The three-strong panel of councillors decided not to accept the liquid analysis results as evidence.
Kirklees legal officer Sarah Swarbrick said information about the contents of the liquid “adds nothing” to the hearing.
Pc Woodhead called on the panel to ban Grappolo from serving alcohol.
“This is a very, very grave and serious issue and West Yorkshire Police is asking for revocation,” he said.
Mr Cordingley explained to the panel why Mr Mehrgan had bought the counterfeit alcohol late last year.
He said: “He admits that in the run-up to Christmas last year he made a mistake, but he is the victim not the offender.”
Mr Cordingley told the panel that Mr Mehrgan had bought seven cases of vodka from a visiting salesman who was “smartly dressed” and “seemed legitimate”.
He added: “It was an isolated and most expensive error which will not be repeated.”
Mr Mehrgan confirmed to the panel that he hadn’t obtained a receipt from the salesman or asked for a business card or his company’s name.
He added: “I made a mistake, I shouldn’t have done it. I’ve admitted that.”
Pc Woodhead told the panel: “This could have had very serious consequences. We do feel that Mr Mehrgan knew that the product was not from a legitimate source.”
But Mr Cordingley disagreed. “It was an act of folly, he made a mistake and he’s learnt his lesson,” he said.
Clr Christine Iredale of Golcar, Clr Rochelle Parchment of Dalton and Lindley’s Clr Christine Stanfield considered the matter for an hour.
They decided to suspend Grappolo’s alcohol licence for three months.