I believe you want to use the XSLT document() function.
And you'll want to use the custom URI as a prefix, so the engine knows where to find your files:
<xsl:variable name="someDcrPath" select=" 'templatedata/category/datatype/data/meow' " />
<xsl:variable name="mydcr" select="document(concat("http://www.interwoven.com/custom/", $someDcrPath))" />
Thanks a lot, will the component be able to read the XML from LiveStie runtime, as we are providing custom URI to TeamSite?
Yes. The rendering engine uses a custom URI resolver that maps that prefix differently based on context:
* on the authoring side, it maps to the root of the current workarea
* on the runtime side, it maps to the webapp document root (LiveSiteDisplayServices/runtime/web)