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Appealing decision

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Appealing decision

Hi, I will try to be as brief as possible. I sold a perfectly working used item back in January on eBay but after over 40 days the buyer claimed it wasn't working properly. He began a case and PayPal fell on the side of the buyer. I was told the buyer would be returning the item back to me and when I received it I should say so on the open case on my account. I have not received item back to me but had email from PayPal saying because I hadn't contacted them they've decided to refund the amount to the buyer. So the buyer gets his money back but I get no returned item. Not only is that totally unacceptable and unfair but I doubt its even legal. Can anybody help?