Inputs (raw material as well as finished goods) that go in exclusively for manufacture of taxable goods are to be put in creditable purchases (provided other conditions are also met). Similarly, inputs that go in exclusively for manufacture of exempt goods are to be put in non-creditable purchases. However, the inputs that go in partially for manufacture of exempt goods and partially for taxable goods, such purchases are to be appropriated in the ratio of taxable : exempt out put. Alternatively, you can maintain two separate inventories of such inputs (a) for use in manufacture of taxable goods and (b) for use in manufacturing of exempt goods. Then, all the purchases that are credited into inventory (a) can be claimed credit of and for all others, credit is not allowed.