In order to determine the rate of excise duty on goods, classification is prerequisite. Excise duty payable is based on the classification of goods given in the Central Excise Tariff Act, 1985 (CETA). The Act gives a list of items chargeable to Central Excise duty. It is divided into 96 Chapters grouped in twenty Sections. Each of these twenty sections relates to broader class of goods such as Section I relates to Animal and Dairy Products, Section VI relates to Products of Chemical and Allied Industries, while Chapter XI relates to Textiles and Textile Articles.

The Central Excise Tariff Act was amended in 2004. Earlier there was six digits classification code for classification of the goods, which has been replaced by 8 digits classification code. With introduction of this 8 digits classification code, a detailed classification of the goods is now available. The classification of items is significant because it is only the proper classification, which leads to determination of rate of duty.

In Central Excise Tariff, against each item a rate of duty has been prescribed. These are normally termed as "tariff rates". In order to determine the rate of duty on a particular product, first find out the chapter heading under which the item is classifiable. Against that classification, the corresponding tariff rate has to be read with the exemption notification, if any. Thus, effective rate of duty on an item is obtained.

Some commodities may be subject to ‘special duty of excise' prescribed under the Central Excise Tariff Act, 1985. Certain goods may also be subject to duty under some other Acts such as Additional Duty of Excise (Goods of Special Importance) Act, 1957 or certain Cess.