case No.: Service Tax Appeal No. 50557 of 2022
Date of decision: 2 February 2026