A seller cannot leave a buyer a negative feedback, if they do, you can contact eBay Customer Services and they will remove the feedback, and place a policy violation strike on the seller's account.
Very bizarre that the item , as return postage was paid for by the seller, should be refused and returned to you.
I would hold fire, do nothing, and see what the seller says if anything, but if they want their item back they will have to send you the money for that return tracked postage.
This cannot be done now throgh eBay as the case closed with the refund, but they can send it via a cheque, bank transfer or a PayPal Friends and Family payment if they have a PayPal account, whichever method suits you both best.