I am building an application tshirtshop I have following configuration in

/etc/apache2/sites-enabled/tshirtshop

<VirtualHost *:80>
        ServerAdmin webmaster@localhost
        DocumentRoot /var/www/tshirtshop
        <Directory /var/www/tshirtshop>
                Options Indexes FollowSymLinks
                AllowOverride All
                Order allow,deny
                allow from all
        </Directory>
        ErrorLog ${APACHE_LOG_DIR}/error.log
        # Possible values include: debug, info, notice, warn, error, crit,
        # alert, emerg.
        LogLevel warn
        CustomLog ${APACHE_LOG_DIR}/access.log combined
</VirtualHost>

and following in .htaccess file in location

/var/www/tshirtshop/.htaccess

<IfModule mod_rewrite.c>
# Enable mod_rewrite
RewriteEngine On
# Specify the folder in which the application resides.
# Use / if the application is in the root.
RewriteBase /tshirtshop
#RewriteBase /
# Rewrite to correct domain to avoid canonicalization problems
# RewriteCond %{HTTP_HOST} !^www\.example\.com
# RewriteRule ^(.*)$ http://www.example.com/$1 [R=301,L]
# Rewrite URLs ending in /index.php or /index.html to /
RewriteCond %{THE_REQUEST} ^GET\ .*/index\.(php|html?)\ HTTP
RewriteRule ^(.*)index\.(php|html?)$ $1 [R=301,L]
# Rewrite category pages
RewriteRule ^.*-d([0-9]+)/.*-c([0-9]+)/page-([0-9]+)/?$ index.php?DepartmentId=$1&CategoryId=$2&Page=$3 [L]
RewriteRule ^.*-d([0-9]+)/.*-c([0-9]+)/?$ index.php?DepartmentId=$1&CategoryId=$2 [L]
# Rewrite department pages
RewriteRule ^.*-d([0-9]+)/page-([0-9]+)/?$ index.php?DepartmentId=$1&Page=$2 [L]
RewriteRule ^.*-d([0-9]+)/?$ index.php?DepartmentId=$1 [L]
# Rewrite subpages of the home page
RewriteRule ^page-([0-9]+)/?$ index.php?Page=$1 [L]
# Rewrite product details pages
RewriteRule ^.*-p([0-9]+)/?$ index.php?ProductId=$1 [L]
</IfModule>

the site is working on localhost and is working as if there is no .htaccess rule specified i.e. if I were to view a page as

http://localhost/tshirtshop/nature-d2

then I get a 404 Error but if I view the same page as

http://localhost/tshirtshop/index.php?DepartmentId=2

then I can view it.

What is the mistake if any one can point out in above configuration, or else I need to check any thing else?

sudo apache2ctl -M
Loaded Modules:
 core_module (static)
 log_config_module (static)
 logio_module (static)
 mpm_prefork_module (static)
 http_module (static)
 so_module (static)
 alias_module (shared)
 auth_basic_module (shared)
 authn_file_module (shared)
 authz_default_module (shared)
 authz_groupfile_module (shared)
 authz_host_module (shared)
 authz_user_module (shared)
 autoindex_module (shared)
 cgi_module (shared)
 deflate_module (shared)
 dir_module (shared)
 env_module (shared)
 mime_module (shared)
 negotiation_module (shared)
 php5_module (shared)
 reqtimeout_module (shared)
 rewrite_module (shared)
 setenvif_module (shared)
 status_module (shared)
Syntax OK

I am using Apache2 on Ubuntu 12.04