Help with an undelivered item & buyer wants refund.

[redbacks15]

Hi all. I recently sold a pair of shoes to a buyer in the US, and he claims he never got a notification card for delivery. The post office in the US held them for 10 days & are currently being returned to me. According to the tracking number which was provided to him (& he never checked) a notification card was left. The item has not yet arrived back to me, however the buyer is wanting a full refund. I am not going to refund the cost of postage (about $70) as I believe it to be his fault or should I? Also what steps can I take in ebay, if at all, to cancel the transaction and try & get my fees back, before I refund him. He paid via paypal & I have already left positive feedback for him. Any help appreciated.

Cheers