I would check to ensure it was sent to the correct address by verifying the address on the pack against the eBay and PayPal address data.

If it was sent to the wrong address, (can happen if the eBay PayPal data don’t match) I would suggest the error is yours (you should have verified the data before sending it), in which case I recommend you email the buyer, advise them what has happened, request they update their eBay/PayPal accounts and once that has been done, you will resend it at your expense.  And yes, though technically it is the buyers error, that is they should have kept their account details up to date, as a seller I expect you would do simple gross error checks before the item is sent.

 If you have a data match, that is the address on the pack is the same as the eBay/PayPal data then I would advise the buyer though correctly addressed it has been returned and providing them with two options.

Firstly you will resend it to them if they pay the original postage cost, or in the alternative, if they are not prepared to pay the extra postage, you will provide a refund being the difference between the total amount paid less any PayPal and eBay fees incurred.

Now if the buyer agrees to the refund but disputes the deductions of fees and lodges a PayPal item not received claim , simply advise PayPal as to what has happened, and if they find for the buyer, e-mail me and I will be more than happy to assist you in formulating a complaint to the ombudsman.