I assume you are being represented by an attorney on this purchase. If that is the case you should be asking him or her this question. If you are not represented you should hire an attorney immediately. If the seller is refusing to return the down payment and you are not in breach of the contract you will have to bring an action in court. Once you have a court order awarding the escrow to you the escrow agent will be required to return the escrow to you.
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I hope that you are repented by a lawyer. If so, then ask him or her. Maybe you should ask an adjustment of price and proceed with the sale. If that's not an option, then does your contract require you to notify his lawyer in writing canceling the contract? You also may able to sue. Consult your lawyer and if you don't have one, then hire one right away.
The answer depends on what the contract provided. Typically, a home inspection clause does not give you the right to cancel simply because of the results of the home inspection report. Rather, you first must request that the seller make the repairs. It is only after the seller refuses to make repairs that you would have the right to cancel.
If this answer was helpful, please mark it as helpful or as a best answer. This answer is for general education purposes only. It neither creates an attorney-client relationship nor provides legal guidance or advice. The answer is based on the limited information provided and the answer might be different had additional information been provided. You should consult an attorney.