Borrower refinances his primary residence (existing lien satisfied) with additional funds granted to build a commercial use shop on the residential property. Would this be considered home improvement or just a refinance for HMDA reporting?

If the "commercial use shop" will only be used for commercial purposes, then it is not a home improvement loan for HMDA. Therefore, your loan would be reported as a "refinance".

If there is some residential use to the shop (parks/stores personal things in it, for instance), then I would call it a home improvement loan for HMDA.

This is from Commentary to the definition of Home Improvement:
4. Mixed-use property. A loan to improve property used for residential and commercial purposes (for example, a building containing apartment units and retail space) is a home improvement loan if the loan proceeds are used primarily to improve the residential portion of the property. If the loan proceeds are used to improve the entire property (for example, to replace the heating system), the loan is a home improvement loan if the property itself is primarily residential. An institution may use any reasonable standard to determine the primary use of the property, such as by square footage or by the income generated. An institution may select the standard to apply on a case-by-case basis. If the loan is unsecured, to report the loan as a home improvement loan the institution must also have classified it as such.