Return for an item that is too small is a change of mind return (CoM) - also known as buyer’s remorse. Sellers are not obligated to accept CoM returns, and they are certainly not obligated to pay Australia Post or a courier the cost of return postage. The return postage is to be paid by the buyer - unless the seller both accept CoM and states “free return postage” for such returns.

eBay does not cover the payment in such cases. 

❝And who was going to pocket the ridiculous overcharged postage fee, eBay, or the buyer?❞ Australia Post pocket that. After all, they do charge for postage. Tracked postage costs what it costs. Was the return delivery within Australia? Another state?