The issue was a missing patch. We implemented the patch for AEM 6.5 and updated it to 6.5.3 with the help from Adobe support and it resolved the issue. Thanks all for viewing and responding to the question. Note - 6.5.3 is not directly available in the download site. Raise a SR with support and they will help you.

The issue was with the proxy creation. The adobe documentation are not accurate. When you create the proxies using WS Import the packages got created correctly and resolved the issue.Thanks all for checking.