The student, whose identity was suppressed, said being shouted at, first when she was at the checkout and then a few minutes later outside the supermarket, left her shaken.
"I was crying and shocked. I just felt lonely and scared," she told the court.
She had since had nightmares and the incident had affected her studies.
Checkout supervisor Caitlin Jenkins, who was serving the student when the incident happened, said Rappard moved to within 10cm to 15cm of the student's face before shouting at her to take off the headscarf.
"I think she called her a dirty Muslim and I think she said 'you're from New Zealand, take off the head scarf'."
The incident left her and others in the supermarket shocked and she and another customer apologised to the student.
"I was quite offended. I didn't really know what to do."
When she witnessed the woman shouting at the victim again outside the supermarket she told her boss, who called police.
Rappard said she did not use the words "dirty Muslim" and was not shouting.
Police prosecutor Tim Hambleton said Rappard's actions were "morally repugnant" and qualified as offensive behaviour because onlookers were shocked.
In finding her guilty, Justice of the Peace Ashley Broad said he did not deny the importance of freedom of speech, but said people exercising the right "must not be offensive".
Rappard was fined $500.
Outside court, she was unrepentant.
The guilty finding was an example political correctness "gone mad", she said.
"Telling a woman to take a burqa off is in my mind not offensive," she said.
Asked if she would act in the same way again, she said: "Not in a supermarket, probably."