Did Death know Blair was a cat and not a witch?
From what I remember, the 99 souls were not actually confiscated. Because the 100th soul he ate was a cat's, he had to repeat the whole process of hunting 99 red souls again.

Think of this as a "soul-meter", the goal is to fill it up to 100 (99 being red souls and a soul of a witch). Initially, he had 99 souls already eaten, and he had one more soul to go.
He then mistakenly ate a cat soul, thinking it was a witch. This caused the gauge to drop back to zero.