I just went through this same thing with a small item shipped in the US. The buyer let it sit at the Post Office for 3 weeks (it required a signature), and then it was sent back to me. The only difference is, the buyer never once requested a refund, filed a claim, or even responded to my emails, including one where I told her I have both her item and her money and that she needs to let me know if she wants a refund or a reshipment. In the end, I sent it again with just delivery comfirmation, and it shows delivered today. I really went out of my way to help a buyer who would not in any way help herself.
In your case, IF you receive the bag back, you should probably just refund minus all fees and shipping charges. You know she doesn't want the bag and reshipping it would lead to another round of her not signing for it.