FCC questions Punjab’s royalty levy on cement decision

ISLAMABAD: The Federal Constitutional Court (FCC) expressed concern over the Punjab government’s decision to change the rate of royalty on Limestone and Argillaceous Clay used in cement manufacturing.

A three-member bench, headed by Justice Syed Hassan Azhar Rizvi, on Wednesday heard a case regarding a change in the rate of royalty of Limestone and Argillaceous Clay for mineral title holders having mining leases under Large Scale Mining for cement manufacturing.

Last year in June, a three-judge bench of the Supreme Court, headed by Justice Naeem Akhtar Afghan, had granted relief to the Punjab-based cement manufacturers by halting the enforcement of the Lahore High Court verdict that directed them to pay royalties on limestone at 6 percent of the ex-factory price of cement.

The case was later transferred to the FCC after the 27th Constitutional Amendment.

READ MORE: Punjab cement makers given relief by SC

The Lahore High Court upheld the Punjab government’s revised royalty structure on limestone. The royalty is kept at 6 percent of the ex-factory sale price of cement, replacing the earlier fixed rate of Rs250/ton on minerals in Financial Year 2024 for the Punjab-based manufacturers.

During the proceedings, Justice Hassan observed that the government could levy royalty only on minerals and that imposing royalty on a finished product appeared, prima facie, to be equivalent to a tax.

Justice Hassan remarked that royalty should be charged on minerals rather than on bags of cement, questioning how the government could impose royalty on a finished product. He directed law officers to inform the government that the current method of imposing royalty did not appear appropriate. The bench also sought details on how much the price of a cement bag would increase as a result of the levy.

Justice Rozi Khan observed that the burden of royalty imposed on cement bags would ultimately be passed on to consumers, as factory owners would recover the additional cost from the public. He noted that such a measure would harm consumers rather than factory owners.

Ahsan Bhoon, appearing on behalf of Flying Cement Company Limited, argued that the government was empowered to collect royalty only on minerals and that royalty on a finished product was, in effect, a tax. He contended that imposing royalty on cement bags amounted to collecting excise duty twice.

The Additional Advocate General of Punjab requested the bench to grant some time to get fresh instructions from the provincial government. The court, accepting his request, adjourned the hearing.

Punjab-based manufacturers, including Bestway Cement Ltd (BWCL), Maple Leaf Cement Factory Ltd (MLCF), Fauji Cement Company Ltd (FCCL), Pioneer Cement Ltd (PIOC), and DG Khan Cement Company Ltd (DGKC), had contested this change in court.

Their lawyer contended that the Punjab government unilaterally increased the royalty enormously, which would enhance the cement price in the Punjab, adding that if cement sales are halted, then it would damage the industry.

Industry analysts estimate that the 6 percent royalty—based on net-of-tax “retention prices”—translates to Rs1,350–1,400 per tonne, nearly Rs1,000 higher than the fixed-rate royalty of Rs350 per tonne recently adopted by Khyber Pakhtunkhwa.

The issue has broader implications for the 79-million-tonne cement industry, which is already divided into northern and southern blocs with different cost dynamics. With Punjab’s policy now legally endorsed by the LHC, analysts fear a breakdown of price coordination between provinces—historically a key feature of the industry’s informal price stability.

This disparity has effectively handed Khyber Pakhtunkhwa-based producers a structural cost advantage in Punjab’s cement market, enabling them to undercut local players by Rs25–30 per bag in competitive urban centres like Lahore and Rawalpindi.

Copyright Business Recorder, 2026