Is subsidy from CG/ SG - exclusion from value of supply or Exempted supply under Entry 9C of notification 12/2017? - Goods and Services Tax - GST

Greetings to Everyone! My Query - There is a state 'Government Entity' and it receives grants through state budgets against which it provide certain services to the State Government. In such case, how shall the value of the transaction be determined? If suppose the services cost ₹ 10,000/- and which is entirely charged by such govt. entity to the grants received. How will the value of supply determined? Will be as follows: Case-1 Value of services -------- ₹ 10,000/- Less: Govt. Subsidy ---- ₹ 10,000/- Total Invoice Value ------ Rs.NIL Or Case-2 Shall this transaction be treated as Exempt supply according to entry No. 9C of Notification No.12/2017-C.T.(R) dated 28.06.2017 . It must be noted that in case of case-1 the value would be excluded from the value of supply and there would be no impact on the ITC of the Govt. Entity. However, if it is to be treated as exempt supply, then the Govt Entity might have to go for proportionate reversal of ITC as per Section 17(2) of the CGST Act, 2017 . I kindly request everyone to guide me on this query and broaden my understanding on the subject. Thanks in advance for your attention help!