In my experience, Ele/Ela/Voce "nao existe" is used by Brazilians to mean something like "You're too kind" or "You're too good". I'm guessing it's used this way far more often than to literally indicate that someone doesn't exist.
Languages are amazing. In Sichuan, China (roughly opposite of Brazil), the dialect there also uses buzunzai "not exist" to express "you are kind" or "you are welcome". I am amazed at this fact when I read your comment.
Don't forget that everyting in Portuguese is either male or female, even if it would be -it- in English. So Ele não existe need not be about a person, but any concept or thing that happens to be male in Portuguese.