Jet Airways and the Sahara group have locked horns over service taxes of the erstwhile Sahara Airlines now called JetLite.

Jet today said the tax authorities were investigating the alleged service tax evasion by Sahara Airlines, which it had acquired from the Sahara group last year.

The Naresh Goyal-promoted airline said any tax liability would lie with the Sahara group as it was the previous owner of Sahara Airlines, a point hotly contested by the Sahara group.

According to the provisions of the agreements relating to the transaction, the liability, if any, for the tax demands in respect of which the investigations are currently in progress rests with the earlier owners of Sahara Airlines Ltd, that is the selling shareholders, Jet said in a communication to the stock exchanges today.

However, the Sahara group today said it was not liable for any such payment.

According to our understanding, the selling shareholders are not liable for service tax liability under the share purchase agreement read with the arbitral award, a Sahara group spokesperson said in a statement.

Jet had said that the directorate general of central excise intelligence was conducting an investigation into the alleged non-payment of service tax by Sahara Airlines. The inquiry relates to a period prior to the acquisition of the airline by Jet.

Jet had acquired the airline in April last year for Rs 1,450 crore after a long legal battle with the Sahara group.

Though the two signed an initial agreement in January 2006, the deal lapsed as the companies failed to obtain necessary regulatory approvals.After the takeover, Sahara Airline was renamed JetLite.

According to the final agreement, all shares of Air Sahara were to be transferred to Jet Airways for Rs 1,450 crore, inclusive of Rs 500 crore that Jet had paid earlier.

Jet was required to pay Rs 400 crore initially and another Rs 550 crore in four interest-free annual instalments starting March this year.