Excise Duty

First of all I would like to raise a question that if Company A is exempted under some notification then how does it justify that Company B can sell the products to the Company A without payment of duty 'IF' the final product of company B is a dutiable product?? 

As per my opinion the simple logic in Excise tax is that you can avail credit and utilize only if your final product is dutiable. So in case of Company B he is buying a duty paid input (as it is assumed in your situation) and selling a product which is a dutiable product. So he can avail the credit on his input as he is paying duty on the final product. He is of no concern that what his buyer is manufacturing. His job is to supply his final product after paying the duty.

Please refer to Rule 6 of Cenvat Credit Rules for some more clearification. 

The notifcation querist is referring to is 64/95, which is exemption available to supply for defence. In some clauses, exemption is available to suppliers to principal manufacturer is also available.

However, there is no benefit under Rule 6(6) of Cenvat Credit rules, thus when such exemption is available separate record or reversal or payment of amount is required.