Yes, you can break the damage cap with that effect and it works as expected. Earth & White Flash can do 11,499,999, 115 Houryuu/Tenryuu/Uryuu can do 12,499,999, Datenryuu & SIN can do 11,249,999, Falling Star can do 11,199,999, & Supreme can do 10,999,999.
The bonus damage can trigger even if the target is immune to the passive's element, as long as the original hit did some damage in the first place. Seems like the bonus damage is based on both the amount of matching element you have and the original damage, so if you already cap with Gargoyle Flame Lance when using an Earth then it should always do 11,499,499 when the passive procs even if you have like 0 Fire. On the other hand, to turn 300k into 1.5mil with the Datenryuu passive you usually need 200-250 Dark. (Seems like the 1 damage vs 2 damage on the passive makes a pretty big difference for these cases.)
The passive can also proc on each individual hit of skills that hit multiple times, so using Water Dragon Spear or Lance of Flames VI-VII with a Datenryuu Foe Hammer Horn can add up to 3mil average damage to those skills via the passive. A Datenryuu is often vastly superior to a Rime for spamming WDS or Aqua Needle.