[Still devil's advocate] Yes, but what is the context? Is the context "equipment on the load side" or "systems with a load side connection"? As the latter may be considered to be all systems. [Unless you have a PV inverter with built-in AC breaker that is rated for use as service equipment, then I think you could argue nothing in that system is subject to 705.12.]The section title and the preceding sentence both reference load side. You don't get to take that sentence out of context.
So if you take the context to be "systems with a load side connection" then you could reasonably interpret the term "distribution equipment or feeders" to include service equipment.
I.e. the AHJ's position isn't based on making something up or directly misreading something, just on a disagreement on context. If the second sentence instead said "Where load-side distribution equipment or feeders . . ." then you would be clearly right. But it doesn't say that, so it is open to the interpretation in the OP.