GST on exchange of goods between PSU

Under the Goods and Services Tax (GST) framework in India, the exchange of goods between two Public Sector Undertakings (PSUs) is treated as a supply and is subject to GST. Even though the transaction involves a replacement and potentially no immediate cash flow, it is classified as a barter or exchange for "consideration" under Section 7 of the CGST Act, 2017.

Key GST Implications:

• Treatment as Supply: Both PSUs are treated as independent entities. The transfer of goods from PSU 'A' to PSU 'B' and the subsequent return of goods from PSU 'B' to PSU 'A' are both considered separate taxable supplies.

• Mandatory Documentation: Each PSU must issue a tax invoice for the goods it supplies, regardless of whether there is a cash exchange. The invoices must mention the applicable HSN code and the rate of GST.

• Valuation Rules: Per Rule 27 of the CGST Rules, the value of the supply is determined by:

  1. The open market value of the goods.

  2. If not available, the total of money and the monetary value of the non-monetary consideration.

  3. If still not available, the value of goods of like kind and quality.

  4. If none of the above, 110% of the cost of production or acquisition of the goods.

• Input Tax Credit (ITC): Since both transactions are taxable supplies, both PSUs are eligible to claim Input Tax Credit on the tax paid on their respective inward supplies, provided they meet the eligibility criteria under Section 16 of the CGST Act.

• Compliance: Each PSU must report its outward supply in its respective GSTR-1 and pay the tax liability through GSTR-3B. There is no provision for "netting off" the liabilities between the two parties; each leg of the transaction must be accounted for independently.

Summary for your records:

Under GST law, any exchange of goods between PSUs is considered a taxable supply. Both parties must treat the transaction as a sale, issue formal tax invoices based on the valuation rules (starting with Open Market Value), and fulfill their respective GST return filing requirements. There is no exemption for such "replacement" transactions between PSUs.