Has the buyer opened a case for item damaged in transit? Under Simple delivery rules, eBay take over that refund, and you get to keep the payout.
It has been returned to you, does the buyer know and accept the extent of the damage? Are they happy to pay for it again in this damaged state?
Then, you can relist it for them to buy again. It will be a new listing with a new postage label for you to receive and use.
I'm presuming you've taken all necessary photos for the claim for the damage sent to the shipping service?
@caya665577