It's being investigated for smuggled vodka, cigarettes and tobacco.
Officers supported by police seized three van-loads of illicit goods after tip-offs from the public.
Vodka, cigarettes and hand-rolling tobacco were found in a hidden upstairs room and sold to customers in a sophisticated operation.
One man was arrested and an investigation is ongoing, councillors were told.
The shop was sold in early January to new owner Abdullah Omar Abdullah.
At a hearing on Wednesday, Torbay Council’s licensing sub-committee refused to transfer the premises licence to a company called Zakopane Torquay Ltd, which lists Mr Abdullah as a director.
Councillors were told the police had concerns about Mr Abdullah’s links to staff members at the shop and objected to the application.
That decision meant the licence reverted back to previous owner Wali Ahmed Khader.
Councillors then carried out a review of the premises licence requested by the police on the grounds of crime and disorder.
Police asked for the licence to be revoked and councillors agreed after hearing evidence about the raid and other licence breaches.
Councillors were told the goods seized did not have UK duty-paid markings, breaching a condition that all purchases of alcohol and tobacco had to be made from “reputable wholesalers”.
Police licensing officer Julie Smart said it was their opinion that a licence would provide cover for illegal activity at the shop.
Police also gave evidence of other licence breaches, including the sale of beer stronger than 6 per cent alcohol and in single cans. Those rules are in place to prevent anti-social behaviour in the town centre.
A statement from the public health team warned that selling illicit alcohol was dangerous because the ingredients were unknown and could contain harmful substances like methanol.
Councillors were told customs officers seized almost half a million cigarettes, 137 kilos of hand-rolling tobacco and more than 180 litres of vodka.
They also found tins of snuff, which can no longer be legally sold in the UK.
The goods were concealed behind a door with a magnetic lock and trays of garlic and coffee grounds had been put down in an attempt to confuse search dogs.
Shop staff at the counter used radios to requests goods from the hidden store room, councillors heard.
Senior trading standards officer Jay Capel, who attended the raid, said: “I have been doing this job for 18 years and I have never seen such a sophisticated operation.”
At an earlier hearing in January, Mr Abdullah, through his solicitor, said he wanted to make a fresh start and asked not to be judged by what had happened before he bought the shop. That hearing was adjourned to give time for an interpreter to attend.
Councillors were told Mr Abdullah and Mr Khader were aware of the new date but neither turned up, so the hearing went ahead without them.
MrAbdullah and Mr Khader have 21 days from being notified to appeal to the magistrates court.