They can't keep your phone, but they can demand that you meet their terms (coming down in person) if you want to get it back. They haven't actually refused yet, just been deliberately difficult about it -- and they may be trying to make it as hard as possible to discourage you from allowing him to have a phone in the first place.
Suggestion: a while back some jerk invented what he called "teenager repellant," a sound-generator that adults couldn't hear but children could. It was intended to be played over a loudspeaker outside convenience stores so teenagers wouldn't loiter there.
That much is fact. The following is rumor. Some enterprising kids are said to have made a cell phone ringtone out of it, so they have a ringer that adults (teachers) can't hear and thus their cell phones can't be confiscated.
Just a thought ... and one you may not want to mention unless you choose to implement it.
picword: Utena - Determined