Dana Local, on Duncan Street in Leeds City Centre, was taken to a licensing hearing after a court closure order was issued.
Police and Trading Standards officers said cigarettes and vapes were found stashed behind a false wall at the premises.
Acting sergeant Andy Clifford told councillors: “It’s our stance that this premises is involved in serious criminality by way of storing and selling illicit goods.
“These are goods that will have had to be smuggled into the country.”
A petition in support of the licence holder, Dana Husseni, was submitted to the hearing on Tuesday, along with character references.
Bahram Shokrollahi, representing Mr Husseni, said a rogue employee was responsible for the illicit goods.
He said: “This represents a serious betrayal of trust by a staff member who has since been dismissed.”
A hidden compartment in the shop was for the storage of valuables, not illicit goods, Mr Shokrollahi said.
He asked the council to reconsider a previous decision to revoke the licence and instead suspend it until August 25.
Mr Husseni would step down as designated premises supervisor and appoint a trained person to run the premises.
Mr Shokrollahi said: “He has already paid a high price, emotionally and financially.
“There is no evidence of continuing criminal activity.”
A letter of support said: “He is a hard-working business owner who takes his duties seriously and has consistently demonstrated a commitment to legal compliance and respectful conduct in his professional dealings.”
The closure order was issued at Kirklees Magistrates’ Court on July 15.
A licensing sub-committee was asked to decide if further action was needed at the hearing at Leeds Civic Hall.
Councillors unanimously voted to revoke the premises licence.