Config clearly says

I set false on server-side but players and me with default config on client-side can see that mobs still have armor.

I tried to set false on client-side and yes, there is no armor or weapons now but HWYLA says that they have it even if i cant see equipment.

So looks like config change only visual appearance not the physical. It is intended or bug?

Version: TerraFirmaCraft MC1.12.2-1.5.4.154

It's your responsibility to ensure that players have the correct / same config settings. We are not going to the effort to synchronize our config in 1.12. If this isn't still an issue when both have the same config setting, well, there's your problem.

Not an issue for me now.