Here is the case book scenario:
7.3.1 SITUATION B
As F1 starts a pitch, B1 requests time by either stepping out of the box or by putting a hand up. The pitcher (a) hesitates or stops the pitch, (b) legally delivers the pitch, or (c) legally delivers the pitch and B1 steps back in the batter's box and hits the ball.
In (a), the umpire shall declare a "no pitch." In (b), the umpire shall call a strike and the ball remains live. In (c), the umpire calls “time” and a dead-ball strike on the batter. (2-56-1; 5-1-1j; 7-2-1h; 7-3-1 Effect 2)
2023 NFHS Softball Case Book - NFHS © 2023
I do not find this as ambiguous now. There are two possible actions by the batter, stepping out or holding up a hand.
Scenario (a) covers both actions. If the batter does either and the pitcher stops pitching, it's no pitch. This is logical. The batter's act caused the pitcher to stop, but she wasn't intentionally causing an illegal pitch, so just do it over.
Scenario (b) covers both, too. The reasoning is because, I guess, there is no strike zone if a batter is not in the box or in a normal stance if she's standing there with a hand up. So because the batter "abandoned" her strike zone, everything is a strike.
Scenario (c) specifically covers stepping out and back in before hitting the ball. Holding up the hand only is not mentioned here, so it's not part of the rule.
The rule itself should be written a little more clearly, or the rationale behind the rules could be a little more obvious, but I think the case book does clarify it sufficiently. Tell your hitters to not step out of the box until time has actually been granted.