Hello Sairam,
I've never tried this as I said however, the following considerations should apply:
if there wasn't the MPLS L3 VPN where would you put the area range command, given that PE1 and PE2 would be backbone routers and CE1 and CE2 two ABRs CE1 ABR (1,0) and CE2 ABR (0,2) ?
area range can be used at area boundary on ABR.
I think your chances to use it with success increase if you use it on CE1 before injecting the routes on area 0 at CE1-PE1 link.
There is no sense in making component routes to travel into MP BGP and then to attempt to summarize them at remote PE PE2.
Try to use the command on CE1 and observe results on PE2 and CE2.
Edit:
if PE1-CE1 link is in area 1 the ABR is PE1 and you should use area range on PE1
Again I would expect this to be more effective then trying to apply the command on PE2 for routes advertised by CE1 ot PE1 in area 1.
Hope to help
Giuseppe