Please refer to Sr.No.7 of Notification no. 06/2006 C.E. dt. 1.3.2006 reproduced below.
Chapter Hdg 84 or any other chapter;
Descripttion: The following goods, namely:-
(1) All items of machinery, including instruments, apparatus and appliances, auxiliary equipment and their components/ parts required for setting up of water treatment plants; (2) Pipes needed for delivery of water from its source to the plant and from there to the storage facility. Explanation.-For the purposes of this exemption, water treatment plants includes a plant for desalination, demineralization or purification of water or for carrying out any similar process or processes intended to make the water fit for human or animal consumption, but does not include a plant supplying water for industrial purposes.
Condition: 4 ( If, a certificate issued by the Collector/ District Magistrate/ Deputy Commissioner of the District in which the plant is located, is produced to the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, having jurisdiction, to the effect that such goods are cleared for the intended use specified in column (3) of the Table.)"
You may visit www.cbec.gov.in and peruse above notification, which is self explanatory. I think you can avail duty exemption on procurement of excisable material if you are fulfilling the sepcified requirements.