Yes, it does, if you read and understand ATF's reasoning.
They deny your application because in their view you ALREADY possessed an illegal silencer kit,
and it's been a generations-long policy of the feds that you can't change contraband into a legal product.
Once it's illegal, it's contraband, and you can't fix the problem with new registration and taxation.
Now, ATF is NOT actually going out and looking to prosecute people for buying silencer kits-- yet.
But their position is that they are illegal, to have those parts, even unfinished, not assembled into a working can, since both the maker of the parts and you, when you bought them, intended them to be silencer parts.
WildMan - I'd side with the stance of an attorney vs. your conjecture. Don't want to give OP bad advice.