Hi Hemant,
Hemant:Yes , the packets (ESP in this case) can be fragmented by intermediate router/L3 device.
--> From the Intermediate routers point of view, its just an IP packet.
Also, just to confirm the fragmented packets seen on the remote side are TCP?
--> By this I meant that MSS would have no impact on ICMP or UDP packets. Thus, for instance if after ESP encapsulation, a UDP packet size exceeds the egress MTU, fragmentation would still happen whereas in case of TCP this would already be taken care of by window sizing.
Essentially, although TCP MSS 1300 is configured, other non-TCP packets could still be fragmented.
I guess the other questions are addressed to R_J 