Are proxy servers illegal. explain the consequences

It depends on what you're using the proxy for,

Yes, currently it is legal to Internet Proxies that are physically located in the United States, even if you are outside. Nothing (yet) is preventing you from doing so.
However, do note the following points to consider when using an Internet Proxy:

It could very well be illegal in your country to use a proxy all togetherIt could also be illegal in your country to use a proxy to by-pass a website, etc. that has been bannedCommercial and even free Internet Proxies get picked up very fast by companies whose job is to provide subscription on their commercial proxies servers to block such sites (example Bluecoat