If the item is returned then you should refund the cost of the item, otherwise you'd have the money and the item and that wouldn't be right. It's up to you whether you refund the postage costs. As you have a no refund policy, you aren't obliged to.

You can reply to him using google translate to let him know how you're going to proceed. Write what you want to say then translate it. Before copying it, translate the translation back to English first. Sometimes what you wanted to write and what they end up seeing is 2 different things. You don't want to reply in good faith only for him to get a message that sounds like you are being rude. If the back translation sounds whacky, it's usually just a matter of changing a word or 2. For example, post office might translate as being something insulting, but postal office sounds like it should.