Hi,
Resolved the problem, the way to achieve this is as mentioned below.
1) Create the service master
2) create Model
3) assign the services to the model
4) create the service contract (ME31K) by using the bapi BAPI_CONTRACT_CREATE with item category D and account assignment category U and attach the model to the line item by passing the packno field of ITEM table which is present the the "TABLES" tab of the bapi. since the model has the services the same would be attached to the line item of the contract. Hope this solves the problem of many others.
Thanks,
Shitanshu Sahai