The anti-evasion team led by Deputy Commissioner, Service Tax, Samir Wankhede found that Karnik had provided copyright services for Rs 11.50 crore to a film distribution company in respect of the film 'Yamla Pagla Deewana'.
According to the Department officials, scrutiny of the documents revealed that Karnik collected Rs 1.18 crore as service tax in the transaction but did not remit this amount to the tax authorities.
After he was produced in the magistrate's court in the evening, Karnik was remanded in judicial custody and was later granted bail.
Actor Sunny Deol too is an accused in the case but he was not arrested because he paid Rs 86 lakh out of the Rs 1.95 crore tax demand against his firm, the officials said.
His statement was recorded and he promised to pay the balance, they said.