Hi Srikanth,
What you are proposing is supported, but you should know that having a SEPM download updates directly from the Internet and distribute contents to its managed clients is going to be more efficient / less network traffic than having SEP clients download what they need from the LiveUpdate Administrator 2.x server. The LUA 2.x mirrors what is on the internet LU servers: it will download some full packages, hub definition sets etc that may not be needed by any SEPMs in your environment.
Here are some articles that may be of interest:
A Helpful LiveUpdate Administrator 2.x Analogy
http://www.symantec.com/connect/articles/helpful-liveupdate-administrator-2x-analogy
LUA Installation and configuration
http://www.symantec.com/connect/articles/installation-and-configuration-lua
Configuring Distribution Center in LUA
http://www.symantec.com/connect/articles/configuring-distribution-center-lua
Video: Install LUA (Live Update Administrator) and Configure for Symantec Endpoint Protection
https://www-secure.symantec.com/connect/videos/install-lua-live-update-administrator-and-configure-symantec-endpoint-protection
LiveUpdate Administrator Product Selection Guide:
http://www.symantec.com/connect/articles/liveupdate-administrator-product-selection-guide
LiveUpdate Administrator: How to configure a remote Distribution Center:
http://www.symantec.com/connect/articles/liveupdate-administrator-how-configure-remote-distribution-center
Video: LiveUpdate Administrator: How to configure a remote Distribution Center
https://www-secure.symantec.com/connect/videos/liveupdate-administrator-how-configure-remote-distribution-center
How Big are Current Symantec Endpoint Protection Definitions?
https://www-secure.symantec.com/connect/articles/how-big-are-current-symantec-endpoint-protection-definitions
Managing LiveUpdate Administrator 2.x Space Usage
https://www-secure.symantec.com/connect/articles/managing-liveupdate-administrator-2x-space-usage
LiveUpdate Administrator 2.x Server Connection Recommendations
https://www-secure.symantec.com/connect/articles/liveupdate-administrator-2x-server-connection-recommendations
Here is how to direct a SEPM to retrieve its content from an internal source, rather than the Internet:
How to configure LiveUpdate to use alternate sources through the Symantec Endpoint Protection Manager Console
Article URL http://www.symantec.com/docs/TECH103706
If there are any errors on the SEPM, please examine its log.liveupdate. The will reveal the cause of failure.
Hope this helps!
Mick