The office of the commissioner of central excise and service tax, Pune, has arrested J K Sardana (58), managing director of UB Engineering Ltd, for service tax evasion of Rs 35.31 crore.

In a statement issued on Wednesday, A T Nimbalkar, superintendent of central excise and service tax, said Sardana has been sent to Yerawada jail and a further hearing will take place on Thursday.

"Investigations carried out by the department revealed that the company started its activities of providing taxable service to various clients on September 2012 and also collected service tax from its customers. The company, however, failed to deposit the collected money in the government account," the statement said.

The company collected Rs 30.76 crore from its customers out of total liability of Rs 35.31 crore but, instead of depositing the money with the government, used it for business purposes, the statement said.

According to the statement, this is the second such arrest in the jurisdiction of the Pune III commissionerate and the fourth in the central excise and service tax and customs, Pune zone.

Krishna Ratnaparkhi, special consul for central excise, told TOI that investigations have revealed that "the company diverted the collected money to its business activities and its managing director was actively involved in the diversion".

Company officials were unavailable for comment. However, the company's lawyer Pratap Pardeshi said, "We have not hidden details of the service tax. There was a delay in making payment because of economic slowdown. There was also a delay in receiving payments from public companies that are our clients. We have till date deposited service tax of Rs 20 crore. The central excise and service tax commissionerate has seized our property worth Rs 25 crore at MIDC in Bhosari. We need some more time to make the remaining payment."

The officials of the commissionerate had called my client to record his statement but arrested him, Pardeshi said. The officials have now started approaching our (UB Engineering's) clients and are asking them to deposit service tax directly, he claimed. This is legally not permissible and it is harming our reputation, he alleged.