Hi Madhura,
I tried to load the file given by you in XSLT but it is giving error for line containing <!ENTITY..... The error is unexpected symbol !. I did not find another way to parform this coversion in SAP.
Wait a minute... your "XSD" source file contains an <!ENTITY> tag ? 
Could you please let us know your "XSD" file (e.g. by attaching it). The error form the xsd2dtd tool seems to demonstrate that you actually already have a DTD, not an XML schema, and don't know the difference yourself.
Regards,
Rüdiger