A little more investigating shows the data is being transmitted but not being updated. The code
advPayload[MANUFACTURER_SPECIFIC_DYNAMIC_DATA_INDEX] = dynamicPayload++;
on line 232 of main.c is not updating the discovery data.
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A followup with the resolution from Cypress:
In the project replace the line 221
if(CyBle_GetBleSsState() == CYBLE_BLESS_STATE_ACTIVE)
in DynamicADVPayloadUpdate() function, main.c with the line
if(CyBle_GetBleSsState() == CYBLE_BLESS_STATE_EVENT_CLOSE)
It will update the advertising packets /scan response in BLE v2.1
The internal code of API
CyBle_GapUpdateAdvData() is changed in BLE 2.1 so that's why it is not working with the same project.