If buyers are so much interested to bid on auctions and not pay for it, then there should be a separate page or practice site where buyers can visit and have fun. It can be like those virtual stock market game site, where there is no real money involved. And the profit or loss does not affect your real life.
if u are selling eBay.in that much risk has to be taken by you . if u are not ready for that then u cant sell the items on ebay.in . thats the fact . Wat i suggest you is not to see the cost u have encored on the listing and it didn't sell or sold to a unpaid buyer. all u should see in the last of the month that Wat sales u get due to the visibility from that unpaid items.surely u will be satisfied.
All shall go "Buy it Now" option and Return policy shall be changed. There should not be money back on return but replacement of product or No return policy.
Just tell him nicely and make him understand that in online business things don't work that way, refund for cosmetic reasons is not allowed and not possible, he can contact ebay CC if he wishes. If he gives negative feedback you can get it removed by CC, don't worry.
Please post here the result of your talk.
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Regards.
Raj Electroniks.