If I take a relic that I have on Level 7 and use the very same relic that I have at level 1 to level it up, it takes the original to level 11, but if I take the level 1 and sacrifice the level 7, the it takes it to level 8, is this intended? Looks weird I know, but what happens if someone levels up two versions of a relic and the wants to fuse them into a single one?

It is not a bug
silver lv 1 give 1,206 exp
if same relic it gives double 2412
lv 7 gives 1440 -- though it needs 2,360 to reach lv 7 --

check wiki numbers
http://monster-wiki.com/monster-relics/

So we gotta be careful to rank the ones we need and if we rank duplicates know that at the moment of merging them we won't get the same as if we did a single one.