Fixed it by changing by following in the above code. Main change was in setting modified data in httpChannel.uploadStream.
Hope this helps someone!
var httpChannel = subject.QueryInterface(Components.interfaces.nsIHttpChannel);
if(httpChannel.requestMethod == "POST")
{
LOG("Inside POST")
var uploadChannel = httpChannel.QueryInterface(Components.interfaces.nsIUploadChannel);
var newStringInputStream = Components.classes['@mozilla.org/io/string-input-stream;1'].createInstance(Components.interfaces.nsIStringInputStream);
newStringInputStream.setData(newData,newData.length);
var uploadChannelStream = uploadChannel.uploadStream;
uploadChannelStream = uploadChannelStream.QueryInterface(Components.interfaces.nsISeekableStream).seek(Components.interfaces.nsISeekableStream.NS_SEEK_SET, 0);
httpChannel.uploadStream.QueryInterface(Components.interfaces.nsIMIMEInputStream);
httpChannel.uploadStream.setData(newStringInputStream);
LOG("Done POST")
}