Under the DOT regs, the shop is supposed to obliterate the tank markings with a chisel or maybe stamp the tank condemned. That's all. They are NOT allowed to destroy in any way, by holing, chiseling the threads, far less confiscate it, because the tank remains your property - actually, as an individual you are still allowed to privately fill and use it as long as it isn't entered into commerce, inadvisable as it might be.
The exception is if you've signed a waiver before hand in which you give them permission to deactivate or keep the tank.
The other reason for not destroying tanks on the basis of a visual (as opposed to a hydro) is that the visual is so subjective that the customer ought to have the option of a second opinion - there's a lot of gray area.
Sure sounds to me like they screwed up and are trying to cover up. BTW, if you don't want to get into lawyers, you might just document the incident and file a complaint with the DOT enforcement people. Don't have the address handy but can dig it up when I'm back from DEMA. Might make him regret his high handed ways.
Oh, and post the shop's name.
