Act according to your return settings on your listing. If you state you accept returns, just accept it. You can choose not to refund original shipping (if you charged for it).
If you listed returns accepted, you will be refunding the buyer to some degree. eBay will automatically do it.
If you don't accept returns it is up to you to accept or deny it. I'm pretty sure that they cannot then go and say INAD and try to return it for that if you deny the original request for changing their mind.
Whatever you do, don't ignore it because you will pay a full refund and likely never see your item again.
Do not issue any refund until the item has been returned to you. Sometimes, especially if the buyer pays return shipping, they will just never return it and then the case will be closed in your favor.
