The provision of arrest in cases of evasion of service tax it seems has started having its impact significant improvement in collection that saw 15% jump in the last quarter.

The Service Tax department last week made its third arrest under the new provisions apprehending Net4 India Ltd managing director Jasjit Singh Sawhney for non-payment of tax levy to the tune of Rs 9 crore.

Sawhney was arrested on August 30 for the company's pending liability of about Rs 9 crore for fiscal 2012-13, an official said.

"A major chunk of this liability has been collected by the company from its clients as service tax to be paid to the government exchequer, but was not deposited with the government," the official added.

The official said Sawhney was granted conditional bail up to September 3 by the chief metropolitan magistrate in Patiala House Court on Saturday on payment of Rs 25 lakh. He has to pay Rs 75 lakh within 15 days and Rs 1 crore a month subsequently, the official said.

This is the third arrest this fiscal year by the department for failure to deposit service tax collected from customers.

Earlier, one person was arrested in Kolkata for non-payment of the levy to the tune of Rs 79 lakh, and another was held in Mumbai for dues of Rs 1.96 crore.

According to the Finance Act, any person who has collected service tax of more than Rs 50 lakh and fails to deposit the amount with the government even six months after the due date can be imprisoned for up to seven years.

The department has identified 10 lakh people who have not filed service tax returns or have stopped filing them and may be liable for punishment.

In the budget, the government had come up with the voluntary compliance encouragement scheme under which defaulters can pay at least 50% of the arrears for the five-year period ending 2012, with the remainder payable over six months without interest.

Finance Minister P Chidambaram had attributed the large number of defaulters to benign provisions of the Service Tax Act.

Service tax has emerged as a major source of revenue and the government proposes to collect Rs 1.8 lakh crore in the current fiscal year, up from Rs 1.3 lakh crore in fiscal 2012-13.