Excise duty is commonly referred to as Central Excise duty in India. It is ‘Central’ because it is a tax levied by the Central or Union Government as opposed to State Excise duties levied by state governments. Excise duty is levied on the activity of manufacture of goods. Activities specified as amounting to manufacture in Central Excise law are liable to excise duty. Also, the products shall be mentioned in the relevant schedule of Central Excise Tariff Act, 1985 so as to attract excise duty.

Although sometimes referred to as a tax, excise is specifically a duty; tax is technically a levy on an individual (or more accurately, the assessment of what that amount might be), while duty is a levy on particular goods. An excise is considered an indirect tax, meaning that the producer or seller who pays the levy to the government is expected to try to recover their loss by raising the price paid by the eventual buyer of the goods. Excises are typically imposed in addition to an indirect tax such as a sales tax or value-added tax (VAT). Typically, an excise is distinguished from a sales tax or VAT in three ways:

• 1. An excise is typically a per unit tax, costing a specific amount for a volume or unit of the item purchased, whereas a sales tax or value-added tax is an ad valorem tax and proportional to the price of the goods,
• 2. An excise typically applies to a narrow range of products, and
• 3. An excise is typically heavier, accounting for a higher fraction of the retail price of the targeted products.