I believe it is because of DRM mess, i.e. the Widevine DRM interfaces are not implemented properly or something about it is different, etc.
I modified the Netflix APK to enable verbose logging and I looked through the code, and it seems to check specifically for Nexus 7 2013 on Android 4.3 only to enable Widevine DRM mode, otherwise the Widevine mode is disabled (which, I guess, disables HD playback completely). On Android 4.4 there is no separate check for device name, so maybe HD playback could work with Netflix for any 4.4 tablet that implements the Android Widevine DRM interface properly (or it could be it is limited in other places as well)...
And yes, the playback doesn't go above 480p according to the logs on my Tablet Z.
You can't see any quality difference in the pictures because the photo resolution is way too low for that. 480p video has 480 pixels in the vertical direction, and your photos doesn't even have that amount of vertical pixels for each display.
To definitely see what resolution your Netflix is maxing out at, search for "example short" in Netflix and play the "Example Short 23.976" video (in U.S. Netflix). The video shows the current playback bitrate and size in the upper-left corner. For me it maxes out at "1750 kbps, 720x480", which is consistent with what I saw in the APK, and which is not HD.