Elon Musk’s X has declared that free speech has prevailed after the eSafety commissioner decided to drop the federal court case over the company’s failure to remove tweets of the video of the Wakeley church stabbing attack.

In April, the commissioner ordered X to hide 65 posts of the stabbing attack on bishop Mar Mari Emmanuel while he was giving a livestreamed service at the Assyrian Christ the Good Shepherd church in the Sydney suburb of Wakeley.

The eSafety commissioner sought a federal court injunction to entirely remove the tweets after X only made the tweets unavailable to Australian users and vowed to challenge the notice.

After losing a bid to keep an injunction on X over the tweets last month before a hearing at the end of June, Julie Inman Grant announced on Wednesday that the regulator would drop the case. She said her office would instead focus on the Administrative Appeals Tribunal case X launched seeking a merits review of the decision to order the removal of the tweets.

Inman Grant told Guardian Australia eSafety had six legal fights with X, and the AAT was the most appropriate venue to review the issues in this case.

“Litigation across multiple locations, multiple cases, prudent use of public funds,” she said. “[X] had a phalanx of lawyers plus the most expensive barrister in Australia [Bret Walker SC].”

The AAT case – due to be heard in late July – will review whether it was appropriate for eSafety to determine the video could be classified as “class 1” under the Australian classification regime which encompasses “extreme violence material”. In court filings X has argued that the video does not meet that benchmark and has argued the removal notice is invalid as a result. Inman Grant said an AAT ruling will give her investigators “operational certainty”.

“We did 33,000 investigations into illegal content last year, if we have to go to the Classification Board every time and wait 28 days or five days for an expedited review that would really hobble us,” she said.

X had made the tweets unavailable for users in Australia, but those tweets could have still been accessed by users in Australia using virtual private networks. Inman Grant argued X could have taken further steps such as labelling the video or putting an interstitial up so users did not automatically see the video.

She also pointed to an EU transparency report by X in April which showed that X had globally deleted about 40,000 pieces of content reported by EU regulators to be illegal content in the previous six months, including nearly 4,000 pieces of violent content.

“This is why companies have policies around violent speech and violent content, so that they can remove content,” she said. “And most companies, as every company with the exception of X Corp – even Telegram and Reddit – took down that Wakeley video.”

In a statement posted on X, the company welcomed the news.

“This case has raised important questions on how legal powers can be used to threaten global censorship of speech, and we are heartened to see that freedom of speech has prevailed.”

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The company has made no secret of its concerns over the eSafety commissioner’s powers. In a submission to the federal government’s draft of the new Basic Online Safety Expectation powers earlier this year, X said the regulator has an “overbroad interpretation” of its powers, “to facilitate a practice of ‘naming and shaming’ industry participants”.

“This makes the current operation of the scheme excessively one-sided, which, as a result, seems to set eSafety against industry, rather than inculcating meaningful collaboration between eSafety and industry in order to minimise risks online and to promote online safety for Australians.”

Inman Grant said X is the only company to challenge the 19 notices issued to companies so far, and the regulator had attempted to offer as much fairness, due diligence and time as possible for responses.

It comes as the federal government is reviewing the Online Safety Act – the law that governs eSafety’s powers, and Inman Grant suggested that part of the review could look at whether it was appropriate to apply the classification scheme – designed for film and television – to viral content spreading online.