This is a classic nemo dat v BFPFVWN situation.
Hmm, this goes way back to 2nd year law and probably something in your distant past
Here the seller has a voidable title, but the title has not been yet been avoided at the time of sale to the OP, so, as long as the OP buys in good faith and without notice of the seller defect in title, the OP becomes the legal title owner. (Also see s29 of the Sale of Goods Act 1958 (Vic) or s25 SALE OF GOODS ACT 1896 - (QLD) Sale under voidable title)
Police are not correct and this is why you do not believe everything the police tell you about the law.
If magistrates' are handing goods back there should be other factors in play (ie no good faith, knew it fell of the back of the truck), otherwise it should be a simple matter for the OP to retain the goods.