The Court of Session overturned the ban after deciding the measure was a punishment for the actions of an individual rather than a pursuit of licensing objectives.
The store in Victoria Road, Govanhill, was slapped with the ban in February 2011 after manager Gary Singleton sold a bottle of rose wine to a 16-year-old test purchaser without asking for ID.
Strathclyde Police said it carried carried out the sting operation after complaints of underage drinking in the area.
All the other shops targeted refused the sale and Singleton was sacked.
Officers used the case to ask the Licensing Board to review the store’s licence.
The board handed Lidl with a five-day ban on selling alcohol from that store, but the retailer appealed.
It was unsuccessful at the Glasgow Sheriff Court so it took the case to the Court of Session in Edinburgh.
Appeal judges Lord Eassie, Lord Mackay of Drumadoon and Lord Wheatley overturned the ban.
They said it was hard to see “any cogent reason” for the ban.
They said: “We are therefore left with having to draw the virtually inevitable inference that the objective of the respondents in suspending the licence for five days was to impose a financial penalty on the premises licence holder on the sole basis that one employee had departed on a single instance from the employers' procedures and instructions.”