The company had collected more than Rs 3 crore as service tax from its clients but had not deposited the same with the exchequer, it said in a statement.
The arrest was made by officers of CGST Delhi North Commissionerate. However, the release did not disclose the name of either the company or the director.
The arrested director was produced in a local court, which sent the accused to 15 days of judicial custody.
Further investigations are being conducted and the amount of service tax evaded is bound to increase, the release added.
The government wants to assure taxpayers that compliant taxpayers do not run the risk of facing such punitive action in carrying out their day to day operations, the statement added.
"The power to arrest is to be exercised where there is deliberate fraud of sizeable magnitude with intent to evade tax," it said.
"It is meant to serve as a deterrent to unscrupulous elements in trade who may try to defraud the system," the department said.
It also stressed that there are sufficient checks built into the law to ensure that inadvertent or procedural lapses do not attract severe punitive measures.
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)