drled:
Forgot to mention this earlier.
I have a TC35 module which already has a level converter on it( MAX232E ).This is the exact module that i bought:
http://www.ebay.com/itm/GSM-SIEMENS-TC35-SMS-Wireless-Module-UART-232-TC35I-MC35I-ge-/281035188132?pt=LH_DefaultDomain_0&hash=item416f00a7a4
Good. Then how is it connected? You only said that Txd0 of the module is connected with pin 2 on the Arduino, no mention of where the tx of the Arduino (pin 3 in your code) is going. Also you talk of Txd0 and that gives me the impression you are bypassing the level converter and connect directly to the GSM module, but without manuals or schematics it's hard to tell.