This section of Xur's inventory is for upgrading exotics with pre-DLC stats(300 damage 30light) to post-DLC status(331 damage 36 light). It also resets a weapons upgrade progress. Since your chest plate already had post-DLC stats you did not need to upgrade it. See the link below for more details. [url=http://www.bungie.net/en/Help/Article/12457]Exotic Upgrade FAQ[/url]

That is the way that worked for The Dark Below. You take your pre-DLC armor or weapon to Xur. You exchange it for that cost. He gives you a new one with the higher light level or damage output (depending on if it is an armor piece or weapon). The "upgrade through Xur" feature is not intended to allow you to eliminate the grind of upgrading an item, it is to allow you to turn your old pre-DLC exotic into a new Dark Below exotic with the higher light/damage level. You should have read the online resources before doing the exchange.

Upgrades are only for guns with attack power of 300. It makes them into a 331. Its because of the pre dark below update guns were 300 damage. If you had a 331 and upgraded it, you just upgraded the same weapon into nothing. I hope this explains it.

Hey, here's a forum post explaining exotic upgrades. https://www.bungie.net/sr/Forum/Post/106799435/0/0/1 Hope this helps!