If the buyer wasn't notified by Italia Post then they're not at fault. The problem is proving that, especially in a pandemic. I know of situations here in the UK where Royal Mail have attempted a delivery but there's been no card put through the door. The buyers in those cases only knew to go question their depot because of tracking saying it was there.
I think probably from a seller perspective refund at least the cost of the item is unavoidable. It should be either Australia or Italia post who are responsible but it seems like both are skipping out on their responsibilities here. If the tracking says it's being shipped back without being delivered, then it's not a scam. At least, why would you buy an item and then not pick it up when it arrived if you intended to scam the seller? This is a postal issue.
...As for never shipping to Italy again, I take some issue with that because these are exceptional times and the buyer is not necessarily at fault given that fact. But Italy does have some interesting postal regulations and there are sometimes delays. Especially outside of the European Union (which is an experience we're gonna have soon!).
It sounds like you took all the possible usual precautions to get the item there safely, but it also sounds like it's been a victim of COVID. It may yet still come back to you. I've had items take 6 months to get to me before now. So it might turn up. In the meantime, I think you probably have to refund the buyer. It seems like they would have picked up the item if they had had a notification.