The city government in 2011 fined Google Tw$1 million ($34,000) for refusing to grant customers a seven-day trial period on its mobile phone apps, in accordance with Taiwan's consumer protection law.
The decision was upheld when Google appealed to the economics ministry last year but the Taipei High Administrative Court last week decided to revoke it, saying the city government should not interfere in a dispute between a firm and consumers.
"We do not wish to see Google exit the Taiwan market but we urge Google to respect and protect consumers' rights. We will appeal the court ruling," said an official at the government's consumer protection division.
The capital city's government in 2011 said that Google and Apple had violated the law and ordered them to amend their trading rules. Apple later complied with the law while Google refused, it said.
Under the terms of service for Google's Android Market, consumers are entitled to a refund only within 15 minutes of purchasing a product online.
Google has suspended the sale of its paid apps in Taiwan since the dispute.