That's not right at all. How long ago did you actually buy it? If it has been less than 45 days since the date of purchase, you must immediately lodge a dispute with Paypal and escalate it to a claim straight away as you should have been refunded your money because the item was clearly faulty, and the seller has acknowledged as much by requesting a fee to repair it.
You may have a problem if you've already returned it to the seller, although the fact that he has acknowledged receipt should be sufficient evidence for Paypal that it has been returned to the correct location. You need to demand a full refund (or a replacement if you wish, although I'd want nothing further to do with an obvious crook such as this fellow).
If it has been more than 45 days since you purchased it, you are essentially at the seller's mercy and will have to pay to get it back, although you still have the ability to leave negative feedback as a warning to other prospective buyers.
