A cloud-based identity and access management service for securing user authentication and resource access
@Karam Thank you for reaching out to us, As I understand you are assigning a label to the excel docs via assignSensitivityLabel API.
Reviewed this documentation which you shared - https://learn.microsoft.com/en-us/graph/api/driveitem-assignsensitivitylabel?view=graph-rest-1.0&tabs=http its mentioned this API is part of Microsoft SharePoint and OneDrive APIs that perform advanced premium administrative functions, that could be the reason why you are unable to leverage on excel, try to perform the similar task for the SharePoint and can check if it is getting applied or not.
Let me know if you have any further questions, feel free to post back.