First, if you take Paypal you make refunds.
So that's a pointless bit of policy. Since it also turns off many honest buyers, I suggest you just lose it.
Tell your customer to return the item for a full refund.
If he asks for the return postage tell him to return the item for a full refund.
If he opens a Dispute with eBay or Paypal, say in the dispute that the customer should return the item for a full refund.
Not every transaction will go perfectly. Maybe the customer is lying, maybe he is incompetent, maybe it got damaged in shipping, maybe you were wrong about the workabilty.
It doesn't matter.
Tell the customer to return the item for a full refund.
Well, maybe I'm not a fancy gentleman like you, with your... very fine hat. But I do business. We're here for business.-- Captain Malcolm Reynolds