This is for users who get to this page while trying to understand, how to get extensions working while using VSCODE in an isolated environment (no internet access) . VSCode by default will use the proxy settings specified in inetcpl.cpl.

MS has provided a list of URL's which need to be whitelisted on the proxy. The link is https://code.visualstudio.com/docs/setup/network. However, they have missed out on one URL which you will need to get to the extensions. https://marketplace.visualstudio.com/. Added this to the list of allowed URL's on the proxy and that did the trick.