Excise Duty is a tax on manufacture of goods but for the sake of administrative convenience, it is collected only on removable of goods from the factory.

Excise duty may be levied in any of the following manner:-
Ad-valorem Duty is levied as a percentage of value of the commodity manufactured. For example excise duty could be 10 per cent of the cost of goods. Most of the excise duty is levied on ad-valorem basis.

Slab System Under this system, duty varies with the change of the value from one slab to another. Thus for the first 1,000 kg, excise duty is Rs500, for next 1,000 kg it is Rs750 and for production in excess, it is Rs1,000 for every 1,000 kg manufactured.

Specific Duty Under this system, a specific rate of duty is fixed per unit rate or per quantity item of the product manufactured, for example Rs10 per unit manufactured.

Compounded Duty Under this system, Duty is levied on productive capacity irrespective of the actual production. For example if a unit has installed capacity to manufacture 10,000 ton, excise duty is Rs.50,000, whatever be the number of units produced.

Once the liability to pay excise duty has been established on manufacture of excisable goods, it is necessary to quantify the amount of excise duty payable. For this purpose, it is necessary to find out, under which particular sub-group heading of CETA do the goods in question actually fall. Since the rates of duty for each sub-group are given in CETA the categorization of goods into sub-group headings is known as classification of goods.

The Central Excise Tariff Act, 1985 (CETA) classifies all the goods under 20 sections and 96 chapters. Each of these sections is related to a particular class of goods. Thus section 1 is on animal products, section 2 on vegetable products, so on and so forth. Each section is divided into chapters and each chapter is sub-divided into groups and sub-groups of excisable goods. This tariff schedule is based on the internationally followed product coding system "Harmonised System of Non-clementure" (HSN)

Excise Duty is payable at the rate specified in CETA against the sub-group heading under which the product falls. However, benefit of exemptions or concessions may be claimed under various notifications if the conditions specified in the notification are satisfied.