The ministry has asked the National Investigation Agency (NIA) to probe Shah's arrest by Delhi Police March 20.
The ministry's decision meets the demand of Jammu and Kashmir Chief Minister Omar Abdullah who had asked for an NIA probe into the issue.
"The NIA has been asked to examine both the versions and give its view," a home ministry official told IANS.
Shah, a resident of Dardpora village in Kashmir's Kupwara district, was arrested from Uttar Pradesh's Gorakhpur when he entered India through the Sunauli checkpost on the India-Nepal border. He had flown to Kathmandu, Nepal, via Karachi in Pakistan.
There are two conflicting versions on Shah's arrest.
While Delhi Police claim he was part of a terrorist plot attempting to launch a fidayeen (suicide) attack in the capital, Jammu and Kashmir Police say he was on his way back home from Pakistan to surrender under the rehabilitation policy of the government.
Abdullah had Saturday discussed Shah's arrest with Home Minister Sushilkumar Shinde and had emphasised that the case should be probed by the NIA to establish the facts.
Shah's family has also claimed he was returning home in the Kashmir Valley under the rehabilitation policy for surrendered militants.
--IANS (Posted on 25-03-2013)