Hi Ravi,
Here's a high-level on how we go about applying a Service Pack:
1) Retrieve latest Service Pack jar files from Ariba Connect
2) Install Service Pack on Demo environment (ensure the process works on a non-customized instance)
3) Conduct Defect/New Feature analysis (You and your business client need to determine if each manual fix is relevant to the functionality you have enabled as sometimes there's configuration options. There are new features you'll need to assess too.)
4) Conduct Core Code analysis (only needed if you have core code hacks.)
5) Apply manual steps/configuration to Demo
6) Install Service Pack on Dev Lab environment
7) Apply manual steps/configuration to Dev Lab
8) Test changes
9) Regression Testing
For a detailed description of how to apply service packs, I recently posted a screenshot style document on how to technically apply Service Packs on the Connect Discussion Forums. Here's the link: https://connect.ariba.com/AC/message/display/1,5367,26_41-26259-6565-1,00.html
Scott