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Are you asking if you are liable?
It depends upon whether or not this watch is real.
If it is real then there is no misrepresentation.However, I'm not clear what you agreed about the inspection. If it was agreed that he could return it consequences free then you would have to offer a refund.
If it is fake then this is a misrepresentation pure and simple and you would have to offer a full refund although you are entitled to the watch back.
Overall, you might find it easier just to give him his money back and recover the watch for resale.
Can I clarify anything for you?