We are using Amazon FPS payment gateway for purchasing goods through IOS app, now we need to upload it to apple review team and as this is production app, it is pointed to production/live Amazon FPS account so here I want to understand if apple really want to buy anything then they need some credentials by which they can test the purchases.
So first thing really apple tests the whole purchase flow? If yes then what credentials should I provide? or should I update the server for sandbox mode till apple approves the app?
You should submit your app and select "Hold for developer release".
Then you can provide Apple with credentials on your sandbox server to test with.
When Apple approved your app, you can switch your server to production, then release your app.
But, I have a feeling they are not going to approve your app because it provides a mechanism for folks to buy things that does not give Apple a cut of the action. This is not unlike the issue with magazines and newspapers (or anyone) selling subscriptions via non-Apple Store mechanisms: Apple doesn't like when they get cut out.
Apple would prefer you use In-App Purchase, so they get a cut.
Good luck!
EDIT:
Indeed, there is a distinction to be made for real versus virtual goods, which I guess I missed when I read your post. Sorry.
To your actual question: Will Apple test it? No one knows. :-) You should assume they will, and provide some test credentials for them to use.
I can tell you from experience with a (free) commercial app I built, before we launched the service, we had the app submitted, and Apple did register on our backend and test out the app.