Sue Peckitt, 65, had bought the beverage from a coffee shop in west London but decided it "wasn't very nice".
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Before putting it in a street bin, she poured the remaining coffee down a drain to avoid turning the bin "into a soggy mess".
But to her astonishment, three snoopers from Ealing Council approached and slapped her with an £80 penalty for "littering".
"So I poured it down the drain and then I started to walk to the bin to put the cup in the bin.
"The enforcement officers stopped me and said I was breaking the law, then I filled in all the forms and they fined me £80.
"I am astonished by the whole process."
Google, Get West London
"I think there is a big problem with litter but it is bizarre, I had put this coffee down [the drain] because it was the safe and environmentally friendly thing to do.
"The reason I didn't dispose of the cup and the liquid in the bin was that I didn't want to turn the contents of the bin into a soggy mess."
The retired civil servant, who has lived in Ealing for 33 years, appealed the fine - first issued to her in November - no to avail.
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But after Get West London approached Ealing Council for a comment, the authority u-turned on Friday and said the fine would be refunded.
A council spokesman said: "The council has investigated this particular case and will be dropping the fine originally issued.
"Our priority is to make sure that the borough is clean and litter free and we apologise for any inconvenience that this may have caused."
The fine's receipt from the council last year read: "Did drop leave and walk away from coffee diwn (sic) the drain."
Miss Peckitt said she was "delighted" the council said it would give her a refund, but at the time of publication she added the council had not contacted her to either apologise or arrange the refund.