I'm new but here is my opinion anyway.
1) Seller claims he didn't receive the item in the same condition item was shipped
2) Buyer either proves the item received by seller is the same he previously received; or he request shipping insurance to refund Seller
3) If none of (2) happen then Seller should call it a day and don't send anything back to Buyer
Anything else the Seller is just being nice. Usually only bigger companies can be that "nice" and afford that type of loss.