Calculation of vat in excise invoice

Hi,

We are the manufacturer & we have an order for Rs.1000/-, we recieved some matereial from our cutomer for manufacturing of final product amounting Rs.500/-, while calculating Excise duty i need to consider value of material supplied by customer means Assessable value for Excise is Rs.1500/- and we have calculated VAT on our value of goods ie Rs.1000/- + Total ED (on Rs.1500/-)

Sales                  Rs.1000/-

ED                       Rs.188/-  (12.5%)

Total                   Rs.1188/-

VAT on Rs,1188   Rs.65/-   (5.5%)

Total Invoice Value  Rs.1253/-

But our customer asking that VAT should not be charged on excise duty of the material supplied by them,

Can any one please suggest the currect procedure.