A businessman who sued the organization established to oversee Scotland's Deposit Return Scheme won the legal battle.
Abdul Majid contested Circularity Scotland's plan to impose retailer handling fees as being unlawful.
The Scottish Grocers' Federation applauded a Court of Session decision that supported him.
On June 20, Circularity Scotland entered administration.
The joint administrators chose not to respond to inquiries about the decision.
It was announced earlier this month that the DRS in Scotland would not be implemented until at least October 2025.
The flagship recycling program was scheduled to debut in March of the following year.
But Circular Economy Minister Lorna Slater told MSPs she had been left with no choice after the UK government excluded glass from the Scottish scheme.
Ten days ago it emerged Circularity Scotland, which was created to manage the scheme, had appointed administrators.
When it is finally introduced, the DRS will see a 20p charge placed on drinks containers which would be refunded to consumers when they return the bottles and cans in a bid to increase recycling levels.
The 13-page court ruling by Lord Young, published on Friday, followed a hearing at the Court of Session in December.
Lawyers for Mr Majid argued that a 2020 law which was set up to oversee the introduction of the scheme did not give Circularity Scotland the power to determine a a reasonable handling fee for the business dealing with the return of the item.
They argued that even if the company did possess that power under the law, the return handling fee had to be based on the costs incurred by the outlet dealing with the returned item.
They said Circularity Scotland's plan for the handling fee to be determined by the costs incurred by every outlet dealing with returned items was wrong.
Mr Majid's lawyers said this view breached European laws on competitiveness and it was unfair on small businesses.
And his legal team said their client would be set to lose a £1,000 a week if the scheme went ahead in its original form.
Lawyers for Circularity Scotland agreed during the hearing that it did not have the statutory power to set the return handling fee.
The organisation also accepted that the law for the scheme meant that businesses like Mr Majid's did not have to accept the fee determined for handling the returned item.
This prompted Lord Young to rule in favour of the submission made by Mr Majid's legal team.
He wrote: "It is accepted by the respondent that it has no statutory power to set the Return Handling Fee for any Return Point Operator.
"It is also accepted that the petitioner is not contractually bound to accept the Return Handling Fee announced by the respondent. ".
Mr Majid, who runs a store in Bellshill, North Lanarkshire, said: "I am absolutely delighted to have won my case, one which I feel in many ways was not just for myself but for the many other retailers who would have been negatively impacted if Circularity Scotland had been able to proceed with their plans for the setting of the retail handling fee.
"From the outset it was clear that there was an issue over the legality of the retailer handling fees but it is not as if this was not pointed out to them.
"I hope the UK government take note of this decision and use it to avoid a similar situation arising in any UK-wide scheme. ".
The Scottish Grocers' Federation (SGF) welcomed Mr Majid's legal victory but said the case should never have come to court.
SGF chief executive Dr Pete Cheema said: "The Court of Session has held that the way that the Scottish government and Circularity Scotland had set up the Deposit Return Scheme was unlawful and did not comply with the regulations made by the Scottish parliament.
"CSL had no powers to set the fees that it sought to impose on retailers and even if it had, then they had still got it wrong by trying to impose a flat fee on all retailers, despite the difference in costs to the operators.
"This decision essentially stops the DRS progressing in its current form. ".
Dr Cheema added it was "hugely disappointing" that ministers did not listen to the concerns of its members.
BBC Scotland has asked the Scottish government for comment.
