Your muffler repair shop is incorrect. Making a hole on the Catalytic Converter will render it "defective" in regards to the emissions inspection. There is never a need to drill a hole into a catalytic converter to test it. A catalytic converter can be tested by making holes only before and after the CAT (on the exhaust pipes only) and taking exhaust samples pre and post the CAT. There is no need to report the smog station. They have done nothing wrong.