Service tax credit

Payment of service tax can be claimed against output of excise duty.

If you are not charging service tax on your bills in case of sale, then you cannot claim cenvat credit of the service tax paid on purchase of chemicals. Although, you can take credit of VAT paid on chemicals purchased in case you bill with VAT amount 

Regards

Prateek

If it is possible they can keep seperate records for taxable and exempted services. If not possible they have reverse as per rule 6(3) of cenvat credit rules...