Bus driver Veeramani Manikam was arrested in December, 2011 when he drove a car through Singapore's Woodlands Checkpoint with a black bag containing two bundles of cannabis and controlled drug Nimetazepam, which is used for insomnia treatment.
Hearing the appeal at High Court, Justice Chan Seng Onn said Manikam's version of the events was "candid", "credible" and "predominantly unrebutted".
Chan also questioned why attempts were not made to ascertain Manikam's side of the story.
Manikam was found guilty by the district court in a trial in which he had no representation and had spent the last three years and seven months in remand.
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Manikam was a passenger in the Malaysian car while its driver, going by the name "Singer" abandoned the vehicle near the checkpoint in Johor Baru, the southern-most Malaysian state capital linked by a causeway to Singapore, The Straits Times reported.
Manikam, who had been drinking heavily and was asleep, was woken by a Malaysian policeman near the Johor Baru customs clearance.
Manikam drove to Singapore checkpoint and officers, acting on a tip-off, found the drug in the car bonnet and arrested him.
The judge noted that Manikam had made a police report about being approached to smuggle cigarettes into Singapore a month before his arrest.
Manikam said he reported to the Singapore authorities about cigarette smuggling because of which he might have been framed. He was told to be a passenger in the car which was to be driven by Singer to Singapore and he was to drive it back.
Evidence was submitted during appeal that showed "Malaysian Customs will not allow anyone to make a U-turn so easily".
The fact that the drugs were so "readily discoverable merely by opening the bonnet", lent some support to Manikam's belief, said Chan.