A job-work arrangement does something unusual to your property: it separates ownership from possession. You remain the owner of the material and you stop being in control of it. For as long as it sits in their factory it is subject to their housekeeping, their machines, their staff, their landlord and their creditors — and none of that becomes yours to decide merely because the goods are. So this is a custody agreement wearing the clothes of a service agreement, and it should be read with one question against every clause: is this about the work, or about the goods? The goods clauses come first. Which brings the largest practical risk, and almost nobody anticipates it: a lien. If a processor says you owe money, your material may simply stay where it is until the account is settled. And the danger is in the proportion — a disagreement over fifty thousand rupees of charges can strand five lakh rupees of stock inside a building you cannot enter. Then the arithmetic nobody does: what goes in is not what comes out, and three numbers are almost never agreed in advance — allowed wastage, who owns the scrap, and what a shortage costs. Scrap frequently has real value, and where the paper says nothing, the silence is resolved in favour of whoever is holding it, not because anybody is dishonest but because possession settles ambiguity by default. Next, insurance, where the honest answer in most arrangements is that nobody has it: each side assumes the other does, and a processor’s own policy frequently covers their premises, their plant and their stock while saying nothing about third-party material on their floor. And finally the day worth picturing before you sign. The premises close, or move, or are locked by a landlord. Your urgent question will not be where the goods are. It will be whether you can prove they are yours — which is decided entirely by challans, acknowledgements, marking and a reconciliation that takes ten minutes a month and cannot be built afterwards. What we rule out: nothing about tax, input credit or the documents that travel with goods in movement, and no view on whether a lien is available.
What this guide covers
Begin with what this document actually is, because the mislabelling is what causes everything else.
It looks like a services agreement. It has a rate, a specification and a delivery schedule, and it is filed with the supplier paperwork. And the thing it is really governing is not a service at all.
It is governing the period during which your property is inside somebody else’s building.
Normally those two travel together. You own your stock and your stock is in your godown. The arrangement comes apart only in a few situations, and this is one of them.
Here, title does not move and the goods do. You continue to own every kilogram of it, carry it in your books, and bear its loss if it disappears. And it is in a place you have no right to walk into.
Which matters because of what possession actually confers, as opposed to what ownership confers.
While your material is there it is subject to their housekeeping, their machines, their staff, their landlord, their lenders, and their decision about which order runs first. Owning it gives you a claim. It does not give you any of those.
Ownership is what you can prove. Possession is what somebody can do.
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Now look at the formats that actually circulate in these trades. We are shown a great many of them and they share a shape.
The work is covered thoroughly: rate per piece, specification, tolerance, turnaround, penalties for delay, quality expectations. Several pages of it, often well drafted.
And the material appears in exactly one capacity — as the thing the work is done to. It has no clauses of its own.
In the verbal arrangements, which is most of them, it reduces further still.
Two terms: the rate, and when it comes back. Both negotiated carefully, sometimes over years, down to the last paisa per piece.
And we would say plainly: those are the two least consequential terms in the whole arrangement. A rate that is two percent wrong costs you two percent. A custody position that is unwritten can cost you a season.
It is worth understanding why, because the reason is innocent and recognising it makes the fix easier.
The person who drafted the format was thinking about the service they provide, because that is their business. A processor’s mental model of the arrangement is: somebody brings me work, I do the work, I invoice for the work.
Nobody is concealing anything. The goods clauses have to be supplied by the party whose goods they are, and that is the only party who thinks about them at all.
And there is a second reason, which is about feeling rather than drafting.
The material does not feel at risk. It is with a man you have dealt with for years, in a working factory, being processed for you. Nothing about the situation suggests exposure.
That impression is accurate about the person and irrelevant about the circumstances, which is a distinction this page returns to more than once.
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So here is the single test we apply to any job-work document put in front of us, and you can apply it in ten minutes.
Go through it line by line and ask of each clause: is this about the work, or about the goods?
Sort them into two piles. In most documents the work pile is thick and well written, and the goods pile is empty or has one line about insurance in it.
And then invert the order, because the two piles do not matter equally.
The work clauses decide ordinary months. The goods clauses decide the one bad month, and they are the only clauses that operate at a moment when nobody is feeling cooperative.
| Work clauses | Goods clauses | |
|---|---|---|
| Govern | The service | Your property |
| Matter | Every month | Once, badly |
| Negotiated | Carefully, for years | Almost never |
| Who thinks about them | Both sides | Only the owner |
| Cost of getting them wrong | A percentage | The stock |
Now the largest practical risk in the subject, and the one we have never once had a client raise with us first.
If a processor takes the view that money is owed, your material may simply remain where it is until the account is settled. Whether that is lawfully done in a particular case is a question of law we do not answer here.
Set the legal question aside and look only at the shape of it, because the shape is what you need before you sign anything.
The processing charge on a consignment is a fraction of what the consignment is worth. That is the entire economics of job work — it is why you send it out instead of buying the machine.
Which means a disagreement about fifty thousand rupees of charges can hold up five lakh rupees of your own material. The ratio is not an accident. It is built into the arrangement.
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So the number to know about your own arrangement is not the rate. It is the ratio.
Take the value of material typically sitting with your processor. Divide it by the charges typically outstanding at the same moment. That figure is how much leverage exists in the relationship, and in most job-work arrangements it is somewhere between five and fifty.
Nobody has ever calculated it, and it takes about four minutes.
And the advantage is not about who is right. It is about who can wait.
You need the material to run your production and meet your own commitments. They need the charges, which are a smaller sum and rarely existential. Time pressure is entirely on one side, and both parties know it within about a day.
In a dispute between somebody who needs their stock back and somebody who wants a payment, the clock is not neutral.
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Which changes the character of the argument from what either side expected.
You thought you were disputing an invoice. What you are actually doing is negotiating the release of your own property, while your line is idle and a customer of yours is asking where their order is.
Almost everybody pays, in that situation, including people who were right. And then the relationship is damaged anyway, so nobody wins.
Which is why one clause matters more than any other in this document.
Write down, before anything, what happens to the material if there is a disagreement about money. That charges are to be paid or contested separately, and that the goods are returned or released on a stated basis.
In our experience most processors have no objection to this at all, because it protects them from being accused of holding goods hostage just as much as it protects you. It is the easiest important clause in the document to agree.
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And then the answer that is not a drafting answer, which nobody applies.
No clause removes the exposure; it only makes the exposure easier to argue about. The exposure itself is reduced by one thing only: less material there at any one time.
Smaller lots, more often. It costs something in transport and administration, and the cost is trivial against the thing it is buying.
So state the rule as a limit you impose on yourself, in rupees, and review it once a year.
Never let the value of your goods in somebody else’s possession exceed what you could survive having unavailable for three months.
Three months is not a legal period. It is roughly how long an ordinary commercial disagreement takes to resolve when both sides are being reasonable, and considerably less than how long an unreasonable one takes.
A last word on the lien before we leave it, because it is the point on which we are most often pressed.
Is a lien available here, over what, when, and what can be done about one already in operation? Those are legal questions turning on your own facts, and an advocate answers them. If material of yours is being held as you read this, that call belongs to today and not to next week.
What a document service can do is narrower: draft so the question is less likely to arise, and so that if it does, the agreement says something useful rather than nothing.
A second area where the paper is usually silent, and this one produces more arguments than the lien does — smaller arguments, far more often.
You send a hundred kilograms. You do not get a hundred kilograms back, and you should not expect to. Material is consumed, some is spoiled in setting up, some becomes scrap, some pieces fail.
All of that is ordinary and none of it is suspicious. The difficulty is only that the numbers were never agreed.
And it is always the same three, in every trade we have drafted for.
Each is a single line. Each is omitted. And each becomes, with impressive regularity, the thing being argued about two years later, when neither party can remember what was assumed at the start.
The first number, and the one to take from your own history rather than from anybody’s estimate.
You have been doing this for years. Your own records already contain the answer: what you sent, what came back, averaged over enough consignments to be meaningful. That figure is the honest one, because it is what actually happens on their machines with your material.
Write it in as a percentage, with a line about what happens when a consignment exceeds it — not a penalty necessarily, but a conversation that is triggered rather than one that depends on somebody noticing.
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The second, and the one most often met with surprise that anybody is asking.
There is no correct answer. Plenty of arrangements sensibly leave scrap with the processor as part of the commercial bargain, and the rate reflects it. Plenty of others return it. Both are fine.
What is not fine is neither, which is what the paper says in almost every case we see.
And the reason it matters is simply arithmetic, which depends entirely on what your material is.
For some materials the scrap is worth very little and the clause is a formality. For others it is a real number, and over a year it is a significant one — occasionally large enough that it is a bigger figure than the rate negotiation everybody spent three meetings on.
We have no view on who should get it. We have a strong view that somebody should know who is getting it, and that it should be the result of a decision rather than of a drafting gap.
Because here is the pattern, and it is general enough to be worth keeping well beyond this subject.
Where a document is silent about something physical, the silence is resolved in favour of whoever is holding it.
Not through dishonesty. Through inertia. The scrap is in their yard, it is being swept up by their staff, it goes out with their other scrap, and no moment ever arises at which anybody has to make a decision about it. Possession settles ambiguity by default, in every trade, everywhere.
The third number, and the one that turns a measurement disagreement into a money disagreement.
Suppose a consignment comes back materially short of what the agreed wastage would predict. What then? Is it replaced, credited, deducted from charges, or absorbed?
And at what value — what you paid for the material, what it would cost to replace today, or what the finished part is worth? Those three figures can differ by a multiple, and whichever is unstated is the one each side will assume in its own favour.
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Related, and worth separating because the two words get used interchangeably and carry very different consequences.
Rework means the processor does it again, usually at their cost, and the material survives. Rejection means the output is not acceptable and the material may be partly or wholly lost.
So the agreement should say which situations produce which, who decides, how many attempts at rework are reasonable, and what happens to the material that cannot be saved. Four short lines, and they prevent the argument where one side says fix it and the other says it cannot be fixed.
Then the mechanics of checking what came back, which needs a number of days in it.
Not an elaborate inspection regime — a window. A stated period after delivery within which you are to examine the output and say if something is wrong, long enough to be practical for your operation and short enough to be fair to theirs.
Where there is no window, every complaint arrives as a surprise and every response is that you should have said so earlier. Both are reasonable positions, which is the signature of a missing clause.
And the line inside that clause which does the most work.
Say what happens if the window passes without a word from you. Because where it is unstated, the party who delivered reads silence as acceptance and the party who received reads it as nothing at all.
Both readings are perfectly reasonable. That is exactly why it has to be written, and why this is the cheapest clause in the document to agree.
Now the question that sits underneath the whole custody period, and the one where the honest answer is usually uncomfortable.
Something happens to the material while it is in their premises, through nobody’s fault or through somebody’s. Who carries it?
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The events that take the whole consignment, and sometimes the whole factory.
These are the ones people mean by risk, and they are also the ones where the answer is cleanest to arrange in advance, because they are exactly what insurance exists for.
What they are not is rare enough to ignore. Across a few hundred small manufacturing relationships, one of them has a bad night.
The more common event, and the harder one, because it sits between fault and misfortune.
A setting was wrong. A machine drifted out of tolerance mid-run. A new operator did not know something. The output is unusable and the material cannot be recovered.
Nobody set fire to anything and your stock is gone. That is the situation most job-work arrangements have no answer for at all, and it is worth a line of its own rather than being left to the general words about care.
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So the question to settle before anything is drafted, and it has a precise form.
Not: are you insured? But: is my material, at your address, covered — by whom, for how much, and can I see the line that says so?
Either answer is workable. They arrange it and the rate reflects it, or you arrange it and tell your insurer where your stock actually sits. What does not work is the answer most arrangements currently have.
Which is, in our experience, that nobody has it.
You assume the factory holding your goods insures its contents. They assume a manufacturer insures its own stock wherever it is. Both assumptions are reasonable and they cancel out into no cover at all.
Nobody has been careless. The two parties have simply never had the conversation, because each believed there was nothing to discuss.
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And there is a specific trap inside the first assumption that catches careful people.
A processor very often is insured — for their premises, their plant and machinery, and their own stock. Third-party material lying on their floor is frequently not within that at all, and nothing about the policy document makes that obvious to a reader who is not looking for it.
So the useful step is to ask for the clause, not for the assurance. If it is not there, that is not a reason for an argument; it is the start of a two-minute decision about who arranges what. Where a claim is ever actually made, the documentation side of it is its own small piece of work and is much easier where the custody papers already exist.
All of which requires one figure that most businesses do not have to hand.
What is the value of your material in somebody else’s possession right now? Not over a year, not on average. Today.
It is the number that decides how much insurance, whose, and what your self-imposed limit should be. It is also, for many businesses doing this routinely, considerably larger than the owner expects when they finally add it up.
And then make it a number somebody looks at, which costs nothing and is the second-best habit in this subject.
One line in whatever monthly figures you already read: material with processors, at cost. Nothing more elaborate than that.
A figure that appears in a monthly report gets noticed when it doubles. A figure that exists only in the challan file does not, and that is precisely how businesses end up with a quarter of their stock at an address they do not control.
Now the day worth picturing before you sign, because it is the day on which every piece of paperwork above either works or does not.
The unit closes. Or relocates at short notice. Or the landlord locks the gate over unpaid rent. Or the business becomes insolvent and somebody arrives to take an inventory of what is in the building.
None of those requires anybody to have behaved badly towards you. All of them put your material inside premises you have no right to enter.
And the ordinary remedies are suddenly unavailable in a way that surprises people.
You cannot go and collect it. You cannot send your driver. The person you dealt with may not be contactable, may no longer have authority, or may be dealing with several other people in the same position as you.
What you have is a claim, which is a thing to be established rather than a thing to be exercised — and establishing it is the subject of the next four sections.
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And one distinction here is worth being clear about, because it changes what you should be doing.
You are not in the position of somebody owed money. You are the owner of property that happens to be in the wrong place. Those are different situations with different paths, and the difference is often advantageous to you.
But only if the material can be identified as yours. To anybody standing on that factory floor with a list, your stock looks exactly like the factory’s stock, and nothing about it announces an owner.
Which is why the urgent question is not the one people expect.
It is not where are my goods. It is: can I prove they are mine?
That question is decided entirely by paperwork generated months earlier, in ordinary weeks, by somebody who had no particular reason to be careful about it. Nothing can be done about it afterwards.
And the proof is four habits, none of them legal work, all of them boring.
Ten minutes a month, between them. And every one of them is impossible to create retrospectively, which is the whole point.
The first two deserve separating, because people do one and not the other.
A challan shows that something left your premises. An acknowledgement shows that it arrived at theirs, and only the second one is evidence of where your material is.
At the time, asking for a signature feels like an unnecessary formality between people who trust each other. Six months later it is the difference between a claim and an assertion. Ask every time, including from the driver if that is how your trade works.
The third habit, and the one that depends entirely on what your material is.
Some things can be marked, tagged, batch-numbered, bagged with a label, or kept on identified pallets. Some things genuinely cannot — loose granules, liquid, powder, sheet stock that is cut immediately.
Where marking is possible, do it, because it converts an argument about records into a matter of looking. Where it is not, say so in the agreement and lean harder on the reconciliation, which is then the only evidence there is.
The fourth, and the one we would keep if we could only keep one.
A single sheet: what went out, when, how much; what came back, when, how much; what remains with them today. Updated monthly, by whoever handles despatch, with nothing clever in it.
It answers, at any moment and without a search, the two questions that matter: how much of your property is elsewhere, and on what documents.
It also catches drift. A balance that only ever grows is a problem being discovered early rather than late, and that is worth more than the evidentiary value.
Which is why we put the four habits above the drafting, even though drafting is what we are paid for.
A perfectly drafted agreement with no challans is worse than a verbal arrangement with complete records. The document tells you what should happen. The records tell you what did.
And on the bad day only the second kind of paper helps. Keeping them together and findable is worth an hour of setting up once.
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Now the output side, which has its own small set of problems because of one obvious fact that is easy to skip over.
The material has been transformed. It is not the thing you sent. So "did I get my goods back" is not actually answerable in those terms — what you get back is something new that your goods became.
Which means the agreement has to describe what an acceptable version of that new thing looks like, and adjectives will not do it.
The practical answer, and it costs one consignment.
Agree the output against an approved sample rather than against words. One piece, accepted in writing by both sides, kept by both sides, referred to in the agreement by date and description.
Every subsequent dispute about quality then has a physical reference point instead of two opinions about whether a finish is acceptable. This single step removes more quality arguments than any amount of specification drafting, and it is the thing we most often find missing in otherwise careful arrangements.
Two more things that are goods and get forgotten because they do not move back and forth.
If you paid for moulds, dies, jigs, fixtures or tooling, they are yours, and they are living permanently in somebody else’s factory. That puts them in exactly the position of your material, only indefinitely.
The same applies to drawings and specifications you developed. Tooling and drawings are their own subject and we deal with them more fully on our vendor agreement page — here the point is only that they belong in the goods pile.
Four lines handle them, and they are worth writing even into a short agreement:
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And the last structural point, which quietly undoes several of the ones above.
Your processor may send your material on to somebody else for part of the work. In a number of trades this is entirely routine and nobody mentions it, because from their side it is just how the job gets done.
Notice what it does. Your goods are now in a third premises, belonging to a party you have never dealt with, with no challan in your name and no acknowledgement from anybody you can identify.
Whether to permit it is a commercial decision and often the answer is yes. Whether to permit it silently is not really a decision at all, and that is the part we press on. If it is permitted, the agreement should at least require that you are told where.
Everything on this page is commercial and custodial, and it stops there. Running alongside it is a second set of questions — the tax of it, and the paperwork the law requires to travel with goods in movement — handled by a different professional. We keep the two apart deliberately:
The first four are for your accountant or a tax consultant and they change with some frequency, which is a second reason not to put them on a page. The last three are for an advocate on your facts. We draft the commercial and custody terms so that they sit cleanly alongside whatever those two tell you.
Six outcomes from files that reached us. In all six the parties had worked together for years and nobody set out to behave badly.
Five of the six were a missing line rather than a missing document. The sixth was a missing signature.
For a small business that will not read twenty pages, these six things make a short agreement that does its job:
Two pages, signed, plus the four record habits. We would rather give you that and have it used than something longer that sits in a drawer unread by either side.
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Who gets in touch, roughly in order:
What drafting one of these with us consists of:
Where the other side will not agree a clause, that is a normal commercial outcome and we will say so in the covering note rather than quietly dropping it. A clause you decided not to have is a different thing from a clause nobody mentioned.
The handoffs, and this subject has two that pull in different directions:
Court work is for your advocate, whose fee is engaged and paid by you directly; we do not quote, collect or share it.
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For drafting a job-work agreement around the goods — identifying the material and how a consignment is measured, setting a maximum that may be held at once, settling insurance with a requirement to evidence it, writing wastage from your own records, allocating scrap deliberately, stating the shortage remedy and its valuation basis, writing the dispute clause so that charges and material are separated, fixing acceptance against an approved sample with a window and the meaning of silence, separating rework from rejection, dealing with tooling ownership, location and return, settling onward processing, and giving you the challan, acknowledgement and reconciliation formats to run it with — the fee is ₹1,999, delivered in 1 – 3 days.
What sits outside it, and the reason in each case:
What the fee is actually for, plainly: an agreement whose first half is about your property rather than about the price per piece. The work terms are easy and you have already negotiated them. What is being bought is the other half — the six or seven lines that nobody writes, each of which costs nothing to agree and one of which eventually matters a great deal.
One clause worth adding if the article has an appearance you care about. Joint development with a processor, and nothing in writing about who owns the shape, is how a design ends up belonging to somebody you did not expect — see design registration for why ownership of appearance is settled in advance or not at all.
We identify the material and how a consignment is measured, cap how much may sit with them at once, settle who insures it there and require evidence of it, write wastage from your own records, allocate scrap deliberately, state the shortage remedy and its valuation, separate charges from goods in the dispute clause, fix acceptance against an approved sample, and hand you the challan, acknowledgement and reconciliation formats. We give no view on tax, on documents in transit, or on whether a lien is available.
Why this page is written the way it is, and what it refuses to contain
Not here: any tax rule, any input-credit position, any list of documents required for goods in movement, any statutory reference, any stamp or registration figure, and any statement about whether a lien is available. For a page about a processing arrangement, the first three in particular are what a reader may well have come looking for.
They are left out for two different reasons and it is worth separating them. The tax and movement-documentation questions are real, important, and genuinely not ours — they belong to an accountant or a tax consultant, they turn on particulars of the goods and the parties, and they are revised often enough that a page stating them confidently would be wrong on a date the reader cannot see. The lien question is left out for a harder reason: it is the single most consequential thing in this subject, and a general answer about it would be acted on by somebody whose material is already sitting in another firm’s premises. That is the worst possible moment to be relying on something written for nobody in particular.
Strip both out and what is left is not procedure and not law — it is the half of the arrangement that nobody drafts. That ownership stays with you while possession moves, so the document is about custody wearing the clothes of a service contract. That the charges are a fraction of the value of the goods, so a small dispute has large leverage built into it. That three numbers — wastage, scrap, shortage — are omitted every time and argued about later. That a silence about anything physical is settled by whoever is holding it. That both parties assume the other insured the material. And that on the day a factory closes, the question is identification rather than ownership. None of that moves when a rate or a rule changes.
Why the record habits are placed above the drafting. Because in the matters that reach us, a well-drafted agreement with no acknowledged challans was worth less than a verbal arrangement with a complete reconciliation. The document says what should happen; the records say what did. Only the second kind of paper is any use on the bad day, and only the owner of the goods can create it, in ordinary weeks, when there is no reason to bother.
What is deliberately absent. No tax content, no input credit, no transit documentation, no statutory provision, no stamp or registration figure, no view on enforceability or on lien, and no figure other than our own fee. For your own arrangement the sources that matter are your accountant or tax consultant for everything on the tax and movement side; an advocate on your facts for lien, release and enforcement, and today rather than later if goods are being held; your own despatch records for the wastage figure, because yours are more accurate than anybody’s estimate; and the processor’s insurer for the one line that says whether third-party material at that address is covered, which is a question only they can answer.
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