I take it the facts in your case were as follows.

You bought something, which you say was SNAD.

You lodged a claim with PayPal and they told you to send it back, and when the seller confirms receipt, they (PayPal) will require the seller to provide a refund.

Now if I understand you correctly, if you had sent it back, the cost of returning it would have been more than you paid for it.  Therefore, you disputed PayPal decision that before you got your refund you had to send it back, and if that is the case,  you placed PayPal in a very awkward position. 

When you paid with PayPal, you agreed that should the item not be as described you would return it to the seller at you own cost before you got the refund. On the other hand, when the seller offered PayPal they created a legal obligation on PayPal to ensure that, when it comes to SNAD claims, any refund was conditional on the item being returned at the buyer expense.  Therefore, on the one hand, if PayPal made you return it, any benefit you would have obtained vide PayPal Buyer Protection policy would have been rendered a nullity.  On the other hand, if PayPal decided to let you keep it, but at the same time force the seller to give you a refund, then this would lead to a complaint by the seller that PayPal had breached their own agreement.  From this point onwards, legally, it would get very messy and costly, not the least of which being, a decision that you were allowed to keep something without paying for it.

The solution.  Get rid of the problem by making an ex-gratia payment.  That is the discretionary payment wasn’t what was being disputed.  Instead, it was the solution to the dispute.