The ministry of culture and the Censor Board, in a joint reply to the Lahore High Court, have justified the screening of "Awarapan", saying it was produced in the United Arab Emirates (UAE) and not India.
The reply was submitted on the petition of producer Younas Malik, who challenged the movie's exhibition, media reports said Sunday.
The government told the court that Al-Alam Plastic Factory LLC in the UAE had produced the movie and its distributor, Sohail Khan, had applied for permission to screen the movie in Pakistan.
According to documents submitted by Sohail Khan, the certificate of origin for "Awarapan" was issued and verified by Ajman Chambers of Commerce and Industries in the UAE and the print of the movie was also imported from there.
The reply said the movie was mainly shot in Hong Kong and partly in Pakistan.
The government also explained that there were three categories for certification of an Indian film or films with Indian artists in Pakistan.
Firstly, films produced in India are banned in Pakistan since 1965.
Secondly, the films produced in Pakistan containing Indian artists were also not allowed under Martial Law order 57 issued by then Chief Martial Law administrator General Zia ul Haq.
"Awarapan" had been allowed under a third category wherein films produced in foreign countries except India, even though having Indian artists, could be shown in Pakistan in view of the amendment carried out in Rule 10 of Censorship of Films Rules of 1980.
The Censor Board had issued a certificate, clearing the film as suitable for public exhibition with certain cuts.
The latest court battle came even as a Pakistani advocate pleaded for early hearing of his petition seeking restraint on the release of "Khuda Kay Liye", a film with Indian thespian Naseeruddin Shah and several American actors. The advocate said the movie could spark protests by Muslims.
The petition was moved earlier in the week. However, the film, released in a Lahore theatre, is running to packed houses and has won popular acclaim.
While Bollywood movies are not allowed into Pakistan, there is a huge thriving market for Indian cassettes, CDs and DVDs, allegedly smuggled from the Gulf.
The colour version of K. Asif's "Mughal-e-Azam" and Akbar Khan's "Taj Mahal", released last year, did not draw huge public response as they had already been viewed through smuggled CDs and DVDs.