Thats what I tried first because it was already levelled up, but no the guy just ignores it and no chat option to combine. Banked it and got a blank one and it worked.....That was on day 1 and may have been changed or could be in the future.
No, but you can use an augmentation dissolver to unaugment your augmented item. It is very easy to make with only level 16 Invention and very cheap to buy for like 10k-ish gp.