Sad to hear mate. That was one of the best looking KE20s from SA.
13x7 wheels & bolt on spacers are not legal. Saying that my KE25 rolls on 13x8 all round & 30mm spacers on the rear wich i know is not legal too. The cop was doing his job. As for his comments you run into a few of those in your lifetime.
Toughen up mate. You'll get it back on the road.
How did he measure the car for being too low?
Here in Vic they use a stick with a 100mm dia wheel on the end of it. Seen a car get defected for having the exhaust below 100mm but the ride height was fine.