I have issued a refund from my Paypal account for a particular customer and the money was pulled through ACH. How do I categorize this under bank transaction?

Is your PayPal account connected to your business bank account?  If so, then create a revenue account called Sales Return.  Book it there.  It would be a credit to your cash account (reducing this asset because money came out) and a debit to Sales Return (which is a Contra Revenue account because it's reducing Revenue).