Do you still want the item? Then accept it.
Since ethically you can't have both the money and the item, you can go to Paypal and find the original transaction. This gives you the seller's email address.
Use that to repay the refund through PP's Send Money service.
Remember to include the eBay and PP transaction numbers for his bookkeeping.
Do you not want the item? Then refuse it. Or just don't pick it up.
Remember that when the refused parcel is returned to the seller, he may have to pay the return shipping cost.
You can add a Response to any feedback you left for the seller, updating the situation.
You can send a message to the seller, explaining that you are returning the late parcel.