Finally got it working!! It seems that on old Market versions this bug did not exist. So I did the following:
1. Go to Settings\Applications\Manage applications\All\
2. Look for "Market" or "Google Play Store"
3. Click on "Uninstall Updates"
4. Now go to the Market (should be the old green/white version) and install your desired app. It should no longer say "Purchased" and Presto!!
But you have to be fast before the market updates itself to "Google Play Store" or you can freeze the "Market Updater" app using Titanium Backup so you can do your thing without worring of it updating to the new version.
Find an old Market apk and replace the current one. Not sure which version it works because once I purchased my app it immediately updated the market and didn't give me chance to see the version
.Should be the green/white app we had before.
Hope it works for you guys too!