Hello
Your case looks pretty much open and shut to me which is unusual, and going by the book they should have cancelled the PCN, however... the legislation obviously doesn't tell you what to do when the council don't do what they should do.
"If they have accepted the representations or failed to respond within 56 days, they will cancel the Notice to Owner (where the Penalty Charge Notice was served at the scene) or the Penalty Charge Notice (where this was served by post) and refund any sums paid."
I would say that yes you can reply on the 56 day rule - there IS a limit (I'd guess because memory fades) and the council have missed the limit.
I'm not aware of similar circumstances, but they WILL exist.
The council may well try to use counter-arguments, but they won't hold water.
I'm unsure what to do if the council resists - how are you going to contact them? Can you email?
Re wording, simply quote the 2003 legislation above, and always talk about the PCN as already have being cancelled on account of the legislation. At this stage it's probably not worth saying you're won't be paying or telling them you will go the whole distance - others may disagree on this. If you hear back from them again re-iterate that on account of their actions the PCN is cancelled and tell them you will not pay and that you realise they may take you to adjudication in which case you will bill them for the time you've spent on your case in the entirely foreseeable event that the adjudicators side with the defendant.
For what it's worth, I had several PCNs cancelled by LBHF as the CEO ticketed the wrong end of a closed section of pay and display. Ironically he could've ticketed everyone on the opposite end. Not so ironically people who were correctly parked likely paid. Also, the one time I've decided to let things run to court because I believed I was right, the council (Bromley) folded prior to the court date without me saying anything different to what I said in my original defence.
You've been lucky though - your defence wasn't good, but it shows a value in always challenging a PCN.