Yes you will still be responsible for the fee's,  Ebay have done their job, and facilitated a sale, why shouldnt they get paid.   It's not their fault the item may be damaged,  thats your part of the deal to make sure it's not.  Having said that it may be a scam, but still not Ebay's fault so they should be paid.

Follow what springy says,  but maybe also ask for a picture of the damaged watch,  if it really isnt broken, it may scare them off, but I dont like your chances.