Your post is a bit short on details.
I assume the buyer had paid you for the item so it then belonged to them.
If they subsequently got a refund from Ebay but were told they did not need to return the item, of course they would be allowed to sell it.
"There are two ways to be fooled. One is to believe what isn't true; the other is to refuse to believe what is true.”
Søren Kierkegaard, Danish philosopher (1813 - 1855)