The government is set to crack down on nearly nine lakh service providers -- constituting almost 60% of those registered with the tax department - for not filing returns.

A recent study by the finance ministry has revealed that of the 15 lakh service providers across the country, only six lakh are filing returns regularly, projecting their business profits. The remaining are not filing returns and are off the radar of the tax authorities.

Based on inputs with the Central Board of Excise and Customs, the Directorate General of Central Excise Intelligence (DGCEI) and service tax authorities in different regions have been asked to carry out a comprehensive survey of entities that are still in businesses but have turned 'stop filers' as officials believe that several of them are evading taxes.

The move comes at a time when the government is trying to garner resources from all possible sources to maximize revenue collection and meet the deficit targets fixed in the budget. During 2010-11, service tax collections rose 22% to Rs 71,309 crore, while overall revenue collection went up 27.3%. Within indirect taxes, customs duty collections had increased by 63% while central excise mop up was 33.5% higher, according to data on the Controller General of Accounts' website.

So far this year, service tax collections have increased 34%, which is higher than the overall collections. According to finance ministry's assessment, there is no slowdown in the services sector, barring financial services.

The tax authorities are, however, moving to ensure that the 'stop filers' do not get away. Officials said during April-June, at least 100 cases were booked against several companies and a tax demand of Rs 1,650 crore was raised against them. Some of the firms booked included those that had filed returns but had indulged in under-invoicing and evading taxes.

Some of the major detections of service tax evasion were found in renting of immovable properties, business support services, telecommunication services, management, maintenance or repair and commercial or industrial construction services.

The most prevalent modus operandi adopted by evaders was providing the services in a clandestine manner without accounting for service tax. So, services providers resorted to suppressing the transactions from the department by not declaring them in the returns or there was wrong availment of exemption notifications.

In some cases, tax was collected from the consumers but was not deposited with the government and companies also went to the extent of availing of Cenvat credit. Under the revised rules, companies, including those in the manufacturing sector, are entitled to refund of taxes by way of credit for services availed of during the course of business.