Purchaser Estopped From Refusing Delivery Or Payment Of Statutory Taxes After Participating In Machinery Trial Runs: Madras High Court

"Authorised technician of the purchaser company, after conducting inspection and trial run reported his satisfaction over the manufactured machinery, hence the purchaser is estopped from withdrawing his promise of taking delivery of the manufactured machinery, " Madras High Court, in a significant judgment, held that a purchaser cannot refuse to take delivery of manufactured machinery or decline the payment of statutory taxes after having actively participated in inspections and trial runs.

A bench comprising Justice C.V. Karthikeyan and Justice K. Rajasekar observed that once a purchaser approves the performance of the machinery through its authorised representatives, the Doctrine of Estoppel prevents them from later cancelling the contract on grounds of delay or disagreement over tax terms.

The court further emphasized that statutory duties such as excise duty and sales tax become "legally unavoidable" at the moment of delivery under the Sale of Goods Act. The bench noted that a purchaser who admits to the terms of a purchase order containing specific tax percentages cannot subsequently claim these charges were unilaterally imposed.

The dispute arose between M/s. Sri Ranganathar Industries Private Limited (Purchaser/Appellant) and M/s. Oriental Hydraulics Private Limited (Supplier/Respondent) regarding the supply of an 1100-ton Hydraulic Valve Testing Press. While the basic price was fixed at Rs. 23 Lakhs, the Supplier demanded an additional sum for statutory duties and taxes. The Purchaser refused to take delivery, alleging a delay in manufacturing and claiming that the demand for taxes was an unreasonable and unilateral modification of the original contract.

The primary question before the court was whether the purchaser was liable to pay the balance cost along with statutory duties as specified in the proforma invoice and purchase order. The court also examined whether the purchaser had committed a breach of contract by refusing delivery after conducting successful trial runs. Finally, the bench considered if the Doctrine of Estoppel applied to the purchaser's conduct during the inspection process.

Purchaser Bound By Terms Of Purchase Order Including Statutory Taxes

The court meticulously examined the purchase order (Ex.A.3) and the oral testimony of the purchaser's representative (P.W.1). The bench noted that the document clearly specified an excise duty of 16.32% and a sales tax of 3%. The court found that the purchaser had never objected to these clauses at the time of placing the order or during the initial stages of the contract.

The bench observed that the evidence of P.W.1 during cross-examination corroborated the supplier's claim that taxes were to be borne by the purchaser. The court held that since these terms were part of the initial agreement, the purchaser could not later claim they were "unilateral alterations" to avoid payment.

Doctrine Of Estoppel Bars Withdrawal From Contract After Trial Runs

"The minutes of meeting clearly reveals that the purchaser has actively shown interest in purchasing the machinery manufactured by the supplier and they have also gone into understanding to conduct trial run... hence the purchaser is estopped from withdrawing his promise."

The court highlighted that even if there was a delay in the manufacturing schedule, the purchaser continued to engage with the supplier. Evidence showed that as late as January 2008, the purchaser's quality control engineer conducted a joint meeting and recorded a trial report indicating "satisfactory performance." The bench ruled that by proceeding with inspections long after the initial deadline, the purchaser waived any right to cancel the contract based on time-related delays.

Statutory Taxes Are Legally Unavoidable Under Sale Of Goods Act

"The moment delivery is made the application of taxes and duties is legally unavoidable. Therefore delivery of machine without collection of statutory dues is unlawful."

Referencing Section 2 of the Sale of Goods Act, the High Court affirmed the Trial Court's view that the collection of statutory dues is a legal mandate. The bench held that the purchaser has a duty to pay the prescribed taxes once the goods are ready for dispatch. Refusal to pay these amounts while demanding delivery constitutes a violation of the contractual and statutory obligations.

Absence Of Evidence To Support Claims Of Loss Due To Delay

The court noted that while the purchaser claimed to have suffered "huge losses" due to the alleged delay in supply, no documentary evidence or financial statements were produced to substantiate these claims. The bench observed that in the absence of a "time is of the essence" clause that allowed for automatic cancellation, the purchaser’s continued participation in trial runs proved their intent to keep the contract alive.

The bench concluded that the Trial Court had correctly approached the issues based on sound legal reasoning. It found no reason to interfere with the original decree which directed the purchaser to pay the balance amount with interest and take delivery of the machinery at their own cost and risk.

The High Court dismissed the appeal and confirmed the judgment and decree of the IV Additional District and Sessions Judge, Coimbatore. The ruling reinforces that in commercial contracts, the approval of goods through inspection creates an estoppel against subsequent rejection, and statutory tax liabilities cannot be avoided if they are part of the agreed purchase terms.

Date of Decision: 11 June 2026