Resolution:
When APIX-G calls the Target Service, the timeout used is less than the one set for the Target Operation in the configuration. The following is a sample log entry:
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2015 Mar 04 13:32:19:336 GMT -8 asg-caching-core Info [HTTP-NIO-Worker-1-1] - [user] [core-class] INFO: ServiceCall 218 read timeout: 270000 isBinary=false host=vviswana-t520.na.tibco.com port=409 URI=/vvk2upper.serviceagent/portType2upperEndpoint type=HTTP
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Internally ASG uses Service.Timeout * 0.9
Example: 300000msec * 0.9 = 270000msc

This is to ensure that the service call does not time out before the HTTP read times out.