Opened a cancel order per buyers request, he opened a case. HELP?

[thatoneseller23]

So a seller ordered a small box from me and then said that it wasn't what he thought so he wanted to cancel the order. He already paid. So I opened the cancel case. He told me that he couldn't accept to cancel the order until I sent a refund through paypal, and I told him I thought he had to chose to cancel it before a refund would be automaticlly sent through eBay/Paypal. He stopped responding. Now he's opened up a case saying he never got the item and that I am refusing to refund him. So I tried to close the case by clicking the "refund the buyer" button, but I keep getting this message:

"There was a problem sending your refund to the buyer.

To try again or to see what's wrong, go to paypal"

What is going on, how do I fix it, and who is right? Thank you so much.

[green-night]

Sounds like a glitch going on IMO. 

When a seller cancels a paid order, the refund is done automatically .   I have had a few instances though when the refund did not get processed and received a similar message to what you received through the INR dispute. 

If you look at Paypal, is the money refunded or no?  My guess is not. 

If not, you may need to refund through Paypal, although I would probably put in a call to ebay first, so they are aware of the situation and can issue you a FVF credit if you do need to refund through PP and potentially remove neg FB if you were to receive it.