The Service Tax Department has charged the Indian arm of software giant Microsoft with evading taxes to the tune of Rs 128 crore during 2006-07 and has asked to pay Rs 256 crore, including penalty.

The department found that Microsoft India's Gurgoan unit carried out marketing activities for its India operations and not for the Singapore unit as it had claimed in its reply to a show cause notice served by the department earlier.    

"We have finalised the notices which would be served very soon. The tax evasion pertains to the period from June 19, 2006 to December 12, 2007," a senior service tax official said.     

"The evasions and the penalty have been confirmed after departmental investigations. We had earlier served them a show cause notice in April this year," the official said.     

However, when contacted Microsoft officials said they have not received any official communication from the tax department in this regard.    

The tax department has slapped a tax demand of Rs 128 crore and has fixed another Rs 128 crore as the penalty on the evaded amount.    

In another case, Microsoft had to pay about Rs 700 crore as income tax, including interest on royalty income of Rs 2,240 crore generated from sale of software in India for six years from 1999 to 2005.