As per question, this is case of inward taxable supplies and exempted outward supplies.  Please note that if input supplies or input services are used for making exempted product then ITC (input tax credit) is not allowed. Hence GST paid on input supplies cannot be claimed, hence it is added to the cost of dealer.
But in case final product is zero rated, then ITC can be claimed. Hence exempted product is different from zero-rated products.
GST comprises of the following levies:
a. Central Goods and Services Tax (CGST) [also known as Central Tax] on intra-state or intra-union territory without legislature supply of goods or services or both.
b. State Goods and Services Tax (SGST) [also known as State Tax] on intra-state supply of goods or services or both.
c. Union Territory Goods and Services Tax (UTGST) [also known as Union territory Tax] on intra-union territory supply of goods or services or both.
d. Integrated Goods and Services Tax (IGST) [also known as Integrated Tax] on inter-state supply of goods or services or both. In case of import of goods also, the present levy of Countervailing Duty (CVD) and Special Additional Duty (SAD) would be replaced by integrated tax.
The protocol to avail and utilise the credit of these taxes is as follows:
Credit of CGST cannot be used for payment of SGST/UTGST and credit of SGST/UTGST cannot be utilised for payment of CGST.
Some of the technical aspects of the scheme of Input Tax Credit are as under:
A. Any registered person can avail credit of tax paid on the inward supply of goods or services or both, which is used or intended to be used in the course or furtherance of business.
B. The pre-requisites for availing credit by registered person are:
a. He is in possession of tax invoice or any other specified tax paying document.
b. He has received the goods or services. “Bill to ship” scenarios also included.
c. Tax is actually paid by the supplier.
d. He has furnished the return.
e. If the inputs are received in lots, he will be eligible to avail the credit only when the last lot of the inputs is received.
f. He should pay the supplier, the value of the goods or services along with the tax within 180 days from the date of issue of invoice, failing which the amount of credit availed by the recipient would be added to his output tax liability, with interest [rule 2(1) & (2) of ITC Rules]. However, once the amount is paid, the recipient will be entitled to avail the credit again. In case part payment has been made, proportionate credit would be allowed.
C. Documents on the basis of which credit can be availed are:
a. Invoice issued by a supplier of goods or services or both
b. Invoice issued by recipient alongwith proof ofpayment of tax
c. A debit note issued by supplier
d. Bill of entry or similar document prescribed under Customs Act
e. Revised invoice
f. Document issued by Input Service Distributor
D. No ITC beyond September of the following FY to which invoice pertains or date of filing of annual return, whichever is earlier
E. The Input Service Distributor (ISD) may distribute the credit available for distribution in the same month in which, it is availed. The credit of CGST, SGST, UTGST and IGST shall be distributed as per the provisions of Rule 4(1) (d) of ITC Rules. ISD shall issue invoice in accordance with the provisions made under Rule 9(1) of Invoice Rules.
F. ITC is not available in some cases as mentioned in section 17(5) of CGST Act, 2017. Some of them are as follows:
a. motor vehicles and other conveyances except under specified circumstances.
b. goods and/or services provided in relation to:
i. Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, except under specified circumstances;
ii. Membership of a club, health and fitness center;
iii. Rent-a-cab, life insurance, health insurance except where it is obligatory for an employer under any law;
iv. Travel benefits extended to employees on vacation such as leave or home travel concession;
c. Works contract services when supplied for construction of immovable property, other than plant & machinery, except where it is an input service for further supply of works contract;
d. Goods or services received by a taxable person for construction of immovable property on his own account, other than plant & machinery, even when used in course or furtherance of business;
e. Goods and/or services on which tax has been paid under composition scheme;
f. Goods and/or services used for private or personal consumption, to the extent they are so consumed;
g. Goods lost, stolen, destroyed, written off, gifted, orfree samples;
h. Any tax paid due to short payment on account of fraud, suppression, mis-declaration, seizure, detention.
G. Special circumstances under which ITC is available:
a. A person who has applied for registration within 30 days of becoming liable for registration is entitled to ITC of input tax in respect of goods held in stock (inputs as such and inputs contained in semi-finished or finished goods) on the day immediately preceding the date from which he becomes liable to pay tax.
b. A person who has taken voluntary registration under section 23(3) of the CGST Act, 2017 is entitled to ITC of input tax in respect of goods held in stock (inputs as such and inputs contained in semi-finished or finished goods) on the day, immediately preceding the date of  registration.
c. A person switching over to normal scheme from composition scheme under section 10 is entitled to ITC in respect of goods held in stock (inputs as such and inputs contained in semi-finished or finished goods) and capital goods on the day immediately preceding the date from which he becomes liable to pay tax as normal taxpayer
d. Where an exempt supply of goods or services or both become taxable, the person making such supplies shall be entitled to take ITC in respect of goods held in stock (inputs as such and inputs contained in semi-finished or finished goods) relatable to exempt supplies. He shall also be entitled to take credit on capital goods used exclusively for such exempt supply, subject to reductions for the earlier usage as prescribed in the rules.
e. ITC, in all the above cases, is to be availed within 1 year from the date of issue of invoice by the supplier.
f. In case of change of constitution of a registered person on account of sale, merger, demerger etc, the unutilised ITC shall be allowed to be transferred to the transferee.
g. A person switching over from composition scheme under section 10 to normal scheme or where a taxable supply become exempt, the ITC availed in respect of goods held in stock (inputs as such and inputs contained in semi-finished or finished goods) as well as capital goods will have to be paid.
h. In case of supply of capital goods or plant and machinery, on which ITC is taken, an amount equivalent to ITC availed minus the reduction as prescribed in rules (5% for every quarter or part thereof) shall have to be paid. In case the tax on transaction value of the supply is more, the same would have to be paid.