Never mind, I know why its not working. I needed to do vlan based interface encapsulation. See the answer below.
When you configure integrated routing and bridging, you might also need to configure the Multiple Spanning Tree Protocol (MSTP). When you configure MSTP on a provider edge (PE) router running VPLS, you must also configure ethernet-vpls encapsulation on the customer-facing interfaces.
VLAN-based VPLS interface encapsulations are not supported with MSTP.