Funds are never held for 35 days, the most they are held for is 21 days and that is for new sellers and the seller has send the item before funds are released. To be honest i am not sure you will get a refund as buyer protection does not cover you for "services" if it was for an item the seller was sending you should have sent it "goods". As for the dispute have you escalated to a claim? If so then just leave it and hope the item does not turn up and paypal refund you (and don't notice you paid for a service).... for items not received they normally refund if the tracking number does not show as delivered to you. They have given you the option to close if the tracking number was valid and you have got your goods or happy they are on the way,.....as you are not happy leave the dispute open. If the item arrives misdescribed in any way then contact paypal and ask them to change the dispute from non receipt to not as described but before you do then weigh the item plus packaging as if the item to be sent was heavy this would prove the item was not in the box etc.
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