COD was not your best choice,   it would have been better to tell them to return it, and although you admit no fault, you are happy to refund the return postage as well,  alternatively offer to send them a self addressed satchel to return it,  

Then confirm you will issue the refund when item is received, in the same condition as sent.

Alternatively, you could let them open a dispute,

But I can add whether you refund or not, you may still cop a neg,  how you respond to it will depend on how it will effect you, so if it happens, come back and we can advise.