A city Circuit Court judge has ruled that the local zoning board was "arbitrary and capricious" five years ago when it revoked the bookstore license of the Nazi party headquarters here.

In his written opinion, which was released yesterday, Judge David Ross ordered the zoning board to return the bookstore permit to Wolfgang Schrodt.

The bookstore, at 2112 Eastern Ave., has been the subject of heated community controversy since Schrodt opened it in December 1972. At one point Schrodt draped a large Nazi flag out of an upper floor window of the store, further inflaming the situation.

Neighbors of the store appealed to the zoning board, saying Schrodt sold no actual books and only handed out Nazi propaganda pamphlets. The place was a "political party headquarters," neighbors said, "a political party which has in effect caused riots or near riots (and) constant disturbances since it's been there."

Schrodt told the board at the time that he intended to sell books dealing with the "philosophy of Adolf Hitler as well as . . . other philosophies that have a tendency to uphold the concept of white power and safeguarding our western civilization."

After reviewing the more than three hours of testimony, the board revoked Schrodt's bookstore license in March 1973, saying that "a bookstore does not exist on the premises."

The board said it "was not concerned with any political activity or the content of the literature disseminated."

Judge Ross said the "sole issue is whether the applicant intends to operate a bookstore on the premises."

In appealing the board's decision to the Circuit Court, Schrodt presented copies of invoices and sales receipts for books and pamphlets. In his opinion, Ross said, "The incontrovertible evidence is that the applicant was operating a Class A bookstore."