This makes sense. Taking the gear itself is overkill.
Again, Phantasy Star Universe already tried this, and it went very poorly. In that game, you could use an item to upgrade your weapons much like enchantments in western MMOs, from +1 to +10. But if it failed, the weapon or armor itself was destroyed. The community hated it and it defeated the purpose of the upgrade system itself because people were too afraid to go beyond what was guaranteed.
Eventually, Sega took out the gear destruction from the list and just made the weapon/armor drop back to its base stats and lost an upgrade level (max would be from +10 to +9 if you failed, to +8 max if you failed again, etc.), and you lost the item you used to upgrade it. People actually used the upgrade system and weren't scared to try it because now, you still lost something but it wasn't the entire weapon or armor you spent a ton of money on.