The revenue department today said education cess will not be levied on services which are exempted from payment of service tax.
"Since education cess is levied and collected as percentage of service tax, when and wherever service tax is nil by virtue of exemption, education cess would also be nil," the revenue department said in a circular.
Education cess and secondary and higher education cess, it added, are leviable and collected as service tax, and when whole of service tax is exempt, the same applies to education cess as well.
The department also directed field formations of service tax not to initiate proceedings to recover the education cess, where 'whole of service tax' stands exempted.
It further said where education cess has been refunded to exporters along with service tax, the same need not be recovered.
The education cess is levied at 2% of tax and the secondary and higher education cess at 1%. The service tax rate currently is 10%.
The department has issued the clarification in view of the doubts raised following the order of a tribunal in the Balasore Alloys Vs CCE, Customs and Service Tax case.