Interunit transfer

I'm auditing a manufacuring firm who has a factory & godown at Daman. The company is recording interunit transfer by debiting purchase in godown and simultaneously crediting sales in factory. They have charged excise duty and have recorded discount of the same amount. From accounting point of view this transaction has no effect anywhere since the entries are getting nulified. But my question here is that is the accounting treatment right? Because i have heard that a company can charge excise duty only if the two units are located in different tax locations. Thanks in advance.