I have an invoice of let's say $700. I have received partial payment of $300 against it. Then I create a credit memo for this payment $300, and refund it. But the amount due on invoice is still $400 instead of $700. Is this normal? If yes, what's the explanation/reason for this?

whats the point of refunding someone if you still want them to owe the money

yes, but they owe money anyway. The invoice is still open for $400.

they paid 300 of it already

If you put it that way, that makes sense.