We have to be fair to both parties. If the scratch is a minor one which can be touched up for less than RM100 is it fair for the owner to demand RM700 to change and respray the whole panel?

Since the one who made the mistake is willing to compensate the owner should be reasonable too. If the owner is too unreasonable TS can refuse to pay anything and refuse to make a police report. Good luck to the owner to claim TS's insurance.

Btw, if you send to SC to do touchup, the SC will most likely send outside to repair also. Just expect to pay more for the same quality that you can get outside.