Two distinct sub-clauses — one on undisputed dues and one on disputed dues.
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### (a) Undisputed Statutory Dues
Check: Whether the company is regular in depositing undisputed statutory dues to the appropriate authorities.
Statutory dues covered include:
Provident Fund (PF)
Employees' State Insurance (ESI)
Income Tax
Sales Tax / GST
Service Tax
Customs Duty
Excise Duty
Value Added Tax
Cess and any other statutory dues
Threshold for Reporting Arrears:
If any undisputed amounts are outstanding as at the last day of the financial year for a period of more than 6 months from the date they became payable → must be indicated in the report.
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### (b) Disputed Statutory Dues
Report: Dues that are disputed and have NOT been deposited.
For each disputed due, mention:
1. Amount involved
2. Forum where dispute is pending (e.g., CIT(A), ITAT, High Court)
#### Critical Exam Point — What Constitutes a 'Dispute'?
Situation
Treated as Dispute?
Case pending before appellate authority / court
✓ Yes
Representation made to the concerned department
✗ NO — NOT a dispute
Demand notice received but not responded
✓ Yes — treated as Dispute
> Exam Trick: A mere representation to the department does NOT constitute a dispute. However, a demand notice IS treated as a dispute for CARO purposes.
Worked example
### Example 1
Undisputed Arrears [Clause vii(a)]:
As at 31st March 2024, ABC Ltd has outstanding PF dues of ₹8 lakh which became payable on 15th September 2023 (i.e., more than 6 months ago). The company claims it is facing liquidity issues.
Answer: The auditor must report under Clause 3(vii)(a) that undisputed PF dues of ₹8 lakh, outstanding for more than 6 months from the due date, have NOT been deposited. The liquidity reason is not a defence.
### Example 2
Disputed vs. Representation [Clause vii(b)]:
XYZ Ltd has received an income tax demand of ₹50 lakh. The company has sent a letter to the Assessing Officer requesting reconsideration but has not filed a formal appeal.
Answer (Exam Trick): A mere representation to the department is NOT a dispute. However, a demand notice itself is treated as a dispute for CARO. The auditor should report under Clause 3(vii)(b) that ₹50 lakh of income tax is disputed (demand notice received) and is pending at the level of the Assessing Officer.
### Example 3
Multiple Forums [Clause vii(b)]:
DEF Ltd has the following disputed dues: GST ₹20 lakh (pending at GST Appellate Authority) and Customs Duty ₹35 lakh (pending at CESTAT). Both are unpaid.
Answer: The auditor reports under Clause 3(vii)(b):
GST: ₹20 lakh disputed, pending at GST Appellate Authority
Customs Duty: ₹35 lakh disputed, pending at CESTAT (Customs, Excise and Service Tax Appellate Tribunal)
⚠️ Common exam mistakes
Treating a representation letter to the department as a 'dispute' — it is explicitly NOT a dispute for CARO purposes.
Forgetting to mention the specific forum where the dispute is pending — just saying 'disputed' is incomplete.
Missing the 6-month threshold for undisputed dues — dues outstanding for less than 6 months need not be reported under Clause vii(a).
Applying the 6-month threshold to disputed dues — the 6-month rule applies ONLY to undisputed dues in sub-clause (a); disputed dues under sub-clause (b) are reported regardless of how long they have been outstanding.
Reporting GST/income tax as a single line — each category of statutory due should be separately identified.
Bare-Act text Clause 3(vii) · Companies (Auditor's Report) Order, 2020 (CARO 2020) · click to expand
3(vii)(a) whether the company is regular in depositing undisputed statutory dues including Goods and Services Tax, Provident Fund, Employees' State Insurance, Income-Tax, Sales-Tax, Service Tax, Customs Duty, Excise Duty, Value Added Tax, cess and any other statutory dues with the appropriate authorities and if not, the extent of the arrears of outstanding statutory dues as on the last day of the financial year concerned for a period of more than six months from the date they became payable, shall be indicated; (b) where statutory dues referred to in (a) above have not been deposited on account of matters pending before appropriate authorities, the amount involved and the nature of such dues shall be indicated.