Scenario of Rotating Equipment

How to configure the scenario of rotating equipment , i.e a Sub assembly which can be used on line 1, line 2 and can also be kept in store . History of the equipment should move along with it to each line.

Create the item as an equipment (IE01) this will fit into your scenario. Then you can install and dismantle the equipment as it moves around functional locations.

My Scenario is to move as well as store the equipment in stores as an material but with its history.
A Equipment X is used in line 1, and removed and provided in line 2 and after some repairs kept in stores .from where it can be issued against W/O for line 3/1/2
I feel equipment serial number management can help , but don't know how to configure and use it .

Yes, you are right the serialisation process will help track where your equipment is and has been. You will need assistance for the MM people to have the serialisation activated in the material master (a special material type may have to be created).
It is hard to explain how it works but I will give you an indication of the process I used at a previous business.

They had Material types "ROTO" & REPA" which could be both serialised for Rotable equipment. The serial number used in the material master was the equipment number of the Rotable equipment.

1. Work Order created to replace equipment X on line 1.
2. Equipment Y book out of the store which changed the status to "AVLB"(the serial number must be added before the equipment can be issued).
3. Equipment X physically replaced with equipment Y.
4. Equipment X position changed to "DISM" to show it is not currently in that position.
5. Equipment Y is installed to the Functional Location and the position is "INST" (including the correct date of installation).
6. Equipment X is repaired using the same Work Order (total costing reasons).
7. Equipment X is repaired and is ready to be booked back into the store.
8. The Work Order is Technically completed. (this must be done before dismantling the equipment otherwise the link to the Functional location costing is lost A serialised equipment carries no costing detail in the master data because it gets it from the Functional Location it is installed on). Once TECOed the data is locked.
9. Equipment X is dismantled from the Functional Location.
10. Equipment X is booked into the store which changes the status to "ESTO"
11. M3 Activity report detailing the repairs is created to equipment X.

I know it looks messy but the main thing is the planners have to manage it otherwise equipment will get lost or end up in the wrong location. Start small and expand don't implement until you understand how it works.