I would only issue a refund on the actual item price. Seriously the buyer lied to you. I would rather be told that the item didn't suit, or they didn't like it on, rather than be told a straight out lie. If they had been honest I would have said just keep it or donate it to a charity. I  wouldn't be refunding postage. If i had purchased it and didn't like it on I wouldn't even mention it. I would just leave feedback and move on. You could always offer $2.50 refund, it does cost to actually list the item and you don't get that money refunded. That's what I would do, but having said that, im not in the best of moods right now lol.