Police charged an artist who depicted prominent Australians in military uniforms emblazoned with Nazi symbols despite internal legal advice the images were “political satire”, a court has heard.

Police dropped the case against Michael Agzarian before the Downing Centre local court on Friday, almost a year after he had been charged with one count of displaying Nazi symbols by a public act without lawful excuse.

Agzarian had displayed a poster on his shopfront window in Wagga Wagga ahead of last year’s federal election. The poster featured his local MP, Michael McCormack, the opposition leader, Peter Dutton, and mining magnates Gina Rinehart and Clive Palmer in the second world war German army uniforms, the court heard. The court had heard the artwork was adapted from an image from the US sitcom Hogan’s Heroes.

McCormack, the Nationals MP for Riverina, made the complaint to police about the image. He told Guardian Australia after the charge against Agzarian was withdrawn that he made the report after several others in the community had also complained.

Judge Karen Stafford, who oversaw a cost application and awarded Agzarian more than $12,000 in costs, outlined in court the legal advice given to police by their internal legal counsel.

That advice said: “The crimes act does not define what a Nazi symbol is unlike the criminal code. But in our view none of the imagery would come within either the NSW or commonwealth legislation to be considered an offence. It is political satire.”

Stafford found the charges were laid with reasonable cause. But she criticised police for taking seven months to withdraw the charge, even after a hearing date was set.

The charge carries a maximum penalty of 12 months in prison or an $11,000 fine.

Documents tendered in court revealed Agzarian’s lawyer, Nick Hanna, wrote to police in September requesting they withdraw the charges because it was “inevitable that the prosecution will fail to establish that our client knew that the symbols that he was displaying were Nazi symbols”. However, that request was rejected.

In February, police seized similar posters from Dissent cafe in Canberra. The artwork, by protest artist group Grow Up Art which is not connected to Agzarian, depicted various world leaders including the Israeli prime minister, Benjamin Netanyahu, Russian president, Vladimir Putin, and US president, Donald Trump, in Nazi uniforms.

The Canberra cafe owner David Howe, who had said the posters were artworks that expressed an anti-fascist message, was not charged.

Hanna said outside court on Friday that his client should never have been charged.

“Michael was dragged through this ruling prosecution for almost a year when he never should have been charged in the first place.

“In Australia, we have a very longstanding tradition of political satire, and the idea that someone can be criminally charged and face imprisonment for that is really disturbing, and so this is a really important win for free speech.”

On Friday, McCormack questioned the laws.

“Police laid charges under the [2022] legislation in state law and quite frankly if it means people are allowed to do this to politicians then why even have the laws.

“I’m all for free speech … but free speech comes with responsibility.

“He dressed us up as Nazis, it wasn’t Hogan’s Heroes.”

Agzarian said outside court the matter had taken a toll on him.

“I’m an artist, and it was satire … The whole thing felt very authoritarian.”