Not all labels are created equal and some are harder to deal with than others but on a whole I can get it to work using the following steps.
First thing I suggest is to shoot a fog coat of finish over the label before you apply it to the wood to seal the ink from any damage.
The wood needs to be really well sealed and level sanded with 320; absolutely level, no dimples or sunken grain. After the label is in place shoot a fog coat on the first coat. After that you can start putting full wet coats on. The edges will not disappear with the finish; you have to level sand them out. I usually put on 2 full wet coats after the fog coat and then carefully level sand it back. Generally there will still be an edge showing at this point so I hit it with a couple of more coats and then I can usually get it level by then. After that it gets 2 more coats of finish and then a wet sand and rub out.
Good luck.