Sorry, but you are incorrect... one cannot list a flare gun on eBay. It is definitely a prohibited item. My own auction for a flare gun was removed, and I was warned by eBay to not try to relist, or that I would be banned. I contacted CS to tell them that it was not a firearm, but the rep said that eBay considers flare guns to be prohibited items. Don't believe me? Then try to list a flare gun and see. I've watched many flare gun auctions get removed from eBay for violating the prohibited items list. (Btw, eBay = Paypal)
I'm glad you got your money back, but you should read the full Paypal terms of service. In particular:
10.8 Acceptable Use Policy Violation - User Fines. If you violate the Acceptable Use Policy then we may hold your funds up to 180 Days, fine you up to $2,500.00 USD for each such violation and/or take legal action against you to recover additional losses we incur. You acknowledge and agree that a fine up to $2,500.00 USD is presently a reasonable minimum estimate of PayPal's damages, considering all currently existing circumstances, including the relationship of the sum to the range of harm to PayPal that reasonably could be anticipated and the anticipation that proof of actual damages may be impractical or extremely difficult. PayPal may deduct such fines directly from any existing Balance in the offending Account, or any other PayPal Account you control.
Btw, that's not to say that some flare guns do sneak through the system, especially the ones with creative writing calling them a "prop", "replica", etc.
***EDIT: wrote "eBay" instead of "Paypal"
