@Kamran Ahmed On-premise AD joined devices which are Azure AD Registered, are not Hybrid Azure AD Joined. Those devices are considered as Azure AD Registered only. So the condition "Exclude Hybrid Azure AD Joined" is not applicable for those devices.
If you navigate to Azure Portal > Azure AD > Devices and search for the device, what join type do you see? Is it Hybrid Azure AD Joined or Azure AD Registered? If the join type for devices is Azure AD Registered, you would need to configure Hybrid Azure AD join as per the documents below:
- Configure hybrid Azure Active Directory join for federated environment
- Configure hybrid Azure Active Directory join for managed environment
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