Lawyers for Gerry McGeough claimed he has suffered inequality based on political considerations in refusing him the Royal Prerogative of Mercy.
McGeough, who is serving a 20-year sentence for trying to kill an off-duty UDR solider, is challenging a ruling that it was invalid to compare him with other high-profile terrorists to benefit from the scheme.
His victim, Samuel Brush, was working as a postman when he was shot and seriously wounded near Aughnacloy, Co Tyrone in June 1981.
McGeough, 54, and from Dungannon, was jailed last year, but is likely to be released in early 2013 under the terms of the Good Friday Agreement.
Despite that the one-time IRA gunrunner it is unlawful to treat him differently to others because he previously served jail terms in Germany and the United States.
Senior judges heard how Royal Prerogatives of Mercy were granted to James McArdle, the Armagh man responsible for the 1996 London Docklands bombing, and the IRA men convicted for their part in the murder of SAS Captain Herbert Westmacott in Belfast in 1980.
In those cases the pardons were allowed due to technicalities which meant they did not qualify for the accelerated release scheme.
David Scoffield QC, for McGeough, argued that his client should also be included.
He asked: "If the true intention is to correct anomalies, to put right little quirks which arose which give rise to apparent unfairness, why on earth should the anomalies be limited to those on these isles?
"Anomalies can arise which require to be addressed, whether here or in another jurisdiction."
Mr Brush, now a Democratic Unionist councillor in Dungannon, attended the appeal hearing.
He heard Tony McGleenan QC, for the Secretary of State, urge the court against interfering.Referring to "political imponderables" involved, the barrister contended that only offences committed in Britain and Ireland should qualify.
Mr McGleenan added: "The underpinning agreement was an agreement between only two sovereign states, the Republic of Ireland and the United Kingdom.
"It was not an agreement with the United States."
Lord Chief Justice Sir Declan Morgan, sitting with Mr Justice Gillen and Sir Anthony Hart, reserved judgment in the appeal against the failed judicial review challenge.
Outside the court McGeough's solicitor, Paul Pierce of Kevin R Winters and Co, said he claimed to be the victim of unequal treatment based on political considerations.
Mr Pierce said: "We have argued that there should not be geographical limitations confining the use of the Royal Prerogative of Mercy to those offences that are only committed with the UK and Ireland."
Sinn Fein MLAs Barry McElduff, Raymond McCartney and Sean Lynch held talks with McGeough in jail last week.
Despite his dissention from the party, the party are backing his campaign to be freed.
West Tyrone representative Mr McElduff said on Friday: "Gerry McGeough should not be in prison and I believe him to be a qualifying prisoner for immediate release.
"I have known Gerry McGeough for a long time and I regard him to be a supporter of the peace process."