Well I think it's well within your rights to ask the buyer to pay shipping to ship the item back. This way you won't be forced into a refund and the seller might actually accept the item once it arrives on their door step. My first response would be something like:

"Hi there, I'm sorry about the miscommunication! Since this order is made on demand once you placed it, we've already shipped the item to you. In order to get a refund, you'll have to wait until it gets delivered and then ship it back to us for a full refund. Please let me know if you have any questions."

Hopefully they'll accept the item and think shipping back is too much of a hassle or just love the shirt once it shows up. However if they want a full refund and do ship the item to you, at least you are not empty handed for the money you lost. Sorry I don't have a better answer but sometimes this is the cost of doing business (making small mistakes in our policies, etc)