Contract Manufacturing Agreement — Drafting for Brand Owners & Makers
A contract manufacturing agreement lets a brand owner have its product made by another factory to agreed specifications. It settles price, quality, ownership of designs and who bears the risk. We draft it for your review, work out the GST side, and coordinate with your advocate for legal vetting.
What it is
A contract manufacturing agreement is a written contract between a brand owner (the principal) and a manufacturer. The manufacturer makes goods to the principal’s specifications, often under the principal’s brand. It is common in food, cosmetics, garments, auto components, electronics and FMCG.
Indian law has no separate statute for it. The Indian Contract Act, 1872 governs it, with GST rules on job work and sector laws on top. A good agreement answers the questions that cause fights later: who owns the moulds, what happens to rejected batches, and what if the buyer stops ordering. We draft it for your review. Where it needs legal vetting, a practising advocate signs off.
Who it applies to
Brand owners outsourcing production
Manufacturers taking third-party orders
Principals using job workers
Why it matters
Set a written yardstick for quality
Keep your IP in your name
Make tax and liability clear
Documents required
From the principal
- Product specifications and drawings
- Brand and trademark details
- Forecast volumes and delivery schedule
From the manufacturer
- Licences and registrations for the product
- GST registration and plant details
- Quality certificates and capacity data
Common to both
- PAN, entity documents and authority letters
- Draft price list and payment terms
- Any earlier NDA or purchase order
How it works
Settle the commercial model first
Decide one thing. Does the manufacturer buy materials and sell finished goods to you, or do you supply materials for job work? The model sets the price, GST treatment and risk.
Draft the agreement
We draft the scope, specifications, quality control, pricing, minimum order, IP ownership, confidentiality, product recall, indemnity and termination. A mutual NDA usually comes first.
Review and stamp
Both sides and their advocates review it. Under Section 17 of the Indian Stamp Act, the agreement should be stamped at or before signing. In Haryana, e-stamp paper is generated against a GRN on the e-GRAS portal.
Set up the tax and licence steps
We prepare the GST registration changes, the job work challans and records, and a licence check for regulated goods. Brand use is tied to a trademark licence where needed.
Timelines
Job work inputs
Capital goods
Stamping
What happens if the agreement is silent
GST on stock can arise
Damages follow the contract and the Act
Exit becomes a dispute
Contract manufacturing vs job work
The commercial model decides the paperwork. The two common models look like this.
| Point | Contract manufacturing | Job work |
|---|---|---|
| Raw material | Bought by the manufacturer | Sent by the principal |
| What is billed | Finished goods | Processing charges |
| GST rule | Normal supply of goods | Section 143 CGST, challans, return of goods |
| Main risk | Quality, IP leak, minimum order | Stock return, loss in process |
Many deals mix both, so the agreement should say which applies to which batch.
Frequently asked questions
What is a contract manufacturing agreement?
It is a contract in which a manufacturer makes goods to a brand owner’s specifications, usually under the owner’s brand. It fixes price, quality, delivery, IP and exit terms. Indian law does not have a special statute for it, so the Indian Contract Act applies. We draft it for review by your advocate.
Is contract manufacturing the same as job work?
No. In job work the principal sends materials and pays for processing. In contract manufacturing the factory buys materials and sells finished goods. GST differs: job work follows Section 143 of the CGST Act, with challans and return deadlines. We check which model you use before we draft the clauses.
How long can goods stay with a job worker under GST?
Inputs must return within one year and capital goods within three years, other than moulds, dies, jigs, fixtures and tools. If not, they are treated as supplied on the original dispatch date, with tax and interest. The Commissioner can extend on sufficient cause. We set up the challan trail and reminders for you.
Who owns the moulds and tooling?
Whoever the agreement says. Without a clause, the manufacturer holding the tooling is in a stronger position in a dispute. Put ownership, marking, insurance and return on termination in writing. We draft this clause, and an annexure listing each tool, so there is no argument at exit.
Can the agreement stop the manufacturer working for competitors?
During the term, yes, through exclusivity. After the term, Section 27 of the Contract Act makes restraints on trade void, so a post-term ban rarely holds. Confidentiality and IP clauses protect you better after exit. We draft the exclusivity period and the confidentiality tail with this in mind.
Do I need a stamp for the agreement?
Yes. Under Section 17 of the Indian Stamp Act, it should be stamped before or at execution, and the duty depends on the state. In Haryana, e-stamp paper is generated against a GRN on the e-GRAS portal. An unstamped agreement can be refused as evidence until duty and penalty are paid.
Who is liable if the product harms a consumer?
The Consumer Protection Act, 2019 allows product liability claims against the manufacturer and the product seller, so the brand owner usually cannot avoid exposure. The agreement should set quality duties, recall steps and indemnity between you. We draft these, and your advocate checks the allocation of risk.
Does Taxhint act as counsel in a manufacturing dispute?
No. We prepare the agreement, the GST records and the paperwork, and coordinate with your advocate. Where a dispute needs a notice, filing or appearance, a practising advocate signs and appears. Until then, we keep your documents and dates in order.
What it costs
Our fee plus the government fee that applies to your case, quoted before you commit. Tell us the situation and we will price it exactly.
Ready to begin?
Tell us the product, the volumes and who buys the materials. We will draft the agreement and set up the GST records around it.