The trust said it was "more likely than not" that a scene, which showed the boys "testing the stitching" on Primark clothes, was "not genuine".
It also apologised to Primark and the audience for a "rare lapse in quality".
Journalist Dan McDougall, who filmed the footage, said the finding was "unjust" and "flawed".
'Serious failings'
The trust stressed that Panorama found evidence that Primark was "contravening its own ethical guidelines".
Helen Boaden, head of BBC News on the BBC Trust rulingPrimark fired three Indian suppliers for unauthorised subcontracting after a six-month Panorama investigation found work being carried out by smaller firms and home workers, some of which used children to finish goods.
The Panorama documentary, shown on BBC One on 23 June 2008, included undercover footage of three boys in a Bangalore workshop "testing" Primark brown vest tops to make sure that sequins would not fall off.
The trust, investigating a complaint by the clothing firm that the scene was not genuine, examined original tapes and witness evidence.
Discrepancies included the use of large needles on intricate stitching, and the fact that there were no other Primark tops other than the three being worked on by the boys, the trust said in its report.
Continue reading the main story Torin Douglas BBC media correspondentThe BBC Trust ruling - and the outspoken responses of Primark and journalist Dan McDougall - show the high stakes being played for in investigative journalism.
All sides have been through an exhaustive process over 36 months, as footage and competing claims are checked and rechecked.
In its 49-page report, the trust chose its words carefully - saying it was 'more likely than not' that the Bangalore workshop footage was 'not genuine'. Primark has gone much further, saying that millions of people have been deceived.
So how does it square this with another statement by the trust that "it is important to recognise that Panorama did find evidence that Primark was contravening its own ethical guidelines"?
Primark tells me it accepts evidence that work was being outsourced from factories in India, in contravention of its own ethical trading principles.
What it doesn't accept are claims that it uses child labour, and that's what the long-running dispute has been about.
It also found inconsistencies in evidence, including emails from a journalist in India to the UK production team.Alison Hastings, chair of the trust's editorial standards committee, said the BBC's investigative journalism was "rightly held in very high regard" adding, "for more than 50 years Panorama has made a very significant contribution to that".
But the programme failed to meet the required "highest standards of accuracy", she said.
"While it's important to recognise that the programme did find evidence elsewhere that Primark was contravening its own ethical guidelines, there were still serious failings in the making of the programme," she added.
Primark welcomed the ruling saying millions of people had been "deceived by Panorama".
"Viewers who watched the programme, shoppers who were then fed the lie, sourcing experts who believed the lie, teachers and pupils who viewed the programme in lessons, have all been badly let down," a spokesman said.
But Mr McDougall said he "vigorously" rejected the ruling saying it was "deeply damaging to independent investigative journalism".
"In the BBC Trust's own words, there is not 'one piece of irrefutable and conclusive evidence' to support the allegation that the sequence in the programme had been staged," he added.
Tom Heap, the reporter on the Panorama programme, said he did not believe that a "single frame" of the programme "was not authentic" and that he was disappointed the trust chose "not to trust a Panorama team of such calibre".
And media commentator Roy Greenslade, writing on his blog on the Guardian website, said the trust had "got this wholly wrong".
"It goes against natural justice to find against the journalist and producers on what it calls 'the balance of probabilities'," he added.
Continue reading the main storyIn the BBC Trust's own words, there is not 'one piece of irrefutable and conclusive evidence' to support the allegation that the sequence in the programme had been staged”End Quote Dan McDougall 'Fully authenticated' The BBC said in a statement that it accepted the trust's ruling and would ensure all staff involved in investigative reporting "understand their responsibilities when it comes to authenticating evidence".
It noted that the trust "supported the central thrust of the programme, which was that there was clear evidence that work was being outsourced from factories in India in contravention of Primark's own ethical trading principles".
When the documentary was originally broadcast, Primark said information provided by the BBC had enabled the firm "to identify that illegal sub-contracting had been taking place and to take action accordingly".
It said the garments in question accounted for 0.04% of its worldwide sourcing.
An earlier investigation by the BBC's editorial complaints unit cleared Panorama of faking the footage but criticised Panorama for "inaccuracies in the scene".
But it said other evidence in the programme that Primark had broken its own ethical guidelines had been "fully authenticated".
Primark prohibits the use of child labour in its code of practice for suppliers.
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